Author: Max Tomlin

Hungarian Post Life Insurance Company constantly adapts to ensure success

Posted on by Max Tomlin

For decades now, the insurance market has been one of the most significant utilisers of both the accomplishments and the possibilities of digitalisation. Digitalisation has almost a decade-long history in the industry, in providing premium discounts for electronic payments and administration, managing claim files by electronic means, and its impact on the whole process of damage inspections. At Hungarian Post Life Insurance Company, we didn’t even advertise these processes at the time of introducing them, because we were just doing our jobs.

Our basic philosophy hasn’t changed, but our product range has grown exponentially. We offer a suitable insurance product for every life situation, from birth to death

During this evolution, we have witnessed large-scale changes in the life insurance market. As a result of our own reorganisation, and also the fact that we are pioneers at an international level too, we were the first to introduce the total cost indicator in 2010. On this basis, the Hungarian National Bank, which also acts as the supervisory authority, regulated the cost system in the field of life insurance. It formulated the framework conditions of ethical life insurance for a wider product range and, as a result, the market has been cleaned up significantly.

Hungarian trends
The Hungarian market is starting to find itself in a cautious space, as the insurance sector’s growth rate for gross written premiums remained below the level of GDP growth until 2016. At a recent conference, experts at the Hungarian National Bank expressed their opinion that it would be ideal if life insurance revenues represented a more significant part of the sector’s written gross premiums. The main driver of growth in recent years was unequivocally pension insurance, which clearly shows that an increasing number of people realise the benefits of schemes that complement the state pension system.

However, according to recent research, around half the population has no money for saving purposes. Indeed, an even bigger problem is the fact that around two thirds of the population expects the state to come up with a solution to the pension issue. Therefore, it is clear that tax incentives help a lot: through pension insurance, the profession has proved it can reach out to a broader range of people with long-term products. This is a message that the government should heed, as tax benefits on savings for old age and unexpected situations generally offer greater social benefits and lower subsequent state expenditure.

We are in a competitive market; it is clear that the goal is continuous reformation. Everybody is speaking about the digital revolution and the emergence of ‘insuretech’ players in the space. However, for Hungarian insurance companies, digitalisation did not just start. For instance, we have been keeping e-files for years, our claim adjusters work by electronic means, and we also offer significant discounts for electronic administration. We introduced these innovations to improve our workflow and also to meet evolving client demands.

As these examples show, we are ready to engage in continuous innovation. Furthermore, with regards to new challenges, although the financial technology sector is booming, the insuretech revolution is evolving more quietly. The reason for this may be the fact that insurance is a trust issue. According to Deloitte, less than one third of insurance customers would not consent to transferring their data to third parties, even for discounts.

A major part of our sales efforts is performed through a network of post offices. Naturally, digital developments have to be brought in line with the infrastructure of Magyar Posta, the Hungarian post office. Thanks to the commitment of the owners and our excellent relationship, we can structure our development strategy around the demands of the client. For instance, we have made it possible to report household insurance claims through a mobile application. We were also among the first in the country to introduce digital claims assessments, in which the camera of a client’s mobile phone is used to help with damage inspection. In terms of meeting the needs of Generations X, Y and Z, we introduced a new mobile application called Hello Bringás (Hello Cyclist), which, besides the function of taking out an insurance policy, provides further conveniences that help the life of cyclists. The development of Hungarian Post Life Insurance Company is also vital, in terms of both products and services, which is facilitated by our innovation lab: Hello Lab.

New opportunities
Undoubtedly, pension insurance is one of the greatest opportunities in the Hungarian insurance market at present. The other area could be health insurance; after the national elections in 2018, it would be worthwhile for the government to start reforming this sector. There are several hidden elements in this healthcare space that result in duplications, such as clients paying for services privately, which is also accounted for in the public sector.

Healthcare expenditure represents 7.4 percent of Hungary’s GDP, of which 2.4 percent accounts for those patients who visit private service providers. According to official statistics, Hungarians spent HUF 904bn ($3.4bn) last year on private healthcare, and in 2021 they are forecast to spend HUF 1.1trn ($4.1bn) on private medical practitioners. The involvement of insurance companies would bring more clarity to the situation: it would improve the level of service, reduce parasolvency (gratitude payments to medical doctors) and ease waiting lists.

The implementation of new legislation, namely the Solvency II regulation, went smoother than expected. In the case of Hungarian Post Life Insurance Company, I can report on more positive experiences regarding the introduction of ethical life insurance to the market. This is no coincidence, as our products were ethical even before the new supervisory requirements were published, so only minor technical changes had to be introduced. That said, it is true that some insurance companies had to withdraw several products, although changing client needs made this necessary in any case.

Furthermore, in November 2017, the Hungarian Parliament adapoted the Insurance Distribution Directive (IDD) into the Hungarian Insurance Act, something we have been readying ourselves for more than a year. New Packaged Retail and Insurance-based Investment Products (PRIIPS) regualtions will take effect on January 2018. Other legislative changes in the pipeline include those related to packaged retail and insurance-based investment products, the EU General Data Protection Regulation, and the International Financial Reporting Standards.

Overcoming challenges
In Hungary, there are several challenges we have had to face in the insurance sector. The lack of skilled personnel increasingly represents the biggest problem. Even though the financial sector is the highest paid industry in Hungary, international mobility is draining the country’s skilled labour force; we have to do a lot to make the insurance profession more attractive to young employees.

In our own sales network, we reward our colleagues for their work through different contests, promotions and awards. This way we also motivate them, so they really feel that they are important to us and they regard our shared success as their own. When we burst into the market 15 years ago, we offered products to our clients that we would heartily recommended to our families and friends. This basic philosophy has not changed, but our product range has grown exponentially with us. Today, we offer a suitable life insurance product for every life situation, from birth to death.

At the end of August 2016, we introduced a whole life insurance product for funeral expenses. The product was so well received among our customers and our own sales personnel that it exceeded all of our expectations. Considering our positive experience with this product, we find it important to take on more risk in life insurances across our product range, so that we can offer a suitable solution for any life situation. From an insurance perspective, the development of our PostaGyógyír insurance product for cancer patients, which was introduced towards the end of summer 2017, and our PostaNyugdíj Prémium pension insurance product, announced in November 2017 were important initiatives this year. Furthermore, we strive to stay youthful and dynamic by opening up to Generations Y and Z with additional services and tools.

In August 2017, we introduced another whole life insurance product for cancer patients. This was also important, because as the needs for self-care and for insuring owned goods grow steadily in an improving economic environment, people are also prepared to take more responsibility for the protection of their health.

Pension insurance with a savings element plays a key role in our product line, and it is also supported by the state through tax credits. Our newest pension insurance is a premium pension insurance product. It features annual premium payment and adapts to customer demands with full flexibility. It can be suspended for an indefinite period, but if our client gains extra income, they can choose to pay an additional premium as an extraordinary payment. This insurance is a flexible type of saving and can be adapted to any life situation.

Hungarian Post Life Insurance Company is committed to postal sales. As the classic postal services are becoming increasingly overshadowed and, besides CPE, financial services represent the main revenue-generating area at post offices around the world, we expect the role of modern financial services, including insurance, will gain more significance. The products of Hungarian Post Life Insurance Company have already been reflecting the needs of the post office’s clientele, and the fact that we know our clients so well will always be our most significant advantage in the market. Accordingly, we would like to develop in the fields of both life and property insurance. Indeed, pension and health insurance are certainly ahead of huge developments within the life branch, both in the short and medium term. We would also like to reach younger clients who rarely visit post offices and offer them relevant insurance solutions in the burgeoning digital space. The world is changing, but we will continue to change with it.

BPI-Philam empowers citizens to improve insurance accessibility

Posted on by Max Tomlin

Stretching out over 7,000 individual islands, the sprawling archipelago of the Philippines is one of South-East Asia’s most dynamic economies. Over the course of the past decade, the island nation has enjoyed impressive growth, bolstered by rapid industrialisation and modernisation.

Just two million Filipinos are insured out of a population of 102 million. These low levels of penetration may soon be a thing of the past thanks to the socioeconomic shifts occurring in the island nation

Transitioning from an agriculture-based economy to one driven by services and manufacturing, the Philippines has established itself as a leading member of South Asia’s flourishing group of tiger cub economies. Last year, a boom in exports saw the Philippine economy grow by 6.8 percent, overtaking its Asian neighbours Singapore and Malaysia. The World Bank now expects the nation to experience a similar level of growth over the coming year, making the island nation one of the world’s fastest-expanding economies.

As of 2017, the Philippines ranks as the 10th-fastest growing economy in the world, with falling unemployment and low inflation levels helping to further spur growth. While poverty and inequality remain a challenge for the nation, approximately 1.8 million Filipinos have been lifted out of poverty over the past three years, thanks in part to improved incomes and higher employment.

As an increasing number of Filipinos find stable and long-term employment, the nation is also experiencing a rapid expansion of financial inclusion. With wages steadily improving and poverty rates falling, many previously unbanked Filipinos are now considering how to better manage their personal finances and are beginning to access formal banking services across the nation. However, while the demand for banking services is growing rapidly among the Philippine population, the nation’s life insurance market has remained modest. Compared to its ASEAN neighbours, the Philippines has a very low level of insurance penetration, with just two percent of its population covered by active policies. And yet, this trend may soon be set to change, as new channels are now opening to bring insurance to the masses. World Finance spoke with Surendra Menon, CEO at BPI-Philam, about the country’s surge in bancassurance, which is fast becoming one of the most promising financial services in the Philippines.

Trend drivers
Currently, just two million Filipinos are insured, out of a population of 102 million citizens. This low level of insurance penetration may soon be a thing of the past, however, thanks to the many socioeconomic shifts currently occurring in the island nation. As the country enjoys continued economic growth, a thriving middle class is now emerging and this new demographic is particularly interested in protecting and building its newfound wealth. In addition to this budding middle class at home, Filipinos working overseas are also moving up the socioeconomic ladder and enjoying a greater level of personal wealth. Indeed, Filipinos working abroad send back approximately $31bn a year in remittances – equivalent to more than 10 percent of the nation’s GDP.

