January | 2011 | World Finance

Master of the harbour

Posted on January 4, 2011 by

Henrik Poulsen
Age:
43
Education:
M.Sc., Finance and Accounting, Aarhus School of Business, Denmark
Career highlights:
2008 President and CEO, TDC A/S
2007 Operating Executive, KKR Capstone
2006 Executive Vice President, LEGO Group

“The telecoms market has limited underlying growth and declining prices,” says Henrik Poulsen. “This is a challenge we share with most of our peers in the European telecoms markets, and a challenge which forces us to focus our efforts; both in terms of reducing cost and complexity and developing our market positions and customer satisfaction.”

Mr Poulsen’s path from a small village in the rural part of Denmark to CEO of a €3.5bn company has taken him past Danish industrial stalwarts, Novo Nordisk and notably LEGO, which he helped turn around during a seven-year stint at the toy legend. Today he faces a similar task at the 130 year-old incumbent telco.

“TDC is a company who, as a monopoly, had a fairly quiet first 110 years, but in the last 20 years has experienced some of the most thorough transformations, with several changes in ownership and introduction of new technologies, at a pace which would leave most businesses breathless,” says Mr Poulsen, running down the list of owners, investments, divestments and technologies since the Danish government decided to privatise TDC in the mid-nineties.

Henrik Poulsen has set high standards for the company. In 2012 TDC is to be the best performing incumbent telecoms company in Europe in terms of profitability, customer satisfaction and employee satisfaction, and progress to this target is already well underway.

Since 2005, TDC has radically changed its strategy. From an expansive strategy with acquisitions of companies across Europe and the Middle East, the Danish telco has divested its entire portfolio of international subsidiaries bar their Nordic companies, lastly with the sale of Swiss mobile provider, Sunrise, to CVC Capital Partners. TDC is now a solely Nordic company with a strong focus on the Danish market and is challenging their incumbent counterparts on the business market in the entire Nordic region. After the sale of Sunrise, TDC is a company with €3.5bn in yearly revenues and a little over 11,000 employees.

“Back in 2005, TDC management saw that there were limited synergies in our portfolio of European companies, and began divesting. In the same period we have improved our EBITDA margin from 28 to 41 percent, so something tells me that it was the right move,” says Mr Poulsen. In 2008 he took over from the Swiss Jens Alder, and had a clear agenda from his first day: “We had to come closer to our customers, understand their needs even better, and reinforce our innovation and marketing,” Mr Poulsen says. “We also had to maintain a strong focus on efficiency improvements and strengthening of our operational processes. And I am happy to say that we have made significant progress – although we are far from finished.”

Take responsibility for the customer
At the heart of Henrik Poulsen’s work are improved customer relations. In a market where the competition is among the fiercest, the customer is not only king, but ruler of the entire universe. TDC has therefore initialised a company wide programme ranging all the way from the CEO to the sales force, with continuous focus and tracking of the customer experience on a weekly basis.

“Getting data and knowing how the customers are responding to our performance on a weekly basis gives us the opportunity to improve and correct mistakes and malfunctioning processes quickly. It raises the heartbeat of the entire organisation and improves our clock speed in the decision making,” Mr Poulsen explains.

And it seems to be working. Fifteen months into the programme TDC has improved a massive six points on the European Customer Satisfaction Index. An almost unprecedented improvement, but the work is far from completed, Henrik Poulsen stresses: “I don’t think you are ever finished improving your customer relations or the processes in a company. It is a continuous journey, which we have just embarked upon. But with the progress we have made in a relatively short space of time, I am confident that we will reach the high targets we set for ourselves.”

Infrastructure as TDC’s legacy
As the incumbent in Denmark, TDC is essentially an infrastructure company built on copper and fibre cables with mobile masts on top, explains Henrik Poulsen. “This is our legacy and our roots,” he emphasises, not without pride, and highlights the epitaph to their 2012 ambition: to remain the backbone of a world class Danish communication society – a point which is underscored by several consecutive top three placings for Denmark in the OECD rankings of the world’s leading communication societies.

TDC will invest well over €3bn in the Danish communication infrastructure across all technologies towards 2020. “We roll out fibre, increase our mobile coverage and implement new and faster technologies. We do this because it’s absolutely necessary to be able to compete in today’s market, and because we are proud of our position as the main provider of communication solutions to the Danish people and businesses.” Henrik Poulsen stays close to the processes, and from time to time spends a day in the trenches with the technicians in the field repairing broken lines and installing new equipment for customers.

That also gives a great insight into the heart of the company, which through its extensive network today offers some of the most sophisticated Triple Play solutions (TV, broadband and telephony) in Europe. And through TDC’s cable TV subsidiary, YouSee, customers can experience cutting edge digital TV and on demand solutions on this platform.

Multi-brand strategy
While TDC has divested on the international scene, the company has been acquiring companies in the Danish market and concurrently positioned a multi-brand portfolio, which offers the company the opportunity to address customers at all technologies in all segments: from no-frills mobile telephony with M1 and low-price broadband with Fullrate, to the premium brand TDC. This strategy invariably results in customers shopping around between different TDC brands, but that is a risk Mr Poulsen is willing to run: “I will rather have some friction between our different brands than open up space for competitors in the market,” he says.

Adaptive employees are key
TDC’s journey from government-owned monopoly to player in a highly competitive market has obviously impacted the employees who have been through massive changes in terms of performance expectations, organisation and culture. While increasing efficiency, all managers have been held personally responsible for employee satisfaction in their part of the business. And it has been possible to improve both efficiency and satisfaction at the same time.

“We have asked a lot of our employees in the previous years, and will continue to do so in the years to come. We have a highly capable, motivated and extremely accountable organisation which demonstrates execution excellence when it comes to delivering in accordance to the strategy. We can only stay strong in this business if we are able to adapt quickly to match the speed with which the technological development accelerates and accordingly meet the needs and expectations of our customers,”says Mr Poulsen.

Corporate responsibility
This ability to change is also reflected in the company’s approach to corporate responsibility. From being a traditional benefactor of charitable causes, the company has changed its approach to incorporate the competencies of its employees in the partnerships formed with NGOs and the projects invested in.

A good example of this approach is found in the partnership TDC formed with the Danish Red Cross in the beginning of 2009. Here TDC offers know-how and resources to the Danish Red Cross, which is one of three world centres under the international Red Cross responsible for communication and IT in disaster relief areas.

Besides giving Red Cross the necessary financial means to develop their efforts in this area, TDC has sent out employees to help Red Cross in Haiti during the clean-up after the devastating earthquake that hit the impoverished island community in early 2010. This is a partnership which Mr Poulsen is particularly proud of: “When we leverage our expertise to organisations like the Red Cross we do not only do a good deed. We are also showing to the world and to our employees what we as a company are capable of. And we can illustrate to our employees the benefit of their everyday activities to society at large.”

“We used the crisis to optimise”

Posted on January 4, 2011 by

The credit crisis took a wrecking ball to the balance sheets of many global banks. Not Saxo Bank. This feat marked the bank out. This Denmark-based operation now has a hugely expanding geographic footprint and its distinctively outspoken CEO is not shy of challenging the traditional big players – as well as the perceptions of just what and how a bank should operate.

“As a financial institution not really affected by the financial crisis as much as other more traditional banks, we were able to use the crisis to strengthen and optimise our entire value chain,” says Saxo Bank co-founder Lars Seier Christensen, “including broadening our product offering and at the same time expanding our geographic footprint.”

Saxo is undoubtedly shaking things up, as Mr Seier Christensen has no problem admitting. Few banks offer the blend of technological services and local market nous that Saxo can. The number of operators offering a properly integrated range of services – forex, futures, equities, FX options, not to mention ETFs and CFDs – remains limited.

In a nutshell
What is the core of Saxo Bank? It acts mainly as a financial facilitator, says Mr Seier Christensen. “We see our world consisting of three primary segments: Liquidity, facilitation and distribution. At one end of the spectrum, we find liquidity, meaning product providers, such as investment banks, exchanges and others that deliver high quality liquidity that we integrate into the platform.”

By entering into active cooperation with these large financial institutions, Saxo ensures access to a one-stop trade execution, settlement and custody offering. “At the other end of the spectrum is distribution, meaning banks, brokers and other financial institutions that have well established client franchises that they want to provide the best products to.” And in between? “You find Saxo Bank as the facilitator linking the two,” he says.

