Month: August 2014

Africa’s appetite for growth is huge, says deVere Group

Posted on by Ashton Wenborn

“The market for international financial consultancy is growing tremendously around the world. I think this is because more and more people are leaving Europe to go places where there is development and potential tax havens for the earnings as well,” Nigel Green, Chief Executive Officer at deVere Group, tells World Finance from the company’s South Africa offices. “Five of the fastest growing economies in the world are in Africa, so that is exciting. There is so much expansion and optimism that you can feel the vibe. People want to get on and do something and there is tremendous appetite for development.”

Green’s enthusiasm for the African continent and the business opportunities it offers is not only contagious, but tremendously insightful. Over the last few years, countries like Nigeria and South Africa have experienced tremendous growth, fostered in part by long-overdue investment in infrastructure. According to the Harvard Business Review, between 2001 and 2011 the African continent grew on average 4.7 percent a year– over twice its growth rate in the 1980s and 1990s.

“Africa has lots of natural resources,” explains Green. “If Africa was a lift, then it was in the basement – it has plenty of room to grow and it is definitely moving up very quickly. Lots of people keen to learn, and a large willing workforce proves that Africa is trying to change the way it is run. Infrastructure needs to be improved, but again, that attracts many international companies to those countries.”

Joining the boom
As African countries develop and grow economically, international companies swoop in to provide the services that every emerging market requires. Africa has potential because there is so much room for improvement and investment. deVere Group operates in that very niche; expatriates who immigrate to frontier markets looking for better business opportunities. “British people go to Dubai, for instance, because it’s tax-free, but there are many opportunities arising in Africa, so many ex-patriots are choosing to settle there,” says Green. “Johannesburg certainly feels like it’s booming with expats – British, Germans, Americans – there is a growing international market in many different countries, and it just shows that emerging markets are doing what they should do: emerge and grow, creating a demand for expatriates.”

As African countries develop and grow economically, international companies swoop in to provide the services that every emerging market requires

With over 80,000 clients worldwide, the group has learned to navigate the intricacies of the international trade and taxation, and to help enterprising foreigners find their feet – and their profits – in unknown territories. deVere Group is the world’s most prominent independent international financial consultancy and over the years has helped to create, grow and safeguard its clients’ assets in 100 different countries all over the world. “Originally we only dealt with British expats living abroad. We are British, we understand the British mentality and tax system and, at the time, could offer relevant advice,” says the CEO.

“But we quickly realised that there are German expats, and American expats, and that if we could deal with one nationality we could learn how to deal with others. Today the majority of our business remains catering to the needs of expats, but we also deal with the top end of the local community in some countries as well who seek out international advice because they may be international business people or may even have lived internationally themselves.”

That is certainly the case in Africa, where fast economic growth has lifted millions into the middle classes. The African Development Bank estimates that the middle-class in the continent has increased from 115 million in 1980 to 326 million today – an incredible growth and golden business opportunity. “There is massive growth in Africa at the moment, so deVere Group will be opening more offices in the region,” says Green with conviction. “Africa has a huge emerging middle-class, and we want to deal with them as well as with the inbound expat community. This is one of the continents where deVere Group looks to offer good financial advise that is not necessarily available locally for the burgeoning middle-classes. There is an emerging niche of people who are looking for international investment other than products that might be limited to their home-markets only.”

The group, however, was founded in order to cater for the financial needs of Europeans, primarily living abroad, and that remains its chief business today. “A friend of mine who went to work aboard persuaded me into the international markets – I was an IFA in the UK at the time,” recounts Green. “Today deVere Group has a strong international presence and we have come full-circle by opening an office in the UK, which we never previously had. We can now cater for returning expats who need advice as well.” Tax is one of the reasons for the growth we are seeing in the international financial consultancy market, but also low bank interest rates in Europe. The situation where banks will give you one percent in an account – if you are lucky – so people are looking elsewhere for higher returns.”

The typical client is probably between 35 and 50 – someone who has moved abroad for better opportunities and is looking to earn good money but wants to build security for themselves and their family. While 10 years ago the oil and gas industry made up the majority of those looking for international financial consulting, today every company across industries wants an international presence, which has diversified deVere Group’s client base.

Helping to overcome challenges
“Things are difficult in every country for foreigners, and in Africa it is no different. Each country has its own peculiarities and adjusting to local laws that don’t always sound sensible to someone from a different place can be challenging” says Green. “It is all about adjusting to someone else’s rules and regulations and understanding the local culture, wherever you are in the world. From talking to people about their personal situations deVere Group can assist with this type of transition and explain all the rules from an investment point of view. It is also vital to explain what taxation expats are liable for in the country that they are in, in regards to their home country, their domicile, and you can even consider a third country, which is where they intend to retire in. So if you were speaking to a Briton in South Africa, for example, who wants to retire in Spain, they would require a tax efficiency plan that accounted for each one of those different countries. And of course that is not always possible.”

With over $10bn of funds under stewardship in over 100 countries, deVere Group certainly understands what it takes to not only settle, but to succeed in a new an unknown territory. Over the course of its existence, the company has not only supported the business success of its clients, but also grown exponentially themselves. “Most of our development has been client driven. As our clients moved from one place to another we ended up with lots of clients in new locations, requiring that we open an office there to service them,” says Green.

“Our own people who have wanted to develop the business have driven some of our growth by moving further afield and opening offices based on their research and drive. I cannot say that our growth has always been scientific – a lot of it is based on a gut feeling because there are not that many statistics on how many expatriates are based in any given country, as not everybody registered. This gut feeling usually comes from monitoring where different international companies are moving, and where existing clients might be moving.”

It is exactly this type of instinctive nose for business that has propelled deVere Group forward in a competitive and oversubscribed market. Over the years the group, under Green’s expert guidance, has developed into more than a financial advisory group and into a vital service provider, which can cater for the needs of its clients globally.

Social media shoppers: how women are tweeting to the check-out

Posted on by Ashton Wenborn

We have all seen the images: the shopping-crazed woman buying her eighth pair of shoes, while an exasperated male companion sits in a corner looking dejected. Stereotypes such as this one permeate the dialogue and influence how we think of ourselves as consumers, as well as how brands market their products. Women are often portrayed as the more reckless spenders, and men as more shopping-averse. As this image is repeated it is perpetrated as a self-fulfilling prophecy.

“Over the next decade, women will control two thirds of consumer wealth in the United States and be the beneficiaries of the largest transference of wealth in our country’s history,” Clare Behar, Senior Partner and Director of a new business development at Fleishman-Hillard told She-conomy. “Estimates range from $12trn to $40trn.” Women are by far the biggest luxury goods consumers and account for up to 85 percent of all consumer purchases in developed markets like the US and Europe, according to market research compiled by Mindshare and Ogilvy & Mather.

Window shopping
What is perhaps most interesting about female shopping habits, is that they are ever-evolving. Though the clear stereotype is that women buy personal and luxury items at exhaustion, data actually reveals that women are responsible for the vast majority of consumer electronic, vehicle, healthcare, holiday and food purchases; in fact, women far outstrip men in shopping in almost every category of consumer goods and services.

Female vs male
US adults interacting with brands on social media:

54% vs 44%

show support

53% vs 36%

access offers

39% vs 33%

to stay up-to-date

28% vs 25%

comment

US adults using top social media sites:

76% vs 66%

Facebook

20% vs 15%

Instagram

54% vs 46%

Tumblr

18% vs 17%

Twitter

33% vs 8%

Pinterest

19% vs 24%

LinkedIn

According to She-conomy, a male guide to marketing to women, in 1998, 69 percent of women aged 18 to 24 were involved in the purchase of home electronic products. By 2008, that figure had risen to 91 percent as personal electronics such as mobile phones and computers became vital personal items to own. During that same period, the number of single women in that age bracket living alone increased from eight percent to 38 percent – giving rise to an important consumer segment, in possession of disposable income and a predisposition to want to spend it.

Though the psychology of gender-specific consumer habits is questionable at best, the figures speak for themselves; women shop, and increasingly, the way women shop is changing. The same Ogilvy & Mather research reveals that up to 22 percent of American women shop online at least once a day and up to 92 percent of online shopper’s pass on information about deals to their friends or social media connections.

“Women tend to be more loyal to brands and because they maintain a great deal of the buying power, brands are foolish not to speak directly to them,” Emily Carroll, Manager for Strategic Planning and Consumer Insights at Leapfrog Interactive told Pontflex’s Social Media Marketing to Women report. “Social media and email represent the best way to get a brand in front of women consumers. You have to be where they are to talk and give advice.”

Changing habits
A decade ago Facebook, Twitter and Youtube were barely even ideas in the heads of Silicon Valley developers. Today the social media industry is worth around $1bn in advertising and sales annually. Though virtually every single western adult has a social media account of one type or another – be it a YouTube playlist or a LinkedIn profile – in reality it has taken a long time for these platforms to find viable business models in which to operate.

Advertising and sales was the clear path for profit for social media brands, which traditionally have a lot of access to their users’ information, location and personal habits. Social media has not only changed they way we communicate with one another; it has also changed the way we consume information and goods. And all of the data generated by these exchanges is helping companies to reassess how goods are marketed and consumed.

“We have to make sure we’re using the channels that allow us to find the right people wherever they are online,” Deb Swinder, Director for e-Marketing for ASPCA, told the same Pontiflex report. “We have to constantly be reaching out into new sites, new audiences, new demographics to expand our reach.”

Women have emerged as the real power in the social media industry. According to data compiled by Alex Hillsberg for NMK, from reputable sources such as the Pew Research Centre and Burst Media, women are vastly more likely to interact with brands on social media then men. Up to 54 percent of women consumers show support to their favourite brands online, 53 percent access offers and 28 percent comment, compared with 44 percent, 36 percent and 25 percent of men respectively. This information may not appear that significant independently, however, when taken into consideration with other statistics relating to the consumer patterns of women, then suddenly a significant pattern arises.

Appy customers
Women dominate all the major social media platforms in the US, apart from LinkedIn, which is still a largely male-dominated environment. But more importantly than that, women vastly outstrip men in volume of users and time spent online for Facebook and Pinterest – the two social media platforms with the most sales potential.

Women also lead the way in the use of mobile apps for social media in both smartphone and tablet categories, meaning that marketers and brands have more access to women consumers online than they do men. On Facebook alone, women are up to 55 percent more engaged with brands than men are, according to a survey by Women’s Marketing and SheSpeaks. That same survey suggests that women are 55 percent more likely than men to purchase goods and services from brands they interact with online.

Women online:

2000

the year women first surpassed men in internet usage

171

average number of contacts in a woman’s email/ mobile list

85%

of consumer purchases are by women

22%

of American women shop online every day

71%

of female users like or follow brands for deals

92%

of online shoppers pass on deals to their friends

55%

are more engaged with brands on Facebook than men

91%

of women feel misunderstood by advertisers

The wealth of data that is generated by our collective social media use is perhaps the most valuable tool a brand has today, because it is a direct blueprint of its customers lifestyle and shopping habits. But not all brands have mastered how to convert this information into useable clicks and increased sales. For instance, according to the 2014 Mobile Behaviour Report by ExactTarget, 71 percent of female social media users like or follow brands on social media for deals, compared to only 18 percent of men. However, women are far more likely to ignore paid digital adverts on social media and mobile ads than their male counterparts. This means that women want to interact with brands in a creative and rewarding way, rather than just be bombarded with ads.

“First you have to know your customer and whom you want to reach,” explains Bonnie Kintzer, CEO of Women’s Marketing Inc in an American Express Open Forum article. “Who is she and how does she buy? What media does she see and what channels does she shop in all day long? Once you know that, you know where to focus.” The issue is that many brands are still struggling to answer even these simple questions. Data from the Marketing to Women Conference, suggests that 91 percent of women still feel misunderstood by advertisers. As many as 59 percent of women feel let down by food marketers and 66 percent feel misunderstood by healthcare marketers – two of the biggest markets for female consumers.

