Year: 2018

Japanese election result a vote of confidence in Shinzo Abe’s fiscal programme

Posted on by Max Tomlin

While snap elections did not always result in the instigator’s desired outcome in 2017, Japan’s own did just that. The unexpected call for parliamentary elections made in September by long-standing Prime Minister Shinzo Abe was timed perfectly. Despite notable successes during Abe’s time in power, several pressing issues still remain deeply problematic for the Japanese economy and people, not least the threat of demographic catastrophe. With such concerns permeating the social consciousness, in the week prior to Abe’s announcement, Yuriko Koike, former Minister of Defence and leader of the newly created Hope Party, stepped into the limelight. The charismatic candidate offered an alternative to mainstream politics in Japan and quickly garnered support, particularly among the country’s youth.

But this wasn’t another surprise power shift as that witnessed in the UK; Abe didn’t just win, he won by a landslide. With more than two thirds of 465 seats in Japan’s House of Representatives, the Liberal Democratic Party (LDP) held a majority even without its coalition partner, Komeito. With Komeito in tow, Abe now has a supermajority in parliament and has what he has long desired: the capacity to change Japan’s pacifist constitution. More importantly, the results revealed on October 22 were a massive boon for his eponymous economic stimulus package, known as Abenomics.

Monetary arrow
Instigated soon after Abe’s re-election in December 2012, Abenomics was created to revitalise the Japanese economy and lure it out of a two-decade-long mode of deflation. The programme consists of a three-pronged approach: monetary policy, fiscal stimulus and structural reforms.

investors are pouring in from around the globe to take advantage of japan’s under-valued stock market

The first arrow involves an unparalleled quantitative easing (QE) programme by the Bank of Japan (BOJ), which, to the surprise of many, has become all the more aggressive. The BOJ first started dabbling with QE back in 2001, when it began over-capitalising commercial banks to prompt them to lend more at less risk. Though this initial QE programme, QE1, was marked a failure and came to an end in 2006, a second, more vigorous programme (QE2) began in 2013 when the central bank started buying JPY 7.5trn ($66.7bn) of long-term government bonds each month.

BOJ Governor Haruhiko Kuroda stunned global financial markets once again in October 2014 when the central bank increased its yearly long-term bond purchases from JPY 50trn ($445bn) to JPY 80trn ($650bn). At the same time, it also tripled both exchange-traded funds purchases and real estate investment trust purchases to JPY 3trn ($26.7bn) and JPY 90bn ($801m) respectively.

Though it took several attempts, Japan’s QE programme, which is now the longest-running in the world, managed to reduce real interest rates and provide a much-needed boost to spending and investment. It has also found currency success: according to the London Capital Group, by mid-2015, the yen had depreciated by over 35 percent on traded weighted basis, while the USD/JPY exchange rate had leapt from below 80 to over 125. Consequently, a cheaper yen has fuelled export growth by making Japanese manufacturers more competitive.

The country’s stock market, meanwhile, has investors pouring in from around the globe in the hope of taking advantage of one of the most under-valued markets among the biggest economies. “Growth [in the stock market] has been much stronger than anyone would have expected four or five years ago, and like elsewhere, extended growth, low rates and low volatility are very equities-friendly,” explained Steven Englander, Head of Research and Strategy at Hong Kong-based Rafiki Capital Management.

John Vail, Chief Global Strategist and Head of the Investment Strategy Group at Nikko Asset Management, agreed: “Japanese economic and corporate profit growth are more geared to global economic reflation than other developed countries. This was shown by [the Q3 2017] results season that exceeded expectations more than I have ever seen in my 30 years of covering Japan. Profit and sales growth were the best among developed economies, as was the surprise factor relative to consensus.” Also playing a positive role in the Nikkei Stock Exchange’s recent performance is the government’s pro-market stance, mounting investor confidence and improving corporate governance.

Negative for positive
After three years of buying JPY 80trn ($712bn) in assets annually, the central bank had acquired almost one third of Japan’s bond market, but the target inflation rate of two percent had still not been met. Furthermore, instability in the global economy was threatening to undo what the BOJ had achieved thus far, in terms of higher stock prices and a weaker yen. Subsequently, in January 2016, the BOJ stunned international markets by introducing negative interest rates in the country for the first time, joining Sweden, Switzerland and Denmark in an attempt to encourage lending.

240%

Percentage of government debt in relation to GDP

$210bn

Amount spent by Abe’s fiscal programme on recovery measures

Despite the limited impact of the negative interest rate policy, which is coupled with concerns about the profitability of Japanese banks, the monetary stimulus arrow of Abenomics has seen the greatest success of the three. Englander explained that this comes down to both timing and sequencing: “The timing issue is that monetary policy works a lot quicker than structural policy, particularly through the impact on asset markets. The yen falls quickly, equity markets rally, then rates spill over into housing and construction, etc.”

He continued: “The sequencing problem is that you need lower interest rates to offset fiscal drag. So trying to narrow the deficit when you have little room to go on rates is paddling uphill. That will have to wait until inflation is higher and there is room for real rates to absorb some of the impact. Unexpectedly, and they claim unintentionally, the BOJ balance sheet is accomplishing fiscal consolidation for them.”

Phase two
As another means to kick-start the economy, Abe’s fiscal programme started in 2013 with Japan’s second-biggest stimulus package on record, encompassing recovery measures reaching JPY 20.2trn ($210bn), of which JPY 10.3trn ($116bn) was direct government spending.

The regime focused on developing the country’s infrastructure, particularly tunnels, bridges and earthquake-resistant roads. Governmental expenditure has since expanded, with a further JPY 5.5trn ($48.9bn) in April 2014, and another JPY 3.5trn ($31.1bn) after the elections in December 2014.

Japan’s QE programme reduced interest rates and has provided a boost to spending

Despite continued spending, in 2016, calls for greater fiscal stimulus grew. Kuroda himself spoke out in favour of a more robust fiscal policy in order to reinforce the efforts of the central bank, explaining that monetary policy alone could not eliminate deflation – in stark contrast to previous arguments made by the governor. “Synergy effects are produced when a government proactively carries out fiscal spending while a central bank provides accommodative financial conditions,” he said at the time, according to Reuters.

And so, in October 2016, the Japanese Parliament approved an additional JPY 3.287trn ($31.94bn) in the budget for the fiscal year ending March 2017, bringing annual spending to more than JPY 100trn ($890bn). In addition to the extra funding being funnelled into transportation infrastructure and places prone to natural disasters, the tourism industry also received a boost in a bid to entice more visitors to the 2020 Tokyo Olympics.

According to The Japan Times, in August 2017, budget requests for fiscal year 2018 reached JPY 101trn ($913bn), topping the one trillion mark for the fourth year in a row. Spending on social programmes in particular is expected to increase by JPY 630bn ($5.6bn) from fiscal year 2017, which is linked to the third, but more elusive arrow of Abenomics – structural reforms.

Structural delays
While Abe’s first two arrows have enjoyed some success, particularly in terms of the value of the yen and GDP growth, many argue that structural reforms have received the least attention of Abe’s three-pronged approach.

“The most problematic was always going to be the ambition to achieve structural reforms to address the longer-term future of the economy, and to encourage innovation and competition. Much of this entails significant social and institutional change, which is invariably a slow process,” said Janet Hunter, a professor specialising in Japanese economics at the London School of Economics and Political Science.

She continued: “I don’t think that anyone expected rapid results. Incremental change has been taking place, perhaps more than one thinks, but there is very limited evidence of dramatic change. However, the policies of fiscal and monetary stimulus may have been coming up against their limits. The massive government debt, now more than 240 percent of GDP (completely unprecedented in industrial economies), is moving into uncharted territory and although it has been sustained so far – partly because most of the debt is held internally, much of it by the BOJ – the government needs to increase its revenue, which it hopes to do by introducing a higher rate of consumption tax in 2019 (already postponed twice). But for the long term, it is structural reforms that they want to focus on, and this is emphasised in particular by the demographic problem of a declining population and ageing.”

Japan’s QE programme reduced interest rates and has provided a boost to spending

Englander too argued that there has been significant structural change, but it is less obvious due to its slow pace. He explained: “Structural policy is almost certainly slower and the efficiency gains take much longer to emerge. However, they have gotten participation rates in the 15-to-64 age group well above US levels and increasing sharply – which is a great accomplishment given their demographic skew. This has been important in maintaining growth well beyond what most would have thought possible a couple of years ago.”

Let’s get to work
A major triumph of Abenomics has been the ongoing reduction in Japan’s unemployment rate. By 2017, the level had dropped to 2.8 percent – an incredible 22-year low. What’s more, figures released by Japan’s health ministry show that 97.6 percent of university graduates who pursued employment in spring 2017 found jobs by April 1, marking the highest ratio since records began in 1997 – something that again demonstrates the sector’s recovery under Abe. While such figures are the stuff of dreams for any government, in Japan they are linked with an extremely tight jobs market and stagnant wages. Indeed, in 2016, according to The Japan Times, workers received their first year-on-year net wage gains in six years.

When asked why wages are not rising in spite of a high demand for labour across the country, Vail explained: “Corporate executives are told to boost profits, so they don’t offer more than what is required. If employees leave for higher-paying jobs or make strong requests to management, this would incentivise management to raise wages. [However], Japanese employees are usually too loyal and risk-averse to attempt such. [Although], the wealth effect of higher equity and property prices should stimulate consumer spending and economic growth.”

