Author: Max Tomlin

TPP set to go ahead despite US withdrawal

Posted on by Max Tomlin

In its original form, the Trans-Pacific Partnership (TPP) included 12 countries and covered 40 percent of the global economy. While many suggested the trade pact would end after Donald Trump moved to withdraw the US from the deal, ministers of the remaining 11 countries have announced it will push ahead.

The broad-ranging trade deal includes widespread tariff reductions, as well as provisions to lock in intellectual property rights and labour protections. Initially spearheaded by the US, the deal was broadly acknowledged as a vehicle for the country to influence the rules of 21st century trade.

Initially spearheaded by the US, the TPP was broadly acknowledged as a vehicle for the country to influence the rules of 21st century trade

Despite the gaping hole left by the US’ departure, ministers from the remaining 11 nations hope to breath new life into the deal. Following a meeting of the signatories in Vietnam on May 21, a joint ministerial statement said: “The ministers agreed on the value of realising the TPP’s benefits and to that end, they agreed to launch a process to assess options to bring the comprehensive, high quality agreement into force expeditiously, including how to facilitate membership for the original signatories.”

The ministers agreed to complete preparatory work by November, paving the way for the deal to go ahead as planned. The statement also expressed support for the partnership to expand in the future, asserting the agreement would be extended to all nations that could “accept the high standards of the TPP”.

The statement said: “These efforts would address our concern about protectionism, contribute to maintaining open markets, strengthening the rules-based international trading system, increasing world trade and raising living standards.”

The member states also insisted the US would be able to rejoin the partnership at a later date. Steve Ciobo, Australian Minister for Trade, Tourism and Investment, said: “It’s important to leave the door open to the United States. It may not suit US interests at this point in time… but circumstances might change in the future.”

Protests mount as Greek parliament approves fresh round of austerity

Posted on by Max Tomlin

In a late night vote on May 18, Greek lawmakers approved the new raft of austerity measures demanded by creditors in return for bailout payments. The vote was split between Prime Minister Alexis Tsipras’ governing coalition – who unanimously voted in favour of the bill – and opposition lawmakers, who all voted to reject the measures. As a result, the legislation passed with a tight majority of 153 to 128.

The vote grants official approval for the government to follow through with the deal struck with creditors on May 2, and in doing so will ensure the government can secure the next injection of bailout funds. This next instalment will be vital for the government to meet its upcoming repayment bill of €7.5bn ($8.4bn), due to be paid in July. Aditionally, adhering to the deal will pave the way for creditors to discuss measures to lighten the country’s overall debt burden. Talks are scheduled to take place at an upcoming meeting of European finance ministers on May 22.

Incensed by the prospect of yet another round of deep cuts, thousands gathered in protest outside parliament as the debate took place

After the vote went through, Tsipras said: “Now the ball is in our creditors’ court… we expect, and are entitled to, a decision at Monday’s meeting, that will adjust the Greek public debt in a way that matches the Greek people’s sacrifices.” As of yet, it is not clear whether international creditors will agree to the much needed debt measures.

The legislative package includes cutbacks worth some €4.9bn ($5.5bn), scheduled to be implemented over the coming three years. Cuts will comprise of reductions in pension payments and tax allowances, as well as a steep reduction in the tax-free threshold.

The agreement follows the release of Eurostat figures indicating the country has fallen back into recession for the first time since 2012. According to the official figures, the country’s GDP shrank by 1.3 percent in the first quarter of 2016, and proceeded to fall by a further 0.1 percent in the first quarter of 2017.

Incensed by the prospect of yet another round of deep cuts, thousands gathered in protest outside parliament as the debate took place.

How to prepare for the future of banking

Posted on by Max Tomlin

The recent financial crisis in Cyprus, Greece and Turkey has forced banks to adapt and evolve in order to face the challenges ahead. Institutions need to formulate strategies so as to avoid the mistakes of the past and create the business environment of the future.

Following the spate of high-value fines imposed by regulators across the globe, corporate governance has recently turned its focus towards compliance. This, however, will need to change in the coming years. Futurist, trends and innovation expert Jim Carroll recently stated: “Sadly, with all the current focus on compliance, I’ve come to believe that there is a critical lack of future planning on many other corporate boards around the world.” As such, banks will have to shift their concentration to new technologies for the future.

There are certain emerging themes that will affect the business models of banking in the years to come. Increasingly, it appears smaller banks and those operating in emerging markets, such as Turkey and India, are generating more innovative ideas than the more traditional leaders. This has to do with the antiquated systems that most banks have heavily invested in, and are now reluctant to give up.

Service first
Despite such reluctance, customer needs and behaviours will push financial institutions to rethink their strategies. Customers now expect banks to offer more than simple transaction processing, and instead become advice providers. Despite the confidence crisis in institutions, most customers believe banks are secure, and this is a trend that must be taken into consideration. In order to maintain this view, banks need to ensure they do not fall victim to hacking or open themselves up to lawsuits.

A recent Accenture survey of consumers in the US and Canada indicated that most customers do not consider bank branches to be an irrelevant service. Rather, they expect them to be more efficient through in-branch digital tools that create new customer experiences.

As customers become increasingly technologically knowledgeable, they will also expect new innovations that will serve them in a more personalised and efficient manner. Banks are therefore expected to deepen their personal connections with customers using data analysis techniques.

These efforts appear to be very futuristic by current standards. For example, a number of banks are working on predictive analytics of their customers’ accounts, which allow impressive insight into purchasing habits. Using this, not only will banks be able to remind customers of their partner’s birthdays, but they will be able to remind them of the gifts they previously gave as well. At the other end of the spectrum, banks are offering merchants similar insights through market intelligence services.

Smaller banks and those operating in emerging markets are generating more innovative ideas than the more traditional leaders

Contactless payments made using wearable devices are already a trend, and have become something of a status symbol among the younger generation. Biometrics are also likely to play a more important role in the future. From bracelets, stickers and jackets to mobile phones and fitness gadgets, payment providers that have been utilising data from these devices are showing tremendous growth, and are signalling the shape of things to come.

Keeping consumers on board
To be able to visualise and understand these trends, the opportunities offered and the risks involved, boards must pay more attention to their composition. IT expertise will become even more valuable and, in time, technology committees will become as important as audit committees, if not more so.

Data protection and information security will be the next bywords in banking, following the recent spate of hacking incidents experienced by some major financial institutions. Boards that do not pay attention to these parameters may pay heavy fines in future lawsuits relating to data loss.

For too long, boards have concentrated on short-term profits and growth. In the near future it will become increasingly important for them to play a role in long-term value creation. Pressure will mount on boards to ensure their companies are providing information to the markets that allow investors to assess long-term corporate sustainability and financial health through greater transparency on environmental, social and governance considerations.

Perhaps it is time boards took into account customer and employee satisfaction, as there is evidence to suggest these are becoming better predictors of future financial success, as opposed to measures of past financial performance.

