Author: Max Tomlin

Championing investment in Israeli innovation

Posted on by Max Tomlin

Situated in a complex region with almost no natural resources, the young nation of Israel has had to be innovative from day one. Early on, the Israeli Weizmann Institute’s Automatic Computer (WEIZAC) made history as one of the first large-scale stored-program computers in the world. The desert landscape also helped inspire drip irrigation and desalination, which are credited with feeding tens of millions around the world.

One of Israel’s most significant competitive advantages is the proximity of R&D innovation to advanced manufacturing sites

But it was Intel’s leap into the Israeli market in 1974, when it set up its first of several R&D facilities, which propelled the Israeli tech industry forward. Since then, hundreds of other multinational corporations have followed Intel’s lead and invested heavily in Israel’s start-up engine, while billions of computer chips have been designed and produced in Israel. Professor Avi Simhon, Israel’s National Economic Council head, recently noted that Israel’s initial technological success was due to the accidental combination of a hi-tech revolution and government policies. Yet, today, strategic government plans are making Israel an ideal environment in which to develop new technologies, encourage advanced manufacturing and attract foreign direct investment (FDI).

Over the past decade, FDI stock in Israel has almost tripled, with growth expected to continue. Memorandums of understanding, and investment and trade deals between Israel and some of the world’s biggest economies are solidifying Israel’s leadership in technological advancement.

The impact of Israeli innovation is extensive, but two sectors in particular stand out for their unique potential to improve lives around the world: advanced automotive technology and medical technology.

Vote of confidence

Israel’s first foray into auto production, in the shape of Autocars Co’s Sussita and Sabra models, was unsuccessful. When the company shut down in 1980, it didn’t come as much of a surprise. Despite this setback, Israel has developed a growing manufacturing sector that supplies parts to global manufacturers and suppliers. Today, Israel is attracting nearly every major carmaker in the world – from Renault-Nissan to General Motors – to invest billions in the burgeoning autonomous vehicle sector. In the last four years alone, foreign sources have invested more than $4bn into Israeli smart transportation technology. This doesn’t even include the acquisition of Mobileye by Intel for $15bn in January 2017 – the biggest ever acquisition of an Israeli tech company.

The price of the Mobileye acquisition is not the most important part of the deal. Instead, the structure of the deal indicates the value that Intel places not just on the technology, but also on investing in Israel and its workforce. As Ziv Aviram, CEO of Mobileye at the time, noted in his letter to employees after the announcement: “The transaction is unique in the sense that instead of Mobileye being integrated into Intel, Intel’s Automated Driving Group (ADG) will be integrated into Mobileye.”

The fact that Mobileye is set to manage Intel’s entire ADG speaks volumes about the confidence Intel places in Mobileye and its Israeli staff. With Intel’s share of a $7trn industry at stake, and half its cash on hand poured into the Mobileye acquisition, it is not only clear that Intel is putting skin in the game, but also that it wants Israel to lead the whole operation.

Titans of the auto industry, such as Daimler, which recently led a significant funding round for Israeli quick-charging company StoreDot, are betting on Israeli technology across a range of smart transportation technologies. They see this as not just an investment into technologies and manufacturing, but as the keystone of their total efforts moving forward. As Avi Hasson, Chairman of the Israel Innovation Authority, noted recently: “When a system is highly technological, we can excel in the entire value chain, because it requires solutions that are outside the box and non-linear innovation.”

Innovation nation

Israel a leader not only in the auto industry, but in the medical technology sector as well, which is particularly valuable considering the rise in healthcare costs in Israel over the last decade. This overall figure has now reached close to $10trn annually.

Advanced medical technology is not just saving lives – it is also helping to cut costs amid rising prices. With more medical technology patents per capita than any other country in the world, it should come as no surprise that world-leading medical technology companies have R&D facilities and advanced manufacturing sites in Israel.

General Electric (GE) was one of the first multinational corporations to invest in Israel, just a few years after the country was founded. Over the past 15 years, it has steadily grown its GE Healthcare operation through further Israeli investment, including the groundbreaking Check-Cap imaging capsule that makes colorectal cancer detection easier and more accurate. Other investments have focused on imaging and cardiovascular technology. GE is joined by medical technology giants such as Johnson & Johnson and Philips, which are also growing their investments in Israeli R&D and manufacturing, including through nurturing start-ups in incubators. In fact, over the past 50 years, the number of multinational companies choosing to open an office in Israel has grown rapidly, reaching a grand total of 285 firms in 2016 (see Fig 1).

Jeroen Tas, Executive Vice President for Philips, recently stated: “[Philips has] innovation hubs in other countries, but Israel plays a special place in our success.” Furthermore, Tas understands that “innovation only happens when all of the talent is together in one place, and Israel is ideal hub [for that]”. One of Israel’s most significant competitive advantages is the proximity of R&D innovation to advanced manufacturing sites. This is especially important for the complex, low-volume production that characterises medical technology.

Competitive edge

Despite its technological success, Israel isn’t resting on its laurels. The country continues to pursue policies and nurture an ecosystem that will promote further FDI. With nearly $12bn invested in 2016 alone, foreign investors are taking advantage of the talent and innovation of Israeli human capital, in addition to its increasingly pro-business environment.

In the World Economic Forum’s recent Global Competitiveness Report 2017-2018, Israel was ranked 16th in the world, up eight positions from the previous year. These gains were led by improved ratings in the business sophistication and technological readiness categories, something that companies and investors are starting to notice. Adi Ofek, CEO of Mercedes-Benz R&D in Israel, made it clear that the Israeli Government, spearheaded by the Ministry of Economy and Industry, is working hard to ensure that business in Israel runs smoothly: “We get all the support we need from the Ministry of Economy, especially with visas.”

The Innovation Box programme, which has been in place since January 2017, is part of Israel’s efforts to attract greater intellectual property registration and advanced manufacturing, while making it easier for multinational corporations to take advantage of Israeli talent. Tax benefits include a six percent corporate income tax rate and four percent withholding tax on dividends for companies with over $2.5bn in revenues.

Further subsidies and grants are available to foreign companies that qualify, including capital grants of up to 30 percent that cover fixed assets, such as equipment, buildings and furniture, over a period of five years. In addition, R&D grants are available that can cover 20 to 50 percent of a company’s total eligible R&D expenditure. The Innovation Box is continuing to attract foreign investment with its considerable incentives.

The Ministry of Economy and Industry’s Invest in Israel Authority is further helping to ease bureaucracy challenges related to taxes, wages and regulations, while also providing businesses with support systems for investors. Moreover, the authority is actively helping multinational corporations, private investors, investment funds and foreign suppliers identify key investment opportunities and take advantage of Israel’s pro-business environment and attractive tax models. They provide expert guidance throughout the relationship development process.

Some of the biggest global companies have been investing in Israel for decades, and are now further expanding their investments. New corporations are also exploring their options, safe in the knowledge that Israel’s unique business climate will accelerate their success. It’s clear that there is a strong case for investing in both R&D and advanced manufacturing in Israel, and it will be fascinating to see how the small yet powerful country supports the next generation of global technologies.

Banco Popular Dominicano is inspiring inclusion through innovation

Posted on by Max Tomlin

The Dominican Republic’s banking sector has enjoyed a remarkable transformation in recent years. Just a decade ago, the nation’s financial industry was modest and underdeveloped, lacking any significant capital market activity. However, technological developments and financial inclusion initiatives have helped to make the Dominican Republic’s banking sector one of the strongest in Latin America, with its capital markets now valued at more than $1bn a year. As more competitors begin to enter the market, banks are increasingly looking to innovate in order to maintain a competitive edge, and a culture of financial ingenuity is beginning to flourish.

The Dominican economy has long been dominated by agriculture and tourism, with limited infrastructure and poor internet connections hindering technological growth

Despite these recent developments, the country’s banking sector still faces some significant challenges. Banking access remains low, with at least 50 percent of the population classified as either unbanked or under-banked. While urban centres are well covered in terms of banking access, rural communities lack fundamental banking infrastructure, which limits financial inclusion in the country’s more remote areas. This low level of banking penetration certainly poses a challenge to banks. Nonetheless, the nation’s leading players are choosing to view it as a unique opportunity. By introducing new technologies and remote mobile banking possibilities, Dominican banks are rapidly making banking accessible for all.

Developing financial inclusion  
Historically, technological uptake in the Dominican Republic has been modest. The Dominican economy has long been dominated by agriculture and tourism, with limited infrastructure and poor internet connections hindering technological growth in the nation. In recent years, the government has taken measures to address this issue and has engaged in a number of projects to modernise infrastructure and extend internet coverage. Consequently, more people than ever have access to reliable Wi-Fi, while mobile internet usage is also soaring.

50%

Percentage of Dominican population classified as unbanked or underbanked

3.5m

Number of monthly visitors to Banco Popular Dominicano website

“In the past, challenges such as the high cost of internet access and frequent lack of electricity limited web usage in the Dominican Republic,” said Juan Lehoux , Executive Vice President of Corporate and Investment Banking at Banco Popular Dominicano. “Now, technological innovation is changing the face of the nation and is beginning to expand the coverage of the Dominican banking industry.”

Indeed, with just half of the population covered by banks, technology has become a vital tool in the effort to extend financial inclusion to the unbanked segments of the Dominican population. The growth of online banking has allowed previously unbanked citizens to gain crucial access to financial products and services; customers no longer need to take a trip to their local bank branch to manage their finances. For rural communities, this remote access has made banking more efficient, practical and convenient, and has prompted many to open their very first bank accounts. In addition to the advent of online banking, the number of banking subagents has also skyrocketed in recent years. Customers are now able to carry out a range of essential transactions across an expanding network of pharmacies, supermarkets and post offices. For instance, customers at Banco Popular Dominicano can choose to conduct their transactions in any of the 1,451 banking subagents around the country, making banking as simple as a trip to the local store.

“Dominicans are migrating away from traditional forms of banking,” Lehoux explained. “Instead of visiting branches to make payments and withdrawals, they are now choosing to perform the majority of transactions via digital platforms or through subagents.”