The well-publicised issue of a rapidly ageing population is a major contributor to Japan’s labour shortage, but there are other factors involved, which could benefit from structural reforms. For one, making it easier for immigrant workers to enter the country would help, yet there is a reluctance to do so formally.

Tapping into the female workforce is an area that has received greater efforts, but despite this, the female labour force participation rate has yet to show the increases hoped for. Hunter explained: “There may be a number of reasons for this, including the fact that many women just don’t want to cope with the working conditions of their male counterparts, particularly those with more career prospects; the fact that many large corporations remain particularly conservative and women don’t have the same opportunities; and the fact that so many institutions, including family taxation and the operation of schools, are built around the idea of a married woman being a full-time wife and mother.”

The issue of a rapidly ageing population is a major contributor to Japan’s labour shortage

To counter the issue (while also encouraging parents to have bigger families), during his campaign last year, Abe made the eye-wateringly expensive pledge to provide free kindergarten and day care for children between the ages of three and five, promising further support for those below three for low-income families. However, according to Hunter: “Building more nursery capacity will only go a very limited way toward addressing this problem.” Moreover, the actual cost of Abe’s new policy has not yet been shared, leading many to question its feasibility.

Furthermore, there is the issue of Japan’s low level of productivity, which – despite Japan’s world-renowned technological prowess – is the lowest of the G7 countries. Hunter argued that boosting productivity could be one way to help the labour shortage problem, but doing so will not be simple. “[It] means changing many long-standing working customs and practices, and not just introducing new technology,” Hunter noted.

Sluggish consumers
Despite the rallying of the stock market and rising business confidence, consumers in Japan remain cautious. Englander believes this is also down to demographics: “Older people are very cautious on spending out of wealth. They prefer steady fixed income streams.” He continued: “Real wages are still not increasing as quickly as policymakers would want. Despite the social transition in Japan, traditional savings habits have not died out.”

2.8%

Japan’s unemployment rate in 2017

97.6%

Percentage of university graduates that found jobs upon leading university

As such, though interest rates for savers are low, consumer demand and spending are still disappointing, while household savings rates are also very low compared with historical levels. Hunter told World Finance: “One of the reasons why increases in the consumption tax have been deferred is that it could undermine consumer spending still further, and there is thus a tension between the government’s need to increase its revenue and its desire to increase consumer confidence. Unless they can come up with clear reasons why consumer spending has not recovered, then it is difficult to deal with the problem. Obviously the distribution of spending power is one potential problem. Many of Japan’s savings are with the older generation. On the one hand, they do have more time and leisure to spend money. On the other, they don’t necessarily want to, and they may only spend it in certain ways.”

Vail agreed that an increase in the Consumer Price Index (CPI) would be detrimental: “I think it is nearly impossible to durably raise the official CPI to two percent on a sustained level without creating a very strong housing market throughout the urban areas of the country (which is quite difficult). Excluding rent, the CPI is not very low (one percent YoY in September 2017 and accelerating upward), and is likely the appropriate rate for its economy. If Japan cuts its two percent target to one percent, then forex markets will put upward pressure on the yen, which is highly undesirable.”

More structural
The end of Governor Haruhiko Kuroda’s term at the BOJ is fast approaching, due in April 2018; whether he will stay for another term is still unknown at the time of writing. One possible replacement is Japan’s ambassador to Switzerland, Etsuro Honda, who, like Kuroda, is regarded as being dovish. Other potential candidates come from within the BOJ, namely Hiroshi Nakaso and Masayoshi Amamiya who, some argue, could take different approaches to Kuroda if given the helm.

Japan’s level of productivity is the lowest of the G7 countries

When asked what he expects, Englander explained that a continuation of the status quo is likely – with or without Kuroda. “You have to give him credit for being so single-minded in pursuit of stimulus and adjusting the policy stance after negative rates proved to be so ineffective as stimulus. The recent election should be taken as an endorsement of Abenomics and Kurodonomics, so his successor is likely to be in the same mould. I doubt that Abe would want to take any risk that a successor is seen as unwinding the policy, as confidence in Abenomics is now at a high point.” He added: “The question for Kuroda or his successor is how to gently ease the BOJ away from negative rates without generating the kind of [US dollar or euro] rally that occurred when they gave indications of a policy shift.”

In conjunction, Abe’s third arrow requires a rejuvenated focus. As Englander and Hunter both explained, structural reforms were always going to be the hardest arrow to tackle, and also the lengthiest in terms of producing change. But in order to continue boosting the economy, they are absolutely crucial – now more so than ever. “The key challenge is to identify those structural flaws that most inhibit productivity growth and efficiency and target those,” Englander added.

In addition to boosting productivity, considerable changes within the labour market are required, which include promoting labour mobility, closing gaps between working conditions and pay, and increasing wage pressure. Meanwhile, more robust reforms to boost the female labour participation rate, encourage part-time work and make it easier for immigrants to enter the market are all essential in addressing the issues catalysed by Japan’s shrinking population.

As daunting and difficult a task as structural reform is, if Abenomics has proved anything, it’s that the unprecedented – even the unthinkable – can and will be implemented in the process of reinvigorating the Japanese economy and avoiding recession. Now, with renewed support for his sometimes-controversial stimulus programme, it is full-throttle for Japan’s prime minister, as Abe attempts to bring the economic glory days back to Japan.

Gulf Bank driving new era of growth in Kuwait

Posted on by Max Tomlin

The past two years have proved economically testing for the oil-rich nations of the Arabian Gulf. Beginning in 2015, the sustained slump in global oil prices has taken its toll on the region, upsetting fiscal balances and prompting a profound push towards economic diversification. While international production cuts have helped to ease the market’s two-year glut, these prices appear to be the new norm, creating an uncertain future for the crude-driven economies of the Gulf Cooperation Council (GCC).

As Gulf states adjust to this post-petroleum era, Kuwait in particular is making diversification an absolute priority. Home to almost 10 percent on the world’s total oil reserves, Kuwait is one of the most heavily crude-dependent nations on earth. Indeed, the petroleum sector alone accounts for more than half of the nation’s GDP and the vast majority of its export revenues. These vast oil reserves may have helped to make Kuwait one of the world’s richest countries per capita, but they have also left the Gulf state vulnerable to volatility in the crude market.

With its groundbreaking biometric face recognition technology and numerous e-payment systems, Gulf Bank is pushing the frontiers of digital banking and producing remarkable results

As such, the turbulence of the past two years has had a direct impact on the Kuwaiti economy, pushing the nation into a rare budget deficit and ending 16 consecutive years of fiscal surplus. With a further deficit of $25.9bn expected for the next fiscal year, the Kuwaiti Government is now looking to boost the economy as a matter of urgency. In February 2017, the nation launched the New Kuwait 2035 development plan as part of a sustained effort to mitigate the impact of low oil prices and further diversify the economy away from petroleum. Despite the ongoing regional economic uncertainty, this commitment to development is now setting Kuwait apart from its Gulf neighbours.

Weathering the storm
In addition to combatting prolonged low oil prices, the New Kuwait 2035 initiative also attempts to address several of the nation’s own internal economic burdens. At present, Kuwait ranks fairly poorly in the World Bank’s oft-consulted ease of doing business index, coming in at 102 out of 190 countries. Significantly, Kuwait’s ranking falls further to 173 when it comes to the ‘starting a business’ indicator, suggesting that there are some significant bureaucratic hurdles for entrepreneurs to overcome in the Gulf state.

Indeed, it takes longer to set up a business in Kuwait than it does in any other country in the Middle East and North Africa (MENA) region, as Kuwaiti regulators demand larger capital requirements from would-be entrepreneurs. This challenging business climate may well be depriving the country of valuable entrepreneurial talent, thus inhibiting Kuwait from reaching its full economic potential. As such, the New Kuwait 2035 development plan is also committed to transforming the Kuwaiti business environment, focusing on creating an enabling ecosystem for new businesses and start-ups in the region.

Laila Al-Qatami, Assistant General Manager for Corporate Communications at Gulf Bank, said: “The New Kuwait 2035 plan focuses on activating development, boosting the economy and diversifying productivity, while also taking a strong approach to economic and financial reforms.” She added: “It offers businesses the environment they need to prosper and diversify by removing bureaucratic obstacles, making it easier to do business.”

Along with creating a healthier business climate, the Kuwaiti Government also hopes to benefit from the nation’s remarkably young population. Demographically, young people now make up most of the Kuwaiti population, with 50 percent of citizens aged 25 or younger. While this youthful population is certainly advantageous in many ways, it also poses its own unique problems. At present, more than 85 percent of Kuwaitis work in the government sector, and this is simply unsustainable for the future.

As Kuwaiti youths begin to enter the workforce in their droves, public sector positions are rapidly filling up, threatening to cause a spike in unemployment. What’s more, government spending on the public sector accounts for around 50 percent of Kuwait’s annual budget, with expenditures on wages and salaries amounting to an incredible 19 percent of the country’s GDP. With the nation now experiencing a budget deficit, these substantial expenditures are coming under increased scrutiny, and the government is exploring how best to expand Kuwait’s modest private sector. “Kuwait has a significant demographic issue,” Al-Qatami explained. “We must move from a consumption culture to a production culture.”