Banks also need to get better at spotting new emerging opportunities, be it through markets, customers or products. Most companies seem to be looking inwards to solve problems and fight fires, rather than looking outwards to see what is coming next and what should be done about it. Markets are now very fast paced, and companies need to adapt quickly in order to reinvent product lines and meet changing expectations.

It is no secret that a major concern for big banks is having their business consumed by the likes of Apple, Google, Facebook or Amazon. It will come as no surprise if these internet behemoths build on their consumer relationships to make further inroads into the payment industry in the years to come. Apple continued to roll out its Apple Pay mobile payment service last year, while other firms, such as Samsung, are set to enter more markets with similar offerings. While Barclays has its own wallet named Pingit, it will be interesting to see if other banks attempt to stake a claim in this market too, or leave it to the big tech firms.Many banks do not have leaders with the experience needed to meet these challenges.

More than 40 percent of these banks did not have a single board member with a professional background in technology

A recent Accenture study of 109 large, global banks found only six percent of board members have professional experience in the technology sector. More than 40 percent of these banks did not have a single board member with a professional background in technology.

The situation is even worse in small banks, which need to address major challenges, such as cyber security. In late 2015, the US introduced new legislation that requires all publicly traded companies to disclose whether their boards have cybersecurity experts, meaning banks are now under even further scrutiny. That said, some banks have become aware of this problem and have introduced regular technology coaching sessions for their board members.

Utilising blockchain
Blockchain technology may be the next big thing in banking, and as such has become an issue boards are forced to pay close attention to. Through the use of a variety of cryptography-based technologies, once an entry is added into a blockchain database, it cannot be changed. The value of this technology lies in how it enables new forms of money movement and data storage that are cryptographically secure.

Blockchain could allow the development of a smart contract between two corporations that automates the release of a portion of funds whenever certain parameters are met, such as the shipment of goods. As more data is stored via blockchain in the future, other possibilities open up: the onboarding of clients could take a matter of days, rather than weeks, enabling banks to avoid embarrassment over misapprehensions. To achieve this, competent authorities must be engaged at an early stage of the process in order to help manage one of the costliest and most troublesome activities – compliance with numerous regulations that surround the adoption of blockchain.

Staying social
Social media could play a large role in the future of banking, with customers able to contact their bankers and exchange information through any preferred platform. The Standard Bank of South Africa is already offering a single dashboard to let relationship managers connect with their clients via any preferred network, including WeChat, Facebook Messenger, Google Hangouts and WhatsApp.

The Citizens Bank of Edmond encouraged its employees to shoot videos and post them on YouTube

Social media can also transform the way the world regards both banks and bankers, especially for smaller community banks. After the Citizens Bank of Edmond encouraged its employees to shoot videos and post them on YouTube, its customers began to fall in love with the bank and its local initiatives, which in turn promoted a positive image of the business rather inexpensively. Also changing the face of banking is increased advocacy for diversity, which has helped to spread the message of a warm industry with a softer touch.

The Bank of Cyprus, the winner of Best Corporate Governance, Cyprus in the 2017 World Finance Corporate Governance Awards, is at the forefront of adherence to best international practices and current trends in corporate governance. It has become the benchmark among the best-governed institutions in Europe, offering a high degree of credibility and reassurance to its shareholders, customers and stakeholders. The recent listing of the Bank of Cyprus on the London Stock Exchange is further proof of its robust corporate governance framework.

Overall, this is an interesting time for financial institutions that have the vision to form strategies, while taking into account technological advances. Those that keep their customers happy and secure will be the winners of the game.

US household debt tops pre-crisis levels as student loans continue to soar

Posted on by Max Tomlin

According to fresh data released by the Fed, total household debt levels reached $12.73trn in the first quarter of 2017, exceeding the peak levels set in 2008 for the first time. In the third quarter of 2008, US household debt had hit a high of $12.68trn before dramatically unwinding as a result of the financial crisis. Following a post-crisis trough, 2013 witnessed a recovery in mortgage lending and prompted debt levels to expand once again.

Therefore, reaching this milestone was no surprise: debt levels have been expanding for 11 consecutive quarters and a recent Fed blog post emphasised it was neither a sign of economic doom nor economic strength. The post read: “Before bringing out the confetti (or sounding the warning bells), it’s important to get some historical perspective.”

Reaching this milestone was no surprise: debt levels have been expanding for 11 consecutive quarters

Notably, the makeup of household debt is now markedly different to that seen in 2008, while the characteristics of borrowers has also changed. The total volume of mortgage-related debt is now $667bn lower than its peak before the crisis, with a greater share of household debt being driven by student and car loans.

Indeed, student loans alone have added $733bn of extra debt to US households since 2008. Meanwhile, other types of debt, like credit card loans, have actually decreased from their 2008 peak. Borrowers also tend to be more creditworthy, owing to a general shift in debt balances towards older and more financially stable households.

“These shifts in borrowing patterns and [the] characteristics of borrowers, paired with the long economic recovery and a strong labour market, have resulted in very low delinquency rates for most types of debts except for student loans”, the post continued. In fact, a general improvement in credit quality has resulted in record lows of new bankruptcies and foreclosure notations.

MENA region powers ahead with solar energy

Posted on by Max Tomlin

The Middle East and North Africa region has long been known for its vast oil and gas reserves, but despite this long-standing reputation, another one is now emerging. Today the MENA region is increasingly well known as a major user and driver of renewable energy, with solar technologies being a particular speciality for countries in the area.

In addition to meeting the exponential growth in demand in domestic markets, several companies in the region are now looking further afield too, and in doing so have become serious players in the global market in a relatively short period of time.

One such enterprise is Qatar Solar Technologies (QSTec), a Doha-based solar company founded by the highly esteemed Qatar Foundation in 2010. Within just a few years, QSTec has grown to become a world-leading integrated solar company with partners located across the globe.

World Finance had the opportunity to speak with QSTec’s Chairman and CEO, Dr Khalid K Al Hajri, about the future of solar energy in the MENA region and the role the company plays in developing this exceptionally promising industry.

Oil prices are lower than in the past and we are seeing increased demand for electricity. How has that affected the MENA region?
Research has shown the low price of oil is having very little effect on the renewable energy sector locally, regionally and internationally. In fact, 2016 was a record year for global renewable energy installations. In the past, the installation of renewable energy infrastructure closely followed the trends of oil prices: when oil prices were high, we had more installations, and when oil prices were low, the demand for renewables fell, but this is no longer the case at all.

As we seek to conserve
natural resources for future generations, solar energy has become an obvious choice across the MENA region

Bloomberg estimates that the infrastructure for more than 127 GW of wind and solar power was installed globally in 2016, with 70 GW of that being solar. This means that, last year, around 500,000 solar modules were installed every day around the world. In addition to this, during every hour of every day, two wind turbines were installed. That’s amazing when you think about it!

Looking ahead, I see tremendous growth opportunities for solar energy across the region. Bloomberg also estimates that during 2017 we will see more utility scale projects financed in the MENA region than ever before. We absolutely recognise the enormous opportunity and potential of this market, which is why QSTec and its partners are well placed to meet the region’s growing solar requirements.

