Year: 2017

Jordan Islamic Bank: Partnerships are the key to Islamic finance

Posted on by Max Tomlin

Most banks today offer both financial and social services. They boast a newfound concentration on raising awareness of important social issues, thereby improving the lives of people across the world. These banks are also focused on keeping the trust of their clients by committing to the introduction of innovative new products and services. By offering more than simple financial products, banks can be agents for social good.

Regional leader
Since its first branch opened in 1979, Jordan Islamic Bank (JIB) has offered a variety of Islamic banking products and Sharia-compliant services to its customers. The pioneering bank has since expanded to 97 offices and 182 ATMs in order to reach all of its clients, wherever they may be.

Speaking to World Finance, CEO and General Manager of JIB, Musa Shihadeh, said the organisation is making outstanding progress to ensure its future sustainability, while also taking on the role as a leader in the region.

One example of the bank’s leadership across the Middle East and Northern Africa (MENA) region stems from its uptake of the ISO 26000 guidelines. Shihadeh told World Finance: “The project was intended to promote a common understanding of ISO 26000 guidance on social responsibility in the MENA region. Through this, we hope to achieve positive results in regards to sustainable environmental, social and economic development.”

In 2014, JIB also initiated a five-year strategy to ensure its operations became more environmentally friendly and sustainable. With the completion of this plan now approaching, the bank has already achieved a number of its ambitious goals.

One such target was making sure half of the bank’s energy needs were supplied by renewable sources. This started in 2015 when JIB made the move to power its head office and several branches with solar power, followed by another 18 branches in 2016. “JIB further developed the plan by establishing two power stations, one in the north of Jordan and the second in the east of the capital”, Shihadeh said, adding that completion of the stations is expected in 2017.

Despite the massive scope of these plans, this is only a small part of JIB’s sustainability initiative. The bank also sponsors local environmental efforts, including the country’s fourth National Student Environmental Conference and the Jordan Environment Society’s recycling programme. It is also in regular contact with customers, offering suggestions on how they can save energy. Shihadeh said the bank also has a number of environmentally friendly financial products that are now available to customers: “JIB offers a special financing programme to encourage citizens to use hybrid cars in order to protect the environment, and to save them the cost of petrol too.”

Jordan Islamic Bank hopes to continue as a pioneer in the Islamic banking industry
while achieving success through its partnerships

Furthermore, the bank is committed to offering products that help those who are in need. Shihadeh said JIB is currently creating products with special terms in order to enable people to start projects that will help pull themselves above the poverty line.

Banking in Jordan
Jordan has a dynamic banking sector, offering both traditional online products and Sharia-compliant banking. In the country’s stable and secure market, Shihadeh said the banking industry is highly committed to innovating and offering new, dynamic products: “The banking sector is committed to supporting and financing the SME sector, which represents the majority of the local economy.”

However, Shihadeh said there is still work that needs to be done in order to make sure Jordan’s banking sector is ready for the future: “All banks in Jordan should be committed to attaining the latest innovative products and technology in the banking industry, as well as looking forward, while gaining the trust of all people.”

Another way Shihadeh believes the industry should develop is by making sure local banks offer finance products with easy terms, together with further incentives to clients who are interested in working within environmentally friendly industries. Poverty and unemployment are other problems Shihadeh believes banks have the power to improve, which they can achieve by making this a top priority and by making greater efforts to promote financial inclusion.

Financial inclusion
“The subject of financial inclusion has become one of the main topics now raised at financial conference tables, both locally and internationally”, according to Shihadeh. “This is because financial inclusion is a key factor in the construction of inclusive and sustainable development across world development strategies, and plays an important role in solving the problems of poverty and unemployment. Greater financial inclusion can also increase productivity, advance the prospects for development and improve both social and financial stability.”

Shihadeh believes a shift is occurring in response to international trends. Specifically, the G20 countries have realised the importance of financial inclusion, which is why in 2010 they established the Global Partnership for Financial Inclusion. Its advancement is considered a priority at JIB. He explained: “Financial inclusion helps protect consumers and promote financial literacy in the community. It provides mechanisms to support SMEs to gain access to funding sources, the development of electronic payment systems and the empowerment of women by providing easy and convenient access to finance instruments.”

Shihadeh said that being at the start of a movement to encourage greater financial inclusion is an exciting prospect. As part of his additional role as Chairman of the Association of Banks in Jordan, Shihadeh is developing a multi-year action plan to fast-track greater financial inclusion in the country. The plan ultimately has three goals: providing access to financial services, encouraging the use of financial services, and ensuring these financial services are of the highest quality.

Jordan Islamic Bank has branched out its services
to other industries and is developing a number of fields that are important to the future of Jordan

This will be a difficult challenge to overcome, and will require both Jordan’s banking sector and its regulatory bodies to work together to transform the industry. According to Shihadeh, JIB is strongly committed to achieving these goals. This includes strengthening the geographical spread of financial institutions to make them more accessible, while also taking advantage of technological developments to make accessing finance easier. From a regulatory perspective, the establishment of a credit information company is also a priority.

Appropriate legislative environments that support financial inclusion while ensuring the products developed meet the needs of everyone in society are also a must. While challenging, an environment that supports companies of all sizes is possible through a lot of hard work.

“In addition to the innovation of new financial products, at the same time we must ensure consumer protection regulations to solidify the fair and transparent treatment of customers, set up a system to deal with complaints, provide adequate information to customer about financial transactions, and provide an advisory service to them”, Shihadeh added. “It is also important to enable companies that are suffering from financing issues – especially those related to providing guarantees – to find a structure that enables them to implement new projects and expand.”

Against this backdrop, JIB has branched out its services to other industries and is now working on developing a number of fields that are important to the future of Jordan. The company is also focusing on the health sector, with new products recently launched to help people finance the cost of their medical expenses. As a leader of the local industry, through efforts like these, the company can start fostering greater financial inclusion and the benefits it brings.

Further expansion plans
The future of JIB looks bright, with Shihadeh setting out a clear list of priorities for the bank moving forward. The bank hopes to continue as a pioneer in the Islamic banking industry while achieving success through its partnerships and agreements. It has also set the goal of reaching one million accounts in the next year – all of which will occur while the bank continues to be a leader in both social and business developments, such as through further investments in green technology.

“We will maintain JIB’s leadership through economic and social development, while meeting the aspirations of our clients and translating the Islamic banking mission in all aspects to serve society”, said Shihadeh.

Though this is in many ways a steep challenge, JIB is set to continue its successful journey into the future. Shihadeh added: “JIB is committed to being a pioneer in Islamic banking globally and to achieving growth in all banking services.

Finally, and most importantly, JIB remains committed to keeping the trust of all our customers, and introducing innovative products and services to their benefit.”

Janet Yellen: the great gatekeeper

Posted on by Max Tomlin

“Policies to strengthen education and training, to encourage entrepreneurship and
innovation… could all be of great benefit in improving future living standards”

Janet Yellen

Since Donald Trump’s surprise election victory in November, the 45th President of the United States has been on a collision course with the Federal Reserve. During his tumultuous campaign, Trump repeatedly attacked the US central bank, suggesting he would remove the current chair Janet Yellen from her position and nominate a more appropriate successor by the summer. Despite these threats, Yellen has remained above party politics, insisting she will complete her full four-year term at the head of the US financial system. In Yellen, it seems, Trump faces a formidable opponent.

Yellen’s appointment as Chair of the Federal Reserve in February 2014 marked a historic moment in the financial world. After rising to the top of a heavily male-dominated field, Yellen is the first woman to lead the US central bank in its 100-year history. The same year as her appointment, Yellen was named the second most powerful woman in the world by Forbes, coming in just behind German Chancellor Angela Merkel. As the gatekeeper to the world’s largest economy, Yellen holds one of the most influential positions in global finance. But as she has proven thus far in her tenure, her great power is equally matched by prudence, diligence and steady resolve.

Journey to the top
“Although we work through financial markets, our goal is to help Main Street, not Wall Street”, Yellen told Chicago audiences in her first official appearance as Chair of the Federal Reserve. Born in the Bay Ridge neighbourhood of Brooklyn in 1946, from a young age Yellen was made acutely aware of the impact of economic hardship on ordinary citizens.

Speaking to The New Yorker shortly after her appointment, Yellen said: “My parents were born in 1906 and 1907. I think the experience of the Depression greatly influenced the way they thought about the world.” Her father, the son of Jewish immigrants from the Polish town of Suwalki, was a family doctor who frequently carried out house calls, while her mother was an elementary school teacher.

Taking a dovish stance on monetary policy, Yellen insisted that, on her watch, Wall Street would be closely regulated in order to crack down on financial crime

After graduating as valedictorian from Fort Hamilton High School, Yellen launched her academic career at Brown University, where she majored in economics. She continued to pursue the subject at PhD level, moving to Yale to study under Nobel Laureate James Tobin, a leading Keynesian economist whom Yellen later described as her intellectual hero. Of the two dozen doctoral students who earned their economics PhDs from Yale in 1971, Yellen was the only woman.

