January | 2011 | World Finance

Vatican praises ‘ethical’ Sharia banking

Posted on January 4, 2011 by

Haitham Abdou, director of marketing and product strategy for the ITS group, the biggest supplier of Islamic banking solutions in the world, confessed he was shocked to read Pope Benedict praising Islam’s bankers in the pages of the official Vatican newspaper. However, Abdou said, the article convinced him that Islamic banking is now ready for a rebranding as ethical banking, a system that could find new customers in the western world and elsewhere, as well as its traditional home in the Islamic world.

“Pope Benedict urged the western community to look at the Islamic banking model because of its ethical principles, to restore confidence amongst their clients at a time of global economic crisis,” Mr Abdou says. “It was really quite shocking to me to read such a thing coming from the Pope, but that’s what led me to believe that Islamic banking is crossing the religious boundaries and being seen as an ethical business model.”

The new focus on Islamic banking in the west comes just as ITS prepares for a global roll-out of its latest suite of banking solutions, called, but no coincidence, Ethix.

The name is not just a reminder of the ethical basis of Islamic banking principles, with their refusal to allow ‘usury,’ the charging of interest, but a hint, although Mr Abdou is too polite to say so, that western banking has not necessarily been that ethical recently.

Top tier
ITS was established back in 1981, in Kuwait, where it was (and still is, mainly) owned house. “So because of their needs, our main focus from the beginning was supplying solutions for Islamic banking,” Mr Abdou says. He joined the company 13 years ago, and swiftly rose up from being a programmer, analyst, designer, project manager and product strategist. Three years ago he moved into the commercial side and is now director.

“We supply more than 85 banks in our part of the world. In the past couple of years we’ve started to grow into Africa, and into the Far East from Malaysia to the Philippines. Our core expertise is in Islamic banking, but we also supply into the conventional banking industry as well. We have a lot of the tier one banks as customers; we supply conventional banks in Africa, in Nigeria and South Africa,” Mr Abdou says.

“Conventional Western banks are looking to open up Islamic ‘windows’, especially with the global banking crisis. Islamic banking saw a boom starting a couple of years ago and we feel it’s been growing at about 15 to 20 percent here and globally and we don’t see that slowing down.”

Islamic banking started in the Middle East “probably because of the religious side of things,” Mr Abdou says, and then as western countries started to see the business model of Islamic banking they started to realise the attraction of sharing the risk with the consumer, so banks get more involved. The sector is now in a transitional period where the boundaries of religion are dropping; Islamic finance is now perceived as an alternative financial model rather than just targeting the Muslim community specifically.

“We’ve seen some of the tier one banks such as HSBC, Citibank, Citibank, abn amro, all established Islamic windows in their operations. We’ve seen in London, for example, official regulations covering Islamic banks have been brought in by the financial services agency in the past few years and there are five or six opened there now,” Mr Abdou says.

“France has issued licenses for the establishment of Islamic financial organisations. In my discussions with US regulators, the Islamic front end side of things, that’s where we’ve developed our own products. We are looking into the legality and regulations of the Islamic model, and I have started to see many conferences being held in north America. There’s a global trend in the industry.”

Alfred Dunhill welcomes you ‘home’

Posted on January 4, 2011 by

Alfred Dunhill is the definitive men’s luxury brand, committed to challenging the notion of luxury and what is expected of an international luxury brand. With over 220 stores across the world, the globally acclaimed ‘Homes’ retail lifestyle environments in London, Shanghai, Hong Kong and Tokyo are a perfect example of dunhill’s ability to push boundaries. A unique global concept, they embrace and provide the ultimate in masculine luxury and retail lifestyle.

Created for the discerning and modern gentleman, the brand as a whole echoes Alfred Dunhill’s own legacy as a curator of the very finest. Alfred Dunhill the man was a true innovator of his time. He broke rules and refused to conform. His extraordinary spirit and dedication to luxury and innovation is as much at the heart of the brand today as it was in 1893.

Reflecting this heritage and its pillars of elegance, culture, creativity and Britishness, the Homes of Alfred Dunhill epitomise the third dimension of luxury – The Experience, allowing the customer to truly live the brand. The Shanghai Home of Alfred Dunhill has among its features an art gallery and games room, Tokyo’s distinctly modern Home boasts a bar lounge and an exceptional valet service, and in Hong Kong visitors to the Home can enjoy the dynamic atmosphere of Alfie’s restaurant and a fine wine reserve.

Although every Home of Alfred Dunhill is of course outstanding, the true spiritual home of dunhill is without question London. A freestanding Georgian mansion in the heart of Mayfair, Bourdon House embodies the heart and soul of the brand.

Characterised by proportion and balance, Bourdon House has long been considered a fine illustration of Georgian architecture. The Georgian style of architecture is now, more than ever, held as the epitome of refinement – beautifully proportioned, elegantly understated and much copied, but never surpassed. The Duke of Westminster set his sights on Bourdon House in 1911, displaying an overwhelming interest in its unique setting from the start, and made it his official London residence until his death in 1953.

Much time and care has been invested by Alfred Dunhill in renovating and modernising the House to evoke the same warmth and magnificence, but without compromising on its impressive heritage and spirit. Beautifully carved cornices, wood panelling, impeccably positioned antiques and perfect proportions echo the same elegant air and the building’s magnificent past fittingly.

Quite simply, the genuine character of the illustrious 18th century residence has been fully restored to its former glory, when it was called ‘Home’ by the second Duke of Westminster, but brought up-to-date by Alfred Dunhill with the progressive and enlightened concept of the ‘Homes.’

Every Alfred Dunhill Home is distinguished by a range of unique services, complementing a superior and effortless retail experience. Each one shares Alfred’s signature touch and personality, whilst still reflecting the respective culture of the environment surrounding it.

The three-floored retail aspect of Bourdon House, which is open to all, undoubtedly caters to every modern gentleman’s needs. The ground floor is home to the thoroughly impressive Alfred Dunhill emporium – the very best in luxury menswear, leather, accessories, gifts and gadgets.

The second floor reflects the brands commitment to personalisation, luxury and exclusivity – a spa, complete with two treatment rooms; a traditional gentleman’s barber – where guests can enjoy a hair cut or cut-throat shave in classic barbershop chairs covered in Dunhill’s Tradition leather, while checking the latest news and sports results or watching a classic movie on their personal TV screen; and the “Discovery Room” which presents custom-made menswear and leather and an dunhill museum curating both vintage leather and archive pieces spanning over 120 years.

In the basement you will be delighted to find a subterranean 12 seater private cinema complete with a state of the art Meridian sound system. The Cellar Bar and lounge area, serving seasonal British food and drinks, is adjacent to the humidor.

Service even continues into the walled courtyard – where guests can enjoy table service, under heaters during inclement weather, taking refuge from the hustle and bustle of London life.

The London home of Alfred Dunhill is overall an unforgettable and unique experience, which embodies a lifestyle that has long since represented grandeur and distinction in British luxury. To this day, Bourdon House is fit for royalty, revering its rich and reputable past but challenging the expected and demanding the very best.

Gruma meets expansion targets

Posted on January 4, 2011 by

In 2011, GRUMA will likely face various challenges. Thanks to the company’s preparation – much as in previous years – its strategic business approach will allow it to move forward with great success.

The Mexican multinational, with 93 plants strategically located to sell its products in 102 countries throughout America, Europe, Asia and Oceania, is already aware of some of problems it will encounter. Grain price volatility, maintaining consumption levels – mainly in the US – and utilising optimal flow generation to maintain a healthy financial structure are all concerns. In light of this the company is already prepreparing to meet these challenges head on.

GRUMA has now purchased all the corn to cover its production needs in the US, the market currently with the greatest grain price volatility impact. Having addressed this situation, the company can now offer a competitive price strategy and continue growing in the tortilla market.

On the consumption side, the company’s basic and defensive character of its products continues to allow it to ensure sales volumes in Mexico and Latin America, its core business after the US. However, GRUMA is always looking to broaden its reach and as such includes market expansion activities in all its strategic planning schemes.

According to the philosophy of its chairman Roberto González Barrera, the key to GRUMA’s world success is to adapt to the cultures, people and laws of each and every country where it invests. At the same time, its founder also believes that crises constitute growth opportunities, for constant portfolio evolution to meet customer and consumer needs.

In 2000, this most globalised of Mexican food companies went into the European tortilla market, with the construction of its first production plant in Coventry, England. Now, 10 years later, GRUMA has production operations in the UK, the Netherlands, Italy and the Ukraine, and exports products to most of the countries across the continent, as well as to Africa and the Middle East.

Furthermore, in 2006 GRUMA built and launched its first tortilla production in China and, through acquisitions, went into Australia, where it recently opened a state-of-the-art tortilla and chips plant, fully developed by its own technological area.

With these facilities, GRUMA has not only consolidated its international presence in the tortilla market, but allowed the production of a large range of flat breads (wraps, chapatti, naan, pitta bread, pizza base, piadina and more). This has allowed GRUMA to establish a major presence in those continents, aiding the expansion into these potential markets.

GRUMA sales worldwide are currently around $4bn, and there’s great potential to continue growing through products where a lot of experience has already been acquired. Implementing vertical integration through corn flour and grits production operations as raw materials in the aforementioned regions will also be an aim.

In 2011, GRUMA’s challenge in these regions is to expand its customer and product base. This will be achieved in part through strategic acquisitions to cover new regions. More importantly though, GRUMA aims to become more familiar with consumer tastes and preferences and thus meet consumption needs. For this objective, GRUMA has adapted many of its products to the culinary customs of the regions where it’s located. At the same time, GRUMA is aiming for increased consumer interaction, showing the variety of ways its high quality and value-added products can be used and consumed.