Responding to the emerging trend, Banco Popular Dominicano has tapped into this technological evolution by creating a pioneering digital wallet. The first of its kind in the Dominican Republic, this electronic wallet allows registered clients and unbanked customers alike to carry out transactions through their mobile phones. In this way, previously unbanked customers can perform essential transactions without needing to set up an account. For many, this electronic wallet may be the first experience they have with formal banking, so the product has been designed around the core concepts of convenience and usability. If this initial experience proves positive for the user, they may then be encouraged to further explore their banking options and ultimately take their first steps towards opening a permanent account.

Ahead of the curve 
Since its creation some 53 years ago, Banco Popular Dominicano has paved the way for financial innovation in the Dominican Republic, bringing banking to the masses and prioritising customer experience. Although a wave of new competitors has flooded the market in recent years, Banco Popular Dominicano continues to outshine its rivals, with its commitment to innovation securing its position as the national market leader. Indeed, its website attracts more than 3.5 million monthly visitors.

In addition to its immensely popular website, the bank has recently expanded its digital portfolio by adding an updated version of its app. The improved app provides customers with a portable bank branch, allowing them to access a wide range of products and services at the touch of a button. Furthermore, the app facilitates communication between clients and bank staff, enabling customers to remotely receive immediate responses to their queries.

“Our digital strategy is focused on satisfying the demands of our customers,” said Lehoux . “We use data analytics to get to know our clients better, and always prioritise simplicity in our digital solutions. Our research shows that out of all of our digital users, 49 percent use mobile banking, while the remaining 51 percent only use online banking. There is certainly some room for improvement in this area.”

In an effort to encourage customers to download the mobile app and start banking from their mobile, Banco Popular Dominicano offers free Wi-Fi access in all of its branches. During a visit to the branch, customers can download the app and ask a dedicated member of staff to walk them through various features, learning how to use the service to its fullest potential. Importantly, while the app offers instant and convenient access to mobile banking, it does so without compromising on security. As Lehoux explained: “When creating this technology, we have taken every precaution to safeguard our clients’ privacy.”

“Our website features the first use of adaptive authentication in the country,” he continued. “This technology analyses the transactional behaviour of digital users and, according to its findings, decides whether to request an additional element of authentication, such as security questions or a unique code. Our digital users have responded very positively to this technology and it has allowed 94 percent of our online transactions to be made free of friction.”

Along with its impressive digital offerings, Banco Popular Dominicano is also dedicated to ensuring a satisfying in-store experience. Its digital infrastructure is perfectly complemented by a knowledgeable and dependable team of professionals who are always on hand to offer pertinent advice to customers. “Whether it is online or in branch, the customer is always at the very heart of our operations at Banco Popular Dominicano,” said Lehoux.

Social media success 
Demographically speaking, the Dominican Republic is a remarkably young nation, with more than 40 percent of its population aged 24 or under. This young population presents a unique opportunity for the nation’s banking sector, as technological advances mean that this Millennial audience is far more accessible than previous generations. By maintaining an active social media presence, Banco Popular Dominicano is able to engage with young consumers to keep up to date with their evolving tastes and demands. In particular, the bank has discovered that Millennials and Generation Y are accustomed to constant connectivity and expect 24/7 availability from their banks.

By incorporating social media platforms into its customer service approach, Banco Popular Dominicano can fulfil this demand and give young clients the round-the-clock assistance they require. In an effort to take its social media strategy one step further, the bank has recently begun collaborating with a network of high-profile influencers to create quality sponsored content. Thanks to the influencers’ large online audiences, this content reaches a wide range of potential customers and informs them about the bank’s products and services in an engaging and entertaining way.

“Our clients are spending more and more time on social media, interacting with people, liking photos and consuming news,” Lehoux explained. “By hosting interactive promotions on Facebook and collaborating with popular online influencers, we are successfully building our social media following and increasing customer engagement.”

What’s more, the bank is showing no signs of slowing down with its digital strategy and has plans to fully digitalise its processes and continue to expand its technological capabilities. As the bank continues to pursue this digital vision, Banco Popular Dominicano is truly shaping the future of the Dominican banking sector.

Why ETFs are proving attractive vehicles for investors

Posted on by Max Tomlin

“There is a lot in common between electric guitars and exchange-traded funds [ETFs],” according to Martin Small, BlackRock’s Head of US iShares. IShares is a global leader within the ETF market and part of the world’s largest asset manager.

“Every rock and blues song that has ever been written has its foundation in the pentatonic scale, which has five notes,” Small said in an educational video shown on the company’s website. In his explanation of the comparison between music and finance, he said that what makes music more interesting and allows people to add their own colour is the combination of those notes with a transforming technology, like an electric guitar.

ETFs can reflect, for better or worse, the performance of the assets they replicate, which can mean imitating either their security or volatility

The same, he said, is applicable to investment portfolios. Replacing the musical elements with market language, ETFs are investment vehicles that give investors a different approach to managing assets that have always been around, such as stocks, bonds, commodities and real estate. Through the use of ETFs, Small said, investors can build an investment portfolio that better meets their needs. With various types of ETFs, those looking for returns are able to add as much colour as they want to their strategies.

Growing offering 

Beyond metaphors and comparisons, the popularity of ETFs is booming like never before. Investors are increasingly migrating to these vehicles of passive investing, attracted by their low costs compared with those of traditional actively managed funds.

According to the London-based consultancy firm ETFGI, as of October 2017, the global industry totalled 5,224 ETFs (see Fig 1) with 10,861 listings and assets of $4.43trn. The latter figure is 38 percent higher than that of the previous year.

Although ETFs have existed for some time, their success at present is a result of their growing popularity among institutional and individual investors following the financial crisis in 2008. This growth accelerated markedly in 2017, when ETFs beat previous records as a result of their increasing variety and complexity. Today, there are ETFs replicating almost every (if not all) asset classes, with the ability to suit all tastes.

According to ETFGI data, in the US alone – the US being the market that best reflects current ETF trends – the previous year’s record annual inflow of $390bn was exceeded in the first seven months of 2017. ETFGI predicts that the global industry will keep up this pace, and the value of ETF assets will skyrocket up to $9trn by 2020.

Reasons behind the boom

ETFs will turn 28 years old in Canada in 2018, and will celebrate their 25th anniversary in the US. However, it was not until a decade ago that they became tempting in the eyes of investors.

Rebecca Chesworth, Senior ETF Strategist at State Street, SPDR Exchange Traded Funds, gave the phenomenon some background: “Among the many reasons why ETFs have accelerated, there is one long-term cause: there is a huge [structural] change going on. More people are investing in ETFs as they discover them, because there’s a learning curve and once investors understand the advantages, they change their behaviour. And that’s something that we see continuing.”

The vehicle is now luring in investors of all kinds, with individuals in particular – especially in the US – increasingly choosing ETFs due to their convenient costs. In Europe, although the segment is lagging behind, analysts expect the retail market to open up throughout 2018, when the MiFID II rules comes into force in the EU.

In the last few years, ETFs have built their own reputation away from mutual funds, as they both have similarities as well as strong differences. For a better understanding, it’s worth contrasting some basic notions: first, mutual funds are essentially pools of assets from many investors. These funds administrate that money on investors’ behalf for a fee. Similarly, ETFs also allow investors to bet on a basket of assets, without requiring them to pick individual shares or other assets.

However, the main difference between mutual funds and ETFs is that the latter trade in stock exchanges. ETFs also differ because they’re designed according to a specific index (such as the Dow Jones), asset (gold or bonds) or basket of assets (for example, the US tech sector), which they then track. For this reason, experts often refer to them as hybrids between funds and shares.

According to Hortense Bioy, Director of Passive Fund Research, Europe at Morningstar: “Many studies show that investors would be better off investing in ETFs rather than [actively] managed funds because over the long term only a minority of active managers beat their benchmark.” ETFs, on the other hand, provide plenty of opportunities. Another virtue is that ETFs cover a wide range of investment opportunities, making it easier for investors to gain exposure in markets that would otherwise be more difficult to access. Bioy added: “The breadth of choice is unparalleled, as they provide access to the furthest corners of the market.”

The growth of ETFs over the past decade has brought about not just more in number, but also more complex and diverse varieties. To mention just one of the almost infinite possible combinations, the New York-based fintech company iBillionaire created an ETF that tracks a portfolio of 30 of the S&P 500 stocks that are preferred by Wall Street’s most prolific investors, such as Warren Buffett. Through this ETF, investors
can imitate them.

Low costs and risk levels

There are even more reasons for ETFs’ growing global popularity. Versatility is one of these: as ETFs are flexible, “investors can use them tactically” and “hold them for the long term, short [sell] them or lend them”, according to Bioy. However, the fact that ETFs involve lower fees than many other types of investments (in particular, their cousin, the mutual fund) is even more valued by investors.

Furthermore, in some jurisdictions, such as the US, ETFs are also tax-efficient. Bioy explained: “This is because in the US, funds have to pay capital gains tax. So, every time a fund sells a stock at a profit, it has to pay tax on that profit. But ETFs don’t need to sell stocks when they rebalance. They redeem in kind, so ETFs don’t have to pay capital gains tax.” While this has been a key driver for ETFs’ growth in the US, in most jurisdictions in Europe, funds are not subject to capital gains taxation. Consequently, mutual funds are not at a disadvantage against ETFs there.

Transparency is a further attribute on the ETF’s list of strengths. Chesworth believes this increases their reliability: “Investors can see every single hold in the fund, unlike mutual funds. Thus, ETFs offer a lower risk in the sense that investors understand what they’re buying – for example, if the ETF has got good liquidity and they can trade out quite quickly.”

Nevertheless, how risky certain bets are is something that has to be considered at the asset allocation level. ETFs can reflect, for better or worse, the performance of the assets they replicate, which can mean imitating either their security or volatility.

However, by the very nature of ETFs and their composition, there is another risk-related distinction that must be considered: funds can be classified either as ‘physical’ or ‘synthetic’, each of which involves a different exposure. In the former case, the ETF provider actually owns the physical asset, whether it is gold, bonds or another asset. In contrast, the latter provider holds derivatives rather than the underlined assets – for instance, futures of gold or options.

While some analysts recommend avoiding synthetic ETFs because they involve a counterparty risk, others believe those risks are usually well managed. In any case, physical ETFs have been leading recent growth.

