February | 2015 | World Finance

Bolivia’s petrochemical industry set to prosper thanks to new plant

Posted on February 22, 2015January 22, 2015 by Ashton Wenborn

Undertaken by Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), the first tests have begun for the Gran Chaco plant, a huge gas complex made up of more than 70 hectares, which aims to consolidate Bolivia as the main natural gas exporter in South America. The plant has been built to maximise the use of and diversify the country’s export offerings, and is set to be the focal point of Bolivia’s petrochemical industry as it looks towards internationalisation.

The President of the Plurinational State of Bolivia, Evo Morales Ayma, and the Vice President, Alvaro García Linera, promoted the construction of the complex, which will begin commercial operations in April 2015. Estimated business projection for the plants is $872m per annum for the commercialisation of liquefied products from natural gas in the southern cone.

“If it wasn’t for the fight and effort that the people of Bolivia put up, this plant, with which we move from the nationalisation to the industrialisation of our hydrocarbons, wouldn’t exist”, stated the re-elected Evo Morales, after last year’s elections in October – elections that ratified the direction of the new strategic policies for the development of the hydrocarbon sector in the country.

The YPFB, a Bolivian state-owned oil company, allocated $608.9m for the construction of the new plant, which is located in Tarija at the southern extreme of Bolivia, on the border with Argentina. It will process up to 32 million cubic metres of gas per day. The objective of the plant, which is the third largest in the region, is to obtain 3,140MT per day of ethane; 2,240MT per day of liquid petroleum gas, as well as additional volumes of isopentane and natural gasoline. Of the plant’s total production, Bolivia will make 82 percent of the liquid petroleum gas, made of propane and butane, available for export. The methane will be returned to Argentina as a dry gas export, in accordance with the stipulations contained in the contract between YPFB and the state-owned company YPF.

$872m

Estimated business projection of Gran Chaco

The rich gas, which contains methane, ethane, propane, butane and other liquefied compounds, comes from the biggest production fields in Bolivia, like San Alberto, San Antonio and Margarita. It will feed the complex via the Juana Azurduy de Padilla gas pipeline. The complex recovers the surplus of energy that was formally exported to Argentina as natural gas.

Spanish company Técnicas Reunidas was in charge of the construction of the Gran Chaco plant, an endeavour that also included the participation of nine contractors and 50 subcontractor companies from Bolivia, Argentina, Italy, Spain, Belgium and China. The project employed more than 5,000 workers and technicians to face the civil, mechanical, assembly and installation works.

New income
The funds invested in the plant, which underwent initial tests on October 16 last year in Yacuiba, Tarija, will be recovered within an estimated period of five years, according to Carlos Villegas, President of YPFB.

“The benefits we are going to obtain are important. We will obtain an estimate of $400m a year, that means that if the investment was $680m we can cover the investment, which was a loan given to us by the central bank, within two years”, says Villegas. “However we are not going to do that, because we need to make other investments. We are going to return it within five years – which is quite a short time period for the contracts that we have signed with the Central Bank of Bolivia.”

Villegas calculates that for the sale of the gasoline, isopentane and liquid petroleum gas, both on the internal market as well as on the external one, an estimated $872m as gross income per year will be obtained. Gran Chaco is the second plant that YPFB started up in less than two years to make maximum use of the liquefied products of the gas exported to Argentina and Brazil. The Río Grande Liquids Separation Plant has been running for over a year in the Santa Cruz de la Sierra area, and produces an average of 360 total measured depth of pressure liquefied gas (PLG), 440 million barrels per day of natural gasoline and 190 million barrels per day of isopentane.

With the total of the PLG production obtained from the Río Grande Plant, Bolivia is able to be self-sufficient and fulfil all its requirements, and is still able to export the surplus to the markets of Paraguay, Uruguay and Peru, diversifying its international export offerings in the process. From August 2013, this complex produced 86,287T of PLG, generating extraordinary utilities.

National plastics
The industrialisation of the natural gas could not be a reality in Bolivia without the Gran Chaco plant, which will treat input products like propane and ethane that will be used in future complexes for propylene/polypropylene and ethylene/polyethylene, which Bolivia intends to construct in the shortest possible time frame.

The national government decided to prioritise the construction of the propylene/polypropylene plants with an approximate investment of $1.8bn. The complex is located in the region of Tarija and from 2018 it is anticipated to process around 350,000MT per year of resins for the industrialisation of hard plastics.

In an ambitious project, Bolivia also expects to concretise the start up of the ethylene/polyethylene complex with an unprecedented historic investment in the year 2022 – to produce around 750,000MT of polyethylenes of different characteristics and applications. The second part of the project proposes the building of another three plants of high- and low-density polyethylene.

With both petrochemical plans, Bolivia, which until some years ago was considered one of the poorest countries in South America, intends to generate greater added value to natural gas, diversify its productive manufacturing matrix of plastic products, generate direct and indirect employment and export the surplus polymers to other countries in the region.

Italian company, Tecnimont, completed the first stage of the Bolivian ethylene/polyethylene project, firming up the conceptual engineering for the complex of industrialisation of the natural gas. They are also expected to be awarded the PDP and extended basic engineering contract for the second quarter of 2014. Meanwhile, Tecnimont, due to its broad and proven international experience, was also trusted with the necessary strategical support work for the propylene/polypropylene project.

Elsewhere, YPFB has been building an ammonia/urea plant with an investment of $862.5m in Cochabamba, located in the very centre of the country, where it will produce 756,000MT per annum of urea, a fertiliser that is in great demand. It is expected that it will not only improve internal food safety and the national agro-industry, but that it will also favour and diversify national exports with added value. The plant is expected to begin operation in 2015.

Greater reserves
During the last six years, YPFB increased the volume of its natural gas reserves in Bolivia by up to 10.45 trillion cubic feet of natural gas, which guarantees sufficient supplies for the internal market consumption, exports for the external market (Brazil and Argentina), as well as the industrialisation process, considered a national priority.

Bolivia is the main natural gas provider of the region, with an index of incremental production of 65 million cubic meters of natural gas per day, and it is continuing to increase its processing capacity by up to 97 cubic meters of natural gas per day, with 11 treatment plants.

The country maintains an aggressive exploration plan with the participation of national and transnational companies that have been operating for nine years on national territory. There are plans to increase the reserves and the national production of oil and natural gas even further.

With a combination of public and private investment, $7.07m was invested in the development of the whole national production chain of hydrocarbons from 2006 to 2013, and for the current management the investment was $3.02m, from which 64 percent is earmarked for greater tasks of exploration and exploitation.

With the current nationalisation process and the state administration of hydrocarbons, Bolivia managed to add $22.21m of oil income from 2006 to 2013, a historical index that is dynamising the national economy by propitiating the transfer and distribution of income in the country, as well as contributing to the growth of the international net reserves that the Central Bank of Bolivia administrate. This was up to $15.44m in October 2014, 49.8 percent of the GDP calculated as $31m.

Additionally, the development of hydrocarbon activity generates income that was designated to the financing of social policies of Bolivia, destined for vulnerable segments of society such as the elderly, children and pregnant women, including the Renta Dignidad (state funded pension scheme), Bono Juancito Pinto and Bono Juana Azurduy.

Chiliogon Asia on the Asian credit market and its risks

Posted on February 21, 2015January 22, 2015 by Ashton Wenborn

The global investment climate is currently in the midst of a major transformation, and averting the pitfalls contained within requires a keen eye for a multitude of emerging challenges and opportunities. Nowhere else is this more the case than in Asia, where markets are subject to a sustained spat of volatility and the potential for returns is huge. World Finance spoke to Chew Heng Yong and Roger Carlsson, Portfolio Manager and CEO respectively of fund management company Chiliogon Asia, about the Asian credit market and the risks associated with it.

What is the investment climate like at the moment?
Last year was littered with geopolitical risk events, as we saw conflicts in Syria, Gaza and Iraq escalating, and tensions between the West and Russia worsened over Ukraine. Whereas over in Asia, we have ongoing China territorial disputes against Japan and Vietnam, Thailand reverting to military rule, and protests in Hong Kong brewing over China’s proposed electoral reforms.

However, geopolitical risk is generally being underestimated and volatility suppressed, largely due to the open monetary operations at the US Federal Reserve, ECB and the Bank of Japan. That said, in an ultra low interest rate environment, we have seen investors chasing lower quality risk assets and looking further down the capital structures in search of higher yield. To date, the average yield for high-yield index US dollar bonds, compiled by Bank of America Merrill Lynch, has fallen to five percent, down from 20.8 percent in early 2009.

Geopolitical risk is generally being underestimated and volatility suppressed, largely due to the open monetary operations at the US Federal Reserve, ECB and the Bank of Japan

With that in mind how has the market grown over the recent years?
The Asian credit market has seen corporate credit spreads tightening massively, due to the reasons mentioned above. Companies are taking the opportunity to lower their financing cost by issuing more to refinance existing debt. At the same time, the quality of some new issuances is getting poorer as corporates with tinted history of restructuring are back tapping the debt capital market – and with success. This goes to show that investors are either more forgiving or have a much bigger risk appetite. An example is Indonesian real estate company Pakuwon Jati (single B-rated), which managed to issue a five-year Reg S USD bond at 7.125 percent when it had a history of debt restructuring back in 2005.

As we transition into the new year, we are also seeing riskier bank issuances, as most countries have implemented new banking rules governing minimum bank capital requirements and qualifying capital criteria, hence, we saw a huge supply of Basel-III compliant debt securities. These new higher yielding bank issuances essentially have an unfriendly creditor structure in place, to such an extent that investors hold a higher risk of principle write-down and greater loss absorbency upon the point of non viability trigger.

Another trend we’re seeing in the Asian credit market is companies with weak standalone financials seeking support from Chinese banks when they tap the debt capital market. By getting a standby letter of credit from Chinese banks, these companies have managed to reduce their financing cost when they’ve issued. However, we remain cautious on such issuances, as this structure has been untested.

How has the financial climate affected your business?
As the yield compression continues, we are also looking at various alternatives and instruments that offer better risk-reward ratios. But on the public corporate bond space, we find value in selected Additional Tier 1(AT1) and Contingency Capital Security (CoCo) issues, so as to participate in this space but focus only on high quality names that have ample buffer to trigger levels and excellent asset quality.

