Year: 2014

Embattled BoA faces fresh challenges

Posted on by Ashton Wenborn

Over the past two years, US authorities have not been shy about dishing out sizeable fines to banks and institutions found guilty of financial bad practice in the months and years leading to the meltdown of 2007. But, until now, none of the settlements imposed by American authorities has been as large as the one Bank of America has just been slapped with. Perhaps most surprisingly, despite the $16.7bn payoff relating to a civil suit, BoA might still face criminal charges.

The settlement is in reference to claims that BoA and its subsidiaries may have misled investors and manipulated them into purchasing toxic mortgage backed securities. The bank commented that it “relates primarily to conduct that occurred at Countrywide and Merrill Lynch,” before either institution was taken over by BoA. According to the terms of the agreement, the bank will have to pay over $9.65bn in cash, to be divided between the US Justice Department, the authorities of six states and governmental agencies including the Securities and Exchange Commission (SEC).

The remaining $7bn will be allocated to consumers who have run into difficulties in repaying bad mortgages and costs of demolishing derelict and abandoned properties. This makes it the single largest payment in US history, surpassing the previous record payoff by close to $4bn. On that occasion, JP Morgan Chase agreed to pay $13bn for similar offenses to those BoA has allegedly committed. Citigroup also faced a $7bn penalty when it chose to settle its case for similar charges last year.

Since the onset of the crisis in the US in 2007, commentators have suggested that big banks with a taste of toxic and risky assets were to blame for the near collapse of the American financial system

Since the onset of the crisis in the US in 2007, commentators have suggested that big banks with a taste of toxic and risky assets – and the subsequent fallout from this particular indulgence – were to blame for the near collapse of the American financial system. It has emerged that in the years leading up to collapse in 2007, banks like Merrill Lynch, JP Morgan and Citigroup had been repackaging residential mortgage loans into bundles that then formed controversial derivatives known as residential mortgage backed securities (RMBS). These were then sold off to investors, reducing the risk for mortgage lenders for defaulted payments, and offering a viable investment opportunity.

“In the run-up to the financial crisis, Merrill Lynch bought more and more mortgage loans, packaged them together and sold them off in securities – even when the bank knew a substantial number of those loans were defective,” said US Attorney Paul Fishman, whose jurisdiction includes the state of New Jersey, one of the beneficiaries of the settlement.

Bad mortgages
On the surface, the system worked well and there was no cause for concern, though cracks appeared when it emerged that risky mortgages were being offered to borrowers regardless of their ability to repay those loans and with no appropriate checks or due diligence being carried out. As a result, the ensuing RMBS were backed essentially by toxic loans and were being sold off onto investors without meeting relevant underwriting guidelines and utterly inadequately collaterised.

“Bank of America has acknowledged that, in the years leading up to the financial crisis that devastated our economy in 2008, it, Merrill Lynch and Countrywide sold billions of dollars of RMBS backed by toxic loans whose quality and level of risk they knowingly misrepresented to investors and the US government,” Attorney General Eric Holder said. BoA has been eager to stress that the investigations and subsequent settlement relate to claims that “relate primarily to conduct that occurred at Countrywide and Merrill Lynch” before it acquired in 2008.

However, though BoA has been vigorously penalised the actions of Merrill Lynch the practice of selling on RMBS was extremely profitable to banks, and therefore, widespread. Which probably explains why, over the years, standard of due diligence carried out by these institutions dropped – the derivatives became much more profitable than the original product.

Five of the largest corporate fines

$206bn

Big Tobacco

$17bn

Bank of America

$13bn

JP Morgan Chase

$4bn

BP

$3bn

GlaxoSmithKline

Prior to the settlement, three separate investigations were being carried out by different US states: North Carolina; California and New Jersey, over the same claims that Merrill Lynch knew that the quality of the assets in the RMBS it was selling was extremely poor, “based on its own due diligence, that substantial numbers of the loans it was packaging into RMBS and selling to investors failed to meet underwriting guidelines, did not comply with the applicable law, or were inadequately collateralised – all contrary to representations Merrill was making to investors,” according to a statement by the Justice Department.

In California especially, investigators have uncovered instances of quite severe failings. On one occasion, detailed by the Department of Justice, Countrywide actively concealed their use of ‘shadow guidelines’ from investors – these far from official guidelines allowed the bank to provide loans and mortgages to risky borrowers that would not have been otherwise permitted under the lender’s official underwriting guidelines. In the 30-page document that accompanied the settlement, it was made clear that BoA was aware that many of the loans bundled into the securities were subprime or downright junk. The fact that BoA chose to continue selling the RMBS despite being aware of their defects, is nothing short of problematic.

“It’s kind of like going to your neighbourhood grocery store to buy milk advertised as fresh, only to discover that store employees knew the milk you were buying had been left out on the loading dock, unrefrigerated, the entire day before, yet they never told you,” West told the press. These are extremely damning accusations. It means that Merrill Lynch was in full knowledge of the questionable legality of its operations for years, and vitally, at the time BoA made the move for acquisition. The 2008 period will probably go down in BoA history as one of the toughest ever; first it acquired Countrywide – the largest subprime mortgage lender in the US before 2007 – in February for over $4bn, only a month before the FBI announced its investigation into the lender for alleged fraud relating home loans and mortgages. Despite this setback, BoA moved into acquire loss-making Merrill Lynch in September of that year, in a $50bn all-share deal, announced around the same time Lehman Brothers confirmed its collapse.

Bad outcome
Both acquisitions have proved themselves problematic for the embattled BoA. US prosecutors have now announced they are preparing a civil lawsuit to be brought against Angelo Mozilo, co-founder of Countrywide – three years after prosecutors were forced to abandon a criminal probe on the former CEO. According to Bloomberg, prosecutors are now turning to the Financial Institutions Reform, Recovery and Enforcement Act to charge Mozilo and as many as 10 other Countrywide employees over allegations of fraud in the handling of its mortgage business.

The 2008 period will probably go down in BoA history as one of the toughest ever

“This morning we demonstrate once again that no institution is either too big or too powerful to escape appropriate enforcement action by the department of justice. At nearly $17bn, this resolution with Bank of America is the largest the department has ever reached with a single entity in American history,” associate attorney general Tony West said at a press conference in the wake of the announcement in August. Though West’s words might sound pompous and brash, the string of costly settlements and Mozilo’s potential indictment suggest that the current US administration is not done investigating and potentially persecuting financial institutions and notable players for perceived crimes against the system.

“We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future,” said Brian Moynihan, CEO at BoA, in a statement when the settlement was agreed. Indeed, the settlement certainly closes the door on ‘certain and potential’ civil claims by the states and agencies involved in the original suit – US Department of Justice, SEC and State Attorneys General from California, Delaware, Illinois, Kentucky, Maryland and New York – as well as all pending claims against BoA entities brought by the Federal Deposit Insurance Corporation. It does not rule out further criminal suits being brought or the filing of new civil claims against individuals.

“We have many tools in our tool box,” said West. Civil charges could be very effective because of the “lower burden of proof. That does not preclude us being able to use other tools in our tool box,” said West in regards to future action against the bank. This certainly must make the $17bn settlement even more unpalatable for BoA bosses and shareholders.

Quantitative easing explained

Posted on by Ashton Wenborn

Quantitative easing is a tool enacted by central banks to increase money supply and avoid deflationary pressures.

In the last decade, QE was among a host of instruments used by the Bank of England, the Bank of Japan and the US Federal Reserve to initiate expansive fiscal policies in the face of sluggish economies in each country.

When applying QE, central banks purchase bonds from financial institutions: either commercial banks or other businesses, such as insurance companies. This increase in bank reserves is expected to encourage them to lend at lower rates to businesses. Second, having central banks buy bonds is expected to raise bond values, which will reduce long-term interest rates.

In the past, cash would be printed by central banks when QE programmes commenced. Today, these banks create the money electronically. So no bills are physically turned over. Rather, the intangible reserves are transferred by the central bank to buy various securities.

Japan was the first and most forceful among the three aforementioned countries to enact QE in 2001. Since 2012, the Bank of Japan has continued with its bold monetary easing programmes – part of the widely known Abenomics action plan.

In the US, the bursting of the real estate bubble set off intense monetary programmes in 2008. Successive programmes were to follow in 2010, 2011 and most recently in 2012.

The UK government also reacted with a monetary stimulus programme, which involved reducing the Bank of England base rate to 0.5% and the subsequent purchase of £200bn of assets, mostly UK government debt or ‘gilts’. Two more phases of purchases would come in 2011 and 2012, bringing the total assets purchased to £375bn.

Evaluating the success of each country’s policy reveals a mixed bag, especially with regard to the impact of QE on house prices, consumer confidence and exchange rates.

That being said, the general scholarly agreement that exists the positive impact QE policies surrounds the idea of the impact it’s had on industrial production in all these countries in the last decade.

Still, one can’t assume the impact ends at the borders of Japan, the UK and the US. The G4, the three aforementioned countries plus the European Union – have been criticised by emerging countries, such as China, India, Brazil and Russia, for the negative, destabilising impact their QE programmes have had on long term yields, equity prices, and exchange rates in these countries.

With the US, the UK and Japan speaking publicly about an eventual withdrawal from their current QE programmes, this move could potentially trigger a shock to the developing world.

People’s Bank on Sri Lanka’s strong growth

Posted on by Ashton Wenborn

Sri Lanka now has an economy of $67bn, which is expected to double by 2020. World Finance speaks to Piyadasa Kudabalage, Gamini Senarath and Vasantha Kumar from People’s Bank about how the banking sector is developing.

World Finance: Well Vasantha, if I might start with you, how developed is the banking industry in Sri Lanka and what challenges does it face?
Vasantha Kumar: If we look at Sri Lanka’s GDP growth, it’s well above the global and regional average growth for the last five years. It indicates the banking sector’s contribution towards the economy. However, in our country the banking sector has grown faster than the economy. Ours is a transitional economy, debt-capital based country, but our developed capital market does not develop. However, our treasury bonds and treasury based market, we have a very vibrant market there. The banking sector has played a vital role in developing the capital market. In the development context, the banking sector has taken an active role there. In our country we are seeing a growing middle-income economy, so aspirations are changing, and we are seeing a faster growing ageing population, so the banking sector has to identify that and present innovations to meet the needs of the varied population.

World Finance: Gamini over to you now, and how is People’s Bank positioned in Sri Lanka, and how have you adapted to client needs?
Gamini Senarath: There’s been at the forefront, taking banking from the cities to the villages for more than five decades, and currently we have a 13bn customer base, that is the largest in the country. Our customer retention rate is nearly 77 percent, it is very high. That itself shows that we continue to adapt to customer needs over the period of time. We have the largest saving base in the country, and we have the largest branch network in the country. We have more than 736 branches and over 420 ATM machines all over the island. We have one of the most expansive correspondent banking networks all over the world, over 150 corresponding branches, serving more than one million Sri Lankans who are living abroad.

We have the largest saving base in the country, and we have the largest branch network in the country

World Finance: So Piyadasa, one of the services that People’s Bank offers is development banking. What exactly is this and how does it aid the development of Sri Lanka?
Piyadasa Kudabalage: Initially we extended our services to the micro-finance sector and we make them part and parcel of the banking sector environment. We made them freely accessible to the bank. The second stage, we developed the SME sector, we are that mass population in the country, it is involving medium level business enterprises. So yet again, we thought that with this current scenario that the country’s developing rapidly. Our growth rate is the highest in the region. Now we extend our financial facilities to the mega projects and the corporate sector.

World Finance: Well Vasantha, bank to you now, and how do you see the banking industry growing in the country?
Vasantha Kumar: Over the past years, various challenges emerged in the industry across the globe, but Sri Lanka remained resilient. It continued its growth trajectory. Our regulators were also vigilant, resulting in continued growth and to weather any storms. Sri Lanka is surpassing 7500 per capita income by 2020. To the banking sector it has set up various targets. For example, to bring down the poverty below one percent, and the unemployment below three percent.

