Jack Pearson | World Finance

STAR Market offers opportunities for investment into China’s tech industries

Posted on November 15, 2019December 19, 2019 by Jack Pearson

When China’s Science and Technology Innovation Board – or STAR Market – debuted on July 22, shares soared as much as 520 percent in a frenzied day of trading. By market close, stocks had gained 140 percent on average, more than doubling the board’s combined market capitalisation. (see Fig 1).

Chinese chipmakers and tech-focused healthcare firms made up some of the 25 companies that began trading on day one, though more than 140 firms signed up to list on the Nasdaq-style equities market.

STAR Market, which is operated by the Shanghai Stock Exchange (SSE), was launched in the hope it would boost investment in a new generation of home-grown tech start-ups, and even lure back Chinese success stories like Alibaba and Tencent that chose to list their shares abroad. “Establishing the STAR Market is a major step to implement the strategy of invigorating China through science and technology,” Lynda Zhou, Portfolio Manager at Fidelity International, told World Finance. Despite its initial success, some doubt the exchange’s ability to transform China’s capital markets.

The STAR market is less stringent about profitability: for the first time ever in China, certain companies can now go public before they are lucrative

Sparking interest
STAR Market is part of China’s strategy to further develop its hi-tech industries. However, the broader plan to boost the technology sector, Made in China 2025, has taken a back seat amid the ongoing trade war with the US.

Hostility between the US and China has escalated over the past year, and some policies – such as higher tariffs – have directly impacted China’s tech sector. The Trump administration even blacklisted Huawei, a Chinese maker of smartphones and 5G network supplies, over national security concerns. Through the introduction of the STAR Market, Chinese officials hope to develop their own capital markets in order to become less reliant on debt and foreign money. “At [the] macroeconomic level, it will help the country to sustain economic growth by funding technological innovation rather than through massive infrastructure spending,” Zhou explained.

Compared with other exchanges in China, STAR Market’s lenient listing requirements are designed to be more attractive to start-ups. For example, STAR is less stringent about profitability: for the first time ever in China, certain companies can now go public before they are lucrative. This was a logical move, according to Ufuk Güçbilmez, a senior lecturer in finance at the University of Bath, because the practice is “completely acceptable” in more developed markets like the US. “You want to go public at the point when you are still growing. When you are still growing, you tend to be unprofitable,” Güçbilmez told World Finance. “Now I think China understands that.”

STAR Market also conforms more closely to US markets by allowing unequal voting rights. In the US, dual-class share structures allow the founders of companies such as Facebook and Alphabet’s Google to retain control of their businesses even with a small portion of shares when those shares have higher voting rights. Although these structures receive some criticism, Güçbilmez said it is a good strategy for STAR Market, which is looking to lure in more innovative tech firms. “It’s all about making the STAR Market more attractive for
entrepreneurs,” he said.

In light of these changes, Zhou called STAR Market a “milestone” in the ongoing transformation of China’s capital markets and its shift towards an economy focused
on hi-tech industries.

Losing lustre
While the changes made by STAR Market are significant, this is not the first time China has launched a new exchange aimed at attracting top technology firms.

A decade ago, ChiNext was established with the same promise as STAR: to become China’s Nasdaq. In 2009, a report by The New York Times said ChiNext was “the start-up exchange for start-ups… making it easier for smaller Chinese companies to raise capital by reducing the requirements for going public”.

Although the exchange attracted a number of smaller companies, it failed to appeal to China’s foremost firms, such as Alibaba and JD.com, which both chose to list in the US in 2014 instead.

Güçbilmez’s research into this phenomenon showed a clear distinction between the companies that went public in China and those that chose to go abroad: large firms backed by foreign venture capital almost always preferred to list their shares on US exchanges, while smaller but profitable Chinese companies typically chose ChiNext. This was partly due to the fact that venture capitalists prefer to sell their shares in a liquid market – even today, liquidity can be an issue in Chinese markets. Moreover, the regulatory environment with ChiNext was always uncertain as it was used as a testing ground for new regimes, such as limiting share price movements. The market for initial public offerings was even shut down in order for reforms to be made. “This all creates uncertainty, and of course investors don’t like that. And they see the US as a safe option if their firm is good enough to go public in the US,” Güçbilmez said.

ChiNext also failed to go as far as STAR Market when it came to profitability requirements. Combined, these factors have led to poor performance. In 2017, the South China Morning Post reported that eight of the 10 largest companies trading on the board had warned of either profit declines or losses during the first half of the year. Although ChiNext has failed to live up to expectations, Güçbilmez said he was surprised when President Xi Jinping announced the introduction of a new Nasdaq-like board in November 2018.

“It seems [the Chinese Government wants], again, to use STAR Market as a testing ground, and they want to make a separate experiment compared to ChiNext,” Güçbilmez said. Now, ChiNext’s future is uncertain: “I think it would make more sense to actually keep working on ChiNext, because you have hundreds of firms listed there already… and it’s been operational for 10 years now.”

Educating the nation
Even though STAR Market has improved upon ChiNext, structural issues remain in the Chinese equity market. One issue the country still grapples with is extreme market volatility. After valuations soared on STAR Market’s first day of trading, many experts said the gains were overblown. “This [surge] is crazy,” Ronald Wan, CEO of Partners Capital International in Hong Kong, told CNN Business. “But it’s already overdone. I don’t think such gains can last long. It’s way too speculative.”

Daniel So, a Hong Kong-based strategist at CMB International, told the Financial Times soaring valuations were “pure speculation”, with the coming days likely to bring “huge volatility”. On the second day of trading, shares did pare their gains somewhat, falling by eight percent on average.

According to Güçbilmez, market volatility is not unique to STAR Market; wild swings in stock prices have long been a problem in China due to a lack of financial education among retail investors. Retail investors see stock markets “as an opportunity to make quick money”, but this is unsustainable, Güçbilmez explained to World Finance. “Prices can’t keep rising in the stock market. I think they still think that this is going to be the case, and that is a problem.”

According to Reuters, retail investors accounted for more than 90 percent of transactions on STAR Market’s first week of trading. China has the largest population of any country – around 18 percent of the global population – so its potential for retail investing is huge. Güçbilmez believes investor education will play a key role in ensuring China’s capital markets continue to develop in the coming years. If the lack of financial education is not resolved, STAR Market won’t be able to attract the best hi-tech Chinese companies. “If you can’t address this issue, you can’t become a major market,” Güçbilmez said.

A bright future
Chinese equity markets must also address the corporate governance issues that often deter foreign investors if they hope to stand on equal footing with other global markets. “Chinese companies have made progress in improving governance over the past 30 years,” Zhou said. For example, inclusion in the widely watched MSCI Emerging Markets Index and the launch of a ‘stock connect’ link between mainland China and Hong Kong have helped boost foreign institutional investors’ participation in recent years. “But [compared] with European and US companies, there is still a long way to go. Chinese companies have not prioritised governance enough,” Zhou added. As China continues to open up and foreign investors take more active stewardship roles, Zhou expects governance to improve.

While it remains to be seen whether any of China’s major success stories will return to their home market, Zhou believes there is a possibility that those that haven’t gone public yet, such as Ant Financial, would consider STAR Market. Still, she is cautious about the short term, as swings in valuation create volatility. Looking at the bigger picture, however, Zhou is optimistic: “In the long run, I keep my positive view [of] the STAR Market.” In time, Zhou sees STAR emerging as a “vibrant market” for China.

To make that prediction a reality, China must continue to address the concerns that cause foreign investors to avoid the market and cause China’s best and brightest companies to favour foreign listings. If these issues are addressed comprehensively, it is possible STAR could be a beacon of light for China’s hi-tech economy.

Digitalisation is essential to Latin America’s blossoming wealth management sector

Posted on November 13, 2019December 2, 2019 by Jack Pearson

Following the global financial crisis of 2008, the wealth management industry endured a period of sweeping regulatory changes. Today, after more than a decade of growth, the sector is poised to enter a new period of transformation as the market responds to shifts towards digitalisation and personalisation. By 2020, consulting firm PwC expects the global asset management industry to reach $111.2trn in assets under management (AUM), topping previous forecasts of $101.7trn.

In Latin America, the Boston Consulting Group found that regional AUM grew at a faster rate from 2016 to 2017 than it had on average over the entire previous decade. It came as the region’s ultra-wealthy population expanded: in 2017, the number of high-net-worth individuals (HNWIs) living in Latin America was 4,220, estate agency Knight Frank found in its Wealth Report 2018. By 2022, the number of HNWIs is expected to grow by 30 percent to 5,470.

Wealth management firm Puente has provided its expertise in the capital markets of Latin America since 1915. World Finance spoke to the firm’s managing director, Marcos Wentzel, about what the future holds for the region’s wealth management industry.

As the sector itself transforms at a rapid rate, investor behaviour is also shifting; clients are adopting a stronger appetite for risk and seeking more diversified portfolios

How is the wealth management industry in Latin America faring at present?
Since recovering from the global financial crisis, the Latin American wealth management industry has shown robust growth. Social progress and a rebound in commodity prices have helped foster an environment where educated and innovative professionals are ensuring continued economic growth.

Latin America’s HNWIs are, on average, far wealthier than the affluent populations of other regions, and in recent years, their numbers have also rebounded from an earlier decline. Over the past 10 years, Puente has capitalised on this growth, achieving an average AUM growth rate of 35 percent per year.

How has the industry changed in recent years? What have been the most significant developments?
Aside from the growth in AUM and HNWIs, the needs and desires that clients require are changing. Personalisation has become more important as clients look for localised services. Moreover, transparency is now of utmost importance, driven by pressure from both regulators and investors.

To cater for these new demands, the standards of the wealth management market are rising. Today, the industry prioritises accessibility and sophistication. Local players have been the big winners in the wealth management industry over the past decade as investors seek out firms with a local presence. Large wealth managers that can compete internationally without compromising their local presence could secure the greatest number of new AUM.

At Puente, we aim to meet these demands by using our strength as the largest wealth management player in Latin America’s Southern Cone, which is home to countries including Argentina, Uruguay and Paraguay.

What further changes do you see on the horizon, and how will these come about?
The wheels of change are turning in our industry. New technologies, such as analytics, big data, robotics and cloud systems, have become critical and could reshape the sector. Other elements that are causing disruption in the wealth management sector include rising costs, tightening regulations and a challenging macroeconomic environment. As the sector itself transforms at a rapid rate, investor behaviour is also shifting; clients are adopting a stronger appetite for risk and seeking more diversified portfolios.

Over the next 10 years, the industry is set for even more growth. Wealth managers must keep a watchful eye for new trends and developments in order to stay ahead of the coming changes.

Although Puente has more than 100 years of experience in the market, we consider ourselves revolutionaries. Our company culture is hands-on, and we are prepared for constant change due to our strong relationships with our clients.

Can you talk us through business profitability trends in Latin America?
The importance of achieving both a strong operational efficiency and scale has grown in the wealth management industry as the sector deals with increasingly squeezed margins.
Concurrently, more stringent regulations are being introduced around the world, with rising levels of competition caused by new entrants looking to disrupt the wealth management industry, resulting in a reduction in fees. Bigger companies will benefit from economies of scale as the availability of low-cost products widens. This is expected to cause further consolidation in the industry.

Businesses will have to develop clear strategies to ensure their future success. At Puente, we have focused on our advisors’ productivity and developing new technology to create a truly scalable wealth management platform to meet the demands of investors.

How has new technology impacted the industry in recent years?
Technology is already having a measurable effect on the sector. The degree to which wealth management firms embrace technology’s potential will influence which companies find success in the years to come.

Further advances will fuel changes throughout the wealth management value chain, including the means of sourcing new clients and enabling investment advice to be personalised. Furthermore, we can also expect the transformation of portfolio management alongside middle and back-office services.

We see three dimensions to the future of employment: the work, the workforce and the workplace. With the introduction of automated artificial intelligence technologies, we must continue to assess our talent needs and work to redesign our workforce in line with the coming changes.

How has technology improved levels of productivity within the sector?
Productivity in the wealth management industry has remained at around the same level since the end of the 20th century. However, this will change significantly over the next decade.
In the coming years, the development of technology will bring changes to fees, products, distribution, regulation and more. As the sector continues to embrace the full potential of digitalisation, productivity will only improve.

Puente is focused on building a new economic model through which we can empower advisors to create step changes in their productivity levels and then distribute these productivity gains among clients.

Since recovering from the global financial crisis, the Latin American wealth management industry has shown robust growth

What is the difference between transactional and relational businesses?
Today’s clients are sophisticated. They look to wealth managers to cater to specific needs, rather than to offer generic products. Now, active, passive and alternative strategies make up the building blocks for multi-asset solutions.

