October | 2010 | World Finance

Ontario makes FDI shortlist

Posted on October 21, 2010 by

The Ontario region should be on the UK’s overseas investor shortlist. It has a highly skilled workforce, its banking system is the envy of the world, it will shortly have one of the lowest rates of corporate tax and it has a first-class infrastructure system.

Clare Barnett, UK Ontario government senior economic officer, says Ontario’s benefits regularly surprise newcomers. But first, how has the region weathered the global recession? Is it still in fighting health, despite the tough financial pressure of the last two years?

“We’ve done very well,” says Ms Barnett, “which is down to our government addressing some of our original economic worries back in 2003. Ontario has seen a huge amount of economic diversification since that time and we were able to get our deficit right down.”

Welcome to the 21st century
And by some margin too. Ontario has a strong automotive presence – including several plants for Honda, Chrysler, Ford and Toyota – world-class financial services and banking sector operations, plus an increasing presence in IT and biosciences. It’s a truly 21st century blend of high tech, science and services. Ontario’s annual GDP – currently $445bn – dwarfs that of Switzerland and international trade now tops $1bn a day. It also boasts the highest GDP rate of any Canadian province.

No wonder investors – particularly UK investors − are warming to the region fast. “FDI investment doubled between 2003 and 2007. Primarily it has been US investment but now a third of our FDI investment, going on the basis of 200 projects, comes from the UK,” says Barnett.

Anyone investing seriously in Ontario will want reassurance that the local infrastructure is being upgraded. Ontario’s transport system now boasts a new airport link and a re-vamped overground rail system through large areas of Ottawa – part of an on-going $4bn project − and an Oyster card system is being planned. The government is also taking huge steps to upgrade its social housing stock, integrating this investment with cutting edge green renewable energy initiatives.

Safe and secure
A big draw for many investors is Ontario’s sound reputation for banking. As Ms Barnett notes, Ontario came though the global credit crisis in excellent shape. But that wasn’t down to good luck.

“Our regulatory system has always been very strong,” she says. “There’s been a lot of publicity around the strength of our corporate financial health and strong governance and that has attracted investors. It’s also allowed us to showcase our banking system. President Obama has been interviewed saying how strong our banking system is, and the White House has come here to take a look at how it is structured.”

The World Economic Forum backs this testimony. It named Canada as possessing the soundest banking system in the world for the third year in a row (leaving Sweden, Luxembourg and Australia trailing in its wake; the US slipped to 40th place). That’s down, it declared, to solid funding and careful and sensible lending.

A massive green push
But it’s Ontario’s green energy credentials that is really creating an impact. “Our Green Energy Act saw Ontario get its first feed-in tariff – the first in North America,” says Ms Barnett. It means renewable energy developers in the region can access generous subsidies for clean energy production.

The green energy focus is certainly a huge step away from coal reliance and an opportunity for many to diversify their energy mix. Many Ontarians have now applied for renewable energy projects, from solar to wind and other sources.

“We also have excellent energy security,” she continues. “We have a big nuclear re-build programme and renewable energy is going to be doubled. By 2014 the government is committed to close all coal-fired plants in the province. There’s a lot of public acceptance for the move, as well as for nuclear energy in general.”

The Toronto Stock Exchange is home to leading green energy players. In fact, it recently launched a new index solely to green-friendly companies – the new Standard & Poor TSX Clean Technology Index.

Rapid decision-making
Investors are also committing to the province in a big way. Samsung is a stellar example. It has invested $7bn in Ontario, creating 16,000 jobs in the region in the process, which should make Ontario the place for green energy manufacturing in North America. Already Ontario is increasingly becoming a leading producer of renewable energy hardware − wind turbines, solar inverters and solar modules.

The Samsung investment will drive more wind and solar energy projects, exporting green electricity to the fast-growing renewable energy market in the US, according to Ms Barnett. It is also transforming Ontario’s manufacturing heartland, laying deep foundations for new economic growth.

Before going to press, it was announced that Germany’s Siemens AG has also joined Samsung in a large green power deal. Siemens will supply up to 600 megawatts of energy for Ontario under an agreement with Samsung. Siemens will supply new wind turbines for many of Samsung’s new developments, creating up to 1,400 new jobs in the region.

Meanwhile another 800 new jobs were recently created by Ubisoft, a French studio digital media player. “Ubisoft is a very exciting opportunity for Toronto,” says Ms Barnett, “drawing on the city’s growing gaming and film industry expertise, not to mention its strong multicultural diversity, energy and dynamism.”

The lowest rate of corporate tax in North America
What of tax incentives? It’s a good question, and another reason for putting Ontario on your FDI shortlist. “A very big government initiative is the new government harmonised sales tax [HST, equivalent to the UK-based VAT system],” says Ms Barnett. “The introduction of the HST which combines Ontario’s Retail Sales Tax with the Canadian wide General Sales tax creates a single, federally administered value added tax at a rate of just 13 percent.”

Currently corporations operating in Ontario are taxed at a rate of 33.5 percent. But the combined federal-provincial rate on income earned in Ontario will now fall to 25 percent for corporations with taxation years beginning on or after 1 July, 2013. It’s a phased-in reduction that means Ontario will be able to boast a general corporate income tax rate of 10 percent by 2013. That’s got to be a huge draw for many companies.

“That’s not all,” says Ms Barnett. “We’ve also got what’s called the Eastern Ontario Development Fund to encourage more job creation. There’s an apprenticeship tax credit from federal government and $5,000 from the Ontario government for companies heavily focused on the Knowledge Economy. That’s a $7,000 rebate in total.”

Ontario’s competitive business costs, strong record in financial services, green energy credentials and highly skilled workforce position the province as a leading destination for FDI.

Did you know?
– In an Economist survey of 90 countries, only Finland and Sweden ranked higher than Canada in the areas of honesty and reliability in business.

– Toyota’s Ontario plant is the only site outside Japan to produce the luxury Lexus.

– Messier-Dowty manufactures landing gear systems in Ontario for some of the biggest names in aerospace including Boeing, Bombardier, Dassault and Raytheon.

– GlaxoSmithKline produces medications worth billions each year in Ontario, 80 per cent of which are exported to more than 70 countries.

– In a survey by The Scientist magazine, 35,000 researchers around the world ranked the University of Toronto as the best place to work outside the US.

– More than eight million people around the world use BlackBerry wireless devices invented, manufactured and marketed by Research in Motion (RIM) of Ontario.

Be selective
Select Ontario is a business and marketing tool that enables investors and site selectors to make timely, informed decisions about where to locate their business projects in Ontario. Launched in February 2010 at the Economic Developers Council of Ontario (EDCO) annual conference, Select Ontario is Canada’s first provincial web-enabled site selection tool. Basically it’s an online geographic information system (GIS) that provides valuable business information, including detailed statistics and current data about available properties, community demographics, and workforce statistics, educational skill levels, and business clusters. “Innovative, business-friendly online marketing tools like GIS, play an important role in attracting new investment opportunities to Ontario,” says Aileen Murray, president of EDCO. “It will also help economic development professionals better promote Ontario as a premier location for sustained economic activity.”

New measures against card fraud

Posted on October 21, 2010 by

Credit and debit card fraud is the number one fear of travellers and internet users amid the current global financial crisis, according to the 2009 Unisys Security Index – beating out even terrorism, computer and health viruses, and personal safety.

It’s a startling thought, that people are more worried about their bank accounts being cleaned out than being mugged. But card fraud – which ultimately entails identity theft as well as monetary loss – accounts for the theft of tens of billions of dollars worldwide every year, and is a major problem for banks, businesses and consumers.

New measures are effective, at least temporarily. The latest addition to the anti-card fraud arsenal, chip-and-PIN cards, has for example been responsible for a large portion of a worldwide dip in card fraud in the past year. But the process of rolling out these new cards is expected to take at least another two years – by which stage fraudsters will quite possibly have figured out how to defeat this technology, too.

While you are generally protected against any financial losses stemming from card fraud, having your account attacked in any event presents you with enormous headaches around having your card stopped by your bank, replacing the card, having any losses reimbursed, and so forth.

In addition, while some security measures put in place by banks to prevent card fraud – such as automatically declining transactions that do not fit your spending profile – are worthy and laudable, they can be immensely frustrating, time-consuming to resolve, and potentially very embarrassing to you.

But no more
The Neo Africa Secure Card Solution, developed by South Africa’s Neo Africa group of companies, is an innovation that promises to revolutionise the way we all do our card transactions. Like all great ideas, its beauty lies in its simplicity: linking the card to a mobile phone, and placing control over transactions entirely in the hands of the cardholder, instead of the issuing bank.

“Neo Africa is a company that is in the business of finding innovative answers to complex problems, and we believe by giving the cardholder complete power over their own card, this South African invention will change the way people do their banking – and make credit card fraud, a multi-billion dollar problem the world over, virtually obsolete,” says Neo Africa founder and CEO Vivien Natasen.

“Worldwide card fraud continues to grow exponentially, despite the very best efforts and the use of advanced technologies. Fraudsters are highly sophisticated and find ways around even the newer, smart cards that still have a magnetic stripe on them, making the cards vulnerable – and fraudsters know all the tricks.”