World Finance: Finally Piyadasa, what’s next for the People’s Bank?
Piyadasa Kudabalage: The Sri Lankan banking sector getting consolidated to absorb more shocks coming and growing in the segment. We still believe that, while we extend our services to the corporate sector, we can develop micro-finance and the SME sector. That will be ultimately the backbone of the economy. We have not forgotten our original mandate where we had to make accessibility to the banking sector to the ordinary nationals of our country. So having that in mind, we extend our banking services to meet the needs of the day. We are developing our IT platform to be more efficient in times to come. We develop our key players in the bank to be more efficient in the financial environment. We do our best for the country by taking the responsibility to be part and parcel of the development drive.

World Finance: Gentlemen, thank you.

Iran sanctions – will Israel be the final loser?

Posted on by Ashton Wenborn

Iran’s foreign minister will meet the European Union foreign policy chief and US Secretary of State John Kerry in the capital of Oman on the 9th and 10th of November, aiming to reach a nuclear deal. Will their efforts be successful? In part three of our four-part series on Iran, we talk to Trita Parsi, President of the National Iranian American Council, about what the likely outcome of the meeting will be.

World Finance: Well Trita, what is hoped to come out of these talks, and what’s the likely result?
Trita Parsi: These are preparatory meetings for the final meeting that will take place in Vienna about a week before the deadline of November 24. The meetings in Oman are very key because those are bilateral meetings, just between the United States and Iran. They used to be secret, but they are now in the open. But they’re very critical, because at the end of the day this conflict is primarily an American Iranian conflict. Obviously other countries are a concern, they have stakes in this, but the root of the problem lies between the United States and Iran. The fact that the US and Iran are in a position now to be able to bilaterally talk to each other, that is essentially become normalised that they talk to each other, is a very significant step towards being able to resolve this conflict.

I think both the United States and Iran have shown unprecedented sincerity

World Finance: So how serious is Iran on reaching a nuclear deal?
Trita Parsi: I think both the United States and Iran have shown unprecedented sincerity. Both sides clearly want to find a way to reach a deal. It doesn’t mean that they will accept any deal, it doesn’t mean that they’re not bargaining hard. In fact, both sides are bargaining very very hard right now, but it’s clear that this is very different from previous round and previous attempts at diplomacy, because the political will is at a level we’ve never seen before.

World Finance: And who will be the winners, and who will be the losers if a deal’s reached?
Trita Parsi: I think essentially everyone will be a winner if there’s a deal. Some of the countries that will perceive this at least tactically as a loss may be the Netanyahu government in Israel, as well as the kingdom in Saudi Arabia, and this is for various reasons. The Israelis are concerned that the deal will leave Iran with a latent nuclear capability that will then unleash Iran from these sanctions and as a result Iran will be able to change the balance of power in the region, because it is a huge country with a tremendous amount of potential. It’s already ascending, and it would further ascend without the US trying to contain it. The Saudis are concerned, regardless of the details of the deal, that this will indicate a shift in the American tilt in the region, and that this will potentially jeopardise the commitment of the United States to the security of Saudi Arabia, and that by resolving tensions between the United States and Iran, the US will shift its position, it will no longer be in need of Israel and Saudi Arabia to the same extent that it is today.

World Finance: Trita, thank you.

Adapting to change

Posted on by Ashton Wenborn

After several years of turbulence within the global insurance industry, things finally begun to settle down during 2014. The financial crisis caused many of the world’s insurance markets to enter periods of turmoil, as uncertainty over the health of economies caused the industry to see a slowdown in activity. However, 2014’s relatively stable economic conditions have meant that the industry has seen an upturn in profit.

The last year has largely been dominated by plans to change the regulatory environment for insurance providers, mostly through new standards. Various regulatory bodies have been looking at how best to scrutinise a global industry that has been somewhat fractured in the past.

Last year saw two sets of regulatory changes that directly impacted upon the global insurance industry. The Financial Accounting Standards Board (FASB), the body dedicated to developing generally accepted accounting practices (GAAP) in the US, as well as the UK based International Accounting Standards Board (IASB), which is part of the IFRS Foundation, both set out proposals for changes to the way insurance contracts are drawn up and accounted for.

Regulatory reflection
According to accountancy firm PricewaterhouseCoopers (PwC), the new regulations will prove a costly imposition on the industry in the US, and that a global standard needs to be pursued. “In our view, the substantial costs of implementation outweigh incremental benefits of a US GAAP insurance contracts standard that is not converged with IFRS. In the absence of a single, high-quality global standard, we believe the US markets would be better served if the FASB made targeted enhancements to the current US model,” the company stated in a report titled Insurance Modernisation: Insurance Contracts Accounting Proposals.

WF Global Insurance Awards 2014

World Finance Global Insurance Awards 2014

Towards the end of last year, US insurance regulator the Federal Insurance Office (FIO) also released its report into how the regulatory environment can be modernised for insurance companies in the country. It too called for a more unified regulatory code across the US to help insurance providers avoid excessive costs, as well as allowing consumers a more consistent service.

The ongoing issue of internationally recognised standards for accountancy will continue to present new challenges to the global insurance industry. In the coming years, it is clear that the best way forward will be for both organisations to agree to a set of standards that allows for a level playing field around the world.

PwC adds that this continuing state of change means that insurance companies need to be as flexible as possible in order to avoid costly changes in the future. “In coming years, finance and actuarial functions will be dealing with an unprecedented amount of change that will frame the insurance reporting and solvency landscape for the next generation. These requirements will come into effect at different times, and uncertainty remains about their final form. Accordingly, companies need to develop thoughtful, proactive implementation strategies in order to avoid rework and changes that could ultimately lead to excessive costs and under delivery on original targets.”

Shaun Crawford, Global Insurance Leader at analysts Ernst and Young (EY), wrote in the company’s annual review of the industry that while the industry had emerged from its recent difficulties, it should not expect any drastically improved profits in the immediate future. However, he did point out that there were some areas of growth that presented the industry with opportunity. “Although it remains premature to unequivocally state that the difficult times are behind the industry, many signs point to significant pockets of opportunity. In Asia-Pacific, for example, rising wealth and ageing populations are enticing areas of product expansion and revenue growth.”

He added that the low interest rate environment across the world will continue to present challenges to the industry, and questions just how long the rates will last beyond this year. “Nevertheless, complex challenges lay ahead, chief among them the protractedly low interest rate environment. The question in 2014 is not how low rates may go, but how low they may remain. Another lingering challenge is the often-confounding array of stringent international and national regulations spawned by the financial crisis. Obviously, these enhanced regulations create significant compliance and governance burdens for insurers. Adding to these burdens is the implementation timing of many laws, which remains uncertain.”

Around the world
Although economies in Asia-Pacific experienced a slowdown in growth, as well as the historically low interest rates seen all over the world, many people within the region have enjoyed a rise in their personal wealth. Combined with an ageing population, this has given many insurance providers a number of opportunities for new products.

China’s insurance market has experienced strong growth, according to ratings agency Fitch. Life insurance sales were not constrained by tighter regulations, which included a rule set out in April that ensured low risk and long-duration products would account for at least 20 percent of total premium sales.

However, in Australia the life insurance industry has been severely criticised by the Australian Securities and Investments Commission (ASIC) for its failure to comply with rules on how customers are advised. According to a study of 200 advice files in September, the ASIC found that as much as one third of advisors were breaking the rules. Peter Kell, Deputy ASIC Commissioner, told reporters that such a large failure by the industry was “unacceptable”, adding “the life insurance industry is now on notice to lift standards and professionalism”.

With European economies still suffering from the shock of the eurozone crisis, markets across the continent have enjoyed little more than a period of comparative stability this year. This has, however, led to many insurance firms to address the way in which they do business and to streamline their operations.

Europe’s dramatically low interest rates have meant many firms are not seeing the sort of profits that they had grown accustomed to before the crisis. As a result, these firms have to look at their existing business models, streamlining and simplifying operations. EY has stated: “As insurers watch investment returns dwindle from the impact of low interest rates, they will adjust portfolios and seek to increase yield without taking on significant added risk, most noticeably by seeking new diversification effects.”

As the economy in Europe improves, however, it is likely to cause a rise in both motor and home sales. This will in turn lead to household and car insurance sectors seeing a boost in trade, although this will also likely be quite modest initially.

In the UK, Governor of the Bank of England Mark Carney warned the industry that the BoE would start vetting top officials as part of its fit and proper persons test. This came after some criticism of the industry for mispricing products.

Perhaps one of the regions that offer the industry the most in the way of potential, Latin America is still susceptible to above average catastrophe exposure and volatile inflation. However, the region appears ripe for many insurance providers that are willing to offer out of the ordinary forms of cover, according to EY’s report.

Latin America’s insurance industry is seen as highly competitive, even though the overall market has experienced low penetration rates. For example, life insurance is notoriously low, despite rising prosperity across the continent.

Global trends
There have been a number of issues that have affected the industry on a global level. One area that has seen a lot of focus is the insurance industry’s digital presence. Many within the industry have called for greater investment in digital platforms, such as social media, that will help firms to better connect with customers and also allow consumers to share their service experiences.

According to EY, insurance providers do not spend much more than 10 percent of their IT budgets on digital initiatives, although this was largely expected to increase considerably over the course of the next year. Enhancing social media engagement is seen as a beneficial way of connecting with customers, especially in light of regulatory changes reducing the number of distributors.

At the same time, the uncertainty that has been caused by numerous geopolitical events – from Ukraine to the Middle East – has meant that political risk insurance has soared during the last 12 months. According to the World Bank’s political risk department, many insurers are looking to get in on the political risk market as a result of the surge in activity. Foreign direct investment growth in emerging markets is seen as one reason for this jump in performance, but it also reflects continued turmoil in many parts of the world.

A year of readjustment has put the insurance industry in a better position than it has been in for a long time. However, challenges lie ahead in 2015, and those providers that are going to be successful will need to get the best out of what opportunities there are.
World Finance recognises those companies that have adapted to survive and are currently leading the way, setting the pace heading into the new year.