Ongoing success

In spite of their classification, ETFs’ rapid multiplication has raised concerns among some financial experts who think they pose a risk to the global economy. Anastasia Nesvetailova, Director of the City Political Economy Research Centre at City, University of London, addressed the main issue:  “The problem with ETFs, as ever with financial innovations, is ultimately not with their individual structures, but in how these instruments respond to a serious wave of volatility or a market shock.” Indeed, ETFs have yet to be put to the test by any kind of crisis.

Even though the presence of ETFs may still be small at a global scale, Nesvetailova said: “The main danger is the ‘unknown’ component of ETFs, and specifically their liquidity in stress times.” She also warned: “Being aggregate variables by composition and responding to market dynamics, ETFs may exacerbate a market meltdown, in the case, for instance, of a liquidity crunch.” History has shown “what is enjoyed during benign economic times can become toxic when the music stops playing”.

Despite some early warnings, ETFs are set to continue soaring as a result of increased education, regulation, technology, innovation and competition. “All of these factors will play a role in the future of ETFs in Europe, and globally,” said Bioy. With regards to education and technology in particular, Bioy thinks there’s still a lot to do in order to expand the use of ETFs, as there “still needs to be better availability of ETFs on platforms to encourage greater usage of [ETFs]”.

Similarly, Chesworth sees “no reason for this positive trend to slow down”. With strong forces on the rise and economic growth looming on the horizon, the way seems paved for ETFs to keep up their current momentum.

Top 5 most popular ways to finance retirement

Posted on by Max Tomlin

One of the most important things to consider in life is saving for retirement. While experts argue over the appropriate amount of money required for comfort in retirement, there are a number of ways to plan to get the most from your savings.

1 – Individual retirement accounts 
Many people utilise individual retirement accounts (IRAs). These accounts allow taxpayers to get tax benefits for their saved money. The most popular types of IRAs are traditional, simple, simplified employee pensions and Roth IRAs. The difference in these accounts is in their set up, contributions and tax deferment. The financial products underlying IRAs include mutual funds, stocks, and bonds.

IRAs are set up by the individual who is looking to save for their retirement. Traditional IRAs are accounts that are usually set up with funds that have already been tax-deferred. Taxpayers will receive reduced tax liability on funds deposited into IRAs. They will, however, be taxed when the funds are released for retirement purposes.

In the same way, Roth IRA accounts are also great for saving for retirement purposes. However, unlike traditional IRAs, these accounts are not tax deductible. When the individual makes a payment to a Roth account, they are doing so with funds that have already been taxed. In order to keep the taxpayer from getting a double whammy on taxes, they are simply not taxed on withdrawal, thus leaving the Roth IRAs non-taxable upon payout.

Conversely, a simplified employee pension (SEP) IRA is set up for self-employed entrepreneurs, small business owners, and contractors. These are set up by the business owner for their employees (or their individual self), and the business owner is the contributor. Employees are not allowed to make contributions to this account as it is a tax deduction for the small business. When a small business sets this type of IRA up for its employees, just like the traditional IRA for individuals, the tax deduction is seen on the IRS tax form. During retirement, when employees take from their SEP IRA, they will be charged with the taxes of income at the time of withdrawal.

Savings incentive match plans for employees – also known as SIMPLE IRAs – are similar to SEPs. However, this plan allows both employee and business owner to make tax-deductible contributions to the accounts until payout at retirement. During retirement, when the employee makes a withdrawal, they will then see their tax liability. They also help the small business lower their tax liability.

2 – Real estate investment
Many others choose to get into the real estate market to help have investments for retirement. Some individuals buy properties that can be resold, some have summer homes, while others get into rental properties. Rental properties can provide a steady stream of constant income while faced with retirement. Many taxpayers invest in a mutual fund or an exchange-traded fund (ETF) through their 401k or IRA to help them gain access to the real estate market financially, thus ensuring an even more secure investment for their retirement.

3 – 401k employer-sponsored plans
Employer-sponsored plans offer incentives to both the employer and the employee. For the employee, the plan is a low-cost benefit that provides a method of obtaining discounted services. The employer benefits from having their contributions tax-deductible.

Moreover, providing this service acts as a means to retain crucial and high-performing employees. The 401k and some forms of IRAs are types of employer-sponsored retirement savings plans in which employee contributions are matched by their employer.

4 – Brokerage accounts
IRAs and 401ks are appealing due to tax deferral and investment possibilities. A brokerage account is an alternative to these plans, but it does not offer tax deferral. It makes up for this in the investment opportunities it provides.

There are myriad investment possibilities, including individual stocks and bonds, mutual funds, ETFs, real estate investment trusts, certificate of deposits, and money market funds. Among these options are more aggressive investment choices. The most aggressive options are stocks, mutual funds, and ETFs. The appeal of these is that the possibility of earning more is greater than with a savings or checking account.

Bonds, certificates of deposits, and money market funds are the less risky options. Nevertheless, these options provide the peace of mind stability in the long-run, as opposed to the short-term volatile nature of stocks, for instance.

A final benefit of a brokerage account is the 20 percent lower tax rate (when compared with ordinary income taxes) on long-term capital gains.

5 – Tax-deferred annuities
These sorts of annuities offer an alternative pathway towards achieving a retirement goal. These annuities are characterised by tax deferral and various opportunities for investment. They are offered to both individuals and to those who are married through insurance companies. There are three available interest rates that can be chosen from: fixed, indexed (that is, determined based on the points of a specific index) and variable (tied to the performance of the market).

Any money deposited into an annuity accrue tax-deferred, but become taxable once funds are taken out upon retirement. An additional benefit of annuities is that they can provide a sure income to the investor for a fixed time period, or even their entire life.

Annuities are not the best choice for each investor: they are backed only by the ability and reliability of the originating insurance company’s claims-paying. The outcome of one’s investment using annuities is not able to be guaranteed.

Still, it’s worth noting that if you find yourself in a financial emergency, do your best to avoid withdrawing from any of your investments. Car title loans are an available option to quickly receive the cash that you need.

There is an extensive history of insurance agents selling annuities to simply manipulate investors just to receive generous commissions. Often agents are not concerned about the real benefits to the investor. These annuities are generally more expensive than options discussed above. It is not uncommon to see annuities which have annual costs of well above four percent per year.

Mark Slater is Outreach Relations Manager at Midwest Title Loans

 http://midwesttitleloans.info/title-loans/

 

Grenada’s citizenship programme proves an attractive option for foreign investors

Posted on by Max Tomlin

In a world of increasing uncertainty, many high-net-worth individuals are seeking to become global citizens by securing a second, or even third, passport. Personal security is a key motivator, with many seeking an exit strategy to protect themselves and their families from political and economic instability, as well as predatory wealth confiscation and taxation. For some, it is the best form of life insurance. Many international businesspeople also need a second passport or citizenship so they can enjoy greater visa-free travel than allowed by a single passport. From a tax and investment perspective, there are also good reasons for having a second citizenship or residency.

Attracting investors

For small countries, Citizenship by Investment (CBI) programmes are a useful way to attract money in order to develop social and tourism infrastructure. In 2013, Grenada launched its CBI programme, and by early 2015 the Grenadian Government had approved several projects while receiving a steady flow of applicants. In 2016, the CBI initiative continued to gain traction in the global market, and Grenada now has one of the world’s top ranked CBI programmes.

Grenada’s citizenship programme is at the top of the world rankings table, and is attracting a great deal of international attention

When investing money in a second citizenship, individuals want to ensure their investment is safe and that they can get a return on their money with interest. With tourism surging worldwide, investing in resorts can be an effective use of assets. Located on Grand Anse Beach, Grenada’s most popular resort beach, Kimpton Kawana Bay, offers investors the opportunity to purchase a condominium with a freehold title that participates in a rental pool programme. With one of the world’s most desirable CBI programmes, Grenadian citizenship presents considerable benefits.

CBI programmes are generally ranked by the level of visa-free travel allowed by the country’s passport, the cost of the programme, the quality of associated investments, the due diligence carried out to ensure the long-term integrity of the citizenship and the processing time for approval. Based on these factors, Grenada’s CBI programme consistently ranks as one of the world’s most desirable. This has helped propel Grenada’s citizenship programme to the top of the global rankings table, and it is attracting a great deal of international attention.

The programme allows individuals and their families to obtain citizenship and gain the right to residency in Grenada. Applicants must apply through licensed agents and can choose to make either a $200,000 non-refundable donation to the National Transformation Fund, or buy government-approved real estate for a minimum investment of $350,000.

Business appeal

Applying for Grenadian citizenship is simple and easy. There is no physical residency requirement, no need to visit Grenada during the application process, and no education or management experience is necessary. Furthermore, it only takes around 90 working days to process the application, and it is the only CBI programme where your passport is issued as part of the process. Processing fees are also minimal.

Grenadian citizenship grants a person visa-free travel to more than 120 countries, including the EU Schengen area, the UK, China, Singapore and Russia. It is one of only six countries in the world that has a visa waiver agreement on a 30-day stay with China. Grenada is a member of the UN, the Organisation of American States and the Commonwealth, which offers personal protection in member countries across the globe. Grenada also allows dual citizenship, negating the need to renounce any other citizenship or passport.

Grenada is the only country in the world with an active CBI programme that affords its citizens the opportunity to live in and operate a business in the US through the USA E-2 Investor Visa, which allows individuals to live and work in the US based on investments they control. Grenada also has a source-based taxation system, meaning citizens that are tax residents in Grenada aren’t subject to Grenadian tax on their foreign income. Nor do they pay any wealth, gift, inheritance or capital gains tax. A person can sell their property after only three years, which means capital can be released earlier than any other Caribbean citizenship programme without affecting citizenship.

At present, Grenada’s economy is expanding in the tourism, agriculture and manufacturing sectors. As part of the Eastern Caribbean Central Bank and Currency System, its currency is stable, secure and tied to the US dollar. Business can also be conducted in US dollars. Additionally, the government offers numerous tax concessions and fiscal incentives, which makes doing business in Grenada very appealing.

It is also a great place to visit or live. Grenada is one of the safest countries in the Caribbean: its crime rates are low and it sits below the hurricane belt. With its beautiful coastline, mountainous landscape, fragrant spice markets, friendly people and international airport, it’s a joy to travel to.

