Year: 2018

PetroRio is flourishing in the face of adversity

Posted on by Max Tomlin

In 2014, the largest ever corruption scandal in Brazilian history engulfed the state-owned oil company Petrobras. Major cuts were suddenly seen across the industry, impacting huge projects with substantial amounts invested in them. It was the oil and gas companies, together with other key suppliers, that suffered the most due to a sudden pause in activity.

Fortunately, however, PetroRio is among the players in the industry that have taken some positives from the crisis. In terms of a countrywide perspective, the scandal caused not only Petrobras, but all its major suppliers, to embrace stronger governance and compliance measures.

The National Petroleum Agency has evolved from a historically bureaucratic regulator to a fast-paced and business-friendly agent

This shift created new opportunities for PetroRio, since its strong balance sheet puts it in a leading position with regards to buying assets in distress – such as those owned by Petrobras – in a market that also saw oil prices slide as Petrobras underwent all forms of public scrutiny.

The experience led Petrobras to adjust its strategy, rationalise its asset portfolio and seek a divestment agenda. This was seen by all to be very positive, considering Petrobras alone made up 94 percent of market share, and had to be able to cope with the necessary capital expenditure for all new bids undertaken by the government. The divestment programme plans to raise $21bn by the end of 2018, but some divestment processes still face challenges. Legal actions by oil workers’ trade unions attempt to keep state-owned assets from being sold to private corporations. Nonetheless, we do believe this will be overcome and give way to a new competitive landscape.

Divestment programmes

The Arctic Project is part of Petrobras’ $21bn divestment programme. Assets are packaged in clusters to make projects more attractive in terms of scale and logistics. The list of shallow-water assets which are of interest to us amount to approximately 50,000 barrels of BOE per day. PetroRio plans to adopt an aggressive strategy in its effort to acquire multiple assets from Petrobras’ divestment initiative.

Many international oil companies and financial institutions have already approached us, looking to carve partnerships for the bidding process, given our expertise in purchasing and redeveloping the Polvo oil field, which is located in the Campos basin. Regardless of any business partners, PetroRio is capable of buying several of these assets on its own due to its solid balance sheet.

Since most of these assets have been left aside by the operator in the past five to 10 years, we believe there are significant upsides for those that buy these assets. PetroRio was invited to all the tender procedures and is heading the field. Indeed, most other players either have other significant exploratory commitments on larger assets, or are already too leveraged to buy assets that demand significant investments to deliver the necessary upsides.

Some of these assets are located near PetroRio’s Polvo field, therefore there are some valuable operational synergies. There are of course several other M&A opportunities in Brazil being analysed and discussed with PetroRio at present, but few assets have such clear upsides as those from mature producing fields offered by the Arctic Project.

Growth strategy

PetroRio’s business plan is based on growth through the acquisition of oil and gas-producing fields. The company sees great opportunities in Brazil and also in other regions, such as South America and the Gulf of Mexico. These opportunities come not only from divestment plans from major oil players, but also from other smaller players reviewing their strategies since oil prices dropped in 2014. PetroRio has been maintaining regular discussions with local and international financial institutions that have shown interest in investing in the sector. Our strong balance sheet is free of debt and enjoys a solid cash position of close to $250m; this allows for productive negotiations, since banks and the companies selling the assets know we can close deals in a very short period of time.

As for organic growth opportunities, soon after Polvo was bought from BP and Maersk, PetroRio initiated the first stage of a comprehensive revitalisation plan to extend the useful life of the asset. During the first half of 2016, Polvo conducted well intervention and increased production by 20 percent. At that stage, the company’s goal was to increase production by revitalising its producing wells through workovers.

In the latter stages of 2017, investments were made in revamping the platform’s rig to prepare it for drilling activity, which will take place in early 2018. This will trigger the second stage of the investment programme. A two-well project is expected, with investments estimated between $40m and $60m, which will target up to 19.1 million barrels of undeveloped proved reserves and probable reserves, and test its certified possible reserves.

We expect to undergo further drilling during 2018 and 2019, and interventions in producing wells, such as enhanced oil recovery techniques, including other advanced technologies used in areas such as the North Sea.

To enable these investments, the company filed for a reduction in Polvo’s royalty rates, from the current 10 percent to the lower limit of five percent. The request, if granted, will extend the lifecycle of the field and increase its recovery factor and avoid premature decommissioning. It will also allow us to access and test undeveloped reserves and new geological horizons.

At present, the company’s operational efficiency rate averages 98 percent, much higher than the countrywide average of 85 percent. This high efficiency rating places PetroRio as a top-ranking player and a genuine benchmark for the industry. This was achieved after we underwent a strong switch in company culture between 2014 and 2016, a move led by the new management. Furthermore, through the active measurement of indicators provided by world-class systems, and a strong sense of urgency, we helped implement the changes that were needed to decrease the number of shutdowns and enable investments through a maintenance programme. A lot of hours were also put into innovation and training for our people, while a new health and safety programme was also successfully introduced. As a result, PetroRio achieved the incredible mark of 2,000 days without lost-time injuries, and is now part of the select group of companies with the Great Place To Work certification.

Acquisition of Brasoil

The acquisition of Brasoil was aligned with the company’s business model, which is driven by acquisitions, and represents a diversification of  PetroRio’s portfolio of revenue-generating assets, adding a natural gas field to reduce reliance in Oil-only assets.

Brasoil has a 10 percent stake in the Manati field concession contract, which currently produces 4.8 million net cubic metres of natural gas per day (approximately 30,000 BOE per day), placing it among the largest producing natural gas fields in Brazil. The concession also enjoys a take-or-pay contract with Petrobras, making it a strong cash-generating asset, with a 70 percent EBITDA margin.

PetroRio managed to acquire the asset at a low price. There are some significant tax benefits with the incorporation of Brasoil and we have identified some operational upsides which we are currently working on. With a low debt position and strong cash flow, we are also able to leverage Brasoil at an asset level for future investments and M&A opportunities.

Other Brasoil assets include a stake in the concessions of the Pirapema field – a natural gas asset currently in development – and an oil asset in Block FZA-M-254, both of which are located in the north of the country.

Now, and tomorrow

PetroRio went through a transformational programme when the controlling stake of Polvo was purchased in late 2013. Output had once peaked at 26,000 barrels of oil per day (BPD) in late 2010, but has been naturally declining ever since. Investments in Polvo’s redevelopment programme cost $13m, and saw an estimated increase of 1.7 million barrels in proven reserves and over 20 percent increase in production. With the incorporation of Brasoil, the Company now has the equivalent of an additional 3,000 BPD added to its production bringing it to 11,000 BPD in total.

PetroRio also carried out intervention with the use of advanced technologies, such as polymer injection tests in a producing well in order to reduce water and increase oil production volume. The result of these tests should help us in the next rounds of enhanced oil recovery techniques, which are estimated to take place between 2018 and 2019.

Investments in Polvo’s redevelopment programme cost $13m, and will see an estimated increase of 1.7 million barrels in proven reserves and a 20 percent increase in production. At the time, PetroRio increased its daily production, from 7,100 BPD (Q1 2016) to 9,000 BPD after completing these interventions. With the incorporation of Brasoil, we now have the equivalent of an additional 3,000 BPD added to our total production.

Brazil is living a fantastic moment in the oil and gas sector, with opportunities arising on many fronts. The National Petroleum Agency is playing its part in stimulating these opportunities. The agency has evolved from a historically bureaucratic regulator to a fast-paced and business-friendly agent. It has fuelled deals in the sector and ensured all rounds of bids are carried out within the original timeframe.

It is worth noting that opportunities are still arising in other regions of the world, not only from divestment plans already announced by oil majors, but from other smaller players who are reviewing their operations in multiple fields and focusing on large assets, as opposed to several smaller, more mature producing assets.

We expect to have some good news on the M&A front in the coming months, since the deal flow is high in the country and in other regions of interest. We also believe PetroRio will be the fastest-growing independent oil company in Brazil, being the best positioned company from a financial standpoint, while also targeting strong growth in the near future with our current investment programme.

6 basic principles of angel investing

Posted on by Max Tomlin

Governments around the world agree that angel investment is an important factor in boosting economies, and many have incentivised this kind of investment. In 2017, G20 leaders announced a focus on angel investment as a necessary measure to stabilise economies, pointing out that there is still a shortage of investors. Baybars Altuntas, an experienced investor and chairman of World Business Angel Investment Forum, spoke to World Finance about his six key principles of angel investment.

1. Understand what and who you are investing in
It is common for angel investors to ‘choose the jockey, not the horse’ when deciding who and what they will invest in. There is much more to this process than a quick binary choice of yes or no, and there are several approaches to considering teams that have been tried and tested in real-life business situations by experienced investors. Investors should consider the proposal from different angles: how much importance does the entrepreneur place on the investor’s background and character? How much due diligence should go into evaluating the start-up’s team? Should third-party collaboration be sought, and how much?

2. Understand the difference between start-ups and scale-ups
Statistics from the OECD reveal that a mere 1.2 percent of start-up businesses manage to attain angel investment, and that only one in 10 scale-up projects that gain investment actually make a successful business out of it. Therefore, what can prospective investors take away from these facts to apply in their own careers? Would it be wiser to deal only with start-ups that achieve lower success rates, by investing small amounts, or to take the risk of putting up more money for scale-ups which have a higher chance of success? It can often be a case of deciding between investing less with more attached risk, or investing more with less attached risk.

Having a thorough understanding of the principles of investment, and how exactly they are relevant to businesses of different kinds and ages, is crucial for a strong investment partnerships

3. What do you bring to the table?
Angels often consider themselves ‘value-added investors’, which means that they find helping to get a new business off the ground just as satisfying as they do helping it financially. The majority of angel investors were previously business owners and have a good understanding of what goes into making a company work. Angels contribute value-added advantages such as industry experience and knowhow, creative thinking, mentoring and industry contacts. When entrepreneurs value investors for more than the finances they bring to the table, they are more likely to get support across every facet of the company.