Global Insurance Awards 2014

Posted on by Ashton Wenborn

Argentina
General
QBE Seguro
Life
MetLife Seguros de Vida

Austria
General
Uniqa Sachversicherung
Life
Raiffeisen Versicherung

Bangladesh
General
Sadharan Bima Corporation
Life
Meghna Life
AXA
Life
KBC

Brazil
General
Grupo Segurado Banco do Brasil e Mapfre
Life
Bradesco vida e Previdencia

Bulgaria
General
Armeec Insuance
Life
Allianz Bulgaria Life

Canada
Economical Insurance
Life
Empire Life

Caribbean
General
Seguros Universal
Life
Sagicor Life

Chile
General
RSA
Life
Compañía de Seguros CorpVida

Croatia
General
Euroherc
Life
Grawe Croatia

Cyprus
General
Royal Crown Insurance
Life
EuroLife

Czech Republic
General
Kooperativa
Life
Komercni Pojistovna

Denmark
General
Codan Forsiking
Life
Nordea Liv & Pension

Finland
General
OP-Pohjola Group
Life
OP-Pohjola Group

France
General
Covea
Life
BNP Paribas Cardif

Germany
General
AXA Versicherung
Life
Allianz Leben

Ghana
General
Enterprise Insurance Company
Life
GLICO Group

Greece
General
INTERAMERICAN P&C
Life
ING Greece

Hong Kong
General
AIG
Life
BOC Group Life Assurance

Hungary
General
Generali Providencia
Life
Magyar Posta Életbiztosító

Ireland
General
RSA Insurance
Life
Irish Life

India
General
United India
Life
Max Life Insurance

Indonesia
General
Jasa Indonesia
Life
Jiwa Mega Life

Italy
General
Reale Mutua Assicurazioni
Life
Intesa Sanpaolo Vita

Kazakhstan
General
Nomad Insurance
Life
Kazkommerts Life

Kenya
General
CIC General
Life
British American Insurance

Kuwait
General
Gulf Insurance Group
Life
Gulf Insurance Group

Malaysia
General
Etiqa Insurance Berhad
Life
AIA Berhad

Malta
General
Middlesea
Life
HSBC Life

Mauritius
General
New India Insurance
Life
BAI

Mexico
General
Seguros Inbursa
Life
GNP

Netherlands
General
Achmea
Life
SRLEV

Nigeria
General
Linkage Assurance
Life
FBN Life Assurance

Norway
General
DNB Forsikring
Life
Nordea Liv

Oman
General
New India
Life
National Life and General

Pakistan
General
EFU General
Life
Jubilee Life

Peru
General
Rimac Seguros
Life
Rimac Seguros

Philippines
General
Standard Insurance
Life
AXA Philippines

Poland
General
Ergo Hestia
Life
PZU Group

Portugal
General
Companhia de Seguros Tranquilidade
Life
BESVida

Russia
General
Rosgosstrakh OAO
Life
Sogaz

Serbia
General
DDOR Novi Sad
Life
Wiener Staedtische

Singapore
General
Liberty Insurance Pte
Life
AIA Singapore

Slovakia
General
Allianz Slovenska
Life
Kooperative Poistovna

Slovenia
General
Triglav
Life
Triglav

Spain
General
Mutua Madrilena
Life
Santander Seguros

Sri Lanka
General
Sri Lanka Insurance Company
Life
Ceylinco Life

Sweden
General
If Skadeförsäkring
Life
Skandia Liv

Switzerland
General
AXA Winterthur
Life
Swiss Life

Taiwan
General
Cathay Century Insurance
Life
Fubon Life Insurance

Thailand
General
The Viriyah Insurance
Life
Thai Life Insurance

Turkey
General
Mapfre Genel Yasam
Life
Zurich Sigorta

Uganda
General
Goldstar Insurance
Life
Goldstar Insurance

UK
General
AIG
Life
Prudential

US
General
Allstate
Life
Prudential

Vietnam
General
PTI
Life
Dai-ichi Life

Sustainable supply chains: why green is better for business

Posted on by Ashton Wenborn

In the weeks and months preceding the release of Boeing’s 787, the much-talked-about aircraft was cast as a major breakthrough for the aviation industry and a master class in supply chain management. However, to bring the Dreamliner to runways as quickly and competitively as possible, manufacturing was shared between a patchwork of suppliers: wing tips were made in Korea, landing gears in the UK, cargo access doors in Sweden, movable trailing edges in Australia, and so on.

So when in 2013 a Japanese-made lithium-ion battery set alight and brought Heathrow Airport to a standstill, critics were quick to highlight cracks in Boeing’s knotty network of suppliers and the broader issues associated with global supply chain management.

Likewise, when in June The Guardian unearthed the existence of slavery at the tail end of Walmart, Costco and Tesco supply chains, the implicated parties admitted that they were unaware of what was promptly dubbed the ‘supermarket slave trail’. Forced to work without pay and under threat of violence, the investigation cast a spotlight on untold measures of brutality, inflicted in the name of competitiveness, and again showed what knowledge, or lack thereof, companies had of their suppliers’ dealings.

Renouncing responsibility
The circumstances here offer a glimpse of what consequences an increasingly globalised supply chain can bring, and highlights just how much work is to be done before they are seen as legitimately responsible. If companies are to protect against financial, environmental and social collapse, they must take a more pro-active approach and employ greater risk management protocols to avert the pitfalls of an increasingly globalised supply chain.

“Modern supply chains have an extensive global footprint and this exposes them to differentiated economic, environmental and socio-political challenges,” says Aditya Sharma, Operational Director for Global Sustainable Supply Chain Services in Accenture Strategy. “Uncertain direction of regulations, regional macro-economic trends, changing political landscapes and varying focus on social development mean supply chains face disruption from diverse physical, regulatory and other sustainability risks.”

The business of supply chain management become an art unto itself

The nature of today’s global marketplace demands that corporations look to operations apart from their own to make certain cost savings and quality improvements. Globalisation has not only allowed businesses to capitalise on otherwise unreachable resources and expertise, but extend their influence to consumers beyond their own borders. And where once companies communicated with their suppliers face-to-face and worked out any issues in the here and now, customer-supplier relations have since stretched the length and breadth of the globe, and the business of supply chain management become an art unto itself.

According to a PwC report entitled Next-generation supply chains: Efficient fast and tailored, 45 percent of a 500 party sample – made up of supply chain experts – identified the supply chain as a strategic asset for their respective companies. And in a marketplace where strategic advantages are increasingly hard to come by and globalised operations subject to ever-evolving macroeconomic pressures, supply chains constitute a vital means of differentiation for businesses. Adaptability, therefore, is arguably the single most important quality for companies looking to wrap their heads around modern day supply chains and better understand what risks and rewards are contained within.

“Companies are now looking at sustainability not as a ‘good to have’ but as a way of doing business – supported by a very sound business case with tangible economic benefits – 80 percent of the 1000 CEOs interviewed for the UNGC-Accenture survey in 2013 view sustainability as a route to competitive advantage in their industry,” says Sharma.

Bangladesh garment industry monthly minimum wage (USD)
Bangladesh garment industry monthly minimum wage (2013 figures). Source: Research Initiative For Social Equity Society.

Don’t ask, don’t tell
In amid the clamour for global competitiveness, some firms are choosing – willingly or not – to sacrifice ethics and quality of service in favour of cost savings. Research undertaken earlier this year for the British government’s Modern Slavery Bill found that 11 percent of firms believed it possible that slavery had occurred at some point in their supply chains. Speaking on the findings, David Noble, Group CEO of the Chartered Institute of Purchasing and Supply (CIPS) said “Consumers and business leaders have entered into a “don’t ask, don’t tell” pact on Britain’s supply chains.”

The cost pressures of working in a global marketplace, coupled with the emergence of the so-called ‘conscious consumer’, means that companies can ill-afford to take an eye off their supply chains for fear of the financial, social and environmental repercussions it could bring. While outsourcing can bring greater competitiveness to those who employ it to good effect, without taking into account how it might affect others, the immediate advantages will be outweighed by the repercussions in the long-term.

The pressure on companies to act as equal part profit-making machine and responsible corporate citizen has brought with it a focus on sustainable supply chain management, asking that they take into account the ramifications of any one single step in the supply chain. “Companies are increasingly extending their commitment to responsible business practices to their supply chains not only because of the inherent social and environmental risks and the governance challenges the supply chain poses, but also because many of the rewards supply chain sustainability can deliver,” says Ursula Wynhoven, General Counsel, Chief, Governance and Social Sustainability at the UN Global Compact. “Sustainable supply chain management can be a strong driver of value and success – for business as much as for society, with an enormous potential to contribute to more inclusive markets and advance sustainable development.”

Some firms are choosing – willingly or not – to sacrifice ethics and quality of service in favour of cost savings

Still accounting costs
The Rana Plaza factory disaster, for example, was part responsible for triggering a wave of socially responsible supply chain programmes, and its influence can still be seen more than a year and a half on (see Fig. 2). The collapse of the eight-story commercial building last year killed over 1,100 textile workers and was seen as a lesson in how inadequate supply chain management can bring with it gross financial and human costs.

Primark and Benetton were mainly implicated in the scandal, who were criticised for failing to uphold proper working conditions and address known structural weaknesses. And while the losses on all counts were devastating, news of the event succeeded in igniting discussions on the importance of corporate social responsibility in supply chain management and the role of companies in protecting against incidents of this sort.

In the months that followed, the garment industry, governments, trade unions and NGO representatives banded together to form the Rana Plaza Coordination Committee, with the support of the International Labour organisation (ILO). The ambition of ‘the arrangement’ was to help victims of the tragedy by providing much-needed financial and medical support, and while the initiative is far from a solution in itself, the participation of corporate names signals a willingness to make amends for any wrongdoing committed on their part.

What’s more important for socially responsible supply chains, however, is that companies, particularly post-Rana Plaza, are willing to carry out supplier audits to protect against sub-standard working conditions. Acutely aware of what failure on the part of any supplier can bring, companies are keen to implement the necessary tools to sniff out risks and protect against financial and reputational losses. And by creating a framework to expose risks before they become unmanageable, businesses can more easily build a resilient and responsible supply chain.

Unilever, for example, has been voted the best supply chain in Europe by Gartner for two years running for “demonstrating supply chain excellence and leadership year over year.” An Oxfam study of labour issues in Unilever’s operations and supply chains likewise concluded “Unilever is committed to respecting and promoting human rights and good labour practices.”

The company pledged at its annual “Partner to Win Supplier Summit’ in September to look beyond its 200 biggest suppliers and to the one million plus individuals working on the lowest rungs of its supply chain. Building on its Responsible Sourcing Policy, “an illustration of Unilever’s commitment to increase its positive social impact throughout the entire supply chain,” the company, together with Solidaridad, is looking to bring the programme to underserved regions of Africa, Latin America and Asia.

Source: Solidaridad, 2014 figures
Source: Solidaridad, 2014 figures

The partnership with Solidaridad, an NGO that specialises in bringing sustainable best practices to supply chains, has already improved the lives of over 150,000 workers in India, Mexico and Colombia, and stands as a prime example of responsible supply chain intervention. “Together with Unilever we will engage suppliers and support them to address current and future business challenges,” said Nico Roozen, Executive Director of Solidaridad Network in a statement. “Suppliers need access to resources and to markets. We need to change market conditions to shift sustainable production from niche to norm.”

Similarly, HP has taken major steps to build a sustainable supply chain, beginning with the foundation of its Supply Chain Responsibility (SCR) programme in 2001. The scheme is also closely in keeping with the company’s Living Progress ethos, through which it aims to deliver human, economic and environmental progress and make a measurable impact on society (see Fig. 3 and Fig. 4).

With a presence in more than 45 countries and territories spanning six continents, HP’s complex operations go far beyond its own walls and come to bear on hundreds of thousands of people across the globe. Since 2007, efforts to improve sustainability have reached 460,000 workers, and a number of peer educator-run programmes have benefitted an even greater number of individuals. HP last year also became the first IT company to introduce guidelines for the responsible management of student and dispatch workers, and in 2007 was the first electronics company to publish a list of suppliers.

The examples of Unilever and HP are proof that companies are beginning to take a more pro-active approach when introducing benefits to the furthest reaches of their organisation and in pushing for greater sustainability in supply chains. Although a number of companies are looking to their suppliers for instances of gender inequality, inadequate pay and worker rights violations, the most pronounced development is the implementation of environmental best practices.

Environmental awareness
“Customers are increasingly aware of the environmental and social impacts of hazardous products or product ingredients and are known to pay premium prices for green products in many markets,” says Sharma. “In the latest CDP survey analysis for 2013-14, 56 percent of companies identifying climate change related opportunities say that consumers are becoming more receptive to low-carbon products and services.”

11 percent of firms believed it possible that slavery had occurred at some point in their supply chains

Optimising logistics networks for environmental purposes – otherwise referred to as greening the supply chain – has grown increasingly common, due largely to pressure from consumers to make clear how companies are working towards mitigating climate change. Beginning with matters as simple as reducing the use of plastic goods, recycling paper and even turning light switches off at closing times, businesses are today implementing all manner of complex environmental initiatives to appease consumers.