Renewables are developing at a very fast pace. Do you think there is an energy revolution going on around the world?
There most certainly is! Globally, we are experiencing an energy transition and it’s incredibly exciting for QSTec to be a part of it. We are actively shaping the future of energy. Bloomberg forecasts that, by 2040, more than 60 percent of our energy will come from renewables, with almost half coming from solar power alone.

There are many drivers behind this remarkable development, including more competition in the market, enhanced policy support in key regions, and technological improvements. Also making a huge difference is the global commitment made by governments via the COP21 Paris Agreement to work together to reduce the negative consequences of climate change.

Along with these significant trends, I would say the key drivers for mounting demand have been reduced costs and energy diversification. Since 2009, solar prices have fallen by 62 percent. With further reductions in solar energy still to come, Bloomberg estimates that, by 2020, solar energy will be one of the cheapest forms of electricity in many parts of the world.

In many countries and regions like MENA, diversifying energy supplies to include renewable energy sources like wind and solar is essential in order to meet increasing demand for energy. Globally, many countries are looking towards adopting a diversified and sustainable energy mix. As we seek to conserve natural resources for future generations, solar energy has become an obvious choice; across the MENA region, we have the climate, the space, and an increasing need for energy.

At what stage is your Ras Laffan polysilicon plant project right now, and what are the plans for the future?
For QSTec, 2017 is set to be a very exciting year. With a capacity of 8,000 metric tons per year, our state of the art polysilicon manufacturing facility is the first of its scale in the region. This development is monumental for the market as the polysilicon facility will be the cornerstone that enables the entire solar value chain to be manufactured in the MENA region. Commissioning is nearly completed, and we have successfully produced our first polysilicon.

500,000

solar modules were installed every day last year, according to Bloomberg

70 GW

worth of solar infrastructure was installed in 2016

62%

Drop in solar prices since 2009

In terms of the future, we have additional space at our Ras Laffan Industrial City site, which will enable us to expand further to produce more than eight gigawatts of solar products – so we have many options available to us for future growth.

I believe that a key challenge for the MENA region is to not only be a user, but to also become an innovative leader in solar energy, which includes leading the field for smart grids and storage. Polysilicon, a high-purity form of silicon, is the key ingredient in the world’s most efficient and reliable solar technologies. Given that QSTec produces polysilicon in Qatar, this opens up a wide range of possibilities for the region’s solar industry entrepreneurs.

QSTec has a 29 percent share in the European integrated solar company SolarWorld and 45 percent in the world-leading technology firm Centrotherm. What are your plans within that framework?
The MENA region became a global leader in oil and gas by building a solid foundation with companies that shared a common vision for the growth of the industry, as well as that of the region. At QSTec, we took this building block of success and formed a solar consortium of excellence with industry leaders SolarWorld and Centrotherm in order to address the key challenges of improving efficiency and technologies, as well as reducing costs.

Together, we span the entire solar value chain from polysilicon production to solar modules and systems, through to the technology that drives the manufacturing and production of solar technologies. By working together with our research partners in Qatar and around the globe, we can address the solar challenges that still exist today and, in turn, develop solar technologies that will have a positive effect on the lives of millions of people worldwide.

In addition to this consortium, we are also working with other organisations across Asia and Europe that actively contribute to QSTec’s vision and future growth. So far, we have had tremendous success with our partnerships; consequently, the future is looking very promising for QSTec.

To what extent do the high levels of dust in the MENA region have an effect on the efficiency of solar modules?
The dust has very little effect on solar modules; the amount of solar energy that we can produce in Qatar is incredible. The Qatar Foundation’s Qatar Environment and Energy Research Institute (QEERI) recently carried out a multiyear study on solar energy in Qatar’s environment using a variety of technologies.

The organisation found that solar modules in Qatar produced 45 percent more solar power than those same modules did in a similar testing facility in southern Germany. With this in mind, just imagine the untapped potential for solar energy in the MENA region.

People are constantly overstating the effect of dust on solar panels within the region, and this very important study by QEERI found that, by simply cleaning the modules with a brush once every two months, the annual loss due to soiling was only around eight percent.

The industry has advanced so much in recent years, and now the future of solar technologies is here. QSTec has been preparing for this solar revolution for some time, and so we are ready to both enable and expand solar power across the entire region.

Eurozone trade surplus reaches record high as Europe shows signs of economic recovery

Posted on by Max Tomlin

According to figures published on May 16 by the EU’s statistics office, Eurostat, the eurozone recorded its highest trade surplus on record, posting a current account balance of €30.9bn ($34.3bn) in March. Underlying the surplus was the rising volume of both exports and imports, suggesting some positive momentum in trade flows despite calls for greater protectionism. When compared to last year, eurozone exports were up 13 percent, while imports were up 14 percent. The result shows a slight increase in the bloc’s overall trade balance, which stood at €28.2bn ($31.3bn) at the same time last year.

The trade figures come against the backdrop of an uptick in economic growth within the eurozone, with growth figures suggestive of an increasingly convincing recovery. According to flash estimates by Eurostat – also released on May 16 – growth in the first quarter of 2017 was 1.7 percent higher than it was at the same time last year, and 0.5 percent higher than the final quarter of 2016. The European Commission has also updated its projections for growth in 2017 to a slightly more optimistic 1.7 percent, up from 1.6 percent.

The record breaking trade surplus masks the discernible disparities between the different member states, with Germany primarily driving the eurozone’s positive balance

Nonetheless, the record breaking trade surplus masks the discernible disparities between the different member states. The positive balance was driven primarily by Germany, which alone held a current account surplus of €42.8bn ($47.5bn) for the first quarter of 2017. This was up from €38.9bn ($43.2bn) the previous year, reflecting the country’s booming trade position.

However, while Germany’s trade surplus is heating up, many countries posted substantial trade deficits. For instance, Spain’s trade balance with countries outside the EU was minus €9.4bn ($10.4) in the first quarter of 2017, a deterioration on its deficit of €6.2bn ($6.9bn) last year. Greece also posted a negative trade balance with countries outside the EU, recording a deficit of €3.9bn ($4.3bn), which again was worse than the €2.2bn ($2.4bn) posted in the same quarter of 2016. The Netherlands, meanwhile, posted the most substantial deficit in the eurozone, standing at €32.4bn ($36bn).

The diversity of economic fortunes within the single market, particularly in regard to trade balances, has long been a source of friction. A record breaking trade surplus for the eurozone, therefore, will provide little comfort to those 11 member states posting deficits with the rest of the world.

What the digital generation wants from Chinese real estate

Posted on by Max Tomlin

Urbanisation remains a key driver for the retail market in China. Around 56 percent of the country’s population lives in cities, a figure that is projected to reach 60 percent by 2020. As such, there could be as many as 20 million people joining the urban population each and every year.

Likewise, Chinese consumption is projected to continue on an upward trajectory to reach an estimated $2.3trn by 2020, even if GDP growth were to slow to six or 6.5 percent (a figure that nonetheless far exceeds the estimated growth of other developed markets). These factors, together with an expanding middle class and growing income levels, are therefore expected to continue fuelling retail growth in China in the years to come.

