World Finance

Brokers deliver on currencies demand

Posted on January 4, 2011 by

Syria enjoys a geographic position where the three continents meet. Since the time of the Canaanites, through the golden age of the Arabian and Islamic Nation and up until now, Syria has been the centre of trade and transportation by land, sea and air.

Al-Mawardi, who was Treasury Minister then, clarified the role and importance of international commerce. He said, “90 percent of livelihood is in commerce and farming.” Thus, Al-Mawardi called for activating trade that leads to fluctuating money in journeys and transferring it in the countries. He considered this more convenient, more beneficial and more dangerous to the kind people.

A deep reading of Al-Mawardi’s saying about money fluctuation and transference among countries means that the increase in international trade will increase the ties of the social relations among the citizens of those countries and their financial status will improve. That results in developing all the countries and enjoy security and ease to further the relations regarding the social and economic interests. This is reflected in benefit to all people.

Since the end of the 20th Century, the EU has conducted the policy of concentration on services’ economy where the commercial services constitute (85 percent) of the local production.

As though history repeats itself. Despite the period between the two examples being nearly 1000 years, going back to the advantageous policies always increases benefit to people regardless of their colour and gender.
Services’ economy depends on providing service products in several fields such as health, education, tourism, transportation, communication, banking, insurance and banknote markets; besides, knowledge economy that has reached $200bn in the world.

Exchange companies are considered an essential pillar of the finance services sector because they play an important role in meeting the local needs for foreign currencies. They also play a role in activating the monetary course during some seasons by receiving and sending transfers among people fast and honestly.

Consequently, exchange companies are considered the main artery for the individuals and companies as a whole regarding money transfer where their transfers outdo banks’ transfers in this question. This is due to lowering the deducted local exchangers’ fees on transfers compared with the commissions imposed by the banks. These companies are regarded strong competitors for the local banks, and it is expected to add activity to the local market and protect them from monopolies.

Al-Adham Company for Exchange has established its philosophy on building a competitive policy for its prices in the Syrian market whether concerning transferring the currencies or commissions of trading in currencies; besides, delivering the incoming transfers on the day of transferring.

Al-Adham Company for Exchange has been able to gain the trust of local banks by buying the local currency from them and helping them in risk management against the fluctuation of prices of local and international currencies.

Dr Samer Mazhar Kantakji is General Manager of Al-Adham Company for Exchange. For more information Tel: +963 11 2325603

Power for a more sustainable future

Posted on January 4, 2011 by

Established in December 1978 as a state enterprise, Petroleum Authority of Thailand or PTT was formed to conduct petroleum and related businesses. Over two decades later, PTT Public Company Limited (“PTT Plc”) was registered as a company under the Corporatisation Act on October 1 2001 with a capital of 20bn baht ($673m). Currently, PTT Public Company Ltd (PTT) is Thailand’s fully-integrated energy company with leading position in exploration and production, transmission, petrochemical, refining, marketing and trading of petroleum and petrochemical products. PTT is 51 percent directly owned by the Ministry of Finance (MoF), with a further 15 percent held through Vayupak Mutual (government-invested funds).

PTT’s main businesses include procurement, transmission and distribution of natural gas in Thailand through a 3,508km pipeline network, as well as marketing and processing of natural gas through five gas separation plants. The company, through its 65.40 percent-owned subsidiary, PTT Exploration and Production Public Company Ltd., conducts oil and gas exploration and production both domestically and overseas. Most projects are in the Gulf of Thailand, and overseas projects cover Asia Pacific, the Middle East and West Africa.

In addition, PTT is directly engaged in oil marketing and international trading. It also holds interests in five domestic oil refineries, four of which are listed entities. These refineries and PTT’s gas separation plants support petrochemical operations, providing a wide range of liquid and gas-derived petrochemical products.

The success factor of PTT comes from management vision to expand business in relation to the global trend, such as the decision to involve in Petrochemical business, the construction of the new transmission pipeline, debt restructuring for affiliates, merger and acquisition of the affiliates, acquiring RRC refinery, jet and coal business etc. Moreover, the world was recovering from the Asian crisis in 1997, thus, the increase in the demand of Oil and Petrochemical product which led to the increase in petroleum product price. As a result PTT’s Group performance had rapidly grown from THB 386bn in year 2001 to THB 1,586bn in 2009.

Through keeping the core value chain expansion to become a ‘Top Oil and Gas Player,’ E&P business is expanded in and outside Thailand to cover the rising demand while the gas utilisation is developed to enlarge the value addition of gas. Moreover, the bigger pipeline network, both onshore and offshore, LNG receiving terminal, and the distributing pipelines to provide gas for the city are on track. To the downstream business, petrochemical consolidation is accelerated to increase the synergy among the leading companies. With an aspiration to become a global energy conglomerate, PTT has enhanced its value chain through diversification to related businesses such as coal mining overseas, clean energy business, and bio-petrochemical development.

Looking forward to a sustainable future, with the three strategic pillars of High Performance Organisation, Corporate Governance, and Corporate Social Responsibility, by 2020 PTT aspires to be a Fortune Global 100 company with top quartile performance, and to be listed on the Dow Jones Sustainability Index by 2013. Along with the aforementioned business plans for growth, PTT never loses its grip on Corporate Social Responsibility. Environmental protection and preservation of nature have been among the Group’s top priorities. Continuous improvement, benchmarking and monitoring of Green House Gas (GHG) emissions and energy conservation are placed in the latest roadmap for sustainability. More clean, renewable and improved environmental-friendly products are to offer to customers, both at home and overseas. Arguably, PTT is among the main reasons why Thailand has the most advanced biofuel programmes (Gasohol and Biodiesel) in ASEAN, on a commercial scale. PTT’s Research and Technology Institute has also dedicated a good portion of its brains and capital resources to Green and Clean technologies. Recently, a consortium was formed among research institutes, universities and PTT to collectively explore possibilities in CO2 absorption applications and biofuel that can be derived from micro-algae. Improved battery technology research that possibly can enhance the future performance of solar power storage is also ongoing. Meanwhile, PTT’s continual reforestation and forest conservation programmes in rural areas are considered one of the top “carbon-sink” climate change risk mitigations at a national level.

Through PTT efforts, more than one million Rai (approximately 250,000 hectares) of mature forests have been added to the country thus far. Last but not least, the company intends to create and enhance awareness on climate change and energy conservation for the public through designed programmes and campaigns.

Though the company yearns for a number of lofty goals on an international stage – back at home in Thailand – PTT Group simply wishes to personify the “power for sustainable future” for the country and its citizens.

IB competition grows in MENA

Posted on January 4, 2011 by

Among MENA investment banks, Jadwa Investment stands out for achieving strong growth despite challenging market conditions. Launched in 2007, Jadwa has been profitable for each of the last three years, and has grown assets under management by 13 times, from less than $150m in June 2007 to more than $1.9bn in October 2010, at a time when the MSCI Arabian Markets Index dropped by 25 percent. Capitalising on its strong management team and shareholder base, the firm forged ahead during the market turmoil, executing landmark private equity transactions and entering into strategic partnerships with leading players in the asset management industry, including Russell Investments, Investec and CIT UK. Over the same period, Jadwa’s flagship Saudi, GCC and MENA funds have consistently been among the leading performers.

Jadwa Investment is a full service investment bank based in Saudi Arabia’s capital, Riyadh. It offers asset management, advisory, brokerage and research services to institutional, ultra high net worth and high net worth clients in the MENA region. It relies on in-house expertise for managing public and private equities in the MENA region. For international investment products it has a strategic alliance with Russell Investments and also has a tie up with Investec Asset Management for investing in Africa. On the advisory and private equity side, Jadwa executed a first-of-its-kind single asset closed-end fund structure in Saudi Arabia in 2007 when it led a consortium to acquire Exxon Mobil’s 30 percent stake in Luberef, a lubricant refinery 70 percent owned by Saudi Aramco. Realising the potential of Jadwa, Khazanah Nasional, the sovereign wealth fund of Malaysia, bought a 10 percent stake in the company in 2009.

Asset management has been a significant contributor to Jadwa’s success, representing 42 percent of revenues in 2009. Within asset management, Jadwa focuses on equities, both public and private, and real estate. 65 percent of assets under management are invested in public equities, 24 percent in private equity, with the balance in real estate and fixed income.

The key to Jadwa’s success in growing the asset management business lies in the superior performance of its products, combined with superior service. Since their launch in June 2007 to the end of October 2010, Jadwa’s Saudi, GCC and Arab markets equity funds are up 41.3 percent, 24.1 percent and 23.5 percent respectively.

This compares handsomely to performance of the respective benchmarks of up 9.1 percent, down 18.5 percent and down 11.2 percent. Over 50 percent of Jadwa’s assets under management are in the form of discretionary portfolios that are managed in accordance with the risk-return specifications of the client. Fadi Tabbara, Jadwa’s Head of Asset Management and Chief Investment Officer, shares that Jadwa offers multiple strategies for discretionary portfolios ranging from ‘normal’, ‘semi aggressive’ and ‘aggressive’ for public equities to lower risk multi asset strategies. In the last two years, from the start of November 2008 to the end of October 2010, returns on Jadwa’s ‘normal’, ‘semi aggressive’ and ‘aggressive’ strategies have been 52.3 percent, 69.9 percent and 94.6 percent respectively. Over the same period the MSCI GCC Index was down 0.10 percent and the MSCI Arabian Markets Index was up 2.59 percent.

Clients are initially attracted to the performance of Jadwa’s asset management products, but it is the service standards that help in retaining them. According to Mr Tabbara, Jadwa’s aim has been to bring the highest level of professionalism, ethics and service standards to the investment industry in the region. “Our approach was first to hire a qualified team with strong understanding of regional markets and then to foster a culture of high quality service and impeccable professional ethics,” he says. “We keep close contact with our clients; update them regularly on the performance of markets and their portfolios. In difficult times, like Q408, we make it a point to be the first to meet our clients in person and share with them our view of markets. This reassures our clients that their capital is with people who are capable, who care, and who take stewardship very seriously.”