“The more corporations around the globe focus on sustainability, the more they realise that their greatest challenges and opportunities often lie outside their own offices and manufacturing plants,” according to a Wharton University of Pennsylvania report, entitled Greening the Supply Chain: Best Practices and Future Trends. “To make a truly significant lifecycle leap, large companies have to work on greening their supply chains.”

Aside from the immediate advantages, namely reputational gains and greater operational efficiency, the process of greening supply chains also brings with it a number of long-term benefits. Those committed to reducing their carbon footprint invariably find that sustainability comes hand-in-hand with fewer marginal pressures, improved supplier relations and, ultimately, material gains. And although the demands of implementing an environmentally responsible supply chain can be huge, the rewards are equal to the exertions.

For example, major American food manufacturer Kelloggs announced recently that it would impose carbon disclosure requirements on its suppliers in order to curb emissions. “We expect suppliers to support our corporate responsibility commitments by implementing sustainable operating and farming practices, and agricultural production systems,” wrote a company statement. “Suppliers must strive to reduce or optimise agricultural inputs; reduce greenhouse gas emissions, energy and water use; and minimise water pollution and waste, including food waste and landfill usage.”

Suppliers engaged in Supply Chain Responsibility programme graph
Notes: total, cumulative

The company has introduced the policy with a view to publishing a total supply chain greenhouse gas emissions reduction target and an accompanying action plan. By including the environmental contributions of suppliers – no matter how small – alongside its own, Kelloggs’ contribution to mitigating climate change can be more accurately charted.

Acutely aware of what wayward emissions could bring for global food production, the company’s climate policy is critical not just for the continued success of the business, but the viability of the industry as a whole. Knowing this to be the case, a number of programmes have emerged in recent months and years to combat what losses could come as a result of shrinking food production.

Making a difference
The Behind the Brands initiative, pioneered by Oxfam, has seen numerous companies pledge to do right by their suppliers and commit to pushing social and environmental causes. With Coca-Cola, PepsiCo, General Mills and Nestle on board, the initiative allocates a score to each company, based on their contributions to areas such as women, workers, climate and transparency.

Tools like the Dow Jones Sustainability Index, GRI, CDP and the UN Global Compact’s 10 principles are also playing a key part in educating companies about how best to improve their supply chains. Focusing on matters such as human rights, labour, the environment and anti-corruption, the 10 principles outline a framework for those looking to eliminate any supply chain shortcomings they may have. “We see more and more companies extending their commitment to responsible and sustainable business practice throughout their supply chains,” says Wynhoven.

“Companies are starting to understand that their most significant impacts on the environment and society occur in their supply chains, and they are increasingly working together with their peers and other key stakeholders to improve their impact and to identify opportunities to promote human rights, improve labour conditions, protect the environment and support ethical business conduct.”

The biggest challenge for companies with a globalised supply chain, however, is not recognising and publishing corresponding environmental and social initiatives, but ensuring that these policies are enacted. An increasing number of companies are attuned to what issues have arisen, though the demands – financial or otherwise – associated with delivering on change can often prove too much to bear, as can be seen in the UN Global Compact’s 10 principles.

The examples of Kelloggs, HP and Unilever, therefore, are of the utmost importance if others are to gain an understanding of how pro-active supply chain management makes good business sense. For as long as competitors fail to deliver on the promise of progressive supply chain management, they will struggle to realise what benefits a holistic approach to corporate social responsibility will bring for their reputation and bottom line.

Don’t underestimate Paraguay’s potential, says Sudameris Bank CEO

Posted on by Ashton Wenborn

Surrounded by Bolivia to the northwest, Brazil to the east and northeast, and Argentina to the south and southwest, the Paraguay of the 21st century – a landlocked nation of 6.8 million inhabitants – has been shaped by more than 200 years of tense relationships with its neighbours.

Twice the country faced obliteration and twice it had to reinvent its future as an independent nation that today is 90 percent dependent on the combined river systems of the Rio Pilcomayo, Rio Parana and Rio Paraguay, which all converge to form the Rio Plata, near the Atlantic Ocean between Uruguay and Argentina.

Paraguay remains a mystery to most of the outside world, even to its neighbours. Surrounded by myths and legends, it would be unfair to summarise this country to the historic fame of its border city Ciudad del Este; the tri-border city, at the crossroads of Brazil, Argentina and Paraguay, is no longer the centre of contraband and illegal trade that characterised it in previous decades when Brazil and Argentina banned importation of Western goods.

Rather, it is a country the size of Germany or California, with a young and connected population: the average age is 23 and mobile penetration is nearing 100 percent. The UN rates Paraguay as the least violent country in all Latin America; and with 84 percent of the population under 60 and a 94 percent literacy rate, it has a number of important building blocks for a great success story.

A country still in its infancy
Paraguay became independent in 1811. Until 1989, the country only experienced glimpses of democracy. Even after the fall of General Stroessner in 1989, another general became president, until the election in 1993 of the first civilian president, Juan Carlos Wasmosy. This means that Paraguay, as a true practicing democratic country, is just 21-years-old. Most of the public institutions are still trying to find their role and assert their authority in the midst of a major lack of general infrastructure (Paraguay’s only real crisis).

Source: International Monetary Fund. Notes: Post-2012 figures are IMF estimates
Source: International Monetary Fund. Notes: Post-2012 figures are IMF estimates

In spite of its relatively traumatic history, Paraguay is a country that functions, albeit not efficiently, and has managed to experience tremendous growth over the past 10 years on the back of the revolution of its agricultural sector. Recent growth has averaged five to six percent since 2002.

Although democracy has been in effect for the past 20 years, Paraguay experienced only one term with a president who did not come from the historic ‘Colorado’ party. President Lugo, elected in 2008 to everybody’s surprise (including his own), was the manifestation of a coalition of leftist parties that in the end did not manage to implement the changes that were required to modernise Paraguay.

President Lugo’s term ended in June 2012, with his impeachment for bad management of the State’s affairs. Not a single shot was fired and in the evening his Vice-President, Federico Franco, was sworn in for nine months, until the next presidential elections of April 2013.

This impeachment would have dramatic consequences for the country. It upset carefully laid plans for the extension of the Bolivarian ideology across South America and happened at a time when Paraguay was being forced to allow the Venezuela of Hugo Chavez to enter the Mercosur alliance, already integrated by Dilma Rousseff’s Brazil, Cristina’s Kirchner’s Argentina and Jose Mujica’s Uruguay, all partisans of the Bolivarian revolution.

The impeachment gave a ‘reason’ to the Mercosur alliance to exclude Paraguay from its political process, thus allowing Venezuela to join the alliance by the back door. Paraguay also got suspended, although for a shorter period, from the Organisation of American States.

S&P Credit ratings:

BB+

Paraguay

BBB-

Brazil

SD

Argentina

Source: Standard & Poor’s
Notes: 2014 ratings

The election in April 2013 of Horacio Cartes as the new president of the country allowed for new hopes. As a successful businessman, a majority hoped that he could translate his successes in the private sector to the public sector government institutions. After swearing in during August 2013, the country quickly reintegrated into Mercosur, and had to accept the fact that Venezuela was now a part of it, and embarked on a number of reforms critical for the future development of the country.

Challenges of governing Paraguay
Paraguay’s credit rating (see right side-bar) is the perfect example of what such ratings really mean. A country that only experienced three years of budget deficits out of the past 13 years, a GDP growing at an average five to six percent per year over the past 10 years (see Fig. 1), a foreign debt-to-GDP ratio of some 10 percent that becomes negative when considering the foreign reserves, and with a relatively solid financial system that presents few systemic risks. The country is currently set at BB+ by Standard & Poor’s, the same as Greece in 2010 just before it went into virtual bankruptcy.

Paraguay’s current rating reflects the number of friends it would have coming to help in case of economy turmoil, which is very few. As such, expectations are vague and disappointment is constant for the 6.8 million inhabitants who find it hard to exist between the two giants, Argentina and Brazil. In this context, President Cartes has put the country into intensive care, voting a fiscal responsibility law within two months of his legislature to prevent excessive public spending.

A public private partnership law was voted to provide the legal bases for the major infrastructure projects this government expects to tender. He also dealt with each of the ministries on a re-institutionalisation quest, naming for the most part, non-politics in the key posts. Most ministers have had to re-build their ministries to organise the way they function and report, and how they spend. The project was expected to last a few months, yet is still ongoing more than a year later.

However long this reorganisation of the public sector may last, it is a necessity as it lays the foundation for long-term growth that would no longer be entirely dependent upon climate conditions and international demand for soy and meat. It also helps to provide a different vision on what the government should do and how it should behave, two notions that are still relatively new in this country. Both the public sector and the citizens are on a fast track learning curve.

Source: CIA World Factbook. Notes: 2012 figures
Source: CIA World Factbook. Notes: 2012 figures

A massive reservoir for growth
Ironically, for a country that has not engaged in any significant infrastructure projects over the past 30 years, it is home to the largest dam in the world in terms of electricity production, surpassing the Three-Gorges dam in China. Sitting on the border, and shared 50/50 with Brazil, the Itaipu Dam generated more than 98Twh of electricity in 2013 (83Twh for the Three-Gorges). However, considering its size and needs, Paraguay only uses some 10 percent of its 50 percent share in that production and exports the rest to its partner.

The same goes for the Yacyreta Dam, sitting on the border of Argentina and Paraguay. Today the country is one of the world’s largest exporters of electricity (see Fig. 2). Considering that another five areas have been identified as viable dam projects within the country itself, clean energy production is not going to be an issue for the foreseeable future. Equally important for the coming years, Paraguay sits on the second largest reservoir of fresh water in the world, the Guarani aquifer, providing a reliable source of fresh water for responsible farming.

Paraguay’s agriculture has the capacity to triple its food production output, having more than eight million hectares still available for mechanised agriculture. However, more efforts need to be put in land rehabilitation and implementation of the current environmental laws to prevent more deforestation. Paraguayan agricultural successes can easily be measured. In just under 10 years, it managed to become the first exporter of organic sugar, the second largest exporter of stevia, the fourth largest exporter of soy, the fourth largest exporter of starch, the fifth largest exporter of chia, the sixth largest exporter of corn, the eighth largest beef exporter and the 10th largest exporter of wheat.

In addition to its agriculture potential, the country has not tapped its underground wealth that, if we consider its geographical location between Bolivia, Brazil and Argentina, is likely to be composed of significant mineral and energy resources. As a production centre, Paraguay is getting more and more attractive to countries facing growing production costs and higher taxes. A number of companies are expressing interests in relocating part of their operations in Paraguay under some of the very attractive tax regimes offered to foreign investors. Electrical parts manufacturing companies for the auto industry, for example, have already installed production facilities in the country to serve the Brazilian market. Other industries should follow.

The geographical location of the country, which can be a challenge for the movement of goods (see Fig. 3) in and out of the country, is also a blessing. In the heart of South America, it is a natural hub between all its neighbours and beyond. It doesn’t suffer from natural disasters such as tornadoes, hurricanes or earthquakes, and its topography makes it a country with massive swath of land ready to use for production.

Source: US Census Bureau. Notes: Figures taken in January of that year
Source: US Census Bureau. Notes: Figures taken in January of that year

Not just another emerging market
Human nature likes to classify and order everything, including countries. Because of this, it was decided that Brazil, Russia, India and China had certain similarities and therefore should be grouped from an economic analysis standpoint known as BRICs. We therefore institutionalised more than 2.9 billion people that have very little in common. Everybody that is not an OECD country or part of the BRICs is deemed an emerging market.

With this concept of amalgamation, Paraguay is being analysed in the same way as Madagascar, Surinam or Bangladesh. The story is however radically different. Apart from its demographic, which is characteristic of a young developing country with over 60 percent of its population below the age of 35 (see Fig. 4), Paraguay’s growth story differs in many aspects from other emerging nations.

