Author: Max Tomlin

Access Bank drives Nigeria’s sustainability efforts with corporate green bonds

Posted on by Max Tomlin

With a population of about 7.8 billion people, the world faces increasingly severe challenges, from rising temperatures and water scarcity to inadequate healthcare and poverty. Given the scale of these issues, it is imperative that organisations find ways to offer long-term, innovative and cost-effective solutions.

Access Bank is among a growing number of companies determined to make sustainability their priority. Long before major financial institutions in Nigeria began to incorporate sustainability into their business strategies, Access Bank had an existing framework that embedded sustainability into the fabric of its business operations. World Finance spoke with Omobolanle Victor-Laniyan, Head of Sustainability at Access Bank, about recent strides the company has made towards promoting sustainable growth.

What sustainable initiatives has Access Bank promoted in recent times?
In March 2019, Access Bank announced the issuance of an NGN 15bn ($41m) corporate green bond, the first of its kind in Africa. This green bond benefitted from the support of the Nigerian Green Bond Development Programme and is certified by the Climate Bonds Initiative. The bond was designed to help investors meet their environmentally friendly investment objectives, and should also allow the bank’s customers to realise the growth opportunities of developing a low-carbon economy.

If operations are carried out in a sustainable manner, businesses will afford themselves longevity

As well as issuing this bond, Access Bank has partnered with Nigerian social enterprise SMEFunds to create the Green Social Entrepreneurship Programme. Through the programme, entrepreneurs provide households with clean cookstove technology to replace existing cooking equipment, which often poses risks to human health and the environment. The new technology converts waste-based biomass into biofuel. In 2019, we estimate that 154 entrepreneurs were empowered by the programme, 510 households reached and 1,200 lives improved.

In addition, Access Bank runs an employee volunteering scheme, through which our employees gain the opportunity to take an active role in improving their local community. Our employees harness their ideas, skills and resources to address social, environmental and economic issues while gaining a sense of personal fulfilment. Employees have volunteered for a total of three million hours in more than 320 community initiatives since 2015. During this period, participation in the initiative has remained strong, at 100 percent.

How has Access Bank ensured digital disruption leads to better services for its customers?
It’s no secret that disruptive innovation is transforming Africa’s economic potential in ways unimagined only five years ago. Innovation often leads to the creation of new markets and unprecedented choice for consumers, making space for businesses to develop products and services that complement existing ones. The African banking landscape is experiencing a positive change in the retail banking market, increasing the availability of digital loan products to serve the needs of an expanding customer base.

As one of Nigeria’s foremost banks, Access Bank has launched a strategic initiative aimed at promoting access to finance in Africa and also globally. The campaign began by leveraging technology to offer consumers new products. For example, we formed a partnership with payment platform Remita, which has supplied payday loans to more than two million customers. The product is available through the bank’s USSD code, online, via ATMs, the Access Mobile app, WhatsApp Banking and QuickBucks, the bank’s instant loan disbursal app. Within a year of launching the initiative, Access Bank disbursed over NGN 30bn ($83.1m) through 1.5 million loan requests. The bank disburses an average of NGN 200m ($554,000) a day to 4,600 customers.

On the QuickBucks app, users have access to payday loans, salary advances, small-ticket personal loans and device financing. Beyond the app, consumers can access home loans, vehicle financing, maternal health service support, school fee advances, auto loans and creative sector loans.

What impact has Access Bank had on the broader African banking landscape?
In 2013, Access Bank initiated and led the development of the Nigerian Sustainable Banking Principles (NSBPs), a set of nine principles adopted by the Nigerian banking industry to embed sustainability into its business practices. Access Bank serves as chair of the NSBP steering committee, providing workshops to help champions of sustainability in the industry to effectively implement the nine principles.

As a result of its unwavering commitment to sustainable development, the bank continues to provide support for the development of both industry and country-specific principles to ensure that the private sector plays its part. In 2018, Access Bank signed up to the Principles for Responsible Banking, as part of the UN Environment Programme Finance Initiative. The principles were designed to redefine the purpose and business model of the banking sector in line with the UN Sustainable Development Goals and the Paris Agreement.

Access Bank served as Africa’s lead throughout this process, engaging other banks across the continent as part of the consultation process. The principles were launched in September 2019 during the annual UN General Assembly in New York. As a result of Access Bank’s efforts, five Nigerian banks joined 130 other global banks as founding signatories of the principles.

How has Access Bank grown and developed over the past decade?
Access Bank has produced an expansion plan that will help us reach underserved markets locally and globally. In the past decade, we have expanded our network in Nigeria to more than 640 branches. We have subsidiaries spanning three continents and 14 countries, with representative offices in China, Lebanon, India and the UAE, serving roughly 45 million customers.

In 2011, Access Bank acquired Intercontinental Bank, making it Nigeria’s third-largest bank by assets at the time. Building on this, as part of a five-year strategic plan targeted at cross-continental expansion, Access Bank completed a merger with Diamond Bank in 2019. The merger combined Diamond Bank’s strong retail and digital banking services with Access Bank’s expertise in corporate banking, producing a financial powerhouse in the country. As a result, Access Bank is now Nigeria’s largest bank by assets and customer base, as well as Africa’s largest retail bank.

Increased access to data has opened the floodgates to quasi-banking start-ups that are building mobile apps with offerings above and beyond essential banking services

In the coming years, the bank is aiming to expand into more countries by way of subsidiaries, representative offices and partnerships. With a strong focus on supporting the growth and development of host communities, Access Bank remains committed to delivering exceptional value to all stakeholders.

To what extent should banks view sustainability as an opportunity, not only in terms of environmental impact, but also profit?
Banks ought to embed sustainable principles into their business and non-business operations. These operations include activities relating to external interactions with their clients and the types of projects they fund.

The milestones reached by Access Bank demonstrate that lenders can enjoy a number of benefits by leveraging sustainability in their corporate strategy and operations. These benefits include improving the company’s reputation, enhancing investor confidence and, ultimately, boosting profitability. As a result of these benefits, banks are increasingly seeking ways to improve their sustainability. They are motivated to do so not just because this will help them manage environmental and social risks, but because it helps to set them apart from competitors.

Given the important role banks play in the value chain of critical sectors such as agriculture, energy and trade, they must closely study sustainable business models, rethink old strategies and tap into the immense opportunities that sustainable practices offer them. If operations are carried out in a sustainable manner, businesses will afford themselves longevity, all while benefitting local communities and other stakeholders.

What will be the next wave of disruption to hit the African banking sector?
Africa is still behind Europe, the Americas and Asia in terms of development in the banking sector. Banks in Africa are starting to automate manual processes, resulting in a noticeable increase in the number of innovative digital channels available to customers.

As Access Bank continues to improve its digital offering, it has seen a shift in the customer-banker relationship. Previously, customers only used banks for saving their money. Today, they demand a broader and more personalised range of financial services.

Increased access to data has opened the floodgates to quasi-banking start-ups that are building mobile apps with offerings above and beyond essential banking services, such as direct investments and real-time group savings. This disruptive wave of open-banking products is challenging the customer’s relationship with traditional financial institutions. Access Bank does not view this as a threat: rather, the bank keenly observes the huge possibilities that lie within the tech industry. It is well equipped to evolve in line with changes in the sector.

Charting the evolution of trading with ETFinance

Posted on by Max Tomlin

Trading has played a crucial role in shaping the world as we know it: commodity trading brings exotic fruits to our tables and puts fuel in our cars; we trade currencies whenever we go abroad; and some of us invest in company shares, cross-industry indices or digital coins. And that’s just the tip of the iceberg that is the world economy.

When we speak of trading in the modern sense, we usually refer to the commodity, forex, stock, index or cryptocurrency trading that occurs constantly online. Anyone who wants to become a trader need simply register with a reliable broker like ETFinance, a trading name of Magnum FX. At ETFinance, we provide educational materials that help our customers learn trading techniques and the market basics. When they’re ready, clients can make their first investments with our easy-to-use broker platform.

The advent of online trading has turned smartphones and other gadgets into convenient trading tools, but this wasn’t always the case. In fact, the impact of digital technology on the market has been seismic. Consequently, traders must quickly come to terms with new developments and understand where the industry is headed.

Traders must quickly come to terms with new developments and understand where the industry is headed

A brief history
The earliest examples of trading occurred in the ancient Mesopotamian civilisation of Sumer, situated in what is now southern Iraq. Locals used clay tokens and, later, clay tablets that represented the amount, time and date of delivery of purchased assets. These were the first futures contracts and, although they appear vastly different, are still used in investment activities to this day.

Commodity trading continued to develop in tandem with other financial markets. By 600 BC, gold and silver – previously valued for their beauty and scarcity – had become the world’s first currencies. Millennia later, countries developed monetary systems, with pound sterling holding a consistent position as one of the world’s strongest currencies. At the time, London was the centre of foreign exchange, but this did not last long once the Second World War drained European economies.

In 1944, representatives from 44 nations met at the Bretton Woods Conference and established the International Monetary Fund (IMF). At the time, currencies were fixed in an exchange rate system that tolerated one percent fluctuation against the price of gold, with the US dollar pegged at $35 per ounce. The dollar then became the de facto reserve currency for the capitalist countries rebuilding their economies after the Second World War, and all other coins were tied to it.

The gold standard was abandoned in 1971, however, with the IMF officially mandating a free-floating system of international exchange rates. This became the modern forex market. Similarly, early iterations of the stock market have been traced back to the 12th century. At the time, the first brokers managed and traded agricultural debts on behalf of French banks. Later, Venetian merchants purchased and sold government securities, initiating trading practices that were subsequently implemented by traders from other countries. The first official stock exchange was established in Antwerp, Belgium, in 1460, serving as a commodity exchange environment where bonds and promissory notes could be used.

Moving with the times
The evolution of financial services is entwined with the story of human discovery. The exploration of the Americas had European traders sending their ships east to buy and sell goods. To reduce their financial losses if a vessel failed to return, shipowners offered investors a percentage of their gains in return for an upfront fee. In turn, investors reduced their risk exposure through diversification, backing numerous voyages at any given time.

Today, the financial market is an arena for highly competitive traders and, as such, requires greater supervision and stricter regulation

The first publicly traded company, the Dutch East India Company (DEIC), was created in 1602. This development allowed investors to simply buy shares of DEIC, instead of investing in multiple ships, and receive dividends rather than a percentage of each trip’s profits. They could also sell their shares, making a profit on the assets.

In 1792, a former slave market on Wall Street became a place for traders and speculators to buy and sell securities. The Buttonwood Agreement, the origin of the New York Stock Exchange (NYSE), provided participants with commission advantages against outsiders, making such organisations attractive and fuelling their development. But even then, trades would be opened and closed through an ‘open outcry’ system, which seemed chaotic at best.

The likes of the London Stock Exchange and the NYSE supervised trading activities, regulated the companies on their respective exchanges and authorised market participants. To ensure prices were created in the most efficient and transparent way, the exchanges developed strict regulations and aimed for the lowest transaction cost, attracting more buyers and sellers. They also provided participants with up-to-date information on asset prices and a faster way to settle stock purchases and transfers.

As more participants have entered the exchange, though, the processes have become increasingly complex. By the time the stock market crashed in 1987, it was clear that a digital revolution was due. Technology brought radical changes, introducing online trading to the world, and granted the public access to the stock, forex and commodity markets. Put simply, it democratised the industry, introducing a new business model – the online trading platform – that allowed individuals to enter the trading sphere with ease and at no additional cost. More financial tools emerged, such as contracts for difference (CFD), which allow speculation on asset price movements. As CFD trading doesn’t require an investor to own an underlying asset, it is more flexible than traditional trading and has become increasingly popular among European traders.

Today, the financial market is an arena for highly competitive traders and, as such, requires greater supervision and stricter regulation. Only brokers who are ready to reform and become more transparent will survive these changes.

With ETFinance, customers can learn more about markets, trading techniques and methods

Know the market
Digital trading may be the new normal, but the industry is still developing. Change is both inevitable and inspiring, creating value for individual traders and forcing brokers to improve. At ETFinance, we pride ourselves on being a European broker with a winning attitude, ready for the challenges that the next decade of trading will present. Our team of seasoned trading and investment specialists is focused on providing a unique trading experience for ambitious clients while complying with the latest regulations brought forward by the Cyprus Securities and Exchange Commission. In addition, the latest data protection legislation ensures the transparency and security of all data processed by ETFinance.

To help investors navigate fast-paced financial markets, ETFinance offers an award-winning platform. Our MT4 terminal comes with cutting-edge analysis tools, as well as stop-loss and take-profit orders that help individuals manage their trades. To increase flexibility, the platform can be accessed via desktop, web and mobile applications. This allows traders to view and analyse data before trading instantly, regardless of their whereabouts.

The new age of trading is about customer experience above all else, which translates into user-friendly tools and superior service. For the ETFinance team, it’s an opportunity to show dedication to customers, assisting them in trading across stock, forex, commodity, indices and cryptocurrency markets via CFD trading. While 24-hour support may have become more prevalent in recent years, the team’s professionalism and commitment allows ETFinance to stand out from its competitors.

We have become a single entry point for European traders looking to invest in hundreds of assets through CFDs. Offering competitive trading conditions, such as tight spreads and no additional commission, ETFinance has become a leading broker. To achieve such results and continue to deliver improved services in the future, our focus remains on attracting the best talent and investing in the latest trading technology. Experience and knowledge allow our employees to incorporate innovation without disrupting the client experience.