Commenting on the performance of Jadwa’s products, Mr Tabbara says that his aim is for Jadwa’s investment products to rank in the top three of their respective categories. “Consistent good performance is the key to attracting and retaining clients,” he says. “Our equity funds have been within the top three of their respective categories for 2008, 2009 and YTD 2010 periods. We strive to maintain this leadership.” Cornerstone of the investment performance is Jadwa’s robust investment process which derives its strength from an experienced and qualified team. Mr Tabbara takes pride in the fact that his is one of the largest Asset Management teams in the region and has experience of managing investments in the region since 1994. “We believe in investing in people. Even at the peak of the crisis, we didn’t lay off anyone. Currently we are 20 professionals in asset management and looking to expand. Six of us, including all members of the buy side research team, are either CFA charterholders or are awaiting award of charter having passed all three levels of the CFA programme.” On the investment process, he says that it is a dynamic process that takes into account both top-down and bottom-up approaches of investing. “Our portfolio management team is always on the look out for new investment themes and opportunities. Special emphasis is laid on the understanding of economies, markets, sectors and companies that we invest in.”

Jadwa’s investment process and performance of its products also received a nod of approval from Moody’s Investor Service recently, when Jadwa was assigned Investment Management Quality Rating of MQ2. This is the second highest rating on Moody’s scale which is used to evaluate asset management companies globally.

More importantly, this rating is the first of its kind by Moody’s in the Middle East region. Mr Tabbara is proud of this achievement and claims that it raises the bar for him and his team. “We need to continue to perform well to be able to maintain our rating. The rating is a validation of our commitment to employ international best practices in our business.”

Jadwa’s achievements in the first four years of its existence are commendable. Mr Tabbara attributes these to the quality of his team, the support of Jadwa’s senior management and its shareholders, and to the enabling environment provided by the regulator. However, there is still more to come, in his opinion: “I want Jadwa’s asset management to be recognised as the undisputed leader in this business in the MENA region. In order to achieve the status we need to continue to work hard in constantly improving our performance, developing new and innovative products and raising funds.” He also thinks that the region’s markets need to improve: “Our markets are still in the development phase. Investment decisions are generally taken without due analysis as quality research is lacking or limited in most cases. The way forward is to have more institutional participation in the markets and retail money channeled through the institutions. At the institutional level focus should be on further improving analytical skills of employees.”

Jadwa is optimistic regarding MENA region’s growth prospects in the backdrop of continued government spending and strong energy prices. Mr Tabbara also believes that public equities in the region are trading at attractive multiples as compared to historical levels and sees good investment opportunities. “In the medium term we expect some of the regional markets to be elevated from frontier to emerging markets status which would result in fresh flows and improved valuations,” he says. “On a country specific basis, we like Saudi Arabia, Qatar and Egypt. Companies listed on these markets are growing rapidly through aggressive yet calculated expansions. With the global economy turning a corner, we expect both regional and international investors to realise the attractiveness of these companies.” Regulators are also working hard to improve corporate governance, transparency and professional standards, he says.

In the private equity segment, he notices that a number of family owned businesses have re-organised themselves on professional lines. These family owned conglomerates have grown significantly over the last 10-15 years and are ready to move onto the next level. Such businesses offer attractive proposition for private equity investors.

The investment climate in the region appears to be improving and Jadwa looks well positioned to exploit it.

Fadi Tabbara is Jadwa’s Head of Asset Management and Chief Investment Officer

“The Concurso Mercantil Law is not effective”

Posted on January 4, 2011 by

Insolvency in Mexico has been seen like a maze, the seven-heads demon or the economy evil. Insolvency is an effect of financial distress situations, which, in turn, are the effect of economic mistakes or diseases, abuse or greed, whether from the government or private sector or both. At the end, insolvency, most of the time, is a result of human action, rather than an act of God.

Under financial distress situations, it is of essence to be equipped with a modern, orderly, predictable, accountable, efficient and effective legal insolvency system to protect debtors’ and creditors’ rights, to optimise assets and as long as possible preserve jobs and businesses. Mexico through its history has lacked such a system. The current insolvency systems – concurso mercantil for merchants, enacted in 2000, and concurso civil for consumers, enacted in 1932 – have without a doubt failed.

In the systemic financial distress situations of the 20th and 21st centuries, Mexico has been forced to overcome distressed economies through vehicles outside insolvency proceedings. It was the case of the FICORCA in the mid 1980s, and the UCABE, the FOBAPROA and the IPAB in the high 1990s which were, in fact, official rescue programmes, wherein the government assumed the risks. Risks which, in the end, are paid by federal treasury with taxpayer funds. Most individuals, consumers, holding high debts, banking debts, mortgages, credit card debts, and other debts were forced to participate in ruinous restructuring programmes, recognising and acknowledging the full debt, principal plus interest, payable in a longer period. In other instances, financial systemic crises have been faced with the support of the international finance institutions, foreign indebtedness and other countries’ financial support.

21st century upgrade
In the insolvency context, financial distress entrepreneurs and consumers look for reorganisation rather than liquidation or at least a fresh start. Debtors seek bankruptcy protection when available, whether in reorganisation, liquidation or out of court settlement. Insolvency systems should provide for predictable, timely, orderly, efficient and effective bankruptcy protection. Bankruptcy protection benefits the economy and trading chain, even with a fresh start. Major bankruptcy systems in the UK, US, Canada and Japan regulate and provide bankruptcy protection to prevent insolvency not only while under actual economical crisis.

Mexico’s insolvency system lacks effective bankruptcy protection. Mexico has a double insolvency system. Firstly, it is for merchants, namely concurso mercantil, and secondly it is for non-merchants, concurso civil – consumers (both for individuals and legal entities). Concurso mercantil is governed by a federal law, Ley de Concursos Mercantiles (LCM), enacted in May 2000. Concurso civil is an estate regulation, governed by each estate’s civil code, modelled on the Civil Code for the Federal District, enacted 1932. Insolvency petition is not mandatory. In case there is no plan of reorganisation, estate assets shall be liquidated. No concurso mercantil or concurso civil provide for discharge, except with the creditors’ approval. Neither of them provide for dischargeable debts. Under concurso mercantil and concurso civil, the debtor remains liable after liquidation of any deficiency owed to creditors after liquidation and/or distribution. Thus, any creditor may enforce and execute thereafter its rights in the case of a debtor gathering new assets, inheritance or lottery. There is no discharge.

Notice that, surprisingly, there is no record of concurso civil filings in history. There are no official statistics whatsoever of concurso civil. Regarding concurso mercantil, the situation is similar. From 2000 to May 2010, there have been only 444 proceedings in concurso mercantil in total, involuntary and voluntary. Of these 208 (46 percent) have been terminated by settlement, of which only very few were terminated by the plan of reorganisation. This data shows that only a few cases arrive at such a status. These statistics show that debtors and merchants, under financial distress and within an economic crisis like the current one, do not file for concurso mercantil.

Bankruptcy protection as well as time and cost are important for both debtors and creditors. There is an immediate need for an insolvency culture and system in Mexico to eradicate the evident phobia surrounding insolvency.

For the time being, debtors are seeking out-of court reorganisations and settlements. As the financial situation becomes worse and with rescue programmes being insufficient, in 2011 it is expected that there will be an increase in insolvencies and eventual liquidations. In some cases there may be a plan of reorganisation settled by debtors and creditors to overcome a financial distress situation as a transitory vehicle. On the other hand, distressed financial entities may just close their business and runaway by fact (factual liquidation). It is also expected creditor’s foreclosures and judicial executions since concurso mercantil (insolvency) is not mandatory.

In Mexico we have already seen that the concurso mercantil law is not effective. Ley de Concursos Mercantiles strongly needs to be amended. Its structure was modelled in the old Spanish bankruptcy laws of the 18th century.

There is an urgent need for an insolvency system that will effectively provide for the 21st century legal regime and that will help debtors and creditors overcome the financial stress situation, including labour, tax, suppliers of goods, services and finance, merchants and non-merchants, whether large, medium or small. For instance in Mexico, small business (PYMES) and non-merchant (consumer) insolvencies lack all bankruptcy protection.

Another feature of the Mexican insolvency system is that labour creditors and tax creditors (federal, state and municipal) are super priority creditors. Labour and tax creditors do not enter into insolvency. They are enforced, recognised and paid in their special courts, outside of insolvency. When it happens, generally, there is nothing left for other creditors.

Likewise, only post-petition actions, including arbitration, enter insolvency proceedings under the concurso mercantil. Thus, pre-petition action and arbitration do not join the concurso mercantil.

On the other perspective, Sistema de Administracion Tributaria (SAT) data shows that Mexican IRS records 26.3 million active taxpayers – 16.3 million employed, nine million individuals and 831,000 legal entities. Informal sector – not under IMSS (Social Welfare) government control and non-taxpayers – 12,612,617 in April 2009 accounting for 28.3 percent of total employed people.

New approach
21st century insolvency systems encompassing and protecting all debtors and creditors, whether merchants or consumers as well as all creditors, including labour and tax, may help importantly to overcome and reduce significantly the informal sector and non tax payers, based upon the fact that all of them would prefer the insolvency benefits (such as the automatic stay, discharge and tax benefits) under the formal insolvency proceedings.

The new insolvency system shall, inter alia, provide for reorganisation and liquidation in bankruptcy in separate independent proceedings upon petition of creditors or debtor. It should incentivise discharge for a fresh start, when viable. Otherwise it should provide for timely, orderly, efficient and effective liquidation.

Oscos Abogados is drafting a new bill featuring issues for a 21st century insolvency system.

For more information tel +52 (55) 12 53 01 00; email: doscos@oscosabogados.com.mx; www.oscosabogados.com.mx

Brazilian software demand soars

Posted on January 4, 2011 by

Founded 27 years ago in Brazil as a provider of corporate management software for personal computers, TOTVS is now the world’s seventh largest enterprise resource planning company, the first in an emerging country and the absolute leader in Brazil, with a 49.1 percent market share according to Gartner.

Its history of constant, organic growth and efficient market consolidation has been drawing the attention of analysts and investors not only in its home country of Brazil, but also in Europe and the United States.