Fortunately, Kuwait is already enjoying some success in this regard. In September, the FTSE upgraded the Kuwait Stock Market to ‘emerging market’ classification, demonstrating the potential of the government’s ambitious development plans. Thanks to this new status, the Gulf nation can expect to attract a greater number of foreign investors, boosting inflows into its equity market by up to $822m.

A digital era
As the Kuwaiti Government endeavours to modernise the economy, the nation’s banking sector is undergoing a similar transformation. In recent years, new technologies have begun to change the face of the Kuwaiti financial services industry, with the nation’s youthful population demanding digital banking services and on-demand assistance as standard. From mobile banking to contactless payments, technology is reshaping the world of banking as we know it, and financial institutions are coming under increased pressure to adapt to their clients’ rapidly evolving tastes. Amid a wave of digital products now flooding the Kuwaiti banking market, one bank has truly established itself as the national leader in innovation. With its groundbreaking biometric face recognition technology and numerous e-payment systems, Gulf Bank is pushing the frontiers of digital banking and producing remarkable results.

“Customers are spending less time in branches nowadays and are increasingly using mobile banking platforms as their preferred modes of conducting their finances,” said Al-Qatami. “They expect their bank to be readily available through real-time videos and digital chats, and prefer to use these options rather than visiting their local branches.”
A recent EY survey of 2,000 Kuwaiti banking customers observed that 89 percent of those polled would be prepared to switch banks for a better digital experience, and that they would be willing to pay more for digital convenience. Responding to this trend, Gulf Bank has created an award-winning mobile banking app: one that offers customers an easy and convenient way to check their account details and perform basic transactions.

Particularly popular among Kuwait’s burgeoning smartphone generation, the app combines two forms of advanced biometric verification for a secure on-the-go experience. In addition to fingerprint scans, customers can also choose to activate Gulf Bank’s pioneering facial recognition technology, which uses smartphone cameras to scan customers’ faces. Aptly named Blinking to Bank, the biometric technology allows customers to access their mobile banking without the need to manually type a traditional password, thus adding another layer of security to the digital process.

However, Gulf Bank’s technological innovation extends far beyond the realm of mobile banking. The bank recently launched its new advisory and portfolio management offering, which focuses on equities and bonds with a long-term investment approach. The WISE investment service offers Gulf Bank clients the opportunity to diversify their investments through international markets in a convenient and cost-effective manner. The first of its kind in Kuwait, the service creates tailor-made portfolios for clients, based on customers’ stated investment objectives, length of investment and risk preferences, and collaborates with a host of top international financial institutions for a comprehensive analysis of investment opportunities.

Al-Qatami explained: “This new product came about as a result of significant research into the needs of our priority and wealth management clients. Through WISE, Gulf Bank customers can access investment opportunities around the world, with their trusted banking partner always there to help at every step along the way.”

Equal opportunities
Along with enhancing the digital experience of its customers, Gulf Bank is also dedicated to creating a fairer, more equal Kuwait. As a thoroughly modern and progressive bank, Gulf Bank is guided by social responsibility, and partners with a number of national initiatives that are committed to promoting positive change. While Kuwait outperforms its GCC neighbours when it comes to female financial inclusion, gender inequality remains a significant challenge for the nation. Just 64 percent of women currently have a bank account, compared with 79.3 percent of men, representing a substantial gender gap of 15.3 percentage points.

In order to address this issue, Gulf Bank has put women’s empowerment at the very heart of its corporate responsibility strategy. In 2016, the bank organised the Women in the Corporate World conference, which helped promote gender equality and raise awareness of the key issues faced by women in the workplace. What’s more, Gulf Bank has also undertaken significant research into what motivates women at work, so as to better appeal to female workers and support them in their career progression.

“At Gulf Bank, men and women are treated equally, and are evaluated based on performance,” said Al-Qatami. “We are proud to have a substantial number of women holding high-ranking positions within the bank’s various divisions.”

With this dedication to positive change and its unmatched technological innovations, Gulf Bank truly is Kuwait’s bank of the future. As the Kuwaiti economy readies itself for a significant transformation, Gulf Bank is fully embracing this change and continues to solidify its position as an inspired leader in a rapidly evolving market.

Thai Life Insurance embeds ‘loving, caring and sharing’ in viral campaign

Posted on by World Finance

Thai Life Insurance became an internationally recognised brand when its tear-jerking commercials became a viral sensation three years ago. Its marketing strategy – dubbed ‘sadvertising’ – has created some beautiful art, and helped the 75-year-old business grow its assets under management to $9bn. Chai Chaiyawan, President of Thai Life Insurance, explains his vision of the company as a people business, which puts human value first.

World Finance: How are you managing the organisation to succeed, and grow into a leading life insurance company in Thailand?

Chai Chaiyawan: Actually, the key of our business is the people. So, that’s why our vision is: ‘We are in the people business.’

Running the business as a people business, bringing our company to focus on human value more than business value. So as a company, we are a human value -centric company. With that focus on the stakeholders, customers, shareholders, partners, employees, and also the people in society.

As human nature, we cannot live without others. So we are human because we have compassion and love for each other. We have embedded a philosophy of humanism in our core policies, because we believe that if we can build love and compassion in the company, then the staff and the salesforce will take care of the company, and take care of the community.

World Finance: And those concepts of humanism come through in your branding as well; how do you create it?

Chai Chaiyawan: The most valued assets of the company are brand and trust, that we build towards the customer.

So, Thai Life Insurance aims to be the brand that inspires the people in society, through television commercials and by the concept of value of life and value of love.

All our television commercials must be fresh and catchy. With a controversial issue, and a real issue – presented in a memorable, spiritual, emotional marketing format – to let the audience feel gratitude. Which creates the identity of Thai Life Insurance.

World Finance: So where do the ideas come from, and which is your favourite?

Chai Chaiyawan: Actually the ideas come from the words loving, caring, and sharing. When we create the advertisements, we try to point out that life insurance is essential to their life and their love.

Actually, I love all Thai Life Insurance television commercials. But the well-known one is called ‘The Dumb Father.’ That was released in 2011. We tell the viewer that, maybe we never had the best father; but at least we have the father who loves us with all their hearts, and without condition.

World Finance: So what do you hope to achieve for Thai society through Thai Life Insurance?

Chai Chaiyawan: Actually, we aim to be the life inspired brand in Thailand. We want the people in society to realise the importance of life insurance, through the value of love and the value of life.

It comes from the royal remark of our late king, King Rama IX. “The value of life is not wealth or longevity; the precious life is worthiness of our life and others.”

World Finance: And finally, what does the future hold for Thai Life Insurance – and for your customer relationships?

Chai Chaiyawan: The goal of Thai Life Insurance is to be the most trusted brand, that inspires all Thais. This will resolve in Thai Life Insurance growing sustainably, and hope that Thai Life Insurance will go to the stable organisation, run our business based on customer and staff benefit, will give us sustainable growth.

World Finance: Chai, thank you very much.

Chai Chaiyawan: Thank you.

Saudi Arabia’s Vision 2030 and its wealth of potential

Posted on by Max Tomlin

According to Tadawul data, Saudi Arabia’s economy accounts for around half the $1.6trn represented by the GCC overall, making it the biggest market in the Arab world and the 19th-largest on the planet. The country is undoubtedly a global behemoth – however, tumbling oil prices and subsequent OPEC cuts in oil production over the past two years have dealt their share of blows to the economy. In January 2017, the IMF slashed its 2017 forecast from nearly two percent to 0.1 percent. However, its forecast for 2018 – announced in October – predicts an increase of one percentage point.

In May 2016, the Saudi Government laid out plans to modernise, diversify and globalise its economy under its Vision 2030 plan, implementing a series of wide-ranging reforms designed to open the kingdom to foreign investors, reduce its reliance on oil exports and bring it in line with the world’s most powerful emerging economies.

“My first objective is for our country to be a pioneering and successful global model of excellence on all fronts, and I will work with you to achieve that,” declared King Salman Bin Abdulaziz Al-Saud at the project’s outset. By loosening restrictions on outside investors and introducing new regulations, Saudi Arabia’s predominant goal under the programme is to rank itself among the top 15 economies in the world by 2030.

Vision 2030 aims to reduce Saudi Arabia’s reliance on oil exports and bring it in line with the world’s most powerful emerging economies

The effects of Vision 2030 on various Saudi sectors are far-reaching, but among those set to benefit is the asset management sector. One company capitalising on such opportunities is NCB Capital, the investment banking and asset management arm of National Commercial Bank, Saudi Arabia’s first bank.

As the largest asset manager in Saudi Arabia and the biggest Sharia-compliant asset manager in the world, NCB Capital is in a strong position in Saudi Arabia. World Finance spoke to Khaled Waleed Al Braikan, Head of Asset Management at NCB Capital, to find out his views on Vision 2030 and whether it will create opportunities for the asset management industry and NCB Capital itself.

