Year: 2017

IMF divided over Greek GDP target

Posted on by Helen

The IMF’s involvement in a new bailout for Greece hangs in the balance following a rare split within its board. The division comes over what GDP target should be stipulated by international lenders.

During the fund’s annual review of the Greek economy on February 7, some directors argued for a stringent fiscal surplus target of 3.5 percent by 2018. However, most of the board remained in favour of a more achievable 1.5 percent.

Some IMF directors argued for a stringent fiscal surplus target of 3.5 percent by 2018

Though details of how many board members backed the 3.5 percent target have not been shared, the IMF did reveal that it expects Greece’s economy to grow by just under one percent in the long term, with the primary fiscal surplus expected to reach 1.5 percent of GDP. This forecast was calculated in light of the government’s policy adjustment programme and bailout constraints.

Despite ongoing macroeconomic risks in relation to policy implementation delays, the IMF does believe that the lower fiscal target of 1.5 percent should be met. According to a statement on the IMF website: “Most directors agreed that Greece does not require further fiscal consolidation at this time, given the impressive adjustment to date which is expected to bring the medium-term primary fiscal surplus to around 1.5 percent of GDP, while some directors favoured a surplus of 3.5 percent of GDP by 2018.”

Though a target has not yet been agreed, the institution’s board did settle on advice for Athens looking ahead, calling for the rationalisation of pension spending, the expansion of Greece’s personal income tax base, lower tax rates and more targeted assistance to the population’s most vulnerable groups.

The fund also called for renewed efforts to tackle the long-standing issues of tax evasion and large tax debt through a strengthening of the state’s taxation infrastructure.

While the review was positive overall, the IMF’s future participation in an upcoming Greek bailout remains precarious. Adding further doubt is the ongoing disagreement between the organisation and European authorities. For over a year now, the IMF has maintained that the targets demanded of Athens following its €86bn ($92bn) bailout are too severe, and that instead the nation should be granted additional long-term debt relief.

Having abstained from involvement in Greece’s third bailout in 2015, there is a strong chance that the IMF could do so again, in spite of its active involvement in negotiations surrounding a new deal that is expected to start in mid-2018. However, some experts argue that should the IMF pull out of the new bailout, the entire rescue programme could fail.

The February 7 review, though ambiguous in some respect, made clearer the position that the IMF has held for some time now – that Greece does indeed require greater debt relief, and that more needs to be done in order to re-establish its debt sustainability. As such, stringent targets run the risk of expanding Greece’s debt and so hindering its ability to achieve long-term growth.

Whether European lenders will agree with the IMF in this respect by mid-2018 seems to be unlikely. If so, the economic adjustment achieved by Greece since 2010 may not be given the chance it needs to incur further gains, resulting instead in the continuation of the country’s economic woes in the foreseeable future.

BIDV Securities: Reform still needed in Vietnam’s state-owned enterprises

Posted on by World Finance

Vietnam may be the biggest winner from the TPP trade deal, but necessary reforms of its state-owned enterprises have been, to be diplomatic, gradual. Đỗ Huy Hoài, CEO of one of Vietnams oldest securities firms, BIDV Securities, explains the history of Vietnam’s state-owned enterprises, and what still needs to be achieved. He also discusses the challenges that still need to be eased for foreign investors, and points towards the areas of Vietnam’s economy that are attracting the most interest – such as hi-tech, finance and post-harvest technology. This video is in Vietnamese with English subtitles.

World Finance: Vietnam may be the biggest winner from the TPP trade deal, but necessary reforms of it state owned enterprises have been, to be diplomatic, gradual. Joining me is Đỗ Huy Hoài from one of Vietnams oldest securities firms, BIDV Securities.

Mr Hoài – explain to me the history of Vietnam’s state-owned enterprises and what still needs to be achieved.

Đỗ Huy Hoài: Firstly, as to how it developed, until 1986, Vietnam had been a centrally-planned economy. Therefore, all Vietnamese enterprises were state-owned. From 1986 on, because this model exhibited a number of limitations, the Vietnamese government decided to transition to a market-orientated economy.

In this transformation, 6,000 state-owned enterprises have undergone equitisation and been transformed into joint-stock companies. Up to now, 4,500 out of 6,000 such enterprises have completed their equitisation processes. Equitisation needs to be sped up and implemented continuously.

In addition, while some state-owned enterprises, which are successful in certain industries attract the market’s attention, others investing in undeveloped industries fail to do so. Moreover, in spite of the government’s decision, state-owned enterprises are not mentally ready for equitisation. This reluctance is an obstacle to adopting equitisation.

World Finance: What barriers or challenges are there for international investors? I understand there is some dissatisfaction with customs and tax authorities for example.

Đỗ Huy Hoài: Before 2015, customs duties and taxes were a problem; however, the Vietnamese government recognised this problem and implemented administrative reforms of customs duties and taxes. Following the reformation, Vietnamese procedures relating to customs duties and taxes started to comply with the common practices of ASEAN Six, and Vietnam is striving to bring customs and taxes into line with ASEAN Four in the near future.

We believe that with all of these achievements and with the progress yet to come, customs and tax procedures in Vietnam will be transformed from barriers into favourable conditions for promoting investment.

World Finance: What areas of the economy are seeing the most FDI activity?

Đỗ Huy Hoài: We have identified two trends during our activities. Regarding short-term investment, consumer goods and the retail industry are currently among the most attractive industries in the market.

With regard to long-term investment, however, industries such as hi-tech, finance and post harvest technology demonstrate tremendous potential. Recently, two ‘Silicon Valleys’ have been established in Ho Chi Minh City and Hanoi.

In Ho Chi Minh City, Intel has also been making investments in Vietnam for a number of years. In Hanoi, Samsung and Ricoh have also invested in large-scale projects and moved production to Vietnam.

World Finance: Finally, what changes can we expect to see in Vietnam’s markets in the coming year?

Đỗ Huy Hoài: The first change will relate to market structure; financial institutions will be founded. Vietnam must have financial institutions suitable for the modern economy, such as investment banks and refinance mortgage companies.

Secondly, in terms of market products, derivative products and bond markets must be put into practice. Thirdly, with regard to the market’s legal framework,

to come into line with the TPP and FTP agreements, Vietnam will have to make appropriate adjustments to its laws and regulations.

We expect that when the law on investment banking is enacted, it will promote the development of the stock market. We also hope that BSC will be one of the first companies to shift to this model under the law on investment banking in Vietnam.

World Finance: Đỗ Huy Hoài, thank you.

Chinese foreign investment spree reined in amid clampdown on capital outflows

Posted on by Helen

Chinese direct investment has been hit by a surge in the number of cancelled deals amid a stricter regulatory environment, according to new analysis by law firms Baker McKenzie and Rhodium Group. In 2016, 30 outbound investment deals were cancelled, worth a total of $74bn.

The value of cancelled deals was around seven times greater than that of 2015, when the sum of cancelled deals amounted to just $10bn. This marks a change in the regulatory climate for outbound investment from China, which has introduced increasingly tight capital controls in a bid to protect the renminbi from spiralling depreciation.

Unprecedented capital outflows have been a key cause of the depreciating currency, which hit eight-year lows against the dollar at the end of last year.

Chinese authorities have relied heavily on foreign currency reserves to support the dwindling renminbi

Chinese authorities have relied heavily on foreign currency reserves to support the dwindling currency; consequently, reserves have now dipped below $3trn. Beijing has also more recently resorted to capital controls in various forms. Part of this effort is an informal tightening of controls on outbound investments, with deals being subject to heightened scrutiny.

This regulatory climate is likely to continue in the coming months, and the effect may also be compounded by regulatory changes in the US and EU.

According to Michael DeFranco, Global Head of M&A at Baker McKenzie: “A short-term slowdown in new deals is likely in 2017, driven both by China’s temporary measures to slow capital outflows and tougher screening of inbound deals in the US and Europe.”

While the regulatory landscape is certainly weighing on large Chinese outbound deals, the broader trend is one of rapid expansion. Foreign direct investment from China hit a record $94.2bn in 2016, up 189 percent from the previous year in the US and up 90 percent in Europe. The investments came primarily from privately owned Chinese enterprises, which accounted for 70 percent of the total FDI value.

This demonstrates the success of a longer-term strategy by Chinese authorities to promote foreign operations and investments by Chinese enterprises. In his address at the recent World Economic Forum meeting in Davos, President Xi Jinping signalled he remained committed to this global approach. He underscored the benefits of economic integration and free trade.