4. Don’t underestimate the value of mentoring
While a significant part of the job that an investor does for entrepreneurs is mentoring, it is common for investors to neglect to find their own mentor. Having a thorough understanding of the principles of investment, and how exactly they are relevant to businesses of different kinds and ages, is crucial for a strong investment partnership. Becoming familiar with the experiences of investors who aren’t new to the game is a great way of honing this understanding. Placing an experienced investor at the top of the mentorship chain that angel investment inevitably involves is a wise move for investing newcomers.

5. Be aware of exit expectations
Many start-ups expect the involvement of an angel investor to speed up the exit process, but the impact of an investor on exit – and exits in general – tends to be misunderstood. Much emphasis is placed on the start of business relationships, and growing them, and often business exit strategies are aimed at those approaching retirement. Awareness and training on exit transactions for venture capitalists (VCs) has become more common in recent times, which is very worthwhile as the majority of venture capital agreements give VCs full discretion over the outcome – if any – received by shareholders. However, exit strategies have transformed a lot in recent times: more companies than ever are being sold without ever having received investment from an angel, and this is happening sooner in a company’s lifetime than it used to. Many modern exit transactions are worth less than $30 million, and these usually take place a mere two or three years after the business’s start-up.

6. See the bigger picture
A former CEO who went on to be an experienced angel investor explained: “It turns out to be much easier than I expected, and also more interesting. The part I thought was hard, the mechanics of investing, really isn’t. You give a start-up money and they give you stock. But it really doesn’t matter: don’t spend much time worrying about the details of deal terms, especially when you first start angel investing. That’s not how you win at this game. When you hear people talking about a successful angel investor, they’re not saying ‘he got a 4x liquidation preference’, they’re saying ‘he invested in Google’. That is how you win: by investing in the right start-ups. That is so much more important than anything else.”

BAF Capital delivers impressive direct lending services across Latin America

Posted on by Max Tomlin

For more than 400 years, the banking sector dominated the international market for lending. Together with governments and mandated lead arrangers, these three groups have traditionally been responsible for the vast majority of issued loans. However, over time, their ability to meet changing market needs has gradually deteriorated. Between greater demands on banks to maintain their capital structure and governments being placed under increasing financial stress, issuing loans has become significantly more difficult.

As long as the default rate remains low, the volatility of the returns are extremely low, thus adding appeal for long-term investors

To counter this, other forms of lending are beginning to take prevalence in the market, offering the financial resources many businesses have recently been unable to access. Ernesto Lienhard, CIO of BAF Capital, said direct lending is one of the financial services that have emerged to fill this void.

Based in Switzerland, BAF Capital provides a broad range of financial services, specialising in the Latin America region. Primarily, the company provides working capital solutions to South American companies that mainly operate within the agribusiness, food and energy sectors. With a team of 120 professionals across five offices (Switzerland, Argentina, Uruguay, Brazil and Paraguay) and a management team with more than 30 years’ experience in corporate finance, the company has become one of the most active players in direct lending within the region.

“What we now call direct lending is lending provided by non-bank private entities,” Lienhard told World Finance. “The regulations and limitations to increase the leverage on a bank’s balance sheets opened an opportunity for non-banking independent private lenders to fulfil gaps in the global credit market.” Now, direct lending is set to continue to grow in both size and scope, gradually making up a far bigger proportion of the market. While the model presents some unique challenges, experienced direct lenders are now seeing significant opportunities in the years ahead.

Regulated growth

The lending market changed significantly during the aftermath of the 2008 global financial crisis. Many of the world’s banks have been forced to restructure their balance sheets to accommodate the significant write-offs that were necessary. Changes to regulations, such as increased capital requirements, have also weighed on banks worldwide. Coupled together, this has reduced banks’ capacity to offer loans, cutting off much-needed sources of credit to many small and medium-sized businesses.

Lienhard added that while stricter regulations have been responsible for much of the impact on the industry, there have also been additional factors at work: “Although tougher regulations for banks played a role in the reduction of their activities, we should not forget that weak capital structures forced them to drastically reduce their capacity to hold all loans in their books.”

There are yet more factors at work behind the rise of direct lending. Global trade and the nominal value of the world economy have been expanding very quickly, mainly due to the increase in commodity prices over the past 20 years, as well as China’s ongoing growth. Lienhard explained: “Banks did not have enough capital to follow the pace at which the world economy was growing, which allowed other players to fill that space. Today’s environment of historically low interest rates and excess liquidity is driving investors to search for new sources of yield.” These many factors have combined to produce a surge in interest for direct lending.

Finding a niche

BAF Capital has been in the market long enough to see how much this has changed the industry. “BAF Capital started its activity in 1996 as an alternative independent lender,” Lienhard said. “At that time, we were seen as a marginal and exotic player within the financial services industry.” Now, BAF Capital maintains a larger and more important role within the market.

For the businesses that partner with BAF Capital, numerous opportunities can arise. According to Lienhard, reliability, flexibility and quick responses are among the most important: “By having an in-depth knowledge of the business that these companies are involved in, we are able to provide them with liquidity even during difficult times, which is very valuable for any company. In many cases, banks are more reluctant to lend during such periods, which allows BAF to build relationships with a broader range of companies, and with even better yields.”

Lienhard added that BAF Capital can also provide funding to a company operating in different jurisdictions at the same time, giving the company another significant advantage when compared with other lenders.

The benefits are not limited to the businesses seeking credit. Lienhard explained that BAF Capital also provides an excellent opportunity for investors to access a well-diversified, self-originated portfolio of private collateralised loans in South America. “We do not use leverage and all risks are in our books, therefore our interest is fully aligned with our investors.”

As with any loan portfolio, the key is to keep the default ratio well below the interest rate of the portfolio. “As long as the default rate remains low, the volatility of the returns are extremely low, thus adding appeal for long-term investors, such as insurance companies or pension funds.”

Despite these benefits, Lienhard agreed that so-called extra leverage from shadow banks can be a risky venture, but that by no means suggests the asset class is worth avoiding completely. “I do not recommend having more than a 1:1 ratio of leverage in a credit portfolio. Keep in mind that a bank’s leverage ratio is 10:1 on average.”

While risks do exist, the agribusiness sector presents a more stable market than others. “Within the markets in which we operate, the financial sector does not cover all the financial needs of companies, thereby creating a space for alternative sources of funding,” Lienhard explained. “Trading companies, suppliers and non-bank lenders are there to fill the gap. Here at BAF, we are part of the financial structure of the companies we are involved in.”

Lienhard added that low correlation with traditional fixed income and equity investments is another upside for an investor’s portfolio: “Regarding diversification in any investor’s portfolio, private debt provides superior protection against traditional bonds and equity-like return.”

Varied marketplaces

Considering all of these factors, the direct lending sector is currently looking forward to a promising future. Lienhard said BAF Capital has already seen the direct lending industry generate significant momentum, with more growth on the horizon. “Nowadays almost all asset managers have a strong direct lending division, including KKR, Blackstone and Goldman Sachs. It will take a long time before the banking industry can increase its capital requirements in order to satisfy the increased demand.”

Direct lending may also be immune to some of the other forces currently rocking the financial market. Lienhard explained that the disruptions that have been caused by the rise of fintech are unlikely to have the same effect on the direct lending market: “The world is certainly evolving, and I don’t see fintech companies as a threat. I believe that both can benefit from each other, but the view of regulators will be important for this.”

According to Lienhard, banks are particularly vulnerable to fintech challengers, since their nature requires them to offer a generalised product: “Banks own the bulk of customer relationships, both personal and business. Fintech players can provide them with better technology to improve customer service, serve small businesses in a much more cost-effective way, and get them access to other customers as well. In addition, I believe that fintech platforms might even help increase direct lending. They will need financing to grow their business, and that’s where we can find synergies.”

Neither are tax barriers an immediate difficulty for direct lending. “You can’t stop globalisation. With a growing world population, countries with competitive advantages in terms of land and water will definitely benefit against others,” Lienhard said. BAF Capital also operates within a sector that is not particularly vulnerable to international restrictions, especially in the long term. “South America, especially Argentina and Brazil, will always be a food supplier to the world,” Lienhard said. “There are times in which countries can impose barriers on certain products to protect their industry, but in the long run, South America will always be a net exporter of agricultural products.”

Latin America is also a region with strong growth prospects in terms of direct lending, Lienhard said. “The demand is strong for bonds by the private banking sector, as it is a plain, vanilla investment for customers. On the other hand, big and sophisticated investors like insurance companies and pension funds are looking to invest in private debt because of their low volatility vis-à-vis bonds, and better returns.”

Considered as a whole, the direct lending sector is set for significant growth during a future that has the potential to be filled with consistent returns. As investors are looking for new solutions, investing in direct lending will soon be a must when it comes to constructing a balanced portfolio. Lienhard concluded: “For me, diversification is still the key word for any portfolio.”

PMI acclaiming the benefits of an agile project management approach

Posted on by Max Tomlin

Project Management Institute (PMI) is urging organisations to continue to embrace project management as critical to their success. The results of PMI’s 2017 Pulse of the Profession: Success Rates Rise: Transforming the High Cost of Low Performance, suggest that organisations are listening. The survey found that in 2016, for the first time in five years, more projects met their original business goals while being completed within budget.

In today’s accelerated market, a culture of organisational agility that enables flexible use of the right approach for the right project is an essential strategy

Compared with the previous year, there was a 20 percent decline in money wasted due to poor project performance. Organisations are now wasting an average of 9.7 percent, or €97m, of every €1bn invested in projects; figures for the previous year were an average of €122m wasted for every €1bn invested. Furthermore, organisations that invest in project management practices successfully complete more of their strategic initiatives, wasting 28 times less money due to poor project performance.