Real estate opportunities

Just like countries and governments, hotel and resort developers need new sources of funding as conventional debt is not available for resort development in much of the Caribbean. Developers can leverage their equity by partnering with CBI investors to build new resorts, for which
there is a large demand in Grenada.

The island currently has a serious shortage of hotel rooms. Traditionally, real estate sales have provided funds for such developments, but since the financial crisis, this source of finance has been far less reliable. Grenada’s CBI programme was launched to meet the growing demand for second citizenship and to help fund the improvement of the island’s infrastructure, including resort development. Expanding the number of hotel rooms on the island will also reduce unemployment and expand Grenada’s economy.

Kimpton Hotels and Restaurants is ready to welcome foreign investors. Kimpton is the world’s largest boutique hotel operator and part of the InterContinental Hotels Group. Its track record of achieving high occupancy and strong daily rates underpins rental returns and property values. Kimpton also has a performance test that requires its hotels to meet certain operating benchmarks, giving further protection to owners.

Kimpton Kawana Bay’s rental pool structure is transparent: owners receive an annual share of revenue, rather than profit like most leaseback structures. Returns from the rental pool more than cover running costs and provide a sensible return on investment. What’s more, the rental pool structure ensures a smooth exit when investors want to release their investment.

The outlook for Grenada is positive. In September last year, CNN ranked Grand Anse Beach in the top 30 of its World’s 100 Best Beaches, describing it as possibly Grenada’s finest family beach: “Foot-soothing sands, skin-comforting waters and soul-calming breezes… Big enough to never get crowded and intimate enough to feel like your own.”

Ensuring that the investment will bring positive returns, Grenada is currently displaying significant growth in terms of tourism, according to the latest data from the Grenada Tourism Authority. The country’s stay-over tourist arrivals were up five percent in the first half of 2017 compared with the same period in 2016, buoyed by a 10 percent increase in arrivals from the US. Grenada also reported a nine percent increase in Canadian arrivals and a seven percent jump in arrivals from within the Caribbean. The country’s tourism officials also reported that cruise projections for the upcoming season are 27 percent higher than last season.

In the Grenada Real Estate Market Report 2017, Paula LaTouche-Keller, owner of Century 21 Grenada Grenadines Real Estate, stated that, starting in 2012, there was a pronounced improvement in Grenada’s real estate market: “In 2015, sales volumes surged by 71 percent. In 2016, the Grenada real estate market set a new high, with a nearly 23 percent increase over 2015.” The report also stated that, while there were disruptions in 2016 due to events such as Brexit, the market continued its year-on-year growth: “The projection for 2017 looks positive, with Grenada’s real estate market well positioned for further increases in volumes and possible value appreciation.”

The report also highlighted the success of Grenada’s Citizenship by Investment programme. “It is also creating much-needed jobs and improving the competitiveness of our real estate product,” LaTouche-Keller wrote. “I am thrilled to see a real estate-tied programme having such a positive impact on the development of Grenada.”

The investment outlook is extremely favourable, particularly given Grenada’s geographical position outside the hurricane belt, and the investment momentum that is occurring as a direct result of Grenada’s very successful CBI programme. The future for both Grenada
and its CBI programme is bright.

Abu Dhabi Global Market drives growth in the Middle East

Posted on by Max Tomlin

Abu Dhabi, the capital of the UAE, enjoys a strategic location in the centre of a fast-growing region formed of Middle Eastern and African nations. With rapid economic transformation and robust demographics that will account for more than half of the world’s population growth between now and 2050, the whole region is set to be a key engine that propels the global economy.

ADGM believes that a robust financial services sector is not only an engine of growth in itself, but a driving force for the growth of the respective sectors in the real economy

Abu Dhabi has continued to advance its economic strengths and global political influence. This trend is expected to continue, particularly as the cityís economy is predicted to grow between 3.5 and 3.7 percent in 2017, according to the Abu Dhabi Department of Economic Development. This performance is the result of a well-structured economic strategy, which has been strengthened by local government’s plans to develop a more sustainable, knowledge-based economy.

Financial boost 

In 2017, Abu Dhabi became one of the top 25 global financial cities, according to the 22nd edition of the Global Financial Centres Index report, which ranks the world’s major financial centres. Abu Dhabi’s rise is a result of the efforts the city has made to secure its place as a financial centre. One key step was the creation of Abu Dhabi Global Market (ADGM), the international financial centre in Abu Dhabi, in 2013. ADGM was created with the aim of contributing to the UAEís economic diversification, as well as consolidating long-term growth. The market has been fully operational since 2015, and is made up of three authorities: the Financial Services Regulatory Authority, the Registration Authority, and ADGM Courts. Additionally, ADGM has become the first jurisdiction in the region to adopt common law in its entirety.

Abu Dhabi has a high concentration of sovereign funds, institutional money and high-net-worth individuals. This comes along with political stability, economic security and a high quality of life. Harnessing these strengths, ADGM provides international institutions with a favourable framework to find success in the region.

ADGM believes that a sound and robust financial services sector is not only an engine of growth in itself, but a driving force to finance the growth of the respective sectors in the real economy. It encourages efficient allocation of capital, spreads risks and supports innovation that boosts consumption and production.

ADGM has rapidly transformed the financial environment in the region. Consequently, local and global financial institutions can now conduct activities in the Middle East and wider region that previously had to be undertaken overseas. For UAE-based entities, this means doing business closer to home.

Catalysing change

In its second year, ADGM has continued to introduce innovative initiatives aimed at improving access to capital, unlocking business opportunities and encouraging further growth. These initiatives included several firsts for the region, including a private real estate investment trust regime, a new venture capital framework for fund managers and an aviation financing scheme. Moreover, ADGM launched the first foundation regime in the UAE, and is leading the way in establishing a fintech regulatory framework and a regulatory laboratory.

In recognition of its active role, ADGM has been named Financial Centre of the Year (MENA) for two years in a row by Global Investor ISF. Abu Dhabi’s financial market was also recognised as the top fintech hub in the Middle East and Africa category of the Connecting Global FinTech: Interim Hub Review 2017 by Deloitte and the Global FinTech Hubs Federation. Beyond awards, ADGM’s achievements are shown by figures: registered companies in the market increased by almost 350 percent in the year to October 2017. Furthermore, the number of special purpose entities registered in ADGM doubled to reach almost 150, together with a fivefold increase of licensed financial entities.

With its innovative suite of corporate vehicles and a well-regulated business environment, ADGM is an influential platform for structuring international investments in the Middle East, Africa and Central Asia. The progress made in such a short time demonstrates ADGMís potential to be a catalyst for significant change in the regionís financial services sector. ADGM continues to embrace innovation as the best way to facilitate further developments, paving the way for Abu Dhabi to secure a better financial future.

The sustainability of debt-fuelled business

Posted on by Max Tomlin

Uber, Netflix and Tesla are three hugely successful companies, ones that have disrupted their respective industries by implementing new technologies and innovative business models. But they have something else in common: they are all billions of dollars in debt.

Although these companies have cultivated enthusiastic followings and encouraged investors to part with huge sums of money, it is not yet clear whether they possess a long-term profitable business plan. Quarterly losses are not only commonplace, they are often eye-wateringly large. Yet these businesses seem able to subvert reality; though profits are low or even non-existent, growth rates are rising rapidly. As long as customer numbers are increasing, there is an expectation that profits will follow. At least, that’s what investors are hoping.

The difficulty lies in the fact that many of these companies are operating in uncharted territory. The ride-sharing, online streaming and electric car industries are all in their infancy. There is no winning formula for Uber, Netflix or Tesla to follow – they must create one of their own. As valuations and losses alike continue to rise, it seems as though these companies can do little wrong. Complacency, however, is the first step on the path to failure. If regulatory changes begin to eat away at existing business models, if competitors encroach on market share, or, indeed, if growth slows, these businesses may find that their equity becomes less appealing to investors.

It seems a given that a successful company would also be a profitable one, but this is no longer necessarily the case. Many firms, particularly digital innovators based in Silicon Valley, are happy for outside investors to fund their operations instead. Profits are simply a pipe dream, a long-term ambition that they are in no rush to achieve. But a pioneering vision cannot sustain loss-making endeavours forever.

The long game
Examining the financial statements of some of the world’s fastest-growing companies can be a surprising exercise. In late 2017, Uber achieved a valuation of $68.5bn, yet it also posted losses in excess of $3bn. As of the third quarter of last year, Netflix owed $4.89bn in long-term debt, despite being the leader in the online streaming market. Over the last 12 months, Tesla became the most valuable car manufacturer in the US, overtaking the likes of Ford and General Motors, in spite of production bottlenecks and quarterly losses of more than $500m.

Of course, these kinds of figures are not limited to the world of hi-tech digital innovators. Clothing company French Connection has posted losses for five years in a row. The Royal Bank of Scotland has managed nine. The financial pain being incurred by these businesses, however, should not be viewed in the same way as the losses incurred by the likes of Tesla and Uber. The increasing debt at many companies may be the result of poor management, changing consumer tastes or increased competition, but it is not usually part of a long-term plan.

Henrique Schneider, Chief Economist of the Swiss Federation of Small and Medium Enterprises and author of Uber: Innovation in Society, believes that debt-fuelled business plans can be sustained over long periods, as long as organisations are transparent with their investors. “I know of many platform businesses that factored seven to 10 years of loss-making operations into their business models,” Schneider said. “When businesses plan like this, they and their investors usually agree on other criteria for assessing progress. Such criteria may include growth of market share, velocity in innovation, patents or turnover.”

Borrowing money today to fuel prosperity tomorrow may have been a staple of capitalism for centuries, but a key difference today is scale. Corporate debt stands at a record high of $62trn at present (see Fig 1), and is predicted to hit $75trn by 2020. Corporate leverage ratios are spiralling across developed and developing economies alike. And yet, in the current climate of low interest rates, investors remain happy to fund increasing debt levels in the hunt for high future yields.

Unproven success
Size is not the only factor separating historic instances of debt-fuelled growth from present-day examples. Modern companies, even those with multibillion-dollar valuations, are racking up huge levels of debt despite possessing unproven business models. There is an expectation, or hope, that future profits will come, but evidence supporting such a view is far from concrete.