Firms either need to achieve a scale that allows them to provide multi-asset solutions on a transactional basis, or operate on a high-service solution standard for a long-term relational business. Puente, for instance, is based on a long-term link relational business model. We have more than 35,000 clients and aim to continue growing consistently and sustainably. While demand for both passive and alternative strategies is expected to grow in the short term, the growth of active management will be slower.

What are the benefits of linking businesses?
Transactional businesses must constantly scale their growth amid lower costs and higher competition, meaning linked businesses are more stable over the long term.

Managers must fully understand their clients’ needs in order to shape personalised solutions. They should also prioritise optimising the company’s distribution channels. Additionally, it is important to focus on core differentiating capabilities and look to outsource any non-core functions. As investors have plenty of choice, they will not hesitate to move to whichever company provides optimal solutions.

Staffing and compensation are important aspects to maintaining and growing long-term relational businesses like Puente. We are also committed to using our tools and experience to inform our decisions about how we want to grow and evolve.

Where do you see the wealth management industry in Latin America heading?
During the coming years, AUM will continue to grow in Latin America. Over the next 10 years, AUM in Latin America will double to more than $7trn. The strong economic forecast and likelihood for new wealth to be created in the region over the next few years will give Latin America a good opportunity to thrive.

With more than 100 years of experience in the Latin American wealth management sector, Puente’s knowledge of the market is enviable. Our business has reinvented itself with the changing market and will continue to do so. Over the decades, Puente has achieved one of the highest and most consistent rates of growth in the region. In the years to come, we will continue to build on this strength as we adapt to the sector’s latest transformations.

Eurobank supports Greek banking’s recovery

Posted on November 12, 2019December 2, 2019 by Jack Pearson

In 2018, Greece achieved a positive GDP growth rate of 1.9 percent for the second year running. This was a major milestone for the country: after years of financial turmoil, Greece’s economic outlook showed signs of improving. Additionally, at 4.4 percent of GDP, the primary fiscal surplus had exceeded its target of 3.5 percent of GDP for 2018 and unemployment dropped.

It now seems that the Greek economy is on track to recover from its chronic financial grievances. This recovery was hard earned. The successful completion of the third economic adjustment programme, together with the decision to implement midterm debt relief measures, has contributed to the country’s improving economic outlook.

As a result of the economy’s ongoing recovery, Greece’s banking sector is experiencing a period of renewed positivity

As Greece’s recovery process continues and its investment climate strengthens, it is likely that confidence in the country will grow. The recent lifting of capital controls has made for a more investment-friendly climate and, as such, we can expect to see credit ratings improve. Furthermore, the reinstating of several major development projects and continued growth within the tourism sector – which accounts for 20.6 percent of Greek GDP – will also aid the economy’s long-awaited turnaround.

A clear vision
As a result of the economy’s ongoing recovery, Greece’s banking sector is experiencing a period of renewed positivity. Despite lingering problems, international credit rating agencies maintain a positive outlook for the Greek banking system. Funding and asset risk management are expected to improve in the near future, while the abolishment of capital controls is likely to lead to a gradual return of deposits and increase access to the interbank lending market. As the economy gradually recovers and more investments flow into Greece, we are sure to see further deposit increases.

However, if the Greek banking sector is to continue on this upwards trajectory, it must ride the wave of digital disruption and unlock dynamic growth. By embracing digitalisation, banks will benefit from huge increases in their productivity, competitiveness and e-commerce development.

At Eurobank, we have a clear vision: to become the most mature digital bank in South-East Europe. Our customers’ banking preferences are changing rapidly; many people have high expectations of their banks and demand more convenient and efficient services. To meet these new requirements, we are investing heavily in human resources, digital services and technical infrastructure.

However, digital transformation also presents challenges. On the demand side, the patterns of consumption and the savings behaviour of customers have changed radically. Millennials and Centennials are becoming increasingly important customers as they join the labour force. It is therefore essential to understand the services that meet the needs of these younger generations. Meanwhile, on the supply side, the sector is facing a transformation of the competitive structure of the banking industry. This has been triggered by new entrants from the fintech market. An important challenge for regulators is to create a level playing field between bank and non-bank providers, as well as to ensure adequate control and supervision of these players.

Changing landscape
To address the changing structure of the banking system, the EU has introduced the Second Payment Services Directive (PSD2), a piece of legislation that aims to regulate payment services and their providers throughout the EU and European Economic Area (EEA). PSD2 updates and replaces the Payment Services Directive of 2008.

PSD2 is part of a global trend in the EU banking sector geared towards improving security, innovation and market competition. The intention of this specific directive is to create an integrated market for payments that will force banks in the EEA to open their application programming interfaces (APIs) to provide third parties with direct access to customers. This will create attractive opportunities for established payments organisations. Banks will need to adjust and use this market disruption to their advantage by harnessing their years of transactional experience and reputation as trusted financial institutions.

In retail and corporate payments alike, the biggest opportunities combine capabilities associated with PSD2 – such as data aggregation and account-to-account transactions – with improvements in settlement and clearing infrastructures – including faster payments. In both retail and corporate environments, payments will increasingly be embedded within digital applications that address the full value chain. For example, lifestyle apps tend to include consumer budgeting tools, consumer finance, mortgages, insurance and investments. Such a solution involves a much broader functional scope than banks typically offer, spanning the full customer shopping journey and drawing on data from a diverse set of sources, including social media, the internet and in-store searches.

The EU’s new regulatory framework supports Eurobank’s business strategy as it will help us offer more technologically sophisticated products to meet our customers’ needs. For example, to embrace this disruption, Eurobank introduced its Eurobank API Portal in May 2018. API technology enables the exchange of data, such as account information and payment services. The new portal therefore allows third-party service providers – such as payment institutions, foreign banking institutions and fintech start-ups – to develop innovative financial and payment services in collaboration with Eurobank. We are hopeful that PSD2 will ultimately support our vision to become the most innovative digital bank in South-East Europe.

Putting the customer first
Being customer-centric is not just about engaging with customers. It’s about recognising what they value beyond a company’s products and services and enhancing the brand-customer relationship. Many of the fintech firms currently disrupting the sector have built their businesses from the end user’s perspective rather than from a product perspective. This is what gives them their competitive advantage: they not only get results, but they also generate excitement around their brand.

In 2018, we decided to make sure that our customer-first principle was reinforced across all the sectors of our operations, including retail banking, private banking and corporate banking. Through our customer-centric model, we offer solutions, products and services that benefit both the consumer and the bank. For example, to become more efficient, we realised that we needed to streamline our processes: in 2018, we carried out a range of streamlining projects within our retail banking operations. The programme is proceeding well and will prove invaluable in not only improving our services, but also in reducing our costs.

In accordance with our customer-centric model, we constantly monitor customer needs and create tailor-made products in areas such as savings, insurance, investment and trading. For example, Eurobank offers a variety of deposit products, including accounts for everyday transactions, savings accounts and time deposits, as well as reward programmes. To support Greek households’ savings efforts and address the savings needs of each family member, the bank offers two products: the Regular Savings Account and the Growing Up Account, for customers under 18 years old. As well as an advantageous interest rate, the Growing Up Account offers customers the opportunity to participate in a biannual lottery as a way of potentially doubling or tripling their savings balance. Meanwhile, as part of our ongoing digital transformation plan, we recently enhanced our e-banking platform to allow our customers to open and manage all types of time-deposit products online.

Looking ahead, we will continue to cover all of our customers’ needs by offering the most innovative products and services that focus primarily on user experience. We are doing so by building tools and solutions that will provide a unique experience in daily banking and product acquisition. What’s more, we are soon set to launch a new series of tools and solutions that stem from PSD2 implementation, so that our customers can begin benefitting from their daily banking transactions straightaway.

Eurobank recognises the growing trend for online products and services, as well as for offering an enhanced omnichannel experience to customers. With this in mind, and taking into account the new regulatory environment, we will continue to invest in new products, services and technical infrastructure in order to provide the best possible banking experience, as well as the most efficient service, to all of our customers.

Major tech companies are ditching IPOs in favour of direct listings – here’s why

Posted on November 11, 2019December 2, 2019 by Jack Pearson

The global investment community watched with keen interest in 2018 when Spotify debuted on the New York Stock Exchange. The listing was not only significant because of the music streaming platform’s huge popularity, but also because of the unconventional route it took to the public market.

Spotify eschewed a typical initial public offering (IPO) in favour of a direct listing, where instead of issuing new shares to raise money, the company sold its existing shares directly to the market.

Although direct listings are not unheard of, Spotify’s was unusual. “Normally, companies ring bells,” Spotify founder and CEO Daniel Ek wrote on his blog ahead of the listing. “Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment. Normally, companies don’t pursue a direct listing.”

Spotify’s direct listing could have remained an anomaly on Wall Street, but just over a year later, messaging platform Slack became the next large tech firm to pursue one. Questions are now emerging over the future of the IPO as a model for raising capital.

Although the advantages of direct listings are clear for some firms, the sacrifices made along the way can make them illogical for others

Directing attention
Slack’s direct listing in June may signal greater prominence for the phenomenon. Jay Ritter, a professor of finance at the Warrington College of Business at the University of Florida, said the move showed Spotify’s direct listing was “not just a one-off event”.

With a new precedent potentially set, industry insiders are debating whether more companies will pursue this unusual type of listing. Airbnb, which has not set a date for an IPO, has been earmarked as a prime candidate, with signs suggesting the company is considering its own direct listing. Recode even reported in 2018 that Airbnb CEO Brian Chesky consulted with Spotify’s Ek about how Airbnb could seek its own listing.

A number of factors make the direct listing route attractive, but most notable among them is the cost savings. Companies that participate in traditional bookbuilding IPOs pay hefty fees to investment bankers, typically amounting to around seven percent of the proceeds of their IPO. Conventional IPOs also employ a lock-up period of up to 180 days – a time following the IPO during which large investors cannot sell their shares. Direct listings eliminate this lock-up window.

The lack of a lock-up period was a big draw for Spotify, as the company’s lawyers wrote in a case study for Harvard Law School’s Forum on Corporate Governance and Financial Regulation. Marc Jaffe and Greg Rodgers, partners at Latham & Watkins, wrote in the 2018 case study: “By forgoing the underwritten offering process, Spotify was able to accomplish its goal of providing liquidity without imposing IPO-style lock-up agreements upon listing, and, as a result, the Spotify shareholders were free to sell their shares on the New York Stock Exchange… immediately.”

Some investors find the absence of a lock-up period appealing. Phillip Braun, a finance professor at Northwestern University’s Kellogg School of Management, told World Finance: “My view is that direct listings occur at the request of venture capitalists and private equity investors so that they can cash out of their investments easily.”

However, in an interview with TechCrunch, Barbara Gray, the founder of investment research firm Brady Capital Research, highlighted how this can raise the risk of volatility: “Unlike with an IPO, with benefits of stabilising bids and 90 to [180-day] lock-up agreements prohibiting existing investors from selling their shares, a flood of sellers could hit the market.”

Through its direct listing, Spotify also wanted to ensure all buyers and sellers were given equal access. As Jamie McGurk, an operating partner for venture capital firm Andreessen Horowitz, wrote in an article titled All About Direct Listings, retail shareholders have the same access to shares as “the most sophisticated investment institution” when companies choose this route.

Of Spotify’s direct listing, Jaffe and Rodgers wrote: “This open-access feature and the ability of virtually all existing holders to sell their shares, and of any investor to buy their shares, created a powerful market-driven dynamic for the opening of trading.”

Small problems
Although the advantages of direct listings are clear for some firms, the sacrifices made along the way can make them illogical for others. For example, bankers tend to bundle analyst coverage in with the traditional bookbuilding process, meaning those seeking a direct listing would not be guaranteed any coverage.

While the huge reputations of Spotify and Slack ensured they would receive abundant analyst coverage following their direct listings, smaller companies taking this route wouldn’t be so lucky. Moreover, the conventional move also includes a road show, during which the bankers underwriting the IPO present the company and management team to a series of investors in order to drum up interest ahead of the listing. Removing these elements may not put off a company like Airbnb, which has already made waves in the investment community as an innovative disruptor, but lesser-known organisations could find them to be unsuitable until they can gain more exposure.

“Smaller companies that want analyst coverage from influential analysts will probably continue to use bookbuilding as a way of paying for the coverage,” Ritter explained to World Finance. Gray, meanwhile, suggested that even well-known tech firms appreciate the traditional process of bankers building excitement ahead of an IPO. She told TechCrunch: “I expect most unicorns will still choose to pay the fat underwriting fees to be paraded around by investment bankers.”