It’s a clever strategy that’s plainly working. It’s also a strategy that properly anticipates real change and competition within the banking industry. “That means having a lean business model will be crucial,” says Mr Seier Christensen. “Now, companies must be able to develop products and services before the clients realise their need for these. We believe that new and improved distribution channels are important when you want to reach clients before your competitors do. That is three important challenges that we take very seriously – Saxo Bank is well prepared to meet those challenges.”

An online personal world
Increasingly many banking clients are looking for new opportunities, of handling their portfolios, plus more transparency, better products, pricing and services. Saxo Bank offers exactly this. “I think that while Saxo Bank might be a leader when it comes to online trading, another advantage of ours is that we combine technology with personal service,” says Mr Seier Christensen. That is why Saxo Bank will continue to open offices in Asia, Europe and Latin America.

Saxo is also doing much digging to understand precisely what its clients value and why they continuously choose Saxo Bank for their online investing. The latest survey commissioned shows their clients’ perception of quality is more important than the perception of price. “Among the services our clients especially value staff knowledge together with trade services and support, which is surely connected. Well-educated and experienced staff give better trading support. Reputation is very highly valued as well.”

Saxo’s growth story is also reflected here. The number of clients, trades and overall trading volumes continue to rise – and the strong results achieved in the first half year of 2010 are also rooted in actions taken before the onset of the financial crisis in 2008. Saxo has increased efficiency through IT investments, work process rationalisation, and outsourcing while also slashing its headcount by approximately 40 percent from its September 2008 peak. A difficult decision to take – but necessary.

It has also completed 10 acquisitions, all of which have lived up to expectations, claims Mr Seier Christensen. “We have established IT development centres in India and Ukraine in addition to our IT centre in Copenhagen. Moreover, we have launched new products within FX, Equities and Commodities. We have also increased our geographical footprint with new offices in nine countries and expanded the business to also include asset management.”

Is the credit crisis over?
That depends on how you define the credit crisis. The crisis could be seen in terms of the interbank market and bank lending to consumers or companies, says Mr Seier Christensen. “The interbank market has clearly corrected and it is nearly up and running again. There are still banks which have difficulty in getting their short term financing needs done through the interbank market and still use the liquidity windows provided by the central banks.”

However, compared to the almost total meltdown back in 2008‑09, the interbank market has clearly reversed, he thinks. “In terms of lending from banks to consumers or companies, the activity is, unfortunately, only marginally higher and I believe that in a longer timeframe, it is flat.”

In Denmark where Saxo is headquartered, some journalists and politicians had difficulty believing Saxo weathered the crisis so robustly. “Yes, we faced some media scrutiny, also because we stand out as a big growth story and an unusual business model in a small market. Being outspoken, as we are, on the big challenges facing our Scandinavian welfare society in the future, is also not something that endears you to certain participants in the public debate.”

Getting on with it
Meanwhile, business goes on. Equity markets have been rising higher for some time now – partly on expected quantitative easing from the US Federal Reserve and another earnings season that was widely anticipated to show better-than-expected results. The earnings season is now halfway through and the results – at least in the US – are certainly living up to expectations.

“Given the economic development in the US and the lack of prospects for growth most market participants we find it very likely that the FED will launch another round of QE,” says Mr Seier Christensen. And no sooner than Seier Christensen had uttered the words, the Fed acted, pumping in more than $600bn of fresh money; yields on 30-year US Treasury bonds leapt 20 points and the dollar plunged.

“We are more moderate in our expectations than most market participants and according to our view this disappointment would trigger a retracement in equities and, also, risk in general,” counsels Mr Seier Christensen. “At current levels in equities there is little room for a continued rise in prices and we expect that we would face a retracement towards the year end,” he adds.

Rapid spade work
In the background banks continue to rebuild their balance sheets – look at Basel III, for example. Financials have been broadly given a grandfathering period of eight years to implement the new Basel III requirements. But the final version that was released on 12 September is a lot less strict than the first version released in December 2009.

“Traditional banks are still rebuilding their balance sheets and will most likely continue to do this for years,” says Mr Seier Christensen. “The ease of the mark-to-market legislation both in the US and in Europe will help banks and we expect that when this legislation is put back in place, that is when the rebuilding of their balance sheets is done.”

Increased currency movements also bode well for Saxo’s business model. There is now what Mr Seier Christensen describes as “significant movement” in the market. But as with most such movements in the market that brings with it a sharp increase in volatility – and volume. “As with all market participants in times of increased volume, we are indeed seeing more flow; however this is not unique to just Saxo Bank, but rather a function of the overall market environment.”

Either way, it’s good for business and good for Saxo. Assets under management continue to build from €2.8bn to €3.9bn during the first six months of 2010. “Overall, looking back on the last 18 years,” says Mr Seier Christensen, “I am most proud that my business partner Kim Fornais and I created Saxo Bank and became one of the first banks to take real advantage of the internet creating, what I genuinely believe, is the best online trading platform in world.”

Lars Seier Christensen is co-founder of Saxo Bank

Saxo Bank in brief
– A global investment bank specialising in online trading and investment opportunities across all international financial markets.
– Offers practical, professional, sophisticated features allowing retail investors the kind of access only professional and institutional investors enjoyed – until recently.
– A cutting-edge trading platform. Clients simply use Saxo Bank’s technology – no need for major, additional investment.
– A wide range of tools: SaxoTrader, SaxoWebTrader and SaxoMobileTrader, the award-winning, multi-asset online platforms; clients’ trade FX, CFDs, Stocks, Fixed income, Futures, Commodity CFDs, ETFs, Options plus many other derivatives.
– Streaming news, research price alerts, price boards with research and search functions built into them. Approximately 11,000 add-on instruments on its website that any investor can use – a sophisticated yet practical offering.

Morocco plans for legal shift

Posted on January 4, 2011 by

In the past couple of years, the business environment in Morocco has really improved. There is a higher level of international openness, which came out of the general liberalisation process of the Moroccan economy as well as its trade agreements, especially with the US and the EU. These immediately repositioned Morocco in another context economically. However, they have also demanded additional juridical frame working in the way foreign investment is dealt with in Moroccan law. This has brought new challenges and interesting cases to the attention of law pundits. In terms of contracts, for example, a lot of foreign exporters or operators do not want to submit their contracts to be considered uniquely under Moroccan law and the Moroccan Commercial Court. Moroccan operators used to oppose to this, but sometimes there are advantages. Some Moroccan operators understand that in some cases, choosing another country’s law to guide a business deal with a foreign company can sometimes be better than to abide strictly to the Moroccan law. By simply refusing to do business with a foreign company because it means abiding by laws from another country might mean a lost opportunity.

Sometimes by comparing the Moroccan law to other options, local operators can find more advantageous conditions. Of course this abidance by a foreign law system can sometimes bring problems under Moroccan law. This makes arbitration in cases of disagreement very important.

Nowadays, international arbitration has become more and more prevalent. This will sometimes demand an inclusion of internal arbitration laws. When the disagreement is between two Moroccan business operators, they are always under Moroccan law, therefore arbitration procedures are strictly internal. So there has been a lot of advancement in the way business disagreements are resolved in Morocco.

In terms of the general law, the Commerce Law will remain the legal backbone of business in Morocco. But there are still some changes to be made to it. Since the code was implemented ten years ago, several reforms that have been made during that time were not included. The law relating to bankruptcy, for example, has not been upgraded accordingly. Some companies use bankruptcy status to keep operating, even if they cannot pay their employees or their suppliers, and they keep this situation for years. Things are moving now, because the reform process is under way at all levels of the law system. A lot of this is being driven by the increasing economic openness.

The intellectual property laws, for example, are where Morocco has already made progress, simply because the actors that are supposed to assure intellectual property are operational. Customs, for example, is now looking closely at what comes into Morocco, especially if they are branded products where the potential for counterfeit is larger.

Similarly, in terms of competition laws, the Competition Counsel will now be an effective body, acting when there is a breach of competition regulations.

In legal matters, when there is a trial regarding a foreign company operating in Morocco, that entity will be treated equally to a domestic company. The question is when there is a decision taken by a foreign court within another country’s legal framework but that must be enforced in Morocco. Imagining that a certain contract is conceived under the law of a foreign country, an executing procedure will be implemented.

This procedure means that a Moroccan court will equalise this decision and apply it to the Moroccan context.