Upon receiving her PhD, Yellen took up an assistant professor position in the Harvard economics department. When, after six years at the prestigious university, she did not make tenure, Yellen turned her attention to the Federal Reserve System, beginning to work as an economist with the Board of Governors in Washington. There, she met her future husband, fellow economist George Akerlof, and the pair were married within the year. In Akerlof, Yellen found not only a life partner but also an intellectual equal, with whom she shared similar views on the social impact of economic policy. The couple have collaborated professionally throughout their marriage, promoting the integration of social justice and public policy into financial theories.

After additional teaching spells at the London School of Economics and the Haas School of Business at the University of California, Berkeley, in 1994 Yellen was nominated to become a member of the Federal Reserve Board of Governors, propelling the now-experienced economist towards a future in public finance. From there, Yellen moved into a position at Bill Clinton’s White House, serving as the Chair of the Council of Economic Advisors from 1997 to 1999.

Just five years later, she became the President and CEO of the Federal Reserve Bank of San Francisco, assuming responsibility for the central banking of the nine states to the west of the Rocky Mountains. Against the challenging backdrop of the banking crisis, Yellen delivered a strong performance in this position, and was promoted to Vice Chair of the Federal Reserve in 2010, making her the institution’s second highest-ranking official. Yellen’s good judgement and commitment to minimising unemployment earned her many supporters in Capitol Hill.

When President Obama confirmed Fed Chair Ben Bernanke would not be re-elected at the end of his term, influential economist Larry Summers initially emerged as frontrunner for the role. However, Summers’ rumoured appointment prompted one third of Democratic Caucus members from the US Senate to pen a letter to President Obama, advising him to instead nominate Yellen.

Responding to their wishes, Obama nominated Yellen to lead the Federal Reserve, calling her “one of the nation’s foremost economists and policymakers”. In February 2014, Yellen was sworn in as the Fed’s first female chair in a modest ceremony in the central bank’s boardroom.

Donald Trump signs House Joint Resolution 41, removing some Dodd-Frank regulations on oil and gas companies

A fractious Fed
Upon her historic nomination, Yellen declared: “More needs to be done to strengthen the recovery, particularly for those hardest hit by the Great Recession.” While her predecessor, Bernanke, was praised for helping guide the US economy through the worst of the financial crisis, Yellen inherited a fractious Federal Reserve, still reeling from the 2008 banking crash. Frustrations lingered over the slow pace of economic growth, and critics accused the Fed of doing little to stimulate the economy in the crucial post-crash years.

Taking a dovish stance on monetary policy and prioritising employment, Yellen soon sought to silence her doubters, insisting that, on her watch, Wall Street would be closely regulated in order to crack down on financial crime. “No one who lived through that financial crisis would ever want to risk another one”, she remarked in her Capitol Hill confirmation hearing.

In fact, Yellen is responsible for helping the economy recover from a crisis that she herself predicted. As early as 2005, Yellen warned of a bubble emerging in housing prices, suggesting the falloff in housing activity could potentially have broader economic consequences. In September 2007, having grown ever more concerned over housing turmoil and irresponsible mortgage lending, Yellen encouraged the central bank to act pre-emptively to deal with what she saw as a looming crisis.

“We could take a wait-and-see approach to the financial shock”, she said at a meeting with Federal Reserve policy makers. “But such an approach would be misguided and fraught with hazard, because it would deprive us of the opportunity to act in time to forestall the likely damage.” Despite Yellen’s warnings, however, the central bank failed to effectively isolate the issue, and by September 2008, the subprime mortgage crisis had boiled over into a full-scale financial meltdown.

Following Lehman Brothers’ monumental collapse, Yellen became the first central bank official to confirm that the US had entered a recession. In the immediate aftermath of the crash, Yellen lent her support to Bernanke in his efforts to stimulate the economy, backing bond buying and quantitative easing.

Janet Yellen in numbers:

101

The number of years the US Federal Reserve existed before welcoming Yellen as its first
female chair

2018

The year in which Yellen’s four-year term as Chair of the Federal Reserve will end

56

Votes Yellen received in favour of her appointment, the narrowest margin in the Fed’s history

1979

The last time a Democrat was Chair of the Fed, prior to Yellen’s appointment
in 2014

While recovery has been slow, Yellen appears satisfied with the progress made in the US economy, both prior to and during her current tenure as Fed Chair. Fortunately for Yellen, many of the potential threats associated with Bernanke’s fiscal stimulus efforts have not come to pass: the US economy has avoided hyperinflation and a crashing currency, and Yellen has successfully managed to stabilise markets. “Now it’s fair to say the economy is near maximum employment, and inflation is moving towards our goal”, she said in a January 2017 speech, just two days before President Trump’s inauguration. But despite striking an optimistic tone about the matter, the Trump presidency could well knock Yellen’s Federal Reserve off its steady course.

The lady’s not for turning
Throughout Trump’s explosive presidential campaign, Yellen became a frequent target for criticism. During the first presidential debate in September, the real estate tycoon attacked Yellen for keeping interest rates low, accusing her of creating a false economy. Taking his criticism further, at one point he suggested that he would remove her from her post as soon as his presidential powers would allow.

Unshaken by Trump’s harsh words, Yellen insisted that she would be staying put. “I was confirmed by the Senate for a four-year term, which ends in January of 2018”, she said at a Capitol Hill testimony. “It is fully my intention to serve out that term.”

Aside from the question of Yellen’s leadership, Trump is also on a collision course with the Federal Reserve over the 2010 Dodd-Frank Act. The sweeping legislation, which was put in place by President Obama in response to the 2008 financial crisis, attempts to ensure greater regulation of the nation’s financial institutions, ultimately bringing the ‘too big to fail’ institutions to heel. Trump has repeatedly called Dodd-Frank a “disaster”, and has suggested that the legislation has made it harder for banks to lend to small businesses and consumers.

Upon his surprise election, Trump vowed to do a “big number” on the legislation, and has since delivered on his promise: in his second week in the Oval Office, President Trump signed an executive order intended to dramatically scale back the legislation. As he issued the memorandum, he said: “We expect to be cutting a lot out of Dodd-Frank.” According to the executive order, Trump’s Treasury Secretary, Steven Mnuchin, will meet with the Securities and Exchange Commission – along with other regulators – in order to find elements of Dodd-Frank that can be amended or cut entirely.

The removal of the Dodd-Frank Act would be a significant blow for the Federal Reserve and, by association, Yellen. The legislation is perhaps the most significant change to US financial regulation since the Great Depression of the 1930s, providing long-overdue protection to consumers and earning praise from both sides of the political spectrum. Despite Trump’s best efforts, it is unlikely Yellen’s Federal Reserve will give up Dodd-Frank without a fight. In fact, since Trump’s election, Yellen has repeatedly promised to protect it.

“Dodd-Frank was a very important road map for strengthening the financial system and mitigating the chance of another financial crisis”, she said in January. Stressing the value of the legislation, Yellen said the Dodd-Frank reforms had created a “substantially safer and sounder” financial system, where banking malpractice and financial risk-taking no longer run rampant on Wall Street.

While Trump may have met his match in Yellen, it is important to remember that her leadership term expires in 2018. What’s more, two seats on the central bank’s seven-member board of directors are currently vacant, while Vice Chairman Stanley Fischer’s term also comes to an end next year.

With Trump thus able to make a host of significant appointments at the Federal Reserve, the central bank may well move in a more hawkish direction. Indeed, the president’s attacks on the institution’s independence and his dismantling of the Dodd-Frank Act suggest this transformation could already be underway. Without Yellen at the helm in the near future, the Federal Reserve could be heading towards an uncertain future.

Curriculum Vitae

Born: 1946, Brooklyn, New York |  Education: Yale University

1946
Yellen was born into a middle-class Jewish family in Brooklyn, New York. She showed academic promise from an early age, graduating as valedictorian from Fort Hamilton High School.

1971
After earning an undergraduate degree from Brown University, Yellen received a PhD in economics from Yale, where she studied under Nobel Laureate James Tobin.

1977
After spending six years as an assistant professor at Harvard, Yellen took up her first position with the Federal Reserve, working as an economist with the Board of Governors in Washington.

1997
Following a long teaching spell at two prolific business schools, Yellen moved into a position at the White House, serving as Chair of President Clinton’s Council of Economic Advisors.

2004
In June, Yellen began a largely successful six-year term as President of the Federal Reserve Bank of San Francisco, assuming responsibility for the largest district in the US.

2014
In a historic moment for global finance, Yellen was sworn in as Chair of the Federal Reserve, becoming the first woman to hold the position in the central bank’s 100-year history.

