Author: itsupport

The legacy of the original Davos man

Posted on by itsupport

Every year, thousands of the world’s foremost leaders and business elite trek to the snow-capped mountains of Switzerland. In the Alpine town of Davos, geopolitical issues are hashed out, economic priorities are outlined and revolutionary technologies are debated on the global stage. The World Economic Forum’s (WEF) annual meeting each January is a must-attend event for anyone who’s anyone in the corporate world.

Synonymous with the event itself is engineer and economist Klaus Schwab, its 86-year-old founder. The not-for-profit organisation, created in 1971, was based around Schwab’s vision for socially responsible management, or stakeholder capitalism. This idea, which he became an evangelist for, posits that businesses should serve not only their shareholders but all of their stakeholders, including employees, suppliers and the community. This more inclusive form of capitalism has acted as a guiding principle for the WEF.

As the forum’s influence has grown over the decades, it has become a seismic event on the corporate calendar, with Schwab persuading leaders in conflict to come to the table, encouraging lively debates on emerging technologies like artificial intelligence (AI) and even tempting sceptics of globalisation, like former US president Donald Trump, to make appearances. “The World Economic Forum Schwab founded has become a vital platform for navigating the complexities of the future,” Zafar Jamati from Stone Junction, a STEM-focused press agency, told World Finance.

But in May, the WEF announced Schwab would step down from his duties as executive chairman after more than 50 years steering the organisation. At the time of publication, the forum had not revealed who would succeed Schwab, but a deadline was set to complete the change in leadership before the next Davos gathering in January 2025. Schwab’s move comes at a time when many industry commentators are questioning the relevance of the annual spectacle that is Davos. Will his departure further fuel the fire behind those who are calling its future into question, or will a successor provide a necessary breath of fresh air to rejuvenate the WEF for the years to come?

A global forum is created
Born in Ravensburg, Germany, Schwab had an academic focus to his early career, having attended the Swiss Federal Institute of Technology, Zurich; the University of Fribourg and Harvard University, where he graduated with a doctorate in engineering, a doctorate in economics and social sciences and a master’s degree in public administration, respectively. Schwab has been described as an ambitious and energetic man, and indeed, while he is a survivor of prostate cancer, which he was diagnosed with in 2005, he is still known for his penchant for climbing mountains.

The WEF has given a platform to thought leaders on the climate crisis

In his corporate career, Schwab served in top management at Swiss machine building group Escher Wyss, where he successfully managed the company’s restructuring before returning to academia to become a professor of business policy at the University of Geneva in 1972. He had a growing interest in business concepts like stakeholder capitalism, which he explored in his first book, Modern Enterprise Management in Mechanical Engineering, published in 1971. That same year, at age 33, he established the European Management Forum, the precursor to the World Economic Forum and the first two-week conference in Davos. The event, pitched at resetting Europe’s economic future, attracted around 450 participants from 31 countries, including top executives from European companies and professors from business schools in the US. The event gave European business leaders the opportunity to take inspiration from American management practices.

With the WEF, Schwab set out to build a platform where corporate leaders, academics and government officials could meet and collaborate to exchange ideas. “The legacy of Klaus Schwab is to demonstrate the value of a forum where different societal groups – governments, private business, civil society, academics – can come together to debate and solve shared global problems,” Masood Ahmed, president of the Center for Global Development, told World Finance.

Davos, particularly, has historically been a place where novel ideas could capture the imagination. In 1973, Italian industrialist Aurelio Peccei was ahead of his time when he said businesses must “reconcile economic development and environmental constraints.” And what began as a gathering of Western leaders soon forged links with the Middle East, China and beyond.

Key global events have taken centre stage at Davos: the summit saw the first ministerial talks between North and South Korea in 1989, and just a year before that it helped to avert a war between Greece and Turkey. But it is not only politics in the limelight; initiatives to combat AIDS, tuberculosis and malaria got off the ground in the Swiss resort town, and more recently the WEF has given a platform to thought leaders on the climate crisis. Davos has also served as the proving ground for the formation of other influential groups and reports, from the G20, founded in 1998, to the Gender Gap Report, launched in 2005 following a pioneering study on gender equality.

Davos under fire
Nestled in the Swiss Alps, the picturesque town of Davos was chosen as the venue for the WEF’s annual meeting as the mountainous resort represents in Swiss and German culture ‘an escape from the everyday.’ Now, the $390m-a-year business is a mecca for C-suite executives and billionaires, as well as political leaders and philanthropic celebrities.

With a mission statement of ‘improving the state of the world,’ the World Economic Forum has always had lofty goals, so it is perhaps unsurprising that it falls short from time to time. On its own website, the WEF admits to weathering criticism about being ‘a gathering of distant elites’ or ‘a futile talking shop,’ but it holds fast that its aim of gathering a diverse group of people together in conversation, including global business leaders as well as academics, activists, youth and civil society leaders, is essential. “To dismiss ‘talk’ is, in professor Schwab’s words, to discount the lifeblood of democracy,” the forum said on its website.

Yet criticism that the WEF fails to make progress on global issues like climate change and wealth inequality remain. Following the 2024 gathering in Davos – which saw 50,000 people descend on the Alpine ski resort, despite there being just under 3,000 official participants – critics said earnest discussions seen in gatherings past had been replaced by status-chasing attendees and engulfed in countless spin-off meetings and spurious sponsored events.

Davos is “no longer about exchanging ideas or forming opinions: the new Davos has become a platform for spreading ideas and pitching to clients, investors or journalists,” wrote André Loesekrug-Pietri, chair and scientific director at the Joint European Disruptive Initiative, and Joanna Gordon, executive director of the Global Agrifood Tech Alliance, for Sifted, a media brand for European start-ups that is backed by the Financial Times. The sheer number of people now attending the event means “the famous magic of Davos” is gone, replaced by a marketing exercise where “one’s importance is measured by the number of likes or selfies at the countless parties one skims,” they argued. “If you are looking for the place where leaders work together to solve the world’s problems, we now have to find something else,” Loesekrug-Pietri and Gordon concluded.

With limited tickets and exclusive spaces for priority businesses, as well as hefty membership and partnership fees, attending Davos has, undeniably, become a status symbol. The phrase ‘Davos Man’ was coined by Samuel Huntington, a political scientist, in 2004 for “an emerging global superclass” of “gold-collar workers.” In 2022, the phrase was used by Peter Goodman, global economic correspondent for The New York Times in his book Davos Man: How the Billionaires Devoured the World, a scathing critique of the global elite for profiting from inequality, and an indictment of the class of people who Schwab brings together to “improve the state of the world.”

Significant milestone
Elsewhere, there is criticism around the diversity of Davos’ attendees – the ‘Davos Man’ stereotype doesn’t come from nowhere. The 2024 gathering had the highest ever percentage of women participating: of the 3,000 attendees, around 28 percent were women, including 350 heads of state and government ministers, the WEF said. The organisation called this moment a “significant milestone in the 54-year history of the annual meeting,” but many still consider the numbers disappointing.

Schwab’s ideas continue to hold weight in the world of business

What’s more, in addition to these external critiques, the WEF has also been forced to contend with criticism in its own ranks. Much of this has centred on the decades of uncertainty around Schwab’s succession plans. Following on from the annual meeting that took place in 2023, The Guardian reported frustration among a number of current and former WEF staffers.

As a group, they called Schwab “a law unto himself” and said he was “unaccountable to anyone inside and outside the organisation.” Many at the WEF have questioned whether he would ever pass the baton. “It is insane that they don’t have a succession plan to build public confidence around,” one long-time staffer told Politico that same year.

And as frustration swirled, the WEF also had to battle with continuous conspiracies about its founder. In April 2024, just before it was announced Schwab would be stepping down, rumours emerged on social media that he had been admitted to hospital, with some even claiming he was dead. Of course, none of these claims were true, and the WEF reported that Schwab’s health was “excellent.”

A lasting legacy
Despite the criticism of Davos, Schwab’s ideas continue to hold weight in the world of business. The most influential of these is stakeholder capitalism, or the multi-stakeholder approach. While he didn’t coin the term, he, through the WEF, certainly embedded its popularity in the mainstream.

“Stakeholder capitalism is not new, although it has changed names throughout the years – communitarianism, corporate social responsibility model, broader purpose corporation,” Saura Masconale, assistant professor at the University of Arizona and associate director of the Centre for the Philosophy of Freedom, told World Finance. “The terms change but the idea stays the same: corporations have broader social obligations than just maximising shareholder value.”

But something else has changed: Schwab argued in 2021 that while companies and their shareholders have become stronger over time, the power of other stakeholders has weakened. “Today, the stakeholder concept is ready for a comeback, albeit in an updated, more comprehensive form,” he said. Masconale, an expert in environmental, social and governance (ESG) standards, agreed.

“Today, stakeholder capitalism is largely driven by only one class of stakeholders – the shareholders, who have never been as empowered, largely because of the reconcentration of equity ownership in the hands of a few large fund families,” she said.

The most recent Edelman Trust Barometer, published just before Covid-19 turned the world on its head, found that over half of people (56 percent) believed capitalism was doing more harm than good globally. A whopping 92 percent of the 34,000 respondents said companies should be speaking out on issues like automation and immigration, and nearly three-quarters said CEOs should lead these conversations.