The company’s history shows a case of true success in mergers and acquisitions. A total of 26 companies were merged into its organisation over the years. Differently from other companies around the world that resorted to mergers and acquisitions as a means to drive growth, TOTVS is not a confederation of companies. TOTVS strives to create a company with a single set of processes and products, under a single brand and distribution structure.

That uniformity enables impressive market results. TOTVS has been growing organically at two-digit rates over the past 10 years, whereas its competitors have been shrinking or achieving barely relevant growth. Ever since its IPO in 2006, TOTVS’s EBITDA margin has expanded 33-fold. The company is one of only 10 listed on the BM&FBovespa Novo Mercado that have sustained higher-than-IPO share prices over time. From its stock market debut to the present day, the company’s share prices have climbed more than 400 percent.

The company’s evolution is justified by its assertive business model. Compared to a soccer strategy, one could say that TOTVS plays with a 4-3-3 team configuration. On defence, the company gains an edge by offering essential products. Nowadays, no company is able to initiate operations without water, electricity, a phone, and business management software.

The second point of defence that contributes towards constant growth is the low penetration currently seen in the company’s targeted market. According to Gartner estimates, only seven percent of Brazil’s 468,000 small and medium companies use management software to assist them with their processes. In Brazil, TOTVS holds 65.6 percent market share in the SMB segment, according to Gartner.

The third point has to do with competition: there are no other companies with the same vocation as TOTVS to serve small and medium corporate clients. This gives the company another strong competitive edge.

For the fourth aspect, there are a series of market factors that have been driving demand for management software, such as the mandatory adoption by companies of the Public Digital Bookkeeping System, a set of fiscal and legal requirements applied by the government in order to increase tax-collection efficiency; the 2014 FIFA World Cup, involving 12 Brazilian capital cities; the 2016 Olympics in Rio de Janeiro; and government programmes like the Growth Acceleration Program. All these factors help drive a greater need for new software investments by companies in TOTVS’s targeted market.

The company’s strategy of keeping the organisation in midfield is structured around three solid pillars – distribution, products, and technology.

TOTVS’s wide range of coverage is achievable especially by its exclusive distribution franchising model, which guarantees the required capillarity for the company to be present in all Brazilian states. Created in the 1990s, TOTVS’s distribution system is made up of internal facilities and a chain of franchises responsible for representing the company in the regions where they are installed.

These channels are operated by local entrepreneurs, who not only expedite customer service, but also add region-specific knowledge. There are currently 53 TOTVS distribution centres, including the six offices operated by the company itself. TOTVS also has franchises in Bolivia, Uruguay, Portugal, Angola, Argentina and Paraguay.

The name TOTVS comes from Latin and means all, everyone – an appropriate name for a company that strives to offer solutions and services to companies of all types and sizes. A healthy midfield is assured through annual investments of more than $80m in research and development. That figure places TOTVS among Brazil’s top five R&D investors. The investment is justified because TOTVS always keeps the software it produces up to date. Historically, the company has been assigning more than 11 percent of its net revenue to internal research.

In addition to the technology itself, the investments also focus on trend and innovation studies. Their goal is to discover the best technologies and the most efficient means to use them, anticipating the market’s needs.

That freedom empowers the company to operate in 10 market segments (healthcare, agribusiness, legal, financial services, distribution and logistics, retail, education, construction and projects, manufacturing, and services). Its segmented solutions don’t only automate back office activities; they also provide applications with specific features for each segment.

Intelligence units were created for each segment, with attributions that include preparing operation strategies, developing relations with the market, identifying strategic partnerships, and sharing segment-relevant information and topics.

TOTVS intends to offer increasingly customised software for each client’s field of operation, respecting the particularities and laws applicable to each segment.

That expertise enables TOTVS to assume the position of Administrative Operator, a smart and challenging concept. More than simply providing software, the company focuses on the best business practices, positioning itself as the supplier of a sum of solutions – going beyond software to include consultancy, technology, and added-value services like BPO, infrastructure, education and service desk. TOTVS currently has 27,000 active clients, and its products are present in 23 countries.

It’s also worthy of note that its products are highly flexible, respecting the systems already in place in the client’s infrastructure. All are scalable and custom-tailored to the specific needs of each client. More than 2,000 new features were included in the most recent versions of its solutions. These features were developed to address the demands of markets and clients, new legal requirements, usability and ergonomics, implementation of technological innovations, and integration.

The new line was designed to promote greater integration among the portfolio’s products, expand the solutions’ segmentation, and introduce the concept of collaboration and integration with social media, through by You, a range of tools targeted at web portal development, content management, mobility, and integration technology.

It was all designed so that companies can expand their presence online and transform it into business opportunities. Always ahead of the competition, TOTVS was the first Latin American country to offer software as a service and cloud computing.

To play well in all positions, TOTVS could not neglect its line of “offence” in order to maintain a permanently assertive business operation. By applying a revenue model based on three main software lines: licenses, services (offered both to new and already existing clients), and maintenance (new versions and help desk), TOTVS maintains a healthy, balanced income.

In its most recent balance sheet, for 3Q10, TOTVS reported its 19th consecutive quarter of two-digit growth and broke new records in net revenue, EBITDA margin, licensing rates, and maintenance. To illustrate the company’s potential, licensing rates advanced by 44.5 percent compared to 3Q09, establishing a new record of $56m. Revenue from services climbed 7.6 percent compared to 3Q09, reaching $55m. And in yet another historical record, maintenance revenues totaled $82.4m, outperforming the same quarter in the previous year by 13.7 percent. These results are proof that TOTVS still has a lot of energy left to play the game.

KPMG warn against suspending projects

Posted on January 4, 2011 by

Our experience on project and portfolio management gained at the largest companies of the private and public sector in Greece clearly indicates that they do not. Most organisations experience fragmented change initiatives which are inconsistent, uncoordinated and unlikely, overall, to add value to their business.

Projects are hard – balancing benefits and resources of change initiatives at organisation level is even harder. Organisations may not have difficulty answering questions like “Was project X concluded within the planned timeframe,” or “How much did it cost us,” but it is very difficult to answer questions regarding the alignment of projects to corporate strategy, their financial benefits and ROI, or the reasons behind their failure. Try: What were the reasons for the deviations from the baseline or the budget? What were the measurable benefits we expected from the implementation of our portfolio of projects? Have we gained so far what we expected? How do the selected projects support the accomplishment of the corporate strategic goals? Are we still moving towards the right direction? Or: Do we feel comfortable enough that the selected portfolio will not face huge issues regarding resource usage, schedule or scope conflicts? Are we in a position to get this information early enough in order to take corrective actions?

Looking through the entire lifecycle of portfolio management, from project selection to completion, and transition to operations, the main reasons we encounter behind the failure of organisations to realise the benefits from project execution are:

– Lack of an objective process to support selection of projects that are fully aligned to organisation strategy and goals. One of the common grey areas we encounter in many organisations is related to the steps that lead to a sound, commonly accepted decision to start new endeavours. Individual projects are approved in isolation, without consideration of the bigger picture and their alignment to business strategy, with incomplete business cases and unclear and generic benefits. On the contrary, “internal politics” or the “voice of the powerful” are commonly used practices. The result is an uncoordinated change roadmap and a lack of ability to measure if the company is moving in the right direction.

– Unclear governance framework to manage portfolio implementation and anticipated benefits realisation. In most cases, there is no defined structure to monitor and govern portfolio implementation and to track, realise and measure its benefits. Critical external and internal changes that occur during the implementation of the projects, unexpected challenges that are encountered by the teams (such as limited resources, conflicting priorities, project baseline changes) are not adequately and timely managed by senior management, with negative consequences in the whole portfolio performance.

– Absence of or inconsistent project management practices. The set of supporting processes and tools to manage a project efficiently and effectively are undefined, vague or not rigorously enforced, with direct consequence to the effectiveness of planning and controlling activities. Cost overruns, scope changes, time delays and dissatisfaction are frequent indications of the poorly managed projects we encounter.

– Lack of project management skills, experience and culture. Many organisations struggle to identify and develop competent project managers. In addition, there is an absence of project culture especially in functionally structured organisations, with limited investment in project management education and skills development, and a lack of incentives and rewards for project teams. These issues can directly lead projects to failure or to considerable deviations from their initial goals.

It is our view that companies should not tolerate ineffectiveness in managing their project portfolio especially under current economic circumstances. Clearly stopping or suspending projects is not a solution, as it prevents the organisation from evolving and adapting to rapidly changing new business requirements. Managing the project portfolio in a more effective, efficient and sophisticated manner is the key.

Companies should select effectiveness instead of inaction. They should deal with the challenges of aligning project objectives to business strategy, tracking and measuring benefits and performance especially in today’s increasingly dynamic environment, implementing stronger governance and management discipline across portfolios and projects.

Appropriately and well managed and executed projects at organisation level is the vehicle from strategy to reality.

Efi Katsouli is an IT Advisory Partner at KPMG Greece

Investors prepare for Finland advance

Posted on January 4, 2011 by

A banking crisis is nothing new in Finland following turbulent times in the late 1980s and early 1990s and many believe that this means that Finland is better placed to weather the current financial storm than its European neighbours.

Finland’s market transformation
During the 1980s the rules regarding inward investment and the outward flow of capital from Finland to other investment jurisdictions were liberalised, making it easier to invest in and borrow from abroad. The restrictions concerning foreign ownership of assets in Finland were abolished in the early 1990s. Nowadays Finland is an EU member with an open, free market economy with almost no barriers to foreign ownership and investments.

The development of the legislative and regulatory framework governing state and private financial institutions have significant similarities with many of the problems faced and responses proposed by many other
jurisdictions in the current global financial turmoil.