Interestingly, other countries in Asia are also experiencing similar urbanisation as a result of improving demographic trends. With an annual GDP growth rate averaging six percent over the last three years, Vietnam is one of the fastest growing economies in Asia. Its economy is underpinned by sound fundamentals, such as a young, educated population, a growing middle class and rapid urbanisation. Such demographic advantages, coupled with consistently high FDI inflows, have boosted residential and office demand – especially in Ho Chi Minh City, an economic hub in its own right.

In light of these mounting prospects, World Finance spoke with Lim Ming Yan, President and Group CEO of CapitaLand – a global property developer, owner, operator and manager of diversified asset classes – about the past, present and future of the Asian real estate market.

How has the real estate market in Asia changed in recent years?
In the past, the real estate market in Asia was cyclical. However, after the global financial crisis in 2008, there was a sharp recovery in many markets and a run up in real estate prices. Many Asian governments, including those in China and Singapore, implemented cooling measures to engineer demand-supply conditions and prevent the markets from becoming overheated.

More recent examples in China include the housing purchase restrictions (HPRs) in Shanghai and Shenzhen in March 2016, which have successfully slowed monthly price increases. These were followed by the tightening of existing HPRs and the reintroduction of HPRs in 21 Tier 1 to Tier 3 cities during the ‘Golden Week’ China National Day period in October 2016. These policies were implemented to reduce the risk of a hard landing in the property sector by restraining the aggressive increase of leverage by developers and households.

There could be as many as 20 million people joining the urban population each year

Despite the impact of cooling measures, CapitaLand achieved our second consecutive year of record residential sales in China in 2016, moving 10,738 units, with a sales value of RMB 18.1bn ($2.62bn).

We remain confident in the long-term growth prospects of China and will continue to look for suitable opportunities to expand our land bank, concentrating on the Tier 1 and upper Tier 2 cities to supplement our existing pipeline of around 40,000 residential units.

The cooling measures introduced in Singapore since 2009 include the qualifying certificate and Additional Buyer’s Stamp Duty. Consequently, Singapore residential prices have declined by 11.2 percent since 2013.

CapitaLand’s exposure to Singapore’s residential market now forms around four percent of our total assets. Despite the challenging market, we sold 571 residential units in 2016, representing a total sales value of SGD 1.4bn ($990m), which was more than double that of the previous year.

We also took proactive steps to market our three newly launched projects: Cairnhill Nine, which was the best selling Singapore private residential development in March 2016, and The Nassim and Victoria Park Villas. We also introduced the Stay-Then-Pay programme for completed projects in order to assist prospective buyers of our d’Leedon and The Interlace projects, which has been very well received.

For the office segment, there is a significant supply coming in 2017. Our office properties continue to do well, with about 97 percent occupancy – well above the Central Business District average occupancy rate. Our shopping malls in Singapore also continue to be resilient, as they are well located above transportation nodes and catchment areas. Despite a muted outlook for Singapore retail, we remain confident with proactive tenant management and asset-enhancement initiatives.

What is the appeal for those wishing to invest in real estate in Asia?
Asian countries continued to enjoy stable growth in the past year. Real GDP growth in the 10 ASEAN member countries, plus China and India, is expected to be an average of 6.2 percent over the next five years. Private consumption should continue to make a large contribution to this growth. Most importantly, the region is supported by attractive fundamentals, such as urbanisation, young populations and a rising middle class driving domestic demand, as well as growing export figures and economic policies that attract foreign capital.

SGD 78bn

CapitaLand’s managed real estate assets

130+

The number of cities in which CapitaLand operates

4

classes of asset

China, which is one of our core markets, grew by around 6.7 percent in GDP in 2016, and is projected to continue growing at a similar pace in the medium term due to the government’s continued efforts to boost consumption. Consumption, services and higher value added activities will be the main contributors to China’s resilient growth this year. Tighter labour markets will also support continued growth in incomes and private consumption.

Vietnam will be another top performer, with a projected annual expansion of 6.2 percent between 2017 and 2021. Its high growth rate will translate to higher household income, which will underpin private consumption. Rising affluence in Vietnam, an expanding middle class and a stable government are very positive factors for increasing FDI. Such factors bode very well for investments in shopping malls and hospitality, such as serviced residences, throughout Asia.

What value is there to working with someone like CapitaLand when taking this step?
CapitaLand manages real estate assets worth more than SGD 78bn ($55bn), which is one of the largest portfolios in Asia. The group’s investment management business comprises numerous private equity funds, as well as a collection of five real estate investment trusts (REITs) listed in Singapore and Malaysia: CapitaLand Mall Trust, CapitaLand Commercial Trust, Ascott Residence Trust, CapitaLand Retail China Trust and CapitaLand Malaysia Mall Trust.

Our competitive advantage is our extensive market network, as well as extensive design, development and operational capabilities. This network is reflected in our position as the largest shopping mall developer, owner and manager in the region, with 104 shopping malls across five Asian countries: Singapore, China, Japan, Malaysia and India. We are also one of the world’s leading international serviced residence owner-operators, with more than 50,000 units worldwide in locations ranging from Asia and Europe to the US.

How has your business model evolved since starting out?
Our business has evolved significantly since 2013. First, we simplified the organisation structure from three tiers of listed companies to two tiers, comprising CapitaLand and our five listed REITs. Our current business structure makes it easier for investors to make informed decisions, as well as for our business operations to leverage scalability.

Second, we have changed the mix of trading properties versus investment properties to ensure strong recurring income. At any point in time, we aim to maintain a balanced portfolio of trading, investment and fee-based business. As of 31 December 2016, investment properties made up about 76 percent of the group’s assets, while the remaining 24 percent comprised trading properties. This optimal asset mix enabled us to deliver a steady stream of recurring income from our investment properties, while we continued to realise gains from our trading properties. Furthermore, we will continue to recycle capital through our REITs and private equity vehicles.

Technology will drive the real estate of the future, providing innovative solutions in a number of key sectors

In recent years, we have focused more on our asset-light strategy to generate recurring income through management services. For serviced residences, we have grown Ascott’s business significantly through management contracts and have entered several new markets, such as the US, Saudi Arabia, Turkey, Myanmar, Cambodia and Laos. We have also signed two management contracts to manage shopping malls in Changsha and Xi’an, China. This asset-light strategy enables us to gradually scale up our existing shopping malls network.

How do you see the market changing in the coming years?
Technology, coupled with the Millennial generation that grew up in the digital world, will redefine how we live, work and play. To stay relevant, we are planning for the future and seeking evolution in our businesses and properties.

CapitaLand touches the lives of millions of people throughout our network of over 500 properties across more than 130 cities in over 20 countries. In 2016, we took important steps towards making real our vision to create the real estate of the future, where customers can have convenience, value and a seamless experience between online and offline. We launched our venture arm, C31 Ventures, to invest in new economy start-ups that are relevant to our businesses; we created a new serviced residence brand, lyf, to tap into the Millennial market; and we started the redevelopment of two key projects in Singapore (Funan and Golden Shoe Car Park).