As the Asian credit market is extremely exposed to the Chinese property market, we are keeping a very close watch on the contracted sales figures of Chinese property companies on a monthly basis. We are cautious on this sector and thus have set up shorts in under performing property companies as a hedge in the portfolio.

Where are now you positioned within the market?
We continue to maintain a balanced portfolio. Technical may stay strong and stretched valuations persist, but we believe Basel III will create significant pressure on the ability for banks to absorb volatility shocks with less capital allocated to market-making activities. We feel that, in the coming months, it is very important to be cautious and balanced in our approach to risk, as there is no way this will play out without high volatility.

Combined with thin volumes, we are seeing wider bid offer spreads when everyone rushes for the door, which could lead to large swings on the back of very tight pricing. As such, we are taking more but smaller long positions and holding some shorts as a hedge in the event of a sell off.

How successful has Chiliogon been in terms of the fixed income fund? How did you achieve that success?
The Chiliogon RSL Income Fund aims to generate above average returns with low volatility by finding value across capital structure using in-depth analysis, both fundamental and quantitative, and focusing on liquid securities. Since its inception in June 2010, the fund has posted an annualised return of 11 percent with an annualised volatility of 8.7 percent, beating the JACI Total Return benchmark, with an annualised return of seven percent, as of August 2014.

The fund management team does not take unnecessary foreign exchange and rate risks as it proactively hedges out these exposures, and the fund positions itself as a credit fund as we trade on the less volatile corporate credit spreads. The fund has been successful in calling short in some of the distressed coal producers in recent years, and the fund manager has a disciplined approach to all tenets of its functions.

Pre-investment, the fund management team has a strict investment process before investing funds. We use a top down approach, with the management team reviewing the market conditions, and specific investments are made only after running a relative valuation against appropriate peers.

The firm conducts research by speaking to sell side analysts and management teams, and direct communication with CFOs and/or investor relation managers are encouraged to receive first hand comfort and in-depth knowledge about credit. Post investment, the fund abides by a 30 percent corporate bond issuer limit to mitigate concentration risk, and the investment team will diligently monitor fund exposure and hedge risk out.

Where are your strongest areas of expertise?
To generate additional alpha, Chiliogon has maintained excellent relationships with most major underwriting banks in the region, which has given us access to research, capital markets transactions, and companies’ management. We have been successful in acquiring allocations in most heavily subscribed debt issuances, with decent new issue discounts, by meeting up with issuers during pre-deal road shows and providing pricing feedback to banks’ syndicate desks.

We have had a wide range of investors from high net-worth individuals to family offices and funds of funds. As we are based in Asia and close to the action, we are able to deliver on ad hoc requests from investors keen on research in the region. For example, we had an investor based in London who has a particular interest in an Indonesian company, and will hold occasional conference call discussions with the investment team to pick our thoughts on the company and the regional macro environment.

Who is Chiliogon regulated by?
Chiliogon is regulated by Monetary Authority of Singapore (MAS), which ensures that a comprehensive compliance framework is in place before granting a fund management licence to operate in Singapore.

The company conducted background checks on all front/mid-office employees at the end of last year, and on new joiners to ensure that all representatives meet the MAS fit and proper criteria. Besides that, Chiliogon engages the service of ComplianceAsia to ensure that stringent compliance procedures are met and new regulations adhered to.

Can you explain the structure of your company?
As a firm, we bring in-depth investment management experience, specifically buy side experience, to our investors. Given that our seed investors were from a single family, we are an investment management company with a family office ethos. Bearing in mind the importance of capital preservation for the next generation, we are also constantly looking for better yield with reasonable risk return ratios, and are therefore passionate about the alternative investment industry as well.

What other areas does the company cover?
In the alternative investment space, we believe in collaboration and teamwork, technical expertise and resources for detailed due diligence work. Our involvement in these deals ranges from fundamental research with data room access to direct contractual negotiation, before arriving at concrete solutions and actionable recommendations.

PTT boosts ASEAN’S economic potential

Posted on February 20, 2015February 18, 2015 by Ashton Wenborn

Keeping up with the energy demands of both the developed and developing world has presented a problem for governments and the private sector. Governments want to ensure their energy security, while the private sector tries to tap into the world’s limited energy resources. One major international organisation that is a highly significant player on the global energy stage and known for its innovation and making canny investment decisions in connection to oil and gas exploration is the PTT Public Company (PTT).

PTT plays the important role in moving the economic success of the ASEAN forward. The PTT organisation is by far the largest oil and gas company in Thailand – owned by the Thai state, it derives its name from formerly being called the Petroleum Authority of Thailand. The company is the owner of liquefied petroleum gas (LPG) terminals throughout Thailand and underground gas pipelines in the Gulf of Thailand.

This is only the start of PTTs global operations. It is indeed a global company, employing more than 9,000 people worldwide and is involved in oil and gas exploration, selling gasoline, manufacturing petro-chemical products and generating electricity. PTT is one of the biggest organisations in Thailand, and is the only Thai corporation that is listed on the Fortune Global 500 list.

Natural gas in Thailand
According to the Asia Pacific Energy Research Centre (APERC), natural gas is the most rapidly growing primary energy source in Thailand, with the growth averaging about 4.4 percent per year from 2010 to 2025. The APERC also states that Thailand’s limited production of natural gas will require its imports of natural gas to expand considerably. The Thai Energy Ministry believes that natural gas production in Thailand will peak in 2017.

The PTT organisation is by far the largest oil and gas company in Thailand

The bottom line is that while in the past Thailand has had significant natural gas resources and still has substantial resources, it faces an impending gas shortage – and this needs to be solved (see Fig. 1). Some of this may be sorted by increasing oil and gas exploration in Thailand itself, taking steps to reduce declines in the gas endowment of mature fields, and promoting exploration of other gas fields that are technically challenging.

Like other countries in the Asia-Pacific area and indeed around the world, Thailand has hopes of buying some of the gas that is flowing from enormous shale gas deposits in the US. However, these measures, important as they are, are not enough to solve the fundamental flaw that Thailand’s reserves of oil and gas are depleting relatively fast.

Energy is a psychological as well as a physical asset. For industry and commerce in a nation to flourish, entire business communities need to know that access to required energy for forwarding the industry and commerce for profit and success is sound and secured for the foreseeable future. For companies in Thailand, PTT is developing energy resources and acquiring significant stakes that can be used to augment the country’s own dwindling energy endowments.

Currently, PTT is faced with a situation where regional oil and gas resources in Thailand are increasingly unable to meet the Thai demand for power. The company travels the globe to spot exciting and important opportunities for investment – for investment in oil and gas exploration, and for buying a stake in particularly promising fields. PTT has invested billions in US dollars to increase its foothold in the worldwide energy market.

ASEAN’s economic ranking
In the Association of Southeast Asian Nations (ASEAN) – that is, Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand and Vietnam – the economic success of the region and the social progress with the socio-cultural evolution in the area has led to greater demands for energy.

If ASEAN were a single entity, it would rank as the sixth largest economy in the world, behind only the US, China, India, Japan and Germany. The total population of the ASEAN is around 615 million, and its combined nominal GDP in 2013 was estimated as being around $2.4trn.

Despite this economic success, there are clearly considerable differences between the members of the ASEAN, which remains a significant challenge. But the energy and vigour of the ASEANs commitment to working together to create ever-increasing mutual prosperity is undisputed, and one of the most exciting developments is the aim of creating a single market and production base with a free flow of goods, services, investments, capital and skilled labour by the year 2020.

It’s aimed for 2015 that the ASEAN Economic Community (AEC) will create and enable the formation of a single market and production base in the region – which is a highly competitive economic area, a region that provides equitable economic development, and above all that the ASEAN will become fully integrated into the global economy.

Sustainable global connections
Today, as well as operating in the ASEAN region, PTT has operations in North America, Africa, Australia and the Middle East. It is an organisation that is active in the oil, gas, coal, bio-fuel and renewable sectors. The company has a particularly significant commitment to sustainability, and has a worldwide reputation for seeking opportunities to make use of sustainable energies wherever this is feasible.

Most of PTTs exploration and production business is carried out through the subsidiary PTT Exploration and Production Company (PTTEP). With this, it has invested in oil and gas exploration opportunities around the world. Its policy is wherever possible to undertake investments in fully integrated natural gas businesses that cover the entire chain of natural gas exploitation from exploration and production, procurement, transportation, to gas separation and the actual marketing of natural gas. PTT also invests in gas related businesses – both domestically and internationally – as well as developing new businesses that offer significant growth potential.

Today the company also plays an extremely important role in contributing towards maximising collaboration between Thailand and the other nations of the ASEAN area of energy. The entire cultural and commercial approach of PTT is to promote collaborations and to identify opportunities between energy organisations in the ASEAN, resolving problems that might otherwise inhibit the potential level of communication. PTT sees its business as not only investing in oil and gas exploration, but also in engineering cultural and commercial connections between oil and gas companies in the ASEAN region and indeed worldwide, in order to maximise good business practice.

PTT is due to become the Secretary in Charge of the ASEAN Council on Petroleum (ASCOPE). In this role, the company will be the core leader that pushes ASCOPEs operations in line with ASEANs energy collaboration strategies, while taking every step to ensure there is energy security and sustainability throughout the ASEAN region. PTT also takes part in the financial industry in order to ensure that less developed ASEAN countries have opportunities to make crucial investments in energy resources – both within their own countries and abroad.

A dynamic organisation in the energy business within the ASEAN and worldwide, the PTT group devotes its own efforts to contributing to the development of energy and petrochemical businesses in every ASEAN country, and beyond.

For example, in Brunei it is currently strengthening relationships with local producers to capture crude oil export volume for trading; in Cambodia PTT is supplying LPG and petroleum products for domestic consumption; in Indonesia it is exploring growth opportunities throughout the country and taking part in new explorations; in Laos PTT is developing oil and hydropower; in Malaysia it is contributing to complete the supply chain in fuel oil trading; in Myanmar it is conducting feasibility studies of gas-fired power plants; in the Philippines PTT is implementing operation excellence in its existing oil business operations and actively growing in oil retail business; in Singapore PTT is expanding its crude oil, condensate, petroleum and petrochemical products and other commodities trading; and in Vietnam it is helping to build a large-scale petro-chemical refinery complex.

