Nigeria moves further towards financial inclusion with Eyowo app

In recent years, many political leaders have become concerned by the levels of economic inequality in the world, much of which is caused by the number of people who have little or no access to the basics – education, health care, power and financial services. The problem of financial inclusion is most pronounced in low and middle-income emerging markets and has a huge impact on an individual’s ability to start a business, pay for education and engage in other opportunities to further their economic prospects.

Africa has big issues with financial inclusion. Nigeria has one of the largest unbanked populations; of its 197 million population, only 30 million have access to banking services, as of 2017. Policymakers are trying to remedy this through the country’s Financial Inclusion Strategy, but many see technological development as the best long-term solution. Numerous fintech organisations have opened in the country to provide citizens with easily accessible banking products. The Circle Group, for example, has produced Imaginarium, a group-based app to encourage friends and family to make joint savings and investments.

Eyowo can be used on a wide variety of devices, meaning users do not need smartphones to access
its services

One Nigerian organisation that has made huge strides in enhancing financial inclusion is Softcom, a technology company. It has done much to support Nigeria’s unbanked population through its new mobile application, Eyowo. This product allows people to make transactions using only their mobile phone so a user can send money to anyone who has a phone number with or without a bank account and internet connectivity.

What separates Eyowo from other products is its convenience and accessibility – as long as you have a GSM phone line, you can use Eyowo’s features.

Currently, if someone in Nigeria wants to pay for a service or product, they can do so through one of the following channels: online transactions, point of sale (cards) and cash, all of which pose various challenges to its users with risk associated to cash theft and the struggling digital infrastructure to support electronic payments. Eyowo takes away these risks, as money can be sent or received using just a mobile number and can be accessed offline. Given that internet connectivity has a low penetration rate of just 50 percent, Eyowo’s creators see its offline potential as a great way to move towards financial inclusion.

Eyowo has empowered Nigerians with its facilities

Eyowo can be used on a wide variety of devices, meaning users do not need smartphones to access its services. The app, which was launched in July 2018, is safe and easy to use. It offers biometric face ID and fingerprint verification for those with smartphones. Users can access the app online using their PIN, meaning they can still use the service if they don’t have their phone to hand. Users can also send money to a bank from a phone and perform card-less withdrawals at an ATM.

In addition to its main functions, Eyowo also works as a kiosk system, meaning agents can make money from providing financial services through the app. Once designated as a kiosk, a user can earn commission when they perform financial transactions on another person’s behalf, such as cash withdrawal, funds transfer, bills payment and airtime recharge. Eyowo’s inventors hope this will improve the fortunes of people living in Nigeria and contribute to the country’s sustainable development goals. The company has plans to bring Eyowo to more destinations in the future.

Since launching in 2007, Softcom has worked within the education, energy, financial and telecommunications sectors as a technology partner to the leading organizations in the sector.

Softcom’s goal is to connect people and businesses with meaningful innovation, Eyowo is another step forward in connecting over 70 million unbanked Nigerians with mobile phones to financial services that will improve their lives.

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Top 5 philanthropic business leaders

With every year that goes by, global inequality widens. According to a 2017 report by Credit Suisse, the globe’s richest one percent owns half of all wealth, equating to around $140trn. By contrast, the world’s 3.5 billion poorest adults account for less than 2.7 percent of global wealth, despite representing 70 percent of the working-age population.

In an attempt to close the wealth gap, many of the world’s richest donate a percentage of their earnings to help tackle societal ills, such as inadequate education, fatal diseases and malnutrition. World Finance takes a closer look at the planet’s five most generous business leaders.

5 – Michael Dell
As a freshman pre-med student at the University of Texas at Austin, Michael Dell set up PC’s Limited, an informal business that sold upgrade kits to his classmates for their personal computers. Just eight years later, Dell’s business – renamed Dell Computer Corporation – was booming. The company’s success saw Dell become the youngest CEO of a Fortune 500 company, aged just 27.

Alongside running his technology empire, Dell spends much of his time managing a philanthropic foundation with his wife, Susan. Funded by Dell’s personal wealth, the Michael & Susan Dell Foundation supports projects relating to urban education, child health and family economic stability, and seeks to provide aid in times of crisis. It recently pledged $36m to support relief efforts relating to Hurricane Harvey, which tore through the US in 2017.

In an attempt to close the wealth gap, many of the world’s richest donate a percentage of their earnings to help tackle societal ills

All in all, Dell has donated a whopping $2bn to philanthropic endeavours over the course of his lifetime – that’s nine percent of his estimated net worth.

4 – Phil Knight
It’s fair to say that Phil Knight’s fortune was born from his love of running. A prolific runner while studying at the University of Oregon (UO) in the 1950s, Knight decided to set up a sports apparel business called Blue Ribbon Sports in 1964, following an inspirational trip to Japan. That business would later become Nike, the world’s largest supplier of athletic shoes and clothing.

Knight is a noted philanthropist, having donated $3bn – 10 percent – of his $30bn personal wealth to charitable causes. Knight supports his alma maters – Stanford University and UO – the Oregon Ducks sports team and the Knight Cancer Institute at Oregon Health and Science University, to which he has donated over $600m. In 2016, Knight disclosed that he had also given $112m-worth of Nike stock to various charities.

3 – Michael Bloomberg
Michael Bloomberg’s accumulation of astonishing personal wealth began – somewhat ironically – with a firing. In 1981, the investment firm at which Bloomberg was a partner was bought out and he was laid off. While Bloomberg received no severance pay, he took $10m in equity, using the funds to set up the eponymous financial news and information provider we all know today.

During that time, Bloomberg’s personal fortune skyrocketed and, in 2009, he added $4.5bn to his pile in just 12 months, the world’s greatest wealth increase that year. Today, Bloomberg is estimated to be worth $50bn.

Bloomberg has always been a keen philanthropist and decided to set up his own foundation, which focuses on environmental, educational and arts causes, in 2009. In January 2014, he established a five-year, $53m initiative called Vibrant Oceans, which helps support the creation and maintenance of sustainable fish populations worldwide. In total, Bloomberg has donated an estimated $6bn to charitable causes, equating to 12 percent of his net wealth.

In January 2014, Michael Bloomberg established the Vibrant Oceans initiative, which helps support the creation and maintenance of sustainable fish populations worldwide

2 – Bill Gates
Bill Gates’ fate as a technology magnate was set when, at the age of 13, he received a computer from General Electric to help him learn Beginner’s All-purpose Symbolic Instruction Code – an opportunity he gladly took. Gates was instantly captivated, and his continued fascination with how computers work led him to found Microsoft in 1975.

For the next 30 years, Gates took charge of the company’s product strategy, overseeing the implementation of numerous programs, from Windows to Excel. By the time he left Microsoft in 2008 to pursue philanthropic projects full time, the company was bringing in $60m a year in revenue. The Bill & Melinda Gates Foundation (BMGF) was set up in 2000 to support a range of agricultural, health and policy causes, including helping developing countries combat malaria and support basic nutrition.

Through the BMGF – as well as on a personal basis – Gates has given away $41bn, representing 46 percent of his total wealth. This figure is set to almost double if Gates fulfils his 2010 pledge to donate 95 percent of his wealth before he dies.

1 – Warren Buffett
Often referred to as the “Wizard” or “Sage” of Omaha by media outlets for his legendary financial knowhow, Warren Buffett displayed an interest in economics at a young age, going on to graduate from the prestigious Columbia University as a Master of Science in Economics in 1951.

Buffett’s shrewd business sense made him a millionaire by 1962, having merged a number of key partnerships into one holding company, which later became Berkshire Hathaway. He became a billionaire in 1990, when his company began selling Class A shares. Today, Buffett is the world’s third-richest man, with a personal wealth of around $84bn.

Buffett has long stated his intention to give much of his fortune away to charity: in June 2006, he pledged to gradually give 85 percent of his Berkshire stock to five leading foundations, with the BMGF identified as the principal beneficiary. Today, much of his philanthropy is achieved through the Susan Thompson Buffett Foundation – named after his late wife – which supports causes such as reproductive health, family planning, education and conservation.

In 2010, Buffett, along with Gates and Facebook CEO Mark Zuckerberg, set up the Giving Pledge, which commits signees to donating at least 50 percent of their personal wealth to charity. Buffett has already succeeded in this noble goal, having donated $46bn to charity – a staggering 55 percent of his net wealth.

High corporate debt puts the US economy in jeopardy, says Fed

The US Federal Reserve has identified high corporate debt, deteriorating credit standards and elevated asset prices as the largest risks to the US economy in its inaugural Financial Stability Report, released on November 28.

The report, which was produced by the Fed’s board of governors, indicates that business-sector debt relative to GDP is “historically high”, particularly in riskier forms of business debt such as high-yield bonds and leveraged loans. This is a significant source of concern, as a hike in federal interest rates could make these loans untenable for high-risk borrowers.

Credit standards were also flagged as a particularly high-risk area, with poor underwriting making a comeback in a manner not seen since before the 2008 financial crisis. While the US’ strong economic performance has ensured concerns surrounding leveraged loans have not come to fruition, a slowdown in overall growth could hit borrowers particularly hard.

Credit standards were flagged as a particularly high-risk area, with poor underwriting making a comeback in a manner not seen since before the 2008 financial crisis

The report said: “[Asset valuations are] generally elevated, with investors appearing to exhibit a high tolerance for risk-taking, particularly with respect to assets linked to business debt.”