In the current climate of low interest rates, investors remain happy to fund increasing debt levels in the hunt for high future yields

A traditional taxi firm with sustained profits over a number of years may choose to go into debt so it can invest in more drivers, increase revenue and eventually recoup its losses. Supporters of businesses like Uber claim that its approach to debt is no different, but that is difficult to swallow when the company has never turned a profit. As such, whether it has a sustainable business model at all is still up for debate.

Uber’s long-term profitability hinges on a number of uncertainties: that ride-hailing will continue to grow and even cause the demise of private car ownership; that rivals like Lyft will fail to eat into its market share; that regulatory hurdles like those that emerged in London will be overcome; and that automation technology will allow the company to eliminate paid drivers altogether. Other lossmakers such as Netflix and Tesla are making similar gambles.

No money, no problem
Seeking a loan from a bank is one way for a company to pursue a debt-fuelled growth strategy, but only if losses are likely to remain relatively limited. For businesses that are expecting debt levels to reach billions of dollars, convincing investors to offer financial support is the only viable way to sustain operations.

Uber has received backing from the likes of Saudi Arabia’s Public Investment Fund, Morgan Stanley and Goldman Sachs – organisations with very deep pockets. Since it was founded in 2003, Tesla has raised in excess of $25bn over 25 funding rounds. In October last year, Netflix announced that it would be raising $1.6bn in debt financing to develop content in 2018. Investors and creditors do not offer huge sums of money out of the goodness of their hearts; they are doing so with the expectation of significant returns. This creates demand for equity, which in turn drives exorbitant share prices. “I would say that one of the main factors that contributes towards the extremely high valuations of firms incurring high losses is that investors focus on long-term potential,” said Schneider. “When profits start coming in, they really pour in.”

At the moment, backers of the major debt-fuelled companies are unlikely to be disappointed with their investments. Share prices at Tesla and Netflix have risen by factors of nine and 15 respectively over the last five years. Uber has yet to deliver its IPO, but private investors have been quick to talk up the company’s long-term prospects.

The lingering concern among some market analysts, however, is that investors in companies with untested business models are simply following the ‘greater fool’ theory, which states that the price of an object isn’t determined by its intrinsic value, but by the expectations of market participants. If the share price of these businesses is simply being driven by the belief that someone else will be willing to buy the same equity for an even higher price, then eventually there are going to be a lot of disappointed people.

Investment at its current rate cannot be sustained unless profitability starts to look achievable. If doubt starts to emerge about a company’s long-term business plan, then investment will dry up, share prices will fall, investors still tied into the company will find themselves out of pocket, and the company itself will be left with a financial headache.

The loss leader
If businesses like Uber and Tesla are willing to risk losses in search of market dominance then they may well have been inspired by one of the most successful businesses in corporate history: Amazon. The company that started life as an online bookstore run out of founder Jeff Bezos’ garage provides the definitive example of high losses eventually paying off.

As long as customer numbers are increasing, there is an expectation that profits will follow

Throughout its early years, Amazon’s losses were significant. In fact, the company failed to turn a profit of any kind until 2001, seven years after it was founded. What’s more, Amazon’s total net profit over its entire existence amounted to just over $4.9bn at the end of 2016, even as its sales figures continued to climb (see Fig 2). This is a figure that has been dwarfed by the likes of Apple, ExxonMobil and Royal Dutch Shell in a single quarter. However, profit has never been Amazon’s immediate goal.

Robert Spector, business consultant and author of Amazon.com: Get Big Fast, believes that although many other companies are now adopting Amazon’s business model, not all will be successful. “The early days of Amazon really set the stage for where we are now,” Spector said. “Through his genius, CEO Jeff Bezos was able to convince enough investors that growth was more important than profitability. Because of this precedent, investors are realising that if it worked for Amazon, maybe it can work in another sector as well. As long as you’re showing progress, can secure a large share of the market and have a convincing CEO, then success can be achieved this way. But it won’t necessarily work for every business.”

Fair and square
Although it may come as a surprise to many that some of the most lauded companies in the world are being propped up by debt, most consumers are unlikely to be overly concerned. As long as they are receiving good service and investors are happy to wait for returns, company financials will probably receive little more than a collective shrug. In the long term, however, it is worth questioning whether debt-fuelled growth could allow anti-competitive practices to develop.

In an essay for The Yale Law Journal published in January 2017, associate research scholar Lina Khan argued that Amazon’s dominance raised a number of competitive concerns directly tied to its growth-over-profits approach. In particular, Amazon’s acquisition of one-time competitor Quidsi came under close scrutiny. Quidsi, which owned Diapers.com, a subsidiary focusing on baby care, first became aware of Amazon’s interest in 2009. It initially declined a takeover offer, only to see Amazon slash its prices for baby products by as much as 30 percent. Amazon deployed online bots to respond immediately to price changes on Diapers.com and launched a subscription service called Amazon Mom. In total, it is estimated that Amazon’s below-cost pricing resulted in losses of $100m a quarter across diaper sales alone.

With its huge income from other verticals, these were losses that Amazon could afford to take. Quidsi, on the other hand, saw its market share cut and investment dwindle. It eventually accepted Amazon’s acquisition offer in 2010. Following the buyout, Amazon was free to raise its prices, safe in the knowledge that another competitor had been seen off. Not only that, but it had discouraged other would-be rivals.

“Courts tend to discount that predators can use psychological intimidation to keep out the competition,” Khan writes. “Amazon’s history with Quidsi has sent a clear message to potential competitors – namely that, unless upstarts have deep pockets that allow them to bleed money in a head-to-head fight with Amazon, it may not be worth entering the market.”

Undercutting competition
Antitrust law, at least in the US, used to pose a more significant barrier to firms using below-cost pricing to take out their opposition. In the 1970s, however, a shift in economic thinking led by Judge Robert Bork changed how the US Supreme Court viewed anticompetitive practices. Instead of focusing on preventing monopolies, consumer welfare became the focus. It became a widely accepted economic truth that predatory pricing was irrational and came with no guarantee that losses would ever be recouped. As such, it was decided that the threat to competition posed by below-cost pricing was low.

If doubt starts to emerge about a company’s long-term business plan, then investment will dry up and share prices will fall

“It is important to keep in mind that only a small fraction of companies operating at a loss actually survive,” Schneider said. “It is up to the market – not the regulators – to judge. If you operate at a loss and don’t convince anyone of your product, in over 90 percent of cases you get wiped out.”

And yet, investors do expect the likes of Uber, Tesla and Netflix to recoup their losses. In the meantime, industry incumbents are struggling to compete. Conventional taxi trips in Los Angeles fell by almost 30 percent in the three years following Uber’s debut in February 2012 (see Fig 3). In 2016, the number of new taxi companies in the UK fell by 97 percent year-on-year. Some of this decline can reasonably be attributed to Uber’s convenience, but undercutting competitor prices certainly helps too.

Tesla and Netflix might argue that their own attempts to secure growth at the expense of profits provides a competitive boon to their respective industries, given that they are up against long-established and very wealthy rivals in the automotive and entertainment industries. The task facing antitrust legislators is a difficult one: some businesses are cutting costs to drive out competitors, while others are doing so merely to compete.

If the competitive spirit of this debt-fuelled business model is in question, then its short-term success is not. Uber, Netflix and Tesla can all point to healthy growth figures as a counterweight to disappointing balance sheets. Some celebrate these firms as innovative trailblazers, destined to dominate their respective industries to the benefit of customers and investors alike. Others have decried them as Ponzi schemes and are waiting for a crash like the one that burst the dotcom bubble in the early 2000s. If there is one lesson to take from that particular cycle of boom and bust it is surely this: companies incurring huge losses may eventually win big, but in business, there are no guarantees.

NAFTA in perilous waters

Posted on by Max Tomlin

Ahead of the NAFTA renegotiation deadline in March, concerns are growing that talks may break down or, perhaps more plausibly, President Trump will fulfil his threat to completely withdraw. The stakes are high. Trump has made unreasonable demands, such as the five-year sunset clause and greater US content share. As rhetoric ramps up between the US, Canada and Mexico, it will prove increasingly difficult to know exactly how markets will react.

Manufacturing unions blame NAFTA for sending US manufacturing jobs abroad, and President Trump campaigned on a platform to reverse the offshoring of recent years

The state of NAFTA
Around one third of US trade is with Canada and Mexico. Manufacturing unions blame NAFTA for sending US manufacturing jobs abroad, and President Trump campaigned on a platform to reverse the offshoring of recent years. The question is whether withdrawing from NAFTA would be of economic benefit to the US.

There is no doubt that NAFTA is in need of reform. It was originally set up in 1994 before the digital and e-commerce era. The US has now produced a list of negotiating objectives, with its top priority being to reduce the trade deficit with NAFTA – though this is somewhat bizarre, since trade is almost in balance. Most of the US’ trade deficit is with China.

The other priorities initially seemed reasonable and read more like an aspiration to move towards a single market with the harmonisation of rules. Unfortunately, the US then made some additional demands around US content share in autos, access to public works contracts, reducing the role of the dispute mechanism, and dismantling Canada’s supply management system for dairy and poultry. While these were initially deemed as unpalatable by Canada and Mexico, the countries now appear to be heading reluctantly towards compromise.

The cost of withdrawal
There is ambiguity about President Trump’s ability to withdraw from NAFTA without the approval of Congress. At a minimum he has to give six months’ notice, and even this could be subject to legal challenge. This period of uncertainty would probably be used to strike a deal. But what would the cost be if the US did withdraw?

In this case, tariffs would be introduced in line with the most-favoured nation principle. This implies an average tariff of around 3.5 percent on US imports but, weighted by the share of trade actually covered by NAFTA and the types of goods, the effective tariff would be not much more than two percent.

So the static cost appears relatively small, but this probably understates the damage given the negative impact on US exports and disruptions in cross-border supply chains. Still, it should not be as bad as a hard Brexit because border controls and customs checks are already in place.