Black Monday to the Finnish bank crisis
As with the other major indices around the world, Black Monday in October 1987 wreaked havoc in the Finnish stock market. The Helsinki Stock Exchange index (then the HEX, now called the OMX) fell by a record 10 percent in one day, resulting in serious liquidity issues both for listed and non-listed companies. The single most serious situation was faced by Kansa, an S&P AA rated Finnish insurance company, which had guaranteed US-originated municipal bond programmes up to a value of $2.2bn via US insurance and finance group Clarendon. The funds were invested in shares and high yield or “junk” bonds. Clarendon’s subsidiary Atlantic Capital was the largest investor in the junk bond market created by Michael Milken, a name very well known at the time. The money invested in junk bonds was in turn used to finance, among other transactions, takeovers by corporate raiders. Finnish banks were at risk through stand-by letters of credit issued as collateral for Kansa’s reinsurance liabilities. When the scheme ran into serious trouble the risk was finally run-down without losses through a bail-out operation and the takeover of Clarendon by Kansa. By Finnish standards, both the level of risk and the size of the rescue operation required to negate it was unprecedented.

While Black Monday was a significant event for the Finnish economy, the crisis that gripped Finnish banks from 1991 onwards could be said to have been a longer and much more painful event. The crisis arose as a result of several factors which were particular to that period of history. The failure by the Finnish government to impose a proper regulatory framework after the deregulation of banking and financial markets meant that many banks did not have proper internal controls or risk management procedures. Indeed some banks circumvented applicable solvency and capital adequacy requirements by adopting artificial re-evaluation of reserves. The international economic downturn affected Finland’s export markets, and in particular the collapse of the Soviet Union, a major trading partner, had serious consequences for the vast majority of Finnish companies that export their goods and services (even today over 80 percent of Finnish goods are produced for export). When combined with high personal and corporate borrowings in Finland at the start of the 1990s, the result was that Finnish companies could not service their debt, unemployment, a crashed real estate market, speculation against the Finnmark, a high level of corporate and personal bankruptcies and ultimately banks finding themselves in trouble.

So how did the Finnish state respond to the banking crisis given that there was no institutional framework in place at that time which was equipped to deal with such issues? Well, the Finnish government responded with a series of measures that will sound very familiar to many readers given recent events around the financial world.

The Finnish central bank took the lead in organising the takeover of Skop Bank, which was the central institution of a sizeable and long-established savings bank group. Another temporary measure was the injection by the Finnish government of approximately €8bn into the banking sector which the relevant banks had paid back by the end of the decade. Another measure echoing the current day was the special crisis support package provided to the savings bank sector in the form of share capital, loan notes and guarantees. Hence, the state became a direct or indirect shareholder in some of the rescued banks.

Another pragmatic step was the incorporation of a state-owned asset management company (Arsenal Ltd) which had the task of managing all bad assets of the rescued banks. The financing of Arsenal Ltd was guaranteed by the government and allowed the Finnish government to deal with bad assets in a controlled manner. By way of example, a portfolio of property owned by the company was sold off and then leased back to the company in order to limit damage to the market.

Having emerged from its domestic banking crisis, Finland had also diversified its traditional industry focuses. While its forestry and metal industries remain strong today, it became a leading player in the telecoms and IT sectors. The phenomenal growth of Nokia during the 1990s led to a generation of executives and engineers being trained in both advanced technologies and business skills leading to a boom in these sectors – which remain strong to the present day. These new sectors were affected by the bursting of the dot.com bubble in 2000, but through the ‘V-shaped’ recovery in 2002 and 2003, the companies that survived the difficult period emerged from it stronger, more experienced and more competitive.

Finland’s economy today
In comparison with the major economies, Finland remains in a stable condition; there is a feeling that Finland is likely to escape the worst of the current turbulence, albeit not entirely. The solvency of all the Finnish banks exceeds the statutory requirement of eight percent and the Finnish corporate world is not unduly over-leveraged. With a renewed sense of caution and internal risk procedures being significantly tightened following the crisis of the 1990s, Finnish banks do not have the exposure to those instruments which have caused such issues for their European and US counterparts.

Perhaps most importantly, most of the factors present at the start of the 1990s are not present in Finland today: a proper regulatory environment has been in place for around 15 years – the Finnish Financial Supervision Authority was established in 1993, in the aftermath of the banking crisis; the economy is not as reliant on individual countries as export partners and the Russian market is both more affluent and less significant in terms of its relative importance as an export destination; and Finnish companies operate across a greater range of sectors.

However, Finland is not out of the (ubiquitous) woods yet. It cannot be ignored that Finland remains heavily reliant on its export markets continuing to place orders in sufficient numbers and the extent to which its export markets withstand the current financial turbulence will have a strong bearing on Finland’s own economic prosperity. To an extent Finland may be punished for global problems not of its own making. It can only try to soften the effects by adopting measures to encourage domestic demand and to prevent the credit market from freezing. However, in a small export driven country, any efforts to maintain domestic demand and to ensure the availability of domestic financing will only go so far in alleviating the situation. Falling asset prices and diminishing market demand for companies also create significant risks. It may be that Finland goes into and comes out of recession some time behind the major economies to which it exports. In addition, as a member of the eurozone since January 2002, the performance of the euro across the continent is an extra factor not present in the early 1990s. It should also be noted that while corporate borrowing has decreased since the banking crisis, household borrowing has significantly increased. Finally, the OMX in Helsinki has dropped by approximately 34 percent from mid-August to mid-November, which further illustrates the impact of the current crisis on the Finnish market.

That said, Finland would appear to be in a lot better financial shape to face a recession today than it was two decades ago. A statement to which Finland’s Finance Minister, Jyrki Katainen would be most likely to subscribe. In the Financial Times 2008 rankings of European Finance Ministers, Mr Katainen was rated as the first and best in Europe. The ranking was based on economic, political and stability tests with Mr Katainen being named as the star of a financially stable country. Let’s hope Mr Katainen is able to maintain his, and Finland’s, reputation for the foreseeable future.

Kalevi Tervanen is Head of Procopé & Hornborg’s Transactions and Financing Group. For more information tel: +358 456 575 758; email: kalevi.tervanen@procope.fi; www.procope.com

Italy unburdens cross border tax

Posted on January 4, 2011 by

In layman’s terms, transfer pricing is all about the price at which goods or services are sold between different companies within an international group of companies. It is important for the authorities to monitor a company’s setting of transfer prices as in some instances businesses can use the system to avoid taxation by manipulating transfer prices to shift profits from one jurisdiction that has a high tax liability to another jurisdiction where the effective rate of tax is lower.

In Italy, the new tax package offers an exemption from tax penalties deriving from transfer pricing adjustments.

To secure the exemption, Italian resident companies with cross-border operations must prepare what is referred to as ‘adequate documentation’ to demonstrate that the prices paid to or charged by fellow group companies outside Italy are set at arm’s length. By arm’s length the tax authorities mean that the group must set prices as though the goods or services were being supplied between two entirely independent companies. Accordingly, the Italian company must be able to show that it is not using these prices to transfer profits from one jurisdiction to another simply in order to obtain a tax advantage by arranging for those profits to be charged at a lower rate of tax.

Francesco Mantegazza, a partner in Pirola Pennuto Zei’s London and financial sector tax division, says “The new transfer pricing rules are not really telling us anything we didn’t know before. There are multi-national groups already well placed to provide the necessary documentation. In this case, the new rules really only require a collecting together of work that is already available and packaging it into the requisite form (possibly translating it into Italian). In some cases local benchmarking may be advisable where world-wide transfer studies may be looking at samples that are not relevant to the Italian market. As a firm we specialise helping these multinational clients to comply with the Italian rules with the minimum of duplication of effort.”

In some other instances, clients are not so well positioned and a significant investment will have to be made in order to prepare the appropriate documentation in support of transfer prices.

The OECD and EU have for some time been producing guidelines on what constitutes ‘adequate documentation.’ For the most part, the new Italian regulations follow these international guidelines, while at the same time inserting a series of detailed requirements specifying the kind of documentation that is required for different types of company and also setting deadlines for the preparation of this documentation.

In order to obtain entitlement to protection from the penalties, taxpayers must notify the authorities on an annual basis of the fact that the taxpayer considers that it holds adequate supporting documentation as prescribed in the regulations. Where notification is made the company will be entitled, assuming the documentation proves to be adequate on a future inspection, to exemption from penalties, in the event of any future transfer pricing adjustment relating to those years.

Part of this documentation is a report of comparable transactions – a study of similar transactions carried out between third parties who deal with each other at arm’s length. The good news for small and medium sized enterprises (SMEs) is that while the transfer pricing documentation generally needs to be prepared for each accounting period, the study of comparable transactions only needs to be made only once every three years.

Transfer pricing and the EU Arbitration Convention
Any discussion on transfer pricing brings to mind the EU Arbitration Convention, a treaty that marks its 20th anniversary this year. The convention aimed to create a procedure for the resolution of disputes between taxpayers and tax authorities where the dispute gives rise to potential double taxation in two member states as a result of an upward adjustment in the profits of a multinational business’s operations in one member state.

The theory behind the Arbitration Convention was simple. Instead of a company disputing the transfer pricing adjustment through the domestic courts, the convention puts the two member state’s tax authorities with an obligation to reach agreement within a two-year time frame and resolve the issue between them. If this was not achieved within the allotted time, the dispute would go before an arbitration panel.

Unfortunately, the convention has been fraught with difficulties of various kinds. Although the treaty includes a provision for a corresponding downward adjustment in profits, because it is merely an agreement and not enforced by EU regulation or directive, it does not create a binding obligation on the member state to eliminate the double taxation. It is a multilateral agreement, more difficult to enforce than a bilateral treaty, and which does not create any direct legal rights for the taxpayer as against the member state.

Many member states, Italy included, have not made any legislative provision for the convention beyond a short law stating that the convention is to have effect generally. Compared to the voluminous guidelines mentioned above explaining the compliance obligations for Italian taxpayers in support of their group transfer pricing policies there is no guidance whatsoever from the tax authorities detailing the procedures to be followed for initiating a claim under the convention. There is no mechanism requiring either the Italian tax authorities or the judiciary to stay local proceedings through the local courts and tax collection service pending the outcome of proceedings under the convention. Taxpayers on receipt of an assessment must make an immediate decision whether to settle and pay up or appeal (and pay part of the tax claimed “on account”). What is clear is that once an Italian court has made a final decision in relation to a particular case, any decision under the Arbitration Convention cannot take effect. Thus taxpayers find themselves in a kind of double jeopardy situation, either having to give up domestic proceedings in the hope that arbitration will work or proceed on the domestic front thereby giving up all rights under the Convention.