Meanwhile, the Fed flagged potential concerns in commercial real estate, as prices “have been growing faster than rents for several years”. Agricultural land prices are also “near historical highs”, signalling a potential crisis for farmers in 2019, particularly in the context of President Donald Trump’s threats of retaliatory tariffs on agricultural commodities.

Nevertheless, the report did state that “banks appear well positioned to maintain capital through maintained earnings”, while also noting that many were keeping “regulatory buffers” in case of a crisis.

The Fed regularly conducts stress tests on the nation’s largest banks to ensure they are able to survive catastrophic global financial circumstances. The results of the latest test, published in June, demonstrate that banks would be able to continue lending even during a severe global recession.

Looking ahead, the report identified Brexit and “euro area fiscal challenges” as significant risks to US markets and institutions, with “market volatility and a sharp pullback of investors… from riskier assets” likely in the near future. Slowing economic growth in China and increases in emerging market debt have also been signalled as potentially damaging to the US economy.

The Fed has previously lagged behind other countries’ reserve banks in producing stability data, but recently committed to releasing this type of report on a biannual basis in order to “promote public understanding and increase transparency and accountability” of its views on financial resilience.

The unknown financial effects of Brexit and Italy’s budget crisis, as well as the potential for further deterioration in the US-China trade war, has meant that investors have endured a nail-biting few months. By identifying these key risk areas, the Fed is signalling that it is highly aware of potential crises and is taking steps to ensure that their effects are limited. This level of mindfulness and action was certainly not present before the 2008 financial crisis and that, in itself, should provide some relief for investors.

Tecnoglass continues to push innovatory boundaries in the glass industry

Planet Earth will be home to more than 9.7 billion people by 2050, following a population jump of 2.8 billion in the past four decades alone. As the global population continues to swell, we are now witnessing the growth of ‘megacities’ – sprawling urban centres with more than 10 million inhabitants – with 33 in existence as of 2018, according to the UN’s World Urbanisation Prospects: The 2018 Revision report. According to the UN, 68 percent of the world’s population will be living in urban areas by 2050, with megacities becoming an increasingly common geographical feature. This rapid urban growth will bring increased demand for housing, workspaces and infrastructure, inevitably resulting in the mass construction of new builds across the globe.

Being able to diversify our activity, from an asset perspective, by penetrating the residential market will help us mitigate downcycles

Urbanisation presents a unique set of challenges and opportunities for the global construction industry. With the world’s 20 largest cities currently accounting for over 80 percent of the planet’s energy consumption, there is a pressing need to make our urban spaces more sustainable. Fortunately, the buildings sector has been diligently developing innovative products and exciting new technologies to significantly reduce both consumption and emissions, signalling a new, sustainable era for the global construction industry.

In addition to incorporating energy-efficient solutions, it is imperative that new builds are secure and safe for their future inhabitants. From the devastating wildfires across Greece to the recent flooding in Japan, the extreme weather events of the past year have served as a reminder of the importance of secure, reliable housing. Innovative products such as impact-resistant windows for hurricane-prone areas and low-emissivity (low-e) glass offer crucial protection in at-risk areas, and are increasingly considered an essential element of new builds in such locations. World Finance spoke with Santiago Giraldo, CFO of Tecnoglass, about these promising developments within the industry.

Which trends are currently driving growth in the glass products market?
The construction glass market is currently growing at an impressive rate – it was valued at $83bn in 2016 and it is expected to reach $110.9bn by 2021. The principal factors driving this growth are the demands for energy-efficient buildings and increasing environmental regulations, which are both stimulating significant advances in the industry. Interestingly, the Americas accounted for 19.9 percent of this growth, exhibiting a boom in residential construction projects, hotels and commercial building projects. In the US, we are also noticing increased demand for impact-resistant building materials in hurricane-prone costal states, in addition to new regulations concerning building structures in high-exposure regions.


Number of megacities in the world in 2018


Predicted global population by 2050


Predicted percentage of global population living in cities by 2050

Energy-efficient windows are also a major trend at the moment, as they reduce energy needs in buildings while increasing the natural light and visibility of homes and offices. At Tecnoglass, we have focused on investing in research and development (R&D) in order to respond positively to these evolving trends. Our hurricane-resistant glass has earned the company the prestigious Miami-Dade Notice of Acceptance, while our innovative low-e coatings are helping clients to cut energy costs by limiting heat transmission.

How are sustainability concerns shaking up the glass industry, and why are these trends important to consider?
As sustainability becomes an increasingly pressing concern for our industry, companies are investing heavily in R&D so as to meet both evolving consumer demands and environmental-focused legal requirements. Today, companies simply must have defined sustainability initiatives if they wish to remain relevant within the industry. From reducing CO2 emissions to cutting waste material, sustainability efforts are now at the very heart of the construction market.

New technologies and high-security solutions such as low-e glass and fire-resistant windows have begun to reshape the glass industry as we know it. After years of investment in such technologies, Tecnoglass has emerged as a leading manufacturer of high-security glass products, and is forging ahead with innovative sustainable solutions for both commercial and residential buildings. Each year we evaluate our progress in these crucial areas, setting new goals while considering the economic, social and environmental impact of our work. In a demonstration of our commitment to this cause, we have recently joined the UN’s Global Compact programme, which ranks as the world’s largest corporate sustainability initiative. In terms of renewable energy, meanwhile, we have introduced an on-grid photovoltaic system at our production plant. As we inevitably consume a large amount of energy in our operations at Tecnoglass, this solar panel system will revolutionise our energy usage, and is set to reduce our CO2 emissions by 34.3 tonnes over 25 years.

Where is Tecnoglass currently active, and what is the situation in those markets?
Tecnoglass is currently active in the Americas and the Caribbean – with the intention of penetrating the European market. The US and Colombia account for the majority of our present revenues, representing 76 percent and 20 percent of total sales respectively. Tecnoglass’ US activity is largely based in Florida, where we have a dominant presence and about half our backlog.

The US construction market has shown a remarkable recovery since the 2008 economic crisis. As such, the sector now boasts a healthy growth and is expected to expand by about five percent per annum over the next five years. In Colombia, meanwhile, an improved macroeconomic environment has allowed us to capitalise on construction demand in our home market. Following a four consecutive years downcycle of slowdowns in growth, the Colombian economy has now entered a period of recovery, creating a promising environment for the construction industry given ample pent-up demand.

Which new markets will the company look to enter, and what opportunities do they offer?
We see a great opportunity for further penetration into the lucrative $25bn US market, seeking to build on the crucial foothold we have made in Florida. Over the past two years, we have embarked on an ambitious expansion plan, launching projects into the Northeast, Texas, and the West Coast, and will continue to pursue further diversification into 2019 and beyond. Given our efficient access to the western US through the Panama Canal, this region represents a promising new market for Tecnoglass as well as expanding into other foreign markets. Given this successful penetration and our expansion into the residential market, we expect to see our US sales continue to grow during the remainder of 2018.

These efforts to diversify into new markets will help us mitigate the effect of construction cyclicality in a specific country or region, given that construction cycles vary across markets.

How do construction cycles influence the glass industry?
Demand for architectural glass tends to be cyclical, largely driven by residential and commercial construction activity. Being able to diversify our activity not only from a geographical point of view, but also from an asset type perspective by penetrating the residential market will greatly help us mitigate downcycles. Over the course of its 30-year history, Tecnoglass has proven to be remarkably resilient to cyclical economic downturns. Thanks to our established presence in diversified markets in different regions of Latin America and the US, the company has managed to successfully reduce its cyclical risk. For instance, the company grew its revenues by almost three times from 2007, prior to the mortgage crisis, to 2013 after emerging from it.

What milestones has Tecnoglass achieved so far in its history?
Tecnoglass represents a Case Study by growing from an artisanal business into the only Colombian company listed in the Nasdaq stock exchange and one of the main players in the architectural glass space in a market as demanding as the US. Being listed on Nasdaq has significantly increased our exposure and reputation within the US and Latin America as whole. This has driven Tecnoglass to invest in new technology to meet the demands of new clients and tendencies to be at the forefront of the industry. In 2016, Tecnoglass shares also started trading on the Colombian stock exchange, Bolsa de Valores de Colombia, and later in the year we acquired the Florida-based distribution company ESWindows, in a move that demonstrated our commitment to the US market. Following this, 2017 was a crucial year for the company with the acquisition of GM&P, a glazing company focused on engineering and installation, which further allowed us to penetrate the US market and become a fully vertically integrated company toward the client. We are looking to new frontiers by opening offices in South America and Europe in order to further expand our presence.

How did the acquisition of GM&P play into your strategy?
Based in Florida but boasting a strong presence in Texas, the West Coast and the south-east, GM&P was Tecnoglass’ largest client prior to the acquisition. Given its established position in the US market, the deal enabled Tecnoglass to expand into previously unpenetrated regions beyond Florida. What’s more, GM&P’s extensive network of customers provides Tecnoglass with a wealth of new opportunities.

After one year of operations, we can happily conclude that this acquisition has far exceeded our initial expectations. The deal has provided enhanced vertical integration and streamlined distribution coordination, allowing Tecnoglass to become a real one-stop shop for customers.