Initially available to the South African market, and to visitors to South Africa, Neo Africa is currently rolling out the Neo Africa Secure Card Solution to the rest of the world.

Unlike regular cards, which are defaulted to “on”, the Neo Africa Secure Card Solution card – issued by a third-party financial institution – is defaulted to “off”. To use the card, the holder uses his or her mobile phone to switch the card on for a single transaction. The card will automatically switch off again after 30 minutes, rendering it completely unusable until it is switched on again.

The cardholder has several other options, giving even greater control over the card: for example, the cardholder can determine in which countries the card may be used, spending limits, and even the type of transactions permitted, be they online, point of sale or ATM.

Users receive text notifications of any transactions, even those that have been declined – immediately raising a red flag if a criminal has attempted to perform a fraudulent transaction. Another security feature is the ability to confirm that the user’s card and mobile phone are in the same location, indicating that a transaction is indeed legitimate.

Neo Africa currently offers two principal traveller packages: a Premium package costing R1 499 (approximately $200), and an Economy package costing R249 (approximately $35.) Special rates are also available for bulk orders. The solution can be tailored though to individual client specifications for different usage and is adaptable to many other environment such as payroll, employee allowances, managing spending for families or profiled user spend where the user authenticates each transaction according to a pre-defined rule set.

The Premium package includes a debit card and a full qwerty-keyboard handset, with built-in TV and dual-SIM capability to allow the use of a roaming GSM SIM in the same handset at the same time – as well as enjoy the benefits of paying local call rates.

The Economy package consists of a debit card and a standard handset, without the premium features but with the same protection.

In addition, Neo Africa is offering a Corporate package for companies whose employees spend a large amount of time travelling or on the road, such as sales personnel or drivers.

The Corporate package boasts spend control by employers, third-party tracking functionality – allowing employers to know where their employees are at any given time, the ability of users to top up the card from their own accounts, emergency services, and the ability to confirm that the card and handset are in the same place.

In addition, the Neo Africa Secure Card Solution offers co-branding opportunities, allowing companies to put their corporate stamp on their own bank cards.

While the Neo Africa Secure Card Solution packages at present consist of both a card and a handset, mobile applications are currently being developed to allow users to link their existing handsets with their Neo Africa cards.

“Typically, fraud prevention has been the bank’s problem and more often than not trying to identify and stop fraud has been guesswork at best. As a result, the cardholder is inconvenienced both when fraud slips through and when legitimate transactions are declined as a security precaution. Now, we’re putting the knowledge (of transactions) with the person who knows best: the cardholder.

“The Neo Africa Secure Card Solution gives cardholders complete control over their card, and eliminates card fraud problems such as skimming, cloning and card theft. Even if you fall prey to these crimes, your account cannot be cleaned out – simply because no transaction can take place without you first switching your card on, using your own mobile phone. For criminals, there is no way around this,” says Natasen.

“We are offering cardholders complete peace of mind in terms of their personal and financial security, services such as a full concierge offering, and emergency assistance – all in a one-stop, easy-to-use, very affordable package. That is, without doubt, the best kind of innovation one can get.”

For more information www.neoafricasecure.com; www.neoafrica.com

Investor targets LatAm deals

Posted on October 21, 2010 by

The purchase of Amanco in 2007 represented a challenge and an opportunity for Mexichem as it required a logistical strategy that would allow the company to optimise the supply of PVC resin, the primary raw material for piping production.

Following the acquisition of Amanco, Mexichem acquired Petroquímica Colombiana, a company located in Cartagena, Colombia, and a primary producer of PVC resin in the country. This acquisition further strengthened the synergies, as the geographic location of Colombia and the sea port allowed resin to be supplied to all Amanco plants located in the Andean region and in southern countries of the continent: Brazil, Argentina and Chile. The results have been remarkable. During the 2009 crisis, Mexichem supplied PVC resin needed for piping production to all of its plants in Latin America, sending the resin produced in Mexico to the plants in Mexico and Central America, and from Colombia to the plants located in the Andean and southern region of the continent.

Resin consumption for Amanco’s piping production accounted for more than 45 percent of Mexichem’s total resin production. Additionally, given the reduction of over 30 percent in the price of this input, Amanco’s margin increased. Colombia and Brazil also signed a free trade agreement under which resin exports from Colombia to Brazil are exempt from tariffs, giving Mexichem a competitive advantage. Resin sales also increased in that country since Mexichem’s prices are extremely competitive for a PVC resin deficit market such as Brazil.

The firm’s geographic diversification gives Mexichem a leadership position throughout all of Latin America. 55,000 points of sale in the region have created another series of synergies not only with the company’s traditional products but throughout its entire range. This geographical diversification also allows it to generate significant operating efficiencies by directing the production of different products according to the specific needs of each market and fully exploiting its logistics network.

Today, geographical diversification is a competitive advantage that is difficult to match, allowing Mexichem to be leaders in the Latin American market and to position itself as a global company exporting to virtually the entire world.

Generating efficiency
Having the pieces of a puzzle without knowing how to put them together is to lose the opportunity to create something wonderful. Mexichem has developed the ability to join these pieces and integrate them fully, in the process building a larger and more efficient company so that its operations can work together as if they were a completely synchronised timepiece in which each component is essential to the functioning of the whole.

Mexichem integrates each acquisition into the company’s operating philosophy and culture, guiding each business to its essence, identifying on a timely basis its main driving forces, and establishing an adequate strategy to make operations more efficient. Mexichem has a flat structure, under which decisions are made on the line and the outline of responsibilities and performance limits are clearly defined. Each member of the organisation knows the goals to be achieved and how to reach them. This allows the company to focus on the results and clearly monitor performance so as to make any necessary adjustments.

Furthermore, the company has created a considerable synergistic effect through integration and orientation, not only in its production operations but throughout the entire organisation. Interdependence and self-fulfillment drive productivity, raising it with each achievement. The synergies are not only visible in the results but are also created in daily operations where the integration of the different areas, from purchasing to after-sales service, takes place. At Mexichem, everyone knows the importance of fulfillment and the effect it produces throughout the entire value chain. Thus, by combining efforts, the result is much greater than the sum of the parts, and Mexichem achieves the synergies that are part of the organisation’s genetic code. The company also has an excellent technology platform which, together with its experience and structural capital, enhances its results. The SAP system has been a key tool to achieve these synergies, by standardising operations and, most importantly, providing real time information on all operations, regardless of location.

One of the most tangible results of the synergies Mexichem has achieved is the improvement made in operating margins, primarily through the systematic reduction of expenses and costs throughout the organisation. In recognition of this effort, for the past three years Mexichem has received the award for energy efficiency granted by the Comisión Federal de Electricidad (CFE), due to its significant reduction in electricity consumption in its many plants.

Mexichem has the largest production, in terms of tonnes/gallons/year, of PVC resins in the world, which puts it at the forefront of production technology for these products. Its performance levels in piping production are also among the most efficient in the world, significantly reducing production costs. During 2008 and 2009, Mexichem invested more than $144m in the modernisation, automation and efficiency of its piping plants throughout Latin America, increasing productivity and significantly improving margins.

Generating growth
Mexichem has achieved spectacular growth by following its core strategy of adding value to basic raw materials. In 2002, when sales were $283m and it generated about $29m in EBITDA, who would have imagined that in only seven years it would have sales of more than $2bn and be generating more than $500m in EBITDA.

The basis of this growth has been vertical integration, starting with salt and fluorite, in products of higher added value. This vertical integration has created a virtuous cycle of synergies by combining the various elements of the value chain to create a larger one, in which the benefits and attributes of the previous product are combined with the next.

This vertical integration favours sustainable growth and significant improvements in the performance of all the links in the chain. Mexichem established this strategic definition in 2003 and has since acquired more than a dozen companies in seven years with an investment of more than $1.9bn – of which only 50 percent has been financed through debt. The rest was financed with cash generated by the company and, at times, governed by its internal goal of maintaining a net-debt-to-EBITDA ratio of less than two to one with capital increases; this shows the control group’s commitment to the company and the contribution of stockholders to this goal.

Today the company has more than 40 production plants in 15 countries in America, including the United States. It leads in virtually all markets in which it participates. It is the largest producer of PVC resin and piping in Latin America, and the only piping producer fully integrated with its own raw-material supply. It has the largest fluorite mine in the world, with over 20 percent of the world’s production of fluorspar, and is the second largest producer of hydrofluoric acid in the world – the only one in the Americas integrated with its raw-material supply. All this positions Mexichem for greater growth and long-term viability in the fluorochemical industry. Furthermore, its purchase of Ineos Flúor positions the company as the only integrated producer of fluorocarbons.

Such growth has had a common factor: the synergies that have been a deciding factor in the acquisition process. If, when analysing a potential acquisition, Mexichem determines that it does not have the possibility of generating synergies with existing operations, the company is unlikely to proceed with it.

The best example of the results of the synergies Mexichem has generated through acquisition is the performance of the acquired companies compared with their previous performance. In 2006 Amanco registered EBITDA of $84m and, after its acquisition in February 2007, generated EBITDA of $138m; in 2008 it generated $208 and, in 2009, $207m. This proves not only Mexichem’s ability to generate productive synergies but to maintain them over time.