6.8%

Growth of Philippine economy in 2016

10th

Fastest growing economy in the world as of 2017

12th

Most populated nation on earth

Menon explained: “This prosperity eventually poses a need for financial literacy. These working Filipinos need solutions to guide them on how they can efficiently and effectively handle their finances with the future in mind.”

As the economy prospers and Filipinos enjoy more money in their pockets, the demand for insurance services is expected to grow significantly, as workers look to ensure continued financial security for their families. What’s more, the remarkable growth of the Philippines’ business process outsourcing market also presents a lucrative opportunity to expand insurance coverage. “Just 15 years ago, the industry was virtually non-existent in the Philippines, but today it represents around nine percent of the nation’s GDP,” Menon told World Finance.

Along with these profound economic shifts, the nation is also experiencing a radical demographic transformation. The population of the Philippines has been growing steadily for many years, with the nation now ranking as the 12th most-populated country on earth. While many other countries around the world are facing the challenges of an ageing population, the Philippines is a remarkably young nation. The country has one of the youngest populations in the South-East Asian region, with a median age of just 23 years.

As such, from now until at least 2050, the Philippines will be able to take advantage of this demographic window, as the clear majority of its population will be of working age. As the nation’s Millennials begin to enter the workforce and wield their economic power, the Philippines is in prime position to reap the demographic dividend. Furthermore, despite preconceptions that younger generations aren’t interested in buying insurance policies, many insurance companies believe that Millennials present a unique opportunity to expand policy coverage.

Menon explained: “Millennials are aware of the importance of being and staying healthy, and make it a priority in their lives. These young professionals are looking for solutions to protect their health and promote an active lifestyle, and insurance companies are now responding to this demand by offering programmes for health and wellness on top of their financial plans.”

Satisfying demands
With demand for insurance products steadily growing among the Philippine population, insurance firms across the nation are now looking to make insurance accessible for all. “Although the country has succeeded in expanding financial inclusion, many Filipinos remain unaware of the numerous insurance options available to them and lack a basic understanding of how to set up a policy that works for them,” Menon explained.

In order to bridge the gap between banking and insurance, many of the nation’s top insurance companies are now investing heavily in bancassurance. Having existed in the Philippine financial landscape for more than a decade, bancassurance allows banks and insurance companies to form a partnership, so the insurance firm can effectively sell its products to the bank’s client base.

Menon said: “As the demand for insurance products has grown, bancassurance has become the much-needed solution to a long list of financial needs; it provides easier access to insurance products that protect and grow citizens’ hard-earned money.”

By collaborating with established and trusted banks, insurance firms are able to essentially get their foot in the door and demonstrate that insurance policies can be both financially affordable and easy to understand. Using the bank’s network of branches, bancassurance sales executives can discuss policy options with potential customers, dispelling any preconceived ideas that insurance packages are non-essential products. One such strategic alliance is the BPI-Philam Life Assurance Corp, which has emerged as the leading bancassurance company in the Philippines. Thanks to BPI’s expansive network of more than 800 branches and 1,500 ATMs, the bancassurance partnership is able to reach a wide array of Filipinos, sharing their expert knowledge of insurance packages and addressing individual customers’ financial protection needs.

Menon said: “Filipinos are more aware of banks than insurance companies, so partnering with BPI has given Philam Life an advantageous stance.” He declared: “Our partnership allows us to be readily available and accessible to Filipinos across the country, making insurance more convenient than ever before. With more Filipinos reached like this, people will be able to live satisfactory and fulfilling lives, as they appreciate the increased security that insurance gives their families.”

Ahead of the curve
With bancassurance poised to be the next big trend in the Philippine financial market, the nation’s top players need to stay one step ahead of the competition. A wave of new competitors is now flooding the field, with each company attempting to appeal to an audience of increasingly financially literate banking customers. In order to stand out from the crowd, bancassurance companies must innovate and modernise their services.

Mobile internet usage is becoming commonplace in the Philippines, with more than 30 million Filipinos gaining mobile internet access every year. What’s more, the nation’s maturing Millennials have grown up as digital natives, and now expect digital banking solutions as standard. As such, bancassurance firms must make digitalisation one of their key priorities if they hope to attract the lucrative Millennial client base. Menon said: “Although BPI-Philam has already had some success in modernising its offerings, we recognise that further digitalisation is the key to future success in this increasingly competitive market.”

“Modernising our front-end transactions with clients has helped us reach our goal of making insurance easy and accessible,” he continued. “By letting financial technology transform the way we do business, we’ve given customers access to easy and hassle-free financial planning and future protection. This in turn has established us as a dependable partner, always there to protect clients, their families and their future.”

As bancassurance continues to gain traction in the Philippines and beyond, BPI-Philam hopes to build on its recent technological successes, and remains dedicated to improving the quality of its products and services through innovation and digitalisation. By using new technologies to communicate more efficiently with the nation’s swelling youth population, BPI-Philam is fulfilling its founding aim of making insurance accessible for all. Bancassurance is making insurance available to the masses, and BPI-Philam is empowering citizens more and more with each policy.

Reaping the rewards of customer engagement

Posted on by Max Tomlin

Fubon Life Insurance is proud to have been named the Best Life Insurance Company in Taiwan by World Finance again this year. Achievements like this don’t come easy, and Fubon Life has worked tirelessly to ensure it is at the forefront of the insurance industry. This requires more than just excellent products – it involves the company engaging with and becoming an integral part of the community it serves.

The company is able to help customers devise a comprehensive insurance plan, while also providing a one-stop shopping experience thanks to its cross-selling capability

Factors such as solid business performance, comprehensive customer service, development of local talent and the fulfilment of a corporate social responsibility strategy have made Fubon Life not just a business, but an active participant in the societies in which it works. These efforts mean Fubon Life does more than offer life insurance – it strives to make Taiwan a better place for everyone. This goes beyond the scope of the business, as the company has taken on a much-needed community service role.

Paving career paths
A successful company is built from the ground up, and depends on its employees to achieve ongoing prosperity. In 2016, Fubon Life posted brilliant performance in terms of recruitment. The average age of new agents is 30, and the percentage of agents under 30 now reaches an industry-leading 63 percent, which demonstrates Fubon Life’s commitment to building a career path for the young population, many of whom will have a long and successful career within the business.

30

Average age of newly recruited Fubon Life agents

63%

of Fubon agents are aged under 30

128

Offices established by Beyond the Border

Fubon Life also offers a systematic training and education programme for new agents to develop their expertise, ultimately improving their performance and increasing retention rates. In fact, through its Beyond the Border recruitment programme, agents who successfully move up in the business are able to start their own sales office. The programme encourages young agents to return to their hometowns and create job opportunities within the local community. In less than four years, the programme has helped more than 3,000 agents establish 128 business locations in 65 administrative districts around the nation. Fubon Life places an emphasis on business culture so that agents can teach each other to replicate their success and fulfil their own career goals.

Fubon Life has turned its business locations into friendly neighbours. Joined by cross-industry business partners with the same mission, Fubon Life brings resources that used to be exclusive to metropolitan cities to remote townships and villages in order to support the local community. The company has also introduced the Neighbourhood Service Programme and Charity Ambassador Programme, where local agents can propose charity projects to support, allowing them to target meaningful causes in the location they operate in. In 2016, the company executed more than 100 charity projects in local communities, covering areas such as elderly care, support for underprivileged children and public health services.

Fubon Life has identified the potential impact and risks of an ageing population, and has therefore leveraged its core competency in developing health insurance products that are ready for the demands of the future. Believing that prevention is better than a cure, Fubon Life launched the first usage-based health examination insurance policy in Taiwan. The company has partnerships with 20 health examination clinics nationwide to provide policyholders with health examinations and follow-up services across multiple locations. All of this is offered at an accessible cost so policyholders can better manage their health.

To promote a healthy lifestyle to its customers, Fubon Life has introduced a new insurance policy known as Healthy Walker. This product combines an insurance policy with the use of wearable devices, offering coverage for seven major diseases and encouraging policyholders to exercise more frequently. Those who walk more than 10,000 steps per day for 180 days can enjoy a 10 percent discount on their premium. It’s designed to encourage policyholders to exercise regularly and manage their health properly in order to reduce the incidence rate of major diseases, as well improve the survival rate for many other conditions.

Fubon Life also has access to the diversified financial and insurance product portfolio offered by other subsidiaries under the Fubon Financial Holding Company. The company helps customers devise a comprehensive insurance plan, while also providing a one-stop shopping experience thanks to its cross-selling capability.

Technological development
Fubon Life puts great emphasis on technological development and information security. As such, the company invests heavily in new technologies; it has cultivated an agile development environment and introduced training programmes on service design and user experience. Fubon Life also takes advantage of the latest fintech developments and tools to respond to change in a timely manner, providing services that are of increasingly high quality.

All of these technologies improve our products and services. Fubon Life intends to build tied agents into a ‘business ironman’ by incorporating mobile, cloud and social media services into its toolkits. With a mobile office and cloud service platform that incorporates the functions of marketing, service, recruiting and management, tied agents are able to enhance their productivity and management efficiency wherever they are. This includes facilitating real-time communication and offering administrative services remotely via mobile devices. Fubon Life has also established an online learning centre so agents can attend courses at a time and place that fits in with their personal lives and career planning. Fubon Life promotes innovative insurance technology applications, such as a dynamic customer management platform, blockchain, application programming interfaces, micro-services, data warehousing and analytics to satisfy its customers’ diverse needs.

Supporting society
Fubon Life pays great attention to social trends and demands, and tailors its services to react to them. Caring for elderly people with dementia is a pressing challenge for both individuals and society. Fubon Life has responded to these social needs with the launch of its Enjoying the Silver Years programme.

The company had partnered with the Federation for the Welfare of the Elderly to provide training to almost 30,000 agents and employees on how to help those suffering from dementia. Fubon Life has also turned its 400-plus spread of sales offices across the nation into service hubs for dementia patients. This not only helps to strengthen the social safety net for an ageing society, but also makes Fubon Life the private enterprise with the largest number of service hubs for dementia patients in Taiwan. This year, Fubon Life has given away 1,000 smart identification bracelets to elderly people with dementia in order to prevent them from getting lost. The company also donated 1,000 ‘love memory’ piggy banks to raise funds for elderly people who live alone. The money raised will be presented to the Federation for the Welfare of the Elderly to fund the Missing Elderly Search Centre and the Make-A-Wish programme for underprivileged elderly people who live alone. The Missing Elderly Search Centre operates 24/7 and has successfully found all missing people who were wearing a smart bracelet.