Olympus scandal culminates in $520m fine

Posted on by Helen

Six years ago, it emerged top executives at camera manufacturer Olympus had falsified accounts to conceal losses of more than $900m in one of the biggest financial frauds in Japan’s history. The scandal has now culminated in a $520m fine, which has been charged jointly to six individuals who were implicated in the cover-up.

The defendants include five former high-ranking executives of Olympus, as well as the company’s former chairman, Tsuyoshi Kikukawa. While one of the six individuals has since died, the fine will be passed on to his heirs.

While one of the six individuals has since died, the fine will be passed on to his heirs

The Olympus scandal came to a head in 2011 when then-CEO Michael Woodford confronted the board regarding his concerns over suspiciously large payments related to acquisitions. Following the challenge, Woodford was promptly dismissed by the board. An investigation into the incident revealed a long-running cover-up effort dating back to the 1990s, in which losses of $1.7bn were concealed from shareholders.

The lawsuit was filed by Olympus and its shareholders, who were looking to receive compensation for the damage incurred by the company as a result of the fraud.

According to The Mainichi, upon making the charge, Presiding Judge Akihiko Otake said: “If the former chairman and the others had not neglected their duties, the company would not have submitted false securities reports. Therefore, the defendants are obligated to compensate the company.”

The case was launched against 16 executives, but ultimately only six were held responsible for damages. The remaining 10 were absolved as, according to Otake, they “were not in a position to become suspicious. Therefore, it cannot be recognised that they neglected their duties, such as those to investigate any alleged illegal practices”.

Since the scandal erupted in 2011, Olympus’ stock prices have gradually recovered. The company’s reputation, however, remains dented.

Turkey’s digital insurance innovation

Posted on by Max Tomlin

Positioned as the geographic, economic and political bridge between Asia and Europe, Turkey is one of the world’s fastest growing and most diverse economies. With a population of 79 million and a labour force of 31 million, the country has posted an average growth rate of 5.2 percent since 2010. Turkey’s average GDP growth rate is one of the fastest among OECD countries.

The country’s economy has also continued its strong performance despite political and geopolitical problems in the last year. It grew by 4.7 percent in the first quarter of 2016 and 3.1 percent in the second, which is high compared to a number of EU and OECD countries. Turkey has also attracted more than $120bn of foreign direct investment in the past decade, making it one of the world’s most attractive investment destinations.

A number of attributes are behind the trust that growth investors have in the country. First, Turkey’s favourable demographics and good education system, with 50 percent of its population aged under 30, have created strong momentum for the economy. Second, the government has implemented crucial structural economic reforms in recent years.

The main objectives of these efforts were to enhance the efficiency and resiliency of the financial sector, to increase the role of the private sector in the economy, and to place the social security system on a more solid foundation.

Such reforms have contributed to creating a strong banking sector and have had a major impact on Turkey’s resistance to economic shocks. Turkey now has Europe’s lowest debt-to-GDP ratio at around 30 percent, a budget deficit of around one percent and a low level of household debt.

Third, the country is currently undergoing several important infrastructure transformations to be completed by 2023, with more investment on the way. Projects include a new Istanbul Airport, a high-speed railway system and a third bridge across the Bosphorus, which recently opened. With all of these attributes on hand, Turkey is one of the most promising economies in the world and remains an exciting market for investors.

Insurance focus
The Turkish insurance market, which is currently worth around $30bn, consists of three main segments: life, private pensions and non-life. Growth performance in the life segment is generally linked with personal loan growth, as most of the premium production comes from credit-linked life insurance products. The private pension market looks promising going forward, with the number of customers already exceeding six million. Further potential growth in this segment is also expected, thanks to increasing government support and measures designed to boost the participation of white-collar employees in the private pension system.

Zurich Turkey’s mission is to be the insurer with the most innovative insurance offerings in the Turkish market

On the other hand, the performance of the non-life insurance segment is directly linked to the overall economic activity in Turkey. The non-life insurance market has grown by 15 percent per annum in the past decade; in 2016, it grew at a rate of 32 percent. The sector is worth approximately $10bn, and if you look at the fact the ratio of insurance premiums to GDP is around 1.3 percent, it should grow almost seven times to reach a level comparable to the EU. Hence, there is huge potential for further growth in the non-life segment.

As a clear reflection of this, most of the insurers operating in the non-life segment are either foreign-owned or partnered, showing that it is a popular area of investment for foreign companies.

Zurich Turkey operates in the high-potential, non-life segment of the Turkish insurance market. Zurich Group entered Turkey in 2008 through an acquisition and has since invested $500m into the sector. At the end of 2012, we launched a restructuring programme to reposition our profitable and sustainable growth, which has been extremely successful. As a result, Zurich Turkey was recognised by World Finance as Best Non-Life Insurance Company, Turkey in 2016 for the fourth year running.

Since the end of 2012, we have focused our restructuring programme on bancassurance through our two distinguished, exclusive banking partners. In that time, we managed to increase our bancassurance market share to eight percent. As a result of our efforts, we are now among the top three firms in the market in terms of premium production per bank branch. As the only company to hold exclusive bancassurance agreements with two separate Turkish banks, Zurich Turkey is now ranked in the top two companies in the market in terms of profitability.

The firm’s success since 2012 is not limited to financial performance. Customer satisfaction peaked with the launch of the Transactional Net Promoter Score and our effective complaint management efforts. Zurich Turkey is currently ranked in the top two on sikayetvar.com, Turkey’s most popular online complaint communication platform. Our employee engagement score has gone up by approximately 45 percent since 2013. It is also one of the highest in the Turkish market, as well as within the Zurich Group’s countries, thanks to a number of measures taken to boost employee engagement.

Innovating to meet trends
With a young population increasingly demanding innovative products and an omnichannel customer experience, Turkey has transformed itself into a digital hotspot over the past decade. Currently, almost half of all Turkish citizens own at least one laptop or desktop computer. Furthermore, mobile phone usage is at around 97 percent, which is quite high compared to some other developed countries, while around 70 percent of individuals and more than 90 percent of companies have access to the internet.

The number of people who use internet banking has grown to almost 45 million, a 400 percent increase from 2007. More than 15 million of these citizens are ‘active internet banking customers’, meaning they use internet banking at least once every three months.

97%

Mobile phone usage in Turkey

45m

Turks use internet banking

1,400%

The growth in Turkish mobile banking users since 2007

From a mobile banking perspective, the picture is even more striking: the number of people who use mobile banking has grown by 1,400 percent since 2007 to almost 20 million, 12 million of whom are ‘active’.

Turkish companies are also adapting well to this change: the number of commercial and corporate internet banking customers has reached three million, 1.3 million of whom are ‘active’. In 2015, transaction amounts were even more impressive: more than 250 million money transfers, 200 million payments and around 50 million credit card-related transactions were made via internet banking. The total monetary amount of these transactions was around $800bn.

Moreover, the value of the Turkish e-commerce market exceeded the $6bn level, with more than 12 million e-commerce customers in the country. All these figures clearly indicate how fast Turkey is proceeding on its digitalisation journey.

The threat of cybercrime
The digitalisation of Turkey’s economy has had a profound impact on the insurance industry. First, customers’ swift adoption of digital services has brought the technology and finance sectors closer together. Companies in the Turkish financial services industry increasingly utilise financial technologies not only to improve their back-office business, but also to serve innovative products and services to their customers. The Turkish banking industry has been the first adopter of financial technologies, and the insurance industry will be the next.

Second, and more importantly, digitalisation brings new types of risks; namely, cybercrimes. The insurance industry will need to play a vital mitigation role in these risks. Today, between 10 and 15 million people per annum are affected by cybercrimes in Turkey. Recent surveys indicate that 86 percent of people in Turkey are concerned about ID theft and cybersecurity.

The case is similar for Turkish enterprises as well: on average, Turkish companies spend more than €40,000 per year on efforts against data leakage. Zurich Group’s 2016 Global Small and Medium Enterprises Survey also revealed that Turkish SMEs, which constitute around two thirds of the Turkish economy in terms of revenues generated, have increasing concerns over stolen customer data and money theft from cyber-attacks. As these risks are new to our country, the Turkish insurance sector is now at the beginning of its journey to provide appropriate coverage.

What’s next?
As a crucial outcome of its new strategy and restructuring programme, which was adopted at the end of 2012, Zurich Turkey’s mission is to be the most innovative insurance company in the country. We see innovation as the engine of further sustainable profitable growth, and we closely follow trends and look for customer-centric solutions. Currently, Turkish citizens’ main concerns are about identity theft, which has been a hot topic since a number of Turkish citizens’ data was leaked during the first half of 2016. In light of this, Zurich Turkey started to provide a new cybersecurity product to its customers, named ID-Safe. ID-Safe is a new generation product that helps customers protect their crucial information, such as passwords and credit card numbers, from cyber-threats.