Due to the high bar that firms must meet to achieve a direct listing, Braun does not envision a big wave of companies following Spotify and Slack: “For a company to be able to [directly] list, it is necessary for the company to have positive earnings growth and a strong balance sheet. Very few new firms meet these criteria.”

Even Jaffe and Rodgers acknowledged this in their case study: “While Spotify proved that a direct listing is a viable alternative to an underwritten IPO, the process is certainly not right for every issuer.” They argued that Spotify was ideally positioned: it was well capitalised, did not need to raise funds and had a large, diverse shareholder base. What’s more, the brand was widely known and its business model was easily understood. “Companies that do not share these traits may not be the right fit for a direct listing,” Jaffe and Rodgers wrote.

McGurk, however, argued that the direct listing route could open up to lesser-known companies over time: “As direct listings become more popular, the need for brand recognition will dissipate. The job of buyers in both a traditional IPO and a direct listing is to get to know the companies coming to market long before they actually do.”

A niche market
For now, the bottom line for direct listings is that they are not the right fit for every company, and for that reason it is likely they will remain something of a novelty. “I expect direct listings to be a niche,” Ritter said. “I think that the most likely scenario is that a handful of large, highly visible companies will do direct listings.”

In Braun’s view, the fact that just two companies have pursued direct listings does not signify that any significant changes to the IPO process will flourish: “Direct listings can only occur for specific companies. I can only envision alternatives to traditional IPOs happening internationally, if at all.”

However, Spotify was not the first company that sought to break out of the confines of the conventional IPO process. In 2004, Google went public through a so-called ‘Dutch auction’. In theory, the auction process delivers a higher price than a traditional IPO while giving individual investors – rather than just fund managers – the opportunity to buy shares.

With traditional IPOs, the underwriter decides who gets shares (and how many, if the offering is oversubscribed). “In other words, with bookbuilding, underwriters have discretion in allocating shares, and in an auction, they don’t,” Ritter explained.

Although a handful of companies followed Google’s lead, the Dutch auction method did not take off. Ritter believes this was because underwriters were unable to allocate under-priced shares to their most profitable clients. What’s more, through IPOs, underwriters can also recommend a lower offer price to maximise the profits of their buy-side clients.

“Thus, bookbuilding is a win-win arrangement for the underwriters and their hedge fund clients, but the issuing firms are losers because they raise less money than they could have,” Ritter said. While it is unlikely that big departures from the traditional IPO process will occur right away, companies could begin to look to tweak the process here and there.

As Jaffe and Rodgers wrote: “For example, could IPOs without lock-up agreements or with shorter lock-up periods begin to enter the market? Will other companies choose to conduct an Investor Day like Spotify’s and forgo more traditional, small-group meetings held as part of a road show?”

As the tug of war between companies, investors and underwriters continues, changes inspired by the direct listing method could very well begin to transform the process of companies going public.

Sold down the river: how Paraguay’s infrastructure gap is hurting the country’s poorest citizens

Posted on November 8, 2019December 2, 2019 by Jack Pearson

Looking at the statistics, things are going well for Paraguay. Between 2004 and 2017, the economy posted an average growth rate of 4.5 percent, outpacing most of its regional competitors. In that period, total poverty fell by 49 percent and extreme poverty by 65. Although economic expansion is predicted to fall below four percent for 2019, sovereign debt is low. On the streets of the country’s capital, Asunción, however, optimism is in short supply.

The benefits of Paraguay’s economic boom have not always been shared evenly. In Asunción, this inequality comes to a head every time the rains arrive. Paraguay is no stranger to flooding but, earlier this year, two weeks of particularly heavy downpour caused the Paraguay River, which passes straight through the capital city, to burst its banks. A 90-day emergency was quickly declared, with many families – especially those living in less affluent neighbourhoods – forced to flee their homes.

A freak weather event is difficult to plan for; persistent heavy rainfall less so. Yet, each year Asunción fills with makeshift shacks providing temporary housing to those displaced from elsewhere in the city or other towns situated along the river. The proceeds of Paraguay’s economic growth, which look so good on paper, are much needed here.

When the floodwaters arrive, the inequality that normally remains hidden from government officials and corporate high-flyers is thrown into the light

Building bridges
It would be disingenuous to claim that Asunción has not benefitted from Paraguay’s economic growth at all. Private investment is rising, real estate prices are on the up and new construction projects regularly appear. Costanera de Asunción, a promenade running alongside the Paraguay River, opened in 2012 and the World Trade Centre Asunción followed three years later.

Nevertheless, in many areas, the city remains underdeveloped. For example, although its wider metropolitan area is home to almost a third of the country’s seven million people, Asunción does not possess a metro service. As a result, many of the city’s working population – those who cannot afford to live in its central district, at least – have to take to the roads for their commute. An estimated 600,000 vehicles carrying 1.5 million people do this trip every day. Twice.

As was demonstrated earlier this year, the city is also poorly equipped to deal with the heavy rainfall that regularly occurs between October and May. This is not a new problem. A 2012 World Bank report read: “Rapid unplanned urban population growth in metropolitan Asunción over the past 40 years has resulted in a substantial increase of informal occupation of public spaces, flood plains and environmentally sensitive areas, bringing with it the associated negative impacts to the environment that result from the lack of adequate stormwater drainage systems and solid waste collection and disposal, as well as water supply and sanitation infrastructure or services.”

Fortunately, work is underway to build the water treatment infrastructure the city so badly needs. Acciona, a Spanish infrastructure and renewable energy firm, has started constructing the Bella Vista wastewater plant in order to decontaminate Asunción Bay, with two other plants in the pipeline. It’s a start, but not much more than that. According to the Financial Times, some utilities experts estimate that Paraguay’s capital city needs to spend $1bn to improve its sewage and drainage infrastructure.

Holding back the flood
The role that infrastructure can play in reducing inequality is often overlooked. Better transport services provide easier access to higher-paid jobs, smoothing out kinks in the labour market. The same is true of improvements to communication infrastructure. Sumedha Bajar, a faculty member at the National Institute of Advanced Studies, wrote in a report published last year: “It may be that through increasing access to productive opportunities, through reducing production and transaction costs (and thereby leading to industrial or agro-industrial development), and by helping increase the value of assets of the poor, infrastructure can help reduce inequality. Additionally, by providing easier geographic access through improved transport infrastructure, labour mobility is enhanced, which can drive surplus labour to move to places where labour is in short supply.”

In Paraguay, these opportunities are much needed. No country has higher land inequality, with over 70 percent of all productive land in use by just one percent of farms. The poorest members of the population rarely have access to health insurance, and 23 percent of the population remains at risk of “catastrophic out-of-pocket expenditure”, according to the World Bank’s 2018 Systematic Country Diagnosis report on Paraguay.

When the floodwaters arrive, the inequality that normally remains hidden from government officials and corporate high-flyers working in shiny new office blocks is thrown into the light. Residents of slums like Ricardo Brugada, more commonly known as La Chacarita, are forced to make temporary accommodation elsewhere on higher ground. Local councillors insist that more permanent accommodation is available for the displaced some 20km to the east of the city centre, but given the poor transportation options available, many are unwilling to move from their riverside homes.

Better infrastructure around the country would also help lessen the pressure on Asunción and the Paraguay River. Around 45 percent of the population lives in rural areas, where poverty remains high. Currently, they have few ways to improve their lot other than by moving to the capital and joining the thousands already making the long trip to their jobs in the city centre every day.

The bigger picture
Countless reports have urged local and national politicians to improve Asunción’s infrastructure. Global Infrastructure Hub estimates that the country has a $12bn investment deficit regarding energy infrastructure, a $1.4bn gap in terms of rail transportation and a $1bn shortfall concerning telecommunications. The challenge lies not so much in identifying where more money needs to be spent, but in getting the money in the first place.

The country’s tax takings are low, which means social spending is too. Until 2013, in fact, there was no income tax at all. The current tax system is extremely regressive, with nearly 60 percent of all tax revenue stemming from indirect sources like VAT and excise tax. Overall, the OECD calculated the ratio of tax revenue to GDP to be just 13.8 percent in 2017, lower than all other South American countries.

Trust among Paraguayans in their local or national politicians is also low. There is a widespread perception that the lower a person’s income, the less their voice is heard. Research undertaken by Latinobarómetro found that 87 percent of respondents in the country believe politicians govern for the benefit of the powerful, one of the highest results in Latin America (see Fig 1).

Even if that is the case, it is never easy to convince a country that has enjoyed low taxes for so long that rates need to be increased; new president Mario Abdo Benítez is trying nonetheless. A bill that would reform the country’s tax system and result in a 10 percent increase in revenue collection – worth $300m a year – is now being discussed.

Local politics is also trying to improve the situation for Asunción residents. The city’s mayor, Mario Ferreiro, wants to improve riverbank defences and construct more flood-proof homes, but his plans have been held up by the municipal board. Although Ferreiro’s proposals would eat into already stretched budgets, allowing the current situation to continue makes little sense. Estimates indicate that the annual cost of rehousing the thousands in the city that are displaced by flooding stands at $20m.

For too long, improving the city’s neglected infrastructure simply didn’t feature very high on the government’s list of priorities. That may finally be about to change: there are plans to invest over $2bn in Paraguay’s north-western Chaco region in an effort to transform the semi-arid area into a hub for agricultural trade. While those living in slums along the Paraguay River may resent such expenditure, they too could stand to benefit if it provides much-needed job opportunities outside the capital.

Other infrastructural projects that will benefit the city directly, including the Asunción-Chaco Bridge, appear to be closer to fruition. They are part of a $2bn portfolio of developments that is set to benefit the capital and its surrounding area. If these projects are completed, they will provide much-needed relief to the citizens who have been denied their share of the spoils from Paraguay’s decade of economic growth. In the years to come, perhaps Asunción’s poorest may be able to finally enjoy the city’s prosperity. It’s just a shame it’s taken so long.

Banco Popular Dominicano leads the way with a new suite of digital products

Posted on November 6, 2019January 20, 2020 by Jack Pearson

The economy of the Dominican Republic has demonstrated impressive growth in recent times, averaging 5.1 percent annually during the decade between 2008 and 2018 (see Fig 1). Over the past five years, it was confirmed as the fastest-growing economy in the Latin America region. This expansion has helped to reduce poverty and expand the middle class, but not all citizens have benefitted equally from such growth.

Until relatively recently, many still lacked access to the basic financial services needed to ensure they benefitted from the advantages of this economic prosperity. Some of the country’s financial institutions, however, have worked hard to change this. Through new digital deployments, financial inclusion in the Dominican Republic has progressed substantially over the last few years.

One organisation in particular, Banco Popular Dominicano, has done more than most to ensure that individuals in the Dominican Republic have access to the relevant financial services. Founded more than 50 years ago, the bank has witnessed huge developments in the country’s economy.

The Dominican Republic has been on an upward trajectory for several decades, and Banco Popular Dominicano has been there every step of the way

After President Rafael Trujillo’s dictatorship came to an end in 1961, the Dominican private sector developed quickly and, at the same time, commercial banking services expanded to provide the capital required to support the country’s economic growth. There have been dark times since, including a banking crisis in 2003, but every country’s economy has its peaks and troughs.

On the whole, however, the Dominican Republic has been on an upward trajectory for several decades, and Banco Popular Dominicano has been there every step of the way. From the very beginning, the bank has focused on the democratisation of banking solutions and implementing essential social initiatives. World Finance spoke to Francisco Ramirez, Executive Vice President of Personal Businesses and Branches at Banco Popular Dominicano, about how this ethos continues to drive the bank forward even as it pursues new digital innovations.

What digital products and services does Banco Popular Dominicano offer?
Banco Popular Dominicano has a wide range of digital products and services that allow our customers to interact with the bank to fulfil all their financial needs. Our mobile app – the most downloaded app in the Dominican financial sector – offers our customers a handful of digital solutions for their individual needs, making their day-to-day lives easier. Alongside the capabilities provided by our online banking services, we possess the most visited and best-positioned website in the country within the finance industry.

To better facilitate transactions, we have deployed the latest generation of smart ATMs, through which customers can make online withdrawals and deposits, as well as pay their loans and credit card bills with either cash or funding from their accounts. This is a highly convenient and efficient process. We have also opened digital channels where customers can give us their opinions and suggestions or request additional information.

How have customers reacted to new digital deployments?
On the whole, customers have reacted very positively to our new digital technologies. Today, more than 80 percent of our transactions are digital and more than 50 percent of our clients are using our digital platforms. Moreover, according to the research we have gathered from various client surveys, our digital capabilities are our most valued attributes.