In 2016, the company focused on promoting the health of elderly people by organising a number of fitness walking events around the nation. The company donated TWD 30 ($1) to each participant to fund the purchase of 10,000 charity lunchboxes for elderly people who live alone. Fubon also hosted its first three-a-side basketball tournament for people aged over 50, as well as the Fubon Life Braves college basketball tournament, a large-scale cross-departmental basketball tournament that enables amateur players to play basketball. With initiatives such as these rising in number and popularity with each passing year, Fubon Life continues in earnest to fulfil its corporate social responsibility aims, something we consider to be at the very core of what we do.

Afschrift continues to offer leading advice on tax optimisation

Posted on by Max Tomlin

Even when limited to just one country, systems of taxation are complicated and difficult to navigate. When multiple countries and the spread of misinformation are factored in, it can be truly overwhelming. It is hardly surprising, therefore, that businesses and individuals often turn to professional tax advisors to make sense of the complex systems they are faced with.

Given that tax is defined as a compulsory contribution without consideration, it is understandable that taxpayers try to reduce this financial burden

The media’s reaction to the release of the Paradise Papers in November 2017 demonstrated that taxation is clearly an emotive issue, but not one that is always properly understood. There are, for example, various methods of reducing tax bills that are completely legal, whether they concern offshore businesses or not.

Tax optimisation is not something that should be condemned; it is simply one aspect of prudent fiscal management, no different from an individual making the most of their tax-deductible expenses when completing a personal tax return. Unfortunately, some governments appear committed to destroying tax competition, despite the fact that it is not to their advantage. This is a disturbing trend that is becoming particularly apparent in the EU, where the power of member states threatens to undermine our civil liberties.

Of course, staying on the right side of the law is essential, which is why choosing the right tax advisor or legal representative is so important. Afschrift Law Firm has been providing valuable advice to its clients for more than 20 years.

Competitive spirit
EU member states are in constant need of capital and, as a result, they are trying to collect the maximum amount of tax revenue. One of the methods that EU member states are using, under the pressure of more powerful members such as Germany and France, is to limit tax competition. As a consequence, measures are being collectively implemented to restrict tax optimisation.

This said, tax competition will never really disappear, and has even started to develop on regional or federal levels in countries such as Spain or Belgium. Even if governments attempt to prevent tax optimisation, opportunities will always exist. With states continually introducing new tax niches, which can create ways for companies to reduce their tax burden, it could be argued that tax optimisation is even encouraged by the state itself, albeit within a specific context. In any case, the more they are subject to heavy taxation, the more companies and individuals will resort to tax optimisation. The role of lawyers is to help them achieve their optimisation targets within the limits of the law.

Given that tax is defined as a compulsory contribution without consideration, it is understandable that taxpayers try to reduce this financial burden. Government efforts to prevent tax optimisation only result in the creation of new rules and greater complexity. In order to deal with the application of these rules, companies and individuals will be in even greater need of tax lawyers so as to avoid suffering the consequences of the state’s tax policy.

Letter of the law
Directives have been implemented to limit certain types of tax optimisation, such as the deduction of interest or royalties related to intellectual property rights. The implementation of these directives is the result of the joint and concerted action of several large EU members to make it less advantageous for companies to establish themselves in smaller EU countries, many of which use tax incentive policies to attract foreign investment. It is characteristic of the European Commission to use this tactic against its smaller members, including Luxembourg, the Netherlands, Belgium and Ireland.

Because these countries are so small, they need to attract foreign companies by adopting tax-friendly policies; without these advantageous tax policies, large companies would always base their operations in bigger countries. Having said this, it’s important that national tax incentive schemes are carefully chosen so they aren’t classified as selective state aids, which are prohibited in the EU.

Under another directive issued by the EU, tax advisors are obligated to disclose any tax optimisation programmes they set up for their clients. However, these rules are not applicable to lawyers because of attorney-client privilege, which is absolutely essential, especially given the complexity of tax laws. For clients, trusting their tax specialist is hugely important. A client cannot entrust their lawyer with the intricate details of their finances if they aren’t certain these details will remain confidential. This trust is the only way to make sure that clients disclose all information, which is vital if lawyers are to provide their clients with judicious advice and remain respectful of the law. Any measure that would limit attorney-client privilege could result in a violation of the law. The job of the lawyer is never to suggest a violation of the law, but rather to adapt to the law. At all times, the absolute protection of the client-attorney privilege should be upheld.

Optimisation for all
If one wishes to avoid the creation of a virtual cartel of EU states, fiscal competition between states, and even between territorial subdivisions and federal regions, is necessary. Such a cartel will always act against the interests of the taxpayer as its actions will necessarily result in an increase in taxation. While the role of individual states has increased in recent years, unfortunately their efficiency has not increased proportionally. Without fiscal competition, nothing would compel states to reduce tax, nor prevent them from increasing it.

Politicians will always be tempted to increase their power and present their roles as essential. Meanwhile, voters prefer to see personal gain than see taxes reduced for everybody. As a result, it is always more advantageous for politicians to propose plans that benefit their supporters, rather than reduce taxation in a uniform manner. Fiscal competition is therefore necessary in order to restrain the current trend that is seeing our societies become more and more state controlled. By their nature, taxes are set up by those in power. Without competition, this power may become arbitrary. Everybody must have the right to vote with their feet by establishing elsewhere if tax pressure becomes too much.

Nevertheless, fiscal competition does not seem to entirely disappear, even when faced with the pressure from the EU and the Organisation for Economic Cooperation and Development, which generally act in the interests of the most powerful states. Furthermore, even if unification could be achieved, this would not prevent the development of fiscal competition based on tax rates, the harmonisation of which is currently not being discussed.

It’s also worth keeping in mind that tax optimisation is not solely the preserve of large multinational companies: individuals and small companies can stand to benefit as well. First, there are procedures implemented by the tax administration, provided by law or by administrative practice. Moreover, the utilisation of the advance tax ruling procedure, through which a taxpayer may receive prior approval from the tax administration on any given future operation, is not reserved for big companies – smaller companies and individuals may also benefit from this.

Finally, tax optimisation does not always require an individual or organisation to have influence or capital. Lawyers and other advisors are perfectly positioned to recommend tax optimisation methods to smaller companies, specifically developed for them and adapted to their needs, taking into consideration their distinct legal or accounting situation.

China’s new economic appointments signal continued debt clampdown

Posted on by Max Tomlin

On March 19, the Chinese Government announced two high-level appointments that could have a major impact on the country’s economic future. Yi Gang has been confirmed as the new governor of the People’s Bank of China, while Liu He, one of President Xi Jinping’s most trusted economic advisers, has taken a position as one of China’s four vice-premiers.

With the country now heading towards a debt-to-GDP ratio of 300 percent, its loose monetary policy cannot be continued indefinitely

Yi will succeed outgoing bank chief Zhou Xiaochuan, who is retiring after 15 years in the role, and will look to build upon his predecessor’s legacy of economic reform. Under Zhou, China’s central bank pursued a policy of financial liberalisation and managed to weather a global financial crisis. Yi will be expected to continue in much the same vein, while also encouraging greater foreign investment into the country.

“The main task is that we should implement prudent monetary policy, push forward the reform and opening-up of the financial sector, and maintain the stability of the entire financial sector,” Yi explained to reporters following his appointment.

As China’s central bank is not independent of the government, Yi will have to report to new vice-premier Liu He, who is expected to head up the newly created Financial Stability and Development Commission. The man known by some as ‘Uncle He’ has a long history with the Communist Party and is believed to have been friends with President Xi since they were both teenagers. He has held a number of senior roles within the government and is widely believed to be the driving force behind a recent shift in the country’s economic policy.

For decades, China pursued a credit-fuelled economic strategy that saw it become the epicentre of global growth. However, with the country now heading towards a debt-to-GDP ratio of 300 percent, there is a perception that its loose monetary policy cannot be continued indefinitely.

Both Yi and He will be tasked with moving the country towards more sustainable growth, but the latter’s new vice-premiership role means that he will also be expected to improve relations with the US. Given President Trump’s long-standing anti-China rhetoric and his recent import tariffs, that is likely to take up a significant portion of his time.

How Mapfre uses modern tools to inspire growth in the Peruvian insurance sector

Posted on by Max Tomlin

The past year will be remembered as one of the toughest in recent history for the Peruvian insurance market. Over the course of 2017, the sector was ransacked by regulatory changes and beset by weather-related issues. On the property side of business, the market has been dented by the political turmoil surrounding the Odrebrech corruption scandal and a recent fight between Congress and the Peruvian Government. Meanwhile, Peru remains one of the least insured countries on the continent.

The sector is moving past the setbacks of 2017 and looking at new ways of tapping into the huge potential of the growing middle class in the country

But against this seemingly pessimistic backdrop, a turnaround is fast approaching. The sector is moving past the setbacks of 2017 and looking at new ways of tapping into the huge potential of the country’s growing middle class. Meanwhile, a surge in foreign direct investment is bringing new momentum to the sector, which is on the brink of some serious forward progress, aided by the use of big data and the online market. In order to track the latest developments in the industry, World Finance spoke to Renzo Calda, CEO of Mapfre, a pioneering global insurance company that is present in 19 states across Peru.

How robust is Peru’s insurance market at present?
The last year has been the worst in the last decade and a half. That being said, the industry has been negatively impacted by new regulations relating to the private pension fund. At the same time, El Niño-season floods have presented a stubborn obstacle to success. Thankfully, these issues are now behind us and the sector is beginning to look far healthier thanks to reconstruction, increased foreign investment and a better political climate.

What key factors have contributed to driving growth in the Peruvian insurance industry in recent years?
While the overall growth rate has certainly slowed during last four years, personal lines of insurance – relating to life, personal accidents and vehicles – have been pretty strong. These products have been the main beneficiaries of the growing middle class in Peru. In fact, personal products like life and health insurance have been especially dynamic in recent years. Furthermore, the property business has seen substantial growth, owing to developments in both mining and infrastructure, which have helped sustain the insurance industry during the recent stint of low growth.

