Year: 2021

A new dawn for Citi

Posted on by itsupport

For the first time in history, a woman is at the helm of a major Wall Street bank – the third-largest of its kind in the US, with a market capitalisation of no less than $164bn. But Jane Fraser, who stepped up to the role of Citigroup CEO in February, doesn’t just stand as a symbol of progress, or a token of diversity – she’s a strategising powerhouse, taken on to turn around a bank that’s long been overshadowed by its peers.

When the decision was announced last September, many praised the move, noting her ‘fix-it’ approach, demonstrated through more than 16 years spent climbing the ranks at Citi. During that time, she helped navigate the lender through the financial crisis, reshape its private bank, lead the mortgage division out of chaos and repair its Latin America business following a series of scandals in Mexico. As overarching president, she oversaw the global consumer banking division, gaining experience in an area that’s set to become a key focal point for Citigroup in the coming years.

But she has big challenges ahead; Citigroup’s shareholder returns have notoriously lagged behind those of its two biggest rivals. During the eight-year tenure under former CEO Michael Corbat, returns stagnated at 43 percent, compared to 137 percent for JP Morgan Chase and 169 percent at Bank of America over the same period, according to data firm Refinitiv.

Many have criticised Citigroup’s hodgepodge of different businesses, indicating a need to either consolidate or better unify them, and various mishaps haven’t helped the image. Turning that around is no small job at a lender still tarnished by its financial crisis struggles, when a $45bn bailout was needed to keep it afloat, and plagued by issues around technology, which many believe wasn’t a big enough focus under Corbat. Add in the blows of the pandemic – in the final quarter of 2020, revenues and net income fell 10 percent and seven percent respectively year-on-year – and it’s clear this is no easy feat.

Jane ‘change-agent’ Fraser
But many believe Fraser – twice named the ‘number one woman to watch’ by American Banker – is up to the task. Among them is Mike Mayo, securities analyst at Wells Fargo. “She is the right person, at the right time, to accelerate Citigroup’s strategic thinking,” he told World Finance.

“You can almost call her Jane change-agent Fraser. She’s had a decade at McKinsey and a long stint at Citigroup, so the opportunity is to McKinsey-ise the bank – to take a fresh and clinical look at all businesses, products, geographies, clients and distribution, and to reallocate resources. Because for the past decade, Citi has been too conservative in its strategy, with its balance sheet and loans and the type of customers the bank dealt with.” Dick Bove, Bank Analyst at Odeon Capital Group, agrees. “The job of this woman is to get new business and to solve the problem with the government on technology,” he told Reuters. “That’s her job, and I think if anybody can do it, she can.”

And Fraser hasn’t disappointed so far; she’s already announced plans to close Citigroup’s consumer banking divisions in 13 markets across Asia, Europe and the Middle East, and is ‘doubling down’ in areas including wealth management in Asia and the US. She’s also set about addressing work-life balance issues – scrapping Friday video calls and implementing a company-wide ‘Citi reset day’ – and has spoken openly about the need to diversify the organisation at a time when issues around inclusivity have shot into the limelight. These efforts seem to be paying off; Citigroup beat analysts’ predictions in the first quarter of 2021, reporting net income of $7.8bn – up from $2.5bn in the same period in 2020, with earnings per share up $3.62 from $1.06.

Bold beginnings
That success likely comes as little surprise to anyone acquainted with Fraser’s past. Born in St Andrews in Scotland, she studied economics at the University of Cambridge and began her career as an M&A analyst at Goldman Sachs in London in 1988. Shortly after, Fraser moved to Madrid to take a brokerage job, later explaining in a speech how she’d found herself “the boring British girl” and wanted something “more exciting,” according to The Financial Brand. “That was literally the driver of my decision,” she said.

Two years later, she moved to the US to study for an MBA at the Harvard Business School, then joined McKinsey in New York as a consultant in 1994. She reportedly said she would only join if she could work directly under the head of banking, Lowell Bryan. “She’s the only person who’s ever done that,” he told the Financial Times, who was so dazzled by her gutsiness he took her on. A few years later, Fraser had her first son and shortly after became a partner, opting to work part-time to balance work and family.

She spent the first six years of her McKinsey stint in New York and the final four in London, during which time she co-authored the book Race for the World: Strategies to Build a Great Global Firm in 1999. This involved travelling across Asia for research and interviewing clients about the challenges they faced globally. Citigroup executive Michael Klein was reportedly so impressed with her research that he spent several years trying to get her to join the bank. In 2004 she relented, beginning as head of client strategy in the investment and global banking division.

Climbing the ranks
At Citigroup, Fraser quickly climbed the ranks, becoming global head of strategy of mergers and acquisitions in 2007 and leading a restructuring process during the heart of the financial crisis. Two years later she was named chief executive of Citi Private Bank in London. During her four-year tenure she turned the ailing bank around, returning it to the black and increasing revenue by more than a fifth from the first half of 2010 to the first half of 2013.

Her strategy included overhauling the division’s leadership, and implementing a fee schedule that remained the same regardless of whether clients used Citi’s fund managers or those of an external firm.

But it was as chief executive of CitiMortgage that Fraser really earnt her stripes, moving to St Louis in Missouri in 2013 to work her magic on the struggling division. Demand for mortgage refinancing had dropped significantly; under Fraser’s leadership, Citigroup closed several mortgage offices across the country and switched the focus to selling residential mortgages to home buyers.

She also worked on developing better relationships with regulators. That included paying out $7bn in 2014 to settle charges made against the bank by the Department of Justice for allegedly packaging up bad mortgages in the run-up to the financial crisis. Many praised her strategy during the role; a fellow CitiMortgage employee told the Financial Times how she had brought “a focus and an energy” to an ailing area, noting how “she was able to have people excited about thinking about tomorrow instead of just how we cleaned up yesterday.” That strategy clearly paid off, and within a year, Fraser was promoted to run the US consumer and commercial banking businesses.

A handle on scandals
But Jane ‘change-agent’ Fraser wasn’t done there. In 2015, she was named head of Citigroup Latin America, moving to Miami to become both the first female and the first foreigner to lead the lender’s Latin America division, taking responsibility for 24 markets. During her time there, Citigroup closed its retail banking and credit card businesses in Brazil, Argentina and Colombia, and pumped significant sums into Mexican subsidiary Banamex (or Banco Nacional de Mexico), which the company had bought in 2001.

Heading up Banamex meant overseeing more than 1,400 retail branches across Mexico – at a time when the subsidiary was embroiled in a scandal related to fraud and money-laundering. In 2014, it had been fined $2.2m in fraud charges, and regulators were investigating control failures that would later lead to nearly $100m in fines.

That wasn’t the only challenge Fraser faced. “When I was first put in charge of Latin America, there were some pretty negative headlines in the press of Mexico about having a female foreigner with responsibility,” she told CNN in 2018. She said that instead of attempting to “out-machismo” the men, however, she embraced her femininity and was encouraged by her husband to buy “an elegant red dress, slightly higher heels than she was used to, and a new haircut.

He knew that if I could stride out there and be quite comfortable in who I am that would be a benefit.” Whatever she did, it clearly worked; under her four-year stint, like-for-like revenues at the Latin America division grew by nearly a third, while profits grew two-thirds. According to Michael Helfer, a board member of Banamex, Fraser “captured everybody, partly because she spoke Spanish” and partly because she “immediately began to exercise control in an appropriate way,” he told the FT.

It was likely that ability to ‘capture everybody’ that saw Fraser named president of Citigroup and head of global consumer banking in 2019. Some saw this role as a trial for the top-dog position. “It’s a training ground to see if she’s potentially the right person,” Jeff Harte, an analyst at Sandler O’Neill, told Bloomberg Quint at the time. “To name her president, both Corbat and the board must see her as the right person to be CEO.” Fraser clearly passed the test – less than a year into her role, it was announced she would be stepping up to the CEO throne.

Action stations
And she wasted no time in bringing about change. In the first quarterly earnings call since that announcement, Fraser hinted at realigning or selling off certain business lines to simplify the $2.3trn-asset company. She told CNBC, “as we look at the businesses over a decade ahead, we want to be a winner. We want to close the return gap with our peers. To do that you take a candid assessment of which of the businesses that you’re going to be in a position to succeed in winning, and which ones are perhaps in better hands with another bank.”

Closing 13 markets was one way of scaling back; under the plan, consumer banking operations in Australia, Bahrain, China, India, Indonesia, South Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam are all set to be shut down, and instead operated from four main hubs in Singapore, Hong Kong, the United Arab Emirates and London. That announcement was made less than two months into the role, surprising many, according to Wells Fargo’s Mike Mayo. “I think investors were collectively surprised at how soon she came out with the decision,” he told World Finance. “But I think what’s interesting is that what might be perceived as a tough decision is probably not so tough for somebody with such a strategic background as Jane Fraser.”

That strategic approach is coming through in other ways, too; in January, it was announced in a memo that the group would be overhauling its wealth management division, creating a new global wealth unit that would bring together its consumer wealth organisation together with its private bank (formerly part of the group’s institutional clients group). She’s also addressing regulatory issues; in October, the bank was fined $400m by regulators after an employee accidentally wired $900m to creditors at cosmetics firm Revlon, calling into question its loan operation software. The mishap saw the company revise its fourth-quarter profits by $323m, and a source told Bloomberg that plans are now in the pipeline to recruit a horde of new coders and compliance officers to update the system.

Social change
But it’s not just in these areas that Fraser is making her mark. On day one of her tenure, she announced an ambitious plan for Citi to reach net-zero greenhouse gas emissions in its financing activities by 2050 – building on a $250bn pledge made under Corbat last year to finance low-carbon solutions in renewable energy and other areas. She said the group would be transparent in its progress, reflecting a wider move towards transparency in other areas too.

“Our environmental, social and governance agenda can’t just be a separate layer that sits above what we do day-to-day,” she wrote in a Citi blog post. “Our commitments to closing the gender pay gap, to advancing racial equity, and to pioneering the green agenda have demonstrated that this is good for business and not at odds with it.”

It was as chief executive of CitiMortgage that Fraser really earnt her stripes, moving to St Louis in Missouri in 2013 to work her magic on the struggling division

She’s also putting a renewed focus on diversity. “What we’ve really tried to do at Citi is to make sure diverse candidates see us as a place where they can thrive and advance their careers,” she told TIME magazine. “Things like strong parental-leave policies and maintaining an inclusive culture can make a huge difference.”

As the first female chief executive of a top-tier Wall Street bank, she’s clearly well placed to fight that battle – and she’s spoken openly about the obstacles that faced her, as a mother of two, in rising to the top. In 2008, her Cuban husband Alberto Piedra left his role as head of global banking at Dresdner Kleinwort to be a full-time father and support her career.

“Being a mother of young children and having a career is the toughest thing I have ever had to do,” she said after leaving McKinsey, according to an Axios report. “You are exhausted, guilty, and you must learn how to do things differently. It was the making of me because I became much more 80:20, focusing on what was really important. I got good at saying no, and also became more human to the clients who also face many of these issues too.”

That element of being ‘human’ is a trait that seems to run through much of Fraser’s approach to leadership. Former colleagues have noted her love of pranks, as well as her ability to boost morale. And despite the challenges that Fraser has faced as a female leader, she has also said how “being a woman has been helpful. You are a bit different from other leaders,” she said in an interview with the FT. “I’ve always enjoyed the fact that you can therefore play the game differently, you’ve almost got licence to have more degrees of freedom, and that’s fun.”

A new world
Those differences are already starting to shine through; in March, Fraser signed off plans for ‘Zoom-free Fridays,’ while encouraging employees to take more annual leave. “We are a global company that operates across different time zones, but when our work regularly spills over into nights, very early mornings and weekends, it can prevent us from recharging fully, and that isn’t good for you nor, ultimately, for Citi,” she wrote in a memo, reported by Financial News.

Whether that attitude spreads beyond Citi and into the wider realms of the banking sector remains to be seen, but Corbat, for one, holds faith in her ability to conjure up a new dawn, and to bring about the change Citi has long been waiting for. “As I pass the reins to Jane, I can confidently say that this 208-year-old institution has its best days ahead,” he wrote in a parting memo to staff, reported by Bloomberg. “I cannot wait to see how Citi helps shape this new world.”

And it seems only right that it’s Fraser – a woman at the top of her game, a change agent unafraid to throw out the old rules, a mother of two who’s managed to balance work and family – is shaping that ‘new world.’

And if her past performance is anything to go by, she won’t disappoint.

Finding a balance: how should global trade work?

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Michael Pettis is a rare breed. A Wall street veteran-turned-academic who once owned a punk rock nightclub in Beijing, he has been teaching finance at Peking University since 2004, while being a prominent critic of Chinese economic policy. His latest book Trade Wars are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace, co-authored with Matthew Klein, questions almost everything we know about modern trade: the usefulness of the dollar’s reserve currency status to the US; the origins of the China-US trade war; and Germany’s much-celebrated trade surplus. In the book, Pettis and Klein argue that modern trade wars start at home, with British and American bankers and owners of financial assets benefitting from open markets at the expense of ordinary households.

 

Trade Wars are Class Wars is an idiosyncratic book. It’s part economic history, part financial analysis and part polemic. What prompted you to write such a book?
When I moved to China, the government was keen on making the renminbi a major reserve currency. That interested me in the role of reserve currencies and their cost. It was obvious that the role of the US as an absorber of excess global savings creates problems for its economy. I realised this by going back to the basic balance of payments, and seeing what the role of an excess savings absorber is, because that’s what gives you reserve currency status. I don’t think that the dollar gives the US an exorbitant privilege; it’s more of an exorbitant burden. And out of that came the recognition that much of what we discuss about trade is obsolete. Matthew and I discussed these ideas, so I asked him if he was interested in working with me on a book.

 

Should the international community drop the dollar as a global reserve currency and opt for something else, Bancor {a supranational currency proposed by Keynes} or some form of digital currency?
I don’t think a digital currency would solve the problem. In the Bretton Woods conference, Harry Dexter White and John Maynard Keynes agreed that trade should be more or less free, although they didn’t believe in totally unlimited free trade; that the more trade there was around the world, the better; and that free capital flows would be a big mistake.

They argued – and it’s even more true today – that the trade account and the capital account have to balance each other, and there’s no reason to assume that it’s the capital account that balances the trading account. As we show in the book, capital tends to be more volatile than trade. So, it’s trade that has to balance to the capital account. To the extent that the capital account primarily represents transfers of fundamental investment flows, it’s not a bad thing. However, most capital flows today are speculative, so trade is constantly adjusting to speculative flows. If you look at trade patterns over the last decades, the US absorbs 40 to 50% of global excess savings. Interestingly enough, the other Anglophone countries run about half of the remainder, so along with the US, account for roughly two thirds to three quarters of the global trade deficit.

All other rich countries primarily run surpluses, they account for roughly three quarters of global trade surplus. Why are Anglophone countries so different from other rich countries? I believe it’s because they have open, well-governed capital markets, so they attract excess savings. These are countries that have been running persistent large deficits since the 1970s, which violates our idea of trade. In trade theory, you can’t run persistent deficits, because they force adjustments that reverse the imbalance. But imbalances persist for decades, so that has to do with capital flows rather than trade flows.

 

So what should the US do?
The best option would be to organise a new Bretton Woods conference and redefine the rules of trade and capital flows, going back to Keynes’s original proposals. I suspect that’s unlikely to happen. So the alternative for the US is to unilaterally withdraw the dollar from its current role. The problem is that this role, the so-called ‘exorbitant privilege,’ gives the US geopolitical benefits at an enormous economic cost. So it would be difficult to do that because there are US constituencies – including banks – that want the dollar to maintain that role. However, other constituencies, notably producers, farmers and workers, should want the opposite. Ultimately, I think the US is going to withdraw the dollar as the dominant trade and reserve currency.