Private finance tackles Zambian energy

Posted on October 21, 2010 by

The Zambian energy sector demonstrates one of the cleanest carbon footprints in the world. More than 99 percent of the country’s grid electricity is generated from hydro electricity, which supports one of the largest energy intensive mining industries on the continent. While much of the grid was developed to support the mining dominated Copperbelt, the functional capital Lusaka, and the tourist capital Livingstone, the Zambian government has an ambitious plan to expand the economy beyond its previous boundaries on several fronts. There are plans to double the output of refined copper, introduce mechanised agriculture in new designated farming zones, develop new business parks, and increase rural electrification from three to 50 percent.

Copperbelt Energy Corporation (CEC) transmits and supplies energy in the Zambian Copperbelt, the economic heartland of this developing country. CEC operates around 900km of transmission lines, 38 high voltage substations and 80MW of thermal generation, and transmits and supplies around 800MW of power to Zambia’s strategic mining sector and the surrounding province. The company has also spearheaded an information revolution through the installation of optical fibre in the main commercial centres in Zambia.

The Zambian economy
The Zambian economy performed well during the international economic downturn of 2008 and 2009. This was facilitated by the significant increase in copper prices on the world market during the second quarter of 2009, and sustained growth in other sectors such as construction and agriculture. Committed capital projects in these sectors were in excess of $1bn (to be completed over different periods of time). Despite recessionary trends globally, Zambia registered real GDP growth of 6.3 percent in 2009.

Notwithstanding the steady development over the last few years, Zambia’s economy still faces challenges. In the energy sector the country has experienced power deficits due to growing demand and planned rehabilitation of units at the main hydro power stations. Further, the national levels of electrification are significantly low. As a result, the government is inviting investment in power generation and transmission projects.

The energy sector in much of Africa has relied for decades on respective African governments’ relationships with donors and development finance institutions to provide subsidised and concessionary finance for energy infrastructure investment. While this has provided competitive finance for specific projects, there has been little incentive for the respective state utilities to plan and develop projects in line with the growth potential of the host economies.

The host utilities have instead preferred to undertake projects proposed by the donors, preventing the laws of supply and demand from taking effect. The frequent load shedding and buzz of diesel generators characteristic of many African cities situated in economies endowed with abundant natural energy resources is testament to the failure of donors and African governments alike to understand the economics of energy. Keeping tariffs artificially low and failing to implement enabling legislation has crowded out private sector investment, and placed significant barriers to entry into an industry that provides a natural stimulus to economic growth, with a growth multiplier effect to the wider economy.

Thankfully, the situation is beginning to change, with a growth in the number of projects being opened up to the private sector for investment. In Zambia, the conditions for private sector involvement have gradually been falling into place with a trend towards cost reflective tariffs, the establishment of an independent regulator and the development of a grid code that will facilitate open access to the national grid. Reforms will need to go further to ensure that projects can become bankable, but the trend is clear. African countries can learn from their peers and in sub-Saharan Africa, Kenya leads the way in facilitating an attractive environment for the participation of the private sector. A number of Independent Power Producers (IPPs) are now operating in Kenya due to the proactive stance of its government in establishing a clear regulatory framework and tariffs that represent the true underlying cost of providing electricity.

Within Zambia, a number of IPPs have been allocated projects, although none have yet reached financial close. These include a 900MW hydro plant at Kafue Gorge Lower project, which is being developed by Sino Hydro using Chinese government financing; a 300MW coal fired power plant being developed by Nava Bharat and ZCCM Investments Holding; and CEC’s own Kabompo Gorge hydro plant, designed to generate 40MW.

The wider Southern African region is blessed with abundant energy potential due to its large rivers and undeveloped coal reserves. There is increasing pressure to favour regional hydro projects where possible, such as the Mphanda Nkuwa project in Mozambique: capable of generating 1,500MW when complete.

The Southern Africa Power Pool (SAPP) is an institution focused on encouraging a regional approach to investment in new power infrastructure, and promotes investment in regional power projects aimed at addressing the power deficit faced by many of its member countries. In March 2010 CEC was admitted to the full operational membership of SAPP, becoming the first private utility member of the 11-country electricity pool.

CECand the capital markets
CEC shares were listed on the Lusaka Stock Exchange in January 2008, through which 25 percent of shares were sold for a consideration of around $30m. The offer was significantly oversubscribed, with strong interest from local and international institutions and individuals. The share allocation process favoured smaller investors, resulting in a shareholder base largely comprised of Zambian residents and institutions.

There are a number of funds based in South Africa, the UK and the US with an appetite for African listed stock. As the returns in developed markets diminish, more institutional interest in African markets is expected going forward. Share prices on African exchanges are expected to match or exceed the growth in GDP, which for most African countries is likely to be higher than GDP growth in developed markets.

The majority of finance for new projects will be raised through debt, and there are a number of debt options available.

The development finance institutions such as IFC, DEG, African Development Bank, FMO and DBSA are prepared to finance infrastructure projects with amortising loans of tenors of up to 15 years (if the loan is deemed to be a public sector loan, even longer tenors are possible). Commercial banks are often able to match these terms, usually with a partially reduced tenor, provided that political risk cover is available. Perhaps the most significant development of the last five years has been the emergence of Chinese institutions such as the Industrial and Commercial Bank of China and China Exim Bank, which have been lending up to 85 percent of the total finance for projects with Chinese involvement.
The emergence of Chinese financing has certainly introduced a new element of competition into capital markets, but there has also been a trend towards bond financing as a means of financing infrastructure. This provides the investor with a marketable and tradable debt instrument, while the recipient of the funds has the benefit of a longer capital repayment holiday than is possible in a typical corporate debt structure. NamPower, the Namibian utility, recently issued a successful bond through a parallel listing on the Namibian and Johannesburg stock exchanges. Convertible bonds may be particularly attractive in today’s uncertain climate, providing the security of a guaranteed return with the possibility of upside if an investment plan achieves above expectations.

Future outlook for CEC
CEC is seeking to diversify its business model by participating in regional generation and transmission projects. CEC is developing a hydro power project in the north-western part of Zambia that will add 40MW to the national grid. This project, the Kabompo Gorge Hydro Power project, is estimated to cost about US$140m including the transmission line. Further, in July 2010 the government of Zambia granted CEC the authority to undertake feasibility studies for hydroelectric schemes on a river basin in the north-eastern part of the country.

The telecoms sector in Zambia has been developing rapidly in recent years. CEC has made investments in the sector through the installation of optic fibre on its power lines and offers broadband services to customers on the Copperbelt.

CEC has further acquired a 50 percent joint venture interest in Realtime Africa Alliance Limited, a company providing telecommunication and internet services in Zambia.

CEC prides itself in being a Zambian company, with a unique culture based around teamwork and an aspiration for excellence in its core engineering competences. CEC’s vision statement is “to be the leading Zambian investor, developer and operator of energy infrastructure in Africa by providing innovative solutions and building strategic partnerships through committed professional teams”. As the energy sector opens up, CEC will be competing for projects within the region, and the capital with which to fund them. It hopes to attract, develop and train the best indigenous talent in the region. Africa is in need of new champions and role models, and CEC aspires to be the company of choice for employees and investors alike.

For more information www.cecinvestor.com

The Eurozone’s autumn hang-over

Posted on October 21, 2010 by

A     fter a summer of Europeans forgetting their woes and tanning themselves at the beach, the time for a reality check has come. For the fundamental problems of the Eurozone remain unresolved.

First, a trillion-dollar bailout package in May prevented an immediate default by Greece and a break-up of the Eurozone. But now sovereign spreads in the peripheral eurozone countries have returned to the levels seen at the peak of the crisis in May.

Second, a fudged set of financial “stress tests” sought to persuade markets that European banks’ needed only €3.5bn in fresh capital. But now Anglo-Irish alone may have a capital hole as high as €70bn, raising serious concerns about the true health of other Irish, Spanish, Greek, and German banks.

Finally, a temporary acceleration of growth in the Eurozone in the second quarter boosted financial markets and the euro, but it is now clear that the improvement was transitory. All of the Eurozone’s peripheral countries’ GDP is still either contracting (Spain, Ireland, and Greece) or barely growing (Italy and Portugal).

Even Germany’s temporary success is riddled with caveats. During the 2008-2009 financial crisis, GDP fell much more in Germany – because of its dependence on collapsing global trade – than in the US. A transitory rebound from such a hard fall is not surprising, and German output remains below pre-crisis levels.

Moreover, all the factors that will lead to a slowdown of growth in most advanced economies in the second half of 2010 and 2011 are at work in Germany and the rest of the Eurozone. Fiscal stimulus is turning into fiscal austerity and a drag on growth. The inventory adjustment that drove most of the GDP growth for a few quarters is complete, and tax policies that stole demand from the future (“cash for clunkers” all over Europe, etc.) have expired.

The slowdown of global growth – and actual double-dip recession risks in the US and Japan – will invariably impede export growth, even in Germany. Indeed, the latest data from Germany – declining exports, falling factory orders, anaemic industrial-production growth, and a slide in investors’ confidence – suggest that the slowdown has started.
In the periphery, the trillion-dollar bailout package and the non-stressful “stress tests” kicked the can down the road, but the fundamental problems remain: large budget deficits and stocks of public debt that will be hard to reduce sufficiently, given weak governments and public backlash against fiscal austerity and structural reforms; large current-account deficits and private-sector foreign liabilities that will be hard to rollover and service; loss of competitiveness (driven by a decade-long loss of market share in labor-intensive exports to emerging markets, rising unit labor costs, and the strength of the euro until 2008); low potential and actual growth; and massive risks to banks and financial institutions (with the exception of Italy).