Understanding the consumer
It is clear that having an effective and consistent social media presence is vital for any brand, especially those hoping to tap into the female demographic. However, many companies are still falling short of the levels of success they seek. The way companies approach digital strategy today “is no different from what companies have done on other media,” Mikolaj Piskorski, author of A Social Strategy: how we profit from social media, told Forbes. “They simply took this approach and put it on social media platforms. The problem is that this approach does not work well. Most firms can’t generate the requisite engagement, and those that do often fail to convert it into sales. This is because people use social platforms to interact with their friends, and firms are seen as intruders who interrupt the experience.”

Kintzer agrees: “Women use social media to integrate disparate roles – family, work and personal online. They use it to connect to family friends and brands.” This means that a traditional approach of targeted ads is unlikely to reach women shoppers online. It is a surprise that more brands are not making the understanding and targeting of women shoppers their number one priority when it comes to social media.

Additionally, this is not a new trend; women surpassed men in terms of internet usage as early as 2000, and yet, many brands still struggle to reach women online. “To reach women, know who she is and what media she consumes all day long,” suggests Kintzer. “Plan an integrated campaign, because all the channels feed off each other. If a potential customer hears or sees your message in more than one context or venue, she will remember it, and it is far more effective.”

There is a wealth of data on social media marketing and consumption available, and yet many brands are still struggling to understand exactly what it is their consumers are looking for in their social media experience. It is abundantly clear that female social media users are a powerful demographic when it comes to online shopping and they are generally looking for a personalised interaction with their favourite brands. By putting in the extra effort brands will be rewarded with loyalty and enthusiasm – women are far more likely than men to share their shopping experiences and the deals they find online with their friends and connections.

With the social media industry worth $1bn annually, no brand can afford to miss out on any slice of that pie – especially as research shows that people want to consume online, and are more than happy to engage. While women continue to dominate the lion’s share of this market, they should be afforded the royal treatment by every brand online, without condescension or cheap stereotyping.

India’s train problems are derailing its economy

Posted on by Ashton Wenborn

India is to open up its dilapidated railway network to foreign investors in a government move that will hopefully boost economic growth and strengthen infrastructure across the country.

Recently elected Prime Minister Narendra Modi is working hard to fulfil his promises of an improved Indian economy, and key to this is an upgrade of the country’s vast railway network to the tune of $93bn over the next five years. Whether the government will be able to improve existing tracks, strengthen bridges, and modernise signalling and communications to meet the demands of the modern Indian economy is questionable: the upgrade will be largely dependent on foreign direct investment. What’s more, a century-old monopoly threatens to make the upgrade a drawn-out affair.

Indian Railways, the world’s third-largest train system, carries about 23 million passengers and 2.65 million tonnes of freight on 19,000 daily trains. It is a popular and much-needed means of transportation for the millions of Indians travelling to the country’s urban hubs. According to PwC, more than a quarter of India’s railways are being used over capacity and 50 percent of the network is nearing the same height of overload. The state-run network, which employs 1.3 million people, has struggled to keep pace with rising passenger numbers, freight demands and economic aspirations.

About 94 percent of the system’s revenues are spent on operating costs and social obligations, leaving little to modernise its creaking infrastructure. Out of India’s 130,000 railway bridges, about 25 percent are more than a century old. This alone presents massive security issues and causes severe delays regularly, yet is only a small part of the problem. There is a desperate need for better railway technology, such as signalling and an expansion of the network itself through more tracks and trains.

This is why Modi’s government wants to create a number of bullet-train rail links between large cities, starting with the long-discussed line between Mumbai and Ahmedabad, 500km away. Each of these links would cost about $10bn, but would greatly boost the 161-year old network. In early July, the country’s first high-speed train was sent on a test run to Agra, the home of the Taj Mahal, on which it reached a top speed of 160 km/h – a serious improvement from current travel times. Already the link is being called the ‘Bullet Raja’ or Bullet King. Nevertheless, the new high-speed train, set to launch officially in November on the New Delhi-Agra route, travels at just half the speed of the superfast trains Modi wants to build (in addition to planned new freight corridors and coaches).

Indian railways by numbers

23 million

passengers

2.65 million

tonnes of freight

19,000

trains per day

1.3 million

people employed

15,000

train-related deaths

160kmh

top speed of first high-speed train

Large-scale problems
This a crucial project to focus on, says PwC, as India’s ailing railways have hurt the economy greatly: itsfaltering logistics could otherwise service its manufacturing industry. What’s more, high freight rates – about twice the rates in China – have prompted many companies to ship cargo by truck instead. Today, trains carry just 30 percent of India’s freight, down from nearly 80 percent 30 years ago.

“The railways have been losing freight for years,” says Manish Agarwal, PwC India’s Leader on Capital Projects and Infrastructure. “This mostly comes down to the inability to ensure a time frame for freight travel, because of the lack of sufficient technology and the size of the network. Passenger and freight lines are shared, and, when there is a delay, passenger trains are always prioritised. This makes it impossible to ensure deliveries within a set time.”

The delays on the railway system are largely caused by a lack of new and efficient technology, such as proper signalling, track changes and trains with more comfortable capacity. In a country where temperatures easily run to 40 degrees celsius, the lack of air-conditioning on a rammed commuter train is no laughing matter. This adds to the growing security issues related to the railways.

Decrepit tracks and bridges aside, the trains are grossly overloaded on a daily basis. People can often be killed falling off overcrowded trains or crossing the tracks. Others are charred to death by high-voltage electrical wires while perched on coach roofs. The network has a dreadful safety record, with a government report in 2012 putting the number of deaths each year at nearly 15,000.

The urgent need to upgrade the system is not just one of economics; it comes down to life or death. But the upgrade is largely dependent on a grossly monolithic and bureaucratic government system that so far has impeded modern railway maintenance for the past 10 to 20 years. And that is no easy hurdle to overcome, says Agarwal.

“The Indian railways have lacked investment. There’s been an inability to raise passenger fares because it’s a political ideology that public transport in India needs to be accessible for everyone. It also has to do with execution. The railway is a monopoly behemoth and as is often the case when policymaking is bundled with execution, efficiency has gone down. A lot of previously announced projects have not been completed. But I think it’s a good sign that the new government has promised to finish these projects in addition to taking on new ones.”

Foreign investment
The majority of the new projects related to the railway will have to be funded by public-private partnerships, according to DV Sadananda Gowda, the Indian Railway Minister. He said the government is relying on foreign investment to fund station upgrades and new bullet trains. The cabinet will approve FDI in railway infrastructure, which has previously not been allowed.

The move comes in acknowledgement of the fact that India’s current fiscal issues present a significant problem to major investments such as this. As Gowda remarked: “Internal resources are insufficient to meet the requirement”.

Given the magnitude of the railway upgrade, it is no question that the investment needed will be of the long-term type, with realistic estimates suggesting it will take a minimum of 10 years for the network to reach modern standards. In order to not be overwhelmed and repeat the mistakes of past governments, Gowda has taken a pragmatic approach that divides the upgrade into several smaller projects that will be tackled one at a time. These will include the establishment of the high-speed rail network and increasing speed on the current structure – the two projects considered top priorities so far.

The PPP models need to be spelt out to attract FDI, so investors can see which projects are aligned to their risk appetite

This division of projects is crucial, says Agarwal, pointing to how previous PPPs have failed to attract sufficient investment.

“The PPP models need to be spelt out to attract FDI, so investors can see which projects are aligned to their risk appetite,” says Agarwal. “That said, we need to get the PPP model closer to what the world understands as a PPP model, ensuring that it has the right clearances and approvals before it’s put out to bid. Also, performance-based revenue models are more aligned to foreign investor appetite than traffic and real-estate-based models”.

Concerns about risk are a particular hurdle for India in its attempts to attract FDI, but Agarwal maintains investors must keep their eye on the risk-return equation instead. Another issue pertains to the lack of long-term financing in India for projects such as these, as well as the governments tradition of bundling infrastructure projects in with real estate. It is crucial that the upgrade doesn’t depend on such multi-projects, as the risk appetite of infrastructure investors does not match up to that of real estate and could prevent the inflow of FDI. The government and the Reserve Bank of India will also have to work hard at reforming banks lending practices – and this, again, could prove a long-term affair.

Control system
While infrastructure experts have welcomed the overall drive for private and foreign participation, they have also said institutional reforms, such as creating an independent rail regulator, will be required to de-politicise the railway sector. In 2013 alone, India spent 10 percent of GDP on its logistics sector. Considering the state of the railway system and that other countries average an investment of seven to eight percent, it is clear the network could be a lot more efficient.

“An independent railway regulator is necessary to deal with economic side of the railways and de-politicise issues such as tariffs and prioritisation of projects,” says Agarwal. “It’s taken 10 years for the government to do a 14 percent rate increase, so government involvement needs to be reduced. The regulator should be able to gauge investments and tariffs based on demand and costs, and then the government could subsidise projects or passenger classes in a more targeted manner.”

To this end, the Indian Transport Minister has proposed establishing automatic revisions to the subsidised passenger fares in order to reduce political skirmishing over increases needed to cover rising costs. For decades, successive Indian governments have held passenger fares far below their costs to keep trains universally affordable, while charging steep freight rates in order to cover the losses. This has hurt commercial train freight in India, but is not by any means the only issue keeping companies on the roads and away from the tracks.

The Indian Transport Minister has proposed establishing automatic revisions to the subsidised passenger fares in order to reduce political skirmishing

“Reducing rates alone will not impact logistics in the country,” says Agarwal. “Committed service levels are equally important to attract more freight movement to railways. For example, a level playing field amongst private container freight licensees could bring competition in service levels, while in the monopoly segments service levels could be locked in through long-term PPP contracts. Breaking the monopoly and letting others operate container freight on the railway would be a significant advantage to cost and time.”

It’s clear that the biggest hurdle to overcome for India’s railway dreams is institutional. Major changes are needed in order to bypass the century-old monopolies and separate policymaking from the actual running of the railways. The unbundling of the sector and creation of benchmark competition will undoubtedly be a challenging one. But Modi and his government must focus on it in order to realise the upgrade within the necessary timeframe.

Unfortunately, India’s railways cannot wait if the country’s economy is to sustain growth and create the 100 million jobs that its population needs. This project demands efficiency and innovative technology, which can only be achieved through a serious inflow of cash – one that will be stunted by a bureaucratic railway system. Modi’s government is seemingly taking the necessary steps to open up the sector. The question is just how far they will actually go, and whether this will be enough to lure in those much-needed foreign investors.

Mozilla releases $33 smartphone for India

Posted on by Ashton Wenborn

With a recommended retail price of only $33, Mozilla’s first low-cost smartphone enters an Indian mobile market ripe for growth. The Intex Cloud FX is the first handset to run Firefox’s operating system and is priced to cash in on what is widely regarded as the world’s fastest-growing smartphone market.

“The launch of Intex Cloud FX marks the beginning of a new era of the Indian smartphone market and Intex is proud to be the first Indian company to understand and deliver on market needs,” said Keshav Bansal, Director, Marketing, Intex Technologies. “With the launch of Intex Cloud FX, we aim to enable the masses to get smartphone experience at the cost of a feature phone.”

Mozilla hopes to bridge the connectivity gap that exists for many in the country

Although the company originally targeted a retail price of $25, the finished product has come in at a slightly more expensive $33 – or 1,999 rupees – and is designed to capitalise on a lucrative opportunity. “With support from Intex, Firefox OS smartphones in the ultra-low-cost category will redefine the entry-level smartphone and create strong momentum in Asia,” said Dr Li Gong, President of Mozilla.

By offering a smartphone at a price only slightly above that of the lesser feature alternative, Mozilla hopes to bridge the connectivity gap that exists for many in the country, and, in doing so, claim a sizeable share of the market ahead of its larger mobile rivals. Deloitte’s TMT Prediction 2014 claims the number of smartphone users in India will surpass 104 million before the end of the year – a significant increase on last year’s 51 million.