Zurich Turkey’s customers who use ID-Safe can benefit from various security coverage options, like identity fraud and password coverage

Customers who use ID-Safe can benefit from various security coverage options, like identity fraud and password coverage. But the most interesting feature of this product is that its services are not limited to the coverage provided for cyber-threats; the product also actively helps customers protect their information. This is primarily achieved through a Web Radar service provided to policyholders.

Policyholders enter all their information into a secure database, and the service regularly scans the web in order to detect any misuse of this information, warning the policyholder if something is wrong. Furthermore, antivirus software is also provided to policyholders for free, which helps them protect their computers.

Cybersecurity is becoming a bigger risk, not only for individuals, but also for enterprises. In light of this, and combined with our mission to be the most innovative insurer in the Turkish market, we are currently working on a similar cybersecurity product for SMEs. We seek to continue to serve our customers with the most innovative insurance offerings.

Google attempts to clear up fake news

Posted on by Helen

On April 25, Google announced a series of updates to it search engine, which it claims will be able promote more “authoritative content” while reducing the prominence of fake or offensive pages.

In a blog post, the company acknowledged its role in the proliferation of fake news, noting that it has “become very apparent that a small set of queries in our daily traffic (around 0.25 percent) have been returning offensive or clearly misleading content, which is not what people are looking for”.

The power that tech giants like Facebook and Google have to filter the information people consume places a huge responsibility on their shoulders

In December, the company’s image received a serious blow when it emerged its search engine’s first response to the query ‘did the Holocaust happen?’ was an article entitled ‘Top 10 Reasons Why the Holocaust Didn’t Happen’.

It has become starkly apparent that the power tech giants like Facebook and Google have to filter the information people consume places a huge responsibility on their shoulders. Concern over the fake news phenomenon came to a head during the US presidential election, when it became clear politically charged false content was being widely read and many were actively falling for the stories. By some measures, fake news even outperformed real news in the run up to the election.

In an effort to tackle the issue, Google claims it has adjusted the ‘signals’ its search tool uses. The company believes this tweak, while presented in an extraordinarily vague way, will be effective in reducing the likelihood of unsettling results such as last year’s Holocaust denial scandal.

Google is also looking to rely more heavily on direct feedback tools. According to its blog post announcement: “Starting today, we’re making it much easier for people to directly flag content that appears in both ‘autocomplete’ predictions and ‘featured snippets’.” This change will create more clearly labeled categories so people can directly complain if they come across sensitive or unhelpful content. Such feedback will then be rewired back into Google’s algorithms.

A final change the company presented is an improvement to its search quality rater guidelines, which involves a process of experimentation using in-house ‘evaluators’ who assess the quality of search results and provide feedback. This process, according to Google, will help the company weed out misleading information, unexpected offensive results, hoaxes and unsupported conspiracy theories.

Capitalising on Europe’s fourth freedom

Posted on by Max Tomlin

The European vision of an economic project was predicated on four essential freedoms: labour, goods, services and capital. Despite celebrating its 60th anniversary in March, the project has been profoundly shaken, painfully overshadowed by lacklustre economic performance and heightened political tension.

Six decades ago, political theorists hailed closer economic ties as the answer to inspiring a new age of political accord. As people experienced the inevitable benefits of deepening economic integration, they argued, political support for the European project would increase. Further, the increasing attachment to the project of integration would gradually erode nationalistic tendencies. Recent events have dented that theory.

Yet, with political threats to the union mounting, the EU has reverted to its founding philosophy: European Commission President Jean-Claude Juncker has turned to the fourth freedom of the single market – the freedom of capital – in the hope of breathing new life into the economic project.

Shortly after the UK voted to leave the EU, the Commission called for the acceleration of the Capital Markets Union, a project aimed at reinvigorating the European economy by unlocking the benefits of fully integrated capital markets. A communication from the Commission argued: “In the current political and economic context, developing stronger capital markets in the EU is even more important.”

As a result, the project in capital integration has returned to the forefront of policy efforts, promising to address the weakness of European capital markets. If the vision becomes reality, European businesses will receive the funding fix they need to drive growth more broadly in the economy and, with any luck, restore confidence to the floundering economic union.

The growth gap
At the heart of the reform proposal lies the notion that incomplete capital integration has left many European businesses with limited access to capital markets, forcing them to become heavily reliant on crisis-ridden banks. Theoretically, the full integration of capital markets would counteract this, creating open, competitive and efficient European financial markets, improving the allocation of resources within the EU and providing businesses with a greater diversity of funding options.

Many European businesses have limited access to capital markets… forcing them to become heavily reliant on crisis-ridden banks

The US is often used as an example to illustrate the transformative potential of better-functioning capital markets in Europe. World Finance spoke to Robert van Geffen, Director of Policy at the Association for Financial Markets in Europe (AFME), who said: “The post-crisis environment has made it clear that an over-reliance on bank lending can lead to a slower economic recovery, particularly when you compare it to the situation in the US, where capital market financing was able to quickly provide the necessary finance to firms after the crisis.”

The positive growth figures seen in the US can be traced to its deeper and more diverse capital markets. Meanwhile, in the EU, the majority of financing to small and medium-sized enterprises (SMEs) occurs through bank lending, with weak capital markets restricting businesses’ options – particularly during their early, high-risk stages.

Before a company goes public, capital markets can provide crucial funding such as business angel and venture capital investment, fulfilling a function traditional banks cannot. “The appetites for risk are different. Often, capital markets can better match investors’ risk appetites with the needs of those looking for funding”, Anna Bak, manager of the securitisation division at AFME, told World Finance.

Considering start-ups, scale-ups and generally higher risk businesses play a central role in spurring growth, there is a clear call for greater opportunities in high-risk equity funding. Van Geffen said: “In particular, while start-ups constitute just a small proportion of total SMEs, they are a very important driver for the creation of jobs in Europe, adding a disproportionate number of jobs to the labour market.”

Crucially, European capital markets fall well short of those in the US, with private placements, angel investor networks and venture capital all lagging behind. For example, in 2014, the amount raised by European venture capital firms for SMEs in the US was €28.4bn ($30.7bn), compared with only €4.1bn ($4.43bn) in Europe. In 2015, angel investors provided American SMEs with €22.7bn ($24.5bn), while SMEs in Europe received just €6.1bn ($6.6bn). Further, European stock and bond markets are also limited when compared to their US counterparts, with eurozone stock markets worth just 47 percent of GDP in 2014, compared with 146 percent in the US.

Freeing the market
The Commission’s proposal argued many of the shortcomings found in the EU’s capital markets could be ironed out if barriers to capital movement were reduced. While the efforts to achieve capital market integration began 60 years ago, the freedom of capital in Europe is still held back by the diversity of regulations set between member states. “There is significantly more fragmentation that exists in the EU, which does not exist to the same extent in the US”, van Geffen said. “This makes having truly integrated capital markets more complicated.”

Venture capital investment in SMEs (2014):

€28.4bn

US

€4.1bn

Europe

Business angel investment in SMEs (2015):

€22.7bn

US

€6.1bn

Europe

European capital markets tend to be organised along national lines and, as such, national discrepancies in financial, technical, legal and administrative rules prevent the true freedom of capital coming to fruition. As a result, investors overwhelmingly stick to home markets. A report by AFME entitled Bridging the Growth Gap found that 65 percent of the global investors surveyed felt market fragmentation and a lack of understanding in regard to cross-border differences discouraged investment.

Smaller member states with under-developed capital markets could have the most to gain from greater capital movement. With the system in its current state, it’s not hard to see why investors are reluctant to make cross-border payments to a small country like Malta, which has a population of just 400,000 and adheres to a host of individual rules and regulations. Risk levels can also be difficult to compare across member states, with diverse insolvency laws creating major differences in the potential losses ensuing from bankruptcy. The harmonisation of regulations would help pave the way for greater investment from within Europe and abroad. Harmonisation could also facilitate the rise of new players, such as user-led IT or app platforms.

The EU’s accelerated policy efforts are due to be completed by 2019, with the Commission putting forward a range of measures to tackle the barriers preventing the free movement of capital. A particular focus has been placed on venture capital, with the proposal of a new framework seeking to create opportunities for fund managers of all sizes, and expand the range of companies that can be invested in.

The majority of the proposed measures focus on reducing the discrepancies between capital market rules in member states. For one, the green paper emphasises the intention to move towards the harmonisation of insolvency legislation – an enormously complicated undertaking that would certainly encourage more capital freedom. Another key measure proposes to reform the prospectus process, which could dramatically simplify the procedure for firms seeking to issue debt or equity. Many proposals have yet to fully take shape, but similarly fall into the theme of coordinating financial, technical, legal and administrative rules across the union.