Of course, investing comes with risks, but in-depth industry knowledge and a forward-thinking attitude play a crucial part in managing them. With ETFinance, customers can learn more about markets, trading techniques and methods, as well as hone their skills with a free demo account that simulates a real trading environment without any of the risk.

Throughout history, trading has helped people adjust to an evolving world. Today, traders have the opportunity to shape what comes next. With ETFinance’s support and advanced technology, clients can realise their financial potential and create a better trading future.

Weathering the storm: what climate change means for investors’ portfolios

Posted on by Max Tomlin

This past November, more than 11,000 scientists from 153 countries signed a statement in which they warned that “climate change has arrived and is accelerating faster than many scientists expected”. The evidence presented is clear and irrefutable, leading some governments and corporations to take action. But what does climate change have to do with the portfolios managed by South America’s pension funds?

The profitability of a portfolio is related to the value of its underlying assets, which can be directly affected by climate change. The impact is likely to be a negative one, stemming from physical risks that arise from an increase in extreme weather events, such as the devastating forest fires that Australia has been suffering from since September 2019. The bushfires have claimed human and animal lives, and caused immense damage to infrastructure and biodiversity.

For businesses, climate change can involve a loss of assets, a reduction in sales due to the impact on their supply and distribution chain, and higher insurance costs. These factors have a notable influence on the financial health of the underlying assets contained within portfolios. For example, Californian gas and electric company PG&E filed for bankruptcy in January 2019 following the deadly fires that hit the state the year before. Experts point to this as the first bankruptcy related to climate change; it is unlikely to be the last.

The profitability of a portfolio is related to the value of its underlying assets, which can be affected by climate change

Time to act
The need to transition to a low-carbon economy is widely accepted today, and several corporate agreements have been made with the objective of meeting the targets of the Paris Agreement – namely, to stop the global average temperature from rising two degrees Celsius above pre-industrial levels. In its October 2019 Fiscal Monitor, the International Monetary Fund stated: “Policymakers need to act urgently to mitigate climate change and thus reduce its damaging and deadly effects.”

It is expected that the implementation of green policies will accelerate between 2023 and 2025. Portfolios should prepare for this change. New regulations could bring about a number of transition risks, including increased costs for corporations in terms of carbon taxation, which can substantially change the risk profile of a bond issuer or the value of a share. Loss of value in assets might also occur; lucrative oil reserves, for example, could be left unexploited as companies strive to meet the two degrees Celsius objective. Demand-side risk should also be considered as more consumers seek products and services from companies with a low environmental impact. Reputational risk might also occur, which may affect a business’ ability to attract talent or implement structural changes in its customer base.

Fortunately, climate change does not only present risks for portfolios; opportunities are also created. In 2018, the International Energy Agency reported that 28 percent of electricity generation came from renewable sources. This is predicted to reach 49 percent by 2050 (see Fig 1), providing investment opportunities in different instruments, including green bonds. Likewise, companies that are better prepared for these transition risks may not only be more competitive in terms of energy efficiency, but will also benefit from greater demand and access to capital flows.

It is crucial that investors mitigate physical and transition risks in portfolios and are able to capture any opportunities that emerge. At Prima AFP, we recognise the importance of knowing if the companies in which we invest are clear about these risks and if they are prepared to manage them properly.

Lasting change
Today, it is increasingly evident that sustainability will be on the agenda of corporations, investors and regulators for the foreseeable future. In a survey conducted by Bain & Company, 81 percent of firms said sustainability is more important in today’s corporate agenda than it was five years ago, and 85 percent believe it will be even more so in five years’ time.

It is more vital than ever that companies consider environmental, social and corporate governance (ESG) factors in their management and that they seek to generate competitive advantages as part of an integrated sustainability strategy. According to Goldman Sachs’ analysis of companies on the S&P 500 Index, since 2010 there has been a 75 percent increase in the number of organisations that presented sustainability issues in their quarterly results. In 2018, 85 percent of the companies that were part of the S&P 500 published sustainability reports.

The asset management sector is not immune to this shift. More institutional investors are integrating sustainability issues into their investment processes. The number of signatories of the Principles for Responsible Investment has now reached 2,300, with a collective wealth of a little over $80trn in assets under management.

The 2018 sustainable investment review from the Global Sustainable Investment Alliance (GSIA) found that sustainable investing assets in Europe, the US, Japan, Canada, Australia and New Zealand were worth $30.7trn at the beginning of 2018, a 34 percent increase since 2016. Sustainable investments already represent 26 percent of the total assets managed in the US, still far from the 49 percent recorded in Europe.

The definition of sustainable investing varies between organisations, but the GSIA’s interpretation is generally accepted as the global standard. It consists of seven criteria that determine whether an investment can be termed sustainable. These include negative or exclusionary screening (which excludes certain sectors, companies or practices from a fund due to a failure to meet ESG criteria) and positive shareholder action, where investors influence corporate behaviour in an environmental manner.

The reasons behind the growing interest in sustainability are many. According to a survey published by BNP Paribas, the main motivations for ESG investing are improving long-term returns (cited by 52 percent of respondents), followed by management of brand reputation (47 percent) and decreasing risk (37 percent).

A higher purpose
A number of studies have examined the factors influencing a company’s approach to sustainability issues. A meta-analysis by Oxford University and Arabesque Partners found a correlation between sustainable business practices and economic performance. Across 200 sources, 88 percent of those with robust sustainability practices showed better operational performance, leading to higher revenues. In addition, 80 percent of sources showed that sustainability practices have a positive impact on financial performance.

Regarding the reduction of risk, the World Economic Forum’s Global Risks Report 2019 found that five of the 10 most likely risks were related to environmental issues. Only two concerned technology, two were societal and one was economic.

Weather manipulation tools, for example, could increase geopolitical tensions even as they offer a way for nations to mitigate some of the risks associated with climate change. A growing disconnect between urban and rural areas, food supply disruption, water shortages and issues related to space debris were all highlighted by the report as causes for concern.

This makes the incorporation of sustainability factors into investment decisions more relevant than ever. Rating agencies are already including these factors in their metrics. Between July 2015 and August 2017, Standard & Poor’s had 106 cases in which environmental risks prompted changes in ratings. Similarly, last year, Moody’s highlighted 11 industries that were at risk of being downgraded due to concerns about carbon generation. As climate change policies are set to reshape the global economy, it is understandable that credit rating agencies are responding accordingly.

I want to leave you with a comment that Larry Fink, founder of BlackRock, the largest asset manager in the world, made in his annual letter to company CEOs in 2019: “Purpose is not the sole pursuit of profits, but the animating force for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.”

Failure to welcome new members could render the BRICS association irrelevant – here’s why

Posted on by Max Tomlin

The financial world is awash with acronyms and initialisms – from AIR and ARM to IMF, and many more besides. In 2009, another was formalised, grouping the four emerging economies of Brazil, Russia, India and China under the name BRIC. A year later, South Africa was invited to join, creating a coalition that has since been dubbed the BRICS.

In the decade since, the BRICS has strengthened cooperation between its member states, holding formal meetings annually and operating as a geopolitical force. Of late, though, there has been some discontent: aside from disagreements over how the association should progress, there has been talk of expanding the group to allow new members to join or, conversely, disbanding it entirely.

With economic growth in the West – particularly in Europe – proving sluggish, there is an opportunity for emerging economies to take on a greater global role. What this role will entail is something the BRICS nations will have to decide among themselves.

What’s in a name?
Long before all the summits and World Trade Organisation discussions, the BRIC group of countries represented little more than an idea in the mind of a single economist: Jim O’Neill. In 2001, when O’Neill was working as the head of global economics research at Goldman Sachs, he noticed that much of world’s growth was likely to come from emerging markets – notably, Brazil, Russia, India and China.

Increasing digitalisation, falling poverty and a young, growing workforce all present good prospects for Africa’s future

“On a [purchasing power parity] basis, the aggregate size of the [BRIC nations] was about 23.3 percent of world GDP at the end of 2000, somewhat higher than both Euroland and Japan,” O’Neill wrote in a Global Economics Paper published by Goldman Sachs. “While on a current GDP basis, the size of the [BRIC nations] is just under eight percent, this is also set to rise. Some of these countries are already bigger than some individual G7 economies; China, at 3.6 percent of world GDP (using current US dollar prices), was slightly bigger than Italy at the end of 2000, and notably larger than Canada.”

The idea began to crystallise into something more concrete in 2006, when the foreign ministers of Russia, Brazil and China, alongside India’s defence minister, took part in a meeting during a UN General Assembly session in New York. Three years later, the first BRIC summit took place in Yekaterinburg, Russia, where the organisation’s collective goals were outlined.

“We underline our support for a more democratic and just multipolar world order based on the rule of international law, equality, mutual respect, cooperation, coordinated action and [the] collective decision-making of all states,” read point 12 of the countries’ joint statement. “We reiterate our support for political and diplomatic efforts to peacefully resolve disputes in international relations.”

Followers of political developments across the four countries may struggle to contain their disbelief: China remains an authoritarian state, and Russia’s president, Vladimir Putin, seems intent on ruling indefinitely. Brazil and India may be able to back up their democratic claims more robustly, but corruption is still a serious issue in both countries. Even if these early proposals were largely symbolic, though, the BRIC summits nevertheless laid the groundwork for greater collaboration.

“Is there much evidence that the [BRIC] countries are collaborating today in practical terms?” O’Neill noted in an interview with the Financial Times in 2010. “Not really, no. But that could change in the future – you look at how Brazil supplies commodities [that] China needs… or the fact that they all have quite similar ideas about how to manage their economies.”

Join the club
On December 24, 2010, South Africa was invited to join Brazil, Russia, India and China, thereby creating the expanded BRICS group. The decision stemmed from more than just a desire to keep the acronym intact: by forming the original BRIC group, member states gained added political clout across all of the world’s major regions. All except Africa, that is. The addition of South Africa remedied this geographical oversight and formally recognised the huge potential of the continent.

According to the African Development Bank, Africa’s economic growth will measure 3.9 percent across 2020 and 4.1 percent in 2021. Increasing digitalisation, falling poverty and a young, growing workforce all present good prospects for Africa’s future. South Africa’s inclusion in the BRICS affords the country the chance to be the gateway to the rest of the continent. In terms of how its membership might benefit other African states, South Africa has stated that it is committed to ensuring fellow BRICS countries champion energy, infrastructure, agriculture and food security across the continent. The strengthening of international frameworks will also remain a priority.

China – the BRIC member that formally announced South Africa’s invitation to join – certainly has plenty of interests in Africa. Chinese foreign direct investment (FDI) in the continent skyrocketed from $75m in 2003 to $5.4bn in 2018, and has exceeded inflows from the US since 2013 (see Fig 1). The Belt and Road Initiative – the global development strategy that has become the flagship project of Chinese President Xi Jinping’s tenure – has already had a significant impact across Africa. The Abuja-Kaduna railway and the Doraleh Multipurpose Port in Djibouti represent just two of the proposals to have already come to fruition.

“It is well recognised by the UN and Bretton Woods Institutions that the world economy is undergoing a profound structural shift in economic power, with the emergence of new sources of global economic growth, trade and investment flows, which are redefining global economic geography,” former South African President Jacob Zuma wrote in 2013. “The BRICS countries are at the centre of these changes. In broad terms, there is a relative shift in the locus of economic power from the North and the West to the South and the East.”

Even accounting for this shift, the addition of South Africa could undermine the group’s unity. Ranked by GDP, China, India and Brazil all place within the world’s top 10 economies, while Russia comes in at 12th. By comparison, South Africa is ranked 38th, representing by far the biggest disparity between members (see Fig 2).

Strange bedfellows
South Africa’s relative economic inadequacy is not the only challenge the BRICS faces. There have been numerous criticisms that the collective is an uncomfortable one –perhaps reflecting the fact that it started life as an idea in the mind of an economist, rather than forming organically from multilateral discussions and mutual interests.

While China has become known as the world’s factory, with manufacturing constituting around 27 percent of the country’s national output, India’s economy is dominated by the services sector, which accounts for nearly 60 percent of its GDP. Brazil can point broadly to an economic success story, but it has struggled with several public sector issues, namely pension reform. Russia, meanwhile, has followed a different economic trajectory to its BRICS counterparts: having once been regarded in many respects as the US’ foremost economic rival, it suffered greatly following the collapse of the Soviet Union in 1991.

These differences are perhaps to be expected from four nations located in different geographic regions with widely varying histories – South Africa is no exception. Nevertheless, there have been several attempts to come up with more cohesive groupings for the emerging market. Another put forward by O’Neill was the Next Eleven, which comprised Vietnam, Turkey, the Philippines, Pakistan, Nigeria, Mexico, South Korea, Iran, Indonesia, Egypt and Bangladesh. Of course, this grouping contains even wider discrepancies than the BRICS association.

Still, dissimilitude is not necessarily reason for disbandment. In fact, the relative strengths and weaknesses of each member state can provide a strong case for closer collaboration: South Africa has a large number of agricultural products that it is keen to export, while China is intent on gifting its manufacturing expertise to the country. In 2017, South Africa became the first African state to export beef to China, while firms like the Qingdao-based Hisense have created thousands of jobs in South Africa. Economies that are too closely aligned might not have much to offer one another.