In Asia and Oceania, with 62 percent of the world population – over 4 billion – GRUMA and its management are certain that their products and opportunities will prove more than attractive.

Of course, this is not neglecting its operations in America and Europe, where each market offers near infinite growth opportunities. GRUMA’s future challenge is to continue consolidating its presence in the regions where it already operates, as well as to take advantage of all new market opportunities that occur across the planet.
Over the next year, GRUMA plans to grow sales and profits in all the regions where it operates, to continue reducing its leverage levels and enhancing its financial structure, which is the basis behind the company’s sustained growth.

The most globalised Mexican food company, that nourishes the heart of Mexico and the world, therefore has enormous global growth opportunities. With the world population now 6.5 billion people, all seeking high quality products that are healthy, practical and environmentally friendly characteristics, GRUMA has taken great strides to meet these needs, as it continues to demonstrate through the regions and markets where its products are already available.

World wide wells

Posted on January 4, 2011 by

First established as the Oil Surveying State Enterprise in Krakow in 1946, OGEC Cracow today executes large oil and gas drilling contracts across Europe, Asia and Africa. From initial contracts involving just the delivery of drilling rig crews, the company has led a programme of modernisation to its drilling rig fleet resulting in a shower of ‘turn key basis’ contracts. Nowadays, the company is one of the key players in the contractors’ market, beating competitors thanks to a combination of the high qualifications and experience of its employees, and its expeditious and reliable execution of works.

OGEC Cracow now stands at the forefront of exciting new markets. Poland recently became the subject of interest from global firms due to the discovery of shale gas deposits. OGEC Cracow has been an active member in the process of its recovery, participating in the exploration of the shale gas and crude oil, and extracting methane from hard coal deposits through four units working under the direction of PGNiG SA and other domestic market operators.

For 20 years, OGEC Cracow has also had a branch registered in the Czech Republic. Its first works there were executed on behalf of the Czech Geological Office when the country was still Czechoslovakia. Now OGEC Cracow has returned to this market, drilling for Česká Naftařská Společnost s.r.o surveying bores in the vicinity of Breclav. OGEC Cracow has also formed a consortium with the OGEC Jasło, and together the companies are completing an agreement with RWE Dea’s operations in the Czech Republic; once signed, the enterprises will execute the drilling of underground gas stores.

For many analysts, drilling in the Czech Republic and the potential of this market is quite a surprise. For the Polish firms, it is an excellent market and the beginning of new cooperation within the Capital Group.

European expansion
Ukraine holds tremendous potential in terms of its raw materials and attracts the best firms from around the world in search of what is buried beneath. OGEC Cracow’s first contract in the Ukraine was executed back in the 1990s for the operator JKX/PPC Poltava. From this, the firm committed to developments in Ukraine for the long term, running among other things works in the vicinity of Poltava where it has been drilling exploration and production wells using the N75 unit. In total, 20 specialists from Krakow have worked there.

OGEC Cracow also has its share in the extraction of natural resources in Kazakhstan. The company has been in this market since 1998, when it established its own branch and signed a contract for drilling works for KaraKudukMunai. After this contract, there was again a deluge of other offers, including some from the largest firms operating in that market: KazMunaiGaz, Lukoil, Chevron, Petro Kazakhstan, Orient Petroleum, Kazakhmys Petroleum and KazakhOilAktobe.

Unfortunately the economic crises which affected Kazakhstani and Chinese expansion in this area caused a slow withdrawal from the Kazakh market. Currently in Kazakhstan there are three rigs operating mainly for local firms. One of the larger units in Europe, the N1625, is drilling for Kazakhmys Petroleum while for North Caspian Oil Development LLP – another giant from the Krakow stables – is working with the Midco. The third contract is being carried out with the H1000 unit, which, for a few years, has been drilling for the Kazakhstani contractor Ken Sary. The number of workers employed in Kazakhstan currently stands at about 100. However, the firm remains poised to take advantage of better circumstances in the country as the market improves.

Into the east
Despite its expertise, some of the company’s largest successes have happened by chance. Over 13 years ago, OGEC Cracow and PGNiG SA were interested in the positive attitude of Pakistani authorities toward investment in the country, as well as the possibilities created by the presence of many international operator firms in this market. PGNiG SA procured concessions for surveying works in three provinces – Punjab, Sind and Baluchistan – and the Surveying Enterprise from Krakow quickly signed a contract with the American firm Occidental. The tender was won through the quality of the IRI 1700 unit contracted for the work, as well as the standard of the crew operating it. The unit was transported by sea from Gdynia to Karachi, and it continues to work in Pakistan to this day.

After works for Occidental, the OGEC Cracow procured contracts for drilling works by public tender for such internationally recognised operator firms as Premier Oil, Orient Petroleum, OMV, British Gas, BP, Lasmo, ENI and Petronas, as well as for domestic companies including OGDCL, MariGas and PPL.

Expansion into the hydrocarbon market in Pakistan was the joint idea of PGNiG SA and OGEC Cracow, which brought about an opportunity for cooperation. In 2009, OGEC Cracow won the tender for drilling exploration wells for PGNiG SA. The principal target for surveying was the Pab Formation, located at a depth of 2,642m.

This was not the first time that OGEC Cracow had worked for its owner in Pakistan, previously being in the vicinity of Sabzal and also in Sindh province in 1999.

Today in Pakistan two Polish drilling units are working with the Swab Unit, on which 30 Polish people are employed as key personnel, together with 100 Pakistan personnel. The IRI 1700 and RR 600 units run operations for the Pakistan operator OGDCL, which has contracted them for the next three years.

Africa’s rising star
OGEC Cracow has also had a strong interest in the African market for many years. The company’s first forray into the continent was a contract in Ghana with the Australian company Fusion Oil & Gas. The next followed in 2007, with an agreement for the execution of drilling for the international concern SASOL. These took place in Mozambique, in the vicinity of the town of Vilanculos. For the drilling tasks, two OGEC Cracow units and one of ZRG Krosno were contracted. After the contract was over, the RR 600 unit started drilling works for the Norwegian oil company DNO International before returning to work in Poland in September 2008.

This was not the end of the African adventure. The company attracted the attention of Tullow Oil in Uganda. The first supplies from IRI 750 reached the town of Butiaba in Uganda at the end of February 2008. After a short overhaul, the first well was drilled – Taitai-1.

From this, OGEC Cracow commenced a substantial programme of drilling for Tullow Oil plc in an area near Lake Albert, northeast Uganda. This ongoing project caused a great boom for the firm in the African market and in July 2010 OGEC Cracow again signed a contract with SASOL in Mozambique, using a K900 unit for the works.

The geographic range of works that OGEC Cracow undertakes is evidently stunning. However, the best commendation for the company remains its workers. Their versatile professional experience, unique knowledge, and their ability to undertake and happily complete even the most ‘mission impossible’ tasks make them the key to OGEC Cracow’s international successes. This combination of knowledge, experience and high work-ethic, along with access to the best equipment for the task, enables the company to set high standards and fulfil all of its customers’ requirements.

China shifts outbound investment focus

Posted on January 4, 2011 by

In China, FDI policy has shifted from inbound to outbound investment. Furthermore, outbound investment is migrating up the value chain from resources through knowledge-based industries. China’s huge financial resources provide a sound foundation which needs to be supplemented with information and tools to assist Chinese
companies to make objective investment decisions.

Everyone is aware of the massive economic changes that have taken place in China over the last few decades. Focusing on the trade balance and the financial resources (estimated at over $2trn), many people assume that China’s rise is based on low-cost manufacturing capabilities supplemented by an essentially limitless supply of people. However, in reality China’s vision and aspirations are global, broad and achievable.

With its membership in the WTO, China became part of the global marketplace. The country now has 46 companies in the Fortune 500 – three in the top 10. Contradicting the view of China as a specialist in low-end manufacturing, the country has developed the world’s fastest supercomputer, the Tianhe-1A, which at 2.5-petaflops surpasses the Jaguar supercomputer in the USA.

It has become important for China to diversify, partially as a result of negative perceptions about trade imbalance and currency exchange rates, but also because of political ambitions. Chinese facilities, factories and distribution centres in all parts of the world will utilise knowledge from the approaches successfully taken by Japan and Korea.

It will mimic successful aspects of those approaches, while skipping those aspects that didn’t go well. Case in point: in response to external demands for Yen, Japan revalued. The trade imbalance did not change, but the Japanese economy entered a 10 year deflationary period. It is unlikely that China will follow this example.

Historically Chinese outbound investment has been aimed at securing natural resources, a situation that resulted in a substantial African presence. The focus is now changing. During the recent UNCTAD World Investment Forum 2010 in Xiamen, the Ministry of Commerce of the People’s Republic of China presented a plan and strategy for more diverse outbound investment.

The ministry released detailed economic reports in Chinese language about the investment environment of 22 countries. They also proposed Global-Arena.com to work with them on a “Global-Arena.cn” initiative. Managing outbound FDI is very different from managing inbound FDI. Moreover, as China has changed, the government wants to diversify its FDI by complementing State Owned Enterprises’ FDI activities with Privately Owned Enterprises’ foreign investments.

As a global leader in online business location information, providing innovative online analytics tools to support objective FDI allocation decisions, Global-Arena.com is uniquely qualified to assist with China’s outbound FDI strategy. Global-Arena.cn will bring an enormous amount of information (in Chinese) to the Chinese outbound FDI market.

In addition to Global-Arena’s patented ranking technology, which supports evidence-based location decisions, Global-Arena.cn will provide essential information (cost, taxation, legal, education, infrastructure) to ensure successful implementation of the FDI strategy. Companies and governments outside of China which are increasingly interested in entering the Chinese market, will benefit through mirrored capability available on the Global-Arena.com website.