Instead of perceiving digital disrupters as threats, we leverage on them. Technology will drive the real estate of the future, providing innovative solutions in the areas of energy, operations and maintenance, building and construction, design and building materials, real estate funding, as well as customer engagement.

Franco-German conference sets the tone for the “historic reconstruction” of Europe

Posted on by Max Tomlin

On May 15, newly elected French President Emmanuel Macron underscored his deep commitment to the European project by using his first full day in office to meet with German Chancellor Angela Merkel in Berlin. Representing two of the largest economies in the eurozone, the Franco-German relationship has long been regarded as a key driver of closer ties within Europe. Upon the election of a resolutely pro-EU French president, the alliance is poised to reinvigorate the integration of the bloc.

At a press conference held after the meeting, Merkel said: “I believe we are at a very sensitive moment in history that we should now also take advantage of – to make something of it that will be understood by the people as a strengthening of Europe.” She also emphasised the two leaders’ shared commitment to strengthening the EU and eurozone.

While the prospect of changing the treaty has long been a French taboo, Macron said this would change under his leadership

Macron, for his part, highlighted his intention to use his presidency to give new momentum to European integration, calling for a “historic reconstruction” of the bloc. He said while the prospect of changing the treaty had long been a French taboo, this would change under his leadership.

Notably, Merkel deviated from her previous stance on the subject, asserting she would be open to a treaty change “if it makes sense”. Merkel even went as far to say she would be willing to personally push for a treaty change if it was necessary, and rebuffed those who continue to reject any such change. She said: “The entire world is changing and we declare that we have exhausted ourselves once and that’s it for our entire lifetime.”

While the meeting has certainly set the tone for future cooperation between the pair, it produced little in the way of concrete proposals for the reconstruction effort. Macron’s vision for Europe includes aspects that will certainly prompt resistance from Germany, particularly as the country approaches its upcoming general election.

For one, Macron has suggested the establishment of a shared budget provision to act as a support mechanism for eurozone countries in economic distress. Similar proposals to pool resources have historically proved unpopular with the German public.

However, the policy may have found some unlikely footing with German Finance Minister Wolfgang Schäuble. Schäuble, known for being fiscally conservative, recently suggested he is theoretically in favour of making greater transfers to struggling states. In an interview reported by The Guardian prior to the meeting, Schäuble said: “A community cannot exist without the strong vouching for the weaker ones.”

 

The evolution of the asset manager

Posted on by Max Tomlin

Steeped in a rich history of managing family wealth, Clarien Bank established itself as one of Bermuda’s first family offices in 1974. With deep roots in the community and a full suite of wealth management offerings, Clarien Bank continues to manage the wealth of a discerning, international client base whose changing and complex needs demand better tailored solutions.

Since the financial crisis, clients have become increasingly engaged in the process of managing their wealth. There is now a notable trend away from the dominance of global, wholesale banks, as families gravitate towards boutique-style wealth managers offering more personalised, bespoke financial solutions. The contemporary client often has a global footprint and, as such, is increasingly seeking out a trusted advisor to help them navigate a more complex world.

A changing marketplace
With increased reporting and due diligence standards, along with myriad tax regimes through which clients may operate, it is essential wealth management providers solve these complexities and offer trust, estate planning and fiduciary services. Furthermore, with a heightened awareness of one’s tax obligations, it is important wealth managers have access to a network of multijurisdictional tax advisors and other service providers for their clients in order to assist in the setup of complex, tax-effective private client structures.

As clients become better informed, with greater access to information, asset managers must stay relevant in an ever-changing marketplace. Successful asset managers will be measured on their ability to deal with uncertainty by finding a balance between risk and return. This trade-off is the cornerstone of investment decision making, and should be a fundamental part of the investment process.

Investment behaviour
Risk-return is a simple enough academic concept to grasp, but striking the optimum balance can be challenging. It is therefore critical advisors keep a steady and open dialogue with their clients in order to facilitate a better understanding of the risk exposures within their portfolio. This in turn will lead to a better grasp of the return horizon and objectives, as well as build confidence with clients.

As clients become better informed, with greater access to information, asset managers must stay relevant in an ever-changing marketplace

While statistics by no means guarantee the achievement of the return goal in any individual year, they do provide a strong framework for achieving positive results over the long term. Ideally, the strategic asset allocation model should produce enough confidence in its projected results that a client is willing to ride out market turmoil and remain invested. Some of the most significant opportunities that can add value occur during periods of market duress or euphoria, when clients are tempted to abandon their investment plans.

Client education by a wealth manager is a key factor in ensuring a client sticks to a well thought out investment plan. Statistics show one of the single most significant reasons for underperformance by investors over time is behavioural bias – particularly in uncertain times like these.

In a study entitled Behavioural Coaching: Helping Clients Choose Planning Over Emotion, Vanguard estimated behavioural coaching by a trusted wealth management advisor can add 1.5 percent annually to the value of a client’s portfolio. This is because the average investor tends to buy high and sell low – a behavioural trend that grossly contradicts the ‘buy low/sell high’ investment rule.

Risk-return strategies
A robust, strategic risk-return framework should focus on the long term and be able to respond to a range of economic outcomes in a balanced manner. Portfolios should aim to achieve superior returns through diversification and careful portfolio construction that contemplates the way different asset classes respond to various economic environments, including stress testing. In today’s fully interconnected world, diversification, access to specialist best of class managers and proactive management based on fundamental research remain more vital than ever.

Wealth managers should also be committed to independence, allowing them to concentrate on finding the best investment, insurance and estate planning solutions from around the globe in order to enhance a client’s overall portfolio. Being flexible with the ability to find solutions that vary from mainstream thinking is the key to success.

With the impressive growth of international business on the island, Bermuda has evolved into one of the world’s premier financial centres. As families become more dispersed and transient, Bermuda is considered a safe and easily accessible domicile with a long history of legal, trust, insurance, tax and investment expertise. It will continue to attract clients who require a full suite of financial services and advisors who understand wealth management is a relationship business where trust, integrity and credibility are paramount to the client.

National banks can save Ghanaian economy

Posted on by Max Tomlin

In March 1957, Ghana became the first sub-Saharan state to free itself from colonialism, and has since weathered political upheaval and economic turbulence, ultimately growing into a highly functioning democracy. The nation saw an end to military rule in 1992, and has since enjoyed 25 years of good governance and relative stability. Over the last quarter century, Ghana has emerged as a west African powerhouse, boasting a rich history and one of the highest GDPs per capita of any nation in the region (see Fig 1).

With several peaceful transitions of power now under its belt, Ghana’s firm commitment to democracy has strengthened its economy and created a stable business climate. In 2010, the World Bank reclassified Ghana as a lower-middle income country, in recognition of its falling poverty levels and flourishing economy. In recent years, the nation has successfully exploited its rich natural resources and has expanded into oil production, with its offshore fields now running close to target levels. With an estimated 700 million barrels worth of oil reserves, Ghana’s fledgling oil industry is set to boost economic growth even further.