For the PTT group, the energy business is about collaboration and fostering economic growth within the ASEAN and beyond, as well as using all of its own technical skills in exploring new fields, and the opportunities to find the energy that people across the globe need for continued economic success.

Etiqa leads the Malaysian insurance market

Posted on February 20, 2015January 19, 2015 by Ashton Wenborn

The Malaysian insurance market is characterised by competition above all else, as local players look to improve upon their core competencies and compete with increased interest from abroad. An influx of international names has brought with it a need to boost productivity, as those in the insurance business seek to cash in on the market.

The opportunities here are not without their own set of challenges, however, and those in the insurance sector must take pains to acclimatise to new regulatory requirements and keep pace with the rapid rate at which the sector is developing. Without a commitment to the customer and something to differentiate solutions from rival insurance firms, providers will struggle to make the most of opportunities in the Malaysian market. We spoke to Zaharudin Daud, CEO of Etiqa Insurance, about his firm’s place in the market.

Small print in the terms and conditions is not always well understood and can lead to a number
of problems

What does the Malaysian insurance market look like and where does Etiqa sit within it?
The insurance market for 2014 remained stable throughout the year, due to domestic demand, improved risk management and the introduction of new or enhanced innovative products. Insurance companies are expected to utilise multiple distribution options and develop alternative channels, while strengthening their agency force to establish a solid foothold in the industry.

As a true multi-channel distributor, Etiqa features a strong agency force, comprising 14,000 agents, more than 30 Etiqa branches, 400 Maybank branches, ATMs and third-party banks, and provides full accessibility and total convenience to customers. The firm is also one of the pioneers for direct sales through the internet, with its online offerings spanning both Motortakaful.com and Maybank2U.

You are established in the Malaysian insurance market, but do you have ambitions to expand elsewhere?
At this juncture, we are exploring opportunities to venture out into countries with high growth potential where Maybank is present. Our aim is to primarily focus on the ASEAN region and support the aspirations of the Maybank group.

What development plans do you have for expanding the business?
Besides supporting Maybank’s aspirations to be a leading regional player, the expansion will also provide Etiqa with attractive opportunities to develop a significant presence in high growth markets, leveraging on two main drivers: Maybank’s overseas operations and Etiqa’s expertise in bancassurance.

What is unique about your selling proposition?
Etiqa is about people. We place our customers over our policies, and caring about people is vital for our sustainability. In doing this, we’re breaking down boundaries and aim to change the face of the industry, making life easier yet tangibly richer for everyone by offering products and services that creatively answer individual specifications and are yet simple to understand.

We work together with our partners and customers to ‘humanise’ insurance; something that is also in line with Maybank’s ambition to humanise financial services across Asia. Our passion is backed by the strength, expertise and rock solid foundation of the nation’s top financial institution, and driven by the professionalism, empathy, courage and the integrity of our people. Maybank and Etiqa are two exciting organisations: born and grown in Malaysia, the group embarked on a massive transformation to become a customer centric organisation, able to face a new competitive environment. At Etiqa, we deliver quality services and go the extra mile for our customers. For our motor insurance, personal accident and home insurance, for instance, all it takes is just one phone call to receive coverage for claims below MYR 2,000 ($596), and we also send a medical officer to customers for their medical check-up if they sign up for life insurance.

Your retention rate for 2013 was 60.3 percent. What step are you taking to improve upon this impressive number?
To minimise the drop out, we send reminders to customers to renew their policies via letters, emails and SMS. From time to time, our customer care workers will also make courtesy calls to our clients, primarily to re-educate them about their policy coverage and the benefits of renewing their policies with Etiqa.

Have you developed your selling proposition and business practices as a result of customer feedback?
We have set ourselves a benchmark in the industry and our vision is to change the way things are done. This decision stems from a survey that was carried out by Etiqa some years back, which found that Malaysians had a grim perception of insurance.

The survey revealed that insurance companies were seen as low on customer focus – keen to collect premiums but reluctant to pay claims and make profits in between. They also had a reputation for inefficient administrative services, such as long waiting lines, slow policy delivery and unanswered phone calls. What’s more, small print in the terms and conditions is not always well understood and can lead to a number of problems.

In answer to these issues, we’ve done away with automated voice response, and our registration systems recognise a customer by their name and not by a mere number. We also aim to humanise our customer experience through social media, where customers can pose enquiries.

At Etiqa, we believe that we can do things differently, and our aim is to make the process easier for our clients by being both clear and transparent. We also work hand-in-hand with our customers and don’t see them as mere assets or objects to insure. We strongly believe our core competency is in helping people to protect their assets, maintain their lifestyle and build a better future. What is more, in everything we do, we keep things as simple as possible and always deliver on our promises, I am always happy to see that our employees make a difference by doing business the Etiqa way.

Looking back at 2014, what were some of the greatest achievements for Etiqa?
In 2014, Etiqa was rated ‘A’ for insurer financial strength by Fitch Ratings, which reflects Etiqa’s strong business profile in the domestic life and general insurance market, extensive distribution capacity, consistent operating performance, sound underwriting quality and prudent investment approach. The rating also acknowledges Etiqa’s solid capital position and strong shareholder support.

The acknowledgement from Fitch reflects the consistent performance of Etiqa, backed by sound underwriting and a prudent investment approach. Though what’s more impressive is the fact that the Etiqa brand has only been in the market since November 2007.

The rating will also reinforce customer confidence in Etiqa, especially with our corporate clients, and further strengthen Etiqa’s competitive position in this segment, and in covering large risks ranging from national landmarks and buildings to airplanes and oilrigs.

I believe there are many companies out there with large risk exposures, who would prefer to deal with a company with an ‘A’ rating, given that it reflects the stability of the company, the capacity of the company to cover the risk, and our ability to provide the best reinsurance covers to our clients. Being a member of the Maybank Group has also benefited us tremendously, as we can leverage Maybank’s corporate client base to better introduce our risk solutions.

The ‘A’ rating by Fitch will also bolster our image in the retail market and boost confidence among our agents. This will be an extra advantage in times where more and more foreign insurance groups are reviewing their presence in Malaysia, due largely to economic uncertainty at home. Etiqa, however, is a homegrown Malaysian leader, backed by solid shareholders and we are a safe haven for our agents to develop their business.

With the new year upon us, what does the future hold for Etiqa and the insurance industry in 2015?
The insurance industry in 2015 will face diverse changes, due to the enactment of new regulations and the risk-based capital (RBC) regime for takaful. The implementation of the Financial Services Act 2013 (FSA) and Islamic Financial Services Act (IFSA) 2013 will see composite insurers and takaful operators relinquish their composite licenses, hence splitting the life/family and general businesses into different entities, as operators are given five years to comply with the requirements.

The requirement for composite insurers to segregate their operations into separate licences for life and general businesses could lead to another round of market consolidation. Composite insurers are likely to dispose of parts of their insurance operations if the cost of additional capital becomes a burden, as a result of regulatory compliance costs outweighing the return that can be generated.

Moving forward, Etiqa is poised to face the regulatory changes and new developments in the insurance industry.

FBN Insurance on Nigeria’s growing insurance sector | Video

Posted on February 20, 2015February 19, 2015 by Ashton Wenborn

Despite rapid economic growth in Nigeria in the last decade, the insurance sector is still deepening penetration among locals. World Finance speaks to three representatives from FBN Insurance, Adenrele Kehinde, Caleb Yaro and Val Ojumah, to find out how this process is evolving.

World Finance: Now, the growth factors in your country; the most important one in my opinion is the middle class. They have served to really get the economy going, but at the same time we have an insurance sector with only one million people ascribed to it – whereas there is a population of 170 million. Can you explain to me in your own words, why you think this is the case?
Adenrele Kehinde: Insurance is believed to belong to the big industries as well as high net worth individuals: to the extent that small companies and individuals believe that insurance is not necessary, or it’s a waste of money, until the unexpected happens.

We have a peculiarity in the social economic sector: that is that we are very religious in Nigeria, and everybody believes that God has the power to protect you, so you don’t need to take any insurance. God can protect you.

What we are trying to do is try to re-orientate the people on the advantages of insurance, because some people believe that the cost outweighs the benefits, which is not the situation.

World Finance: So how do you as a company begin the process of educating the public, given these disparities?
Caleb Yaro: In the north that is predominantly Muslim, we plan to develop awareness by introducing seminars where we will be inviting speakers from Muslim countries where insurance consciousness is deep.

One of the greatest challenges in retail business is the payment and collection system

Besides religious differences, there are educational differences. Products can be developed and marketed in the south on the web. People are educated enough to go in and see the full details of our products. But in the north, because of educational disparities, you need to approach it differently.

For example, if we are developing products for agriculture, we hire some farm extension service workers and train them to be marketers of a specific product. They will go and sit one by one with farmers, farmer groups; the farmers have confidence in them because they have been working together. When these people sell through that method, things will be quite ok.

World Finance: Can you tell me about how you’ll be able to tap into these potential life insurance purchasers, who work in the informal economy?
Val Ojumah: The real challenge in reaching them really was to find out where they are, go to where they are, and develop products that fit their requirements. What we do is, we don’t develop products as insurers: we develop products as customers. So when we do it we are doing it from your perspective, not from our perspective. So two considerations: easy access, easy payment terms, and low costs.

World Finance: So you’ve been talking about some of your successes, but if you could go in front of government officials right now, what policies would you like to see them improve upon?
Val Ojumah: They have come out with a couple of policies; there is the market development and restructuring initiative, which then prescribes certain compulsory insurances. There is also the implementation of an old leg-up provision called ‘no premium, no cover,’ and there is the national content acts.

They could do a lot more in executing provisions on these policies. But for now I think that they are moving in the right direction.

World Finance: What can you learn from some of the countries that are ahead, such as South Africa for instance?
Val Ojumah: That’s quite interesting, because a major partner in this company is a South African firm. They are called Sanlam, and we have learnt and benefitted a lot from having them as partners. So we have worked with South African actuaries in product development and product pricing, distribution models; a lot of that we’ve learnt.

One of the greatest challenges in retail business is the payment and collection system. In Nigeria that is very much in its infancy, but it’s developing. So you can collect your money via mobile phones right now: you do not need to see face to face. These are things that have been existing in South Africa prior to this time. Now Nigeria is keying into that situation.