It is encouraging that organisations around the globe are making significant progress in successfully implementing projects – after all, these are the strategic initiatives that drive change. Recent improvements can be attributed to a number of factors, including greater organisational agility. Organisations now recognise the value of agility as a strategic competence, rather than a set of tools and templates.

Establishing a common language
Agility is the ability to quickly sense and adapt to external and internal changes to deliver relevant results in a productive and cost-effective manner. Being agile is a mindset based on a set of key values and principles designed to enable collaborative work and deliver value through a people-first approach. Agile transformation is an ongoing, dynamic effort to develop an organisation’s ability to adapt rapidly within a fast-changing environment and achieve maximum value by engaging people, improving processes and enhancing culture.

In today’s accelerated market, a culture of organisational agility that enables flexible use of the right approach for the right project is an essential strategy. As the leading association for more than three million project, programme and portfolio management professionals around the world, PMI has long been an advocate for organisational agility. PMI believes practitioners should consider the full range of project management approaches, from predictive to agile, in determining which method will deliver the best project outcomes.

Varied approach
Being agile is a topic of growing importance in project management. The most forward-thinking organisations are embracing a continuum of practices that range from predictive to agile, well defined to iterative, and more to less controlled. Approximately a quarter of organisations use hybrid or customised approaches that match techniques to the needs of the project and stakeholder group. Another approach to project delivery is to take a hybrid approach. Hybrid approaches use a combination of agile and predictive elements, such as a gate review process for continued funding decisions and Scrum for development work.

PMI believes that agile and predictive approaches, as well as other methods, are effective in specific scenarios and situations, a belief that is supported by the company’s research. Organisations with higher agility reported more projects successfully meeting their original goals and business intent – whether they use hybrid (72 percent), predictive (71 percent) or agile (68 percent) approaches – than those with low agility using the same methods. Higher organisational agility supports more projects in meeting their original goals and business intent – one of the key measures of project success.

Project management is the application of knowledge, skills, tools and techniques to projects to meet their requirements. Agile approaches allow teams to deliver projects piece by piece and make rapid adjustments as needed. Predictive approaches call for most of the planning to be done upfront, before following a sequential process. However, it’s not necessary to use only one approach for a project. Often, projects will combine elements of predictive, iterative, incremental and agile approaches to take a hybrid approach. It’s important to note that an agile approach is not practised in place of managing a project: rather, it is introduced as a way to speed up the phases of a project.

Practitioners are most successful when managing activities based on the characteristics of each project. With this in mind, PMI recommends evaluating which approach will yield the most successful business outcomes. That was the rationale for offering the Agile Practice Guide, together with A Guide to the Project Management Body of Knowledge (PMBOK Guide) – Sixth Edition. In doing so, PMI has brought a broad spectrum of approaches to the forefront of project management that will enable managers to select the method that is ideal for their project.

Fundamental practices
Since its release in 1996, the PMBOK Guide has provided project professionals with the fundamental practices needed to achieve positive organisational results and outcomes, and identifies the practices that are applicable to most projects, most of the time. Additionally, specific and detailed agile approaches to project management appear in the PMBOK Guide. The Agile Practice Guide, created in partnership with Agile Alliance, is a companion to the PMBOK Guide and is intended to serve as a bridge to connect waterfall and agile approaches.

Together, the publications provide critical information spanning many approaches to ensure practitioners can select the method that is best suited to each individual project. PMI’s goal is to help project managers accustomed to a more traditional environment adapt and make use of other project management approaches that may be more suitable to their project. This aligns with increased recognition by practitioners worldwide that there is no one-size-fits-all approach to delivering successful projects.

While the agile movement accelerated after the creation of the Manifesto for Agile Software Development in 2001, it has been part of project management since its early days. With the publication of the Agile Manifesto, agile practices became more formalised, particularly when used to manage software projects. However, over time, being agile has become the mainstay of quick, responsive and flexible work – all of which are desirable organisational traits in the era of constant disruption.

More and more organisations are applying iterative practices to their work, and we now see agile approaches used for some projects in manufacturing, education and healthcare industries, among others. As agility continues to emerge as a response to fleeting competitive advantage, we see more organisations incorporating agile practices – and practitioners who are trained in specific approaches – into their project management portfolios.

Competitive advantage
Disruptive technologies are rapidly changing the playing field by decreasing the barriers to entry. More mature organisations are increasingly prone to being highly complex and potentially slow to innovate, which can leave them lagging behind when delivering new solutions to their customers. These organisations find themselves competing with small businesses and start-ups that are able to rapidly produce products that fit customer needs. This speed of change will continue to drive large organisations to adopt an agile mindset in order to stay competitive and keep their existing market share.

Staunch support exists for both predictive and agile approaches, but there is growing recognition that practitioners can be most successful if they manage activities with the approach that suits them best. PMI recognises that there are significant differences between traditional project managers and agilists: each group may have certain biases but, despite real or perceived differences, both have a shared interest in successful project outcomes. With increasing competition and accelerating disruptions from new technologies, market shifts and social change, the need to demonstrate agility is greater than ever.

PMI’s expansion to represent the full spectrum of project management practices has not led the organisation to endorse one approach in particular. Rather, both agile and waterfall approaches, as well as others, are effective in specific scenarios and situations. PMI encourages organisations and practitioners to explore all methods, practices and approaches to drive success and begin to consider what’s on the horizon for project delivery.

Jerome Powell confirmed as the Fed’s next chairman

Posted on by Max Tomlin

The US Senate has voted with a sizable majority of 84-13 to confirm Jerome Powell as the next chairman of the Federal Reserve. Powell, who has held a position on the board of governors since 2012, will take over from his predecessor, Janet Yellen, in early February.

In contrast to some more radical frontrunners for the job, Powell is a centrist with a record of adhering to his predecessor’s dovish approach

Powell will inherit an economy exhibiting strong economic growth, which currently stands at three percent, coupled with low inflation and a labour market where the number of jobless claims has recently reached a nearly 45-year low. However, he will face the delicate task of slowly unwinding the Fed’s $4.5trn balance sheet and deciding on the pace of rate rises as the economy heats up.

Powell’s nomination for the job by President Trump broke with a long-standing tradition of presidents sticking with the chairperson who was in place when they took office. In this sense, Powell’s appointment has been controversial, but in many ways the decision is a vote of continuity.

In contrast to some more radical frontrunners for the job, Powell is a centrist with a record of adhering to his predecessor’s dovish approach. With respect to rate rises over the coming years, he has signalled that he will continue to pursue the gradualist approach advocated by Yellen.

One issue where he may tread closer to the Trump line, however, is on banking regulation, given his recent expression of an appetite for picking apart aspects of the Fed’s supervision.

Trump’s desire to steer the central bank towards a more regulation-averse slant has also been reflected in his recent appointments and has been boosted by the resignation of Daniel Tarullo, who was a staunch defender of regulatory safeguards.

Fintech start-ups continue to disrupt the established order

Posted on by Max Tomlin

Banks have been the dominant force in the financial sector for decades, but it is very possible that this is about to change. Emerging financial technology start-ups are challenging this authority, demonstrating levels of commitment to innovation and agility that long-established financial institutions cannot compete with.

According to a recent report by PwC, more than 80 percent of existing fintech firms believe they are losing revenue to more innovative rivals. Much of the fintech-related discussion concerns how banks can compete with the new kids on the block, and it is true that incumbent financial institutions have increased internal efforts to innovate in response to this threat. However, there may be another way for banks to navigate the rapid changes being experienced in the finance industry.

Established financial institutions are beginning to realise that partnering with new industry players could prove mutually beneficial

Established financial institutions are beginning to realise that partnering with new industry players could prove mutually beneficial. Instead of concentrating on the ways that fintech start-ups are able to eat into their market share, banks are exploring what resources they have to offer the financial newcomers.

At Mash, we understand the importance of partnerships, whether we are signing local agreements with retail partners or negotiating a deal with a global investment firm. As in many other industries, the financial sector is starting to learn that collaboration may turn out to be a more successful approach than competition.

Standing out

There are 4,200 fintech start-ups in Europe alone. This has created a rich source of talent for companies to draw from, but it has also resulted in a fiercely competitive business environment. As a business operating in the financial sector today, it is more important than ever to have a unique offering – something distinct that allows you to stand out in a crowded market.

One of the ways that Mash is distinguishing itself from other fintech companies is by enabling consumers to make purchases, either online or in store, and pay for them later by invoice or monthly instalment. This gives shoppers much greater flexibility than they would receive when using traditional payment methods. In addition, it has also helped foster the development of innovative new business models. Through our work with Finnish manufacturer Finlayson, for instance, we have helped create the first circular economy solution for home textiles.

Our distribution is another key differentiator for us at Mash. We were the first company in Europe to offer a scalable ‘pay-later’ solution at point of sale. Furthermore, we remain one of only two solutions in Europe that can help merchants with both an online and in-store presence. Through our pay-later solution, consumers input their identity number into the Mash terminal, which will instantly check their credit score as part of the onboarding process, before receiving the option of paying by invoice. The merchant gets paid instantly and then 14 days later the customer receives an invoice, which can either be paid in full or converted into a finance plan across 12, 24 or 36 months.

The partnerships that we’ve been developing with our clients – whether they are a car dealership or a furniture retailer – are a great example of how collaboration boosts results for everyone involved. With added flexibility, merchants are witnessing an increase in customer spending, while Mash benefits from the publicity we receive at the point of sale.

Mash also boasts a unique mix of experience and innovation. Ours is not the story of a brand new fintech company feeling its way into the industry. Mash has been serving customers for 10 years and, during that time, has created a solid technological foundation as a result of multiple rounds of iteration. We’ve received large-scale financial backing from our pioneering deal with Fortress – the largest of its kind for an unlisted company in Finland. We are young enough to innovate, but old enough to know the market.