Taking stock
While it is clear that the economic performances of the eurozone and the US differ considerably, many argue it is a mistake to put too much emphasis on capital markets. Professor Ewald Engelen of the University of Amsterdam told World Finance: “There are some parts of Europe where it is obvious that there is next to no credit provision being undertaken by banks, especially not to small and medium-sized enterprises. The question is: does the lack of credit provision have to do with the provision of capital, or does it have to do with the macroeconomic conditions in those countries?

“It has nothing to do with the absence of a capital markets union, it has everything to do with the fact that in the eurozone, governments decided on quite harsh austerity measures from 2010 onward.”

Capital markets provide less funding to small businesses in the EU than they do in the US

Furthermore, although capital markets provide less funding to small businesses in the EU than they do in the US, there is a limit as to how far regulatory changes can bridge this gap. The disparity also comes down to cultural differences, which inevitably take far longer to change. “There is a difference in risk culture for start-up funding between the US and EU. For example, in the US, investors will not necessarily consider an earlier bankruptcy by an entrepreneur as a bad thing, but rather as an opportunity the entrepreneur has probably learned from, whereas in Europe it is seen as being overly risky and investors will feel discouraged to invest”, said van Geffen. On top of which, the EU will always face a certain level of fragmentation when compared to the US as a result of its language barriers.

The Commission’s restless efforts to deepen capital market integration in the single market won’t be a quick-fix solution for growth in Europe. For one, it is unlikely to be able to bring EU capital markets in line with those of the US. For another, capital markets are far from the only factor holding back growth in the EU relative to the US. Instead, the ironing out of member state disparities will likely prompt a gradual improvement in European capital markets and a modest uptick in funding opportunities for businesses. That said, such an improvement could mark an important step in the recovery of the single market, especially if growth can inspire greater confidence in the wider economic project.

Insuring success in the digital age

Posted on by Max Tomlin

The full digitalisation of products and processes is at the core of recent developments in the Hungarian insurance market. In the past 10 to 15 years, several technologies have appeared in our daily lives that we previously did not have access to.

Advances in technology have resulted in a huge amount of new information being released to us, which has not only changed the insurance business itself, but also customers’ needs and their own everyday lives.

In today’s world, it is essential to follow the trends and constantly live with the opportunities provided by technology. After all, if we fail to do so, we fall behind, and this is also true in business.

At Allianz Hungária, the last few years have been about continuous renewal in order to meet customers’ changing needs. Allianz Hungária has built its future on the progress made in the innovation of operation; the key to competitiveness in our rapidly changing and developing world is the exploration of opportunities in digitalisation.

Meeting customer needs
Technological developments should serve the needs of all customers, while individual processes must be simplified, cost-effective and more convenient. In order to increase efficiency, we had to complete more and more technological improvements in the past few years.

The first step was the renewal of fast quotes and other calculators on the website, while the MyAllianz Portal has also been improved. With MyAllianz, customers can take control of their insurance, allowing them to see details of their cover, make payments, view insurance documents, request policy changes and notify Allianz of a claim.

The web interface has been also refreshed. It now boasts a uniform appearance across all platforms, making it easier to use, based on providing solutions complying with the latest trends.

We have to prepare for a world where ignoring IT developments and the failure to track trends will be great barriers to competitiveness

In the customer service division, more and more enquiries now come from social media platforms. As a result, Allianz Hungária has built up the same operational structure on Facebook and LinkedIn as in its call centres. Customers can follow the company on social media platforms; they often choose to reach out through Facebook, and Allianz offers assistance through Facebook Messenger. Almost 250 people sent their queries via Facebook Messenger in 2016.

The central Allianz Hungária Facebook page has nearly 50,000 followers, but if we count the official pages managed by its tied agents, Allianz Hungária has almost 80,000 likes in total. Tied agents’ activities on social media are necessary, not only because of potential sales, but because this grants the company easier access to its customers (and vice versa). The agents are quite active on these sites, generating 98 percent of all Allianz Hungária posts across 400 Facebook pages.

Payment possibilities
Cashless payment solutions are becoming more and more commonplace. Due to the introduction of the QR code on paycheques, it is accepted that customers can pay their premiums via their smart phones. If customers prefer to manage their account over the phone, Allianz Hungária – as the first company in the Hungarian insurance market – provides them with the possibility to pay the premiums through a secure phone platform.

In Hungary, customers prefer a wide range of payment options – while older customers prefer to pay in person, young adults favour online services and processes with limited personal contact. Last year, Allianz Hungária and Ingenico Group introduced a new method of credit card payment in the customer’s home, which utilises secure card reader terminals and a connection with smart phones.

Beyond the risk management involved in the use of cash, the traffic management and the control of the records was very expensive. We have therefore decided that our tied agents will also have mobile terminals. We keep the needs of our customers in mind when allowing them to pay on the site and at the time they prefer, safely and quickly, providing not just the paycheques, bank demand or bank transfer form to choose. The transaction figures show that this innovative solution is appealing to our customers, but of course we are also aware that some people prefer to pay in cash. They may be more difficult to reach with these developments.

Digital products
As the Hungarian insurance market continues to grow, more people would like to obtain insurance and asset management solutions anywhere, through the channel that is the most convenient to them. Modular, digital products and solutions are an ever-increasing demand, and so in most of Allianz Hungária’s business and segments, only digital products have been introduced since 2016. Digital products incorporate online processes, from calculating the expected premiums, sales and administration to the claim management processes. These processes could allow everything to be done online by customers as a self-service.

Of course, to promote the opportunities of digital products, Allianz Hungária offers online discounts to those who take out an insurance policy online. For example, there is the travel insurance loyalty programme, which is actually a discount programme that rewards customers’ allegiance. If somebody joins the programme and collects the discounts, he or she can get a 25 percent discount on their travel insurance.

Allianz Hungária on Facebook

48,000

Allianz Hungária’s Facebook likes

30,000

Tied agents’ Facebook likes

78,000

Total likes

The biggest development in the insurance sector comes from the consolidation of the claims management processes. In 2016, Allianz Hungária’s claims experts received tablets to improve the service they give to the customers. The Wi-Fi tablets are optimised for outdoor activities and extreme weather conditions, allowing claims experts to strengthen their mobility and enjoy a more efficient workflow. The application running on the tablets means digital damage assessments, damage calculations, diagnostics and settlement agreements are all available on-site.

The main advantage of such developments is that they improve service quality by allowing optimisation and, following the repair costs, improving efficiency of claims management. Moreover, they help to evaluate the work of claims experts and repairers. The current status of the entire claims process can be constantly monitored, and the automatic data upload function minimises manual data entry.

Inside the call centre
Reducing manual work processes plays an increasingly important role in the sector’s growth, primarily because speed is key in competitiveness. This is also true for the reaction time of responses to customer inquiries. Since 2012, Allianz Hungária’s Contact Centre has received 70,000 customer requests a month on average, and more than 100 employees are tasked with responding to these.

More than 80 percent of these cases are answered and solved by the Contact Centre, which is an outstanding result internationally. On an annual basis, every 15th call results in contracting, a figure which represents a benchmark on an industrial level.

The consolidation of processes allows the available data to be treated and used as a resource for business decisions. In general, it is true that high-level business analytics capabilities should be the body for the available data to obtain information. This depends not only on expertise, but also on organisational, cultural and mind set changes. Inside the organisation, the attitude to data should change.

Challenges in business
Although digital services are growing in popularity, this does not mean the role of agents and brokers will significantly decrease. However, we have to prepare for a world where ignoring IT developments and the failure to track trends will be great barriers to competitiveness.

This could be frightening for a company with an international background and with decades of experience, because it has to present an extremely high adaptability to customers. However, all types of new thinking or mindset changes when approaching new opportunities show high degrees of flexibility and adaptation.

Companies around the world expect an unfavourable situation in the market, but this must not dissuade the larger efforts. You can never sit back, because the constantly changing environment presents us with new challenges. The future is not what we thought it would be a few decades ago: the world has accelerated, and unexpected turns and unpredictable changes now characterise our lives.

Global renewal agenda
This constant change is a characteristic of financial services too. Those firms that wish to retain their competitive edge and continue to grow are those who anticipate the changes. In 2016, Allianz instigated a multi-annual, group-wide renewal agenda that aims to strengthen the pillars of group operations and set a new growth path for subsidiaries. The subsidiaries in 70 countries should strive to do their business by paying attention to customer needs.

Those firms that wish to retain their competitive edge and continue to grow are those who anticipate the changes

Allianz Hungária’s German parent company aims to improve efficiency by digitalising the entire company. The profit achieved will then be turned back for investments related to resources and growth promoters.

Allianz is also looking to create global businesses that can take advantage of economies of scale. This renewal agenda is adapted in Hungary according to market conditions. All of the development projects start with asking customers what they think about Allianz Hungária and its services. Any valuable feedback is built into the subsequent processes.