Wider implications
There is a serious risk that President Trump will issue the notice to withdraw from NAFTA, but this would most likely be part of an aggressive negotiating strategy from the US. This could lead to some further concessions from Mexico and Canada, as ultimately falling back on World Trade Organisation rules is in no countries’ interest. In addition, given that the economic hit would be more severe in Mexico and Canada (as they have extremely high trade shares with the US), both their exchange rates would be liable to weaken against the US dollar, wiping out any incentive to move production back to the US.

The bigger danger is what the US approach to NAFTA implies for US handling of wider international trade issues. The US has already imposed tariffs on some specific product areas (namely solar panels and washing machines) and is now looking into aluminium and steel. At least this followed a process and is not just a snap decision from President Trump. The main worry is the potential for the US probe into Chinese intellectual property practices to trigger trade sanctions, which could then spark a trade war. In the meantime, talking down the dollar will help Trump meet some of his objectives, even if eventually it only ends up delivering higher inflation and interest rates.

For more information about the author, please visit Legal & General’s Macro Matters blog

How MoraBanc is thriving in changing times

Posted on by Max Tomlin

In recent years, the Andorran financial market has witnessed a major transformation in its banking sector. Different factors, both domestic and international, have posed challenges that require an efficient and professional response with a clear agenda. Andorra remains a solid and attractive financial market in this new context, and MoraBanc has become the standard of how a bank can implement change while continuing to provide high-quality services to clients. Throughout this transformative process, MoraBanc has remained a competitive company with an upward performance trajectory.

Andorra has become an attractive destination for setting up a business or home, offering a good quality of life, a high level of public security and attractive tax rates

In 2014, Andorra signed a declaration of automatic exchange of information in tax matters with the Organisation for Economic Cooperation and Development. This step towards transparency, along with adopting new international financial standards, was a challenge for the country’s banks. Nevertheless, through hard work and determination, by the end of 2017, MoraBanc had efficiently and effectively adapted to the new banking landscape; achieving the goals set out in a successfully implemented strategic plan. Based on three broad courses of action, the transformation of MoraBanc’s banking model ensures that the company is now ready and willing to take on the challenges of the future.

MoraBanc’s efforts to adapt for the future have culminated in a number of significant achievements. Receiving the Best Digital Bank, Andorra and Best Mobile Banking App, Andorra awards from World Finance was recognition of the success of the long-term project at the centre of MoraBanc’s transformation. Striving for innovation and becoming a leading digital bank were two of the strategic planís key objectives, and these awards demonstrate what a success the development has been.

Digitally determined 

The new MoraBanc Digital platform was launched in December 2016 after more than two years of preparation, and now offers a more modern website that provides significantly more information to clients. The digital banking offering is responsive and adapts to a large number of different platforms. It includes a new online banking website that is more operational, intuitive, modern and user-friendly than what was previously available. Additionally, a mobile application was developed to respond to clientsí immediate and day-to-day banking needs. After a strong initial launch, the platform continues to evolve, with new features and improvements to be added over the coming months.

The presentation of MoraBanc Digital was coupled with a strong communication campaign, designed in three stages and with a digital focus in order to help clients successfully incorporate the new platform into their daily lives. Employees were included first, with press interest and advertising then helping the tool gain credibility. The bankís branded content then went viral in what proved to be a crucial step towards increasing client commitment and participation. Through Facebook and Instagram, MoraBanc’s branded content reached 268,000 people, while videos released by the bank have since generated 105,000 views. All this was achieved in just five months. These figures are a remarkable result, considering the population of Andorra is only 78,700.

Thanks to the success of this campaign, MoraBanc Digital has more than tripled its number of new digital clients. Visits to MoraBanc’s website have increased 84 percent, and money transfers through the digital service have grown by 33 percent. All of this points towards the success of the digital platform, with people enthusiastic to use the new service.

Maintaining values in changing times

While undertaking a digital transformation is a challenge on its own, doing so while maintaining the identity and culture of a bank is far more difficult. MoraBanc is a family bank that has managed to maintain its values, including sound judgement and a commitment to being a trustworthy bank with high levels of solvency, over the entirety of its 65-year history. These values, now combined with a modern and innovative spirit, remain the cornerstone of MoraBanc’s operations even after the digital transformation process. Such values were all included in the strategic plan and played a key role in ensuring the next chapter of the MoraBanc story will be a success.

A clear vision for the future of any business or organisation comes from the top. In line with best international practices, the bankís governing bodies have been bolstered in recent months by the addition of independent directors to the board. The management chart has been redefined and the teams have been restructured with a clear purpose: to increase efficiency and competitiveness.

Another factor central to an updated MoraBanc is the need to reinforce its balance sheet. This will allow it to become an even stronger and more robust institution in these challenging times. The bank’s solvency increased by 390 basis points this past year, placing it at 19.04 percent, according to the Basel CET1 standards. MoraBanc continues to be the most solvent bank in the domestic market, and it has adapted to the Basel III international standards of transparency and disclosure.

In terms of market positioning, dual efforts have been made to increase MoraBancís domestic market share in Andorra and promote its growth on an international scale.

In Andorra, MoraBanc has based its strategy on a simple but effective credit campaign. ‘We grant loans’ is the motto of the advertising campaign that the bank created in order to position itself as the Andorran bank most likely to approve loans for individuals and companies. At a time when not all banks were willing to extend their line of credit, MoraBanc’s strong balance sheet allowed it to provide solutions to individuals and businesses, while also increasing its market share.

Over the past year, the bank has rolled out a range of products, including car loans, electric vehicle loans, fixed mortgages, vacation loans and trade loans. It managed to move in a very static market, differentiating itself from its competitors, and has seen a notable increase in loan contracting in the past six months compared with the same period of the previous year. Mortgages increased by 41 percent, while car loans grew by 70 percent.

Without closing the door to other target markets, MoraBanc is working together with its international wealth management subsidiaries in Switzerland and Miami to become a benchmark among Spanish-speaking clients. It has so far achieved success that has surpassed its objectives, as the subsidiaries registered growth in client assets of 43.6 percent in 2016.

These actions have been carried out with positive results both domestically and internationally. Together with the family values and the spirit of modernity and innovation that transformed the organisation, MoraBanc has firmly entered a new era of banking in Andorra with results that have exceeded expectations.

A different type of bank

MoraBanc’s strategy, often quite novel when compared with its competitors, has strengthened the public’s perception that the institution is a different kind of bank. Its commitment to adopting all international regulations and requirements in the shortest possible time has ensured that the bank can focus on future plans, while following the new rules of the industry.

While presenting a proposition that is unique to Andorra, MoraBanc’s transformation is not an isolated case in the context of the country’s broader development. Andorra and its government have shown a firm commitment to adopting international rules and regulations by introducing a tax scheme and a legal framework that inspire confidence from investors, businesses and private individuals.

Andorra has become a very attractive destination as far as setting up a business or home is concerned. As a central location, just two hours away from Barcelona and Toulouse, the principality offers a good quality of life, a high level of public security and attractive tax rates. These reasons and more are enticing an increasing number of businesses and expats to the country. This is all a growth factor for both Andorra and MoraBanc. The company strives to deliver a good service to these groups through a department made up of highly specialised international experts who are more than capable of meeting the needs of individuals.

MoraBanc also participates in unique projects beyond the banking sector, like Casa Vicens in Barcelona, the first home built by renowned architect Antoni Gaudí. Constructed between 1883 and 1885, the building represents a complete transformation of what was a private residence. The bank purchased it in 2014, and this year opened the doors of Casa Vicens as a house and museum. The bank is also an investor in the Formula E electric car racing championship, demonstrating a commitment to yet another unique project that combines the quest for profitability with innovative sustainability.

In Andorra, MoraBanc sponsors the country’s basketball team in the Liga Endesa, Spainís top-tier competition and the second-largest national league in the world. The MoraBanc Andorra games are by far the biggest and most popular social event in Andorra, and play an important role in social cohesion. In addition, the bank’s corporate social responsibility programme includes a series of cultural events, environmental actions, humanitarian projects and initiatives that continue to grow the bankís presence in Andorra, while also reaching beyond the borders of the small principality.

All of these contributions and the successful outcome of a profound strategic transformation ensure that MoraBanc can face the future with soundness and confidence while identifying further opportunities for growth. The bankís success story is a perfect example of how to adapt to change, and an excellent illustration of the new revolution in Andorran banking.

China hits back in trade war with the US

Posted on by Max Tomlin

China has launched a formal investigation into sorghum imports from the US, as the trade war between the two countries heats up. Beijing’s Ministry of Commerce confirmed the probe on February 4, which comes less than two weeks after US President Donald Trump imposed tariffs on certain Chinese imports.

It is highly unlikely that China will allow the US president to impose his protectionist worldview without facing some economic drawbacks

In a statement released online, the ministry revealed that it had preliminary evidence indicating that the US Government had subsidised the price of sorghum, a type of grain, thereby depressing prices and damaging China’s domestic production. The probe is expected to last upwards of a year and will look at imports between January 2013 and October 2017.

Although the Chinese Government has stressed that the investigation’s main aim is to protect domestic farmers, it also sends a clear message to the US. Last month, Trump levied steep tariffs on solar panels and washing machines, while he has also consistently criticised China for intellectual property theft.

It is quite possible, therefore, that the new sorghum investigation marks a ramping up of trade hostilities between the two superpowers. Wang Hejun, Director of the Bureau of Trade Relief Investigation at China’s Ministry of Commerce, has, however, stressed that cooperation between the two countries would prove more beneficial than tit-for-tat protectionism.

“The healthy and steady development of Sino-US economic and trade relations accords with the fundamental interests of the two countries and their peoples,” explained Hejun. “China is ready to work with the United States to properly handle economic and trade frictions through dialogue and consultation on the basis of mutual respect, equality and mutual benefit.”

Although Hejun’s statement offers a more conciliatory tone than Trump’s often-fiery rhetoric, it is highly unlikely that China will allow the US president to impose his protectionist worldview without facing some economic drawbacks. The US exported 4.8 million tonnes of sorghum to China last year, but the new probe is expected to cause an immediate dent in demand.

China is the world’s largest agricultural market, but it also has huge grain reserves to help cope with a fall in imports. This has raised concerns that China could target the importation of US-grown soybeans for its next trade probe. Trump may want to consider what impact this is likely to have on domestic agriculture before he launches further investigations of his own.