Knowing the wealth management market

Posted on by Max Tomlin

Since 1983, Optimix Vermogensbeheer has worked closely with high net worth clients. The company recognises that capital preservation is sometimes the better option ahead of capital growth, and to this day continues to keep its clients’ best interests at heart.

Optimix was acquired by Handelsbanken Netherlands in 2016, and together the two firms have become a leading wealth management force within the country. World Finance spoke to Michel Alofs, Managing Director of Optimix Vermogensbeheer, and Ivan Moen, Head of Investment at Optimix Vermogensbeheer, to discuss the company’s origins, how the industry has changed, and the newly merged company’s future plans.

What are the biggest wealth management trends in the Netherlands?
At Optimix Vermogensbeheer, we see consolidation as one of the biggest trends in the wealth management industry. The regulatory environment has an enormous impact on the industry, and will remain a key driver for the foreseeable future.

Stricter compliance rules and regulations, along with looking ahead to the implementation of MiFID II and the payment service directive PSD2, will have a large impact on most financial organisations.

The same is true for investments in ICT and developments in financial technology that are driving innovation across the financial industry. To finance these investments and create a longer-term viable business model, scale is needed, and we are seeing a trend towards consolidation – a consolidation between banks and specialised wealth managers, and between wealth managers themselves.

Throughout 2016 there were clear examples of this, with the merger between the Belgian bank Delen and the Dutch wealth manager Oyens & van Eeghen. The two private banks Insinger de Beaufort and Theodoor Gilissen also merged, and Handelsbanken acquired Optimix to create a full service bank for high net worth individuals in the Netherlands.

Due to our expanding local presence, supported by state-of-the-art technology, we are able to create a profitable business centred on our clients’ needs

New technology is a major wealth management trend across the Netherlands due to the rise of online wealth management tools and robo-advisors. This will have a big impact on the industry and will define most of the technology investment calendars that are used. At first, this will quickly affect retail and those that are affluent within the wealth management market.

The standardisation of wealth management products will also be a major wealth management trend, as it is one we are seeing in the Dutch market right now, especially with the larger industry players. These products are easy to service and easily scalable. This will give smaller players operating with specific clients or niche investments, like Optimix, more possibilities to differentiate themselves.

The passive-active debate in asset management is also a core trend. Providers of passive investment strategies clearly win market share, which has gained traction recently due to regulatory changes including the ban on commissions, rules about cost transparency and the ban on fund rebates. Whether this trend will continue remains questionable.

Given the current extreme interest rate environment, it’s unclear whether this is the right moment in time to fully rely on these passive strategies. Optimix believes in mixing passive and active investment styles in its portfolios.

What have been the most significant changes to the industry recently?
Regulatory pressure has been a very important driver behind one change within the industry. The ban on commissions and rebates has created significant changes within private banks’ and wealth managers’ business models. It has changed the economics of the industry in an important way.

The rebate ban has also helped the providers of passive investment strategies to gain a market share within the Dutch market. The call for more cost transparency has caused a switch from the transaction-based fee models towards all-inclusive fee arrangements. Furthermore, the rebate ban on the sales of investment funds has led to margin pressure within the industry. Looking ahead, this pressure will not diminish.

MiFID II and PSD2 will have a lasting impact on the financial industry, and this will also lead toward more standardised products within the wealth management industry. It has also led to a reorganisation and restructuring within the industry, along with staff reductions and an increased focus on technology.

Standardised products accompanied by online service tools and help desks have replaced labour-intensive services like the personal private banker. This is a clear trend that is still underway, especially with large domestic Dutch banks.

Finally, greater cost transparency has resulted in more providers of index-based products and standardised solutions supported by web-based tools. It can be argued that costs are a more important driver for choosing a wealth manager for ‘softer’ services or investment returns. This has led to a one-size-fits-all product offering within large parts of the investment industry. Within this overall environment, we see enormous opportunities for Optimix and Handelsbanken to differentiate themselves.

How did Optimix bounce back from the global financial crisis of 2008?
Optimix did not suffer greatly from the financial crisis in terms of client losses and mandates. Of course, revenues came under pressure, but this did not lead to a reorganisation or change in our business model.

The stability and strength of our client relationships were a great help in weathering the storm, and from 2010 onwards we created the foundations for business growth. Our investment strategy played an important role, which was based on building a capital preservation portfolio with government bonds and strips, combined with a return portfolio comprising equities and other more risky assets.

Together these portfolios performed well and created a stable client environment. This approach laid the groundwork for our commercial successes years after, resulting in assets under management growth and healthy financials.

How has Optimix’s history in the Dutch wealth management market helped to secure its leading position?
Optimix was established in 1983 as a family office, open for a select group of external clients. As we have grown over the last three decades, the relationship with our clients has always been a key characteristic. Because of this, the company will not focus on the mass affluent or retail client segments, but on the high end of the
private banking market.

The wealth management industry is moving away from personal relationships – many companies are moving towards a service model solely focused on web-based services

This means that we focus on the client segment where we can offer wealth management expertise to all Handelsbanken customers, and tailor-made wealth management solutions for mandates valued at more than €1m ($1.06m). The Optimix brand is well known across the Dutch market due to the introduction of its first mix fund in 1983, known as the Optimix Mix Fund. The fund still represents our active allocation views, but of course the investment style and the instruments used within the portfolio have evolved over time.

How does Optimix’s investment approach differ from those of its rivals within the Dutch market?
Our investment team is less focused on benchmarks and relative thinking than most of our peers. The company’s mandates have wide asset allocation bandwidths, especially dedicated to de-risk portfolios. For instance, a neutral mandate where a 50 percent equity allocation is the standard benchmark allocation has the possibility to vary its equity exposure from 10 percent to 70 percent.

Over the last five years, the equity allocation has varied between 28 percent and 68 percent for such a mandate. The Optimix investment process and team is organised to act swiftly in today’s financial markets. Bond exposures hardly offer any value anymore, and the traditional buffer function of bonds is diminishing.

What is the main strength of the Handelsbanken/Optimix partnership?
Both organisations and the products offered complement each other. The same client base is targeted, of which most are high net worth individuals and entrepreneurs.
Neither Optimix nor Handelsbanken Netherlands offer services for the mass retail market. Local branches of Handelsbanken Netherlands will be able to offer the full suite of products to its local client base. Before the merger, both companies shared the same culture. This is based on client-led decision-making. Therefore, the stability of our relationship management team is very important.

Both companies want to create a strong and profitable business by focusing on higher client satisfaction than any competing companies. Each believes that satisfied clients create long-term relationships.

What makes Optimix’s approach to the Dutch market so distinctive?
The Handelsbanken/Optimix combination takes a new route in developing its business in the Netherlands. The industry in general is moving away from personal relationships – many companies are closing regional and local branches and are moving towards a service model solely focused on web-based services and applications.

In contrast, we are opening new offices across the Netherlands. We invest and add employees locally to drive our combined business forward. We believe that, due to our local presence, we are able to create a profitable business centred on our clients’ needs, and we aim to create a strong client community. We will support this expanding local strategy with state-of-the-art technology and web-based applications.

1983

The year in which Optimix Vermogensbeheer was founded

2016

The year Handelsbanken Netherlands acquired Optimix

How will Optimix cope with today’s financial market challenges of low and negative interest rates?
Years of intensive central bank intervention – ultimately via zero and negative interest rates – has resulted in diminished asset risks across the board. Markets have become a sideways affair with more frequent spikes in short-term volatility. Across such markets, relative returns have become more important and bigger in size, to generate performance.

We allow the weights of our portfolio assets to vary within large bandwidths. Our first objective for client portfolios is capital preservation and gradual growth. To deliver these results in today’s markets, we need to utilise large bandwidths and be able to hold large allocations in cash – and low allocations in equity – if we deem necessary. Benchmark-focused investments will not be able to fulfil the above objective. This, as far as we know, distinguishes us from other private wealth managers across the Netherlands.

What are the most important investment themes and strategies that Optimix is currently planning?
We believe that most investments can be identified by two to three major themes. It is our role to successfully find these themes and optimally position our clients, exposing them to a minimal amount of unavoidable risk, and still obtain as much of the returns from the investment themes as possible.