Better together
Although examples of the tangible benefits of BRICS membership were few and far between in the group’s early days, there are now several concrete developments that can be pointed to. Foremost among them is the creation of the New Development Bank (NDB) as an alternative to existing multilateral development banks (MDBs), such as the IMF. Many emerging markets have had troubled relationships with such organisations in the past: the Brazilian Government, for example, previously criticised the IMF for requesting strict policy guarantees in exchange for bailouts.

Headquartered in Shanghai, the NDB promises to give the BRICS members more autonomy in matters of financial assistance. Its current general strategy, covering the five years between 2017 and 2021, has three broad focus areas: relationships, projects and instruments, and approaches. In terms of the first strand, most NDB decisions are made on a simple majority basis to ensure that each member feels it has a clear say in the running of the bank. No single party can veto any matter.

“The NDB was conceived by founding members – Brazil, Russia, India, China and South Africa – to be a truly 21st-century MDB, one that makes use of the MDB’s proven core financial model, while designing and implementing systems, practices and an organisational culture that can live up to the challenges and opportunities posed by the current global context,” an outline of the general strategy read. “Its creation is an expression of the growing role of BRICS and other [emerging markets and developing countries] in the world economy and their greater willingness to act independently in matters of international economic governance and development.”

In terms of economic development, the BRICS has not wholly lived up to expectations

Since its formation in 2015, the NDB has issued more than 35 infrastructure loans, totalling $10.2bn across a multitude of sectors, from renewable energy to transport. Impressively, the bank has also managed to acquire high credit ratings – a crucial element to ensuring the bank can raise capital at speed. In 2018, the NDB received AA+ ratings from both Standard & Poor’s (S&P) and Fitch Ratings, before receiving a AAA rating from the Japan Credit Rating Agency last year.

BRICS members have collaborated in other ways, too. Health ministers from the five states meet annually to discuss areas in which medical services can be improved; the creation of the BRICS TB Research Network provides concrete evidence of the group’s impact. Science and security form two other areas where members remain in constant dialogue.

Cracks appearing
Despite several instances of mutual benefit, the BRICS states could do more to demonstrate they are on the same page. This will not be easy, though, especially given the many demographic and social differences that currently exist. First, the populations of the five states vary substantially: while South Africa has around 57 million inhabitants, India and China have more than a billion each (see Fig 3). In terms of GDP per capita, Brazil and Russia remain ahead, with India ranked much lower than the other members. Other areas, such as inequality, trade and ease of doing business, also diverge markedly.

What’s more, the BRICS grouping has not prevented political tensions from flaring up between member states. Border disputes have been a long-running issue between China and India, with the most recent military standoff taking place in the area surrounding Pangong Lake in September 2019. In other areas of foreign policy, the members are at odds, even if not in direct opposition.

India’s close relationship with the US, for example, is in sharp contrast to the more negative attitudes exhibited towards Washington in Beijing and Moscow. Likewise, cooperation between Russia and Pakistan, particularly concerning joint military drills, has caused some consternation in New Delhi. During his election campaign, Brazilian President Jair Bolsonaro even warned that China was “buying [up] Brazil”.

In terms of economic development, the BRICS has not wholly lived up to expectations, either. Members have failed to become the driving forces of the 21st century’s global economy – even Chinese growth has slowed of late. Extenuating circumstances, including national recessions, trade tensions and the COVID-19 outbreak, have not helped, of course. Somewhat embarrassingly, Goldman Sachs – the bank at which the original group’s acronym was coined – closed its BRIC investment fund in 2015 after years of poor returns.

S&P is just one of many entities to question whether the grouping remains relevant, arguing late last year that the members’ “disparate paths weaken the analytical value of viewing the BRICS as a coherent economic grouping”. Even after 10 years, there is work to be done if the BRICS group is to survive long into the future.

Reinforcing the foundations
As the BRICS states look ahead to the next decade, members are increasingly eyeing ways to intensify their collaboration. One potentially fruitful area would be digital innovation.

“BRICS countries need to promote networking between chambers of commerce and industry, business councils, professional associations and unions, intensify collaboration between business entities through joint projects, trade fairs and exhibitions in the hi-tech sector,” Igor Bogachev, CEO of IT firm Zyfra, told The Economic Times. “The main barrier for commercial projects in BRICS countries is a lack or absence of data… Successful results are mainly achieved by interdisciplinary groups consisting of data scientists, IT specialists and industry experts.”

Expanding the core group of BRICS members would risk watering down an association already facing questions about its current and future relevance

This year, it is Russia’s turn to lead the five-nation grouping, and it has already pledged to host 150 activities. One of the BRICS priorities under Russia’s governance will indeed be “to develop cooperation in the digital economy and innovations”, although how exactly this will play out is not yet clear. That said, there have already been discussions about Brazil and South Africa collaborating in the fields of bioenergy, bioelectricity and biofuels.

Russia has also offered to share its experience in the field of digitalisation with the other members, in the hope of developing better e-commerce frameworks. Great opportunities certainly exist for the BRICS states, and not only in terms of economic development. BRICS members can take a leading role in tackling global warming, for example: China is reducing its coal dependence rapidly in favour of wind and solar power, while India has ambitious goals of its own, aiming to produce 450GW of renewable energy by 2030. Getting Russia and Brazil to join in will be more difficult, but member states must be prepared to push back against their partners.

Another potential development under discussion is the further expansion of the group. There have been murmurings of a BRICS+ coalition that would allow outside countries to cooperate with existing members. In particular, the concept would see the BRICS engage more seriously with other regional associations like the Eurasian Economic Union, the Southern African Development Community and Mercosur.

However, expanding the core group of BRICS members would risk watering down an association that is already facing questions about its current and future relevance. In addition to forging new ties through the BRICS+ initiative, the existing countries of Brazil, Russia, India, China and South Africa must strive to work more closely in areas of social, economic and geopolitical interest. That is the only way the BRICS group will move beyond its reputation as just an easy-to-remember acronym.

Going it alone – what the New Southbound Policy means for Taiwanese independence

Posted on by Max Tomlin

Last year, on October 1, China celebrated the 70th anniversary of the People’s Republic. From the ostentatious parade floats to the grand military display showcasing more than 160 aircraft and 580 weapon systems, it’s clear that no expense was spared in marking the occasion.

The event set the bar high for an even more significant national milestone: the republic’s centenary, to be held in 2049. According to Xi Jinping’s vision for the country, this is the year that China will have become “fully developed, rich and powerful”. One could argue it has already achieved the last two objectives. But “fully developed” has a specific meaning to Xi: it communicates the idea that China will only be territorially complete when it has reunited with its satellite states.

This makes 2049 an intimidating deadline for Taiwan. Despite having existed as a self-ruled island since 1949, it is seen by China as a breakaway province. Xi is set on reunification, and has stressed that Hong Kong’s ‘one country, two systems’ model could be workable in Taiwan.

But since protests broke out in Hong Kong in 2019, this has been a difficult sell. Widespread unrest in the city-state worked to the advantage of President Tsai Ing-wen, the leader of Taiwan’s Democratic Progressive Party, who has long campaigned on an anti-China, pro-independence platform. In January 2019, she was re-elected by a landslide, garnering 57.1 percent of the vote. She must now reject mainland China’s economic and political vision and steer the country towards greater independence and self-sufficiency.

While Taiwan is opening its arms to South-East Asian countries, it has sometimes received the cold shoulder in return

A new direction
In light of Tsai’s victory, Chinese Foreign Minister Wang Yi warned that Taiwan’s independence from China would leave a “stink for eternity”. But Taiwan is perfectly capable of standing on its own two feet. Having industrialised rapidly in the 1960s, the state is one of the Four Asian Tigers that experienced fast economic growth in just a few decades, along with Singapore, South Korea and Hong Kong. Since then, it has established itself as a manufacturing powerhouse: almost all of the world’s semiconductors come from Taiwan, as do 90 percent of its laptops.

Despite the pressures the island experienced as a result of the US-China trade war, Taiwan ultimately benefitted from its neighbour’s turmoil, experiencing a $4.2bn increase in exports to the US in the first half of 2019. In fact, the UN Conference on Trade and Development has recognised it as the biggest beneficiary of the dispute. At least 40 countries looking to shield themselves from US tariffs on Chinese imports chose to expand production in Taiwan, creating more than 21,000 jobs with investments totalling $6.7bn. Consequently, Taiwan’s economy grew by 2.73 percent in 2019.

Critics of China believe Taiwan’s rapid growth and manufacturing prowess give it a strong case for economic independence. Since China’s post-1978 reform, Beijing has taken steps to strengthen economic ties between the countries, with the implicit aim of politically integrating them. However, Taiwan has usually been cautious about accepting investment from China. Tsai’s resistance to what she sees as Chinese encroachment has led her to keep Chinese funding low and diversify Taiwan’s investment away from the mainland.

To this end, Tsai has championed a strategic pivot towards South-East Asia. Her New Southbound Policy, introduced in May 2016, aims to integrate Taiwan into the supply chains of South-East Asian countries, while also facilitating talent exchanges between them and collaborating on critical infrastructure projects.

If Taiwan had formal ties with South-East Asian countries, its investors would benefit from government-to-government lobbying and could more easily overcome bureaucratic hurdles in emerging markets. So far, the policy has enjoyed relative success. In December 2017, Taiwan signed a bilateral investment agreement with the Philippines and, in May 2018, an agreement on agricultural cooperation with Indonesia. Taiwan is also seeing a rise in tourists from South-East Asian countries, thanks to a decision to grant citizens visa-free entry to Taiwan. In addition, trade with New Southbound countries rose from $96bn in 2016 to $117.1bn in 2018.

Stifled growth
But it’s not all been smooth sailing. While Taiwan is opening its arms to South-East Asian countries, it has sometimes received the cold shoulder in return. Taiwan’s attempts to create a free trade agreement with Australia were stalled after China stepped in to voice its concerns. Chun-Yi Lee, a lecturer in politics and international relations at the University of Nottingham, told World Finance that this was not a singular incident: “I was in Vietnam in March 2018 doing fieldwork of Taiwanese factories in Ho Chi Minh City, and a Taiwanese businessman told me that they originally wanted to put a Taiwanese industrial park in the city. But it had been turned down by the local government because of the name of Taiwan.”

China poses a significant obstacle to Taiwan’s New Southbound Policy. The sheer size of its economy gives it the leverage to dissuade some countries from growing close to Taiwan. However, Lee points out that this doesn’t mean Taiwan is in danger of being completely ostracised. “Money is money. It doesn’t matter which country it’s coming from; Vietnamese, Malaysian and Taiwanese money is as good as Chinese money,” she told World Finance. “However, the Chinese Government is putting some pressure on those South-East Asian countries as a way of making investment harder for the Taiwanese.”

Beijing has a more direct way of squeezing Taiwan’s economy: in July 2019, it banned individuals from travelling to the island, in a major blow to Taiwan’s tourist industry. Tsai accused China of politicising the industry in a bid to manipulate presidential elections.

Threatening signals like this spook Taiwanese businesses. Many in Taiwan are wary of what severing connections with China could mean for the island’s fortunes. China is Taiwan’s largest trading partner, accounting for nearly 30 percent of the island’s total trade, and its citizens make up around a quarter of the tourists who visit Taiwan each year. “Tsai’s policy is anti-China. We can’t sell our products to China and there are fewer mainland tourists to Taiwan,” Tsai Pao-shin, a former supporter of the Democratic Progressive Party and executive secretary of a fishing association in Kaohsiung, told AFP.

Opposition to China could also lock Taiwan out of beneficial trade deals. Taiwan is unable to join the Regional Comprehensive Economic Partnership, which targets 16 Asia-Pacific countries (including China), because it would have to join as a province of China. Playing upon the many anxieties surrounding her re-election, Tsai’s electoral opponent, Han Kuo-yu, ran with the campaign slogan “Taiwan safe, people rich”.

As well as encouraging investment in South-East Asia, Tsai is calling for Taiwanese businesses to return from the mainland

Come back home
As well as encouraging investment in South-East Asia, Tsai is calling for Taiwanese businesses to return from the mainland. Companies that repatriate will be eligible for a preferential tax programme. As part of the two-year scheme, which was launched at the end of 2019, companies and individuals will be taxed eight percent in the first year and 10 percent in the second – a significant saving considering the country’s standard corporate income rate is 20 percent.

So far, a number of companies have been tempted back, including Quanta Computer and AU Optronics. However, Iris Pang, a Greater China economist at ING, argues that there are some doubts about the policy’s success. “There are investments booked, but there is no matching data to suggest that there has been a growth in the number of factory buildings or in factory production,” she told World Finance.

For more organisations to set up shop in Taiwan, Tsai urgently needs to make the country more business-friendly. Shortages of water and electricity are a thorn in the side of Taiwanese companies. “There are certain sectors you can’t facilitate if you do not have sufficient electricity support,” said Lee. “The majority of Taiwanese businesses are in the manufacturing sector; we have not yet built a designing sector like Silicon Valley.” At the same time, wages have been stagnating for years, driving away high-skilled workers. This has not been helped by China’s attempts to attract Taiwan’s top talent with generous incentives. As a result of Xi’s Made in China 2025 initiative, 3,000 Taiwanese chip engineers have moved to the mainland for work.