The price point of the Intex Cloud FX compares favourably with smartphones available already on the market, with Apple’s iPhone 4 selling for $245 and Google hoping to release $100 and $200 ‘low-cost’ Android phones in India soon. Mozilla’s price point may be a threat to competitors, but the app range leaves a lot to be desired. Mozilla’s phone will offer around 1,000 apps, whereas Android phones offer close to 1.3 million. Mozilla will be hoping sales of its entry-level phone will enable the company to expand its operating system to compete with larger rivals.

HP to sue Deloitte over Autonomy deal

Posted on by Ashton Wenborn

The ongoing dispute over HP’s colossal 2011 deal to buy British tech firm Autonomy for $11bn is set to rumble on, with news that the former company will sue the UK arm of accounting giant Deloitte.

The news comes after two years of public disputes over the deal, which saw HP buy the UK firm for what was seen as a vastly inflated price. In 2012, HP announced it would be writing off almost half of the $11bn spent on Autonomy, as well as axing the British chief of the company Mike Lynch.

HP accused the management of Autonomy of overstating the company’s value

HP accused the management of Autonomy of overstating the company’s value. As a result of the dispute, HP shareholders also sued the firm for mismanagement of the deal.

Now HP is targeting Deloitte UK, the accountancy firm that audited Autonomy at the time. HP said in a statement: ‘We will continue to work to have the derivative actions settled or dismissed and to hold the former executives of Autonomy as well as Autonomy’s auditor, Deloitte UK, responsible for the wrongdoing that occurred.’

However, both Deloitte UK and Autonomy’s former leaders deny allegations of malpractice. The accountancy firm responded: ‘Deloitte was not engaged by HP, or by Autonomy, to provide any due diligence in relation to the acquisition of Autonomy. Deloitte UK was auditor to Autonomy at the time of its acquisition by HP. Deloitte UK conducted its audit work in full compliance with regulation and professional standards.’

The case is set to continue, with investigations by the US Securities and Exchange Commission, the FBI and the UK’s Serious Fraud Office, to decide whether Autonomy’s board inflated the price of the deal.

With further investment, Ghana could become global powerhouse, says GIPC

Posted on by Ashton Wenborn

In 2009, when Barack Obama was preparing his first official trip to Sub-Saharan Africa as President of the United States, he could not leave out Ghana from his tight schedule of official visits. It was the final bit of recognition the country needed to show the rest of the world that it had arrived: Ghana is now an African powerhouse.

Nestled between Togo, Burkina Faso and Cote D’Ivoire, Ghana has consolidated itself as a beacon of democracy in a turbulent region. Since obtaining independence from Britain in 1957, Ghana transitioned from tumultuous military rule and uprisings to eventually settle down as a stable and prosperous country in the 1980s.

It has certainly not been easy, but over the past three decades, Ghana has established itself as an African leader, despite its small size. It is one of the fastest-growing economies in the region, and is one of only a handful of countries expected to meet the Millennium Development Goal of halving poverty rates by 2015.

At a recent national economic forum Ghana’s Minister of Finance, Seth Terkper, stated that the rebasing of GDP in 2010 and onset of oil production in 2011 boosted growth and was the final push Ghana needed to transition to low- and middle-income country status, from its previous classing as low income country (see Fig. 1).

Source: International Monetary Fund. Notes: Post-2010 figures are IMF estimates
Source: International Monetary Fund. Notes: Post-2010 figures are IMF estimates

This in turn has led to the reclassification of the country by donors, as well as multilateral institutions, which has implications for official development assistance. Terkper also mentioned that Ghana has made significant progress towards the achievement of the Millennium Development Goals in the areas of poverty reduction, improving access to education, reducing gender disparities in primary education and providing access to improved water sources.

Prospects for growth
In terms of growth potential, Terkper believes that many projects are on the agenda to support Ghana’s growth objectives, including the increase of crude oil production from existing and new oil fields, gas production to improve the supply of energy, investments in port infrastructure through the Tema and Takoradi Port Development Project, the rehabilitation and modernisation of existing railway lines that will further contribute to improved transport infrastructure, investments in key sectors (see Fig. 2) that will reduce the infrastructure deficit and boost Ghana’s long-term growth potential, and further expansion of the services sector. The finance minister fully expects Ghana to become a hub for financial and transportation services in the very near future.

Ghana has also been working hard on the image it presents to the rest of the world. The country is keen to draw a line between itself and its more troubled neighbours, and emphasise the traditional hospitability and friendliness Ghanaians are famous for. The appreciation of the role Ghana plays in the African continent can probably be best described by the fact that Ghana is the first and only African country that has welcomed Queen Elizabeth, and three consecutive American presidents, on state visits.

It is all part of a concerted effort by President John Dramani Mahama’s government to boost investment into the country. Ghana’s burgeoning oil industry is full of promise, but will still need some injection of capital before it can live up to its potential.

“Ghana’s wealth of resources, democratic political system and dynamic economy make it undoubtedly one of Africa’s leading lights. Gaining the world’s confidence with a peaceful political transition and a grounded and firm commitment to democracy has helped in expediting Ghana’s growth in foreign direct investment (FDI) in recent years,” said Mahama. “Building on significant natural resources, our dear nation is committed to improving its physical infrastructure.”

According to Mawuena Trebarh, CEO of the Ghana Investment Promotion Centre (GIPC), the country is under no illusion as to what investors’ main criteria are for choosing investment destinations; namely, an investment climate where they can run a profitable business. Trebarh believes that Ghana fulfils many of the requirements foreign investors look for, such as favourable labour conditions, strategic global positions, and a welcoming finance and funding environment. “We regard investors in Ghana as prosperity partners and as such we have structured our service delivery to ensure a seamless induction into Ghana for investors to quickly and efficiently achieve the prosperity that they are looking for,” she said.

Foreign interest
Recent research by the United Nations Development Organisation (UNIDO) presented in Accra last year corroborates Trebarh’s analysis. It concluded that FDI had increased in Ghana by three percent in 2012, a rise worth $3.3bn. The report also suggested that this increase defied the general trend for declining FDI in the region. During the same period, Nigeria saw its FDI revenues drop by 21 percent. According to Frank Van Rompaey, UNIDO’s Accra representative, foreign investors surveyed for the report ranked Ghana’s political and economic stability, transparency of regulation, and local market conditions as the key factors influencing their decision to invest.

Source: Ghana Investment Promotion Centre
Source: Ghana Investment Promotion Centre

“Ghana has attracted the attention of well-known international businesses, investing in all sectors of our economy. All these investors have come to Ghana because they know we have a wonderful… social, political and economic environment in which they can invest, grow and be successful,” explains the president. “Ghana has recently embarked on an ambitious but achievable reform programme to improve the investment climate for both local and international investors. These efforts have paid off tremendously, with Ghana being recognised by the World Bank Doing Business Report 2014 as the Best Place for Doing Business in the ECOWAS [Economic Community of West African States] Region. Also, during the difficult times last year, when most countries did not show good growth levels due to the global economic downturn, Ghana had an economic growth rate of 7.4 percent, provisionally.”

Mahama is certainly backing up his words. His government, which aims to ramp up investment, has approved a number of laws and incentives, including a bill passed by parliament in 2013 to encourage joint ventures in the retail sector, allowing foreign partners to contribute capital of up to £1m, increased from $300,000. The government has also backed initiatives like the GIPC, which regulates and promotes FDI.

If the current and future governments manage to continue attracting this level of interest from foreign and domestic investors, there is little doubt that in no time at all Ghana will not only be a regional powerhouse but a global one. It certainly has the resources for it; all it needs now is the investment and initiative to explore them.

Diamond Bank’s retail engagement strategy serves Nigeria’s masses

Posted on by Ashton Wenborn

Diamond Bank, with its head office in Lagos, has emerged as one of the leading banks in Nigeria, having grown significantly in size and assets since its incorporation in 1991. By focusing on new technologies and targeting specific customer groups with innovative products, the bank has quickly risen as a major player in the industry, threatening the stronghold of Nigeria’s traditional top-tier banks.

With a growing footprint in west Africa, Diamond Bank is keen to continue its expansion by betting on Africa’s booming economy and by investing in the unbanked. “Diamond Bank is strategically positioned to deploy cutting-edge technology, in the growth of the retail segment of its business. This in turn, will provide a wide range of unrivalled convenience in our retail products and services,” explained the Bank’s Group Managing Director and CEO, Dr Alex Otti in an interview with World Finance.

For Otti and Diamond Bank, retail banking means supporting the individual as well as the small business, as both segments are at the heart of its new retail strategy. The bank’s ideology lies in its understanding of the future for retail banking with a huge focus on a wide range of customer segmentations, which provide various products and propositions to serve each segment; youth and school banking, mass market, affluent, privilege and MSME (micro, small and medium scale enterprises). Consequently, its medium-term retail strategy initiated in 2008 has delivered significant results evidenced by a phenomenal 125 percent growth in retail deposits between December 2010 and December 2013.

The bank currently has over 240 branches in Nigeria in addition to subsidiaries in Benin, Senegal, Côte d’Ivoire, Togo and the UK. Diamond Bank was first listed on the Nigerian Stock Exchange in 2005 and in January 2008, its global depositary receipt was listed on the Professional Securities Market of the London Stock Exchange. Diamond Bank was the first bank in Africa to record that feat.

125%

Growth in retail deposits at Diamond Bank from 2010-13

Chasing retail
Although the bank’s business focus consists of corporate, retail and public sector businesses, retail remains the largest part of the bank’s business and by leveraging the SMEs’ footprints, the bank hopes to capitalise on the impending economic boom to further drive its retail portfolio.

“Our deep understanding of the retail sector has availed us valuable insights into the challenges of the market. This has driven our innovations in e-banking, which has become the core of our business strategy in promoting a seamless transition to a cashless economy. We have continuously invested in top-of-the-range technology deployed via robust platforms to provide safer, faster and more convenient services to the banking public,” said Otti.

In this respect, the bank is making its mark on the Nigerian financial industry, which is experiencing growing competition in the area of technological innovations designed to make everyday banking more convenient for customers. With a large part of the population based in rural areas, it can be quite cumbersome trying to reach the entire retail segment through branch network alone. As such, Diamond Bank has launched a series of alternate banking channels including the Diamond Mobile App, Diamond Pay, Diamond Online and Diamond Mobile, which all allow customers to transfer funds, pay bills and conduct a host of banking transactions from computers or mobile devices (see Fig.1).

Financial inclusion
All of these innovations are instituted in order to further the financial inclusion drive in Nigeria, where over 70-80 million potential customers still remain unbanked. This has resulted in a robust retail engagement strategy to serve the unbanked and underserved segment across the country.

Source: Diamond Bank
Source: Diamond Bank

“As part of our retail innovation, we have integrated agency banking into our core business model. For example, our Beta Savings Proposition was designed to offer a simple savings account driven by mobile technology and a nationwide network of agents, who act as touch points to reach the financially excluded from petty traders to artisans. Furthermore, in partnership with MTN, we developed the Diamond Yello Account, which offers our customers a safe means of opening and operating a full bank account on their mobile phones, thus eliminating the need for documentation and the discomfort of locating a branch,” said Otti.

Particularly interesting is the alternative customer channel agent banking offering, which provide customers access to financial services at convenient locations such as supermarkets, schools, cinemas, markets and restaurants. The phenomenon is increasingly popular with Nigerian banks and seems to be gaining traction with customers who are flowing into banks such as Diamond Bank. Since 2012, the bank has gone from being Nigeria’s 10th largest bank by assets, to its seventh largest by the end of 2013, largely because of its NGN1.5trn in assets (see Fig.2) – the majority deriving from its growing retail business.

The bank has also embarked on the continuous development of women-friendly propositions and services aimed at empowering women economically. This includes the launch of the Diamond Woman Proposition, a fully fledged business support initiative designed to empower its female customers by building their capacity in managing their finances, family life, career and businesses through platforms such as seminars, conferences, networking events, and an active online community.

