The first African Investment Forum secures billion-dollar investments for the continent

When I set out my vision to tilt the flow of capital towards Africa’s critical sectors through the Africa Investment Forum, the notion of convening a purely transaction-based forum was more an aspiration than a reality. One year down the road and the verdict is undisputed: Africa’s investment opportunities are proving seriously attractive.

The inaugural Africa Investment Forum secured record levels of investment interest in just under 72 hours, generating deals worth billions of dollars. In total, 63 projects valued at $46.9bn from 24 countries and across seven sectors were discussed during closed boardroom sessions involving investors, project sponsors and government representatives. Investment interest was secured for 49 projects, worth a collective $38.7bn. A further $51.2bn worth of deals were featured in the Africa Investment Forum gallery – a showcase of key projects that were not discussed during boardroom sessions.

The inaugural Africa Investment Forum secured record levels of investment interest in just under 72 hours, generating deals worth billions of dollars

Winning partnerships
Africa’s economic transformation is also being achieved through collaborative leadership and strategic partnerships. Beyond the African Development Bank, the Africa Investment Forum’s founding partners include Africa50, the Africa Finance Corporation, the African Export-Import Bank, the Development Bank of Southern Africa, the European Investment Bank, the Islamic Development Bank, and the Trade and Development Bank.

Development finance institutions, multilaterals and global investors are keen to work together in ways never done before. This was demonstrated by the $800m agreement signed between Africa50, the African Development Bank and the governments of the Democratic Republic of the Congo and the Republic of the Congo. The project, which seeks to develop and finance the first road-rail bridge linking the countries’ respective capital cities – Kinshasa and Brazzaville – was chaired in the boardroom by Africa50.

Already, the Africa Investment Forum has helped facilitate several deals that will benefit the continent’s critical industries, including a $10.9bn petrochemical deal in Egypt. A $2.6bn memorandum of understanding between consortiums from Ghana and South Africa – signed in the presence of Ghanaian President Nana Akufo-Addo – to develop and finance the Accra Ai SkyTrain project will also deliver significant benefits. This deal is unique in that the Ghanaian sovereign wealth fund, in its role as an anchor equity investor, crowded in other commercial and concessional investors.

In addition, a $400m cooperation agreement between Africa50 and the Rwandan Government to develop and finance the Kigali Innovation City project has been approved. This will help boost the innovation ecosystem in one of Africa’s emerging knowledge cities. Other notable deals that secured investor interest include a $3.7bn railway project in South Africa, a $3.2bn fertilisers and petrochemicals project in Nigeria and a $300m hydropower project in Gabon.

The Africa Investment Forum has positioned itself as an honest broker between governments and private sector stakeholders, including project sponsors, investors and transaction facilitators. A heralded feature of the inaugural Africa Investment Forum was the presence of seven African heads of state, who reiterated their commitment to providing an enabling environment for investors, with some of them also participating in the boardroom sessions of their respective countries.

The Lusophone Compact – signed by the African Development Bank, the Government of Portugal and six Portuguese-speaking countries – is another strong demonstration of the forum’s convening power. A pipeline of private sector and private-public partnership projects worth in excess of $5bn has already been identified in these countries.

Round two
Following the 2018 edition, the Africa Investment Forum has launched a new digital platform to connect investors with investment opportunities in Africa and vastly improve the quality of project information and documentation. The Platform, as it is known, provides a live database of private and private-public partnership projects, as well as a repository of information on investors and technical assistance providers on the continent. The Platform currently hosts more than 500 users and 110 companies, with over 30 percent based outside Africa. It is hoped that this community will continue to grow in the years to come.

The Africa Investment Forum is dedicated to advancing projects throughout the continent to bankable stages, raising capital and accelerating the financial closure of deals to provide opportunities for accelerated economic transformation on the continent. In the coming years, the forum promises to bring big things to the African continent.

The EU and Mercosur continue to negotiate cross-Atlantic trade deal

G20 summits rarely produce breakthroughs in world affairs, but the latest one, held in Osaka in June, was an exception: the four founding members of Mercosur, a South American trading bloc, and the EU announced that they have reached a provisional deal that could exponentially increase trade across the Atlantic.

Mercosur comprises Argentina, Brazil, Paraguay and Uruguay. The scale of the proposed deal with the EU will create a transatlantic market of nearly 800 million consumers, accounting for nearly a quarter of the world’s GDP.

It’s a deal
The agreement is a meeting of minds between two giants of global trade. Together, the two trade blocs account for a little less than 20 percent of the world’s trade.