In these surveys, the company focuses on exploring the key areas for improvement and examining the cases through the eye of a customer. This helps to identify points where intervention is needed in order to achieve higher levels of customer satisfaction.

Continuing work begun in recent years, we will improve communications, significantly decreasing paper-based communication in parallel with increasing electronic data, and moreover we make available online payment options the widest.

In 2016, Allianz Hungária celebrated its 30th anniversary. It has been the leading insurance company in Hungary for three decades, and it is appreciated by the society as a responsible, innovative and reliable company.

Popstar Will.i.am hired as strategic advisor to Atom digital bank

Posted on by Ashton Wenborn

On April 24, digital banking start-up Atom announced it had hired international popstar Will.i.am as a strategic advisor in a deal worth £4m ($5.1m). Speaking of the appointment, the Durham-based organisation said the star would offer “an external perspective on culture, philanthropy and technology”.

Launching last year as the UK’s first mobile-only bank, Atom has become renowned for its attractive interface and easy-to-use features, offering its customers a number of services including savings accounts and business loans.

The news of Will.i.am’s appointment has not come
as a surprise to some, after rumours emerged in February

Will.i.am boasts some impressive digital credentials too, having launched a series of smartphones and watches, as well as being named T3 magazine’s Tech Personality of the Year in 2016. Atom’s collaboration with Will.i.am further emphasises the bank’s hunger to attract a younger, digitally-savvy audience.

The news of Will.i.am’s appointment has not come as a surprise to some, with Sky News suggesting the musician might join Atom in February – the bank initially denied the rumours.

It is reported that as part of the new deal, Will.i.am will have the option to acquire up to 3.55 million shares in the bank – at a price of £1.15 ($1.47) per share during a three-year window. Speaking of his new role, Will.i.am said “the banking industry hasn’t kept up” with digital trends, although Atom’s technologies were “awesome”.

In an increasingly technological age, it has become important for financial institutions to demonstrate their interest and understanding of cultural trends. Should Atom’s appointment prove to be a success, we may well see other institutions leveraging – as the Will.i.am song goes – that power.

 

Bernault Arnault’s LVMH to take over Christian Dior for $13bn

Posted on by Helen

French business magnate, art collector and billionaire Bernault Arnault has moved to consolidate the corporate structure of Christian Dior, bringing all of the Paris-based fashion house’s operations together under the LVMH luxury umbrella. As it stands, Christian Dior is split between LVMH and other minority shareholders.

LVMH is publically traded, but the Arnault family currently owns a 47 percent stake in the brand. The group has owned a large chunk of Christian Dior’s operations since the 1960s, when it forged a deal to raise capital for the fashion house. However, the brand’s couture business – comprising handbags, made-to-measure gowns and men’s and women’s ready-to-wear fashions – has for decades been split from LVMH’s arm of the business.

LVMH has owned a large chunk of Christian Dior’s operations since the 1960s, but Dior’s couture business has for decades been split from LVMH’s operations

The purchase will be completed in a number of payments that have been planned to simplify leadership of the fashion house. The cash-and-shares deal values Christian Dior at €260 ($283) a share, giving the deal a total value of €12.1bn ($13bn). The purchase price marks a 15 percent premium above the stock’s closing price on April 24.

In a statement, Arnault said: “The corresponding transactions will allow the simplification of the structures, long requested by the market, and the strengthening of LVMH’s fashion and leather goods division thanks to the acquisition of Christian Dior Couture, one of the most iconic brands worldwide.”

The merger is expected to be immediately accretive to LVMH earnings per share. Stephen Mitchell, Head of Strategy for Global Equities at Jupiter Asset Management, said in a Bloomberg Radio interview: “Reuniting Christian Dior Couture and Christian Dior Parfums, so one brand under one leadership, has to be a good thing for LVMH shareholders.”

LVMH shares rose by 3.2 percent in early trading in Paris as markets reacted to the news.

Why the world depends on our need to travel

Posted on by Max Tomlin

China’s economy is preparing for the future. No longer able to count on growth in the manufacturing and export industries, the government is fostering a number of more self-sustaining sectors that are better able to maintain growth in the long term. Such efforts are necessary should the country wish to continue its remarkable economic development beyond the next few years.

In December, China’s National Development and Reform Commission (NDRC) announced that tourism would be one of its areas of focus for the next four years. The country is aiming to invest RMB 2trn ($290bn) into tourism projects by 2020, an ambitious figure designed to renew the country’s infrastructure and public services.

In a joint release with the China National Tourism Administration, the NDRC said that, by 2020, the Chinese Government aims for the total sum of tourism services purchased in the country to reach RMB 7trn ($1trn). That figure would contribute more than 10 percent of the country’s annual economic growth and employ around 50 million people; more than 10 percent of the country’s total workforce.

Economic mountains
When pressed to list the biggest and most important industries in the global economy, most people would say some of the more visible and tangible mainstays on the world’s stock market indexes: energy, finance, pharmaceuticals and so on. In terms of the industries that may have the most transformative impact on a country, the majority of people would list the same. The tourism industry is often overlooked, with few taking notice of its ability to not only to transform an economy, but to change the entire identity of a location. Throughout history, tourism has been a force of wealth, status and power that is capable of producing more than just economic growth.

The contribution that the tourism industry makes to the global economy is difficult to exaggerate. In an interview with World Finance, President and CEO of the World Travel and Tourism Council (WTTC) David Scowsill said that in 2015, the travel and tourism industry contributed $7.2trn to the global economy, a little less than 10 percent of the world’s total GDP. In total, the tourism industry is expected to support 11 percent of all jobs by 2026 (see Fig 1).

The industry’s rate of growth is only accelerating as well. Scowsill explained: “We expect travel and tourism to have grown over three percent in 2016, which will be the seventh consecutive year we are growing ahead of global GDP. Generally speaking, our sector grows about one percent ahead of the global economy.”

According to WTTC data, travel and tourism’s overall GDP contribution grew by approximately 29 percent in US dollar real terms between 2006 and 2016, increasing from $5.8trn to $7.4trn. Its direct contribution, through industries such as hotels, airlines and leisure activities, reached $2.23trn in 2016 – a figure that is expected to reach $3.47trn by 2026 (see Fig 2).

Scowsill said the last decade has seen a significant shift in the global tourism industry, as international travel has fallen within reach of more people: “This means that more people with higher disposable incomes have been able to travel over the last 10 years; the Chinese market in particular has witnessed significant growth.”

Besides efforts to make the country a more attractive tourism destination, China has also been the source of tourism development beyond its borders, thanks to an increasingly wealthy population. In the coming years, as long as China’s economy continues to grow, numbers are only going to increase. Writing in the Nikkei Asian Review, Morningstar analysts Dan Wasiolek and Chelsey Tam stated only nine percent of China’s population are frequent international tourists (see Fig 3). When that number is compared to the 38.3 percent of South Koreans and 51.1 percent of Taiwanese who regularly travel internationally, one can see that China still has a lot of room to grow.

Together with rising incomes, the falling cost of travel and its increased ease have contributed to the growth in global tourism. Scowsill said: “The increase in connectivity and travel facilitation have helped boost the mobility of people, specifically the rise of low-cost carriers has made flying more economical.” With a hotel on the other side of the world bookable in just a few clicks, an international trip can be a spur of the moment decision, with travel agents now far less of a necessity. “Another factor is the increase in visa-free travel”, Scowsill added. “Over the last 10 years, the percentage of the global population requiring a traditional paper visa has decreased from 75 percent to 58 percent.”

Grand Tour
What has been particularly remarkable about the global tourism industry is the consistency of its growth, not just over the past decade, but the past 70 years. Tourism has always carried a high social currency, and financial barriers are often the only things stopping people travelling more. Though now a long way from its elitist beginnings, the status associated with international travel has ensured it remains an industry whose growth may slow, but will never truly stop.

Eric G E Zuelow is an associate professor of European History at the University of New England and author of the book A History of Modern Tourism. Speaking to World Finance, he said that, while it is a debated subject, tourism as a concept is generally accepted to have started in the late 17th or early 18th century with what was know as the ‘Grand Tour’.

“The initial impetus was that, in the wake of the Renaissance, diplomacy was becoming more complicated in Europe, and it was necessary to, instead of simply sending a diplomat to another court to negotiate a treaty, have people on the ground at all times”, Zuelow explained. During this time, Queen Elizabeth I began funding England’s best and brightest to travel, meet people, gather intelligence and ultimately embed themselves in another culture.

“As that happened, other elite families and members of the gilded elite wanted their sons to have a similar experience, and so more and more people started going [abroad]”, Zuelow said. “And by the middle of the 18th century, it was a kind of finishing school for the elite.”

With tourism and travel originally being exclusively the domain of only the wealthiest, new technology has always played a role in gradually lowering the financial barriers that stop people from travelling. Zuelow explained: “The Grand Tour more or less came to an end with the Napoleonic Wars. In the immediate aftermath of that, or even against the backdrop of the Napoleonic Wars, steam ships, and then railways, were developed.”