What the future looks like
Though the Vision 2030 reforms are wide-ranging and carry significant positive implications for the Saudi economy in the longer run, they have also sped up the process of opening the Saudi market to international investors. Al Braikan believes the potential inclusion of Saudi Arabia in the MSCI Emerging Markets Index (a decision expected to be made in mid-2018, according to The National) is among the most significant outcomes of the ongoing stock market reforms: “The MSCI and FTSE Russell indices are benchmark indices for equity investment managers globally. As Saudi Arabia becomes part of these indices, we expect to see many more regional and international investors coming to the Saudi market.”

If the MSCI inclusion goes ahead, it is expected to bring significant international portfolio inflows to the Saudi stock market. Beyond that, there are various regulatory reforms already underway to help achieve the targets and encourage the interest of overseas investors. Since June 2015, for example, international equity investors with assets under management of more than $5bn have been able to access the Saudi exchange by applying to become Qualified Foreign Investors (QFIs). In 2016, market authorities lowered this assets under management cap to $3bn in order to facilitate more QFIs’ entry into the kingdom.

April 2017, meanwhile, saw the switch from a T+0 to a T+2 settlement cycle for listed securities – a model used by the majority of leading emerging markets to make stock market transactions more secure, and to attract more investment from overseas. Whereas execution and settlement previously took place on the same day, investors now have two days to verify deals and arrange funds.

“The right steps are being taken in terms of regulation to accommodate the needs of international investors,” said Al Braikan. “The authorities are in dialogue with the international investors; they’re listening to them and are acting quickly to address any potential concerns.”

Al Braikan refers to the recent authorisation of short selling as a further incentive to foreign investors, who now have the option to sell borrowed stocks and hedges. There is also the Independent Custody Model, which means international investors can now allocate a global custodian bank to hold their assets, rather than having to use a local broker.

It is not all about larger corporations, though. Just as important has been the increased focus on the SME sector. According to Al Braikan: “The government is looking to especially support this area in order to help drive the growth of non-oil revenue. One of the initiatives has been the creation of the Nomu-Parallel market, designed to allow SMEs to access and raise additional equity capital.”

Developed as an alternative to the traditional stock exchange, Nomu is a lighter market with more flexible listing requirements than the Tadawul. It has been designed to enable smaller companies to get listed which, in turn, will stimulate the wider local economy.

The Nomu market is restricted to qualified investors, whereas companies require a minimum market cap of SAR 10m ($2.7m). So far, the new market seems to be proving a success. “There appears to be a great deal of initial interest from the companies seeking to list on the Nomu-Parallel market, which is expected to grow significantly over the coming years,” continued Al Braikan. “Some of these companies, though relatively small, could eventually become future champions in the sectors in which they operate.”

Tourism and business
The reforms under Vision 2030 and Saudi Arabia’s National Transformation Programme 2020 (NTP 2020) have far-reaching effects across many sectors at Tadawul. Al Braikan highlighted a number of sectors that stand to benefit as a result of these reforms. The Saudi telecoms sector, for example, will see growth in three key areas: higher fibre optic coverage across the kingdom; improved availability of frequency spectrums to Saudi telecoms companies; and extensions in wireless broadband availability to remote areas. Al Braikan also highlighted that, under Vision 2030 and NTP 2020, the Saudi Government intends to fully privatise the electricity generation capacity while restructuring the existing power utility.

The government will also bring power tariff reforms through the removal of further subsidies. Speaking about the Saudi minerals sector, Al Braikan referred to these reforms as the future growth engine of the industrial sector, as Vision 2030 incorporates major investment plans to develop the mineral sector. On Saudi healthcare, Al Braikan revealed that Vision 2030 promises major reforms, including the privatisation of government hospitals, further optimisation of current healthcare spending, incentives for the private sector to step up its investments, and addressing lifestyle diseases through lowering smoking levels and curbing obesity.

Al Braikan is also extremely positive about the future of religious tourism. Vision 2030 aims to increase the number of Hajj and Umrah pilgrims through sustained investments in the physical infrastructure of the two holy cities. Accordingly, this should benefit the listed enablers of this sector. Al Braikan is also of the view that developments such as the evolution of real estate investment trusts (REITs), the imposition of white land taxes, and higher government spending commitments to build houses for the masses will create opportunities for the listed real estate sector. Al Braikan also named the insurance sector as a key beneficiary of Vision 2030.

According to Al Braikan: “Saudi Arabia has strong investment capabilities and tremendous growth potential. This is on the back of the kingdom’s strategic location, immense natural and mineral resources, and favourable dynamics.

“Saudi Arabia is ideally located in the midst of Asia, Europe and Africa. This enables the kingdom to offer transit and gateway facilities. Ultimately, Saudi Arabia can emerge as a major regional trade hub. Furthermore, Saudi Arabia can build upon its industrial base that takes advantage of its vast natural resources. Given the mining potential in the kingdom, sectors and industries can further be developed in areas such as phosphates, metals, energy and petrochemicals.

“The general dynamics of Saudi Arabia are also heavily in favour of investment development, and steps in this regard include the development and expansion of religious tourism and the expansion of physical infrastructure, such as airports and other supporting transport systems. The demographic dynamics of the kingdom are also extremely favourable – this enables the development and furthering of local talent and technological penetration in new and unique areas.”

Al Braikan highlighted the marked reduction in the government budget deficit from SAR 91bn ($24.3bn) in Q1 2016 to SAR 26bn ($6.9bn) in Q1 2017. This allowed the government to reinstate allowances for public sector employees. NCB Capital believes that restoring these allowances will increase average household income and may also increase the discretionary spending capability of a household in general. Al Braikan also pointed out that recent international sukuk issuance will further improve liquidity in the local market.

Targeted growth
Al Braikan believes the reforms will have a long-lasting impact on the overall health of the Saudi economy. He said: “Over the longer term, the market should benefit and grow in terms of both depth and breadth, as more companies are listed, including privatisations, and additional sectors are added. The more the listed companies reflect the overall economy, the more relevant it will be for investors seeking liquid access to the long-term Saudi economic story.”

NCB Capital’s own part in all of this is clear. By matching sources of capital with investment opportunities, the company will continue to support local firms as they develop, helping them raise essential capital. “NCB’s existing business strategy focuses on capitalising on the opportunities brought about by the kingdom’s ongoing transformation into a more diverse economy,” said Al Braikan. “We are closely watching the market dynamics of REITs, for example, and may come up with appropriate products in the medium term to capitalise on this opportunity.”

He concluded: “During 2018, our focus is likely to stay on growing our businesses within asset management, brokerage and advisory services. The changes coming as part of Vision 2030 will accelerate growth in many sectors, and therefore create opportunities for companies and investors alike.”

Angola ditches dollar peg

Posted on by Ashton Wenborn

Angola’s central bank has announced that it will be scrapping its currency peg in favour of a more flexible exchange rate regime, as authorities grapple with fast-depleting foreign currency reserves and dollar shortages.

The move follows several years of economic disarray triggered by the commodity price slump of mid-2014, which brought growth rates to a standstill after a decade of oil-fuelled expansion. Since the oil crash, the official value of the kwanza has dropped by over 40 percent against the dollar, but is still overvalued compared to estimated exchange rates on the black market.

“We have an exchange rate that does not reflect the truth,” Governor José de Lima Massano told reporters in Luanda, as quoted in BusinessDay.

The shortage in hard currency has made it difficult for Angolans to pay foreign workers and overseas suppliers, while the overvalued exchange rate has dampened overseas investment.

The kwanza is expected to fall sharply once the peg is dropped, though the central bank plans to intervene if it moves outside upper and lower limits, which are yet to be set.

In a press release, the central bank stated: “After analysing the behaviour of the macroeconomic fundamentals of the Angolan economy, and particularly the decreasing trend of international reserves, and taking into account the current imbalance between supply and demand for foreign exchange, the CPM [Monetary Policy Committee] will define the maximum and minimum limits of the foreign exchange band.”

The change is part of a wider economic overhaul led by newly-inaugurated President João Lourenço, who has been in the job for less than four months, following the 38-year presidency of his predecessor, José Eduardo dos Santos.

Depreciation in the kwanza is likely to push inflation up, which is already around 30 percent. It will also exacerbate the country’s debt burden if debt-servicing costs rise, which is widely anticipated. The country’s finance minister, Archer Mangueira, has announced that the government will be looking to renegotiate Angola’s external debt, which currently sits at $40bn.

Mashreq Bank: Digitisation mustn’t leave face-to-face customers behind

Posted on by World Finance

Mashreq Bank celebrated its 50th anniversary in 2017. It’s the UAE’s oldest bank, and has been innovating throughout its history, achieving a number of notable firsts in expanding financial services in the country. Head of Retail Banking Subroto Som talks us through those achievements, and Mashreq’s ongoing internal digitisation journey. But, he explains, there are still consumers who want to talk to a branch employee, and they cannot be ignored. Digital-only banks like Mashreq Neo are a choice for consumers – they shouldn’t be the be-all and end-all of financial services. He also discusses the challenges in the UAE’s retail banking industry, with some consolidation in the hyper-competitive market already happening.

World Finance: Mashreq Bank is celebrating its 50th anniversary this year; talk me through some of the key achievements in that history.

Subroto Som: In 1978 we were the first and only bank to have established a presence across all the seven emirates of UAE. Then in 1981 we were the first bank to introduce debit cards and credit cards in the UAE; followed immediately by introducing ATMs in 1983.