Having the financial resources to invest is adequate but not sufficient to ensure global success. Local FDI knowledge and access to information that allows objective and evidence-based decisions is equally important.

China is ambitious – but it is also realistic and practical. Most of all, China has a unique long term planning capability combined with an unparalleled sense of focus and patience. China wants to become the world economic leader. Chinese FDI is instrumental to that ambition.

Dr Dan Martin Zürich is Chief Innovation Officer at Global Arena

ICIS launched to protect investors

Posted on January 4, 2011 by

The long history of Cyprus indicates that its strategic geographic location had a central role in rendering it an important commercial centre. More recently, Cyprus’ EU membership, as well as its favourable tax and legal regime, its surprisingly wide network of double taxation treaties and its high level of professional services have made Cyprus one of the most attractive financial destinations in Europe and worldwide. Among many other economic sectors which benefit from its business friendly jurisdiction, Cyprus has had much success attracting International Collective Investment Schemes (ICIS). The main objective of the ICIS is to promote ‘merging’ of different unit holders’ assets and the collective investment of these assets, within Europe or abroad, with the purpose of achieving considerably high returns on the one and risk-spreading on the other.

Establishing a stable legal framework, which provides investors with certainty and flexibility, in May 1999 Cyprus adopted a codified law governing ICIS. The International Collective Investment Schemes Law 47(1)/1999 regulates the functioning of these schemes to ensure the highest possible protection for the investors.

An ICIS can take one of the following legal forms:
– International Fixed Capital Company
– International Variable Capital Company
– International Unit Trust Scheme
– International Investment Limited Partnership

Moreover, all of the above legal forms enjoy the option to be established with either limited or unlimited duration and can vary in respect of the target group they attract. Depending on the promoter’s determination, an ICIS may be established as private. On the other hand, it may be addressed to the general public or exclusively to experienced investors. The flexibility in designing the type of ICIS guarantees that the scheme is established solely for the best interest of the unit holders and exactly as desired by the promoters.

Types of ICIS
International Investment Companies (Fixed or Variable Capital)
An ICIS which consists of an International Investment Company with variable capital benefits is not subject to a minimum capital requirement. In contrast, an International Investment Company with fixed capital must fulfil the minimum capital criterion established by the Central Bank. The above criterion applies identically to ICIS marketed to the public or to experienced investors, but it does not apply to private ICIS, which enjoy no minimum capital requirement. As a result of the above exemption, and since ‘private’ cannot be interpreted objectively, the law includes a restriction stating that only schemes with 100 investors or fewer can be approved as private. A private ICIS is the most common type of scheme currently used by most promoters in Cyprus, primarily because it can benefit from a number of exemptions from administrative and compliance requirements.

International Unit Trusts
The central concept of International Unit Trusts is that the legal owner of the trust assets holds the assets’ legal title for the benefit of the beneficial owners, in accordance with the instructions of the settlor; as indicated in the trust agreement, and for the best interest of the unit holders. The main advantage of establishing a trust scheme is that Cyprus provides a legal framework which ensures the protection of the assets and guarantees the desirable confidentiality. Confidentiality is achieved through the duty of the Central Bank of Cyprus and other involved parties not to disclose any detail of the trusts to anyone (except in the case of a Cypriot court ordering it do so so). Assets protection is achieved because the trustee can be found liable to the unit holders for any losses suffered as a result of the improper performance of his duties and renders it very difficult for a third party to invalidate the trust.

Trusts established in Cyprus for the purposes of ICIS are defined as International Trusts and they are governed by the International Trust Law. According to s.2 of the Law, the settlor and the beneficiaries of the Trust must not be permanent residents of Cyprus while at least one of the trustees must be permanent resident. In addition, immovable properties in the territory of the Republic of Cyprus cannot be included in the Trust fund.

In the situation of establishing an International Unit Scheme for Collective Investments the Trustee can be a bank or any person, other than a bank, which provide trustee services, or even a subsiduary of any of the above, under the requirement that the criteria set in Sections 45 and 46 of the law are satisfied. In any of the above options the trustee must be considered by the competent authority as fulfilling the requirements set by the law and mainly needs to be found to exercise sufficient banking supervision in its jurisdiction. Cyprus is in a position to offer exceptional quality trustee services provided by experienced law firms, banks’ departments, trustee services companies and accountants.

International Investment Limited Partnerships
Limited Partnerships registered under the Partnership and Business Names Law of the Republic of Cyprus can suffice as International Investment Limited Partnerships. Similarly to ordinary Limited Liability Partnerships, the partners enjoy limited liability which is equal to the amount they contributed to the capital of the Scheme. A general partner is appointed, either a natural person or a legal entity, who is the only person empowered to represent the partnership and responsible for the scheme’s obligations and debts. The code of conduct and the obligations of the general partner are indicated by the law and they are similar to those of the trustee in the trust scheme.

Taxation
Beyond any doubt, the most attractive factor for establishing an ICIS in Cyprus consist of the tax incentives which, during the last years, became even more advantageous for the prospective investors.

Fund taxation
Generally the net income of the fund is subject to 10 percent flat corporate taxation. Dividend income, profits from sale of shares and other financial instruments and fair value gains are exempt from taxation. There is no withholding tax in Cyprus on any payments of dividends or interest abroad, irrespective of whether there is a double tax treaty or not with the country involved.

Investor taxation
Dividend distributions in respect of registered ICISs are taxed at three percent only applicable to Cyprus tax resident unit holders. Thus dividends paid to non Cyprus residents are totally exempt. Additionally, the redemption of units in ICIS is considered as disposal of securities; subject to the provisions of the latest law amendments are exempt.

Double taxation treaties
The double taxation treaties signed between Cyprus and other countries encourage the establishment of Cyprus registered ICIS. Since such treaties ensure the transfer of funds between the contracting countries with very low or even no further taxation, cheap or tax free repatriation of funds is ensured. Moreover, the fact that Cyprus retains double taxation treaties with non-European Union countries gives the opportunity for the citizens of these countries to invest in Europe through Cyprus ICIS and be treated as if they were Europeans.

Conclusions
It is useful to summarise the key factors that render Cyprus an attractive ICIS hosting state and constitute a safe environment for prospective investors.

Firstly, the promoters are able to select the legal form that best matches their needs, choosing from a wide choice of vehicles that can be used to establish the scheme. In addition, the establishment and the operation of the scheme is supervised and regulated from the Central Bank of Cyprus or from the Cyprus Securities and Exchange Commission (depending on the type of the scheme), which aims to ensure that all the involved parties meet the requirements set in the law and that unit holders’ assets are handled with reasonable care and transparency for the income and confidence of the promoters, unit holders and beneficiaries.

The common law based legal system of Cyprus in combination with the exceptional piece of legislation governing Cyprus registered ICIS and compatibility with EU ICIS law provides a certain, stable, safe and predictable legal environment for the unit holders. The high level of professional services offered from Cyprus firms in reasonably low costs is another reason for preferring Cyprus instead of any other EU jurisdiction.

The above findings along with the low corporate tax, the exemption of ICIS from the majority of taxation, the tax benefits of investors in an ICIS and the wide network of double taxation treaties undoubtedly render Cyprus an ideal financial centre for the establishment of International Collective Investment Schemes.

Areti Charidemou is a Partner, Areti Charidemou & Associates LLC

For more information tel: + 357 25 50 80 00; email: socratis.ellinas@aretilaw.com; info@aretilaw.com

Brokers deliver on currencies demand

Posted on January 4, 2011 by

Syria enjoys a geographic position where the three continents meet. Since the time of the Canaanites, through the golden age of the Arabian and Islamic Nation and up until now, Syria has been the centre of trade and transportation by land, sea and air.

Al-Mawardi, who was Treasury Minister then, clarified the role and importance of international commerce. He said, “90 percent of livelihood is in commerce and farming.” Thus, Al-Mawardi called for activating trade that leads to fluctuating money in journeys and transferring it in the countries. He considered this more convenient, more beneficial and more dangerous to the kind people.

A deep reading of Al-Mawardi’s saying about money fluctuation and transference among countries means that the increase in international trade will increase the ties of the social relations among the citizens of those countries and their financial status will improve. That results in developing all the countries and enjoy security and ease to further the relations regarding the social and economic interests. This is reflected in benefit to all people.

Since the end of the 20th Century, the EU has conducted the policy of concentration on services’ economy where the commercial services constitute (85 percent) of the local production.

As though history repeats itself. Despite the period between the two examples being nearly 1000 years, going back to the advantageous policies always increases benefit to people regardless of their colour and gender.
Services’ economy depends on providing service products in several fields such as health, education, tourism, transportation, communication, banking, insurance and banknote markets; besides, knowledge economy that has reached $200bn in the world.

Exchange companies are considered an essential pillar of the finance services sector because they play an important role in meeting the local needs for foreign currencies. They also play a role in activating the monetary course during some seasons by receiving and sending transfers among people fast and honestly.

Consequently, exchange companies are considered the main artery for the individuals and companies as a whole regarding money transfer where their transfers outdo banks’ transfers in this question. This is due to lowering the deducted local exchangers’ fees on transfers compared with the commissions imposed by the banks. These companies are regarded strong competitors for the local banks, and it is expected to add activity to the local market and protect them from monopolies.

Al-Adham Company for Exchange has established its philosophy on building a competitive policy for its prices in the Syrian market whether concerning transferring the currencies or commissions of trading in currencies; besides, delivering the incoming transfers on the day of transferring.

Al-Adham Company for Exchange has been able to gain the trust of local banks by buying the local currency from them and helping them in risk management against the fluctuation of prices of local and international currencies.