A harmonised tax regime for Pan-European companies
Another of the measures in the Summer Tax Package aimed at encouraging inward investment consists of the opportunity for companies resident in an EU Member State other than Italy to elect to apply, to their Italian operations, the tax regulations in force in their member state of origin instead of the Italian ones.

The idea behind the legislation stems from EU proposals for enabling SMEs to use their Home State tax regime, thereby reducing the costs for these taxpayers of tax and accounting compliance in all jurisdictions in which they operate. The premise is that whereas SMEs play an important role in the economic development of the EU, nonetheless they play a much smaller role in terms of trade between member states compared to larger organisations, principally as a result of difficult and prohibitive fiscal regimes. In turn, this results in economic inefficiencies and a reduced potential for economic growth and job creation.

According to this concept, the profits of a group of companies active in more than one member state would be calculated according to the rules of just one company tax system, namely that system employed in the Home State of the parent company or head office of the group. Therefore, an SME wishing to expand its operations to other member states would be able to use the tax rules with which it is already familiar. In an ideal Europe, all companies – and especially SMEs – who do not have the resources to cope with the vast array of tax and accounting regimes across member states should be able to prepare accounts and corporate income tax returns in one state and then divide up the profit between the states in which they operate according to some easily defined ratio, such as turnover or headcount.

The concept of Home State taxation is a very promising way of tackling the tax issues associated with cross-border trade. The EU is currently considering testing the concept in member states with similar tax systems.

One anticipated stumbling block to a roll-out of this system, however, would be in convincing member states to subscribe to a centralised system whereby an EU institution might take an active role in their tax policy.

The new proposed regime for Italy requires further legislation before it can take effect and it is debatable whether the Italian authorities will continue their pioneering approach on this front or whether they will wait for similar regulations to take effect in other member states or even a further push from the European Commission.

There is fundamental tension in the EU between member states’ tax sovereignty and harmonisation. Allowing member states to keep close control over tax policies leads to tax competition, with taxpayers shopping between EU jurisdictions to get the best treatment. Ireland, Luxembourg and to a lesser extent the Netherlands and Portugal all offer low tax regimes which have been the subject of what other member states might perceive as abuse, while the EU institutions see it as the result of a simple exercise of freedom of choice.

Pirola Pennuto Zei is very well qualified to assist these clients in all areas of analysis necessary to perform a transfer pricing study and properly document the policies adopted.

It is a pity that there are not more exemptions for small and medium sized companies, especially those with operations exclusively within the EU where there is very little risk of manipulation of transfer prices purely for tax reasons. For small companies and start-ups these new transfer pricing rules may impose a significant burden. The Italian authorities, like many other European tax authorities, are set on protecting their national revenue streams regardless of whether in doing so they are creating issues of double taxation in another Member State.

Simplification and harmonisation
All of the measures mentioned above will be welcomed by anyone conducting cross border activities either into or out of Italy. Although the transfer pricing rules at first sight may appear to create an extra compliance burden for businesses, the rules really only bring Italian legislation into line with legal requirements in other EU countries and are a step towards a harmonised best practice according to international guidelines. The Home State taxation rules may initially seem a little vague and open to interpretation, but they do represent a positive and confident move by the Italian authorities to help reduce the compliance burden for businesses with cross-border operations. Much more work needs to be done though in order to remove the tax barriers to business in the EU.

Colin Jamieson is a partner at Pirola Pennuto Zei & Associati, working in their London and Milan offices

Tullow Oil in Uganda

Posted on January 4, 2011 by

The discovery of black gold in 2006 by Anglo-Irish Tullow Oil, in the Lake Albert Basin on the border with the Democratic Republic of Congo, has already started to transform the fortunes of the impoverished East African country – even before the first barrel of oil has been pumped from the ground.

The wave of small-cap pioneers led by Tullow has now been followed by many of the big players, as the Western oil majors along with China, France, Norway, Libya, south Africa and even Iran have piled in behind them hoping to snap up a piece of the East African hydrocarbons boom before all the exploration acreage and development contracts have been sewn up.

For a country whose history is still scarred by the memory of Idi Amin and Milton Obote, the 500,000 people who died in state-sponsored violence during their brutal dictatorships, and the years of civil war and turmoil that followed until Yoweri Musevenei emerged as president in 1986, the transformation has taken place in the blink of an eye.

A decade ago, Uganda’s economic outlook did not extend much beyond how much coffee, tea, fish and timber it could export. While the landlocked country has enjoyed relative stability for two decades, most of its 33 million people have been condemned to live on less than two dollars a day. Now, billions of petrodollars are about to flow in.

By global standards, Uganda’s oil endowment, like that of Ghana’s to the west, is very modest. One, maybe two billion barrels. Lake Albert production is expected to begin at very low levels sometime in 2011. But it could rise to 350,000 barrels a day by 2015, and stay there for the estimated 15-year life of the field.

The World Bank calculates that the Lake Albert find could bring the government about $20bn dollars in new revenues over the next two decades. But that is likely to be a gross under-estimate. Tullow has now drilled some 30 wells, from Kingfisher 1 in the south, to Buffalo 1 in the north. All but one of the Tullow wells have encountered oil and/or gas.

Moreover, there are nine exploration blocks stretching from the Sudanese border in the north to Lake Albert in the west, and on to Lake George in the south. Less than a third of the licensed areas have so far been explored. The prospects for further finds along the East African Rift Valley system – which also extends into Kenya, Sudan and Ethiopia – are considerable. Uganda’s overall oil endowment might be two, three or more times current estimates. The former humble coffee grower is about to enter the ranks of the world’s top 50 oil producers.

If the rest of the world will take time to adjust to the idea of the impoverished former British colony becoming a significant oil exporter, so too will Ugandans. The discovery of oil has triggered an uncomfortable mixture of excitement and trepidation as the prospects of rapid economic growth, development and jobs on the one hand, are balanced by the challenges of managing vast capital inflows without an explosion in graft, conflict and environmental damage that have led other “resource-rich” countries down the road to perdition on the other.

Dispute
A first taste of what lies on the horizon came in July this year when Heritage Oil, Tullow’s joint venture partner, sold its stake in the Lake Albert fund to Tullow for $1.45bn. The Uganda Revenue Authority demanded $404m from Heritage in unpaid capital gains tax. But Heritage insisted that the tax claim was bogus.

Uganda had threatened to withdraw Tullow’s licence to one of the blocks until the tax bill was paid. Such a move would have prevented Tullow selling on a one third share each of the Lake Albert find to the China National Overseas Oil Corporation (CNOOC), and Total of France.

The three joint venture partners will have to raise an estimated $8-10bn to develop the field, and bring the oil to market. That funding effort could not even begin until the Heritage tax dispute was resolved, and the license to all the Lake Albert blocks are confirmed.

Tullow and Uganda resolved the dispute in October after Tullow agreed to cough up. However, Uganda, stung by allegations that its tax law was flawed, and embarrassing claims that its tax authorities were just trying it on in an effort to bridge a shortfall in tax receipts, announced its intention to compel foreign firms to pay capital gains tax on the sale of exploration rights to third parties.

A new Income Tax (Amendment) Bill 2010, which will not be applied retroactively, will in future ensure that foreign firms cannot escape their tax liabilities. It will also grant the Ugandan Revenue Authority powers to conduct impromptu tax audits on all oil firms to verify tax compliance. Kampala may have been caught off guard by Heritage’s nimble corporate tax lawyers, but it is learning the rules of the game very fast indeed.

With the dust from the tax dispute finally settling, Uganda must now turn its attention to how it intends to exploit the Lake Albert find, how it is going to transport the oil to Africa’s Indian Ocean coast, and how it intends to spend its pending mountain of petrodollars.

Kampala appears to have taken a decision in principle already to build its own mini oil refinery to extract high value diesel, kerosene and gasoline from Lake Albert’s heavy black oil. Uganda currently imports about 13,000 barrels per day of refined products – mostly from the Kenyan refinery at Mombassa.

A Ugandan refinery to service its domestic needs, which would cost about $1bn to build, could save it about $1bn a year in imports, and prevent any reoccurrence of the interruption in supply that followed Kenya’s 2007-08 post-election violence, where shipments of refined products dwindled to a trickle, bringing the Ugandan economy to a standstill.

The mini refinery would consume only a fraction of Lake Albert’s production, so the government must still decide on whether to build a bigger refinery to export refined products to regional and international markets, build a pipeline across Kenya to the Indian Ocean coast to transship refined products, or just export crude oil.

Kenya, already facing the prospect of the loss of a key importer of its refined products, hopes Kampala will opt for the pipeline. It has already proposed the construction of a new $22bn port at Lamu for the new trade route to Southern Sudan and Ethiopia – the existing port of Mombassa has already exceeded its design capacity – which could also serve as an exit point for Ugandan crude oil or refined products.

As the money from the new oil exports starts to pour in, the Ugandan government – which for decades has struggled to find the money to build new power stations, road and rail networks, schools and hospitals and agricultural development programmes – will soon find it has far more hard cash than it is able to spend.

Preventing large-scale waste and theft will be a formidable undertaking.

Pressure is already growing to ensure that a portion of the new oil wealth is kept in a stability fund to protect the government’s new revenue streams from the fluctuations of the economic cycle. Demand is also increasing for the creation of Uganda’s own sovereign wealth fund – a so-called future generations fund – where a portion of the oil revenues would be sequestered for investment in world stock markets, which would generate additional revenue streams to help bolster the budget and boost future spending on infrastructure and education long after the oil has gone.

Nature’s largesse will not solve all of Uganda’s problems. The rebel Lord’s Resistance Army, the messianic cult whose massacres and mutilations have blighted the lives of millions across a swath of the north, has yet to be extinguished. The twin bombings that took place in Kampala in July, killing 70, that were carried out by Somalia’s al-Shabaab Islamic militants in retaliation for Uganda’s support of the African Union’s attempts to help bring peace to the troubled Horn of Africa region, signaled an alarming regionalisation of Somalia’s chaos.