A modern adaptation of stakeholder capitalism must respond to a new set of challenges across social, economic and health arenas, Schwab said, “and the best response to these challenges would be for all actors in society to consider more than their narrow and short-term self interest.” The problems society faces are “now more clearly global,” Schwab continued. “Economies, societies, and the environment are more closely linked to each other now than 50 years ago.”

In his new model, people and the planet are at the centre of business, with the four remaining key groups of stakeholders – companies, international community, civil society, and countries and states – contributing to their betterment. “As all of these groups and their goals are interconnected,” he wrote, “one cannot succeed if the others fail.”

Whereas shareholder primacy focuses on narrower objectives like profits or prosperity of a particular company, stakeholder capitalism, in this new guise, focuses on the interconnectivity and overarching well-being of people and the planet. However, the challenges to Schwab’s new vision for stakeholder capitalism remain the same as ever.

“Without a clear performance metric, evaluating managerial and firm performance becomes difficult,” Masconale said. “When does a manager do good? Is it when she increases profits (requiring cost cuts) or when she saves jobs (increasing costs)? While the trade-offs might not always be so stark, it is uncertain whether asking individuals to act in the interests of others is compatible with markets, which notoriously assume self-interested behaviour and ‘a benign indifference to passions’.”

Another issue is the numerous different interpretations of what ‘stakeholder capitalism’ means. “The failure to recognise those differences has been a source of much confusion and disagreement inside companies and in the public debate,” wrote Lynn Paine, a professor of business administration at Harvard Business School, in the Harvard Business Review. The recent controversy over environmental, social, and governance investing is a case in point.

“Stakeholder capitalism can be more or less than meets the eye – and more or less of a challenge to shareholder primacy – depending on which version is being considered,” Paine said. In addition to stakeholder capitalism, another of Schwab’s enduring ideas is the Fourth Industrial Revolution, a term he popularised in his book of the same name, published in 2016. Schwab outlined the technological revolution society was facing, which he believed would “fundamentally alter the way we live, work, and relate to one another,” he wrote in Foreign Affairs. “In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.”

Global phenomenon
The Fourth Industrial Revolution, or Industry 4.0, was defined by Schwab as “a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.” Jamati, from Stone Junction, said the ideas behind Industry 4.0 have been “immensely influential” in the engineering and manufacturing sector.

“Schwab turned Industry 4.0 into a global phenomenon, sparking critical discussions and analysis across engineering, manufacturing and technology for over a decade.” Industry 4.0 is a defining aspect of Schwab’s legacy, he said. “It’s a concept that continues to shape our understanding of automation, connected systems and the future of industrial processes.”

Thanks to the WEF, Jamati said, “artificial intelligence, cybersecurity and the Internet of Things are just a few of the buzzwords that now dominate discussions. The forum’s role in fostering dialogue and collaboration on these technologies will be critical in ensuring a future that benefits all of humanity.”

With the recent explosion in AI technology, the Fourth Industrial Revolution indeed feels more prescient than ever. While Schwab said generative AI had opened up “abundant opportunities” in sectors like product design, content creation, drug discovery, energy optimisation and more, writing in 2023 for Project Syndicate, he said, “At the same time, they may prove highly disruptive, and even harmful, to our economies and societies. “Generative AI will change the world, whether we like it or not. At this pivotal moment in the technology’s development, a cooperative approach is essential to enable us to do everything in our power to ensure that the process is aligned with our shared interests and values,” he wrote, calling for urgent public-private cooperation to address these challenges.

In contrast to stakeholder capitalism and the Fourth Industrial Revolution, Schwab’s latest slogan became influential for all the wrong reasons. In the summer of 2020, Schwab launched a campaign for what he called a ‘Great Reset’ of the global economy. Writing in a WEF article, Schwab argued that the “serious long-term consequences” caused by Covid-19, including government debt and unemployment, would exacerbate climate and social crises that were already underway.

A “Great Reset of capitalism” was needed to avoid a sharp economic downturn and to “revamp all aspects of our societies and economies, from education to social contracts and working conditions. Every country, from the US to China, must participate, and every industry, from oil and gas to tech, must be transformed,” he said.

However, his vision was co-opted by conspiracy theorists. An analysis by the BBC said the WEF’s “vague set of proposals” had been “transformed by online conspiracy theorists” into a reimagining of an older conspiracy theory. Building on the ‘New World Order’ narrative that first emerged in the 1960s, they pushed an anti-establishment narrative that the Great Reset was all part of the global elite’s plan to unleash Covid-19 so they could impose lockdowns to deliberately crash the economy and consolidate their power. The WEF told the BBC conspiracy theories like these “replace reason with fantasy. They are a noisy but peripheral part of the public sphere. We encourage rationally grounded, fact-based debate.”

An uncertain future
Schwab’s five decades at the helm of the World Economic Forum have made him a giant in the corporate world – and beyond – capable of setting the agenda for the global elite and fostering discussions on complex issues. Yet after years of silence around his succession plans, his departure from the WEF comes at a time when the forum’s influence may be waning. The challenge for any successor, Ahmed told World Finance, “will be to sustain that collective spirit that Schwab created in a world that is increasingly fragmented.”

Schwab’s five decades at the helm of the WEF have made him a giant in the corporate world

The WEF’s executive board is now under the leadership of current president Børge Brende, a former Norwegian foreign minister who has been in the post since 2017, but in the absence of a successor at the time of writing, speculation continued to swirl about possible candidates. His children, Nicole and Olivier Schwab, are possibilities as they hold high-ranking positions in the organisation already, as chair of WEF’s Young Global Leaders programme and managing director of the forum, respectively. Current president Brende should also not be discounted. Other names in the hat are Christine Lagarde, European Central Bank president and a trustee of the WEF, who has long been considered a potential candidate; Salesforce co-CEO and WEF trustee Marc Benioff and former British Prime Minister Tony Blair.

Whoever Schwab’s successor is revealed to be, they will not only be tasked with revitalising the World Economic Forum and showcasing the value of the annual summit in Davos, but also with emerging from behind the shadow of a giant.

World Finance Pension Fund Awards 2024

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A recent article by Martin Sanders, Head of Pension Investments at AXA, highlighted three key points: subdued global economic growth in 2024, “with some pick-up in 2025,” a continued rise in the demand for sustainable investments, and the observation that “fixed income has become increasingly attractive for pension funds” due to multi-year highs in bond yields. The expectation going forward is that inflation will remain elevated but should slow by 2025, with most developed markets avoiding recession. Meanwhile, pension funds will continue to add “more resources to sustainable and impact investments in all asset classes, most likely equity and bonds.” Another potential agitator in the global economy is the US Presidential Election in November. This, along with the challenges that Sanders highlights are what the winners of the World Finance Pension Fund Awards have so expertly navigated over the past year, combining risk, portfolio and investment strategy management, as well as performance evaluation.

 

Best Pension Funds – by country – in 2024

Australia
Unisuper

Austria
VBV Group

Azerbaijan
State Social Protection Fund of Azerbaijan

Belgium
United Pensions

Bolivia
BISA Seguros y Reaseguros

Brazil
Bradesco Seguros

Canada
OMERS

Caribbean
NCB Insurance Agency & Fund Managers

Chile
AFP Plan Vital

Colombia
Grupo Sura

Croatia
PBZ Croatia Osiguranje

Czech Republic
CSOB

Denmark
Nordea Pension

Estonia
Swedbank

Finland
ELO

France
ERAFP

Germany
Bosch Pensionsfonds

Ghana
Pensions Alliance Trust

Greece
Piraeus Asset Management

Iceland
Frjalsi Pension Fund

Indonesia
BNI

Ireland
Irish Life EMPOWER Master Trust

Italy
BNL BNP Paribas Pension Fund

Jamaica
JMMB Fund Managers

Macedonia
Sava Penzisko

Malaysia
Gibraltar BSN

Mexico
Afore XXI Banorte

Mozambique
Moçambique Previdente

Netherlands
Rabobank Pensioenfonds

Nigeria
Fidelity Pension Managers

Norway
KLP

Peru
Prima AFP

Poland
OFE PZU

Portugal
Santander

Serbia
Dunav Voluntary Pension Fund

South Africa
GEPF

Spain
GM Pensiones

Sweden
Swedish Fund Selection Agency

Switzerland
Pensionskasse Manor

Thailand
Kasikorn Asset Management

Turkey
TEB Asset Management

US
NYC Board of Education Pension Fund

World Finance Corporate Governance Awards 2024

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There are fresh challenges to contend with every year for boards and businesses. A continued talking point has been the advent of AI, quantum computing and other technologies, all of which provide as many threats as they do opportunities. The realised need for an ethical approach to AI with the introduction of the Digital Services Act and other regulatory measures necessitates a change in the way businesses operate. Along with this, there has been a push towards greater diversity and gender parity in the boardroom as well as conversations around organisations taking more concrete action on ESG, a term that has become politicised and weaponised in recent years. The World Finance Corporate Governance Awards 2024 celebrates those who are facing these issues head on and showing true leadership in their respective fields.