Improving the country’s infrastructure and bringing more sophistication to its industries should be key priorities for Tsai moving forwards, but her power struggle with Beijing could make this difficult. Since Tsai became president in 2016, China has turned up the heat on Taiwan. Now that she’s been re-elected, the country will continue to do so. For Xi, Taiwan remains unfinished business.

BNL Gruppo BNP Paribas is helping everybody profit from positive change

Posted on by Max Tomlin

We’ve been hearing about the importance of sustainability to the finance sector for some time now. In the corporate world, it is essential that we make room for social responsibility and considerate approaches to investment. At BNL Gruppo BNP Paribas, we believe sustainability must be viewed as a journey, not just a destination: pursuing sustainability entails contributing to the transformation of society in a way that ensures there is a future for all.

People are the drivers of change in society; through their votes, investments and general conduct, their choices affect the behaviour of larger entities, such as businesses and governments. Financial intermediaries should accompany clients on this path, actively supporting cooperation between the private sector and sustainable finance.

Today, the world operates as a capitalist system that is almost entirely concerned with profit maximisation. But this system faces a moment of significant discontinuity as the focus of attention increasingly shifts towards a more ethical model of capitalism. Many companies will concentrate on reaching the UN Sustainable Development Goals (SDGs) this year, leading to a gradual move away from traditional investing and towards an approach based on impact investing and the ethical value of intangible assets.

Committed to change
A large amount of funding will be needed to achieve such a huge economic transformation. It cannot simply be left to governments to raise the capital; private investors also have a key role to play. This is why, more than ever, banks must lead the move towards a more sustainable, inclusive and responsible economy.

Financial intermediaries need to promote the real economy, focusing on businesses that provide tangible benefits for citizens. The private banking and wealth management market, which oversees roughly one third of the investable wealth in Italy, occupies a particularly integral position. It is responsible for promoting the transfer of resources towards entrepreneurial initiatives that contribute to collective wellbeing, while concurrently providing appealing risk-reward opportunities for clients.

The portion of portfolios allocated to socially responsible investment (SRI) activities is increasing due to the fact that, besides the high level of interest from consumers, SRI is an indicator of quality and sustainability over time. This quality is demonstrated by good data management and careful due diligence, as expressed by initiatives that translate into performance sustainability.

Italy provides fertile ground in this field: familiarity with sustainable investments is particularly widespread compared with other countries, although there remains scope for improvement. What we need now is a concerted effort to convert this knowledge into concrete initiatives. This will benefit not just our clients and their wealth, but the economy as a whole.

Choose responsibly
At BNL Gruppo BNP Paribas Private Banking and Wealth Management, we are committed to respecting the UN’s 17 SDGs through our investment choices. We aim to enrich our existing offering with investment solutions that channel our clients’ savings towards projects that generate a positive social and environmental impact and that respond to the key challenges facing society, such as the production of water and food to support the growing population. By choosing socially responsible investments, clients become partners in our commitment to sustainability. Investing in high-quality assets also helps clients diversify their portfolio, bringing the benefit of more sound and resilient returns over time.

Today, BNP Paribas is a leader in sustainable banking: it has invested over €37bn ($41.22bn) in socially responsible assets and has been an industry leader ever since creating the first SRI fund back in 2002. BNP Paribas has been recognised for its efforts, picking up an Award for Excellence from Euromoney in 2019, when it was voted World’s Best Bank for Corporate Responsibility.

Being a bank in today’s shifting business climate means always improving the way we support our clients, providing them with opportunities to make informed choices through their approach to wealth investment and encouraging them to generate a positive impact. Our goal is to keep broadening our existing products so our clients can invest in projects with a significant social and environmental impact.

A financial philosopher’s stone

Posted on by Max Tomlin

It is something of a cliché to refer to central bankers and financiers as alchemists because of their apparent ability to conjure money out of nothing: journalist Neil Irwin has published a book on central bankers called The Alchemists; there is a documentary on quantitative analysts called Quants: The Alchemists of Wall Street; and I have even written articles doing it myself. However, the name is not far from the truth – our modern system of banking was actually inspired by alchemy.

In the 17th century, alchemy was a fairly respectable pursuit and a legitimate subject of study. King Charles II, for example, built a private alchemical laboratory under his bedroom, and Isaac Newton probably devoted as much time to alchemy as he did to physics.

However, as the quest for things like the elixir of life or a philosopher’s stone that could transmute a base metal into gold proved elusive, some alchemists turned their attention to another way of producing infinite wealth: banking. Chief among these financial magicians was a group known as the Hartlibians.

The true seed of riches
The Hartlibians were a group of social reformers, natural philosophers and utopians who formed around Samuel Hartlib. Their broad range of intellectual interests included alchemy and finance, and they were among the first to see credit as a kind of financial philosopher’s stone.

One pamphlet on a new idea for banking, written by the group’s William Potter, was titled The Key of Wealth: Or, A New Way for Improving of Trade. Here, the ‘key’ referred to the alchemical term for the knowledge of how to transmute matter – but it applied just as well to money. Henry Robinson, another Hartlibian, described his scheme for a merchant bank as “capable of multiplying the stock of the nation, for as much as concerns trading ad infinitum: in brief, it is the elixir or philosopher’s stone”.

The ‘base metal’ of things like land or goods or future earnings could be converted into the ‘gold’ of money through the magic of credit

The basic idea of these schemes was that the ‘base metal’ of things like land or goods or future earnings could be converted into the ‘gold’ of money through the magic of credit. For example, suppose back in the 17th century you had a valuable plot of land but needed access to money in order to pursue a business venture – one approach would be to sell the land, but perhaps you don’t want to, and even if you did it would take a long time.

A better method would be to borrow money in exchange for a claim against the land. If your business venture failed, the creditor would have the claim against the land and you would be forced to sell, which would settle the debt. However, with this method, the creditor would have to wait a long time to be repaid.

In either of these cases, no new money would be created since it would just be transferred from the buyer to the seller or the creditor to the debtor. Conversely, if the creditor received paper notes, and these notes could be exchanged, they would be as good as money. The creditor could then spend them immediately (i.e. pass the debt on to someone else), and the money supply would expand accordingly. As Potter wrote, this credit currency would unlock society’s “[storehouse] of riches”, making credit “the true seed of riches”. He estimated that the scheme could double capital every two years, so after 20 years $1,000 would grow to $1m.

Some critics worried that creating such a source of infinite credit would lead to runaway inflation, just as discovering an actual philosopher’s stone would mean that after a while “gold and silver will grow cheap, like dung” as the alchemist George Starkey, writing under the pseudonym of Eirenaeus Philalethes, observed.

A sinking ship
A number of land banks along these lines were attempted, but didn’t manage to attract enough broad interest to survive. However, Scottish economist John Law carried out a similar Hartlibian scheme in France, when he established the Banque Royale. The difference was that, instead of the notes being backed by gold or property, they were effectively backed by investments in Law’s Mississippi Company, which had trading rights over a huge expanse of what is now the US. Not everyone was convinced. As Voltaire wrote: “Is this reality? Is this a chimera? Has half the nation found the philosopher’s stone in the paper mills?”

A similar company, known as the South Sea Company, was launched in England in 1711. This prompted a song called ‘a South Sea Ballad’, which was apparently sung for months around the streets of London. One verse went: “’Tis said that alchemists of old could turn a brazen kettle or leaden cistern into gold, that noble tempting metal.” It concludes by noting that “all the riches that we boast consist in scraps of paper”.

Neither of these schemes ended particularly well: Law’s company collapsed and he fled the country. As a result, for the next couple of hundred years, financial institutions in France preferred to describe themselves as anything other than a bank. The South Sea bubble, meanwhile, affected England’s economy so significantly that it introduced the word ‘bubble’ into the financial lexicon.

Nevertheless, today the Hartlibian idea of the land bank has been realised in the form of instruments such as homeowner lines of credit, which allow people to use their houses as a cash machine. As former chair of the UK’s Financial Services Authority Adair Turner notes, the amount of private credit and money that banks can create is “potentially infinite”, just as the alchemists had predicted. Now if they could just get to work on that elixir of eternal youth.

Hellenic Asset Management: the Greek economy is finding its feet after years of financial woe

Posted on by Max Tomlin

On December 31 last year, members of the Athens Stock Exchange celebrated not just the arrival of 2020, but also being named the best-performing stock market in the world in local currency terms. This was a return to form for a stock market that faced a collapse in valuation in the years following the global financial crisis. Investors must question what happened between 2008 and 2018, what caused the turnaround in 2019, and if the country will see flat or negative performance this year.

The global financial crisis of 2008 hit the debt-fuelled country with fury. Once the flow of cheap funding dried up, Greece was forced to deal with its perennial balance deficit by cutting spending and increasing taxes. Unfortunately for the private sector, the public sector was able to coerce successive governments to tilt the balance towards increasing taxes rather than cutting inefficient public spending. This, together with the tax authority’s inability to broaden its tax base, led to unproductively high taxation on property instead of income. The result was a collapse in domestic GDP, an explosive increase in corporate and personal bankruptcy and record unemployment.

In free fall
To put some numbers behind Greece’s collapse, GDP fell by 26 percent between 2007 and 2014, unemployment hit a high of 27.8 percent in September 2013, and nearly 500,000 Greek professionals emigrated between 2010 and 2015 in search of a better future. Banks, which were the traditional vehicle of funding in the economy, found themselves suffering from losses to their Greek government bonds (a haircut of which was agreed on by Greece’s creditors in 2011), as well as a staggering increase in non-performing loans, which hit 48 percent of outstanding loans in September 2016.

The key to Greece’s growth is the desire of the country’s government and its citizens to break with the past

The severe economic collapse Greece was facing did not only lead to reduced wages for those who stayed and mass emigration for those who could afford to leave – it also dealt a death blow to the bipartisan politics that was the norm in the decades that followed seven years of military dictatorship. The agent of change was the radical left Syriza party, which came into power promising to go against the Brussels diktat. Its threat to leave the eurozone was met with polite acceptance in the corridors of power and massive money transfer out of the Greek banking system by domestic account holders.

With the country operating outside the agreed framework with its creditors, the European Central Bank was forced to end its support of Greek banks. Capital controls were introduced to avoid a bank run, signalling the low point of the country’s financial crisis. The Syriza government tried to stabilise the country, but the mix was always pro-public-sector, anti-privatisation and ultimately anti-growth. However, this episode was not without merit, as it convinced enough of the electorate that anti-establishment policies are, at best, theoretical constructs with limited applications or, at worst, populist ideas masquerading as realistic alternatives to painful remedies.

By 2019, the government had lost a big proportion of its electoral support, and market participants – both local and foreign – started looking ahead to a new government. This government would be based around the centre-right New Democracy party and its new liberal-conservative leader, Kyriakos Mitsotakis. As the date for elections approached, the stock market started reflecting the hope that New Democracy would win an outright majority and be able to steer the country in a new direction, unburdened by the complications of power-sharing in a coalition government.

Indeed, in 2019, the Athens Large Cap index was up 39.98 percent for the year until the election date. Mitsotakis lost no time in passing laws throughout the summer foregoing the traditional summer break of Greek governments past. However, it is crucial to recognise that much of the positive stock market performance was in anticipation of economic or policy improvements, and not a result of government actions. The yield of the 10-year Greek government bond fell from 4.4 percent in January 2019 to 2.16 percent just before the elections. While markets were still shut for Greek corporations, sectors such as real estate started seeing increased investor demand and high year-on-year increases in valuations.

On the up
Today, investors the world over are questioning whether the new government will deliver and if Greece’s economic recovery has longevity. At Hellenic Asset Management, we believe in Greek recovery. On the macro front, GDP figures for the third quarter of 2019 showed the 10th consecutive quarter of positive real GDP growth (see Fig 1), while the EU Commission predicts Greece’s economy to grow by 2.3 percent in 2020.

In addition, Greek bond rates have been falling, with the 10-year bond trading below one percent for much of February. Rating agencies have also improved their outlook on the Greek economy, although it is worth noting that government bonds are still rated below investment grade. At present, investors are showing great demand for new corporate issues, senior corporate debt and subordinated bank debt. The improvement in government bond yields can be partly attributed to the adjustment process starting to bear fruit.

Excluding interest payments, Greece now runs a fiscal surplus and the current account deficit has contracted by more than 12 percent since its peak in 2007. Moreover, as a result of a comprehensive agreement with its creditors, Greece’s debt profile is on a sustainable downward path, expected to dip below 100 percent by 2060. The government’s commitment to structural reform could reduce the agreed-upon primary surplus as a percentage of GDP from 3.5 percent to something closer to two percent, which could provide a huge boost to growth through tax cuts and development funds.

On the corporate side, following internal devaluation and a collapse in local wages, Greece has regained competitiveness compared with other European countries. Moreover, the new government has already slashed corporate tax rates from 28 percent to 24 percent. Social security contributions have been cut, dividend tax has been reduced to 10 percent and a much-maligned property tax, which was thought partly responsible for the collapse in real estate prices witnessed after 2010, has also been lowered. These measures, together with an increase in positive consumer sentiment, are poised to benefit Greek businesses that, having survived the crisis and capital controls, are now operationally geared towards growth.