At present, what are the key challenges for Mapfre and others in the sector?
Principally, we must focus on the challenge of reaching the growing middle class with an adequate value offering. We have to keep working on communication, distribution and simplicity.

We have to attract the new generations. We used to reach our market through intermediaries, but new generations rely on their phone rather than sales agents. This has been the most dramatic change in our industry. Communicating digitally is not just a technological issue, but involves a whole new language and code of interaction.

Looking ahead, how do you expect the Peruvian insurance sector to change over the next five to 10 years?
It is clear that those who master the online market, digital transformation and big data, are more likely to succeed.

How successful is Mapfre in terms of profits and growth?
In terms of growth, we have been able to double our peer group’s growth ratio, while also increasing our market share from nine percent to 18 percent (excluding pension insurance, which we do not sell). In terms of profits, we have been able to outpace our peers by more than 50 percent throughout the past five years; on average, we have achieved a 24 percent return on equity.

What are the keys to your success at Mapfre?
I would group them in three. First, we have a well-designed market strategy and highly effective channels and products. Notably, we started our online channel seven years ago and focused on products such as homeowners and final expenses before anybody else.

The second key to success is talent: at Mapfre, we have a knowledgeable and passionate team that has stayed with us throughout this whole journey. Third, we provide a high level of support to operations as our strategy is based on solid technology that delivers reliability, efficiency and first-class business intelligence.

Do you believe that Mapfre can continue to achieve profitable growth into the future?
Yes, but what got us here was not a written recipe – instead, we are brave cooks. Profitable growth is intrinsically linked to our values and beliefs. We maintain that success comes from a consistent approach from management, whilst also being willing to take calculated risks and remain open to trying new things. We have all this embedded in our DNA and no matter what new trend appears in the future, I am confident that we will always be prescient enough to benefit from it.

Canales Auty delivers leading PSC expertise in frontier markets

Posted on by Max Tomlin

Economist Farida Khambata coined the term ‘frontier market’ in 1992 to describe a market that is more developed than the least developed economies, but not economically advanced enough to be considered an emerging market. These markets elicit fear and enthusiasm from investors in equal measure, as they are generally less accessible than those in the developed world, but they remain attractive to those seeking plentiful long-term rewards. However, the volatility of frontier markets means that more risk-averse investors may be tempted to take their money elsewhere.

The volatility of frontier markets means that more risk-averse investors may be tempted to take their money elsewhere

In the petroleum industry, frontier countries must evaluate how to attract investment from international oil companies, even as low oil prices continue to hamper exploration activities. Frontier countries lacking geological data carry high exploratory risk, making it hard to attract oil companies. Recently, some governments have taken a progressive approach to their production sharing contracts (PSCs) in order to establish a flexible and simple fiscal framework that considers institutional risks. The objective is clear: minimise risks, attract investment and focus on the longer-term gains.

Attracting investment
One of the first frontier countries to take a progressive approach was Uruguay. In December 2008, during the height of the financial crisis and the associated oil price collapse, Uruguay held its first offshore licensing round. Conscious of its frontier status, Uruguay applied a strategy based upon three pillars: establishing a comprehensive legal and regulatory framework; providing data on exploratory potential; and highlighting the country’s positive investment climate. The round was successful in attracting major companies.

During 2016 and 2017, Canales Auty worked with two frontier countries, Belize and the Dominican Republic, which both chose a progressive approach to their PSCs. Belize’s single producing field was in decline and exploration had stalled. The objective was to modernise its legal framework, introduce a new PSC and attract investment. It also wanted to simplify the fiscal regime in order to reduce the administrative burden caused by a plethora of royalties, taxes and exemptions.

The Belize Government also sought to create a stable regime with a universally applicable fiscal system for gas, petroleum, onshore and offshore. Politicians appreciated that only a progressive tax system could meet these objectives and respond to volatile oil prices, exploration and production cost structures, and potential discoveries. The government chose to go back to the roots of the PSC concept and become a project partner, sharing equally in the positives and negatives of each project. To do so, it chose a PSC with only one tax based upon the internal rate of return. Cost control is paramount for such a system to work. For most governments, especially those without an independent regulator, this is a challenge.

The solution was to outsource elements of the development plan to independent experts. Now, an external company must review the development plan prior to its approval, along with any proposed changes and associated costs. The use of independent advice adds third-party and governance risk. The PSC, therefore, sets out clear rules for contracting independent third-party advice, time schedules and contingency plans in the event that these schedules are not met. Reviews of contractor accounts, hydrocarbon sale contracts and transportation agreements all involve similar third-party involvement.

Progressive production
Following the path of some frontier countries in the Caribbean region, the Dominican Republic has also taken the political decision to attract oil companies. Working with Schlumberger, the state analysed its technical data and made it freely available for a licensing round due to commence in 2018. It has chosen a universally applicable PSC based upon a fiscal regime similar to that found in Belize.

The pragmatic stance of both the Ministry of Hydrocarbons and Ministry of Finance is to be commended in both countries. They realised that while front-end taxes, such as bonuses, and royalties provide quick income to the treasury, they also reduce the probability of investment. They also acknowledged any institutional weaknesses, thereby allowing governance processes to be strengthened within the PSC.

Under such a mandate, Canales Auty produced the first model PSC for the Dominican Republic. A new frontier PSC intended to accelerate exploration, mitigate oil price weakness and financing risk, provide fiscal and non-fiscal stability, enhance recovery, and reduce administrative complexity. Importantly, to avoid unnecessary tension once production starts, the PSC provides an adequate balance between investor interest and state control.

The huge discovery of the Liza oil field in Guyana has captured the attention of frontier countries worldwide, pushing them to not only take advantage of available new technologies, but also to move away from traditional and rigid contractual frameworks. As more discoveries are made, the future of frontier PSCs looks optimistic, and traditional oil-producing countries are likely to begin incorporating more progressive features into their PSCs.

Viriyah Insurance creates opportunities by embracing technology

Posted on by Max Tomlin

The Thai economy is in rude health. The country’s stock exchange is recognised as being one of the most sustainable in the region, while the Eastern Economic Corridor initiative will result in the national government investing approximately $46bn in new construction projects over the next five years. However, among these positive developments, it is easy to forget the crucial role that Thailand’s insurance sector plays within the domestic economy.

The Thai insurance industry premium is expected to total around THB 824bn ($25bn) for the entirety of 2017 (see Fig 1), achieving a growth rate of 6.01 percent, the same as in the previous year. Positive trends being seen in the broader economy are also having a knock-on effect. Increased public spending, a booming tourist sector and high rates of private sector consumption are all providing reasons for optimism.

Nevertheless, the Thai non-life insurance industry still faced several risks throughout 2017 and beyond. Difficult situations are likely to emerge as a result of a decrease in premium rates compared with an increase in compensation costs. Other risk factors include a lack of preparation concerning internal technological systems and the emergence of newcomers, particularly insurance technology (‘insurtech’) initiatives.

That being said, technology provides opportunities as well as difficulties, especially if businesses are flexible enough to introduce and master new tools. World Finance spoke with Pravit Suksantisuwan, Deputy Managing Director at Viriyah Insurance, about the Thai insurance sector and how it is coping with the influx of innovative digital solutions.

What are some of the biggest challenges currently facing the insurance industry in Thailand?
The biggest challenge facing the insurance sector relates to innovation, but it is one that the Thai Government is well prepared for. A new economic model, called Thailand 4.0, and supporting policies are helping to reform economic structures and propel the nation towards innovation and intellectual development. This will help create a new digital economy that will increase wealth and help make modern technology more accessible for everyone in the country.

However, new technologies will also increase pressure on the insurance industry to change. Insurtech firms will introduce new business models and cause the sector to move at an increasingly rapid pace. Therefore, existing insurance businesses will need to adapt and transform their business practices to cope with the coming changes and to meet future customer expectations.

How are new technological developments changing the insurance sector?
First of all, I think it’s important to recognise just how tech-savvy the Thai people are. With a population of approximately 66 million and internet usage standing at 67 percent, Thailand is home to the 18th-largest online population in the world. Thai people spend a great deal of time using the internet; they average 4.35 hours of browsing every day. Thai citizens are also happy to conduct online research before they make a significant commercial decision.

Alongside further developments to Thailand’s internet connectivity, a variety of other technologies are set to spur the digital transformation of the insurance industry. GPS tools, mobile devices and other digital platforms are providing new ways to engage with customers, reduce costs, boost accuracy and improve efficiency. These technologies are also enabling the creation of new insurance services and marketing channels. They are forcing insurance companies to respond to a new era of competition through digital transformation. For instance, insurers can now send notifications regarding the claims process via mobile devices, while motor insurance firms are finding that GPS services are already a crucial part of their business.

How is Viriyah leading the way with innovative new digital solutions?
Digital transformation is a long and ongoing journey, but one that Viriyah is keen to lead. Our digital capabilities already include the Viriyah Smart Claim (VSC) project, a notification system that helps customers and claim inspectors alike. Our Electronic Motor Claim Solutions (EMCS) project is also being employed to improve repair work efficiency between Viriyah and repair service centres, resulting in greater accuracy, convenience, price control and repair work approvals. This system eliminates the delays caused by waiting for insurance company adjusters to arrive at repair centres and from receiving pre-arranged incorrect spare parts.

In addition, the programme also helps to standardise prices and damage assessments, allowing us to control expenses more efficiently. Moreover, the company has introduced a mobile application for agents. The application has been made to enhance work efficiency in terms of mobility, agility and flexibility, and also to reduce operating procedures and associated costs. The most important thing is that partners and employees are ready for everything that accompanies the digital transformation.

Are there any regulatory hurdles restricting the introduction of these new innovations?
Even though regulations, in many cases, can cause some difficulties, the Office of Insurance Commission (OIC) has prioritised digital innovation within the industry by announcing new electronic insurance regulations. For instance, the digital insurance policy stipulates that both the insurance company and the agent must comply with certain rules relating to insurance proposals, policies and online claims. Furthermore, they must pass security guidelines signed by an external IT auditor before they can obtain a digital insurance licence. Although regulation may increase operating costs and time to market, it can also help prepare insurance companies to propel their business forward more reliably and efficiently.