It has been a very conservative country when it comes to macroeconomics over the past 12 years. It has managed to achieve an average growth rate of five percent over that period with only two years of budget deficits. These were due to election pressure, and not structural economical issues. All the while the country has been growing its foreign reserves more than 10-fold to over $7bn today. Overall, total public debt remains at a low 15 percent of GDP and when considering only public external debt, that number drops to below 10 percent, making the country a net creditor as foreign reserves account for more than 20 percent of GDP.

In other words, Paraguay has grown substantially over the past decade almost entirely thanks to its private sector initiative. That differs substantially from other emerging stories that have relied heavily on foreign and public funding, and welfare driven consumer demand. The public sector has been helpful in facilitating this growth, primarily in reducing the tax burden on companies, providing solid regulation for the financial sector and facilitating the development of private ports, which are the main point of transit for goods in the country.

The country now has the third-largest fleet of river barges in the world, after the US and China. However, successive governments have been much less efficient in developing their own investment programmes, almost abandoning plans to improve existing and develop new roads, airports, railways, and other transport links, while limiting critical investments needed in healthcare and education. The current government team is trying to catch up but the task ahead is enormous, as it needs to train its own staff before it can start tendering projects to national and international groups for large infrastructure projects.

Paraguay’s agriculture has the capacity to triple its food production output, having more than eight million hectares still available for mechanised agriculture

Growth to-date has not been sourced through the government’s funding or subsidies, but mainly through the development of the private financial sector. Bank assets grew six-fold in the past 12 years, thanks to the solidity of the Central Bank of Paraguay and its Superintendence for Banks. Strong regulation has allowed the sector to attract interest from multilateral institutions as well as various development banks from the US and Europe that have helped by providing long-term funding to the local financial institutions at a time when domestic deposits would not average more than 12 months. Change in the funding profile of the financial sector has been promised through pension fund reform.

Key aspects of the banking regulation have been centred on provisions and minimum capital requirements. Paraguay is ahead of Europe in its implementation of Basel III rules, especially in terms of solvency ratios. Local regulation has already established a minimum of 12 percent for total solvency and eight percent for Core Tier I capital.

Considering the fact there are no capital market activities, trading and other forms of volatile investment banking activities, the systemic risks of the financial sector are very limited. Today, total financial assets only represent approximately 30 percent of GDP, which remains low when compared to other developing countries, for example over 95 percent in Brazil or over 65 percent in Colombia.

Paraguay has the most stable currency in Latin America and has the second highest return-on-investment for the private sector in Latin America. It has the lowest tax burden in the region. Therefore, the country benefits from strong macro-economic numbers, a financial sector that is well regulated and has funded growth to-date, and financial assets that account for a relatively low percentage of GDP. But the main potential resides in the origin of the growth and what latent growth remains to be tapped.

Having benefited from sustained demand in agriculture products – mainly soy, but also corn, wheat, sesame and meat – put another way, the growth has not been fuelled by demand from developed countries for raw materials used in construction (iron ore), minerals used for consumer goods (copper, gold, lithium, rare earths) or oil, but from demand for feeding a growing number of people living on the planet. This is also very different from other emerging economies and is not about to change any time soon. Paraguay is slowly but surely setting itself as a key provider of food for the world, through higher production volume and higher quality standards.

Finally, the country benefited from being the largest exporter of clean, renewable energy, setting energy prices at half the price of its neighbours for industrial clients. As Paraguay only uses about 10 percent of what it produces, its capacity to provide competitively priced electricity in the future remains very strong. Its ability to increase the volume and the quality of agro-industrial production with the nascent, but fast growing, industrialisation of the country, provides Paraguay with a strong growth outlook over the next few decades.

Source: CIA World Factbook. Notes: 2013 figure
Source: CIA World Factbook. Notes: 2013 figure

Intelligent business practices
Paraguay remains an interesting story for investors that need to look beyond the obvious problems of the country. Red tape, and to a certain extent, administrative blockades of all kinds, can be at times frustrating, but doing business in Paraguay remains relatively easy when compared to other countries in the region. Being so small, business intelligence is easy to gather and a number of professional associations exist to facilitate the integration of newcomers, allowing them to establish themselves in Paraguay.

The key challenge for the country will be to invent the second phase of its growth story outside of the obvious development of its agro-industrial sectors. Paraguay has the capacity to become a key producer in certain heavy industries, and it can also become a regional energy player. But providing education standards are raised, it can substantially develop its services and consumer sectors.

An immediate next step objective for the country is connectivity, to connect itself to the regional network of roads, railways and airports. This lies at the heart of the current strategy of the public sector. In addition to fiscal responsibility reform, legislation has been introduced for private sector participation in this infrastructure build-out. Combine this with the pre-existing fiscal incentives (the so called Law 60/90) such as zero percent tax on capital goods (machinery and equipment), no VAT on capital goods purchased locally or abroad, no taxes on remittance abroad of capital or interest, and a 10 year holiday of dividend and profit repatriation for new projects, and you have a potent cocktail for stimulating private sector investment.

In short, Paraguay has attractive geography, a great energy balance, good demographics, strong fiscal and monetary stability, and has embarked on an outreach programme to build multimodal logistics and seek new international corridors to market. There is no ideological agenda short of a desire to raise domestic standard of living. The speed at which this can be implemented will dictate the speed at which the economy can grow
in future decades.

For further information visit Sudamerisbank.com

Nike vs Adidas: a league of their own

Posted on by Ashton Wenborn

The World Cup of football may be over for another four years, but there’s one global sporting battle that never stops – the eternal war between Nike and Adidas for the hearts, minds and pockets of sports fans and consumers worldwide.

It’s a contest fought across many sports besides football, and the protagonists are engaged across several venues at once: in laboratories, on television, online, in sponsorship deals, via quirky marketing campaigns, on the high-street and on every playing field on the planet, from local parks to the Camp Nou.

Between them the two leading brands command a value of more than $25bn. Over the years they have carved up their own territories – Nike in the Americas and Adidas in Europe and Asia. But that’s now changing as the two giant brands go head to head in a pitched battle for world domination. And, increasingly, the brands are clashing on the same turf.

Turf war
In 2006, Adidas engineered a coup that would have once been unthinkable, by securing an 11-year merchandising partnership with the National Basketball Association (NBA) in the US. In 2010, it wrote a big enough cheque to win an eight-year extension of Major League Soccer (MLS). At that time Adidas’ subsidiary Reebok had its name on all the apparel of the National Football League (NFL). Rubbing salt in the wound, Adidas is also official sponsor of the Boston marathon, one of the world’s best-known running events.

Suddenly, Nike wasn’t just looking over its shoulder at an emerging competitor in its home market – it was left in its dust and trying to catch up. It has, however, been fighting back. In 2012 it wrestled back the NFL rights from Reebok and is working on getting back into other so-called ‘hard sports’. And it is highly unlikely to give up its long-term support of such historic connections as the Penn Relays, a sentimental event for intercollegiate sports that takes the brand back to its athletic roots (founders Phil Knight, currently Chairman, and track coach Bill Bowerman started making shoes because the Japanese brands at the time did not meet their requirements).

Even their marketing pitches summarise the nature of this all-out competition. ‘Impossible is nothing,’ trumpets Adidas. ‘Just do it,’ insists Nike

Wherever there’s growth in the sporting goods market, Nike and Adidas are there slugging it out. Nike sponsors basketball in Greece, Spain, Israel, Poland, Russia and Brazil (to name a few). It supports cricket in India, baseball in South Korea and rugby in Argentina. As for Adidas, it sponsors archery in Pakistan, artistic gymnastics in the US and Italy, baseball in China, and boxing in Thailand. Indeed there’s hardly a country or a sport where the brands are not present in some form. Even their marketing pitches summarise the nature of this all-out competition. ‘Impossible is nothing,’ trumpets Adidas. ‘Just do it,’ insists Nike.

Clash of the titans
The captains of these respective teams come from very different backgrounds. At Adidas, 50 year-old CEO Herbert Hainer is the son of a butcher who opened his first business, a pub, while still a student in business school. His main sport was football. His counterpart at Nike, Mark Parker, is a political scientist who ran track for Penn State. A company veteran, he worked his way up from the job of shoe design in the R&D department. He still likes to work on shoes and was in fact jointly responsible for the company’s first ‘green shoe’, an environmentally sustainable product. Parker is also much better paid than his rival CEO – last year total compensation came to nearly $15.5m compared with Hainer’s €2.7m [$3.5m].

There are no major opportunities in the sporting goods market that Adidas and Nike, famously identified respectively by their three-stripes and swoosh logos, have neglected. Including its Reebok, TaylorMade golf and Rockport shoe brands, Adidas covers just about all sports from football and basketball to athletics, tennis and golf with many others besides. Under the umbrella of Nike, the Greek goddess of victory, are also brands such as Jordan, Umbro, Converse and Hurley, among others.

Nonetheless, football is the main battleground. Before the victorious German team had even boarded their plane home from the Fifa World Cup this summer, sports-marketing analysts were already figuring out which brand was the real winner of the tournament. Their collective conclusion is that while Nike outfitted more teams, 10 to Adidas’ nine, the German brand came out on top because its home team won the trophy. And, no doubt to Nike’s distress, the German brand also sponsored Argentina in an all-Adidas final.

Ever since founder Adi Dassler started making football boots, the ‘beautiful game’ – and the World Cup in particular – has been the historic powerhouse of the German company’s revenues and it has put aside a large war chest so that it can stay on top. Adidas is the official sponsor of the World Cup and has succeeded in extending its contract with Fifa for the next 15 years, right through to 2030. Although the price is high, at an average $70m for every World Cup between now and then, it’s a price Adidas is willing to pay.

At first appearances such a long contract should hand all the spoils from the World Cup to Adidas. In fact, excluded as it is from Fifa’s murky corridors of power by its rival’s close relationship with the top echelon in the sport’s controlling body, Nike has opted for a different route into football – that of guerrilla marketing. Nike employs digital and other alternative channels that enable the brand to go straight to the ordinary fan, essentially bypassing officialdom.

Nike has, for instance, developed an app that helps footballers to join pick-up games in the local neighbourhood. If they want a game, they just click the app and wait for a response. In Latin America, a region of street football, this kind of marketing will go a long way.

Nike v Adidas head to head infographic
Sources: Nike, Adidas, Forbes, Twitter, Facebook. Notes: Sales and profit taken from Adidas Q2 and Nike Q4

Paying for the shirt
Nike is also aiming to spoil its rival’s party in Europe where it traditionally dominates. The Oregon-based company now sponsors the kits of more of the leading clubs in the ‘big five’ – Germany’s Bundesliga, Spain’s La Liga, France’s Ligue 1, Italy’s Seria A and, the biggest prize of all, the English Premier League – than any other brand.

But, as the BBC reports, an alarmed Adidas has pulled out the chequebook. In a bet on the return to form of Manchester United, the German brand has signed a record-breaking £750m, 10-year deal with the club to begin next season. The current sponsor? Nike. And Adidas will, from next year, have its name on the kit of Italian champions Juventus for a more modest £112m (€140m).

In European football the stakes are astronomical – in the 2013 season the fans of the big five leagues bought 13 million shirts. “The brand awareness of football is like no other,” explains Professor Chris Brady, Director of the Centre for Sports Business at the UK’s Salford University.

In football it pays to buy up the most-televised, highest-ranking teams. As Andrew Walsh, the football analyst at Repucom, a worldwide sports marketing research group, told the BBC: “In terms of revenue it is the top 10 European teams that dominate, delivering 65 per cent of total shirt sales. Most of these come from clubs in the English Premier League, Adidas’ strongest market.”

As Walsh adds, while Nike has signed up more clubs, Adidas still owns the bulk of the shirt market. And that’s what counts. As David Beckham’s management team will vouch, the transfer fees for top-line players are often calculated on the amount of kit they sell as well as on their footballing ability.