This local court cannot delve into the decision or re-open the case, especially if there is a legal convention between Morocco and the foreign country. But the Moroccan court will only verify that the decision taken by a foreign court is not against the local law or has an impact on the public order in Morocco. As Morocco opens more and more to the global economy, the country’s legal system is increasingly adapting in order to increase fairness in economic disputes and allow businesses to have a clear operating framework.

One company’s misery, another’s nightmare

Posted on January 4, 2011 by

If any proof were needed that the world economy has not yet fully emerged from recession, then the harsh austerity measures currently being imposed in many countries – and the often less than enthusiastic reaction to these measures of many of the citizens of those countries – clearly signal that the voyage to full recovery will be a stormy one.

Several countries – notably those known by the unfortunate acronym ‘PIIGS’ (Portugal, Ireland, Italy, Greece and Spain) together with the UK and the USA – have attracted much publicity as victims of the recession.

Many of their current fiscal problems can be traced back directly to an over extension of credit and investment in the housing market and a consequent bailing out of the financial sector. But the panic that ensued and the loss of both business and consumer confidence has led to contagion in many other sectors – particularly those that require the financing of expensive purchases, such as autos and consumer durables. Moreover, overseas banks, including those in France and Germany, have incurred a particularly high exposure to both public and private company debts in struggling countries such as Greece.

But it doesn’t end there. A sharp drop in demand in one country has an immediate impact on those other countries reliant on exports to that market. While the German economy appears to be rebounding faster than many of its European neighbours, the massive decline in world demand for its products, especially from the USA and China, and the increased volatility of financial markets resulting from public debt problems in the EU countries already mentioned, threaten to derail Germany’s recovery.

Across the water, the fate of the Mexican economy is so inextricably bound to the fluctuating performance of the US economy that projections for its recovery have been revised downward for the fourth time this year.

The Summer 2010 Atradius Payment Practices Barometer, published by Atradius Credit Insurance N.V., an extensive survey of the domestic and international accounts receivable experiences of around 4,000 businesses in 22 countries found that even those countries that escaped recession, such as China and Poland, have not escaped the impact of the global recession. These along with most other countries have experienced a severe blow to their international trade, as their exports to recession-hit countries have been affected by, at best, late payment, but in many cases, payment default. Though Days Sales Outstanding (DSO) is by no means the only measure of the health of a business’s receivables portfolio, the Payment Practices Barometer found that approximately 19 percent of the businesses surveyed had witnessed a rise in DSO, with Italy averaging the highest DSO at 83 days.

Possibly more important was confirmation of the domino effect that late payments have on businesses further up the supply chain. Many of those surveyed by Atradius had to delay payments to their suppliers as a consequence of their own late receipt of payments. More than half of the respondents to the Payment Practices Barometer reported that they had experienced late payments without prior agreement, while a similar percentage had been asked to extend their payment terms.

Not surprisingly, the survey found a substantial increase in the use of credit management techniques by many businesses, especially the use of ‘dunning’ – the process of methodically communicating with customers to ensure payment – and of regular credit checks on customers.

In fact, it is clear from the overall findings of the Payment Practices Barometer that, while no one credit management tool can guarantee that credit risks will be mitigated, the intelligent and strategic use of a combination of such measures, including the protection afforded by credit insurance, can greatly improve the chances of successful and profitable trade. And, while suppliers should always employ safeguards when offering credit terms, on the evidence of the survey, credit terms remain an essential element of national and international trade.

Simon Groves is a senior manager of corporate communications and marketing at Atradius Credit Insurance NV. The Atradius Payment Practices Barometer can be downloaded from www.atradius.com

Investors eye T’s & C’s

Posted on January 4, 2011 by

If you think you’d like to extend your Turks & Caicos vacation — perhaps permanently —you’ll join the ranks of visitors turned expatriates, who have chosen to do business, retire or enjoy a second home in idyllic surroundings. In the Turks & Caicos Islands (TCI), you’ll enjoy the sea and sand at your front door and a climate of perpetual sunny days, along with a sound infrastructure and steadily growing tourism industry. US currency is the legal tender and there are no exchange controls. And, because of its relationship with the UK, the country is politically stable, with local laws based on English common law and local statutes. Tourism is the country’s economic mainstay and the development of world-class resorts and condominium properties have attracted an ever-increasing number of visitors.

Bolstering the industry is a $70m redevelopment of the Providenciales International Airport, the primary gateway. To be completed in early 2011 is the first phase, which includes lengthening the runway to accommodate more frequent flights from Europe, Asia and South America. The TCI continues to reap awards in the travel industry sector. At the prestigious World Travel Awards 2010, Grace Bay Beach regained the honour of the Caribbean’s Best Beach while Grace Bay Club and Point Grace, two venerable Providenciales resorts, earned, respectively, titles of the Caribbean’s Leading Resort and the Caribbean’s Leading Boutique Hotel. Adding to TCI’s wide range of business/commercial centres is The Regent Village, a new shopping plaza in the heart of Providenciales’ thriving Grace Bay area.

With over 30 well-established shopping, dining, tourism and professional businesses, including 150,000 sq. ft of brand new construction, a state-of-the-art conference centre, a two-storey car park, 24-hour security and CCTV, it earned the 2010 title of “Best Retail Development” in the International Property Awards. The property is developed by the HAB Group, a leading TCI developer since 1983 whose portfolio includes the Turks & Caicos Water Company, Provo Golf and Country Club, and the Villa Renaissance, Regent Grande and Vellagio condominium resorts. The Islands’ long-established financial services sector is characterised by modern offshore legislation and personal, expert service, with a range of sophisticated products – including company structures, trusts, mutual funds and captive insurance and reinsurance companies – useful for investors and corporate and family situations. The industry is supervised by the TCI Financial Services Commission (FSC), designed to encourage growth and maintain integrity in accordance with international accepted practices and standards. The FSC recently launched a new, user-friendly website (www.tcifsc.tc), designed to provide immediate access to information about licensing requirements, Companies Registry and other information.

TCI enjoys duty-free access to Canadian markets under CARIBCAN and privileged access to European Union markets. TCI is an Associate member of CARICOM, and is eligible for designation as a beneficiary country under the Caribbean Basin Initiative (CBI) of the US.

Attracting quality investments that create a sustainable economy is a major objective of the TCI Government’s “Open Arms” investment policy. TCInvest (www.tcinvest.tc) is an independent agency which provides a vital bridge between investor and government with a “single window” approach that streamlines the way forward.

They are your first stop to submit a proposed project, look for ideas and plot the way forward.

No matter what your future holds, you’ll find TCI’s infrastructure, including two new, modern medical centres, a stable electricity and water supply, and superb telecommunications options, of a high standard for the Caribbean.

For more information tel: 649 946 2058 / 649 941 8465; email: info@tcinvest.tc; www.tcinvest.tc

Abu Dhabi targets high-tech future

Posted on January 4, 2011 by

Double-dip recession or not, global consumers are retaining a crush on their personal electronic goods and super-smart mobile devices.

Even in tough economic times, the confluence of advances in computing, communications, mobile handsets, digital content and growing worldwide adoption of the internet is fueling new purchases and creating a mobile revolution.

Not surprisingly, this consumption is becoming more Asia-centric. While China’s gross domestic product constitutes roughly 60 percent of the GDP of the United States, China already consumes more electronics than the US, attributable to China’s large middle-class of 400 million citizens.

Powering each of these electronic devices is a semiconductor chip, the “brain” that manages performance of each electronic good – whether it’s a laptop, mobile phone, or even your new washing machine or automobile.
Semiconductors are synonymous with innovation and productivity. Over the past 50 years, the semiconductor industry has transformed our way of life through intense innovation. We have leapfrogged from the invention of mainframe computers in the 1960s to the ubiquity of personal computers in the 1980s to the internet in the 1990s.

Now the mobile revolution is at hand: over one billion units sold with another nine billion on the way, all connected over wireless broadband links to millions of data servers via the ‘cloud,’ delivering content and services anytime, anywhere. With increasing precision, speed and performance, semiconductors underpin this new mobile revolution.

In 2008, Abu Dhabi decided to make a substantial investment in semiconductor manufacturing. It is one of the most technologically complex and sophisticated industries on earth. Over two billion transistors can fit on a microchip the size of your fingernail. No other industry on earth doubles its productivity with little additional cost to consumers. Imagine an automobile coming to market using half the gasoline, giving you twice the mileage, with increased speed at a lower cost – every two years.