President Museveni is now seeking a third term, amid growing international concerns of a drift towards authoritarianism. Nature’s bounty may be mismanaged, as it has been in countless other African countries blessed – or cursed, depending on your point of view – with resource wealth. Nevertheless, there is a prospect, and a good one, that the past errors of others will not be replicated. The future for ordinary Ugandans may now offer considerably more than the prospect of two dollars a day.

Master of the harbour

Posted on January 4, 2011 by

Henrik Poulsen
Age:
43
Education:
M.Sc., Finance and Accounting, Aarhus School of Business, Denmark
Career highlights:
2008 President and CEO, TDC A/S
2007 Operating Executive, KKR Capstone
2006 Executive Vice President, LEGO Group

“The telecoms market has limited underlying growth and declining prices,” says Henrik Poulsen. “This is a challenge we share with most of our peers in the European telecoms markets, and a challenge which forces us to focus our efforts; both in terms of reducing cost and complexity and developing our market positions and customer satisfaction.”

Mr Poulsen’s path from a small village in the rural part of Denmark to CEO of a €3.5bn company has taken him past Danish industrial stalwarts, Novo Nordisk and notably LEGO, which he helped turn around during a seven-year stint at the toy legend. Today he faces a similar task at the 130 year-old incumbent telco.

“TDC is a company who, as a monopoly, had a fairly quiet first 110 years, but in the last 20 years has experienced some of the most thorough transformations, with several changes in ownership and introduction of new technologies, at a pace which would leave most businesses breathless,” says Mr Poulsen, running down the list of owners, investments, divestments and technologies since the Danish government decided to privatise TDC in the mid-nineties.

Henrik Poulsen has set high standards for the company. In 2012 TDC is to be the best performing incumbent telecoms company in Europe in terms of profitability, customer satisfaction and employee satisfaction, and progress to this target is already well underway.

Since 2005, TDC has radically changed its strategy. From an expansive strategy with acquisitions of companies across Europe and the Middle East, the Danish telco has divested its entire portfolio of international subsidiaries bar their Nordic companies, lastly with the sale of Swiss mobile provider, Sunrise, to CVC Capital Partners. TDC is now a solely Nordic company with a strong focus on the Danish market and is challenging their incumbent counterparts on the business market in the entire Nordic region. After the sale of Sunrise, TDC is a company with €3.5bn in yearly revenues and a little over 11,000 employees.

“Back in 2005, TDC management saw that there were limited synergies in our portfolio of European companies, and began divesting. In the same period we have improved our EBITDA margin from 28 to 41 percent, so something tells me that it was the right move,” says Mr Poulsen. In 2008 he took over from the Swiss Jens Alder, and had a clear agenda from his first day: “We had to come closer to our customers, understand their needs even better, and reinforce our innovation and marketing,” Mr Poulsen says. “We also had to maintain a strong focus on efficiency improvements and strengthening of our operational processes. And I am happy to say that we have made significant progress – although we are far from finished.”

Take responsibility for the customer
At the heart of Henrik Poulsen’s work are improved customer relations. In a market where the competition is among the fiercest, the customer is not only king, but ruler of the entire universe. TDC has therefore initialised a company wide programme ranging all the way from the CEO to the sales force, with continuous focus and tracking of the customer experience on a weekly basis.

“Getting data and knowing how the customers are responding to our performance on a weekly basis gives us the opportunity to improve and correct mistakes and malfunctioning processes quickly. It raises the heartbeat of the entire organisation and improves our clock speed in the decision making,” Mr Poulsen explains.

And it seems to be working. Fifteen months into the programme TDC has improved a massive six points on the European Customer Satisfaction Index. An almost unprecedented improvement, but the work is far from completed, Henrik Poulsen stresses: “I don’t think you are ever finished improving your customer relations or the processes in a company. It is a continuous journey, which we have just embarked upon. But with the progress we have made in a relatively short space of time, I am confident that we will reach the high targets we set for ourselves.”

Infrastructure as TDC’s legacy
As the incumbent in Denmark, TDC is essentially an infrastructure company built on copper and fibre cables with mobile masts on top, explains Henrik Poulsen. “This is our legacy and our roots,” he emphasises, not without pride, and highlights the epitaph to their 2012 ambition: to remain the backbone of a world class Danish communication society – a point which is underscored by several consecutive top three placings for Denmark in the OECD rankings of the world’s leading communication societies.

TDC will invest well over €3bn in the Danish communication infrastructure across all technologies towards 2020. “We roll out fibre, increase our mobile coverage and implement new and faster technologies. We do this because it’s absolutely necessary to be able to compete in today’s market, and because we are proud of our position as the main provider of communication solutions to the Danish people and businesses.” Henrik Poulsen stays close to the processes, and from time to time spends a day in the trenches with the technicians in the field repairing broken lines and installing new equipment for customers.

That also gives a great insight into the heart of the company, which through its extensive network today offers some of the most sophisticated Triple Play solutions (TV, broadband and telephony) in Europe. And through TDC’s cable TV subsidiary, YouSee, customers can experience cutting edge digital TV and on demand solutions on this platform.

Multi-brand strategy
While TDC has divested on the international scene, the company has been acquiring companies in the Danish market and concurrently positioned a multi-brand portfolio, which offers the company the opportunity to address customers at all technologies in all segments: from no-frills mobile telephony with M1 and low-price broadband with Fullrate, to the premium brand TDC. This strategy invariably results in customers shopping around between different TDC brands, but that is a risk Mr Poulsen is willing to run: “I will rather have some friction between our different brands than open up space for competitors in the market,” he says.

Adaptive employees are key
TDC’s journey from government-owned monopoly to player in a highly competitive market has obviously impacted the employees who have been through massive changes in terms of performance expectations, organisation and culture. While increasing efficiency, all managers have been held personally responsible for employee satisfaction in their part of the business. And it has been possible to improve both efficiency and satisfaction at the same time.

“We have asked a lot of our employees in the previous years, and will continue to do so in the years to come. We have a highly capable, motivated and extremely accountable organisation which demonstrates execution excellence when it comes to delivering in accordance to the strategy. We can only stay strong in this business if we are able to adapt quickly to match the speed with which the technological development accelerates and accordingly meet the needs and expectations of our customers,”says Mr Poulsen.

Corporate responsibility
This ability to change is also reflected in the company’s approach to corporate responsibility. From being a traditional benefactor of charitable causes, the company has changed its approach to incorporate the competencies of its employees in the partnerships formed with NGOs and the projects invested in.

A good example of this approach is found in the partnership TDC formed with the Danish Red Cross in the beginning of 2009. Here TDC offers know-how and resources to the Danish Red Cross, which is one of three world centres under the international Red Cross responsible for communication and IT in disaster relief areas.

Besides giving Red Cross the necessary financial means to develop their efforts in this area, TDC has sent out employees to help Red Cross in Haiti during the clean-up after the devastating earthquake that hit the impoverished island community in early 2010. This is a partnership which Mr Poulsen is particularly proud of: “When we leverage our expertise to organisations like the Red Cross we do not only do a good deed. We are also showing to the world and to our employees what we as a company are capable of. And we can illustrate to our employees the benefit of their everyday activities to society at large.”

“We used the crisis to optimise”

Posted on January 4, 2011 by

The credit crisis took a wrecking ball to the balance sheets of many global banks. Not Saxo Bank. This feat marked the bank out. This Denmark-based operation now has a hugely expanding geographic footprint and its distinctively outspoken CEO is not shy of challenging the traditional big players – as well as the perceptions of just what and how a bank should operate.

“As a financial institution not really affected by the financial crisis as much as other more traditional banks, we were able to use the crisis to strengthen and optimise our entire value chain,” says Saxo Bank co-founder Lars Seier Christensen, “including broadening our product offering and at the same time expanding our geographic footprint.”

Saxo is undoubtedly shaking things up, as Mr Seier Christensen has no problem admitting. Few banks offer the blend of technological services and local market nous that Saxo can. The number of operators offering a properly integrated range of services – forex, futures, equities, FX options, not to mention ETFs and CFDs – remains limited.

In a nutshell
What is the core of Saxo Bank? It acts mainly as a financial facilitator, says Mr Seier Christensen. “We see our world consisting of three primary segments: Liquidity, facilitation and distribution. At one end of the spectrum, we find liquidity, meaning product providers, such as investment banks, exchanges and others that deliver high quality liquidity that we integrate into the platform.”

By entering into active cooperation with these large financial institutions, Saxo ensures access to a one-stop trade execution, settlement and custody offering. “At the other end of the spectrum is distribution, meaning banks, brokers and other financial institutions that have well established client franchises that they want to provide the best products to.” And in between? “You find Saxo Bank as the facilitator linking the two,” he says.

It’s a clever strategy that’s plainly working. It’s also a strategy that properly anticipates real change and competition within the banking industry. “That means having a lean business model will be crucial,” says Mr Seier Christensen. “Now, companies must be able to develop products and services before the clients realise their need for these. We believe that new and improved distribution channels are important when you want to reach clients before your competitors do. That is three important challenges that we take very seriously – Saxo Bank is well prepared to meet those challenges.”

An online personal world
Increasingly many banking clients are looking for new opportunities, of handling their portfolios, plus more transparency, better products, pricing and services. Saxo Bank offers exactly this. “I think that while Saxo Bank might be a leader when it comes to online trading, another advantage of ours is that we combine technology with personal service,” says Mr Seier Christensen. That is why Saxo Bank will continue to open offices in Asia, Europe and Latin America.

Saxo is also doing much digging to understand precisely what its clients value and why they continuously choose Saxo Bank for their online investing. The latest survey commissioned shows their clients’ perception of quality is more important than the perception of price. “Among the services our clients especially value staff knowledge together with trade services and support, which is surely connected. Well-educated and experienced staff give better trading support. Reputation is very highly valued as well.”

Saxo’s growth story is also reflected here. The number of clients, trades and overall trading volumes continue to rise – and the strong results achieved in the first half year of 2010 are also rooted in actions taken before the onset of the financial crisis in 2008. Saxo has increased efficiency through IT investments, work process rationalisation, and outsourcing while also slashing its headcount by approximately 40 percent from its September 2008 peak. A difficult decision to take – but necessary.