“Our ultimate goal is to provide suitable solutions for all types of customers, keeping each satisfied at every touch point and continuously stimulating an enabling business climate that would encourage real development in every financial centre that we operate in,” said Otti on the need to offer a vast collection of services that can accommodate the varied and growing wealth of the Nigerian population.

Catering to MSMEs
To this end, Diamond Bank has made it a key point to embrace small businesses in its search for strong business growth. The bank has an elaborate MSME offering which provides the resources entrepreneurs need to grow their businesses, in addition to tools that facilitate-commerce and market visibility.

Balance sheet trends 2013
Source: Diamond Bank

Customers are provided with a unique website address, transaction services and investment accounts/instruments, lending, cash management, and trade and financial advisory services, through its nationwide branches. What’s more, a team of experienced business bankers with industry specific expertise give MSME customers invaluable insight into their target market and the opportunities that exist for that particular business. The aim is to help customers promote their business to a broader audience, buy and sell a wide range of products online and find potential business partners, suppliers etc. For Diamond Bank, this venture is set to be the key driver of profit growth in the coming years – despite the volatility associated with SMEs.

“We pride ourselves as being the entrepreneur’s bank of choice in the country, playing in sectors and industries where [the] competition is sceptical to venture into. We believe that the Nigerian economy cannot grow in real terms without investment in the MSME sector; hence we are supportive of entrepreneurship that can create jobs for millions of Nigerians especially at the grassroots,” said Otti. “The success we have achieved in this segment since 2009, has led to numerous invitations for strategic partnerships by multilateral international agencies including the IFC, USAID, Women’s World of Banking, Shore Cap Exchange and DFID. These are clear testaments of our commitment to stimulate economic development in our operating environment.”

The bank’s commitment to give back to the community and foster economic development in Nigeria comes at a crucial time for the African economy. Nigeria is currently considered the largest economy in Africa and has an immense growth potential due to its vast resources and trade markets. Its financial services industry is well developed and has in last two years identified high-growth potential among the teeming unbanked individuals. To this end, technological initiatives, agency banking and the promotion of MSME businesses, is a crucial way to bank and increase the wealth of the Nigerian population, which is at the cusp of an economic boom and will need all these financial services for years to come.

PASHA Bank provides investors with a gateway to Azerbaijan

Posted on by Ashton Wenborn

For many countries that were formerly part of the Soviet Union, it has been hard to establish themselves as independent, modern economies with such a dominant and overbearing former ruler. While some struggle to forge their own way towards economic prosperity, there are others that have been blessed by a wealth of natural resources.

One such country is Azerbaijan, which benefits from a large amount of oil and natural gas (see Fig.1) that has helped to transform the country over the last two decades. However, the country is well aware of the risks that stem from being overly reliant on a finite natural resource. The government has been actively trying to diversify its economy in recent years away from an overreliance on energy and towards more of an even balance with manufacturing and agriculture.

World Finance spoke to Farid Akhundov, Chairman of PASHA Bank, one of the country’s leading financial institutions and a company that is spearheading the drive towards opening Azerbaijan up to the wider international investment community.

While Azerbaijan has come to be known for its rich levels of natural resources – it produces around one billion cubic metres of gas a year and 800,000 barrels of oil a day – there is a clear need, recognised by the government, to diversify into other areas, says Akhundov.

“Azerbaijan is an energy country. It has lots of oil and now lots of natural gas. But oil is not a sustainable resource and this is why it is widely acknowledge by the government that there are risks associated with being only a natural resources exporter. The crisis of between 2007 and 2009 affected Azerbaijan slightly after affecting the world market. The realisation of the need to diversify away from a reliance on the oil and energy sector became clear. The government at the time had a regional development strategy and it has actively been pursuing the aim of diversifying the economy into other things.”

Akhundov says that Azerbaijan’s manufacturing sector has a strong history that should be tapped into once again

A need for diversification
Akhundov says that Azerbaijan’s manufacturing sector has a strong history that should be tapped into once again. “Azerbaijan already has traditionally a lot of heavy industry, and especially oil machinery. I remember a Soviet statistic that the country had a concentration of oil machinery factories as high as in the US.”

Agriculture also plays a major role in the country’s economy, although more needs to be done to turn production into profits. “Azerbaijan is traditionally an agricultural country, with currently as much as 40 percent of the population working in agriculture. But agriculture only yields five percent contribution towards total GDP. This is a huge disparity and so there is a need to diversify away from energy. This all resulted in the government actively promoting regional investment, and there have been various processes to encourage that. Agriculture, for example, is totally exempt from tax.”

Another area that the government has been focusing on is the country’s lacklustre infrastructure network. After years of underinvestment, it is now dedicating a lot of its resources towards transforming the infrastructure network of the country. “We see now that oil and gas are being pumped to the global market, but there is a great need to create infrastructure inside the country. The government has started to invest money into the infrastructure, which after the Soviet Union was not in a good state. Now the government has almost completed gas distribution to villages in the mountain regions, so that everyone has gas,” says Akhundov.

He adds, “Road construction is carrying on across the country, and roads are a major contributor to the regional development. We have airports built in different cities across the country, and there are more being built. The government is also negotiating with international experts about a new, modern railway system throughout the country. This has been a government-driven investment, and less so from the private sector. Up to 75 percent of investment in the country is done by the government.”

Although the government has played a central role in building Azerbaijan’s economy, the private sector is starting to play its part too, especially in the banking sector. State-run firms providing financial solutions to businesses have largely dominated Azerbaijan’s nascent banking industry. However, a gap in the market emerged for a firm that could offer high quality, corporate banking services to larger clients. That is where PASHA Bank came in, says Akhundov. “The company itself is new and the sector is relatively new. Everything that’s happening in Azerbaijan we would not have seen 25 years ago. What we realised when we were setting up the bank was that there are opportunities for a commercial bank to start offering services to corporate entities. Before there was just a big state owned bank, but the assets of that bank were declining in share terms of the banking sector. That was mainly through smaller banks only being capable of handling the needs of smaller retail clients rather than corporate clients.

“We realised that there was an opportunity to work with corporate clients, and to start offering investment banking services. Some companies were larger than the banks, and so they demanded new and modern products, wanted to access capital markets, and to raise bonds to finance their operations.” The group have also looked at how banks can aid each other in financing, as Azerbaijan lacked a proper interbank market. “Since the inception of the company we have also moved into wholesale banking. We realised that there was not an adequate interbank market in Azerbaijan and to liven it up was an opportunity for a new bank like ours. It allowed us to help set the rules of the interbank market in the country with others. That helped to develop the institutional banking part of the business.”

Ticking all the boxes
While Azerbaijanis have welcomed the new range of banking facilities on offer to them from the likes of PASHA Bank, there has also been a considerable amount of interest from overseas to invest in the country. “When we started offering investment banking products, such as underwriting bonds for our clients in local and foreign currencies, then we realised that investors were not only in Azerbaijan, there were also foreign investors that were looking at the country as a potential prospect. The country had oil, good solid macroeconomics and the level of debt to GDP was very low. There were lots of attractions in terms of the macroeconomics of the country. There has always been a lot of potential for investors in the country for good returns,” says Akhundov.

Source: US EIA Agency. Notes: 2012 figures
Source: US EIA Agency. Notes: 2012 figures

“That gave us an opportunity to start positioning ourselves as a gateway to Azerbaijan and as a partner to local companies, foreign businesses, and also as a bank that is capable of understanding the needs of foreign investment houses and financial institutions. In around 2009 and 2010 we started building up our trade finance portfolio, and we also started working with export agencies for various countries, including France, Germany, Italy and Chinese. That gave us a lot of exposure.”

PASHA Bank has also been helped by the global knowledge that its senior management has spent time working abroad. “The management team has a lot of international experience. This brought us to believe that we could do be successful during our first three-year strategy. Now we are entering into the last year of our second three-year strategy. We believe that we have become the definitive destination for enquiries about the country and for Azerbaijani risk and corporate risk”, says Akhundov.

Providing a gateway to the country is obviously an area that PASHA Bank is keen to develop, but it is also looking at broadening its services to other countries. Akhundov believes that instead of merely being an Azerbaijani bank, PASHA Bank sees itself more as a “regional” player. “We have positioned ourselves as understanding corporate entities and bringing Azerbaijani corporate risk to the capital market. This is initially in Azerbaijan, but we believe we can do it in capital markets outside of the country. We view ourselves now as a regional bank, and not just as an Azerbaijani bank. We have been operating in Georgia for three years and we have identified a bank in Turkey that we would like to own. We have applied for the corporate investment banking license with the Turkish regulator, and we’re now waiting for approval.

“This will allow us to underwrite the risks of a corporate entity, do trade finance and participate in the capital markets in Turkey. We believe that we’ll be well positioned to handle this business. There’s a lot of trade between these countries.” PASHA Bank expects to continue developing its five core areas of operation, namely small business banking, medium sized commercial banking, corporate banking for large companies, investment banking, and wealth management services. “The growth is right in the company, and we believe this trend will continue in the coming years. There will be more and more need for banking services for businesses in the future,” Akhundov says.

With such ambition, both at home and abroad, PASHA Bank can be expected play a leading role in the region’s future prospects. “Our ambitions are to grow in these five directions, spread our operations into new countries, as with Georgia and Turkey, and to make sure we capture a big chunk of trade opportunities both internationally and regionally.”

Baiduri Bank takes charge in the Brunei banking sector

Posted on by Ashton Wenborn

Brunei’s banking sector has historically been strong. This is due, in large part, to the relatively affluent population who can afford to bank with more than one bank as a safety net. At the beginning of 2014, there were eight commercial banks in the country, including an Islamic bank providing full banking services. One foreign bank withdrew from the market in March, leaving seven players to serve a population of just slightly over 400,000. But industry experts in the Brunei banking industry say it is still a very crowded place.

Soon after the establishment of the Autoriti Monetari Brunei Darussalam (AMBD) as the regulatory authority for the banking industry in 2011, the industry saw a series of new measures imposed by AMBD governing personal loan and credit card business, aimed to protect borrowers from over-indebtedness and to promote a savings culture. A 2013 directive set a maximum lending rate and minimum savings and deposit rates among banks. This reduced the net interest margins for most banks, putting pressure on them to reconsider the size and breadth of their operations, resulting in a number of foreign banks right-sizing their operations and one withdrawing from the market altogether. Many bankers saw the departure as a new opportunity to expand and have upped the ante on hauling in those lucrative customers. And to keep with the changing business environment, banks have been leveraging technological innovations and putting new emphasis on customer service in the hope of retaining their customers.

One such bank is Baiduri Bank, which in recent years has made great strides to cater to all segments of society and become one of the leading banks in Brunei. Established in 1994, Baiduri Bank is part of the Baiduri Bank Group, one of the largest providers of financial products and services in the sultanate. Its shareholders include major players such as Baiduri Holdings, Royal Brunei Airlines, Royal Brunei Technical Services and the French banking giant BNP Paribas. With this strong backing, the bank has worked hard to invest and commit to local projects, interests and clients, in addition to offering global expertise, earning themselves a reputation for financial innovation and pioneering that would benefit the local economy.

90%

of businesses in Brunei are SMEs

413,000

Population of Brunei

“We are committed to providing innovative and comprehensive financial products and services to the Brunei community,” said CEO Pierre Imhof in an interview with World Finance. “We are committed to help Bruneians achieve the best in their worlds – be it business, personal finance or family, at different stages in their life.”

Tech-savvy consumers
The bank aims to be a financially inclusive organisation through its three main core businesses – retail banking, corporate banking and consumer financing; catering to institutions and corporations, students, working professionals and high-net-worth customers in Brunei. In its efforts to serve all segments of society, Baiduri Bank hold franchise to four different card payment operators: American Express, Visa, MasterCard and UnionPay. Other banks typically only franchise two card brands, which has helped Baiduri achieve the largest card member base, as well as merchant base, in the country. By offering a range of services including online banking, mobile banking, electronic payment services and a marketing app, which features a branch and ATM locator, promotions, product programmes, foreign exchange rates and e-coupons, the bank hopes to meet the on-going demand for innovative and hassle-free banking.