We believe that the interest cycle has turned and that bonds in general offer more risk than value. This will give us more challenges in relation to portfolio construction, but ultimately and in the longer term this will be a good thing. Emerging markets should deliver superior returns on equity and fixed income against their developed counterparts. A major driver behind this is our assessment that the commodity complex has bottomed, and crude oil prices should increase in the coming years. Emerging markets valuations are undemanding, and we expect a return of earnings growth after several years of declines.

In developed markets we explicitly play our commodity view via investments in natural resources equity, both in energy and metals mining companies. The recent multi-year bear market in commodity prices has led to severe underinvestment in both spaces, and has sown the seeds of new supply deficits over the coming years. Crude oil and metal prices need to rise and incentivise the development of new supply to meet future demand.

Trump targets Dodd-Frank law

Posted on by Max Tomlin

Donald Trump has moved to dismantle the Dodd-Frank regulations; the latest in a flurry of executive orders seeking to reform the US market. The law – introduced by Obama in 2010 as a response to the 2008 financial crisis – was a sweeping revision of the financial sector, designed to safeguard financial stability, improve transparency and put a stop to “too big to fail” institutions in the US financial system. Ultimately, the law aimed to provide an advanced warning system for upcoming crises and protect the taxpayer from future bailouts.

However, this signature part of Barack Obama’s legacy drew criticism from Trump, who claimed the law damaged the country’s entrepreneurial spirit. Trump’s executive order, which is planned for February 3, will mark the first step in scaling back the law. While the move will trigger a review into the law, major changes will still need to pass through Congress. Despite this, Trump has signalled he is confident he can make a sizable dent in the law: “We’re going to be doing a big number on Dodd-Frank.”

The order will be a major move toward Trump’s promise of reducing the regulatory burden
on US business

The executive order will be a major move toward Trump’s promise of reducing the regulatory burden on US business – a stance that is well received by Republicans. On January 30, he signed an executive order putting into force his ‘two-for-one’ pledge, which requires agencies to revoke two regulations for each new rule they issue.

It is not entirely clear which parts of the law will be targeted, though, according to The New York Times, Trump’s secretary of the Treasury, Stephen Mnuchin, has expressly promised to “kill” the Volcker rule. The rule blocks certain forms of speculative investment that according to Paul Volcker, former Fed chairman, played a major role in the 2008 financial crisis.

White House National Economic Council Director Gary Cohn has defended Trump’s move, arguing many of the post-crisis regulations are ineffective in targeting the problems they claim to address. “I’m not sitting here saying we want to go back to the good old days”, he said, according to The Wall Street Journal.

He also argued: “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year.”

However, the move is not without criticism. For one, Jeremy Grant from the Financial Times tweeted:

Israeli innovation drives foreign investment

Posted on by Max Tomlin

Over the past two decades, Israel’s hi-tech sector has gone from strength to strength. Known to many as ‘the start-up nation’, the Middle Eastern country has emerged as a hotbed for technological innovation.

Between 1998 and 2012, Israel’s tech industry grew at more than double the rate of the nation’s GDP, expanding by an average of nine percent annually. In 2015, Israeli start-ups collectively raised $4.4bn in venture capital funding, up 30 percent from the previous record high achieved just a year earlier. Thanks to years of booming tech sector activity, Israel now boasts more start-ups per capita than anywhere else in the world outside Silicon Valley.

With the nation now home to more than 1,000 new start-ups a year, business journalists and industry experts alike are looking to understand the factors behind the state’s remarkably successful hi-tech ecosystem.

An entrepreneurial ecosystem
While the nation’s start-up success has often been compared to that of Silicon Valley, the Israeli model is unique in many ways. From the online marketplace Fiverr to the award-winning traffic app Waze, each Israeli start-up has profited from an enabling ecosystem that allows new businesses to thrive. Within the small country, the start-up scene is strengthened by a culture of experimentation and entrepreneurial spirit, as well as government eagerness to support and nurture new talent. These factors, when combined with Israel’s highly skilled workforce and world-class academia, have helped establish the nation as a leading site for business investment.

When analysing the elements that shape Israel’s flourishing hi-tech sector, it is sensible to first acknowledge the thriving entrepreneurial spirit that underpins Israeli business culture.

Thanks to [a] booming tech sector, Israel now boasts more start-ups per capita than anywhere else in the world outside Silicon Valley

“In Israel, we have an entrepreneurial culture that encourages people to turn their ideas into reality”, said Eyal Eliezer, Senior Director of the Strategy and Marketing Department at Invest in Israel, an investment promotion authority created by Israel’s Ministry of Economy and Industry.

“Israeli entrepreneurs are not afraid of failure”, Eliezer told World Finance. “We often encounter serial entrepreneurs who try again after failing the first time, and who use their experience to do better in their future business ventures.” The basis of this ambitious and enterprising spirit has often been attributed to the combination of Israel’s unique history of immigration and its mandatory military service.

In their 2009 New York Times bestseller Start-Up Nation: The Story of Israel’s Economic Miracle, business writers Dan Senor and Saul Singer suggested immigrants are, by the very nature of their migrant experience, prepared to start from scratch and often have little to lose. Given that today nine in 10 Jewish Israelis are either immigrants or descendants of first or second-generation migrants, Israel can rightfully be classified as a nation of immigrants and therefore, potentially, a nation of natural entrepreneurs.

The authors also argued Israel’s mandatory military conscription plays an essential role in creating a shared enterprising culture. According to Senor and Singer, the required two years of service not only instils young Israelis with positive behavioural traits, such as discipline and a good work ethic, but also provides them with a network of contacts that may prove useful later in life.

The largely un-hierarchical structure of the Israel Defence Forces also creates an environment where achievements are valued over rank, thus encouraging young citizens to question and challenge their supervisors – a habit that stays with them long after they complete their mandatory service. “In Israeli culture, employees are even encouraged to disagree with their superiors, which makes entrepreneurship prevalent within companies”, Eliezer said.

Hi-tech talent
Israel also boasts a highly skilled, well-educated workforce and an abundance of specialised research and development (R&D) centres. With a population of just eight million people, the nation has the highest concentration of engineers and PhD degree holders per capita in the world – even beating the US. Remarkably, there are 140 technicians, scientists and engineers for every 10,000 Israeli employees, compared with just 85 per 10,000 in the US.

This pool of tech talent is in turn supported and nurtured by a high level of R&D funding and government investment in scientific infrastructure. At present, Israel is ranked second in the world in terms of its investment in R&D in relation to GDP, only outspent by South Korea. Eager to capitalise on Israel’s wealth of tech talent and commitment to R&D spending, an ever-increasing number of high-profile multinational corporations are choosing to establish operations in the nation. Microsoft, Google, Facebook and Apple are among the more than 270 leading technology companies with an R&D presence in Israel.

Overall, such centres currently employ more than 283,000 hi-tech workers, with many big-name tech corporations looking to further expand their Israeli operations in the future. Along with establishing R&D bases in the country, many multinationals are moving their advanced manufacturing operations to Israel in order to enhance cohesion between their development and production units. Eliezer said: “By moving both their R&D centres and advanced manufacturing bases to Israel, companies can enjoy an R&D-manufacturing proximity advantage, making the entire production process much more dynamic.”

Geographically situated at the meeting point of Europe, Africa and Asia, the nation is ideally located in terms of market access, and benefits from an EU-Israel trade agreement. With its proximity to developed and emerging markets, its network of well-funded R&D centres, and its specialised workforce, Israel is proving evermore attractive to foreign investors.

Eyal Eliezer, Senior Director of Strategy and Marketing, Invest in Israel

The innovation box
With many multinational corporations shifting their R&D operations to Israel, the nation is becoming a leading site for international investment. In 2015, foreign direct investment in Israel totalled $11.6bn – a staggering 90 percent increase from 2014, when $6.7bn was invested from overseas. While foreign investors are certainly keen to tap into the nation’s unmatched tech talent pool, a government eagerness to create supportive conditions for overseas backers has fuelled a fresh wave of investment in Israel.

“The Israeli Government seeks to offer maximally supportive conditions for companies and investors looking to invest in Israel”, Eliezer explained. “As part of the extensive range of incentives and benefits, the State of Israel encourages international investment by offering grants, reduced tax rates and tax exemptions to help companies offset expenses in capital, R&D and wages.”