Dr Samer Mazhar Kantakji is General Manager of Al-Adham Company for Exchange. For more information Tel: +963 11 2325603

Power for a more sustainable future

Posted on January 4, 2011 by

Established in December 1978 as a state enterprise, Petroleum Authority of Thailand or PTT was formed to conduct petroleum and related businesses. Over two decades later, PTT Public Company Limited (“PTT Plc”) was registered as a company under the Corporatisation Act on October 1 2001 with a capital of 20bn baht ($673m). Currently, PTT Public Company Ltd (PTT) is Thailand’s fully-integrated energy company with leading position in exploration and production, transmission, petrochemical, refining, marketing and trading of petroleum and petrochemical products. PTT is 51 percent directly owned by the Ministry of Finance (MoF), with a further 15 percent held through Vayupak Mutual (government-invested funds).

PTT’s main businesses include procurement, transmission and distribution of natural gas in Thailand through a 3,508km pipeline network, as well as marketing and processing of natural gas through five gas separation plants. The company, through its 65.40 percent-owned subsidiary, PTT Exploration and Production Public Company Ltd., conducts oil and gas exploration and production both domestically and overseas. Most projects are in the Gulf of Thailand, and overseas projects cover Asia Pacific, the Middle East and West Africa.

In addition, PTT is directly engaged in oil marketing and international trading. It also holds interests in five domestic oil refineries, four of which are listed entities. These refineries and PTT’s gas separation plants support petrochemical operations, providing a wide range of liquid and gas-derived petrochemical products.

The success factor of PTT comes from management vision to expand business in relation to the global trend, such as the decision to involve in Petrochemical business, the construction of the new transmission pipeline, debt restructuring for affiliates, merger and acquisition of the affiliates, acquiring RRC refinery, jet and coal business etc. Moreover, the world was recovering from the Asian crisis in 1997, thus, the increase in the demand of Oil and Petrochemical product which led to the increase in petroleum product price. As a result PTT’s Group performance had rapidly grown from THB 386bn in year 2001 to THB 1,586bn in 2009.

Through keeping the core value chain expansion to become a ‘Top Oil and Gas Player,’ E&P business is expanded in and outside Thailand to cover the rising demand while the gas utilisation is developed to enlarge the value addition of gas. Moreover, the bigger pipeline network, both onshore and offshore, LNG receiving terminal, and the distributing pipelines to provide gas for the city are on track. To the downstream business, petrochemical consolidation is accelerated to increase the synergy among the leading companies. With an aspiration to become a global energy conglomerate, PTT has enhanced its value chain through diversification to related businesses such as coal mining overseas, clean energy business, and bio-petrochemical development.

Looking forward to a sustainable future, with the three strategic pillars of High Performance Organisation, Corporate Governance, and Corporate Social Responsibility, by 2020 PTT aspires to be a Fortune Global 100 company with top quartile performance, and to be listed on the Dow Jones Sustainability Index by 2013. Along with the aforementioned business plans for growth, PTT never loses its grip on Corporate Social Responsibility. Environmental protection and preservation of nature have been among the Group’s top priorities. Continuous improvement, benchmarking and monitoring of Green House Gas (GHG) emissions and energy conservation are placed in the latest roadmap for sustainability. More clean, renewable and improved environmental-friendly products are to offer to customers, both at home and overseas. Arguably, PTT is among the main reasons why Thailand has the most advanced biofuel programmes (Gasohol and Biodiesel) in ASEAN, on a commercial scale. PTT’s Research and Technology Institute has also dedicated a good portion of its brains and capital resources to Green and Clean technologies. Recently, a consortium was formed among research institutes, universities and PTT to collectively explore possibilities in CO2 absorption applications and biofuel that can be derived from micro-algae. Improved battery technology research that possibly can enhance the future performance of solar power storage is also ongoing. Meanwhile, PTT’s continual reforestation and forest conservation programmes in rural areas are considered one of the top “carbon-sink” climate change risk mitigations at a national level.

Through PTT efforts, more than one million Rai (approximately 250,000 hectares) of mature forests have been added to the country thus far. Last but not least, the company intends to create and enhance awareness on climate change and energy conservation for the public through designed programmes and campaigns.

Though the company yearns for a number of lofty goals on an international stage – back at home in Thailand – PTT Group simply wishes to personify the “power for sustainable future” for the country and its citizens.

IB competition grows in MENA

Posted on January 4, 2011 by

Among MENA investment banks, Jadwa Investment stands out for achieving strong growth despite challenging market conditions. Launched in 2007, Jadwa has been profitable for each of the last three years, and has grown assets under management by 13 times, from less than $150m in June 2007 to more than $1.9bn in October 2010, at a time when the MSCI Arabian Markets Index dropped by 25 percent. Capitalising on its strong management team and shareholder base, the firm forged ahead during the market turmoil, executing landmark private equity transactions and entering into strategic partnerships with leading players in the asset management industry, including Russell Investments, Investec and CIT UK. Over the same period, Jadwa’s flagship Saudi, GCC and MENA funds have consistently been among the leading performers.

Jadwa Investment is a full service investment bank based in Saudi Arabia’s capital, Riyadh. It offers asset management, advisory, brokerage and research services to institutional, ultra high net worth and high net worth clients in the MENA region. It relies on in-house expertise for managing public and private equities in the MENA region. For international investment products it has a strategic alliance with Russell Investments and also has a tie up with Investec Asset Management for investing in Africa. On the advisory and private equity side, Jadwa executed a first-of-its-kind single asset closed-end fund structure in Saudi Arabia in 2007 when it led a consortium to acquire Exxon Mobil’s 30 percent stake in Luberef, a lubricant refinery 70 percent owned by Saudi Aramco. Realising the potential of Jadwa, Khazanah Nasional, the sovereign wealth fund of Malaysia, bought a 10 percent stake in the company in 2009.

Asset management has been a significant contributor to Jadwa’s success, representing 42 percent of revenues in 2009. Within asset management, Jadwa focuses on equities, both public and private, and real estate. 65 percent of assets under management are invested in public equities, 24 percent in private equity, with the balance in real estate and fixed income.

The key to Jadwa’s success in growing the asset management business lies in the superior performance of its products, combined with superior service. Since their launch in June 2007 to the end of October 2010, Jadwa’s Saudi, GCC and Arab markets equity funds are up 41.3 percent, 24.1 percent and 23.5 percent respectively.

This compares handsomely to performance of the respective benchmarks of up 9.1 percent, down 18.5 percent and down 11.2 percent. Over 50 percent of Jadwa’s assets under management are in the form of discretionary portfolios that are managed in accordance with the risk-return specifications of the client. Fadi Tabbara, Jadwa’s Head of Asset Management and Chief Investment Officer, shares that Jadwa offers multiple strategies for discretionary portfolios ranging from ‘normal’, ‘semi aggressive’ and ‘aggressive’ for public equities to lower risk multi asset strategies. In the last two years, from the start of November 2008 to the end of October 2010, returns on Jadwa’s ‘normal’, ‘semi aggressive’ and ‘aggressive’ strategies have been 52.3 percent, 69.9 percent and 94.6 percent respectively. Over the same period the MSCI GCC Index was down 0.10 percent and the MSCI Arabian Markets Index was up 2.59 percent.

Clients are initially attracted to the performance of Jadwa’s asset management products, but it is the service standards that help in retaining them. According to Mr Tabbara, Jadwa’s aim has been to bring the highest level of professionalism, ethics and service standards to the investment industry in the region. “Our approach was first to hire a qualified team with strong understanding of regional markets and then to foster a culture of high quality service and impeccable professional ethics,” he says. “We keep close contact with our clients; update them regularly on the performance of markets and their portfolios. In difficult times, like Q408, we make it a point to be the first to meet our clients in person and share with them our view of markets. This reassures our clients that their capital is with people who are capable, who care, and who take stewardship very seriously.”

Commenting on the performance of Jadwa’s products, Mr Tabbara says that his aim is for Jadwa’s investment products to rank in the top three of their respective categories. “Consistent good performance is the key to attracting and retaining clients,” he says. “Our equity funds have been within the top three of their respective categories for 2008, 2009 and YTD 2010 periods. We strive to maintain this leadership.” Cornerstone of the investment performance is Jadwa’s robust investment process which derives its strength from an experienced and qualified team. Mr Tabbara takes pride in the fact that his is one of the largest Asset Management teams in the region and has experience of managing investments in the region since 1994. “We believe in investing in people. Even at the peak of the crisis, we didn’t lay off anyone. Currently we are 20 professionals in asset management and looking to expand. Six of us, including all members of the buy side research team, are either CFA charterholders or are awaiting award of charter having passed all three levels of the CFA programme.” On the investment process, he says that it is a dynamic process that takes into account both top-down and bottom-up approaches of investing. “Our portfolio management team is always on the look out for new investment themes and opportunities. Special emphasis is laid on the understanding of economies, markets, sectors and companies that we invest in.”

Jadwa’s investment process and performance of its products also received a nod of approval from Moody’s Investor Service recently, when Jadwa was assigned Investment Management Quality Rating of MQ2. This is the second highest rating on Moody’s scale which is used to evaluate asset management companies globally.

More importantly, this rating is the first of its kind by Moody’s in the Middle East region. Mr Tabbara is proud of this achievement and claims that it raises the bar for him and his team. “We need to continue to perform well to be able to maintain our rating. The rating is a validation of our commitment to employ international best practices in our business.”

Jadwa’s achievements in the first four years of its existence are commendable. Mr Tabbara attributes these to the quality of his team, the support of Jadwa’s senior management and its shareholders, and to the enabling environment provided by the regulator. However, there is still more to come, in his opinion: “I want Jadwa’s asset management to be recognised as the undisputed leader in this business in the MENA region. In order to achieve the status we need to continue to work hard in constantly improving our performance, developing new and innovative products and raising funds.” He also thinks that the region’s markets need to improve: “Our markets are still in the development phase. Investment decisions are generally taken without due analysis as quality research is lacking or limited in most cases. The way forward is to have more institutional participation in the markets and retail money channeled through the institutions. At the institutional level focus should be on further improving analytical skills of employees.”