In an era of rising populism, centrist leaders see trade liberalisation as a great opportunity for Europe’s trade prospects

Experts have dubbed the agreement a typical ‘food-for-cars’ deal. While European manufacturers are keen to tap into Latin American markets, Mercosur boasts a robust agricultural sector with limited access to European markets due to tariffs on products such as pork, sugar, ethanol and beef. The two blocs will lift or reduce tariffs on a wide range of goods, although services will be largely excluded. Tariffs on EU products exported to Mercosur are expected to decrease by over €4bn ($4.42bn).

Better late than never
But if the deal is mutually beneficial, why did it take two decades for it to be agreed upon (albeit provisionally)? The answer lies in domestic politics on both sides of the Atlantic. Governed by socialist governments at the beginning of the 21st century, Argentina and Brazil followed inward-looking economic policies, shunning trade liberalisation. Venezuela joined the group as a full member in 2012, only to be ousted four years later.

The political climate changed around the same time, when new governments elected in Mercosur countries were more willing to reform existing trade restrictions.

For its part, the EU demanded concessions in non-agricultural markets and services that the South American bloc was not willing to offer. Powerful interest groups representing the European farming industry blocked any progress through fierce lobbying, claimed Julio Nogues, an economist who previously served as Argentina’s trade representative to the US. Pressure from South American manufacturers was even fiercer, according to Nogues: “For these groups, there has never been an interest in signing trade agreements and particularly with highly advanced, industrial and competitive countries like the EU ones.”

The EU’s negotiating approach was heavily influenced by the concurrent negotiations between the US and the South American bloc, according to Dr Felicitas Nowak-Lehmann, a trade expert at the Ibero-America Institute for Economic Research, University of Göttingen: “When the US lost interest in the Free Trade Area of the Americas in 2003-04, the EU lost interest in negotiating with the Mercosur as well.”

This changed after 2016, when the US shifted to a protectionist stance following the election of President Trump, opening the way for the EU to adopt a different approach, said Dr Claudia Schmucker, a trade expert at the German Council on Foreign Relations: “The external factor of Donald Trump was decisive in finalising the agreement. The EU and the Mercosur countries realised that they had much to lose due to the current US trade policy.”

In an era of rising populism, centrist leaders see trade liberalisation as a great opportunity for Europe’s economy. The EU will also be keen to avoid a debacle like the protracted Transatlantic Trade and Investment Partnership (TTIP), a US-EU trade agreement that has been effectively shelved due to public discontent in Europe, and President Trump’s reforms to US trade policy. The prospect of a similar backlash to TTIP accelerated the signing of the agreement with Mercosur, Nogues told World Finance: “In the EU, fears of leaders over a growing nationalist sentiment in Europe must have been a factor in endorsing this draft [of the agreement].”

What’s the beef?
Although formal negotiations between the two blocs concluded in June, the process of implementing the agreement is far from over. Ratification, by national parliaments on both sides of the Atlantic and the European Parliament, is far from certain. The announcement of the deal has raised concerns in countries with strong agricultural sectors, such as France and Ireland, which fear competition from Mercosur producers.

Copa-Cogeca, a lobby group representing European farmers, sent an open letter to the European Commission warning against double standards on food safety that may create unfair competition for European producers.

Approval by EU member states should not be taken for granted, Schmucker said: “The real challenge will be the national parliaments. It will take years to ratify – if ever.” Schmucker pointed to the Canada-EU trade agreement as an example of a long ratification process that encountered several obstacles, including a last-minute rejection by Wallonia’s parliament. This could be repeated, Schmucker told World Finance, with strong opposition coming from agricultural and environmental groups across Europe. Ratification may also be hindered by the French political calendar, with President Emmanuel Macron potentially being pressured by powerful lobbies as the presidential election approaches in 2022, said Gaspard Estrada, Executive Director of the Political Observatory of Latin America and the Caribbean at Sciences Po University.

In South America, Alberto Fernández, an ally of the former president Cristina Fernández de Kirchner, is the favourite to defeat the current pro-business president, Mauricio Macri, and win the second round of the general election at the end of October. A Fernández government would be bad news for the deal, said Nogues: “Based on the recent experience of the Kirchner government, there is little doubt that Argentina will opt out from the agreement.” However, if rejected by one or more Mercosur country, Nogues noted, the agreement is likely to enter into force bilaterally.