Fresh ideas

With banks previously facing little in the way of genuine competition, the finance industry had become stagnant and was devoid of original ideas. In other words, it was ripe for disruption. Fintech companies are now ripping up the rulebook, delivering innovative solutions that benefit customers and other businesses alike. For instance: blockchain applications are bringing greater efficiency, security and transparency to financial transactions; cryptocurrencies are providing businesses with a new way of raising investment; and payment systems, like Mash, are giving consumers more flexibility at the point of sale. Although banks are exploring ways they can innovate, they face a set of difficult challenges that must be overcome first. Many financial institutions are held back by legacy infrastructure that would prove difficult and costly to change. They can also suffer from a risk-averse culture, partially as a result of stringent regulatory constraints. Banks traditionally focus on keeping existing services running as smoothly as possible, rather than looking for new ways of working.

As fintech companies came to be seen as the true innovators in the financial services space, it became more difficult for traditional banks to attract talented personnel. This, in turn, meant banks struggled to introduce new ideas, trapping them in a vicious cycle. Attempts by multinational tech firms, like Facebook and Google, to enter the finance industry have made the recruitment process even more competitive.

From a personal point of view, the innovation being explored by fintech firms played a significant role in convincing me to move from Morgan Stanley to Mash. I wanted to have a hands-on role in building a business and delivering better services to customers. We achieve this, not only through our technological solutions, but also through our team of committed employees.

We employ more than 100 members of staff representing 19 different nationalities. Our staff come from different backgrounds and bring unique ideas to the company, but they are united by one common trait: a commitment to disruptive innovation. We also foster a close and equal working community, where the CEO sits in the same space as everyone else. We cultivate an agile environment where ideas can be shared freely, tested quickly and promoted widely.

The right model

With all the talk about the challenge being posed by fintech firms, it is important to remember that banks still have something to offer. Whether it’s in terms of reach, capital or expertise, these long-established financial institutions have a number of advantages over new fintech organisations. With the start-up success rate languishing around 0.2 percent and corporate success standing between 12 and 20 percent, it’s clear that fintech businesses are sometimes in need of assistance.

Given that banks and finance start-ups both have distinct advantages, it makes sense that many of them are forming partnerships.  However, there are multiple different collaborative models that banks and their fintech partners must choose from, each with their particular strengths and weaknesses.

The first collaboration model simply involves the bank acquiring a fintech start-up. This gives banks access to a start-up’s technology and employees, creating a fast route to market. This type of collaboration, however, also requires the greatest level of investment. On the other hand, the ‘investment collaboration’ model involves banks providing financial support without committing to a full acquisition, in exchange for the power to influence emerging technologies.

The ‘partnership collaborative’ model sees banks and fintech firms sharing costs and other resources to co-develop new solutions. The ‘pollinate and co-create’ model occurs when banks take on the role of a fintech incubator or accelerator. This lets banks shape a company’s roadmap to address specific problems and allows employees prototype new services themselves.

The final collaboration model, and the one that requires the least investment, is the ‘scout and share’ model. This is where banks explore any developing technology trends in the finance sector before deciding to meet with innovative companies to discuss future opportunities. Knowledge share sessions with venture capitalists and other investors will also help determine what innovations are worth pursuing. This can be a great way of ensuring that banks are using the best technologies, regardless of whether they are developed in-house or by external firms. Essentially, it means that they can make better-informed architectural decisions.

Choosing the right collaboration model is hugely important, not only for banks, but for fintech start-ups too. While banks will have to decide how much investment they are willing to commit to the collaborative process and how much control they need, fintech firms will need to consider how much investment they require and how much control they are willing to surrender.

At Mash, we want to be true partners and solve shared problems. We are not interested in simply being a service provider – it is much more compelling to sit with a senior leadership team and talk through the ‘ugly truths’ that a partner needs to solve and then develop a shared plan that creates accretive value for both parties. This approach has seen us continue to win industry-defining partnerships that help us to shake up the finance sector and deliver better services for our customers.

Rönesans Healthcare Investment is modernising infrastructure in Turkey

Posted on by Max Tomlin

Many of the world’s governments face a long backlog of much-needed infrastructure and development projects. Debates surrounding the priority of these projects dominate election campaigns, and very few nations have the resources to complete everything they would like to achieve. Often, the only feasible solution is to delay plans over and over again, much to the detriment of the communities that rely on them.

To make these projects possible, governments are increasingly pursuing public-private partnerships (PPPs) to source additional funds, while also minimising risk. Such opportunities give private investors the chance to profit from the sector, while also providing a vital contribution to an often under-funded part of society.

Rönesans Healthcare Investment has invested in a number of PPP deals in Turkey, including the Ikitelli Hospital and Elazig Hospital. Rönesans Holding has also acquired Dutch-based constructor Ballast Nedam, along with other European companies, including: Hergiswil of Switzerland; Heitkamp of Germany; and a minority share purchase of Porr of Austria.

Kamil Yanıkomeroglu, Chairman of Rönesans Healthcare Investment, spoke to World Finance about how these deals represent an innovative new way of doing business.

The healthcare industry in Turkey has progressed a lot in recent years. Could you tell us about its development?
The beginning of the PPP story in Turkey dates back to 2003, when the Ministry of Health (MoH) launched its Health Transformation Programme. Being the main government body responsible for healthcare sector policymaking and the provision of healthcare services, the MoH recognised the need for renewed facilities and improved healthcare technology. Consequently, it started searching for a new scheme of financing these within a very short time frame. The target was big, so the transformation of old methods had to be fundamental.

PPS give private investors the opportunity to profit from the sector, while also providing a vital contribution to a sometimes under-funded facet of society

After an in-depth assessment of models in the world, the MoH decided to follow the PPP route, which has proven very efficient in terms of value for money for many other states. Since Turkey had sufficient private initiative to realise these investments, PPP schemes would give the Turkish Government a lot of leverage in terms of financing many new hospitals, while at the same time being able to extend its tenor of payment of these investments. Therefore, the government decided this would be the best scheme, and the MoH announced tenders. This was actually the beginning of a difficult process.

The project agreement in its initial form was not considered robust enough, and non-recourse project financing seemed to be a difficult target. After much hard work, amendments to the legislation to clarify grey areas and line-by-line assessment of the agreements with the MoH, we finally achieved the agreements in their current form in 2014. Today, this has proven a very robust structure, banked various times by international financing institutions.

All in all, I believe that the government’s decision to proceed with a PPP scheme was the correct decision. Since it was first implemented in Turkey, despite some bumps on the road at the very beginning, Turkey’s PPP adventure has become an example to many other countries aiming to adopt similar infrastructure development schemes.

What are the most important things to consider before making an investment in a PPP project in Turkey?

In general terms, the forex protection, termination regime and payment guarantee provided by the MoH are the strengths of the PPP scheme in Turkey. The scheme and our projects have already been banked several times by international lenders and international financial institutions, including the European Bank for Reconstruction and Development (EBRD), International Finance Corporation (IFC), European Investment Bank, SMBC, Bank of Tokyo-Mitsubishi (BTMU), Siemens, Japan Bank for International Cooperation (JBIC), Nissay and Daiichi, as well as NEXI as a principles for responsible investment provider, and many others. We partnered with Meridiam in four of the projects, and with Sojitz in the Ikitelli Hospital project. At this stage, we have opened Yozgat PPP Hospital (475 beds) in January 2017 and Adana PPP Hospital (1,550 beds) in September 2017, with both doing very well operationally. We finished these hospitals comfortably on time and in budget.

We have a great cooperation with the MoH, and the transition from construction to operation worked very well. Although we did experience the difficulty of being the first investor to open a PPP hospital in Turkey, with support from the MoH, Ministry of Finance and other stakeholders, every problem was solved. We have been receiving payments in accordance with the agreements, without any delay, and operations have been going smoothly. As a result, we have now successfully entered phase two (operations) of these investments.

At Rönesans, we have many hats. We are the investor at the special purpose vehicles, the engineering, procurement and construction contractor, and the facility management contractor. If I put on my investor hat for this question, I would observe that the scheme has repeatedly proven itself to be robust – not only in Europe through our partnership with Meridiam and European banks, but also in the Far East, thanks to our partnership with Sojitz and our friends at JBIC, NEXI and other Japanese financing institutions. As such, a new foreign investor should certainly seize this opportunity in Turkey and catch the train.

It is also important to underline that when you get comfortable with the product or project itself, local partners are always crucial when you enter new regions.

Are there ever any conflicts of interest between the public and private sectors concerning PPP deals?
The primary concerns for the public sector are having the hospital built and constructed to a certain level of specification, while providing good quality service at the lowest possible cost within a sustainable scheme. Of course, this has to allow some margin for the private investors to ensure that it is a sustainable business model throughout the life of the concession. The private sector has a concern of making that margin in return for the services provided and, at Rönesans, we are always concerned with preserving our reputation in the eyes of the public. Indeed, that angle is always a consideration for us while undertaking all these roles in hospital projects.

With the PPP scheme, the private sector is required to procure a high set of standards for design, construction and equipment, and then to provide services in accordance with well-defined standards. Without these, the revenues become subject to penalties defined under the project agreement, so protection for standards is already written into the agreements.

When you look at these projects from a general public benefit perspective, we value the social impact and, as a responsible organisation, we act next to the public sector and work together with it to bring out the best possible results for the whole community. Since the rules are clear in the agreement from day one, I would not say that we have material conflicts of interest with the public sector in any of these projects.

How significant are financial institutions when it comes to new construction projects, like the recent Elazı˘g Hospital deal, or your more recent Ikitelli deal?
Financial institutions are part of the foundation of a long-term PPP investment. At Rönesans, when we make decisions about new investments, we always assess the bankability of the project, across all sectors. We have a very large investment arm including our real estate and PPP business, and we have always leveraged our equity with external financing and in the real estate business, also with refinancing. This has also helped us reinvest our capital to new projects, helping us grow our investments and the company.