 

In the book you talk about domestic imbalances in the US, with its role as the world’s absorber of excess savings benefitting the financial sector at the expense of almost everyone else. The Biden administration has launched a stimulus programme focusing on infrastructure spending and will also increase corporate tax. Is all that towards the right direction in terms of addressing these imbalances?
The US has an investment problem. The reason businesses don’t invest is not that the cost of capital is high because of insufficient savings, but because there is not sufficient growth in demand. The Biden administration is trying to boost demand by spending on infrastructure and redirecting income from the wealthy to the middle class and workers. By increasing both forms of demand, they will increase incentives for businesses to invest. So what Biden is doing is the right thing, assuming he can pull it off in Congress. Even if that happens, the US will continue to run large deficits, perhaps even larger ones. But at least the counterpart to deficits will be higher investment.

We live in a world where investment isn’t constrained by the lack of savings. American companies are sitting on huge hoards of cash, but they are not investing. They are using them to buy stocks, which is just rearranging savings. If you export $100 into the US, investment will not go up, so it must cause savings to go down by increasing unemployment, household debt or fiscal deficit. So the US has to constantly choose between more unemployment and more debt to accommodate these inflows.

 

How do you think Biden’s domestic policies will affect the trade conflict with China?
In the long run, it would lead to better global relations, because trading imbalances would be associated with positive economic outcomes in the deficit countries. The problem with China is that the world is suffering from weak demand. And the only response China has is supply-side. It’s been talking about demand, in other words, boosting consumption, since 2007. More recently, the whole ‘dual circulation’ model is about boosting domestic demand. They haven’t been able to do it. All they do is subsidise manufacturing and infrastructure. It will involve substantial reforms, including political changes. So I’m pessimistic about US-China relations, I think they will continue to deteriorate – and not just US-China relations, but also relations with everyone else.

 

What’s the reason for China’s difficulty in reforming its economic system? Is it the nature of the regime or something else?
It requires significant political adjustment. During periods of great change, it’s democracies that can adjust. The problem is that the adjustment process is always complicated, and that’s why democracy seems to lose its prestige during these periods, like the 1930s or the 1970s. Ironically, that’s also when democracy proves its superiority compared to other systems.

It’s hard for countries like China to make these adjustments. After 50 years of war and Maoism, China was hugely underinvested for its level of social development in the 1980s. So the best it could do was force up the savings rate, and pour those savings into investment, because China needed commercial airports, it didn’t have a single subway system or many factories and the roads were bad. It did that very successfully, but the problem is that like every country following this growth model, it went too far and was seriously over-investing by the early ’00s. It took them a while to recognise that, but Beijing now accepts that all this investment in real estate and infrastructure is non-productive and is the source of the incredible rise in debt recently.

 

So what can they do now?
If you want to reduce non-productive investment there are four options. One is to allow growth to slow down, so have growth rates of up to two or three percent. They don’t want to do that. Much of what is happening in China assumes growth of five to six percent for many years, which is impossible anyway. The second option is to replace investment with a rising trade surplus. However, China is too big and the world cannot absorb an increase in Chinese trade surplus.

The third option is replacing non-productive investment by discovering new areas of productive investment. That’s what every country at this stage of growth tries to do, but it’s impossible. In China they believe they can shift all this investment into the tech sector, but there’s a limit to how much this can absorb. Even in a technologically advanced country like the US, the tech sector is small. In China, it might be about five percent of GDP, but investment in tech is about 45 percent and at least half of that is in non-productive property or infrastructure. You can’t transfer this huge amount of investment into the tech sector.

That leaves only one way: reduce investment and balance it by increasing consumption. The problem is that the consuming part of the Chinese economy, ordinary households, has the lowest share of GDP in history. In most countries, that is between 70 and 80 percent of GDP. In China it’s around 50 percent, with business and government retaining another 50 percent.

So if you want to solve the problem you have to increase the household share. If you want to raise the household share by 15 percent, it goes from 50 to 65 percent and the non-household share drops from 50 to 35 percent. How do you decrease the non-household share? Not from the business sector, because private businesses are the efficient part of the economy. If you force them to pay for the adjustment, you will destroy the Chinese economy. So that leaves the government. It’s hard to know what share the government retains, because there is no clear definition of government, but it is around 25 percent of GDP. So the relationship between the share of households and government must shift from 50-25 percent to 65-10 percent. Household consumption would have to move from being twice as big as government consumption, to being seven times bigger. You can’t do that without a significant shift in political power. From a historical perspective, there is no way to do it without political instability.

 

In the book you claim that “the euro area is now the world’s biggest source of global imbalances,” mainly because Germany runs ludicrously high trade surpluses. The Green Party may win the forthcoming election and they are talking about running deficits, which is a taboo in Germany. Would that solve the problem?
I have met the leaders of the German Green Party and they seem to understand the problems. Germany is obsessed with international competitiveness. There are two ways you can achieve this. One is to invest domestically and increase the productivity of workers. The other way is by lowering wages or some form of social or environmental degradation. If you increase your productivity, the reward of becoming more efficient in manufacturing is not a trade surplus. I don’t believe that some countries work harder than others, but even if you are a hard-working country your reward is not a trade surplus, but the ability to import more for a smaller unit of output, so basically you improve your terms of trade.

Germany’s way of achieving international competitiveness is lowering wages, the famous Hartz IV reforms. This is a classic beggar-thy-neighbour policy, because by lowering wages you lower your contribution to global consumption, and you are rewarded by taking a bigger share of everyone else’s consumption through a trade surplus.

Keynes warned us about this. He argued that countries compete by worsening their contribution to global demand, basically by constantly lowering wages. So today American companies tell their workers “if we don’t pay you less, we’re going to go out of business”, and you either accept lower wages or they move abroad. This is one reason why we see rising income inequality and demand growth has been low. It’s only with rapid increases in debt that we can keep growth and demand at reasonable levels.

If the Greens have a bigger impact on German policy, and it doesn’t even have to be running a deficit, it would be a positive change. As long as they eliminate the trade surplus by raising wages, Germans will be better off and Germany will be contributing net growth to the world, rather than subtracting growth. It’s true that Germany has lent a lot of money to other EU countries. But as long as it doesn’t run a deficit with its EU partners, it’s impossible for them to repay Germany.

 

In the UK, when we talk about trade it’s all about Brexit. You don’t discuss this in the book, but some of your arguments echo some of the arguments made by Brexiteers, notably left-wing ones. They talk too about domestic imbalances, particularly between the financial sector, which allegedly benefited from Britain’s EU membership, and other parts of the economy. Am I right to read it as a book that is indirectly pro-Brexit?
In the long term, politics will determine whether Brexit was a good idea. My instinct is to say Britain would have been better off as part of the EU, but it’s not a hill I am willing to die on. I don’t think it will make much difference from an economic point of view in the long-term.

The problem of the UK is that it has been running deficits since the 1970s. And that’s not surprising, because the UK shares with the US a friendly investment market and open capital markets. Like other Anglophone countries, it is a net recipient of foreign inflows, so it has to run a deficit. If it were a developing country, that could be a positive deficit driving domestic investment higher. But it’s an advanced economy and there is no savings constraint. So these inflows are bad for the economy.

One of the reasons Keynes opposed free capital flows was that the UK experienced this in the 1920s, a spectacular period for much of the world, but not for Britain. Under the gold standard in the 1920s, there were a lot of capital inflows and that hit its export industries. In 1931 they abandoned the gold standard and started implementing protectionist tariffs and the UK economy did relatively well, given the horrible performance of the rest of the world. To a certain extent, you could argue that Brexit may be a repeat of that story.

 

Some economists say that leaving the EU could end the country’s overdependence on finance and boost manufacturing. Does that make sense to you?
I am a Wall Street guy, I spent most of my career running trading and capital markets desks, but I think a country needs a decently sized financial services sector. Up to a point, the more sophisticated your financial system is, the better it is for the economy. But beyond that, what’s best for the financial system often comes at the detriment of producers, farmers and workers. There’s a real conflict between bankers, what I would call the State Department or Foreign Affairs constituency, and the domestic workers and producers constituency. I think in England, like in the US, the financial constituency is way too powerful.

Roaring 20s for SPACs?

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Even for a ‘super-app,’ the announcement was astounding, sending shockwaves through global markets. On April 13, Grab, a Singapore-based tech powerhouse that started as a ride-hailing app and has since branched out into banking, hospitality, insurance and other services, announced that it would join the latest Wall Street frenzy, going public on Nasdaq via a $39.6bn merger with Altimeter Growth Corporation, a SPAC. The merger has been the biggest M&A deal globally in 2021.

SPAC is the acronym of the year in finance. Also known as blank-cheque companies, a term many SPAC aficionados reject, these idiosyncratic shell corporations have been around for almost two decades. But it’s only over the last 18 months that they have finally found their way into the mainstream. A typical SPAC lists on the stock market with the explicit aim of acquiring a private company that wishes to go public. Targets tend to be tech firms with high-flying ambitions, such as electric vehicle makers and space transportation companies.

Even if the bulk of SPAC activity is concentrated in the US, their appeal is universal enough to attract Asian unicorns such as Grab, says Alexandre Lazarow, a venture capital investor and author of a book on emerging start-up ecosystems: “For the very best start-ups, partnering with a SPAC means partnering with experienced operators, investors and venture capitalists who offer a friendly, globally connected and founder-centric capital source that will be hugely beneficial in expanding their business.”

Boom and bust
Financial markets have welcomed the SPAC boom with relief, as one the few success stories of the year, with the global economy still reeling from the pandemic. The Ipox SPAC Index, which tracks the US market, almost doubled its value from its launch last summer to January 2021, although it has since lost some of its gains. By the end of May, 313 SPACs had gone public in the US, compared to 248 last year and just 225 in the previous decade (see Fig 1).

The trend drove global M&A activity to a staggering $1.3trn in the first quarter of 2021, a four-decade record, according to Refinitiv data. One reason for the unprecedented appetite for SPACs is massive liquidity in global markets. With historically low interest rates and aggressive monetary policy by governments and central banks to mitigate the impact of lockdowns, investors have been left with few options other than seeking lucrative, even if risky, deals. For those eager to take a bet on ambitious start-ups, raising debt has never been easier.

Some see in SPACs the latest example of a broader movement away from the old-fashioned IPO, foreshadowed by the increasing number of direct listings. In the first quarter of the year, SPACs accounted for 75 percent of US listings compared to just 25 percent for IPOs, whereas five years ago they accounted for a tiny 10 percent. Some point to the sheer convenience of swapping a legally burdensome IPO for a merger with a public company.

Companies that list on the stock market via a SPAC merger can save up to 15 months. In tech circles, IPOs are seen as costly compared to other options. “There is the perception that with an IPO you may leave money on the table, for example when the price goes up 25 percent in a single day. So people think that SPACs or direct listings provide an alternative,” says Scott Denne, an analyst at 451 Research, part of S&P Global Market Intelligence.

The pandemic has accelerated this process, with travel restrictions rendering road shows obsolete, says Daniele D’Alvia, CEO of London-based SPACs Consultancy and author of a forthcoming book on SPACs. “We live in the Zoom era. Roadshows don’t make sense anymore. In the past, if a Malaysian company wanted to go public, investment bankers supporting the deal would fly to Malaysia to check everything, from the company’s financials to its buildings. Now they cannot do that because of travel restrictions.”

Ian Osborne, prominent tech investor
Ian Osborne,
prominent tech investor

Smaller fish
Changes in regulation may have played a role too. Last year, the US Securities Exchange Commission (SEC) modified the criteria for accredited investors to include those with more than $5m in assets.

The change has allowed smaller fish to participate in PIPE investment, the financing mechanism through which SPACs raise capital, hitherto reserved for institutional investors. Although a typical SPAC raises money when it goes public, it often needs investors to cough up extra capital to complete an acquisition. PIPE investors also add their gravitas to the status and valuation of the target company. Grab received $4.5bn for its merger, of which $4bn was in PIPE investment from BlackRock, Morgan Stanley’s Counterpoint Global fund, sovereign wealth funds such as Singapore’s Temasek and Malaysia’s Permodalan Nasional Berhad and several other institutional investors.

‘Sponsors,’ the financiers who launch SPACs and then chase promising companies, are the main driver of the market. They tend to be prominent tech investors and dealmakers such as Ian Osborne, a British pioneer of SPACs who has invested in European tech powerhouses Spotify and TransferWise (currently Wise). “Sponsors make huge returns on SPACs on average, so the supply will be there if there is enough demand,” says Jay Ritter, an expert on IPOs who teaches at the University of Florida. Once a merger – a process known as de-SPAC – has been completed, sponsors typically take up to a quarter of the merged company’s equity, and thus have a strong incentive to close deals.

For tech firms looking for a quick buck, merging with a SPAC can be hugely lucrative

For target companies, identifying sponsors with a long-term plan is a boon. In the case of Grab, one reason for the partnership with Altimeter Capital was the latter’s long-term commitment to the company, Lazarow says, evidenced by the fact that they locked up their shares for three years and led the PIPE process. For tech firms looking for a quick buck, merging with a SPAC can be hugely lucrative. In 2021, the average tech firm that merged with a SPAC received nearly 13 times its revenue, according to 451 Research. The prospect of tapping into public markets is irresistible, says 451 Research’s Denne: “The opportunity to raise money on the public market, while using the same numbers and language you would use to raise money from venture capital firms, appeals to many tech companies.”

Not your usual bubble
In a market where ballooning debt, zombie companies and all-too-generous central banks reign supreme, the fear of a bubble that is just about to burst never goes away. Many worry that the SPAC frenzy will give way to a stampede for the exit, once the tide of free money goes out and those swimming naked are exposed. By April, the proceeds of SPAC listings in the US had surpassed the $100bn threshold, nearly 10 times more than the amount raised in 2019, but the market has significantly slowed down since its first-quarter peak.

One reason for the unprecedented appetite for SPACs is massive liquidity in global markets

One reason is that institutional investors are increasingly reluctant about the market’s prospects, overwhelmed by the sheer numbers of SPACs. Out of 966 SPACs that have been launched since 2003, less than half had announced or completed an acquisition by the first half of the year, while 90 had been liquidated. Sponsors typically have two years to find a target, otherwise they have to return the raised funds to investors. Some think that the market has run out of target companies with a reliable business plan. PIPE investment is drying up, with banks reducing lending to hedge funds that invest in SPACs. Short-sellers are also zeroing in on the market, increasing their bets against SPACs.

Their stock market performance has also been lacklustre. By May, around two out of three SPACs were trading below the $10 threshold, a significant drop from the first quarter when they typically offered a premium to investors. The picture is similar for most SPACs that have found a target. A case in point is Canoo, a US electric vehicle manufacturer whose share price halved just a few months after its listing on Nasdaq last December. Academics Michael Klausner, Michael Ohlrogge and Emily Ryan estimate that although SPACs raise $10 per share in their IPOs, by the time of the merger they hold just $6.67 for each outstanding share, while shares lose around a third of their value a year after the merger (see Fig 2).

Critics mock the lofty projections made by companies that merge SPACs. Some have never run a profit or started production. Arrival, a UK electric vehicle manufacturer, listed on Nasdaq via a SPAC in March, projects its revenue to reach $14bn in 2024, despite not having produced any vehicles yet. “Not all, but most companies choosing the SPAC route weren’t ready or easily able to complete an IPO.

Either they were in businesses that had some issues (gambling, cannabis); or fascinating but unproven business models (OpenDoor); or products that aren’t ready for prime time (flying cars, self-driving cars, LiDar systems); or they just didn’t want to deal with the scrutiny that comes with an actual initial listing as opposed to a ‘back door’ merger to become public,” says Lise Buyer, a partner at the US-based IPO consultancy Class V Group who was involved in Google’s 2004 listing. “Most of the companies that have a strong business model and ‘clean’ story are still choosing an initial listing via a sale.” Some point to WeWork as a case point. The US commercial real estate company has gone on a slippery slope from a valuation of $47bn to near bankruptcy after its botched IPO in 2019. With the pandemic further hitting its bottom line, the firm has reportedly attempted to go public via a SPAC.

Some point to the recent history of the M&A industry as a cautionary tale for the market’s future prospects. Ivana Naumovska, an academic who teaches finance at INSEAD, draws parallels with reverse mergers, a trend that boomed in the previous decade but rapidly petered out in 2011 due to negative media attention and regulatory intervention. SPACs themselves faced a similar boom in 2007, ominously just before the Great Recession kicked off. However, few of them found target companies eager to go public. One of the clearing houses for SPAC companies was Lehman Brothers, the investment bank whose collapse sparked the financial crisis. But similarities stop there, says Milos Vulanovic, an expert on SPACs who teaches corporate finance at EDHEC Business School: “The financial crisis took liquidity out of the market, shutting down the offering of securities.”