How is Tecnoglass’ business strategy designed to cope with the challenges currently facing the industry?
One of the major challenges facing the glass industry is the rise in aluminium prices prompted by US-imposed tariffs on various metals. However, given that Colombia accounts for just 0.1 percent of US aluminium imports, Tecnoglass and other Colombian manufacturers are hopeful to eventually be exempted from these tariffs. We are keeping an eye on how this situation plays out, but in the meantime, sales are up for the entire sector and all players within the industry are taking advantage thanks to the strength of the overall economy.

For Tecnoglass, another challenge is maintaining sustainable growth in an increasingly competitive market. We hope to sustain our competitive advantage through consistent investment in R&D, innovative new products and increased geographic diversification. We are focused on continuous improvement across all aspects of our business, and we believe that our vertically integrated operations position us for continued success in the years to come.

We are constantly updating our business strategy and streamlining initiatives to achieve our vision – to be a worldwide leader of high-quality architectural products and innovative solutions for a sustainable future. Supported by a team of highly trained and motivated employees, Tecnoglass is well on its way to achieving this ambition.

G20 economic restrictions soar, covering $481bn of trade in six months

G20 countries applied 40 new restrictive measures to over $481bn of trade between May and October this year, according to a new report from the World Trade Organisation (WTO).

The new restrictions cover six times more trade than the preceding six months and were the most comprehensive to be applied since the WTO began monitoring G20 trade in 2012.

Director-General of the WTO Roberto Azevêdo said the report’s findings “should be of serious concern for G20 governments and the whole international community”.

The number of trade restrictions averaged eight per month between mid-May and mid-October this year, an increase from six per month in the previous reporting period from mid-October 2017 to mid-May 2018.

The number of trade restrictions averaged eight per month between mid-May and mid-October this year, an increase from six per month in the previous reporting period

Three quarters of the restrictions were tariff hikes, many of which were applied in retaliation to steel and aluminium tariffs applied by US president Donald Trump in March.

The report highlights that 33 new import-facilitating measures were applied during the same period. However, these only accounted for $216bn of trade, less than half the value of trade-restrictive measures. Two thirds of that value were attributed to China’s reduction of more than 1,400 tariffs on vehicles and other mechanical components.

Measures that have been announced but not yet implemented have been omitted from the data.

The WTO’s report comes as a warning to G20 leaders, who are set to meet in Argentina next week for the annual summit, as to the implications of ongoing global trade tensions.

“Further escalation [of trade-restrictive measures] would carry potentially large risks for global trade, with knock-on effects for economic growth, jobs and consumer prices around the world,” the report cautioned.

The WTO has counselled all G20 economies to “use all means at their disposal” to resolve the fraught international situation. It has pledged to offer its support wherever possible but has warned that political will and leadership from the G20 is the most vital element.

The greatest contributing factor to global restrictions has been the US-China trade war, with the world’s two largest economies applying tariffs on a collective $360bn of goods in 2018. The G20 summit will be the first time Trump and Chinese president Xi Jinping have met since the trade war began in March.

Hopes are high for a truce between the two leaders, as fraught relations between the US and China have had severe knock-on effects for the world economy and notably led the IMF to downgrade its global economic predictions for the coming months.

In its World Economic Outlook report, published in October, the IMF revised its earlier prediction of 3.9 percent global growth for 2018-19, bringing it down by 0.2 percentage points as a result of ongoing trade tensions.

Currently, the next round of levies implemented by Trump, which will raise tariffs from 10 percent to 25 percent on $200bn of Chinese merchandise, are scheduled to come into force on January 1. These could be put on ice if the two leaders are able to strike a peace deal in Buenos Aires next week.

Why we missed the storm

It has been 10 years since, on a visit to the London School of Economics (LSE), Queen Elizabeth II asked her hosts: “Why did no one see it coming?” She was referring to the financial storm of 2007/8.

As someone who works in applied mathematics, I know how hard it is to make accurate predictions – I even wrote a book, The Future of Everything, which discussed the topic in the context of weather, health and economic forecasting. But when predictions go badly wrong, the experience often offers information that can be used to update and improve forecasting models. To analyse how that process is (still) unfolding in economics, I present excuses given by economists over the last decade, translated for clarity into their meteorological equivalent.

And now, the weather
Former Federal Reserve Chairman Alan Greenspan said in a 2008 testimony: “The data inputted into the risk management models generally covered only the past two decades, a period of euphoria.” Here we have a weather forecaster saying they did not see the storm coming because it had been sunny for so long.

Glenn Stevens, Governor of the Reserve Bank of Australia, in 2008: “I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts.” Weather forecaster: “None of my mates saw it coming either.”

Nobel laureate Robert Lucas in 2009: “Simulations were not presented as assurance that no crisis would occur, but as a forecast of what could be expected conditional on a crisis not occurring.” Here, the weather forecast was explicitly based on no storms happening.

Economist Ben Bernanke in a 2009 commencement address: “Like weather forecasters, economic forecasters must deal with a system that is extraordinarily complex, that is subject to random shocks, and about which our data and understanding will always be imperfect… Mathematicians have discussed the so-called butterfly effect.” The storm was caused by a random shock – or a butterfly.

Future Nobel laureate Tom Sargent in a 2010 interview: “It is just wrong to say that this financial crisis caught modern macroeconomists by surprise.” (Presumably, the non-modern ones were dead.) This is equivalent to weather forecasters saying they were unsurprised by the storm they failed to warn of.

A US Federal Reserve report from 2010: Mainstream macroeconomic models “are very poor in forecasting, but so are all other approaches”. Astrologers are no good either.

Economist John Cochrane in 2011: “It is fun to say that we did not see the crisis coming, but the central empirical prediction of the efficient markets hypothesis is precisely that nobody can tell where markets are going.” Nobel-prize-winning weather forecaster: “It is fun to say we didn’t predict the storm, but at least our prediction that we couldn’t predict it was spot on.”

The Bank of England’s Sujit Kapadia to Queen Elizabeth on her return visit to the LSE in 2012: “People thought markets were efficient, people thought regulation wasn’t necessary… People didn’t realise just how interconnected the system had become.” Weather forecaster: “People screwed up.”

Nobel laureate Paul Krugman at an event titled ‘the Genius of Economics’ in 2015: the crisis “came as a shock to me as to almost everyone”. The few people who did predict it “also saw five crises that didn’t happen coming, so it doesn’t quite count… There’s always going to be something out there that you miss”. Weather genius accuses those who did see it coming of always predicting a storm.

Lord Nick Macpherson, former head of the UK Treasury, in 2016: “I see myself as one of a number of people… who failed to see the crisis coming, who failed to spot the build-up of risk. This was a monumental collective intellectual error.” Weather lord: “We all screwed up.”

Christopher Auld from the University of Victoria in 2017: criticism that relegates the field to “failed ‘weather’ forecasting is not just misguided, it is anti-intellectual and dangerous”. Weather intellectual calling the idea they may have screwed up a monumental intellectual error.

Six eminent UK economists responding to “dangerous” and “ill-informed expert bashing” of their profession in 2017: “Like most economists, we do not try to forecast the date of the next financial crisis, or any other such event. We are not astrologers, nor priests to the market gods.” Six weather priests: “We never claimed to be able to predict the exact hour that your house would blow down, or any other such event afflicted on us at the whim of the weather gods.”

Andrew Haldane, Chief Economist at the Bank of England, in 2017: “Michael Fish getting up: ‘Someone’s called me, there’s no hurricane coming but it will be windy in Spain.’ It is very similar to the sort of reports central banks issued pre-crisis, that there is no hurricane coming but it might be very windy in sub-prime.” (This is a reference to a missed weather forecast by the UK’s Met Office in 1987.) Michael Fish responding on Twitter: forecast was “better than the Bank of England’s”.

Paul Krugman again, responding directly to the Queen’s question in 2018: “My bottom line is that the failure of nearly all macroeconomists, even of the saltwater [Krugman’s] camp, to predict the 2008 crisis was similar in type to the Met Office failure in 1987 – a failure of observation rather than a fundamental failure of concept. Neither the financial crisis nor the Great Recession that followed required a rethinking of basic ideas.” No translation required.

Time for a new paradigm
Of course, it is not completely fair to compare economics with weather forecasting. Recessions are not storms that come out of nowhere, but are things that we actively participate in and are affected by factors like faulty risk models. Economists are also entangled financially with the system they are studying.

Viewed this way, economists’ responsibilities are more like those of engineers or doctors – instead of predicting exactly when the system will crash, they should warn of risks, incorporate design features to help avoid failure, know how to address problems when they occur, and be alert for conflicts of interest, ethical violations and other forms of professional negligence. Failings in these areas, rather than any particular forecast, are the real reason so many are calling for a genuinely new paradigm in economics – and also why the Queen’s question has had so many different answers over the years.

Calculating the human cost of the all-consuming digital age

Of late, Apple, Google and Facebook have been under fire from numerous sources – and for good reason. While the benefits of such firms are vast and immeasurable, society is also suffering at the hands of their tools, which we have grown to rely on. In short, we’re addicted to our smartphones and to the various forms of social media that they offer. This addiction is causing a long list of problems: distracting us from school and work, harming our personal relationships, and even triggering anxiety disorders.

How can companies whose very purpose depends upon keeping users glued to their screens for as long as possible now encourage the very opposite?

In response, the bigwigs of the tech industry have introduced new tools and apps in the name of promoting digital wellbeing. Back in January, Mark Zuckerberg started off the New Year with a pledge to ensure that the time we spend on Facebook is “time well spent”. He said that, according to research, using social media to connect with those we care about can be good for our wellbeing – for that reason, product teams in the company will focus more on helping users find “more meaningful social interactions”, as opposed to more relevant content.