This is why Greece is insolvent and a coercive restructuring of its public debt is inevitable. It is why Spain and Ireland are in serious trouble, and why even Italy – which is on relatively sounder fiscal footing, but has had flat per capita income for a decade and little structural reform – cannot be complacent.

As fiscal austerity means more recessionary and deflationary pressures in the short run, one would need more monetary stimulus to compensate and more domestic demand growth – via delayed fiscal austerity – in Germany. But the two biggest policy players in the Eurozone – the European Central Bank and the German government – want no part of that agenda, hoping that a quarter of good GDP data makes a trend.

The rest of the Eurozone is in barely better shape than the periphery: the bond vigilantes may not have woken up in France, but economic performance there has been anaemic at best – driven mostly by a mini housing boom.

Unemployment is above nine percent, the budget deficit is eight percent of GDP (larger than Italy), and public debt is rising sharply. Nicolas Sarkozy came to power with lots of talk of structural reforms; he is now weakened even within his own party and lost regional elections to the left (the only case in Europe of a shift to the left in recent elections).

Given that he will face a serious challenge from the Socialist Party candidate – most likely the formidable Dominique Strauss-Kahn – in the 2012 presidential election, Sarkozy is likely to postpone serious fiscal austerity and launch only cosmetic structural reforms.

Belgian Prime Minister Yves Leterme, as current holder of the rotating EU presidency, now speaks of greater European policy unity and coordination. But Leterme seems unable to keep his own country together, let alone unite Europe. Even Angela Merkel – in growing Germany – has been weakened within her own coalition. Other eurozone leaders face stiff political opposition: Silvio Berlusconi in Italy, whom one hopes may soon be booted out of power; José Luis Rodríguez Zapatero in Spain; George Papandreou in Greece. And politics is becoming nationalistic and nativist in many parts of Europe, reflected in an anti-immigrant backlash; raids against the Roma; Islamophobia; and the rise of extreme right-wing parties.

So a Eurozone that needs fiscal austerity, structural reforms, and appropriate macroeconomic and financial policies is weakened politically at both the EU and national levels. That is why my best-case scenario is that the Eurozone somehow muddles through in the next few years; at worst (and with a probability of more than one-third), the Eurozone will break up, owing to a combination of sovereign debt restructurings and exits by some weaker economies.

Nouriel Roubini is Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics.

Central American region enters EU

Posted on October 21, 2010 by

Six years ago the Central American Region and Dominican Republic signed the Free Trade Agreement with the US (DR-CAFTA). The treaty has eliminated commercial barriers and taxes for the introduction of certain products, which certainly has brought further economic development for the participant countries.

Despite the international financial crisis there has been a considerable increment in the regional exports to the US, especially regarding agricultural and manufactured products.

Last May 2010 the Central American Region including Panama signed an Association Agreement with the European Union. The agreement is focused on three basic pillars: commerce, political dialogue and cooperation. It is expected to increase the commercial relationships between both markets and reinforce the historical ties between both regions.

Regarding this historical event, Guatemala hosted the Euro Expo 2010, at which venue Luis Medina, partner at Rusconi, Valdez & Medina Central Law El Salvador and Alessandra Magalhaes, from the Spanish law firm Garrigues participated in the forum “Legal Aspects of trade with the European Union”.

Mario Búcaro, Managing Partner at Central Law, said that working together with Garrigues in such an important event had been an achievement considering that the recent signing of the agreement enabled Central Law and Garrigues the opportunity to provide their respective clients the best legal advice combining their expertise in both jurisdictions.
“There are a lot of business opportunities between these two markets and the Central American countries are moving forward to reach it”, expressed Jesús Humberto Medina Alva, Central Law’s chairman.

Central America benefits from its geographical position: located between the Pacific and the Atlantic Ocean it is connected to the rest of the world, especially through the Panama Canal.

The Central American region offers many incentives for foreign investment. The legal framework in place is supported by regional laws and treaties.

Each country in the region makes the best efforts to attract new business opportunities worldwide.

El Salvador is best known for regulating public-private investments. The concession is the most known example of this figure and its investment structure is based on the English model of Private Finance Initiatives (“PFIs”) where the payment is accounted as Government´s current expenditure and not as a long period debt. Private public investments are the perfect tool for doing business across Central America.

Guatemala has one of the biggest financial centers in the region and is chosen for projects in real estate and tourism. Honduras, well known for agricultural, manufacturing and mining, is also famous for its amazing beaches.

Nicaragua encourages foreign investment in renewable energy projects since companies are allowed to contract directly with distributors and take advantage of a series of tax exemptions.

Central America is the home of some of the planet’s finest natural reserves. Important laws have been passed to protect the environment, as well as ensuring economic growth. Costa Rica is a leader on environmental issues and aims to be carbon-neutral by 2021.

Panama is a dollar-based economy and many companies have their headquarters there as they pay lower taxes than in their own countries. The Panama Canal and the Colon Free Zone facilitate international trade.

With its focus on tourism, many projects have been launched in the Dominican Republic attracting millions of tourists in the recent years.

Some places along the aforementioned countries, like Joya de Ceren (El Salvador), Antigua (Guatemala), Ruinas de Copán (Honduras), León Viejo (Nicaragua), Isla de Coco (Costa Rica) have been classified as World Heritage.

“Central America is more than the right choice for a tourism destination, and our firm´s knowledge of law around the region is invaluable”, adds Medina Alva.

Central Law, the leading full service law firm in Central America and Dominican Republic since 2002, has 11 offices in seven countries: Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama and Dominican Republic. It has a team of 222 individuals and its lawyers have more than 30 years of experience in the global markets.

Central Law belongs to USLAW, a network of more than 4,000 lawyers and 150 offices in some 48 US states. It is highly recommended by Martindale Hubbell, and is being ranked by Chambers and Partners and International Finance Law Review.

For more information: www.central-law.com

The happy science

Posted on October 21, 2010January 18, 2021 by Ashton Wenborn

Economics is often called the dismal science. The expression goes back to 1849, when Thomas Carlyle described the new field as “a dreary, desolate, and indeed quite abject and distressing one; what we might call, by way of eminence, the dismal science.” To the founders of neoclassical economics, though, it was actually all about happiness.

Neoclassical (ie mainstream) economics is based on the theory of utility, which Jeremy Bentham, the English philosopher and social reformer, defined as that which appears to “augment or diminish the happiness of the party whose interest is in question.” According to Bentham, the purpose of society was to satisfy the “greatest happiness principle” which meant providing the greatest happiness – ie utility – to the most people.

Neoclassical economists in the 19th century like Bentham’s follower William Stanley Jevons saw utility as a kind of quasi-physical quantity, which played a similar role in the economy as energy did in physics. Of course, while it is possible to measure energy using physical instruments, utility is a little more elusive; but Jevons argued that it can be inferred from prices: “Just as we measure gravity by its effects in the motion of a pendulum, so we may estimate the equality or inequality of feelings by the decisions of the human mind. The will is our pendulum, and its oscillations are minutely registered in the price lists of the markets.”

Relative spheres
The economy therefore came to be seen, in the words of Jevons’s contemporary Francis Edgeworth, as a machine for “realising the maximum energy of pleasure, the Divine love of the universe.” But there’s one problem with this theory. If the economy is supposed to be maximising happiness, and has been steadily growing larger – then why aren’t we getting happier?

In the US, since 1972, the General Social Survey has asked respondents: “Taken all together, how would you say things are these days, would you say that you are very happy, pretty happy, or not too happy?” The answer has been quite stable over that time – about a third say they are very happy, a little over half are pretty happy, and around 12 percent go for the last option. However the trend is slightly negative, and earlier results from the Gallup organisation showed that the number of people describing themselves as very happy peaked back in the mid-1950s at around 45 percent. Similar results have been found for other rich countries.

Over the same period, GDP has soared in real terms (in the US by about a factor three). So it seems that economic growth and happiness are not the same things. Indeed, this has to be the case, because the economy was nowhere near its present size for most of its history, so either we are the happiest generation ever, or the theory is wrong. In fact, studies of reported happiness levels show that income has a strong effect on a country’s overall happiness only if it is below a minimum level of around $15,000 per year, and there is nothing at all gained from going above $25,000 per year.

Part of the answer to the puzzle is that what counts is not absolute wealth, but relative wealth, as compared to one’s peers. As John Stuart Mill put it, “Men do not desire to be rich, but to be richer than other men.” This was illustrated by a US Gallup poll which asked “What is the smallest amount of money a family of four needs to get along in this community?” The answer simply tracked the average income. As other people get richer, we feel we must do the same just to maintain the same relative position.

New metrics
It follows that wealthy countries don’t become happier by becoming wealthier still. And because we tend to compare ourselves with those of our peers who are better off, any increase in social inequality – of the sort seen in most rich countries over the past few decades – can have the effect of decreasing overall happiness.

So what can we do about this? One proposed solution is to develop new economic metrics to replace GDP. After all, if economics is about happiness, then we should at least make sure we are measuring the right thing.