A celebrity market
If there is one indication that SPACS may have bubbled out of control, it is the involvement of celebrities who are not usually associated with the financial sector. Celebrities promoting SPACs include Jennifer Lopez, Serena Williams, Shaquille O’Neal, Stephen Curry and Alex Rodriguez, with some even sitting on company boards.

Concerns over a SPAC bust that could jeopardise the fragile post-Covid recovery have alerted regulators

A sprinkle of glitter may be welcome to a market where digital native millennials are taking over and attention is becoming the ultimate commodity. “Sponsors are bringing in celebrities so that they can stand apart from the crowd. You can think of some of the celebrities as offering marketing services, just as in the advertising business,” Ritter says. “Celebrity involvement in SPACs is irrelevant to the market, because most of them are doing nothing but lending their names to an investment vehicle. Institutional investors pay little attention to it, or worse, they may discount a SPAC’s credibility,” says Don Duffy, President of ICR, a US communications firm that works with SPACs.

However, regulators think otherwise. In March, the SEC issued an ‘investor alert’ warning that celebrity promises for a quick buck should not be taken at face value. “Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss. It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment,” the bulletin said.

Regulators on alert
Concerns over a SPAC bust that could jeopardise the fragile post-Covid recovery have alerted regulators. The SEC has warned target firms against offering misleading predictions and is currently scrutinising their accounting methods. In a statement that sent chills to the markets, John Coates, the SEC’s acting director of corporate finance, said that “Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst.”

Ominously, he warned that de-SPACs should be subject to “the full panoply of federal securities law protections,” adding that “a de-SPAC transaction gives no one a free pass for material misstatements or omissions.” Some interpret this as a sign that the Commission may start treating SPAC mergers as IPOs, thus scrapping their legal protections. Many SPACs have exploited a loophole in US security law that protects companies going through a merger from lawsuits over overambitious forward-looking statements. Banks backing SPACs may also have to undertake the same liability risks that typically accompany an IPO.

In some cases, regulatory intervention has stopped SPACs in their tracks. One example is space transportation company Momentus, whose $1.2bn merger with Stable Road Acquisition Corp is under investigation over statements made about the deal. Other firms face shareholder lawsuits over allegations that their directors misled shareholders and investors. In the latest blow to the market, last spring the SEC forced SPACs to account warrants, which permit early investors to purchase shares at bargain prices, as liabilities rather than equity.

Many believe that the measure triggered the abrupt slowing down of the market in the spring. “Sponsor warrants are part of the compensation of the sponsors, and are a cost to the other stakeholders,” says Ritter. But others think that the market will slowly recover, unless regulators overreact and stifle the market: “Financially, it does not change much. For a $200m SPAC the cost would be a few $100,000s,” Vulanovic says, adding: “But it is an extra burden because many SPACS need to restate their financial statements. They need to contact the auditors and lawyers again and essentially go back in the queue.”

What worries regulators, and increasingly politicians, is SPAC-fuelled speculation that may hit retail investors. Critics argue that some SPACs have mastered the art of regulatory arbitrage, permitting fledgling start-ups to skip the rigorous due diligence process that comes along with an IPO; some have dubbed SPACs ‘Special Prevention of Accountable Control.’ “Paying attention to SPACs is justified, because there is a transfer of risk from venture capitalists and private equity investors to public market investors.

The rapid rise of SPACs has been met with a mix of bewilderment and excitement by investors and financial analysts

Many of them understand that risk, but some don’t,” says Denne from 451 Research, adding: “With a traditional IPO, the investment decision is based on the company’s historical performance. Most SPACs disclose some data on historical performance, but not in detail, so the investment is often about the future.”

However, others believe that the risk is minimal, given the idiosyncratic structure of SPACs. “In essence, a SPAC share is a convertible risk-free bond. Funds raised in the IPO are deposited in escrow accounts and kept there until the merger. There is no possibility that investors would lose any money,” Vulanovic says, adding: “The only people who risk any capital before the merger takes place are SPAC founders.” In some circles, SPACs are seen as the latest revolt against mainstream finance, coming on the heels of the GameStop saga that saw Reddit investors bet against hedge funds that were short-selling the US video game retailer.

Some think that SPACs offer to retail investors an opportunity to invest in small but fast-growing companies that were previously accessible only to bigger fish, notably venture capital firms. “I like to call a SPAC IPO a ‘democratised IPO’ because in a typical IPO the only people who get access to the shares are the investment bank’s clients, whereas anyone with a brokerage account can buy a SPAC’s shares in the open market,” says ICR’s Don Duffy.

Conquering the globe
Although the SPAC frenzy is largely a US phenomenon, it has already crossed the Atlantic. Prominent European investors, including ex-Credit Suisse CEO Tidjane Thiam, French telecoms billionaire Xavier Niel and luxury tycoon Bernard Arnault, have launched their own SPACs or are considering doing so. The trend has sparked competition among European financial hubs to attract SPAC listings, with Amsterdam leading the market so far.

Xavier Niel, CEO of Illiad and Bernard Arnault, CEO of the LVMH group
Xavier Niel, CEO of Illiad and Bernard Arnault, CEO of the LVMH group

Deutsche Börse expects up to 12 SPAC listings this year, according to an interview of Peter Fricke, an executive of the German exchange, to the financial newspaper Handelsblatt. In the UK, the Financial Conduct Authority (FCA) is considering implementing reforms that would make it easier for SPACs to list on the London Stock Exchange. Currently, restrictions such as suspension of trading following a SPAC merger hamper growth. But even some of the proposed reforms, such as setting a minimum of £200m to be raised when a SPAC goes public, may push many firms to list elsewhere, says D’Alvia from SPACs Consultancy.

The picture is similar in Asia, with regulators in Singapore and Hong Kong contemplating changes in regulation to attract home-grown SPACs. However, many Asian tech companies such as Grab have opted to list overseas via mergers with US-based SPACs. Such deals are symptomatic of the proliferation of fundraising options in regions that historically lacked access to global capital, Lazarow says: “As innovation models continue to scale internationally, and companies with strong future growth prospects seek capital beyond the limited options on established Asian Exchanges, SPACs will certainly be a key tool in the quiver.”

Tidjane Thiam, ex-Credit Suisse CEO
Tidjane Thiam, ex-Credit Suisse CEO

Two worlds coming together
The rapid rise of SPACs has been met with a mix of bewilderment and excitement by investors and financial analysts. Optimists see in this nascent market the first sparks of the forthcoming ‘roaring 20s’ that will follow two years of pandemic-driven doom and gloom. Others interpret the boom as a belated tie-up between Wall Street and Silicon Valley, hitherto seen as rivals due to the rise of fintech start-ups that threaten incumbent banks and financial services firms. Critics worry that the only string that holds together such a fragile marriage of convenience is greed, noting that the roaring 20s of the previous century ended with the biggest stock market crash in history.

Ironically, for some of the companies jumping on the SPAC bandwagon, their brightest moment may be the beginning of their downfall too. Regulators, policymakers and even the companies themselves should be worried about “the speed with which they made the leap from private to public, with much of the preparation and infrastructure-build required to be a listed company happening while public, as opposed to in anticipation of being public,” warns Lise Buyer.

“As one CEO said to me, it’s like standing in the town square naked and trying to put on your clothes, while dancing. Some will work out just fine and there will definitely be winners. But there will also be those that end up on the ‘don’t be this company’ posters.”

Money, money, money

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In June 2020, University of Oxford Professor Ludovic Phalippou caused a ruckus in the private equity (PE) world when he alleged that the industry is nothing but a “billionaire’s factory.” A diehard PE critic, Ludovic has become something of a champion of the alternative view regarding PE. He has interrogated the performance of PE investments, their glorified returns and general impacts. Yet, the author of ‘Private Equity Laid Bare’ remains largely isolated. The popular consensus is that PE is a game changer in the world of finance and investments.

The PE industry is today deeply entrenched and widely recognised. In fact, with assets under management (AUM) increasing from $423.6bn in 2001 to $1.3trn in 2010 before shooting to $5trn in 2020, the industry is poised to play a greater role in the form of driving economic recovery and anchoring future growth. The evolution of the industry attests to the fact that the days when PE investments were basically meant to keep companies afloat are long gone. In its place a powerful force that is a cog for sustainable economic development has emerged. It is bolstered by the emerging trend of PE investors taking a longer-term perspective beyond the five-year investment horizon.

Phenomenal growth
The new formidable PE industry is backed by a colossal number of resources. Data by Preqin show that by 2025, PE AUM will hit a staggering $9.1trn, a 15.6 percent compound annual growth rate. At this pace, the industry will in due course overtake the insurance industry in terms of gross premiums, which stood at $6.3trn in 2019 but contracted to $5.8trn last year. “The PE industry has achieved phenomenal growth over a few decades,” says Eric Deram, managing partner at global private investments firm Flexstone Partners.

The industry is today sitting on almost $1.9trn in dry powder. This is unallocated capital that is ready to be invested and that can be central to accelerating recovery in emerging markets and developing nations particularly in Asia, South America, Latin America and Africa (see Fig 1). The amount is bound to increase with surveys showing that more than 80 percent of international institutional investors – the largest investors in the industry – say they will invest in PE in 2021 at least as much as they did in 2020.

There is no doubt that across emerging markets and developing nations, COVID-19 badly ravaged economies in 2020. The World Bank reckons that due to the brutality of the pandemic, East Asia’s economic growth stalled for the first time in 60 years, growing by a mere 1.2 percent, with 19 million people plunging into poverty. Latin America and the Caribbean experienced the worst economic contraction with the economy declining by 6.7 percent. The economic downturn could push 28 million people into extreme poverty, with unemployment rates projected to reach 13.5 percent. Sub-Saharan Africa experienced its first economic recession in 25 years, with the economy declining by two percent.

The recovery begins
The pangs of COVID-19 are slowly easing. Vaccine roll out coupled with government intervention have seen countries embark on a cautious journey to return to normalcy. However, for most countries, it will be a while before economies can fully recover. For instance, it’s projected that the Indian economy, the world’s fifth largest, could take years to recover from the effects of the pandemic. For years, India has been among the stellar performers with economic growth averaging 7.2 percent the past decade. However, a brutal wave of COVID-19 this year is threatening to have prolonged negative impacts. During the first week of May this year, the country was experiencing an average of 380,000 in daily infections and 3,600 deaths.

It would be hyperbolic to expect the PE industry to save the world’s economy on the road to recovery. However, the industry has the potential to be a strategic catalyst in the recovery. No doubt the pandemic has negatively impacted traditional providers of capital, such as banks. In some regions, banks have seen an unprecedented spike in non-performing loans, prompting them to be more conservative. This has opened up opportunities for PE firms to fill the funding gap considering the need of private companies for fresh capital either to strengthen balance sheets weakened by the prolonged crisis or to make fresh investments to profit from new business opportunities arising from the crisis.

“As companies recover and emerge from the impact of COVID-19 they need growth and working capital,” says Anthony Mwangi, International Finance Corporation (IFC) Private Equity Lead for Africa. He adds that PE can play a seminal role in deploying capital towards recovery, especially considering the investable opportunities at attractive valuations that have emerged from the crisis.

The opportunities are vast, and diverse. They come at a time when the face of PE is fast evolving and investors appear to have a stronger risk appetite. When the industry started gaining prominence some two decades ago, the traditional PE model was PE firms buying into undervalued companies, building them up and exiting. While PEs are not ready to entirely discard this model, a shift towards the principles of sustainability guided by environmental, social and corporate governance (ESG) is emerging. PEs are investing in longer-term quality assets in sectors like technology, media, and telecom (TMT), medical, renewable energy, infrastructures, real estate, financial services, education, agriculture, water and sanitation, among others.

A McKinsey report on ‘Unlocking private-sector financing in emerging markets infrastructure’ contends that while developing countries require massive resources to finance infrastructure projects, they face challenges in mobilising the resources. To keep pace with projected gross domestic product (GDP) growth over the next 15 years, they need to invest more than $2trn annually. Africa alone must raise power and transport infrastructure investments to $55bn and $45bn annually respectively. Other countries facing huge financing gaps include Indonesia, Mexico, Brazil, India and Saudi Arabia.

Tragically, despite these financing gaps, many countries, including most of Africa, have shot themselves in the foot for failing to create an environment to attract PE funding for infrastructure projects. This explains why major private equity investors like Carlyle and Blackstone have left the continent ostensibly because they could not find large enough deals.

A dependable source of capital
Apart from investments in mega projects, private companies provide a vast arena of opportunities. In developing countries and emerging markets, the private sector is the engine of economic growth, job creation and poverty alleviation. PE firms have amassed substantial experience in investing in private companies and have become important providers of liquidity, debt and equity financing that is a catalyst for growth and transformation. “One of the primary sources of fresh capital for private companies that cannot tap the public equity markets and may not be able to incur more debt is PE,” observes Deram.

In fact, PE firms have proved they can be a dependable source of capital for companies. According to the Global PE Report 2020 from intelligence and research firm Acuris, the long-term growth of private credit has been nothing short of stratospheric. Two decades ago, the market scarcely existed, considering it was worth $40bn. It has since ballooned to more than $800bn. “This has been propelled by direct lending funds, which have grown in number and size in tandem with the leveraged buyout market they almost exclusively finance,” avers the report. It adds that private credit continues to grow in popularity, with 35 percent of firms having increased their use of these loans in the past three years and almost half (49 percent) now using private credit as much as traditional bank financing in their buyouts.

Unlike traditional lenders, particularly banks whose sole drive is to provide credit, the success of companies inspires PE firms. That is why PE investors take a hands-on role by providing advice and support in areas such as strategy, financial management and operations. This emanates from the understanding that for a majority of private companies, liquidity alone is never enough in guaranteeing growth. “Investing in PE is hands on. Fund managers generally take control (or significant minority positions) of the private companies they invest in because they want them to grow,” notes Deram.

The impact of PE investments and ripple effects on economic development are evident taking into account the value and volume of deals in regions like Asia-Pacific and Africa. A report by Bain & Company indicates that in the Asia-Pacific region, deal value defied the impacts of COVID-19 to rise to a record of $185bn last year, up 19 percent over 2019 and 23 percent over the previous five-year average. The region is forecast to be the biggest growth market with AUM set to increase from $1.6trn to $4.9trn in the next five years.

During the period 2015–20, a total of 1,257 PE deals worth $21.7bn occurred in Africa according to the 2020 Annual African Private Equity Data Tracker report. The rise was indicative of investors’ confidence in the continent’s economic resilience. Even at the height of the COVID-19 crisis last year, deal value declined only marginally to $3.3bn from $3.8bn in 2019. The ripple effects sprouting from the firms that have received PE funding are notable. They range from business expansion (for some, beyond their home markets), job creation and tax revenue for the exchequer.

“Emerging markets in Africa and Asia remain fundamentally attractive,” says Tristan Reed, economist at the World Bank. He added these markets are attractive because they offer PE firms excess returns owing to their limited financial sector development. “This makes sense because these are economies where capital is scarce, and there is also less competition for deals from other investors,” he says.

Helping hand from the IFC
The economic impact is well amplified by IFC, the private sector arm of the World Bank. IFC, which works to increase the involvement of PE funds in emerging markets, is often the first PE investor in some of the world’s poorest countries. Today, the organisation boasts of significant PE investments amounting to $7bn committed across a portfolio of over 330 funds. Through these investments, IFC has managed to deliver impact and development by addressing gaps in access to equity and growing private sector participation.

This stems from the fact that in emerging markets and developing countries, lack of risk capital hinders economic growth and slows entrepreneurship. By providing capital where it is scarce, IFC’s support of PE plays a critical role in development by helping build up companies that create jobs, drive prosperity, provide affordable and relevant goods and services, and strengthen a growing middle class. The organisation’s participation has also contributed significantly to sustainable development goals (SDGs) such as access to education, affordable housing, agribusiness, financial inclusion and job creation.