Jadwa is optimistic regarding MENA region’s growth prospects in the backdrop of continued government spending and strong energy prices. Mr Tabbara also believes that public equities in the region are trading at attractive multiples as compared to historical levels and sees good investment opportunities. “In the medium term we expect some of the regional markets to be elevated from frontier to emerging markets status which would result in fresh flows and improved valuations,” he says. “On a country specific basis, we like Saudi Arabia, Qatar and Egypt. Companies listed on these markets are growing rapidly through aggressive yet calculated expansions. With the global economy turning a corner, we expect both regional and international investors to realise the attractiveness of these companies.” Regulators are also working hard to improve corporate governance, transparency and professional standards, he says.

In the private equity segment, he notices that a number of family owned businesses have re-organised themselves on professional lines. These family owned conglomerates have grown significantly over the last 10-15 years and are ready to move onto the next level. Such businesses offer attractive proposition for private equity investors.

The investment climate in the region appears to be improving and Jadwa looks well positioned to exploit it.

Fadi Tabbara is Jadwa’s Head of Asset Management and Chief Investment Officer

“The Concurso Mercantil Law is not effective”

Posted on January 4, 2011 by

Insolvency in Mexico has been seen like a maze, the seven-heads demon or the economy evil. Insolvency is an effect of financial distress situations, which, in turn, are the effect of economic mistakes or diseases, abuse or greed, whether from the government or private sector or both. At the end, insolvency, most of the time, is a result of human action, rather than an act of God.

Under financial distress situations, it is of essence to be equipped with a modern, orderly, predictable, accountable, efficient and effective legal insolvency system to protect debtors’ and creditors’ rights, to optimise assets and as long as possible preserve jobs and businesses. Mexico through its history has lacked such a system. The current insolvency systems – concurso mercantil for merchants, enacted in 2000, and concurso civil for consumers, enacted in 1932 – have without a doubt failed.

In the systemic financial distress situations of the 20th and 21st centuries, Mexico has been forced to overcome distressed economies through vehicles outside insolvency proceedings. It was the case of the FICORCA in the mid 1980s, and the UCABE, the FOBAPROA and the IPAB in the high 1990s which were, in fact, official rescue programmes, wherein the government assumed the risks. Risks which, in the end, are paid by federal treasury with taxpayer funds. Most individuals, consumers, holding high debts, banking debts, mortgages, credit card debts, and other debts were forced to participate in ruinous restructuring programmes, recognising and acknowledging the full debt, principal plus interest, payable in a longer period. In other instances, financial systemic crises have been faced with the support of the international finance institutions, foreign indebtedness and other countries’ financial support.

21st century upgrade
In the insolvency context, financial distress entrepreneurs and consumers look for reorganisation rather than liquidation or at least a fresh start. Debtors seek bankruptcy protection when available, whether in reorganisation, liquidation or out of court settlement. Insolvency systems should provide for predictable, timely, orderly, efficient and effective bankruptcy protection. Bankruptcy protection benefits the economy and trading chain, even with a fresh start. Major bankruptcy systems in the UK, US, Canada and Japan regulate and provide bankruptcy protection to prevent insolvency not only while under actual economical crisis.

Mexico’s insolvency system lacks effective bankruptcy protection. Mexico has a double insolvency system. Firstly, it is for merchants, namely concurso mercantil, and secondly it is for non-merchants, concurso civil – consumers (both for individuals and legal entities). Concurso mercantil is governed by a federal law, Ley de Concursos Mercantiles (LCM), enacted in May 2000. Concurso civil is an estate regulation, governed by each estate’s civil code, modelled on the Civil Code for the Federal District, enacted 1932. Insolvency petition is not mandatory. In case there is no plan of reorganisation, estate assets shall be liquidated. No concurso mercantil or concurso civil provide for discharge, except with the creditors’ approval. Neither of them provide for dischargeable debts. Under concurso mercantil and concurso civil, the debtor remains liable after liquidation of any deficiency owed to creditors after liquidation and/or distribution. Thus, any creditor may enforce and execute thereafter its rights in the case of a debtor gathering new assets, inheritance or lottery. There is no discharge.

Notice that, surprisingly, there is no record of concurso civil filings in history. There are no official statistics whatsoever of concurso civil. Regarding concurso mercantil, the situation is similar. From 2000 to May 2010, there have been only 444 proceedings in concurso mercantil in total, involuntary and voluntary. Of these 208 (46 percent) have been terminated by settlement, of which only very few were terminated by the plan of reorganisation. This data shows that only a few cases arrive at such a status. These statistics show that debtors and merchants, under financial distress and within an economic crisis like the current one, do not file for concurso mercantil.

Bankruptcy protection as well as time and cost are important for both debtors and creditors. There is an immediate need for an insolvency culture and system in Mexico to eradicate the evident phobia surrounding insolvency.

For the time being, debtors are seeking out-of court reorganisations and settlements. As the financial situation becomes worse and with rescue programmes being insufficient, in 2011 it is expected that there will be an increase in insolvencies and eventual liquidations. In some cases there may be a plan of reorganisation settled by debtors and creditors to overcome a financial distress situation as a transitory vehicle. On the other hand, distressed financial entities may just close their business and runaway by fact (factual liquidation). It is also expected creditor’s foreclosures and judicial executions since concurso mercantil (insolvency) is not mandatory.

In Mexico we have already seen that the concurso mercantil law is not effective. Ley de Concursos Mercantiles strongly needs to be amended. Its structure was modelled in the old Spanish bankruptcy laws of the 18th century.

There is an urgent need for an insolvency system that will effectively provide for the 21st century legal regime and that will help debtors and creditors overcome the financial stress situation, including labour, tax, suppliers of goods, services and finance, merchants and non-merchants, whether large, medium or small. For instance in Mexico, small business (PYMES) and non-merchant (consumer) insolvencies lack all bankruptcy protection.

Another feature of the Mexican insolvency system is that labour creditors and tax creditors (federal, state and municipal) are super priority creditors. Labour and tax creditors do not enter into insolvency. They are enforced, recognised and paid in their special courts, outside of insolvency. When it happens, generally, there is nothing left for other creditors.

Likewise, only post-petition actions, including arbitration, enter insolvency proceedings under the concurso mercantil. Thus, pre-petition action and arbitration do not join the concurso mercantil.

On the other perspective, Sistema de Administracion Tributaria (SAT) data shows that Mexican IRS records 26.3 million active taxpayers – 16.3 million employed, nine million individuals and 831,000 legal entities. Informal sector – not under IMSS (Social Welfare) government control and non-taxpayers – 12,612,617 in April 2009 accounting for 28.3 percent of total employed people.

New approach
21st century insolvency systems encompassing and protecting all debtors and creditors, whether merchants or consumers as well as all creditors, including labour and tax, may help importantly to overcome and reduce significantly the informal sector and non tax payers, based upon the fact that all of them would prefer the insolvency benefits (such as the automatic stay, discharge and tax benefits) under the formal insolvency proceedings.

The new insolvency system shall, inter alia, provide for reorganisation and liquidation in bankruptcy in separate independent proceedings upon petition of creditors or debtor. It should incentivise discharge for a fresh start, when viable. Otherwise it should provide for timely, orderly, efficient and effective liquidation.

Oscos Abogados is drafting a new bill featuring issues for a 21st century insolvency system.

For more information tel +52 (55) 12 53 01 00; email: doscos@oscosabogados.com.mx; www.oscosabogados.com.mx

Brazilian software demand soars

Posted on January 4, 2011 by

Founded 27 years ago in Brazil as a provider of corporate management software for personal computers, TOTVS is now the world’s seventh largest enterprise resource planning company, the first in an emerging country and the absolute leader in Brazil, with a 49.1 percent market share according to Gartner.

Its history of constant, organic growth and efficient market consolidation has been drawing the attention of analysts and investors not only in its home country of Brazil, but also in Europe and the United States.

The company’s history shows a case of true success in mergers and acquisitions. A total of 26 companies were merged into its organisation over the years. Differently from other companies around the world that resorted to mergers and acquisitions as a means to drive growth, TOTVS is not a confederation of companies. TOTVS strives to create a company with a single set of processes and products, under a single brand and distribution structure.

That uniformity enables impressive market results. TOTVS has been growing organically at two-digit rates over the past 10 years, whereas its competitors have been shrinking or achieving barely relevant growth. Ever since its IPO in 2006, TOTVS’s EBITDA margin has expanded 33-fold. The company is one of only 10 listed on the BM&FBovespa Novo Mercado that have sustained higher-than-IPO share prices over time. From its stock market debut to the present day, the company’s share prices have climbed more than 400 percent.

The company’s evolution is justified by its assertive business model. Compared to a soccer strategy, one could say that TOTVS plays with a 4-3-3 team configuration. On defence, the company gains an edge by offering essential products. Nowadays, no company is able to initiate operations without water, electricity, a phone, and business management software.

The second point of defence that contributes towards constant growth is the low penetration currently seen in the company’s targeted market. According to Gartner estimates, only seven percent of Brazil’s 468,000 small and medium companies use management software to assist them with their processes. In Brazil, TOTVS holds 65.6 percent market share in the SMB segment, according to Gartner.

The third point has to do with competition: there are no other companies with the same vocation as TOTVS to serve small and medium corporate clients. This gives the company another strong competitive edge.