Then in more recent times we were the first bank to introduce online banking, followed that up soon thereafter to introduce mobile banking in 2008. The UAE is introducing digital and mobile wallets: we were the first bank to bring the Samsung Wallet in the UAE, and we were in the first batch of banks to launch Apple Pay in the UAE, and we already launched Mashreq’s own proprietary Mashreq Pay wallet, also to help our consumers in the UAE.

Mashreq has always been a bank that has been innovative; it’s in our DNA. And it’s a bank that’s ready for the future. In fact in many ways, it is a bank that’s shaping the future.

World Finance: So does the new digital-only Mashreq Neo point to challenges in the physical retail space?

Subroto Som: The bank has actually increased the number of branches even in the last 12 months: we’ve actually increased by 12 new branches. But I think what happens in a branch has changed significantly.

To give you an example, when you go to a branch and you want to update your personal information, you typically will be asked to fill out a form, sign, the branch will verify your detail, will send to the back office, the changes will be made, and the process could take anywhere from six hours to a couple of days. It’s a very manual process filled with a lot of paper.

The same thing could be done in mobile banking, or in online banking by the consumer, by just inputting it. So we thought about just changing the branch process, that when a customer came to do a similar activity, we could get him to input the details directly onto the system, and get it done instantaneously.

We have been investing in what we call converting the bank digitally inside for quite some time. And that uses the whole process re-engineering, big data analytics, AI and robotics. So that journey has been on for quite some time. So today’s branch is a lot more digital, it has a lot more machines, it has a lot more things that consumers can use directly. And you are not depending to talk to an individual.

But at the same time there are consumers who are very comfortable talking to an individual, talking to a branch employee, and you cannot ignore them.

World Finance: What challenges are you experiencing in the retail banking space in the UAE?

Subroto Som: As you know, UAE is a very competitive market, for the market of its size: we have over 30 retail banks. So the first challenge will be consolidation, and I think some consolidation is happening.

The second is as I mentioned; the credit bureau has come into place for the last couple of years, and that has shown that there are segments and pockets of the economy where there is high leverage, and de-leverage is happening. That has its own stresses and challenges.

Most banks are moving towards digital, and hence the interplay of digital process and banks’ legacy system is a challenge in itself.

And last but not least, we should not underestimate the balance between ease of a transaction and the security and safety of the consumer and the bank. And there’s a constant battle to balance the two.

So we have always been innovating. We spend huge amounts of dollars and dirhams in staying ahead on technology, on finding the right solution and new products. And we’ll continue to do so.

Our key interest is in bringing the best in breed products to the consumer, and looking after consumers’ convenience and safety. We will continue to invest in that.

And it’s a journey. It’s a journey with the consumer. Many of the things that are happening are new; it’s a path that we are confident of, and we have been on this journey for quite some time.

World Finance: Subroto Som, thank you very much.

Subroto Som: Thank you very much.

Mashreq Neo: UAE’s new bank offers fresh experience for digital natives

Posted on by World Finance

Mashreq Neo is the new full-service digital-only bank for customers in the UAE. This newest bank is the child of the UAE’s oldest: Mashreq Bank, which has 50 years of experience providing award-winning financial services in the country. Mashreq’s Head of Retail Banking Subroto Som explains how the new bank was created to cater to the needs and wants of the emerging connected generation: digital natives who want to do everything online, on-the-go, and with as little human interaction as possible. You can also watch the second half of this interview, where he explains that Mashreq Bank is still maintaining and actually expanding its physical branch network; and discusses the challenges for retail banking in the UAE.

World Finance: Mashreq has a long history of innovation; tell me more about this latest offering.

Subroto Som: Mashreq Neo is a retail bank targeted at consumer behaviours and the consumers that we see emerging in the UAE. We call this the connected generation. They are always connected through smartphones; through social media; through their peers, friends, and family. And they get influenced by them.

Mashreq Neo is a retail bank targeted at this connected generation. It offers you the flexibility of multi-currency accounts. It facilitates payments through wallets. It allows you remittances. It allows you to do lending. It also connects you to 30 stock exchanges of the world, to buy and sell stocks. And we will bring new features to the Mashreq Neo customers as we work together.

World Finance: What are the particular needs and wants of this connected generation, and how are you catering specifically to them?

Subroto Som: So let me give you three examples; first in just opening the account. All it takes is four steps and less than five minutes, and the consumer will have an account.

You have to download the Mashreq Neo app. Upload your Emirates ID, input a few details. The bank will send you an OTP to verify that it is you who we are talking to. You’ll choose your password and your username, and you’re done.

The very next day, a bank employee will visit you to verify your documents, take your signature (which is a regulatory requirement) and hand you over the debit card, the credit card, and the chequebook. And that is the account set up.

Second, you don’t need to visit a branch, or talk to anybody, ever again. Mashreq Neo has the capability through your mobile phone or through online banking that you can do all your transactions without visiting a branch ever again.

Third, to give you a sense of the flexibility and the personalisation that you can do. Normally in a credit card you get rewards, either in the form of cashback, miles, or reward points. Mashreq Neo credit card offers you the flexibility to choose any of these three, and at an interval of every quarter you can choose to move from one to the other.

These are three examples of how this connected generation is looking for flexibility, convenience, and things that matter to them in their retail banking.

World Finance: It’s very early days, barely a month at time of recording; how has the reception been?

Subroto Som: We have been very pleased with the response that we have got from the consumer. We had planned for a certain number of accounts to be opened in the first three months, by the end of the year. I’m pleased to say that we will cross that number even before we end the first month. The numbers will be far more than we had anticipated, and we are extremely pleased about it.

But let me also share one other thing. In the first couple of days, when we launched the product, we actually saw a lot of bankers applying for the product. Not only from UAE, also from elsewhere! We were getting worried, is it only for bankers? But soon thereafter we started to get real customers also applying for Mashreq Neo.

World Finance: So what growth do you see in this youth segment?

Subroto Som: I would not call it just a youth segment; one of our oldest customers who still uses mobile banking is as old as 92.

It’s actually aimed at people who are digitally savvy, they are seeking convenience and they are comfortable with the use of the new technology. And we are trying to embed retail banking within their other activities.

So to me, the growth potentials are enormous. Research recently showed that close to 80 percent of consumers in the UAE do do some part of their banking on mobile. We have seen in our customer base that there’s 45-50 percent of customers who do all their banking through mobile or online banking, and do not visit a branch. So I am very hopeful that there is a lot of potential of new customers moving from traditional channels to Mashreq Neo.

Improving India’s ailing road infrastructure

Posted on by Max Tomlin

Though India is home to the world’s second-biggest road network, which sprawls 5.4 million km throughout the vast country, its roads are among the worst – and deadliest – on the planet. In the last decade alone, around 1.2 million people have died in road-related accidents, an amount that is estimated by India’s Ministry of Road Transport and Highways (MORTH) to cost the country as much as three percent of its GDP. Aside from such direct losses, India’s failing road network is also responsible for strangling the economy.

Perhaps unsurprisingly given his unremitting efforts to boost India’s economy, on October 24, Prime Minister Narendra Modi announced a new project that could forever change the face of the sector, bringing with it numerous economic opportunities. With an enormous $108bn price tag, over the next five years the Modi regime plans to build more than 83,667km of roads – a distance that would circle the globe twice.

Connecting the land
While the programme involves numerous new roads that will weave throughout India, the pearl of the project is the Bharatmala Pariyojana, an expansive highway that will cut across the country, connecting Rajasthan in the north-west and the state of Arunachal Pradesh in the north-east. Once completed, the highway will make India’s infamously treacherous terrain far more traversable for individuals, tourists, businesses and goods alike. The Bharatmala Pariyojana alone is expected to cost some INR 5.35trn ($82.9bn) while a further INR 1.57trn ($24.3bn) will be spent on constructing another 48,877km of roadways.

“Given the current pace of road building, the target is unrealistic,” said Vivek Kaul, author and economic commentator on India. “The government plans to build a total of 83,677 km of roads over five years – this implies building 16,735.4 km of roads on an average in each of the five years.” When considering the sector’s recent track record, it’s easy to see why many consider the plans to be a tad optimistic.

As much as 10 percent of non-performing loans in India’s financial sector are linked to failed infrastructure deals

MORTH states that between 2014 and 2015 only 4,410km of national highways were built. The following period, 2015 to 2016, saw progress, with the construction of 6,061km of roads. Things have since improved considerably as, according to the Hindustan Times, the number of roads constructed between 2016 and 2017 leapt to 8,200km. But even so, Modi’s $108bn project requires an even greater acceleration.

Kaul elaborated: “If the government [is] to achieve the road-building target that it has set for itself over the next five years, it has to more than double the speed at which it built roads in the last financial year. And then maintain it for five years. This seems like a tall order,” he said. “Having said that, targets always need to be slightly stretched from what has been achieved in the past.”

Model funding
Only a day after coming into power in 2014, Modi promised to build 41km of roads every day – all too aware of the importance of transportation infrastructure in promoting business, manufacturing, tourism and employment levels. Yet, despite the government trying various models, the sector’s limited expansion is largely attributed to a lack of private funding.