In Kenya, IFC investments in companies like Twiga Foods have had transformative effects. The agri-tech start-up buys agricultural produce from smallholder farmers and makes them available to urban populations at affordable prices. Last year IFC invested $30m in the firm to support more than 300 irrigated medium-scale contract farmers to complement its seasonal farmer supply base. As a link between smallholder farmers and the market, Twiga Foods has been instrumental in improving the livelihoods of over 4,000 farmers by providing a ready market for their produce. With its model a success in Kenya, the firm intends to use the funding from IFC and other PE investors to scale up and replicate the model in other African countries including Rwanda, Uganda, Tanzania, Nigeria and Ghana.

To ensure that PE firms become more involved in driving economic development, emerging markets and developing countries need to implement structural adjustments to tap more capital. On this front, they haven’t performed well. Currently, only about 13 percent of PE investments go to these regions. This is a fraction of the $1.9trn PE dry powder. Broadly, it is an indication that compared to developed markets the scale of PE in emerging markets remains substantially limited and is mostly concentrated in Asia. In 2018, for instance, only 23 percent of PE global fundraising went to emerging markets even though they represent 60 percent of global GDP.

“Emerging markets PE is far from homogenous, with stark differences between different markets. However, there are some headwinds that to varying extents do affect most of the regions,” says Mwangi. The stark differences are glaring. About 85 percent of PE capital raised in these regions goes to emerging Asia, with China and India accounting for 38 percent and eight percent respectively. Only a paltry amount of the capital finds its way to a region like sub-Saharan Africa.

Apart from investments in mega projects, private companies provide a vast arena of opportunities

Addressing the headwinds is imperative. In essence, emerging markets and developing nations must undertake structural adjustments to create an environment that is conducive to growing the pie of PE investments. This includes increased transparency, better governance and more supportive legal and regulatory environments. Others are creating deeper and more sophisticated capital markets, providing a wider plurality of exit options and allowing for more open market-based economies with increased entrepreneurial activity and competitive pressure. Another critical factor is the need to put in place a reasonable, transparent and stable tax system.

The forex factor
While these measures are vital, the forex factor remains a cornerstone in the PE industry. For PE funds, investing in emerging markets usually comes with a currency risk. Consequently, uncertainties regarding foreign exchange are not healthy and the absence of, or weak, forex controls has often been a deterrent for investments. This is because most PE funds are either dollar or euro denominated. Mitigating currency risks thus becomes crucial.

“Having a stable and predictable exchange rate is probably the most important factor in attracting PE investment,” says Reed. He explains that international PE firms typically book returns in dollars. This implies that currency devaluation can severely harm returns even if a portfolio company is growing fast in local currency terms. Moreover, when the price of foreign currency is ambiguous, for instance given the existence of multiple rates on formal or informal markets, it is difficult for PE investors to accurately price investments in dollar terms. “The uncertainty will make them less likely to invest,” he reckons.

Risk factors notwithstanding, PE firms are always on the lookout for quality deals in emerging markets and developing nations. Apart from the drive to make impactful economic contributions, impressive returns are a major motivation. To a large extent, it explains the rapid bounce back of the PE industry following a challenging year occasioned by COVID-19. Preqin data show that in the first quarter of the year, PE fundraising activity had managed to return to pre-pandemic levels. Funds raised amounted to $188bn across 452 funds during the quarter, up from $163bn and 431 funds in the same period last year (see Fig 2).

In terms of returns, the PE industry continues to maintain a splendid trajectory outperforming public equity markets and outpacing other private markets asset classes. By all accounts, they put into disrepute the logic propagated by Professor Phalippou that PE managers, as opposed to investors, are the key beneficiaries of PE returns owing to the exorbitant fees they charge.

Good governance and transparency are basic requirements in private companies in which PE firms invest

In the first quarter of 2020, the industry recorded a sharp decline in performance, according to McKinsey. But it recovered quickly to post a nine-month trailing pooled net internal rate of return (IRR) of 10.6 percent through September 30. On a pooled basis, PE has produced a 14.3 percent annualised return over the trailing 10-year period, beating the S&P 500 return of 13.8 percent by 50 basis points.

Notably, all other private markets asset classes posted negative returns over the same period. Infrastructure and private debt with 1.3 percent and 2.1 percent returns respectively came closer to breaking even. However, closed-end real estate and natural resources – at 4.2 percent and 16.7 percent – faced more challenging return environments.

“The long-term performance of PE remains strong,” observes Preqin in its 2021 report. It adds that while it is too early to gauge the full impact of the pandemic, buoyant stock markets, the resumption of economic growth and prolonged low interest rates augur well for future performance.

The inspiring returns are encouraging yield-hungry institutional investors and high-net-worth individuals to continue directing resources to PEs. Last year, 66 percent of institutional investors like pension funds and insurance companies invested in PE, up from 57 percent in 2016.

The World Bank headquarters, Washington, DC
The World Bank headquarters, Washington, DC

Emerging unscathed
The resilience of PE has been momentous. Across the globe, COVID-19 has caused devastating damages on the private sector. Despite the Covid-inflicted disruptions, PE-backed private companies have fared relatively well and are emerging somewhat unscathed. A key reason has been the ‘all hands on deck’ attitude of fund managers who were instrumental in supporting companies during the difficult months of the pandemic. Entrenching the principles of ESG and impact investment is a key factor in propelling the PE industry to the centre stage of economic development. The PE industry acknowledges the world is facing threats on all fronts. These threats, which cut across climate change, environmental pollution, bad governance, and corruption to name a few, are even more pronounced in emerging and developing nations.

In Africa, for instance, climate change is a major threat to human health and safety, food and water security and socio-economic development. At the current rate of global warming, the continent is on the verge of losing up to 15 percent of GDP by 2030 according to the Economic Commission for Africa. The PE industry is determined to be a champion of sustainable development.

The headquarters of management consulting firm, Bain & Company, Boston
The headquarters of management consulting firm, Bain & Company, Boston

In this respect, PE firms have avoided investing in polluters like fossil fuels, mines and sections of the manufacturing sector. Besides, good governance and transparency are basic requirements in private companies in which PE firms invest. This explains why more investors are actively incorporating ESG into their due diligence processes and investment committee decision-making. Blackstone, for instance, is leading on this front. Last year it announced that its next step in ESG is reducing emissions in new acquisitions by 15 percent.

“There has been increasing awareness that investments need to take account of ESG risks and in our experience investments that do so generate better financial returns,” explains Mwangi. He adds that as more PE investors embrace investing for impact, it will be a win-win for all because financial returns will be generated while taking care of the greater good by protecting the environment, generating jobs and reducing poverty.

Economic value
The PE industry has visibly demonstrated its ability to propel economic recovery and drive future growth in emerging and developing nations. Though still on a smaller scale, the changing dynamics point to the industry increasing its contributions substantially in the coming years.

As American billionaire investor Bill Ackman accurately observed, PE investors have proved they create a lot more economic value than they destroy.

View from Singapore: one year of the VCC structure

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On January 15, 2020, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) launched the Variable Capital Company (VCC) framework, a new corporate structure specifically designed for investment funds, strengthening the foundations for its continued prominence as a global financial services and fund domiciliation hub. We are now over a year on from its introduction and it is time to take stock of its initial impact. In this piece, we examine the early adoption of the structure and consider the areas of focus to build on its early successes.

 

Background to the VCC
The VCC is a new corporate entity structure that is purpose built for investment funds. It also offers the flexibility of compartmentalisation via umbrella structure, just like a Protected Cell Company or a Segregated Portfolio Company. Umbrella funds can house different strategies/investors in different compartments called sub-funds, with each of the underlying sub-funds ring-fenced from one another providing legal segregation of assets and liabilities. As it’s a corporate fund structure with no regulatory definition of investment strategies that can be housed in it, VCC can be used across alternative fund strategies (both open-ended and close-ended). This new corporate entity structure gives funds an alternative to existing fund structures available in Singapore, such as limited partnerships, unit trusts and private limited companies, as well as plugging some of the gaps and constraints of using these structures.

Along with this, the VCC offers the flexibility of incorporating via re-domiciliation. Re-domiciliation is a feature of incorporation that allows a corporate entity in other compatible jurisdictions to be brought over to home jurisdictions and retain its characteristics from day-one, thereby retaining the track record.

 

The attraction of VCC for fund managers
For Singapore-based managers, the VCC provides them with an additional option for structuring their funds. In the past, managers here have mainly used offshore structures, and now they have a flexible and versatile framework in the same jurisdiction.

Service providers in Singapore will play a crucial role in supporting funds looking to adopt the VCC structure

Primarily, the VCC benefits those fund managers with a broad Asian investor base or those who invest in Asia, as they can take advantage of access to Singapore’s 90+ tax treaties.

The structure offers significant flexibility as it can be used to incorporate new funds or re-domicile existing comparable and compatible overseas investment funds. It can also be used for both closed-ended and open-ended funds, unlike some structures offered in other jurisdictions. We see that this flexibility is proving to be one of the key attractions behind the popularity of the VCC and has been central to its early success.

 

Early successes
The VCC structure proved to be immediately popular: the VCC went live on 15 January 2020 and 20 VCCs were launched on the same day. Data shows that total of over 50 VCCs were incorporated in the first four months, and over 300 VCCs by June 2021. This compares favourably with the initial rate of take-up of similar structures in other geographies such as Europe, especially when taking into account the added complications of Covid.

We have seen many of the early adopters of the last year hold similar characteristics: early stage wealth managers, smaller investment groups and debut funds. In part, this is due to the generous financial incentive which plays a powerful role in the decision-making process for these players: as part of the launch of the VCC, the MAS introduced the VCC Grant Scheme (VCCGS) to encourage adoption and conversions to VCC. This grant covers 70% of eligible expenses (capped at $150,000 per VCC, and up to three VCCs per fund manager) for work done in Singapore in relation to the incorporation/re-domiciliation of the VCC. This includes legal fees, tax advisor fees, regulatory advisory fees towards set up, and consulting fees.

Into late 2020 and certainly in 2021, we have seen the adoption extend to mid and larger asset managers and global players taking up the VCC.

In addition, the speed and simplicity of incorporation is a unique benefit of the VCC which has contributed to this initial success. It takes 14 days (for the most straightforward structure) to 60 days to get approval with the ACRA. The process is accelerated, because, unlike Hong Kong, there is no pre-approval process for at least alternative funds by the regulator. As such, many of the early adopters are those for which speed to market is a key priority.

 

Areas of future focus
Undeniably, Singapore has seen initial success with the launch of the VCC, with the market welcoming the new structure and we expect it to gain further momentum as the market becomes more familiar and comfortable with the regime. We see international funds looking to re-domicile under the VCC to be a key source of future growth.

To build on the initial success of the VCC in the years ahead, the market and regulator will continue their focus and collaboration to attract a diverse range of asset and wealth management niche sectors, to accommodate complex investment strategies and investor pooling concepts. With the VCC framework in place for over a year and half, enhancements are being proposed based on feedback and experiences from the industry that are being reviewed by the regulator. Included in these proposals are an extension of VCC’s utility ranges from family offices to real estate funds.

The structure offers significant flexibility as it can be used to incorporate new funds or re-domicile existing comparable and compatible overseas investment funds

At the end of April 2021, MAS also established the Singapore Funds Industry Group, a new public–private sector partnership to strengthen Singapore’s value proposition as a global full-service asset management and fund domiciliation hub. One of the points of focus under SFIG would be working on enhancing and further developing the VCC framework.

Service providers in Singapore will play a crucial role in supporting funds looking to adopt the VCC structure – ensuring managers have access to the right advice, expertise and operational excellence. For example, experienced service providers are required to navigate the structure, help funds come to market swiftly and efficiently, as well as adhering to and understanding the requirements for the umbrella VCC with respect to corporate secretarial, fund administration, custody, directorship, and audit to name a few.

 

Outlook for the VCC
Singapore has always been an attractive financial hub, with a stable political climate and a proactive regulator which sets a legislative environment to encourage innovation, foster continued growth and provide certainty of its application.

As global investors become more familiar with the VCC, it will emerge as a very strong contender to attract capital flows and further support Singapore’s growing aspirations as a global financial jurisdiction.

Vaccine hoarding inhibits global recovery

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Over a year ago, a vaccine for COVID-19 would have been unthinkable, with many vaccinations taking 10 years to develop. However, in Spring 2021, many wealthy countries’ populations have already had one dose of the vaccine; as of mid-May almost half of the US population (47.6 percent) have had the first dose, and therefore as a country they are well on their way to immunisation.

However, the majority of people who have been offered a vaccine so far are from wealthier countries, due to their governments having the finances to purchase it (see Fig 1). Canada has been found to have the biggest per capita hoard of the eight vaccines currently available, with enough vaccinations for five complete immunisations per citizen (Canada has a population of 38,020,682 as of May 2021). This statistic was found by the People’s Vaccine Alliance, a coalition of organisations campaigning for a ‘people’s vaccine’ for COVID-19.

America and the UK are not too far behind Canada, with four vaccinations and three vaccinations per citizen, respectively. Covax, co-led by Gavi, the Coalition for Epidemic Preparedness Innovations (CEPI), and the World Health Organisation (WHO), was set up with the aim of achieving global access to the COVID-19 vaccine, and this organisation has consequently been at the forefront of encouraging the need to vaccinate everyone, arguing it is for the benefit of all of us.

At a COVID-19 press conference in May, the Director-General of the WHO, Dr Tedros Adhanom Ghebreyesus, told the media that “at present, only 0.3 percent of the vaccine supply is going to low-income countries.” This has been particularly concerning in recent months when witnessing what has been happening in India, to which the WHO has shipped thousands of oxygen concentrators.

However, unfortunately it is not just India in this dire situation; Nepal, Sri Lanka, Vietnam, Cambodia, Thailand and Egypt are also some of the countries that are dealing with spikes in cases and hospitalisations.

It is important to note not all developing countries need the same support from Covax; in Latin America, billionaire Carlos Slim has funded a deal for 150 million doses of the AstraZeneca vaccine.

However, not all countries are as lucky to have this financial backing. In countries such as Nigeria, the officials are battling with both a shortage of supplies, as well as vaccine sceptics, and therefore at present less than one percent of people have had a dose. Currently, 67 countries have made no purchases of the vaccine themselves, and so are wholly reliant on the Covax programme.

 

 

Pledges made
Fortunately, many vaccination companies are already recognising the need to support lower-income countries, and are taking a positive stance on this. One of these is the AstraZeneca Vaccine, developed by the University of Oxford, who have pledged to distribute 64 percent of their vaccines to developing nations. However, according to the People’s Vaccine Alliance, this distribution will at best only reach 18 percent of the world’s population next year, in 2022. The alliance is therefore calling on vaccine makers to share their intellectual property with the WHO’s COVID-19 technology access pool, although in practice, this is difficult and complicated to enforce.

This makes it all the more important for countries and vaccine organisations alike to be reminded of the costs that will come from international linkages that will remain uncoupled while all countries are not vaccinated. Anna Marriott, Oxfam’s Health Policy Manager, told World Finance on behalf of the People’s Vaccine Alliance, that “While vaccine programmes are being rolled out in many countries, there simply aren’t enough for the global population.

The WHO has said we need to vaccinate at least 70 percent of the world to manage coronavirus properly. Yet at the rate we are going, some are predicting this won’t be achieved for five years or more.”

The current slow speed of delivery for vaccine programmes being rolled out globally shows why it is important that richer countries support countries who are less able to get their hands on as many vaccines. Anna expanded on the current difficulties that the People’s Vaccine Alliance are facing at present in their pursuit for availability of vaccines for all, explaining that: “The science, technology and know-how behind the vaccines is protected by patents and intellectual property rules and this allows pharmaceutical companies to block other qualified manufacturers around the world from making the vaccines. All power rests in the hands of the pharmaceutical corporations to make secret deals to the highest bidder, and this means rich countries have been able to buy more than they need, leaving less for others.”