For the fourth aspect, there are a series of market factors that have been driving demand for management software, such as the mandatory adoption by companies of the Public Digital Bookkeeping System, a set of fiscal and legal requirements applied by the government in order to increase tax-collection efficiency; the 2014 FIFA World Cup, involving 12 Brazilian capital cities; the 2016 Olympics in Rio de Janeiro; and government programmes like the Growth Acceleration Program. All these factors help drive a greater need for new software investments by companies in TOTVS’s targeted market.

The company’s strategy of keeping the organisation in midfield is structured around three solid pillars – distribution, products, and technology.

TOTVS’s wide range of coverage is achievable especially by its exclusive distribution franchising model, which guarantees the required capillarity for the company to be present in all Brazilian states. Created in the 1990s, TOTVS’s distribution system is made up of internal facilities and a chain of franchises responsible for representing the company in the regions where they are installed.

These channels are operated by local entrepreneurs, who not only expedite customer service, but also add region-specific knowledge. There are currently 53 TOTVS distribution centres, including the six offices operated by the company itself. TOTVS also has franchises in Bolivia, Uruguay, Portugal, Angola, Argentina and Paraguay.

The name TOTVS comes from Latin and means all, everyone – an appropriate name for a company that strives to offer solutions and services to companies of all types and sizes. A healthy midfield is assured through annual investments of more than $80m in research and development. That figure places TOTVS among Brazil’s top five R&D investors. The investment is justified because TOTVS always keeps the software it produces up to date. Historically, the company has been assigning more than 11 percent of its net revenue to internal research.

In addition to the technology itself, the investments also focus on trend and innovation studies. Their goal is to discover the best technologies and the most efficient means to use them, anticipating the market’s needs.

That freedom empowers the company to operate in 10 market segments (healthcare, agribusiness, legal, financial services, distribution and logistics, retail, education, construction and projects, manufacturing, and services). Its segmented solutions don’t only automate back office activities; they also provide applications with specific features for each segment.

Intelligence units were created for each segment, with attributions that include preparing operation strategies, developing relations with the market, identifying strategic partnerships, and sharing segment-relevant information and topics.

TOTVS intends to offer increasingly customised software for each client’s field of operation, respecting the particularities and laws applicable to each segment.

That expertise enables TOTVS to assume the position of Administrative Operator, a smart and challenging concept. More than simply providing software, the company focuses on the best business practices, positioning itself as the supplier of a sum of solutions – going beyond software to include consultancy, technology, and added-value services like BPO, infrastructure, education and service desk. TOTVS currently has 27,000 active clients, and its products are present in 23 countries.

It’s also worthy of note that its products are highly flexible, respecting the systems already in place in the client’s infrastructure. All are scalable and custom-tailored to the specific needs of each client. More than 2,000 new features were included in the most recent versions of its solutions. These features were developed to address the demands of markets and clients, new legal requirements, usability and ergonomics, implementation of technological innovations, and integration.

The new line was designed to promote greater integration among the portfolio’s products, expand the solutions’ segmentation, and introduce the concept of collaboration and integration with social media, through by You, a range of tools targeted at web portal development, content management, mobility, and integration technology.

It was all designed so that companies can expand their presence online and transform it into business opportunities. Always ahead of the competition, TOTVS was the first Latin American country to offer software as a service and cloud computing.

To play well in all positions, TOTVS could not neglect its line of “offence” in order to maintain a permanently assertive business operation. By applying a revenue model based on three main software lines: licenses, services (offered both to new and already existing clients), and maintenance (new versions and help desk), TOTVS maintains a healthy, balanced income.

In its most recent balance sheet, for 3Q10, TOTVS reported its 19th consecutive quarter of two-digit growth and broke new records in net revenue, EBITDA margin, licensing rates, and maintenance. To illustrate the company’s potential, licensing rates advanced by 44.5 percent compared to 3Q09, establishing a new record of $56m. Revenue from services climbed 7.6 percent compared to 3Q09, reaching $55m. And in yet another historical record, maintenance revenues totaled $82.4m, outperforming the same quarter in the previous year by 13.7 percent. These results are proof that TOTVS still has a lot of energy left to play the game.

KPMG warn against suspending projects

Posted on January 4, 2011 by

Our experience on project and portfolio management gained at the largest companies of the private and public sector in Greece clearly indicates that they do not. Most organisations experience fragmented change initiatives which are inconsistent, uncoordinated and unlikely, overall, to add value to their business.

Projects are hard – balancing benefits and resources of change initiatives at organisation level is even harder. Organisations may not have difficulty answering questions like “Was project X concluded within the planned timeframe,” or “How much did it cost us,” but it is very difficult to answer questions regarding the alignment of projects to corporate strategy, their financial benefits and ROI, or the reasons behind their failure. Try: What were the reasons for the deviations from the baseline or the budget? What were the measurable benefits we expected from the implementation of our portfolio of projects? Have we gained so far what we expected? How do the selected projects support the accomplishment of the corporate strategic goals? Are we still moving towards the right direction? Or: Do we feel comfortable enough that the selected portfolio will not face huge issues regarding resource usage, schedule or scope conflicts? Are we in a position to get this information early enough in order to take corrective actions?

Looking through the entire lifecycle of portfolio management, from project selection to completion, and transition to operations, the main reasons we encounter behind the failure of organisations to realise the benefits from project execution are:

– Lack of an objective process to support selection of projects that are fully aligned to organisation strategy and goals. One of the common grey areas we encounter in many organisations is related to the steps that lead to a sound, commonly accepted decision to start new endeavours. Individual projects are approved in isolation, without consideration of the bigger picture and their alignment to business strategy, with incomplete business cases and unclear and generic benefits. On the contrary, “internal politics” or the “voice of the powerful” are commonly used practices. The result is an uncoordinated change roadmap and a lack of ability to measure if the company is moving in the right direction.

– Unclear governance framework to manage portfolio implementation and anticipated benefits realisation. In most cases, there is no defined structure to monitor and govern portfolio implementation and to track, realise and measure its benefits. Critical external and internal changes that occur during the implementation of the projects, unexpected challenges that are encountered by the teams (such as limited resources, conflicting priorities, project baseline changes) are not adequately and timely managed by senior management, with negative consequences in the whole portfolio performance.

– Absence of or inconsistent project management practices. The set of supporting processes and tools to manage a project efficiently and effectively are undefined, vague or not rigorously enforced, with direct consequence to the effectiveness of planning and controlling activities. Cost overruns, scope changes, time delays and dissatisfaction are frequent indications of the poorly managed projects we encounter.

– Lack of project management skills, experience and culture. Many organisations struggle to identify and develop competent project managers. In addition, there is an absence of project culture especially in functionally structured organisations, with limited investment in project management education and skills development, and a lack of incentives and rewards for project teams. These issues can directly lead projects to failure or to considerable deviations from their initial goals.

It is our view that companies should not tolerate ineffectiveness in managing their project portfolio especially under current economic circumstances. Clearly stopping or suspending projects is not a solution, as it prevents the organisation from evolving and adapting to rapidly changing new business requirements. Managing the project portfolio in a more effective, efficient and sophisticated manner is the key.

Companies should select effectiveness instead of inaction. They should deal with the challenges of aligning project objectives to business strategy, tracking and measuring benefits and performance especially in today’s increasingly dynamic environment, implementing stronger governance and management discipline across portfolios and projects.

Appropriately and well managed and executed projects at organisation level is the vehicle from strategy to reality.

Efi Katsouli is an IT Advisory Partner at KPMG Greece

Investors prepare for Finland advance

Posted on January 4, 2011 by

A banking crisis is nothing new in Finland following turbulent times in the late 1980s and early 1990s and many believe that this means that Finland is better placed to weather the current financial storm than its European neighbours.

Finland’s market transformation
During the 1980s the rules regarding inward investment and the outward flow of capital from Finland to other investment jurisdictions were liberalised, making it easier to invest in and borrow from abroad. The restrictions concerning foreign ownership of assets in Finland were abolished in the early 1990s. Nowadays Finland is an EU member with an open, free market economy with almost no barriers to foreign ownership and investments.

The development of the legislative and regulatory framework governing state and private financial institutions have significant similarities with many of the problems faced and responses proposed by many other
jurisdictions in the current global financial turmoil.

Black Monday to the Finnish bank crisis
As with the other major indices around the world, Black Monday in October 1987 wreaked havoc in the Finnish stock market. The Helsinki Stock Exchange index (then the HEX, now called the OMX) fell by a record 10 percent in one day, resulting in serious liquidity issues both for listed and non-listed companies. The single most serious situation was faced by Kansa, an S&P AA rated Finnish insurance company, which had guaranteed US-originated municipal bond programmes up to a value of $2.2bn via US insurance and finance group Clarendon. The funds were invested in shares and high yield or “junk” bonds. Clarendon’s subsidiary Atlantic Capital was the largest investor in the junk bond market created by Michael Milken, a name very well known at the time. The money invested in junk bonds was in turn used to finance, among other transactions, takeovers by corporate raiders. Finnish banks were at risk through stand-by letters of credit issued as collateral for Kansa’s reinsurance liabilities. When the scheme ran into serious trouble the risk was finally run-down without losses through a bail-out operation and the takeover of Clarendon by Kansa. By Finnish standards, both the level of risk and the size of the rescue operation required to negate it was unprecedented.

While Black Monday was a significant event for the Finnish economy, the crisis that gripped Finnish banks from 1991 onwards could be said to have been a longer and much more painful event. The crisis arose as a result of several factors which were particular to that period of history. The failure by the Finnish government to impose a proper regulatory framework after the deregulation of banking and financial markets meant that many banks did not have proper internal controls or risk management procedures. Indeed some banks circumvented applicable solvency and capital adequacy requirements by adopting artificial re-evaluation of reserves. The international economic downturn affected Finland’s export markets, and in particular the collapse of the Soviet Union, a major trading partner, had serious consequences for the vast majority of Finnish companies that export their goods and services (even today over 80 percent of Finnish goods are produced for export). When combined with high personal and corporate borrowings in Finland at the start of the 1990s, the result was that Finnish companies could not service their debt, unemployment, a crashed real estate market, speculation against the Finnmark, a high level of corporate and personal bankruptcies and ultimately banks finding themselves in trouble.