Unbalanced books: Germany’s controversial current account surplus has grown even larger

Posted on by Max Tomlin

In January, the Ifo Institute for Economic Research reported that Germany has the largest current account surplus in the world for the second year. Germany’s surplus, caused by imbalances in its flow of goods, services and investments, is a staggering $287bn and eight percent of its GDP. This far exceeds that of global trade giant China, which stands at $203bn.

While the eurozone crisis taught governments to fear deficits, the European Commission has urged Germany to reduce the surfeit to six percent of GDP, due to concerns that excessive saving from Europe’s biggest economy will put an unsustainable strain on the world economy.

Germans saved 9.95 percentage of their disposable income last year, which is substantially higher than other world economies, and in turn contributes to the surplus

The road to saving overload
In response, German Chancellor Angela Merkel has argued that Germany cannot control the fluctuations of global supply and demand or euro exchange rates, which contribute to the country’s surplus. That said, German consumers do have an effect. As explained by Professor Stefan Kooths, head of forecasting at the Kiel Institute for the World Economy, Germany’s ageing population is saving more: Germans saved 9.95 percentage of their disposable income last year, a figure that is substantially higher than that of other world economies, and in turn contributes to the surplus.

Trade imbalance, however, has the greatest impact. In the first 11 months of 2017, Germany’s trade surplus was €249bn ($310bn) after high demand for cars, chemical goods and machinery saw exports outstrip imports. Ifo economist Christian Grimme said Germany’s specialisation in technical components underlies its export strength: “These products seem minor but still sell at a high price, and a lot of them are only produced in Germany.”

While Germans are not spending much less than other countries, standard domestic consumption cannot offset the impact of this kind of trade imbalance.

Surplus woe
The knock-on effect of the surplus is intensely debated, and some economists argue the surplus does not need to be cut at all. According to Kooths, German exported capital is advantageous to other economies, as long as it is market-based: “It helps the rest of the world to increase their capital stock stronger than which would otherwise be possible.”

Yet, a great deal of the German surplus has resulted from conditions that are not market-based. The artificial movement of capital within the bloc following the European debt crisis, for instance, meant that countries suffering from crippling deficits, such as Greece, were bailed out via the central bank. However, this also distorted inflation rates and amplified Germany’s surplus.

The detrimental impact may in fact rest closer to home, as economic outperformance indicates an excess of national saving over domestic investment. Grimme explained: “It implies the local conditions for investors are perhaps not too attractive, and they prefer to invest abroad.” Therefore, while Germany may be making healthy export profits, savings are being invested elsewhere.

By 2015, foreign direct investment from German banks was over €1trn ($1.25trn), compared with well under €500bn ($623bn) invested at home. A sustained drain on investment might see German industry lose out to overseas rivals.

Shedding the surplus
With these concerns in mind, the German Government commissioned the Kiel Institute to evaluate various policies to cut the surplus. It advised cutting corporation tax as the most effective method, as it could attract more foreign investment. This has become particularly attractive after recent US tax reforms, which are expected to lure more investors to the states. Alternatively, the German Government could encourage foreign investment by boosting the notoriously low rates on government bonds.

A more popular idea is to increase government spending on infrastructure. Germany’s budget surplus, representing 10 percent of the overall current account surplus, could be diverted towards revamping schools and roads. In 2016, Germany collected €23.7bn ($30bn) more tax than it spent, the highest fiscal surplus since reunification. And yet, many of its roads and bridges are relics of the industrial boom of the 1960s and 1970s, which can no longer support modern traffic. Indeed, heavy good vehicles have been banned from using the bridge over the Rhine in Leverkusen since 2012 after cracks appeared.

With Germany’s surplus continuing to increase, the IMF’s suggestion that spending on infrastructure can improve investment prospects is timely. As the bloc’s largest economy, Germany’s crumbling transport links are more than a national inconvenience – the more inefficient these become, the less attractive the country appears to foreign investors. While certain factors such as domestic savings rates and wage levels will change gradually over time, boosting infrastructure would be a sure method to ease some of the excess immediately. Ultimately, the bloated surplus stands no chance of reduction without decisive action to draw investment back to Germany, while revamped infrastructure would be welcomed both by Germans and foreign investors alike.

Implementing a transformative digital banking strategy across Central America

Posted on by Max Tomlin

During the last decade, the development and proliferation of smartphones has had a profound impact on the way businesses operate. With the percentage of the global population using smartphones increasing every year, businesses are now expected to provide a fully integrated digital platform that can perform both basic and sophisticated services. Indeed, digital services are no longer exceptional: they are the bare minimum that customers expect.

In banking, this presents a number of challenges. Many banks that operate on an international scale are reliant on outdated systems and are further constrained by inconsistent and elusive regulatory standards. This makes meeting the expectations of the modern consumer a serious challenge. It is one that BAC Credomatic had to face head-on in order to modernise its systems across its operations in six countries: Panama, Costa Rica, Nicaragua, El Salvador, Honduras and Guatemala. That being said, the company has been able to overcome similar challenges in the past, having been the first bank in the region to introduce credit cards and a native mobile banking app.

Digital services are no longer exceptional – they are the bare minimum that customers expect

BAC Credomatic’s most recent modernisation effort began in 2013, with the implementation of a digital transformation strategy. “Our approach was to tackle the challenge as a company-wide endeavour, instead of building isolated functional or digital areas,” said José Manuel Páez, Chief Digital Officer at BAC Credomatic, in an interview with World Finance. He continued: “Hence, the corporate structures were strengthened and a message of becoming simpler, more accessible and digital began permeating the company culture. Given that innovation has always been a key differentiator for BAC Credomatic, a clear message from top management has empowered the organisation to propose and execute new and inventive initiatives.” The successful execution of this strategy should future-proof the bank for whatever tomorrow may bring.

Overcoming regulatory hurdles
BAC Credomatic’s commitment to updating its digital systems has been driven by the bank’s changing demographics. “Currently, 57 percent of our customer base and 70 percent of our employee base are Millennials,” Páez explained. “Our Millennial customers and employees have reacted very positively to our strategy of becoming nimbler and more accessible. Less than two years ago, the digital office was created with a direct line to the CEO in order to function as a catalyst for digitalisation efforts that have been distributed across the bank.”

This modernisation process has seen many difficulties emerge, particularly around regulations. Páez explained that BAC Credomatic has centralised its platforms in order to scale up across the six countries it operates in, but differences in the maturity of each region’s regulators still presented challenges when designing more efficient processes. Páez added: “For example, only one country offers a public registry consumable via web services. Hence, it’s only in this country that we can automatically populate data, instead of burdening our clients with keying in their information.”

Another issue surrounds Automated Clearing House (ACH) transfers. Páez said: “Some central banks have mature interbank clearing houses enabling swift ACH transfers, while others are still evolving and permit interbank transfers, but that comes at a cost to user experience. Legislation continues to lag behind and some countries still do not allow electronic proof of acceptance, which forces the bank to physically document customers’ approval.” Indeed, some jurisdictions even require every new digital feature to obtain regulatory approval. He continued: “These examples show the hurdles we frequently need to overcome when reaching our clients with new and innovative ways of banking. These challenges have forced us to work tightly between our compliance, legal and business areas as we launch innovative products and processes with the aim of improving the customer experience.”

Páez said another imperative for success was finding the right staff: “We have exceptional people in our talent pool, but the company has gaps in capabilities when it comes to digital marketing, user experience, design thinking and agile concepts. We have faced this challenge by searching for talent outside the organisation and by strengthening our own internal capabilities.”

The push to digital
Despite all these challenges, BAC Credomatic has been able to reinvent its banking platform to meet these greater demands. Currently, 50 percent of all the service requests the bank receives can be performed automatically. Páez said this is tremendously helpful to customers: “For instance, changing or requesting an ATM PIN, a common task that previously required customers to visit a branch, can be done online or from our app. Also, our clients greatly appreciate being able to request an increase in their card’s credit limit online. This is an option we have optimised by integrating our digital banking platform with our FICO risk scores, delivering credit decisions in real time and providing suggested increases that can be approved immediately.

“Accompanying this digital push was a renewed focus on digital marketing, which involved the consolidation of BAC Credomatic’s social media presence,” Páez explained. “A milestone in this process was merging 11 Facebook accounts into one global page. This enabled us to govern our online presence centrally, while still allowing local flexibility in content creation and campaigns. With the consolidated presence, we reached more than 1.4 million fans – more than Citigroup, Wells Fargo, Scotiabank or Barclays UK.”

With this scope, BAC Credomatic plans to further improve its customer outreach, feedback and marketing processes. The results so far speak for themselves: at present, 67 percent of BAC Credomatic’s digital banking customers use mobile banking, while 30 percent are purely mobile banking users.

A future of innovation
Next year, BAC Credomatic expects to launch a completely renovated mobile banking application. The new Banca Móvil app will include a fully redesigned user experience and several additional differentiating features, including the ability for customers to temporarily lock their cards if lost, P2P transfers and in-app near-field communication capabilities.

As with any digital transformation journey, the goal must be establishing the base for continuous development. Indeed, the company’s focus for the next 12 months will be on user experience, agile development and artificial intelligence.

“It is nothing new that the capacities and possibilities around the use of data have advanced extraordinarily in the last few years,” Páez said. “Data provides infinite opportunities to develop new digital business models, which can produce more personalised and engaging experiences. We are currently working on building predictive models to aid us in sales and marketing efforts, as well as in the risk and collections areas.” Páez added that chatbots are also being developed, and could fill a number of service roles in the near future.

“In the past, user experience was not something we used to consider frequently,” said Páez. “There is also much ground to be made up in terms of communicating information to customers clearly and concisely.” As a consequence, the organisation plans to invest in user research that supports the value proposition of its services and products qualitatively and quantitatively. Páez continued: “We also plan to place extra attention on the governance of user interface design and interaction design, both areas where we need better alignment. Customers are an integral part of this process as they frequently contribute to the design of our products and features, either by providing feedback on a prototype or through co-creation workshops.”