One problem with the GDP is that it includes a lot of activity that doesn’t seem aimed to optimise joy. For example, if the crime rate goes up, then GDP may actually increase because we spend more on security. Higher pollution can boost GDP because we need to spend money cleaning it up. But crime and pollution have obvious and immediate detrimental effects on mental wellbeing. Simon Kuznets, who pioneered the development of GDP, warned in 1934 that “the welfare of a nation can scarcely be inferred from a measure of national income.”

A 2009 study commissioned by the French government concluded that the GDP should be replaced by new metrics which account for factors like social inequality, crime rates, resource depletion, environmental damage, and reported happiness life satisfaction. There are a number of alternatives now available, ranging from the New Economic Foundation’s Happy Planet Index – the ratio of life satisfaction to ecological footprint – to the Buddhist state of Bhutan’s Gross National Happiness.

Alternatives to GDP are certainly called for. Personally, though, I am starting to believe that one detriment to human happiness is – economic metrics. All such metrics are misleading because of all the stuff they leave out, and they quickly become an end in themselves. Fuzzy, ambiguous, and multi-dimensional concepts such as a “healthy economy” or a “good life” can never be reduced to hard numbers. And to me there’s something vaguely scary about the idea of government economists trying to optimise my happiness.

For example, it has been found that a good way to become happier is to stop watching the news. Maybe that explains why Cuba scores seventh highest in the world on the Happy Planet Index – none of those pesky writers criticising government policy.

David Orrell is a mathematician and author. His most recent book is Economyths: Ten Ways That Economics Gets It Wrong

Evidence-based economics

Posted on October 21, 2010 by

Economics needs to change. By this I do not mean that the structure of the economy itself needs to change, although reform is clearly needed on that front. Rather, I refer to the academic discipline of economics, which studies the economy and events that take place in it.

After more than two hundred years of theorising, academic economists have failed to settle any of the fundamental controversies in their subject. In microeconomics, the assumption of rational self-interest, core to the discipline at least since neoclassical economics coalesced in the 1870s, has always been open to question. Today this assumption is under fierce attack from other social scientists and from the new school of behavioural economics, which seeks to use psychology to explain economic behaviour.

Similarly, in macroeconomics, the only period of broad consensus was from the 1940s to the 1970s when Keynesian macroeconomics ruled the roost. Before that, myriad schools of thought competed, though non-interventionism dominated. And, since the 1970s, macroeconomics has fractured into various flavours of Keynesian and New Classical thinking that offer wildly different prescriptions for policy.

Not even the scope of the subject is well defined. Many economists today would agree with Lionel Robbins, the British economist who in the 1930s defined economics as ‘a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses’. Using this definition, economists have produced theoretical models that establish what people driven by rational self-interest would do under various circumstances where scarcity prevails.

This view makes economics an ‘imperial’ subject with a claim to be the theoretical foundation of all other social science – but only if its assumption of rational self-interest holds true. The result has been controversy over whether the boundaries of economics are wide, encompassing all social science, or narrow, encompassing just commercial matters.

However, if the assumption of rational self-interest is not sufficient to explain human behaviour (as seems highly likely to be the case) then economics might not even be a very good explanation of commercial matters. Without capturing more of the behavioural vagaries of the real world, it would at best only partially answer the question which originally preoccupied Adam Smith and the other classical economists of the late 18th and early 19th centuries: an ‘inquiry in to the nature and causes of the wealth of nations’. Economics might just be a remote body of ‘rational choice theory’ that needs augmentation with other ideas to be applicable to the real world.

Either way, despite centuries of investigation, everything in economics remains open to debate.

This is worth contrasting with the natural sciences. No physicist seeks to revive the theory that the sun orbits the Earth. Neither do any seek to restore the theory that heat is transmitted by a fluid called ‘caloric’ that flows invisibly and weightlessly from hot bodies to cold ones. Likewise, no biologist seeks to replace Darwin’s theory of natural selection with the earlier theory of the French naturalist Jean-Baptiste Lamarck that evolution occurs mainly through slight acquired characteristics being transmitted to offspring and cumulating to large changes over time.

Scientific controversies do occur. The present controversy over just how severe man-made climate change might become is a well-known example. But scientists are committed to settling controversies through rigorous analysis of the evidence. This is the essence of the scientific method and, once the relevant evidence has been fully explored, controversies are decisively resolved.

Not so in economics. Economic theories are established primarily by abstract reasoning and are only cursorily checked against the evidence. When contradictory evidence does become impossible to ignore, ad hoc hypotheses are often generated to keep favoured ideas alive. In the early 1980s, for example, grafting assumptions that prices are ‘sticky’ and slow to adjust onto ‘rational expectations’ models of macroeconomics re-produced Keynesian results in which the economy can overshoot on either side of full-employment equilibrium – even though the idea of rational expectations had supposedly disproven this.

It could be argued that social science is fundamentally different from natural science and that it is impossible to validate social theories to the same extent as natural ones. Certainly, given the vagaries of society, there will always be more uncertainty in the conclusions of social science. But this does not mean that we should just accept completely contradictory viewpoints sitting side by side at the head of a major discipline. We all live in the same material universe and there can only be one underlying reality.

The solution is evidence-based economics. By sticking closely to the evidence of the real world, we can eliminate theories that do not fit and narrow-down to those which best explain the evidence. It may even turn out that seemingly contradictory theories are each valid in that they apply in different circumstances, but we must still work out what these circumstances are through empirical research.

Evidence-based methods in economics can be applied at any level. On a global scale it is fruitful to compare the periods 1873-1914, 1945-1971 and 1971-2010. These were each characterised by a distinct set of international economic institutions and we can see the effects of these institutions because the world was free from global wars to confuse matters.

The first and third of these periods were economically quite unstable, while the middle period was highly stable in financial and economic matters. It could be argued that the economic stability of the post-1945 era was due to strong growth arising from favourable demographics, post-war rebuilding and the adoption of a back-log of technologies delayed in Europe by the world wars. But the period 1873-1914 had also seen strong forces for growth arising from imperial expansion and adopting the innovations of the ‘second industrial revolution’ (electricity, chemicals, the automobile and so on). In any case, there are many historical examples where strong growth has led eventually to speculation and collapse. So the view that the stability of the 1950s and 60s was due to rapid growth does not hold water.

An alternative explanation is that economic stability from the late 1940s was due to the tethering of currencies to gold and the prevalence of fixed exchange rates. But, again, the periods 1873-1914 and 1945-1971 were alike in that they featured gold-backed currencies and fixed exchange rates. Indeed, these institutions were stronger in the first period than in the second. So the gold standard does not explain stability either.

The real explanation for the impressive stability of the 1945-1971 period seems to be that it was characterised by a set of institutions that included a large share for the state in the economy, controls on cross-border capital flows and tight regulation of the financial sector. These set the period apart form others and seem to be the root of its stability. They also mitigated inequality and probably fostered growth.

But we are still left with the question of whether some elements of this framework mattered more than others. One way to answer such questions is more detailed time-series analysis examining how economic trends changed after elements of a particular economic framework were introduced or removed at different points in time. Another is to examine more closely jurisdictions with regulatory frameworks divergent from the wider consensus prevailing in a given period.

In the years prior to 2007, Australia, Canada and Brazil, with their more intrusive financial supervision, provide such cases.

Further solutions are to trace the ways in which changes to regulatory regimes and other conditions have affected specific firms and sectors in the economy, to look at the behaviour of individual economic actors and to conduct economic experiments in artificial settings.

None of these tools are perfect, but they are much better than abstract equations disembodied from the real world.

Sean Harkin is a financial risk consultant based in London. He previously worked in the field of cell and molecular biology, and is author of The 21st-Century Case for a Managed Economy.

Voice service pays dividends

Posted on October 21, 2010 by

However according to the latest earnings, released in August, a lot of work still needs to be done. It’s easy to see supporting evidence for the so-called turn-around. Sound results can be seen in the good pace of growth in the base of subscribers, an improvement on network quality metrics, skyrocketing total traffic in minutes and the substantial improvements in financials.

In the last 18 months, TIM adopted an innovative offer: moving from charging per minute to charging per call, and extinguishing the traditional long distance barrier in Brazil. “Now we can see the Brazilian market as a single market, and we are happy to enable the creation of the largest community base in the country with 44 million users”, says Luca Luciani, CEO. In fact 28 million users joined the Infinity and Liberty plans during this period.

Playing the FMS game
As the sole ‘pure-mobile’ company in the market, TIM sees voice service as the central part of its strategy; more than 85 percent of its revenue comes from this sector. The Brazilian telecommunications market is worth around R$100bn per year, and the majority of it is voice. With that vision, the company’s strategy is focusing on stimulating higher usage, especially by playing the fixed-to-mobile substitution game. Taking a look in their Q2 2010 release, outgoing traffic more than doubled in one year to 12.2bn minutes. Breaking the numbers down into users, the average minutes per customer reached 110 minutes per month in Q2 compared with 73 minutes per month a year ago – but this is still one of the lowest in the world. Looking at the long distance business the traffic performance results are astonishing, with an increase of 1500 percent compared with last year, reaching leadership position in the very traditional and monopolistic market.