Best Corporate Governance – by country – in 2024

Algeria
Cevital

Angola
Banco Angolano de Investimentos

Brazil
CPFL Energia

Colombia
Grupo Nutresa

Denmark
Maersk

Dominican Republic
Banreservas

Egypt
Elsewedy Electric

Finland
Valmet

France
TotalEnergies

Germany
Adidas

Ghana
MTN Ghana

Greece
Fourlis Group

Hungary
MOL

India
Vedanta Limited

Indonesia
Star Energy Geothermal

Italy
Enel SpA

Jordan
Jordan Islamic Bank

Kuwait
Zain Group

Malaysia
MayBank

Mexico
Banorte

Myanmar
MAX Myanmar Group

Netherlands
ASML Holding

Nigeria
Zenith Bank

Norway
Telenor Group

Poland
CD Projekt

Qatar
Ooredoo Group

Romania
Banca Transilvania

Saudi Arabia
Zakat Tax and Customs Authority

Singapore
UOB

South Africa
Discovery Limited

Spain
Santander

Thailand
Berli Jucker

Turkey
SOCAR Turkiye

UAE
Mashreq Bank

US
Chesapeake Utilities Corporation

Vietnam
Vingroup

World Finance Sustainability Awards 2024

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Sustainability has gradually become more prevalent at a company level, driven by the long-term trends of deglobalisation, decarbonisation and demographic change. Marina Severinovsky, Schroder’s Head of Sustainability, North America, believes that “all of these issues now have critical business consequences, and addressing them is essential for economies across the globe and for individual companies.” Investors remain interested in sustainable investment options but real change relies on capital reallocation at scale. The winners of the World Finance Sustainability Awards 2024 are those who have not only made this commitment, but are taking action and providing solutions.

Most Sustainable Companies – by industry – in 2024
AgTech
Beewise Technologies

Airport
Aeroporti di Roma

Asset Management
KBC Asset Management

Automotive Products Supplier
REvolve

Battery Storage
Aceleron Energy

Building Technology
CarbiCrete

Carbon Offset
DevvStream

Clean Energy
Avangrid

Coffee Processing
Nestlé Nespresso

Data Centres
QTS Realty Trust

Financial Services
Dubai International Financial Centre

Flag Carrier Airline
Turkish Airlines

Food Products Supplier
Riverside Natural Foods

Freight Forwarding
C. H. Robinson

Glass
BA Glass

Gravity Energy Storage
Gravitricity

Healthcare
Royal Philips

Impact Investment
Campo Capital

Logistic Technology
Arrive Logistics

Low-Cost Airline
Wizz Air

Office Furniture
MillerKnoll

Packaging
Elopak

Pulp and Paper
Suzano

Semiconductor
onsemi

Spirits
Lunazul Tequila

Telecommunication
Swisscom

Transportation
CPKC

Water Technology
Hydraloop

Wine Making
Domaine Bousquet

Wine Products
Corticiera Amorim

World Finance Banking Awards 2024

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According to Deloitte’s banking outlook for this year, as banks “contend with multiple fundamental challenges to their business models” they will have to “demonstrate conviction and agility to thrive.” There are several factors affecting banks including a divergent economic landscape amid a slowing global economy, higher interest rates, climate change and geopolitical shifts, not to mention the continued march of new technology – genAI, embedded finance, open data and digital money have the power to significantly change the banking landscape. The World Finance Banking Awards 2024 recognise those who are meeting these challenges head on while doing the very best for the clients they serve.

 

World Finance Banking Awards 2024

Best Investment Banks

Brazil BTG Pactual
Chile BTG Pactual
Colombia BTG Pactual
Dominican Republic Banreservas
France BNP Paribas
Georgia TBC Bank
Germany Deutsche Bank
Hong Kong Jefferies
Jordan Arab Bank
Kazakhstan Tengri Partners Investment Banking
Kuwait National Investments Company
Mexico BBVA Mexico
Netherlands ABN AMRO
Nigeria Coronation Merchant Bank
Oman Bank Muscat
Pakistan HBL
Peru Credicorp Capital
Taiwan Fubon Financial
Thailand Siam Commercial Bank
Turkey QNB Finansinvest
US JP Morgan Chase

 

Best Banking Groups

Austria BAWAG Group
Brunei Baiduri Bank
Chile Banco Internacional
China ICBC
Denmark Nordea
Dominican Republic Banco Popular Dominicano
Egypt Banque Misr
Finland Nordea
France Crédit Mutuel
Germany Commerzbank
Ghana Zenith Bank Ghana
Hong Kong HSBC
India Bank of Baroda
Jordan Jordan Islamic Bank
Kosovo BKT
Macau ICBC (Macau)
Malaysia Hong Leong Bank
Nigeria Guaranty Trust Bank
Pakistan Meezan Bank
Saudi Arabia Al-Rahji Bank
Turkey Akbank
UAE Emirates NBD
UK Lloyds Banking Group

 

Best Private Banks

Austria Erste Bank Group
Belgium BNP Paribas Fortis
Brazil BTG Pactual
Bulgaria Postbank
Canada BMO
Chile BTG Pactual
Colombia BTG Pactual
Czech Republic CSOB Private Banking
Denmark Nordea Private Banking
Dominican Republic Banreservas
France BNP Paribas Banque Privée
Germany Deutsche Bank
Greece Eurobank
Hungary OTP Private Banking
India Kotak Mahindra Bank
Italy BNL BNP Paribas Private Banking
Liechtenstein Kaiser Partner
Luxembourg Quintet Private Bank
Monaco Banque Richelieu
Netherlands ING
Nigeria First Bank
Norway Nordea Private Banking
Poland mBank
Portugal Santander Private Banking
Romania Banca Comerciala Romana
Slovakia Tatra banka
Spain Santander Private Banking
Sweden Carnegie Private Banking
Switzerland BNP Paribas Wealth Management
Turkey TEB Private Banking
UK HSBC Global Private Bank and Wealth
US BMO


 

Best Retail Banks

Austria Erste Bank Group
Azerbaijan AccessBank
Belarus Belarusbank
Belgium BNP Paribas Fortis
Bulgaria Postbank
Canada BMO
Chile Santander Chile
Colombia Bancolombia
Costa Rica BAC Credomatic
Denmark Nordea
Dominican Republic Banreservas
Finland Nordea
France BNP Paribas
Germany Commerzbank
Greece Eurobank
Hungary OTP Bank
Iceland Landsbankinn
India ICICI Bank
Italy BNL BNP Paribas
Macau Bank of China
Mexico Banorte
Netherlands ING
Nigeria GTBank
Norway Nordea
Pakistan Meezan Bank
Peru BCP
Poland mBank
Portugal Santander
South Africa NedBank
Spain Banco Bilbao Vizcaya Argentaria
Sri Lanka Sampath Bank
Sweden Nordea
Turkey Garanti BBVA
UK Lloyds Bank
US Bank of America

 

Best Commercial Banks

Austria Raiffeisen Bank International
Azerbaijan AccessBank
Belarus Belagroprombank
Belgium BNP Paribas Fortis
Bulgaria Postbank
Canada BMO
Colombia Davivienda
Czech Republic CSOB
Denmark Nordea
Dominican Republic Banreservas
France BNP Paribas
Germany Deutsche Bank
Hungary OTP Bank
Iceland Landsbankinn
Indonesia OCBC NISP
Italy BNL BNP Paribas
Macau Bank of China
Malaysia Hong Leong Bank
Netherlands ING
Nigeria Zenith Bank
Norway Nordea
Pakistan HBL
Poland mBank
Portugal Banco Finantia
Saudi Arabia Al-Rahji Bank
Singapore Standard Chartered
Spain Banco Santander
Sri Lanka Sampath Bank
Sweden SEB
Taiwan Mega International Commercial Bank
Thailand Kasikorn Bank
Turkey Garanti BBVA
UAE Emirates NBD
UK Barclays
US BMO

 

Most Sustainable Banks

Brazil Itau Unibanco
Dominican Republic Banco Popular Dominicano
Germany KfW
Netherlands Triodos Bank
Nigeria Access Bank
Saudi Arabia Standard Chartered
Singapore DBS Bank
Spain Banco Bilbao Vizcaya Argentaria
Sri Lanka Commercial Bank of Ceylon
Sweden Nordea
Turkey Kalkinma Yatirim Bankasi
UAE First Abu Dhabi Bank

 

Most Innovative Banks

Africa GT Bank
Middle East Emirates NDB
Europe BNP Paribas
Asia PT Bank Mandiri
Latin America Banco Popular Dominicano

Best Bank for ESG

Latin America BTG Pactual

 

Bankers of the Year

Africa Segun Agbaje (GT Bank)
Middle East Ahmed Abdelaal (Mashreq)
Europe Christian Sewing (Deutsche Bank)
Asia Darmawan Djunaidi (PT Bank Mandiri)
Latin America Christopher Paniagua (Banco Popular Dominicano)

World Finance Islamic Finance Awards 2024

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World Finance Islamic Finance Awards 2024

Business Leadership & Outstanding Contribution to Islamic Finance
Dr Hussein Said ─ Chief Executive Officer ─ Jordan Islamic Bank

Best Islamic Bank, Jordan
Jordan Islamic Bank

Best Digital Banking & Finance Software Solutions
ICS Financial Systems

Best Islamic Banking & Finance Software Solutions
ICS Financial Systems

Best Business Leadership in Financial Technology
Wael Malkwai ─ Executive Director ─ ICS Financial Systems