Our new digital centre, launched in September 2018, has continued to strengthen our digital leadership in the Dominican Republic’s banking sector, keeping us in line with the latest international trends. The digital centre brings a new concept of banking to the country, including more modern service solutions. It encourages the use of self-service channels among our clients and functions as a platform to launch technological innovations, as well as serving as a laboratory from which we will continue to strengthen our leadership. The centre, which incorporates an educational space that hosts talks on personal finance, industry trends and innovation, has been well received by our customers.

What are some of the main challenges the bank has faced when trying to engage in digital transformation?
Changing the habits and mindsets of our clients so that they are aligned with digital developments has been one of our main challenges. Also, we must continue to deepen our innovation culture, technological infrastructure and cybersecurity protocols so we can rapidly deliver innovative products, channels and services better suited to our customers’ changing needs.

What is the current state of financial inclusion in the Dominican Republic? Has it improved in recent years?
According to the World Bank’s Global Findex database, in 2017, the Dominican Republic surpassed the Latin American average for financial inclusion, with 56 percent of Dominicans over 15 years old possessing a bank account. This represents tangible growth in comparison with 2011, when this figure stood at just 38 percent.

How important is sustainability to Banco Popular Dominicano?
Since we opened in 1964, Banco Popular Dominicano has been committed to creating positive change in banking for the benefit of all Dominicans and the environment. As the largest privately owned bank in the country, we feel it is our duty to play a prominent role in creating a more sustainable world.

That’s why we have decided to take part in the United Nations Environment Programme Finance Initiative, a global partnership between the United Nations and the global financial sector, which aims to build a sustainable future through the principles of responsible banking. We are the first Dominican bank – in fact, the first in the Caribbean region – to join this initiative, and we are very proud to do so.

What are some of the bank’s key CSR programmes and what benefits have they delivered to the Dominican people?
Banco Popular plays an important role in promoting renewable energy and energy efficiency projects, with our work being recognised by the United Nations Framework Convention on Climate Change as falling into its ‘nationally appropriate mitigation actions’ category. This acknowledges our efforts to mitigate CO₂ emissions and is the first Dominican environmental project to appear on the international registry of the United Nations.

We have 11,255 solar panels installed on the roofs and parking lots of our 54 offices, and we were the first Dominican institution to generate solar energy for consumption. Recently, we also installed our first photovoltaic charging station – a pilot unit that was launched in May 2019 and allows for the recharging of electric and hybrid vehicles using solar energy. We offer this facility for free to the bank’s customers and visitors.

In addition, for two decades we have been supporting Plan Sierra, the most important sustainable forest management programme in the country, through which our employees are actively participating in reforestation – a vital initiative for the island’s sustainability.

Internally, we promote a culture of responsibility in our employees, encouraging recycling and introducing ecological and recycled paper for our operations. There are already departments that have considerably reduced their consumption of paper and have started transferring all their operations to digital formats. Our model of digital transformation is a key driver for sustainability.

How does the bank encourage entrepreneurialism in the country?
Innovation is a core aspect of our operations. We remain committed to this approach by offering innovative products and services that suit our customers’ needs. Our agile digital banking model and advanced financial facilities support this drive.

We encourage an entrepreneurial culture throughout the country via several programmes. One of them is Challenge Popular, a design marathon in which participants are tasked with producing the best proposals for services or products during an intense 48-hour creative process. Another is Impúlsate Popular, a competition that seeks to encourage young entrepreneurs to grow their innovative projects and grants them access to seed capital for their business initiatives. Last year, we also launched a programme to support SME clients that want to become franchises or acquire an established franchise.

We also have Banquero Joven Popular, a CSR initiative that seeks to educate schoolchildren about the function of ethical and sustainable banking while improving their financial education, entrepreneurship and leadership skills.

What plans does Banco Popular Dominicano have for the next few years?
In our 55 years of activity, we have earned the trust of the Dominican people through the introduction of initiatives that add value to their lives. Our focus in this area has led us to develop and maintain innovative financial services that achieve a better user experience and more memorable customer service.

In the coming years, Banco Popular Dominicano will continue to focus on stimulating digital sales, improving digital experiences, promoting innovation, transforming traditional branches and strengthening cybersecurity, all while adhering to our model of responsible banking.

Playing with FIRE: how some Millennials are retiring before the age of 40

Posted on November 5, 2019December 2, 2019 by Jack Pearson

Peter Adeney, also known as Mr Money Moustache, has been running his blog of the same name since 2011. A recent post, provocatively titled How to Make a Thousand Bucks an Hour, details how Adeney helped a friend save over $6,000 a year simply by re-evaluating and renegotiating several of her existing loan agreements. It’s through posts such as this that Adeney has built his substantial following of 1.5 million monthly readers. The advice he doles out is all based on his remarkable life story: Adeney retired in 2006 aged just 30, having amassed approximately $600,000 in investments in the early part of his career. He achieved this by living extremely frugally, which allowed him to save the majority of his $67,000 annual income.

Today, the lifestyle promoted by Adeney has evolved into a wider philosophy: the ‘financial independence, retire early’ (FIRE) movement. Proponents of this movement argue that by spending little and investing wisely during the early years of one’s career, a person could give up work at least 20 years before the traditional retirement age. But while FIRE followers maintain that early retirement is achievable for any person, not just those receiving a high salary, critics are doubtful, arguing that the FIRE lifestyle is only accessible to those with the financial knowledge to make it work and no economic responsibilities to contend with.

Running the numbers
The principles underpinning the FIRE movement are based on two main sources, the first being Your Money or Your Life, a book published in 1992 by Vicki Robin and Joe Dominguez. The text promotes ‘life energy’ over financial means, setting out nine steps to teach readers to live a simpler yet more fulfilling life. However, Robin admitted in a recent interview with The New York Times that she never envisaged the text would become a seminal guide for today’s numbers-orientated FIRE followers. “Our aim was to lower consumption to save the planet,” she said. “We attracted longtime simple-living people, religious people, environmentalists.”

While FIRE followers maintain that early retirement is achievable for any person, not just those receiving a high salary, critics are doubtful

The second source, a 1998 paper titled Retirement Spending: Choosing a Sustainable Withdrawal Rate, published by three professors of finance at Trinity University, sets out the mathematical basis for the modern movement. The paper established the four percent rule, which is used to calculate how much a person can withdraw annually from their retirement portfolio without running out of money. The rule works on the assumption that investment appreciation and dividends increase the value of the portfolio by around seven percent per year, but the portfolio decreases by around three percent per year as a result of inflation. Therefore, spending no more than four percent theoretically ensures that the portfolio will not shrink.

There are, however, a number of flaws in the report’s calculations. First, the study was completed during a time of prosperity for the US economy – today, a seven percent annual rate of return on investments is much harder to achieve. Second, the calculation doesn’t account for a dramatic rise in annual spending, due, for example, to hyperinflation or another kind of economic crisis. Third, the original authors of the study based their calculations on a 30-year retirement period, as they assumed that a person would be retiring in their 60s. If the four percent rule is applied when a person retires at 30, their portfolio will technically only last until they are 60. At this point, they will still be too young to begin claiming a pension and would have to find another source of income.

Can’t handle the heat
The movement has also faced criticism for promoting a savings regime that is only possible for those on a high income. According to SmartAsset’s analysis of Bureau of Labour Statistics data, the average Millennial in the US earned $35,592 in 2018. This group spends an estimated 45 percent of that salary on rent, a 2018 report by RENTCafé showed. If a person saved 50 percent of their income, that would leave five percent of their annual income, or around $1,780, to pay for medical, transportation and food costs, along with student loans and other expenses. Living on such a small sum would be impossible.

FIRE proponents are dismissive of this criticism, claiming that saving is simply a case of adjusting your financial attitude. “We spend whatever we want. We just happen to want a bit less,” Adeney tweeted recently in response to an article suggesting that FIRE encourages “extreme frugality”. However, for many, saving the amount required to build a six-figure investment portfolio before the age of 40 is not simply a choice. Rather, it would mean shirking grave financial responsibilities.

What’s more, saving the funds to support early retirement requires financial nous, both in calculating savings rates and selecting investments that will provide the necessary returns. For this reason, the lifestyle has typically appealed to those who are number-savvy and already have an understanding of investing. They “tend to be male and work in the tech industry, left-brained engineer-types who geek out on calculating compound interest over 40 years”, wrote The New York Times’ Steven Kurutz.

Going cold
Despite the criticism that has been directed its way, the FIRE movement has rapidly gained popularity in recent months. It has seen extensive press coverage on both sides of the Atlantic, with some of its proponents becoming minor celebrities as a result – most recently authors Kristy Shen and Bryce Leung, whose guidebook to their lifestyle, Quit Like a Millionaire, was released in July 2019.

FIRE proponents are dismissive of criticism, claiming that saving is simply a case of adjusting your financial attitude

Even some who are in a financial position to retire early are sceptical of FIRE. Natasha Collins is one such example: the chartered surveyor, property investor and lecturer has elected to continue working, despite having more than enough in her bank account to quit her day job. “I like working and want to share my knowledge with others,” she told World Finance. “I’m only 30 – it seems a waste to stop working now.”

When asked about the FIRE movement, Collins said: “I think it’s great if that’s what you want to do. [But] I’d wonder about the type of person who would want to just give everything up.” Perhaps though, it’s not about giving everything up, but choosing a different path. The rise of the FIRE movement aligns with a wider social trend that is particularly prevalent among younger generations – namely, a willingness to embrace new ways of working. For those who have recently entered the workforce, the prospect of toiling at a desk for 40 hours a week for the next 40 years is daunting and has led many to question the point of earning a decent salary if it is simply spent on existing from one day to the next. FIRE offers an alternative – it proposes frugality for a short period in exchange for a more fulfilling life down the line.

Nevertheless, FIRE is an extreme iteration of that belief. It is possible to achieve similar results through more measured means, such as reducing working hours to create more free time or investing a small percentage of monthly income to build a modest nest egg, which could be drawn upon to finance a six-month sabbatical. But moderation, sensibility and balance don’t grab headlines in the same way that “I saved $1m and retired at 30” does.

Early retirement is a choice, but not one that is available to everyone. “I think it’s basic human nature to want to work on things you are passionate about, which retiring early would allow you to do,” Collins said. “But I’ve found that working on my passions has also come with making money.” FIRE presents those two things as mutually exclusive, but that’s not necessarily the case. By eschewing the movement’s extreme approach in favour of a more balanced attitude to saving, it’s still possible to retire early – just in your 50s, as opposed to in your 30s – without demanding such frugal living along the way.

Kazakhstan’s capital seeks new role amid shifting global markets

Posted on November 4, 2019December 2, 2019 by Jack Pearson

In July 2019, Mark Yeandle, lead author and co-creator of the Global Financial Centres Index, addressed journalists gathered in the Kazakhstani capital of Nur-Sultan for the latest edition of Astana Finance Days and offered a forthright assessment of the finance sector. “We have over 100 financial centres in the world,” he said. “If you asked me a straight question, ‘Does the world need another international financial centre?’ The answer is: ‘No’.”

The admission was all the more surprising given its setting: Astana Finance Days is a four-day event designed to showcase Nur-Sultan as a new name on the global financial circuit. Yeandle did not intend to burst any bubbles – rather, he simply wished to offer a dose of realism. Nur-Sultan is competing with global heavyweights with a long history of financial success, as well as a good
number of fellow upstarts.

If Nur-Sultan is to successfully demonstrate that it is more than just another international financial centre, the city has to build a convincing narrative that will grab the attention of investors

But regardless of whether the world needs more international financial centres, it is getting them, and there are reasons to believe that Nur-Sultan – given time – could compete against its better-known rivals. Efforts are already well underway to bolster the city’s reputation as a financial hub, with swift progress being made in areas like regulatory standards, infrastructure and human capital. It is easy to sneer at Nur-Sultan’s ambition of becoming the epicentre of finance in Central Asia, but great strides are already being made.

Reputation building
In many respects, Nur-Sultan is starting from the beginning. Ask people where Nur-Sultan is and most would probably stare back blankly – and you can hardly blame them. The capital city was known as Astana until March of this year, when it was renamed in honour of former president Nursultan Nazarbayev, who had recently stepped down. Even Kazakhstan itself, despite being the ninth-largest country in the world, could hardly claim to be particularly well known. Attracting investment here, over the likes of London, New York or Shanghai, will not be easy. Fortunately, those tasked with turning Nur-Sultan into an international financial centre have already got to work.