Supportive network
Network quality is currently very much in the spotlight, especially following Apple’s successful iPhone launches. As such TIM made a tough decision – to take a more conservative approach to selling data services while strengthening its network. Investments this year might reach R$2.5bn, on top of the recent acquisition of Intelig (one of the largest telecoms infrastructures in Brazil), which was considered vital to support the boom in traffic.

After successfully forming a robust and proprietary network to support its ever-growing traffic, TIM has now positioned itself to firmly enter into the data sector. Avoiding the flat-fee concept (and the doubtful economic value behind it), TIM once more showed that innovation is in its DNA. For its post-paid customers the company launched an offer of charging internet access per minute instead of per megabit, as it is more convenient and easier for the user to manage. For pre-paid customers the company is pursing the as yet unexploited market of casual internet use in the lower social classes. Basically TIM offers, via a customised smartphone, a substitute for the internet café, allowing connectivity to social networks (such as Facebook and Twitter) on a pre-paid daily charge. Their offer is a quarter of the price normally spent at café-style internet points, and the company sees it as a real universalisation of internet access in Brazil.

Preserving financials
Taking a look at TIM’s financial performance, gross service revenues recorded a high single digit increase year over year. If we split the performance of the outgoing voice revenue, the growth rate reaches double digits. Despite all commercial initiatives, the company seemed to successfully manage operating expenses, yielding an EBITDA expansion of over 20 percent year over year.

The year of 2010 seemed to be a very exciting one for telecommunications in Brazil, with turn-around cases like TIM and recent M&A activities. After the corporate turmoil solved, TIM seems to be one of the few players that can act in an attacker mode, with a very clear composition of a pure-mobile company supported by a heavy infrastructure. Past almost two years, the goal to maintain good balance between growth and financial return is likely to be accomplished. After such a successful business turn-around TIM now looks ready for a new challenge.

Advisories eye Moroccan deals

Posted on October 21, 2010 by

Kettani Law Firm (KLF) is a major Moroccan business law firm founded in 1971 by Professor Azzedine Kettani who was admitted to practice as a lawyer in 1968 and is approved by the High Court of Justice of the Kingdom of Morocco. He was joined in 1992 – after internships in France and the US – by Nadia Kettani, who is the Head of the International Consulting Department while supervising some areas of the Litigation Department; and Rita Kettani in 1993, who is the Head of the Commercial Department, the Litigation Department and the Labour Law Department. The firm acts for banks and other financial institutions, international businesses, major public and private companies and government departments.

KLF covers the whole spectrum of financial and business activities, and is an acknowledged leader in the fields of corporate finance, banking, project finance, corporate and commercial law. Areas of particular expertise include stock exchange law, aviation law, telecommunications regulations, energy, tourism, labour law, intellectual property, audits and IPOs. Additionally, the firm has a great deal of experience in arbitration and litigation as well as handling all forms of commercial disputes.

International experience
KLF has handled a number of high profile projects for clients around the world. These include advising France Télécom as a potential buyer of Maroc Télécom, the national telecommunications operator, for $2.3bn; and Telefónica’s bid of $1.1bn for the acquisition of the second GSM line. The firm has also developed expertise in the energy industry field, including project finance of $1.6bn for Jorf Lasfar, and of $500m for a wind farm. The firm recently acted as adviser in the following cases: a major British company in the acquisition of the Moroccan state-owned tobacco company Régie des Tabacs for approximately €1.3bn; the merger between two major American computer companies; and the merger between two international confectionary companies.

KLF were the advisors to the international managers to the Morocco government for its non-guaranteed sovereign eurobond issue for €400m. KLF has handled a significant number of major M&A projects, some of which include the restructuring of HP and the acquisition by Coca-Cola of Moroccan companies. The substantial merger of the Moroccan refinery Samir with SCP was also handled by the firm. KLF has advised international bidders during the numerous privatisation bids in Morocco in different areas. KLF advised local banks for the financing of the acquisition by Altadis of 80 percent of Régie des Tabacs for €300m. KLF has also advised Lydec (a subsidiary of Suez) for the outsourcing of its pension scheme for €250m, €100m of which was through a limited recourse bond issue. KLF advised local banks for the financing of the acquisition by SPT (a subsidiary of Vivendi) of 16 percent of Maroc Telecom for €500m. KLF has advised Roche SA locally for the sale of its over-the-counter pharmaceutical business to Bayer. Transaction values worldwide are in the region of €2.4bn. KLF is currently advising large pharmaceutical companies including Novartis Pharma regarding the reorganisation of their business in Morocco.

KLF has also advised on the IPO of Maroc Telecom on the Casablanca stock exchange and the Paris stock exchange (Euronext) as counsel to Merrill Lynch and BNP Paribas (€800m), the upgrade of the Samir refinery as counsel to the banks (about $700m) and refinancing of Méditel’s international debt as counsel to the banks (about €600,000). Also, KLF advised local banks for the investment of Four Seasons in Morocco (€100m) and is currently advising developers on large tourist projects in Morocco.

KLF has also advised IFC in some of their recent investments in Morocco.

Energy and renewable energy
The firm has been present in the energy sector advising blue chip clients with regards to exploration of oil and gas and exploitation of hydrocarbon permits.

The firm has also assisted in the following large energy projects: Ain Beni Mathar (Thermal-solar energy plant), Jorf Lasfar (coal-fired plant), Koudia Al Beida (wind farm – Northern Morocco), Tarfaya (wind farm), Safi bid (coal-fired plant).

KLF has also advised Masen (the Moroccan Agency for Solar Energy) regarding the solar power projects in Morocco.

For more information Tel: Nadia Kettani +212 522 43 89 00; nadia@kettlaw.com

Investors seek Med returns

Posted on October 21, 2010 by

Cyprus has become the destination of choice for investors in search of an ideal location for their company headquarters and operational activities. Cyprus, which has a long established reputation as a safe and secure location for commercial and business activities, continues to develop into an ideal hub for doing business between the Middle East and Europe. Cyprus offers peace of mind and ease of doing business in a professional environment and the surroundings of a sophisticated culture and advanced quality of life, both to multinationals and small and medium enterprises. The European Union (EU) is one of the most attractive FDI destinations: by investing in an EU member such as Cyprus, a market of over 500 million citizens becomes immediately available.

An EU member state since 2004 and a member of the European Monetary Union since 2008, Cyprus provides a thriving market oriented economic system with the lowest corporate tax regime in the EU at 10 percent, combined with a range of double tax treaties with 45 countries worldwide. Cyprus offers relatively lower operating costs with high quality services, including banking, tax accounting, auditing, business administration, legal processing, trustee, investment, brokerage and funds management.

The Cyprus economy has been growing at a steady pace of 4.5 percent per year, and has weathered quite well the recent global financial crisis, as is evidenced by the slight decrease in growth observed in 2009. Cyprus’ real GDP growth rate is well above the average growth rate of the EU 27 as well as that of the eurozone. The full liberalisation of the capital market along with the elimination of tariffs and quantitative restrictions, fully harmonised with the European Union laws, presents new promising opportunities for foreign investors.

In terms of FDI, in 2009 Cyprus attracted a total of €4,493m in FDI compared to €3,112m in 2008 and €1,725m in 2007. Cyprus demonstrates a solid FDI performance and potential: according to the latest World Investment Report published by the United Nations Conference on Trade and Development, Cyprus ranks among the front runners of the world in terms of both “Inward FDI Performance” and “Inward FDI Potential Index”.

In addition, the low risk of the economy of Cyprus is reflected in key economic indicators.

– Cyprus ranked 34th out of 133 countries by the World Economic Forum Global Competitiveness Report 2009-2010
– Cyprus’ economy was ranked 24th most free out of 183 countries in the Heritage Foundation 2010 Index of Economic Freedom
– Cyprus ranks 40th out of 183 countries in the World Bank’s DoingBusiness 2010 Report

These scores reflect the fact that the economy of Cyprus enjoys solid investment, monetary, trade, labour, business and financial freedom. An independent judiciary system results in a robust and transparent legislative and regulatory environment open to foreign competition.

Cyprus has completed a programme of reforming all its finance sector legislation in line with international best practice and has put a simplified, effective and transparent tax system in place that is fully EU, OECD, FATF and FSF compliant. Cyprus possesses an advanced transport and telecommunications infrastructure with state-of-the-art high-speed internet and mobile telecommunications, two international airports and deep-sea ports in Limassol and Larnaca, with close geographic proximity to the Suez Canal. The shipping industry accounts for four percent of the GDP.

In addition, Cyprus offers highly qualified and multilingual talent. In 2009, 52 percent of all Cypriot university students studied abroad, mostly in the UK and US, in fields such as business administration, accounting, law and engineering. Additionally, 47 percent of the population in the 25-34 age bracket have tertiary education compared to the EU27 average of 29.9 percent (2007).

Cyprus is located in the ideal geographical position and can act as a hub for investments to Europe and to countries in the Middle East, Gulf States, Africa and Asia. Cyprus provides the ideal environment to set up business operations effectively and efficiently. Cyprus can fully cater to business needs ranging from registering and setting up a company’s operations to managing EU, North African and Middle Eastern clients at a considerably lower cost.