To sweeten the pill of trade liberalisation for threatened sectors, negotiators incorporated into the deal provisions for the gradual lifting of barriers, such as phase-in periods and quotas. Brazil, one of the largest beef producers in the world, will benefit from an export quota of 99,000 tonnes of beef at a 7.5 percent tariff, but this will be phased in over five years. The EU has also pushed for high food safety standards, which most Mercosur countries will find difficult to meet. “There is more than enough time for protected industries in Mercosur to adjust and for governments to remove unnecessary regulations that make this part of the world quite inefficient,” Nogues said. “While [these] remain… industrialists will keep rejecting the agreement, and in Argentina, the next government is likely to listen to them.”

Stoking the fire
One of the most contentious issues around the deal is its impact on the environment – a topic that is expected to feature higher on the agenda of trade negotiators in the future. Brazil’s President Jair Bolsonaro is one of the world’s most prominent climate change sceptics; his government has often been accused of abetting illegal logging, burning and land invasion. Critics also point to human rights abuses against the country’s indigenous tribes.

Deforestation in the Amazon, a region known as ‘the lungs of the world’, hit a new record this summer with an area the size of three football fields being lost every minute, according to the DETER-B satellite monitoring system. Critics of the Bolsonaro government have publicly threatened to block the deal in the European Parliament. In March, a cross-party group of MEPs signed a letter to the EU trade commissioner, warning that they would not vote for the agreement unless there are guarantees that Brazil meets its commitments under the Paris climate agreement, and safeguards the rights of indigenous tribes.

Dr Molly Scott Cato, an environmental economist and MEP for the UK Green Party, told World Finance: “The shocking increase in destruction of the Amazon rainforest under Bolsonaro’s watch is now indisputable. The EU must put its rhetoric into action and make climate action and human rights a precondition to signing off the Mercosur trade agreement.” Protecting European farmers from unfair competition is also important, Cato added: “The EU must not accept lower environmental, pesticide, traceability and animal welfare standards, as these will threaten to undermine European farmers.”

Brazil’s lukewarm reaction to unprecedented wildfires in the Amazon region this summer has also stoked the flames of discontent against the Bolsonaro regime. France and Ireland have threatened to block the deal unless the Brazilian Government does more to guarantee the protection of the rainforest, with the French president directly accusing Bolsonaro of lying about the country’s climate commitments in Osaka. Environmental concerns are warranted, Schmucker said, but ditching the deal might backfire: “The question is whether the EU has more leverage with a trade agreement or without. The Brazilian president… promised at least to stick to the Paris climate agreement. And the EU has at least some kind of influence through this agreement, whereas other countries such as China have fewer qualms about importing ore, meat and soybeans produced through questionable [standards of] production or exploitation.”

The fight for free trade
For the outgoing Juncker Commission, the agreement may be the crowning achievement of an aggressively pursued trade agenda over the past five years. Spearheaded by the energetic trade commissioner Cecilia Malmström, the commission led the negotiations that produced deals with some of Europe’s most important trading partners, such as Canada and Japan.

If ratified, the deal will cement the EU’s role as a bulwark against US protectionism. The timing of the announcement couldn’t be more fitting, as the repercussions of the US’ unilateral approach to trade become clearer and clouds gather over the world economy. Under Donald Trump’s leadership, the US has repeatedly threatened the EU with tariffs on products such as cars and cheese, accusing Germany of currency manipulation. Trade experts believe the Mercosur deal could allow the EU to replace some of the ethanol, beef and cereal it imports from the US, while its own car industry would tap into South American markets as a response to potential US tariffs. Diversification is also a goal for Mercosur countries, Estrada said, given Brazil and Argentina’s increasing reliance on trade with China.

The message to the US is clear, said Dr Stephen Woolcock, head of the LSE’s International Trade Policy Unit and former consultant to the European Parliament and the European Commission: “Free trade agreements are important as a second-best option at a time when the US is eroding the existing system and China [is] not helping develop it. The signal is that the EU is still negotiating and concluding important trade agreements.” Through these deals, the EU – often accused of being protectionist – is projecting its image as a champion of free trade, added Woolcock: “These are second-best to a multilateral order, but they are at least supportive of a progressively open rules-based system in which parties cooperate and reach an agreed position. This contrasts with the US’ power-based approach to trade, which is to threaten the closure of existing market access unless trading partners make concessions.”

By supporting the establishment of global supply chains, trade agreements such as these can help the EU win the competition against the US and China to set trade and industry standards. The EU is keen to sustain the so-called ‘Brussels effect’ – an informal regulatory process through which the bloc can effectively impose its own rules on industries, such as chemicals and agriculture, due to the sheer size of its market. The deal with Mercosur may boost the EU’s role in setting trade standards, Schmucker said: “The EU sends a signal that – despite all the internal problems – it is still a global player in trade. While the US focuses on ‘America first’ and increasing trade protectionism, the EU is able to open markets and to develop modern trade standards and norms worldwide.”