Beyond financial markets, the sector with the greatest momentum in Greece right now is real estate

The banking sector is still plagued by large non-performing exposure (NPE). All systemic banks have undertaken a huge effort to cut costs, sell assets to private equity funds and utilise the government’s NPE-reduction programme. These efforts should contribute to higher credit growth and the turnaround of zombie businesses.

The final leg
Beyond financial markets, the sector with the greatest momentum in Greece right now is real estate. In recent years, there has been a huge demand for assets in Athens, Thessaloniki and other major cities in the country. Investors are concentrating on prime properties that have the potential to be redeveloped into high-end hotels or A-rated offices.

To put this into context, residential real estate saw its peak in the third quarter of 2008. Prices subsequently fell by 43 percent until they bottomed out in the fourth quarter of 2017. Since then, the market has increased by 11.9 percent according to the most recent data from the Bank of Greece. Increases in real estate valuations and the ever-growing demand for buildings in major Greek cities are beneficial not only to the buildings’ owners, but also to Greek banks who hold a large number of properties as collateral to non-performing loans.

The final leg of this recovery story is the privatisation programme, which is gathering momentum after the previous administration’s half-baked efforts. The massive Hellinikon Project – an €8bn ($8.7bn) infrastructure plan – has received the go-ahead, and we are expecting bulldozers to hit the ground in the first quarter of 2020. Complications with permits for the Skouries gold mine have been resolved, allowing its owner to proceed with investments of approximately €1bn ($1.1bn). Piraeus Port Authority’s upgrade master plan has been approved, releasing an estimated €600m ($653m) of funding. Additionally, the sale of a portion of Athens Airport, Hellenic Petroleum and DEPA will all increase investment in the country’s infrastructure. All in all, Greece is making the right moves to increase foreign direct investment and reduce unemployment.

The key to Greece’s growth is the desire of both the country’s government and its citizens to break with the past and embrace best practices in the management of the country and its corporations. While this is a difficult process, made more complicated by Greece’s fragile geopolitical situation, we are seeing positive effects. Fast-money managers have confirmed their desire to participate in Greece’s recovery through ownership of Greek government bonds. All eyes are now on corporations, big and small, to test the waters with increased foreign direct investment flows. Anecdotal evidence suggests the economy is already benefitting; our bet is that Greece’s recovery will continue to go from strength to strength.

Managing the complexities of global trade

Posted on by Max Tomlin

We live in a truly global society where cross-border trade is the norm and most forward-thinking companies seek to grow their business internationally. According to the World Trade Organisation, global merchandise exports increased by a factor of 250 between 1948 and 2016 (see Fig 1), with recent advances in technology accelerating growth and creating what is fondly referred to as the ‘global village’.

But while globalisation has fuelled international business growth, the size and complexity of some transactions mean that it is not always easy to get deals over the line. In fact, third-party intervention can be required to find a mutually agreeable solution for all involved. International arbitration is the accepted mechanism for dispute resolution on commercial agreements, enabling companies to avoid national courts in favour of a neutral, predetermined decision-maker. International arbitration allows those involved to establish in advance how matters will be addressed in the event of a dispute arising. Details including the choice of arbitral organisation, location, language used, number and selection of arbitrators, prevailing law, and procedures to be followed can all be resolved preemptively.

The most contentious issue is often the location of arbitration proceedings, with independent venues sought out to avoid any potential bias or conflict of interest. In the not-too-distant past, very few jurisdictions had the necessary infrastructure to accommodate international arbitration, with activity traditionally centred in North America and Western Europe. Today, though, international finance centres are gaining popularity as nerve centres for the resolution of commercial disputes.

While globalisation has fuelled international business growth, the size and complexity of some transactions mean that it is not always easy to get deals over the line

The law of the land
The British Virgin Islands’ (BVI’s) arbitration legislation dates back to the introduction of its Arbitration Ordinance in 1976. As the BVI continued to develop as a major arbitration hub, the need to modernise its legislation became apparent, resulting in the establishment of a new Arbitration Act in 2013. The current statute is one of the most progressive globally and its adaptability, which enables parties to tailor it to their needs, makes it universally appealing to international lawyers.

The culmination of several other developments led to the launch of the BVI’s International Arbitration Centre in November 2016, making it the first jurisdiction in the Caribbean to have established both an arbitral institution and a dedicated centre, as well as to boast legislation modelled after the UN Commission on International Trade Law.

While all of these factors make a compelling case for choosing the BVI as a destination for international arbitration, what distinguishes it from its peers is the flexibility of its statutes. This includes the ability to opt in or out of certain provisions, such as whether a court has jurisdiction to consider an appeal against an award, challenge against an award on the grounds of serious irregularity or determine a point of law arising in the arbitration.

The BVI also enables those involved in an arbitration agreement to choose a governing law that is distinct from the seat of arbitration, recognising that the hearing venue, applicable rules and courts in which applications may be brought are a selection of matters that may relate to separate jurisdictions. This flexibility can be particularly useful when enforcing arbitral awards, reducing the time and complexity involved for all.

What’s more, other jurisdictions can be selected as the seat of arbitration – allowing a third-party jurisdiction to be used as the governing law of the contract – but the arbitration itself has to be heard in the BVI to ensure impartiality. This option provides a neutral venue and an experienced commercial court to assist with interim matters in aid of the arbitration, while also ensuring any award can be quickly and easily enforced in the jurisdiction in question.

Trust the process
Aside from forging a reputation as a centre of excellence for international arbitration, the BVI has come to the fore through the establishment of trusts for asset protection and succession planning purposes. Having a legal system rooted in English common law also reassures individuals about the integrity and effectiveness of its procedures, including the numerous innovations that are unique to the BVI.

Chief among them is the Virgin Islands Special Trusts Act (VISTA), which was established in 2003 and can be a valuable tool in effective succession planning. VISTA allows the business owner to place the company’s shares into a trust structure, thereby creating a mechanism for the orderly succession of ownership of the business following the owner’s death or incapacity. Crucially, it provides this structure without placing the day-to-day management of the company in the hands of a trustee, who may not have the specific knowledge and experience to run it.

As such, the directors of the business continue to make key decisions relating to the company, while the BVI trustee holds the shares of the company in trust. What’s more, VISTA can be revoked – a feature that often gives the person settling the trust a measure of comfort. The settlor is also able to set out ‘permitted grounds of complaint’ and ‘office of director rules’, which determine how and under what circumstances the trustee can intervene in the company’s affairs and request information from the directors regarding the management and financial situation of the underlying company’s assets.

A reliable partner
BVI trusts are recognised internationally for helping high-net-worth families and entrepreneurs protect their assets, guard against political uncertainty, maintain privacy and ensure the continuity and orderly succession of their business and financial interests from one generation to the next. In the event of a dispute, the specialist BVI Commercial Court is well equipped to handle trust matters, while the Court of Appeal of the Eastern Caribbean Supreme Court is on hand to help if necessary. Parties also have ultimate recourse to the Privy Council of the UK if a final appeal is required.

The BVI trust sector is highly sophisticated, with a large number of experienced, technically skilled professional firms and trust practitioners operating within the corporate, legal, tax and accounting fields. There are a whole host of additional benefits that underpin the popularity of BVI trusts too, including the fact they are flexible, cost-effective and can be used for both charitable and non-charitable purposes. Other key highlights include the confidentiality and privacy of the trust’s settlor and beneficiaries, and the multi-generation duration of trusts, which protects assets from creditors and forced heirship. As such, BVI trusts are useful for succession purposes, as they avoid the associated costs of the probate process, provide tax and fiscal neutrality, and reduce exposure to additional levies.

Individuals can choose from several trust structures dependent on their specific circumstances, from discretionary trusts – which provide maximum flexibility and give the trustee broad scope in terms of the distribution of income and capital to beneficiaries – through to fixed-interest funds that limit the control of the trustee. Accumulation and maintenance trusts are also useful if settlors intend to preserve assets and accrue value in the trust capital for beneficiaries, such as children or grandchildren. The trust capital and/or the income will generally be used over time to ensure the education and maintenance of beneficiaries up to a specified age.

Core to the BVI’s success across both international arbitration and the provision of trusts is its ability to constantly adapt to changes in the global financial services industry. It has developed and implemented the highest international standards to maintain the country’s status as a top-tier hub, creating flexible vehicles that can operate in different countries and offering valuable ancillary services at a reasonable cost. Standing still isn’t an option in today’s fast-paced financial services industry; as a digital innovator deploying cutting-edge technology, the BVI ensures its clients have the latest solutions to meet their needs.

The future of global trade is uncertain, but while the direction of international financial flows will undoubtedly alter and evolve with time, the volume of such transactions is unlikely to decrease. International finance centres like the BVI help mitigate the ambiguity and potential risks involved in engaging in global trade, offering a neutral, independent platform that allows organisations to confidently grow and nurture their businesses across borders.

The shipping industry must adapt if it is to survive in the modern world

Posted on by Max Tomlin

Cheap, clean fuel is an asset that can make or break a shipping company’s balance sheet. Consequently, firms have increasingly turned to liquefied natural gas (LNG) to reduce their impact on the environment. But while LNG is less harmful than traditional alternatives, such as heavy fuel oil, the cost of installing the necessary equipment is often prohibitive. What’s more, the heavy metallic tanks used to store the fuel reduce the volume of freight LNG-powered vessels can carry.

Ocean Finance, an Athens-based business development and consulting firm that operates across the maritime and energy sectors, may have a solution to the problem. In partnership with Cimarron Composites, an American advanced composite structure manufacturer, Ocean Finance is building a carbon-fibre tank that is up to 90 percent lighter than conventional tanks, borrowing technology and techniques from the aerospace industry.

“We were searching for green solutions for high-speed vessels and we came across equipment that NASA uses to launch rockets into space,” Panagiotis Zacharioudakis, Director at Ocean Finance, told World Finance. “Every gram counts in this process, which is quite relevant for the shipping industry.” The tank, which has already received preliminary approval from the American Bureau of Shipping, is expected to become available this spring. It can also be retrofitted to store liquefied hydrogen, a fuel considered to be the greenest solution for the shipping industry moving forward.

The advent of autonomous technology in the shipping industry poses a series of legal and ethical questions

Not all in the same boat
Such moves are imperative for an industry that accounted for approximately 3.1 percent of carbon dioxide emissions globally between 2007 and 2012, according to the International Maritime Organisation (IMO). The IMO wants the maritime sector to cut its greenhouse gas emissions by at least 50 percent by 2050 compared to 2008 levels. At the beginning of the year, it imposed new regulations that limit the sulphur content of marine fuel to 0.5 percent mass by mass, effectively increasing fuel costs for most shipping companies. Only ships equipped with exhaust gas cleaning systems are exempt from the regulation.

Many think the target set by the IMO is unrealistic given the relatively short time frame in which shipowners will have to adjust to the change and the disparities in regulation across different jurisdictions. In Europe, for example, regulations are deemed to be too strict, harming the competitiveness of EU-based firms.

“The target… is ambitious,” Harilaos Psaraftis, a maritime logistics professor at the Technical University of Denmark, told World Finance. “The IMO process is way too slow, mainly as a result of political obstacles.” In response, several organisations representing the industry submitted a proposal in December to form a collaborative research and development programme aimed at finding green solutions, with participants providing funding of around $5bn over 10 years.

The transition to greener technology poses a conundrum to shipowners, though, as they are forced to make investment decisions without having a clear picture of the industry’s future needs and regulatory framework. “A ship ordered in 2025 will still need to be operating in 2050, if the owner is not to face substantial losses,” Pyers Tucker, Head of Strategy at Hapag-Lloyd, a German international shipping and container company, told World Finance.

“Companies that are fortunate enough to place their bets well will survive; the rest will struggle – or go under – with assets that will have devalued much faster than their worst-case business plans. Any new ships we order in the next few years will almost certainly be LNG-capable… [But] the shipping industry will not be able to solve this [problem] on its own.”

For an industry notorious for its aversion to change, ditching carbon fuel will be highly disruptive. When container shipping appeared in the late 1950s, it revolutionised the sector by creating unprecedented economies of scale. Companies transporting crude oil from the Middle East to the manufacturing powerhouses of the developed world thrived, but the demise of fossil fuels now threatens to unravel these global supply chains.

The maritime sector’s traditional affiliation with the energy industry makes planning a risky business for shipowners. In 2018, fossil fuels accounted for more than a third of the cargo transported by ships globally. With commentators earmarking peak oil – the hypothetical point at which global oil production hits its maximum, before falling into terminal decline – to be reached within the next two decades, a significant portion of the sector may face an existential crisis.

Steve Saxon, a partner at McKinsey & Company specialising in shipping and logistics, told World Finance: “Demand for large-scale crude tankers will taper off and ultimately may decline. More interestingly, we see the product mix shifting. With the growth in refining in the Middle East, we see more demand for product and chemical tankers, which appear bright spots for shipping.”

All hands on tech
One way the industry can adjust to the new era is by embracing automation. Autonomous cargo ships have long been touted as the next big thing, combining cost-efficiency with green credentials. Two Norwegian companies, Yara International and Kongsberg Maritime, expect to launch the world’s first autonomous, zero-emission container vessel this year, but many in the industry are sceptical. “We don’t see autonomous cargo ships as more than a short-distance gimmick,” Tucker told World Finance. “For deep-sea services, we can envisage remotely piloted cargo ships – perhaps with small maintenance crews helicoptered on/off – as… a more realistic future.”