Despite these aspirational oil ambitions, however, the Ghanaian economy is suffering a significant slowdown. High inflation, a weakening currency and a large public deficit led to an economic crisis, forcing Ghana to seek a $920m bailout from the IMF in mid-2015. Amid such economic turmoil, the nation’s banks are now rallying to exert a positive influence on the Ghanaian economy and stimulate growth. By ensuring a strong monetary policy and prudent operational activities, Ghana’s public and private banks may well succeed in turning the struggling economy around.

The role of banks
Since Ghana achieved independence from the UK in 1957, its financial sector has been largely characterised by extensive government intervention. Believing that the financial system it inherited from the colonial period was irreparably flawed, the newly independent government set about implementing financial policies to quicken the pace of Ghanaian development throughout the 1960s. All the banks established in the nation during the 1960s and 1970s were either wholly or majority owned by the public sector, while the government also acquired minority shares in the nation’s two foreign banks, extending its influence over the banking industry.

After two decades of government dominance in the banking sector, the 1980s saw a range of economic reforms that ushered in a newly liberalised era for the industry. The government granted permission for private banks to open, and these new financial institutions fast established themselves as tough competitors to the remaining public sector banks, offering high standards of service and efficiency for customers. Now, the Ghanaian banking sector offers a wide range of financial services, with a combination of universal banks, community banks and non-bank financial institutions providing reliable banking to both urban and rural communities.

Ghana’s banks also play a crucial role in driving the nation’s economy. As financial intermediaries, Ghanaian banks channel funds from savers to borrowers, providing customers with the liquidity they need for investment in productive, profitable enterprises. By stimulating savings and investment, the nation’s banks effectively reduce the loss of capital and boost economic growth. However, while the banking sector has been working to drive growth, the government’s budget deficit has also widened considerably.

With government spending outstripping its incoming revenue, the budget deficit exceeded 10 percent of GDP from 2012 to 2014, before falling to its current level of around seven percent. This substantial public deficit has largely been financed through both domestic and external borrowing by the government, with Ghanaian banks agreeing to invest in high-yielding, risk-free government securities in an attempt to diversify their portfolios. By borrowing more than it can repay, the Ghanaian Government’s ongoing attempts to pay off its bank loans further drove up state expenditure. Despite their best efforts to influence the economy for the better, Ghana’s banks have, by extension, contributed to an increase in public debt.

National influence
Whether it be positive or negative, it is clear the operational activities of banks in Ghana have a significant impact on the nation’s economy. While government borrowing may have increased the already substantial public deficit, banks can also be a force for good. Through responsible manipulation of monetary policy, banks can successfully reduce inflationary pressures, combat currency depreciation and help to tackle the issue of public debt.

Despite a recent drop, the nation’s inflation rate remains high, reaching 13.3 percent in the first month of 2017. For the average Ghanaian, this high level of inflation has a severe impact on their purchasing power, pushing the price of food and other basic commodities out of their weekly budget. As the effects of inflation continue to be profoundly felt among Ghanaian citizens, the nation’s banks are attempting to ease the impact of these high rates and help the economy run smoothly once more.

Ghanaian banks channel
funds from savers to borrowers, providing customers with the liquidity they need for investment in profitable enterprises

Given excessive money supply has driven up inflation in Ghana, its banks are now engaged in an ongoing effort to reduce the use of cash for transaction purposes. In order to dissuade customers from holding large quantities of cash, Ghanaian banks are helping customers access their funds through a range of new services. From online banking to mobile money transfer programs, Ghana’s banks are keen to create a cash-lite society.

With a weakening currency also contributing to rising inflation, Ghanaian banks are dedicated to tackling currency depreciation. In order to ease the pressure on the nation’s domestic currency, Ghana is striving to increase export production so as to welcome more foreign currency in the country. Banks are able to influence export production through collaboration with trade promotion agencies and Ghanaian embassies. Together, the bodies can analyse production activity and successfully identify viable export destinations, resulting in an increase in trade.

In addition to driving up exports, the nation’s banks are also hoping to reduce the country’s reliance on imports by boosting production at home. Rice, for example, constitutes Ghana’s second largest import, costing the nation upwards of $500m annually. However, Ghana has great potential to expand both its rice production area and output; increasing capacity could see the country move towards self-sufficiency in this area. By providing targeted support to clients engaged in import substitution industries, such as rice farming, the nation’s banks can in turn ease the pressure on the weak Ghanaian cedi.

In terms of managing the substantial public deficit and debt, banks can exert a positive influence by ensuring an easy flow of tax revenue into government accounts. Ghanaian banks work alongside the government to streamline import and export procedures, helping the state to obtain the necessary import duties and thus reduce delayed inflows in government revenue.

Furthermore, the nation’s banks currently assist government agencies with linking customers’ bank accounts to national identification databases, house numbers and street names, so as to facilitate domestic tax collections. In this way, Ghanaian banks are helping to ease the challenges of the nation’s pubic deficit by guaranteeing a strong, steady flow of government revenue.

Internal evolution
In addition to tackling macroeconomic challenges such as high inflation and public debt, Ghana’s banks are also making positive changes to their own internal operations. The nation’s central bank, the Bank of Ghana, works with private and public financial institutions to help them cut down on their operational inefficiencies, advising them on how best to determine an appropriate cost for borrowing funds.

A proper and efficient national ID system is crucial to reducing the risks associated with lending

Banks are also able to effectively reduce the probability of customers defaulting on loans by collaborating with government agencies to enforce proper identification and tracking of borrowers. A proper and efficient national ID system is crucial to reducing the risks associated with lending, and a well-worked tracking framework would in turn allow banks to lower their risk premiums on loans. By working with the government to improve identification methods, Ghanaian banks have cut down on their own costs of doing business, while also creating a better value banking system for customers.

The past few years have proved exceptionally testing for both the Ghanaian economy and the country’s banking system. However, following prudent implementation of a strong monetary policy by the nation’s banks, it looks increasingly likely Ghana will experience an economic recovery in 2017, with experts predicting growth will hit 8.7 percent this year. By successfully stimulating growth and effectively tackling the public deficit and debt, Ghana’s banks may just prove to be the key to the nation’s future economic prosperity.

Offshore banking isn’t all at sea

Posted on by Max Tomlin

A number of recent events, including the infamous Panama Papers scandal, have identified several key issues endemic to the offshore banking industry. In response, there has been an increased focus from regulators, governments and the media on the practices of offshore private banking firms.

Yet in spite of mounting scrutiny, there continue to be very legitimate reasons both high and ultra-high net worth clients want to hold a portion of their wealth outside their countries of origin. Importantly, this remains a viable option for them due to new compliance measures and a stronger risk management framework. Indeed, recent examinations have made offshore private banking more robust than ever, ultimately benefitting all players involved.

World Finance spoke to Daniel R Wright, Managing Director of Private Wealth Management at CIBC FirstCaribbean, to find out more.