Most Innovative Digital Banking Transformation
Kuwait International Bank

Best Retail Banking Product
KIB Retail App

Lifetime Achievement in Islamic Banking and Dedication to the Community
Sheikh Mohammed Al-Jarrah Al-Sabah ─ Chairman ─ Kuwait International Bank

Best Islamic Bank, Indonesia
CIMB Niaga Syariah

Best Islamic Bank, Malaysia
Maybank Islamic

Best Islamic Bank, Oman
Bank Nizwa

Best Islamic Bank, Pakistan
Allied Bank Limited

Best Islamic Bank, Qatar
QIB

Best Islamic Bank, Saudi Arabia
Al Rahji Bank

World Finance Forex Awards 2024

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World Finance Forex Awards 2024

FX Broker of the Year
XMTrading

Best Introducing Broker Programme
FBS

Best MT5 Broker
Garnet Trade FX

Most Trusted FX Broker
EBC Financial Group

Best CFD Broker
EBC Financial Group

Best Mobile Trading Platform
Just2Trade

Best FX Broker, Asia
XMTrading

Best Affiliate Program, Asia
FPM Global

Most Trusted Crypto Broker
J2TX

Most Innovative Crypto Trading App
MOVO

Most Reliable Broker
Squared Financial

Best Value Broker
Garnet Trade FX

Best Trading Experience
Errante

Most Sustainable FX Platform
MiTrade

Fastest Growing FX Broker, USA
Trading.com

Most Trusted Trading App, Latin America
MOVO

Best FX Customer Service
Garnet Trade FX

Decoding DORA: Navigating the digital regulatory landscape

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In the ever-shifting landscape of financial regulations, the European Union has introduced the Digital Operational Resilience Act (DORA) – a comprehensive framework addressing the digital risks faced by the European Financial Services Sector. Its aim is to ensure the integrity and availability of the financial sector. Let’s delve into the key components of DORA, focusing on its four pillars: ICT risk management, incident management, third-party risk management, TLPT testing.

ICT risk management: Strengthening the digital ramparts
DORA’s first pillar, ICT risk management, outlines the need for financial institutions to fortify their digital defences. It emphasises not just the standard cybersecurity measures but also robust administrative procedures, internal controls, and risk assessments. In simpler terms, it’s about ensuring the digital infrastructure is solid, secure, and resilient against potential threats.

In an interconnected financial world, where borders are porous, DORA sets a precedent for cybersecurity practices

The objective of this pillar is to create a level playing field with minimum level of ICT risk management, and consistency across all in scope entities. The impact on FS entities will be felt hardest by those firms that manage ICT risk inconsistently today for example have grown by acquisition or are domiciled in different European member states with inconsistent treatment across the group or third party providers that were not previously subject to robust risk management rules.

The management of cyber risk overlap with activities within cyber defence, in a number of organisations (and ‘best practice’), is for cyber risk to inform the investment within cyber defence. Assessing cyber risk following the new rules has led to the need to rapidly mature the capabilities in cyber defence.

Incident management: Navigating digital turbulence
Incident management, the second pillar, mandates a swift and organised response to any digital incidents. Financial entities are required to report incidents consistently and aligned with the seven classifications detailed in the legislation, proposed in the draft RTS (technical standard) and promptly, fostering a culture of transparency and learning from each disruption. It’s not just about addressing the immediate challenges but also about building resilience through experience.

Firms will need to update their SOPs and the systems for detection, management and resolution of incidents include operational reviews, system evaluations, training, frequent audits, and regular repetitional risk assessment due to the additional disclosures – this may also require regular updates of competitive positioning. Additional resources will be required for development, implementation, and regular auditing. It should not be forgotten that these procedures and their oversight need integration with other managerial tasks, which will add to operational complexity.

Third-party risk management: Safeguarding digital collaborations
The third pillar focuses on third-party risk management, acknowledging the interconnected nature of the financial ecosystem. It designates competent authorities as overseers, ensuring that external service providers don’t become weak links in the digital chain. This pillar aims to prevent unforeseen risks stemming from dependencies on external entities and is enlarging the scope of previous regulation on outsourcing. The expectation is the FS entity becomes responsible for the management of ICT by their digital supply chain; ‘back-to-backing’ their obligations in contracts with third party suppliers.

Not only does this require changes within procurement, but breaches of sub-contracted legal obligations become the responsibility of the FS entity (as they are still accountable, you cannot contract away a compliance obligation). This will require FS firms to be more prescriptive with suppliers around their risk management approach and will require reviews and audits by the FS firm.

TLPT (Threat-led Penetration Testing): Ethical hacking for digital preparedness
TLPT, the fourth pillar, applicable to introduces a pragmatic approach to cybersecurity. Threat-led Penetration Testing, will be based on the guidance of TIBER-EU (Threat Intelligence Based Ethical Red Teaming) where it has been implemented involves ethical hackers simulating cyber-attacks across the whole attack surface of systemically important FS institutions. This isn’t just a compliance measure but a proactive strategy to identify and rectify vulnerabilities, making financial entities more robust against potential threats. TLPT exercises need to be seen as an exercise to strengthen the overall resiliency posture more than as an audit exercise; by coupling with cyber crisis simulation will create a sort of muscular memory in the c-suite and board in order to be prepare to the unprepared in case of real attacks and ransomware.

Transparent governance in the digital age
Accountability and reporting is one cornerstone principle, emphasising the importance of transparent governance. Financial entities are not only accountable to regulators, but also to their internal boards of directors. This principle necessitates the establishment of a robust reporting structure, ensuring that all stakeholders are informed about the institution’s digital resilience measures. This means that there is a consistent approach with internal accountability being first or second line of defence. The important principle is to avoid siloing the different requirements implementation and instead keeping a comprehensive and consistent approach.

IT failure or cyber events have a real impact on firms’ ability to operate

The executive board, inclusive of the Chief Executive Officer, are required to possess the requisite expertise and competencies to effectively evaluate the looming threat of cybersecurity risks. This includes the ability to critically review security proposals, engage in constructive discourse on various activities, formulate informed perspectives, and appraise policies and solutions that safeguard the resources of their establishment.

This builds on the requirements of the NIS 2 Directive which requires appropriate training for management on cyber and cyber risk oversight, and improvements to the compliance framework forming part of corporate governance which when combined with the incident reporting obligations to management puts responsibility for the cyber risk squarely on the shoulders of the board and executive management.

Because DORA is principle based it is required that each financial institution will set up a good governance model that will be able to keep pace with new threats and countermeasures (emerging threats such as Post Quantum Cryptography and Gen AI could be two good examples). This requires a paradigm shift from current isolated risk management practices to using an Integrated Risk Management (IRM) approach. Integration in this context is two-fold; (1) viewing digital risk in conjunction with other risks, and (2) linking risk management directly with cyber operations and using ‘assets’ serving as the backbone. Financial institutions need to move away from siloed risk management and embrace an integrated strategy that considers the interconnected nature of risks.

Changing the approach: Assets as the backbone
Management need to combine their role as stewards of the company’s financial assets and oversight of risk management. IT is the key element of most business capabilities, IT failure or cyber events have a real impact on firms’ ability to operate. IT assets need to protected, and understood as much as business ones.

IT assets need to become the cornerstone of the integration of business capability and effective IT management. Financial institutions must identify and prioritise their critical assets, understanding how digital risks can impact them. Critical assets support critical business capabilities and processes. This asset-centric approach allows for a more nuanced understanding of risk, enabling proactive measures to protect vital components of the institution. And to do that, the need for an automated and integrated solution is necessary to run an efficient model and get as an additional value the possibility to automatise processes and gain further efficiency.

Global implications: DORA’s ripple effect
While DORA is an EU regulation, its principles resonate globally. In an interconnected financial world, where borders are porous, DORA sets a precedent for cybersecurity practices. Its influence extends beyond the EU, shaping the global approach to digital operational resilience and integrated risk management.

Decoding the DORA narrative
In conclusion, DORA is not just another set of rules; it’s a narrative shaping the digital future of finance. It’s a pragmatic guide for financial entities to navigate the complexities of the digital realm.

Care should be taken to ensure that DORA is not treated like just another regulation that requires a ‘typical’ regulatory change management approach – identify obligations, update policies, confirm controls and then test. It requires a significant maturing of cyber defence as well as cyber risk management capabilities, both having active and directive support of management.

For the smaller firm, this will require transformation of a traditionally underinvested area. Management will need to be upskilled and provided with information contextualised in such a way that decisions can be readily and rapidly made. Making cybersecurity relevant for business management has been the challenge for the industry, now it is crucial for firms to be able to comply with NIS 2 and DORA.

As the financial landscape evolves, DORA remains a relevant script, encouraging entities to embrace resilience, minimise disruptions, and thrive in the ever-changing digital narrative. With accountability and reporting at its core, DORA ensures that financial institutions not only comply with regulations, but also actively work towards building a resilient, integrated, and secure digital future.

Building BRIC by BRIC

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The tectonic plates of global politics are forever shifting. Sometimes, those changes are almost imperceptible, while others are much more seismic. “The world is changing,” the South African President Cyril Ramaphosa said in his closing remarks at the annual BRICS summit in Johannesburg. “These realities call for a fundamental reform of the institutions of global governance, so that they may be more representative and better able to respond to the challenges that confront humanity.”