In May, Google introduced a set of time management tools for Android users to track their screen time and app usage. This included the introduction of Shush (which enables users to switch on ‘do not disturb’ by simply flipping over their phone) and Wind Down (which fades the screen to greyscale for bedtime) modes. Apple was quick to follow suit, announcing in June a series of new controls to monitor usage, while also setting time limits and better controls for notifications and for children. Also in June, Facebook-owned Instagram rolled out a new browsing alert that says: “You’re all caught up – you’ve seen all new posts from the past 48 hours.” This was designed to prevent mindless – and seemingly endless – scrolling.

Recognising a problem
Although the likes of Facebook, Google and Apple are now serving up these thoughtful initiatives, it is these very companies that delivered our digital ‘ill being’ in the first place. They have done so by entering the human psyche and exploiting it, keeping us checking our phones more frequently and for longer bouts at a time. “Psychology and behavioural science are increasingly of interest to digital media platforms,” said Luke Stark, a researcher at Microsoft and fellow at the Berkman Klein Centre for Internet and Society at Harvard University. “Those academic fields are getting incorporated into the design of these systems.”


Number of times a day young adults check their phones


Average number of minutes a young adult spends on their phone each day

Nowadays, every company in the business employs behavioural psychologists or uses certain techniques to keep consumers using their apps and devices for as long as possible – glued eyeballs are how they make their money, after all. “And the funny thing is, it’s not rocket science. It’s actually pretty straightforward behaviourism, and every company does it – they all have their own tricks,” said Dr Larry Rosen, a research psychologist and author of several books on the psychology of technology.

Instagram, for example, doesn’t send notifications individually – instead, it batches them together, delivering a few at a time, which is much more reinforcing and dopamine-inducing. Snapchat, which is used primarily by teenagers, features ‘streaks’, which keep track of how many days in a row a user has sent and received a snap from each person. “And that is a perfect behavioural way to keep you sucked in,” said Rosen. Stories of teenagers giving their friends their login details so they can keep up their streaks while on vacation attest to this.

But it’s not just social media apps – it’s the phones themselves that keep us hooked. “If it buzzes as soon as you pick it up and it’s in your hand, you get this visceral feeling – that’s again a behavioural science trick,” Rosen told World Finance. Experts argue that these tricks are not just causing obsessive behaviour – they are also causing psychological disorders. Rosen refers to these as ‘iDisorders’: “It’s when the use of technology promotes signs [or] symptoms of psychiatric disorders. So for example, reading on Facebook that all your friends are having a wonderful time and having events that you’re not invited to and showing signs and symptoms of depression, that would be an iDisorder.”

Finding out why
In terms of the ‘time well spent’ initiatives, the question is whether they will actually work to reduce obsessive behaviour and the potential onslaught of iDisorders. The short answer, it would seem, is no. Rosen has been carrying out his own such research for some time now and said: “The results are pretty staggering… The latest results [show] that young adults are checking their [phones] 73 times a day, and they’re there for around 260 minutes, which is almost four and a half hours. It’s a large commitment.”

After a study finishes, Rosen and his team ask participants if they checked the data before submitting their results. The answer is invariably yes. They then ask if it was more or less time than they thought – it’s almost always more. “And then the important question is, did you do anything to make any changes? And the answer [for] at least half of them is no,” said Rosen.

He goes on to say that digital wellbeing apps are missing two key components: “They’re missing the why and the how… Telling you how much time you’re spending, telling you the ‘what’, is important – it’s a first step. But we know from our work that it’s very likely that you won’t do anything, and the reason you won’t do anything is because of the ‘why’. And that’s what we’ve been studying – why are people obsessed with their phones?”

Rosen explained some of the reasons: “One is simply accessibility – you carry [your phone] with you all the time.” Another, he said, is poor metacognition, which sees us make bad decisions about using our phones to our detriment: for example, keeping them within hand’s reach at night, despite knowing it will impact sleep. There is also the boredom factor: people simply do not allow themselves to feel bored anymore. A moment becomes free and out comes our phone, ready to benignly entertain us for seconds at a time. Then is what Rosen believes to be the most important reason: anxiety.

“We study a particular kind of anxiety – we call it technological dependency, or technological anxiety,” he told World Finance. “Some people call it nomophobia, some people call it ‘FOMO’ – fear of missing out. But it’s an anxiety that comes from that social responsibility… to keep checking in on your social media. You may get a notification that forces you to go there, or half the time you don’t get a notification, your brain is just telling you, ‘it’s been a while, I better check it’, and that’s a function of anxiety. And we know that because if you take away your phone, you get highly anxious.”

Studies have been carried out to prove this. In a recent instalment of CBS’ 60 Minutes, which has been watched by millions, Rosen and his colleagues put the test to presenter Anderson Cooper. While hooked up to a device, Cooper’s phone was placed out of sight, but still pinging with notifications. “Every time we texted him, the galvanic skin response, which is a measure of anxiety, spiked,” said Rosen. This type of reaction – though extreme – has in fact become the norm for most of us.

Business model discrepancy
Now that people are starting to comprehend just how obsessed with our phones we have become, the discourse around digital wellbeing is beginning to proliferate. But how can companies whose very purpose – and whose profit margins – depends upon keeping users glued to their screens for as long as possible begin to encourage the very opposite? Part of the answer comes down to a difference in their business models. “If you think about companies that have hardware, like Apple and Google, they have their own operating systems companies,” said Stark. “[This is different to] companies like Facebook, which [are] actually a little bit more vulnerable to some of these conversations to do with digital wellbeing because they’re just one app.”

This means that Apple and Google can promote digital wellbeing, but they can do so by pointing towards social media apps. “I think it’s actually not surprising that you see Google especially being much more willing to engage with digital wellbeing as this kind of loss leader, because they know people are still going to use their search and they’re still going to buy their phones. Whereas Facebook’s phrasing of digital wellbeing, which is this idea of positive connection, supports Facebook’s business model of more connectivity,” Stark told World Finance.

And this is the interesting point: the more a company seems to be doing with regards to digital wellbeing, the less reliant their business model is on the so-called attention economy. Stark believes it comes down to their plans for long-term sustainability: “In order to have their consumers continue to use these devices, and crucially to provide data over the long term, these companies need you to keep using their products.” If users become so disenchanted with Facebook that they simply stop using it, the company’s entire model would soon collapse. Stark continued: “[Similarly to how], in the retail world, you [offer] something at a lower price than you should to draw people into the store, I think these [wellbeing] technologies are a kind of enticement to keep consumers using their technologies in the long run.”

Ultimately, technology companies are not suddenly worried about our wellbeing. They are not concerned if we’re spending five hours a day on our phones – in fact, that’s a win. They engineered this scenario through their surreptitious use of behavioural psychology. However, they now recognise that people are becoming more aware of their obsessive behaviour, the harm it is causing them in the present, and the potential consequences to their (and their children’s) physical and mental health in the future. As this awareness grows, so will the backlash. In this respect, technology companies are simply trading their short-term growth for long-term profitability: they are just trying to put out the fire before it spreads.

Miner BHP settles 15-year tax dispute with Australian authorities

BHP Billiton has signed an agreement with Australian tax authorities to settle a long-running unpaid tax claim over its operations in Singapore.

The world’s largest miner will pay a total of AUD 529m ($386m) in additional taxes on income from 2003 to 2018. BHP said in a statement that it had already paid AUD 328m ($239m) of the overall sum.

The unpaid tax relates to the activities of the company’s Singapore-based subsidiary, BHP Billiton Marketing, of which BHP owns a 58 percent stake. The Australian Taxation Office (ATO) has alleged that the company marketed and sold products that were mined in Australia through its subsidiary in Singapore, making them taxable in both countries.

The ATO claimed BHP had not paid the tax due in Australia, although BHP has not admitted any liability for tax avoidance

The ATO claimed the company had not paid the tax due in Australia, although BHP has not admitted any liability for tax avoidance in the case.

Under the terms of the agreement, the company will make BHP Billiton Marketing a fully owned subsidiary. This change in ownership will bring the subsidiary into the ATO’s ‘green zone’, making it fully taxable in Australia.

BHP’s chief financial officer, Peter Beaven, said in the statement: “This is an important agreement and we are pleased to resolve this longstanding matter.”

Beaven added: “The settlement provides clarity for BHP and the ATO in relation to how taxes will be assessed and paid on the sale of Australian commodities. That certainty is good for business and for Australia.”

The ATO described the settlement as “landmark and precedential”. It said: “Given the importance of mining and natural resources to the Australian economy, it is critical that exporters of Australian commodities, whether iron ore, coal, gas or other commodities, pay the correct tax in Australia on their profits.”

The case marks a significant development in the ATO’s crackdown on tax payments by multinational businesses operating in Australia. Under the ATO’s new marketing hubs strategy, BHP’s fellow mining company Rio Tinto, as well as Google, holiday resort operator Crown and telecoms firm Optus are currently under investigation for their subsidiary operations.

Marketing hubs provide sales functions for goods or commodities that are produced in Australia and sold offshore. Last year, the ATO set out a new risk framework to identify and prevent issues with transfer pricing, which, if abused, could allow a company to shift goods or services to its marketing hub to avoid paying tax in Australia.