Over the past year or so, offshore private banking has experienced a lot of scrutiny. What impact has this had on the industry?
Although we have gone through a year of heightened examination and attention, with the release of the Panama Papers and even enhanced scrutiny from other countries, such as Canada, offshore private banking providers are accustomed to receiving a lot of attention. We definitely see further consolidation happening in our industry. That said, there is a place for strong compliance and risk management frameworks, as well as excellent growth in our business.

Of course, we were all troubled by the Panama Papers scandal and I think it gave us as an industry further reason to ensure that our compliance and risk management frameworks were as secure and robust as possible.

How are regulations changing in light of recent exposures?
As with private banking providers, most countries with a strong offshore offering took the opportunity to take a step back and ensure that regulations were as sound as possible. Fortunately for most of us, we operate in countries that are leaders in this field and early adopters from a regulatory perspective – the Cayman Islands being a great example.

Do you think offshore private banking will become more robust as a result?
Absolutely. I don’t think it was not robust to begin with – however, any opportunity to take a fresh look and ensure that our process and procedures are as vigorous as possible is important for us all.

There are still negative connotations to the word ‘offshore’ and its presumed association with tax avoidance, which is not the case

There has been a great deal of consolidation over the past few years, and the business has certainly changed and matured since 2008. I think for those solid financial institutions in the region with strong capital, and that are committed to understanding the business, the market continues to grow, and there are numerous opportunities out there.

What challenges still exist, and how are they being overcome?
I think education remains one of our biggest challenges. There is still a perception and negative connotation to the word ‘offshore’ and its presumed association with tax avoidance, which is not the case. Long gone are the days when offshore banking may have contributed to a decrease in onshore tax revenues and opportunities.

There are many fully compliant and legitimate reasons why high and ultra-high net worth individuals continue to hold a portion of their wealth outside their country of origin and have a need for financial institutions to provide these solutions.

What safeguards does CIBC FirstCaribbean have in place to prevent money laundering and other illicit activities?
CIBC FirstCaribbean has a very robust risk and compliance framework that is followed by all of our business lines within the region. We comply with local regulations in all the jurisdictions in which we operate and hold ourselves to the standard of our parent company, CIBC, as it relates to our AML framework.

Our compliance and audit functions routinely and independently verify and assess the strength of our controls and adherence to those controls through regular conformance reviews across the countries in which we operate, and our individual business lines.

What sets CIBC FirstCaribbean apart from its competitors?
First, our commitment to the region and the communities in which we operate. Also, our dedication to providing the highest level of service, as well as our integrated private wealth service offering, which includes core banking, trust and investments.

What are the company’s plans for the future?
We will continue to actively grow in the region; we are truly committed to the Caribbean. Moreover, wealth management – including trust and private banking – has been identified as a strategic priority for growth. This year we will supplement our current private wealth offering with a full service investment advisory business in the countries in which we operate. We will also continue to review and expand our private wealth team of professionals and service offerings.

EU President: the French spend too much money

Posted on by Max Tomlin

Emmanuel Macron’s decisive election victory has been met by warnings from key figures in the EU regarding France’s yawning budget deficit. New projections, released on May 11, estimate this year’s deficit will reach three percent, bringing France to the cusp of breaking rules established in the Stability and Growth Pact (SGP). SGP rules state budget deficits of EU countries must adhere to an upper limit of three percent.

The fresh projections present a gloomier picture of France’s public finances, with previous forecasts estimating this year’s budget deficit would reach just 2.9 percent. Looking ahead, the deficit is projected to reach 3.2 percent in 2018, up from the previous forecast of 3.1 percent. The official estimate of last year’s deficit also jumped from 3.3 to 3.4 percent.

French authorities have failed to meet the EU’s Stability and Growth Pact rules on deficit limits for 10 successive years

French authorities have failed to meet the EU’s Stability and Growth Pact rules on deficit limits for 10 successive years, making the task of reining in public spending a pressing challenge for the newly elected president. Since Macron’s election victory, key EU leadership figures have not hesitated in driving this point home.

On May 8, EU President Jean-Claude Juncker warned: “We have a special problem with France. I am extremely Francophile, but the French spend too much money. And they spend it in the wrong places. This will not work over time.”

At a press conference on May 9, European Commissioner for Economic and Financial Affairs and France’s former Finance Minister Pierre Moscovici issued an indirect message to Macron, warning France must end its pattern of excessive deficits and bring the budget permanently in line with EU limits. He also emphasised it would not require too much effort from the government to achieve such reductions.

Unlike his main presidential rivals, Macron promised to cut public spending and bring the deficit to below three percent. His campaign pledges included a commitment to cut public spending by €60bn ($65.2bn) over five years through a programme of public service cuts, including a reduction in the number of civil servants by 120,000.

The benefits of an unconditional basic income

Posted on by Max Tomlin

At the start of the year, Finland became the first European country to provide citizens with an unconditional basic income. As part of a two-year social experiment, a number of unemployed Finns will be guaranteed a monthly income of €560 ($591), with payments continuing even after they enter employment.

The prospect of providing people with a state-funded basic income is nothing new: libertarians have long held the belief the policy safeguards a fundamental kind of freedom, while the left hail its potential to foster greater equality. Indeed, the concept enjoys cross-party support in Finland, with those on the right keen to wipe out welfare bureaucracy and all parties eyeing its potential to tackle the country’s persistent problems with unemployment.

Modern welfare models often discourage job seekers, with complex conditions prompting many to decline work for fear of losing out

The Finnish experiment represents a milestone in a wider movement; support for universal basic income is growing across Europe. Speakers at the World Economic Forum have also endorsed the idea, arguing it would preserve social cohesion in the face of rapid developments in technology. Speaking to World Finance, Professor Karl Widerquist, a political philosopher and economist at Georgetown University, asserted a universal basic income could be the “missing piece” in our economies.

Benefit system failure
The predominant welfare model centres on the assumption citizens need forceful incentives to make them work, with most developed nations administering a complex structure of sanctions to coerce people into employment. Thus, the seemingly radical notion of providing an unconditional pay packet has prompted a second look at the function of incentives in the job market.

While common criticisms suggest the policy would create a dysfunctional economy of layabouts, it seems the opposite may, in fact, be true. Current welfare models often discourage those seeking employment, with complex conditions prompting many to decline work for fear of losing out. This effect is compounded when the majority of available jobs are poorly paid, unstable, part time or gig-based.

Widerquist argued: “We do need to have incentives so that people will work more, but those incentives don’t have to be so harsh that a person who is unable to find a job – or who doesn’t like the jobs on offer – has to be homeless or begging for some sort of unemployment insurance.”

Perhaps surprisingly, it is this freedom to say no to employment that could spark one of the most important economic benefits of the policy. Given the ability to escape the punitive consequences of unemployment, people would be able to take their time, finding jobs better suited to their abilities and providing greater stimulation. It would also afford individuals the freedom to continue education, train in new disciplines or experiment with business ideas. In turn, this could lead to greater productivity and innovation, as people are free to pursue careers in areas in which they feel they can make a notable contribution.