Nike and Adidas don’t have it all to themselves, in football or any other sport. German rival Puma sponsored eight teams at the World Cup while Italian Lotto and Spanish Joma were able to enter the fray. In the English Premier League, the financially astute Arsenal has signed with Puma.

The biggest global brands after Nike and Adidas are also-rans. Ranked by customer preference rather than sales, they are Puma, Asics, Under Armour, North Face, Umbro, Fila and Vans – but they’re a long way back. Puma, for instance, rattled up sales of €2.99bn last year, impressive but a long way behind Adidas’ €14.5bn.

In individual sports it’s easier for rival brands to make raids into the Nike/Adidas domination because the price is not as high. In something of a shock to both brands and an all-Asian final for the sporting goods industry, the men’s winner of the 2014 US Open tennis was Croatian Marin Cilic, who was showcasing Chinese brand Li-Ning, a 25 year-old company founded in Beijing. Cilic had switched from Fila in 2011. Meanwhile, runner-up Kei Nishikori was dressed by Uniqlo, a Japanese casual wear company.

Adidas Ball
Adidas is the official sponsor of the World Cup and has succeeded in extending its contract with Fifa through to 2030 – the price an average $70m for every World Cup until then

Research and retail
As consumers reveal a willingness to spend more on higher-end products, both brands are changing their distribution and retail strategies to hike their margins. This is most obviously reflected in a marked trend to wholly owned and branded stores as well as to supporting the more up-market retailers. “Nike and Adidas see the benefit of creating their own retail environments so they can tie the in-store experience closer to what they’re doing elsewhere in their marketing,” says Magdalena Kondej, Head of Apparel and Footwear at Euromonitor International.

It’s all about taking the consumer on a “structured journey” that employs all forms of marketing including social media to, hopefully, produce a sale. As Scott McLean, co-founder of Intelligent Marketing Institute, puts it: “People will judge the battle between Nike and Adidas by how much chatter they generate. But the real war will be waged around how they take the audience on a structured journey that leads them to a Footlocker store or a website to make a transaction.”

Ultimately though, sales are based on the quality of the product and that, in turn, is based on relentless R&D that produces heavily trademarked and fiercely protected technology. For instance, Adidas golf shoes come with ClimaProof waterproofing, Fitfoam interiors and Traxion cleats. Meanwhile, Nike’s footwear is equipped with Zoom Air, Power Platform and the Q-Lok spike system with Scorpion Stinger spikes. Nike’s sponsorship of Tiger Woods and Rory McIlroy is designed to persuade weekend golfers to trade up to the highest-margin brands such as Tiger Woods’ signature shoe, the Air Tour TW, at around $275 a pair.

Oddly enough, although Nike pays heavily to have its name on the clothing of Woods and McIlroy, it generates only three per cent of total revenues from the sport, or about a quarter of what Adidas books from golf. But that’s a double-edged sword for Adidas. When the TaylorMade golf brand runs into trouble – as it did last year, especially in the US, because of an excess of stock – it hit the German brand disproportionately hard.

Because Adidas started in football, it’s jealous of the technological superiority Nike claims in the sport – and so its laboratories’ current focus is on lightness. Coming on sale in 2015, following years of development, will be the 99g [3.5oz] football boot. For comparison, when founder Adi Dassler produced the water-resistant ‘Argentina’ boot over 50 years ago, it weighted 355g – and that was considered a breakthrough.

The brand awareness of football is like no other – Professor Chris Brady

Indeed, the brand is making a virtue of shedding weight – soon footballers will be able to run onto the pitch in a 630g kit, all up. That’s boots, shirt, shorts, socks and shin guards. Such is Adidas’ commitment to lightweight attire that the gear of all of its sponsored teams in Brazil was exactly half the weight of that in the previous World Cup in South Africa.

But does lightness matter? Both brands are convinced it does and produce copious evidence to prove it. If, for example, a marathoner runs to complete exhaustion and finishes in three hours, calculations show he will have covered the distance precisely 1 minute and 48 seconds sooner provided he wears a shoe that is 100g lighter than an alternative model. For an elite athlete that is clearly a free gain worth having.

Similarly in football, a 100g lighter shoe not only means the player will be able to do 10 more sprints per game, there would also be a 20cm advantage over an opponent for every 10m dash for the ball.

The only stat that matters
In the financial battle Nike is definitely on top. In July Adidas was roasted by analysts for posting net income for the second quarter of €144m, below an earlier €150m estimate, on sales of €3.47bn. It followed Adidas’ third profit warning in a year. The main culprit was falling sales in North America (down 4.3 per cent), Asia excepting China (down five per cent) and Eastern Europe, including the important market of Russia (down 1.3 per cent). Institutional investors aren’t happy. “Execution remains a serious issue for this management team,” argues John Guy, an analyst at Berenberg Bank, in a client note.

Chief executive Hainer, who has been in the hot seat since 2001, was apologetic but plans to fight back. “We left our brands exposed to attack in some markets, which has cost us market share,” he told shareholders. “It’s obvious we have to go back to the training ground. We clearly want to improve our brand leadership.”

His immediate response is to lift the marketing spend from 13 to 14 per cent and, in a reversal of the retail strategy, to slow down the roll-out of new stores while closing the loss-making ones. “As we gear up for our next five-year strategic plan, we will assert ourselves much more aggressively in the marketplace,” Hainer promised.

Adidas’ biggest challenge is to raise the value of the brand, say sports marketers. The Interbrand consultancy puts a worth of $7.5bn on Adidas, less than half that of Nike’s $17bn. The American company’s domination is explained by highly effective, more underground style of selling. “Nike is the cheeky challenger doing guerrilla-like ambush marketing,” explains Repucom’s Andrew Walsh. “Adidas follows the more orthodox line.”

As an example, it was galling for Adidas that it spent an estimated $100m on the World Cup while many fans thought Nike was in fact the official sponsor. “Nike managed to get the benefits without as large an upfront investment,” points out Leah Donlan, marketing lecturer at Manchester Business School.

And that’s almost like winning the World Cup with nine men.

Hitting pre-crisis level wealth

Posted on by Ashton Wenborn

Wealth management used to be reserved for the elite, and to an extent it still is, except that definition has broadened slightly. Wealth management firms once set the bar out of the reach of many investors, with one of the prerequisites for entering into the market being an abundance of accumulated wealth – needing a lot of money to make money – but times have changed.

The rise of innovative exchange-traded funds to mitigate rising costs, as a result of increased regulation, along with more and more investors opting to manage their own portfolios, has led a number of wealth management firms to widen their nets. Many still recommend a minimum investment fund of around $100,000, but that figure has opened up the market to small-business owners and even families looking to better manage their asset portfolios.

Finding steady footing
Since the 2008 financial crisis, the stock market has managed to find more solid ground, with a noticeable rise in overall volatility and volumes. Similarly, a level of stability has steadily returned to a number of national economies, as GDP growth figures begin to see a slow but steady recovery out of the global recession.

Wealth and asset managers have faced their fair share of difficulties at the hands of the financial crash too. Asset prices fell considerably as a result of the economic downturn, which also made a considerable dent in investment funds’ overall revenues, with some of the biggest wealth management firms in the industry coming close to collapse. But the sector has shown considerable resilience, especially when it has been hit by a string of stringent global regulations in the form of Dodd-Frank in the US and MiFID II in Europe – with more likely to follow. Regulation is responsible for raising costs, as well as altering the lay of the wealth management landscape, changing the habits of investors and, therefore, altering the manner in which wealth managers must interact with their clients.

WF Wealth Management 2014

World Finance Wealth Management Awards 2014

Digitisation is pervasive in all industry sectors and one that can be a difficult to keep ahead of, but if used properly it can help firms offer alternative service models and better cater to the needs of their clients. Wealth management, an industry that takes pride in cultivating strong, personal relationships, is facing both challenges and new opportunities, as technology shapes the sector and, more specifically, how clients want to interact with their wealth managers.

There will always be demand for face-to-face interaction between clients and those tasked with looking after their investment portfolios. But the growth and success of mobile applications, video, and social media platforms, due to their increased speed and accessibility, means they are becoming the preferred method for high net worth individuals (HNWIs) to stay informed, as well as in executing certain transactions.

The digital movement has taken a little longer to reach the wealth management sector, which is not that surprising considering the age of many HNWI, who may lack the technological literacy or interest of their younger counterparts. But the digital trend is likely to continue, as a younger set of investors begin joining the ranks of the world’s financial elite. Therefore, the application of digital technologies is essential if firms want to survive. They must be willing to adopt, evolve and grow their use of these platforms and incorporate these systems into the very heart of how they do business if they hope to cater to their new, technologically savvy client base.

“Technology plays a critical role in the industry’s future,” says Ian Smith, financial services strategy partner at KPMG in the UK. “The clients of the future will be fundamentally different in terms of their needs and expectations. They will demand more personalised information, education and advice that will require asset managers to radically address their technology capabilities to really understand their clients and support this level of service.”

Increased regulation
The Governor of the Bank of England, Mark Carney, announced regulators’ intentions to clamp down further on investment funds, and that watchdogs around the world will be keeping a close eye on the sector, in a bid to prevent a repeat of the financial crisis. He told attendees at the IMF and World Bank annual meetings, held in Washington DC, that, while he is happy to see the sector grow, with assets managed by investment funds equating to nearly 90 percent of the global economy, the need for stricter regulation is essential.

“[There must be] a focus, as there has been with banks, on the systemic risk it could create,” said Carney. “In the current environment, those types of activities need careful monitoring, and possibly a deliberate policy response.” In all sectors of the financial industry there is a drive by regulators, as a consequence of heightened social and political pressure, as well as for the sake of market stability, to apply stricter rules in areas of capital, liquidity, derivatives, corporate governance, compliance and transparency. The cost of updating internal systems and practices in order to comply with these new regulations costs the industry, and in this case wealth management firms, a lot of money to implement. European firms have felt the pang of increased red tape the most, with the region seeing overall costs of doing business inflated between five to 10 percent since the financial crisis.

The overall wealth management market, however, continues to grow. According the World Wealth Report 2014, HNWI growth continues to accelerate. Improved economic and equity market performance has added 1.76 million people to the global HNWI population, with the investable wealth of HNWIs growing by nearly 14 percent to reach a record high of $56.62trn.

The report also forecasts global HNWIs’ overall financial wealth will continue its upward trend, predicting growth figures of 6.9 percent annually through to 2016, which translates as a record high of $64.3trn. It expects every region, except for Latin America, to grow strongly, but that the Asia-Pacific region is likely to emerge as a clear leader, with a 9.8 percent annual growth rate.

Large retail banks have had to look closely at their wealth management divisions, weighing up whether it is still a viable option for them to be involved in particular markets. Some banks think it wise to downsize and decrease their exposure, preferring to narrow their focus and simplify their overall strategy. But, as is the case in financial markets, where there is space, there is always someone else eager to fill it.

Some large US banks have chosen to pull out of the European wealth management market altogether in order to escape cost-escalating EU regulation, favouring to focus solely on their domestic market. This has opened the doors for smaller, independent firms to swoop in and gobble up good talent and with it new clients. This will allow them to increase their market share, while the bigger players rethink their positions in the marketplace.

Wealth managers are in a state of flux; a combination of regulatory pressure on one side, and short-term margin pressure on the other is causing firms big and small to start looking at the core aspects of their business models. Though global wealth has managed to pick itself up to something like pre-crisis levels, there is still a lot of work to be done if wealth managers are going to see larger revenues.

There will also need to be an overhaul of their methods. Wealth managers need to continually provide clients with high-quality advice, and they will also need greater technological solutions to enhance their business offerings. Success in these areas will give firms – particularly, in this instance, small, independent firms – a means of differentiating themselves from the competition.