The Astana International Financial Centre (AIFC) was launched on July 5, 2018, and represents the fundamental strand of Nur-Sultan’s ambitions. As well as looking the part – the AIFC is housed in the grand surroundings of the Kazakhstan Pavilion and Science Museum, built for Expo 2017 – the AIFC incorporates a number of the principles and standards that international investors have come to expect from a leading financial centre.

For example, participants in the AIFC are granted access to a simplified visa regime, whereby citizens of OECD countries, Malaysia, Monaco, the UAE and Singapore can stay in Kazakhstan for 30 days visa-free. This visa waiver also has the potential to be extended for up to five years. In addition, individuals and businesses registered with the AIFC are exempt from individual and corporate income tax, as well as from property and land tax for any properties located on the AIFC premises, until the year 2066.

“The AIFC has already become a centre that attracts major international banks and investment companies,” noted Kassym-Jomart Tokayev, President of Kazakhstan, at Astana Finance Days. “Important activities of the centre will be asset and funds management and the introduction of new financial and green technologies. In the turbulent conditions of the world stock and currency exchanges, the AIFC will become a generator of attracting investment in the economy and financial sectors of the [Eurasian Economic Union] countries.”

Certainly, the AIFC has got off to a flying start. Already, more than 200 companies have registered with the financial centre, including firms based in more than 20 countries, such as the UK, Russia, China and the US. Among some of the bigger names signed up to the AIFC are the China Development Bank, Russell Bedford and Shinhan Investment. Announcements regarding new participants are never far away.

Laying down the law
One reason businesses are so keen to sign up to the AIFC is the strong regulatory environment it offers. Operating alongside the AIFC is the AIFC Court, an independent judicial system designed to resolve civil and commercial disputes involving AIFC participants or any external party that has chosen the AIFC Court to adjudicate on an issue.

“We have a robust enforcement system at the court within Kazakhstan,” explained Christopher Campbell-Holt, Registrar and Chief Executive of the AIFC Court, at the conference. “When we have a judgment it can be enforced without going to the local court; it’s enforced directly by the enforcement agents of Kazakhstan with our step-by-step enforcement procedure. And the idea is that it’s as quick as possible. And we have more faith in it because we have some control over it. We don’t charge any fees. This will continue to be the case at least for the next two years and is very important when you want to drum up new business for the court.”

Perhaps most important is the fact that the AIFC Court will implement English common law, as opposed to Kazakhstani civil law, for all of its dispute resolutions. In a common law system, courts follow the customs and precedents set by prior judicial rulings. The AIFC Court has assembled a team of experienced and knowledgeable judges to oversee proceedings, including former chief justice Harold Woolf, former minister of state for justice Edward Faulks and barrister Patricia Edwards.

This is the first time a common law court system has been used in the post-Soviet world. It allows businesses and investors to work within a legal framework that they trust and has been successfully implemented in a number of other highly ranked financial markets, including Hong Kong and Singapore.

The AIFC Court also boasts an e-filing system, named eJustice, to ensure disputes are resolved as quickly as possible. This system means parties can file cases electronically with the court from anywhere in the world without having to be physically present in Nur-Sultan. In fact, the AIFC resolved its first case in April of this year via its small claims court, with the judgment issued by a magistrate in London via email.

Alongside the AIFC Court is the AIFC International Arbitration Centre (IAC), which provides an alternative dispute resolution service that avoids court litigation by using respected mediators from the EU, Russia, Japan and several other markets. Together, the AIFC Court and the IAC help deliver the solid regulatory environment that investors expect. For individuals and corporations that might not be familiar with the local business and legal landscape, these two institutions provide much-welcomed assurance and reliability.

The centre of the world
Kazakhstan may not be that well known, as a financial centre or otherwise, but this looks set to change. Aside from being a huge country, its location in the centre of the Eurasian landmass is a substantial asset for the nation. Bordered by China to the east, Russia to the north and with European markets just a few hours away to the west, Kazakhstan is well positioned to take advantage of any economic developments taking place in Central Asia.

Many nations in this part of the world have rich deposits of natural resources, including oil, gas, zinc and copper. In a number of cases, the collection of these resources remains »
underdeveloped, meaning there is huge potential for extractive industries. There is another reason why investors might be looking to Central Asia for future gains: the region’s young, well-educated population.

The average age of Kazakhstani citizens is 30, with more than 70 percent of the working-age population currently active in the labour market. Average wages come in at around $516 a month, significantly lower than other nations with a similar GDP per capita. This represents a fantastic opportunity for foreign businesses looking to target the Central Asian market. Over the next decade, it is estimated that the region has the potential to attract $170bn in foreign direct investment, with $40-70bn residing in non-extractive industries.

One of the biggest investment draws in Kazakhstan in the coming years is expected to be China’s Belt and Road Initiative (BRI). Already, several large-scale infrastructure projects are underway, looking to connect the Asian state with markets in Europe, using Kazakhstan as a transit country. This includes the development of the Aktau seaport, a railway corridor joining Kazakhstan, Turkmenistan and Iran, and a hugely ambitious plan to turn the Dry Port of Khorgos on the Kazakhstani-Chinese border into a central distribution hub for any number of products. These projects, of course, will all need financing – which is where the AIFC comes in.

Expo 2017 at the Kazakhstan Pavillion and science museum

“If you want to set up a new financial centre, you have to differentiate it,” Yeandle said. “You have to explain why it is different and how it is going to compete. Now, obviously you’ve got things like the geographical element, which is extremely important for this region. If I had to pick one thing in favour of Nur-Sultan as a financial centre, I think it’s about financing and helping the distribution and financing along the Belt and Road. Geographically, it’s in an ideal spot.”

Still, the BRI will not be enough to guarantee Nur-Sultan’s success as a financial centre: last year, it was announced that the China Development Bank would stop funding a $1.9bn railway project that was set to snake its way through Nur-Sultan. Internal issues relating to a domestic Kazakhstani bank were reportedly to blame but, whatever the reasons, the possibility of China withholding or cancelling loans will always be present with these major BRI projects.

A story of success
If Nur-Sultan is to successfully demonstrate that it is more than just another international financial centre, the city has to build a convincing narrative that will grab the attention of investors. It could specialise in Islamic finance, but businesses for which this is an important consideration may choose to operate in Dubai, Casablanca or Abu Dhabi instead.

Focusing on new financial developments might provide a better way for Nur-Sultan to carve out a niche, and the AIFC is already gaining a reputation as a hub for fintech companies. Earlier this year, the AIFC presented three fintech start-ups – all finalists of the Visa Everywhere Initiative – at an event organised by the National Innovation Agency of Thailand. One of the companies being showcased, Chocofamily, is the biggest e-commerce firm in Central Asia, with 1,800 merchants and 35,000 active customers.

However, the most convincing story that Nur-Sultan could tell potential investors should focus on the progress the city has already made. Despite only launching as a financial centre in 2018, the AIFC has already moved to 51st position in the Global Financial Centres Index, a rise of 37 places year on year, securing top spot in the Eastern Europe
and Central Asia regions.

Although the Kazakhstani capital may never become a financial hub to rival the likes of London or Frankfurt, its progress to date has already made individuals and businesses take notice. Central Asia may not be as economically developed as some of the world’s other major regions, but that is exactly why Nur-Sultan has been able to make great strides in such a relatively short time. As the long list of global financial centres continues to grow, the AIFC is already proving itself to be a welcome addition.

Tanzania’s hydroelectric dam project charges ahead despite environmental concerns

Posted on November 1, 2019December 2, 2019 by Jack Pearson

Ever since he was appointed Tanzania’s president in 2015, John Magufuli has pushed for much-needed industrialisation in the country. As the second-largest economy in the East African Community, Tanzania is often lauded for having huge untapped economic potential, but the country desperately needs to improve its transport links and increase its energy capacity if it is to boost commercial activity and unleash its potential. Magufuli has set himself a tight time frame in which to overhaul the country’s infrastructure, promising to have transformed Tanzania into a middle-income economy by 2025.

To achieve this ambitious goal, Magufuli is championing a number of major development projects. Between 2019 and 2020, the country plans to raise its total spending to $14.16bn, with the funds going towards improving the country’s infrastructure, while at the start of the year, the government revived the defunct Air Tanzania by injecting over $434m into the carrier’s fleet. Plans are also underway to construct another flyover for the Ubungo Interchange and to see the completion of the $14.2bn Tanzania Standard Gauge Railway, which will stretch 2,561km and connect the Dar es Salaam port to Rwanda and Burundi.

The Tanzanian Government has largely ignored the significant impact that the dam will have on the local area and the tourist industry

But the crowning jewel of these megaprojects is the planned construction of a 130m-high, 700m-long hydroelectric dam. According to the Tanzanian Government, the dam – which will be built in Stiegler’s Gorge in the Selous Game Reserve, an area renowned for its outstanding natural beauty – is projected to increase Tanzania’s total electricity capacity generation by 2,115MW. But the project is mired in controversy, with many fearing it could bankrupt the country.

A domino effect
As one of the last remaining great wildernesses in Africa, the Selous Game Reserve is home to some of the continent’s rarest animals, including the black rhinoceros and African wild dog. To build the dam, a 1,000sq km portion of the reserve will need to be stripped of vegetation. Shruti Suresh, Senior Wildlife Campaigner at the Environmental Investigation Agency, warns that this “will inundate a major part of the reserve and have a significant impact on the functioning of the Selous ecosystem”.

Unsurprisingly, news of the dam’s construction within the reserve’s borders has provoked international outrage. In a landmark move, UNESCO threatened to remove the Selous Reserve from its World Heritage List – something it has done only twice before. Meanwhile, the International Union for Conservation of Nature (IUCN) has condemned the project, calling it “fatally flawed” for its limited scope. “The current discussion is only focusing on the direct footprint of the dam and reservoir,” the IUCN said in a statement. “This is a dangerously narrow viewpoint as the impact will be much greater and far-reaching.”

According to independent research conducted by the World Wide Fund for Nature in 2017, the dam’s construction could have knock-on effects for the Rufiji-Mafia-Kilwa Marine Ramsar Site. Towns and communities in this area are dependent on the Rufiji River for fish; if the water supply to this area was to be diminished, the livelihoods of 200,000 people could be put at risk.

The dam is also likely to deliver a significant blow to Tanzania’s tourist industry: the majority of the one million tourists who visit Tanzania every year come for its wildlife safaris. It’s highly likely that, by destroying a huge expanse of the Selous Game Reserve and disrupting local wildlife, the region will see a dip in visitor numbers.

But the Tanzanian Government has largely ignored the significant impact the dam will have on the local area and the tourist industry. Usually, impact assessments help governments and developers to steer clear of heavy indirect costs – in fact, impact assessments are required under national law. However, in the case of the Stiegler’s Gorge project, none were carried out.

The closest the project got to a proper assessment was an analysis by the Consultancy Bureau of the University of Dar es Salaam, but experts in the industry consider this to be inadequate. This concern was highlighted by Joerg Hartmann, a consultant on hydropower sustainability, in his independent report on the dam’s feasibility. Hartmann wrote: “Compared to international good practice in hydropower, this is an unacceptably superficial level of information.”

Full steam ahead
Despite international bodies warning of unforeseen costs and even openly condemning the project, Tanzania is ploughing ahead. Magufuli maintains that it will become a linchpin of the country’s industrialisation. “Beginning today, this will indicate Tanzania is an independent country… and not a poor country,” he announced at the dam’s inauguration.

Yet Magufuli’s confidence has not appeased those who continue to question the project’s economic viability. Even without factoring in the indirect costs to tourism and local communities, the sum of money put aside for the project is considerable. In 2018, $307m was allocated for the dam’s construction, while the total cost of the dam is expected to reach $3.6bn, according to disgraced construction firm Odebrecht, which carried out the initial economic analysis.

Hartmann believes it could be even more than that, though, estimating that the project could cost the country closer to $9.85bn – almost triple what the Tanzanian Government has budgeted for. This would make it “the costliest investment in the history of Tanzania”, he wrote.

The government has promised that the dam will bring economic benefits – such as more employment opportunities – to the region, but this claim so far seems unsubstantiated. While Energy and Minerals Minister Medard Kalemani has announced the project will create 3,000 to 5,000 jobs, it is likely that many of these will simply go to the skilled engineers and labourers brought in by foreign construction companies, not to local citizens.

If the cost of construction overruns as much as Hartmann predicts, this will have wide-reaching implications for foreign direct investment in the country. The more indebted the Tanzanian Government becomes, the less willing investors will be to do business with the country, trapping the Tanzanian economy in a downward spiral rather than modernising it.