“Bruneians, especially the younger generation, are generally very tech-savvy and can easily learn to use new gadgets. Carrying out banking via the internet or over the mobile phone is already a common thing here. More and more people are turning to electronic banking because of its convenience and mobility. You see fewer and fewer people at branch counters. Usage of cards for payment of products and services is also increasing rapidly and most major banks have introduced electronic branches where customers serve themselves. Mobile banking service is also gaining popularity and I can only see this trend moving forward,” said Imhof, who also implied that the bank has several other technological projects in the making, but didn’t elaborate further on the details. In this respect, developing technological initiatives has been a way for the bank to maintain and increase its customer base, particularly when looking to attract younger clients.

SMEs in focus
Another key customer group is SMEs, which is a particularly profitable focus for Baiduri. With more than 90 percent of all businesses in Brunei made up of SMEs, developing a relationship with this sector is key when striving for growth. As such, SMEs have been a priority for Baiduri Bank, which offers products and services designed specifically to serve SMEs. These include advice on financing plans with preferential terms, as well as a free of charge payroll processing service, bulk deposit service, an interest bearing checking account and business internet banking to assist companies in managing their banking more efficiently. The aim is to give entrepreneurs and those alike, more time to focus on building their businesses.

“Baiduri Bank has continuously played an active role in the development of SMEs, which the bank views also as our social obligation to the country to nurture and develop local businesses. For the past 10 years, Baiduri Bank has partnered with a leading local company, Asia Inc Forum on an SME partnership programme aimed at nurturing and grooming Brunei’s SME’s through business awards, networking gathering, business forums and workshops,” said Imhof.

Under the Enterprise Facilitation Scheme and the Micro-Credit Scheme, both in collaboration with the Ministry of Industry and Primary Resources, Baiduri Bank has been providing assistance to local entrepreneurs to give them a head start in their business. Also, an online payment gateway enables businesses to collect payment online from their customers via a wide range of credit, debit and prepaid cards through their website and by conjoining a series of merchant services, SMEs are able to conduct business with minimum hassle and financial expenses.

Source: Baiduri Bank
Source: Baiduri Bank

Commitment to the cause
This form of SME support is part of the firm’s strong investment in local society, and its broad corporate social responsibility policy. Community projects include raising funds for local charities; a local business development programme that seeks to develop Brunei’s SMEs; active promotion of financial literacy among the Bruneians through public seminars and road shows, as well as sponsorships of local groups, competitions and NGOs in order to foster talent among youths.

Particularly interesting is the bank’s partnership in the Junior Achievement programme, which seeks to instil the spirit of entrepreneurship among students through an after school programme. Besides providing financial support, Baiduri’s staff members volunteer at schools to develop financial literacy, work-readiness and entrepreneurship among students.

To this end, Baiduri Bank Group hopes to foster further growth in coming years, particularly within the SME industry. This comes on the back of a recent rating from Standard & Poor’s, which recognised the strong financial performances of Baiduri Bank, as well as steady growth year after year. While many banks saw profitability slide in recent years, Baiduri Bank saw a 12.2 percent increase over 2013 and recorded an operating income of BND98.2m ($78.6m) – an impressive achievement in the current environment (see Fig. 1). These positive developments have opened new doors for the bank, according to the CEO.

“Baiduri Bank’s recent achievement of a credit rating of BBB+ for long term and A-2 for short term, with a stable outlook from Standard & Poor’s, opens up new opportunities for the bank to look beyond Brunei. BBB+ is an investment grade, which means that Baiduri Bank may go to international market to offer its bond, which will be fully recognised by international investors. The rating is just a notch behind some of the major global and regional banks in the region and it is the first time that a bank in Brunei obtained such a rating,” said Imhof, highlighting some of his ambitions for the bank.

Conclusively, with financial strength, international recognition and innovative projects underway, there’s no doubt that 2014 will be another record year for the bank.

Banco Penta: Chile’s financial industry has become an investment hotspot

Posted on by Ashton Wenborn

Chile’s financial industry has developed significantly over the last 20 years, achieving a high level of consolidation. However, when focusing on some of its members, for example banks, pension fund administrators, brokers dealers and asset managers, one may observe very unalike contexts. These significant differences generate different opportunities for such industry players.

On the one hand, the banks and the pension fund administrators (AFP) have been subjected to stringent regulations and fiscal supervision: the Superintendence of Banks and Financial Institutions (SBIF) currently monitors the banks and the Superintendence of Pensions (SP) now oversees the AFPs. High regulatory barriers have deterred new entries into the industry. Thus, during the last decades, these industries have undergone multiple merger processes, resulting in significant industry concentration.

Additionally, the banks and the AFPs have experienced high-growth periods which have led to increased business volumes. This has encouraged banks to assume considerable scales, encompassing increased operating efficiency. But, such scales have a price. The high organisational complexity reached by these players has brought about new challenges regarding their ability to capitalise the broad array of clients and products that they now enjoy.

In this context, these organisations have left interstices that allow the entry of new competitors with niche strategies, such as retail banks and investment banks with leaner organisational structures that enable them to move about more expeditiously.

On the other hand are broker dealers and asset managers; both of them governed by the Superintendence of Securities and Insurance Companies (SVS). These players have had a lesser degree of regulation, allowing for a large number of incumbents.

All things considered, the fact remains that the size of the two industries is relatively small – reason why their current high level of fragmentation is not sustainable. Furthermore, during the last few years, Chile’s capital market regulations have deepened, thereby increasing their operational costs.

In conclusion, the size of these industries, their high level of fragmentation, and the new regulatory environment – which is likely to continue to increasing player costs – should logically be followed by a process of consolidation and intensive M&A activity (see Fig. 1).

Immunity to the banking crisis
The economic and financial crisis experienced in Chile in 1982 was one of the worst in the country’s recorded history. Numerous banks were seized, some of them nationalised and others dissolved. GDP fell by 13.6 percent; the sharpest drop since the 1929 worldwide recession, consequently shooting unemployment rates over the 20 percent threshold, where they remained for several years.

One of the lessons of this crisis was the need to strengthen our banking regulations; which then led to important amendments to the General Banking Law during the 1980s and part of the 1990s. The main objective was fully achieved. Therefore, currently, the Chilean banking system is one of the strongest in the world; a circumstance that was put to the test during 2008’s financial crisis and from which the country’s banking system emerged virtually unscathed.

Source: Banco Penta
Source: Banco Penta

Currently, the Chilean banking industry has reached a significant size resulting from two decades of continuous growth: explained, both by its own strength as well as by the country’s economic success throughout this period. Thus, bank loans went from $46.5bn in 2003 to $230.8bn in 2013, a compound annual growth rate (CAGR) of 17.4 percent (see Fig 2). In just five years, banks earnings doubled, going from $1.9bn in 2008 to $3.9bn in 2013. This important financial stability, however, generated a greater concentration in the system. Stringent regulations and controls raised banking costs, forcing mergers in order to increase operating efficiency. Today’s Banco Santander, for example, is the product of 10 years of mergers (1993-2002) between seven different banking institutions. Moreover, a merger process between Corpbanca and Itaú is currently underway; which, in turn, will further concentrate this industry.

At the same time, the high cost of incorporating and operating a bank has generated significant industry entry barriers. Consequently, the creation of new banks since has been minimal. This is how, despite the strong growth of the industry, the number of players decreased from 29 banks in 1998 to only 23 in 2013 (22 if we consider the current merger process between Corpbanca and Itaú). As a result of this, the average amount of loans per bank grew by more than five times in the last 10 years, from $1.8bn in 2003 to $10bn in 2013.

The consolidation of services
The vast majority of Chilean banks have become highly-efficient major corporations spanning across all market segments and covering all sorts of products. But the scale has come at a cost. In order to cover all commercial segments with a diverse range of products nationwide, they understandably became more complex organisations.

Moreover, in order to be able to delegate organisation-wide decision-making, they have had to develop policies and processes that are more standardised and rigid. This has inevitably led to greater bureaucracy, stiffness and slowness. In addition, 48 percent of all banks are now subsidiaries of foreign banks; which, in turn, face additional complexities and challenges of their own.

Retail banks were the first ‘niche banks’ to capitalise on the opportunities generated by the concentration of banking. This explains the creation of Banco Falabella in 1998, a subsidiary of one of the major national retailers, already running an important consumer loan business for its retail department stores. This strategy was followed a few years later by other major Chilean retailers: in 2002 by Banco Ripley, owned by the Ripley Corp., and in 2004 by Banco Paris, owned by Cencosud. As of December 2013, these three banks had already increased their market share to over 10 percent of all bank consumer lending. Also, in June of this year, Scotiabank Chile announced an agreement with Cencosud, the parent company of Banco Paris to acquire the credit business of the latter.

In 2004 a process similar to that occurring within the retail segment began with the creation of Banco Penta: Chile’s first investment bank. Banco Penta focused exclusively on three types of clients: high-net-worth-individuals, financial institutions and corporate clients: the bank’s products are asset management, brokerage, corporate finance, financing and sales and trading.

Later on in 2011, BTG Pactual acquired Celfin Capital, a local broker dealer and asset manager, in order to create a second investment bank. A year later, Banco de Crédito del Perú (BCP) followed a similar strategy upon acquiring IM Trust, another local broker dealer and asset manager. However, BCP did not incorporate a bank in Chile in favour of continuing to use its Peruvian bank for businesses requiring balance sheet.

Banks lead traditional players
Despite the small amount of revenue generated by Chile’s professional Asset Management (AM) industry, its number of players is relatively high. With only $586m in revenue in 2013, the total number of firms amounted to 36, with a modest $16m average income per institution. Upon disaggregating the industry into AM banking subsidiaries and ‘pure’ AMs, we observe an important dispersal.

Banks’ AMs represent only one third of all AMs (12); they generate 67 percent of all industry revenues, with an average income of $33m. Contrariwise, ‘pure’ AMs (24) only generate $194m, with an average player income of only $8m. Something similar occurs with broker dealers (BD). During 2013 the 48 players in this industry generated only $476m in revenues; a mere $10m average of revenue per player. Just as in the AM industry, the BD banking subsidiaries lead the business. With less than one-third of players (15), in 2013 they generated 57 percent of all revenues ($273m). On the other hand, the 33 ‘pure’ BDs generated only $202m, which is equivalent to an average income per player of just $6m.

Source: Banco Penta
Source: Banco Penta

Both businesses are human capital and IT intensive; clearly difficult to sustain with low average incomes. Consequently, in the coming years, both of these sub-industries should see important M&A activity; something that has already begun with the purchase of Celfin by BTG Pactual in 2011; of Cruz del Sur’s acquisition by Banco Security; and, of IM Trust’s acquisition by Banco de Crédito del Perú (BCP) in 2013.

Pensions in transition
In November 1980, through a complete overhaul of the welfare system, Chile created a new pension system consisting of a fully-funded individual capitalisation system managed by private-sector Pension Fund Administrators (AFP). The regulatory framework governing AFPs prevents banks from entering this industry: 12 AFPs were created in 1981 and others were created throughout the 1980s.

Between 1990 and 2010, however, the industry consolidated through multiple AFP mergers. Thus, by 2010 the number of AFPs had dropped to only five. Subsequently, and in order to increase competition by encouraging the entry of new players, a process was created permitting existing AFPs or new ones to submit their bids in a bi-annual bidding contest, on the basis of commissions, for all the new members of the system for a two-year period.

In 2010 a new AFP, AFP Modelo, won that year’s bidding process becoming the newest and sixth AFP in the system.

By 2013 the AFP industry had $163bn in AUM; equivalent to 62.4 percent of Chile’s GDP. The revenue generated by the industry in 2013 totalled just over $1.1bn; equivalent to an average income per player of $188m.