This point marks the beginning of tourism falling within reach of working-class people, with day trips emerging as a popular and affordable pastime. For middle-class people, an overnight or even slightly longer trip was an option.

Zuelow said for many, the act of travelling was just as exciting as the destination: “The technology itself was exciting, so it wasn’t even just about the place that you went to, but it was about the experience of getting on one of these vehicles. And that was particularly true of the train because they went faster than people were used to going, and they were big, and noisy, just exciting in and of themselves.”

With travel and tourism becoming cheaper, businesses that directly targeted the growing number of people keen to experience other places began to emerge, including the first travel agency. Founded by Thomas Cook and his son John Mason Cook in 1841, Thomas Cook & Son became the first of what would soon be a worldwide phenomenon. A deeply religious man, Cook saw tourism as a path to social reform and higher education for the masses. His company made a particularly significant impact arranging travel for many living in the English Midlands to visit London for the Great Exhibition of 1851.

Planes, trains and automobiles
Today, tourism tends to be described as an industry, albeit one that is difficult to categorise due to how large, expansive and varied its members are. Tourism began to expand at an almost overwhelming rate following the Second World War. Technological developments also accelerated, with improvements to automobiles allowing people to easily travel greater distances on their own.

In the 1960s and 1970s, air travel became more affordable and inspired a new, less affluent class of international traveller. Scowsill pointed out the price of a flight today is a fraction of what it once was: “Furthermore, people increasingly value new experiences rather than investing in other goods or repeatedly going to the same local holiday destination. These factors have all contributed towards making the industry far more competitive and diverse.”

While technology has made tourism easier, faster and cheaper, what hasn’t changed is the sense that travel creates better people. Just as aristocrats sent their children out to learn and become more ‘well rounded’ individuals, the notion of becoming more ‘worldly’ is the overwhelming motivation behind many people’s desire to travel.

Zuelow said tourism’s development is also tied to the rise of nationalism in the 19th century. At the height of the British Empire, the infrastructure that allowed larger numbers of people to travel ultimately helped them form a deeper opinion of themselves by experiencing other cultures.

The tremendous growth of tourism on a global scale suggests there is little that could stop the industry from continuing to flourish

“What that meant was that people were travelling and they were seeing themselves, and what scholars and academics would call the ‘other’, and they were able to define themselves relative to that other”, Zuelow explained. “I think that one of the things that’s really significant is that tourism plays a central role in the shaping of who we think we are. We imagine ourselves to be relative to other people, which strikes me as a pretty huge thing.”

Tourism has now fragmented into a number of different branches. After the rise of urban tourism (which is popular for cultural learning) and rural tourism (often seen as beneficial for health), specific tourism products began to emerge. By this stage, tourism had become a product rather than just an activity or intellectual pursuit.

“Disneyland, for example – the first big theme park – opened in the middle of the 1950s, and others followed suit after that”, Zuelow said. “Heritage tourism started to take hold in the 1970s, and different forms of outdoor tourism grew in popularity. Things that had been developing for a long time really took hold.”

Reshaping cities
Tourism is also capable of initiating a tremendous amount of change in a single place. Since the days of the Grand Tour, cities have been an important destination for tourists, but it has only been more recently that destinations have branched out and offered a diverse range of activities, often permanently reshaping cities. Zuelow said London is a prime example: “London has a wealth of historical sights, a lot of heritage, so there’s the experience of going to see history. It also has rather less intellectual things that you can take part in, like Madame Tussauds. By the 1980s you’ve added the London Dungeon and other kinds of things like that, that don’t tend to be much more than entertainment. And a whole lot more besides; art museums, history museums, anthropology museums, technology museums, all these kinds of different things that people can do.”

However, the transformational aspect of tourism can have an impact beyond cities. Zuelow gave as an example Ireland’s TidyTowns Competition in the 1950s: “The idea being to take essentially poor Irish towns and brighten them up with paint and flowers, so Irish townscapes came to look like the brightly coloured towns that we all recognise from postcards. That was directly a result of tourism. That competition was implemented by the Irish Tourist Board in order to create something for a tourist to see.”

Some towns go in the other direction, and renew efforts to preserve history in order to maintain appeal; cities like Athens and Rome, for example.

Tourist crowds surround a pair of snow monkeys in northern Japan

Deteriorating destinations
The tremendous and continued growth of tourism on a global scale suggests there is little that can stop the industry from continuing to flourish. While individual destinations’ tourist appeal may suffer if they deteriorate into conflict (as has happened in Egypt in the wake of the country’s revolution) it would take a truly disastrous international event or economic catastrophe to impede overall tourism numbers.

However, Scowsill said something that could impede the tourism industry is deteriorating global security: “It is extremely important that the public and private sector work together on a coordinated approach across borders. We are living in a time where countries are beginning to look more inwards than outwards out of fear of the unknown. WTTC believes that people have the right of freedom to travel and it is therefore of extreme importance that governments do not shut down their borders, but look at other ways of enhancing security through intelligence sharing and the implementation of electronic visas.”

Another threat is the gradual deterioration of destinations, either through sheer volumes of visitors or global warming. While occasionally stories of ungrateful or out of control tourists emerge in the media – such as people trampling wildlife, or even knocking over priceless statues while posing for selfies – more consistent damage is emerging.

The gradual deterioration of destinations, either through sheer volumes of visitors or global warming, is a real
threat to tourism

In May 2016, authorities in Thailand announced the island of Koh Tachai would be closed to tourists until further notice due to the damage visitors were causing to the natural habitat. “We have to close it to allow the rehabilitation of the environment both on the island and in the sea without being disturbed by tourism activities, before the damage is beyond repair”, said Tunya Netithammakul, Director General of the Department of National Parks, Wildlife and Plants Conservation, in an interview with the Bangkok Post.

However, the negative impact of tourism is not just limited to its effect on nature: from an economic perspective, Venice is another example of there being too much of a good thing.

A beautiful and enduringly popular destination, the Venetian tourism industry has cannibalised local industries to the extent where the city would simply cease to function without visitors’ money. As residents depart the city, the local culture, industry and the city itself are eroding.

For many of these popular destinations – in particular, poorer countries that see increasing visitor numbers as an opportunity to tap into an international inflow of cash – the long-term impact of tourism is often overlooked. However, the longer-term, negative impact of tourism is increasingly being looked at, with some destinations even considering limiting visitor numbers to sacrifice short-term gains for long-term sustainability.

$290bn

China’s planned investment into tourism projects by 2020

50m

people will be employed by china’s tourism industry if these plans are successful

$7.2trn

Travel and tourism’s contribution to the global economy in 2015

1 in 11

jobs are related to tourism

29%

Growth in the industry’s contribution to global GDP between 2006 and 2016

“As travel and tourism continues to grow, it is of [utmost] importance that we safeguard the world’s assets, ensuring we balance growth while preserving the environment, local communities and cultural heritage”, said Scowsill. “Sustainable policies and operations should be at the forefront of government bodies and companies that operate within our sector.”

Needing to get away
With the substantial investment being made into it, the tourism industry is continuing to evolve, placing travel in reach of even more people. Scowsill said: “We will continue to see an increase of the circular economy, changing the way people travel, not just for leisure but also for business. Boundaries are being pushed with new technologies, such as virtual reality. Also we see the role of social media impacting the way people experience travel, as many unique experiences are being shared.

“Additionally, we see the parameters of sustainability widening to include accessibility, consumer awareness and more technological innovation. Especially when it comes to accessibility, there is a lot that can and needs to be done within our sector. There is a huge economic and social opportunity to cater for those with accessibility needs, including wheelchair users, the hearing and vision impaired, and also the ageing population.”

Ultimately, the need humans have to travel will be enough to last for many years to come. Zuelow said the social wealth that comes with being well-travelled makes it an incredible force in people’s lives: “It makes it kind of one of the ultimate consumer goods, and I think that the tourism industry plays on that to a certain extent… Closely tied up in that is the idea that we all use this phrase, ‘I need a vacation’ – well, not really. But of course we feel like we do, because we’ve learned to feel that it will make us healthier to be away from work and to engage in leisure.”

With this ultimate consumer good capable of both economically and socially transforming destinations, China’s efforts to support its future make complete sense. While other industries may boom and bust, tourism is one that has endured over the centuries – and can be counted on to continue to do so in a way that most others cannot.

Becton Dickinson to acquire Bard for $24bn in latest medical technology merger

Posted on by Max Tomlin

On the evening of April 23, Becton Dickinson announced it had reached a deal to acquire Bard for $24bn in cash and shares – the latest in a series of major deals in the medical technology sector.