In the PPP projects, we have tried different schemes. For our Elazı˘g project, following our partner Meridiam’s experience in bond financing in other projects, we decided to do a bond financing. This was a first-ever in Turkey in many senses and included very innovative components and new products from EBRD. We had the support of EBRD, the Multilateral Investment Guarantee Agency and IFC. Without them, the Elazıg bond would not have been possible. Together they set a very good example and pioneered an excellent scheme of financing other future projects.

Turkey’s PPP adventure has become an example to many other countries aiming to adopt similar infrastructure development schemes

Ikitelli was another adventure in itself. Being one of the largest PPP hospitals in Turkey, with a debt requirement of $1.5bn, we had to find new resources to finance this project. After collaborating with Sojitz, we were able to tap Japanese financing resources. Furthermore, JBIC and NEXI have provided great support for this huge deal and have made it possible. Our trusted banks SMBC and BTMU, who we now consider reliable business partners, have also provided a great deal of support. This deal also had some interesting and first-ever aspects, with newcomers including Standard Chartered, Nissay and Daiichi coming to the pipeline. The deal was the largest infrastructure deal in Turkey for JBIC with 18 years tenor, and it was the first in Japanese currency in the pipeline.

From our point of view, financial institutions and their support to all new projects are fundamental, and we believe in building trust and long-term relationships with financial institutions.

What are some of the main responsibilities involved in the creation of what will become one of the world’s largest hospitals?
Constructing the biggest hospital in the area brings several responsibilities, both in technical and operational terms. In technical terms, since it is a large project with a gross building area of over one million sq m, the main challenge is to design a project that can both be operated efficiently and be navigated across easily. You need to think of various ways to provide efficiency for the MoH staff delivering these healthcare services, and also comfort and convenience for the patients who will benefit from these services. The second challenge concerning the design is the seismic base-isolator component. Ikitelli, like our Adana, Elazı˘g and Bursa hospitals, has seismic isolators and will be the largest building in the world with seismic isolators, dethroning our Adana hospital. Adana had previosuly been selected as the world’s second largest building to have isolators, according to ENR’s recent listing (with Apple’s new headquarters in California being the largest).

 

The second most important responsibility is to operate the hospital professionally. Thousands of people will be using the hospital on a daily basis, and this could create a chaotic environment if not managed efficiently; an advanced level of facility management is required. By the time we open the Ikitelli PPP hospital, our facility management company will have gained wide experience running large-scale operations across other projects. We had already started training our staff before we opened Yozgat and those trainees have grown to become trainers in Adana. Our organisation is, therefore, able to transfer experience and expertise from site to site, improving its processes and capability each time a new hospital is opened.

What are some of the most important aspects of your recent international partnerships?
We believe in trust in business life, and we build trust with our partners. I would say this is the underlying element of each of our partnerships. We have a partnership with American AGP in some of our real estate projects, with GIC of Singapore in the real estate platform, with French infrastructure fund Meridiam in PPPs, and with Japanese trading house Sojitz in our heavy industry projects in Turkmenistan and in PPP projects in Turkey. We have also been acquiring large European construction companies and, when doing this, you have to make efforts to integrate your own culture with the culture of those organisations. We believe these partnerships reflect our organisation’s ability to build trust with many different international players and also demonstrate our ability to reach a common ground with our mutual organisations. Indeed, our capabilities have always allowed us to create synergies in many areas, which have led to strong and sustainable partnerships. In any case, if there is no trust, then there is no reliability and then there is no partnership. The basis for any successful partnership is trust and good will.

The construction industry appears ripe for disruption. Why did you recently choose to acquire Ballast Nedam?
At Rönesans we work tirelessly to maintain our pace of growth, no matter what the global and local circumstances may be. A few years ago, if you asked others, they would have told you that the health PPPs in Turkey are a big risk and will probably never happen, but now it has become a very attractive investment, supported by the global financing community and international investors. We analyse our potential investments thoroughly and we do not refrain from challenges, otherwise we would not be able to grow, and we always consider future opportunities for growth. Ballast Nedam fit perfectly into our long-term strategy to grow in Europe, so we seized the opportunity to acquire this large, deep-rooted company, so we could achieve our goal of growing in Europe earlier than planned. We will now utilise Ballast’s infrastructure expertise to expand our business in Europe.

Having been at the company for 15 years now, how does your experience influence the decisions you make?

Having been more than 25 years in business life, I have always worked in environments where the balance can shift very fast and circumstances are perpetually changing. In business, you have to think and act fast to seize critical opportunities and I learned from experience to do exactly that, while also making sensible decisions in high-pressure situations.

Working for more than 25 years in the private sector, building partnerships with various international partners and developing various projects alongside international companies, has given me a strong global insight. Looking at things from different perspectives always helps innovative thinking and progression. For long-term decisions, I think the thorough consideration of political and economic circumstances are necessary in order to distinguish the right investments from the wrong ones.

Environmental and social impacts can be significant in any construction project. How does Rönesans Holding keep sustainability at the forefront of its work?
Part of the success of our investments and construction business comes down to the importance we attach to meeting global environmental and social (E&S) standards. All of our projects are subject to very strict E&S principles and health and safety guidelines, as we always allocate a significant budget for monitoring these issues. There are periodic requirements for each project that need to be satisfied and reported. This comes from our dedication to build trust with all stakeholders that are involved in our projects.

What can we expect for the future?
We are planning to export our PPP scheme to some target countries that aim to improve their social infrastructure through this scheme. We will continue to grow in Europe, mainly with new infrastructure projects. We will definitely be interested in new tenders in Turkey, with PPP hospitals and other large infrastructure projects expected to be launched by the government in the near future. We are also developing some new real estate projects and plan to open others in 2018. In summary, we intend to expand our infrastructure arm with more projects in Turkey and Europe in the near future.

Oscar Downstream well placed to break into consumer market

Posted on by Max Tomlin

A common misconception made by many businesses is the belief that the business-to-business (B2B) market is very much the same as the business-to-consumer (B2C) market. Rather than simply supplanting a business model from one group of customers to another, making the jump between the two requires a deft touch, as well as considerable expertise of both products and clientele. However, with the right plan in place, such a move can be tremendously lucrative.

The company seeks to utilise its expertise to expand into the B2C market. Many of the lessons it has learnt from the past will formulate its forward-looking strategy

Aware of this reality, Romania’s Oscar Downstream is making a careful and conscious decision to broaden its reach to include the consumer market. Speaking to World Finance, the company’s representatives, said the company has grown steadily over the past 15 years to become one of the top five players in the Romanian B2B downstream industry. They explained: “The company has national sales coverage, strategic partnerships for product supply, a very modern and flexible logistic structure, a loyal customer base, and can offer innovative services.”

The company’s initial growth was driven by innovation; in 2004 it became the first firm in Romania to introduce a home-based fuelling station, as a service, under the DIESELpoint concept. It quickly spread its network to cover the entire country. They observed: “Romania’s European Union accession in 2007, and the free circulation of goods and services attached to this, created new opportunities, allowing the company to import oil products with better quality and pricing terms.” They added: “This put an end to the dependence on local refineries for product supply.”

Innovative services have continued to drive the company. In 2010, it launched a service concept called DIESELpoint Access, which consists of automated transit filling stations dedicated to the B2B market. Now, Oscar Downstream is a respected independent national player, with 411 employees, several fuel storage facilities onwed and operated across the country and its own transportation and logistics network. Now the company seeks to utilise its expertise to expand into the B2C market. Many of the lessons it has learned from the past will formulate its forward-looking strategy.

Growth story

The journey Oscar Downstream took to become a leader in the downstream industry started humbly, but the business has now grown to become completely independent. They said the company has been well respected in Romania for its great care regarding environmental quality, safety and security standards. They said: “All industry-specific standards were certified from the very beginning, and the company chose to develop and implement a consistent business strategy for both daily activities and long-term growth. This strategy has meant the business model we operate is sustainable, while delivering the same high-quality level of service over the years.”

This attention to detail is evident in the company’s most recent major investment drive, which began in 2013. “Following the need to sustain the fast development and expansion of the company with extended infrastructure, we carefully selected warehouse and storage facility locations; extending and modernising our logistics network,” They explained. “All of this was implemented to meet an ambitious objective: the development of an integrated distribution chain that will ensure complete control of our products and services, while maintaining high attention to both natural and working environments,” they added.

The company’s portfolio boasts a broad number of products and services, with diesel distribution as a star. DIESELpoint is a home-based system designed for customers that need a fuelling point within their business perimeter. DIESELpoint Access provides a network of refuelling points that is designed for transportation fleets, and covers the entire country. As well as fuel services, B2B customers also have access to a suite of online management tools to monitor their fleet’s consumption. Oscar Downstream also offers gasoline, lubricants and other petrochemical products wholesale.

“Starting at the end of 2017, together with the continuous modernisation of its own storage facilities and transportation fleet, Oscar Downstream will include new product brands in its portfolio,” the company’s representatives explained. Amid a market filled with continual change, the development of new products and services is a must.

There are currently significant opportunities for the company, they said. “Romania is experiencing strong growth in both demand and consumption of fuel among both commercial and residential customers. This is a result of GDP growth, and advances in the industrial, agriculture and transportation sectors.”

Overcoming obstacles

While this is an excellent opportunity, any significant expansion plan has its challenges. Thanks to Oscar Downstream’s long history of expertise in the Romanian market, many challenges in the sector have been identified. “The economic environment is a challenging one due to frequent changes in regulations and difficult infrastructure investments combined with political fluctuations,” they said.

The slow investment in infrastructure, in terms of new commercial roads and modernisations, creates many operational inefficiencies. The situation affects Romania at a national level, impacting fuel transportation. They said the company’s past experience in logistics has helped it overcome these problems, ensuring that the right product and the right quality of product are available in the right place, at the right time.