The Innovation Box incentives:

Corporate income tax

6%

for firms with a global turnover of more than $2.5bn

Dividends

4%

withholding tax on dividends on distribution to a foreign company

Capital gains/ Exit tax

6%

for firms with a global turnover of more than $2.5bn

The grants available to foreign investors primarily come in the form of capital grants, employment grants and R&D grants. Foreign companies that fall under Israel’s Development Area A may be eligible for capital grants of up to 20 percent of the approved investment, covering investments in fixed assets such as equipment, buildings and furniture over a period of five years. If a company is approved for an employment grant, then this subsidy can be used to cover between 20 and 30 percent of the salary cost for additional employees. Finally, the government offers R&D grants that cover from 20 to 50 percent of a company’s total eligible R&D expenditure. The State of Israel also runs several R&D programmes for multinational corporations, which are designed to encourage them to invest in Israeli R&D activities.

In addition to these grants, the government has also created the Invest in Israel authority in order to provide practical support and advice to business owners looking to launch new operations in Israel. The government-backed initiative delivers a variety of customised services, in addition to offering potential investors a wealth of information on taxes, wages and Israeli regulations.

“We are a one-stop shop for foreign investment in Israel”, said Eliezer. “If you are an investor or an international business owner, our department will supply information about the Israeli ecosystem, escort you during your visit, help you navigate our country’s regulations, and much more. We are here to ensure that our clients have the best possible experience when investing in Israel.”

In July 2016, the Israeli Government sought to ambitiously extend the tax incentives it currently offers to foreign investors, publishing a proposal for an ‘innovation box’ intellectual property (IP) tax regime. Tax benefits from the proposed regime include a six percent corporate income tax rate and a four percent withholding tax on dividends for qualifying companies with consolidated revenues of over ILS 10bn ($2.5bn). The new proposal is set to come into effect as part of the upcoming state budget, and marks a significant opportunity both for multinationals currently operating in Israel and those considering investing in the Middle Eastern state.

Looking forward
With the creation of new, attractive tax incentives and grants, foreign investment in Israel is showing no signs of slowing down. Thanks to the success of the nation’s hi-tech sector, Israel’s economy is performing at its highest level since the 2008 financial crisis, boasting positive and steady growth far above the OECD average. In light of this economic prosperity, all global credit ranking agencies have recently raised Israel’s rating to A+, an encouraging move that suggests a bright future for its economy.

Over the next few years, industry experts expect to see greater international recognition of Israel as a global innovation hub, resulting in higher amounts of capital flowing to the nation. Furthermore, as investors from emerging markets are beginning to invest in Israel, this new capital is set to experience a diversification in terms of its sources. China in particular is turning its attentions to the thriving Israeli hi-tech sector and, as of 2016, the vast majority of Israeli venture capital funds have at least one Chinese investor on board during their financing rounds.

With increased diversification of funding, Israeli innovation is poised to become more global, strengthening what is already a vibrant and thriving business ecosystem.

Brexit made official as Parliament passes key bill

Posted on by Max Tomlin

While the UK’s popular vote to leave the European Union took place over seven months ago, Parliament had the final say on February 1: voting to officially trigger the legal process of Brexit. The decision to invoke Article 50 – the bill establishing the legal proceedings through which member states may withdraw from the EU – was supported by both major parties and passed by 498 votes to 114.

The vote in Parliament was the subject of an intense legal struggle, with the Supreme Court eventually ruling parliamentary approval was required despite the fact the issue had already gone to a popular vote.

Once Article 50 is invoked, there will be a two-year time limit to complete negotiations

The vote inspired a passionate debate which culminated in a predominantly pro-EU parliament yielding to the public’s ruling. “Democracy is much more difficult when we disagree with the majority”, said George Osborne, the UK’s ex-chancellor. However, several smaller parties opposed the bill, as well as 47 ‘rebel’ voters from the opposition Labour party.

The decision clears the path for Brexit talks to begin, with the prime minister pledging to trigger Article 50 by March 31. Once the law is invoked, there will be a two-year time limit to complete negotiations, during which EU laws will continue to apply in the UK. The time limit is stipulated in the article, which states EU laws will cease to apply after two years unless the European Council, in agreement with the UK, unanimously decides to extend the period.

While the timescale has now been clarified, the shape of the deal, which will be pursued in coming negotiations, remains uncertain. UK Prime Minister Theresa May has made it clear the UK will leave the European single market despite criticism this could instigate a serious blow for the economy. According to Osborne, this is an active choice by the government to prioritise immigration control over the economy.

In approaching negotiations, the UK will seek the maximum possible access to the single market for goods and services, but the final outcome will depend on the priorities of EU negotiators.

Osborne predicts the tone of negotiations will be “rather bitter”, comparing it to a divorce. He further elaborated: “Having spent the past couple of weeks in Berlin and in Paris talking to some French and German political leaders, it is clear to me that although they understand that Britain is a very important market for their businesses, their priority is to maintain the integrity of the remaining 27 members of the European Union; they are not interested in a long and complex hybrid agreement with the UK.”

Baba Ahmadou Danpullo: Africa’s discreet business magnate

Posted on by Max Tomlin

With a fortune estimated at $940m, Baba Ahmadou Danpullo is ranked number one on Forbes Afrique’s rankings – the French edition of the US magazine. Danpullo is a discreet man, avoiding the media and the fame that typically comes with immense wealth. In fact, according to many of his close friends, he does not lead a complicated life.

Danpullo once said: “I do not like the media, I always try to stay in the shade and evolve without putting myself forward, but now I am projected to the light.” If he recognises what has been written about him, he suggests that journalists have only managed to identify a small part of his life and achievements.

Guibaï Gatama, the Cameroonian editor of the weekly L’Oeil du Sahel magazine, said: “From a modest family, Danpullo started as a truck driver and owner of a few stalls, until he met Youssoupha Daouda, the Minister of the Economy and Planning.” Impressed by Danpullo’s ability to mobilise XAF 4.5m ($726,000) over a very short time, Daouda granted him the licenses to import rice and flour. He also connected Danpullo with Sadou Hayatou, who at the time led the International Bank for Commerce and Industry of Cameroon. This is how Danpullo obtained an unsecured first loan of XAF 500m ($807,000) to begin importing.

Taking care of business
Africa’s difficult economic situation in 2015 did not negatively impact Danpullo’s business tremendously, due to his diverse business assets. He invested XAF 4bn ($6.4m) to double the production capacity of his company’s flourmill, Moulin Coq Rouge (MCR). Danpullo also increased his stake in Cameroon’s Nexttel, the third largest telecommunications operator in the country. He now owns 49 percent of the company. Danpullo’s company recorded an increase in its activity of 54 percent, and revenues of XAF 21bn ($33.9m).

Danpullo operates through the family holding Baba Ahmadou Group, a diversified conglomerate with operational headquarters in Douala, the economic metropolis of Cameroon. Baba Ahmadou Group is a holding company that has many companies with just one single shareholder: the Baba Ahmadou Danpullo family. The group is present within Cameroon, South Africa, Nigeria and Switzerland. It operates in varied sectors across real estate, the agro-industry (animal husbandry, tea and cotton), transport (aviation and freight airlines), telecommunications, media and physical trading.

Within the animal breeding industry, Danpullo owns the Elba Ranch, a private, family-run breeding company founded in 1976. The company is composed of three ranches: Ndawara, Esu and Batcham. With more than 20,000 French-origin cattle (Charolais and Blonde Aquitaine) Danpullo also raises horses, with more than 3,000 species of Andalusian horses and several thousand sheep and goats.

Africa’s difficult economic situation in 2015 did not negatively impact Danpullo’s business tremendously, due to his diverse business assets

Across the agro-industry sector, Danpullo has two major tea companies: the Cameroon Tea Estate and the Ndawara Highland Tea Estate. With a total area of more than 10,000 hectares, these two companies are made up of four tea units in three regions of Cameroon: the southwest, west and northwest.

A source at the Cameroon Tea Estate said: “Currently, we produce black tea exclusively. Given the growing demand for green tea, we are also planning in the near future to make this category of tea available to the customer.”

Danpullo noted: “Our production capacity is 8,000 tonnes per year, 80 percent of which is destined for export and 20 percent sold on the local market. The altitude, soil – made of volcanic earth – and the selected clones make our tea one of the best in the world.”

Utilising all trade options
Through Société Immobilière du Cameroun (SMIC), the Baba Amadou Group is an 11 percent shareholder of Sodecoton, a company created by the Cameroonian Government to oversee the activities of the cotton-growing industry within Cameroon. In the agro-industry sector, Danpullo also owns his wheat flour manufacturing unit, MCR, which has a current capacity of 400 tonnes of flour per day for an effective production of 325T/J.