As with driverless vehicles, the advent of autonomous technology in the shipping industry poses a series of legal and ethical questions, from liability to insurance costs. The industry’s presence across multiple jurisdictions adds extra complexity. Philip Damas, Head of Drewry Supply Chain Advisors, the logistics arm of UK maritime research consultancy Drewry Group, told World Finance: “The question is whether governments, regulators and insurers around the world will be willing to accept – and coordinate – such a dramatic switch in a worldwide industry like global maritime transport.”

According to Stuart Neil, Communications Director at the International Chamber of Shipping, the technology is not currently advanced enough to have a significant impact on the industry: “If we look at the automotive industry, driverless technology took decades to develop and has yet to impact the job market. We see no reason as to why autonomous technology for shipping will be markedly different.”

Some think that autonomous ships may fill a gap in niche markets such as short-haul services in territorial waters, where proximity to land and high labour costs could push shipowners to experiment with new solutions. However, Saxon believes the same cannot be said for ocean-going cargo ships: “Crew costs are a relatively small part of the cost base of a shipping company, maybe one to five percent… Second, the range of things [that] can go wrong and need attention is broad. The ships are often days from the nearest port; the risks of fully autonomous [vessels] are too high.”

The maritime sector has long been riddled with arcane bureaucracy and complex supply chains

As a traditional business-to-business industry, shipping has so far evaded the dangers of ‘platformisation’ – a trend that has disrupted many customer-orientated industries with online marketplaces, eliminating the need for intermediaries. That said, some platforms are beginning to gain traction in niche areas such as freight forwarding. Online freight forwarder Flexport, for example, uses data to automate manual processes and integrate fragmented supply chains.

Jan van Casteren, Flexport’s vice president of Europe, told World Finance: “It can take up to 18 different companies to get a single shipment from point A to point B. Today, logistics professionals have to deal with each of these challenges separately because there is no end-to-end solution to move, finance and make better decisions about freight.” Another platform, Freightos, operates as an online marketplace for small exporters and importers, allowing users to compare freight quotes from several forwarders and track their orders.

In response to the emergence of new players, many container lines have created digital platforms. In February, Evergreen Line, one of Asia’s largest container lines, announced the launch of GreenX, a digital platform that provides customers with seamless booking and trade services. Freight forwarders are also rushing to set up customer-facing websites: Kuehne and Nagel, the world’s largest ocean freight forwarder, launched a platform that provides booking and quoting services in April 2019.

Many start-ups remain customers of incumbent shipping companies, but Saxon believes they may pose a bigger threat to established players in the future: “The question for shipping companies is whether they can innovate and reinvent themselves fast enough, or lose the customer relationship to new platforms.”

A smart port in Qingdao, China

Chain reaction
The hype surrounding blockchain, the ledger technology underpinning cryptocurrencies, was not lost on the maritime sector, which has long been riddled with arcane bureaucracy and complex supply chains. According to Saxon, an estimated $19bn is wasted in the container shipping value chain every year due to a lack of communication and suboptimal use of capacity. Despite this, practical uses of blockchain in the sector remain modest.

As Damas explained to World Finance: “The noise around the predictions that blockchain will… revolutionise global transport and global trade has decreased in the past three years. At present, efforts are concentrated on data standards and governance, without which blockchain cannot work.”

Nearly all major shipping firms have been involved in blockchain initiatives and consortia. Maersk, the world’s largest container ship and supply vessel operator, has partnered with IBM to create TradeLens, a blockchain-based digital tracking system that enables members to track freight transportation in real time. Since its launch in 2018, the platform has attracted some of the world’s largest overseas shipping companies, including Hapag-Lloyd, ONE, CMA CGM and the Mediterranean Shipping Company.

Damas believes further innovation lies ahead: “Because global maritime transport is notoriously fragmented, with numerous documents, stakeholders and hand offs, we believe that blockchain cooperation, centralisation and smart contracts could deliver enormous benefits to providers and users of international transport in the long term. Today, these activities employ thousands of employees among exporters, importers, traders, transport companies, ports and banks engaged in international trade.”

The increasing use of sophisticated technology will pose significant challenges to ports, many of which lack the necessary infrastructure to accommodate blockchain-enabled solutions. Neil told World Finance: “Blockchain can help improve efficiency, but this requires all ports to have the appropriate facilities to make use of this technology, as well as regulatory changes, which will be difficult to implement.”

According to Research and Markets, the global smart port market will be worth approximately $5.3bn by the end of 2024, driven by initiatives to make the transport of goods cheaper and faster.

Choppy waters
Currently, shipping is the dominant mode of transporting goods, with more than 90 percent of world trade being seaborne. According to the UN Conference on Trade and Development (UNCTAD), vessels transported 11 billion tons of goods in 2018, a 2.7 percent increase on the previous year. However, the industry is vulnerable to strong headwinds in global politics.

Populist politicians in Europe and the US often point to international trade as one of the reasons for increasing inequality, questioning the rules-based status quo that was established after the Second World War. A case in point is the US Government’s attempt to undermine the World Trade Organisation by strangling its appellate body. Global foreign direct investment (FDI) dropped for a third consecutive year in 2018 (see Fig 1), while many multinationals are reportedly scaling back their global supply chains. Experts fear that fragmentation will ensue, with trade blocs becoming increasingly insular and relying on sheer power to promote their interests.

Tucker believes such a move would be catastrophic for the shipping industry, which has benefitted enormously from globalisation in the past. He told World Finance: “‘Might’ is becoming ‘right’ again. This is likely to constrain global and regional trade in unpredictable ways. It will likely dampen overall global trade growth and make shipping more risky and expensive.”

Others, however, think the sector will find ways to adjust. Dr Martin Stopford, Non-Executive President at Clarkson Research Services, a provider of data and market intelligence for the shipping sector, told World Finance: “In future decades, the focus is likely to be on regional rather than global trade… China is no longer cheap, and the developing countries are no longer willing to do deals for raw materials or to import foreign goods – they want to build their own economies.”

Experts fear that trade blocs will become increasingly insular and rely on sheer power to promote their interests

The ongoing US-China trade war is a prime example of how protectionism can negatively impact the shipping industry. Although trade between the two countries only accounts for a small fraction of global trade, the conflict has hurt the shipping industry greatly. For example, the US’ decision to sanction two subsidiaries of the China Ocean Shipping Company in September 2019 affected around 130 vessels, although the sanctions have since been partially lifted. Chinese imports of soybeans and crude oil from the US have also taken a hit, impacting the shipping industry further. These two commodities are at the heart of negotiations between the superpowers, with China promising to increase imports to satisfy US sensibilities.

Peter Sand, Chief Shipping Analyst at BIMCO, a Copenhagen-based shipping association that represents shipowners, told World Finance: “BIMCO doubts that the agreed… volumes will be reached, given the huge increase, but any boost to volumes will benefit the shipping industry, especially given the long sailing distances between the US and China, boosting tonne-mile demand.”

The trade war has pushed many firms in the two countries to think laterally. Some Chinese manufacturers have shifted production to nearby countries such as Vietnam to avoid sanctions, while imports from the US have been partly replaced with increasing volumes of trade from Brazil and Australia, among other nations. Chinese exporters have also turned their attention towards Northern Europe as an alternative destination market.

Simon Heaney, Senior Manager (Container Research) at Drewry, told World Finance: “The current situation is probably a blip in the long-term trend, and normality will resume once the main actors are consigned to the history books. However, the world is likely to remain volatile, so the risk of isolated trade disputes flaring up will be a constant, which will contribute to more diverse manufacturing sourcing strategies [that] spread the risk.”

Chinese economic policy will play a key role in shaping the shipping industry’s future. While the country’s export-driven boom has enormously benefitted the sector over the past three decades, China’s GDP growth rate slowed to 6.1 percent in 2019 – its lowest rate since 1990 (see Fig 2) – and trade with the rest of the world has been steadily declining. This is in line with the government’s policy of transitioning from an export-driven economic model to one focused on domestic consumption and services.

“As the Chinese economy continues to mature, an increasing proportion of this GDP growth is actually due to the expansion of service industries, rather than manufacturing or infrastructure development, which does not generate the same demand for shipping,” Stuart explained to World Finance. “A lot will depend on how China manages any slowdown.”

The COVID-19 crisis will also test the resilience of the Chinese economy. In January, the Baltic Capesize Index, which tracks freight costs for dry bulk commodities, slipped below zero for the first time. “The current coronavirus outbreak has highlighted the danger of being overreliant on one source,” Heaney said. “I believe these factors will lead to less China-centric shipping in the future.”

A new course
In the long term, radical changes to industrial production may affect the role of shipping in world trade. New technology, including robotics, artificial intelligence and 3D printing, is expected to boost localised manufacturing, reducing the need for long-distance trade. A recent study by Research and Markets predicted that the global 3D printing market would more than triple in value by 2024, reaching $34.8bn.

Sand told World Finance: “Container shipping on the major trades – from manufacturing nations in the Far East to Europe and North America – relies on manufacturing continuing to take place away from the consumption regions. Anything that threatens this, including 3D printing and nearshoring, threatens container shipping. The industry is… already feeling the pain from the changing nature of economies around the world, with growth recently focused more around services, rather than the sectors of the economy that promote the physical trading of goods”.

Shorter distances and lower trade volumes, combined with the push to cut gas emissions, may benefit the industry by forcing it to reinvent itself. As Stopford told World Finance: “Shipping would focus much more on local business-to-business services, using the new generation information technology to provide reliable sea transport to outlying ports. Some analysts are doubtful about this ‘Uber of the seas’ philosophy, but Uber’s great achievement was to bring cab services to areas that previously did not have them, generating growth. Maybe ships can do the same.”

JIB is driving Jordanian growth through the provision of modern Islamic banking products

Posted on by Max Tomlin

Established in 1978 as a public limited company, Jordan Islamic Bank (JIB) opened its first branch on September 22, 1979. Now, after decades of growth, the bank employs 2,436 members of staff and has ambitions that stretch beyond the world of finance. In fact, we aim to meet the economic and social needs of citizens in accordance with the principles of Sharia law.

With capital standing at JOD 200m ($282.1m), JIB strives to keep pace with the latest technological developments, employing modern banking processes to provide the best Islamic products and services through all its branches and offices. The bank also delivers services through 255 ATMs and offers mobile solutions, including online and SMS resources.

Over a prolonged period, JIB has received many international awards, positive credit ratings and endorsements from several institutions. For example, we received a letter of appreciation from the International Organisation for Standardisation (ISO) for our commitment to corporate social responsibility projects in accordance with ISO 26000, and obtained an international accreditation certificate in data security and electronic payment card data from the Payment Card Industry Security Standards Council.

JIB is leading the way within the Jordanian financial market, providing some of the best mobile banking solutions in the country

JIB ranks first among Jordanian Islamic banks and third among Jordanian banks for assets, deposits, financing and investment. The bank’s important role in supporting economic and social development in the country has been characterised by its contributions to both community activities and broader initiatives pertaining to the national economy. JIB’s experience in social responsibility sets an example for national institutions and other companies to follow as they direct their duties towards areas of community support, particularly those focused on disadvantaged groups.

At your service
Through various charitable programmes – not to mention our social, cultural and voluntary activities, donations, qard al-hasan and mutual insurance funds – we fulfil our duty to customers and the wider community. In addition to providing finance to sole traders and SMEs, we support programmes relating to education, training, safety, occupational health, religious studies, culture, arts, literature, heritage, energy and the environment.

At JIB, we provide customers with added flexibility by accepting deposits in Jordanian dinar and foreign currencies across current, demand and joint investment accounts, including wakalah bi al-istithmar investment portfolios and savings, notice, term and restricted investment accounts. The bank also invests available funds in several Islamic modes of finance: for example, we boast a product for funding the annual Islamic pilgrimage to Mecca (known as the Hajj and Umrah), a product for financing educational tuition, another for supporting the cost of medical treatments and a tourism product for financing trips. Further, we offer a musawamah sale product for financing renewable energy systems, istisna’a transactions, direct investments and the purchasing and leasing of real estate.

JIB provides other banking services too, such as the facilitation of instant money transfers via Western Union, the renting of safety deposit boxes, the issuance of letters of guarantee and the opening of letters of credit. Through our subsidiary Sanabel Alkhair for Financial Investments, we act as an agent for buying and selling shares, as well as issuing investment certificates and other financial papers as a broker at the Amman Stock Exchange. In addition, JIB issues bank cards of multiple varieties, including Visa (Electronic, Gold, Silver, Green and Signature) and Mastercard (Standard, Titanium, Gold, Al Baraka and prepaid).

Currently, the bank’s strong financial position allows it to offer a variety of services. As of the end of 2018, JIB’s total assets (including restricted investment accounts and wakalah bi al-istithmar investment portfolios) amounted to approximately JOD 4.62bn ($6.52bn), with a financing and investment balance sheet of JOD 3.57bn ($5.04bn), total shareholder equity totalling JOD 393m ($554m) and 942,000 active accounts. Today, the bank has some 10,500 stakeholders, including businesspeople and Arab national institutions. Our solid financial footing is a key reason why we have been able to maintain our market share across Jordan over the past few years while constantly striving to improve our performance.