Regional uncertainties have also affected supply. “The latest economic measures, such as the increase of fuel excise tax, encouraged Romanian transport companies to migrate a part of the fuel consumption to other European countries,” they said. “This translates into a huge challenge for the companies operating on Romanian territory, and requires them to be commercially creative to keep increasing in terms of volume sold.”

Considering these challenges, Oscar Downstream has put into place a number of plans to ensure its growth continues into the future. “The company’s development is related to the development of a very competitive Romanian market, consumers’ needs and the vast potential of the Romanian oil and gas market,” they said. “We will focus on capturing the demand for growth, entering into new business segments such as B2C, consolidating our presence in key business fields such as agriculture and transportation, and increasing operational efficiency across sales, supply and logistics.”

Moving tomorrow

With all its experience and insight, Oscar Downstream is confident the expansion plans it has laid out will prove to be a success, especially its consumer-facing efforts. The company’s representative said: “Entering into B2C on the retail fuel market is a natural step in the development of the company. The success in B2B encouraged us to take on this challenge, and we have a strong team committed to creating a success story. The business set-up is quite straightforward: going deeper on the value chain to the retail customer and achieve the highest utilisation of its own assets. As a parallel development plan, we also have in mind the expansion of the fuel station network, complete with regional and international partnerships.”

Amid this opportunity for growth, the company is also working to address the many changes that may threaten the market in the longer term. Another looming threat for the downstream industry is the gradual reduction, and possible ban, of certain vehicles. In 2017, the UK announced a bold scheme to ban the sale of new diesel and petrol cars by 2040. They observed that while this will become an issue eventually, in the medium term there is still a tremendous need for vast fuel networks: “We believe the demand for diesel fuel will remain strong and will not decrease in mid-term. The transportation and construction industries will continue to rely heavily on diesel. On the other hand, we need to recognise that in B2C, it is an increasingly visible tendency to encourage hybrid and electrical vehicles.

“We also have to pay attention to the customer behaviour, which is changing for the younger generation. The desire to own a vehicle will decrease, combined with the efficient use of personal time and resources and the attractiveness of smart transportation solutions.”

But the future presents opportunities for further growth as well, as the compnay’s representative explained: “Regarding some general lines of the market, we do foresee an increase of compressed natural gas and liquefied natural gas use as alternative fuels in rail, ship and even road freight transportation.”

Additionally, automation technology is also providing plenty of opportunity to achieve greater benefits in terms of logistics and operational efficiencies, they said: “It is a technology that we are willing to embrace, though without drifting too far away from the warmth of human interaction that is needed for high-quality customer experience.” Automation also has the potential to respond quickly to customer behaviours, thus enhancing efficiency in logistics chains.

While the future certainly contains a significant number of challenges, Oscar Downstream has built a plan that will ensure its success for many years to come. With an ambition to break into a new market segment that is carefully informed by past experience, the company is expecting to fully capitalise on its true potential.

“Our mission is to constantly improve the quality of people’s lives, protect the environment and constantly promote novelty and innovation in the field,” the company’s representative said. “Our motto, ‘the sense of value’, embodies the values that guide the company in its ongoing progress. Through our daily actions, we promote and highlight these values in all that we do to ensure the sustained development of both the company and society.”

The fight for Saudi Aramco listing

Posted on by Max Tomlin

The Saudi Government is preparing to float state-owned oil giant Saudi Aramco on the stock market this year in an effort to reduce the country’s dependence on oil.

Aramco, thought to be worth in the region of $2trn, was granted joint-stock status by Saudi authorities at the turn of the year, effectively sanctioning the sale of a five percent stake in the company. Expected in the second half of 2018, the public sale is expected to smash Alibaba’s world-record IPO, which attracted an investment of $25bn in 2014.

If the wrong stock exchange is identified, the company could be hindered by large deviations in pricing between markets

According to Reuters, Aramco has invited a number of banks to present a case for their inclusion in the IPO, with Citi, Deutsche Bank, HSBC and Goldman Sachs all in with a chance of being named coordinators and book runners.

Unsurprisingly, the offering has also sparked fierce competition among the world’s largest stock exchanges, with Saudi authorities intending to list Aramco on one or more foreign exchanges. Among those competing to list Aramco are the New York, Hong Kong, Tokyo, London and Singapore stock exchanges.

Listing benefits
The advantages of listing a company as large as Aramco are obvious. With so much money involved, the chosen stock exchange will generate a substantial income from fees relating to the trading of Aramco stocks. Further, the prestige associated with hosting such a sizeable enterprise will help the victor attract big listings from other GCC state-owned companies.

Aramco, meanwhile, will profit from access to a greater pool of investors, which will help provide stability, drive the stock price and diversify the shareholding. In order to reap these benefits, however, Aramco will need to identify an exchange with similar listing and regulatory requirements to its home bourse: Riyadh.

If the wrong exchange is identified, the company could be hindered by large deviations in pricing between markets. Therefore, choosing which exchange to list the Saudi economy’s crown jewel on is not a decision to be taken lightly.

Taking stock
While the New York Stock Exchange represents the world’s largest economy, boasts an array of investors and is favoured by almost every company hoping to access a wide and diverse investor base, it also presents a number of challenges to Aramco. Notably, the Justice Against Sponsors of Terrorism Act is widely anticipated to raise issues, even though Saudis already have billions of dollars worth of investment in the US.

Furthermore, Aramco’s largest clients are based in Asia and, more specifically, China. With greater exposure in the Asian market, the Hong Kong, Tokyo and Singapore exchanges could provide access to motivated investors. But listing on these stock exchanges won’t grant Aramco blue-chip status, nor will it introduce the company to as many investors as the exchanges in New York and London.

The London Stock Exchange (LSE) could help Aramco circumvent these challenges, offering more investor exposure than the Asian exchanges and less risk of litigation than the US. However, following the Brexit vote, London’s position as Europe’s primary financial centre is under threat. With this in mind, the LSE is unlikely to be in a position to attract European institutional investors, even though it is trying hard to win the Aramco listing.

No place like home
Even with the benefits presented by an international IPO, it’s clear Aramco faces a number of challenges moving forward. With so much anticipation, Aramco is likely to be confronted with significant market pressure as investors expect consistent growth on earnings. This could force Aramco to purse short-term gains, rather than long-term results. An international listing may also allow speculators to manipulate prices, negatively effecting Aramco’s reputation when prices fall.

It remains to be seen whether the Saudi Government will choose to restrict the flotation of Aramco to just Riyadh or diversify with a cross listing in international markets. In my opinion, listing Aramco internationally would be a real challenge, especially when you consider the Saudi Government is unlikely to be willing to relinquish the famous role it has played in the global oil market for the past 50 years.

A listing on the Riyadh Stock Exchange, albeit smaller and less likely to attract the same number of international investors as some of the more acclaimed exchanges, could present a compromise. A single listing in Riyadh would help fulfil the reforms put forward by Crown Prince Mohammed bin Salman, while also providing support to local markets.

Another compromise could come in the form of private placement, opening Aramco up to accredited investors like insurance companies, mutual funds and pension funds. While this would generate less capital, it would act to safeguard both Aramco’s status as a national company and the Kingdom’s role within the international oil market.

 

About the author: 

Mourad Mekhail is an expert in the financial services sector with a career spanning more than 25 years. A former Wall Street Banker, he has worked for a variety of top tier global banks including Merrill Lynch, UBS and Credit Suisse in a number of roles and locations in the major financial centres of London, Geneva and Frankfurt. Mekhail earned his MBA in International Economics from Trier University, Germany.

 

Trump tempts Chinese trade battle with new tariffs

Posted on by Max Tomlin

In the first decisive step towards fulfilling his ‘America First’ trade vision, US President Donald Trump has imposed a tariff of 30 percent on imports of solar panels and a 50 percent tariff on large imported washing machines.

A more aggressive move has been anticipated after key administration officials announced two weeks ago that they were working on a hard-hitting trade strategy

In order to impose the new tariffs, Trump relied on an obscure US law that enables the president to intervene to protect domestic manufacturers from incurring ‘serious injury’.

Robert E Lighthizer, the US trade representative, said: “The president’s action makes clear again that the Trump administration will always defend American workers, farmers, ranchers, and businesses in this regard.”

Getting tough on China for its ‘theft’ of US manufacturing jobs was a centrepiece of Trump’s campaign, but his stance appeared to soften upon taking on office. He has since turned his back on several key pledges, such as labelling China a currency manipulator and imposing tariffs of 40 percent across the board on Chinese imports.

However, a more aggressive move has been anticipated after key administration officials announced two weeks ago that they were working on a hard-hitting trade strategy.

In response to the measures, China’s Ministry of Commerce has expressed “strong dissatisfaction”. Wang Hejun, Director of China’s Trade Relief Investigation Bureau, has released a statement in which he labelled the tariffs “arbitrary” and vowed that China will join hands with other member states to safeguard its interests. He further said that he hoped the US would exercise restraint and abide by multilateral trade rules.

Foreign Ministry spokesperson Hua Chunying also commented, saying: “It is the unilateral moves by the United States and its unilateral messages that pose unprecedented challenges to the multilateral trade system. Many members of the [World Trade Organisation] have expressed their concerns over that.”

Making the case for a global tax transformation

Posted on by Max Tomlin

In recent times, the global economy has been transformed by technological innovation across almost every area, except one. As commerce has globalised and modernised, the state of worldwide tax law, which governs how commerce is taxed, has become outdated. This scenario is not unlike the US state income tax rules that govern the extent to which individual states can claim the right to tax interstate commerce. State income tax administrators continue to challenge longstanding physical presence requirements, while struggling to consistently apply a new economic presence concept.

The global innovation revolution highlights the need for a digital transformation of worldwide tax rules

The global innovation revolution, driven by digital technology advancements, expands those challenges and highlights the need for a digital transformation of worldwide tax rules. Such a transformation can only be achieved through a multilateral and cooperative approach. This overhaul will have a significant impact on corporate investment and global trade.