Finland’s unconditional basic income experiment

2 years

Duration

2,000

Randomly selected participants

€560

Guaranteed monthly income

Anthony Painter and Chris Thuong’s report, Creative Citizen, Creative State, reinforces this assertion, highlighting the success of smaller scale basic income pilots in spurring greater entrepreneurship and boosting educational performance.

Job market insecurity
Recent calls for a basic income have come at a time when advances in technology are threatening to de-skill large portions of the global economy. Widerquist noted: “There is a good chance that driving is going to be outmoded, [which would] be a big hit to unemployment – and who knows what else could be outmoded?”

Many have predicted the coming ‘fourth industrial revolution’ could have serious implications for job market stability, with a study from the University of Oxford finding 47 percent of US employment faces a ‘high risk’ of automation in the next 20 years. Crucially, this will devalue the skills many have cultivated throughout their careers.

Widerquist stated: “We don’t want to just throw people into the lowest labour market – we want to cushion them from that, and give them the time to retrain and think about the next up and coming things to retrain for.”

Of course, many remain unconvinced the hefty price tag of an unconditional basic income is a viable state expenditure. However, with the oncoming fourth industrial revolution, skills will continue to be outmoded at an alarming rate, prompting further inequality and testing social cohesion.

The existing welfare model will look increasingly outdated as employment becomes more reliant on part time and gig-based workers. The coming reality of disruptive technologies, job insecurity and unprecedented inequality will only add fuel to the argument that there is a missing piece in our economies. But, with support growing throughout Europe, Finland’s adoption of an unconditional basic income may just prove to be the perfect fit.

IMF: growth in sub-Saharan Africa remains modest and multi-speed

Posted on by Max Tomlin

On May 9, the IMF published its latest regional economic outlook for sub-Saharan Africa, predicting a modest economic recovery in the region. Growth is expected to reach 2.6 percent in 2017, a slight upturn from the 1.4 percent posted in 2016 – the slowest year for growth in the region in 20 years. The projected recovery confirms a rupture with past trends, with expectations falling well short of the growth figures seen before the global commodity slump.

The report also underscored the multi-speed nature of the region’s economic momentum. While some countries like Senegal and Kenya are still growing strongly – posting growth rates of over six percent – growth has slowed in two-thirds of the region. At the fastest end of this multi-speed growth is Ethiopia, which is forecast to grow 7.5 percent this year. Yet, despite some countries speeding ahead, the report suggested “underlying regional momentum” is weak.

While a slight uptick in commodity prices is likely to provide some relief, many countries in sub-Saharan Africa are being held back by heavy debt burdens

The region has suffered a serious commodity price shock in recent years, with many nations relying on commodity incomes to support the balance of payments and public finances. While a slight uptick in commodity prices is likely to provide some relief, many countries are being held back by heavy debt burdens. Such debt loads are clouding the potential for recovery, creating uncertainty and holding back investment. The report also judged recovery was being held back by “insufficient policy adjustment”.

According to Abebe Aemro Selassie, Director of the IMF’s African Department: “Adjustment in resource-intensive countries has been delayed. In particular, oil exporters such as Angola, Nigeria and the countries of the Central African Economic and Monetary Union are still struggling to deal with the budgetary revenue losses and balance of payments pressures, some three years after the fall in oil prices.”

From a longer-term perspective, a broader analysis in the report found growth spells in the continent typically concluded with a “hard landing” similar to the current scenario, and the IMF emphasised the need for strong macroeconomic policies to protect against such slumps in the future.

The report said: “The impetus to revive growth where it has faltered, and sustain growth where it has remained relatively strong, must come from inside.”

Renewable energy tops Turkish agenda

Posted on by Max Tomlin

Turkey’s renewable energy market has been expanding and developing since the Renewable Energy Law was enacted in 2005, which marked a huge step towards meeting the country’s growing demand for energy. In the years since, a series of new regulations have demonstrated Turkish interest in making its renewables market a priority in the national energy agenda.

In October 2016, a regulation on renewable energy zones (REZs) was introduced. This allowed structured investments in green power sources, supported by an incentive scheme for licensed renewable energy generation.

The regulation could not have come at a more vital time, both in terms of environmental protection and the country’s renewable energy targets. According to a recent strategy paper by the Turkish Ministry of Energy and Natural Resources (MENRA), the state aims to increase wind generation to 10,000 MW and solar generation to 3,000 MW by 2019. If these targets are met, wind capacity will be doubled and solar capacity increased fourfold, compared with 2016 figures.

Furthermore, an independent market study by KPMG showed power generation in Turkey totalled 270 million MWh in 2016, including both licensed and unlicensed generation. Total consumption, by comparison, has been recorded as 274 billion kWh, with an increase of 2.1 percent.

Zone system
Under the regulation, REZs may be developed on public or private land. The regulation empowers MENRA to identify suitable areas by taking into account a set of criteria, including the type of power to be generated, generation potential, unit electricity costs and connection capacity. Once a site is chosen, an announcement of tender for right of use in the identified REZ is published in the Official Gazette, as well as on the MENRA website.

A series of new regulations have demonstrated Turkish interest in making its renewables market a priority in the national energy agenda

The eligibility criteria for investors interested in applying for tender in an REZ include the requirement to either manufacture certain equipment (as decided by MENRA) locally, or to commit to using locally manufactured equipment. In either case, the equipment must conform to conditions set out by the electricity licensing regulation.

The tender for each REZ is held as a reverse auction, starting from the maximum electricity purchase price set by MENRA per kilowatt-hour. The participant offering the lowest price is invited to execute a right-of-use agreement.

Consortiums are permitted to participate in the tender. It is a requirement, however, that a joint venture company with the same shareholding structure as submitted in the tender application is incorporated in order to sign the right-of-use agreement.

Complying with requirements
Additionally, the REZ regulation makes it mandatory for investors to acquire a pre-licence in order to engage in electricity generation activities within a REZ. The term of the pre-licence must not exceed 24 months, except in cases where unforeseen circumstances render this impossible. This pre-licence is an essential requirement for the right-of-use agreement to be effective.

Under the REZ regulation, the pre-licence holder must comply with existing legal requirements for allocations made in consideration of domestic production and the use of domestic goods. Essentially this means that, in order to qualify for a generation licence, strict compliance is required on the part of the pre-licence holder in construction of the manufacturing plant and the generation facility under the tender specifications.

The licence is granted for a maximum of 30 years. Upon expiry of the licence term, the generation facility will be subject to general regulation under the electricity licence regulation, and will be placed under the administration of whichever institution the right-of-use agreement was executed with.

The electricity generated by these means must be sold during the term agreed in the tender specifications and at the price set in the right-of-use agreement. Additionally, the agreement will remain subject to further regulation throughout the term. The agreed term for the sale and purchase of electricity in the tender specifications begins once the right-of-use agreement is executed.

From a practical standpoint, REZs are expected to overcome the existing financing difficulties facing renewable energy projects, which tend to depend on high volumes of external investment from lenders. The guaranteed purchase system is aimed at incentivising investment by providing a predictable cash flow over a predictable time period – i.e. the operational life of the facility – while substantially reducing the risk of capital loss, which will attract investors in the coming days ahead.