The industry is actually a good fit for the Emirate: semiconductor companies require large amounts of capital to compete; a long-term perspective is necessary to ride out the volatility of the industry; and semiconductor manufacturing requires energy intensity. It is high in labour productivity and knowledge.

It is also as global as an industry can get. If you look at Taiwan, Singapore or high-tech clusters like Saxony in Germany or Silicon Valley, you can see what an advanced technology network of talent and technology can do to create job growth and stimulate economic transformation.

Two years ago, Abu Dhabi’s leadership published its “Economic Vision 2030,” a roadmap meant to chart a course toward diversification of the Emirate’s economy away from such a strong emphasis on oil and gas into a more knowledge-driven economy. The objective is to focus on a truly sustainable future by enhancing competitiveness and enlarging the enterprise base. Key sectors, such as aviation, technology and health care, will help drive this economic transformation. An investment in semiconductor manufacturing is fully in line with Abu Dhabi’s 2030 vision to diversify its economy over the next two decades.

So far, the Advanced Technology Investment Company of Abu Dhabi has committed over $10bn to our portfolio company, GLOBALFOUNDRIES, rapidly making it one of the largest semiconductor manufacturing companies on earth. We began this journey through a joint venture with AMD to acquire that company’s former manufacturing facilities in Dresden, Germany, in October 2008.

One year later, ATIC acquired 100 percent of Chartered Semiconductor of Singapore, which at the time was the third-largest semiconductor manufacturing company on earth. On January 13, 2010, the new, unified GLOBALFOUNDRIES went to market, serving customers both in mainstream semiconductor technologies and at the “leading-edge.”

GLOBALFOUNDRIES now serves over 150 customers with its seven existing fabrication facilities. In addition to factories in Singapore and Dresden, a new facility will begin producing wafers in upstate New York, in Saratoga County, in 2012.

ATIC is now working toward creation of an advanced technology ecosystem in Abu Dhabi. But you cannot create a vibrant technology cluster in Abu Dhabi without investing in research and development. You need the collaboration of academic institutions and internationally recognised research entities to bring this innovation to life. We need new students, teachers and academia to collaborate on innovation. That is what has worked so well in other parts of the world.

The Emirate’s educational agency has unveiled a new higher education strategy which is aligned with the needs of key industrial clusters that fuel this research and development vision. The goals are a) to raise the quality of Abu Dhabi’s higher education to international levels; b) to align education with Abu Dhabi’s economic, social and cultural needs; c) to build and maintain a research ecosystem to drive an innovation-based economy; and d) to make education affordable.

By 2018, the annual spend on this strategy will be over $1bn, much of it directed at R&D. This will elevate Abu Dhabi’s R&D expenditure to around 0.75 percent of GDP, approaching advanced world levels which range from 1.5 percent of GDP to just over four percent of GDP.

This will not only be essential to semiconductors and advanced technology, but will drive innovation in aerospace, health care, and renewable energy, among other key pillars of the 2030 diversification strategy.

ATIC is also working with key international research institutions to forge a path for sophisticated R&D innovation on the ground in the Emirate. We recently hosted representatives from the world’s most respected research institutions, in conjunction with the Semiconductor Research Corporation and the US National Science Foundation, to discuss the major research challenges facing the semiconductor industry. We have established a long-term partnership with SRC to help us formulate a comprehensive research framework. There is significant enthusiasm for the journey ahead and how Abu Dhabi can play a key role in the industry’s future research and development efforts.

The next generation of Emiratis will also be critical to Abu Dhabi’s success. It is all part of an effort to upgrade “human capital” here in the Emirate. Some 90 Emirati university students have spent time working in Dresden, Germany, the last two years to gain hands-on experience in one of the world’s most sophisticated wafer manufacturing facilities, GLOBALFOUNDRIES’ “Fab 1.” They are part of a new generation of engineers who, along with students gaining Master’s and PhD’s in Microelectronics at leading institutions around the globe, will lay the groundwork for our future technology ecosystem.

ATIC recently hosted over 250 technology executives at its Semiconductor Vision Summit in Abu Dhabi. Some of the most prestigious company brands in the industry were represented, including Intel, AMD, H-P, Twitter, GLOBALFOUNDRIES, Qualcomm and Broadcom. The dialogue ranged from the limits of increasingly smaller technology to new consumer trends, and how both will affect future economic growth in the Middle East and globally. The participants reinforced the importance of thinking globally, and how we envision the future of technology development. No one can deny that our economic prosperity is getting more globally interlinked.

That is why ATIC is passionate about advanced technology. One day, for instance, the device in your hand might have components in it that are designed in the US, developed and manufactured in Abu Dhabi, assembled in Singapore, and packaged in China. The global nature of the industry is why ATIC decided not to simply build a single facility immediately in Abu Dhabi, but to create and improve a global network of innovation, talent and technology to serve customers and partners in this industry for generations to come. We have a long journey ahead of us, but we are investing in the critical components to make this ecosystem a reality.

Ibrahim Ajami is CEO of the Advanced Technology Investment Company

CDG green lights public investment

Posted on January 4, 2011 by

The Caisse de Dépôt et de Gestion (CDG) is a public financial institution founded in 1959. The activities of the Caisse de Dépôt et de Gestion flow from its original mandate as legal custodian and manager of funds of private origin, that the legislator wished to protect through a fully secure management.

CDG has thus become a central hub of the savings transformation process. It plays a leading role in the primary bond market and contributes significantly to the development of the secondary market of Treasury Bills and stock market.

In addition to its direct investments, CDG is an active player in the national economy through its subsidiaries and the entities it is mandated to manage. Together with these, CDG constitutes a group of reference with activities extending to several sectors.

Activities
The organisation of CDG’s activities and business lines reflects the alignment of investment activities with optimal allocation of funds, profitability and risk exposure.

The group’s organisation is centered around four main areas of activity:
– Deposits and consignments
– Provident and pension funds
– Banking, finance, and insurance
– Territorial and sustainable development

Leading role in the financial market
Since its creation, CDG has served as a driving force for the launch, development and stimulation of the public-debt market in Morocco, namely as a provider of liquid resources and market depth to the Casablanca stock exchange.

Today, CDG Group continues to be one of the major market makers of the place. The current level of maturity in the competitive sector and financial markets in Morocco requires from CDG a strong presence and engagement in terms of market movement, investment and fund management. The mission of intermediation thus becomes one of innovation, coaching, facilitation and development of financial markets.

In this respect, CDG reinforced the business line of “investment banking” by delegating its asset management, venture capital, financial engineering, capital markets and private banking to CDG Capital, a holding that is now dedicated to all these lines of business.

Urban and territorial development
CDG is a major national-level player in town-planning operations in diverse fields of activity such as tourism, industry, or operations dedicated to activities associated with new technologies (ICTs, offshoring, etc.), social housing and regional development, and town policy.

CDG was the forerunner of the concept of tourist zones in the early 1970s. Social housing became later a major priority of the Group’s expansion and was perfectly integrated into CDG’s broad mission of general interest and support to the public development policies. In the period between 2003 and 2007, many social housing projects were launched and most of them are completed today. The recent priorities and choices adopted by the public authorities in the areas of regional development and territorial management offer considerable potential for the development of CDG Group and present opportunities to enlarge CDG’s fields of intervention in addition to confirming its role and strategies.

CDG’s mission as a planner-developer, which is carried out by the holding CDG Développement, found its continuity and consistency by shifting from the implementation of real estate and social housing operations to the more global line of urban and territorial development activity. This coincides with the confirmation of the development potential of regions (urban renewal, tourism-geared infrastructures…), in relation to the new regionalisation and spatial development policy.

For more information www.cdg.ma; www.cdgdev.ma; www.cdgcapital.ma

Missions and ambitions
– Caisse de Dépôt et de Gestion was established with the primary objective of receiving, safeguarding, and managing savings resources that require specific security and ensure that these funds are invested in assets, profitable to the country’s economic development.
– CDG is engaged in Morocco’s largest structuring projects. Today, it is the leading institutional investor in the Kingdom and one of the major actors in the national economy.
– In the coming years, CDG envisions strengthening its role as the key institutional partner of foreign investors in Morocco, and actively supporting Moroccan companies expanding abroad.