So how did the Finnish state respond to the banking crisis given that there was no institutional framework in place at that time which was equipped to deal with such issues? Well, the Finnish government responded with a series of measures that will sound very familiar to many readers given recent events around the financial world.

The Finnish central bank took the lead in organising the takeover of Skop Bank, which was the central institution of a sizeable and long-established savings bank group. Another temporary measure was the injection by the Finnish government of approximately €8bn into the banking sector which the relevant banks had paid back by the end of the decade. Another measure echoing the current day was the special crisis support package provided to the savings bank sector in the form of share capital, loan notes and guarantees. Hence, the state became a direct or indirect shareholder in some of the rescued banks.

Another pragmatic step was the incorporation of a state-owned asset management company (Arsenal Ltd) which had the task of managing all bad assets of the rescued banks. The financing of Arsenal Ltd was guaranteed by the government and allowed the Finnish government to deal with bad assets in a controlled manner. By way of example, a portfolio of property owned by the company was sold off and then leased back to the company in order to limit damage to the market.

Having emerged from its domestic banking crisis, Finland had also diversified its traditional industry focuses. While its forestry and metal industries remain strong today, it became a leading player in the telecoms and IT sectors. The phenomenal growth of Nokia during the 1990s led to a generation of executives and engineers being trained in both advanced technologies and business skills leading to a boom in these sectors – which remain strong to the present day. These new sectors were affected by the bursting of the dot.com bubble in 2000, but through the ‘V-shaped’ recovery in 2002 and 2003, the companies that survived the difficult period emerged from it stronger, more experienced and more competitive.

Finland’s economy today
In comparison with the major economies, Finland remains in a stable condition; there is a feeling that Finland is likely to escape the worst of the current turbulence, albeit not entirely. The solvency of all the Finnish banks exceeds the statutory requirement of eight percent and the Finnish corporate world is not unduly over-leveraged. With a renewed sense of caution and internal risk procedures being significantly tightened following the crisis of the 1990s, Finnish banks do not have the exposure to those instruments which have caused such issues for their European and US counterparts.

Perhaps most importantly, most of the factors present at the start of the 1990s are not present in Finland today: a proper regulatory environment has been in place for around 15 years – the Finnish Financial Supervision Authority was established in 1993, in the aftermath of the banking crisis; the economy is not as reliant on individual countries as export partners and the Russian market is both more affluent and less significant in terms of its relative importance as an export destination; and Finnish companies operate across a greater range of sectors.

However, Finland is not out of the (ubiquitous) woods yet. It cannot be ignored that Finland remains heavily reliant on its export markets continuing to place orders in sufficient numbers and the extent to which its export markets withstand the current financial turbulence will have a strong bearing on Finland’s own economic prosperity. To an extent Finland may be punished for global problems not of its own making. It can only try to soften the effects by adopting measures to encourage domestic demand and to prevent the credit market from freezing. However, in a small export driven country, any efforts to maintain domestic demand and to ensure the availability of domestic financing will only go so far in alleviating the situation. Falling asset prices and diminishing market demand for companies also create significant risks. It may be that Finland goes into and comes out of recession some time behind the major economies to which it exports. In addition, as a member of the eurozone since January 2002, the performance of the euro across the continent is an extra factor not present in the early 1990s. It should also be noted that while corporate borrowing has decreased since the banking crisis, household borrowing has significantly increased. Finally, the OMX in Helsinki has dropped by approximately 34 percent from mid-August to mid-November, which further illustrates the impact of the current crisis on the Finnish market.

That said, Finland would appear to be in a lot better financial shape to face a recession today than it was two decades ago. A statement to which Finland’s Finance Minister, Jyrki Katainen would be most likely to subscribe. In the Financial Times 2008 rankings of European Finance Ministers, Mr Katainen was rated as the first and best in Europe. The ranking was based on economic, political and stability tests with Mr Katainen being named as the star of a financially stable country. Let’s hope Mr Katainen is able to maintain his, and Finland’s, reputation for the foreseeable future.

Kalevi Tervanen is Head of Procopé & Hornborg’s Transactions and Financing Group. For more information tel: +358 456 575 758; email: kalevi.tervanen@procope.fi; www.procope.com

Italy unburdens cross border tax

Posted on January 4, 2011 by

In layman’s terms, transfer pricing is all about the price at which goods or services are sold between different companies within an international group of companies. It is important for the authorities to monitor a company’s setting of transfer prices as in some instances businesses can use the system to avoid taxation by manipulating transfer prices to shift profits from one jurisdiction that has a high tax liability to another jurisdiction where the effective rate of tax is lower.

In Italy, the new tax package offers an exemption from tax penalties deriving from transfer pricing adjustments.

To secure the exemption, Italian resident companies with cross-border operations must prepare what is referred to as ‘adequate documentation’ to demonstrate that the prices paid to or charged by fellow group companies outside Italy are set at arm’s length. By arm’s length the tax authorities mean that the group must set prices as though the goods or services were being supplied between two entirely independent companies. Accordingly, the Italian company must be able to show that it is not using these prices to transfer profits from one jurisdiction to another simply in order to obtain a tax advantage by arranging for those profits to be charged at a lower rate of tax.

Francesco Mantegazza, a partner in Pirola Pennuto Zei’s London and financial sector tax division, says “The new transfer pricing rules are not really telling us anything we didn’t know before. There are multi-national groups already well placed to provide the necessary documentation. In this case, the new rules really only require a collecting together of work that is already available and packaging it into the requisite form (possibly translating it into Italian). In some cases local benchmarking may be advisable where world-wide transfer studies may be looking at samples that are not relevant to the Italian market. As a firm we specialise helping these multinational clients to comply with the Italian rules with the minimum of duplication of effort.”

In some other instances, clients are not so well positioned and a significant investment will have to be made in order to prepare the appropriate documentation in support of transfer prices.

The OECD and EU have for some time been producing guidelines on what constitutes ‘adequate documentation.’ For the most part, the new Italian regulations follow these international guidelines, while at the same time inserting a series of detailed requirements specifying the kind of documentation that is required for different types of company and also setting deadlines for the preparation of this documentation.

In order to obtain entitlement to protection from the penalties, taxpayers must notify the authorities on an annual basis of the fact that the taxpayer considers that it holds adequate supporting documentation as prescribed in the regulations. Where notification is made the company will be entitled, assuming the documentation proves to be adequate on a future inspection, to exemption from penalties, in the event of any future transfer pricing adjustment relating to those years.

Part of this documentation is a report of comparable transactions – a study of similar transactions carried out between third parties who deal with each other at arm’s length. The good news for small and medium sized enterprises (SMEs) is that while the transfer pricing documentation generally needs to be prepared for each accounting period, the study of comparable transactions only needs to be made only once every three years.

Transfer pricing and the EU Arbitration Convention
Any discussion on transfer pricing brings to mind the EU Arbitration Convention, a treaty that marks its 20th anniversary this year. The convention aimed to create a procedure for the resolution of disputes between taxpayers and tax authorities where the dispute gives rise to potential double taxation in two member states as a result of an upward adjustment in the profits of a multinational business’s operations in one member state.

The theory behind the Arbitration Convention was simple. Instead of a company disputing the transfer pricing adjustment through the domestic courts, the convention puts the two member state’s tax authorities with an obligation to reach agreement within a two-year time frame and resolve the issue between them. If this was not achieved within the allotted time, the dispute would go before an arbitration panel.

Unfortunately, the convention has been fraught with difficulties of various kinds. Although the treaty includes a provision for a corresponding downward adjustment in profits, because it is merely an agreement and not enforced by EU regulation or directive, it does not create a binding obligation on the member state to eliminate the double taxation. It is a multilateral agreement, more difficult to enforce than a bilateral treaty, and which does not create any direct legal rights for the taxpayer as against the member state.

Many member states, Italy included, have not made any legislative provision for the convention beyond a short law stating that the convention is to have effect generally. Compared to the voluminous guidelines mentioned above explaining the compliance obligations for Italian taxpayers in support of their group transfer pricing policies there is no guidance whatsoever from the tax authorities detailing the procedures to be followed for initiating a claim under the convention. There is no mechanism requiring either the Italian tax authorities or the judiciary to stay local proceedings through the local courts and tax collection service pending the outcome of proceedings under the convention. Taxpayers on receipt of an assessment must make an immediate decision whether to settle and pay up or appeal (and pay part of the tax claimed “on account”). What is clear is that once an Italian court has made a final decision in relation to a particular case, any decision under the Arbitration Convention cannot take effect. Thus taxpayers find themselves in a kind of double jeopardy situation, either having to give up domestic proceedings in the hope that arbitration will work or proceed on the domestic front thereby giving up all rights under the Convention.

A harmonised tax regime for Pan-European companies
Another of the measures in the Summer Tax Package aimed at encouraging inward investment consists of the opportunity for companies resident in an EU Member State other than Italy to elect to apply, to their Italian operations, the tax regulations in force in their member state of origin instead of the Italian ones.

The idea behind the legislation stems from EU proposals for enabling SMEs to use their Home State tax regime, thereby reducing the costs for these taxpayers of tax and accounting compliance in all jurisdictions in which they operate. The premise is that whereas SMEs play an important role in the economic development of the EU, nonetheless they play a much smaller role in terms of trade between member states compared to larger organisations, principally as a result of difficult and prohibitive fiscal regimes. In turn, this results in economic inefficiencies and a reduced potential for economic growth and job creation.