Has the liberalisation of Thailand’s insurance sector hastened the introduction of digital tools?
In 2020, Thailand will liberalise the insurance trade alongside the other nine countries in the ASEAN economic community. This means there are only three years left for the OIC to set rules and prepare Thai insurance firms for such liberalisation.

Work is already underway, however, and the OIC recently allowed foreigners to hold a 100 percent share in Thai insurance if the organisation meets a minimum capital requirement of THB 4bn ($123m) for life insurance and THB 1bn ($31m) for non-life insurance. With a more liberal insurance industry, availability of increased capital and new technologies will intensify business competition. Thai insurance companies need to be ready to transform their businesses into slick, digital operations in order to survive.

How important is mobile technology to improving customer service?
Mobile technology plays an important role in improving customer service. This is largely because most people now use mobile phones for almost every activity in their daily lives, including communicating with others, purchasing things online and searching for information.

Furthermore, mobile technology provides remarkable channel access capabilities, extending the internet and social media to insurance employees, customers, and partners, and bringing 24/7 communication into the mainstream. Customers can now easily access a company website, communicate via a live chat service, send an email or utilise a mobile app. Certainly, mobile technology is already playing a major role in customer engagement.

Could technology introduce new risks into the industry?
The digitalisation of the insurance industry could certainly introduce unexpected risks, with the arrival of disruptive technologies, including driverless cars and the Internet of Things, sure to affect the market. Perhaps the most prominent threat comes from cyberattacks, which are causing increasing concern among insurance companies and costing more to prevent. However, new regulations introduced by the government should help insurance businesses become more aware of new issues as we move into the digital era.

What role do the other ASEAN nations play in Thailand’s insurance sector?
The establishment of the ASEAN Economic Community (AEC) gives Thailand more liberty to expand its insurance sector because of increased international trade. This will boost the number of transport businesses that enable vehicles to cross the border. There will be more hospitals providing better healthcare to the growing number of people living in the areas benefitting from this trade. The sectors that can gain from these developments include motor insurance, carrier liability, health insurance and many others. The AEC unequivocally provides more opportunities for Thailand’s insurance sector.

What are Viriyah’s plans for the future?
Last year marked Viriyah’s 70th anniversary; in that time, the insurance sector has changed markedly. It is also continuing to change, and we have some big plans for the coming months and years. In addition to increasing policy renewal rates, we have set targets to increase the non-motor share of our portfolio from 9 to 10 percent. In doing so, we hope to achieve closer collaboration with businesses and service networks in the medical and health profession within both Thailand and other AEC nations. The V-Total Care Services, a premium health insurance solution, will be developed for customers in the middle and high-income brackets who require higher quality healthcare services.

Moreover, the company will expedite the expansion of any insurance projects involving business partners, such as engineering insurance plans, particularly with infrastructure and transport systems likely to provide the principal stimulus for Thailand’s economy over the next few years. More underwriting tools will also be rolled out for use in the personal line category. As a result, individual agents and brokers can proceed with underwriting work themselves more quickly and efficiently. Collectively, these efforts will ensure that fig  is not simply another player in the Thai insurance sector, but the real driving force behind many of its innovative developments.

How RCBC’s dramatic transformation is benefitting its customers

Posted on by Max Tomlin

Rizal Commercial Banking Corporation (RCBC), one of the largest universal banks in the Philippines, recently underwent a dramatic rebranding programme. This culminated in the unveiling of its new corporate logo and tagline, ‘we believe in you’, in July 2017.

RCBC’s efforts to understand its customers made it realise that people want an approachable bank that not only responds to their needs, but also believes in the value of their dreams

RCBC’s transformation has allowed the bank to shed its traditional image and introduce more modern qualities, while continuing to inspire trust among its clientele. RCBC wanted to show its customers that it is moving forward at the same pace of change they are experiencing in their own lives.

To kick the programme off, the bank undertook various preparatory activities, including conducting market research into RCBC’s corporate equity. Analysts concluded that there was an opportunity for RCBC to develop more meaningful relationships with customers. The results also showed that, in the minds of the customers, banks in the Philippines have no clear differentiation in terms of overall service adaptability, trust, networks, access and uniqueness. However, what did stand out was the fact that those who bank with RCBC are actively proud users of the brand. Indeed, this is what the rebranding campaign wanted to build upon, by connecting awareness to actual patronage.

A growing reach
RCBC’s biggest challenge is converting those who are aware of the bank into actual clients. To do this, an internal relaunch for employees of the RCBC Group was held in Manila, Bacolod, Pampanga, Batangas and Cebu. The activity and event reached more than 2,000 employees of RCBC and its subsidiaries.

As of the first week of August 2017, new signs for branches and ATMs were installed in the Makati central business district branches and on-site ATMs. Currently ongoing are the installations of off-site ATMs.

Press pick-ups of the brand relaunch found their way to key publications and TV stations. Millions of people were reached through Twitter, and organic views of RCBC’s video material on Facebook were high. The relaunch saw RCBC’s television break on July 16, 2017 on cable and free TV shows. Sustained placements will be carried out for the first quarter of 2018, with dominant print ads to be featured in key publications as well.

In terms of digital and social advertising, RCBC’s thematic advertisement had almost four million views, with thousands of reactions and shares. More than just a tagline that pledges faith and full support to customers, their dreams and their needs, ‘we believe in you’ is a call to action for the bank’s employees to further strengthen the already excellent customer service on offer.

As we say at the bank: it’s not about RCBC, but what RCBC can do for you.

Connecting with customers
RCBC’s efforts to understand its customers made it realise that today’s depositors want an approachable bank that not only responds to their needs but, more importantly, believes in the value of their dreams and aspirations.

‘We believe in you’ is a battle cry that shows RCBC’s unwavering support and trust in the indomitable Filipino spirit. At the same time, this new corporate thrust is meant to encourage Filipinos not only to dream, but to turn their passions and dreams into reality; whether it’s travelling to a dream destination, venturing into a new business, or purchasing a new home or car.

RCBC’s new look is embodied by its simpler, fresher, and more minimalist logo, which symbolises RCBC’s goal to continue widening its reach and growing its customer base.

A success story
From its humble beginnings as a development bank in 1960, RCBC’s total consolidated asset value had grown to over PHP 521bn ($10bn) at the end of 2016. Since its inception, RCBC has proven its capacity to meet the demands of its customers, both in the Philippines and beyond. Expanding our reach to nearly 500 branches and close to 1,500 automated teller machines, the bank continues to create a wider network for a better customer experience. Supported by investments in people and technology, RCBC is aggressively reaching out to more Filipinos both at home and in the rest of the world.

As RCBC enters a new era, celebrating its 58th year in 2018, its greatest achievement would be to return the unwavering trust and faith to both its employees and loyal customers. With its new philosophy, RCBC is sending a clear message: it stands firm in its mission to help everyone achieve their dreams.

Automation may not decimate the job market, but it does present significant challenges

Posted on by Max Tomlin

As labour-saving technologies advance, concerns regarding job security will likely rise in tandem. According to a study by PwC, 37 percent of the 10,000 people surveyed across five countries were worried automation would put jobs at risk. Further, 60 percent believed only a few people would have stable, long-term employment in the future.

From a macroeconomic perspective, the bulk of available evidence seems to suggest there is little reason to worry, as the net effect on employment will likely be small and may, in fact, result in gains. But dealing with the fallout from a large structural shift in labour will inevitably present significant challenges.

Manufacturing change                                                                               
At highest risk of being automated are low-skilled jobs, particularly those with predictable and repetitive tasks that can easily be replicated by a machine, like fast food preparation and mechanical assembly.

Just because a job has a certain proportion of tasks open to automation doesn’t automatically mean it will become redundant

Meanwhile, occupations requiring more abstract skills – those that are hard to codify and copy – will stand a lower risk of being automated. These jobs tend to involve social interactions or the application of expertise; tasks that cannot easily be mimicked in the absence of truly advanced artificial intelligence.

“One pattern that becomes clear is that there is more erosion at the low end of the income distribution and low end of the skill distribution as opposed to the top of the distribution,” said Grace Lordan, Associate Professor of Behavioural Science at the London School of Economics.

“We do see some erosion at the top end of the distribution, but we expect the net effect to be small or possibly positive as more jobs come on-stream. At the bottom of the distribution, there is going to be much more hollowing out.”

This erosion is extensively alluded to throughout much of the research on the topic. According to a study by McKinsey Global Institute, 30 percent of work tasks across 60 percent of occupations could be automated, while between 400 and 800 million people may need to find new work due to automation by 2030.

A report by PwC, which looks at automation occurring over three overlapping waves between now and the 2030s, suggests machines will encroach further on manufacturing jobs as they become more adept at completing physical tasks that require dexterity and dynamic interactions. The report estimates the resulting job losses could be as high as 44 percent in some countries.

The sky isn’t falling
Despite the high figures in their reports, both McKinsey and PwC maintain the losses will likely be made up for elsewhere in the economy. Even so, many experts argue such figures are exaggerated.

“[The high estimates of ‘at risk’ jobs] just reflect technological potential, so they tell us how much theoretically could be done by machines,” said Ulrich Zierahn, Senior Researcher at the Centre for European Economic Research. “But the actual employment effect is likely to be very different from that because it takes a long time for machines to be adopted, because humans can adjust and actually do adjust to the change, and also because new jobs are created along the way.”

Factors like the high cost of implementation for firms and labour laws are likely to slow the rollout of automated technologies. What’s more, Zierahn’s own research suggests a ‘task-based’ approach to predicting the impact of automation, rather than the traditional ‘occupation-based’ one, could be of greater use. Just because a job has a certain proportion of tasks open to automation doesn’t automatically mean it will become redundant.

“Usually researchers say that if the [proportion of automatable tasks] is above 70 percent then you would regard the job [as] at risk,” Zierahn said. “However, being at risk just [refers to] the level of exposure to technological change, whereas the potential employment effect of that exposure is another question.”