In recent years, two major M&A transactions were executed. The first was the sale of AFP Cuprum, owned by Grupo Penta, to Principal Financial Group in 2012 for $1.5bn. The second was the sale of AFP Provida, owned by the BBVA Group, to Metlife for $2bn.

Furthermore, it should also be noted that Chile’s new government has just submitted a draft bill to create the country’s first state-owned AFP, aimed at injecting more competitiveness and broader coverage into the system. It is not yet clear, however, what the actual impact of a such new scenario might be; because, the bill is still being debated in congress.

BankMed makes a vital contribution to Lebanon’s growth

Posted on by Ashton Wenborn

Large and well developed, the Lebanese banking sector constitutes one of the main pillars of economic stability in the country as it has continued to weather shocks and overcome challenges. Despite unstable domestic conditions and regional disturbances that occurred in light of the Arab Spring phenomenon, Lebanese banks’ assets witnessed an average annual growth of 8.5 percent; private sector deposits grew at an average annual rate of 8.3 percent, while loans to the private sector recorded an annual average growth of 11 percent.

Several factors contributed to this strength, shielding the Lebanese banking sector in times of local and regional instabilities. First, relative to the size of the domestic economy, the Lebanese banking sector has steadily grown over the years, accumulating assets in excess of 372 percent of Lebanon’s GDP amid on-going deposit inflows.

The banking sector activity is driven by customer deposits, which constitute the main source of funding and account for around 83 percent of total liabilities, reflecting the stable funding source with low reliance on capital markets. In addition, the size of the banks relative to GDP has allowed them to fund both the public and the private sector, with loans to the private sector representing 93 percent of GDP. Still, the banks remain highly liquid with a loans-to-private sector deposits ratio of 30.5 percent at the end of 2013, one of the lowest ratios among emerging economies.

372%

Total banks’ assets-to-GDP ratio

Moreover, the Lebanese model of high liquidity and credit discipline inspired confidence from local and foreign depositors. The sector has gained experience in risk and crisis management, as well as having shown a counter-cyclical response following the global financial crisis of six years ago.

Lebanese diaspora
Lebanese banks operate within regulations and ceilings that they set for themselves, in addition to other regulatory measures set by the monetary and supervisory authorities. Banks in Lebanon operate in compliance with the Central Bank of Lebanon and the Banking Control Commission’s rigorous and stringent regulatory framework and supervisions.

This culture has played a major role in organising and developing the work of the banking sector, thus enhancing confidence and stability. The confidence in the sector was not affected by the latest events in the Arab countries, where some Lebanese banks are present. Guided by the Central Bank of Lebanon, Lebanese banks were quick to take additional general provisions against their lending activities in these countries, thereby maintaining growth in their profits, albeit at a slower rate.

Furthermore, the resilience of deposits is also due to the widely diffused Lebanese diaspora, which has been loyal and committed to the Lebanese banks. This provides significant opportunities to the sector by offering them tailor-made services. This large diaspora has had a direct positive impact on the banking sector. As such, Lebanon has been and remains one of the top receivers of remittances among MENA countries over the past years (see Fig. 1).

According to World Bank estimates, Lebanon’s inflow of remittances has increased over the last five years from $5.8bn in 2007 to over $7bn in 2013. This reflects the confidence of the Lebanese diaspora in the economy and its banking sector. In 2013, Lebanon ranked as the 18th largest recipient of remittances globally and the 12th largest recipient among developing economies. It also ranked as the second largest recipient of remittances among 16 Arab countries. Further, expatriates’ remittances to Lebanon recorded an equivalent of 17.4 percent of GDP in 2013, the 10th highest ratio in the world.

With respect to investment, Lebanon has the ability to attract investments, even with the overall slowdown in economic activity in many emerging and Arab economies. This is attributed to its strong economic fundamentals, sound banking system, and open economy. New gas discoveries in Lebanese waters represent great economic opportunities for the country and offer prospects for the economy to attract foreign direct investments in oil exploration.

The oil and gas discovery will therefore help Lebanon take a step toward self-sufficiency in oil by satisfying domestic demand. Substantial government revenues from those resources are expected beyond 2017, which could turn the fiscal deficit to a surplus, strengthen economic growth, and narrow the debt-to-GDP ratio. With respect to Lebanese banks, the oil and gas sector is undoubtedly a promising one, and it can play a major role in terms of attracting foreign direct and long-term equity investments. Moreover, banks have the capacity and liquidity to fund related projects. Therefore, this new sector could even contribute to the expansion of investment banking business in Lebanon.

Source: World Bank. Notes: 2012 figures
Source: World Bank. Notes: 2012 figures

Looming challenges
On the other hand, some challenges still lie ahead since Lebanon is a highly indebted country. This condition renders Lebanon particularly vulnerable and lowers the chances for investments in key strategic sectors. The inherent structural issues facing the Lebanese economy were more recently aggravated by the continuing turmoil in the region, which weighs down on the economic growth prospects. The Lebanese banking sector is not insulated from current events, and it is natural that the sector will be affected by the economy.

On the other hand, there is no fear in terms of the solvency and liquidity of Lebanese banks. The high liquidity provides Lebanese banks with high immunity and the ability to absorb shocks. Additionally, gold and foreign currency reserves jointly cover around 178 percent of Lebanon’s foreign currency debt, which is equivalent to about 26 months of imports, ensuring further resilience of the banking system, which holds most of this debt. Thus, Lebanese banks have both the capacity and the ability to play a major role in the coming revival of the economy.

All these factors show that the future carries great promises for the Lebanese banking sector. Lebanese banks are drivers of confidence and therefore generators of financial stability and economic growth. The Lebanese financial market and the banking sector in particular have proven extremely resilient. This proves the importance of maintaining the stability and the good reputation of the sector, as it remains the main financing source of the Lebanese economy.

Regional presence
BankMed has been able to grow its business and to expand and strengthen its local, and regional presence in spite of the recent global and regional developments. What differentiates BankMed today from the others is its regional presence in high-growth countries with significant growth potential. The bank enjoys a widespread presence over the Lebanese territory through a network of 60 branches in addition to a strong existence in the region with one branch in Cyprus and two in Iraq, where it offers a wide range of products and services to individuals and corporations. BankMed’s operations also extend to Switzerland, where it fully owns a subsidiary private bank, BankMed Suisse, as well as to Turkey through a commercial bank, T-Bank, and Saudi Arabia with an investment banking arm through the SaudiMed Investment Company.

As a growing regional financial institution, BankMed has a strong commitment to investing in innovation and technology in order to keep pace with the demands of a more global and mobile client base, as well as with the fast changing financial landscape. As such, the bank adopts the latest banking technologies to meet the highest international standards of best practices. Moreover, the bank emphasises continuous employee training and development in an aim to allow its staff to realise their potential and capabilities.

Locally, the bank focuses on greater diversification through a stronger emphasis on SMEs and retail banking. Furthermore, BankMed established Emkan Finance SAL; a Lebanese financial institution licensed by the Central Bank of Lebanon to provide the productive workforce in low-income brackets with access to microfinance services. The bank is also a market leader in corporate banking and investment products.

In addition to the traditional treasury services, BankMed offers a strong variety of innovative tailor-made and off-the-shelf investment products to its customers. Brokerage services – available in all major markets – are handled by MedSecurities Investment SAL, BankMed’s wholly owned subsidiary. Internationally, the bank has had a well thought expansion policy, with presence in selected markets with sustainable growth potential. As such, BankMed’s performance has been remarkably positive despite the global, regional, and unstable local conditions.

Moving forward, BankMed’s strategy is focused on expanding its client base further by taking advantage of new innovations and technologies. Meanwhile, the bank’s contributions to Lebanon’s financial, commercial and industrial sectors continue to greatly aid growth in the country

Angola’s banking future has never been brighter, says Banco BAI

Posted on by Ashton Wenborn

Having been hit hard by the global financial crisis, Angola’s economy is now gathering momentum, with robust GDP growth above the five percent mark, supported by strong fiscal and external balances, a stable exchange rate and moderate inflation. Government policy is implementing enhanced fiscal controls and tighter public financial management, greatly modernising the country’s financial industry. These key moves are also enabling the government to accelerate public investment that will support broad economic diversification and more rapid job creation, while reducing Angola’s considerable vulnerability to external shocks.

These improvements in the investment climate and in the financial regulatory structure have enabled the rapid expansion of the banking sector, despite credit constraints limiting the economy to some extent. The extensive and abrupt changes to the composition of Angola’s overall economy have changed the local financial sector significantly. Banks have to accommodate new and booming sectors, as well as tackle the influx of international banking groups, making for an increasingly competitive sector.

In the early 2000s, the financial sector comprised just nine banks, the two largest of which were state-owned. Now, the Angolan financial sector consists of over 20 banks, and privately owned firms command a dominant share of the market. In addition, the financial sector’s total assets grew from less than $3bn in 2003 to more than $57bn in 2011, according to the World Bank.

Established in 1996, Banco Angolano de Investimentos is one of the original banks betting on the Angolan economy and was essentially the first private bank in Angola. The firm has expanded its network to comprise of over 120 branches nationwide, with representation in Portugal, Cape Verde and South Africa.

Angolan banking services

75%

Angolan banking services

72%

Increase in point-of-sale transactions since 2011

35%

Increase in ATM transactions since 2011

Boosting business
As it has for many of its competitors, the liberalisation of the Angolan finance sector has resulted in the dramatic growth of financial assets, infrastructure and transaction volumes for Banco BAI. Bank branches have proliferated throughout the country, extending even to remote and rural areas, while ATMs and credit cards are becoming increasingly common. Even though the overall supply of credit to the economy remains limited, the Angolan credit market has been growing by a remarkable average of over 50 percent per year for the past five years, according to the World Bank.

This boost to the credit markets has allowed Banco BAI to specialise in catering to individuals and SMEs, as well as to capitalise on the country’s oil and gas prospects in the coming years. The bank has also outlined plans to support the country’s economic diversification through industrialisation and service-orientated business developments.

“Inflation rates in Angola are at a historic low (6.9 percent change in one year to June 2013),” explains Fábio Correia, Marketing and Communications Director at Banco BAI (see Fig. 1). “These low inflation rates are enabling more affordable credit or financing policies and therefore the use of productive capital to develop public infrastructures, housing and factories for families, SMEs, large corporations and government investment initiatives.”

According to KPMG, the environment is also challenging because the Angolan banking sector saw a decrease of 30.9 percent in terms of net income in 2012, as a result of lower growth in the operating income of the sector. This volatility has put pressure on banks to ensure their business is diverse and financially strong enough to withstand external shocks, as Angola continues to remain dependent on foreign investment and exports. Nevertheless, increasing robustness within the sector – as well as efforts from firms to be present in most provinces of the country and to offer clients more diversified products – bodes well for the future of banks operating in Angola.

Serving the unbanked
The majority of Angola’s population continues to remain unbanked. A safe bet for profit growth and stable income is to access this largely untouched market. As such, banking services access for the Angolan population remains a central goal of the financial sector, and has driven the increase in the number of banking branches (which almost doubled from 2009 to 2012) and its decentralisation from Luanda.

With less than a quarter of the population using banking services, the need for innovative banking offerings that can reach a broad segment is ever-increasing. This has, in part, fostered a positive trend in the use of several means of payment and new electronic channels as a way to access major banking operations – no matter how remote your location. For although most contacts between banks and (future) customers are made in a bank branch, about 75 percent of Angolan banks already have an internet banking service. ATM transactions have also seen exponential growth, increasing by more than 35 percent year-on-year since 2011 and with point of sale transactions increasing by about 72 percent.

With its strong focus on local economic development and social responsibility, Banco BAI has made it a key point to reach out to as many Angolans as possible. The bank has done this through its various mobile and online banking offerings, as well as its branches that serve every need – from savings, to loans, to payment transfers. This strong foothold has helped place the bank as the leading financial institution in Angola, as well as a top-25 bank in Africa.