 

In everyone’s interest
The economic benefits of vaccinating all countries, including developing countries, are crystal clear, because countries’ exports cannot fully recover as long as there is weak external demand from the lower-income countries. Similarly, wealthier countries’ imports of goods will be affected for as long as the supplier countries remain unrecovered from the pandemic.

Affordability of the vaccines is a major challenge, and the one that is predominantly standing in the way of lower-income countries

Therefore, it is in the interest of all countries for global society to recover as quickly as possible from the pandemic, with the vaccine currently looking like the sole way of preventing the pandemic from continuing indefinitely. Recent estimates suggest that if disruptions to the vaccination reaching the developing world continue, this could cost up to $9trn to the global economy, with developed countries holding the majority of the responsibility for footing the bill.

Cem Çakmaklı, professor and co-author of the paper The Economic Case for Global Vaccinations: An Epidemiological Model with International Production Networks, highlights this need to work together globally. Çakmaklı told World Finance that “the message of our paper is very simple, yet eye-opening: no one is safe until everyone is safe, and no economy is an island. No country can fully recover until all are recovered, that is, until we have global equitable access to vaccines.”

Affordability of the vaccines is a major challenge, and the one that is predominantly standing in the way of lower-income countries. However, other issues such as the availability of the vaccines is also prevalent, as well as the practicalities of how the different vaccines need to be stored. Licensed vaccines alone are not enough to achieve global immunity and ensure economic stability; they must be priced affordably and produced mass scale.

It is crucial to consider how the vaccine is manufactured, and how it needs to be stored. For example, on paper, the AstraZeneca vaccine looks best suited to lower-income countries, due to it being both less expensive, and requiring storage at fridge temperature, between two to eight degrees Celsius. In contrast, the Pfizer vaccine needs to be stored at minus 70 degrees Celsius.

Johnson & Johnson, which is currently in the testing process, is also looking like a promising contender for these countries. Similarly to AstraZeneca, it only needs to be stored at a refrigerated temperature. The J&J vaccine also has the edge because it will be administered via a single dose, and it is promising that the company have pledged up to 500 million shots of this vaccine to low-income countries, making it more accessible. However, due to manufacturing limits on all of the vaccination programmes, it could take up until 2024 for many low-income countries to obtain enough vaccines for them to be able to fully immunise their populations.

Vaccination companies are trying to find a way around these limits though; the EMA have approved Pfizer’s request to increase their batch sizes and scale up their manufacturing site in Belgium, while Moderna’s product manufacturing site was also approved to have a new filling line in Spain, in order to scale up the process.

Vaccine production faces many ongoing issues, not least because it is new technology, and therefore a lot of the process involves having to start from scratch, and tackling new challenges as and when they arise. It is ultimately highly encouraging that so many companies are already looking into ways around these production issues, in order to get vaccines developed as quickly as possible.

 

Looking to the future
Going forward, we must remain flexible, and open to changes in the vaccine programme, because while we are still not at the end of the pandemic, we do not currently know if the vaccination will be required every year. In addition, with the rise of new variants, there is still uncertainty over how effective the different vaccines will be against these as they emerge. It is also well worth appreciating that without all countries being vaccinated, global travel will not be fully possible or safe.

Permission for the tourism industry to operate at full swing again will in turn significantly aid many economies in their recovery, post pandemic. It is crucial that we all continue to work together globally to deliver the different vaccination programmes to the countries most in need, to ensure that global immunity is achieved universally, and the recovery of the global economy can begin.

Mozambique is walking an LNG tightrope

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Governments in Africa have a penchant for operating in hubris. This has often led to bad decisions. In Mozambique, the discovery of liquefied natural gas (LNG) has sent the government into a frenzy owing to an anticipated gas-related economic boom.

Although production is far from guaranteed, the government has promised to utilise non-existent revenues to settle controversial debts based on future projections of a windfall. Going by central bank estimates, the country is staring at a staggering $96bn bonanza. “Mozambique has already spent some of the anticipated gas revenue windfall, at high interest, and this gas bonanza may now never happen,” says Robert Besseling, risk and intelligence firm Pangea-Risk chief executive. The effect is negotiations for more restructuring due to non-payments and increasing likelihood of sovereign default.

Tragically for Mozambique, LNG is unravelling as a concoction whose main ingredients are hope and despair. Hope in the sense that the discovery of around 150tr cubic feet (tcf) of proven natural gas reserves could propel an economic renaissance for the impoverished Southern Africa nation. Mozambique is one of the world’s poorest countries, with a gross domestic product (GDP) per capita of $500 and with about 45 percent of the country’s 30.8 million people living below the poverty line.

However, the International Monetary Fund (IMF) reckons LNG can be a game changer for the country’s economic transformation in terms of sales, taxes, royalties and dividends. At current LNG prices of $8.50 per million British thermal units, the country can generate $12bn annually by exporting 30 million tons from its three ongoing projects.
The massive revenues will not only help Mozambique tackle the debt conundrum but also bring stability in the fiscal regime and could push GDP growth to double digits. Ripple effects of the gas industry have potential to spur other sectors, effectively lifting many out of poverty.

 

Fuelling conflict
There is despair in the sense that Mozambique is fast joining the league of African nations grappling with a ‘resource curse.’ The onshore LNG project in the Cabo Delgado province being implemented by French multinational Total, at a cost of $20bn, has fallen foul of an Islamic State insurgency uprising that is not only threatening to tear the country apart, but could also fuel an economic burst.

The US-based Armed Conflict Location & Event Data Project (ACLED) estimates that more than 2,600 people have been killed and 700,000 have fled their homes since the insurgency began in 2017. In the latest attack in March–April this year, approximately 30,000 people were forced to flee the town of Palma with dozens reportedly killed by the Islamic State (ISIS)-linked armed group known as Al-Shabab. “The ongoing and intensifying insurgency in Cabo Delgado has undermined the commercial viability of Mozambique’s LNG industry,” notes Besseling. He adds the ‘Battle of Palma’ has ultimately shattered the country’s dream of becoming a major LNG export hub in the near to medium term.

In April, Total issued a force majeure on the project and went on to withdraw personnel from the Afungi site. The move throws the project, one of three LNG projects being implemented in the country and the only one that has achieved significant progress, into jeopardy. Before invoking a force majeure, Total had promised to ship the first LNG cargoes in 2024 from its project whose capacity stands at 13.1 million tons per year.

“The schedule for this project has now slipped significantly,” notes Simon Nicholas, analyst at the Institute for Energy Economics and Financial Analysis. He adds that unless the Mozambique government manages to address the security issue, Total could take the drastic decision of walking away. So far, the government’s promise to set up a 25km perimeter around the Afungi peninsula site by deploying troops has not deterred the attacks. “The renewed violence will cause significant uncertainty, which is no friend to major investments,” he observes.

Total can take a cue from US giant ExxonMobil, which is leading the $30bn Rovuma LNG project. The company is seriously weighing the option of abandoning the project after repeatedly pushing back the signing of the final investment decision for its 15.2 million tons per year project.

This is a sign that its commitment to the project is largely pegged on the unfolding security situation in the country. Besides, other companies that were investing in related projects are abandoning them in droves. Shell, which was planning to build a gas-to-liquids plant, intends to walk away from Mozambique after announcing it will no longer develop a new greenfield GTL plant.

Norwegian chemical company Yara International has also cancelled plans to invest in fertiliser and power plants. “Mozambique LNG production was only ever going to benefit international oil and gas companies, and a few influential Mozambicans,” explains Nicholas. He adds the fact that the majority of the country’s population feels left out from the expected windfall is one of the factors fuelling violence in the northern part of the country. Worse still, the rise in gas-related corruption cases including the $2bn ‘Tuna Bond’ scandal are fuelling belief that the resource will only benefit a select few.

 

An uncertain future
With the future of these two key projects uncertain, Mozambique’s LNG dream remains with an offshore Coral South floating production facility being implemented by Italian company ENI. The project’s progress has been largely untouched by the insurgency and remains on track to begin exports in 2022. It has a capacity of 3.4 million tons per year. “Despite the recent violence, and the setback for Total’s project, the country is still likely to become an LNG exporter in the coming years,” avers Stuart Elliott of S&P Global Platts.

There is some hope that Total’s LNG project is not entirely dead. In fact, the declaration of force majeure was aimed at satisfying creditors in the syndicated financing structure. “The prospect of a resumption of the project remains primarily dependent on an improvement in the security environment, and is not necessarily diminished by a declaration of force majeure,” notes Besseling.

For the consortium of the 28 financial institutions providing $14.9bn debt financing for the project, shielding themselves from anticipated and unforeseen risks was paramount. Despite being a risky venture, the financiers saw an opportunity for huge returns amidst the pressure of environmental, social and governance (ESG) financing. Proponents of sustainability believe natural gas is not going to be a transition fuel between coal and renewable energy. This means financial institutions might soon start opting out of gas projects.

Mozambique has already spent some of the anticipated gas revenue windfall, at high interest, and this gas bonanza may now never happen

“There is certainly an increasing backlash, especially in Europe, against fossil gas and LNG projects. But gas and LNG can still be a bridging fuel toward a low-carbon future,” notes Elliott. Total has in fact promised that its Mozambique project will be cleaner than other projects of its kind. The company is aiming to reduce the carbon intensity of Mozambique LNG to 25kg of CO2 per barrel of oil (boe) equivalent, well below the rate at historic LNG plants whose carbon intensity is 40–50kg of CO2 per boe.

Apart from the environmental promise, the Total LNG project was attractive in many aspects for financial institutions. The project has largely been de-risked because it has binding, long-term sales agreements in place with a number of big industry players. In essence, it has managed to secure long-term offtake agreements amounting to more than 11 million metric tons annually with companies like Shell, France’s EDF, China’s CNOOC, a partnership of the UK’s Centrica and Japan’s Tokyo Gas, and a joint venture between Japan’s JERA and Taiwan’s CPC Corp.

 

The prospect of failure
Failure of the Total LNG project would certainly be a catastrophe for Mozambique. In recent years, the country has experienced devastating economic crises instigated by the $2bn scandal and two tropical cyclones that struck in 2019. COVID-19 has exacerbated the situation. The effect has been real GDP contracting by an estimated 0.5 percent in 2020. This was the first decline in 28 years after growing at 2.2 percent in 2019 according to the African Development Bank. For a country that has witnessed sustained growth averaging 6.5 percent for close to two decades, this was a significant plunge.

With other sectors of the economy struggling, the government was desperately banking on LNG revenues to stabilise the economy and restore the growth trajectory. In particular, the country needs to mobilise resources to repay massive external debts that have ballooned to $14.7bn in 2019 according to the IMF. This has seen Mozambique fall into the category of countries in debt distress. In fact, according to Fitch Solutions, easing of the public debt burden over the longer term is solely dependent on LNG-generated revenues. If the revenues start flowing, the debt to GDP burden is projected to fall to 60.2 percent of GDP in 2029 from 108.2 percent this year.

“All foreign direct investments in Mozambique over the past 10 years have been geared toward eventual gas production and a massive increase in state revenue,” observes Besseling. He adds that going by the current reality, the government and foreign investors must return to the drawing board to ensure that LNG projects remain commercially feasible. This is even more critical due to price volatility and unpredictable market conditions due to oversupply.

Luckily for Mozambique, LNG demand is projected to continue on a growth path. According to McKinsey’s Global Gas Outlook report to 2050, LNG is set for stronger growth as domestic supply in key gas markets will not keep up with demand growth. Demand is expected to grow by 3.4 percent per annum to 2035, with some 100 million metric tons of additional capacity required to meet both demand growth and decline from existing projects. Demand growth will slow distinctly but will still rise by 0.5 percent from 2035 to 2050, with more than 200 million metric tons of new capacity required by 2050.

The fight for workplace equality and inclusion

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Sometimes, it can feel like the aims of the contemporary feminist movement are unduly focused in the cultural realm. While it is undoubtedly important for women to point out where other women are being unfairly depicted in movies, and where newspaper columnists are still furthering outdated stereotypes, there are also a number of more direct steps that can be taken to provide women with financial security, safety and justice.

That appears to be the current view of the UN Capital Development Fund (UNCDF), at least, which on International Women’s Day took the opportunity to outline their approach to promoting financial inclusion and equality for women around the world. The panel discussion that followed their statement was both lively and informative and revealed much about the international agency’s approach to financial inclusion. With a new generation of leaders emerging, what do these different approaches to promoting financial inclusion mean for the future of the feminist movement?

 

Support network
If the UNCDF’s approach to financial empowerment can be summed up in one word, it would be agency. Instead of providing women around the world with direct support, the organisation is largely focused on encouraging governments and corporations, providing them with the tools they need to help themselves. Their work, in other words, is always mediated by national and economic factors.

In some ways, this approach could be criticised for being too indirect. However, as an autonomous organisation with limited ability to make or enforce rules or economic mechanisms, it is somewhat inevitable that even the emerging generation of UN leaders see their mission in this way. And in fact, taking this indirect approach could be more beneficial in the long term.

Or, at least, that is the view of recent reports on promoting financial equality. According to a recent Women and Money report: “Money is the domain of men. Society doesn’t view it as a woman’s role to earn money, or her right to make financial decisions.” This anecdotal claim is also supported by hard numbers. Statistics from the United Nations show that there is a serious digital gap between men and women. For example, women are 35 percent less likely to have access to online services and 12 percent less likely to own a phone than men.

According to the UNCDF, this divide is largely the result of ‘gatekeepers’ barring women from free and equitable access to economic resources. They point out that there are 115 countries where the laws currently do not allow a woman to run her business in the same manner as a man can run his. Equally as concerning, the same report found that there are over 167 nations that have at least one regulation or law that severely restricts economic opportunity for women as well. Further, in many cultures, fathers, brothers, or husbands control finances on behalf of women. In this context, it’s becoming increasingly apparent that gender blindness is not a measure of workplace equality. Rather, instead of treating men and women as though they have the same level of economic agency, we need to actively support women who have been barred from it.

 

Promoting awareness
Granting increased financial and economic agency to women around the world will require a number of distinct strategies. One of these – and one of the most important for the team at the UNCDF – is simply pointing out that there is a problem (see Fig 1). That might sound obvious, but in many places around the world it can be difficult to challenge entrenched gender stereotypes, even for powerful international organisations like the UNCDF. Often it must work through indirect means in order to avoid directly challenging an entrenched – and often predominantly male – hierarchy.

As such, the organisations’ primary mechanism of action for much of the past decade has been to launch educational programmes for women in developing nations. One of the most recent of these, called the ‘Sprint4Women’ competition, allowed different digital finance providers to test out their business models in the field.

These models were then pitched to judges for formal review. Though the outcome of such programmes seems tiny in comparison to the scale of the problem – at first glance, little more than the launch of a new fintech brand – the UNCDF hopes that it will have knock-on effects on the role and power of women around the world. Indeed, they say, one of the reasons why countries have had such varying success in empowering women to take control of their own finances has been because some have overlooked the inherent link between education and empowerment.

 

Safety and security
Alongside the kind of educational programmes the organisation has been convening for more than a decade, the UNCDF is also keen to recognise the value and potential of technology when it comes to promoting financial inclusion for women. The rise of app-based banking and finance might lead to a huge shift in the way that women access and manage their financial lives. If, as the UNCDF points out, many women are barred from greater financial freedom by male gatekeepers, it might be possible for them to circumvent these obstacles by using contemporary technologies to directly access financial support.

There are 115 countries where the laws currently do not allow a woman to run her business in the same manner as a man can run his

There are risks involved with this approach, however. Though banks are shaking up the status quo when it comes to accessing finances, they are still reliant on a fairly outdated model of security. Financial fraud is still a huge problem around the world, and women are more likely to be victims of it than their male counterparts. Arguably tighter security measures are needed for comprehensive money management via smartphone apps. Instead, it may be preferable to allow women in developing countries to contribute to the development of financial mechanisms and technologies.

Only by including women at the macro-economic level are we likely to be able to make a real change in their lives. While such a focus runs counter, in some ways, to the UNCDF’s focus on empowering individual women, it may eventually be unavoidable if we are to realise actual change.