Cyprus is committed to sustainable growth and economic development. And with pristine beaches and enviable weather, Cyprus blends a quality of life with maximum business benefits, catering to individuals and families.
Companies at all stages of the process leading to the establishment of a presence in Cyprus – be it information gathering, conducting a site visit or even implementing a business plan in the country – have a partner on the ground: the Cyprus Investment Promotion Agency (CIPA).

CIPA was established with a Council of Ministers decision in 2007 and is registered as a not-for-profit company limited by guarantee. CIPA has a threefold mandate:

– to promote Cyprus as an attractive international investment centre in key priority growth sectors
– to advocate reform in Cyprus required to improve the regulatory and business environment and infrastructure
– to provide investor support with after care and further development services

“Our role is to support, in any way that we can, foreign investors that want to do business in Cyprus,” says Mr Sotiris Sotiriou, Director General of CIPA. “The organisation provides added value to foreign investors by providing information, facilitating investor needs, and advocating reforms in the business environment”.

For more information Email: info@cipa.org.cy; www.cipa.org.cy

Austria relaxes legal hurdles

Posted on October 21, 2010 by

In the past, the registration of a branch of an English company in Austria encountered significant legal resistance and was often rejected by the courts. The cause of this resistance was more often than not a lack of understanding of the Austrian courts of the legal structure of English companies and the inability of the applicants explaining the characteristics of English companies to the Austrian courts. With the recent decision of the Commercial Court of Vienna the registration of an English limited company was accepted and the resistance was finally broken. BMA Brandstätter Rechtsanwälte GmbH represented the English limited company in this case and successfully registered the branch in Austria. By following the steps which led to this positive decision, the registration of English branches in Austria should be trouble-free in the future.

The origins of these problems are the differing legal systems. As well known that in England the common law system is in legal force whereas Austria is a civil law country. These differing legal systems led to essential differences in the company laws of both countries.

In England the ultra vires doctrine has been in legal force since the landmark decision of 1875 of the House of Lords in the case Ashbury Carriage Company v. Richie. According to the ultra vires doctrine a company’s legal capacity is defined by its memorandum of association. Therefore the memoranda of association of English companies were drafted in particularly extensive and detailed ways, especially with regard to the scope of business. That was done to ensure the companies were given the necessary legal capacity and their directors the necessary capacity to act for the company. In accordance with the ultra vires doctrine, acts of the directors of the company exceeding the scope of business of the company are considered void. This often led to conflicts with contractual partners and creditors of such companies.

The Companies Act 1985 abolished the ultra vires doctrine and explicitly allowed general clauses fixed in the memorandum of association. Now, the Companies Act 2006, in contrast to the ultra vires doctrine, regulates in section 31 that in case of doubt the scope of business of a company is unrestricted, as long as there were no restrictions explicitly made. Furthermore, the limitation of directors’ capacity to act was basically abolished by sections 39 and 40 of the 2006 act.

Despite these changes in the legal system in practice, very often the old memoranda of association are still in use in which one can find such provisions as:

– “To invest and deal with the monies of the Company in such shares or upon such securities and in such manner as from time to time may be determined.”
– “To lend and advance money or give credit on any terms and with or without security to any company, firm or person …, to enter into guarantees, contracts of indemnity and to secure or guarantee in any manner and upon any terms the payment of any sum of money or the performance of any obligation by any company, firm or person …”
– “To borrow or raise money in any manner and to secure the repayment of any money borrowed raised, or owing by mortgage, charge, standard security, lien or other security upon the whole or any part of the Company’s property or assets …”

Usually there are no such provisions in Austrian memoranda of association. The ultra vires doctrine does not apply in Austrian company law, the legal capacity of legal entities is basically unlimited. In particular, the legal capacity is independent of content and range of the company’s scope of business.

If an English company wants to register a branch in Austria with a memorandum of association containing such provisions as quoted above, such provisions are interpreted by the Austrian courts in the sense that the company wishes to do banking business. As a prerequisite the courts demand a licence according to the Austrian banking regulations. Since the English company actually is not involved in any banking business, does not intend to become so, and is thus not prepared for obtaining a banking licence, the registration of a branch often fails because of such misunderstanding.

During the registration procedure of the decision quoted above the English company successfully explained to the court the differences between the two legal systems and clarified the misunderstanding about the content of the English memorandum of association and the actual activities of the company.

It was outlined to the Commercial Court of Vienna that content and range of the memorandum of association is still influenced by the ultra vires doctrine. Furthermore it was explained to the court that the legal term of banking business is harmonised by the directive 2006/48/EU. Therefore, banking businesses that require a licence in England require a licence in Austria too and vice versa. Requiring a licence from an English company that does not need a licence in England would be a violation of Austrian banking regulations. This would constitute a violation of the harmonised legal term of banking business and at the same time a violation of the principle of freedom of establishment according to articles 49 and 54 of the EU-treaty in the Lisbon version.

Crucial for the understanding and the correct interpretation of such provisions of English memoranda of association as quoted above is the fact that the company only deals with its own money and not with money from others. This is the essential difference to the banking business, where it is all about money from customers. Taking out credits or issuing bills of exchange is usual commerce and no banking activity. Finally it was explained to the court in this case that according to the Austrian banking regulations a banking business is only given if its activities exceed a certain quantitative threshold. Sporadic credit and loan accommodation – as it is usual in commerce – is not meant to be banking business.

Considering the legal characteristics during the registration process of a branch of an English company in Austria and explaining these characteristics to the court should make the registration of English branches trouble-free in the future.

Dr Jürgen Brandstätter is Managing Partner at BMA Brandstätter Rechtsanwälte GmbH.

For more information www.bma-law.com

Sector embraces reform

Posted on October 21, 2010August 6, 2019 by

Today’s reality provides elements and precise signals that must be interpreted correctly. Who today does not wish to be in several places and in contact with several people at the same time? The user would like to be able to harmonise the various commitments of his daily life, including job requirements and the desire to cultivate relationships with family and friends. This is why he chooses to use a tool that enables him to be present always and everywhere: the web. The need to access the web 24/7 meets the needs of contemporary living and constitutes a decisive trend for technological evolution.

If we consider the growth of personal computers, we can see how it was driven mainly by the internet, or the user’s need to connect and navigate. It is just a small step between connecting and needing to remain connected all the time. This is why the need to have small, portable devices has arisen.

Portable computers are getting smaller and smaller – between five and 10 inches – and have no keyboard, just a “touchscreen”. They are designed not only for writing or calculations, but also for surfing the web, reading newspapers or books, sending and receiving e-mails, and communications.

They are designed for using contents rather than producing them, they are the new so-called notepad PCs. Between the last quarter of this year and the first of 2011, Acer will launch its first new models of these mini-computers on the market, with the aim to reach, over the next year, the target of 10-15 million pieces sold.”

At the same time smartphones have changed their image, from intelligent telephones designed for elite users to true phenomena for the general public, and their invasion of the market is proof of this.

The intelligent phone segment is expected to reach a demand of 266 million pieces by the end of 2010, absorbing about one fourth of worldwide mobile phone sales. According to recent market research, there are currently four billion persons worldwide who have subscribed to mobile phone services and about 200 million smartphones are sold every year, with an estimated market growth of 15 percent annually over the next 3-5 years.

With the netbook, the tablet PC and smartphone, they are the natural and logical evolution, and the true lifeblood of Acer’s business.

Acer considers its mobile products – smartphones, netbooks and notebooks – to be web communication devices that come in different sizes and performances to meet diverse usage behaviours: from simple access to information and documents via web all the way to the creation of increasingly complex content.

It’s a natural evolution of the IT market. The individual is more and more digital: devices like these will get more and more popular in the community.

The relentless advance of mobile technologies (extended battery life, high definition streaming, cloud-based computing, content sharing platforms) will continue to allow users to create and consume content seamlessly across multiple devices anytime, anywhere.

Content is central to our life. And is now central to Acer’s world. Together with mobility, it remains a concept that Acer believes truly makes a difference.

But what is happening in the world of computers? The market has changed dramatically. The desktop has reached the end of its line and PCs are definitively portable, to the point that even in companies the portable transition has been consolidated. Consuming contents while no longer “seated” at your desk is the activity that boosts the turnover of leading PC manufacturers.

Today, mobility can no longer be fully addressed without the concept of convergence, or the capacity to use only one interface for all information services across multiple mobile data devices. Convergence becomes the basis of a multimedia experience enabling the most diverse communications devices to communicate with each other.
Convergence is the only opportunity to create innovation. Today we have a new ICT industry, that includes new products and services created through the real convergence of the 4Cs – Computer, Communication, Consumer electronics and Content.

The digital revolution stems from the computer, no longer intended as a simple device for the representation of data, but rather as a powerful tool designed to process and create, edit and consume information and media. Convergence enables an extremely close and previously unthinkable integration of extremely different codes and languages. This process directly involves methods of representing, exchanging and organising information, and is expressed in new and innovative ways made possible by technology.

Acer’s goal is to give every single person the absolute freedom and individuality to consume content from any source whatsoever. Acer has a full range of products, including eReaders, smartphones, Netbooks, handsets, Desktop, Monitors and TVs, which enable our customers to bridge the gap from simply receiving available content and creating it and consuming it wherever they are.

Acer recognised and embraced the “Creation to Consumption” consumer trend.