MCR produces two types of flour: regular and specially treated flour, for non-bread application. The plant’s manager said MCR plans to add other ranges to the special flour option in the medium term. These include Viennese flour, pastry and wholemeal bread. Mixtures are operated according to the quality of commercial flour needed on the basis of strict specifications.

The company also produces wheat by-products for animal consumption. These products are mixed to produce a better quality feed for livestock. In order to ensure and sustain the quality of the flour with the final consumer, MCR has set up a training centre that ensures the baker’s staff is up to date on the mill’s technical capacity, and is clear on the requirements of periodic recycling.

The Baba Amadou Danpullo Group has a presence across the telecommunications industry through telecoms operator Nexttel, of which it holds 49 percent of the shares, alongside Vietnamien Viettel. Nexttel is composed of two shareholders, namely Viettel Group and Bestinver. As the third telecommunications operator and pioneer of 3G technology in Cameroon, Nexttel launched its commercial activities in September 2014. Since then, Nexttel has claimed 3.6 million subscribers and created 1,000 new jobs, and more than 60,000 secondary jobs. The operator has invested XAF 250bn ($403.5m) since it entered the market.

Nexttel’s distribution network consists of 24 agencies, several call centres and door-to-door resellers whose main objective is to provide consumers with Nexttel products and services. With a network coverage estimated at more than 85 percent of the national territory, the company has 3.6 million subscribers and more than 1,000 employees. A Nexttel operator said: “Because we believe that technological innovation should be accessible to all, we are proud to have many rural areas now connected to our network.”

The operator added: “We are committed to providing the latest technological solutions and the best products and services to contribute to the development of the country.” The Baba Amadou Danpullo Group also owns the Cameroon-based private television channel Dan Broadcasting System. Created in 2006, the channel has been operational since June 2009.

Widespread property investment
The Baba Danpullo Group holds substantial real estate assets across Cameroon, South Africa, the US and the Federal Republic of Nigeria. These assets include warehouses, apartments, shopping centres and commercial offices. This business activity focuses primarily on investment opportunities in the commercial real estate market. Today, it has the largest portfolio of independent properties in South Africa. This includes commercial buildings and shopping centres in Johannesburg, Cape Town and Port Elizabeth.

The group oversees the management of all its properties, while maintaining a permanent asset management function to ensure property performance is fully optimised.
The South African headquarters of the Baba Ahmadou Group are located in Thibault Square, Cape Town. The building, which was recently renamed Norton Rose House, was originally called Southern Life Centre. Located downtown, it is close to the main train station in Cape Town and its urban transport networks. The building also offers public parking spaces.

Across South Africa, Danpullo has acquired many buildings, including the Marble Towers skyscraper in Johannesburg, which it acquired from the Sanlam Group in 2003. The Marble Towers is the second tallest building in the country. In 2000, Danpullo also bought the Mitsubishi head office building in Nelson Mandela Square, Sandton, Johannesburg, from Stocks and Stocks. He also purchased the His Majesty Building from Anglo American, and the Waldorf, which he sold to NBS Bank in 1998.

Danpullo is also a well known retailer in South Africa, where he owns three shopping centres, including the King’s Court in Johannesburg and the Moffett On Main Retail Centre in Port Elizabeth.

Having started out as a truck driver and owner of just a few market stalls, Baba Ahmadou Danpullo has made quite the name for himself and his family. The Baba Ahmadou Danpullo Group has grown tremendously over the years, along with the industries that Danpullo is associated with and operates in. From imports to telecommunications and real estate, Danpullo’s success can be attributed to his determination, business mind and drive, making him Forbes Afrique’s numéro un.

Adrienne Penta: Wealth managers must listen first to serve women better

Posted on by World Finance

Today, more than 51 percent of US wealth is controlled by women. But of women with financial advisors, more than half feel their advisor doesn’t listen to them, or doesn’t understand them. Adrienne Penta, Executive Director of the Brown Brothers Harriman Centre for Women and Wealth, doesn’t think that the wealth management industry is failing at feminism – but wealth managers do sometimes forget the real value they bring to the table. She explains where things have gone wrong, and how wealth managers need to learn to listen again. She also explains the conversations the Centre for Women and Wealth is facilitating: at the intersection of wealth, family, philanthropy and legacy.

World Finance: Today, more than 51 percent of US wealth is controlled by women. But of women with financial advisors, more than half feel their advisor doesn’t listen to them, or doesn’t understand them. Joining me down the line is Adrienne Penta from Brown Brothers Harriman.

Adrienne – what’s going wrong? Is the wealth management industry failing at feminism?

Adrienne Penta: Paul, you’re right with the data. Women are controlling more wealth than ever before in the US. We know that they’re controlling 39 percent of investible assets in the US. But we know that they’re still not quite satisfied with what the wealth management industry is providing to them. And in particular they don’t think that their advisors understand their needs or are listening to them in the right ways.

Oftentimes – especially with younger advisors in our industry – sometimes we think that the value we bring to the table is the really smart information we have. Whether it’s market commentary or sophisticated tax planning. It’s not.

The value that we bring to a client’s situation is the ability to solve their hardest problems. And in our case those hardest problems are usually about wealth and family and how their achieve their values and their legacy. And so in order to do that, we have to start with listening and really understanding our clients’ perspectives, and what their issues are, and what keeps them up and night. And only then can we apply what we know to actually help our clients.

So it really starts with a client focus, and understanding their perspective.

World Finance: Rather than simply mansplain to them. It feels like it shouldn’t be revolutionary to say that wealth managers should listen to their clients – what’s gone wrong?

Adrienne Penta: I think you’re right, I hope you’re right, I think that listening is the foundation of our business, for sure.

And I think that this comes out of a very honest place actually. Because in the US and in the world, in fact, it’s only really within the last several decades that women have become substantial creators and decision-makers with respect to family wealth. So sometimes as human beings, we make assumptions when we’re sitting in front of clients about actually who makes the decisions, or who controls the wealth in a family.

And instead of jumping to conclusions, we need to be really intentional, and really thoughtful, about how we engage women, about how we serve them, about how we include them in conversations, and how we create an environment where all of our clients – and specifically women in this case – feel included and well served.

World Finance: BBH has established the centre for women and wealth to address these issues – what do you offer?

Adrienne Penta: So there’s two real offerings I think that come out of the centre for women and wealth. And the first is, we really want to create a community of women, a place where our female clients can find a group, a network, a tribe of likeminded women, so that they can have a community in which they can consult and discuss and think about the issues that matter most to them.

So we carry on a number of events throughout the year in a whole bunch of different places. And they are focused on content that we think is at the intersection of wealth and family and values. Because we find that our female clients – and many of our clients! – don’t want to focus on those issues in isolation. They want to have a more robust conversation about how all those things work together for them.

And the second is that we’re creating content insights, through women and wealth magazine, through what we’re publishing online, about women who are CEOs, who are founding companies, who are philanthropists, who are leading the way. Who are thinking really in-depth about family planning and philanthropy and legacy and engaging the next generation.

And I think what underlies the centre for women and wealth is a real commitment to make sure that we’re managing relationships with our clients in an effective way, that engages all of the stakeholders within the client family, because we believe that if we don’t have all stakeholders represented, then we actually don’t create as good solutions for families as we possibly could.

World Finance: As you say, women are taking a more holistic approach to managing their wealth: how does that change your work?

Adrienne Penta: So an example that I could give you here is that, we do a lot of estate planning. We work with our clients on making sure that their trusts and their estate planning and their tax planning is all very consistent. That their plan, when it comes to their estate and wealth transfer and philanthropy is in good shape, and is consistent with what we’re doing on the investment side.

One of the things that we’re focused on now is, how do we engage the next generation in those conversations? And how do we integrate values? How do I create a successful next generation in the presence of wealth? And how do I use my wealth to actually empower and to engage my children and my grandchildren, rather than make them feel isolated and burdened by that wealth.

Families that we work with want to have those conversations with their children about what does wealth mean, and how should it be used, and what is the intention behind it. But they don’t always have the tools to do that.

As advisors we see thousands of families, we see hundreds of wealth transfers. So through our experience we often have the tools, we have the best practices. We understand what in many cases makes families successful. So we are actually in the process of sharing and giving that information in a way that’s tangible and useable to the families that we work with, so they won’t feel that they don’t have the skillset, or they don’t have the tools to engage children, even adult children, in these conversations as stewards of family wealth.

World Finance: Adrienne, thank you very much.