The tax authority has said that under this framework it will always seek to resolve issues without resorting to litigation, except where it needs to “call out unacceptable behaviour”, as it did in the BHP case.

BDO Unibank is embracing technology for the sake of its customers in the Philippines

The world’s financial markets are more connected than ever. Information concerning market and economic conditions is readily available thanks to improvements in communications technology, while modern computer systems have made it possible for financial institutions to process an incredibly large number of transactions. This has accelerated the pace of business both in the Philippines and around the globe.

BDO is introducing products that encourage financial inclusion, support investor education and address all the challenges the industry is facing

Over the past 10 years, the trust industry in the Philippines has undergone a similar transformation. Having previously offered traditional products to customers via branches, trust entities are now able to supply a more diverse suite of products and services across a number of channels. These products are designed to provide investment solutions to the varied needs of clients, and are all delivered via the internet and smartphones.

These developments have made financial literacy more vital than ever. As well as developing new products and finding ways for technology to assist customers, BDO Unibank is playing a role in advancing the entire Philippine financial industry. Our strong support of key initiatives from the Philippine central bank, Bangko Sentral ng Pilipinas (BSP), is making a real difference in the lives of many people. From its prominent position, BDO is introducing products that encourage financial inclusion, support investor education and address all the challenges the industry is currently facing.

Amid this changing landscape, BDO intends to remain at the forefront of the Philippine trust industry. This means not only maintaining the high standards our clients have come to expect from us, but also fostering systematic change. We are in a prime position to do so: as of December 31, 2017, BDO’s consolidated trust assets under management stood at PHP 1.05trn ($19.7bn), representing a 33 percent market share of the local trust industry. Out of this amount, PHP 752bn ($14.1bn) is managed by the Trust and Investments Group of BDO Unibank, while the remaining PHP 294bn ($5.5bn) is managed by the Wealth Advisory and Trust Group of BDO Private Bank, a subsidiary of BDO Unibank. This is testament to the trust our clients have in us. Nonetheless, BDO will not become complacent and wait for others to engender change.

Driving nationwide inclusivity
As the largest trust entity in the Philippines, BDO remains a stalwart supporter of the BSP and is committed to meeting its stringent standards. We were the first financial institution in the country to be accredited as a personal equity and retirement account (PERA) administrator – a BSP initiative designed to encourage saving for retirement, while also promoting the development of capital markets.


BDO Unibank’s consolidated trust assets under management


Amount managed by the Trust and Investments Group


Amount managed by the Wealth Advisory and Trust Group

Our focus on financial inclusion was our main motivation for becoming a PERA administrator. We believe that being a leader in the implementation and promotion of the initiative will ensure BDO becomes a driver for the nation, helping the Filipino people achieve their financial goals, both now and after retirement. For our PERA clients, we have launched several different funds, which all enjoy tax benefits that are unique to the scheme.

Another financial inclusion initiative we have launched is the Easy Investment Plan (EIP). The EIP is an investment build-up plan that enables investors to attain their financial goals and wellness by regularly saving and investing, even for amounts as low as PHP 1,000 ($18) per contribution. This has provided our clients with a wider range of investment funds to choose from, both in pisos and dollars. This programme also takes advantage of a cost averaging strategy, keeping fees low. We believe the EIP will help Filipinos shift from being savers to becoming proactive investors.

The EIP helps us debunk investing myths, such as the misconception that investing is difficult and only for the rich. With EIP, investing is made simple, easy and, best of all, affordable.

BDO is also an ardent supporter of investor education. We believe that educating our clients about the benefits of investing will improve the average Filipino’s financial wellness. Our investment officers, fund managers and marketing officers provide briefings and investment updates to our clients across all provinces in the Philippines. These ‘coffee talks’ allow our clients to keep up to date with developments in both the local and global economy, providing them with material information for their investment decisions. BDO also conducts financial wellness seminars, presenting Filipinos with the basics of investing, such as how to start investing, how to manage investments and how to plan for retirement. In 2017, BDO conducted seven public seminars, which were attended by more than 500 prospective investors. BDO also ran 65 private financial wellness seminars in the same time frame, attracting almost 2,000 participants.

To support our advocacy of investor education, BDO provides thorough product training to all personnel across our 1,000-plus network of branches. This ensures staff are able to communicate the benefits of investing and accurately describe the features of our investment products to both prospective and existing clients. We believe that financial education should start at home and, in this case, at our branches.

Confronting today’s challenges
One of the problems we have encountered is the heightened risk and compliance processes brought about by the 2008 financial crisis. The crisis was an eye-opener for financial institutions around the world. Though the Philippines was relatively spared from the more serious effects, it did expose vulnerabilities in the financial system. Since then, the BSP has been advocating risk mitigation and consumer protection, both of which BDO fully supports. We have been enhancing our risk controls so that we are prepared to weather the next financial crisis, whenever it may come.

Another challenge that the industry is facing is the rise of financial technology; having an expansive branch network may not be enough to survive in the coming years. Though the BDO Unit Investment Trust Funds (UITF) are currently available through the BDO website, we do recognise the need to improve our electronic communication channels. With the rise of the Millennial customer segment, this is becoming even more important, as obsolescence and irrelevance are becoming a real threat. As such, this particular group has forced us to rethink our existing business model. By gathering insights from the younger generation, we found there is a need to adapt our electronic strategy and make trust products more accessible through digital channels. Through this initiative, we are making our products readily and easily available nationwide. This may involve partnering with other financial product distributors in the future.

A global outlook
Cognisant of the ever-evolving needs of our clients, BDO’s unrelenting focus on innovative products and services is what makes us stand out from the competition. We pride ourselves on being adaptable in an ever-changing capital market sector, as well as being able to survive intense market competition. We ensure that our products and services are up to date and provide relevant solutions to clients’ needs.

BDO also takes pride in having launched the first socially responsible investment fund in the local market. As such, BDO incorporates environmental, social and governance (ESG) factors into a selection of equity investments offered by its ESG Equity Fund. This fund primarily addresses the needs of institutional clients, such as schools, non-profit organisations and religious entities looking for a socially responsible fund.

The real estate investment trust (REIT) and unit investment trust funds represent more firsts for us. The BDO-developed Markets Property Index Feeder Fund exposes participants to the REIT – as well as to real estate companies listed in 23 developed markets – enabling them to take advantage of the regular dividend income from these securities. We have also launched the first local China fund, providing participants with the opportunity to take advantage of the remarkable growth seen in large Chinese companies.

In 2017, we expanded our existing array of global funds with the launch of the BDO Europe Equity Feeder Fund and the BDO Japan Equity Index Feeder Fund. Our clients can now access the US, Europe, China, Japan and other global equity markets through BDO branches and BDO Invest Online. Though the Philippine equity market has been providing relatively good returns over the past five years, it has still lagged behind major markets in dollar terms. Investing in the BDO Global Feeder Fund allows our clients to diversify their portfolio and take advantage of investment opportunities from the convenience of their own home.

BDO also continues to work with the BSP, as well as our fellow trust practitioners, in developing new products and services. We look at global practices to see if new types of investment products or services will be beneficial to the local market. We continue to lead the development of these new initiatives, while moulding new regulations to support these products. In the coming years, we hope to see new UITF classifications, such as target-date funds, dynamic-allocation funds and multi-currency classes.

Given the opportunities and risks that are ever present in a highly connected global economy, BDO remains committed to delivering trusted products and services that surpass client expectations in terms of both value and customer service, while also remaining prudent and trustworthy stewards of their wealth.

Mediobanca is successfully promoting the benefits of the club deal structure

Over the past couple of years, volatility has shaken financial markets around the world. Amid this uncertainty, Italian investment bank Mediobanca noticed that its private banking clients sought to diversify their portfolios by identifying illiquid forms of investment. Mediobanca’s private banking branch deals with high-net-worth individuals (HNWIs), most of whom are entrepreneurs. This segment finds it increasingly attractive to invest in a business through a private club structure, rather than simply buying financial products.

With this in mind, Mediobanca Private Banking has looked to embrace the ‘club deal’ approach to investment, not only from a financial standpoint, but also by taking into account entrepreneurial investors who want to share their expertise. Mediobanca Private Banking launched the Equity Partners Investment Club in December 2017, and the project is now poised to launch investments in dynamic companies that seek capital in order to spur a quantum leap in growth – an area shareholders have historically found difficult to finance.

Identifying potential
Mediobanca Private Banking was founded to serve HNWIs. Offering clients a private and investment banking model, it’s based on synergies with the corporate and investment banking division of Mediobanca, which is dedicated to the mid-corporate segment. The unit, therefore, benefits from the investment bank’s expertise in advisory and capital market services. This helps clients manage all of their financial needs – both private and business – through synergies with the group’s divisions, from private banking and corporate finance to real estate services.

Following the launch of the Equity Partners Investment Club, Mediobanca quickly received expressions of interest totalling over €500m ($567m). The principal objective of the project is to identify outstanding Italian companies and assess the viability of taking either minority or controlling stakes in them, depending on their individual circumstances.

Mediobanca is participating as a sponsor in its club deal project, working alongside several of the bank’s entrepreneurial clients. The objective is to invest in medium-sized companies with high growth potential, chiefly operating in ‘made in Italy’ sectors with a value of between €200m ($227m) and €300m ($341m).