As a result, Acer offers products with a seamless experience between them. Every product can communicate easily with the others and the whole system is very easy to set-up.

In this way, the single devices connect and share content to create a single – and far bigger – digital content environment.

“As consumer and business users adopt multiple mobile data devices, they will demand that those converging devices deliver a seamless and continuous experience,” states Gianfranco Lanci, President and CEO of Acer Inc. “Acer, being a leading provider of mobile data devices of multiple form factors, is uniquely positioned to deliver such a converged experience.”

A growing number of devices are entering our homes. Often they answer specific purposes and usually it takes a lot of technical knowledge to get them to interact. Up to now. Acer has created a simple solution that enables devices to “talk” to each other simplifying the process of sharing contents. Acer, breaking barriers between people and technology, has removed yet another layer of complexity from people’s life.

To satisfy this growing demand for simplicity, Acer developed the unique Acer clear.fi.

This solution is more than hardware. And more than software. It’s a new entertainment experience that allows real time sharing and playing of multi-format content over multi-platform devices.

The Acer clear.fi, therefore, is not limited to a single product but is an intelligent and innovative way of integrating technologies and devices in order to make digital content instantly available anywhere in the home. And out.
It’s based on putting people at the centre. It brings contents to the surface and makes them live the way they should: easy, intuitive, immediate, innovative.

Innovation evolves as time goes by and expresses itself in multiple shapes. Innovation cannot be conservative and must re-invent itself ever so often. Acer is the winning company in the hardware challenge. Now it’s time to make the difference. clear.fi is, for Acer, the first step into a new era of content consumption.

For Acer, innovation is not only a technological issue. It’s also related to our behaviour, attitude, and way of life.

For more information www.acer-group.com

Caribbean group leads region’s internet banking

Posted on October 21, 2010 by

In a recent address to the Trinidad and Tobago Coalition of Services Industries, Larry Howai explored what ‘innovation’ meant to his organisation. He identified innovation as intentionally ‘bringing into existence’ something new that can be sustained and repeated and which has value in the real world, such as making new tools, creating new products or enhancing processes, all aimed at greater productivity. Innovation allows human beings to accomplish something which was previously unattainable. Furthermore, First Citizens visualises innovation as the ability to see change as an opportunity – not a threat.

First Citizens has always been on the forefront of innovation in banking in Trinidad and Tobago. From its very first decision to distinguish itself by investing in state-of-the-art technology to focusing on customers’ needs, to creating the country’s first real-time banking platform within the local financial sector, First Citizens has sought to be the pioneer in innovative banking solutions in Trinidad and Tobago and the Caribbean region.

In 2000, First Citizens again led the industry by introducing the first internet banking service in the English-speaking Caribbean. This was followed by being the first to launch mobile banking in Trinidad and Tobago. In order to maintain its competitive edge in offering customers financial solutions, First Citizens partnered with distributors and manufacturers to provide package offerings to customers. Also, in an effort to provide safe and secure transactions without the use of cash, hand-held point of sale devices were provided for both the restaurant and distributive trades (delivery sales trucks) industries.

The innovations continued in training and other efforts, all with the customer as First Citizens’ main focus. According to Mr Mario Young, Assistant General Manager – Retail Banking, First Citizens also undertook in the last couple of years the “Customer Service Excellence Programme”. This programme focuses on the delivery of service that meets customers’ expectations. The programme has several pillars: the People Pillar, which addresses the training of staff to deliver exceptional service, address customer concerns, manage customer queries, and be able to take them basically “from hell to heaven in 60 seconds”; the Process Pillar, where various service delivery processes and operating systems were reviewed and improvements made to delivery time, delivery quality, and the overall experience of the customer; and the Physical Pillar, the redesigning of our branches to conform to standards of uniformity in “look and feel”, layout and design as well as customer taste.

The slowdown in global economic activity in 2008 and the continued decline in export prices of energy-related commodities adversely affected the local economy, as well as those of Caribbean countries. However, as reported in the First Citizens Group Annual Report, at the end of the financial year ended September 30 2009, in spite of challenging market conditions First Citizens Group reported a profit before tax of $588m. This profit represented $84m or 16.7 percent over the $503m earned in September 2008. At the end of September 2009, profit after tax was recorded at $537m.

This represented a 15.9 percent increase over the previous year. The Group’s assets increased from the previous year by over $12bn or 75.2 percent, closing at $27.8bn and resulting in a return on average assets of 2.5 percent, and a return on average equity of 16 percent. Increases in net interest income, other income, and assets all contributed to the financial success over the past year. In August 2010 First Citizens successfully raised a TT$500m seven year 5.25 percent bond on the local market, solidifying investors’ confidence in the bank.

At home in Trinidad and Tobago, First Citizens has been awarded the South Chamber of Commerce Tyrone Samlalsingh Pinnacle Award three times for Excellence in Innovation, Communications Technology and E-Commerce. The organisation has also won international acclaim as in 2009 the Bank of the Year Award was received from World Finance, Latin Finance, and The Banker. This hat-trick is unprecedented among Caribbean financial institutions, and underlines the strong performance of the group. Credits from these three independent, world recognised sources indicates that the group is well on its way to attaining its goals of superb financial strength, prudent risk-management, memorable customer experiences and sound corporate governance.

This is in addition to consistently being awarded favourable ratings by global financial ratings entities like Standard & Poor’s among others. In 2009, Standard & Poor’s and Moody’s maintained the group’s investment grade rating at BBB+ and Baa1 respectively. These ratings confirmed the financial standing of the group, which remains the highest-rated, wholly local financial institution in Trinidad and Tobago, and one of the top-rated, indigenous banks in the English-speaking Caribbean.

At First Citizens, the mission is “to build a highly profitable financial services franchise renowned for innovation, customer service, and sound corporate governance”. It is for this reason the group is constantly improving and enhancing or developing new or existing features with the intent of improving the customer’s experience.

Is the recovery still under construction?

Posted on October 21, 2010 by

It used to be said that you could measure a city’s economic wellbeing in direct proportion to the number of tower cranes visible along its skyline. But now, with so many building projects shelved or in limbo awaiting remission from the downturn, the exact opposite is often true, with those erstwhile symbols of prosperity standing mournfully idle as an ironic reminder of better times.

With some exceptions, the picture across Europe is fairly uniform. Recent Atradius analysis, in its monthly Market Monitor, shows a pattern of continuing pessimism.

In the Netherlands, for instance, where traditionally the construction sector has accounted for four percent of GDP, the current poor level of construction activity is seriously affecting the economy, with residential building output down 44 percent in the first half of this year, the number of building permits down 32 percent year on year, and corporate insolvencies in the construction industry now double that seen in the period 2006 to 2008.

In Belgium, as in many other countries, public investment is throwing a lifeline to the sector, while private investment continues to languish, and the trend of increasing insolvencies seen in 2009 has continued into 2010. In France, the number of new orders – enough to provide only about six months of building activity – is way below the norm and a genuine cause for concern.

Construction has in the past accounted for around 10 percent of Spain’s economy, but the property boom – for so many years a very visible feature of the Spanish landscape – has turned to bust. Industry leaders are now pressing Prime Minister Jose Luis Rodriguez Zapatero for urgent talks so that they can air their protests against his government’s announcement of a proposed cut of €6.4bn in infrastructure spending. It’s a dilemma: Zapatero needs to cut the sky-high deficit, but adding to the already heavy unemployment benefits burden (the country’s unemployment level now tops 20 percent) won’t help.

Concerns over cuts in public spending to reduce government deficits are of course not restricted to Spain, and warnings have been voiced in many other countries that cuts in capital spending programmes may hamper the fragile recovery in the construction industry. And it’s not just in the realm of public works that the tentative recovery may be tipped off balance. In the UK, for instance, where there has been a small increase in public sector building of late, activity in the private residential sector is looking decidedly shaky. Demand has been subdued by stricter mortgage lending criteria and uncertainty over the future direction of house values.

Unsurprisingly, in Ireland, as in Spain (both of which have recently received assistance for their construction industries from the EU Globalisation Adjustment Fund), the importance of construction to the overall economy makes its continuing contraction that much more critical. Over the past two years, the number employed in the sector has fallen by over 123,000, accounting for a massive 46 percent of Irish job losses in that period.

However there are glimmers of light. The German construction industry is seeing some growth, albeit low, helped considerably by major infrastructure projects – the result of a strong public private partnership programme. Prospects for some other European countries, including Poland and Slovakia, are also more optimistic, driven by much needed infrastructure projects.

No matter what the current situation and outlook in different countries, Atradius’ advice to those contemplating entering into business dealings with companies in the construction industry is to look for signs of potential financial difficulty, for instance disputes that may seem spurious or requests for extended terms of payment, and resolve these issues swiftly. Vendors should also take note of the age and size of their potential customers: most bankruptcies affect smaller, less well established firms. As a leading global credit insurer, when asked to underwrite the trading risk on a construction firm, and to arrive at an accurate and realistic assessment, Atradius always seeks the most recently available financial information on the subject firm, and looks closely at its banking facilities, liquidity, asset management, projects in hand and cash flows.

Simon Groves is a senior manager of corporate communications at Atradius Credit Insurance NV. The Atradius Market Monitor is available to download from www.atradius.com