Bulldozing in
It could be argued that this is simply the price of industrialisation; there is no doubt that electrification would bring a much-needed economic boost to the country. Around 37 million Tanzanians have no access to mains electricity – a huge proportion in a country of 57 million. This hinders both its competitiveness and its attractiveness as an investment destination, with investors having long cited this lack of reliable power as one of the chief obstacles to doing business in Tanzania.

The new hydroelectric dam would change this, and could even help realise Magufuli’s ambition to boost the electrification rate to 90 percent by 2035. However, concerns have been raised over whether the dam will even be able to fulfil its core function: in his study, Hartmann uncovered that, without significant improvements to the country’s ageing power infrastructure, much of the energy generated by the dam would be unusable. “If Stiegler’s Gorge were to operate at full capacity, all other components of the Tanzanian grid would have to be approximately doubled to deliver the power to domestic consumers,” he wrote in his report.

What’s more, the dam might not even produce as much electricity as the government claims: its impressive 2,115MW figure comes from a feasibility study carried out more than 25 years ago. Since then, the river has shrunk by about 25 percent due to a number of severe droughts. With even its energy capacity being thrown into question, the dam looks increasingly like an unjustifiably expensive vanity project incapable of bringing the economic benefit the government promises.

Once one of Africa’s success stories, Tanzania is now in peril. Until recently, the country enjoyed relative political stability; each year, it attracted foreign direct investment worth an average of four percent of GDP. Now Magufuli is threatening to turn back the clock on decades of progress.

Nicknamed ‘the bulldozer’ for his forceful interventions, Magufuli has undermined Tanzania’s international standing throughout his tenure. In 2017, he accused Acacia, a London-listed mining company, of owing the country $190bn in unpaid taxes – a sum nearly four times Tanzania’s GDP. The company denies the allegation. Such bullish behaviour appears to have knocked investor confidence; the country has seen foreign direct investment more than halve since 2013 (see Fig 1).

He has also consistently undermined human rights in the country, with opposition politicians being shot and newspapers shut down. He recently drew widespread criticism for imprisoning the journalist Erick Kabendera as part of a concerted effort to limit press freedom. It has been made clear that critics of the dam will be silenced too. Kangi Lugola, the country’s minister for home affairs, said in a statement: “Those who are resisting the project will be jailed.”

The hydroelectric dam is an economic catastrophe waiting to happen. But it’s also a catastrophe of Magufuli’s own making; to back down now would be to admit defeat in his eyes. If the project does go ahead, the hydroelectric dam will indeed be part of Magufuli’s legacy, an homage to the relentless and single-minded way he drove the country – whether towards financial success or ruin remains to be seen.

Learning to earn: why ongoing financial education is vital for online traders

Posted on October 30, 2019December 2, 2019 by Jack Pearson

Financial education is the ultimate investment a trader can make. And yet, its value is often underestimated. Many enter the world of online brokerage with a certain degree of self-taught knowledge. While this can prove useful, without further guidance, traders are prone to overestimating their expertise – in fact, a recent OECD financial literacy survey found that most individuals rate themselves as having a higher level of financial knowledge than they actually possess. Trading is a skill just like any other, and neglecting to take one’s education seriously can have significant consequences.

Online brokers have become increasingly aware of the knowledge deficit that exists among their clientele, and a number have begun to realise the benefits of providing this much-needed education as a service. World Finance spoke to Ergin Erdemir, Head of Marketing at ATFX, to learn more about the educational tools the company provides.

What does ATFX offer to online global investors?
ATFX is a leading online forex and contract for difference (CFD) broker. Over the past few years, the platform has gone from strength to strength, providing exceptional customer service around the world in all major languages. In a stringent industry, ATFX wants to stand out by offering its clients unique services that provide them with better value for money. This includes ultra-low spreads and zero commission, as well as access to more than 200 financial products. Ultimately, we are dedicated to giving clients the best possible trading experience.

Can you tell us about the recent ESMA regulations and how they’ve affected your products?
Last year, the European Securities and Markets Authority (ESMA) introduced a number of restrictions on the marketing, distribution and sale of CFD products to increase investor protection within the EU. ATFX has welcomed this legislation: we have always put traders’ interests at the forefront of our business, so this new regulation actually supports our brand values.

ATFX wants to encourage secure and efficient trading within what is a highly competitive and volatile sector. To do this, we ensure that our team is there for our clients throughout their trading journey and that each trader is well equipped to face the markets. ESMA’s product intervention is significant and something our company does not take lightly. As such, ATFX adheres to all of the relevant regulations while still offering highly competitive spreads and charging no commission, reducing the cost of trading for our clients.

What educational services does ATFX offer and why did the company decide to introduce them?
Despite the increased protection clients now benefit from, ATFX has found that many new and existing traders still struggle to enter and navigate financial markets. We realised that we could help our clients overcome these challenges by offering a bespoke service that engages with traders on a one-to-one basis. This exclusive education tool is available to both beginners and experienced traders who want to enhance their knowledge of financial markets.

As part of this programme, ATFX’s Global Chief Market Strategist, Alejandro Zambrano, delivers a daily webinar to discuss the state of the market and provide real-time insights to traders. In addition to this, he personally coaches existing and prospective clients through in-house seminars. In these seminars, Zambrano discusses how to manage risk through methods such as stop-loss and limit orders, technical analysis, fundamental analysis and trading psychology.

Education is a core part of what we do; ATFX wants its clients to fully understand the basics of trading and what is at stake. We don’t offer a rose-tinted view of trading – instead, we provide accurate, reliable and trustworthy information regarding risk, risk management, trading strategies and in-depth market analysis.

Despite the increased protection clients now benefit from, ATFX has found that many new and existing traders still struggle to enter and navigate financial markets

What are ATFX’s ambitions for the coming years?
ATFX is committed to expanding its services. In particular, we plan to take our education strategy beyond the UK market and into the rest of Europe. Another key goal we are working towards is making our services more accessible. With this in mind, we are currently developing a mobile app that will allow our clients to trade with absolute flexibility. Trading on the move can be difficult, so we hope this new app will give traders full access to their account and help them manage their portfolios with ease when they’re on the go.

We have also launched a new institutional offering aimed at high-net-worth individuals, funds, proprietary vehicles and retail broker aggregates. This new service provides clients with bespoke liquidity, competitive spreads and 24-hour pricing. We are dedicated to providing a seamless and effective interface for our institutional clients with simplicity, speed and reliability at its core.

ATFX prides itself on its customer-centric service. By dedicating efforts to enhancing clients’ trading experience, ATFX believes it will continue to be one of the world’s leading forex and CFD brokers.

Surveillance cameras have become one of China’s most valuable exports – here’s why

Posted on October 29, 2019December 2, 2019 by Jack Pearson

China’s citizens live under the most oppressive surveillance regime in the world. Each day, the Chinese are monitored by more than 200 million cameras, many of which have been installed since President Xi Jinping became paramount leader of the Asian nation in 2013. Not only do these devices surveil citizens as they go about their daily routines, they also feed this information back to a central government database, where it is used to determine each person’s position in society through China’s infamous social credit system.

Given the scale of the country’s mass surveillance regime, it is little surprise that China is also the market leader when it comes to the facilitatory technology. Around 30 percent of global video surveillance revenue is collected by three Chinese firms – Hikvision, Dahua Technology and Uniview Technologies – while the country as a whole was forecast to account for 46 percent of revenues in that market in 2018. The cameras that Chinese firms are producing are years ahead of those made by any other nation, utilising the most advanced artificial intelligence (AI) and facial recognition software on the market today.

Supply and demand
Mass surveillance has been a facet of China’s political regime since the 1950s, but it has become more widespread as access to intelligence-gathering technology – including video cameras, computer monitoring programs and facial recognition software – has improved. “Today, China uses CCTV and face recognition to restrict freedom of movement,” explained Paul Bischoff, an online privacy expert and editor of Comparitech. “People can be placed on blacklists that restrict certain types of travel. [Surveillance] is also being used to oppress dissidents and minority groups, for example, in Xinjiang.”

Ecuador has claimed that the Chinese-built surveillance system, which was completed last year, is being used to bring down murder rates in the notoriously violent country

Due to this political demand, China’s domestic video surveillance market has grown an estimated four to five times faster than that of any other nation. As of 2018, it was worth approximately $20bn. Its growth has also been aided by the nature of China’s manufacturing sector, which is able to produce high volumes of equipment at low prices. “This has made CCTV surveillance much cheaper,” Bischoff said. Chinese firms such as Hikvision and Dahua have been able to drastically reduce prices to a level that few international manufacturers could meet profitably in the long term, according to a 2017 report by research consultancy Memoori. What’s more, given the existing dominance of China’s manufacturers in the domestic market, there’s little chance of a western manufacturer being able to gain a foothold.

As the country’s surveillance regime has intensified under President Xi, the camera technology it relies on has become more advanced. Where previously cameras were simply able to record events taking place within their line of vision, they are now able to identify citizens appearing in footage through powerful facial recognition software, and store information regarding their activities on government databases. Facilitatory technology for these new capabilities is provided by a handful of domestic AI firms, the largest being Megvii, which was established in 2011 by three graduates from Beijing’s famed Tsinghua University. Last year, the firm reported revenues of CNY 1.4bn ($197.4m), quadruple its 2017 takings.

Going global
Until recently, China’s surveillance sector mostly concerned itself with domestic supply – there was little need to look overseas given the level of internal market demand. Around 2011, however, the country spied an economic opportunity and began partnering with other nations that were looking to expand their own domestic surveillance programmes. “China is now exporting its model of… surveillance around the world, offering trainings, seminars and study trips, as well as advanced equipment that takes advantage of AI and facial recognition technologies,” wrote pro-democracy research group Freedom House in its Freedom in the Worl d 2019 report.

One of its first clients was Ecuador, which purchased a basic version of the system that was used to watch Beijing’s residents during the 2008 Summer Olympic Games. Two Chinese firms – the state-controlled China National Electronics Import and Export Corporation and Huawei – predominantly made the 4,300-strong camera network, named ECU-911 by the Ecuadorian Government.

Ecuador has claimed that the Chinese-built system, which was completed last year, is being used to bring down murder rates in the notoriously violent country. But while the system’s implementation has coincided with a drop in overall crime, Ecuadorians have conversely claimed that attacks are still widespread, and even take place in plain sight of the cameras. Concerns have now been raised that the software is being used by the country’s feared intelligence agency, SENAIN, to trail, intimidate and even imprison political opponents of President Rafael Correa.

This latter application of the surveillance network has piqued the interest of other leaders who are seeking to quell political opposition within their own countries. Replicas of Ecuador’s system have also been sold to Venezuela, Bolivia and Angola, all of which operate highly authoritarian and repressive regimes. In total, China has exported surveillance technology to at least 54 countries, according to research by Steven Feldstein, holder of the Frank and Bethine Church Chair of Public Affairs at Boise State University. This has dangerous implications for democracy within those nations. “Surveillance can have a chilling effect on freedom of movement, assembly, speech and expression,” Bischoff told World Finance. “Someone who knows they’re being watched might be afraid to visit a religious place of worship or a political rally.”

China’s domestic video surveillance market has grown an estimated four to five times faster than that of any other nation and, as of 2018, is worth approximately $20bn

Cutting ties
Media attention has tended to focus on China’s relationship with nations operating authoritarian regimes, but this focus overlooks the fact that Chinese surveillance technology has been in use for several years in established democracies such as the US and UK. In 2016, the Peterson Air Force Base in Colorado spent $112,000 on a surveillance camera network made by Hikvision, a company that is 42 percent owned by the Chinese Government. Cameras made by the same firm also watch over a navy research base in Florida.

The US started buying equipment from the Chinese manufacturer in 2010, after Hikvision began undercutting American firms. In the UK, meanwhile, cameras made by Hikvision and Dahua are in use across the London Underground. It has also been alleged that they have been installed within the Houses of Parliament, although this was refuted by a House of Commons spokesperson.

In recent months, however, these two nations have begun terminating their relationships with Chinese firms over security concerns. Last year, US President Donald Trump signed the National Defence Authorisation Act, which prevents federal agencies from purchasing equipment from Hikvision and Dahua, while the UK Government has reportedly banned Huawei from participating in its rollout of 5G. Although this will not have a significant impact on revenue for any of the firms, all of whom do most of their business on the Chinese mainland, it certainly puts an end to China’s expansionary vision when it comes to surveillance technology.

The real economic risk for China lies in its relationships with countries such as Ecuador, where it has had to provide loans to the government in order to fund the sale of its own surveillance technology. ECU-911 came with a $240m price tag, which was well beyond Ecuador’s purchasing power and forced the nation to borrow money from China to pay for the system. What’s more, it’s highly unlikely that China will be able to call in that loan any time soon, especially when you consider that Ecuador already owes the country an estimated $6.5bn. It’s the same story across Africa, where China has lent vast sums of money to a number of nations in order to fund surveillance technology projects at a time when its global development strategy, the Belt and Road Initiative, has left it vastly overexposed in the region.