Interest in the project was confirmed with the launch of the first investment in June. The deal was made between four investors and Seri Jakala, a high-value-added marketing service company looking for fresh equity to support its new growth drive, which involves innovation and international expansion.

Taking shape
The club deal project involves the participation of 50 leading Italian families who, together with Mediobanca, will invest in target companies identified by the project’s management team through dedicated, special-purpose vehicles. Although the club deal project will mainly invest in outstanding Italian firms with a strong inclination towards exports, deals in other European countries will not be ruled out either.

For each deal, a commitment of between €80m ($91m) and €100m ($114m) is anticipated, of which Mediobanca will contribute 20 percent. The other 80 percent will be put up by the families of the bank’s entrepreneurial clients, each of whom will contribute a minimum investment of €5m ($5.7m) if they choose to invest in the venture. Investors will have the freedom to choose whether or not they would like to be involved in an investment on a deal-by-deal basis. This makes the club deal model different from other forms of illiquid investments, such as private equity funds.

This type of structure is particularly fair, as it does not involve management fees. A success fee will only be charged once the hurdle rate of seven percent has been exceeded.

Italian excellence
Through its Equity Partners Investment Club, Mediobanca continues to identify new investment opportunities for its clients. In particular, it is monitoring sectors in which Italy has demonstrated genuine excellence. For this reason, the team is talking to firms in the food, fashion, retail and machinery sectors.

The Equity Partners Investment Club is also looking for family-run firms, in which entrepreneurs will continue to play a key role after the initial investment is made. This is an important consideration, given the fact the fund will be taking minority, and not controlling, interests in the organisations.

At this point in time, Mediobanca is talking to a number of entrepreneurs that see this investment vehicle as an appealing instrument for opening up their companies’ equity, while also receiving a decisive contribution in terms of quality. The relationships fostered with other shareholders through the club structure will undoubtedly add further value and expertise.

Top 5 ways AI is changing traditional finance

For decades the global financial services industry was stuck in its ways, unwilling to adapt or change its processes and becoming increasingly inefficient as a result. However, the advent of computing and Artificial Intelligence (AI) in the early 80s set off a chain reaction in the industry that led to the significant shake up we are still seeing today.

With large data sets and vast, complex global markets, the financial services industry is ripe for innovation

With large data sets and vast, complex global markets, the financial services industry is ripe for innovation, especially the adoption of AI. Furthermore, an increasing demand from consumers for improved experiences, efficiency and transparency has resulted in an increased need to adopt emerging technology.

1 – Increase efficiency
Decision-making in traditional trading was historically based purely on human intuition and years of experience of the markets. However, it was clear that the process could be made much more efficient. As such, automation was harnessed in the industry in the form of trading-bots; algorithmic programmes that automate trade executions based on an underlying set of rules.

Based on the earliest rule-based systems, where both market and fundamental data, such as price and volume information and public information on the traded assets, is analysed, these bots are still widely in general use. They have transformed the markets, bringing increased efficiency by enabling many more trades to be made in a shorter amount of time than previously possible.

2 – Trade commodities
Efforts to further refine these original trading-bots and increase the efficiencies already seen have led to the industry investing heavily in true AI and machine learning programmes. Through harnessing industry experts’ knowledge, as well as creating trading systems that enable AI to play a larger role in the process, the industry is seeing one of the biggest shake-ups since the introduction of computers.

One of the best examples of this is seen in the trading of commodities. Whether energy, food or metals, trading commodities is an important way of diversifying a portfolio beyond traditional securities to improve return on investment. Able to analyse great swaths of data, both environmental and historical, commodities trading with AI algorithms involves a diverse set of trading strategies that are developed, implemented and fine-tuned to optimise returns. Varying in scope and specialisation, together they create a holistic and reliable approach, previously unattainable when using only human traders.

3 – Democratise access
For decades, AI and machine learning algorithms, along with other leading technologies, were exclusively kept in the realm of the top global investment bankers and hedge funds. However, we are starting to see a democratisation of AI technology, enabling everyday consumers to harness this powerful technology for themselves. The increase of open-source projects have made these software programmes available to the masses.

Take commodities trading as above, it used to be that the average investor rarely chose this as a form of investment as it requires large amounts of expertise, time and money. However, the democratisation of AI and machine learning algorithms are opening the doors to trading in commodities to those who were previously unable to do so.

4 – Open up cryptocurrency trading
AI-based algorithms have also enabled successful trading in nascent and inefficient markets like cryptocurrency. Significantly less predictable than traditional markets, the cryptocurrency market does not have a value that is steadfastly defined and as such it is prone to volatile swings, both up and down.

In this wildly volatile market, data analysis and AI holds the key to unlocking the fast-changing dynamics. While humans are vulnerable to emotions running high and clouding their judgement, algorithms do not have this problem, and can work dispassionately for almost continuous periods of time. Further, AI algorithms are able to identify trading signals that humans cannot recognise, especially in markets that are depressed by blind pessimism as is often the case in cryptocurrency.

5 – Reduce trading risk
AI-driven algorithms are also able to avoid high risk margins and inefficiencies that invariably come about when humans influence trading, especially in overheated markets. Further, they can detect, analyse and act on any anomalies in the market, when they are in infancy, to counteract market manipulation; reducing the chance of being caught off guard or making the wrong investment call.

Harnessing AI also removes the risk of human error; strategies that would take around 300 financial analysts to create can be done by one AI in 48 hours. By replacing gut instinct with facts and artificial, data-based intelligence, the entire trading process is streamlined when in nascent and volatile trading markets.

Undoubtably, AI will continue to bring significant improvements to the financial services industry over the coming years. As AI and machine learning algorithms become even more sophisticated, they will permeate into more areas of the industry, bringing democratisation and opportunity of investment to the masses.

MB Securities: Vietnamese M&A boom will grow to $50bn in 2020

In early April 2018, the VNIndex hit a new record of 1,200 points – surpassing its previous peak in 2007. By June 2018, the market capitalisation of equity and debt markets reached $160bn, equivalent to the nominal GDP of Vietnam. There’s been notable foreign investment in the Vietnamese stock market – and MSCI predicts that it could be upgraded from a frontier market to an emerging market by 2020. MB Securities’ Tran Hai Ha and Le Quoc Minh discuss the prospect of an upgrade, Vietnam’s M&A boom, and MB Securities’ investment banking and advisory services in the country. This video is mostly in Vietnamese with English subtitles.

World Finance: My guests are Tran Hai Ha and Le Quoc Minh of MB Securities: a leading brokerage house in Vietnam. They join me to discuss the trends in the country’s $183bn stock market, and what’s driving the new wave of Vietnamese M&A activity.

How has the Vietnamese stock market been performing? What trends are you seeing?

Tran Hai Ha: In early April 2018, the VNIndex hit a new record of 1,200 points – surpassing its peak in 2007. By June 2018, the market capitalisation of equity and debt markets reached $160bn, equivalent to the nominal GDP of Vietnam.

In the stock market, about two million accounts have been opened so far – of which 30,000 accounts are held by foreign investors.

On 10 August 2017, the government introduced the derivatives products on the stock market, marking a new milestone in the development of the market to reach international standards.

Currently, the P/E ratio of the market stands at approximately 17 times, indicating a short-term expected growth of around 25-30 percent.

In addition, MSCI predicts that the Vietnam stock market could be promoted from a frontier market to an emerging market by 2020; making the Vietnam stock market more attractive to investors – especially foreign investors.

We believe that the Vietnam stock market has a huge potential to grow in the near future.

World Finance: How has MB Securities maintained your top five positions on the Hanoi and Ho Chi Minh stock exchanges?

Le Quoc Minh: Over 18 years in operation, we are always consistent with our goal of delivering the best securities services, and we follow this vision in every step we make. That’s the first.

Second, we possess one of the strongest research teams on the market, including industry specialists and experts.

Finally, being aware of the importance of online trading platforms, we have invested strongly in our in-house information technology over the last three years. As a result, we have launched highly qualified online trading services – including derivatives – on mobile and computers.

World Finance: Vietnam is seeing a resurgence in M&A activity; what’s driving this?

Tran Hai Ha: With a total population of 100 million, and a strong connection with about 600 million people in the ASEAN region, M&A activity has been dynamic across sectors – particularly in the retail sector, including consumer finance and fast moving consumer goods – with increasingly sizeable deals; which in turn attracts more international investors from Japan, Korea, the ASEAN region, and the EU.

In my opinion, Vietnam will continue to witness a boom in M&A activity in the long term, given the government’s commitment to restructure, an increasing improvement of the market economy and more open government policies.

Especially, under the state-owned enterprise restructuring plan, the government’s divestment of big state-owned enterprises such as Vietnam National Tobacco Corporation, Vinaconex, and Tien Phong Plastic, would bring about tremendous investment opportunities for foreign investors.

For the above reasons, it is predicted that M&A activity will explode in deal values and volumes across sectors, with total estimated value of $50bn in 2020.

World Finance: And how has MB Securities been improving your investment banking services?

Le Quoc Minh: Over the last three years, MBS has been among the top five local investment banking services. By the end of 2018, we aim to get into the top three. To achieve that target, we create a compatible blend of talent advisors and analysts, a strong network of clients, and an extensive brokerage team.

Over the last 18 years, we have built up strong relationships with large corporations and financial institutions domestically. Besides which, our team carries out independent assessments of every transaction thoroughly, which allows us to propose suitable deal structures to ensure mutual benefits between investors and clients.