Páez said the shift to agile development teams will revolutionise the way the company develops its digital tools: “It has been a two-year journey, and currently we have more than 70 agile teams building our new service proposals and showing the rest of the company how nimbler, motivated units can be more productive. This push is changing the company culture, as the business and IT sides fuse and the organisation starts becoming flatter.”

The cultural changes that accompany agile development have not been easy to implement. “In conjunction with HR and a full dissemination programme, we are evolving the current roles to include key positions such as scrum master and product owner, and define their career paths within the organisation. These changes will enable more tribes to be formed and more teams to be created.” The benefits of working this way are significant, with the company estimating a 50 percent reduction in lead times over the next six months.

The future is exciting for BAC Credomatic, with many more developments in the works for the coming months. “We’ve had so many instrumental developments recently, including a completely redesigned mobile banking app, an e-commerce functionality embedded on our website, and a new email marketing platform that is integrated with our campaign manager and our CRM, among others,” Páez explained. “Nonetheless, our key focus areas for the next 12 months remain on growing our digital competencies. We believe that ingraining these competencies into the bank’s DNA will be crucial in executing our strategy – to enable BAC Credomatic to continue fuelling its innovative spirit and compete in an ever more competitive landscape.”

Rodrigo Lebois Mateos and the story of Unifin

Posted on by Max Tomlin

Many of the world’s most successful business leaders share a common trait: a period of their life that saw them hovering on the edge of failure. It is a common narrative that the owner of a now tremendously successful company was once responsible for a venture that sent them towards near collapse. However, this period of difficulty often proves to have a silver lining. In fact, many leaders consider a period of failure to be the most powerful learning exercise they experience, and even the key to their future success.

We do everything in our power to make sure deals are a success. Even if it is necessary to shift strategies eight or 10 times, we do so, and do so quickly

Such is the case with the career of Rodrigo Lebois Mateos, founder of Unifin. Unifin is a leading independent leasing company founded in Mexico. It functions as a non-banking financial services company, specialising in operating leasing and auto lending, among other areas. Unifin primarily targets small and medium-sized businesses, offering operating leases for equipment, machinery and transportation vehicles across a vast number of sectors.

The business has quite a remarkable story behind its history and founding. Lebois was born in Mexico City in 1963 to a fairly well-to-do, albeit not incredibly wealthy, family. At the age of 30, he left the automotive sales company he had become a partner of in order to create Unifin. The business began from the humblest of beginnings as a car rental service. Lebois had only $300,000 to his name, but he was also able to lever a number of solid relationships with a few bankers and investors, in part thanks to a shared fondness for golf.

The business model he pursued was initially quite straightforward. “I decided to obtain credit from banks in order to purchase cars and then rent them out, while my clients’ promissory notes served as sureties,” Lebois told World Finance. One year later, towards the end of 1994, Lebois had posted a remarkable $450,000 in profit. As a result, in just a year, the company’s capital rose to $750,000 and its credit line to $3m.

Ups and downs
What Lebois didn’t see coming, along with the rest of the world, was the Mexican financial crisis of December 1994. Growing political instability in the country increased Mexico’s risk profile, and after intervention by the country’s central bank, a raft of international investors pulled out of the country in the face of an overvalued peso. Lebois, who had been familiar with the world of finance from a young age, felt especially attracted to risky yet rewarding opportunities. He effectively bet $17m on the stability of the Mexican economy and the peso. In December, Mexico’s central bank devalued the peso by 100 percent, going from 3.5 to seven pesos per US dollar. Consequently, on January 1 1995, Lebois awoke to $17m worth of debt.

“From age 31 to 38, I devoted my energy to negotiating my debt with each bank, until I managed to pay it off completely in 2001. It was a seven-year process filled with payments and renegotiations,” Lebois told World Finance. Paying off a $17m debt was an exceptional feat; the vast majority of Mexican debtors affected by the crisis either declared bankruptcy, declared themselves unable to meet their liabilities, or simply disappeared. Meanwhile, Unifin was kept afloat thanks to bank loans for the purchase of cars and debt restructuring through the Mexican unidad de inversión index.

Lebois was forced to start again from scratch in 2001, but his company grew without pause from that moment on. He hired talented banking experts to lead the company, and even managed to avoid being hit by the financial crisis of 2008.

“Building the success of Unifin has not been easy,” he explained. “In the 1990s, 160 or 200 companies were in competition with Unifin. To differentiate the company from these rivals, I made the strategic decision to focus on providing quality service.” These days, Unifin has three strings to its bow: operating leasing, financial factoring and auto loans.

Lebois acknowledges that Unifin’s competitive edge is its service. One of Unifin’s mottos is ‘solutions made to fit your needs’. Lebois explained: “We figure out how to find the goods required by our clients, and we investigate in a way that enables our clients to realise their dreams, but always through methods based on a solid foundation.”

Unifin becomes a partner with the businesses it works with, although its clients have to demonstrate the capabilities needed to succeed. Lebois observed: “Everyone wants their business to succeed and we pride ourselves on doing everything we can to make sure partnerships end well. There must be some common ground to stand on, and Unifin works to arrange a situation that benefits all.” He added: “We do everything in our power to make sure deals are a success. Even if it is necessary to shift strategies eight or 10 times, we do so, and do so quickly. Cases are reviewed on a daily basis. Even if it is necessary to redo things three or four times a day, it is simply done when it needs to be done”.

Secrets to success
Today, Unifin has $1.5bn in assets, and has a debt of $1bn. The company has 500 employees and 7,000sq m of office space in 12 cities throughout Mexico. If Unifin were a bank, it would be the sixth-largest in the country.

Unifin is also a company of young people, shunning complex internal politics in favour of horizontal business dynamics. As Lebois explained: “There are supervisors, of course, but everyone works towards the same goal with significant autonomy.”

Recently, Unifin has made a significant effort to hire more young people. Lebois believes that it is the talent in the lower echelons that propels the company forwards. “For instance, older people are often not very familiar with technology, but younger people that have grown up with it often have an innate understanding of it. Innovation comes from young people, especially from those that bring in new ideas and make financial corporations less rigid,” he explained.

If the markets do change, Unifin has the capacity to adjust with great speed. Lebois elaborated further: “It is possible for Unifin to do so because the company’s structure is not too rigid or too tense. It is agile and able to change as per the needs of our clients, while we are also able to quickly redirect efforts towards new products.”

This backdrop has enabled Unifin to post significant success; the company’s May 2015 share offering was the first for a Mexican public company since December 2014. Indeed, Unifin now offers a unique proposition among the once-crowded lending market. As Sergio Camacho Carmona, Chief Financial Institutional Officer at Unifin, said at the time of the transaction: “The Mexican SME market has very low penetration by the banks. In fact, banks aren’t involved in the leasing business in general, which, of course, provides us here at Unifin with an excellent advantage.”

What has been a defining characteristic of the company over the years has been the particular business quadrant it has operated in. Camacho said the company has carved out a successful niche because it is a one-stop shop for small and medium industries: “In other words, we give clients the opportunity to lease yellow equipment, IT equipment, office furniture and other products at the same time – rather than them having to spend days or weeks sourcing it from various companies. We will also offer a custom-made financial solution, which fits in with the company’s particular strategy and ensures they remain in sound financial health.”

The company is currently enjoying a positive moment in its history, with the business environment in Mexico looking promising for the immediate future. Small and medium-sized businesses in Mexico are expected to experience significant growth over the next few years. “Unifin is in a good place to meet these businesses demands, with our headquarters in Mexico City and strategically placed offerings where the majority of SMEs are located. We have regional offices in Hermosillo, Chihuahua, Monterrey, San Luis Potosi, Guadalajara, Leon, Queretaro, Puebla, Veracruz, Merida and Cancun,” said Lebois.

Unifin donates resources to a large number of altruistic organisations, including Casa de la Amistad para Niños con Cáncer, Fundación Dr Díaz Perches and Fundación de Desarrollo Sustentable y Servicio. The company does not do so directly, nor does it make these donations public, as it does so through other foundations. “The donations are made with company and employee funds: for each peso that an employee decides to donate, Unifin gives two additional pesos,” Lebois told World Finance. “Employees decide how they want to support and in what ways they wish to participate in the activities organised by the foundations.”

All of these factors bode well for the company’s future, as it looks to play a positive role in Mexico’s economy over the coming years. After overcoming tremendous challenges in the past, both Unifin and Lebois expect continued success in the future ahead.

Australia looks to curb Chinese influence by tightening foreign investment rules

Posted on by Max Tomlin

Australia has moved to curb growing concerns over Chinese influence in the country by implementing tougher restrictions on foreign investment. In a Treasury ruling posted on February 1, the national government revealed new limits on acquisitions of agricultural land and electrical assets.

It is thought that the new ruling is primarily aimed at targeting Beijing’s growing international influence

Under the new regulations, farmland sales worth in excess of AUD 15m ($12m) must be marketed to Australian citizens for at least 30 days before they can be sold to foreign nationals. Similarly, foreign purchases of electricity infrastructure will now be placed under greater scrutiny to prevent investors from accumulating multiple assets within the same sector.

Although Chinese investors were not mentioned directly, it is thought that the new ruling is primarily aimed at targeting Beijing’s growing international influence. The restrictions, which talk of introducing a “key national security safeguard”, come just a few months after reports emerged of several Australian politicians holding close ties with Chinese intelligence services.

“The Australian Government today announces that all future applications for the sale of electricity transmission and distribution assets, and some generation assets, will attract ownership restrictions or conditions for foreign buyers,” Australian Treasurer Scott Morrison explained. “Each case will be assessed on a case-by-case basis, taking into account a range of factors such as the cumulative level of ownership within a sector, the need for diversity of ownership and the asset’s critical importance.”

Although Australia has blocked Chinese investment bids in the past, including the proposed sales of the Kidman cattle empire and the state-owned electricity distributor Ausgrid, the country has largely been willing to accept Beijing’s proposals. In fact, Australia has received just under $90bn of investment from the Asian country since 2007.

However, Australia is not the only nation that is starting to question whether Beijing’s investment proposals contain ulterior motives. Earlier this week, for instance, reports claimed that China had been secretly harvesting data from the African Union headquarters in Addis Ababa, which was built by the China State Construction Engineering Corporation back in 2012.