Strength through diversification
In order to uphold this position – and given a recent slowdown in lending activity – Banco BAI has been adjusting its strategy to safeguard against negative repercussions on its business activity and bottom line. BAI has been carefully evaluating its exposure to the sectors of the economy that currently represent higher risk levels, as well as tightening controls on the increasing number of past due loans. It is also enhancing its credit recovery department by introducing new procedures and improving the efficiency of the existing ones. The bank has developed procedures for monitoring companies that have signalled greater difficulties in terms of liquidity, in order to anticipate eventual difficulties in fulfilling their obligations.

Source: IMF
Source: IMF

“In the next 12 months, BAI will be working towards the consolidation and expansion of our position in the Angolan banking market, with the aim of being a pillar for national economic development,” says Correia. “We’ll also be improving our human resource policies in order to recruit, develop and retain the best professionals. By improving our segmentation model we also hope to strengthen our skills in client financial advisory and best practices in risk management in order to consolidate a prominent position in the market.”

Betting on oil
Banco BAI has been serving Angola’s thriving oil and gas industry for years. Banks that target oil companies are required to constantly improve their product offering in order to remain competitive. For BAI, this has resulted in a consolidation of its business unit for the oil sector service providers, as well as a department dedicated to the oil sector operators. Furthermore, the bank has implemented automated platforms, which allow operating companies to issue straight through orders quickly and efficiently.

Because Angola remains one of the leading countries in terms of receiving foreign direct investment – thanks to money flowing into natural resource industries – banks have also had to tackle the influx of foreign investors and the ensuing boom in currency exchanges. This has historically caused elevated volatility of the kwanza against the US dollar, and has prompted the Angolan Executive to promote stabilisation of the exchange rate. As a result, the exchange rate was stable and almost linear throughout 2012 and 2013. Additionally, there has been a gradual de-dollarisation of the economy, both in terms of deposits and loans, after the Angolan Executive implemented measures such as the establishment of maximum sales limits and supervision of compliance with the Foreign Exchange Law (NFER). For instance, the new exchange regime for the petroleum sector approved in 2012 will oblige the amounts paid by the oil companies to foreign contractors to provide services in Angola to be traded through banks operating in Angola. This is expected to increase market liquidity, the volume and number of transactions, the efficiency of the payment system, and the net interest margin of the banks, as well as change the market share of each bank.

With competitiveness set to surge, Banco BAI is betting the NFER will boost transactions significantly for oil-focused firms such as itself. With that, Angola’s banking future has never been brighter.

NDB Capital consolidates Bangladesh’s economic strength

Posted on by Ashton Wenborn

Bangladesh, considered by many to be the rising star of South Asia, has shown resilient macro-economic performance even during the recent global economic crisis. Unlike comparable developing countries, Bangladesh has been able to impress with its notable improvements in various social and human development indicators simultaneously (see Fig. 1). In fact, Bangladesh has been successful in continuously developing its human resources, female empowerment and living standard improvements. This has made the country a unique proposition as a model for growth.

One important outcome of Bangladesh’s unique growth pattern is that it has been successfully shaping the domestic market as a robust shield against various external economic shocks. How so? Dissimilar to its regional counterparts, the economic growth of Bangladesh has not expanded the economic divide – rather the effects of the growth have been distributed evenly both in monetary and non-monetary forms. The result is a rising relative share of the middle-income segment along with a growing per capita income. Consequently, not only is the purchasing power of people increasing but also the consumer base is expanding. This strengthening domestic demand has been one big contributing factor in keeping the economy afloat even during difficult periods.

Another reinforcing factor in the Bangladeshi growth story is the composition of its population. The majority of the population is concentrated within the ‘working age’ category and the relative share of this age category is on the rise.

According to the World Bank, the working age (15-64 years) population reached 64.2 percent in 2012, up from 53.9 percent in 1990. Within the same time period, the dependent population (below 15 or above 64 years) as a percentage of working age population has dropped considerably, from 85 percent to 54.53 percent. Given the country’s labour costs are already one of the lowest globally, this growing labour force (see Fig. 1) and declining dependent population percentage guarantees a persistent labour cost competitiveness in various labour-intensive sectors.

Bangladeshi growth

38.11%

Foreign exchange reserve growth

12.88%

Export growth

3.70%

Net FDI Growth

306

listed companies and mutual funds

$36bn

Total market capitalization

27.6%

Market cap to GDP

$62.3m

Average market turnover

What needs to be done
Bangladesh is well on track to become an economic powerhouse in the South Asian region. Infrastructure development, coupled with a strong capital market and financial sector, is essential for sustainable growth. According to the World Bank, Bangladesh will have to invest between $7.4bn and $10bn a year until 2020 to build infrastructure for sustainable growth. The investment to GDP ratio, which has been hovering around the 25 percent mark for a long time, needs to be improved to attain the targeted eight percent GDP growth rate. The government is keen on overcoming these deficiencies, as evidenced by its undertaking several huge projects aimed at wide-scale infrastructure development in the last few years. However, it is a fact that government initiatives alone are not enough for rapid infrastructural transformation: contributions from the private sector are essential. The presence of a well-functioning, liquid and developed capital market, together with a robust financial sector, integrates this process.

Considering the commonality of emerging markets, it’s no surprise the Bangladeshi capital market has historically been extremely volatile. It went through two corrections within a span of about 13 years, in 1996 and 2010. The market has not yet fully recovered, even after four years, from the latter downturn.

One of the primary contributing factors behind this excessively long recovery period is the acute lack of diversification options in the market. The investors simply don’t have enough options to diversify away or hedge their risks by investing in different asset classes. Only plain vanilla equity securities are traded on the secondary market; the market for fixed income securities being effectively non-existent. Only a handful of corporate debentures or bonds are listed with virtually zero liquidity. Under these circumstances, the investors are left with few choices in terms of asset class – hence the slow pace of recovery in investor confidence.

Even though the major role of capital markets is to provide a means of raising capital, most of the financing needs of businesses and government projects are borne by the banking sector in Bangladesh. From 2010 to 2013, for every 100 taka of funds raised from the banking sector, only one taka was raised from the capital market. This shows that businesses have not used the capital market enough. As a result, whatever money was invested in the market by investors with promises of high returns contributed to creating market bubbles instead of providing capital to businesses. Consequently, the market crashed, with too much money chasing a limited number of stocks.

This leads to two key observations. First, different classes of investment products need to be brought to the market to address the investors’ needs for diversification and hedging of risk. A broader array of security classes will enable the investors to tailor their portfolios to their specific risk-return profiles. This, in turn, will attract more investors and the risk reduction potential will speed up the re-establishment of investor confidence in the market. Also, a wider range of asset classes will draw more foreign investment into the capital market.

Second, businesses should be driven towards the capital market to meet their capital needs. On one side, this will stop the formation of market bubbles during bullish times and, on the other side, it will enable the capital market to further accelerate economic development by channelling the excess funds to businesses that require new capital. Opening up the secondary market to both debt and equity products is essential in this regard.

The role of NDB Capital
NDB Capital, a subsidiary of the National Development Bank of Sri Lanka, has been playing an instrumental role in bringing about this desired change in the capital market of Bangladesh through its innovative investment banking activities. NDB Capital has been operating in Bangladesh since 2009. In 2013 alone, it raised about USD 129m for its clients in the form of both debt and equity securities. What sets NDB Capital apart from its competition is its strategy to introduce innovatively structured products to the capital market while adhering to strong corporate governance and ethical standards. By closely scrutinising the market and macro-economic scenario, business characteristics and the specific requirements of the client, NDB Capital formulates an optimised and customised solution on a case-by-case basis within the legal and regulatory environment.

Source: World Bank
Source: World Bank

Traditionally, the majority of the investment banks in Bangladesh have operated with a very narrow focus on a few plain vanilla products. NDB Capital has been striving to break this trend. Besides introducing a convertible preference share issue to the market to finance a green field project, NDB Capital successfully managed the issuance of the first-ever convertible bond with an embedded put option in 2013. It also facilitated foreign investment in Bangladesh by offering a full spectrum of investment banking services. NDB Capital took initiatives to build awareness about Sharia-compliant products in the market to address the growing appetite for alternative investment vehicles. Moreover, the firm is planning to introduce the first-ever revolving commercial paper in the Bangladeshi market. The significance of the role being played by NDB Capital in redesigning the local market has been reinforced by its winning a number of internationally recognised awards.

The road ahead
In order to sustain its healthy growth trajectory, Bangladesh needs to ensure adequate participation from all classes of investors: namely the government, institutions, the general public and foreign investors. For this, a well-functioning capital market and strong investor confidence is necessary. The investors need to be offered flexibility and diversity in their investment options to reduce the risks. Equally importantly, the private sector needs to be made aware of the various sources and instruments of fund raising while simultaneously minimising the cost of funds. In this regard, investment banks have a key responsibility in creating awareness among entrepreneurs. Also, the onus is on the investment banks to bring together global and local investors, and local industries through structuring innovative capital market products with appropriate risk mitigation strategies.

A large part of the development of Bangladesh’s capital market depends on how well the investment banks can perform this role of creating value on both sides of the continuum: the investors and the investees. NDB Capital, with its innovative strategic focus and a vision to initiate positive change, has been doing exactly that and will continue do so in the future.

Sri Lanka’s renaissance gives rise to a new era of investment banking

Posted on by Ashton Wenborn

After three decades of internal conflicts, Sri Lanka has seen a sizeable change in its economic landscape with new infrastructure developments and the revitalisation of the economy. Sri Lanka’s GDP growth bounced back to 7.3 percent in 2013, reflecting increased domestic demand and improved exports and tourism sectors. Sri Lanka’s macroeconomic performance in 2013 exceeded global expectations as GDP per capita income reached $3,280 (up from $869 in 2000, see Fig. 1). The relaxed monetary stance of the Central Bank of Sri Lanka eased inflation, maintaining it at a single digit rate. Amid the global market turmoil, the exchange rate remained stable while foreign remittance continued to grow.

The World Bank affirmed Sri Lanka’s business-friendly policies; the country ranks ahead of South Asian peers in the Doing Business rankings, reaching 85 out of 189 countries in June 2013. Sri Lanka rose in the global ladder partly by strengthening investor protection and reducing taxes on businesses.

Sri Lanka continues to gain in human development measures, ranking first in South Asia in the Human Development Index. Sri Lanka advanced to ‘high human development category’ for the first time last year, positioning the country at 92 out of 187 countries. The effective welfare, public health and education services resulted in socio economic indicators standing above peers, with 75.1 years of life expectancy at birth and a literacy rate of 95.6 percent in 2013.

In its flagship publication, Asian Development Outlook 2014, the Asian Development Bank (ADB) mentioned that an improved external environment, higher investments, and a recovery in domestic consumption would sustain a rapid pace of GDP growth in Sri Lanka in the next two years. The ADB forecast GDP growth will reach 7.5 percent in 2014 and remain at that level in 2015.

Sri Lanka on the Human Development Index

92ND

Out of 187 countries

75.1

Life expectancy at birth

95.6%

Literacy

The road to Upper Middle Income status
The country is continuing its transition into an ‘Upper Middle Income Country’, aiming to achieve a GDP per capita income of $4,000 by 2016. The overall expansion of the economy will be stimulated by the 5+1 Hub concept, which focuses on developing Sri Lanka’s maritime, aviation, energy, knowledge, commercial and tourism hubs. The large-scale infrastructure development projects involved include the expressway network, improvement and development of the road network, construction of bridges, development of ports, improvement of railways and increasing power generation. Over the past four years, the said developments have laid a strong foundation to transform Sri Lanka into a strategically important economic centre.

After the cessation of the civil war, travel restrictions were removed and Sri Lanka garnered a reputation as a tourism hot spot: tourist arrivals surpassed 1.27 million in 2013, earning $1.7bn. The trend is likely to continue and the industry needs to develop significantly from its current capacity to meet the ambitious target of 2.5 million tourist arrivals by 2016. Investors in the hotel industry, led by international players, have identified the potential, with over 250 projects in the pipeline to reap the benefits of a booming industry.