A strong brokerage team also helps us to bring investment banking products to as many clients as possible.

Tran Hai Ha: Finally, MBS is actively involved in investment banking services, with financial and M&A advisory services available to clients. Operating as a proactive local securities firm in market, we fully understand corporate culture as well as legal systems.

I strongly believe that as a local securities firm, MBS has a strong competitive advantage in M&A advisory services in Vietnam, including cross-border deals.

World Finance: And what’s your strategy for the next five years?

Tran Hai Ha: We continue to focus on our two core businesses, being brokerage and investment banking services. In the meantime, we will keep improving our services – especially information technology – and expanding our client network locally and internationally.

In the next five years, we aim to become one of the three largest securities firms in Vietnam.

The Vietnamese stock exchange continues its remarkable ascent

With high-value areas such as banking, securities and real estate driving growth, Vietnam’s stock market is already able to satisfy many of the Morgan Stanley Capital International (MSCI) upgrade criteria – and it is making strong headway in meeting its additional requirements, too. BIDV Securities Company (BSC) believes that if this recent upward momentum can be sustained, the Vietnamese stock market could receive a market upgrade by as early as 2020.

Boasting increased macroeconomic stability and a pro-business financial environment, Vietnam is now one of the most attractive markets for foreign investors

Over the past quarter century, Vietnam has experienced a remarkable economic transformation. By shifting away from the agrarian economy of its past and moving towards an industry-and-services-driven model, the nation has rapidly emerged as one of South-East Asia’s fastest-growing economies. Indeed, having recorded an average annual per capita GDP growth rate of 5.3 percent since 1986, Vietnam has been developing faster than any other Asian economy – except for its neighbour to the north, China.

This growth trajectory can be traced back to the launch of the 1986 Doi Moi economic renewal campaign, which saved Vietnam from the brink of economic crisis by opening the nation up to lucrative foreign investment. These wide-reaching reforms had an almost instant impact, transforming a stagnant agricultural economy into the vibrant, market-driven system that Vietnam embodies today. Since this pivotal moment, Vietnam has also benefitted from a programme of intense internal restructuring, which has seen successive governments push through sweeping regulatory changes to increase inflows of foreign direct investment (FDI).

The introduction of such pro-business legislation has created an attractive business environment for international companies, and Vietnam now ranks as one of Asia’s most popular destinations for foreign investors. In a demonstration of economic ambition, the Ho Chi Minh Stock Exchange was launched in 2002, signalling the birth of Vietnam’s stock market. Showing consistently strong performance in the years since its establishment, the Vietnamese stock exchange now ranks among Asia’s top bourses. And with economic growth predicted to reach an impressive 6.8 percent in 2018, Vietnam’s progress shows no signs of slowing down.

An enticing opportunity
Boasting increased macroeconomic stability and a proudly pro-business financial environment, Vietnam is now one of the world’s most attractive markets for foreign investors. Over the course of the past 20 years, Vietnam has received over $70bn in FDI, with FDI enterprises now responsible for 30 percent of the nation’s total industrial production. This FDI boom appears set to continue, with Vietnam attracting investments totalling $5.8bn in the first quarter of this year alone.


FDI received by Vietnam over the past 20 years


FDI received by Vietnam in the first quarter of 2018


Proportion of Vietnam’s industrial production made up of FDI enterprises

Along with Vietnam’s stable business environment and high-quality investment opportunities, the nation’s vast demographic dividends have also proved appealing to foreign investors. With a population of almost 100 million people – 60 percent of whom are under the age of 35 – Vietnam is able to supply a young, highly skilled and abundant workforce to international enterprises at a competitive cost. What’s more, Vietnam enjoys one of the healthiest independent-to-dependent ratios in the region, with a large pool of skilled and educated workers.

As Japan, South Korea, Singapore and even China struggle with the challenges of an ageing population, Vietnam’s healthy demographic structure is particularly attractive to Asian investors from the surrounding region. Indeed, South Korea was the leading investor in Vietnam in the first quarter of this year, with FDI totalling $1.84bn, while Hong Kong and Singapore followed in second and third place, respectively.

In order to further boost inflows of FDI to Vietnam, the government has worked diligently to improve its institutional framework and transparency, as well as to establish more favourable regulations for foreign investors. This commitment to creating a robust business environment has seen a number of significant changes in recent years, from a reduction in corporation tax to tax breaks for specific sectors. These efforts have yielded extremely positive results, with Vietnam jumping 14 places to rank 68th in the World Bank’s Doing Business 2018 report.

The report revealed that Vietnam, along with its South-East Asian neighbour Indonesia, has implemented the most financial reforms in recent history, with an impressive total of 39. Over the course of the past year, Vietnam has notably scrapped the previously mandatory 12-month carry-forward period for VAT tax credits, and has also created an online platform to facilitate filing social security contributions. Reforms such as these demonstrate the government’s commitment to continuously improving the business climate in Vietnam, and help to explain why foreign investors continue to flood to the Vietnamese market.

Attracting inflows
Foreign investors have played a significant role in our nation’s economic growth since the transformative Doi Moi period. Without these crucial investment inflows, Vietnam simply would not be the roaring economic powerhouse that it is today. From boosting job creation to driving technological advances, FDI has been a catalyst for socioeconomic development in Vietnam.

As Vietnam seeks to maintain its impressive growth rate, it is vital that the nation continues to attract FDI, particularly in high-value-added areas. At BSC, we are committed to increasing FDI inflows to Vietnam through our investment, brokerage and financial advisory services.

Thanks to our local market expertise and valuable access to data, BSC has established a large international customer base, comprising clients from various fields and professions. Our investment advisory team applies its in-depth market knowledge to its brokerage business, offering clients crucial guidance as they explore promising investment opportunities. This brokerage business is supported by BSC’s detail-orientated research and analysis department, which uses a data-driven approach to identify appropriate investment strategies for both domestic and international investors.

By analysing current market trends and forecasting future industry patterns, the research team assists clients in deepening their understanding of the Vietnamese business landscape. Meanwhile, our investment banking department provides a range of crucial products and services to clients, from assisting with restructuring or privatisation initiatives to advising on mergers and acquisitions (M&A).

Vietnam has experienced a surge in M&A activity in recent years, with deal values reaching a record $10.2bn in 2017. This trend shows no signs of stopping in 2018, with M&A activity totalling $3.35bn in the first half of the year, up by 39 percent from the same period in 2017. Despite the disappointing collapse of the Trans-Pacific Partnership earlier this year – and subsequent fears over a potential Sino-US trade dispute – the Vietnamese M&A market has continued to flourish, with the property sector driving deals in the opening months of 2018. With the Vietnamese Government planning to sell shares in hundreds of state-owned firms in the coming years, the nation’s M&A market is set to attract even more international attention.

Stock market strength
As one of the nation’s largest securities firms in terms of capital and size, BSC has played an important role in shaping the Ho Chi Minh Stock Exchange, which has performed strongly since launching in 2002. With investors continuing to exhibit a keen interest in the Vietnamese stock market, the Ho Chi Minh Stock Exchange may well be upgraded to emerging market status by 2021.

While obstacles like information disclosure and market transparency may pose a challenge to any hopes of a status upgrade, we are optimistic that Vietnam will be admitted onto the MSCI watchlist for market reclassification, scheduled for release in 2019.

In June, MSCI announced that it would be upgrading both the Saudi Arabian and Argentinian stock markets to emerging market status. This gives much cause for optimism, as BSC believes the Vietnamese stock market compares well – and in some areas, favourably – to the Saudi Arabian and Argentinian markets. In contrast to the primarily oil-driven Saudi economy, the Vietnamese market is highly diversified with a range of well-performing domestic industries. A fall in the peso’s value, meanwhile, has taken a severe toll on the Argentinian market, with the country currently reporting one of the highest inflation rates in the world.

In comparison, the Vietnamese market is stable, with consistently high GDP growth rates. Interest rates and foreign exchange markets are also relatively stable, with the securities market boasting particularly strong and steady growth. What’s more, the Vietnamese Government is committed to cutting red tape and creating an attractive business climate, accelerating regulatory changes that have helped to create more opportunities for both domestic and foreign investors.

As one of Asia’s most promising bourses, Vietnam’s stock exchange is considered to be a great prospective market. Indeed, the Vietnamese stock market could achieve its well-deserved market upgrade in just a few years if it maintains its current trajectory. With this exciting possibility now on the horizon, the future for Vietnam’s stock market looks brighter than ever.

China vows to fight rising protectionism

Chinese Premier Li Keqiang has promised to open up China’s economy in the face of rising global protectionism, as he travels to Singapore for trade talks with APAC leaders.

Writing in the Straits Times newspaper on November 12, Li said: “China has opened its door to the world; we will never close it but open it even wider.” He also called for an “open world economy” in the face of “rising unilateralism”.

While APAC nations have been reaffirming their commitment to co-operation, Trump has been making his dislike of multilateral agreements well known

Li’s remarks also coincided with a call from Singapore’s Prime Minister Lee Hsien Loong for more economic cooperation between governments in the APAC region. Speaking at the Asean Business and Investment Summit on November 12, Lee stated that multilateralism is “fraying under political pressures,” but argued that disintegration could be combatted by fiscal and regulatory openness.