Hesitation from private investors came to the forefront around 10 years ago when a rush into public-private partnerships (PPPs) for large-scale projects left many private companies with bigger financial risks than they could manage. Consequently, numerous projects came to a sudden halt, with as much as 10 percent of non-performing loans in India’s financial sector linked to failed infrastructure deals. Reports of corruption and ineptitude within India’s Border Roads Organisation have also scared off investors, particularly as the agency only managed to build 36 percent of the 61 roads planned between 1999 and 2012 – with many coming to a permanent impasse due to unworkable terrain.

The announcement made in October last year, however, is expected to drive up private investment considerably. One model that has been gaining traction in recent years is ‘engineering, procurement and construction’ (EPC), which incorporates construction work by private developers and funding by the government. According to a report by EY, Engineering Procurement & Construction (EPC) – Making India brick by brick, after several years of PPP models being favoured, more highway contracts are now being awarded on the EPC model.

In a bid to facilitate private funding further, 100 percent foreign direct investment is permitted into the road sector, unlike other areas, resulting in a growing number of foreign firms seeking to capitalise on its vast growth potential.

The state has also developed a new hybrid annuity model, in which it contributes to 40 percent of a project cost in the first five years, while private players cover the remaining 60 percent after the completion of the project. With such models in place and fast gaining popularity, plus the involvement of various government agencies, some argue that it might be possible for Modi’s 83,000km target to be met in just five years’ time.

Land needed
But while funding is its own issue entirely, land acquisition is yet another barrier to overcome. The failure to acquire land has been a long-standing problem in developing India’s road infrastructure. “Acquiring land to build roads will not be an easy task,” Kaul told World Finance. “Take the case of the Delhi-Mumbai Industrial Corridor, which was announced almost a decade back. While work has started on it, most of the corridor is still plagued by land acquisition issues.”

Unlike China, where road infrastructure has been developing at a rapid pace (85,000km of freeways were built between 1990 and 2011 alone, nine years ahead of target), there are far more hurdles in India, starting with its more litigious and democratic system. The government is far more sympathetic to farmers’ wishes than neighbouring Beijing, and building roads through the countryside is unpopular among rural communities.

Economic benefits
Improving India’s road network is a vital step in Modi’s aggressive economic development plans. “National highways and state highways, which connect the length and the breadth of the country, form only 4.7 percent of the surfaced roads. This figure obviously needs to be improved on if goods and people are to be moved at a faster pace from one part of the country to another,” said Kaul. “Also, it is important to connect the hinterland with the ports well, in order to ensure that a programme like Make in India takes off at a rapid pace.” He continued: “Over and above this, better roads always add to the ease of doing business, which India currently lacks and is trying to improve on. Also, better roads add to the overall quality of life of the citizens of a country.”

Aside from enabling both people and goods to move around the country at a much more expedient pace (it is estimated that, at present, the fastest anyone can travel on land – whether by car or train – is a mere 50mph), the essential construction of roads could also provide a much-needed boost for employment in the country. Given India’s vast population of 1.34 billion, securing employment for those of working age is no mean feat. According to the United Nations International Labour Organisation’s World Employment and Social Outlook 2017 report, the current unemployment rate in India is estimated to be 17.8 million – or 3.4 percent – and is expected to climb to 18 million in 2018.

“Around one million Indian youth[s] are entering the workforce every month; a substantial portion of the million are not skilled. Hence, road building is likely to generate many jobs for these youths. Just one of the programmes under the road-building programme, called the Bharatmala Pariyojana, is expected to create 14.2 crores [142 million] man-days of jobs, according to the government,” Kaul told World Finance.

Indeed, the road sector has one of the greatest employment – and economic – multiples in the country, making it one of the best areas for stimulus. The timing of Modi’s latest road project was ripe, as growth in India dropped from seven to 5.7 percent during the first half of 2017, marking the slowest pace in three years. What’s more, experts argue that recovery will be difficult as the nation continues to reel both from Modi’s shock demonetisation move and his sweeping tax reform in July 2017, which essentially turned the country into one market for the very first time.

As such major changes settle after an unavoidable disruption period, fixing India’s road sector is crucial if Modi is to be successful in his ambitions to kick-start India’s economy, and perhaps even return it to the status of the world’s fastest growing. Investing into the sector is also essential if India can hope to compete with neighbouring China.

Modi may have made some surprising decisions since coming into power, but few could argue his $108bn project to improve India’s roads is anything but overdue. Certainly, there are hurdles to overcome, and it is unlikely that the pace required to meet the 2022 target will always be met, but overshooting will at least apply greater pressure and help it be achieved sooner, rather than much, much later.

Ultimately, a country’s roads are imperative to its economy; they form the backbone of a state. Through them, prosperity can flow. As such, while other schemes have been questionable, it is the act of fixing India’s roads that can truly drive the country into new economic frontiers.

Aquashield Oil and Marine Services protects Nigeria’s waters against criminal activity

Posted on by Helen

The ongoing crisis scenario that plagues Nigeria’s territorial waters has prompted a dramatic transformation of the offshore security industry in the region. The industry was previously focused on unregulated fishing and other low-level issues, but has now evolved to tackle combative security threats such as illegal bunkering, the vandalism of oil and gas installations, piracy, sea robbery, militancy and kidnapping.

Behind this shift is a destructive bout of youth restlessness in the Niger Delta region. The predicament has dealt a serious blow to the oil and gas industry, leading to reduced revenues for international companies that operate in the region. Similarly, its effects have also been damaging to the insurance companies that cover assets in the area. World Finance spoke to Nasir M Saulawa, CEO of Aquashield Oil and Marine Services, to discuss the rising demand for offshore security services and discover how security companies are evolving to meet such challenges.

Could you describe current trends in the offshore security industry?
As a consequence of the current threat levels in the Niger Delta, offshore companies are facing potentially costly downtime and rising insurance premiums. This has led to a growing demand for services to safeguard offshore assets, which has ultimately paved the way for the establishment of a wide-reaching security services industry.

Issues of illegal bunkering, the vandalism of oil and gas installations, piracy, sea robbery, militancy and kidnapping all remain rife in Nigerian territorial waters. The escalation of these issues means that many companies that previously did not require security services are now actively seeking out ways to better protect their assets and employees. To further gauge a sense of the current climate, it is useful to look at the way companies are judging their threat levels. Companies operating offshore use a colouration system to classify the level of security threat, with the colour red signifying the highest threat level. At present, the majority of companies operating within Nigeria’s territorial waters classify the threat level as red.

As threat levels intensify, various stakeholders in Nigeria’s offshore security industry have collaborated to develop new strategies

Another important trend is the increase in demand for the relevant security vessels and hardware. Out of those in need of security services, most companies require state-of-the-art security boats that can reach speeds as high as 20 knots. They also need tracking devices, communication equipment, monitoring equipment and ballistic protection in order to ensure that the security vessel can adequately protect their assets.

As the demand for offshore security services increases, so does the demand for a broad range of high-end vessels and technology. Indeed, the need to obtain the right vessels has led to an extensive effort by maritime security companies to collaborate with relevant stakeholders to ensure that vessels of this class are available at all times.

What changes have occurred in the offshore security industry over the past five to 10 years?
As threat levels intensify, various stakeholders in Nigeria’s offshore security industry have collaborated in order to develop new strategies aimed at combatting both real and perceived threats. Consequently, offshore security architecture as a whole has undergone a fundamental transformation.

For instance, it became apparent a few years ago that there was an urgent need to coordinate the activities of the already existing private maritime security companies (PMSCs) to effectively deliver on their mandate of providing efficient offshore security services. This prompted the Nigerian Navy to establish standard operating procedures for the PMSCs operating within the country’s territorial waters.

The result of this was a ‘memorandum of understanding’ (MOU), signed by the Nigerian Navy in 2012. The agreement established a standardised licence for PMSCs, which all security companies must now possess in order to provide security services within Nigeria’s territorial waters. Consequently, the activities of all PMSCs are now far better monitored and regulated than they were previously.

How many firms are there in Nigeria’s offshore security sector, and how does Aquashield Oil and Marine Services stand out from the others?
There are currently 20 PMSCs that hold an MOU signed by the Nigeria Navy. Owing to our excellent fleet and highly trained staff, Aquashield Oil and Marine Services is able to stand out as a pioneering company among this group.

In order to meet the needs of clients, our fleet has several state-of-the-art, ballistic-protected intervention vessels that are fast and fuel-efficient. Furthermore, our team of field staff are both highly trained and experienced. They receive round-the-clock support from staff situated in our operations room, which is equipped with modern surveillance and remote monitoring tools. As a result, we have been able to consistently provide robust offshore security services for several international oil companies, with many companies relying on our services.

What kind of offshore security services do you provide, and which services are most popular at the moment?
Our offering covers a broad range of services, including offshore oilfield protection, armed security escort duties, harbour terminal security surveillance, search and rescue, safe marine transportation of materials and crew, and covert intelligence gathering. At present, the most popular services are offshore oilfield protection and armed security escort duties.

Aside from our security capabilities, we also conduct related services, such as the provision of tugs, diving support vessels, work barges, survey vessels, pipe laying barges, shallow draft vessels, platforms support vessels and crude oil tank vessels. These services are not in high demand at present due to low oil prices.

What factors shape the quality level of offshore security services?
When it comes to offshore security services, there are several factors that shape the overall level of quality, with much depending on the client in question. One major factor is the importance of providing the right class of vessel, with the necessary gadgets on board to deliver on a specific type of operation.