Adrienne Penta: Thank you Paul, it’s been a pleasure.

BNP Paribas: driving digital change

Posted on by Max Tomlin

There was a time when banking meant cumbersome payslips and hefty chequebooks – lengthy processes and piles of paperwork that took up valuable time and effort.

These days, of course, those chequebooks have been almost completely replaced with online transfers. Cash is competing against contactless payments, and digital banking is becoming the go-to resource; in the US, for example, 53 percent of smartphone owners with a bank account reported using mobile banking in the past year, according to a 2016 report by the Federal Reserve. The industry has clearly come on a long way in digitalising its processes.

But while that’s true, there’s still a whole lot more to be done before the sector’s key players can say the job is done and dusted, according to Béatrice Belorgey, CEO of BNP Paribas Banque Privée. “Even today, banks are still often bogged down by procedures that require paper documents and client signatures”, said Belorgey. That makes it hard to streamline internal practices with those of its customers. Getting rid of the paperwork completely, Belorgey explained, would enable staff to align internal documents – contracts, brochures, client records and other important information – with external sources such as legal information sites, therefore helping everything to run more smoothly. “Going paperless gives private banks the advantage of improving efficiency.”

For Belorgey, modern banking means adapting to consumer expectations and providing a service tailored to them. “Client behaviour and preferences in the way they consume bank products and services have evolved significantly in recent years, with increasing appetite for digital solutions for greater flexibility and swift”, she told World Finance. “Of course, giving clients instant access to basic transactions – on their smartphones, tablets or computers – has become the very least that a bank can provide, but it is not enough to fully meet their expectations.”

Going paperless gives private banks the advantage of improving efficiency

In response to these changing needs, BNP Paribas has begun implementing various programmes to step up its digital strategy and address consumer demand. From testing out new technologies and introducing video conferencing to creating a concierge service and implementing a start-up accelerator, the bank has taken a diversified, forward-thinking approach that is helping it stand out from others in the field.

Speeding up the process
It’s evident one of the key areas for improvement in the sector lies in making digital banking quicker, smoother and simpler for customers to use, which may well mean doing away with passwords. “Client access is often complicated by the need to provide an account number and password”, said Belorgey. “Access needs to be faster without compromising security. The client experience needs to be reviewed and procedures streamlined to adapt to new client/banking relationships.”

One means of doing that, of course, is through new forms of technology – something BNP Paribas has been ahead of the game in recognising. The bank is currently testing a biometric authentication method that uses facial, fingerprint and voice recognition to identify users far more quickly and securely than entering a cumbersome, difficult-to-remember password can. Recorded messages, touch ID and photo recognition have been on the radar for several years, and stepping up their use in the banking sector is a logical move.

It could mean exciting things, like giving clients access to all the information they might need in one place, and so forming an electronic ‘vault’ that would act as a platform for various exchanges with the bank. This would make it simpler for clients to keep up to date with their finances on a holistic level, Belorgey said. “Clients would have a consolidated view of their financial and non-financial assets to be able to make informed decisions at all times. Digital banking can no longer be limited to basic operations. The client needs a 360-degree view, covering all assets.”

Big data
Of course, providing an enhanced service isn’t just a case of improving the speed of access; the key is in ensuring the service meets the client’s individual needs. For that, there’s big data.

Concerns over privacy are rife where big data is concerned, but if it’s harnessed in the right way it can have far-reaching advantages. By monitoring clients’ preferences, banks can target the right products at the right people, in turn benefitting both parties.

Belorgey is clear on what this means: “Data usage – governed, of course, by an appropriate data usage policy – should be geared towards serving our clients. The goal is to offer them the most suitable range of products and services tailored to their needs, not to track them. Accordingly, we need to establish procedures and encourage private bankers to make a habit of collecting, processing, updating and using data.”

The bank is therefore looking into various possibilities, from analysing customer interests based on their use of banking apps, to using social media as a tool for measuring preferences.

The role of fintech
Delving into technology is all very well and good, of course, but there are certain innovations that are beyond the capabilities of the banks themselves, which is where fintech firms come in. “Sometimes the digital transformation calls for cutting-edge technical solutions that banks don’t currently have and would take too long to develop”, Belorgey noted. “In these cases, it’s better to turn to experts in the industry by selecting the right fintechs for the job.”

53%

of US smartphone owners used mobile banking in 2016, according to the US Federal Reserve

€100,000

Amount BNP Paribas donates to select fintech start-ups

With that in mind, BNP Paribas set up a dedicated fintech accelerator last year to support start-ups that are seeking to improve the customer experience – becoming the first bank in France to do so. The programme involves providing funding of up to €100,000 to the chosen firms, each of which work with a specific area of the business to help develop new products, services and opportunities. They aim to do so within the space of four months.

The start-ups receive mentoring from experts in their field and are given a modern, central office space in Paris, alongside the backing needed to accelerate their growth.

“By accompanying the start-ups during the main steps – sourcing, acceleration, pilot testing and full scale rollout – the programme enables innovative products and services to be developed in line with the changing needs and expectations of both corporate and individual clients”, Belorgey explained.

The process began by sending out a call for tenders to attract relevant start-ups. Eight were eventually chosen from a total of 142; among them was TwinPeek, a start-up whose goal is to help consumers choose what information they want to share online by creating a ‘digital alter-ego’, and KYC3, which seeks to use artificial intelligence and big data to improve ‘know your customer’ processes. The application creates a ‘digital fingerprint’ for each client in order to enhance security.

The firms were selected by L’Atelier BNP Paribas, the body responsible for aligning each start-up with the appropriate business segment. This was arranged in collaboration with several of the company’s entities, including BNP Paribas Wealth Management, BNP Paribas Banque Privée, Cardif, Personal Finance, French Retail Banking and Securities Services.

The project has been so successful that another round will soon be taking place, with applications closing mid-January and selections being made in February for a March enrolment. To ensure it reaches its full potential, the approach will be adapted according to feedback from the previous round.

Complementing, not competing
With the rise of fintech firms and digital transactions, however, comes the concern that traditional banks could begin to be overlooked. Not so, according to Belorgey, who believes they still have a key role to play in providing information that digital forms cannot: “Digital services do not replace the bank’s skills and expertise, especially when it comes to global support and bespoke solutions.”

Rather, Belorgey said, it’s about complementing the forms that already exist. “Clients don’t want digital for the sake of digital. They’re interested in what it can offer them in terms of flexibility and expediency in their relations with their bank, without compromising quality of service or access to top expertise. It’s not about lowering costs, but about enriching our offering.

“The acceleration programme is the perfect illustration that fintech companies aren’t direct competitors to banks, but offer complementary services and assist them with their innovation.”

Videoconferencing is a perfect example of how digital services can do exactly that, providing traditional expertise via a forward-thinking, efficient approach, which saves customers the time of having to physically go to a branch. “We promote it because it’s convenient for our clients and we want to meet their clearly expressed need to save time”.

It is these technologies that are key to further improving the customer experience and ensuring that digital banking is as smooth and efficient as physically possible. Knowing how to harness their opportunities is exactly where the challenge lies for the banking sector at large, but – if its list of moves so far is anything to go by – BNP Paribas is one bank, at least, facing that challenge head on.

Emerging nations in the global economic climate

Posted on by Max Tomlin

Following 2016’s populist revolts in the US, the UK and Italy, 2017 could provide a unique opportunity for several under-the-radar nations like Canada, Argentina and Japan to exert wider influence in a dramatically changed global landscape.

Just as companies must carefully nurture their brand image to achieve success, these countries understand that their reputations – how they position themselves and how others perceive them – are vital to their economic growth and diplomatic and cultural influence. Strong branding is essential to everything from attracting foreign investment and adding value to exports, to promoting tourism and wielding ‘soft power’.

[A countries’ reputation is] vital to their economic growth and diplomatic and cultural influence

Top Trump
Of course, no discussion of the power of national brands in 2017 can begin without examining how “Brand USA” will be impacted under the leadership of President Donald J Trump.

Regardless of your political stance, the story of President Trump’s rise from a bankrupted entrepreneur to President of the United States is, in many ways, a reflection of the American brand: the American dream. Myths are one of the most powerful reinforcers of brands and there is no better illustration that anything is possible in the US than Trump’s establishment as the leader of one of the most powerful countries on Earth.

One president, however, can only have an incremental impact on a solid brand like the US ­– a country strongly defined by longstanding values, iconic products, vast cultural output, superstar athletes and celebrities, popular tourist destinations and more.