Neither Li nor Lee directly mentioned the US-China trade war, but it is expected to be a key topic of discussion at this week’s meetings with APAC leaders in Singapore. All ten leaders of the Association of Southeast Asian Nations are expected to attend, along with Russian President Vladimir Putin, Indian Prime Minister Narendra Modi and Japanese Prime Minister Shinzo Abe. US President Donald Trump will be noticeably absent, having selected Vice President Mike Pence to attend in his place.

Also on the schedule for debate is the Regional Comprehensive Economic Partnership pact, which is currently under negotiation by 16 countries including China, India, Japan and South Korea. If passed successfully, the pact will represent more than one third of the world’s GDP. The US is not included in the deal.

While APAC nations have been reaffirming their commitment to co-operation, Trump has been making his dislike of multilateral agreements well known to the international press. The US president pulled out of a major Pacific trade deal, the Pacific Rim, just after taking office in 2017, claiming that multilateral agreements cost American jobs. He also aggressively re-negotiated the North American Free Trade Agreement earlier in 2018 in order to achieve a more favourable deal for the US.

This aggressive international stance, combined with his proud self-declaration as a “nationalist,” earned the US president a stony reception in Paris on November 11, when he arrived for a ceremony commemorating 100 years since the end of World War One. In a speech to world leaders, including Trump and German Chancellor Angela Merkel, French President Emmanuel Macron urged against national insularity, instead advocating cross-border cooperation. “By putting our own interests first, with no regard for others, we erase the very thing that a nation holds dear,” he said.

Merkel echoed Macron’s sentiment in her speech at the same event, stating: “The First World War showed us what kind of ruin isolationism can lead us into. And if seclusion wasn’t a solution 100 years ago, how could it be so today?”

Trump is expected to discuss the US’ economic co-operation and participation in global trade agreements at the G20 summit in Buenos Aires at the end of November. This will include a highly anticipated meeting with China’s President Xi Jinping, following months of tit-for-tat tariff application between the world’s two largest economies. However, with Trump’s continuing allegations of intellectual property theft and technological tampering against China, hopes of reconciliation are fading fast.

Poor infrastructure is threatening to derail the US shale boom

This July, the US crude oil industry celebrated a groundbreaking moment when its output averaged an estimated 11 million barrels per day (BPD) for the first time ever (see Fig 1). This makes the US the world’s second-largest producer, behind only Russia. The surge is largely down to the boom in shale oil and gas production in the Permian Basin across the west of Texas and south-east New Mexico. Drilling in the region began to ramp up a decade ago, and it is only projected to continue growing. But there is one hurdle standing in the way: a lack of critical infrastructure.

It is not just oil pipelines that are unable to keep up with demand – the associated natural gas production has also overwhelmed the system

In recent months, producers have experienced pipeline bottlenecks due to the vast amounts of oil and gas being pumped out of the Permian Basin, where output has reached around 3.4 million BPD. With the current pipeline capacity sitting at approximately 3.56 million BPD, analysts expect the constraints to begin limiting growth in the region next year.

Growing pains
Before the rapid development of America’s shale industry caused a new surge in crude output, US oil production peaked at about 9.6 million BPD in 1970. After that, it decreased steadily, falling as low as five million BPD in 2008. Around this time, however, producers revolutionised the industry by using hydraulic fracturing, or fracking, and horizontal drilling to extract oil and gas trapped in reservoir rocks. Production soared at the fastest pace in the country’s history, upending the global oil and gas industry.

The Permian Basin is at the centre of the US shale boom. It is one of the world’s thickest deposits of rocks from the Permian geologic period, and along with the legendary Ghawar Field in Saudi Arabia, the Permian is one of the world’s most prolific. Since 2012, production there has grown by about two million BPD, which is more than any other field.

It is estimated that another 75 billion barrels of recoverable oil lie within the Permian. Brian Collins, a senior researcher at S&P Global Market Intelligence, told World Finance that this basin will be the “mainstay for US production for the foreseeable future”.

Its success, however, is beginning to highlight cracks in the area’s infrastructure. By the end of 2018, BP Capital Fund Advisors expects production to exceed available pipeline space by 300,000 to 400,000 BPD. By 2019, that gap will rise to 750,000 BPD, causing a “significant” amount of oil to be stranded in the basin.

And it is not just oil pipelines that are unable to keep up with demand – the associated natural gas production has also overwhelmed the system, and the accompanying water that is produced is becoming a problem too. For every barrel of oil produced, between three and five barrels of contaminated water must also be piped away. Additionally, more pipelines will soon be needed to handle natural gas liquids, which are components of natural gas.

“So we’ve got basically four different infrastructure systems that are extremely challenged right now. This basin is not going to stop growing, either. It’s going to keep growing as these companies expand across it,” Collins said.

Shifting away
As news came to light in May that pipeline bottlenecks were constraining crude shipments, the share prices of companies based in the region started to slide. At the beginning of June, Bloomberg reported that eight of the basin’s pure-play drillers had lost $15.6bn in combined market value in just two weeks – or around $1bn a day.

2 million

The growth in BPD production in the Permian Basin since 2012

3.4 million

The BPD production capacity in the Permian Basin

3.56 million

The BPD capacity of pipelines in the Permian Basin

What’s more, oil behemoth BP recently revealed its oil trading unit had swung to a quarterly loss due to the Permian bottlenecks, which have led producers in the region to sell their crude at a hefty discount relative to benchmark West Texas Intermediate prices. While the spread was as little as 40 cents at the beginning of the year, it reached between $15 and $20 a barrel in August. This discount is expected to persist for at least another year.

Not only are producers grappling with discounts on their oil, but in response to the squeeze companies have also been forced to go down the expensive route of storing their crude or driving it hundreds of miles on trucks to pipelines in other parts of the state.

Because of this, ConocoPhillips – one of the top oil producers in the US – revealed in June that it would temporarily redeploy resources out of the Permian Basin. “We have other opportunities to go spend our capital,” CEO Ryan Lance told the Financial Times. “And I am not sure it makes sense to drill into that headwind.” A number of other companies both big and small are beginning to “shift their emphasis to other basins”, Collins said.

But while oil and gas firms with deep pockets can wait around for returns on their investments, the midstream companies that build the desperately needed infrastructure cannot make investments into pipelines without knowing if they will receive a steady volume of oil or gas.

“An issue right now is a lot of the natural gas pipelines that are needed are having a hard time getting off the ground because producers are not necessarily used to having to pay somebody to build them a pipeline to get rid of their gas,” Collins said. Even one of the largest pipeline builders in the US, Kinder Morgan, is conservative about the prospect of building new pipelines.

The big fix
According to BP Capital, “meaningful relief” is set to come to the Permian in the second half of 2019 with the set-up of key long-haul pipelines, such as EPIC, Gray Oak and Cactus II. The International Energy Agency (IEA) said TexStar Midstream Logistics’ EPIC pipeline – one of the biggest and most advanced projects in development – “holds the key to solving pipeline bottlenecks in 2019”.

The pipeline was originally set to carry 440,000 BPD, but it could be upgraded to transport 675,000 BPD due to high demand. Once these pipelines are in place, crude oil produced in the region is expected to stop selling at a discount compared with benchmark prices.

In BP Capital’s view, the sell-off in the region’s exploration and production firms was “overly severe and particularly short sighted”. The firm stressed in an online article that the bottlenecks are a “relatively short-term issue that does not diminish the long-term attractiveness and potential of the Permian Basin”.

While it is true the basin remains attractive for many producers, the IEA expects output to grow at a slower rate in 2019 as pipeline capacity remains tight. The Paris-based agency predicted output would rise by 1.3 million BPD this year, and just 900,000 BPD in 2019. According to the IEA: “Pressure on midstream infrastructure and pipeline capacity out of the Permian and Eagle Ford basins in Texas is unlikely to be resolved before the second half of 2019. Labour shortages, road congestion and water disposal constraints could also contribute to curbs in expansion in the short term.”

There are additional concerns that the pipeline projects could face delays. Analysts at Morgan Stanley expect slowdowns of three to six months for some projects due to the complexity of the proposed lines. This could lead to the production of just 360,000 BPD in the Permian Basin in 2019, Morgan Stanley said. Some midstream companies also face higher-than-expected material costs because of President Donald Trump’s 25 percent tariff on steel imports. For Plains All American Pipeline, which is building the 585,000-BPD Cactus II pipeline, the tariff has increased the cost of its $1.1bn pipeline by about $40m.

However, it is unlikely the basin’s problems will end in 2019. Production is expected to continue ramping up in the region in the decades to come, and the planning process for building pipelines appears to be flawed. Collins said a new type of financing would be needed to allow producers to better cooperate with midstream players: “If oil and gas companies actually formally commit and sign on to be a shipper on a pipeline, that’s how these pipelines will get built.” Yet, Collins admitted, most producers are reluctant to own their own pipeline.

Therefore, the ‘Wild West’ environment is expected to continue. Collins said: “It seems like it’s just going to be this odd situation where we’re going to get these pipelines all built [and,] say two years from now, we have brought the pipeline space up to where it can handle all of the natural gas and the liquid output. But then I think that producers are going to continue to race along, and maybe this is going to be a backwards-and-forwards kind of situation for many years.”

Although the new pipeline projects face some potential hiccups, the current bottlenecks in the Permian Basin are indeed a short-term problem. But the industry should take it as a warning that until a more cooperative process is formed between producers and pipeline builders, this could be the first glimpse of an issue that could plague the future of one of the world’s top shale basins.