Although China’s economic growth is in the black and its debt burden is manageable, its current trade war with the US is weighing heavily on exports, meaning the consequences of the country’s overexposure could soon come home to roost. China’s domestic surveillance market will, of course, continue to thrive given domestic demand, but its international ambitions are already under threat due to global debt. While this may be bad news for the Chinese economy, it’s certainly good news for global democracy.

Aquashield is shoring up piracy protection with the latest innovations in maritime technology

Posted on October 25, 2019December 2, 2019 by Jack Pearson

Piracy is a persistent threat for any business operating at sea. Although the number of pirate attacks in the Somali Sea has fallen over the past few years, there has been a significant rise in criminal activity along the coast of West Africa: according to Raconteur, the Gulf of Guinea alone accounted for more than 40 percent of the world’s incidents of maritime piracy in Q1 2018. When rates of piracy increase in a particular area, maritime operators tend to respond by hiring armed security teams. While these teams can be a highly effective means of protecting a ship, they alone cannot guarantee its safety.

No ship’s defences are truly complete without the latest maritime safety technology. Only technology can ensure ships are constantly monitored for threats and are never left unguarded. At Aquashield Oil and Marine Services, our technology meets every security need – from monitoring possible threats and proactively defending against attack to protecting the crew and cargo in the event of a worst-case attack scenario.

The first line of defence
It’s critical that vessels detect potential threats as early as possible to give the crew enough time to respond effectively. Today’s maritime surveillance systems are more advanced than ever and are highly effective at identifying suspicious activities. This is partly because these systems enable the sharing of data between multiple agencies and nations. As a result, operators can receive updates on locations known to have higher levels of pirate-related activity and steer clear of such areas.

To truly safeguard against the threat of piracy, operators must harness state-of-the-art technology

Real-time monitoring of the area surrounding the ship can also provide operators with a comprehensive view of any nearby threats. High-definition cameras with thermal imaging allow crew members to spot pirate vessels and their operators from miles away. Additionally, the use of artificial intelligence within such systems helps to determine when vessels are displaying threatening behaviours, giving ships the upper hand on pirate vessels and increasing the likelihood of avoiding confrontation.

If a vessel in the vicinity appears to be on the attack, the best course of action is to try and immobilise it using non-lethal methods. For this reason, Aquashield equips all of its vessels with an entanglement system that uses compressed air to launch a plastic cylinder in the direction of another ship. As the cylinder launches, netting or rope is immediately released and spread around the vessel. Both the netting and rope are buoyant, so they remain floating on the water until they’re entangled in the ship’s propeller, causing the engine to immediately grind to a halt.

Protecting crew and cargo
Operators must be prepared for every eventuality. If all other defences have failed and the ship is in imminent danger of being seized by pirates, there are still a number of measures the crew can take to protect themselves and the ship’s cargo. A lockdown is an emergency protocol used to prevent movement to and from a certain area inside the ship. While a lockdown is in effect, doors will be sealed and computing systems may be shut down. In this way, a lockdown can be used to stop invaders from gaining control of the ship and keep the crew out of harm’s way.

Safe rooms – commonly referred to as ‘citadels’ aboard ships – have a similar function, providing a retreat for crew members in the event of an attack. These rooms are usually installed in a concealed location within the ship. From here, the crew can call for help and wait in safety until it arrives. Some safe rooms will also give the crew the capacity to remotely disable the ship’s engines and electronic systems, so that pirates cannot sail the ship to another location. Even if the citadel is discovered, safe rooms are armoured against direct physical attack, hugely reducing the risk of kidnapping or loss of life.

To truly safeguard against the threat of piracy, operators must harness state-of-the-art technology – this is true whether the vessel is an oil tanker, a naval ship or a cruise liner. By having the right precautions in place, maritime businesses not only protect their crew members and cargo, but also enjoy the full confidence of their clients, who can rest assured they are taking no risks when it comes to security.

Deutsche Bank’s fall from grace: how one of the world’s largest lenders got into hot water

Posted on October 17, 2019December 2, 2019 by Jack Pearson

On July 8, 2019, thousands of Deutsche Bank employees across the globe arrived at their offices, unaware that they would be leaving again, jobless, just a few hours later. In Tokyo, entire teams of equity traders were dismissed on the spot, while some London staff were reportedly told they had until 11am to leave the bank’s Great Winchester Street offices before their access cards stopped working.

The job cuts, which totalled 18,000, or around 20 percent of Deutsche Bank’s workforce, were the flagship element of a restructuring plan designed to save the ailing German lender. Wall Street’s top market observers have described the initiative as ambitious and radical, but it remains to be seen whether it will be enough to save the bank, which has come under intense scrutiny for dubious business practices in the wake of the 2008 financial crisis.

Chequered past
Deutsche Bank was founded in 1870 to promote Germany’s standing within the global trade market. It was the country’s first foray into international banking; prior to its establishment, German companies had to rely on British and French lenders to do business overseas, meaning they were often subject to unfavourable terms. Deutsche Bank opened its first branch in Bremen in 1871 but expanded rapidly into Asia and Europe, opening a Shanghai branch in 1872 and a London outpost the following year.

Its early growth was stalled in 1914 by the commencement of the First World War, in which the lender lost the majority of its foreign assets. It recovered quickly by pursuing a series of significant mergers, one of which, with German lender Disconto-Gesellschaft, allowed it to avoid the worst of the 1929 crash. Deutsche Bank’s role in the Second World War, however, is the source of much controversy: according to its own historians, the bank was involved in 363 confiscations of Jewish-owned businesses between 1933, when Adolf Hitler came to power, and 1938. It also loaned funds to the German Government to allow it to build the Auschwitz concentration camp, according to The New York Times.

The bank’s connection with Trump has come under intense scrutiny since his election, initially due to the investigation led by Robert Mueller into Trump’s relationship with Russia

At the end of the war, Deutsche Bank did not slink off quietly into the shadows as many businesses that had been involved with the Nazi Party did. Rather, “it [became] a leading force for the reconstruction, redevelopment and reunification of Europe”, The New York Times’ David Enrich noted. After several decades, however, the bank changed tack and began to go after the sort of riches and prowess that had, until this point, been concentrated on Wall Street. Its ploy bore fruit in the late 1990s when its $10.1bn acquisition of US investment bank Bankers Trust made it the fourth-largest financial management firm in the world. Buoyed by this success, in 2001, the German lender debuted on the New York Stock Exchange, positioning itself to take advantage of the astronomical rise of the US stock market in the mid-2000s.

Scandal upon scandal
In the aftermath of the 2008 crash, however, Deutsche Bank’s success began to unravel. It had been one of the largest purveyors of junk bonds, selling about $32bn worth of collateralised debt between 2004 and 2008, but its traders were also betting against that market in order to line their own pockets. Greg Lippmann, Deutsche’s former head of asset-backed securities trading, even referred to some bonds as “crap” and “pigs” in emails to colleagues, all the while promoting them to investors as A-grade.

The implication of this profiteering came home to roost in January 2014, when the bank was forced to pay a $1.93bn settlement to the US Federal Housing Finance Agency for its sale of subprime-mortgage-backed securities to now-defunct government agencies Fannie Mae and Freddie Mac. The sum broke the back of its profit margins; that quarter, it reported a $1.6bn pre-tax loss, heralding a loss-making era for the lender.

Since that time, the losses and lawsuits have come thick and fast. In April 2015, the bank paid a combined $2.5bn in fines to US and UK regulators for its role in the LIBOR-fixing scandal. Just six months later, it was forced to pay an additional $258m to regulators in New York after it was caught trading with Myanmar, Libya, Sudan, Iran and Syria, all of which were subject to US sanctions at the time. These two fines, combined with challenging market conditions, led the bank to post a €6.7bn ($7.39bn) net loss for 2015. Two years later, it paid a further $425m to the New York regulator to settle claims that it had laundered $10bn in Russian funds.

Questions have also been raised over Deutsche Bank’s relationship with US President Donald Trump and disgraced financier Jeffrey Epstein. The bank’s relationship with Trump dates back to the 1990s when it was attempting to get a foot in the door on Wall Street; having a high-profile property mogul like Trump on the bank’s books allowed it to chase after bigger and better clients. “Serving Donald Trump as a client was one way that Deutsche elbowed its way onto the world stage,” said Russ Mould, Investment Director at AJ Bell. The bank financed almost three decades’ worth of Trump’s deals and continued to lend to him despite multiple loan defaults until as late as 2016.

The bank’s connection with Trump has come under intense scrutiny since his election, initially due to the investigation led by Robert Mueller into Trump’s relationship with Russia, and latterly in relation to Trump’s tax returns, which the lender has so far refused to release despite being subject to a congressional subpoena. With regards to Epstein, Deutsche reportedly managed his finances long after his 2008 conviction for soliciting underage sex and only terminated its association with him in May this year, according to The Boston Globe.

Divisive vision
It was in the midst of this furore that, in April 2018, Deutsche Bank veteran Christian Sewing took up the role of CEO. In his typical pragmatic fashion, Sewing had set out a comprehensive cost-cutting plan in less than a month, aiming to trim down the bank’s operations and restore it to profitability. In a memo at the end of his first month in the job, he told staff: “It is our imperative to take tough decisions… We have to regain our credibility.”

July’s job cuts are the toughest measure to be introduced by Sewing yet, and signal to the market that he is prepared to ruffle feathers internally to achieve wider organisational goals. In a conference call to the media on the morning of the redundancies, the CEO highlighted the bank’s main errors as over-expansion, ill-thought-out capital allocation to failing corners of the business, and ignorance with regard to costs. His restructuring plan aims to tackle all of those aspects by trimming staff costs, spinning off underperforming divisions into a €50bn ($55.3bn) bad bank, and scaling back the organisation’s global network.

It certainly impressed Wall Street’s finest. JPMorgan Chase wrote in a memo: “[Deutsche Bank’s] restructuring, in our view, is bold and for the first time not half-baked but a real strategic shift giving up its Tier 1 [investment bank] ambitions. [Deutsche Bank] is rightsizing to where it came from originally.” UBS, meanwhile, commented that the plan shows a real willingness to change, writing in a note: “Progress over the coming quarters could then further increase the market confidence in the plan.”

However, the plan’s success is by no means guaranteed. Shares have fallen since the redundancies were announced as the implications of the high-risk, multi-year strategy began to sink in for investors. At the time of printing, Deutsche Bank’s shares were hovering around €7.64 ($8.48), a dramatic decline from the €32 ($35.31) highs seen in 2015 and a long way off the lender’s pre-crisis peak of €112 ($123.60).

But the greatest threat to progress is the money-laundering allegations that are currently swirling around the lender. These first emerged in November last year in connection with the Danske Bank scandal; the same month, Deutsche’s Frankfurt offices were raided as police searched for documents connecting the two lenders. The investigation is ongoing.

“The money-laundering accusations are a serious matter from a reputational, operational and financial point of view,” Mould told World Finance. “Regulators are clamping down hard and, after fines for sanctions busting, misselling toxic mortgage-backed securities, rigging LIBOR and money laundering over the past decade, investors will not be pleased if Deutsche has to pay further hefty penalties.”

Sewing is not ignorant of this possibility. In that regard, July’s restructuring is a shrewd move, as slimming the organisation will limit the damage if the money-laundering investigation does not go the bank’s way. It has also provided the opportunity to rid the bank of senior figures whose unscrupulous, profit-hungry attitude was instrumental in its fall from grace.

Long-term infrastructural changes key to reducing the severity of drought in India

Posted on October 15, 2019October 14, 2019 by Jack Pearson

Duvvuri Subbarao, who served as governor of the Reserve Bank of India between 2008 and 2013, once spoke about the way India’s monsoon season could impact everything from his emotional wellbeing to his career prospects. In his role as governor especially, he was helplessly dependent on the weather: “If it rains, the monetary policy works. Everything is all right. If it doesn’t rain, there is worry.”

Half of India’s annual rainfall usually occurs in just 15 days. As the rainfall that takes place in this critical window has a huge impact on the country’s economic prospects for the year, this turbulent climate has often left India seesawing between deluge and drought. Recently, though, the rains have become even more volatile.

“The climate pattern of India is changing,” Samrat Basak, Director of the World Resource Institute India’s Urban Water Programme, told World Finance. “We are having extremely dry periods followed by a monsoon which is extremely heavy but happens only in a very short space of time. So the number of rainy days is reducing.”