President Trump, though, could potentially play a more influential role in one area that is critical to a nation’s brand: its reputation for good business. How he moves forward with his plans to invest in America’s infrastructure and support its thriving technology industry will be a key indicator of the impact he will have on the US brand.

Brave new world
While Trump is likely to make most of the headlines, his peer to the north, Canadian Prime Minister Justin Trudeau, also has a clear opportunity to propel his nation’s increasingly strong “New Canada” brand forward in 2017.

Proclaiming Canada is “not just about natural resources, but about resourcefulness”, Canada has moved beyond energy and minerals to become a hub for technology and innovation, a leader in human rights and climate control, and a nation viewed as open, vital, and on the rise. Trudeau’s bid to win a seat on the UN Security Council signals the country’s intentions to have a greater influence in shaping international affairs in the years to come.

Beyond the US and Canada, global watchers should keep these countries on their radar in 2017:

Argentina
President Mauricio Macri successfully returned the country to the international markets and put Argentina back on the map through an array of ambitious initiatives including gathering more than 4,000 business leaders and investors in Buenos Aires for the first-ever Argentina Business and Investment Forum last year. The International Monetary Fund estimates Argentina’s economy will grow at least three percent through 2019.

Saudi Arabia
Its record-breaking global bond sale in 2016 – the largest ever by a developing country – put a spotlight on the Kingdom’s efforts to diversify its economy and move away from its reliance on oil. Keep an eye on Saudi Arabia’s dynamic, 31-year-old Crown Prince Mohammed bin Salman, who is leading initiatives aimed at enlisting young Saudis to play a role in transforming the country into a centre for renewable energy, entrepreneurship and tourism as part of its ambitious Vision 2030.

Japan
After years of challenges, the Japanese economy finally appears to be on a path to recovery and is expected to show stable growth in 2017. With Prime Minister Shinzo Abe enjoying high approval ratings following a historic visit to Pearl Harbor last month and a recovery in the Japanese economy, watch for him to take a larger role on the world stage by becoming the leading advocate for an open international trading platform – especially if the Trans-Pacific Partnership is scuttled by President Trump.

Senegal
Under the leadership of President Macky Small, Senegal’s economic growth rose to 6.5 percent in 2015, making it one of the top 10 fastest-growing economies in the world, one of the most stable democracies in west Africa and the region’s leading business hub. In 2017, Senegal is poised to become a more influential player in the energy sector thanks to new offshore oil and gas discoveries.

Most of these countries share traits that provide a model for other nations seeking to strengthen their brands in a new world – a world in which globalisation and the leadership of the elite is being met with fresh challenges and questions. Nations with energetic leaders, who speak with an authentic voice, who understand the power of optics and digital media and who are committed to creating jobs and economic growth, have demonstrated the power of a new type of national branding. Now, all eyes will be on them to see how they can continue to move their nations forward and face the unexpected challenges that surely await them in the coming year.

Richard Attias is the Founder and Executive Chairman of nation branding and global communications consultancy firm Richard Attias & Associates. He produced the World Economic Forum in Davos from 1993 to 2006 and founded the Clinton Global Initiative and the Nobel Laureates Conference.

The global effects of Trumpenomics

Posted on by Max Tomlin

On January 20, businessman turned politician Donald Trump took the helm of the world’s most dominant economy. He brings with him a series of drastic and unorthodox economic plans that will inevitably reverberate the world over.

A special focus report, recently released by the World Bank, shines light on the “sizeable ripple effects” that can be expected should Trump fulfil his campaign manifesto. The report emphasised global growth hangs directly on decisions made in the White House; predicting the global growth rate will diverge from current projections in the event Trump fully implements his policy promises.

[Trump’s] lax approach to financial regulation
has the potential to unleash newfound inflationary
pressures on the economy

Notably, if he keeps to his word on fiscal measures, the bank predicts an “increase [of] both US GDP growth and global growth above baseline projections in 2017 and 2018”. The flip side, however, is a warning the same polices could harbour destabilising financial effects for emerging market economies.

According to estimates from the World Bank, the role of the US is dominant to the extent a one point increase in US growth could lift growth in advanced economies by 0.8 percent, and developing economies by 0.6 percent. However, its influence takes on a much more pervasive form for emerging market economies, whose dollarised financial system has left them burdened with an unhealthy exposure to US policy decisions.

In such countries, US monetary policy can set the tune for credit conditions and financial health. World Finance talked to Professor Charles Calomiris, Professor of Financial Institutions at Columbia Business School, who said: “What we know from the last 30 or 40 years is that there is a very close relationship between the cycle of monetary policy in the US and the cycle of crises in emerging market countries.”

Trumpenomics begins
Since Donald Trump’s election victory, the cycle of monetary policy in the US has reached the brink of a new phase. After eight years of historically low interest rates, the country is now facing a new era of tax cuts, deregulation and fiscal injections. Trump has declared he will dramatically cut income and corporate taxes, while simultaneously launching vast new infrastructure projects. In addition, his lax approach to financial regulation has the potential to unleash newfound inflationary pressures on the economy. The Fed, of course, is poised to react, with many arguing a lift-off of interest rates is imminent. Indeed, Calomiris argues, “interest rates are likely to rise much faster than people think”.

In the first policy announcement since Trump’s victory, the Fed signalled hikes in 2017 would be more frequent than previously projected. While only two rate rises of 0.25 percent had originally been planned, the latest projection suggests three will be implemented. Currency markets also jumped on this theme, with interest rate expectations triggering a surge in the dollar upon the announcement of Trump’s election victory.

The World Bank has warned of the adverse implications of such a Fed lift-off, particularly in the event that policy decisions by Trump’s incoming administration propel rate rises to a pace faster than originally anticipated. The report outlined: “Tightening US financial conditions – whether due to faster-than-expected normalisation of US monetary policy or other reasons – could reverberate across global financial markets, with adverse effects on some emerging markets and developing economies that rely heavily on external financing.”

Donald Trump has already signed a number of executive orders
Donald Trump has already signed a number of executive orders reinforcing his campaign rhetoric

Financially exposed
Crucially, rising US interest rates threaten to expose the financial fragility of many emerging market economies. Many emerging economies hold a vast proportion of their corporate and national debt in dollar form; meaning borrowers are extremely vulnerable to either an exchange rate devaluation or changes in US interest rates. Such borrowers are experiencing a surge in the size of their debts amid a hike in interest costs. Damaged creditworthiness of debtors can then threaten banks’ credit quality, triggering a tightening of credit supply.

According to Calomiris, this weakness is further exacerbated by the dominance of debt issued on short term contracts in countries with weak institutional characteristics. This kind of short term dollar denominated debt embodies a certain volatility, given investors “are reserving the option to withdraw the money suddenly once interest rates return in the US”. Thus, many nations are facing the prospect of a sudden withdrawal of capital and tightening financial conditions, which could prompt severe consequences for economic activity.

[Emerging economies] are extremely vulnerable to either an exchange rate devaluation or changes in US interest rates

Peru, Turkey and Mexico, among other emerging market economies, have all seen the value of their currencies tumble upon the announcement of Trump’s victory.

The shock that can be expected as a result of capital outflows is of course not just one story – it will vary widely from country to country. Calomiris believes: “This reflects the institutional characteristics of the country… to give an example, Peru is, I think, a big concern. People have believed for some time that the exchange rate is overvalued, that they are a dollarised financial system, and that they are not in a position of short term strength.”

This fragile financial scenario seen in emerging market economies is nothing new. It has been building for years, spurred by a lengthy phase of loose Fed rates and a lack of protections against an influx of dollarised debt. In an integrated global economy, it is inevitable that decisions made in the world’s largest economy will have implications beyond its borders. In this case, the ripple effects felt by emerging markets will be broadly mixed.

On the one hand, with the outlook for growth in the US broadly positive, the world economy is likely to see a boost, especially in the event of a fiscal stimulus. Nonetheless, the exposure of long-standing fragilities in many emerging market economies will present a painful side effect to a new era of US policy.

South Korea’s banking technology drive

Posted on by Max Tomlin

Established nearly 120 years ago with capital from the royal treasury of Emperor Gojong, Woori Bank has been at the forefront of building the framework for modern finance in South Korea. The bank is known for having been a trustworthy partner to its customers throughout many of the country’s historic moments.