The UK will lose the benefits of the Brussels effect if it leaves the EU with a no-deal Brexit in October, as the country will not be able to reap the benefits of agreements that the EU has signed with trade powerhouses such as Mercosur, Canada and Japan. The EU-Mercosur deal serves as a stark reminder of Brexit’s detrimental effect on the UK’s leverage in global trade, Schmucker said: “The UK will have major problems after leaving the EU as it will lose the appeal of the common European market with about [450] million consumers. In a world where market power dominates trade negotiations, the UK as a single country will have a hard time negotiating trade agreements without making major concessions.”

Financial inclusion will help all citizens reap the rewards of Philippine growth

The Philippine economy is currently experiencing sustainable, non-inflationary growth. Despite a slight setback in Q1 2019 – due, in large, to political hurdles delaying passage of the national budget – there is still an optimistic growth outlook for the year, with GDP expected to expand by 6.1 percent in real terms.

Due to lower energy and food prices, as well as favourable foreign exchange rates, inflation has been decelerating fast from its 2018 high of 6.7 percent, registering a low of 2.4 percent in July 2019 (see Fig 1). This has resulted in a recovery of household disposable incomes and, in turn, consumer spending – the largest component of Philippine economic activity. This also explains the robustness of the country’s retail sector and the recovery of its property market following the temporary inflation scare of 2018.

The Philippine peso has been remarkably strong in relation to other major currencies too, due not only to expectations of US Federal Reserve rate cuts, but also to heavy portfolio inflows from overseas investors who are finding the country’s macroeconomic story to be particularly compelling. It may be noted that, notwithstanding an increased fiscal load (the deficit is expected to remain at around 3.2 percent of GDP until 2022), the country still managed to earn a credit rating upgrade from Standard & Poor’s, reaching a historic high of BBB+. This is indicative of the positive outlook both investors and creditors have for the Philippines.

BDO Trust’s strategic plan is to continue to invest heavily in technology, enhancing digital facilities and making investments more inclusive

Changing channels
At BDO Trust, we are well aware that now is a great time to invest in the Philippines, but we also understand that risks remain present in all markets. With expertise in managing investment funds, BDO can provide the advice individuals and corporations need to ensure they build a portfolio that caters to their particular interests and matches their appetite for risk.

With the 2019 budget now signed and the current administration gaining a sweeping political victory in the mid-term elections, there are unlikely to be any more delays to its implementation. The government has already resumed its huge infrastructure programme, while public sector spending is poised to accelerate once again in the second half of the year. In addition, the Philippines has returned to an environment of declining interest rates after its central bank, the Bangko Sentral ng Pilipinas (BSP), moved to cut policy rates in response to decelerating inflation. This will encourage additional borrowing from both households and corporations, and consequently lead to stronger private spending and investments.

As our customers start to feel the effects of this economic growth, we are confident that BDO will prosper alongside them. We listen to their needs, goals, aspirations and concerns – it may sound cliché, but at BDO, we are very aware that we only exist because of our customers. As such, BDO continues to deliver greater value to clients through innovation and differentiated services. Part of our business strategy is to use new technology to increase our organisational efficiency. In fact, we are currently in the process of upgrading our legacy systems and, in doing so, reviewing and re-engineering our processes to provide greater scalability and increase our capacity to serve customers.

According to social media management platform Hootsuite, Filipinos spend more time online than any other nation, so we must ensure BDO can reach customers via the appropriate channels. As such, we are currently in the middle of enhancing our online and mobile platforms to greatly improve the customer experience. What’s more, BDO looks forward to delivering additional online products and services that are currently only accessible through traditional advisory channels. This will complement our branch distribution network, which is already known to be among the strongest in the country.

We also want to be regarded as one of the most dynamic trust entities in the Philippines. With this in mind, BDO’s growing suite of products and services takes both changing regulatory environments and clients’ growing sophistication into account. We have also revamped the way we communicate market developments and investment strategies to our customers, delivering economic briefings and investment forums in their primary language wherever possible. As we make an array of fund products available to clients to help diversify their risk and improve their investment returns, we have intensified and enriched our product training, better equipping branch personnel to advise on appropriate investment products that meet clients’ specific financial goals.

Finally, BDO’s Invest in the World event, which brings together leading managers, market analysts and product specialists, has made gleaning insights from asset management experts easier than ever. This annual gathering is held in cities where the majority of our investors are concentrated, presenting them with a wealth of international opportunities that are available through BDO’s managed funds.