Factors like the high cost of implementation for firms and labour laws are likely to slow the rollout of automated technologies

Additionally, some research shows that even if automation drives down labour demand in manufacturing, mass redundancies would not necessarily follow. “We do not find any systematic evidence that manufacturing firms really fire workers,” said Wolfgang Dauth, Assistant Professor of Empirical Regional and International Economics at the University of Würzburg.

“What we do see is that they reduce the number of labour market entrants that they would otherwise have hired, so younger people then go into the service sector rather than the manufacturing sector.”

New jobs could come as a result of an overall improvement to the economy in terms of income and productivity, as well as a direct result of new technology (i.e. maintenance, research and development). As people pour their new wealth into the economy – investing in, and creating, businesses – a higher demand for specialised labour could offset the job losses directly related to automation. The challenge, therefore, becomes not how to deal with a significantly higher unemployed population, but how to effectively transition the workforce into the new economy.

In the past, disruptive events like the Industrial Revolution have often been referenced as instances where naysayers overreacted. “Throughout economic history there has always been a new wave of automation that made [a] certain kind of work or a certain kind of worker redundant, but overall we don’t really feel that this time might be different,” Dauth said.

However, the quickening rate of technological advancement could potentially set this era apart from previous ones. “In honesty, my feeling is that it is different,” said Lordan, pointing to the cratering housing market that precipitated the 2008 financial crisis as an example of an unprecedented event everyone thought impossible. “Things can happen for the first time, and you probably want to encourage policymakers to think about it.”

Smoothing the transition
Net employment effect notwithstanding, public policy will need to reflect the needs of the new job market. If handled incorrectly, even a society made wealthier by technology would see said wealth concentrated in fewer hands.

Higher investment into STEM education and retraining programmes should be an economic priority as demand for high-skill labour increases. Special attention must be paid to mid-career workers who will need to learn new skill sets or significantly expand their existing ones. This adaption will also need to be applied to younger generations, which are currently being brought up through an education system fundamentally designed to complement the last industrial revolution.

“I think that really does require a big restructuring of education,” Lordan said. “Currently, our education system largely teaches children the jobs that robots are going to be able to do, which doesn’t really seem like a good idea. I think what you want to be able to do is teach skills like empathy and character, which robots are not going to mimic.”

Higher investment into STEM education and retraining programmes should be an economic priority as demand for high-skill labour increases

Even in a country like Germany, which has a low risk of net job loss and is well equipped to deal with these labour shifts due to its tradition of investing heavily in retraining, there is a gap between those who benefit from automation and those who do not.

“We do see that there are distributional effects of automation,” Dauth said. “[This] means that we will see differences in that higher skilled people mostly benefit from automation, whereas lower skilled people see reduced earnings and reduced employment prospects, but on the net there is no overall negative effect of automation.”

According to Zierahn, while the negative net effects of technology on employment are not apparent, the structural effects it will have are important. Specifically, the shifts between occupations and industries, as well as the resulting inequality, present significant challenges.

“We have to support workers in adjusting to the change by getting the right training to get the right skills,” Zierahn said. “It seems that inequality is rising due to technological change because it is particularly the low-skilled workers who are most exposed and who suffer most from the change and who also have the hardest time finding new jobs.”

The economic benefits technology will bring are real but, in the race to stay ahead, governments will have to pull off a balancing act between remaining competitive and minimising the impact machines will have on large portions of their workforce. The failure to adequately take care of lower income workers, who may be left behind by the new economy, can bring significant cultural consequences, as well as economic ones.

Gulfstream Aerospace is setting the standard for business aviation

Posted on by Max Tomlin

There is growing evidence supporting the notion that when companies use business aircraft, they tend to grow faster and create more jobs. As companies expand their businesses around the world, the need for efficient travel will grow in turn. Consequently, it is a practical reality that the demand for business aviation will continue to increase as the world’s economy becomes more interconnected. While the advantages of business aircraft are well known and understood in certain regions and industries, some are yet to appreciate the potential.

Whatever the market conditions, the enduring key to success is to listen carefully to consumers while creating products and services that embody quality, reliability and innovation

According to Honeywell’s latest business jet forecast, released in early October, a growth rate of three to four percent is expected from the period of 2017 through 2027. Honeywell projects that during that span there will be up to 8,300 business jet deliveries worth $249bn, and 61 percent of those deliveries will be to North American operators.

The ultramodern experience
As demand picks up for business aircraft, the industry is constantly moving forward with new technological advancements. When it comes to business travel, safety, flexibility, reliability and performance are always crucial. Our newest aircraft, the Gulfstream G500 and G600, are designed with this in mind, and are the latest examples of our long-standing tradition of ultramodern technology.

For one, they can double as an office in the sky, or even a media room, thanks to new high-speed communications and entertainment equipment. On top of this, both aircraft feature the Symmetry Flight Deck, which features several key innovations. For instance, the novel flight deck includes 10 touchscreens, which reduces the number of switches in the flight deck by up to 70 percent. State-of-the-art vision systems, including a third-generation enhanced vision system that boasts four times the resolution of its second-generation incarnation, are also present.

Perhaps most importantly, the Symmetry Flight Deck has received a huge amount of attention for the active control sidestick (ACS) technology it is equipped with. Indeed, the ACS earned Gulfstream, together with our partner BAE, the 2017 Technology Laureate Award from Aviation Week. The new feature increases safety by ensuring that any movement in the control stick by the flying pilot or autopilot can be seen and felt by the non-flying pilot through the stick on the opposite side of the flight deck. In doing so, it is able to greatly improve the situational awareness and coordination between crewmembers. The ACS also frees up room in front of the pilots, enhancing ease of movement in the flight deck.

Listening to you
During the 35 years that I have spent in the aviation industry, I have seen market conditions flip between ups and downs. But whatever the market conditions, the enduring key to success is to listen carefully to consumers while creating products and services that embody quality, reliability and innovation.

To ensure we are delivering the aircraft customers want, we spend a lot of time listening to them. In fact, in late August 2017 we had the 42nd meeting of our customer advisory board (that’s two meetings a year for the past 21 years) and another meeting of our advanced technology customer advisory team (ATCAT).

In March 2017, we flew ATCAT members in the first fully outfitted production G500, and the feedback during and after these flights was all extremely positive. Our customers told us that the combination of added flexibility in the cabin, comfortable new seat designs and the enhanced satellite communications all ensure that the G500 customer experience is second to none.

The sky’s the limit
At Gulfstream, it is important for us to create value for our customers by listening to what they want and ensuring we deliver it. With that in mind, all of our in-production aircraft entered service on time with capabilities that met or exceeded what we promised. The G650, for example, had 1,000 nautical miles more range than we promised (6,000 nautical miles vs 5,000). With the Gulfstream G550, we delivered the PlaneView flight deck with enhanced vision, which was a first for the industry. Similarly, with the G280, we delivered 200 nautical miles more range.

Keeping with tradition, we recently announced that our G500 and G600 will both deliver range beyond our initial projections as we proudly continue to exceed customer expectations.

Cutting through the data jungle with Infinox

Posted on by Max Tomlin

Fortunately, data is now one thing all investors – both private individuals and professionals – have access to in abundance. However, the sheer volume of information from official channels or social media rumours, both structured and unstructured, can be overwhelming.

As such, there is a real danger of drowning in data. Smart investors may well be able to filter out the noise and focus on actionable information, although there is no guarantee of success. But for many, the overload of information and the inability to access the true value of this information lends to a dilemma where over-analysis leads to paralysis, or simply the blind leading the blind. So, how can we separate the wheat from the chaff?

Not all news is created equal
The days when financial news was the exclusive preserve of a few august newspapers now look as distant as the time when no self-respecting City trader would be seen dead without a bowler hat.

12 seconds

Average human attention span in the year 2000

8 seconds

Average human attention span in the year 2015

In the modern day, no two publications will provide the same information on a currency pair. While they may conclude the same, their explanation and perception of factors will all differ.

Financial analysis is no longer defined by a set of principles, but is rather open to the interpretation of multiple opinions (some of which are unsubstantiated). Given the widely available access to financial markets, who is to say which opinion is grounded in fact? What really matters is the effect of those opinions.

According to a 2015 study conducted by Microsoft, in 2000, the average concentration span of a human was 12 seconds – probably about enough time to read the first couple of sentences of a financial news report. Since the mobile revolution, however, the concentration average has fallen to eight seconds. Bear in mind that a goldfish can concentrate through its fish bowl for nine seconds!

The challenge, therefore, is to be able to provide financial information to participants in an eight-second time frame, taking into account that the modern day is less about what is actually said and more about the effect of what is said.

The secret ingredient: sentiment
Infinox aims to deliver information to clients in short, direct quantities that allow them to respond to financial and political news without getting bogged down too much in the details.

In a world where the media focuses on trending topics, traders who are most exposed to breaking news need to be able to access all news in just a few words. Through the Infinox Lab, modern day media and technology is put to work.

Data mining is the concept of scouring countless sources of information to seek out key words and sentiment analysis, which is able to link the key words with the tone of words surrounding them. This process produces an opportunity for traders to become appropriately receptive to information delivered across an infinite number of resources.

Brexit serves as a case in point: it was a close referendum, with the polls appearing to give the edge to ‘remain’ camp in the final days and hours. However, data mining and sentiment analysis scoured the vast number of worldwide news sources – from the established and respected to tweets shared across Twitter and social media – and put the ‘leave’ campaign ahead.

By 1:49am UK time, Sunderland’s vote to leave the EU was registered and Brexit became a reality. This was something the media all over the world had been saying, but it just couldn’t be heard.

Trading in an uncertain world
It’s never been truer that political events have a significant impact on markets. And given the level of volatility in markets, the level of political uncertainty and moves towards protectionism, tracking sentiment has become vital.

The last 18 months have seen the rise of populist leaders in various countries promising to erect barriers to trade and prevent the free movement of people. Those who champion free, open and global markets have been brushed aside by those who, in the case of the UK, want to leave the biggest free trade market of them all.

Meanwhile, US President Donald Trump is reportedly hellbent on imposing huge tariffs on steel imports to bolster domestic industries, despite warnings that doing so may spark a global trade war. Indeed, he is also threatening to tear up the North American Free
Trade Agreement.