Wealth Management Awards 2014

Posted on by Ashton Wenborn

Best Wealth Management Provider

Algeria
Trust Bank

Austria
Erste Private Bank

Azerbaijan
International Bank of Azerbaijan

Bahrain
Alpine Wealth Management

Bangladesh
City Bank

Belgium
Bank Degroof

Brazil
BTG Pactual

Canada
CIBC Wealth Management

Chile
Banchile Wealth Management

Colombia
Bancolombia

Czech Republic
CSOB Private Banking

Egypt
CIB Egypt

France
BNP Paribas

Greece
Attica Wealth Management

Germany
Deutsche Bank

India
Avendus Wealth Management

Italy
Intesa Sanpaolo

Jordan
Invest Bank

Kazakhstan
ATFBank

Kuwait
KMEFIC

Latvia
Baltikums Bank

Lebanon
Credit Libanais

Lithuania
Finasta Financial Group

Luxembourg
UBS

Mauritius
AfrAsia Bank

Mexico
BBVA Bancomer

Morocco
BMCI

Netherlands
ING

Nordics
Danske Private Banking

Oman
National Bank of Oman

Pakistan
Faysal Bank

Qatar
Qatar National Bank

Romania
Erste Private Bank

Spain
Santander

Saudi Arabia
Banque Saudi Fransi

Switzerland
UBS

Thailand
Kasikornbank

UAE
Dubai Islamic Bank

UK
Barclays Wealth

Ukraine
OTP Bank

US East
Merrill Lynch Wealth Management

US West
Bank of the West

Real Estate Awards 2014

Posted on by Ashton Wenborn

Asia

Property Company of the Year
Far East Organization, Singapore

Best Residential Developer
OSK Property Holdings, Malaysia

Best Mixed Use Developer
Far East Organization, Singapore

Best Retail Developer
Hatten Group, Malaysia

Best Office Developer
Cheung Kong Holdings, Hong Kong

Best Advisor
Jones Lang LaSalle

Best Industrial Developer
Global Logistics Properties, China

Best Leisure Developer
Wanda Group, China

Most Innovative Developer
UEM Sunrise Berhad, Malaysia

Most Socially Responsible Developer
Raheja Developers, India

Outstanding Contribution
Navin Raheja – Raheja Developers, India

Property of the Year
UOL Group – Riverbank at Fernvale, Singapore

Deal of the Year
Wheelock Properties – One Bay East – East Tower to Citi, Hong Kong

Middle East

Property Company of the Year
Dar Al-Arkan Real Estate, Saudi Arabia

Best Residential Developer
DAMAC Properties, UAE

Best Mixed Use Developer
Emaar Properties, UAE

Best Retail Developer
United Real Estate Company, Kuwait

Best Office Developer
Aabar Properties, UAE

Best Advisor
Colliers International

Best Industrial Developer
Arabtec

Best Leisure Developer
SKAI, Dubai

Most Innovative Developer
TDIC, Abu Dhabi

Most Socially Responsible Developer
Meraas, Dubai

Outstanding Contribution
Jeddah Development, Saudi Arabia

Property of the Year
Akoya Oxygen – DAMAC Properties, Dubai

Deal of the Year
QGIRC – World Trade Centre Tower to Qatar Petroleum

Europe

Property Company of the Year
Land Securities, UK

Best Residential Developer
PIK Group, Russia

Best Mixed Use Developer
TriGranit, Hungary

Best Retail Developer
Steen & Strøm, Norway

Best Office Developer
Metrovacesa, Spain

Best Advisor
CBRE, UK

Best Industrial Developer
Goodman, Belgium

Best Leisure Developer
Echo Investments, Poland

Most Innovative Developer
TriGranit, Hungary

Most Socially Responsible Developer
Prologis, Netherlands

Outstanding Contribution
AFI Europe, Netherlands

Property of the Year
Patrizia – Soft House, Germany

Deal of the Year
J Sainsbury – London HQ to Tishman Speyer

North America

Property Company of the Year
Hines, US

Best Residential Developer
Hines, US

Best Mixed Use Developer
Tishman Speyer, US

Best Retail Developer
Simon Property Group, US

Best Office Developer
Brookfield Office Properties, US

Best Advisor
Cushman & Wakefield

Best Industrial Developer
IDI Gazeley

Best Leisure Developer
Starwood Hotels & Resorts Worldwide

Most Innovative Developer
North American Properties, US

Most Socially Responsible Developer
Cadillac Fairview , Canada

Outstanding Contribution
The Macerich Company , US

Property of the Year
Related – One Madison, US

Deal of the Year
Invesco Real Estate – Walton Street Capital

Africa

Property Company of the Year
Rabie Property Group, South Africa

Best Residential Developer
UPDC, Nigeria

Best Mixed Use Developer
Rabie Property Group, South Africa

Best Retail Developer
Flanagan & Gerard, South Africa

Best Office Developer
Actis, Nigeria

Best Advisor
Broll Property Group, South Africa

Best Industrial Developer
Abland, South Africa

Best Leisure Developer
Marriott International

Most Innovative Developer
Kings Developers, Kenya

Most Socially Responsible Developer
Flanagan & Gerard, South Africa

Outstanding Contribution
Chagoury Group – Eko Atlantic

Property of the Year
Century City – Rabie Property Group, South Africa

Deal of the Year
Standard Bank Properties – Alice Lane development to Pivotal Property Fund

Latin America

Property Company of the Year
Cyrela Brazil Realty, Brazil

Best Residential Developer
Cyrela Brazil Realty, Brazil

Best Mixed Use Developer
Mexico Retail Properties, Mexico

Best Retail Developer
MultiPlan, Brazil

Best Office Developer
Raghsa, Argentina

Best Advisor
Jones Lang LaSalle

Best Industrial Developer
Global Logistic Properties, Brazil

Best Leisure Developer
IRSA, Argentina

Most Innovative Developer
IRSA, Argentina

Most Socially Responsible Developer
Mexico Retail Properties, Mexico

Outstanding Contribution
Territoria, Chile

Property of the Year
Raghsa – 955 Belgrano Office, Argentina

Real estate on the rebound

Posted on by Ashton Wenborn

With renewed economic growth slowly creeping across much of the developed world, alongside it has been a surge in the value of real estate. While the financial crisis, subsequent recessions, and decline in credit severely hampered much of the world’s property markets, real estate has bounced back during the last 12 months.

Investment in real estate across the world has continued to increase considerably over the last year, with volumes rising to as much as $788bn in the 12 months to June as a rate of 17.2 percent, according to a study by real estate consultants Cushman and Wakefield (C&W) released in October.

This year, the IMF launched its Global Housing Watch study that will continually look at real estate markets around the world. Launching the report, the IMF’s Deputing Managing Director Min Zhu said that providing the world with detailed analysis of real estate prices would ensure that some of financial crises that were exacerbated by property prices could be understood better. “Understanding the drivers of house price cycles, and how to moderate these cycles, is important for economic stability. It is only by maintaining an open dialogue on these issues that we will gain a solid understanding of how policies can contain housing booms.”

WFRealEstate2014

World Finance Real Estate Awards 2014

Contrasting fortunes
Some of the initial findings in the IMF’s study showed that the most expensive parts of the world to buy a house were Belgium, Canada and Australia. Calculating the index by comparing the ratio of house prices to average income in each country, the results show that it is proving particularly difficult for people to acquire property in these regions. By contrast, affordability in Germany, Korea and Japan is particularly low.

Another result of the study was the stark impact of the global financial crisis on the world’s house prices, with a fall of 20 percent on the average price of property in 2009. While prices have yet to return to their 2008 high, some countries are seeing bigger increases than others. These include the Philippines, where average prices rose by 10.5 percent in 2013, and Hong Kong, which saw a 10.3 percent rise. India saw a dramatic fall in prices last year of nearly 9.1 percent, while the troubled economies of Greece and Italy caused prices to fall seven percent and 6.5 percent respectively.

Investment in retail property has also been strong, although has experienced smaller increases in the worlds top 25 cities compared to the wider market, according to C&W. At the same time, office space has grown, but there has been more focus on modernisation and upgrades than a surge in new space. Reduced occupancy has become a global trend, with many businesses looking to scale down their real estate costs.

In the US, foreign investors pushed up real estate activity by nearly 50 percent over the last year, dominated in large part by Canadian, Chinese and Australian buyers, according to C&W. As the US economy strengthens, foreign investors are increasingly looking at the country’s real estate. Pension funds and Asian investors are particularly keen on US real estate, and it is thought this trend will continue into 2015.

The areas that have been of most interest have been near to energy and technology markets, with New York, San Francisco, Boston and Houston all seeing strong investment. At the same time, retail markets have strengthened as a result of the improving economy and falling unemployment.

Asia’s property market has remained strong, with a healthy level of demand and liquidity due to insurance companies and pension funds being eager to invest. However, uncertainty over the regions economy has meant that activity isn’t as high as had been expected, with tougher lending conditions also hampering real estate markets, says C&W.

“Core markets are generally outperforming but the mixed economic picture together with rising new supply has weighed on overall performance. However, while there are occasional scares over the outlook, sentiment is generally firming, with expectations of a modest improvement next year as China’s commitment to rebalancing starts to pay off and as reforms in Japan and India add to confidence.”

Runaway market
London’s runaway property market has shown little sign of slowing down; with house prices in the UK capital surging passed the expected level for 2014. Homeownership has become an increasingly politicised issue within London, as the city’s soaring population struggles to fit into the houses on offer.

Studies suggest that London’s population is growing by roughly 100,000 people each year, and by 2030 will hit 10 million citizens. In order to cater for this there needs to be a rapid increase in house building. Current Mayor of London Boris Johnson has set a target of 42,000 new homes to be built each year, although some commentators believe that figure should be nearer 52,000.

One contentious issue surrounding London property is the number of foreign buyers that are seemingly hoovering up many of the new buildings as soon as they hit the market. Politicians from all sides of the political spectrum have said they intend to do something about this issue, although whether they will be able to genuinely resist this influx of foreign capital remains to be seen. Overseas investors have looked to capitalise on London’s robust property market, pouring money into real estate across the capital over the last year at a rate that far outweighs any other city.

Coinciding with this, the C&W study reports that the level of investment into London has jumped by a staggering 40.5 percent to $47.2bn in the 12 months up to June. London was second only to New York in this respect, which saw $55.4bn invested during the same period, an increase of 10.9 percent.

Another issue is talk of a potential tax on high value property that has been proposed by two of the three main political parties. The so-called Mansion Tax would hit all homes valued over £2m ($3.23). However, there has been much debate over how fair such a tax would be on people in London, and how practical it would be to actually implement such a scheme.

Finally, with interest rates set to be increased – albeit modestly – in the coming year, it is though that the booming property market in the UK could well stabilise.
While few people believe there will be any large collapse in property values, there have been signs of a slowdown recently. Next year will likely see this continue, although there will likely not deter the enthusiasm for UK property seen from people overseas.

Mass urbanisation
Across developing nations, mass urbanisation has led to slums sprawling out of major cities. As jobs become centralised and people flock to the big cities, governments are struggling to build the necessary homes that will cater for their demanding citizens. In places like Brazil, China and India, a lack of affordable homes is hampering growth. According to a study by the Royal Institution of Chartered Surveyors titled Global Affordable Housing: BRICs PLUS Mortar, governments should ensure that a clear strategy is laid out for addressing these problems.

Professor Duncan Maclennan, the reports author, says, “International bodies and lobby groups talk of the looming challenges of population ageing, the environment, worklessness, immigrations and the like. They also need to recognise that there is an emerging global crisis in relation to the provision of decent homes and neighbourhoods.”