World Finance: Who wants to tell me what the insurance industry is going to look like in five or ten years down the road?
Val Ojumah: The government has done a couple of projections: we are talking about NGN 1tr in two years – that’s by 2016! – coming out of the industry. That’s a big jump going from where we are today: we are still under NGN 500m at the moment. So everybody is very optimistic about the industry.

You know that several international operators are coming into the market right now, and that means they are seeing what we are seeing: opportunities. I see that one trillion by 2016 will probably be a small figure.

A universal rejection of backhanders

Posted on February 19, 2015February 19, 2015 by Ashton Wenborn

Backhanders and bribes – we all know they go on but we don’t expect them to happen with multi-million pound western companies. So when suggestions in the news arose that British staple Rolls Royce was accused in a reported Petrobras multi-billion kickback scheme, light was shone on how transparent respected companies really are.

World Finance: Well Graham: Rolls Royce has denied wrongdoing; so how likely would you say it is that Rolls Royce was actually involved? And if not involved, where did the story come from?
Graham Baxter: It’s been reported that the accusation comes from some papers filed in court in Brazil, in connection with the Petrobras scandal. But I’m afraid I don’t know any more than that.

World Finance: What sort of impact will this have on Rolls Royce in terms of reputation – even if they do turn out to be innocent?
Graham Baxter: When any company faces an accusation around bribery and corruption, it is a bad thing.

At this stage of course, there is absolutely no evidence to work with, so we don’t know the facts around this particular case.

I do notice however that it was reported recently that Rolls Royce, as a result of whistleblower action, has put its name forward for similar accusations in – I think – China and Indonesia.

Now that is a good and a bad thing. Of course, it’s terrible if such things occurred; but it’s good that they have a whistleblower system, and that that whistleblower system has been honoured. I think that’s an important step in getting a company on the right road towards anti-corruption measures.

World Finance: Well looking at the wider issue of backhanders and bribery now; how common are they in the west; and do authorities turn a blind eye, or is there heavy policing of this sort of thing?
Graham Baxter: Since the UK Bribery Act came into force a couple of years ago, the situation here for companies has got a lot stricter. I think we have one of the toughest regimes in the world now; even more tough than the Foreign Corrupt Practices Act, which has been in force in the US for several years.

In the UK, the UK Bribery Act has made a significant difference to the way that companies are required to comply with the law. It has resulted in much tougher compliance procedures within companies, and I’m quite sure that Rolls Royce will be no exception to that.

World Finance: What sort of companies are usually involved? I mean, in reality, everyone does it to a certain extent, don’t they?
Graham Baxter: I don’t think they do, Jenny, no. I think that for the large multinational companies, their reputations are so much on the line, public scrutiny is so intense, and the law is enforced, that it’s simply not worth their while; even if it was within the company’s ethics to do such a thing.

I think the real challenge applies to smaller companies, where they haven’t got the resources available to have compliance officers and compliance procedures. And where they are faced with very serious temptation when operating in some countries outside of the west, where corruption is frankly the norm.

It’s very tough for them to say ‘no.’ Whereas for a large company, that is what is expected, and that is largely what is done.

World Finance: But really, backhanders could be seen as a victimless crime. Is this the case?
Graham Baxter: I don’t think so at all. I think the victims of backhanders are the inefficiency that is created within the country where this occurs, which results in economic inefficiency and lower development progress than could otherwise be achieved.

No: I think the system pays for backhanders, because it siphons off economic growth from the system.

World Finance: Are our attitudes towards backhanders culturally variant?
Graham Baxter: I think there is a universal rejection of backhanders. It may be that they become commonplace in certain societies, because law is not enforced, and it becomes the norm. But I don’t think it makes them any more acceptable.

I simply don’t accept that business, responsible business, requires backhanders to operate efficiently. In fact, I would argue quite the reverse. Backhanders, as I’ve said, siphon off economic growth and efficiency.

Oman’s banking sector flourishes thanks to increased FDI

Posted on February 19, 2015January 21, 2015 by Ashton Wenborn

The National Bank of Oman (NBO) is the second largest bank in the Sultanate of Oman. Founded in 1973, the bank plays a vital role in the economic development of the Sultanate of Oman, and offers a broad range of services focused carefully around customer needs. Its customers benefit from NBOs’ very considerable experience of looking after the requirements of domestic banking customers in Oman and also abroad.

Overall, NBOs philosophy is to run a streamlined and highly cost-efficient operation in order to pursue its core philosophy of offering premium services to its customers at competitive prices. The bank provides a wide range of accounts and deposit services to retail customers, and is renowned throughout Oman for the quality and calibre of the banking services it offers small- and medium-sized companies. As NBOs CEO, Ahmed Al Musalmi says, “With the Omani economy growing, opportunities for small- and medium-sized companies have also increased.

“The impressive rise in trade between Oman, the rest of the Gulf and the world has led to more and more entrepreneurs in Oman setting up new businesses as well as expanding existing ones.”

For large corporations, NBOs Wholesale Banking Group offers a comprehensive portfolio of banking solutions. These corporate clients operate in a highly diverse range of industries and commercial sectors including trading, manufacturing, power, infrastructure, shipping, oil and gas (see Fig. 1), construction, hospitality services, real estate and financial services. The Wholesale Banking Group has teams covering trade finance, cash management, dedicated corporate branch and core centre, specialist treasury, and transaction banking. Naturally, the most obviously significant element in the story of the Omani economy over the past half-century is the significant investments that the government has made to boost economic diversification , enhance trade flows, and the establishment of free trade zones to attract foreign investments. The steady growth of the Omani economy was attributed to an increase in oil prices, growth of non-petroleum activities and domestic demand, and a sharpened focus on improving the investment environment.

The country encourages foreign investment, and foreign investors are likely to be drawn to many factors about the nation

Oman has been pursuing a programme of modernisation, and new and improved infrastructures and industrialisation. It has also been committed to its nationalisation agenda, which seeks to increase employment opportunities for Omani nationals.

Private and public healthcare benefits
From 2009 to 2014, the Sultanate’s GDP growth has remained steady at an estimated five percent growth per year. As Musalmi comments: “This period has allowed for budget surpluses and an accumulation of reserves which will act as stabilisers during periods of potential economic stress.” The population of approximately three million benefits from free education and healthcare for its citizens. The public healthcare system in Oman is of a global standard of excellence, although private healthcare options have greatly soared in recent years, especially due to the increasing requirement for private corporations to provide private medical insurance to their employees.

Growth in infrastructure has been strong with the building of new roads and bridges, as well as hotels and affordable housing projects. The Omani government pursued a concerted agenda to increase the range and variety of downstream activity and to create jobs for Oman’s comparatively young population. There is also an ongoing programme to build a new railway under the auspices of the Omani government’s railway project promoter Oman Rail.

The country encourages foreign investment, and foreign investors are likely to be drawn to many factors about the nation, particularly as Oman’s government continues to drive its diversification strategy forward, providing more opportunities for potential investors in the country. It’s also important to observe that Oman benefits geographically from its strategic location on the east-west trade route and as a gateway for Asia, serving as a port and a commercial centre.

Naturally, a bank which seeks to offer the very best kind of services to customers must operate in harmony with awareness of key economic developments in Oman, as well as be in tune with customers from individual retail customers to the largest corporate clients. NBO is adept at doing all this, and strongly positioned to play an integral part in Oman’s continued economic development.

Concise regulation
Credit growth in Oman’s banking sector has been strong and steady, and investors both inside Oman and beyond its borders enjoy the fact that the financial market there, like all Omani markets, tends to be very well regulated. Oman’s prudent regulatory framework has enabled the nation to be well insulated from the global financial and banking crisis.

So what kind of services does NBO offer investors? Its wholesale banking group provides the widest range of services and tailor-made financial solutions through its Investment Banking Treasury, Fixed Income Group, Corporate Banking and Transaction Banking divisions. NBO recently established a wholesale distribution network in different regions across the nation to serve a bigger market segment. The investment banking team at NBO consists of highly experienced and qualified relationship managers who offer advice and hands-on assistance with mergers and acquisitions, private equity placements, asset management, structured investment products, marketable securities and fixed income, proprietary investments and brokerage services.

The Global Treasury and Financial Markets group offers a wide range of financial products, services and solutions that meet customers’ financial requirements. These requirements cover forex, derivatives, money markets and sharia-compliant treasury products, and also include gold and commodities. NBO enjoys a strong brand image within Oman and has a reputation for understanding economic issues, for being seen to value its relationship with its clients and to be an enthusiastic business partner, protecting their interests.

In 2006 NBO won the accolade of being chosen as the Best Bank in Oman 2006 by The Banker magazine. The following year, the bank was awarded the Best Corporate Social Responsibility Award in World Finance’s 2007 Islamic Finance Awards. As Musalmi says: “Our energy, commitment to clients, knowledge of our local market and markets beyond Oman which are also of great interest to our customers, have given us a significant edge over our competitors.

“We believe that our wide range of products and financial solutions designed to meet our customers’ banking needs helps us to build strong and long-term relationships with our customers. We also believe that the banking service NBO offers in Oman brings the bank into a real and dynamic situation of partnership with our customers, and that we will continue to prosper and grow in harmony with them to achieve our vision – to be the bank of choice.”

Modi’s tech infrastructure fervour on the back of Obamamania

Posted on February 19, 2015February 19, 2015 by Ashton Wenborn

World Finance speaks to Nigel Eastwood, Group CEO at New Call Telecom International, on what infrastructure demands Narendra Modi must make to achieve single or even double digit growth.

World Finance: As you know, at an investment summit in Gujarat, US Secretary of State John Kerry was joined by Narendra Modi at this event. It was said by Modi that India was a land of business opportunities. We’ve all seen the Obama-mania like fervour that followed him after this election, but now the dust has settled. Do you think he’s really going to deliver from the telecoms perspective?
Nigel Eastwood: It’s not going in and doing kneejerk policy change for the sake of it. Not doing some dramatic changes immediately that could have implications for years to come. It’s about sustained policy change in a very very organised and structured way, and that came over and I do see that very much now in the way that the policy and reform changes are being delivered.