In Europe alone, we have seen the rise of the far right and other breakaway movements springing up across the continent; Catalonia’s recent independence movement being just the latest example. Indeed, those people who feel the global economy is under attack have much more they can point to in order to evidence this. For many, it is hard to believe that the political agenda has become so far removed from the previous consensus of globalisation and shifted to a climate of far more polarised opinions.

Fortunately, the Globalisation Index, a unique index created by Infinox, tracks the sentiment of economic, social and political news. With this tool, traders can get a snapshot of the effect of the shifting political landscapes, and the resultant volatility in financial markets.

Forbes reveals the five richest people on Earth

Posted on by Max Tomlin

There are more billionaires around today than ever before, according to Forbes. Together, they are worth $9.1trn, with an average fortune of $4.1bn.

Forbes’ 2018 ‘billionaires list’ features many of the same names as last year, as well as one newcomer, a new frontrunner and fatter wallets all round.

For aspiring billionaires, the main takeaway is that all you need to do to make the list is control vast corporate conglomerates or create technological innovations that change the way people live their lives. Easy.

Jeff Bezos
Net worth: $112bn

Having added $39.2bn to his net worth over the past year – the largest gain in history – Jeff Bezos leapfrogged Warren Buffett and Bill Gates to take the top spot for the first time. The Amazon founder is the first person to crack the $100bn mark.

Forbes’ 2018 ‘billionaires list’ features many of the same names as last year, as well as one newcomer, a new frontrunner and fatter wallets all round

Despite owning only 16 percent of ‘the everything store’, which he built from scratch out of a garage in Seattle, Bezos can now call himself the richest person in the history of the planet. Bezos also owns The Washington Post and has entered the space race with Blue Origin.

Bill Gates
Net worth: $90bn

Bezos may wear the crown, but when people think of the richest person on Earth, it will always be Bill Gates. Cushioning his fortune with an extra $4bn since 2017, Gates was never going to fall too far on this list.

Having quite literally changed the world by founding Microsoft in 1975, Gates is now best known for his prolific philanthropic work through the Bill & Melinda Gates Foundation, tackling issues from poverty and malaria to women’s empowerment and education all around the world.

Warren Buffett
Net worth: $84bn

The 87-year-old “Oracle of Omaha” is another perennial powerhouse on any ‘world’s richest’ list. As Chairman and CEO of Berkshire Hathaway, Buffett rules over a sprawling empire that took in over $242bn in 2017.

Known for his financial prudence despite his vast fortune, Buffett co-founded the Giving Pledge in 2010 with Bill and Melinda Gates, wherein billionaires promise to give away the majority of their money to worthy causes. Signatories include Mark Zuckerberg, Richard Branson and Michael Bloomberg.

Warren Buffett (R) co-founded the Giving Pledge in 2010 with Bill (L) and Melinda Gates, wherein billionaires promise to give away the majority of their money to worthy causes

Bernard Arnault (and family)
Net worth: $72bn

As Chairman and CEO of French luxury colossus Moët Hennessey Louis Vuitton – which owns brands such as Christian Dior, Marc Jacobs and TAG Heuer – Arnault is a newcomer to the top-five stratosphere.

Adding $30.5bn to his coffers last year, Arnault’s meteoric rise has seen him become the richest man outside of the US.

Arnault is also an avid art patron and collector, boasting works of Claude Monet, Andy Warhol and Pablo Picasso in his collection.

Mark Zuckerberg
Net worth: $71bn

At 33, Mark Zuckerberg is by far the youngest person on Forbes’ list. Although he remains in fifth place on the list, Zuckerberg’s pockets are nonetheless $15bn heavier than last year.

Still a teenager when he founded Facebook in 2004, Zuckerberg has since seen his dorm-room project grow into the biggest social network in the world, with over a quarter of the world’s population actively using it each month.

Though Zuckerberg receives a one-dollar salary, his net worth rises alongside Facebook’s stock. The self-made billionaire has pledged to give away 99 percent of his stake in the tech-giant over his lifetime.

Dynamic approach allowing continued excellence at Standard Insurance

Posted on by Max Tomlin

According to the Convention on Biological Diversity (CBD): “Forest biological diversity results from evolutionary processes over thousands and even millions of years. Ecological forces such as climate, fire, competition and disturbance drive these processes. Furthermore, the diversity of forest ecosystems (in both physical and biological features) results in high levels of adaptation, which is an integral component of their biological diversity. Within specific forest ecosystems, the maintenance of ecological processes is dependent upon the maintenance of their biological diversity.”

Our vision is to be one of the world’s finest non-life insurance companies and our mission is to become a platform through which all of our stakeholders are able to achieve their life purpose

As a Philippine general insurance carrier, we understand the increasing volatility of global climate patterns. One example of which would be the 410 ppm of CO2 that was measured by the Mauna Loa observatory in April 2017. Residing in Metro Manila, home to the fourth highest population density among the world’s 20 largest megacities (according to the German insurer Allianz), we well understand the vulnerability of man-made assets to catastrophic events. Likewise, the impact of generational shifts, changes in the structure and performance of the global financial industry, and the impact of the internet also need to be considered.

Half the genes in our corporate DNA cause us to be prudent, to protect our capital and enterprise value from current and near-term disruptions. On the other hand, the other half urges us to be willing and ready to adapt to what is, for perspective’s sake, just the latest in a very long series of economic, technological and climatological cycles. Indeed, we should remember that we live in a time that is probably the most prosperous period in the history of mankind.

Tacit knowledge
Over the past few years, in order to protect and grow our core business, we have had to build our expertise across a number of areas. We have developed instruments and processes such as detailed hazard maps, proprietary all-digital solutions and loss mitigation programmes for motor and property customers. We have also placed greater focus on motorcar restoration and recycling, e-commerce operations for brand new and recycled spare parts, business process outsourcing services, cybersecurity, and claims processing. Another important area of focus would be greenhouse gas mitigation through reforestation and experiments in carbon dioxide dissociation.

These new capabilities excite us and we look forward to more initiatives. As a rule, these should not only complement and strengthen our core insurance business, but should also provide us with new markets, new partners, new skill sets and new ways of seeing the world. Indeed, we are close partners with highly reputable companies from Switzerland, Australia, the US and Japan.

We have experienced good results by combining our core team of insurance professionals with engineers, scientists, designers and professionals from other industries. This depth and diversity of talent allows us to address problems in new ways, to combine existing concepts into new configurations and to see opportunities through fresh eyes.

Professor Ricardo Hausmann, Director of the Centre for International Development and Professor of the Practice of Economic Development at Harvard University, directly correlates a society’s economic prosperity to its ability to produce complex and pioneering products. Professor Hausmann points out that know-how, or ‘tacit knowledge’ (as coined by Michael Polanyi), resides in a ‘personbyte’ (as coined by César Hidalgo), or the amount of knowledge that can be reasonably held by one person. The more complex and the less ubiquitous a product is, the higher the number of diverse personbytes are needed to develop and make it.

As we work to better solve our customers’ existing problems and capitalise on opportunities, we develop increasingly complex products, particularly in the form of services. Consequently, we always keep our eyes open for all-new personbytes to help us along our evolutionary path. These can be found in the form of individual professionals, service providers or business partners, both locally and globally.

The Standard Insurance vision
We are one of the Philippines’ leading general insurers and the largest motorcar insurer in the country. We have more than 1,300 associates that work from 62 locations nationwide. Our vision is to be one of the world’s finest non-life insurance companies. Our mission, meanwhile, is to become a platform through which all of our stakeholders are able to achieve their life purpose: for our associates, this would be to practise the craft of non-life insurance with dignity and professionalism both locally and globally; for our customers, it would be to receive the finest quality insurance cover at affordable prices; for our shareholders, it would be to receive a fair return on their capital; and for our business partners, it would be the continuation of mutually beneficial, sustained and long-term relationships.

For our customers to receive the finest quality insurance cover at affordable prices, our strategy requires that we achieve a number of things. We must achieve our scale and maintain a high level of unit sales, minimise our variable costs and receive satisfactory returns on our investments in human resources, physical assets and financial assets.

Achieving high unit sales requires our delivery systems to be efficient and our defect rates to remain under control. A key initiative to achieve this is the development and deployment of our core insurance system, named iINSURE. This provides us with flexibility, speed and cost efficiency by allowing us to create systems, subsystems and applications that benefit our intermediaries and our end customers. Similarly, our claims subsystem, iCATS, and RAPID, our motorcar adjustment subsystem, allow us to continuously improve the processing speed and quality of claims. Moreover, we are the first Philippine insurer to have its core systems hosted on the cloud through Amazon Web Services. This helps us with business continuity and will allow us to scale more efficiently in coming years.

New developments
We hope that regular new product offerings also support us in achieving high unit sales or, at the very least, help improve our brand in the eyes of our customers. One such recent offering is Ultrasafe, the country’s first insurance telematics product. We position it as a safety device that helps car owners track their cars and driving performance, as well as a pay-as-you-drive product. Another recent offering is our motor/life bundle, which combines a one-year-term life product provided by one of the country’s largest life insurers with our comprehensive motorcar insurance policy. We are just about to launch another new creation called the Zero Carbon Footprint product: this features an annual surcharge against which our company plants enough trees to offset a customer’s vehicle’s annual carbon dioxide emissions, which are typically estimated at about two metric tonnes.

To minimise our variable costs, which are mainly claims costs, we work to ensure that our reinsurance programme is robust and able to withstand increasingly destructive events. We have the largest coverage for catastrophic loss events among local insurers, and the members of our reinsurance panel, led by Munich Re (rated AA- by S&P), must be rated at least A- by S&P. As a result of this, our programme has responded to significant events very well over the years.

We believe that accidents are largely avoidable. As such, to minimise our variable costs, we strive to maintain underwriting discipline to keep our property and motorcar portfolios relatively low-risk. Similarly, we also try to work with clients to reduce the probability of them having an accident. For instance, we provide our customers with online safety driving courses and claims mitigation kits, each of which contains a driver safety card, a blessed Catholic statue and a Christian cross, as the Philippines is a predominantly Roman Catholic nation.