Although digital transformation is frequently associated with technology giants, this categorisation is too narrow, especially in regards to taxation. Thanks to advancements in information technology, companies in all industries operate by embedding and leveraging digital technology. As is often the case with law and public policy, global tax rules have not kept pace with technological advancements.

A modern definition
Most current tax regulations still adhere to the archaic principle of permanent establishment (PE), whereby companies are taxed (or not) based on the extent of their physical presence in a country. Given the important role PE rules play in tax treaties and the taxation of digital commerce, a more modern definition – one that is based on economic presences rather than physical presence – seems imminent. The Organisation for Economic Development’s (OECD) base erosion and profit shifting initiative (BEPS) and other recent efforts have laid the foundation for this change. Of course, individual countries will still have their own interpretations of how much economic activity should trigger taxation.

Increasingly aware of this imbalance, governments are seeking new ways to tax digital transactions (some unilaterally) and reduce fraud, both actual and perceived, which can occur under the cover of technological opacity. While modernised global tax rules are needed, this overhaul poses many risks.

If new approaches to taxation prove too discriminatory, limited in scope or are unilateral, rather than multilateral in nature, then unintended consequences would likely result. In some cases, corporations could be subjected to double, or even triple, taxation on the same transaction. Global tax competition might intensify as countries dangle more favourable tax rules, rates and exemptions to lure corporate investment, potentially intensifying the type of fiscal mischief and economic harm that the OECD and others want to avoid. Consequently, global trade could grow more fragmented, complex and confrontational, if not downright adversarial. Furthermore, corporate investment would likely deteriorate in response to even greater uncertainty than companies now confront.

More uncertainty would be difficult to imagine, given the extraordinary angst that some tax functions already face. Current uncertainty stems from: new reporting obligations and transparency requirements from tax administrations motivated by the OECD’s BEPS initiative; EU state aid investigations; the impending levy of a new equalisation tax explicitly directed towards digital firms operating within the EU; and the potential impacts of US tax reform, among other significant unknowns.

Bernhard Welschke, Secretary General of Business at OECD, has warned about the perils of flawed approaches to global tax transformation: “Only a comprehensive multilateral engagement between tax authorities, taxpayers and other stakeholders will lead to outcomes that support a successful digital transformation.”

Time to go digital
The equalisation tax is part of the EU’s recent push to develop a new way to tax the world’s largest digital B2C companies. EU finance ministers backing this push portrayed the new approach as an interim measure before a more extensive approach for taxing digital transactions across all industries is in place.

The notion of a comprehensive, multilateral approach was covered in the OECD BEPS Addressing the Tax Challenges of the Digital Economy, Action 1 final report. This defines what the digital economy is and the business models it enables, and identifies how digital transactions affect direct taxes (such as income tax and corporate tax) and indirect taxes (like imports, certain excise duties, sales tax and value-added tax). These significant impacts make life harder for tax authorities and corporate tax functions alike; both have to wrestle with new, fundamental taxation questions. For instance: is this a good or a service? Is this a tangible asset or an intangible licence?

Thorny questions
Digital-era direct tax-determination challenges primarily relate to nexus (where to tax), data and the characterisation of transactions (goods or services). Data and other intangibles that are commonly used and transported across national boundaries create nexus and value confusion from a transfer pricing perspective as well. From an indirect tax perspective, digital transactions raise thorny value-chain questions regarding the value of various activities and goods, which entity is realising that value, and the appropriate indirect or excise tax.

These issues, especially the difficulty in establishing nexus according to existing PE rules and exceptions, explain why the Action 1 report contains the term “significant digital presence”. The phrase describes activities that generate significant revenues from operations that either target customers in a specific country through digital means or that substantially interact with users in a specific country. The idea is that a significant digital presence in a country may rise to the level of substantial economic presence for the purpose of tax determination.

US multistate tax practitioners may actually find the significant digital presence concept rather familiar, as in many respects it is the reverse application of the earlier and now somewhat diminished ‘substantial physical presence’ doctrine that has been the bedrock of state and local taxation under the 1992 US Supreme Court case Quill v. North Dakota. Whereas the former only requires substantial digital business activity, thus creating economic nexus, the latter only applies in the case of bricks-and-mortar businesses with contact and economic activity within a US state. Therefore, the elements of economic activity and business presence remain the same. What is changing is how states define what constitutes a ‘presence’.

While Action 1 does not recommend the adoption of a significant digital presence as an international standard, the report indicates that countries have the option of adopting such a standard and providing their own definition of significant digital presence if it helps address BEPS issues. Intentionally or not, this leaves open for interpretation what the definition of a ‘significant digital presence’ is regarding a company’s permanent establishment in each country under existing tax rules.

The lack of clarity concerning what is digital, along with differences in existing PE definitions within each country, suggests that PE-related audit controversies are likely to increase in the coming months and years – at least, until a global standard is established and individual tax treaties between countries are amended.

A litmus test
The OECD should be commended for framing the need for a new digital economy taxation standard, as well as for putting forth clear guidance, including identifying the need for comprehensive, multilateral digital-era tax standards and definitions. The OECD indicated that digital taxations issues should be addressed in conjunction with related transfer pricing, permanent establishment and hybrid mismatch arrangements – how corporate entities and tax arrangements are characterised in different tax jurisdictions.

Whether or not this guidance is widely embraced remains to be seen. The EU’s recent moves toward creating new taxation approaches for a portion of the digital economy struck several experts as both unilateral and limited. In response to the EU outlining its agenda for the fair taxation of the digital economy, Carol Doran Klein, Vice President and International Tax Counsel of the United States Council for International Business, noted: “For business to flourish in the digital economy, tax rules must be implemented in a coherent and coordinated manner.”

To be sure, global trade organisations like the OECD, economic blocs like the EU and individual countries are right to recognise that existing global tax rules are not sufficient, and a more effective approach is required in the digital economy.

However, given the stakes of this potential tax transformation, all parties should take care to limit negative side effects. While looking at new ways to ensure that a digital-era taxation approach contributes to fairness and ease of administration for both tax authorities and corporate tax functions, global decision-makers should ask the following questions of any potential overhaul. First, is it comprehensive in nature? Second, is it coordinated with related global tax regulations and rules? Third, is it unified?

A transformative approach to digital tax that answers these questions in the affirmative could prevent the current turmoil the US states face from unilateral actions to modernise their own nexus rules. This would likely create fewer negative consequences and be perceived more favourably. In the end, most would agree that it is better if modernised tax rules on the digital economy and digital business models exert positive impacts to both corporate investment and global trade.

The Brightline Initiative gives life to ideas

Posted on by Max Tomlin

Project Management Institute’s 2017 Pulse of the Profession report identified that for every $1bn invested in projects, $97m is wasted due to poor implementation. If this percentage is applied to the level of global capital investment as calculated by the World Bank, around $1m is wasted every 20 seconds, or $2trn every year.

Real value and benefits will only be delivered if businesses are able to take ideas from paper and translate them into reality

The Brightline Initiative is a non-commercial coalition dedicated to helping organisations solve this problem by bridging the gap between strategy design and delivery. It provides support in three key areas: first is thought and practice leadership, in which Brightline provides cutting-edge research and solutions. The second area is capability building, which helps entities enhance their capabilities in order to successfully manage strategy change and recognise those that do it well. The third area is networking, which the company supports by facilitating the sharing and advancement of ideas through events produced in partnership with TED, Thinkers50, Web Summit, Drucker Society and CSO Summit. To find out more about the organisation’s work and how it is helping companies around the world bridge gaps and ultimately reduce waste, World Finance spoke with Ricardo Viana Vargas, Executive Director at the Brightline Initiative.

Why is it so crucial to bridge the gap between strategy design and implementation?
When we think that we are wasting $1m every 20 seconds due to the flawed implementation of programmes and projects, it becomes clear that we need to do something to rectify this problem. The short answer is that our society cannot afford to waste this huge amount of resources every year. It is a massive destruction of value, not only in terms of loss of profit for the private sector, but it wastes resources from governments and the not-for-profit sector too.

In a world with such huge inequality, we can’t afford to waste this amount of money. This is why it is so crucial for businesses, governments and not-for-profit institutions to be mindful about the impact of the destruction of resources on our society and economies, and to act to reduce these losses.

How can the Brightline Initiative make this happen for business leaders?
We work diligently to amplify our three key areas of focus: thought and practice leadership, capability building, and networking. Through these three areas of focus, leaders from the private sector, government and not-for-profit institutions will be able to engage with Brightline, learn from the content we produce and apply this information to their day-to-day jobs.

We also offer advice that helps leaders address some of the toughest challenges related to strategy design and implementation. Strategy delivery is as just important as strategy design, and leaders need to understand that they can’t only be responsible for generating ideas or envisioning the future, but must be held accountable to the delivery of strategies. This way, they can help their organisations and teams make things happen. The capability to deliver is what sets leaders apart.

Why is accountability for strategy implementation so important?
According to Brightline’s 2017 Closing the Gap: Designing and Delivering a Strategy that Works survey, conducted by the Economist Intelligence Unit, at least 59 percent of senior executives admit their organisations “often struggle to bridge the gap between strategy development and its practical day-to-day implementation”. Strategy doesn’t happen automatically – the first step is to recognise that strategy delivery is just as important as strategy design. This is Brightline’s number-one principle. Having new ideas and envisioning a strategy is essential to every organisation, however, real value and benefits will only be delivered if businesses are able to take ideas from paper and translate them into reality.

The second piece of advice Brightline offers, and another of our principles, is: “Accept that you’re accountable for delivering the strategy you designed.” To transform great strategies into outstanding results, accountability must come from the top. Leaders, middle and line managers and implementation teams need to work collaboratively and be held accountable for delivering strategies. Senior leaders and executives need to clearly understand their role to make sure they help bridge strategy and execution.