On the move
In the past 18 months, JIB has launched two updated versions of its mobile banking app, which is available on the App Store and Google Play. Providing an exceptional user experience, the native app presents the user interface in either Arabic or English, allowing the bank to serve a wider range of customers. The improved JIB app features extraordinary services such as domestic money transfers, letting individuals transfer money to local Jordanian banks without visiting a branch.

In addition, JIB launched My Finances, a tool that allows customers to more easily review their finances, including all paid and outstanding instalments. The bank’s My Cards service, meanwhile, lets users track all card transactions and limits. At the beginning of 2019, JIB made an extra effort to modernise its mobile banking offering by launching Token Solution, a biometric authentication tool delivered in collaboration with international partners. Token Solution improves the in-app experience for customers, making services more user-friendly and allowing clients to log in using a fingerprint scanner (on Android and iOS devices) and facial recognition technology (iPhone X and iPhone 11 only).

Moreover, Token Solution lets customers forgo the antiquated one-time password procedure for transaction authentication; instead, JIB clients can simply enter a four-digit PIN for authentication and enjoy easier, safer transactions. By providing more advanced – yet easier to use – services alongside well-designed applications, JIB is leading the way within the Jordanian financial market, providing some of the best mobile banking solutions in the country.

JIB is continuously working to develop its services and increase its market share through the expansion and geographical distribution of its ATMs. We are committed to increasing the number of ATMs we offer so that all regions in the kingdom can meet the financial needs of their residents. Through the installation of ATMs over the past 18 months, we have added new services, including the ability to make deposits, receive short account statements, fulfil chequebook requests, make transfers from one account to another and change the user PIN. All of this reflects positively on customer satisfaction while further boosting the bank’s profitability and competitiveness.

JIB is continuously working to develop its services and increase its market share through the expansion and geographical distribution of its ATMs

To maintain a high-quality service, all ATMs are examined annually to ensure they are operating effectively. We also encourage customers to use ATMs as an alternative to physical bank outlets, as this helps improve the efficiency of customer interactions. We believe this will increase customer satisfaction, especially among VIP clients and traders.

Financing a green future
As part of its plan to introduce new and competitive products in the Islamic banking market – meeting the needs of customers and driving financial inclusion in the process – JIB is the first Jordanian bank to offer a 30 percent subsidy for domestic solar-powered heaters. We believe providing this subsidy, which is financed by our renewable energy fund, is the right thing to do and could significantly help in the fight against climate change. More generally, the funding will stimulate the local economy in terms of investment for renewable energy solutions.

Our istisna’a contract, meanwhile, is offered to companies and individuals looking to fund renewable energy systems, whether for industrial, commercial, agricultural or domestic projects. Financing can come through either the renewable energy fund or an agreement signed with the Central Bank of Jordan, which gives preferential rates to SMEs, especially in governorates outside the capital. To make use of this product, customers must first submit an application along with a feasibility study that evaluates the customer financially and fiducially. Then, the client signs an istisna’a contract with the vendor to install the system according to the specified conditions. The final stage requires obtaining approval from the electricity company.

JIB has now been operating for more than four decades. During that time, the bank has adapted and evolved to meet the shifting demands of its customers. As the people of Jordan (and elsewhere) call for more efficient and environmentally friendly services, we will continue to meet that demand while remaining true to our values and those outlined in Sharia law.

Pressure mounts on Nirmala Sitharaman as India’s economic woes continue

Posted on by Max Tomlin

“In a multi-party democracy, many issues which you want – or do not want – will be raised. It is for us to make it relevant or not so relevant with our answers”

Nirmala Sitharaman

Nirmala Sitharaman was appointed as India’s Minister of Finance in May 2019, to much fanfare. After all, she was the first woman to hold the position full-time (Indira Gandhi briefly took on the position in 1970, alongside other duties) and her already-significant political career promised big things. Shortly after joining the Bharatiya Janata Party (BJP), one of India’s two major political forces, Sitharaman was earmarked for stardom: she was quickly appointed as a party spokesperson, and then became a junior minister.

During her political career, Sitharaman has become well known as a leading figure in the BJP and an individual willing to face her critics head-on. A YouTube video where she rails against suggestions that she is a liar has been viewed more than 3.5 million times. Unsurprisingly, her strong-willed personality led Indian Prime Minister Narendra Modi to select her as his defence minister in 2017. She demonstrated her uncompromising attitude in February 2019 when she authorised an airstrike on Pakistan’s Balakot terrorist training camp; it was the first time warplanes from either nation had crossed the line of control for almost 50 years. That turned out to be one of her final acts as defence minister before she took up her current role in charge of India’s almost-$3trn economy.

First things first
One of the landmark events for any finance minister is the announcement of a new budget. The pressure on Sitharaman was significant: not only was she new to the job (she had been made finance minister just a few months prior), but she was also the first woman to take on the role in a full-time capacity and was carrying the weight of India’s much-touted economic potential on her shoulders.

One of Sitharaman’s main tasks is to change the negative economic narrative that has taken hold in India

It is little surprise, then, that Sitharaman’s debut budget avoided any controversial changes in direction for the nation’s economy. Instead, it focused on maintaining India’s upward trajectory, targeting gradual and sustained growth. Infrastructure was one of the budget’s priorities, with Sitharaman promising $72bn to improve the country’s railway network and an additional $11.6bn to bolster its roads. Robust and efficient infrastructure is vital to economic development in all countries, and although the nation’s railways are extensive – Indian Railways boasts the third-largest network in the world under single management, with more than 68,000km of tracks – more work needs to be done in terms of improving reliability and safety.

What’s more, Sitharaman understands that improved infrastructure will go a long way to reducing India’s rural-urban divide. “We will invest widely in agricultural infrastructure,” she said during her speech accompanying the budget. “We will support private entrepreneurships in driving value-addition to farmers’ produce from the field and for those from allied activities, like bamboo and timber from the hedges and for generating renewable energy.”

Despite India’s ongoing economic growth, many rural areas are yet to benefit. Approximately 70 percent of India’s population resides in such locations, and yet agriculture contributes just 14 percent of total GDP and poverty levels remain much higher there. Infrastructure is a significant cause of this disparity, and so it was unsurprising when Sitharaman made it a focus area for her budget. By 2022, India’s 75th year of independence, she pledged that all rural households would have access to electricity and clean cooking facilities.

Sitharaman also undertook efforts to boost the country’s investment climate. In particular, the budget outlined changes to foreign direct investment (FDI) rules for single-brand retailers. Companies, like Apple, that operate as a single, unified brand must currently source 30 percent of their goods from within India if they are proposing levels of FDI above 51 percent. Any relaxations here would be welcomed by multinational firms, which have sometimes struggled to source the products they need from within the Indian market.

Supporters hold BJP flags during a rally in Kolkata, India

Making up for mistakes
More notable than the reforms being proposed was the tone Sitharaman adopted when announcing her first budget. Throughout the speech, she was clear in pushing back against the criticism that has often been directed at her party and, in particular, Modi’s leadership. “On many programmes and initiatives we had worked on [an] unprecedented scale,” Sitharaman said. “Average amount spent on food security per year approximately doubled during 2014-19 compared to the preceding five years. Number of patents issued more than trebled in 2017-18 as against the number of patents issued in 2014. Our last-mile delivery stood out and the unknown citizen in every nook and corner of our country felt the difference.”

Even when pointing out negative economic trends affecting the nation, Sitharaman wrapped them in a broader positive message, commenting on how FDI inflows had “remained robust despite global headwinds” before skirting over a 13 percent annual decline. Partly, this PR initiative reflects the fact that all is not well in the Indian economy. While the country once looked on course for double-figure GDP growth rates, expansion has since slowed to just 4.5 percent. This has called into question the long-term aim of creating a $5trn economy by 2025. More pertinently, Sitharaman knows she must fight back against accusations that the country’s struggles are of its own making.

Among the economic missteps that have been blamed on the ruling BJP is Modi’s cash restructuring policy, which scrapped 86 percent of India’s circulating currency almost overnight. Demonetisation was supposed to help the government crack down on black money and counterfeit notes, but a report by the Reserve Bank of India found that almost 99 percent of the cancelled currency was successfully deposited in banks – effectively legitimising the ill-gotten cash. The policy only appears to have been effective at causing huge disruption to sectors that rely on cash for their operations. It remains to be seen whether Sitharaman’s move to impose a two percent surcharge on annual cash withdrawals exceeding INR 10m ($135,000) will prove to be less chaotic, but it should help push businesses towards digital payments at least.

Nirmala Sitharaman in numbers:

2019

Appointed as India’s finance minister

70%

Proportion of India’s population living in rural areas

$72bn

Promised investment in India’s railways

14%

Agriculture’s contribution to Indian GDP

Other failings laid at Modi’s feet include India’s shadow banking crisis. Collectively, the country’s non-bank financial companies, or shadow banks, hold a staggering $42bn in assets, but are not regulated in the same way as traditional banks. Some analysts argue that it is only a matter of time before defaults start to occur. If this led to contagion reaching the rest of the country’s financial sector, the results would be calamitous. One of Sitharaman’s main tasks, therefore, is to change the negative economic narrative that has taken hold in India. Her personal background as BJP spokesperson will help her argue for the progress that Modi and his government have made, but she will need to back this up with concrete economic metrics.

Second time lucky
Sitharaman’s second budget as India’s finance minister was announced back in February. This time, the anticipation was even greater, with the country’s economic woes becoming further entrenched: in May last year, India lost its title as the world’s fastest-growing economy.

Near the top of Sitharaman’s to-do list was boosting consumer spending. During the first half of the 2019-20 financial year, private consumption in India grew by a disappointing 4.1 percent. The finance minister has looked to address this by imposing a new tax system that should result in lower-middle-class families retaining more of their income. The entirety of the budget, in Sitharaman’s words, is to provide “ease of living” for the Indian people.

Once again, criticism has been quick to emerge. The new tax system is an optional one whereby citizens forego a number of exemptions in exchange for paying a lower rate of tax. Alternatively, they can choose to stay with the old system, which possesses around 70 additional tax exemptions. The problem with the tax restructure is that it is not immediately clear whether individuals will end up paying less tax. This limits how effective it is likely to be in terms of encouraging consumer spending.

Perhaps the biggest news to emerge from the budget is the proposed $30bn divestment of state-owned assets, with Air India and the Life Insurance Corporation of India both expected to be sold. This would certainly help balance the books, particularly with the state’s fiscal deficit expected to rise to 3.8 percent of output this year. Still, Sitharaman will need to brace herself for a renewed backlash. The privatisation of state-run businesses is an emotive issue, and critics will be quick to claim that it is a short-sighted measure if proceeds are not committed to long-term investment.

One area where the new budget is likely to receive more support is in terms of its implications for new technologies. Although India has a strong history of embracing IT services, its adoption of more advanced digital tools has been patchy. A report by McKinsey Global Institute found that rectifying this shortfall holds huge economic potential for the country. Strengthening the digital economy could create between 60 million and 65 million jobs by 2025 and provide efficiency benefits across a wide range of sectors, from healthcare to agriculture.

Sitharaman knows she must fight back against accusations that the country’s struggles are of its own making

“The new economy is based on innovations that disrupt established business models,” Sitharaman explained in her budget speech. “Artificial intelligence, Internet of Things, 3D printing, drones, DNA data storage, quantum computing… are rewriting the world economic order. India has already embraced new paradigms such as the sharing economy, with aggregator platforms displacing conventional businesses. [The] government has harnessed new technologies to enable direct benefit transfers and financial inclusion on a scale never imagined before.”

Head to head
Both China and India have huge populations and are in the process of dragging themselves up from positions of relative poverty into ones of economic strength. By 2030, the two nations are predicted to hold the titles of first and second place in the global economic hierarchy. Despite this, there is a feeling that India is being left behind by its East Asian rival.

Recent geopolitical events have brought this rivalry into sharp relief. The ongoing trade war between the US and China should have provided a huge opportunity for Indian exporters to meet the global demand for a range of products. However, for the most part, China’s loss has not been India’s gain. In fact, some of India’s exports actually fell as the trade war rumbled on.

This failure to capitalise is partly due to India’s poor record in terms of global competitiveness. The country slipped 10 places to 68th position in the World Economic Forum’s Global Competitiveness Report last year, and improving this area of the domestic economy will surely be one of Sitharaman’s foremost goals during her time at the finance ministry.

Sitharaman has been in politics long enough to know that unfavourable comparisons between India and China will provide easy ammunition for critics of herself and her party. But as BJP spokesperson and then defence minister, she also showed a resolve that suggests she will do what she thinks is best for India, ignoring the outside noise. That approach will help her as she attempts to steer the country’s economy towards its lofty $5trn goal. There remains plenty of work to do if she is going to achieve it.

Curriculum Vitae

Born: 1959 | Education: Jawaharlal Nehru University

1984
After studying economics at Seethalakshmi Ramaswami College, Nirmala Sitharaman obtained a master’s degree in the subject from Jawaharlal Nehru University in 1984. Her PhD thesis focused on the Indo-European textile trade.

1986
In 1986, Sitharaman moved to the UK, beginning her career in the corporate world. She worked at PricewaterhouseCoopers as a research manager, as well as the BBC World Service, before moving back to India in 1991.