Another initiative to minimise our variable costs is the development of our 6.5-hectare technical and training centre. The centre allows us to reduce the financial losses arising from the number of vehicles declared as total losses each year. The facility, located around 90 minutes from the Philippines central business district, houses motorcar restoration, repair and recycling operations, all which comply with Philippine standards. For every three total-loss units incurred by the company, two units are restored and sold to the company’s employee retirement fund, which resells such units through an interest-bearing instalment sales programme to external buyers. The one unit that is not restored is recycled, with parts used for restoration or sold to the outside market through Blisam Trading. This is an e-commerce joint venture between the company’s services subsidiary Insurance Support Services International and Broadleaf of Japan, the operator of a Japanese e-commerce platform for trading recycled automotive parts.

As shown in recent years, we continue to invest in diversity, whether of skills, perspectives or approaches. Combined, these assets enable us to create, innovate and execute strategies in such a way that allow us to remain relevant today, and for the foreseeable future.

China vs India: the battle for supremacy

Posted on by Max Tomlin

On the surface, the recent visit by Indian Foreign Minister Sushma Swaraj to Bangladesh was simply the latest development in the two countries’ improving relations. The announcement that India will fund 15 huge development projects across Bangladesh worth BDT 720m ($8.5m) is not particularly noteworthy: Bangladesh is the single biggest recipient of aid from India and, back in October, the two countries shook hands on a $4.5bn credit line, the largest provided by India to any country. India’s investment, however, is likely to entail much more than simply improving the prospects of its eastern neighbour. Despite closer ties between Dhaka and Delhi, Bangladesh’s biggest trade partner is not India, but China. What’s more, China has planned development projects of its own within Bangladeshi borders, including a $133m deal to revamp the national government’s IT network.

Although some view India’s growing military and economic strength as a counterbalance to Chinese regional power, Beijing views it as a provocation

Although China and India are neighbours, they are also economic rivals. China is currently the second-biggest economy in the world, while India is the seventh. By 2050, they are predicted to occupy the top two spots. Territorial issues between the two countries persist in the Aksai Chin and Arunachal Pradesh regions. Although some view India’s growing military and economic strength as a counterbalance to Chinese regional power, Beijing views it as a provocation.

As the battle for regional supremacy intensifies, government investment is just one way a country can increase its influence, but one that is already proving fruitful for China in Asia, Africa and the wider world. In Bangladesh, India is fighting back, in the hope that improving relations will help counter Beijing’s march towards regional hegemony.

Investing in influence
The launch of 15 Indian-assisted development projects in Bangladesh exemplifies the close economic ties between the two neighbouring countries. The investment will cover a wide range of sectors including healthcare, education, IT and water supply. The construction of 11 new water treatment plants is planned for the country’s Pirojpur district, while 36 community centres will be built and the Ramna Kali Temple, destroyed by Pakistani forces in 1971, will also be restored.

The announcement of the projects follows an investment offer of $10bn made by India in April, focusing on infrastructure and medicine. With more than 30 percent of the population living in poverty and energy supplies proving unreliable, foreign investment is sure to be welcomed by the Bangladeshi Government.

In reality, boosting development in the region is sure to prove mutually beneficial for both India and Bangladesh, which is why the planned infrastructural projects are being given such prominence. Growth and financial stability will help stem Islamic radicalisation in Bangladesh, providing security benefits for its larger neighbour too. Improving relations between the two countries also ties in with India’s
wider strategic aims in South Asia.

The Neighbourhood First initiative is one of the most significant policies introduced by Indian Prime Minister Narendra Modi since he came into office in 2014. Building on the country’s two-decades-old Look East policy, and its successor Act East, the scheme aims to improve India’s diplomatic ties with neighbouring countries, which also include Pakistan, Bhutan, Sri Lanka, Nepal and Myanmar.

Asma Masood, Research Officer at the Chennai Centre for China Studies, believes India’s investment projects in the region will improve the country’s relations in a number of spheres relating to geostrategy, the economy, energy, connectivity and cultural development. By working with its neighbours, India’s progress will be much improved compared with if it pursued a more isolationist bent. “India is set to become the world’s third-largest economy by 2028, and the second-largest by 2050,” Masood said. “These milestones cannot occur in a vacuum of domestic development alone, nor only via relations with the developed world. Similarly, Act East needs to go hand in hand with Neighbourhood First. India is acknowledging the fact that its economic rise is linked to that of its neighbours, including Bangladesh. The region must be looked upon as India’s South Asian family whereby the immediate relatives deserve top priority.”

Although India-Pakistan relations remain troubled, India developed positive relationships with many of its other bordering states through the Neighbourhood First initiative. This can be witnessed through the Kaladan Multi-Modal Transit Transport Project in Myanmar, as well as the Bangladesh, Bhutan, India, Nepal Motor Vehicle Agreement.

Indian-assisted development projects in Bangladesh:

BDT 720m

Invested by India

11

Water treatment plants

36

Community centres

India has long struggled to create strong ties with its surrounding countries as a result of foreign policy missteps and an emphasis on bilateralism in place of a broader regional framework. Under Modi, however, this is beginning to change. In Bangladesh in particular, large amounts of investment have strengthened India’s diplomatic ties. As Swaraj said at the announcement of the 15 development projects: “India is following a policy of ‘neighbours first’, and among the neighbours Bangladesh is foremost.”

It’s complicated
The relationship between India and Bangladesh may be enjoying its best period in history, but that doesn’t mean the two countries see eye-to-eye on everything. Water sharing from the Teesta River has still not been formalised, Bangladesh’s trade deficit with India is growing, and the border between the two countries remains one of the most dangerous in the world. Of greater significance, however, is a third-party increasing the complexity of the situation: China.

India and China have had a fractious relationship for a number of years. In 1962, the Sino-India Border Conflict resulted in military hostilities between the two countries, but recent conflicts have amounted to little more than a war of words. An essay written in 2009 by the China International Institute of Strategic Studies perhaps best sums up the disrespect that is often displayed towards India by Beijing. In it, the historical basis for a united India was disputed, suggesting that China should encourage the break-up of India into 20 to 30 independent states.

If proposals to weaken India are borne out of Chinese contempt, they are no doubt solidified by concerns over India’s growing economic and military might. In order to rein in India’s potential, China has invested in a network of military and political influence in the countries immediately surrounding India: China’s so-called String of Pearls. This includes the Gwadar Port in Pakistan, a deep-water port in Kyaukpyu, Myanmar, and the $1.1bn construction of the Hambantota Port in Sri Lanka. The String of Pearls appears to be as much about hampering India’s regional power as it is bolstering China’s.

Boosting defence
Bangladesh, too, is now dotted with pearls of Chinese investment, predominantly in the form of infrastructure projects. The 4.8km-long Muktarpur Bridge, which was inaugurated in 2008, was constructed with $17m of Chinese money and is the sixth bridge in the country to receive funding from Beijing. Power plants, motorways and transport terminals are all planned for the future. Masood believes that another way that China is making its economic presence felt in Bangladesh is through military support. Here, the complex relationship network in the region means that this is an area in which India has struggled to make inroads. “China is a top supplier of military hardware to Bangladesh,” Masood said. “The two countries’ strong defence ties are partly the result of security concerns that Dhaka has regarding Myanmar. China can advance defence hardware deals with Bangladesh without riling Myanmar, as the latter is inextricably linked to Beijing. India, however, cannot surge ahead in military ties with Bangladesh for fear of upsetting Naypyidaw [Myanmar’s capital]. Thus China appears to use power play to its advantage in the region.”

When the prospect of boosting defence cooperation between Bangladesh and India arises, critics are quick to question whether it is in Bangladesh’s best interests. They argue that pivoting towards Delhi could damage relations with China and discourage future military investment. When geopolitical ties are as tangled as they are in South Asia, befriending one state could anger another.

Caught in the middle
When evaluating the competing interests of India and China, it’s important that Bangladesh is not forgotten. Being involved in a tug of war between two emerging superpowers is not likely to do much good for a country that has suffered its fair share of instability in the recent past, whether a result of its fragile democracy or Islamic militancy. Provided neither Beijing nor Delhi have any ulterior motives, Bangladesh could stand to benefit hugely from direct investment supplied by both India and China. However, there is a cautionary tale that Dhaka would do well to heed.

As regional ties become closer and more complicated, it is essential that Bangladesh preserves its own interests

There was much fanfare when the Hambantota Port was opened in 2010 along Sri Lanka’s south coast. The port, which was financed through Chinese loans, was supposed to bring economic growth to the region and relieve pressure on the Port of Colombo. Instead, the project looks as though it will turn out to be a geopolitical masterstroke on China’s part.

With the port failing to turn a profit, the Sri Lankan Government found itself unable to repay its loan obligations and was left with little choice but to cede control of Hambantota in exchange for a $1.1bn debt write-off. Now, China Merchants Port Holdings, an arm of the Chinese Government, owns the port for the next 99 years. The development has raised concerns about how Chinese investment could threaten national sovereignty in the region’s other countries.

Strategic benefit
There is reason to believe, however, that India’s investment projects are more benign than those being implemented by Beijing. With Bangladesh sharing a border of more than 2,500 miles with its larger neighbour, the mutually beneficial impacts of infrastructural development and economic stimuli are more obvious. If the purchasing power of Bangladeshi citizens increases
then it’s highly likely that demand for Indian products and services will too.

“India presents no threat to Bangladesh,” explained Masood. “Dhaka is witnessing, as seen in the recent investment and development moves by India, that Delhi seeks to cooperate with its eastern neighbour to achieve shared aspirations of regional connectivity, economic prosperity, cultural harmony and geostrategic stability.”

India’s imports from Bangladesh grew by six percent on average between 2012 and 2016, even as its imports fell globally. The relationship between the two countries is clearly of growing economic significance, but China’s interest in the country is less clear-cut. “Dhaka would do well to remember that evidence points to China making smaller countries economically dependent on Beijing,” Masood said. The strategic benefit of growing China’s presence in the Indian Ocean is also difficult to deny, either in trade or military terms.

As regional ties become closer and more complicated, it is essential that Bangladesh preserves its own interests. Cooperation with the region’s major powers could accelerate the country’s upward progression, but Dhaka

should be wary of undue influence from more powerful neighbours. As the power struggle between India and China develops, Bangladesh should ensure that its own sovereignty and economic development does not come under threat. Investment from the two countries should be welcomed, but not at any cost.