Another fundamental factor is the importance of having experienced staff, both on the water and onshore. Ultimately, inexperienced and incompetent staff cannot be counted on to adequately deliver services, even if they have the right vessel and equipment at their disposal.

What key developments are driving the demand for offshore security services in Nigeria?
The threats that are driving the demand for offshore security services are piracy, kidnappings, sea robbery, militancy, illegal bunkering and outright destruction of oil and gas assets. While threat levels are always fluctuating, a recent bout of destructive behaviour by certain militant groups led to the destruction of various oil and gas assets just over a year ago. Once again, this resurgence of violence has increased the demand for offshore security services in Nigeria.

The developments driving the demand for offshore security services are intrinsically linked to ongoing issues within the Niger Delta region. Even when they subside temporarily, the possibility that they could re-emerge is very real. As such, it seems clear that these services will continue to be sought after as a necessary precaution.

How is Aquashield Oil and Marine Services adapting to changes in the industry?
To meet increased demand, we have been busy acquiring new state-of-the-art security vessels. On top of this, the company has entered into several technical agreements with internationally recognised engineering and technical service providers. These ensure that our vessels are constantly kept in top shape. Furthermore, our staff members are continually trained on the latest changes in the offshore security industry, so they are kept abreast of current trends and noteworthy developments.

At Aquashield Oil and Marine Services, what is your strategy for success?
Our strategy to succeed is to continuously provide cutting-edge security services on a foundation of honesty, integrity, hard work and commitment. It is these values that will ensure we can continue to deliver for clients.

In practical terms, this will require a strict focus on sustaining our periodic maintenance schedules and upholding the standards that are enshrined in our safety monitoring system. On top of this, we remain committed to sustaining the provisions of the MOU with the Nigerian Navy. On a strategic level, it is important that we take actions to meet the increase in demand for our services. To this end, we will be looking to acquire even more modern security vessels in the near future.

Top 5 fastest-growing cryptocurrencies of 2017

Posted on by Ashton Wenborn

Cryptocurrencies experienced a turning point in 2017. They moved from being a niche interest to an everyday talking point. But a lot has changed in one year: bitcoin’s market capitalisation grew 14-fold from $15bn to $221bn, while others, such as Swiscoin, all but disappeared. Meanwhile, a number of cryptocurrencies have far outpaced bitcoin’s growth.

Cryptocurrencies moved from being a niche interest to an everyday conversation point in 2017

Using data from CoinMarketCap, World Finance has compiled a list of the fastest-growing cryptocurrencies of last year, according to market capitalisation.

(Note: the list consists only of those that were already established at the start of the year, with a market capitalisation of over $10m.)

1. Ripple

XRP, the cryptocurrency behind Ripple, is now the second largest behind bitcoin, having surpassed Ethereum over the course of the year. It has seen its market capitalisation go up by 34,590 percent since the start of 2017 following a string of successes in the development of its payments infrastructure.

2. Stellar

Stellar is an open-source protocol for exchanging value. Its market capitalisation increased by 33,630 percent over the course of 2017, ending the year with a total value of over $5bn.

3. NEM

At the start of 2017, NEM was the world’s 11th-largest cryptocurrency, but reached 8th position by the end of the year. Its market capitalisation grew by 25,427 percent over the course of the year.

4. BitShares

BTS, the cryptocurrency behind the BitShares financial platform, has seen its market capitalisation jump from by 15,879 percent, ending the year with a worth of over $1.6bn in total.

5. Ardor

Ardor is a blockchain platform that enables businesses to make their own blockchains. While it is only the 25th-largest cryptocurrency, its market capitalisation grew by 15,215 percent during 2017.

UAE and Saudi Arabia introduce VAT to boost non-oil revenue

Posted on by Max Tomlin

Saudi Arabia and the United Arab Emirates (UAE) have both introduced Value Added Tax (VAT) for the first time, effective from January 1. Residents and businesses in the two countries have long enjoyed a tax-free and heavily subsidised way of life, but a prolonged downturn in oil prices has dented government revenues.

The move has caused controversy, with some accusing businesses of using the tax introduction as a cover to hike prices

However, some sectors, including health, public transport and education, will remain exempt from the tax. Saudi Arabia has also moved to reduce fuel subsidies, causing an increase in petrol prices by as much as 83 percent.

The move has caused controversy among Saudis and Emiratis, with some accusing businesses of using the tax introduction as a cover to hike prices. Others, including the IMF, have welcomed the VAT imposition, arguing that it is a necessary measure if the Gulf states are to move away from their dependence on oil revenues. Bahrain, Kuwait, Oman and Qatar all plan to introduce VAT in the near future.

“Persistently low oil prices over the past three years have brought considerable pressure on the Gulf Cooperation Council countries, including the UAE, to keep their budgetary spending under control while maintaining a healthy economic growth,” explained an editorial in Gulf News. “This trade-off of conflicting objectives has called for the urgent diversification of government revenue streams.”

Tax-free living and the generous welfare systems seen throughout the Gulf states help to explain why the region has managed to avoid an Arab Spring-style protest movement. When life is comfortable, people are more inclined to accept political and social limitations.

However, if the Gulf’s current economic model begins to change, citizens may begin to push for the introduction of more democratic measures. In Saudi Arabia, in particular, where Prince Mohammed bin Salman is trying to balance a corruption purge with an economic overhaul, civic unrest would present serious problems for his fledgling leadership.

Peer-to-peer solar energy trading coming soon to Bangkok from BCPG

Posted on by World Finance

BCPG Public Company started life as the green power business unit of Thailand’s Bangchak Corporation. In September 2016, president Bundit Sapianchai led the company to a successful IPO on the Stock Exchange of Thailand. Today the business has investments in solar, wind and geothermal production, with a goal of operating 1,000 MW of renewable energy by 2020. Bundit Sapianchai explains the company’s current assets for wholesale production – and its strategy to pivot into retail. BCPG is creating a smart green energy community of pro-sumers: households with solar panels, generating and trading their own energy, peer-to-peer.

World Finance: BCPG Public Company started life as the green power business unit of Thailand’s Bangchak Corporation. In September 2016, president Bundit Sapianchai led the company to a successful IPO on the Stock Exchange of Thailand. Today the business has investments in solar, wind and geothermal production, with a goal of operating 1,000 MW of renewable energy by 2020. Bundit Sapianchai joins me now.

Talk me through your current assets.

Bundit Sapianchai: BCPG is running green power plants throughout the region. Actually it’s four countries. In the Thai market we have 200 MW of solar in operation. We have 200 MW partfully owned in Japan. We also have wind energy in the Philippines, and another 180 MW in geothermal in Indonesia.

So what we have now is a mix of technologies. But if you calculate everything in solar equivalent it’s already 1,000 MW. So we’ve achieved our target beforehand.

World Finance: You’ve had a very successful year since you listed; managed to double your market capitalisation. What’s the next stage of growth for BCPG?

Bundit Sapianchai: Our business model is wholesale. We produce green energy, and then we sell to the grid company, the transmission line. But we would like to move from wholesale to retail.

The whole industry is shifting from a conventional way to a smarter way. It’s shifting from centralised to distributed; consume only to pro-sumer, where people can produce and trade their own energy, peer-to-peer.

Meanwhile, our baseload of wholesale still has to be expanded as well. So it’s a mix between wholesale and retail.

World Finance: And to that end you’ve partnered with one of Thailand’s largest real estate developers to create a smart green energy community; tell me more.

Bundit Sapianchai: Our plan is to build our very first peer-to-peer energy trading community. That community, they have housing, they have condominiums, they have a school, they have a hospital, they have a mini-mall. So we will put solar on every roof in the community. And once the system is producing energy, we’ll put our energy trading platform – we call it the internet of energy – where every person can trade their energy directly, without any middle man anymore. Using a blockchain technology.

We started doing the engineering already. The software is in place, it’s ready. The whole system will be up within another four to six months in Bangkok. This will be the first one in Thailand, or even in south-east Asia.

What’s quite exciting about this is, we can show to the country that you have a choice to save on your bill, you have a choice to increase your revenue by selling your surplus energy. It’s a new energy economy, so people like us will have a better energy life.

World Finance: And what other strategies, technologies and countries are you exploring?

Bundit Sapianchai: So, the wholesale business model: we’re looking for M&A opportunities throughout south-east Asia. We’re open for any opportunities.

Retail is all about knowing your customer, so we’ll try to focus in Thailand first. And, who knows? Because the platform is a global solution.

World Finance: And how are you maintaining good corporate governance as you grow?

Bundit Sapianchai: For me, good governance is all about performance and trust. You have to perform well with a good strategy and implementation. You have to make sure that you’re running your business in a good way, in a transparent way. You disclose all the information. So, if you can trust and you perform well, you have good strategy and implementation plan. I think that we are in good shape in managing the company in good governance.

World Finance: Bundit, thank you very much.

Bundit Sapianchai: Thank you.

Female leaders are being set up to fail

Posted on by Max Tomlin

In 2014, it emerged that faulty ignition switches in over a million cars sold by manufacturing giant General Motors were putting customers at risk. While the company had known about the issue for years, the crisis shot into public consciousness just in time to crash down on the company’s first ever female CEO, Mary Barra, who had been promoted after over a century of male leadership.