According to this concept, the profits of a group of companies active in more than one member state would be calculated according to the rules of just one company tax system, namely that system employed in the Home State of the parent company or head office of the group. Therefore, an SME wishing to expand its operations to other member states would be able to use the tax rules with which it is already familiar. In an ideal Europe, all companies – and especially SMEs – who do not have the resources to cope with the vast array of tax and accounting regimes across member states should be able to prepare accounts and corporate income tax returns in one state and then divide up the profit between the states in which they operate according to some easily defined ratio, such as turnover or headcount.

The concept of Home State taxation is a very promising way of tackling the tax issues associated with cross-border trade. The EU is currently considering testing the concept in member states with similar tax systems.

One anticipated stumbling block to a roll-out of this system, however, would be in convincing member states to subscribe to a centralised system whereby an EU institution might take an active role in their tax policy.

The new proposed regime for Italy requires further legislation before it can take effect and it is debatable whether the Italian authorities will continue their pioneering approach on this front or whether they will wait for similar regulations to take effect in other member states or even a further push from the European Commission.

There is fundamental tension in the EU between member states’ tax sovereignty and harmonisation. Allowing member states to keep close control over tax policies leads to tax competition, with taxpayers shopping between EU jurisdictions to get the best treatment. Ireland, Luxembourg and to a lesser extent the Netherlands and Portugal all offer low tax regimes which have been the subject of what other member states might perceive as abuse, while the EU institutions see it as the result of a simple exercise of freedom of choice.

Pirola Pennuto Zei is very well qualified to assist these clients in all areas of analysis necessary to perform a transfer pricing study and properly document the policies adopted.

It is a pity that there are not more exemptions for small and medium sized companies, especially those with operations exclusively within the EU where there is very little risk of manipulation of transfer prices purely for tax reasons. For small companies and start-ups these new transfer pricing rules may impose a significant burden. The Italian authorities, like many other European tax authorities, are set on protecting their national revenue streams regardless of whether in doing so they are creating issues of double taxation in another Member State.

Simplification and harmonisation
All of the measures mentioned above will be welcomed by anyone conducting cross border activities either into or out of Italy. Although the transfer pricing rules at first sight may appear to create an extra compliance burden for businesses, the rules really only bring Italian legislation into line with legal requirements in other EU countries and are a step towards a harmonised best practice according to international guidelines. The Home State taxation rules may initially seem a little vague and open to interpretation, but they do represent a positive and confident move by the Italian authorities to help reduce the compliance burden for businesses with cross-border operations. Much more work needs to be done though in order to remove the tax barriers to business in the EU.

Colin Jamieson is a partner at Pirola Pennuto Zei & Associati, working in their London and Milan offices

Tullow Oil in Uganda

Posted on January 4, 2011 by

The discovery of black gold in 2006 by Anglo-Irish Tullow Oil, in the Lake Albert Basin on the border with the Democratic Republic of Congo, has already started to transform the fortunes of the impoverished East African country – even before the first barrel of oil has been pumped from the ground.

The wave of small-cap pioneers led by Tullow has now been followed by many of the big players, as the Western oil majors along with China, France, Norway, Libya, south Africa and even Iran have piled in behind them hoping to snap up a piece of the East African hydrocarbons boom before all the exploration acreage and development contracts have been sewn up.

For a country whose history is still scarred by the memory of Idi Amin and Milton Obote, the 500,000 people who died in state-sponsored violence during their brutal dictatorships, and the years of civil war and turmoil that followed until Yoweri Musevenei emerged as president in 1986, the transformation has taken place in the blink of an eye.

A decade ago, Uganda’s economic outlook did not extend much beyond how much coffee, tea, fish and timber it could export. While the landlocked country has enjoyed relative stability for two decades, most of its 33 million people have been condemned to live on less than two dollars a day. Now, billions of petrodollars are about to flow in.

By global standards, Uganda’s oil endowment, like that of Ghana’s to the west, is very modest. One, maybe two billion barrels. Lake Albert production is expected to begin at very low levels sometime in 2011. But it could rise to 350,000 barrels a day by 2015, and stay there for the estimated 15-year life of the field.

The World Bank calculates that the Lake Albert find could bring the government about $20bn dollars in new revenues over the next two decades. But that is likely to be a gross under-estimate. Tullow has now drilled some 30 wells, from Kingfisher 1 in the south, to Buffalo 1 in the north. All but one of the Tullow wells have encountered oil and/or gas.

Moreover, there are nine exploration blocks stretching from the Sudanese border in the north to Lake Albert in the west, and on to Lake George in the south. Less than a third of the licensed areas have so far been explored. The prospects for further finds along the East African Rift Valley system – which also extends into Kenya, Sudan and Ethiopia – are considerable. Uganda’s overall oil endowment might be two, three or more times current estimates. The former humble coffee grower is about to enter the ranks of the world’s top 50 oil producers.

If the rest of the world will take time to adjust to the idea of the impoverished former British colony becoming a significant oil exporter, so too will Ugandans. The discovery of oil has triggered an uncomfortable mixture of excitement and trepidation as the prospects of rapid economic growth, development and jobs on the one hand, are balanced by the challenges of managing vast capital inflows without an explosion in graft, conflict and environmental damage that have led other “resource-rich” countries down the road to perdition on the other.

Dispute
A first taste of what lies on the horizon came in July this year when Heritage Oil, Tullow’s joint venture partner, sold its stake in the Lake Albert fund to Tullow for $1.45bn. The Uganda Revenue Authority demanded $404m from Heritage in unpaid capital gains tax. But Heritage insisted that the tax claim was bogus.

Uganda had threatened to withdraw Tullow’s licence to one of the blocks until the tax bill was paid. Such a move would have prevented Tullow selling on a one third share each of the Lake Albert find to the China National Overseas Oil Corporation (CNOOC), and Total of France.

The three joint venture partners will have to raise an estimated $8-10bn to develop the field, and bring the oil to market. That funding effort could not even begin until the Heritage tax dispute was resolved, and the license to all the Lake Albert blocks are confirmed.

Tullow and Uganda resolved the dispute in October after Tullow agreed to cough up. However, Uganda, stung by allegations that its tax law was flawed, and embarrassing claims that its tax authorities were just trying it on in an effort to bridge a shortfall in tax receipts, announced its intention to compel foreign firms to pay capital gains tax on the sale of exploration rights to third parties.

A new Income Tax (Amendment) Bill 2010, which will not be applied retroactively, will in future ensure that foreign firms cannot escape their tax liabilities. It will also grant the Ugandan Revenue Authority powers to conduct impromptu tax audits on all oil firms to verify tax compliance. Kampala may have been caught off guard by Heritage’s nimble corporate tax lawyers, but it is learning the rules of the game very fast indeed.

With the dust from the tax dispute finally settling, Uganda must now turn its attention to how it intends to exploit the Lake Albert find, how it is going to transport the oil to Africa’s Indian Ocean coast, and how it intends to spend its pending mountain of petrodollars.

Kampala appears to have taken a decision in principle already to build its own mini oil refinery to extract high value diesel, kerosene and gasoline from Lake Albert’s heavy black oil. Uganda currently imports about 13,000 barrels per day of refined products – mostly from the Kenyan refinery at Mombassa.

A Ugandan refinery to service its domestic needs, which would cost about $1bn to build, could save it about $1bn a year in imports, and prevent any reoccurrence of the interruption in supply that followed Kenya’s 2007-08 post-election violence, where shipments of refined products dwindled to a trickle, bringing the Ugandan economy to a standstill.

The mini refinery would consume only a fraction of Lake Albert’s production, so the government must still decide on whether to build a bigger refinery to export refined products to regional and international markets, build a pipeline across Kenya to the Indian Ocean coast to transship refined products, or just export crude oil.

Kenya, already facing the prospect of the loss of a key importer of its refined products, hopes Kampala will opt for the pipeline. It has already proposed the construction of a new $22bn port at Lamu for the new trade route to Southern Sudan and Ethiopia – the existing port of Mombassa has already exceeded its design capacity – which could also serve as an exit point for Ugandan crude oil or refined products.

As the money from the new oil exports starts to pour in, the Ugandan government – which for decades has struggled to find the money to build new power stations, road and rail networks, schools and hospitals and agricultural development programmes – will soon find it has far more hard cash than it is able to spend.

Preventing large-scale waste and theft will be a formidable undertaking.

Pressure is already growing to ensure that a portion of the new oil wealth is kept in a stability fund to protect the government’s new revenue streams from the fluctuations of the economic cycle. Demand is also increasing for the creation of Uganda’s own sovereign wealth fund – a so-called future generations fund – where a portion of the oil revenues would be sequestered for investment in world stock markets, which would generate additional revenue streams to help bolster the budget and boost future spending on infrastructure and education long after the oil has gone.

Nature’s largesse will not solve all of Uganda’s problems. The rebel Lord’s Resistance Army, the messianic cult whose massacres and mutilations have blighted the lives of millions across a swath of the north, has yet to be extinguished. The twin bombings that took place in Kampala in July, killing 70, that were carried out by Somalia’s al-Shabaab Islamic militants in retaliation for Uganda’s support of the African Union’s attempts to help bring peace to the troubled Horn of Africa region, signaled an alarming regionalisation of Somalia’s chaos.

President Museveni is now seeking a third term, amid growing international concerns of a drift towards authoritarianism. Nature’s bounty may be mismanaged, as it has been in countless other African countries blessed – or cursed, depending on your point of view – with resource wealth. Nevertheless, there is a prospect, and a good one, that the past errors of others will not be replicated. The future for ordinary Ugandans may now offer considerably more than the prospect of two dollars a day.