I would really encourage European ministers to travel more to India

World Finance: Nigel, this government as we said is very much interested in foreign direct investment, but to shore up more support it’s got to make some specific changes. Tell me about some of them that you’d like to see come into play in the next few months, in the next few years.
Nigel Eastwood: Well let me talk specifically about the fibre-optic backbone that is absolutely essential for the telecoms sector right now, that national fibre-optic network strategy. Who puts a dollar on the table is a very very critical question to be answered. We’re very reliant from our perspective that government actually funds that.

Public-private partnership is going to be some of the answer, but we’re very much hoping that the government really put that dollar to great effect now, it needs to go in now for us to see India get to the 500 million subscriber base that the government so much want.

World Finance: India, when you’ve got the Americans and Europeans looking closely on investing there, do you think that European government officials are doing enough to encourage India and other emerging markets to embrace change, infrastructure needs being just one of them?
Nigel Eastwood: I would really encourage European ministers to travel more to India. We’ve seen some great showcases very recently with the recent Obama visit and Mr Modi travelling and spending time very recently in the US. That’s been very high profile. There’s not been as much of that travel from our European counterparts.

I’d very much encourage people from Europe to travel there, understand what the opportunities are and how we can embrace them more.

World Finance: How much would Europe stand to lose if it doesn’t aggressively push for more treaties, stronger entrenched relations with Indians?
Nigel Eastwood: It’s absolutely key in Europe. We must not lose sight of what’s happening in emerging markets, and particularly in India. India is outpacing very much China in its adoption of new technologies. Mr Modi is very focused on manufacturing and manufacturing excellence in India. We need to embrace that, we’re going to miss the boat.

World Finance: Sobering reality check there, Nigel Eastwood thank you so much for joining me today.
Nigel Eastwood: Thank you.

Japanese exports are on the rise

Posted on February 19, 2015February 8, 2017 by Ashton Wenborn

Japan’s Ministry of Finance released data on Thursday stating that exports had risen by 17 percent in January from the previous year. This boost is attributed to stronger shipments of machinery, vehicles and electronics, aided by the country’s weakened currency.

Imports experienced the largest drop in over five years of nine percent, with a significant decline of almost 25 percent for oil and gas imports contributing to this figure.

Economic growth in the US has also played a significant role in Japan’s recent export success

The marked improvement in both areas has had a considerable impact to the trade deficit, which has fallen to 1.18trn yen; despite over two years of month-on-month shortfalls, this is nearly 60 percent less than the figure recorded in January 2014.

There has been a surge in exports to China, which jumped by 20 percent from the previous year, largely resulting from the rapid demand for electronic parts used by smartphone manufacturers. Elsewhere in Asia, the demand for semiconductor components soared by 27 percent.

Economic growth in the US has also played a significant role in Japan’s recent export success, rising by 16.5 percent last month. Specifically, pick-up trucks have been a key sale to the US market, with an increase of 14 percent.

Despite recent success in the export market, the possibility of continued growth is far from certain. Although low oil prices are having a positive impact on the manufacturing sector, this is being offset by high import prices. In addition, the labour market in Japan has tightened, thereby limiting the potential for increasing production. Recent export growth has been driven by a greater demand from overseas markets and a weak yen, therefore, unless production capabilities are enhanced, it is unlikely that this trend can endure at the current rate.

Surfline powers 4G coverage in Africa

Posted on February 18, 2015January 19, 2015 by Ashton Wenborn

The economic base of Africa has not changed, with strong raw material exports from agriculture, oil and minerals. Today, Africa’s desire is to harness the continent’s full potential, and not rely on material exports.

With better management of natural resources and up-skilled employees, companies are experiencing a wave of confidence for future projects, taking advantage of the opportunities these resources present. While challenges remain, there is a concerted effort to tackle poverty, famine, disease and corruption, even as the continent enjoys greater periods of political stability, and fewer armed conflicts.

Having established a positive environment, foreign direct investment has increased from non-Western economies including China, Brazil and Turkey. There is also a very large patronage of technology, with over 600 million mobile phone users – far more than North America or Europe.

The Ghanaian telecoms market has grown from having just one government-owned operator with approximately 70,000 fixed lines, to seven operators in 2014

This has provided a huge platform for income redistribution between the ever-increasing middle class and those situated in rural areas. The combined effect is a rise in investor confidence, especially in infrastructure, which has been woefully inadequate in the region. Africa’s GDP has grown from $0.6trn in 2000 to $2.1trn in 2013, and is projected to reach $2.2trn in 2014 (see Fig. 1).

Many countries in the continent, including Ghana, have made significant strides. They stand distinguished in their effort to promote democracy, peace and stability, which are prerequisites for development.

With new hope and a more determined effort, the continent will continue to grow. John Taylor, Executive Chairman of Surfline – Ghana’s first 4G LTE network – explains to World Finance why Africa is on the rise.

How has Africa’s influence in the global economy changed over the last 20 years?
There have been positive indicators for long-term growth by the global economy, and I believe there is much more to come. Our influence on the global stage is improving, although some negative perceptions remain. Statistics suggest that Africa has experienced 14 years of sustained growth; its attractiveness as an investment destination has improved dramatically with foreign direct investments coming into Sub-Saharan Africa, growing at a compound rate of 19.5 percent.

Our governments have continued to pass laws and set up institutions to make our economies more attractive to foreign investors. The continent has therefore become the preferred location for investors looking to penetrate new markets. The rising number of indigenous entrepreneurs, untapped natural and man-made resources, along with the influx of foreign investors, has contributed to the increase in trading with the rest of the world.

To what extent is Ghana a major part of the continent’s ongoing development?
Ghana is playing a key role in Africa’s on going development. The country has been a long time champion for intra-regional trade within Africa. Despite the huge trading opportunities available within our continent, we are yet to fully capitalise on this due to cross-border bureaucracies. Trading among neighbouring countries was therefore very minimal or non-existent.

However, the Economic Community Of West African States (ECOWAS) has resolved this issue, and currently, the citizens of these states are able to travel across sister states without visas or work permits. The next step would be to set up a free zone among the ECOWAS states.

Ghana’s contribution to the continent’s economy cannot be over emphasised. Its harbours have, for a long time, served West Africa’s landlocked countries. With the current expansion we only expect their contribution to increase.

Ghana’s recent discovery and exports of crude oil have also given a new lease to its economy. This revenue stream has impacted positively, with job creation and infrastructure development in the western region. The country has enjoyed political stability, which is a major contributing factor to the current developmental drive. Ghana is at the forefront of attempts by African countries to ensure effective usage of its economic resources. The promulgation of the petroleum revenue management act is also of importance, seeking to provide transparency in the use of the revenue. With this level of transparency from natural resources, Ghana is setting an example that should be emulated by other countries.

Have deregulation and liberalisation influenced the continent’s growth? What sectors have been influenced by this change?
Deregulation and market liberalisation have significantly bolstered the performance of various sectors of our economy, by virtue of the amount of local and foreign investments our economies have been able to attract. Sectors such as energy, finance and telecoms have benefited significantly.

The Ghanaian telecoms market has grown from having just one government-owned operator with approximately 70,000 fixed lines, to seven operators in 2014. Four of the operators are subsidiaries of multinational telecoms operators, one is a subsidiary of an African operator with a footprint within West Africa, and the other two are Ghanaian-owned operators.

Since 1992, telecoms operators have invested a cumulative capital expenditure of $6bn. In 2010, mobile operators contributed approximately 9.2 percent of government income, two percent of GDP, employed 6,000 people directly and 1.5 million people indirectly. In 2011, total investments from the telecoms sector alone contributed to seven percent of investments in Ghana, and is responsible for two percent of the country’s overall GDP.

How influential has the telecoms sector been in fuelling Africa’s growth?
Mobile technology has been an important catalyst for growth in Africa. Exponential growth in access to mobile technology and services has allowed us to leapfrog legacy technologies. This leapfrog effect has transformed not only the social, but also the economic landscape of the continent.

Over the years the telecoms sector has empowered the livelihoods and well being of our people, and has had an impact on industries including agriculture, health and finance. Today, people can access agro-market rates for their products, as well as farming and health advice from their mobile devices. With this as a starting point, we are moving into an era where we can offer our people limitless opportunities through telecommunications services.

How has the telecoms sector in Ghana changed since the early 1990s?
The deregulation of the Ghanaian telecommunications sector and subsequent entry of major players has seen the industry evolve from a period in the mid 1990s, where we had just over 70,000 fixed lines to over 24 million mobile lines today. We have moved from a period where telecom tariffs were a blackbox with minimal transparency, to a period where improved customer experience led to operators offering consumers per-second billing.

From the per-second billing period our market moved into an era where increased customer education on telecoms services and increased competition led to a reduction in price for voice services. Value added services have also become a mainstay for most consumers, and operators now offer a myriad of options. In 2010, the telecoms industry alone contributed $300m in taxes and levies to government. This formed 10 percent of government revenue collected within the period. The telecoms sector has grown to become an integral part of Ghana’s economy with most sectors depending heavily on reliable service they can always access.

How does Surfline fit into the sector’s development, and what does the company offer that others do not?
Internet connectivity is obviously very important in Ghana. This is one of the reasons why part of the government’s national broadband strategy is to increase internet penetration to 50 percent by 2015. According to the World Bank, internet penetration in Ghana has grown from as low as 0.8 percent in 2002 to 12.3 percent in 2013.

However, we have challenges in Ghana where most internet users are unhappy with the services they get mainly because of slow or unreliable connections. This is where Surfline comes in.

With the backing of our 4G LTE network, our proposition is to offer clients fast and reliable internet connectivity coupled with a superior customer experience. Surfline’s services will be the conduit that enables Ghanaian businesses to revolutionise the way they do business and maximise productivity.

We are the operator of choice for businesses that rely heavily on world class cloud computing services, working with a lot of trans-regional and continental business, government agencies looking to adopt electronic governance modules or tertiary institutions looking to offer e- learning services. Our services will offer businesses the opportunity to explore and adopt next generation solutions that will give their businesses a competitive advantage.

What are your ambitions for the future of Surfline?
With the internet’s importance, we have the vision to promote a Ghana where people and businesses experience true mobile broadband, and the possibilities it presents. We intend to position Surfline as the lead innovator within our market; the company will not only be a high-speed internet provider, but also a partner that offers consumers solutions that will positively impact how they work and play.

Our goal is to offer more than just connectivity; consumers will discover new ways of using the internet that they never imagined possible. It’s about time for a change.