CDG key figures 2009
– Centralisation of 35 percent of the institutional savings
– More than MAD 200bn of managed assets
– More than MAD 53bn entrusted deposits

(Based on 1€ = MAD 11; 1$ = MAD 8)

France confronts the cost of retirement

Posted on January 4, 2011 by

“I want a retirement,” read metre-high block letters painted on a banner being waved in France’s latest bout of demonstrations over proposals to reform the country’s pension scheme for government employees. If the very concept of retirement was truly under threat, most reasonable people would consider this a perfectly legitimate subject for protest by the 1.5m-3m people who have practically shut down France in a series of organised demonstrations lasting a few days at a time.

Similarly, it would explain why union leaders are threatening to topple the government of Nicolas Sarkozy in nothing short of a constitutional revolution harking back to the student riots of 1968 that forced president de Gaulle to step down. It would also explain a massive turnout of imminent retirees facing a life of comparative poverty in a pension-less old age.

However it’s not even remotely like this. The banner was held aloft by a man in his early thirties while some of the marchers are schoolchildren as young as 12, walking along behind their teachers, and students who haven’t even entered the workforce. Most of the others are middle-aged or younger employees. Further, the concept of retirement is not under any kind of threat. Among other modest changes, all the government intends to do is delay the pensionable age by two years, from 60 to 62.

Yet as in previous nationwide protests over official attempts to modify France’s ruinously expensive official retirement scheme, oil refinery workers shut down production and thousands of petrol stations were forced to close. Fully-laden ships sat idle in ports. Most commercial flights could not get off the ground after airport workers walked off the job. And roughly 40 percent of scheduled services of the state-owned rail company, SNCF, were cancelled.

All this has happened at the instigation of unions who now claim just seven percent of all France’s paid workers as members, down from 20 percent 30 years ago.

As they have in the past, the demonstrations turned ugly. Hooded teenagers pelted police with glass and rocks while rioters known as casseurs smashed shop windows with bricks and stolen bicycles. In France, it seems, many citizens are worried about their retirement even before they’ve reached working age.

Although embattled president Nicholas Sarkozy insists the reforms will go through in late October, come what may, the unions – syndicats – promise further rounds of these increasingly vicious protests in coming months.

Militant leaders such as postman Olivier Besancenot of the New Anticapitalist Party, which has flopped at formal elections, openly admit they want to bring the government to its knees and give power back “to the streets” over what they say are “high-handed” and “dictatorial” actions. (In fact, the reforms have been under discussion for nearly 20 years and are little different from proposals drawn up by earlier governments.)

As some of the demonstrations deteriorated into riots, union leaders had the gall to express surprise and dismay at the turn of events. “The violence is not the work of the unions,” professed Bernard Thibault, head of the CGT, France’s second-biggest union. However riots and public disorder in general have increasingly become the norm in union-organised mass protests over welfare reform as the casseurs and other troublemakers come out to play.

Welcome to the battle, either on the streets or in elected assemblies, for pension reform as massively indebted European governments struggle to repair public finances hit by the crisis and threatened by fast-mounting future obligations.

Like many other advanced economies in the so-called industrial countries, France can no longer afford the generous pension schemes that were agreed in very different times – that is, when the working population was much bigger than the retired one. But as the proportion of retirees continues to grow because people are living longer, the burden on taxpayers will rapidly become intolerable. Economists call it “inter-generational theft” whereby tomorrow’s workers will be forced to subsidise their non-working elders.

France is seen as something of a testing ground in this battle. As president Sarkozy has repeatedly warned the demonstrators, his government won’t crack this time simply because it cannot afford to do so. All previous attempts at pension reform were made by governments of the right – in 1994, in 1995, in 2003, and as recently as 2006. In each case the administration buckled in the face of union-run demonstrations that paralysed the economy.

The system of government-funded pensions is so generous that it has become unaffordable and the retirement pot is fast emptying. “I will see through pension reform because it is my duty as head of state to guarantee to all French people that they and their children will be able to count on a retirement where the pensionable income is maintained,” declared Sarkozy as the rocks were flying. His government is however ready to discuss marginal issues, especially those relating to hardship and time-scales for full pension entitlements.

The nub of France’s and similar countries’ difficulty is the mounting burden of future obligations, and in particular that imposed by welfare and pensions. As a recent and alarming study by the International Monetary Fund notes, “the path pursued by fiscal authorities [in effect, governments] in a number of industrial countries is unsustainable.” Only drastic measures could “check the rapid growth of current and future liabilities of governments,” declares the report, The Future of Public Debt: Prospects and Implications.

In short, the clock is ticking down rapidly to a kind of financial Armageddon as sovereign states simply run out of the money necessary to keep their retired citizens in the lifestyle to which they want to stay accustomed.

An all-round dose of “fiscal tightening,” the IMF warns, is essential to restore public levels of debt to reasonably safe levels within a period of 10 years. That will require the kind of budget surpluses that few industrialised countries have been able to achieve, even before the financial crisis. As IMF figures show, France is by no means the most vulnerable nation. While it needs to post a surplus over GDP of 9.4 percent in the next decade to get back on a reasonably virtuous economic track, that’s a significantly smaller percentage than other countries such as the US (11.4 percent), Japan (14.4 percent), Ireland (14.6 percent) or the UK (14.8 percent).

Greece, the European basket case, illustrates what can go wrong with overly generous pension entitlements. By universal agreement, Greece’s public finances were in dire straits largely because employees in the public sector have retired early on fat pensions, placing excessive demands on the tax-paying community.

Yet the very people who should be taking the lead in the restoration of Europe’s finances still have their hands deep in the honey pot. In October, European members of parliament, who enjoy some of the fattest pensions, benefits and expenses of any elected representatives, are fighting for even more generous maternity leave for all Europeans and, of course, themselves. They want an EU-wide law guaranteeing at least a minimum 20 weeks, up from the present 16 weeks, plus 100 percent of pre-maternity pay and two weeks paternity leave for fathers.

Main banner-waver in this campaign is Portuguese socialist Edite Estrela who has come to the conclusion that existing laws “penalise women for having children.” Struggling Portugal happens to be one of the European nations least able to afford just such an extra taxation burden. Fortunately, it seems sanity will prevail in this instance. France’s secretary of state for the family, Nadine Morano, has done the sums and told the Eurodeputies their proposals will cost her country alone another €1.3bn a year.

Meantime other regions are heading in the opposite direction, Asia in particular. Malaysia, which already has low levels of welfare, is moving to raise the official retirement age from 58 to 60. Of course, pension payments are generally much less generous in Asia than in Europe.

In Singapore, another low-welfare state where the official retirement age is 62, former prime minister Lee Kuan Yew believes the very idea of stopping work because of age, is a dated and dangerous concept. Now 86, he told a meeting in October when asked about the challenges posed by the growing older population: “You work as long as you can work and you will be healthier and happier for it.”

While France burns, some countries are moving in a more fiscally responsible direction. In Germany, Spain, Iceland and Norway, for instance, the official pensionable age is now 67. According to the OECD data, the average legal retirement age in all OECD countries is 64, which makes France very much the odd man out.

But that doesn’t matter to militant leaders such as Olivier Besancenot who sees these regular bouts of economic paralysis as a portent of victory in a global revolt by workers. “Faced with the radicalisation of government,” he said, “it’s necessary to fight with even more radical responses.” And firebrand leader of a left-wing party, Jean-Luc Melenchon, also a European MP, harks back to the revolution. “Power is now in the streets,” he warns. It was too late for “institutional solutions.”

It is of course an institutional solution that president Sarkozy proposes. The real battle therefore may be not so much about pension reform but about who runs the country. In coming years other nations may find themselves having the same battle.

Spotlight on Delhi

Posted on January 4, 2011 by

At roughly the same time as the head of the Delhi Commonwealth Games organising committee, Suresh Kalmadi, was patting himself on the back for conducting the event “really well,” prime minister Manmohan Singh was appointing a high-level committee to investigate a string of allegations of corruption into the way it was all handled.

The government was so concerned that it set up the investigation on October 15, the day after the games ended. In fact just as “very satisfied” officials and athletes, in Kalmadi’s words, were on their way back home.

By then, India’s corruption watchdog, the Central Vigilance Committee, was already hard at work on some 20 serious allegations of bribery, false invoicing, skimming of contracts, illegal tendering, use of sub-standard materials (as in the pedestrian bridge that collapsed before the games started), fraudulently extended contracts and various other abuses.