 

The bottom line
Ultimately, the focus on the emerging generation of UNCDF leaders is actually quite a ‘retro’ one. For much of the past 50 years and with the historical impact of the cold war, organisations like the UNCDF have been somewhat trapped by the ideological requirements of their backers. In the 1960s, for instance, it was difficult to point out the direct link between economic and cultural empowerment, because such an argument also lies at the heart of Marxist thought.

Now, it seems that a new generation has more freedom to express their views, and is less tied to the politics that inform them. They are able to simultaneously recognise the importance of corporate diversity and government-backed inclusion programmes. And this pragmatism might, in the end, be the most effective tool we have for empowering women around the world.

The airline that remained resilient during the pandemic

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A relative upstart in the industry, the 17-year-old low-cost carrier opted to push on with an expansion plan while closely watching the pennies. First though, the team led by founder and chief executive József Váradi moved fast to take remedial action. “Wizz Air gave probably the most agile response to the pandemic-related loss of travel possibilities,” he told World Finance. These instant measures included the introduction of a strict hygiene code to keep customers and crew safe. In a confusing regulatory environment, an online travel map was developed so that passengers could keep up to date with official restrictions. And although Wizz Air had little experience in the freight business, it quickly built up a cargo operation to defray losses.

As some European airlines struggled for survival, bleeding billions, management conscientiously managed the bottom line. “Wizz Air continued to focus on strengthening market position and protecting liquidity during the third quarter of 2020 as sustained government restrictions severely obstructed air travel,” Váradi told shareholders in a briefing on performance. Every flight had to pay its way as best it could, or at least not lose too much. “We have a relentless discipline on cost and cash management while maximising cash returns on the flights we operate,” explains Váradi.

The result is that Wizz Air was able to boost per-passenger revenues under the vital measure of available seat kilometres (ASK), despite much lower loads. It was a classic lesson in management for turbulent times. “Wizz Air has ended up the biggest airline in Europe during the summer season with comparatively high load factors,” Váradi continued. “The airline managed to remain a resilient business while most of our peers suffered immediate financial issues.” It certainly helped that Váradi has a master’s degree in economics.

 

Unstoppable growth
Just before the pandemic hit, Wizz Air was on a seemingly unstoppable growth path. Within a decade of its first flight in 2004 – a hop from Katowice to London Luton – the airline had become the largest low-cost carrier in Central and Eastern Europe. In 2015, it was listed on the London Stock Exchange. In 2019, the airline’s 15th birthday, it carried its 200-millionth passenger and in 2020, Wizz Air was the first ever ultra-low cost carrier to be named ‘airline of the year’ by Air Transport World.

The airline was one of the few to provide customers with cash refunds and is emerging relatively unscathed from the chaos. Although ticket revenues in the third quarter collapsed by nearly 80 percent and ancillary revenues by 73 percent, leading inevitably to losses of over €114m, Wizz Air still retains €1.2bn in cash.

As other airlines shrank their operations as fast as they could, Wizz Air persevered with the development of new bases in Oslo, Bari, Catania, Palermo, Milan Malpensa, Rome, Sarajevo, Bourgas, Dortmund, Tirana, Lviv, St. Petersburg, Bacau, Larnaca, Doncaster Sheffield, London Gatwick and Cardiff while doubling the size of its base in Abu Dhabi to four aircraft.

And in a real coup, Wizz Air Abu Dhabi staged its inaugural flight to Athens on January 15, opening up a swathe of new routes. “Despite a distorted playing field, the performance of the new operating bases is in line with expectations,” reports Váradi. “Unlike other airlines, we have remained ambitious and continued to expand our geographical presence over the last year.”

As normality slowly returns, Wizz Air finds itself in a good position as it boosts liquidity simultaneously with tightening its belt. In January 2021 it successfully floated a €500m three-year bond issue on favourable terms that reflects a highly desirable investment-grade credit rating. “Wizz Air is even better positioned to deal with the uncertainties associated with COVID-19,” said the chief executive. “At a rate of 1.35 percent, the bond was issued significantly below the interest costs of competitor airlines.”

Looking ahead, Váradi is broadly optimistic. Feet firmly on the ground, he predicts that 2021 “will be a transition year out of the COVID-19 crisis” and that Wizz Air “will emerge as a structural winner” as passengers return. Wizz Air heads into the rest of 2021 with an updated, environmentally virtuous fleet.

The airline boasts 140 aircraft (see Fig 1) with an average age of 5.4 years, boosted by the addition late last year of five lean-burning Pratt & Whitney-powered Airbus Neos. With a highly flexible network in terms of regions, airports and countries, a robust balance sheet and travel-hungry passengers, Wizz Air is ready to fly. “Looking ahead, only the sky is our limit,” says Váradi.

Akwa Ibom: the making of a Nigerian enterprise State

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Since Nigeria returned to democratic rule in 1999, the Republic has enjoyed enormous progress on account of democratic governance to varying degrees across all tiers of government. In Akwa Ibom State, it has been an admixture of accomplishments and a trailblazing catalogue of milestones in social, economic and political domains. This has made the State a genuine reference for the efficacy of experienced and focused leadership as well as a compelling destination for local and international investors and tourists.

Located in the coastal southern part of the Nigerian federation, Akwa Ibom has a GDP of $11.1bn, which is equal to the GDPs of Rwanda and Seychelles combined, and sits in the comity of Niger Republic, Benin Republic, Equatorial Guinea and several other African nation-states on the GDP index. Akwa Ibom’s historical, geographical, artistic, culinary, ethnographic and archaeological peculiarities make it an indisputably choice destination for business, leisure, cultural, faith and eco tourism. Lately, it has also been a destination for incentive and special interest tourism.

“With nature’s generous endowment, visionary leadership and a repository of smart-working people, Akwa Ibom has all the preconditions to blossom into a self-reliant, self-sufficient and self-sustaining state. The masterful collaboration of these factors is what has evolved the State into a prime destination for an assortment of people, businesses and interests,” Udom Gabriel Emmanuel, governor of Akwa Ibom, told World Finance.

A 2019 McKinsey Report titled ‘Nigeria at a crossroads; getting Nigeria where it belongs’ stated that emerging economies “that have been able to generate growth and raise prosperity, through poverty alleviation and the emergence of a new wave of middle and affluent classes” are regarded as outperformers. The outperforming benchmark touted by McKinsey was reached and surpassed in Akwa Ibom stimulated by tailwinds instigated by an enterprise outlook to administration and governance.

Until Udom Emmanuel assumed office as governor in 2015, the ‘civil-service state’ epithet was the State’s bane. The unfortunate narrative imposed an impropriety that leaned on a flawed understanding of the intricacies at play, and disparaged the myriad implications and losses from such progress-inhibiting dogma.

Compelling desire
From the outset, the mission was founded and still revolves around a compelling desire to transition Akwa Ibom into an inclusive enterprise State, through leveraging enormous material and qualitative human resource endowments to make the State an irresistible component across several value chains and productive partnerships that take into account the country’s inputs, advantages and idiosyncrasies.

Subsequently, the administration adopted a progressive pathway because of its strategic importance in giving orientation and focus to the growth and sustained advancement of the local economy. As a result, upending the appetite for either tagging along or playing catch-up in such a rapidly changing world is a cardinal policy imperative of the Akwa Ibom government. According to Udom, this is based on the realisation that “genuine progress is a function of our collective divergences, our shared identity, common priorities, and values that transcend our differences, amplify our uniqueness and enable us to build workable relationships and partnerships that align effectively and efficiently for all Akwabomites.”

The resolve to transition Akwa Ibom to an enterprise State was captured in a blueprint that offered an amenable roadmap for achieving renaissance along the routes of job creation, wealth creation, poverty alleviation, infrastructural consolidation and expansion and ecopolitical inclusion. Subsequently, upon assumption of office, Udom set up a remodelling committee to engender a social contract and a technical committee on foreign direct investments (FDI) to promote, midwife and enhance the flow of investments into Akwa Ibom.

The result is a horde of firms including the largest syringe manufacturing factory in Africa, an electrical-digital metering solutions manufacturing factory, rice mills, palm oil processing plants and flour mills to mention a few. Added to the volley of strategic partnerships is the emergence of hundreds of businesses and thousands of jobs that, with ripple and multiplier effects, phenomenally impact the livelihoods of Akwabomites and Nigerians.

With a business-inclined disposition and private-sector approach to governance, the governor began by aligning the measure of progress with economic indices and other relevant economic indicators, thereby thrusting his administration on an economic pivot largely bereft of the customary politically dictated metric. “As a first step, rather than establish a political fortress, I opted to build an economic infrastructure that bequeathed socio-economic power and ultimately political inclusion across all strata of the State. The intention was to engender a strong economy that would generate income, elicit productive partnerships, and create opportunities for local and foreign investments into Akwa Ibom,” Udom said.

As a direct outcome of the resulting paradigm shift, governance was re-engineered towards an enterprise orientation model away from the traditional receipt and distribution approach that sustains futile expending and stifles the strategic attitude towards stimulating and managing the smart administration of resources.

Udom and his team leveraged the State’s comparative advantages, the varying signature strengths of its people, to deconstruct and reinvent the approaches to citizenship and doing business in Akwa Ibom. To this end, the government created sets of possibilities for value chain creation in the areas of public sector job enhancement, private sector orientation, sociopolitical inclusiveness, sustainable infrastructure development, and entrepreneurship across sectors including the hospitality, creative, logistics and tourism industries. To propel and sustain the various outcomes therefrom, the State underlaid its unique and intrinsic advantages of excellent people, a peaceful environment and a supportive tradition at the base of all endeavours and engagements across the private and public sectors.

Creating sustainability
Earlier, there were talks about the dreadful implication of almost exclusively relying on a single source receipt status, to develop and make the State sustainable. The governor recalibrated his administration by transitioning the State into a business conglomerate. With thoughts enunciated in declarations like “horticulture must be supported to make a huge contribution to our GDP, logistics is an essential key to the future, knowledge and data are the new oil and our greatest asset is our people,” it was clear that he had his eyes on evolving a State with an enterprise-orientation.

Subsequent to this, Udom and his team chose an industrial policy pathway to deliver on the vision. They opted for that because of its big push approach and its strategic significance in giving gumption to the focus on the growth of the local economy by upending the appetite for exogenously induced growth in favour of internalising productive and positive externalities; a situation akin to import substitution and export promotion strategy.

According to the governor, the State requires development that is created beyond the precinct of subsistence agriculture and statutory allocation. He opined that while horticulture accounts for a great part of employment in the State, with strategic decoupling and increased productivity, its capacity to absorb more members of the population along the various value chains of the sector, from cultivation through processing to packaging are added elixir to the flurry of micro, small and medium enterprises.

An excellent aspect of the State’s industrial policy pathway is the awareness of the possibility of capsuling, which the administration reckons will happen regardless of an industrial policy. To this end, the Udom administration verbalised and practicalised protection and enablement via regulation and monitoring for firms in a manner that espouses genuine interest, unflinching commitment, partnership and collaboration. This is a classic instance of government facilitation with a visible impact on disabling bottlenecks at the infrastructural, policy and regulatory levels.

According to the governor, another aspect of the policy is the “responsive and cooperative ecosystem in the State partly represented by the supportive disposition of the people, peace and security in the State, the visible reduction in transaction costs through enhanced infrastructure and the annihilation of virtually all illegitimate taxes in a further bid to mitigate capsuling and freeing sources and resources.”

Evidently, the uniqueness of the investment environment of this enterprise State is that it also allows for the evolution of capsuling in some very capital-intensive industries that have either comparative advantage, absolute advantage or technological advantage. “This is principally to encourage FDI in some select sectors because in the administration’s understanding, if such flexibilities to secure and develop such sectors are not enthroned and monitored, capital and investments may not feel safe, and as a result, the rent-seeking activity would be inadvertently encouraged,” Udom said.

The inflection point
The ability to connect more deeply at all levels, to sense and stimulate reactions and desired interactions is at the heart of the purpose of the people and the State. In Akwa Ibom it is self-evident that progress is a function of unanimity of purpose, inclusion, harnessing extant diversities as much as it is a culture of shared identity, prioritisation and value enthronement. These values transcend variances, amplify uniqueness and enable the creation of sustainable relationships and partnerships that work together effectively and efficiently in the interest of the State and its citizens.

Udom’s excellent sense of judgement and business integrity was earned from long-term meritorious and untainted service in the corporate world, in which he was among the defining figures. His ambidexterity, as exemplified in the way he balanced autonomy and dependency, and his intrapreneurship fervour, are part of the vast capital and collateral that have helped investors’ confidence.

Rather than establish a political fortress, I opted to build an economic infrastructure that bequeathed socio-economic power

The resulting structure ushered in a feeling of ownership, a sense of urgency, of team spirit and established positive momentum as well as enthroning a supportive culture, all of which blended to checkmate prebendalism, lethargy and malfeasance in public service delivery. Just two years into the administration of governor Udom, the benefits of his enterprise approach to governance were evident. The Q3 report of the Nigerian Bureau of Statistics (NBS), the country’s apex institution for socioeconomic and development statistics, declared Akwa Ibom the second-best state for attracting FDI into Nigeria.

The PPP model
In Akwa Ibom, the functionality of the public private partnerships (PPP) model is palpable. The allure of PPP, which is hugely dependent on the predictability and steadiness of the socioeconomic and political environments of any ecosystem, finds comfort in the State, which is thought to be the most peaceful and accommodating State in Nigeria. The PPP model berthed a steady transformation of the local economy in a way that prioritised value creation, value addition and wealth creation as well as waste management in the context of enterprise orientation. The resultant enterprise State made for a shift to a culture of diversifying the State’s revenue portfolio and in the process bestowing alternative strategies that engendered economic activities that are revenue-generating and that create veritable grounds for taxation. The thoughtful establishment of a structure that nurtures the social, political, economic and institutional actions vital to precipitating the socioeconomic, ecological, and cultural wellbeing of business, governance and non-aligned interests, confirm the emergence of Akwa Ibom as an enterprise State.

Added to this is the secure and peaceful nature of the State. By the admission of the Nigeria Police, Akwa Ibom ranks as the State with the lowest crime index in Nigeria, as was affirmed by the Nigerian Army under the auspices of the General Officer Commanding the 6 Division who described the State as the “safest in Nigeria.”

 

All types of preneurs
In Akwa Ibom, it is commonplace to hear words like, ‘agripreneurs,’ ‘youthpreneurs’ and ‘ICTpreneurs,’ which are suggestive of the enterprise approach of the administration towards public sector governance, private-public-sector collaboration and economic management.

Regarding ‘youthpreneurs,’ Udom said that preparing young people for socioeconomic leadership through a systematic onboarding process is a manifest imperative. “We believe youths are the most dynamic asset of our community and this is evident around the world where youths have been credited for taking some countries to near double-digit growth as net contributors to the economy. Worthy of mention is the Nigerian Entertainment goldmine, which is worth about $10.5bn for which as an administration we are determined to encourage and support our youths to unleash their entrepreneurial and creative talents to tap into.”

In regard to ‘ICTpreneurs,’ Udom said that the main preoccupation of his administration is to create conditions that favour organisations and private individuals to innovate and create. “To this end, we have a focus on attracting investments to nurture talents in the digital industry where our vision is two-fold, consisting of investing in developing skills in areas including coding, application development, embedded programming and data analytics, and afterwards supporting the generation of ideas, and eventually wealth, by creating a hub for digital contents that would include production of digital solutions, animations and new media solutions.”

Preparing young people for socioeconomic leadership through a systematic onboarding process is a manifest imperative

These industries have grown exponentially in the last year, going from revenues of $23.1bn to $115bn and projected to continue growing.
Similarly, the initiative of ‘agripreneurs’ is targeted at farmers in the State to avail the benefits from new ideas, alliances and available incentives. “In this light, we are introducing an integrated agriculture and aquaculture model in addition to building platforms to scale up their engagements and facilitate selling their produce statewide and nationally. The focus here is on ensuring ample food supply, processing, storage and distribution and, equally important, wealth for the farmers,” Udom said.

A common thread that runs across all the ideas and initiatives is the wire and wave of knowledge and technology to make governance easy, accessible, cost-effective and process effective.