The three-day summit confirmed what had been anticipated for some time – that the BRICS group would be expanding its membership. With six new members joining its ranks as of January 2024, the bloc is more than doubling in size, giving a growing group of emerging economies a much louder voice on the global stage. Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates will be the first wave of new additions joining forces with the group’s core members of Brazil, Russia, India, China and South Africa. More will follow in years to come, as the newly beefed-up alliance looks to expand its influence ever further. Over 40 countries expressed an interest in joining the group ahead of the Johannesburg summit, demonstrating a growing desire among middle-income economies to move away from a western-led global order.

China’s Xi Jinping – the most vocal proponent of the group’s expansion – welcomed the move as a “new chapter of solidarity and cooperation” across the alliance. And while the wider membership certainly shows ambition, the expansion is not without its challenges. Already regarded as a somewhat disparate and divided group, the BRICS bloc is unlikely to become any more cohesive once its new members are brought into the fold. Far from being politically, economically or ideologically unified, the new entrants are a largely disjointed group, each with their own aspirations and burdens. With new agendas to accommodate and diverging interests to uphold, the newly-bolstered BRICS group may soon find that less is more.

Losing momentum
The BRIC acronym was first coined by Goldman Sachs chief economist Jim O’Neill in 2001, in an effort to capture the rising economic importance of Brazil, Russia, India and China. The transformation from academic idea to geopolitical institution began in earnest in 2006, with a meeting of the foreign ministers of the four founding BRIC states in New York City. The Russian city of Yekaterinburg played host to the first BRIC summit in 2009, with South Africa joining the group one year later – providing the ‘S’ to make the BRICS complete.

The BRICS nations had one key ambition – to ensure a greater role for emerging economies in global affairs

In the 2000s, the BRICS nations had one key ambition – to ensure a greater role for emerging economies in global affairs. There was palpable optimism surrounding the growth of developing countries in the first decade of the 21st century, with the BRICS nations in particular pipped for an astronomic economic rise. Led by China and its staggering and sustained growth, the BRICS nations largely met or exceeded economists’ predictions in the early 2000s, with their economies outpacing those of other advanced nations (see Fig 1). But, in the wake of the global financial crash, the BRICS economies started to lose momentum. By the late 2010s, Russia, Brazil and South Africa had experienced significant economic slowdowns, with China and India emerging as the two remaining bright spots in the BRICS bloc.

The group’s multilateral lender, the New Development Bank (NDB), has also achieved muted success since its launch in 2015. Touted as an alternative to the western-dominated IMF and World Bank, the NDB was created with ambitions of financing much-needed sustainable infrastructure projects across the global south. A worthy cause, certainly, but the NDB has been able to pay out just $33bn in approved loans since its creation almost a decade ago. The World Bank, by way of contrast, committed $104bn in 2022 alone.

Individually and collectively, the BRICS nations have somewhat underperformed in the past 10 years, with the notable exceptions of China and India. But that’s not to say that the BRICS bloc is insignificant on the global stage – far from it. Before the expansion, the group already represented 40 percent of the world’s population and more than 25 percent of global gross domestic product. There is no doubt that the alliance is a major force in global affairs – so why has it struggled to capitalise on its collective potential?

An uneasy alliance
Since its very inception, the BRICS group has been made up of seemingly strange bedfellows. Its founding members have little in common politically, economically or culturally, and internal tensions have left the bloc divided on a number of key issues, including the very question of expansion. While China has long backed the addition of new members, India, Brazil and South Africa have been less enthusiastic about throwing open the BRICS door, and have their own concerns over the bloc’s increasingly anti-US stance.

India and China, meanwhile, have a historic border dispute that dates back to the 1960s, and tend to view each other as regional rivals. Relations between the two major powers have become increasingly fraught in recent years, with clashes breaking out between troops along the disputed Himalayan border in 2020 and 2022. Despite de-escalation work, tensions between the two countries remain high, and India’s Prime Minister Narendra Modi is said to be uneasy with the sudden influx of Chinese allies to the BRICS group.

Indeed, while the six newest BRICS members may seem like a disparate and miscellaneous group on early inspection, a closer look soon reveals China’s influence. Newcomer Iran has been forging strong ties to Beijing in recent years, and signed a 25-year cooperation agreement with the superpower in 2021, committing the two nations to “political, strategic and economic” partnerships over the next quarter of a century. Fellow Middle-Eastern joiners Saudi Arabia and the United Arab Emirates have historically been allied with the US, but have been seeking to recalibrate their relationship with the west and establish themselves as global powers in their own right. This has drawn both nations closer to China, their largest trade partner. Similarly, Egypt and Argentina have strengthened their financial and trade ties to China in recent years, while Ethiopia is a key site for China’s ambitious Belt and Road initiative, receiving approximately $16bn in Chinese investment between 2000 and 2020. With tensions between the US and China at an all-time high, the decision to admit a string of countries with ties to Beijing may well increase the BRICS’ geopolitical tensions with the west in the months to come.

Along with potentially stoking external tensions with the G7-led west, the BRICS expansion could lead to further divisions within the group itself. Iran and Saudi Arabia are longstanding rivals, only recently restoring their diplomatic ties after a seven-year severance. While this tentative rapprochement is certainly welcome, the tense history between the two nations may make it difficult for the group to unite on shared goals moving forward. More members ultimately means more voices in the room, each with their own interests to uphold. And in the BRICS organisation, all decisions are unanimous, meaning that each and every member must agree before a motion can be passed. More seats around the table will likely make it more difficult to reach unanimous decisions – especially when there are already internal divisions at play.

An amplified voice
So far, the BRICS has demonstrated lofty ambitions but limited impact. But its expansion comes at a time of heightened geopolitical instability, with Russia’s invasion of Ukraine marking a new chapter in 21st century international relations. The outbreak of war in Europe has seen notable shifts in geopolitical alliances, as Russia and Ukraine seek to gather support from allies old and new. While Russia has become something of a pariah state in the western world, Moscow has received significant support from its BRICS partners. China and India have both ramped up trade with Russia since the invasion, with India’s imports alone surging by 400 percent since Russian troops entered Ukraine. This uptick in BRICS bloc trade has allowed the Moscow military machine to press on despite unprecedented western sanctions on the nation, undermining the US-led support operation for besieged Ukraine.

Politically speaking, the BRICS core members have adopted a neutral position on the Russia-Ukraine conflict – with the exception of China, which voted against expelling its northern neighbour from the UN Human Rights Council in 2022. However, this neutral stance, coupled with an uplift in BRICS trade with Russia, has been interpreted by some critics as implicit support for the Kremlin’s campaign. Whether there is any truth to this or not, the Russia-Ukraine conflict has placed the BRICS in a more explicitly political position than ever before.

The group is no longer purely interested in promoting the economic interests of the developing world. Politics has seemingly risen to the top of the BRICS agenda, and with its upcoming expansion, the group’s sphere of influence is greater than ever before. While its internal divisions may initially pose a barrier to any meaningful collective action, the group’s growth shows that it is setting itself up to be a real alternative to the western geopolitical status quo. It is simply too large and too loud to be ignored any longer. And with a long list of developing nations looking to join the club, the BRICS group is certainly carving a space for itself on the global stage.

The quantum joke

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If there is a single idea which sums up the field of mainstream economics, it is that prices are drawn by the forces of supply and demand – aka the invisible hand – to a stable equilibrium, at which the price accurately reflects intrinsic value. A logical consequence is that price changes must be due to extrinsic effects, such as news which affects the value of a stock. Because such events are random, prices should perform what the statistician Karl Pearson called a random walk.

Pearson illustrated the problem in a 1905 paper with an example of a drunken man, who takes a step in one direction, then another step in a different direction, and so on. The expected distance travelled is seen to grow with the square root of time – but “the most probable place to find a drunken man who is at all capable of keeping on his feet is somewhere near his starting point!”

The same idea had already been used by the French mathematician Louis Bachelier in his 1900 dissertation Theorié de la Spéculation, to argue that an investor’s expected profit or loss was zero. Prices move randomly up and down, but the best forecast for an asset’s future price is its current price. The typical size of the step was described by a parameter which he called the market’s “nervousness” and is now known as the volatility.

In the 1950s Bachelier’s thesis was dusted off and improved on by economists who were trying to model stock prices, and in particular compute the correct price of financial options (those instruments which give one the right to buy or sell a security in the future at a set price, known as the strike). The goal was realised in 1973 by the Black-Scholes option pricing model. Today, versions of this model are used to price options and other derivatives in global financial markets – and volatility has become the magic number used to evaluate financial risk.

From ear to ear
A key assumption of the Black-Scholes model, when it was derived 50 years ago, was that the volatility could be treated as constant. In practice though, traders assigned prices to options, which did not perfectly agree with the theoretical prices, but departed from them in a predictable way. Options which only paid off in the case of extreme price changes attracted a higher price. Since the option price depended on volatility, another way to look at this was that markets were assigning higher volatility numbers (known as implied volatility) to these options.

Volatility has become the magic number used to evaluate financial risk

The result of all this was that, if you plotted implied volatility against strike price (the price at which the option can be exercised), you got a curve that resembled a smile. Economists have long debated the reasons for the volatility smile, since it seems illogical from the perspective of classical finance. However, it makes more sense if you use a different kind of logic. The quantum sort.