Woori Bank has a well-balanced business portfolio, which varies from household products and SMEs to large corporate customers, maintaining long relationships in each through a variety of banking options. Throughout the years it has forged strong relationships with large corporations, and is proud to be the main banking partner of Samsung, LG and POSCO, just to name a few. With these partnerships in place, the bank has contributed to the development of the Korean economy.

Serving the Seoul Metropolitan Government for the past 100 years, Woori Bank has been chosen as the primary banking partner by more than 70 percent of Korean public institutions. In retail, it has secured a 22 million-strong customer base through differentiated strategies and innovative product offerings.

In terms of overseas operations, the bank has a presence across 24 countries with a network of 218 branches – the most extensive overseas network of all Korean financial institutions. Today, Woori Bank is known across the world and is a NYSE listed company. As the first bank in Korea to be listed on the country’s stock exchange – and as the first Korean financial institution to open an overseas office – it has been leading the way throughout its history.

With this determination in place, the bank will continue to play an integral role within the Korean banking industry, based on its core values of customer satisfaction, honesty and trust.

Turning circumstances around
During the global financial crisis of 2008, Woori Bank faced some difficulties. However, an organisation-wide initiative to become more innovative led to some significant changes, starting at the top. By doing this, the firm was able to make a positive turnaround that has continued through to today, where all performance indicators – including profitability and asset quality – have improved. Investors have greatly increased their interest in the bank, mainly due to its improved fundamentals.

With key partnerships in place, Woori Bank has [continued to contribute to] the development of the Korean economy

In terms of profitability, the 0.2 percent return on assets at the end of 2013 rose to 0.5 percent at the end of Q3 2016, while return on equity increased from 2.5 percent to 7.5 percent. During 2016, the bank built a cornerstone to earn over WON 1trn ($867m) in net profits every year.

Asset quality has also continued to improve. The bank has set strict credit limits to the exposure of each industry, and has strengthened credit assessments to pre-emptively manage potentially problematic assets. Woori Bank has also steadily reduced questionable sector assets, while increasing the portion of prime level assets. The emphasis on risk management has led its non-performing loan ratio, which was 2.99 percent at the end of 2013, to reach 1.05 percent at the end of September 2016. The coverage of non-performing loans, meanwhile, picked up from 82.3 percent to 156 percent.

Improved financial performance is not the only good news to come out of the bank recently. The long-awaited privatisation of Woori Bank has recently been finalised: the Korean Government sold off 30 percent of Woori Bank shares to private entities as its majority ownership changed for the first time in 16 years.

Successful privatisation has increased the market’s expectations immensely. The bank is confident it will meet these expectations as new corporate governance will provide stability while management actively pushes forward on business diversification in order to increase business opportunities.

A changing demographic
In an environment where the boundaries between finance and IT are breaking down, Woori Bank is actively promoting fintech to be its next major driver of growth. In May 2015, the bank launched South Korea’s first ever mobile-only banking service, known as WiBee Bank, later adding a mobile messenger service, WiBee Talk. It also released an online open market service called WiBee Market to establish a comprehensive mobile platform. At the time of release, these services were all unprecedented in the Korean financial industry.

The WiBee platform offers a wide variety of services. For instance, customers can use their smartphone apps to sign up for mobile-only deposits with preferential rates and loans, use the simple payment system service, and apply for travel insurance. They can also use WiBee Talk for convenient money transfers.

Furthermore, Woori Bank has been a driving force in taking initiatives across the fintech industry. It was the first bank to implement payment and ATM withdrawals using Samsung Pay, and also introduced an iris recognition system for mobile banking.

To overcome the low-growth, low-margin environment, the bank is proactively searching for new revenue streams. As a financial institution with the largest global network in Korea, Woori Bank is continuously expanding its presence and business overseas. It is particularly focused on the southeast Asian market, where its competitive strengths in retail and mobile banking are set to significantly enhance its business.

Asset management will be another key pillar for the bank’s future growth. It will continuously strengthen its capabilities and improve its service in asset management to not only maximise customer satisfaction, but to also build on its earnings potential.

Managing greater wealth
With its overall aim to become the leading wealth management business in Korea, Woori Bank provides total customised financial solutions to its clients through its specialists, advising on matters of wealth management, tax and real estate. Furthermore, it hosts its Asset Allocation Strategy Committee each month to strengthen the bank’s expertise in customer asset management.

Customers can use their smartphone apps to sign up for mobile-only deposits with preferential rates and loans

The decisions made by the bank’s committee are used in the selection of recommended funds and the setup of private equity funds. The outcome from the committee meetings can be seen in its sample portfolio, and in making real investment decisions regarding the bank’s discretionary ISA asset management.

Securing a higher yield than the market rate is an objective Woori Bank strives for when making product recommendations and creating a model portfolio based on the stability of assets. The bank’s focus on managing a stable portfolio stems from its acknowledgment that commercial banking customers have a more conservative approach to banking, and therefore they have a higher preference for mid-risk, mid-return products, compared to high-return products.

Woori Bank carefully looks into not only the past performance of relevant funds, but also the risk management indicators – such as standard deviation of return and information ratio – whenever a customer is selecting products. When evaluating the investment product performance, the bank puts more emphasis on products that show stable returns over the longer term, to ones that have high returns in the short term.

The deterioration of profitability due to the current low-rate, low-growth environment is bringing about immense changes to financial companies and their channel strategy. As the deposit rates offered by banks have been decreasing, the importance of non-face-to-face channels – which can provide higher rates and greater convenience to some customers – has increased, especially to consumers more familiar with online or mobile banking.

Customers can purchase wealth management-related products, such as funds, insurance, foreign currency, gold, pensions and discretionary ISAs using non-face-to-face channels. Woori Bank has also established its online WM Centre, where customers can directly consult with advisors through video conferencing using the bank’s homepage, or by phone or email.

These advisory services are mostly focused on market analysis, product marketing, customised product planning and effective rebalancing of existing assets. The adoption of a ‘robo-advisor’ service has also eased the client qualification criteria, and will expand the bank’s overall customer base. For these robo-advisors, Woori Bank is developing a pilot programme service called Robo AD-Alpha, which will be fully implemented in the coming months.

This new systematic and specialised asset management service will recommend customised investment portfolios. It will also automatically rebalance these portfolio and financial products through a computer algorithm that is equipped with artificial intelligence, thereby analysing big data related to customers and transactions.

Robo AD-Alpha will stretch the asset management services currently provided to the bank’s high net worth customers across its affluent and mass-market customers, through personal computers and mobile devices. Not only will this service accommodate the diverse needs of all its customers, it will also contribute to the government’s drive towards expanding asset management services. The recommendations from Robo AD-Alpha will be frequently used in managing ISA and pension accounts, so the bank can increase customer returns and build a stable portfolio.

Trump considers Mexican tariff

Posted on by Max Tomlin

Less than a week into office, US President Donald Trump has substantially soured relations with southern neighbour Mexico, threatening the beginnings of a trade war. Trump has voiced his support for the introduction of an import tariff on goods from Mexico, with the money generated used to fund the construction of the infamous wall promised during his presidential campaign. His statements have been interpreted as support for a current proposal from House Republicans for a 20 percent tax on all goods imported to the US.

While the intention of the tariff is to force the cost onto Mexico and its industry, the bulk of the tax would likely be passed on to US consumers

As reported by The New York Times, Trump’s apparent support for this import tax came following a diplomatic standoff with Mexico’s president Peña Nieto, who cancelled a visit to Washington over Trump’s insistence Mexico would pay for the construction of the wall. However, Trump’s commitment to the tax has since been rolled back, with White House Press Secretary Sean Spicer telling reporters an import tax was just one of several options being considered. The tax plan being proposed would need congressional approval to be implemented.

While the intention of the tariff is to force the cost of the wall on to Mexico and its industry, the bulk of the tax would likely be passed on to US consumers. As reported by The Guardian, Mexican Foreign Minister Luis Videgaray cautioned a tax in this format would punish the US people: “A tax on Mexican imports to the United States is not a way to make Mexico pay for the wall, but a way to make the North American consumer pay for it through more expensive avocados, washing machines, televisions.”

Additionally, should goods from Mexico become too expensive, US consumers and retailers would likely turn to other countries, thus limiting the funds that could be generated from the tax.

Despite the questions surrounding how it would be funded, the wall is going ahead; with Trump already signing an executive order issuing its construction. Trump has stated the wall will cost between $10bn and $12bn, although some independent estimates have placed the cost at closer to $25bn.