It has also completed 10 acquisitions, all of which have lived up to expectations, claims Mr Seier Christensen. “We have established IT development centres in India and Ukraine in addition to our IT centre in Copenhagen. Moreover, we have launched new products within FX, Equities and Commodities. We have also increased our geographical footprint with new offices in nine countries and expanded the business to also include asset management.”

Is the credit crisis over?
That depends on how you define the credit crisis. The crisis could be seen in terms of the interbank market and bank lending to consumers or companies, says Mr Seier Christensen. “The interbank market has clearly corrected and it is nearly up and running again. There are still banks which have difficulty in getting their short term financing needs done through the interbank market and still use the liquidity windows provided by the central banks.”

However, compared to the almost total meltdown back in 2008‑09, the interbank market has clearly reversed, he thinks. “In terms of lending from banks to consumers or companies, the activity is, unfortunately, only marginally higher and I believe that in a longer timeframe, it is flat.”

In Denmark where Saxo is headquartered, some journalists and politicians had difficulty believing Saxo weathered the crisis so robustly. “Yes, we faced some media scrutiny, also because we stand out as a big growth story and an unusual business model in a small market. Being outspoken, as we are, on the big challenges facing our Scandinavian welfare society in the future, is also not something that endears you to certain participants in the public debate.”

Getting on with it
Meanwhile, business goes on. Equity markets have been rising higher for some time now – partly on expected quantitative easing from the US Federal Reserve and another earnings season that was widely anticipated to show better-than-expected results. The earnings season is now halfway through and the results – at least in the US – are certainly living up to expectations.

“Given the economic development in the US and the lack of prospects for growth most market participants we find it very likely that the FED will launch another round of QE,” says Mr Seier Christensen. And no sooner than Seier Christensen had uttered the words, the Fed acted, pumping in more than $600bn of fresh money; yields on 30-year US Treasury bonds leapt 20 points and the dollar plunged.

“We are more moderate in our expectations than most market participants and according to our view this disappointment would trigger a retracement in equities and, also, risk in general,” counsels Mr Seier Christensen. “At current levels in equities there is little room for a continued rise in prices and we expect that we would face a retracement towards the year end,” he adds.

Rapid spade work
In the background banks continue to rebuild their balance sheets – look at Basel III, for example. Financials have been broadly given a grandfathering period of eight years to implement the new Basel III requirements. But the final version that was released on 12 September is a lot less strict than the first version released in December 2009.

“Traditional banks are still rebuilding their balance sheets and will most likely continue to do this for years,” says Mr Seier Christensen. “The ease of the mark-to-market legislation both in the US and in Europe will help banks and we expect that when this legislation is put back in place, that is when the rebuilding of their balance sheets is done.”

Increased currency movements also bode well for Saxo’s business model. There is now what Mr Seier Christensen describes as “significant movement” in the market. But as with most such movements in the market that brings with it a sharp increase in volatility – and volume. “As with all market participants in times of increased volume, we are indeed seeing more flow; however this is not unique to just Saxo Bank, but rather a function of the overall market environment.”

Either way, it’s good for business and good for Saxo. Assets under management continue to build from €2.8bn to €3.9bn during the first six months of 2010. “Overall, looking back on the last 18 years,” says Mr Seier Christensen, “I am most proud that my business partner Kim Fornais and I created Saxo Bank and became one of the first banks to take real advantage of the internet creating, what I genuinely believe, is the best online trading platform in world.”

Lars Seier Christensen is co-founder of Saxo Bank

Saxo Bank in brief
– A global investment bank specialising in online trading and investment opportunities across all international financial markets.
– Offers practical, professional, sophisticated features allowing retail investors the kind of access only professional and institutional investors enjoyed – until recently.
– A cutting-edge trading platform. Clients simply use Saxo Bank’s technology – no need for major, additional investment.
– A wide range of tools: SaxoTrader, SaxoWebTrader and SaxoMobileTrader, the award-winning, multi-asset online platforms; clients’ trade FX, CFDs, Stocks, Fixed income, Futures, Commodity CFDs, ETFs, Options plus many other derivatives.
– Streaming news, research price alerts, price boards with research and search functions built into them. Approximately 11,000 add-on instruments on its website that any investor can use – a sophisticated yet practical offering.

Morocco plans for legal shift

Posted on January 4, 2011 by

In the past couple of years, the business environment in Morocco has really improved. There is a higher level of international openness, which came out of the general liberalisation process of the Moroccan economy as well as its trade agreements, especially with the US and the EU. These immediately repositioned Morocco in another context economically. However, they have also demanded additional juridical frame working in the way foreign investment is dealt with in Moroccan law. This has brought new challenges and interesting cases to the attention of law pundits. In terms of contracts, for example, a lot of foreign exporters or operators do not want to submit their contracts to be considered uniquely under Moroccan law and the Moroccan Commercial Court. Moroccan operators used to oppose to this, but sometimes there are advantages. Some Moroccan operators understand that in some cases, choosing another country’s law to guide a business deal with a foreign company can sometimes be better than to abide strictly to the Moroccan law. By simply refusing to do business with a foreign company because it means abiding by laws from another country might mean a lost opportunity.

Sometimes by comparing the Moroccan law to other options, local operators can find more advantageous conditions. Of course this abidance by a foreign law system can sometimes bring problems under Moroccan law. This makes arbitration in cases of disagreement very important.

Nowadays, international arbitration has become more and more prevalent. This will sometimes demand an inclusion of internal arbitration laws. When the disagreement is between two Moroccan business operators, they are always under Moroccan law, therefore arbitration procedures are strictly internal. So there has been a lot of advancement in the way business disagreements are resolved in Morocco.

In terms of the general law, the Commerce Law will remain the legal backbone of business in Morocco. But there are still some changes to be made to it. Since the code was implemented ten years ago, several reforms that have been made during that time were not included. The law relating to bankruptcy, for example, has not been upgraded accordingly. Some companies use bankruptcy status to keep operating, even if they cannot pay their employees or their suppliers, and they keep this situation for years. Things are moving now, because the reform process is under way at all levels of the law system. A lot of this is being driven by the increasing economic openness.

The intellectual property laws, for example, are where Morocco has already made progress, simply because the actors that are supposed to assure intellectual property are operational. Customs, for example, is now looking closely at what comes into Morocco, especially if they are branded products where the potential for counterfeit is larger.

Similarly, in terms of competition laws, the Competition Counsel will now be an effective body, acting when there is a breach of competition regulations.

In legal matters, when there is a trial regarding a foreign company operating in Morocco, that entity will be treated equally to a domestic company. The question is when there is a decision taken by a foreign court within another country’s legal framework but that must be enforced in Morocco. Imagining that a certain contract is conceived under the law of a foreign country, an executing procedure will be implemented.

This procedure means that a Moroccan court will equalise this decision and apply it to the Moroccan context.

This local court cannot delve into the decision or re-open the case, especially if there is a legal convention between Morocco and the foreign country. But the Moroccan court will only verify that the decision taken by a foreign court is not against the local law or has an impact on the public order in Morocco. As Morocco opens more and more to the global economy, the country’s legal system is increasingly adapting in order to increase fairness in economic disputes and allow businesses to have a clear operating framework.

One company’s misery, another’s nightmare

Posted on January 4, 2011 by

If any proof were needed that the world economy has not yet fully emerged from recession, then the harsh austerity measures currently being imposed in many countries – and the often less than enthusiastic reaction to these measures of many of the citizens of those countries – clearly signal that the voyage to full recovery will be a stormy one.

Several countries – notably those known by the unfortunate acronym ‘PIIGS’ (Portugal, Ireland, Italy, Greece and Spain) together with the UK and the USA – have attracted much publicity as victims of the recession.

Many of their current fiscal problems can be traced back directly to an over extension of credit and investment in the housing market and a consequent bailing out of the financial sector. But the panic that ensued and the loss of both business and consumer confidence has led to contagion in many other sectors – particularly those that require the financing of expensive purchases, such as autos and consumer durables. Moreover, overseas banks, including those in France and Germany, have incurred a particularly high exposure to both public and private company debts in struggling countries such as Greece.

But it doesn’t end there. A sharp drop in demand in one country has an immediate impact on those other countries reliant on exports to that market. While the German economy appears to be rebounding faster than many of its European neighbours, the massive decline in world demand for its products, especially from the USA and China, and the increased volatility of financial markets resulting from public debt problems in the EU countries already mentioned, threaten to derail Germany’s recovery.

Across the water, the fate of the Mexican economy is so inextricably bound to the fluctuating performance of the US economy that projections for its recovery have been revised downward for the fourth time this year.

The Summer 2010 Atradius Payment Practices Barometer, published by Atradius Credit Insurance N.V., an extensive survey of the domestic and international accounts receivable experiences of around 4,000 businesses in 22 countries found that even those countries that escaped recession, such as China and Poland, have not escaped the impact of the global recession. These along with most other countries have experienced a severe blow to their international trade, as their exports to recession-hit countries have been affected by, at best, late payment, but in many cases, payment default. Though Days Sales Outstanding (DSO) is by no means the only measure of the health of a business’s receivables portfolio, the Payment Practices Barometer found that approximately 19 percent of the businesses surveyed had witnessed a rise in DSO, with Italy averaging the highest DSO at 83 days.

Possibly more important was confirmation of the domino effect that late payments have on businesses further up the supply chain. Many of those surveyed by Atradius had to delay payments to their suppliers as a consequence of their own late receipt of payments. More than half of the respondents to the Payment Practices Barometer reported that they had experienced late payments without prior agreement, while a similar percentage had been asked to extend their payment terms.

Not surprisingly, the survey found a substantial increase in the use of credit management techniques by many businesses, especially the use of ‘dunning’ – the process of methodically communicating with customers to ensure payment – and of regular credit checks on customers.

In fact, it is clear from the overall findings of the Payment Practices Barometer that, while no one credit management tool can guarantee that credit risks will be mitigated, the intelligent and strategic use of a combination of such measures, including the protection afforded by credit insurance, can greatly improve the chances of successful and profitable trade. And, while suppliers should always employ safeguards when offering credit terms, on the evidence of the survey, credit terms remain an essential element of national and international trade.