Senegal aims for middle-income status

Posted on February 18, 2015February 8, 2017 by Ashton Wenborn

On January 31, Lagarde gave a speech to a group of delegates in state-capital Dakar, praising the efforts made so far by the country and alluding to the forthcoming fulfilment of Plan Sénégal Emergent (PSE). The PSE, which was unveiled in 2014, has an initial period of economic development until 2018, which is then followed by a development phase lasting five years. The plan involves the attainment of middle-income status for the developing country, an ambitious, if not overly-optimistic task.

The PSE focuses on two main areas required to promote faster economic development; growth drivers and structural reform. Increasing exports and greater foreign direct investment are penned by the IMF as being particularly important for the continued expansion of the economy. “This plan, in my mind, in terms of having a strategy which is in line with the needed structural transformation, the needed higher growth and so on, is a plan that makes sense. It’s the appropriate direction,” says Dr Amadou Sy, Senior Fellow in the Africa Growth Initiative at the Brookings Institute.

Although GDP growth improved to 4.5 percent last year, Senegal is still behind other sub-Saharan African countries that have achieved around six percent over the past decade

Senegal does indeed show promise for economic growth, particularly as the state has a number of invaluable advantages, such as its democratic stability and geographic location. Experts suggest that Senegal even has the potential to become a regional hub for trade and tourism; but the correct mechanisms that would facilitate this economic evolution are not currently in place. Furthermore, unless the state enforces the necessary reforms, its GDP growth will continue at its current disappointing level. “The problem is the implementation because this is a structural transformation agenda, and transformation means that you will have winners and losers. It’s a political economy problem”, explains Dr Sy. In addition to such long-standing obstacles, a new host of challenges may now face the Senegalese state, which is far less ‘adjustable’.

IMF recommendations
Improving macroeconomic stability and fiscal management were stressed as essential areas for development, so that increased public investment does not turn into burdening debt, as has been the case for other developing countries. In order to achieve this difficult balance, the IMF has suggested that Senegal improves its mechanisms for public spending and public investment management, akin to the processes adopted by countries such as India and Sri Lanka. Yet, this is not strictly the case. Although India and Sri Lanka have exhibited economic growth, both countries face overhanging debt, a national debt of $959bn and a total debt of $55bn, respectively. A burden of this kind is likely to strangle a state in the long-term and limit its potential. Such may be the case for Senegal if it becomes entrapped by insurmountable foreign loans and tied to the whims of its debtors.

Increasing exports is another key area suggested by the IMF, whereby the facilitation of foreign direct investment and more accommodating policies can position Senegalese businesses within the global market. Currently the leading exports are gold, refined petroleum, phosphates and fish; commodities which all have potential for expansion. Again, the IMF points to other developing countries that have achieved success through concentrating their efforts on increasing exports; thereby making this a viable option for Senegal also. Yet, there are several risks that ensue from opening up an unconsolidated economy and becoming dependant on a few select commodities. This was illustrated in 2013 when Senegal’s GDP growth rate slowed to 2.4 percent as a result of a 24.5 percent drop in gold exports from the previous year. This significant decline was caused by the drop in international prices.

There is yet another, more dangerous problem in establishing an economy which is driven by the export of primary goods; by adopting this economic model, there is an increased likelihood that Senegal will limit its future development and capabilities. In following the dictates of a comparative advantage for primary goods, such as fish, gold or petroleum products, Senegal can never evolve into a high capital society. Furthermore, such a model cannot continue to expand at the same rate as global economic growth. The transition of the labour force will be another complex challenge, particularly as this stratagem, which is being encouraged by external parties, presents prohibitive coordination failures. Therefore, reliance of this kind may bring greater income to the state in the short-term, but it comes at the cost of growth for future generations.

Making growth inclusive
Senegal’s improved level of gender equality was praised by Lagarde, which has been achieved through legislation mandating equal representation in political institutions. Taking such steps to enhance the country’s level of social inclusion practices and its human capital is vital for its sustainable development. Dr Sy explains the importance of investing into urban areas also, particularly given the growing population, “This combination of urbanization, the demographic trends, and youth trends; it’s something that really needs to be addressed right now.” Job creation also requires focus as currently there is a mismatch of education and available employment. According to the World Bank, Senegal spent 21.9 percent of its budget in 2014 on national and higher education, but many graduates with excellent credentials are unable to find suitable work. “We need more vocational training, more STEM training, and we need the ministers of education, and so on, to sit down with the private sector and say, let’s look forward and see what are the jobs of the future for this country,” Dr Sy tells World Finance.

In devoting expenditure into densely populated cities and STEM training, the promotion of manufactures and high technology becomes more feasible. Currently, the foundation for this transformation exists; the Senegalese population is well educated and the ICT sector shows promise. Yet despite their extreme importance in boosting the sustainable development, these pivotal areas were not mentioned in Lagarde’s speech; a worrying sign in this ‘philanthropic’ partnership.

Challenges to growth
Although GDP growth improved to 4.5 percent last year, Senegal is still behind other sub-Saharan African countries that have achieved around six percent over the past decade. Accelerating to seven or eight percent, as specified by the SPE, requires a sizeable impetus from the government and foreign investment. The World Bank attributes this sluggish growth to disappointing production rates in industry and mining, as well as factors beyond control, such as low rainfall and poor cereal harvests. Another issue which is slowing Senegal’s potential for development is its highly unstable energy sector. The recent upgrade of power stations seeks to boost the industry, but recovery is modest. As such, the lack of dependability on electricity supplies remains burdensome to the business sector, the population and in effect, the economy.

It is far more realistic that foreign actors will invest in the energy sector rather than in social enterprises, but currently the flow of international capital is very slow, as is the case for the rest of Africa. This is due to a number of reasons; not only a general reluctance to invest in African nations, but also the lack of the necessary logistical framework and transportation. Investing in these areas, can boost the standing of Senegal within the region, support a more robust and reliable energy sector and catalyse so many other potential areas for growth also. Therefore, in providing assistance to Senegal, it is crucial for the IMF to encourage investment into energy, rather than its current export focus, if Senegal is to achieve much-needed coordinative development.

Senegal’s construction industry is doing especially well, as regional investors are drawn by the relative security of the state

Last year’s GDP growth can be attributed to the progress made in the business climate of the secondary sector, particularly in industries such as meat processing and leather manufacturing. According to a report by the African Economic Outlook, the construction industry is doing especially well, as regional investors are drawn by the relative security of the state. Investing in these industries can further drive GDP growth, but the social and environmental implications must also be considered. For example, despite promise in the real estate market, the Senegalese public and local councils are against the recent property boom as locals are being out-priced and the ‘protected’ coastline is being developed upon. Including the Senegalese people in development is something that both the state and multi-lateral organisations must keep at the forefront of their strategy, as it is absolutely vital for securing enduring growth.

Future prospects
The IMF is assisting Senegal in its efforts for economic development by providing fiscal assistance and expertise, but there is an impending question of whether this is the best mode of practice for the long term. The IMF purports an existence based on bailing out struggling countries, but what their conditions mean for the future of an economy can be even more detrimental than its current path. For example, by evolving Senegal into an export driven economy and enforcing a less stringent financial market, it may become more exposed to international fluctuations and setbacks. Meanwhile, the impact to the primary sector and the labour force can lower wages, raise unemployment and ultimately, deepen poverty. As developing states turn to mass yields of selected products, the over-exploitation of land and natural resources is frequently overlooked factor, with devastating future implications. If this tragedy does occur in Senegal, then the likelihood of international players and multi-lateral organisations coming to the rescue is somewhat unrealistic.

Among the recommendations made in the speech given by Lagarde, learning from others was at the forefront. The IMF chief emphasized the need for Senegal to not make the same mistakes as other economies attempting to reach middle-income status. Yet, the irony of this statement is that if Senegal carefully scrutinises the economic and social impact that IMF fiscal assistance has led to, they will see widening inequality, unrepayable debt and cutbacks in social programmes, to the detriment of both the population and economy. Instead, if the state was to focus on regional integration and enhancing cross border trade, long-standing growth can be achieved. As a continent, there is so much possibility and potential that can be achieved through a greater pan-African vision, yet this approach to development is often disregarded by the international community. Rather than promoting economic growth in this way, the Senegalese economy is now bound to the requirements and restrictions of the IMF until 2025 when the SPE comes to an end and far beyond that also. By shackling itself to supranational organisations and ensuing debt, Senegal may have fallen prey to the fancies of the global elite and could become another African victim of modern day colonialism. Yet, without receiving loans from external sources and pouring investment into the necessary mechanisms, a budding economy cannot grow; the poignant catch 22 of development economics.

ICD: what’s next for the Islamic finance market?

Posted on February 17, 2015February 19, 2016 by Ashton Wenborn

The history of Islamic finance goes back more than 1,400 years, when the general population was mostly active in goods trading. However, modern Islamic finance has seen a rapid resurgence, particularly since the mid-1970s, and today one can claim that Islamic finance is present on a global basis across all segments of the financial markets. In fact, the industry has seen tremendous growth in the past 20 years, with total assets rising from $150bn in the 1990s to exceeding the $2tn mark in 2014.

More recently, global financial centres, such as London, Singapore, Hong Kong and Luxembourg have begun to show increasing interest in serving as financial hubs for Islamic finance. This has been spurred by successes in the sukuk (bond) market, which had a particularly commendable performance last year, reaching $104bn from 630 issues at the end of October 2014. Given the impact that the industry is having, World Finance sat down with the CEO of the Islamic Corporation for the Development of the Private Sector (ICD), Khaled Al-Aboodi, to discuss how Islamic finance aims to continue its success.

What do you think the potential of the Islamic finance market is?
We can see that Islamic finance is getting more and more recognition worldwide, especially due to its social and ethical aspects and also importantly for its impact on the real economy. As the Islamic finance industry expands its outreach and becomes more mainstream across the Muslim world we will certainly see more product innovation and a reduction in transaction costs, which should result in greater depth in the various segments of the markets. With more governments recognising the added value of Islamic finance as a comprehensive financial system, which can run parallel to their conventional system, more policy attention is being paid to introducing an Islamic finance legal and regulatory framework, which should lead to better corporate governance and risk management across the industry.