There is also ingrained in the system the need to create an ecosystem for fundamental innovation because of its enormous potential to bridge the disparities between socioeconomic groups. Udom elaborated: “I reckon that no object in nature is completely autonomous, and when this realisation of interdependence is applied deliberately and decisively, unity becomes an inevitable output. The kind of output that draws from the uniqueness of individuals and diversities of societies in a collaborative fashion. To this end, to unite with understanding by tolerating and accepting to work together in recognition of the uniqueness of others, and an appreciation of what they contribute to the common interest is non-negotiable.”

 

The Dakkada Tower
The Dakkada Tower

Inclusive politics
The major drivers of the State’s development revolve around supporting inclusive politics, based on transparent and predictable mechanisms that include and engage individuals or social groupings commonly marginalised or wholly excluded from political life as well as fostering resilient societies, chiefly by promoting robust state–society and society–society relations.

In the medical sector, the realisation that progress was limited by a fragmented and disoriented medicare system bereft of a reasonable understanding of the complexities of public healthcare and developments in the modern health care infrastructure and administration were addressed head on. Subsequently, the State struck a healthy balance between world-class technologically enabled medical facilities and best-in-class trained medical personnel to make the sub-sector one of the best in the entire West African sub-region. The intention was foremost to ensure that the medical needs of Akwabomites are met, graduating towards enhancing the facilities and personnel to the extent that Akwa Ibom becomes a destination for medical tourism.

Similarly, the State’s educational infrastructure has been restructured and realigned in favour of developing skills, proficiencies and abilities required across different job types and work settings to address present and future needs of the State and the businesses within its domain. This is based on the knowledge of the changing workplace and an appreciation of the declining influence of oil and gas. This is in addition to encouraging an entrepreneurial mindset for Akwa Ibom citizens, hopefully forging creators of employment opportunities instead of just potential employees.

The State sought and consummated partnerships especially within the private sector with the intent to create and develop sustainable synergies. For instance, the State partnered with all the oil giants operating within its domain and fulfilled part of its commitment by erecting a 20-storey state-of-the-art building to accommodate the oil firms and related institutions to enable the effectiveness and efficiency of their operations. This is complemented by the micro, small and medium scale enterprises framework, which is aligned around sectors that are either directly or indirectly related to services and offerings of these oil sector actors.

It is to the credit of the Udom-led administration that Akwa Ibom is no longer landlocked with the construction of over 2,000km of economic roads, no longer waterlocked with the ongoing work on the Ibom deep seaport project (IDSP) and certainly not airlocked to local air travel. With work nearing completion on the international airport service, the State is indeed emerging into a far-reaching hub in Nigeria and Africa.

All of these projects, in addition to the huge network of economic roads spread strategically around the State, have indeed opened up Akwa Ibom to investor and tourist traffic either by road, water or air and this is poised to elasticise with multiplier effects across markets, sectors and livelihoods.

 

Akwa Ibom International Stadium
Akwa Ibom International Stadium

Major socioeconomic drivers of the state
Complimented by other factors, the model in place in this enterprise State has resulted in a steady transformation of the ecosystem in a manner that prioritises wealth creation, value addition and inclusiveness within the framework of enterprise orientation. And in the words of the chief visioner, “this is one of our deliberate shifts in favour of a system that fuels the requisite social and economic advancements required to foster the participation and well-being of communities as a condition to evolving Akwa Ibom into an inclusive enterprise State,” Udom said.

Akwa Ibom is on its way to achieving absolute advantage in certain spheres from which there will be a lasting legacy

The resulting structure, its accompanying processes and approaches, combine deep insight into the dynamics of governance and administration with collaborations that ensure that through institutionalisation, Akwa Ibom is on its way to achieving absolute advantage in certain spheres, from which there will be a lasting legacy. There are other unrelated but enormously impacting activities in the state for which the governor said, “as a complement to other economic activities in the state, we are deliberate on evolving ‘agripreneurs,’ ‘youthpreneurs,’ ‘ICTpreneurs’ and ‘womenpreneurs’ as major drivers of the State’s overall development trajectory.” There is in place an evolving system that prepares citizens, especially young persons, irrespective of sex and gender, to meet and surmount challenges and achieve their dreams. In the governor’s words, “we are achieving through supporting inclusiveness based on transparent and predictable mechanisms, value creation protocols and by fostering resilient state–to-society and society–to-society relationships, as a first step. Escalating very productive relationships becomes a natural course of action.”

This is promoted through initiatives, involvements and engagements that accentuate social, ethical, emotional, physical and cognitive competencies in a manner that progresses their skills and prepares them for positive and productive impacts, for the short, medium and long term.

“In Akwa Ibom, it is self-evident that none of us is as impacting as all of us and this is from our understanding that in working together for the common good, we benefit Akwa Ibom State, Nigeria, mankind and by extension, ourselves. Herein lies the Akwa Ibomites Faith of Greatness enunciated in our creed,” Governor Udom concluded.

Access Bank is bridging the gap to sustainable expansion

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Since 2002, Access Bank has fully transformed from the lesser-known institution it was, then ranked 65th among 89 banks operating in the country, into a world-class African financial institution. Today, it is one of the three largest banks in Nigeria (in terms of assets, loans, deposits and branch networks), leading the way in at least three of these categories. This feat is due to a robust, long-term approach to client solutions.

Access Bank has leveraged its strength and success in the corporate, personal and business banking platforms after the acquisition of Nigeria’s Intercontinental Bank in 2012 and Diamond Bank in 2019. As part of its growth strategy, Access Bank focuses on mainstreaming sustainable business practices into its operations and strives to deliver sustainable economic growth that is profitable, environmentally responsible, and socially relevant. Through Access Bank, some of the biggest companies in Africa across construction, telecommunications, energy, oil, and gas sectors have recorded significant progress.

To take advantage of the African Continental Free Trade Area agreement (AfCFTA), Access Bank plans to establish its presence in 22 African countries. This will also enable the bank to diversify its earnings and take advantage of growth opportunities in Africa. The string of expansion efforts has commenced across Africa, including Cameroon (operating licence), Kenya (Transnational Bank), Zambia (Cavmont Bank), Botswana (BancABC Botswana), and most recently, South Africa (Grobank Limited).

Banks play a role in transforming their local and regional economies, ultimately making them inclusive, green, digital and sustainable

World Finance spoke to Herbert Wigwe, the CEO at Access Bank, “Our strategic actions in the past 12 months evidenced a strong focus on retail banking and financial inclusion, an African expansion strategy and a drive for scale and its economic benefits. We know there is a significant gap in achieving our vision to be the world’s most respected African bank. As such, we are very focused on closing this gap through strategic and disciplined expansion of our African footprint, leveraging robust technology platforms and exceptional customer service delivery.”

“Our geographical diversity is a core element of our business model, providing opportunities for growth in different economies and enhancing resilience. We have acquired the exceptional capacity to successfully execute mergers and acquisitions with speed and efficiency at minimal risk while delivering value to shareholders. The series of mergers and acquisitions we have undertaken since 2005 all bear testimony to this and have all been value accretive,” Wigwe said.

 

Global payment gateway
Africa has enormous potential with increased opportunities for an African bank such as Access Bank, which is well run, understands compliance, supports trade and has the appropriate technological infrastructure to support payments and remittances without taking incremental risks. The bank focuses on serving as an aggregator in Africa to build a global payment gateway, provide trade finance support and correspondent banking in key markets across the continent.

The retail franchise has also grown over time, contributing almost double to the franchise in four years on the back of a strong focus on consumer lending, payments, remittance, customer acquisition, and digitisation. This is demonstrated in the bank’s position as the largest issuer of Visa cards in Africa and the largest disburser of consumer loans in Nigeria. Access Bank’s retail banking aspiration is for one in every two Nigerians to bank with them by 2022. In 2020, it ranked number one in retail banking income in Nigeria with over N56.1bn ($136m) in fee income from its digital banking platforms and alternative channels. This performance is in keeping with its aspiration to be the number one retail bank by customer base and revenue.

Access Bank recently disclosed a plan to transition into a holding company (HoldCo) structure and has received the ‘approval-in-principle’ from the Central Bank of Nigeria for the restructuring. The HoldCo will consist of subsidiaries in the consumer lending market, the electronic payments industry, and the retail insurance market.

Upon completion of this process, the Access Bank Group will consist of African and international subsidiaries, while the payments subsidiary will leverage the assets of Access Bank. The resilience of Access Bank is reflected in its exceptional growth over the years. This is particularly evident in the bank’s financial performance in 2020 with significant increases in revenue and profitability, despite the challenges posed by the economic crisis triggered by the COVID-19 pandemic.

In the past decade, the bank has grown tremendously not only in its financial performance, but also in its social and environmental prowess. The effectiveness of the bank’s strategy to be the world’s most respected African bank, and indeed, Africa’s gateway to the world, is deeply rooted in its commitment to sustainability.

 

Sustainability credibility
In 2020, Access Bank continued to lead numerous efforts that propel both its sustainability targets and its African gateway strategic drive. The bank was granted a sustainability certification by the European Organisation for Sustainable Development (EOSD), under its Sustainability Standards and Certification Initiative (SSCI), on September 30, 2020, at the World Development Finance Forum (WDDF) in Karlsruhe.

It came as no surprise that Access Bank was the first commercial bank in Africa to achieve this. This certification is a reaffirmation of strong sustainability leadership and it is worth noting that only globally reputable financial institutions are pre-qualified for the SSCI certification program, and they are required to have a demonstrable commitment to sustainability. Access Bank signed up to SSCI in July 2018 as one of the carefully selected financial institutions to pioneer the implementation of the standards.

The institutions involved in the co-creation of the standards represented a broad spectrum of stakeholders in the financial services industry. Over the next 18 months from July 2018, the council met regularly to review the draft sustainability standards, and watch presentations from the applicant financial institutions about their implementation milestones and challenges, and provide feedback.

There are core principles that underpin these sustainability standards. The standards help banks play a role in transforming their local and regional economies, ultimately making them inclusive, green, digital and sustainable. Furthermore, the banks are to pursue profit alongside social responsibility and environmental protection.

The EOSD was also very useful in providing technical guidance to the banks between the in-person meetings before the pandemic hit in Q1 2020. Access Bank was also appointed as a member of the International Council for SSCI and contributed to the all-encompassing framework for holistic sustainability integration, the broad purpose of which is to drive innovation in the organisational culture of financial institutions.

In a congratulatory message, the EOSD affirmed that Access Bank “fulfilled the criteria of the first-ever holistic, robust, and locally-sensitive set of standards to make value-driven financial institutions more resilient and profitable. Financial institutions play crucial roles in implementing national development plans, the UN Sustainable Development Goals and protecting the natural environment in which they operate.”

Wigwe commented on the certification, saying, “Access Bank’s sustainability approach is driven by a desire to impact lives positively now and in the future. We are committed to ensuring community wellbeing and prosperity while fostering sustainable economies across Africa.”

 

Guiding role
Presenting to the diverse audience attending the WDFF before the ceremony for the SSCI certification, Omobolanle Victor-Laniyan, Access Bank’s Head of Sustainability, provided the highlights of the sustainability journey of Access Bank. This included the launch of the Access Bank sustainability strategy 13 years ago and its guiding role in creating the Nigerian Sustainable Banking Principles (NSBP), now a regulatory instrument of the Central Bank of Nigeria (CBN).

Access Bank is also an early adopter or co-creator of many international initiatives for sustainable banking, including the Equator Principles, GRI reporting, UN Global Compact, UN Principles for Responsible Investment, and UN Principles for Responsible Banking. The commitment and performance of Access Bank on sustainability have been reaffirmed unquestionably by its receipt of the Central Bank of Nigeria’s Most Sustainable Bank of the Year Award three years in a row since its inaugural edition in 2017.

Now, more than ever before, global finance inexorably steers towards sustainable finance. The SSCI is a practical tool for transforming banks in terms of organisational purpose and setting measurable high impact goals, which drive institutional governance, culture, and business models. It assists the support of institutional sustainability despite the constant evolution of the financial ecosystem. The Nigerian banking industry sees financial technology firms competing with the incumbent, traditional banks. Hence, all banks must embrace holistic sustainability to thrive in the current climate by renewing their social licence to operate and consider the overall wellbeing of the planet.

As a sustainability-certified organisation under the SSCI programme, Access Bank can uncover and harness new income streams and thrive for the long term in an ever-changing world. Access Bank pledges that it will continue to significantly manage its footprint and propel its customers and stakeholders towards a more sustainable path aligned with the UN Sustainable Development Goals (SDGs) and other global sustainability standards.

Sustainability-linked bonds help put ESG into practice

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Environmental, social and governance (ESG) issues have gained space on the financial market’s agenda. Companies around the world have been reviewing their business models to integrate ESG commitments that go beyond the traditional agenda centred exclusively on shareholder value creation. The value of a company is now viewed on a broader approach – what the company brings to employees, clients, suppliers, investors, governments and to the society as a whole. The name of the game is the admirable profit – harmonising financial results with impact on the society and contribution to future generations.

That is not a new concept, and the acronym is widely known in the market. But why are we only now seeing it everywhere? It all started in Europe as a result of the actions of NGOs and think tanks related to these issues, and then it went to the individuals. Those individuals are also investors, and started to demand that money managers incorporate the broader approach to the investment decisions those make on their behalf.

Times have changed for good and for the benefit of the global society

The pandemic collaborated to expedite the process, given the growing concern about protecting people and the environment. Moreover, ESG aspects also started to be seen as risk factors. How well a company deals with those aspects may determine how economically sustainable the business is going to be in the future. That has a deep impact on valuations and on the analysis by fixed income investors of a company’s capacity to generate cash in the future to repay its debt obligations.

Meanwhile, consumer trends are also changing dramatically, for many reasons that include generational aspects. According to a study by Morgan Stanley, 86 percent of millennials are interested in sustainable investments, and those same individuals are also consumers.

According to a report by BoFA & McKinsey, it is estimated that 60 percent of millennials consume brands with strong social and environmental responsibility. We are dealing with a public that debates consumerism, condemns environmental degradation and increasingly fights for social justice. It is all related and integrated.

 

Good for the world
At Suzano, the world’s leading pulp producer, one of our cultural drivers states that ‘it’s only good for us if it’s good for the world.’ This concept is present in all our initiatives and determines how we practise ESG on a daily basis. We see the growing importance of ESG not only as the right thing to do, but also as a huge business opportunity for a company on the right side of the history, renewable raw materials, biodegradable and recyclable products are part of the solution.

The phenomenon is also present in financing activities. Last year we decided to launch our sustainability-linked bonds (SLBs) and became the second company in the world to go for that structure. The SLBs are debt instruments with the interest rate linked to the achievement of sustainability targets. We issued a total of $1.25bn, priced at Brazil’s lowest interest rate ever for a 10-year issue.

This means that, for the first time ever, investors were willing to accept lower interest rates for an instrument that potentially creates positive externalities (ESG goals). Today, 30 percent of Suzano’s debt is linked to ESG features (SLBs, sustainability linked loans, green bonds). In other words, there is a vast market to be explored, and the demand for these instruments represents one of the potential ways to monetise a robust ESG strategy.

Times have changed for good and for the benefit of the global society. Every company may have a role in that process that is bigger than the achievement of financial results. It is up to every one of us business leaders to find our own way to contribute.

Embracing innovation and opportunity for customers

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Turning 30 feels, to many, like the start of something new. It is a moment to embrace a more mature outlook, to consider the past while looking to the future. This holds true for institutions, just as it does for individuals – or at least that’s the case for Bulgarian institution Postbank, this year celebrating three decades since it was founded.

It’s been a tumultuous 18 months, but Postbank has navigated the challenges of the pandemic thanks to its flexibility, commitment to personalised service and willingness to learn. Drawing on its 30 years in the international banking space, the institution is now looking to the next 30.

World Finance spoke to Petia Dimitrova, CEO and chairperson of the bank’s management board, about embracing digitalisation and supporting Bulgarian entrepreneurship going forwards.

 

In 2021, Postbank celebrated its 30th anniversary. How would you describe the past year?
In 30 years, Postbank has proven itself as one of the most successful banks in Bulgaria, an excellent partner, employer and socially responsible company. We have solidified our position as an institution that customers trust, having spent the last three decades opening up a universe of new opportunities to them.