At this stage it seems that “misappropriations” of up 8,000 crore ($1.35bn) could be involved. “A truly alarming amount,” noted a member of the corruption watchdog.

And while Kalmadi continued to enthuse that “the people of Delhi and India have done themselves proud” by “overcoming all challenges” in a way that “demonstrated to the world they have the capacity and commitment to host major international events,” the opposition BJP party was saying exactly the opposite. “Is the whole cabinet not responsible for the chaos and corruption,” party chief Nitin Gadkari asked an embarrassed prime minister.

Although it’s true that the actual competitions went off reasonably smoothly, albeit to largely or nearly empty stadiums, the official comments completely ignore the problems that bedevilled the run-up to the event, intended as a showcase befitting an emerging economic superpower. Officially, a frighteningly late construction programme, filthy toilets in the athletes’ village, last-minute repairs, the use of sub-standard materials, the collapsed bridge: none of them happened.

The glaring discrepancy between the line maintained by the games organising committee and the reality says much about how India’s ingrained corruption work. The responsible bodies, whether sports organisations or provincial governments, typically bury their heads in the sand and pretend nothing’s amiss while the irregularities go on all around them.

The looming issue now is whether the investigators will be allowed to find the skeletons in the cupboard. It’s not as though the problems were discovered just before the games started – chapter and verse on allegations of misappropriations first surfaced last year. The organising committee’s treasurer, pleading innocence, resigned in August over the awarding of the contract for the tennis courts. And gradually a whole web of government departments, games officials and ministers got drawn into numerous investigations, mostly over construction projects.

At present, investigations focus on a number of Delhi government authorities including the development agency, sports ministry and the games organising committee. Even the meteorological department is reportedly being “looked into.”

As the probes deepen, a war of words has erupted between Kalmadi and Delhi’s chief minister Shiela Dikshit, with both accusing the other of corruption. In defending himself, the games chief makes a valid point that the chief minister controlled a budget for the games that was roughly 10 times the one for which he was responsible.

The prime minister’s committee is due to report early next year when, the sports minister promises, any officials found to be corrupt will be sacked. “We will look into every single charge and the truth shall be brought before the nation.”

Possibly. We’ve heard this before. It’s unlikely however that any medals will be handed out.

Fractal finance

Posted on January 4, 2011August 6, 2019 by

How risky is the stockmarket? How rough is its ride? The traditional way to answer that question is to look at a representative period of history – say the last few years or decades – and use standard statistical methods to compute the average fluctuation over a given period. That will give you an idea of the maximum you would expect to lose during the next day or month or year.

One drawback with this approach, is that it assumes the future will resemble the past. But there is a deeper problem as well; for if you try to measure the typical price fluctuation, over different “representative” time periods, then you won’t get a consistent answer.

Imagine you have a physical object – say, a rock – and you pass it round a group of people, and everyone takes turns measuring its size, and they all get different results. Risk is a bit like that. Risk assessment techniques such as Value at Risk (VaR) are a bit like that too. No wonder financiers worry about these models.

Mathematicians have known for some time that measurement is not a straightforward process – especially when the object being measured is not straight. If you measure a smooth curved surface, like the circumference of a round table, using a straight ruler, then the accuracy of the answer will depend on the length of the ruler. A short ruler will do a better job of following the curve, so gives a better result than a long ruler.

The length of the ruler defines a scale of measurement, and for a small enough scale, the surface will appear straight – just as the Earth seems flat to people walking on its surface. The result will therefore converge on the correct answer. However, if the surface is not smooth, then things get more complicated. In fact, the answers can be all over the map.

In the 1920s, the English scientist Lewis Fry Richardson noticed that, on maps, countries had very different impressions of the length of their shared borders. For example, Spain thought its border with Portugal was 987km, while Portugal thought it was 1214km.

This problem has not gone away with improved technology. According to my internet search, the length of the British coastline is either 12,429 km (the CIA World Factbook), or 17,820 km (the UK Ordnance Survey).
The reason for the different answers is again that they are based on different scales. Small countries tend, it seems, to use finer scale maps. But the finer the scale, the more nooks and crannies the map picks up, and the longer the coastline seems. So, unlike with smooth curves, the answer no longer converges on a single answer.

In fact it turns out that things like coastlines, or natural boundaries between countries, or indeed many phenomena in nature, are not just curved, or a little unstraight – they are infinitely crooked. No matter how far you zoom in, the kinks don’t go away. The measured length just gets longer and longer, and never converges to a single answer. The boundaries are so complex, that in a well-defined mathematical sense, their dimension is not that of a line at all, but somewhere between a line and a two-dimensional plane.

In the 1970s, the mathematician Benoit Mandelbrot (who died in October 2010) coined the term fractal – from the Latin word fractus for broken – to describe such objects. Perhaps the most famous fractal figure is his eponymous Mandelbrot set. The border of this object has a fractal dimension of 2, the same as the plane.

Mandelbrot’s fractal theory was motivated by his study of financial data. Like coastlines, prices do not vary in a smooth, continuous fashion, but are a collection of zigs and zags. Their roughness doesn’t go away when you zoom in. Trying to measure the average price change is like trying to measure the length of the British coastline – there’s no consistent or meaningful way to do it.

So why is it that financial data have these fractal properties? One clue is that such fractal statistics are typical of complex systems, operating at a state known as self-organised criticality – or, more graphically, the “edge of chaos.” If left to their own devices, many processes, such as those which shape a landscape, naturally evolve towards that state. The economy is no exception.

While fractals are ubiquitous in nature, not all systems are equally rough or broken. There are cases where a little smoothness is useful. A plot of the human heart beat, for example, has fractal qualities, but an overly rough or erratic pulse – as measured by fractal dimension – is a symptom of a heart condition known as atrial fibrillation. A graph of brain waves also follow a fractal pattern, but in epileptics a sudden increase in the fractal dimension can herald the onset of a seizure.

This points to a couple of interesting ideas. One is that tracking changes in the fractal properties of markets might give us some insight into their health. A project known as the Financial Crisis Observatory, headed by Didier Sornette from the Swiss Federal Institute of Technology (ETH) in Zurich, uses such techniques to search for precursors of financial seizures.

But instead of trying to predict the next crisis, another approach is to lower the chances of it happening in the first place. After all, the financial system is something we have designed ourselves, so there should be some way of smoothing out its fluctuations – just as our bodies keep a rein on heart beats and brain waves.

This might sound a little optimistic, since financial crashes have been around for as long as finance. But in other areas of science and engineering, we build in safeguards and regulations that make operation safer and smoother.

After all, one thing you never hear from a nuclear engineer is “We’re operating at the edge of chaos!” Maybe one day that will be true of financial engineers too.

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

Indian infrastructure set for double digit growth

Posted on January 4, 2011 by

The Indian economy is the 10th largest in the world and has the 4th largest GDP in terms of purchasing power parity. The economic growth of this country has been the second fastest during the current decade of the 21st Century. The GDP growth has been nine percent during 2006-08 and has shown tremendous resilience by growing at seven percent during the last year of recessionary trend witnessed all over the world. By the end of this fiscal year, nine percent growth will be achieved again as per the Economic Survey of India.

Infrastructure growth
In India, the overall economic growth targets are set by the Planning Commission in what we call five-year plans. We are now into the end of the 11th five-year plan (2007-12). The Plan targets investment of INR20,562bn ($453,427m) for infrastructure, including utilities and transport infrastructure as well as telecoms and irrigation. Based on revised estimates announced in the MTA, as detailed by Daily News & Analysis (DNA) India, investment is likely to reach INR20,542bn ($453,856m). This is a difference of around $430m but still very close to target, especially taking into account the difficult economic environment. So, with a double digit growth target for the next five-year plan, the Indian infrastructure sector is already on a high growth trajectory.

India has the second largest road network in the world with over 3.3 million km of roads consisting of 80 percent rural and district roads, 18 percent state highways and two percent national highways. 65 percent of the total freight and 80 percent of the total passenger traffic of the country travels on this network. As per the report of the Planning Commission for the 11th five-year plan, “roads are the key to the development of our economy. A good road network constitutes the basic infrastructure that propels the development process through connectivity and opening up the backward regions to trade and investment”. However, despite their importance to the national economy, the road network in India is grossly inadequate. There is a huge scope for expansion, augmentation and greenfield development in the sector. Roads are now recognised as critical to economic and industrial growth in India.