A similar story can be found in Silicon Valley: Marissa Mayer was put at the helm of Yahoo just as it was falling into a dramatic decline in 2012. In an altogether separate setting, Theresa May became the first female prime minister of the UK since Margaret Thatcher, just in time to preside over the country’s economically perilous break from the European Union.

These are textbook examples of what is now a well-established phenomenon, known as the ‘glass cliff’, whereby women are more likely to be chosen for leadership roles when the task at hand is risky. As a result of holding more precarious jobs, they also end up being more likely to preside over failure. Thus, at a time when women are being promoted to more leadership positions than ever before, their progress risks being seriously undermined by the glass cliff nature of the roles in which they are often placed.

The glass cliff phenomenon is particularly dangerous due to the fact that a correlation-causation slip-up is all too easy to make

Anecdotal examples are certainly easy to come by, but a growing body of evidence has also verified the phenomenon. It has been shown to infiltrate leadership structures in all aspects of society, from schools to Fortune 500 companies to political parties. While much of the research on the subject focuses on women, it has also been found to apply to other minority groups. The phenomenon is particularly dangerous due to the fact that a correlation-causation slip-up is all too easy to make. Take the following piece of evidence: female CEOs are more likely to be sacked than their male counterparts. According to a study by management consulting company Strategy&, over the past 10 years, 38 percent of female CEOs were forced out, while only 27 percent of male CEOs’ tenures reached the same sticky end. Such evidence can easily be twisted in a way that paints a negative picture of female leadership, fortifying already skewed stereotypes about women.

Damage limitation
World Finance spoke to Alex Haslam, who coined the term ‘glass cliff’ back in 2004. “The basic thing that triggered it was reading an article in The Times, which made some pretty outrageous claims about the negative impact that women leaders had on company performance on the basis of faulty causal inference,” Haslam said. One commentator made a particularly ugly correlation-causation blunder in a report run by the UK newspaper 15 years ago, claiming: “The triumphant march of women into the country’s boardrooms has… wreaked havoc on company performance.” The article presented data demonstrating that the appointment of women coincided with poor company performance, coming to the conclusion that women are best kept away from boardrooms.

Since The Times’ article, research into this correlation has unearthed a wealth of important findings surrounding the way that gender dynamics influence leadership decisions. For example, a deeper investigation into the evidence used in the report by The Times uncovered that, rather than causing negative performance, female appointments were more likely to be preceded by a period of poor company performance. The implication of this observation forms the basis of the glass cliff concept: that women tend to rise to the top against a background of crisis or decline. A range of different research approaches have consistently reinforced this notion.

For example, research from Utah State University investigated CEO appointments at Fortune 500 companies over the past 15 years, and found that businesses are much more likely to choose a woman for the top job when the company is performing poorly. The phenomenon is also at play in politics: a study from the University of Exeter examined the UK’s 2005 general election and found that women were more likely to be chosen to run for hard-to-win seats.

But according to Haslam, the most telling evidence comes in the form of controlled experiments. Haslam himself conducted a series of such experiments in a study in 2008. His experiments each devised a hypothetical hiring decision and asked participants to select who they would choose for a leadership role out of a series of candidates. The participants, who consisted of business leaders, management graduates or high school students, were presented with a choice of three CVs where one candidate was clearly under-qualified, leaving a man and woman with similar levels of experience as the only viable options. Groups were randomly assigned information detailing whether the organisation in question was performing well or badly. The results ultimately found that when faced with an organisation in crisis, people consistently favour female candidates over male candidates.

One such scenario, which was presented to students, asked participants to choose a youth consultant for a music festival. Out of those who were told that the festival was struggling, 75 percent preferred the female candidate, while only 38 percent chose the same female candidate when they were told the festival was improving. Similar results were found when university students were presented with the choice of a new financial director for a hypothetical company. When presented with information that the company’s performance was improving, 57 per cent of the students preferred the female candidate, but this jumped to 87 percent for the group who were told that it was performing badly.

Glass hurdles
The task of understanding the root cause of the problem has spurred a broad research effort. According to Haslam, who has been involved from the beginning, we have now come a long way in understanding the processes at play. Perhaps unsurprisingly, there is no single explanation for the phenomenon. One account is that women receive fewer opportunities than men, making them more likely to accept risky positions. And yet, this cannot account for the fact that people actively pick out women for roles presiding over crisis situations. Another idea is that it could be the result of outright sexism, whereby people are simply singling women out for inferior positions.

One study found that women are more likely to be associated with traits that are seen as useful in a crisis

The reality, however, is probably murkier than this. One approach posits that it is related to engrained assumptions about men and women. For example, one study found that women are more likely to be associated with traits that are seen as useful in a crisis. The study asked participants about the desirability of certain traits in various scenarios. Masculine characteristics such as ‘assertive’, ‘forceful’ and ‘adventurous’ are often seen as desirable during times of success, whereas ‘tactful’, ‘courteous’ and ‘understanding’, traits often regarded as feminine, are seen as more useful during crises.

Complicating things further, there is also evidence suggesting the phenomenon comes back to the classic ‘old boys’ club’ problem. By this logic, men in senior positions prefer to hire ‘ingroup’ members for the ‘cushy’ jobs, but when a job is risky, they will happily fall back on women. Perhaps as an extension of the same process, some argue that women are seen as more expendable, and are therefore put forward for risky roles so they can be used as scapegoats.

While progress has been made, Haslam noted that the broader picture is still lacking: “There is a long way to go when it comes to understanding the dynamics surrounding the way that women’s leadership experiences pan out. For this, we will need to get high-quality longitudinal data, and that is harder to get than one might think.”

Working on the edge
Asking Haslam whether he feels that there is anything that can be done on an individual level, he responded: “I think there’s plenty people can do — not least by raising awareness of the fact that we have a problem here.” Indeed, on a surface level, it can be empowering for women to discover that the phenomenon exists. World Finance spoke to Ama Marston, a strategy, leadership and transformative resilience expert who has worked extensively on women’s leadership issues. “Some of the women that I have worked with have felt a weight lifted in retrospect when their experience is placed within the wider context of the glass cliff phenomenon… They are often so ensconced in their own scenarios that they don’t have the bird’s eye view,” she said.

One of the central issues is that when women are appointed to precarious roles, they inevitably become linked to the outcomes that unfold. “The question is, given that it is happening, how do we take these leadership hires and turn them into genuine opportunities for women leaders and make them succeed?” asked Marston.

Vitally, taking on a difficult role doesn’t necessarily mean that failure is inevitable. According to Marston, while part of the issue comes down to deep-rooted structural problems, there is a lot that can be done at an organisational level relating to the support systems for women, the company culture and the attitude of the board of directors. She further explained: “I want to highlight that success for women in leadership ultimately should not come down to ‘fixing women’. We need to spark a process of transformative change within the business world that offers broader opportunities for women leaders and, when they do take on leadership in crisis, that supports them and helps them to be successful.” Together with Haslam, she emphasised that awareness and understanding of the issue is fundamental.

The work that has gone into understanding the issue has been effective in raising some crucial questions that get to the heart of the work-place experience for women. However, there is still a long way to go in establishing greater recognition of both the term itself and the unhealthy gender dynamics it embodies.

Having appeared on the Oxford English Dictionary’s Word of the Year shortlist in 2016, awareness of the concept is certainly gaining some momentum. But it is only through improving visibility of the issue – both at an organisational level and more broadly – that the important questions it uncovers will be addressed.

Eurozone manufacturers hope to continue year-end growth into 2018

Posted on by Ashton Wenborn

A recent survey analysing the performance of the eurozone’s manufacturing sector revealed a strong end to 2017, with impressive growth reported across the 19-member bloc. December results for IHS Markit’s latest Purchasing Managers’ Index (PMI) report, published on January 2, returned the highest growth figures since the survey began in June 1997.

The positive results extended across the eurozone, with job growth accelerating in Austria, France and Ireland, while Greece delivered its strongest manufacturing performance since 2008. Italy’s PMI figure of 57.4 did fail to reach analysts’ predictions, but still represented growth in the sector.

Commenting on December’s PMI data, Chris Williamson, Chief Business Economist at IHS Markit, noted that the overall health of the eurozone would give manufacturers good reason to believe that growth could continue long into 2018.

In spite of record growth levels, inflation remains stubbornly below the target figure of two percent

“The eurozone manufacturing boom gained further momentum in December, rounding off the best year on record and setting the scene for a strong start to 2018,” Williamson said. “The final PMI was in line with the earlier flash number, confirming a record monthly improvement in business conditions at the end of 2017. Forward-looking indicators bode well for the New Year: new orders rose at a near-record pace, while purchasing growth hit a new peak as firms readied themselves for higher production. Meanwhile, job creation was maintained at November’s record pace.”

Perhaps, given the overall economic performance of the eurozone in 2017, record growth levels in the manufacturing sector should come as little surprise. The currency union became the success story of last year, with its economic performance outpacing that of its peers, including the US.

The only problem for the European Central Bank is that, in spite of record growth levels, inflation remains stubbornly below the target figure of two percent. However, the manufacturing sector appears to have balanced higher input prices with a strong overall performance, suggesting that upward price pressures may be returning.