2006
After returning to her home country, Sitharaman joined the right-wing Bharatiya Janata Party in 2006. She was appointed as a spokesperson for the political group in 2010 and, subsequently, a junior minister.

2010
In 2010, she became one of the co-founders of the Pranav International School in Hyderabad. The institution is renowned for its innovative and holistic approach to teaching, promoting a stress-free learning environment.

2017
Sitharaman became India’s first full-time female defence minister. Her focus was on boosting domestic defence production and developing strategic partnerships with a number of global powers, including the US and Russia.

2019
In 2019, Sitharaman delivered the first budget by a female Indian politician since Indira Gandhi in 1971. Her long-term aim while in the role of finance minister is to transform India into a $5trn economy.

Hungary for justice – inside Viktor Orbán’s plan to restore law and order

Posted on by Max Tomlin

You would think that a head of state who has become known for his authoritarian tendencies would take pride in having a well-run penal system. But in Hungary, Prime Minister Viktor Orbán has so far been unable or unwilling to improve conditions for his country’s prisoners – institutions have been criticised for being overcrowded, unhygienic and inhumane.

Complicating matters further for Orbán is a legal challenge being made on behalf of prisoners taking issue with the conditions they are held in. Although Orbán has regularly been criticised for eroding the rule of law in Hungary, he appears to finally be relenting on the issue of prison reform as a result.

Nevertheless, the funds required to improve a prison environment that has long been in decline will not be easy to come by. For a leader who values the strongman approach, spending money on criminals doesn’t exactly fit smoothly with his usual approach to politics.

Room for one more
Hungary’s poor prison conditions have been a long time in the making. The Hungarian Helsinki Committee, a domestic human rights organisation, has monitored the country’s penal system over several years and found it to be wanting. “The European Court of Human Rights – partly on the basis of complaints submitted by the Hungarian Helsinki Committee’s clients – ruled on [March 10,] 2015 that overcrowding means a mass and structural problem with regard to the Hungarian penitentiary system,” reads the committee’s website.

Whether out of genuine care for prisoners’ human rights or not, Orbán’s ruling party has put plans in place to eradicate overcrowding

“Therefore, it obliged Hungary to produce a plan, within six months, to reduce overcrowding significantly and permanently. The deadline for that expired on [December 10,] 2015… The aim of the Hungarian Helsinki Committee’s work is to contribute to the perceptible improvement of prison conditions, which, as of today, qualify as inhuman, degrading treatment, and many times even torture.”

While Hungary only comes in seventh place out of all the EU nations in terms of its number of prisoners per 100,000 citizens (see Fig 1), by measures of overcrowding, it fares much worse. Curiously, Hungary declined to send data for use in the Council of Europe Annual Penal Statistics – SPACE I 2018 report, but previous disclosures and other information coming out of the country give some indication of conditions.

Estimates made by the European Data Journalism Network last year suggest that Hungary suffers from the worst levels of overcrowding in the EU, with 124 prisoners for every 100 spaces. While it is possible that overcrowding may have been reduced in Hungary since the last SPACE report, it would still likely rank among the EU’s most severe. For comparison, eight countries in the most recent SPACE analysis exhibited “serious overcrowding”, classified as those with more than 105 inmates per 100 places.

Overcrowding in prisons is associated with a number of problems that manifest both in and outside of the penal system. Among these is the deterioration of inmates’ health, both mental and physical, which is likely to have knock-on effects for the outside world after offenders are released. “At any given time, over two million people are imprisoned in penal institutions in Europe,” the World Health Organisation explains on its website. “While overcrowding is a health issue all over Europe, the situation is particularly serious in the countries of Central and Eastern Europe and Central Asia, where overcrowding goes hand in hand with massive health problems.”

Although Hungary and other nations that suffer from prison overcrowding may feel it is a problem that is easily ignored, this is an outlook that could cause renewed problems for them further down the line.

Doing time
Such problems have already started to emerge for Orbán and the Hungarian Government. In 2015, the European Court of Human Rights (ECtHR) determined that the country’s prisons violated Article 3 of the European Convention on Human Rights, which states that “no one shall be subjected to torture or to inhuman or degrading treatment or punishment”.

The ruling came after several inmates brought a lawsuit against the Hungarian state condemning its detention system. One plaintiff, Lajos Varga, claims that he was placed in a cell that measured just 1.8sq m for eight months and contracted a skin disease as a result of the poor sanitary conditions. His story is not an isolated one: according to research undertaken by Dr Blanka Horvath while based at the University of Oslo Faculty of Law, the conditions in some of Hungary’s penal institutions are so bad that inmates have to sit on the toilet in order to have enough space to eat and are subjected to unhygienic conditions where bed bugs and other insects are common.

The ECtHR ruling has proven to be a landmark one for Hungary’s penal system. It has been followed by a wave of prison lawsuits – as many as 12,000 – that is set to cost the government HUF 10bn ($33.5m) in fines. Orbán has blamed the size of the penalty on business-savvy lawyers and suggested that philanthropists and non-governmental organisations are paid for helping inmates. However, a simpler explanation is available.

In 2010, shortly after Orbán became Hungary’s prime minister for a second time, he set about restructuring the country’s justice system. In fact, the manifesto of Orbán’s right-wing Fidesz party during the 2010 elections had a section dedicated to restoring order in the country, committing to increasing the severity of the penal code and stating that “in many more cases, the sentence of life imprisonment without parole should be imposed”. Later that year, Orbán made good on his promises, amending judicial policy by mandating longer sentences and introducing a ‘three strikes’ rule for violent offenders.

While Hungary’s crime rate remains low – particularly with regard to violent crime – longer incarceration times obviously have a huge impact on prison numbers. Although these policies were clearly planned for in the government’s manifesto, the logistical consequences appear to have taken Orbán by surprise.

Crime pays
Thus far, Orbán has reacted with indignation to the growing stack of lawsuits piling up on his desk. Since helping bring the Varga case to light, the Hungarian Helsinki Committee has been banned from all prisons in the country, and in October 2016 the government created a legal path for inmates to pursue compensation domestically in the hope that the ECtHR’s involvement could be avoided. The Hungarian Government has also suspended the payout of compensation until June 15, with Orbán claiming that the “people’s sense of justice is hurt” by the prospect of paying money to criminals. Perhaps he is also aware that complying with the ECtHR ruling could damage his appeal among an electorate that has come to expect an illiberal attitude to crime.

One approach that could placate both human rights lawyers and Hungarian voters – and is currently being explored by Orbán – is using money granted to inmates as a result of prison overcrowding to compensate victims of their crimes. More fundamental changes must be made to the country’s prison system, however, if the government is to avoid an onslaught of lawsuits.

Fortunately, whether out of genuine care for prisoners’ human rights or not, Orbán’s ruling party has put plans in place to eradicate overcrowding by September 30, potentially by creating temporary facilities in which to house offenders. Another fruitful approach might look to improve the conditions in existing prisons, while also considering whether rehabilitated inmates could be released early. Orbán would do well to remember that while there is certainly a place for punishment within the justice system – and imprisonment plays an important role – there is also room for reform.

In Hungary, the average cost of keeping an individual in prison for one day is estimated at €38.41 ($43.38). This adds up to a substantial burden on government funds. As well as having a duty to its citizens, both within the prison system and without, Hungary is also answerable to the EU. This is particularly true given how much funding the country receives from the bloc compared with its contribution towards it. Currently, the government talks a good game when it comes to championing the importance of law and order, but it is surprisingly lax about abiding by the ECtHR’s rules.

A pillar of the community: how Fubon Life is fostering sustainable development in Taiwan

Posted on by Max Tomlin

In an influential article for Harvard Business Review, management guru Professor Michael Porter suggested that if companies could pursue financial success in a way that created social benefits, they would produce shared value. With more companies committing their resources to issues of social responsibility, we must question just how effective corporate social responsibility (CSR) ventures are proving.

In 2009, the UK Cabinet Office released its Guide to Social Return on Investment (SROI), which analysed public welfare funding, measuring how much social return could be generated per monetary unit of social investment. The guide has become an important reference material for assessing the performance of international social efforts.

The concept of SROI is similar to the more traditional analyses of return on investment that are used to evaluate a company’s financial statements. Crucially, however, SROI is expanded to include the impact of investment into CSR ventures. By analysing these figures in detail, companies will better understand their social impact, allowing them to improve the implementation of CSR projects.

By supporting local communities and promoting financial services, Fubon Life continually works for the common good. The introduction of an SROI evaluation mechanism has shown that our social efforts are having a significant impact. In fact, for every Taiwanese dollar we spend on social initiatives, the value created is worth 11.61 times as much. That sort of return on investment is rarely seen in the corporate world.

By supporting local communities and promoting financial services, Fubon Life continually works for the common good

Let the numbers talk
Porter’s influence on executives and companies is substantial. He argues that businesses should identify resources that are limited and channel them into activities that take both corporate profits and social values into account. This ensures companies and wider society can pursue sustainable development.

Business management cannot be separated from social change. Therefore, while maximising shareholder value, it is necessary to take into account the interests of other stakeholders. For example, luxury group Kering, which owns brands such as Gucci and Bottega Veneta, has started considering social impact at every stage of its decision-making process. This led it to develop its own tool for measuring and quantifying its environmental impact.

Kering is just one of many major international companies that have started performing SROI analysis to quantify intangible social benefits. Take Australia’s Macquarie Group, which has launched a food distribution initiative. Instead of sending goods directly to subscribers, they designed a community distribution system to replace direct delivery. As a result, social value has increased by 65 percent in two years: for every $1 of investment, a social value of $2.75 is created.

According to the Social Value International conference hosted by the Social Impact Institute of Taiwan, Taiwan has the most SROI certifications in Asia. Fubon Life was the first insurer in Taiwan to conduct an SROI assessment in conjunction with its insurance business: this was conducted on behalf of Fubon Life by KPMG’s sustainability arm. Through interviews and questionnaires, the assessment looked at the impact Fubon Life’s social programmes have on local stakeholders. The result was used to produce a SROI report for local financial services.

Fubon Life’s implementation of SROI methodologies has ensured that the value generated by corporate social efforts is no longer intangible. We use SROI to indicate whether the investment of resources is really helping our various stakeholders. It will continue to be one of the key driving forces behind Fubon Life’s sustainable development initiatives.

Community spirit
Fubon Life has continued to develop its environmental, social and governance (ESG) policies in recent years. As well as promoting local financial services, we encourage our employees to engage with local communities to demonstrate the collaborative spirit that lies at the heart of the insurance sector.

We have called on 30,000 tied agents – individuals that represent a single insurer – from more than 500 agencies around Taiwan to help each other become good neighbours in their local community. Fubon Life urges tied agents to return to their hometowns to start their own businesses. This will enhance local employment opportunities, provide more convenient and diversified financial product service channels, and reduce the gap between urban and rural insurance resources.

The feedback from tied agents has been overwhelmingly positive. One respondent commented on how “the benign atmosphere and cohesion of the work environment successfully improved colleagues’ interpersonal relationships, sense of achievement, and the feeling of self-realisation”. Another commented: “The SROI efforts have contributed to better family relationships and a growing sense of happiness for those agents going back to their hometown to develop their business.”

Fubon Life has long been concerned by the impact and potential risks brought about by Taiwan’s ageing society (see Fig 1). As such, the company is taking steps to tackle issues such as loneliness and dementia. One way it has achieved results is through its Kaohsiung Kaoguei sales agency. The agency provides support to a nursing home for the elderly in Qingyuan.

As global business owners pay more attention to CSR, it is important that organisations consider how to pursue a common good for all stakeholders

A spokesperson from the nursing home noted: “The charity efforts of Fubon Life’s tied agents are akin to helping older generations open a window. Through Fubon Life’s participation and the exertion of their local influence, they have helped social welfare organisations to get more outside attention and resources.” Agents pay regular visits to the nursing home, providing vital support to residents and improving their own job satisfaction.

Getting results
Through SROI evaluation, the connection between the investment made and the value created is quantified, allowing businesses to make positive developments as efficiently as possible. Fubon Life has been paying attention to the major issues in Taiwan’s society for a long time. We not only focus on elderly care, but also how we can help younger generations by encouraging them to support elderly people in a way that is mutually beneficial. Consequently, Fubon Life was recognised at last year’s Taiwan Corporate Sustainability Awards. The team has demonstrated a devotion to public welfare, so it is no surprise that our results have been recognised in this way.

The life insurance sector understands the value of people. With the goal of creating a better society, Fubon Life continues to develop its expertise and provide people with friendly and reliable services. The company plans to incorporate the results of our SROI assessments into its performance management processes.

Fubon Life is among the top three life insurance firms in Taiwan by market share, and socially beneficial initiatives have long been part of our success. In 2018, for example, we pioneered Taiwan’s first diabetes-related risk insurance policy, incentivising clients to control their blood sugar levels. Our investment policies are also fully in line with our ESG values and all divisions within the company have signed up to our stewardship principles to ensure they adhere to our corporate governance guidelines.

As global business owners pay more attention to CSR, it is important that organisations consider how to pursue a common good for all stakeholders, including employees, industries and consumers. Analysing SROI means companies can be sure their social initiatives are having a true impact. Instead of vague notions and perceived benefits, solid metrics can be used. Companies can assess their ESG and CSR policies with the same degree of certainty as they would their financial results.