Even when the Indian Government does enact longer-term solutions, these often prove inadequate

This year, the south-west monsoon arrived 10 days late, bringing 30 percent less rainfall than average to the region. This delay, combined with poor rainfall last year, has created drought-like conditions across nearly half of India. Chennai is one of the worst-affected regions, experiencing its most severe drought in 70 years. The city’s four main reservoirs have disappeared in as little as six months.

It’s easy to blame the hardships facing India’s population on climate change, but this isn’t the whole story: India’s water crisis is just as much a product of poor infrastructure and chronically inadequate water management.

Not a drop to drink
In a climate where rainfall occurs in such a short space of time, storing rainwater is crucial to ensuring people don’t run short throughout the year. But India has struggled to keep its water storage infrastructure properly maintained. Years of negligence meant that, during the 2018 monsoon, dams in the now drought-stricken state of Tamil Nadu were unable to retain all the water they caught.

What’s more, the government has not preserved the water-catchment areas that occur naturally in the environment. “With unprecedented and unmanaged urban expansion, we have not thought about preserving the local resources like the lakes, wetland and so forth,” Basak said. Chennai, for example, used to have abundant supplies of surface water. These have since been paved over with parking lots and skyscrapers.

Due to the lack of rainwater, lakes and wetlands, most of India’s population is heavily dependent on groundwater: around 25 percent of the groundwater extracted around the world is removed in India. Much of this is done illegally, which only adds to supply problems. In major cities like Bangalore and New Delhi, so-called water mafias rule unchecked, extracting water from kilometres away and selling it to locals at an extortionate premium. The situation became so serious in Chennai this summer that even hospitals were dependent on privately owned tankers to supply water for surgeries. The cost was then added to patients’ medical bills.

In a tragically ironic twist, many of these patients were hospitalised for waterborne diseases. In August, researchers found that over three quarters of the groundwater wells in the north-western state of Rajasthan – the largest in India – were polluted with uranium, fluoride and nitrates, making them unsafe to drink from. If groundwater depletion and contamination continue at their current levels, 60 percent of India’s districts are likely to see groundwater tables fall to critical levels over the next two decades.

In hot water
Surprisingly, the biggest consumer of India’s water is not its city-dwelling population – around 80 percent of India’s water is used in agriculture. This figure is so high partly because state governments in Western India provide free or heavily subsidised electricity to farmers in exchange for groundwater irrigation. “This encourages excessive groundwater pumping and has bankrupted electricity companies,” said Tushaar Shah, a senior fellow at the International Water Management Institute. “Everyone knows this, but no political leader has the courage to rationalise or reduce these subsidies since farmers are a massive vote bank.”

As a result of these incentives, 88 percent of farmers use flood irrigation methods instead of more efficient drip or sprinkler irrigation systems. Attempts to curb groundwater usage are politically complicated, but Philippe Cullet, a professor of international and environmental law at SOAS University of London, believes a change in legislation and regulation is critical to ensure water is used more efficiently on India’s farms.

This change, he told World Finance, must stem from a different way of thinking about water. “What we need is a complete reversal of perspective that takes us back to considering groundwater – and water generally – as a commons that is shared,” Cullet said. “The second thing is that we have to move away from a framework that considers water primarily from the point of view of ‘use’ when the first priority should be protection.”

There are a number of ways the government could promote this approach to water. Incentivising farmers to use drip irrigation or grow less water-intensive crops than sugarcane or rice could be a way forward. Another promising idea, launched by the International Water Management Institute, is to create solar irrigation cooperatives where farms can generate their own solar energy, providing an incentive to save energy and water. Shah is a pioneer of this concept. “The basic premise is that, while it is politically difficult to charge farmers for grid power supplied, it is rewarding to pay them for solar power they generate on their own farms. This will incentivise them to save energy and water to augment income from selling solar power,” he said.

Build, neglect, rebuild
Water scarcity is one of the biggest challenges facing Indian Prime Minister Narendra Modi, and he is keen to be seen tackling it head-on. In response to this year’s crisis, he sent more than 250 civil servants to aid the country’s drought-stricken areas and consolidated the various water ministries into a single entity, named the Ministry of Jal Shakti.

But water conservation experts are concerned that Modi’s administration has a flawed understanding of the issues at hand. As part of his response to the water crisis, Modi unveiled plans to provide piped water to all Indian homes by 2024. While there is no doubt this would have a transformative impact on India, providing clean water to as many as one billion citizens is an overambitious target. Currently, there is no indication as to where the water for these pipes would come from. “Water security plans need to be prioritised over plans for a piped water supply,” Basak said. “Just having pipes but no water won’t work.”

Unfortunately, rather than taking a fresh approach to the crisis, Modi is following in his predecessors’ footsteps. Instead of anticipating crises, India’s state governments have often acted only once the situation reaches breaking point. When this happens, they tend to fall back on expensive quick fixes that temporarily relieve pressure but fail to tackle the root of the problem. For example, when drought struck this year in Tamil Nadu, the state government approved a crash-engineering project to bring in water by rail for the following six months. As well as costing the government $94m, this short-term solution did nothing to improve India’s water sanitation and storage over time.

Even when the government does enact longer-term solutions, these often prove inadequate. Critics have accused the Indian Government of taking a ‘build, neglect, rebuild’ approach: new infrastructure is constructed, but the necessary measures aren’t put in place to ensure it is maintained. This can be seen in India’s traditional approach to water catchment. Currently, India captures only eight percent of its annual rainfall – one of the lowest figures in the world. Meanwhile, many local governments have mandated rainwater harvesting with little effect. After the drought of 2000, Chennai made it obligatory for buildings to have rainwater-harvesting systems installed, but these have since fallen into disrepair. The Rain Centre also found that, while on paper 99 percent of India’s buildings catch rainwater, in reality, this figure is closer to 40 percent, demonstrating a fundamental lack of governance.

With a climate that swings so drastically between drought and monsoon, it is perhaps unsurprising that the government has tended to think in the short term, focusing on fighting fires rather than implementing long-term solutions. But as climate change makes India’s rains even less predictable, the cost of this attitude only grows. The government must now prioritise proper governance and maintenance of its water infrastructure, or risk seeing its major cities dry up completely.

Bank of China leads Macau’s bold financial reform and development initiatives

Posted on October 11, 2019October 11, 2019 by Jack Pearson

Macau’s story is one of dramatic changes. From its origins in 1557 as an isolated fishing village on the South China Sea to its designation as a Portuguese outpost in 1887, the city has undertaken several drastic transformations to meet the needs of the wider world. Today, as one of China’s special administrative regions, Macau is on the brink of another new chapter in its history.

With China’s Belt and Road Initiative progressing, Macau’s reputation as a destination for both tourism and global trade is seeing it attract more international business. The city already has a vibrant economy, but new opportunities are demanding more of the small region’s financial sector. Once again, Macau is being asked to change.

Bank of China Macau Branch (BOCM) has a proud history of supporting the city’s businesses – both large and small – throughout such periods of adjustment. Since its establishment in 1950, BOCM has developed into a full-featured bank. By measurement of deposits, loans and profits, it now makes up 40 percent of the city’s total financial market – a record it has held for some time.

Amid this period of change, BOCM is accelerating its efforts to improve internal innovation, employee development and its core business services. BOCM is entirely focused on helping organisations reach their goals, creating new financial tools and finding improved ways of doing business. It is also committed to supporting its employees in order to develop, attract and retain the most talented individuals. Through these measures, BOCM is building an organisation that can help Macau reinvent itself once again.

Macau already has a vibrant economy, but new opportunities are demanding more of the small region’s financial sector

Business development
Macau, as well as the rest of the Guangdong-Hong Kong-Macau Greater Bay Area, is playing an important role in China’s international development initiatives. BOCM strives to support the Bank of China’s focus on the globalisation and diversification of the region’s economy. To do this, BOCM set up a centre for advancing corporate finance and has built a platform for financing projects in Portuguese-speaking countries. Ultimately, this has expanded BOCM’s local and offshore operations.

Given Macau’s historical link with Portugal, BOCM is well equipped to support projects across the world’s Portuguese-speaking nations – now, its reach is extending even further. BOCM is focused on identifying suitable projects in Central Asia, South Asia, Russia and Mongolia. Primarily, BOCM has specialised in providing convenient cross-border financial services for enterprises targeting foreign investment.

At the same time, BOCM is working to build up the city’s smaller businesses. In cooperation with the Macau Government, BOCM launched a dedicated plan to help develop the city’s small and medium-sized enterprises through loans and other financial support programmes. Financial services such as the Easy Money Personal Loan and Easy-Plus Mortgage are fast, efficient initiatives available to Macau-based entrepreneurs. Around 1,000 businesses have already benefitted from these specialist services.

Recently, access to financial products has been a particularly important issue for Macau’s business community. Following the havoc wreaked by Typhoon Hato in 2017 and Typhoon Mangkhut the following year, many businesses were left in desperate need of financial services to keep them afloat. In response, BOCM developed a loan assistance programme for affected firms, helping around 200 local enterprises quickly get back on their feet. For businesses both large and small, BOCM is always looking for new financial products that can grow with Macau and help people achieve their aspirations.

A campaign of innovation
Despite recent success, BOCM is not resting on its laurels. To be ready for Macau’s future, the bank is embarking on a campaign of reinvention and innovation. This has already resulted in a number of achievements, many of which are firsts for Macau.A particular highlight has been the launch of BOC Pay, a one-stop cross-border application that enables mobile payments throughout the Guangdong-Hong Kong-Macau Greater Bay Area. The system lets customers transfer money by simply scanning a QR code, without the need for a mainland Chinese bank account. BOCM operates across the special administrative region to lead the implementation of this and other smart city services. All of this allows the citizens of Macau and tourists from the mainland to conduct safe, convenient and fast transactions.

Another important project has been the development of Macau’s bond market. Following in-depth studies of the region and its needs, BOCM is utilising its bonds business to help the region reach its goals. Around $1.8bn in bonds have already been issued in addition to the notable CNY 4bn ($566.3m) ‘lotus bond’. This represents the first offshore issuance by the Chinese Government in Macau and has been highly beneficial to the local market.

BOCM has also been actively developing as a yuan clearing centre for Portuguese-speaking countries. Since this function was launched, BOCM has undertaken more than 770,000 transactions totalling CNY 6.4trn ($910bn).

Power to the people
All of these developments have led to great changes in Macau, but it is important to remember that improving people’s lives remains the most important factor. As a financial lender, BOCM has a great deal of power. Cognisant of this fact, it has strived to establish a corporate culture that is beneficial to employees and citizens alike. The bank has hosted a number of public welfare activities, including charity walks and fun runs. Athleticism is particularly important to the bank, and it has set up the Bank of China Sports Scholarship for Outstanding Athletes in Macau to support those striving to achieve peak physical performance. In 2018, BOCM donated over MOP 14m ($1.73m) to primary and secondary schools, colleges and local communities throughout Macau. All of this helps the bank live up to its core business motto: ‘rooted in Macau, steadfast in serving’.

These social development goals look inward as well, with many support services in place to help employees reach their full potential. To expand the international vision of young employees, BOCM regularly selects members of its team to participate in domestic and foreign learning programmes. At the same time, BOCM fully subsidises employees who pursue degrees and other professional development courses, rewarding those who
obtain new qualifications.

In recent years, BOCM has received much credit for its achievements. In May 2018, for example, BOCM won the Excellent Family-Friendly Employer Award, which was presented at the National Committee of the Chinese People’s Political Consultative Conference. The award recognised BOCM’s policy of caring for its employees and helping them balance family life with work. It also rewarded BOCM’s efforts to promote the Macau Government’s family-friendly employment policies.

BOCM has been fortunate enough to receive several other awards in recognition of its work. In May 2019, it was named the Best SME Partner Bank, Macau as part of the Global Business Awards 2019, announced by UK-based magazine The European. Also in 2019, BOCM was recognised in Euromoney’s Asia Awards for Excellence, winning Best Bank in the Macau category. In both of these awards, BOCM was the only Macau-based bank to be recognised.

BOCM has reached major goals across the areas of technology, team building, corporate culture, business performance and inclusive finance. In the future, it will adhere to its corporate credo while taking full advantage of the many benefits offered by China’s ‘one country, two systems’ policy.

Just as Macau acts as a bridge to the rest of the world, BOCM will continue to use the city’s position to build financial bridges to new areas of the economy. The bank will advance with the times, stimulate vitality, foster new opportunities, achieve breakthroughs and accelerate the construction of a world-class financial institution for Macau. For all of the challenges presented by this new chapter in Macau’s history, BOCM stands ready and willing to overcome them.