National Highways in India
National Highways which constitute just two percent of the overall road network in India caters to more than 40 percent of the total road traffic. These form the arterial network connecting different States and provinces in the country. The National Highways Authority of India (NHAI) is the regulatory body constituted for development of these 70,548km of National Highways across the country. They have formulated National Highways Development Plan (NHDP) and have been implementing it in seven phases. Phase I and II are on the verge of completion whereas a lot of work needs to be done on the other phases. Work on 26191km of National Highways is yet to be awarded. The Minister of Road Transport & Highways, Mr Kamalnath has identified this challenge and has set an optimistic target of achieving 20km of road per day on the National Highways network. This works out to 7300km per year. This would work out to an annual budgeted expenditure of 10bn.

35 percent of this expenditure is expected to come from Private investors. This target has definitely witnessed increased traction in the bidding activities at NHAI. In FY 2009-10, 3360km length of roads have been awarded as against a mere 624km in the previous fiscal. But still, they are short by more than 50 percent of the target. Revised work plan by NHAI now proposes to award 15000km of roads till end of FY-11. It is also envisaged to convert around 10000km of State Highways into National Highways. These government initiatives have opened up latent opportunities for both the infrastructure developers and the construction companies. The growth potential in the road sector is also huge with the country’s GDP aiming for the double figure mark in the 12th five-year plan.

IRB’s contribution
IRB has emerged as one of the leading players in the Indian roads & highways sector. With its strong in-house integrated execution capabilities, the company is arguably the biggest BOT Road constructor and operator in the country. The first BOT Road Project in the country was executed by IRB. It has currently 16 BOT road projects under its belt of which 10 are operational and six are in various stages of implementation. This covers a total of 5735 lane km across six states in the country. IRB also takes pride in holding a market share of 9.31 percent of the Golden Quadrilateral which connects the four main metropolitan cities of the country. Looking at the NHAI work plan and the ambitious target of the Minister, the Indian road sector is expected to grow five-fold in the next two years, we are targeting at winning projects worth $1bn annually which would result in a significant increase in our annual turnover each year from the next fiscal year.

The 12th Five-Year Plan
Our Honorable Prime Minister has touted ambitious targets for the 12th five-year plan, which will run from 2012/13 to 2017/18.

The headline figure, which has grabbed the most attention is a target for INR45,000bn (US$1trn) of investments during the 12th five-year plan. The figure is double that of the 11th five-year plan. Singh is hoping that through doubling investment targets, real GDP growth can be sustained at an average rate of 10 percent per year between 2012/13 and 2017/18.

In order to unlock the double digit growth targeted, the contribution of the private sector will be crucial. With financing as constrained as it is in the domestic project finance market, and the deep rooted obstacles in the business environment, the ability for private sector investments to push growth this high would be challenged to the hilt.

In the 12th five-year plan, the government is targeting 50 percent of investment to come from the private sector, equal to $500bn. In this scenario, India remains an attractive market to infrastructure investors, driven by the strong fundamentals of economic and population growth.

Virendra Mhaiskar is Chairman & Managing Director of IRB Infrastructure Developers Limited (IRB), Mumbai, India. IRB is one of the leading Roads & Highways Developers in India and pioneers in adopting the PPP model in the Indian Highways industry

Promises, promises…

Posted on January 4, 2011 by

Political attention at first focused on the financial crisis but has now shifted towards regaining budgetary stability, the immediate objective being to bring the annual deficit below the Maastricht limit of three percent of GDP in 2011. That this goal is realistic, is apparent from the latest estimates of tax revenue – revised every six months and used as a basis for tax policy planning – showing a rise of more than €30bn over the previous expectation. If this trend can be maintained, the government may well feel able to be slightly less cautious in the coming year.

At the time of writing, there are two major tax bills before Parliament, the Budget Accompanying Bill 2011 and the Annual Tax Bill 2010. The Annual Tax Bill is mostly technical and is best described as a motely collection of reactions to court cases and corrections of earlier drafting errors. It has little political message. The Budget Accompanying Bill, however, is a clear revenue raiser, explained as a bid to discourage air pollution. Its most striking feature is the introduction of an air passenger duty, a new tax for Germany levied on commercial passenger flights from German airports. The three rates are to be €8 per passenger on flights within Europe/North Africa, €25 on flights to the Middle East, Central Asia and Pakistan, and €45 on flights to other destinations. The rates have been set to yield annual revenue of €1m, the sales target for kerosene emission certificates when EU-wide trading starts in 2012. The two sources of state income are linked in as much as the duty rates are to be recalculated each year to cover the shortfall in trading income from its target. Inbound flights and cargo are not taxed.

The Budget Accompanying Bill also seeks to reduce the energy and power tax concessions for manufacturing operations and for foresters and farmers. The energy tax relief on the use of fuel oil is to be cut by one-quarter and that on gas by one-half. The present power tax refund is to be recast as a lump sum relief of €4.10 for each MWH used. This relief is almost certain to be considerably less than the present refund based on a variety of factors including achieving the national emission reduction targets.

Work is proceeding on preparing for the compulsory online submission of accounts in support of the 2010 tax returns. The finance ministry has issued instructions on the required data fields and taxonomy for the benefit of programmers and software designers. By contrast, the preparations for the paperless administration of employee income tax withheld from salaries have suffered a setback. A stopgap decree has been issued, requiring employers to continue to follow 2010 tax cards for at least 2011 and providing for suitable action where this is impossible (new joiners) or known to be inappropriate (changes in an employee’s personal circumstances). The background to this is the legislation releasing local authorities from their obligation to issue tax cards to their inhabitants in regular employment which had already been enacted before it became clear that the substitute system to be managed for the entire country by the Central Tax Office would not go live until 2012. The decree closes with a hint that further delays are not inconceivable.

On the international front, diplomatic activity concentrated on information exchange agreements with countries known, or felt, to be tax havens. Treaties based on the OECD model were signed with Anguilla, the Bahamas, the British Virgin Islands, the Cayman Islands, the Dominican Republic, Liechtenstein, Monaco, San Marino, Santa Lucia, St. Vincent and the Grenadines, and the Turks and Caicos Islands. This follows the 2009 conclusion of such treaties with Gibraltar, Guernsey, Jersey and the Isle of Man, and the insertion of an effective exchange of information clause into the double tax treaty with Cyprus. The Maltese double tax treaty has been amended and a new treaty (with retroactive application) has been concluded with the United Arab Emirates to replace the agreement previously cancelled with effect from December 31, 2008.

On a slightly more parochial level, the finance ministry has been able to finalise its long awaited transfer of functions decree augmenting the 2008 order on the transfer pricing treatment of the transfer of functions abroad. The decree is detailed and discusses its subjects in depth. It pays particular attention to the “hypothetical arm’s length price” to lie at the most appropriate point within the range between the lowest price at which a seller would still be willing to sell and the highest price a buyer would be prepared to pay. The 81-page decree assumes that the uniqueness of each function transfer will obviate any hope of basing a transfer price on an actual comparison, thus forcing the issue in favour of the hypothetical calculation. At that stage it becomes somewhat self-contradictory by asserting that each party must be assumed to have full knowledge of the situation and intentions of the other, as otherwise an objective comparison would be impossible. On the other hand, it also calls for recognition of the relative negotiating strengths and weaknesses of each party’s position whilst insisting that this includes consideration of all alternative courses of action available to either. It is apparent that these precepts combine to destroy any realistic third party comparison, leaving, in practice, the field open to the side able to marshall the more eloquent arguments. This, though, is the same fallacy into which the OECD has fallen, that of basing an assumption on an impossible situation.

As always, the Supreme Tax Court has been active in finding new law. In one, for the international community rather surprising, case, it chose to ignore the treaty override clause in the US double tax treaty for the prevention of “white” income on the grounds that the clash of concept lay not between the systems of two sovereign states, but rather within the treaty itself. An investment fund had earned income in the US on a profit-sharing loan. This was taxed in the US “as a dividend” under the dividend article of the treaty. However, the avoidance of double taxation article provides that dividends are also taxable in the country of the recipient against a credit for the tax paid in the country of source. The Supreme Tax Court held that the profit based loan interest was not a “dividend” in the strict sense of the term, but had only been taxed as one. Not being a dividend it was not subject to further taxation in Germany. All in all, the final burden was only the US withholding tax. The tax office replied with the claim that the treaty override (in the treaty and in the Income Tax Act) should come into effect in resolution of the conflict of qualification. The court, though, disposed of this claim by pointing out that the conflict was not one of qualification of income between two countries, but between the effects of two treaty provisions. This was not the subject of the override as agreed.