In quantum economics (which is based on quantum probability, not quantum physics), the price of something like a stock is fundamentally indeterminate, so there is a base level of uncertainty (the financial version of the uncertainty principle).

Price perturbations occur due to transactions, which measure the price but also affect it. And in the quantum model, the uncertainty measured by volatility is not a constant, as in the traditional random walk model, but varies depending on the state of the market.

When markets are out of balance, as when there are more buyers than sellers, then the price is affected – in this case it goes up – but the volatility increases as well. And if you plot volatility over a period such as a month, against price change over the same period, then you get exactly the same volatility smile (though somewhat steeper). In other words, the smile is not some kind of illogical anomaly, or artefact caused by trader behaviour. It is a reflection of a real phenomenon.

Mispricing risk
The consequences of this for financial markets are no laughing matter. For example, the main index used to measure market volatility is the VIX index, which weights the implied volatilities of a range of options on the S&P 500 stock market index to arrive at a single number for the implied volatility. However, in reality there is no single number, because implied volatility is described by a curve.

The formula used to derive the VIX makes sense in the random walk world of economists’ imagination, but the actual world seems more in tune with quantum logic. The result is that risk is consistently mispriced by conventional models.

Economists have long known that the market is smiling, but because of their rigid obsession with classical ideas such as equilibrium, they didn’t know why. Quantum models, it seems, are in on the joke.

Blue bonds could be the answer to financing sustainable development

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African countries are in dire need of massive resources to finance sustainable development. Having amassed a staggering $1.8trn in public debt over the past two decades to finance infrastructure projects, most nations have limited headroom for conventional borrowing. For this reason, countries are being forced to become creative and innovative in mobilising resources.

In October, for instance, Egypt raised $478m through a Chinese yuan-denominated panda bond, a first by a Middle East and Africa sovereign. Apart from diversifying its financing sources, the primary aim was to escape from high interest rates in the west considering the three-year bond came with an interest rate of 3.5 percent.

Two months earlier in August, Gabon became only the second African nation to issue a blue bond after Seychelles, which in 2018 had debuted the world’s first blue bond, raising $15m. In the case of Gabon, the ‘debt-for-nature swap’ resulted in refinancing $500m of its public debt and unlocking some $163m for marine conservation. The long-term blue bond, which matures in 2038, came with a coupon priced at 6.097 percent. This was lower than the coupons on the repaid bonds, which were between 6.625 percent to seven percent.

“Blue bonds hold a lot of promise,” says Sally Yozell, Director of the Environmental Security Program of the Stimson Center. She adds that Seychelles paved the way for other African nations to undertake blue bonds issuances, including steps for success.

Granted, the debt conversion for ocean conservation in Gabon that came with the tag of a ‘blue bond’ has raised debate over legitimacy. The fact that Gabon’s sole purpose in floating the bond was to refinance its debts has brought about the question on whether ‘blue’ bonds are being abused instead of the proceeds being ring-fenced for protecting and managing the marine ecosystem. The central African nation bought back three bonds, one maturing in 2025 and two in 2031, with a total nominal value of $500m. The buybacks were equivalent to around four percent of the country’s total debt.

Conservation cash
Simone Utermarck, Sustainable Finance Director at the International Capital Market Association (ICMA), explains that for blue bonds, the proceeds or an equivalent amount should exclusively be applied to finance or refinance, in part or in full, new and/or existing eligible green/blue projects. “Gabon is a debt for nature swap, not a use of proceeds bond,” she states.

A month after the Gabon issuance, which was arranged by the Bank of America and fronted by US-based The Nature Conservancy (TNC) that has set up deals worth at least $1bn, ICMA published a ‘practitioner’s guide.’ The objective was to provide issuers with guidance on the key components involved in launching a ‘credible’ blue bond and assist underwriters by offering vital steps that facilitate transactions that preserve the ‘integrity’ of the market.

Away from the legitimacy debate, the consensus is that blue bonds can offer African nations with coastlines a viable source for mobilising resources for conservation. Undoubtedly, Africa’s oceans and waterways are in peril. Wanton pollution, climate change, overfishing, illegal fishing and poor management, among other factors, are threatening to wipe out the socio-economic benefits that come from the water bodies. Illegal, unreported and unregulated (IUU) fishing alone costs Africa over $2.3bn in economic losses annually, according to estimates from the African Union Commission.

The importance of Africa’s blue economy cannot be underestimated. Annually, it generates approximately $300bn, creating 49 million jobs in sectors like tourism, transportation, fisheries and aquaculture. Cumulatively, the annual value of Africa’s maritime industry is estimated to be over $1trn. Marine resources, particularly fisheries, underpin the continent’s sustainable blue economy as well as the food, economic and ecological security of hundreds of millions of people. Fish represent over 20 percent of total protein intake in 20 countries, accounting for approximately 200 million people. In some countries like Sierra Leone and Senegal, it accounts for over 70 percent of protein intake.

Nicholas Hardman-Mountford, Head of Oceans and Natural Resources at the Commonwealth Secretariat, contends that as populations grow and the demand for marine resources increases, Africa must prioritise conservation. “For Africa, it’s about ensuring a sustainable future for its people,” he notes. He adds that the Commonwealth has even developed a Blue Charter to help African countries harness their marine wealth sustainably. Among other things, the charter recognises the potential of innovative financing mechanisms like blue bonds to finance marine conservation.

Global growth
Though still in its nascent stages globally, the blue bonds market is expanding. According to the Stimson Center, 26 blue bonds were issued between 2018 and 2022 amounting to a total value of $5bn. This represented a 92 percent compound annual growth rate. Latin America and South Asia are two regions where the blue bond market is particularly vibrant and innovative. “The increasing presence of major multilateral development banks and financial institutions will likely help the growth of the blue bonds market,” avers Yozell, adding that the launch of the world’s first blue bond index in July this year is bound to accelerate growth.

Notably, the line between blue bonds and green, social and sustainability bonds is becoming extremely thin. In 2022, the global issuance volume across the whole spectrum of sustainable bonds amounted to $862bn, dropping from a record high of $1trn in 2021. The market is forecast to bounce back, with ICMA stating that 98 percent of total sustainable bonds issued globally are aligned with its principles. “In the last five years, a series of blue bond issuances demonstrate a growing appetite for ocean-themed bonds,” notes Utermarck.

For blue bonds, ICMA has designated eight categories that qualify for financing through proceeds of blue bonds. These include coastal climate adaptation and resilience, marine ecosystem management, conservation and restoration, marine pollution and marine renewable energy. Others are sustainable coastal and marine tourism, sustainable marine value chains, sustainable ports and sustainable marine transport. “As the issuance of blue bonds becomes more vibrant in various parts of the world, Africa has a unique opportunity to learn, adapt and implement these financial mechanisms to achieve both economic and environmental sustainability,” observes Hardman-Mountford.

A blueprint for bonds
Seychelles and Gabon have set a precedent. For both countries, issuing blue bonds was a no brainer. In the case of Seychelles, marine resources are critical to its economy. After tourism, fisheries is the second most important sector, contributing 20 percent of the gross domestic product and employing 17 percent of the population. Fish products account for about 95 percent of the total value of domestic exports.

Seychelles paved the way for other African nations to undertake blue bonds issuances

As one of the world’s biodiversity hotspots, marine conservation is a matter of survival for the archipelagic nation of 115 granite and coral islands. This explains why Seychelles floated a blue bond with proceeds from the 10-year bond going towards the expansion of marine protected areas, improving governance of priority fisheries and the development of the blue economy. The government also set up funds to provide grants and loans to organisations and companies involved in marine conservation. Gabon, on its part, also needs to prioritise protection of its beaches and coastal waters as a matter of urgency. Apart from losing approximately $610m annually to IUU, the country hosts the world’s largest population of leatherback turtles, as much as 30 percent of the global population of the endangered species. It is also home to one of the largest olive ridley turtle rookeries in the Atlantic, and to the Atlantic humpback dolphin, recently classified as critically endangered.

To protect these species from extinction and preserve sustainability of its coastal waters, the country intends to deploy the $163m raised from the blue bond to finance a new marine spatial plan, improve management in current marine protected areas, strengthen enforcement against IUU fishing and support a sustainable blue economy. Tragically for the country, implementation of these measures now hangs in the balance following a coup that ousted long-serving President Ali Bongo just days after the bond issuance. “The experiences of Seychelles and Gabon provide valuable insights and inspiration for other African countries,” says Hardman-Mountford. The continent has 38 coastal states and a number of island states like Cape Verde, Sao Tomé and Principe, Mauritius, Seychelles and the Comoros. Collectively, Africa’s coastal and island states encompass vast ocean territories of an estimated 13 million square kilometres.

Blue bond buoyancy
Going forward, no doubt more African countries will turn to the global financial markets to float blue bonds to finance marine conservation. However, the level of sophistication, excruciating and complex processes, market conditions and other factors, both internal and external, mean that issuing a blue bond is not plain sailing. Currently, for instance, the high interest rates in western capital markets driven by the US Fed’s policy stances defined by extensive tightening cycles means that sovereigns must be ready to bear the burden of high interest rates.