A sector-wide slowdown in revenue growth, coupled with a consolidation among healthcare providers, has prompted several companies to turn to acquisitions in a bid to defend profits. Abbot Laboratories, Medtronic and Zimmer Holdings have all made large acquisitions in the past few years, while Becton Dickinson’s purchase of Bard follows its $12.2bn acquisition of CareFusion in 2015.

The deal, which was unanimously agreed by both boards of directors, aims to position the merged company as a provider of “end-to-end medication management”, combining Bard’s innovation pipeline, midlines and drug delivery ports with Becton Dickinson’s expertise in drug preparation, dispensing, delivery and administration.

A sector-wide slowdown
in revenue growth has prompted several companies to turn to acquisitions in a bid to defend profits

The acquisition also presents Becton Dickinson with an opportunity to drive its expansion into international markets. Bard registered approximately 500 products internationally in 2016 and is among the fastest growing medical technology companies in emerging markets. Once combined, the company will boast annual revenue of $1bn in China.

A statement from Becton Dickinson described the deal as “financially compelling”, claiming it is expected to generate high single-digit growth to earnings per share for 2019. The company has further estimated the acquisition will create cost synergies in the region of $300m.

Bard’s Chairman and CEO Tim Ring said: “We are confident that this combination will deliver meaningful benefits for customers and patients as we see opportunities to leverage [Becton Dickinson’s] leadership, especially in medication management and infection prevention. We also believe that we can expand our access to customers and patients through [Becton Dickinson’s] strategic selling capabilities, and that our fast-growing portfolio in emerging markets can significantly benefit from their well-established international commercial infrastructure.”

The deal, which is due to close in autumn this year, will offer Bard common shareholders $222.93 in cash and 0.5077 shares of Becton Dickinson stock per Bard share. Alternatively, shareholders will be entitled to $317 per Bard common share, based on Becton Dickinson’s closing price on April 21. In total, Bard shareholders will own around 15 percent of the combined company.

UAE metal shines in tough business climate

Posted on by Max Tomlin

As oil prices languished at near-historic lows, November 2016 saw OPEC agree to its first production cut in six years. In a curtailment that amounts to almost two percent of global output, members of the oil producers’ council have pledged to remove an ambitious 1.2 million barrels a day from worldwide oil production, while non-OPEC member Russia has agreed to contribute by cutting a further 600,000 barrels a day.

Although the cut has had a somewhat positive effect on oil prices since coming into effect on January 1, the oil-dependent Gulf economies are still struggling to adjust to continued low oil revenues. Moreover, the International Energy Agency has predicted 2017 will prove to be another volatile year for the market, highlighting the pressing need among the Gulf States to reduce their reliance on oil.

Unlike its neighbours, the UAE has a more diversified economy, and has thus been less affected by the drop in oil prices. Despite an uncertain business climate in the region, the nation’s construction market has enjoyed stable and significant growth. Over the past few years, the UAE’s steel industry in particular has shown great potential, boasting an average annual growth between five and 15 percent.

With six major steel producers operating within the UAE, the nation has emerged as one of the region’s largest steel markets, producing around 3.2 million tonnes of the alloy in 2016 alone. With the UAE’s steel industry poised for further growth in 2017, one company in particular is now gearing up for expansion.

Making steel work
Beginning life as a start-up in 2008, Al Ghurair Iron & Steel (AGIS) has steadily grown its operations year on year, emerging as the largest galvaniser in the Middle East by 2016.

Undeterred by the worsening economic fallout from the global banking crisis, AGIS, rather optimistically, launched its operations in Abu Dhabi in the midst of the financial crash. Despite the lack of demand and a significant drop in prices in the sector, the firm set out to supply the local real estate and construction markets with a consistently good product.

There is a pressing need among the Gulf States to reduce their reliance on oil

Abu Bucker Husain, Chief Executive Officer at AGIS and World Finance’s Man of the Year 2016, said: “It was a real uphill battle for us. Every sale we made was a challenge, but when the customers used our material and saw the value in it – not only in terms of quality but also the benefits of buying from a local mill and our superior service – they realised the benefits of buying from us.”

While this uncertain business climate certainly proved challenging for the company, AGIS also faced another significant hurdle in the early years of its business. Upon launching, the UAE-based company soon realised it faced stiff competition from low-cost iron and steel mills in India and China. Using cheap labour and lower quality products, these foreign mills are able to sell to the Middle Eastern market at an attractive rate, thus undercutting local mills in the region.

With both Asian nations churning out record quantities of steel at remarkably low prices, iron and steel manufacturers in the Middle East are focusing on quality in order to compete with these cheaper, imported alternatives.

AGIS achieves this level of quality through its joint venture with Japan’s Nippon Steel & Sumitomo Metal – one of the world’s most prominent steel producers. Renowned for its top quality product, Nippon Steel supplies AGIS with the majority of its raw material, therefore ensuring the end product meets a high standard. “We have adopted many of our best practises from Nippon Steel”, Bucker Husain told World Finance. “Our customers also take cognisance of our association with them and value the quality of our products.”

Though AGIS has managed to overcome the challenges posed by cheap, foreign mills, the company has also faced the issue of setting up business in a region that lacks an established flat steel galvanising mill. As the largest flat steel galvanising mill in the Gulf region, AGIS has been forced to recruit almost the entirety of its workforce from overseas. In addition to sourcing these skilled workers, the cost of hiring remains high.

Nonetheless, despite the associated costs of hiring from abroad, the firm has now amassed a talent pool of highly skilled employees who work diligently to produce the top quality goods that AGIS is proud to put its name to.

Ahead of the competition
In the early years of its operations, AGIS successfully surmounted numerous difficulties, navigating a volatile economic environment to emerge as the region’s largest galvaniser by 2016. Yet AGIS’ ambitions do not stop there – the company is now looking to maintain a competitive edge on its main industrial rivals in the Gulf States.

The main way in which AGIS aims to set itself apart from its competitors is in terms of the quality it offers customers. The company’s client base is mainly found in the GCC region, with up to 80 percent of its business concentrated in the UAE and neighbouring Saudi Arabia. While customers in the region have historically favoured importing cheaper goods from international mills, AGIS now offers a top quality alternative.

5-15%

Average annual growth of the UAE’s steel industry

400,000 tonnes

Al Ghurair Iron & Steel’s annual production capacity

80%

of the company’s clients are repeat customers

“Our customers are aware of our association with Nippon Steel and the importance we give to ensuring quality”, said Bucker Husain. “Over the past 10 years, they have witnessed first-hand how they consistently get a superior quality when they book with us over our competitors.”

It’s not just the company’s guaranteed quality that is winning customers over. In addition to offering premium galvanised steel, the company prides itself on its service. When a customer has any specific or special requirements, these are efficiently taken care of by the AGIS team, along with any queries or issues that the customer may have. The firm places the client at the very heart of its business, ensuring that customer interactions are always positive and constructive. Due to this level of customer care, it may come as no surprise that around 80 percent of the company’s clients are repeat customers.

Importing materials from cheap foreign mills might prove tempting to GCC-based construction companies, but the advantages of using a local mill are all too clear. When using a UAE-based company such as AGIS, customers in the Gulf region can receive their materials much faster than if they were ordering from abroad. With a local mill, there are no shipping delays, as deliveries can be swiftly made using trucks as opposed to large container ships.

Building on foundations
In September 2016, AGIS reached its long-term expansion goal through relentless research and development, with the introduction of a brand new galvanising complex. This move took the company’s production capacity from 200,000 to 400,000 tonnes per annum.

With this achievement under its belt, AGIS is hoping to run the new plant at full capacity throughout 2017, and is optimistic about selling record quantities of galvanised iron and steel to a wide variety of local clients during this time. The next step for the company includes ramping up capacity at its cold rolling mill, enabling AGIS to further expand its operations. Regionally networked with a solid foundation, AGIS prides itself on building businesses that offer customers the best products in their sectors and therefore contribute to the overall prosperity of the region.

The UAE’s construction industry is also set for a significant boost in the upcoming years as building work intensifies for Expo 2020, an international exhibition that will take place in Dubai in just three years. According to Bucker Husain: “Expo 2020 is definitely a big booster for the UAE and GCC economies. The UAE is expecting to receive 25 million visitors for this event, and that means that a lot of malls, shops and hotels need to be constructed.”

In total, the central expo site will cover more than four kilometres of space at a midway point between the two urban capitals of the UAE. In choosing a previously underdeveloped site as the centre of the conference, the event requires a large-scale construction project, providing a significant boost to the UAE’s local iron and steel mills. In order to boost transport links around the new site, an extension will be added to the Dubai metro system, while a new, world-class road network is also set for construction.

As plans get underway at the site, the expo expects to create an incredible 277,000 jobs in the UAE, mostly in the travel and tourism sectors. “There is a lot of construction that has already been undertaken for this project”, said Bucker Husain. “All that means more business, not just for us at AGIS, but for everyone.”