The Supreme Tax Court has also held following the ECJ case of Lidl Belgium (C-114/06 of May 15, 2008) that a foreign branch loss may be deducted in the year it becomes “final”, i.e. irrecoverable. In practical terms, this means it is deductible in the year that all further prospect of offset is lost in the state of source, other than by reason of law. The consequence was that a German company that closed down its French branch was able to deduct its unexpired French loss carry-forward. However, a second company in a similar situation was denied a deduction, as its right to carry the loss forward had already expired under the then five-year time limit.

Finally, the Supreme Tax Court has put an end to a dispute started by a tax official writing in the professional press to the effect that a profit pooling agreement must enumerate the conditions under which the parent will agree to bear the losses of the subsidiary. The Court has now held a reference in the agreement to the relevant section of the Public Companies Act to be sufficient, as this necessarily includes the specific items in each sub-section. The finance ministry has confirmed that this judgment should be taken as a precedent for all similar cases. Further action has been delayed pending a more radical change – group taxation – next year.

Of the many issues discussed that did not materialise during the year, the continued lack of any real R&D incentive puts Germany in stark contrast to her neighbours. Many see the unexpected improvement in tax collections as an opportunity for an investment in the future by providing tax support for this particular field. The fear, though, is that the government will see the easy, industry-led economic recovery as an indication that this support is not needed. It is to be hoped that the wiser counsels will prevail.

Prof Dr Dieter Endres is head of service line Tax at PwC Germany. For more information tel: +49 69 9585 6459;
email: dieter.endres@de.pwc.com

Innovations for traders’ sake

Posted on January 4, 2011 by

Why all the fuss and bother about innovations in the forex industry? What innovations really matter now and can change the whole course of the market development? After decades of dramatic growth and maturing, foreign exchange trading has reached a new era.

The start of the new millennium witnessed rapid technological development and with it the inflow of private investments into the international forex market. But by the time private traders entered forex, it was framed mainly for the convenience of its constant participants – institutionals. New needs and specifics appeared demanding significant changes both in technological solutions and in brokers’ policies. It also gave an opportunity to many new companies to rise. Those who understood the new reality and met new requirements flourished.

FXOpen is one of the most vivid success stories of the period. It started – unusually – not on the basis of commercial incentives as do the majority of forex companies, but grew from the bottom up. FXOpen was set up as an educational centre of technical analysis without any thought of brokerage services in mind. Its founders – professional traders, witnessed an increasing inflow of private inexperienced investors losing their money in vain without proper market knowledge. Their new courses provided objective data about forex trading, helping to understand the market trends, avoid unnecessary risks and make thereforex trading more profitable. It enjoyed a great popularity. But though forex kept on attracting more and more common people, brokers still followed the usual customary route. Very quickly FXOpen’s founders realised that there was an overwhelming demand for a fair and transparent brokerage with a superior customer service in the market. This cause opened the way to FXOpen brokerage services in 2005.

It’s well known, that any company, and especially a start-up, succeeds only if it has something new, conspicuous and sought-after, to distinguish it from competitors and ensure its place on the market. Besides the technical analysis courses and trader-oriented conditions FXOpen made several important introductions to the industry that further opened up the market to public and adjusted it for convenient use of new participants. In 2006 it was the first one to realise that what traders really needed were Micro accounts allowing to minimise risks and learn more to insure better results before investing large sums of money. Moreover, 2006 witnessed the opening of forex trading to the Islamic audience, also conducted by FXOpen – it was again the first to offer a special type of Shari’a compliant accounts. It was only the start of the company’s improvements to spread the benefits of forex trading to the globalised world and make trading more convenient for the overwhelming number of traders.

A real revolution that was groundbreaking for the industry was the development and introduction of the first-ever MT4 ECN bridge that provided retail traders with an access to the ECN market via the MetaTrader platform for the first time in history. It needs some explanation of the market peculiarities to appreciate the value of the innovation.

From the very beginning Retail Forex brokers in general were always divided in two: Dealing Desk (DD) brokers (market makers) and Non-Dealing Desk (NDD) brokers. The majority of brokers represent the so-called Dealing Desk model. In this case almost none of the orders executed through such brokers ever reach the actual market but rather stay in those brokers’ inner liquidity pool. Brokers may significantly influence spreads and quotes. DD broker means that specific broker employs dealers who either accept or reject orders from retail traders (re-quotes) depending if the broker is interested in accepting that order or not. The other type, Non-Dealing Desk broker, doesn’t interfere in the dealing process providing his clients direct access to the interbank Forex market through ECN (Electronic Communication Network) technology. ECN means direct access to the marketplace where you can trade with other traders and your orders are actually displayed in the market and are seen by others, who in turn can introduce their own orders and if the prices match, a deal is complete. But first this kind of brokerage, access to ECN was the privilege of institutional clients with large sums and huge trading turnover. Common retail traders had little chance to enjoy these model benefits. Private, unprofessional investors preferred to use easily comprehensible and user-friendly platforms allowing them to trade with comfort and any time. The majority preferred MetaTrader. As for 2009, for example, more than 60 percent of all brokers offer this platform and more than 90 percent of the total retail forex volume is executed through it. Unfortunately MT4 wasn’t designed to be used by NDD Brokers and to trade in ECN environment. There were several attempts at creating a bridge from MT4 to the interbank market but they provided an STP rather than ECN environment at best.

FXOpen has worked on the basis of MT4 from the start and saw how desirable was its bridge to ECN. The Company always placed a high value on development of advanced technologies to meet new, constantly appearing needs of traders. It formed a special IT department improving existing technologies and developing new ones to release to the market and make trading fairer and more convenient. Since MT4 was the world’s most wide-spread trading platform, it was decided to keep what was the best and most comfortable for traders’ activity in it. On its basis FXOpen team started to look for and eventually developed a solution settling the interest conflicts between Brokers and Traders, granting golden opportunities of ECN environment to retail traders. In 2009, the first ever MT4 ECN trading platform was introduced to the market, opening for the first time in history the fair, transparent, high-liquidity interbank market to common investors. It gave FXOpen’s customers the main benefit of making money without any interference of the third party in the process of trading. It was a revolution in the industry skyrocketing the company’s ranking and the number of its clients. But FXOpen didn’t simply rest on its laurels. The company chose the right track.

Shortly right after MT4-ECN introduction FXOpen added PAMM (Percentage Allocation Management Module) accounts. It was a rare feature at the time, not speaking of PAMM accounts in ECN environment. Briefly speaking, its numerous advantages are as follows. On the one hand, it allows unprofessional traders to choose the best professional manager for their funds, enjoy the profits of his/her work and still keep control of your money.

On the other hand, it allows experienced traders to manage trusted to them funds, without being distracted by a lot of technicalities. PAMM-service automatically distributes profits and losses between the manager and each individual investor. This arrangement ensures that the manager and his or her investors who deposited into his or her account will get their share of profits on time and accurately in accordance with the terms of the offer (contract) between them. Public monitoring system will immediately show who the best manager is, and makes it easy to attract the necessary investors.

FXOpen didn’t stop at that either and added 0.1 minimum lot on ECN. It completed the ECN technological revolution in the MT4 FOREX trading environment, but not FXOpen’s innovations. Now it’s introducing the first ever traders’ CRM to bring Broker-Trader interaction to a new level and has much more pioneering solutions to come. This policy of constant trader-oriented innovations made FXOpen the driver of the industry’s development and ensured its place in the top leading FOREX brokerage companies in the world.

Today, FXOpen is one of the largest forex brokers in the world with more than 217,000 active accounts (Micro, Standard and ECN) and over $65 bn in traded volume passing through its platforms on a monthly basis. It provides its clients with everything necessary to get the most and the best from forex trading: advanced trading technology, reliable order execution and dedicated support in more than 10 languages. It offers the most convenient conditions – lowest spreads (from 0.1 pips on EUR/USD) and minimum deposits (from only $1), free unlimited demo account and various deposit/withdrawal options. Regular technical research and market news, promotions and experienced help is common practice allowing traders to focus on their profit-making with ease and comfort. All that could not but place FXOpen at the top of leading forex companies of the world.