“The success of blue bonds requires meticulous planning, widespread stakeholder engagement and an unwavering commitment to transparency and long-term marine conservation goals,” notes Hardman-Mountford.
For blue bonds, the bar for scrutiny has been raised following Gabon’s debt-for-nature swap issuance and the fact that TNC has faced criticism for using the ‘blue bond’ tag to help refinance more than $1.2bn of debt globally while generating only $400m for conservation. Going forward, regulators and investors are bound to demand more clarity.

Tax challenges at the top

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Few challenges are as complex and ever-evolving as taxation, particularly for high-net-worth individuals (HNWIs). What was once considered a straightforward financial consideration has morphed into a multifaceted puzzle of regulations, most notably the Foreign Account Tax Compliance Act and the Common Reporting Standard, bringing increased demands for transparency and a heavier compliance burden.

Tax brackets and investment strategies, too, have been made even more intricate by the seismic shifts brought about by Covid-19. In the wake of the pandemic, the financial world witnessed an unprecedented array of economic stimuli, tax code changes and shifts in global trade dynamics. These events, coupled with the perennial complexities of high-net-worth taxation, have thrust savvy investors and finance professionals into a new era of fiscal strategy.

Michael Parets, a partner specialising in private tax at Ernst and Young says: “The direction of travel is one that isn’t likely to change any time soon. It’s becoming increasingly critical for individuals to have a totally transparent view of their tax liabilities and obligations, and that of their families, across all the jurisdictions where tax is payable, as well as having systems in place to monitor any tax changes and their implications.”

Strategic tax allocation
The cornerstone of successful high-net-worth taxation lies partly in strategic asset allocation. By diversifying investments across various asset classes, including equities, bonds, property and cash, individuals can not only optimise their investment portfolios for long-term financial goals but also minimise their tax exposure.

HNWIs are acutely aware of the significance of optimising their available allowances. When weighing the advantages and disadvantages of annual allowances and potential contributions to pensions or stocks and shares ISAs, as well as assessing the merits and drawbacks of utilising carry-forward and capital gains allowances, they not only stand to benefit from potential income tax advantages (in the case of pensions) but also enable tax-free capital gains. Strategies like charitable trusts, donor-advised funds and direct donations not only support charitable causes but also offer appealing opportunities to reduce taxable income.

Estate planning goes beyond passing on assets; it’s about minimising estate taxes. For HNWIs this may involve the creation of trusts, strategic gifting and leveraging lifetime estate and gift tax exemptions to protect family legacies. Chartered Financial Planner Andy Hearne, of Financial Planning Partners (FPP), says: “Often the simplest of measures can be some of the most effective, such as adding to or retaining money held in pensions, which fall outside of a taxable estate, or simply gifting or even spending money. After all, you can’t take it with you.”

In today’s globalised world, many HNWIs have international investments and income sources. Navigating international tax laws, treaties and reporting requirements is essential to avoid pitfalls and maximise opportunities in cross-border taxation. Hearne tells World Finance, however, that this complexity can add risks. “All taxation regimes change and shift regularly, which in turn requires up-to-date expertise in each jurisdiction and regular reviews to ensure that any global tax planning strategy is robust and kept up to date,” he says.

For HNWIs with business interests, selecting the right business structure can have a significant impact on taxation. Whether it’s a private limited company, an LLP, or another structure, each has its own tax advantages. Succession planning should also be a priority to ensure a smooth transition of assets to the next generation.

Tailoring tax
In retirement, managing withdrawals from various accounts becomes paramount for HNWIs. Strategies such as pension drawdown, tax-efficient investments and retirement planning can be employed to minimise tax burdens and maximise the longevity of retirement savings. High-net-worth taxation is not static. Regular review and adaptation of tax strategies are crucial as financial circumstances change and tax laws evolve, ensuring that HNWIs remain compliant with tax regulations.

Hearne concludes: “It’s important to remember that tax planning prudently can add tens, if not hundreds, of thousands of pounds over the years and decades. However, there’s a saying that goes: ‘The tax tail should not wave the investment dog.’ In other words, just because something is tax-efficient does not mean that it is the best route forward. It’s important to understand the pros and cons of a multitude of tax planning strategies before determining which combination would work best, in order to meet short, medium and long-term lifestyle goals, while also retaining financial flexibility for anything unforeseen.”

High-net-worth taxation is a complex and constantly evolving domain that necessitates meticulous attention, strategic planning and adaptability. This is particularly crucial considering that HNWIs make up only a small fraction of the global population while possessing a substantial share of the world’s wealth. According to Credit Suisse’s Global Wealth Report, the top one percent of wealth holders owned nearly half of the world’s wealth, underscoring the significance of effective tax management in this context.

We need to talk about bank supervision

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Bank capital is back in the financial headlines. In late July, US banking regulators, led by the Federal Reserve, announced plans to finalise the so-called Basel 3 reforms (which banks like to call Basel 4, owing to their significant impact). The aim, according to a joint agency proposal, is “to improve the strength and resilience of the banking system” by modifying large capital requirements to better reflect underlying risks, and by applying more transparent and consistent requirements.

The announced proposals are tougher than many expected. They will cover more banks – including some that had benefited from Trump-era concessions – and they will require banks to include unrealised losses from securities in their capital ratios (among other changes). Overall, US regulators expect the most complex banks to increase their capital by 16 percent.

US banking supervisors, led by Fed Vice Chair Michael Barr, clearly have been emboldened by the spate of bank failures that started with the collapse of Silicon Valley Bank this past spring. But though the political mood has changed after that embarrassing episode, there is still fierce opposition to the new regulations. Recently, David Solomon, the CEO of Goldman Sachs, warned that the “new capital rules have gone too far, they will hurt economic growth without materially enhancing safety and soundness.” Likewise, JPMorgan Chase CEO Jamie Dimon believes they will increase the cost of credit, potentially making banks uninvestable.

One can find even more blood-curdling forecasts on the Bank Policy Institute’s ‘Stop Basel Endgame’ website, which warns of “real consequences for families and small businesses across the country.” Clearly, the proposed rule changes have become a political battle. Nor is this solely an American issue. The Bank of England has also issued rather tough proposals – though British banks have eschewed high-flown rhetoric in responding. When American bankers say, ‘these proposals will end human life as we know it,’ English bankers merely admit to being a little concerned.

The debate will play out differently in different places over the next few months. In a recent working paper, Good Supervision: Lessons from the Field, the International Monetary Fund points out that capital ratios are currently higher in European banks than in American ones. That may partially explain why the European Union’s Basel 3 implementation plans do not envisage increases on the scale proposed in the US.

But more to the point, the IMF authors conclude that the recent bank failures do not have their roots in capital weakness. As the Swiss National Bank noted during the collapse of Credit Suisse, “meeting capital requirements is necessary but not sufficient to ensure market confidence.” The salient problem was that investors lacked confidence in the bank’s business model, and that depositors were withdrawing funds at a rapid rate. A lack of liquidity, rather than a capital shortage, was the straw that broke that camel’s back.

Similarly, US authorities’ reports on this year’s bank failures concluded that risky business strategies, compounded by weak liquidity and inadequate risk management, lay at the heart of the problem. But though supervisors had identified many of these problems, they “didn’t insist or require the banks to respond more prudently while there was time to do so,” the IMF authors explain.

Supervising the supervisors
Taking banking supervisors’ recent reviews as their starting point, the IMF authors draw broader lessons from the post-financial-crisis reforms and their differential implementation across jurisdictions. Notably, an absolute shortage of capital does not feature prominently among the weaknesses they identify, though they do argue that some countries use the Basel minimum requirements as a ‘one size fits all’ rule, thus failing to account for differential risks. There has been little use of the ‘Pillar 2’ process, whereby regulators can require additional capital if they determine that risk management is weak.

The IMF authors see far bigger problems in the lack of skilled staff in many places, and in the pressure regulators feel to make politically expedient, rather than prudent, decisions. For example, some supervisors pay little attention to corporate governance and business models, partly because they lack the tools and authority to do so. But supervisors also have failed to help themselves by under-allocating resources for oversight of small firms, and by following poor internal decision-making processes. The IMF’s overall conclusion is that regulation, in the sense of capital or liquidity rules, “is rarely, if ever, enough.” Far more pertinent is the quality of supervision, and of the supervisors themselves.

It is an important message, and one that central banks and bank regulators around the world should take to heart as the debate over capital requirements heats up again. Experience shows that marginal increases in capital ratios, or a touch of inflation in risk-weighted-asset calculations, may have far less impact than low-cost programmes to upgrade supervision. We need a cultural shift to embolden supervisors to act on their concerns. Earlier interventions, using tools and powers supervisors already have, could have helped avert some of this year’s unfortunate bank failures.

Is it time for a coffee cartel?

Posted on by itsupport

Coffee prices have soared in recent years, owing to unfavourable weather conditions and supply shortages in major producing countries like Brazil, India, and Vietnam. But even if consumers are paying more for their daily cup, coffee farmers are seeing little of the gain, because they lack sufficient bargaining power.

Since the 1950s, coffee has been among the world’s most-traded commodities – at one point, it ranked second, behind only oil – and many governments regard it as a strategic good. But not all coffee trade is created equal.