Significant investments in the maritime sector – highlighted by the development of ports – and the current aviation related infrastructure developments in Katunayaka, Mattala and domestic airports have laid the groundwork for the country to be the emerging maritime and aviation hub in the region. As the emerging energy hub, the country has developed a steady pipeline of investments in electricity generation projects to ensure energy security, with the emphasis on developing renewable energy and coal power projects. Steps are underway to raise the quality standards and create a dynamic education sector to reinforce the knowledge hub. The activities relating to all these hubs will spearhead the transformation of the country into a commercial hub.

Capital markets to lead the way
The financial system will be the main source of the investments that will fund Sri Lanka’s goal of becoming a $4,000 per capita economy. With the focus on the 5+1 concept, along with well-placed economic structures, private sector involvement and entrepreneurship, the Sri Lankan economy is expected to become more resilient and diversified, and its economic growth will be sustained.

While steps have been taken by the Central Bank of Sri Lanka to strengthen the financial system by making its architecture more effective and productive, the conventional banking system alone will not be able to raise the entire requirement of capital to guide Sri Lanka towards its 2016 goals. The capital markets will need to act as the catalyst to raise funds to bridge the gap.

An action plan drawn up in consultation with stakeholders is expected to reinvigorate the capital market while regulatory framework will bring greater efficiency, transparency and accountability.

The debt market revived within the budgetary concessions extended on listed debentures, with 26 corporate debentures worth $522m listing on the Colombo Stock Exchange in 2013. Despite the low cost funding available due to the prevalent low interest rate regime, and excess of liquidity in the banking sector, the debt capital market is expected to grow. The sovereign bond issue, oversubscribed 8.3 times in April 2014, was able to fetch a tighter yield of 5.125 percent – reflecting the continued confidence placed by international investors.

The Sri Lankan equity market made a slow recovery, with policy directions advocating monetary easing measures since December 2012. During the 12-month period up to May 2013, the ASPI wavered around the 6,000-point mark, closing at 6,263 points. Due to the lacklustre performance in the equity market, the IPOs were almost non-existent, with only one listing in 2013. The four IPO listings by the end of June 2014 indicate a positive change in market sentiment. It is noteworthy that, since May 2014, the stock market has seen a drastic improvement in the indices, with ASPI crossing the 6,800-point barrier and average daily turnover increasing to LKR 1,276m (USD 10m).

The role of investment banking
The role of investment banking has become much more significant with the economic revitalisation of Sri Lanka. Investment banking has evolved to embrace financial products, including mobilising funds in the debt and equity markets, corporate advisory services and facilitating M&As, financial restructuring, valuations, and market research. Investment banking has great potential, with the anticipated growth in the global and domestic economies, and NDB Investment Bank (NDBIB) is poised to take advantage of new opportunities with a range of diverse and innovative products.

Source: Central Bank of Sri Lanka. Notes: 2014-16 figures projected
Source: Central Bank of Sri Lanka. Notes: 2014-16 figures projected

NDBIB raised $322m of funds in 2013, concluding its most successful year to date. NDBIB has established a stronghold in listed corporate debentures in the past year as the leader in a fragmented market of more than 10 players. The bank had a more than 40 percent share in terms of both the number of issues and total funds raised. NDBIB remained the market leader in the non-banking and financial sector fund raisings, maintaining an 80 percent market share. NDBIB structured the largest-ever corporate debenture in Sri Lanka for its parent company, the National Development Bank.

In its continuing quest for innovation, NDBIB introduced multiple green-shoe options in the event of an oversubscription for debentures and structured the first ever securitisation of future receivables of broker advances. NDBIB – together with its sister company in Bangladesh, NDB Capital – arranged a syndicated loan facility, comprising financial institutions both in Sri Lanka and Bangladesh, for Lakdhanavi (a Sri Lanka-based premier company in the power and energy sector) to set up a heavy fuel thermal power plant in Rajshahi, Bangladesh.

NDBIB was actively engaged in the equity market via private placements and extended advisory services despite the moderation in activity on the Colombo Stock Exchange in 2013. Adding to its list of achievements, NDBIB acted as financial advisor to the largest share repurchase in Sri Lanka on behalf of its parent, NDB Capital Holdings. NDBIB was also financial advisor to Hemas Manufacturing’s acquisition of a 72 percent stake in JL Morison Sons & Jones (Ceylon). NDBIB advised and acted as the Manager to the Mandatory Offer and the Voluntary Offer arising from the acquisition.

NDBIB strives for professional expertise in its team, which is made up of highly qualified individuals with multi-disciplinary backgrounds. The corporate culture of NDBIB is driven by the highest ethical standards with honesty and integrity as its hallmarks. NDBIB adheres to strict corporate governance, transparency and ethical guidelines and has adopted the CFA Code of Conduct, a formal compliance procedure and industry best practices.

NDBIB has set its sights on further strengthening its global reach by seeking strategic alliances with foreign distribution channels in order to meet the growing thirst for capital in Sri Lanka. Leveraging the solid foundation set in 2013 and collaborations with the NDB Group network, NDBIB looks forward to a successful year ahead.

SMEs to drive Lebanon’s economy

Posted on by Ashton Wenborn

Still recovering from a 15-year long civil war and surrounded on all sides by political instability, Lebanon’s economy has rebounded (see Fig. 1) with the help of a resurgent banking sector and an improved marketplace for SMEs. Today, Lebanon’s once inhospitable economic climate has been transformed into a haven for low and middle-income businesses and individuals looking for a financial safety net, and an attractive proposition for foreign governments.

“Banking has been at the forefront of almost everything in Lebanon,” says Anwar Jammal, Chief Executive of Jammal Trust Bank (JTB). “The Lebanese Civil War saw us move onto the backburner somewhat, but we have reinvigorated the country’s banking prowess.” Since Jammal was appointed to the board in 2005, the bank has been on a mission to restructure and revitalise its business, beginning with the country’s lowest income bracket, and later expanding to niche commercial loan segments and increasingly competitive retail products and services. Lauded as the region’s fastest-growing bank, JTB boasts a comprehensive portfolio of products and services with appeal for millions of customers from all walks of life.

What was once the Middle East’s financial centre, prior to Bahrain and Dubai, remains a remarkably well-developed and mature market, and major industry players such as JTB are today taking pains to bring the sector’s stature back to the heights of years gone by. The enduring issue of Lebanon’s underserved banking public has been left unchecked for too long now, save for a select few institutions, whose commitment to SMEs and microfinance today signals the beginning of a new era.

SME opportunities
“I believe SMEs, especially in Lebanon, are the backbone of the economy,” says Jammal. “A lot of businesses here are what we might call the grey economy. By this I don’t mean something that is illicit, but that they’re usually family-owned businesses where the father might start in a certain industry only for their son to later take over. It’s not a form of company or entity that is usually registered at the ministry of commerce, although these family-owned shops are truly the backbone of the economy, making up roughly 60 to 70 percent of the Lebanese economy.”

Founded in 1963 with a capital base of only one million Lebanese liras, JTB has since become the first bank in Lebanon to really enter the micro credit market, and today roughly 90 to 95 percent of the bank’s customer base consists of SMEs and micro-credit-related customers. By dedicating time and resources to the task of better understanding small-scale businesses and the complex ways in which they perform and contend with everyday problems, JTB has developed an effective model of bringing SMEs into the banking system.

60-70%

Share of the Lebanese economy made up of ‘grey business’

The principle challenge for Lebanon SMEs, says Jammal, is easy access to financing: “When you go to the bank, they ask for a lot of paper work: what’s your budget, your plan, your long term prospects and so forth. However, with family-run businesses it’s not that simple.” Often, the barriers to entry for SMEs are simply too high, so many smaller enterprises are unable to expand in any significant way or even survive.

“You need to understand the fundamental difference here that their tills and their pockets are one and the same thing. So basically, at the end of the day, they empty the till into their pockets, they go home, they give their kids pocket money, and they buy certain provisions, only to go in again the next day and empty their pockets into the till and start over. This, I think, is one of the major challenges that SMEs face.”

Microfinance in Lebanon
JTB’s commitment to microfinance can best be seen in its average loan size. At an average size of $1,400, the bank’s lending policy is structured in such a way that it specifically caters for SMEs and helps them not only organise their finances but enter the banking system in a formal capacity. Beginning with a loan of $3,000 to $4,000, JTB gives its customers 12 to 18 months to close out the amount in full before offering a second, larger loan. What’s more, the system is preferable to the informal market alternative, which at times charges truly staggering interest rates and often puts borrowers out of business and into debt.

“We try and explain to our customers how we do things, and to explain how they need to start organising their payments so they know they have, for example, an electricity bill that’s coming at the end of the month, a separate utility bill, another payment to be made to the bank, etc,” says Jammal. “We try and get them to organise their finances before we graduate them or give them a second loan that is a little bit higher. From there, we graduate them to the really small business loans that JTB does. So, in actual fact, you’re actually taking – and I use this term with a pinch of salt – the unbanked population and entering them into the system.”

The World Bank estimates that more than 50 percent of Lebanon’s adult population do not have accounts at a formal financial institution. In bringing the country’s unbanked population into the formal banking system, JTB hopes to leverage economic opportunities for the country that otherwise would not exist. Lebanon’s banking penetration, or lack thereof, has for years stifled development in financial services, though a growing focus on microfinance could well turn the country’s fortunes around. “Micro credit, in my opinion, is one of the many catalysts in the downturn of an economy and in job retention,” says Jammal. “A lot of theories and a lot of studies surround microfinance, and you notice that every time something big in microfinance happens internationally it becomes the flavour of the month. I think microfinance sustains an economy, and from 2008 until now – I mean we haven’t felt it that much but it’s certainly the case in the developing world – in what you’d consider a downturn, politicians and economists always talk about job creation. However, what they totally overlook is job retention.”

Source: World Bank
Source: World Bank

It is in this same respect that JTB offers SMEs a lifeline, so the bank’s microfinance offerings are important in boosting the country’s long-term economic prospects. In a downturn, workers are prone to losing their jobs, as has been the case in years passed. However, when you give a lifeline to those affected, you effectively sustain the economy.

This theory underpins JTB’s commitment to the lower middle-income bracket and below. By creating micro credit loans and products specifically geared to underserved segments of the Lebanese population, the bank is discouraging those affected from taking out payday loans by offering attractive interest rates with low barriers to entry and broadening the horizons of Lebanon’s SMEs.

Banking challenges
Aside from the opportunities for SMEs in Lebanon’s banking climate, foreign governments are increasingly looking to the banking sector’s culture of secrecy as an attractive proposition. Lebanese banking, according to Jammal, “is pretty much under the microscope in the larger scheme of things,” and harbours a number of hospitable opportunities for international investors.

However, it’s important to acknowledge Lebanon’s banking sector is handicapped by turmoil in the Middle East. “We’re between a rock and hard place at present, but that is more or less political as opposed to anything else,” says Jammal. And while Lebanese banks do have exposure to Syria, Iraq, Egypt and Turkey, the sector seems to have weathered the storm well – although it is still waiting for the dust to settle in Iraq, according to Jammal.

Despite the challenges that remain for JTB and the nation’s broader financial services sector, the bank’s chief executive is optimistic about the company and country’s future prospects. “Our ambitions are to consolidate our market leader position in the SME and microfinance business, and to be able to get more and more people into the banking system,” he says. “It would also worry me, as a banker and a CEO, if some of these people who were unbanked and have started working with us, moved on to another bank, which, for me, means that we’re not doing what we need.”

Provided firms such as JTB continue to meet demands for financial services among Lebanon’s lower earners, the country’s SMEs will drive economic growth onwards and upwards. Without an entry point into Lebanon’s banking sector, as provided by JTB, those in the lowest income bracket are unlikely to penetrate the formal economy and have a measurable influence on the country’s future.