$150bn

Islamic finance assets in 1990s

$2trn

Islamic finance assets in 2014

The positive demographics of the global Muslim population, which will reach 26 percent of the total global population by 2020 and of which over 60 percent are under the age of 30, will continue to drive demand for Islamic finance in terms of sophistication and product offering. I believe the industry has gained the traction and maturity to rise to a much higher level within the next few years and the growing interest of key global financial centres will further accelerate the growth and the internationalisation of Islamic finance.

What part has the ICD played in the development of Islamic finance?
ICD as the private sector arm of the Islamic Development Bank Group (IsDBG), is the premier multilateral financial organisation, which operates under the principles of Islamic finance in the private sector arena. The ICD supports the private sector of its member countries in terms of providing financing and investment and also providing advisory services in various fields of activities such as advising governments on sukuk issuances, privatisation programmes and setting up of special economic zones.

The IsDBG has been a pioneer in the Islamic finance industry since its creation 40 years ago. ICD, which was created more recently in the year 2000, has been leading the way in the private sector of many of its member countries by setting up financial institutions such as Islamic banks, leasing companies and investment companies in addition to providing term financing, all in accordance to the principles of Islamic finance.

Moreover, recognising the acute shortage of properly qualified Islamic finance professionals and its negative impact on the industry, ICD, three years ago, launched a special programme called the Islamic Finance Talent Development Programme with a view to develop and fill the gap in terms of the required human capital to take the Islamic finance industry forward on a strong footing.

Can you expand on ICDs key achievements to date?
ICD is now in its 14th year of operation and recorded another year of positive results in 2013 and is also expecting positive results in 2014. As a multilateral development financial institution, we do not measure our success and achievements only in financial terms, but most importantly in terms of the developmental impact of our interventions in our member countries.

ICD approvals by region

I can confidently claim that ICD has been able to continue providing effective services and support to its member countries despite the challenges arising from the broader socio-economic environment in which it is operating. In addition to the enduring negative effects of financial crises, some of our member countries are facing continued political turmoil and armed conflicts. Nonetheless we remain focused on our mandate to promote the development of the private sector in our member countries while observing our short-term priorities to ensure that ICD remains effective and relevant towards its long-term objectives. Over the last 13 years ICD has expanded its geographical reach across the world (see Fig. 1) and its accumulated gross approvals at the end of 2013 stood at approximately $3bn allocated in various modes of finance (see Fig. 2) to over 300 projects across 25 countries.

In line with its core strategy, ICD has been focusing more resources in the financial sector with the objective of fast tracking funds to the small- and medium-sized enterprises (SME) sector. In addition to providing lines of credit to local banks in its member countries for onward financing of SMEs, ICD as part of its overall strategy has been setting up leasing companies, investment companies and Islamic banks to act as its ‘channels’ to reach a greater multitude of beneficiaries.

ICD has been active in setting up funds to improve SMEs access to term financing and equity investments. As an example, ICD established the first SME investment fund in Saudi Arabia, a SAR 1bn ($266.5m) quasi equity and debt sharia compliant SME fund. This fund will invest in targeted SMEs showing high-growth potential for contributing substantially to job creation among the youth and with a strong developmental impact to ensure overall social and economic stability.

What products and services do you offer?
As mentioned earlier, ICD was set up as the private sector arm of the IDB Group to focus primarily on private sector development with a view to creation of employment and reduction of poverty in its member countries. ICD offers a wide array of products and services that supports the establishment, expansion and modernisations of private enterprises. ICD intervenes through various modes of financing including equity participation and quasi equity, term financing, corporate financing, and various types of advisory services including technical assistance.

What is the ICDs role in the development of the private sector?
The private sector is unanimously recognised as a critical driver of sustainable economic development that drives economic growth for the improvement of people’s living conditions.

ICD approvals by mode of finance

ICD is the leading multilateral financial institution offering a multitude of Islamic finance investment and financing products and continues to play an important role for the development of the private sector in its member countries. ICD has also been successful in mobilising resources to bring highly needed investments in certain member countries through the comfort it provides to other foreign investors by its own participation in these projects. ICD also offers advice to governments and private sector organisations to encourage the establishment, expansion and modernisation of private enterprises, the development of capital markets and the adoption of best management practices.

What is ICDs strategy and how do you see it changing in the years ahead?
I believe that increased liberalisation and greater awareness of Islamic banking in non-Muslim countries and the developments in the Islamic capital markets will certainly lead to greater adoption of Islamic finance across the world.

We plan to continue our successful partnership with our member countries and expand our activities into new regions. We are also directing our efforts to expanding our partnerships with non-Muslim and non-member countries, as a means of supporting the internationalisation of Islamic finance.

We will continue our efforts to support and improve the living standards of people in our member countries through the development of the private sector by ensuring that Islamic finance remains inclusive and accessible to all, particularly the lower income groups and small businesses. I strongly believe that it is only by bringing the financially underserved population into the economic mainstream that we can truly contribute towards more sustainable and equitable economic growth, which is at the heart of Islamic finance.

A cartel’s balance sheet: Are we winning the war on drugs?

Posted on February 17, 2015February 17, 2015 by Ashton Wenborn

Violence in the Americas – barely a week goes by without the horrific discovery of another mass grave, city-wide shootout or kidnapping making the headlines and often the underlying link is the trade in drugs.

World Finance: Benjamin, how large is the illegal narcotic industry in the Americas?
Dr Benjamin Smith: The recent US estimate is I think $150m, which is around 0.5 percent of global GDP is in the drug trade, and about 0.5 to one percent of the Americas’ GDP.

World Finance: The South American drug trade builds cult figure such as Pablo Escoba amid so much death and violence. But in reality, what does it cost the continent’s economy?
Dr Benjamin Smith: Quite how much it costs the economy is difficult to say. Obviously there’s a huge loss in terms of investment. People are scared off investing in certain countries.

People are scared off investing in certain countries

So for example Mexico at the moment is struggling to find even oil companies to invest in their newly privatised oil industry, partly because the vast majority of oil is in a state called Tamaulipas, which is probably the most violent state in Mexico. It’s pretty much a no-go zone for anyone who doesn’t have a private army behind them. Fortuitously, BP and Shell do have a private army, which they are intending to send there.

How much it loses the economy in general, then, it is fairly difficult to say, because we’re speculating on how much investment would come anyway. Also, quite clearly, a lot of money comes back from the drug trade, and I think there’s an argument to be made that that money is actually more broadly and equitably distributed than money from international investment, which normally seems to get sucked up by crony capitalists. Something has happened in Mexico which is somewhat played down is the fact that the middle class in Mexico has grown gradually over the last ten years.

World Finance: How large a part of it makes it into the legitimate finance industry through laundering, etc?
Dr Benjamin Smith: My own estimate would be somewhere around half, in that they estimate that 0.9 percent of the global GDP is in drug money, and about 0.5 percent comes back into the banking industry.

World Finance: Obviously it’s not uncommon in certain places for authorities to turn a blind eye in return for hush money. How big a problem is this?
Dr Benjamin Smith: It’s the fundamental problem if you want to clear up money laundering or want to clear up organised crime. Most authorities, whether it be in Mexico or the US, have had a fairly ambiguous relationship with drug money.

Just last month, Mexican government released the brother of former President Carlos Salinas, a guy called Raul Salinas, who was prosecuted for I think holding around $50m of Gulf cartel money, which his wife was trying to get out of a Swiss bank account in the last 1990s. So these people normally have a fair degree of impunity. He was rare in that he was actually put in jail, but then as soon as his brother’s party got back in power, he was released and recently filmed at a gala event turning up in a $200,000 Mercedes.

World Finance: So the modern day war on drugs, what measures are being taken? How much progress has been made? And has this actually cost America?
Dr Benjamin Smith: Well they recently gave $4bn to the Mexican government in order to fight the drug war, which has done a lot in terms of killing people. About 100,000 have been killed in the last decade, which is similar to the official figures for the deaths post-invasion of Iraq.

In terms of what it’s actually doing, it seems to have affected the drug industry extremely little. What has affected the drug industry to a certain extent is actually legalisation. There have been recent articles on legalisation of marijuana in several American states, that seems to have cut into cartel profits, which a lot of then, certainly in Mexico, are made from marijuana.

However, what has happened is they’ve simply moved into other drugs, so now you have a big upswing in heroin addiction in the midwest, which is driven to a certain extent by very cheap heroin coming in from Mexico. Also methamphetamine, previously a drug made by toothless hicks in Alabama, and is now actually mostly produced in Mexico.

World Finance: How do you see the illegal drug trade and its revenue developing?
Dr Benjamin Smith: I see it continuing, and at a fairly high rate. I don’t see that the solution has been found and the war on drugs, which has been going on really since the 1970s has seemed to have done very little apart from potentially mean that the drug trade has become more embedded within the finance industry and within the government.

New shifts towards legalisation in Uruguay and in the United States might change things, but until there’s a full legalisation of all narcotics, I don’t think that this is going to make a huge dent in the profits of cartels.

Whether governments in the Americas can stop the bloodshed through deals with these cartels, obviously not public deals with these cartels, time will tell. The Mexican government I think is trying to do this at the moment, but has been relatively unsuccessful because of the sheer fragmentation of these cartels, as the recent events surround the missing Ayotzinapa students seemed to indicate.

Canada must rethink strategy to survive oil price drop

Posted on February 16, 2015February 8, 2017 by Ashton Wenborn

Canada is in sinking mud. Plunging oil prices have hit the country hard, as the commodity is one of its greatest assets.

To counter the pain brought on by falling prices, the Bank of Canada (BoC) took drastic action – cutting its benchmark interest rate from 1 to 0.75 percent. The drop surprised analysts globally: the bank is not known for snap decisions. Many accused its governors of panicking.

The BoC hopes that the rate will give Canada time to breathe; to adjust to the oil slump. They are optimistic that the benefit of introducing the cut will outweigh any short-term market volatility it may cause. In a statement about its decision, the bank wrote: “The oil price shock increases both downside risks to the inflation profile and financial stability risks. The Bank’s policy action is intended to provide insurance against these risks, support the sectoral adjustment needed to strengthen investment and growth, and bring the Canadian economy back to full capacity”.