C&W say that the global market during the coming year is likely to be stronger still, but also vulnerable to differing strategies towards monetary policy. “Looking forward to 2015, the global economy is anticipated to be firmer but still vulnerable, with trends divergent country by country. One of the most notable drivers for this will be the polarisation in monetary policy, which will be tightening in some areas but remaining loose elsewhere. This points to conflicting trends for real estate globally.”

The report goes on to state that while interest rates are likely to rise during the coming year, the impact on real estate prices is not likely to be too severe as some fear. “Whatever the nature and timing of policy changes, however, fears over higher interest rates are somewhat over done: withdrawal may be painful but investors should be more frightened of stagnation and deflation. Higher rates and reduced quantitative easing will in fact be a welcome sign of ‘normality’ returning and investment strategies should be ready to respond – focusing on the fundamentals which actually look promising in a number of property markets.”

The likelihood for next year is that the increasing competition to acquire property will continue to force prices up around the world. Unless there is a gearshift in house building across the most desirable locations, these prices are unlikely to see any falls in the future. Our Real Estate awards feature those companies best equipped to handle, what can at times, be an unpredictable market.

Oil & Gas Awards 2014

Posted on by Ashton Wenborn

Africa

Best Fully Integrated Company
Nigerian National Petroleum Company

Best Independent Company
Tullow Oil

Best Exploration & Production Company
Afren

Best Downstream Company
PetroSa

Best Upstream Service & Solutions Company
Oando Energy Resources

Best Downstream Service & Solutions Company
Puma Energy

Best Drilling Contractor
Pacific International Drilling West Africa

Best Investment Company
Diamond Bank

Best EPC Service & Solutions Company
Nestoil

Best Port Facility
Port of Cape Town

Best Sustainable Company
AITEO

Best CEO
Adewale Tinubu, Oando

Asia

Best Fully Integrated Company
PTT

Best Independent Company
Tethys Petroleum

Best Exploration & Production Company
Petrovietnam Exploration Production Corporation

Best Downstream Company
Pertamina

Best Upstream Service & Solutions Company
PTSC M&C

Best Downstream Service & Solutions Company
Tonen General Group

Best Drilling Contractor
Japan Drilling Company

Best Investment Company
Kerogen Capital

Best EPC Service & Solutions Company
Hoidi International

Best Port Facility
Tanjung Langsat Port

Best Sustainable Company
Bangchak Petroleum

Best Executive Chairman
Dr David Robson, Tethys Petroleum

Eastern Europe

Best Fully Integrated Company 
Gazprom

Best Independent Company
Irkutsk Oil Company

Best Exploration & Production Company
Rosneft

Best Downstream Company
Lukoil

Best Upstream Service & Solutions Company
Grup Servicii Petroliere

Best Downstream Service & Solutions Company
OMV Petrom

Best Drilling Contractor
Eurasia Drilling Company

Best Investment Company
Eximbank

Best EPC Service & Solutions Company
OMZ

Best Port Facility
Kozmino Port

Best Sustainable Company
Zarubezhneft

Best CEO
Vagit Alekperov, Lukoil

Latin America

Best Fully Integrated Company
Petrobras

Best Independent Company
Pacific Rubiales

Best Exploration & Production Company
Americas Petrogas

Best Downstream Company
PDVSA

Best Upstream Service & Solutions Company
Lupatech

Best Downstream Service & Solutions Company
Puma Energy

Best Drilling Contractor
Queiroz Galvao Oleo e Gas

Best Investment Company
EIG Global Energy

Best EPC Service & Solutions Company
Subsea 7

Best Port Facility
Guanabara Bay

Best Sustainable Company
Pacific Rubiales

Best CEO
Maria Das Gracas Silva Foster, Petrobras

Middle East

Best Fully Integrated Company
Saudi Aramco

Best Independent Company
Dana Gas

Best Exploration & Production Company
Genel Energy

Best Downstream Company
Qaiwan Group

Best Upstream Service & Solutions Company
Gulf Energy

Best Downstream Service & Solutions Company
Mina Group

Best Drilling Contractor
National Drilling Company

Best Investment Company
Apicorp

Best EPC Service & Solutions Company
Samsung Engineering

Best Port Facility
Port of Salalah

Best Sustainable Company
Dolphin Energy

Best CEO
Khalid Al-Falih, Saudi Aramco

North America

Best Fully Integrated Company
Pemex

Best Independent Company
Murphy Oil Corporation

Best Exploration & Production Company
Breitling Energy

Best Downstream Company
Valero Energy Corp

Best Upstream Service & Solutions Company
Weatherford International

Best Downstream Service & Solutions Company
Tesoro Petroleum

Best Drilling Contractor
Helmerich & Payne

Best Investment Company
Quantum Energy Partners

Best EPC Service & Solutions Company
KBR

Best Port Facility
Houston Fuel Oil Terminal

Best Sustainable Company
Suncor Energy

Best CEO
Emilio Lozoya Austin, Pemex

Western Europe

Best Fully Integrated Company
Repsol

Best Independent Company
Lundin Petroleum

Best Exploration & Production Company
Premier Oil

Best Downstream Company
Shell

Best Upstream Service & Solutions Company
Hunting

Best Downstream Service & Solutions Company
Total Erg

Best Drilling Contractor
Maersk Drilling

Best Investment Company
ABN Amro

Best EPC Service & Solutions Company
Tecnicas Reunidas

Best Port Facility
South Hook LNG Terminal

Best Sustainable Company
Total

Best CEO
Antonio Brufau, Repsol

In it for the long haul

Posted on by Ashton Wenborn

Time and again sources have spoken about the world’s dwindling fossil fuel reserves and the stress that is, increasingly, being put on what precious opportunities remain. Industry names have suspected that available reserves have come close to the end on more than one occasion – and have said as much – though the rate at which new discoveries are being made and demand for fresh supply is gaining has sparked resurgence in the global energy market. ExxonMobil estimates that global energy demand will continue to rise by approximately 35 percent in the period through 2010 to 2040, and technological developments alongside significant strategic changes made in that same period will no doubt embolden the industry’s cause.

In the case of the US, a shale revolution is lifting the world’s biggest economy out of the doldrums and setting it on the straight and narrow, whereas recent developments in China’s hydrocarbons sector have been instrumental in realising a more sustainable means of prosperity. In Europe, unanswered questions on the dangers of fracking have put the brakes on efforts to tap what reserves lie beneath the surface, and the opportunities and challenges associated with Arctic drilling have made headlines across the globe. Irrespective of an uncertain operational environment, what’s clear is that the oil and gas industry is in the midst of a major transformation.

To celebrate some of the brightest names in the business and bring attention to what we feel are the greatest industry-related achievements of this past year, the World Finance Oil and Gas Awards 2014 offer a glimpse into what advances are being made in the global energy market. Here we take a quick look at some of the most significant developments and how oil and gas companies have acclimatised to a much-changed marketplace.

WF Oil & Gas 2014

World Finance Oil and Gas Awards 2014

Changing demographic
With emerging markets playing an increasingly important role in driving global economic growth, demand for oil and gas is far and above what it was. “According to the estimates of McKinsey Global Institute, by 2025 440 cities in developing countries will contribute up to half of the global GDP growth. At the same time the levels of consumption will grow,” reads Lukoil’s Global Trends in Oil and Gas Markets to 2025 report. “Urbanisation and growth of the consumer class in developing countries will, in turn, promote demand for real estate, infrastructure, cars, hi-tech goods and, as a result, energy resources.”

This shift in the oil and gas consumer demographic means that companies have had to respond to what is fast emerging as a long-term industry trend, with growth stemming principally from emerging markets. According to the UN, a population of just over seven billion today is forecast to reach 9.6 billion by 2050, with over half of the additional numbers attributable to Africa. What’s more, India’s population is forecast to surpass China’s in 2028 and Nigeria’s is expected to exceed the US’s before 2050. Elsewhere, Europe’s population is tipped to decline, and life expectancy in developing nations is expected to be around 81 years by the end of the century.

The planet’s rising population means that oil and gas companies must look to new frontiers if they are to capitalise on emerging opportunities and negotiate the ever-changing tides of the global economy.

Developed markets
This is not to say, however, that existing market powers are of any less importance. In the US, for example, oil and gas still accounts for approximately 60 percent of the country’s energy mix, and the so-called shale revolution has set the nation on the road to self-sufficiency. Increased oil and gas production, therefore, has created additional jobs and given the country a much-need measure of economic stimulus. Not excluded to unconventional sources of energy, however, US crude production is closing in on the country’s historical high of 9.6 million barrels per day, and imports as a percentage of total energy use are plummeting.

Crucially, increased oil production has stopped short of sparking a global oil price collapse, supported primarily by the costs associated with increased production and the continued depreciation of the US dollar.

“Looking at the bigger picture, some of the changes which are taking place are quite fundamental. It was already evident that worldwide flows have significantly changed over the past few years, with the US currently being an exporter rather than an importer and an ongoing increased demand from countries such as India and China, to name just a few changes,” writes Jeff Sluijter, Ernst & Young BeNe leader of Energy and Natural resources in the company’s Oil and Gas Industry Forecast 2014. “These are interesting times, with many changes and challenges still ahead of us.”

In Europe, production has declined, due in large part to more competitive alternatives in both Asia and the Middle East, and the public’s reluctance to embrace fracking in quite the same way they have across the Atlantic is stifling the region’s potential. However, many industry analysts anticipate that the coming years will mark a turning point for the continent’s gas market, as supply of LNG takes an upturn and prices dive. In preparation for a new competitive landscape, many of the region’s biggest players have decided on an LNG-first strategy and looked to improve their technological and infrastructural proficiency wherever they can in order to better capitalise on new opportunities (see Fig. 1).

New opportunities
To satisfy increasing levels of consumption, greater efforts must be made by those in the industry to exploit what recoverable reserves remain in the ground. Perhaps the most important aspect of this goal, therefore, is technological improvement and innovation, as firms look to increasingly hard-to-find, and so expensive, findings.

Perhaps the clearest indication of this quest to unearth barely recoverable reserves is the race to tap billions of tonnes worth of oil and gas in the Arctic. Unsurprisingly, the costs of setting up shop in the world’s most inhospitable climate are high, though the rewards for successfully doing so have lured a number of major international names to the fold. Rosneft and its Arctic project partner Exxon Mobil, for example, completed the drilling of the northernmost well in the world in September and took another step closer to realising the true extent of Arctic oil and gas.

Source: AT Kearney. Notes: Asia Pacific includes Singapore, Thailand and Pakistan
Source: AT Kearney. Notes: Asia Pacific includes Singapore, Thailand and Pakistan

In response to record high demand, major industry names have to look to unconventional, and so costly, methods of drilling. However, more important than that is the fact that companies must today look to the long-term if they are to occupy a greater share of the market.

Though the industry is so often associated with short-term gains, the technological demands associated with exploiting unconventional oil and gas deposits and setting up shop in difficult geographies means that companies will have to wait years before they see a return on their investment. Whereas in years passed money has been spent primarily on exploration, many are now moving towards infrastructural developments and taking a step closer to production. Evidence of this trend can be seen with increases to midstream and downstream capital spending, according to Deloitte, as well as a drop in M&A numbers, as companies look to focus on existing operations.

As the complexity of and expense tied to projects takes an upturn, those in the oil and gas market must take greater care to protect against uncertainties, whether they be regulatory, financial or technological in nature. Both oil and gas are still key energy sources for the global economy, even in today’s environmentally conscious society, and those responsible for satisfying demand play a key part in driving socio-economic development on a global scale.

The importance of the 2014 World Finance Oil and Gas Award winners, therefore, should not be underestimated, taking into account the work they have put in to improve the lives of countless individuals across the globe. Having each played an important part in spearheading industry developments and in making a difference to the many communities in which they work, the award winners represent the cutting edge of the energy market.