Thanks to this shared trust we are third in terms of loan portfolio and the fourth largest bank in Bulgaria in terms of assets and deposits, with a market share of over 10 percent. We boast more than 200 branches nationwide and, over the last five years, we have received over 100 awards for our digital innovations and products, as well as for our services and social responsibility policy.

These digital solutions are extremely intuitive, making banking easy, pleasant and fast

The pandemic once again shows us that whatever plans we may make for the future we can never foresee what will happen in reality. Life does not stop – customers need immediate solutions, not ones that take weeks or months. Preparation is essential – we’ve learned that we need to have tailored solutions at the ready so that customers feel they are benefiting from a personal approach.

There is no doubt that now, a year and a half later, trust in the Bulgarian banking system is greater than ever before. All the indications point to the fact that, despite the difficulties we face together, the banking system is and will be an important factor in the post-crisis recovery period. Recent months have shown us that change is possible – in terms of how and where we work, shop, communicate and rest. I hope we can continue to learn lessons from the many examples of positive change we have seen since the pandemic began.

 

The COVID-19 crisis stimulated digitalisation. What special products and services have you offered your customers during this period?
Excellent customer experience remains a priority. Consumers expect and require us to support their plans even faster and via the most convenient channel – the digital one.

Following the increased active use of digital channels by the bank’s customers, the total share of transactions carried out online on an annual basis reached 78 percent at the end of 2020 versus 22 percent carried out in a branch. The growing trend in developing the bank’s digital channels is also confirmed by annual usage data, with the m-Postbank mobile app seeing the most significant increase in use. Over the last year, the number of active users of the app grew by 60 percent and the total number of transactions carried out increased by 50 percent compared to 2019.

 

What trends do you observe in terms of customer requests?
Our clients want a personal approach – they want to have access to their money at any time and in any place, to receive a personally developed offer and to feel special. We strive to know our customers as well as possible and offer them personalised services and products based on their behaviour and preferences.

As digital payment services continue to grow, most providers will be focusing their efforts on instant payments. This is a huge challenge for us all and one we are ready to face thanks to an exciting innovation we recently introduced – our digital wallet. I am certain it will be a new, unique and impeccable experience for customers seeking the best solution for managing their personal finances.

Customers transfer the contents of their physical wallet, digitally, to their mobile phone. They have the opportunity to add all of their cards, and the wide range of functions provides instant active access to their funds, meaning that they can manage them 24/7. These digital solutions are extremely intuitive, making banking easy, pleasant and fast. You save not only time but also money, since the fees for digital transactions are lower.

One of the biggest investments and innovations we’ve launched at Postbank is our digital self-service zones. These are areas within our branches where customers can carry out most of our main banking transactions themselves without having to be registered for online banking.

They simply use a debit or credit card to identify themselves. Digital zones are already functioning in 41 branches across 20 cities nationwide and more locations and service upgrades are yet to be unveiled. Already they are recognised as a preferred alternative to other in-branch services.

 

What lies ahead for Postbank in 2021?
Other than innovative digital products and services, we at Postbank continue focusing our efforts and funds in supporting projects with real added value for society. We believe that one of the greatest benefits we can bring will be building awareness of the need to change life for the better.

For the third year in a row we are participating in the ‘dare to scale’ project – a four-month programme for growth aimed at entrepreneurs and businesses already past their initial development stage and currently focusing on their activities. The programme is organised by the Bulgarian office of the global entrepreneurial network, Endeavor, with Postbank as the main partner.

It is extremely important for us to be part of this process, to support the ambitions of companies seeking to scale up their business and thus change the entire ecosystem. The current moment presents an abundance of challenges but it will be to our benefit if they can help improve our sustainability and nurture our ability to learn and grow.

We at Postbank will share the power of our experience and expertise to support them at the most important stage of their business’s development. By engaging in partnerships like these, we embrace innovation and foster improved opportunities in the ecosystem as a whole. Investment in entrepreneurship is part of the change that keeps us moving forward.

Golden opportunities can be found in Portugal

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Portugal has a long history of bringing the world closer together. The country’s global maritime exploration in the 15th century, mapping the coasts of Africa, Canada, Asia and Brazil, linked continents and cultures as never before. Five hundred years since early explorers set off across the Atlantic, diversity remains a central part of our welcoming culture and unique hospitality. In 2021, the world is closer than it has ever been – and, if the coronavirus pandemic has taught us anything, it is the viability of remote, global living. Portugal’s rich history has made it one of Europe’s top tourist destinations.

Our delicious food, amazing beaches, golf courses and enviable Mediterranean climate attracted almost 28 million visitors to Portugal in 2019 alone. Colourful, thriving cities such as Porto and Lisbon – one of the oldest capital cities in Europe, second only to Athens – complement the rolling green hills of the rural inland, and, of course, the paradise of golden sand and blue sea along our Atlantic coast. So, it’s no surprise that Portugal is home to the World Travel Awards’ best island destination (Madeira), city break destination (Lisbon) and beach destination (the Algarve). The Iberian Peninsula truly has it all.

Despite the pandemic, the Portuguese economy actually grew by around two percent in 2020. Currency stability, high returns on real estate and local investment funds, and the opportunity to diversify portfolios make Portugal a very attractive market for foreign investors. The country has a very affordable cost of living, thought to be almost 30 percent lower than the UK, and between five and 10 percent lower than Spain, and English is widely spoken – around 60 percent of the population is proficient – making for smooth international communication.

 

Portugal’s golden visa programme
The Portuguese residence permit programme, also known as the golden visa, is a scheme that grants investors access to Portuguese residency and citizenship. It is the only scheme that allows foreign investors to claim citizenship for themselves, and their families, without relocation: only 14 days every two years must be spent in Portugal. After five years, investors are eligible to apply for citizenship. Not only does the scheme provide good returns on investment, it also allows investors to secure the future of their families for generations to come.

The Portuguese passport consistently ranks among the most powerful and travel-friendly, granting visa-free access to more than 170 countries. As Portugal is part of the Schengen area, a Portuguese residence permit grants investors freedom of movement from day one, as well as the opportunity to start businesses in 25 other European countries.

In addition, investors when approved on the residency permit programme immediately gain the use of Portugal’s public hospitals at no charge, as well as access to European universities and job markets. Applying for a Portuguese golden visa brings a wealth of opportunity – from exciting business prospects to long-term plans for retirement and the education and career of the next generation – to high-net-worth individuals currently facing the obstacles that come with a weak passport or political instability in their home countries.
Portugal has one of the most accessible residence permit schemes in Europe. The Portuguese golden visa programme invites investors to claim citizenship in fewer years than comparable schemes in Spain (10 years) and Greece (seven years), and without relocation to Portugal. The Portuguese golden visa is fast, flexible – and affordable.

 

Investment options: real estate
The most popular golden visa investment option is real estate. A minimum investment of €280,000 can be put towards properties in remote areas that are over 30 years old and require refurbishment, some offering guaranteed rental income, though they may not provide high capital appreciation. Better returns on investment come from property in one of Portugal’s major cities, such as Lisbon or Porto, where 30-year-old properties in need of refurbishment require a minimum investment of €350,000 to qualify for the golden visa.

These properties are often well-located residential apartments, with the potential for tourist-targeted short rental periods. High demand for this type of property is driving up prices by as much as 10 percent a year. Investors committed to returns on investment are advised to put their money into new properties or off-plan projects in major cities, where capital appreciation can increase by up to 15 percent a year, and rental income can reach five percent a year. The minimum investment required in a property such as this is €500,000.

 

Investment funds route
However, investment funds are also becoming popular as a tax-efficient route that allows diversification of investment, and has been bringing returns of around five percent to seven percent a year. The minimum investment in qualified closed mutual funds is €350,000. This route is for those that normally prefer investing in funds, and are interested in having professional fund managers investing their money and diversifying their investment, in several different projects instead of just one property.

New golden visa investment options
Ninety-eight percent of applicants have been approved through either real estate or investment funds. The Portuguese golden visa programme has no grey areas.

As of January 2022, it will no longer be an option to invest in real estate in main cities and coastal areas for residential purposes. Residential property investment will only qualify investors for a golden visa in inland areas of mainland Portugal and the islands (€500,000 minimum, or €350,000 plus refurbishment). Investors interested in having a residential property around one of the main cities or desirable coastal areas should proceed as quickly as possible, as demand is high.

 

Getting started
PTGoldenVisa is an integrated service provider for foreign investors in Portugal, offering a credible, confidential end-to-end service informed by our expertise in law, economics and international commerce. Our focus on the Portuguese programme sets us apart from other golden visa firms – we are not a marketing department promoting numerous residency programmes, but a team who assist clients for the entire five years till they are granted citizenship.

Portugal has one of the most accessible residence permit schemes in Europe

We are proud to have a 100 percent approval rate on all applications submitted – a testament to our comprehensive local knowledge. Our team will be your guide through everything from investment consultancy, legal support, tax optimisation and representation, to liaising with the Portuguese authorities regarding your residency visa, to offering advice regarding all aspects of your personal and corporate presence in Portugal. Whether you would like to open a bank account or are in need of property management services, you can trust our team to deliver with integrity and professionalism.

Our real estate investment service is itself comprehensive. We are a client-oriented real estate agency providing our investors with the most profitable and adequate investment opportunities that can range from luxury villas – gems of contemporary architecture with private pools in tourist hot spots – to modern apartments in the heart of Lisbon. All of your golden visa consultancy needs will be met, from legal requirements, banking services, tax optimisation and property management. The wide scope of our integrated services is what makes our business different – and special.

 

Global living in the new normal
At PTGoldenVisa, we have done everything in our power to tailor our services to the restrictions of the pandemic – and have been very pleased with the results. Usually operating in offices in both Portugal and Dubai, we have adapted the company structure to allow residency permit applications to be made remotely. We understand how important investment selection is, which is why providing as much information as possible to ensure that our clients feel safe and comfortable in their decision is our priority.

Clients have been able to evaluate potential property investments through detailed videos, 3D presentations, virtual tours, location and financial analysis, and live video streams from the property. For those applying through investment funds, we have co-ordinated liaison with fund managers. We also provide online legal services and can open bank accounts remotely, among many other means of assistance. In 2020, we assisted more than 150 clients successfully while fully remote. The pandemic has driven interest in holiday homes for investors’ use, particularly in the privacy and security that a villa can offer. PTGoldenVisa is assisting with an increase in off-plan luxury villas in the proximity of big cities. Low supply and high demand mean that these projects offer capital appreciation of 15 percent a year.

The COVID-19 pandemic has, above all, brought instability and uncertainty to both the economy and our social lives. More than ever, people are reconsidering the future, and looking at golden visas as a road to safety and security. Our golden visa programme is more popular than ever. Though the tourism industry worldwide has been affected by travel restrictions, the capital appreciation on real estate in Portugal’s cities – 14 percent in the first quarter of 2021 – means that the golden visa programme has remained a safe investment. Great returns, a fantastic culture and future security awaits. Portugal looks forward to welcoming you.

A surge in trading caused by pandemic induced volatility

Posted on by itsupport

During the pandemic, the financial market has become increasingly volatile, and this has consequently escalated so that more people are now becoming involved with financial trading. Georgios Argytakis, executive director of Just2Trade, spoke to World Finance about how his international investment company has managed during the pandemic. He also gives advice on how to choose a broker right for you, and predicts what the future steps will be for Just2Trade’s industry.

 

What is the financial situation that Just2Trade is currently in?
Just2Trade currently has a market leading position in attracting customers from more than 20 countries in Europe and Asia. Our clients have invested more than $400m, and collectively they have more than $50bn in annual trading activity in equity, bonds and derivatives. These figures by themselves speak volumes regarding our current situation, and clearly display our continuing success, despite the pandemic. Just2Trade has continued to comply with strict EU laws regarding protection of client assets and best execution client orders, and we continue to be regulated by supervisory authorities of the European Union. Just2Trade is also a member of the Investor Compensation Fund.

 

What innovations do you have planned for 2021?
Due to COVID-19, the market has become more volatile, and therefore an increasingly large number of people have become involved with financial trading. As a result of this increase, the equities, FX, CFD, cryptocurrency and other markets have experienced a significant uptick in trading activity. In view of the constantly evolving environment, Just2Trade will focus on developing its technological infrastructure and enriching the product range offered to its clients even further.

The recent advances made in technology has allowed investors to trade like experts, and this has therefore offered them the opportunity to access a wider range of financial markets and instruments at even lower costs. There is consequently a strong interest shown from investors for technical investment platforms, and that is where we come in. As a result of the increased interest, Just2Trade is developing new intelligent platforms that use a large amount of data to run predictive models, which come with stock ratings based on technical and fundamental analysis.

More people are seeking out ways of securing their future, so that they are safe regardless of what events occur

Through further development of our current technological infrastructure, and trading platforms, we aim to further reduce our cost structure, and offer even more competitive prices to our clients, so we can support them at an affordable rate. Most of our competitors are hindered by outdated systems with significant gaps in their technology, which only adds to their complexity, increases their cost, and slows down operational stability. Unlike these competitors, Just2Trade has not fallen into this trap. This is because we continue to invest in new technologies and trading platforms, and most importantly, we invest in our staff, all of whom are highly skilled and qualified people.

 

How would you advise someone who is going through the process of choosing a broker?
When going through the process of choosing a broker to work with, there are a few questions that we would advise a prospective investor to ask. These questions would start with asking if the broker in question has a proven track record and a solid market reputation, so you can ensure their reliability and previous success. It is also important for the client to ask if the broker offers the products and services that the client wants, so they can ensure they will get the service they need.

Other questions that we would recommend asking would be whether or not the broker is licensed and regulated, and if yes, are they regulated by reputable financial authorities? Is the broker a member of any kind of investor’s compensation scheme that protects investors in case of broker default?

Lastly, it is important for the client to find out if the broker segregates client assets from its own assets, to ensure that the client money is not at risk in case of default of the broker. If an investor has the answers to these questions, then they will be able to decide which broker is the right one for them and which will provide them with the best service.

 

Has the pandemic changed the way you do business with clients?
The pandemic has not significantly changed the way we do business with our clients. Our staff has continued to provide personal attention to each and every one of our clients, as they did prior to the pandemic. They are always on hand and ready to give them the very best level of support. The quality of our service remains one of the highest in the industry, and our client-centric approach, and core values of continually delivering our high levels of service remain unchanged.

 

How has Just2Trade been affected economically by COVID-19?
As mentioned previously, the pandemic has substantially increased market volatility, prompting a significant number of people to get involved with trading in the international financial markets. This increased market volatility has affected nearly all asset classes, which has consequently increased their risk to return ratio, and thus has made them more attractive. Overall, we think that the impact of the COVID-19 pandemic has been positive to the brokerage industry. However, competition still remains high, and the sole way to succeed is the same as always; to offer the highest quality service at the best price.

 

Why should someone open an investment account with you?
People should open an investment account with Just2Trade because we satisfy even the most demanding of investors, and are keen to support our clients in any way we can. Our company has an unblemished track record, as well as a proven history of doing business in the brokerage market. On top of this, we continue to offer new products and service lines to clients at the most competitive rates out there.

Just2Trade is established within the EU, and is therefore governed by some of the strictest laws in the world with regard to protection of client assets, as well as the best execution of client orders. Just2Trade is also licensed and regulated by the European Securities and Markets Authority (ESMA) and the Cyprus Securities and Exchange Commission (CySEC).

In addition, the company is a member of the Investors Compensation Fund, which compensates investors in the event of default of a member broker, offering our clients the safety and security they deserve. We also hold our clients’ assets separately from our own, and as a result of this safekeeping, client money and securities are never put at risk by any actions that the company takes.

 

How do you see the pandemic impacting the international investment industry?
We believe that the pandemic and the resulting restrictions in people’s movement will urge more people to look for investment opportunities through online brokers. We also think that as a result of the unprecedented times we have had, more people are seeking out ways of securing their future, so that they are safe regardless of what events occur. In addition, the combination of both the increased market volatility in the majority of asset classes, and the higher expected returns, are strong incentives to encourage people who have not previously done so to start trading.