As the oil slump takes hold, players in Canada’s oil industry are cutting back on investment, but what they need to be doing at this time is spending more on developing the sector’s infrastructure

While a shock to the system, the move spurred a flurry of beneficial activity for Canada’s economy. The Canadian dollar quickly dropped – an encouraging sign for exporters of non-energy goods and services – and the Toronto stock market rose sharply. The rate also pleased Canadian homebuyers. With a housing market the BoC estimates to be overvalued by 30 percent, setting up is no mean feat. Easier loans mean easier homes.

The oil price drop in itself has not been seen as totally alarming. It is predicted that Canadian’s will save $900 per household on fuel costs, freeing up money to spend elsewhere. Business costs will reduce dramatically, making it easier for international and domestic organisations to set up shop, or expand their offerings, in the country.

Still, TD Bank – one of Canada’s largest banks – is concerned for Canada’s future. Responding to the BoC’s rate cut, the institution slashed its 2015 forecast for the country’s economy. It now expects growth to go up by two percent this year, slipping from its December projection of 2.3 percent. A number of analysts have argued that the rate reduction isn’t enough to stimulate Canada’s recovery, and could actually be doing more harm than good.

The Bank of Montreal’s Doug Porter has said that “Far from helping growth, the rate move could actually increase consumer and employer anxiety and uncertainty”. Specifically, he has criticised policy-makers for relying too much on consumer and household spending to facilitate economic growth.

He’s right to bring up the problem of spending. Canadians are already a heavily indebted population and action should be taken to reduce this. Thanks to the rate cut, we can expect citizens to be borrowing even more money – shooting up the ratio of household debt to disposable income, which is already record high.

The other fundamental issue with the cut is that it does not address the turbulence of the oil sector. For years governors have been reliant on this industry to prop Canada’s economy up come rain or shine. And it’s no wonder: with energy accounting for around 10 percent of GDP between the period of 2003-2012, it has been a major part of growth.

Unfortunately they have not had to deal with such a sustained oil price slump before, which shows no signs of improving – and need to carefully consider their strategy to counteract this pain. Numerous suggestions have been made for how to do this, the most pressing of which seems to be diversifying Canada’s oil and gas markets.

As the oil slump takes hold, players in Canada’s oil industry are cutting back on investment, but what they need to be doing at this time is spending more on developing the sector’s infrastructure. This way Canada can expand its new and existing pipelines, to reach out to new markets.

Currently, Canada is highly dependent on America as a consumer of its energy exports, with 99 percent of crude oil and 100 percent of natural gas going to the country. The challenge is that the US is becoming increasingly self-sufficient, especially with the growth of shale markets, leaving Canada less of a strong position to barter on prices.

By enhancing new and existing pipelines Canada has a real chance of tapping into a greater global market, and counterbalancing the oil price declines. A report by the Ivey Energy Policy and Management Centre suggests that Canada would do well to develop business with Asia and Europe. “Continued economic growth in China has fuelled increasing demand for oil imports… Canada’s Pacific coast is relatively close to China, potentially lending an advantage in exports”, write its authors. “An alternative opportunity for the Canadian oil industry is to access European markets, which are heavily dependent on oil imports from Russia”, they add.

It has also been recommended that policy-makers not only look to diversify their markets, but diversify their product range. In particular, Canada’s natural gas market has huge potential, with it currently being the fifth largest producer of the resource. Other countries, such as Russia and Australia, are currently stepping up their natural gas projects. If Canada does the same, it could substantially bolster its balance sheets.

As the BoC’s rate cut shows, policy-makers are aware that Canada’s economy is in difficulty. Reacting to the troubles, government officials have argued that other sectors could hold up Canada’s performance. But with energy so heavily integrated to its economic performance, it would be wrong to steer away from this industry. The key is not to cut back from this sector, but for the government and industry players to have a major rethink of its markets.

This article was edited on February 18. Where it stated energy accounted for 30 percent of GDP in 2013, this has been corrected to 10 percent from around 2003-12

Transparency is key for portfolio manager Dif Broker

Posted on February 16, 2015January 19, 2015 by Ashton Wenborn

Most portfolio management and brokerage houses tend to have rather formal – even on occasion slightly pompous – websites, but that certainly doesn’t apply to the Portugal-based international brokerage and investment organisation Dif Broker.

Take a look, for example, at the portfolio management section of its website, and you will see the faces of four of its portfolio managers and the details of their investment styles, the fees they charge, and their investment performance results over the past 365 days. The whole website has a user-friendly, highly professional appearance and shows, in most attractive fashion, that Dif Broker is an ally and colleague for investors in their battle to maximise their returns.

The whole idea of presenting details of Dif Broker’s portfolio managers and their results is to maximise the utility of the website to investors and also to pursue Dif Broker’s fundamental policy of being totally transparent in its operations. The website not only allows, but actively encourages investors to select their portfolio manager and view the investor’s portfolio performance and risk. This way, it’s easy for an investor to find a portfolio manager whose style, tactics, strategy and results best match the investor’s. In particular, by offering a wide range of strategies, it’s easy for investors to see which managers are best suited to their own risk tolerance.

The problem is that investors have difficulty in choosing between all the different strategies available to them

Greater transparency
Where did this desire for transparency come from? Primarily from a belief on the part of Dif Broker’s Chief Operating Officer Paulo Pinto that investors were becoming more demanding and sophisticated, and needed – and deserved – to work with a broker who would respect this, and who would give them the level of transparency they need. After all, making money through investment is itself a challenge and the last thing investors need when working with a particular portfolio manager is any obfuscation in terms of what the manager offers them.

“At Dif Broker, our portfolio managers cannot be secretive about the money they manage and they cannot hide behind their portfolios”, says Paulo Pinto. “A portfolio manager we employ has to accept that their expertise and results will be out there in the public domain on our website and, in effect, the portfolio managers have to accept that they can’t be afraid to know themselves completely and to know their strategies and their strengths and weaknesses.”

Choosing a manager
When it comes to selecting a portfolio manager, the company endeavours to allow the investor the opportunity to identify the type of portfolio and portfolio manager that best suits the profile of the client themselves. Dif Broker aids the client in finding a formula that works for them.

“The point is that the client’s approach to their portfolio and to selecting the manager who is right for them will naturally mirror the client’s own psychological makeup”, says Pinto. “After all, unless one is investing in passive investment vehicles such as indexation, there is always a human factor in making investment decisions and seeking a particular type of investment return. I certainly believe, as COO of Dif Broker, that the nature of the investment portfolio a client is building up reflects directly on how the client sees the world, how they see their finances and above all what kind of risk or return combination they are looking for.” It is certainly a dynamic approach, in a sector which is, at times, accused of being too static or even robotic in its approach and delivery to its investors. As such, the way in which Pinto’s company is going about its business makes for an attractive and exciting prospect to future clients, and can perhaps be seen as a breath of fresh air in the industry.

“At Dif Broker we see people as, in effect, the big new story or new concept in regards to the business of helping investors grow their money. We are completely different from all those fundamentally robotic type of portfolio managers and advisers out there – of course I don’t mean robotic biologically but in terms of their investment philosophy – who use algorithms and formulae and interfaces and everything else to allocate money based on certain numeric objectives, we believe in the people factor”, says Pinto.

“After all, the money we’re investing is owned by people, not computers, and so it makes sense to give our clients the opportunity to express their personal, psychological and even emotional attitudes towards investment.”

Ultimately, however, the relationship between any portfolio manager and client must be based on trust. Dif Broker, for instance, allows its clients to withdraw money at any time, without penalty. “Naturally, they can go online at any time to see exactly what they have invested in and every trade that has ever been made in their managed accounts”, says Pinto.

“The fact of the matter is that the serious problems that caused the financial collapse back in 2008 haven’t yet been comprehensively solved and they have left a market place where savers are only getting a fraction of what they should be earning in money market accounts. Fundamentally there is a crisis still continuing, which constitutes a kind of war on the saver, a war that has forced savers, eager for returns, to get involved with risk investment in order to try and improve their returns. It’s not really fair, especially as in many ways what canny and prudent investors are being obliged to do is to bail out people who borrowed large amounts of money and were unable to repay it.”

Such decisive and perhaps even strident views may be seen by some as controversial, given the state of the industry – and given reports earlier in 2014 suggesting that Europe was out of recession. But what Pinto’s comments do show is his commitment to investors, and the commitment to investors shown within the organisation. He goes on to describe the significant and critical challenges looming on the horizon for investors. “These challenges have arisen for two main reasons. Firstly, because the financial industry can be seen as having, in effect, written off savers and also written off investors who are seeking to live on the income of their investments.

“Secondly, at a more fundamental level, it is obvious to any independent thinking person that matters are not looking promising for the economy or the markets, at least for investors who are seeking to gain a reasonable return on their hard-earned money. The easy money policies of the central banks have resulted in the risk benchmark being more or less abolished by interest rates coming down to close to zero or even below. The trouble is that while it is not clear at the moment whether central banks’ policies will succeed or fail, either way the outcome will be potentially disastrous. If these policies succeed, interest rates will eventually rise and economies will suffer, and if they fail central banks are likely to provide further doses of credit, creating more difficulties for the economy.”

A whole new reality
Pinto believes that investors need to realise that they are living in a whole new reality and that their investments strategies have to be adjusted accordingly.

“The problem is that investors have difficulty in choosing between all the different strategies available to them. This difficulty of choosing sometimes arises because of sheer lack of knowledge of the different asset classes and sometimes comes from an overriding desire to recapture lost income, but above all it stems from investors having difficulties in understanding who they really are as investors”, he says.

“Our approach at Dif Broker is designed precisely to prevent that from being a problem and to help investors know what they want, what risk and return profile they seek, what type of investments are likely to be best for them and, above all, which portfolio managers are likely to suit them.”

Such an approach to investment has seen Dif Broker win considerable accolades in the markets. For example, the company was awarded Best Online Broker in Western Europe for 2014 by Global Banking & Finance Review. This was the second successive year in which Dif Broker won the award, having also done so the previous year in 2013. In that same year Dif Broker also earned a place in the elite World Finance exchanges and broker awards. This particular award recognises excellence, innovation and best practices in Western Europe.

“We are proud of our awards because they are a great recognition for our team at Dif Broker and the awards go to show that with the right business model and the right attitude, this brokerage firm can do great things”, says Pinto.

“Above all, awards we win are only significant in that they show the calibre and quality of what we can deliver to our clients and that fundamentally, above all, we are there for our clients to make their investments a success.”