Countries in the Global South export low-value-added unprocessed coffee – raw beans and dried and seedless coffee – with Brazil, Colombia, Vietnam, Indonesia, and Ethiopia controlling a combined market share of about 70 percent. Countries in the Global North dominate exports of higher value-added processed coffee – such as roasted beans and instant coffee – with Switzerland, Germany, Italy, France, and the Netherlands accounting for 70 percent of the market. Moreover, the coffee sector is dominated by just three developed-country firms – Nestlé, Starbucks, and JDE Peet – which together account for 77.7 percent of the total revenues of the sector’s 10 biggest players.

Prices of processed coffee dwarf those of unprocessed coffee: $14.30 per kilogram on average versus just $2.40. In fact, coffee producers in the Global South claim a small and declining share of the market’s value. Whereas in 1992, producer-country exports captured one-third of the value of the coffee market, by 2002, they captured less than 10 percent. Coffee farmers themselves get one percent or less of the final retail price of a cup of coffee, and about six percent of the price charged for a package of coffee sold to consumers in the Global North.

One for the bean counters
The obvious solution would be for coffee producers in the Global South to develop processing capabilities, in order to increase their exports’ value-added. But there are formidable barriers to progress on this front, beginning with the high tariffs developed countries impose on processed-coffee imports – 7.5 to nine percent in the European Union, 10–15 percent in the United States, and 20 percent in Japan. Unprocessed coffee is not subject to tariffs.

The coffee sector is dominated by just three developed-country firms – Nestlé, Starbucks, and JDE Peet

While developing economies also impose tariffs, they tend to be more symmetric across processed and unprocessed coffee. In Brazil, for example, both types of imports are subject to a 10 percent tariff. So, while developed-country-led multilateral banks and research organisations advise developing countries to increase their exports’ value-added, developed countries’ trade policies are discouraging them from doing so.

With developed-country governments apparently unwilling to change their tariff regimes, developing-country governments must rely on financial incentives to counteract them. For example, they can subsidise processed-coffee exports, and impose export tariffs on unprocessed coffee. Malaysia did something similar with palm oil: after the UK imposed high tariffs on processed palm-oil imports, Malaysia lowered taxes on processed palm oil and introduced an export tax on crude palm-oil exports.

Would-be exporters of processed coffee in the Global South also face non-tariff or technical barriers, such as sanitary and phytosanitary rules. These are, of course, entirely justifiable. Overcoming them will require the Southern exporters to invest in building technological capabilities and developing planting and processing approaches that meet international safety, environmental, and social standards.

Exporters in the Global South could even go so far as to produce and export branded coffees that are sold directly to consumers in the North. Branding and marketing is, after all, the highest value-added segment. The problem is that entry barriers in consumer markets are very high, and it takes considerable resources – and a significant risk appetite – to build up a new brand.

One way firms could circumvent some of these barriers would be to acquire existing brands. This is another lesson from Malaysia, which executed a hostile takeover of British palm oil firms in the London Stock Exchange. In fact, this kind of international acquisition has served as a useful catch-up strategy for a number of latecomers, not least China.

Collaborating for coffee control
Producers in the Global South have another option: they can create an OPEC-style coffee ‘cartel,’ which would have far more bargaining power on prices and tariffs vis-à-vis the Global North. While this solution may appear radical, it is feasible, given that the Global South’s top ten coffee producers command nearly 90 percent of the market. It is also justifiable, as the supply-side oligopoly that a cartel represents would be intended specifically to confront an existing demand-side (roaster) oligopoly.

First, however, the coffee sector in the Global South would have to be consolidated, with small firms being combined through mergers and acquisitions. The new large companies could work together with public research institutions to upgrade the quality of the coffee being exported and to change the value distribution. For example, the Federación Nacional de Cafeteros de Colombia could work with the Colombian freeze-dried coffee producer Buencafe. The Malaysian Palm Oil Board could serve as a model here.

Of course, asymmetries in the global coffee market could be addressed in multilateral fora, such as the United Nations or the G20. But as long as developed countries actively impede their developing-country counterparts’ ability to make money from the coffee they produce, Southern producers have little choice but to take matters into their own hands. Tariffs and subsidies, hostile take-overs, and even the formation of a coffee cartel should all be on the table.

The sun is setting on Saudi oil

Posted on by itsupport

In Al-Ula is ancient Hegra, once a prominent trading centre of the Nabateans and now home to a set of 111 tombs intricately carved into the imposing sandstone rock faces lying at the base of the basalt plateau. Rising out of the desert over a thousand kilometres away is Riyadh, Saudi Arabia’s capital and main financial hub. Pre-1938, before oil was first struck in the country, the kingdom was a largely nomadic nation relying on tourism for its income. Its oil and natural gas revenues have turned it into a hugely wealthy country, with a 2017 Forbes profile stating that “its petroleum sector accounts for roughly 87 percent of budget revenues, 42 percent of GDP, and 90 percent of export earnings.”

Its transformation in a relatively short space of time now means that Saudi Arabia has the largest number of millionaires in MENA according to Credit Suisse’s 2022 global wealth report. The stratospheric rise of a nation has come with several consequences. The first and perhaps most important is that there is a huge gap in terms of education, skills and training of Saudi nationals.

Historically the kingdom has relied on foreign workers for skilled and menial labour and the ‘Saudisation’ of the country has been a long-term project going back well over 60 years, with the aim of getting Saudis employed in the private sector. In Madawi Al-Rasheed’s A History of Saudi Arabia, she writes, “A shortage of local candidates for highly skilled jobs together with the reluctance of Saudis to engage in menial work meant that the country remained dependent on Western expertise for specialised industries and Asian labour for construction and other unskilled and menial jobs.”

We don’t need no education
According to McKinsey, the public sector “employs more than two-thirds of all Saudi workers” and these jobs are generally better paid than the private sector. Startlingly, they also don’t seem to involve much work. Civil service minister Khaled Alaraj, speaking at a roundtable in 2015 said: “The amount worked doesn’t even exceed an hour – and that’s based on studies.”

The truth seems to be that the majority of Saudis don’t need to work particularly hard to live well and that is, for many onlookers – especially those in relatively impoverished nations – an enviable position to be in. So what if there is a skills gap? Until now, foreigners have filled that gap and for several decades that arrangement has worked out well for the kingdom (if not always for those it employs).

It seems unrealistic to suggest that in seven years Saudi Arabia will have freed itself from oil dependency entirely

Well, it becomes a problem if the source of the country’s wealth, oil production, suddenly takes a massive, unexpected hit. The pandemic was painful for oil-rich nations. Many will remember the oil industry going into freefall in 2020 as lockdowns came into place and transport effectively ground to a halt. The fallout from this was immediate for the kingdom. In May 2020, Bloomberg reported “a record $27bn monthly drop in the Saudi central bank’s net foreign assets” caused by the oil crash. Saudi Arabia’s finance minister, Mohammed Al-Jadaan, reacted to these events, saying “it’s very important that we take very tough and strong measures, and they might be painful, but they’re necessary.”

Fortunately, the world’s largest oil exporter had sufficient fiscal reserves to weather the Covid storm, and the recovery has been nothing if not stellar, with an IMF report declaring Saudi Arabia “the fastest growing G20 economy in 2022” on the back of oil’s recovery and strong non-oil GDP growth.

Under pressure
There is now another challenge on the horizon that will likely signal the eventual end to the flow of oil and to the flow of wealth that has sustained the steady development of towering desert skyscrapers. And this one might prove a little more difficult to navigate.

The world has woken up to climate change and the global effort needed to counteract it will mean the gradual phasing out of fossil fuels as we transition to more sustainable and green alternatives (see Fig 1).

According to OPEC, Saudi Arabia possesses around 17 percent of the world’s proven petroleum reserves and in a world where these reserves are no longer needed, the kingdom’s current world standing would be severely diminished. How Saudi Arabia manages the transition will determine what happens next. On the face of it, not much has changed. Oil is still running the country.

And that’s a problem. Production in August 2023 was at nine million barrels a day, down from 11 in September 2022, which has driven Brent crude to $95 a barrel. According to a report by the Oxford Institute for Energy Studies, the Saudi economy, “including the non-oil private sector, still relies heavily on government spending that is fueled by oil revenues.” It is something of a paradox. The kingdom needs its oil money to help pay for its net zero pathway. Saudi Arabia’s answer to this wider global shift in energy policy is in its national transformation programme, Vision 2030.

This is split into several different programmes and mega projects aimed at addressing its historical labour issues and to help grow and diversify the Saudi economy, including several green projects. According to the US International Trade Administration “by 2030 Saudi Arabia plans to generate 50 percent of its electricity from renewables and the other half from gas,” and while this is a laudable goal, it seems unrealistic to suggest that in seven years the kingdom will have freed itself from oil dependency entirely.

Only time will tell
But time is the critical factor here. A study by the University of Manchester concluded that high-capacity countries such as Saudi Arabia would need to cut production 43 percent by 2030 and end production by 2039 to remain in line with Paris climate targets.

Saudi Arabia does not need to look far for inspiration. Going back to Hegra, there is plentiful evidence that the Nabateans were a mightily resourceful and innovative people. Dotted around their tombs are the water wells they dug – many of them still in use today. It proves that our histories need not be cautionary tales; they can be monuments to what we leave behind. Civilisations will always rise and fall, but our future prosperity is measured by our actions.