Simon Groves is a senior manager of corporate communications and marketing at Atradius Credit Insurance NV. The Atradius Payment Practices Barometer can be downloaded from www.atradius.com

Investors eye T’s & C’s

Posted on January 4, 2011 by

If you think you’d like to extend your Turks & Caicos vacation — perhaps permanently —you’ll join the ranks of visitors turned expatriates, who have chosen to do business, retire or enjoy a second home in idyllic surroundings. In the Turks & Caicos Islands (TCI), you’ll enjoy the sea and sand at your front door and a climate of perpetual sunny days, along with a sound infrastructure and steadily growing tourism industry. US currency is the legal tender and there are no exchange controls. And, because of its relationship with the UK, the country is politically stable, with local laws based on English common law and local statutes. Tourism is the country’s economic mainstay and the development of world-class resorts and condominium properties have attracted an ever-increasing number of visitors.

Bolstering the industry is a $70m redevelopment of the Providenciales International Airport, the primary gateway. To be completed in early 2011 is the first phase, which includes lengthening the runway to accommodate more frequent flights from Europe, Asia and South America. The TCI continues to reap awards in the travel industry sector. At the prestigious World Travel Awards 2010, Grace Bay Beach regained the honour of the Caribbean’s Best Beach while Grace Bay Club and Point Grace, two venerable Providenciales resorts, earned, respectively, titles of the Caribbean’s Leading Resort and the Caribbean’s Leading Boutique Hotel. Adding to TCI’s wide range of business/commercial centres is The Regent Village, a new shopping plaza in the heart of Providenciales’ thriving Grace Bay area.

With over 30 well-established shopping, dining, tourism and professional businesses, including 150,000 sq. ft of brand new construction, a state-of-the-art conference centre, a two-storey car park, 24-hour security and CCTV, it earned the 2010 title of “Best Retail Development” in the International Property Awards. The property is developed by the HAB Group, a leading TCI developer since 1983 whose portfolio includes the Turks & Caicos Water Company, Provo Golf and Country Club, and the Villa Renaissance, Regent Grande and Vellagio condominium resorts. The Islands’ long-established financial services sector is characterised by modern offshore legislation and personal, expert service, with a range of sophisticated products – including company structures, trusts, mutual funds and captive insurance and reinsurance companies – useful for investors and corporate and family situations. The industry is supervised by the TCI Financial Services Commission (FSC), designed to encourage growth and maintain integrity in accordance with international accepted practices and standards. The FSC recently launched a new, user-friendly website (www.tcifsc.tc), designed to provide immediate access to information about licensing requirements, Companies Registry and other information.

TCI enjoys duty-free access to Canadian markets under CARIBCAN and privileged access to European Union markets. TCI is an Associate member of CARICOM, and is eligible for designation as a beneficiary country under the Caribbean Basin Initiative (CBI) of the US.

Attracting quality investments that create a sustainable economy is a major objective of the TCI Government’s “Open Arms” investment policy. TCInvest (www.tcinvest.tc) is an independent agency which provides a vital bridge between investor and government with a “single window” approach that streamlines the way forward.

They are your first stop to submit a proposed project, look for ideas and plot the way forward.

No matter what your future holds, you’ll find TCI’s infrastructure, including two new, modern medical centres, a stable electricity and water supply, and superb telecommunications options, of a high standard for the Caribbean.

For more information tel: 649 946 2058 / 649 941 8465; email: info@tcinvest.tc; www.tcinvest.tc

Abu Dhabi targets high-tech future

Posted on January 4, 2011 by

Double-dip recession or not, global consumers are retaining a crush on their personal electronic goods and super-smart mobile devices.

Even in tough economic times, the confluence of advances in computing, communications, mobile handsets, digital content and growing worldwide adoption of the internet is fueling new purchases and creating a mobile revolution.

Not surprisingly, this consumption is becoming more Asia-centric. While China’s gross domestic product constitutes roughly 60 percent of the GDP of the United States, China already consumes more electronics than the US, attributable to China’s large middle-class of 400 million citizens.

Powering each of these electronic devices is a semiconductor chip, the “brain” that manages performance of each electronic good – whether it’s a laptop, mobile phone, or even your new washing machine or automobile.
Semiconductors are synonymous with innovation and productivity. Over the past 50 years, the semiconductor industry has transformed our way of life through intense innovation. We have leapfrogged from the invention of mainframe computers in the 1960s to the ubiquity of personal computers in the 1980s to the internet in the 1990s.

Now the mobile revolution is at hand: over one billion units sold with another nine billion on the way, all connected over wireless broadband links to millions of data servers via the ‘cloud,’ delivering content and services anytime, anywhere. With increasing precision, speed and performance, semiconductors underpin this new mobile revolution.

In 2008, Abu Dhabi decided to make a substantial investment in semiconductor manufacturing. It is one of the most technologically complex and sophisticated industries on earth. Over two billion transistors can fit on a microchip the size of your fingernail. No other industry on earth doubles its productivity with little additional cost to consumers. Imagine an automobile coming to market using half the gasoline, giving you twice the mileage, with increased speed at a lower cost – every two years.

The industry is actually a good fit for the Emirate: semiconductor companies require large amounts of capital to compete; a long-term perspective is necessary to ride out the volatility of the industry; and semiconductor manufacturing requires energy intensity. It is high in labour productivity and knowledge.

It is also as global as an industry can get. If you look at Taiwan, Singapore or high-tech clusters like Saxony in Germany or Silicon Valley, you can see what an advanced technology network of talent and technology can do to create job growth and stimulate economic transformation.

Two years ago, Abu Dhabi’s leadership published its “Economic Vision 2030,” a roadmap meant to chart a course toward diversification of the Emirate’s economy away from such a strong emphasis on oil and gas into a more knowledge-driven economy. The objective is to focus on a truly sustainable future by enhancing competitiveness and enlarging the enterprise base. Key sectors, such as aviation, technology and health care, will help drive this economic transformation. An investment in semiconductor manufacturing is fully in line with Abu Dhabi’s 2030 vision to diversify its economy over the next two decades.

So far, the Advanced Technology Investment Company of Abu Dhabi has committed over $10bn to our portfolio company, GLOBALFOUNDRIES, rapidly making it one of the largest semiconductor manufacturing companies on earth. We began this journey through a joint venture with AMD to acquire that company’s former manufacturing facilities in Dresden, Germany, in October 2008.

One year later, ATIC acquired 100 percent of Chartered Semiconductor of Singapore, which at the time was the third-largest semiconductor manufacturing company on earth. On January 13, 2010, the new, unified GLOBALFOUNDRIES went to market, serving customers both in mainstream semiconductor technologies and at the “leading-edge.”

GLOBALFOUNDRIES now serves over 150 customers with its seven existing fabrication facilities. In addition to factories in Singapore and Dresden, a new facility will begin producing wafers in upstate New York, in Saratoga County, in 2012.

ATIC is now working toward creation of an advanced technology ecosystem in Abu Dhabi. But you cannot create a vibrant technology cluster in Abu Dhabi without investing in research and development. You need the collaboration of academic institutions and internationally recognised research entities to bring this innovation to life. We need new students, teachers and academia to collaborate on innovation. That is what has worked so well in other parts of the world.

The Emirate’s educational agency has unveiled a new higher education strategy which is aligned with the needs of key industrial clusters that fuel this research and development vision. The goals are a) to raise the quality of Abu Dhabi’s higher education to international levels; b) to align education with Abu Dhabi’s economic, social and cultural needs; c) to build and maintain a research ecosystem to drive an innovation-based economy; and d) to make education affordable.

By 2018, the annual spend on this strategy will be over $1bn, much of it directed at R&D. This will elevate Abu Dhabi’s R&D expenditure to around 0.75 percent of GDP, approaching advanced world levels which range from 1.5 percent of GDP to just over four percent of GDP.

This will not only be essential to semiconductors and advanced technology, but will drive innovation in aerospace, health care, and renewable energy, among other key pillars of the 2030 diversification strategy.

ATIC is also working with key international research institutions to forge a path for sophisticated R&D innovation on the ground in the Emirate. We recently hosted representatives from the world’s most respected research institutions, in conjunction with the Semiconductor Research Corporation and the US National Science Foundation, to discuss the major research challenges facing the semiconductor industry. We have established a long-term partnership with SRC to help us formulate a comprehensive research framework. There is significant enthusiasm for the journey ahead and how Abu Dhabi can play a key role in the industry’s future research and development efforts.

The next generation of Emiratis will also be critical to Abu Dhabi’s success. It is all part of an effort to upgrade “human capital” here in the Emirate. Some 90 Emirati university students have spent time working in Dresden, Germany, the last two years to gain hands-on experience in one of the world’s most sophisticated wafer manufacturing facilities, GLOBALFOUNDRIES’ “Fab 1.” They are part of a new generation of engineers who, along with students gaining Master’s and PhD’s in Microelectronics at leading institutions around the globe, will lay the groundwork for our future technology ecosystem.

ATIC recently hosted over 250 technology executives at its Semiconductor Vision Summit in Abu Dhabi. Some of the most prestigious company brands in the industry were represented, including Intel, AMD, H-P, Twitter, GLOBALFOUNDRIES, Qualcomm and Broadcom. The dialogue ranged from the limits of increasingly smaller technology to new consumer trends, and how both will affect future economic growth in the Middle East and globally. The participants reinforced the importance of thinking globally, and how we envision the future of technology development. No one can deny that our economic prosperity is getting more globally interlinked.

That is why ATIC is passionate about advanced technology. One day, for instance, the device in your hand might have components in it that are designed in the US, developed and manufactured in Abu Dhabi, assembled in Singapore, and packaged in China. The global nature of the industry is why ATIC decided not to simply build a single facility immediately in Abu Dhabi, but to create and improve a global network of innovation, talent and technology to serve customers and partners in this industry for generations to come. We have a long journey ahead of us, but we are investing in the critical components to make this ecosystem a reality.

Ibrahim Ajami is CEO of the Advanced Technology Investment Company