What decision-making biases exist?
Another of Brightline’s principles states that leaders should “demonstrate bias toward decision-making and own the decisions they make”. By this, we mean leaders need to be ready to make a decision as soon as they have enough information to move forward. Once they have done that, they need to commit to removing roadblocks, addressing risks and reinforcing accountability.

Decisions can be risky. Bias can come from personal experience, your belief systems, the best approach for the organisation, or a lack of complete information or data about the market and customer needs. People rely on their own principles, values and personal view of the world. As Brightline suggests, you need to “rely on those you can trust to deliver sufficient and reliable input to allow thoughtful decisions”. The worst-case scenario is if a strategy stalls between ideas and results and, due to a lack of decision-making, is unable to move on.

How can leaders and organisations overcome these biases?
First, leaders must surround themselves with people they can trust and truly collaborate with – those that will offer relevant input and feedback to help with decision-making. Second, teams must commit to making decisions as quickly as possible. All of the necessary information will never be available, so it’s important to make a decision and commit to delivering results as quickly as possible. Then, if necessary, correct the course, reprioritise and keep removing roadblocks so the organisation can deliver results.

Leaders must constantly evaluate the progress of the strategic initiatives they have committed to deliver. By structuring an effective governance structure, including processes, metrics and milestones, and proactively dealing with risks and opportunities throughout the implementation process, they can find success.

As the Closing the Gap report found: “Strategy is a living thing that adapts.”

How can organisational culture help bridge the gap between strategy design and implementation?
In the Closing the Gap survey, cultural attitudes were found to be the number one barrier to successful strategy implementation, according to senior leaders. This is aligned with the 57 percent of business leaders who agree “corporate culture supports rapid strategy implementation”, a factor that is even more predominant among organisations with ambitious strategies.

Brightline’s research found that the type of organisational culture that helps leaders bridge the strategy implementation gap is well aligned with our guiding principles. First, develop a collaborative work environment that promotes forward thinking and a bias to action. Next, promote fast decision-making habits by empowering teams and people to be more autonomous and willing to take risks. Finally, be a storyteller: inspire and motivate people to do great work and recognise those that have done so. Celebrate quick wins and successes, and recognise that failure is part of the learning process – fail fast to learn fast.

How should organisations implement effective feedback loops?
Focus on clear, open and continuous communication. Unsurprisingly, the Closing the Gap report identified that leading organisations are more likely to have effective communication at multiple levels. Effective feedback loops mean that information related to competitors or customer needs are conveyed to those who can act upon this information. Interestingly, leading organisations that are able to develop effective feedback loops are also more agile. According to the report: “They act fast – with discipline.” They demonstrate organisational agility, which allows them to be nimble and responsive to changes in customer needs and market shifts. They can quickly and effectively reallocate funds and personnel, and rapidly adjust strategy when implementation reveals new risks, threats or opportunities.

Why is the prioritisation of resources so important?
We live in a time when resources are scarcer than ever. As such, if businesses don’t prioritise projects and initiatives, and dedicate the right resources to these projects, it is unlikely that they will successfully deliver their strategic initiatives. There will never be enough capital, people and operational capacity to properly resource all projects. Therefore, the ability to decide and prioritise where key resources will be invested and allocated is imperative.

The second most cited barrier to successful strategy implementation is “insufficient or poorly managed resources”, according to the Closing the Gap report. First, businesses should be aware of their delivery capabilities, operational capacity, people competencies and financial resources, as well as apply recognised portfolio management techniques. Second, once priorities are identified, the best leaders and
teams must be assigned to the project. Employees should be dedicated and well-equipped to start producing results. Managers must promote focus, clear direction and responsiveness by combining a dynamic and flexible delivery capability with long-term vision. Leading organisations avoid short-term distractions and overreaction to minor shifts in the environment.

What results can organisations expect to see if they do all of the above?
They will close the gap between strategy and reality. Organisations will experience significant improvements in their delivery capabilities and will be more effective at transforming ideas into results. To promise something is easy, but bridging the gap between having an idea and taking action is very challenging. Brightline exists to help organisations deliver their strategies and reduce the waste of money and energy as they do so.

Italian wealth managers respond to new regulations and millennials

Posted on by World Finance

The international wealth management sector is constantly growing and evolving; adapting to the needs of a new generation, and embracing digital technology. Gianpietro Giuffrida from BNP Paribas Wealth Management explains the challenges and the changes that he’s seeing in the wealth management industry today: technological advances, new expectations in customer service from millennials, and price pressures from new regulations like MiFID II.

World Finance: Tell me more about the challenges and the changes that you’re seeing in the wealth management industry today.

Gianpietro Giuffrida: The wealth management industry is currently undergoing its biggest challenges since the financial crisis. Technological development is bringing a great digitalisation and automation to financial services. The new generation called millennials tends to demand a great personalisation in customer services. Technology change is generating demand: simple products through new digital channels.

Unfortunately, loyalty rates are dropping, and wealth managers must overcome this.

World Finance: How can technology be used in the wealth management industry to improve things for customers and the industry itself?

Gianpietro Giuffrida: Customers more and more are looking for totally digitalised solutions. Technology can help a wealth manager to deliver services, and also to adapt to the evolving regulatory climate.

At the same time, the wealth manager should also employ conventional approaches, such as brand cultivation and relationship management, to boost customer trust and to fulfil the growing demand for focuses for service solution.

World Finance: So what is the reality for private banking in Italy today?

Gianpietro Giuffrida: The Italian wealth management market offers a good example for how industry in general is starting to change. The change is driven by rising costs, in part from new regulations like MiFID II.

In Italy, wealth is normally concentrated in the central or northern regions. In terms of financial assets, the total wealth of households with minimum €500,000 amounts to over €1tr.

Another important characteristic of the Italian market is the large number of business owners, who may control the small and medium sized enterprises. Many business owners think that the family office is the best solution to manage their wealth; consequently, Italian banks have to work with these family offices.

World Finance: How is BNP Paribas Wealth Management responding to these changes in Italy? What are you hoping to achieve?

Gianpietro Giuffrida: BNP Paribas hopes to be a leader in transforming the wealth management industry by 2020. This objective will be a change in three main ways. The first, to invest in remote, digital interaction. The second, to improve services to meet the expectations of the younger generation. And last but not least, building innovative support for our customers. For example, Privilege Connect, our private banking, tailor-made service centre, providing 24/7 support.

The customer is in the head of our commitment. We want to be the most popular and recommended bank of Italy.

World Finance: Gianpietro, thank you very much.

Gianpietro Giuffrida: You’re welcome.

Copenhagen’s green ambitions continue to attract investment

Posted on by Max Tomlin

Copenhagen’s green roots can be traced back to the European energy crisis of the 1970s. At this time, Denmark took the first dramatic steps of becoming fossil-fuel-independent, and the Danish state started investing heavily in wind technology, which has since made Denmark one of the leading countries in wind energy production.

Today, Copenhagen has a vision of becoming the first CO2-neutral capital by 2025. This is a political vision that signals to businesses all over the world that the government is committed to taking bold actions to build and invest in a sustainable city.

Consequently, Copenhagen has become the perfect playground for companies that wish to be at the forefront of green technological developments. This is where Copenhagen Capacity plays a crucial role.

Our overarching goal is to present international companies and talents with opportunities that will make them thrive in Greater Copenhagen. For instance, we help foreign companies become a part of Copenhagen’s green hub so they can test and develop new solutions that will grow their businesses and ultimately bring Copenhagen closer to its goal.

The people matter
Besides being a leading green city, Copenhagen has also taken major steps to drive the entire population forward in becoming more tech-savvy. This enables companies to test innovative solutions as it is relatively easy to get consumers in Copenhagen tuned in to new developments.

This is especially relevant to innovation in healthcare technology. As for the rest of the world, Copenhagen is faced with an ageing population that brings with it more chronic conditions, making medicine expenses jump through the roof. To tackle this challenge, Copenhagen Capacity facilitates a healthcare cluster of municipalities, hospitals, universities, patients and companies that all work together to test and develop new solutions. This alliance between public and private institutions makes Greater Copenhagen a uniquely qualified place to develop new healthcare technologies. This is a message we want businesses all over the world to hear.

Furthermore, the Greater Copenhagen region has a highly developed, well-educated population. In fact, it is the most research-intensive area in Northern Europe, boasting 17 universities, 14,000 researchers and 190,000 students. Indeed, if there is one thing that shapes the future of a city, it is talent. Just 10 years ago, typically, the talent would go where the best companies were, but this is changing. It is now increasingly the case that companies locate themselves where the talent lives. As a result, more so than ever, there is a focus on cities being liveable areas.

This has not always been the case for Copenhagen. During the 1980s and 1990s, people would move out of the city and into the suburbs as soon as they started having children, as urban spaces were considered congested, polluted, busy and noisy. But, after a series of bold political decisions, this perception has flipped upside-down.

Copenhagen has now become a clean place to live. For instance, the city has gone to great efforts to clean entire harbours to the extent that you can actually swim in downtown Copenhagen. What’s more, 41 percent of people in Copenhagen are biking to work every day, not because they can’t afford a car, but because it is easier, healthier and has become part of the culture.

Digital expertise
At Copenhagen Capacity, we help companies that are interested in expanding their businesses to a green and tech-savvy region like Greater Copenhagen. Such firms may come from China, India, the US or elsewhere. To reach this audience, we have created a digital universe that provides companies and talents with just the information they need. In particular, we develop targeted campaigns that reach specific industries through social media. For example, a digital campaign that introduces IT developers and tech companies to the many opportunities of Greater Copenhagen’s tech industry, or a food campaign where relevant stakeholders are introduces to the Danish food cluster.

If these companies then consider moving here, we help them build their business case by providing them with data and introducing them to the contacts they will need to become a success. Thereafter, we assist the companies with all the practical matters, including helping them get registered and advising on how to find office space and contacts.

Essentially, we help companies get started as smoothly as possible, which helps Copenhagen become all the more innovative and all the more green.