Everyone on board
The improvement of financial inclusion in the country can mostly be attributed to the work of the BSP. The Philippines’ central bank has been advocating financial inclusion in recent years, encouraging banks and other financial entities to educate Filipinos throughout the country. BDO has been supportive of this drive, conducting financial inclusion and educational activities to the benefit of BDO and non-BDO clients alike.

Increasing smartphone and internet access has also helped Filipinos become more informed regarding financial products and services. Budgeting apps, financial planning tools, and tips and guides on how to improve individual finances are now readily available to download or stream. As a result, information is easily accessible at any time – something that could not be said a few years ago.

Greater financial inclusion allows underbanked or unbanked Filipinos to gain access to the country’s banking system, potentially improving their lives and eventually making them more productive citizens. What’s more, it helps Filipinos understand that there are different financial products and services available to them. With greater financial inclusion, Filipinos from a range of backgrounds can access the investment products that were previously reserved for the affluent, giving more people the opportunity to generate wealth. Consequently, the financial potential of citizens who are either used to keeping their money at home or in simple deposit accounts is unlocked. By improving the general financial wellbeing of Filipinos, we can reduce society’s reliance on social benefits and improve long-term fiscal sustainability.

To bridge the gap between knowledge and application, BDO has launched several initiatives in this area over the past few years. For example, we developed the BDO Easy Investment Plan to allow individuals to invest in different BDO Unit Investment Trust Funds for as little as PHP 1,000 ($19.12) per month or PHP 500 ($9.56) per payday. This has made investing affordable for our clients, who can access the services in branches nationwide or via the BDO Invest Online platform.

We also provide investment education online. Our website receives enquiries from local and overseas clients – as well as prospective customers – each month, and these are individually answered by our product training officers. Articles and tips on investing are published on the website to show the virtues of investing early, dollar-cost averaging and taking appropriate risks to obtain higher yields. Our strategic plan is to continue to invest heavily in technology, enhancing our digital facilities and making investments more inclusive by providing online services and mobile functionalities to all Filipinos.

Acting like a start-up
BDO currently has the widest and most robust multi-channel distribution network in the Philippines, incorporating both digital platforms and traditional channels. More than 1,100 physical branches – in addition to the BDO Invest Online and BDO Mobile Banking platforms – provide easy access to our trust and investment products. We take particular pride in the BDO Invest Online service, which features best-in-class functionalities, including a straightforward account-opening process and a Personal Equity and
Retirement Account application option.

Our strategy looks at the wider competitive environment and views technological adaptation as being crucial to leading the market. As such, BDO has embarked on a comprehensive system enhancement to prepare us to scale the business further and change the way we interact with clients. BDO’s aim is to continuously improve its digital assets, staying relevant to the needs of customers, who are becoming more technologically savvy and demanding.

Global financial institutions are now employing big data and artificial intelligence to improve operational efficiency and productivity. Given the fast pace of growth in the industry – and the amount of data available – we strive to adapt to these developments in order to maintain our momentum. Big data allows us to make decisions based on relevant information and verifiable data instead of basing them on instinct, personal experience and gut feelings. Similarly, artificial intelligence will allow us to make use of big data in a more efficient and scalable manner. Developments in these two technological frontiers will help us adapt to future industry changes.

In terms of market structure, there are currently around 30 traditional players in the domestic trust industry, with the top three banks accounting for two thirds of the market. Over the past five years, though, technologically inclined start-ups and fintech firms have started offering financial products and services – these organisations can easily encroach on our customer base, so we must consider them just as much our competitors as traditional banks.

Instead of dismissing these new players, we respect and recognise their capabilities. We try to learn from them, especially in harnessing the untapped power of technology and marketing to the younger generations, who largely prefer to conduct their financial activities using their smartphones. With this in mind, BDO must learn to think and act like a start-up; should we fail to evolve for this next generation of clients, we may find ourselves on the endangered species list.

Thailand is becoming an attractive investment option as Chinese production falters

By the end of 2019, growth in the Thai economy is forecast to reach 3.8 percent, down from the 4.2 percent recorded in 2018 (see Fig 1). Fortunately, this looks more like a blip than a long-term downward trend. Ironically, the very trade tensions that have contributed to the global economic slowdown that is harming Thailand’s economy could result in an upturn in 2020.

US tariffs, for example, have seen South-East Asian countries looking to lure investment away from China. According to the Office of the National Economic and Social Development Council, as many as 10 firms are already looking to relocate production from China to Thailand. This, alongside an influx of foreign direct investment, could see Thailand return to higher levels of growth next year. For investors looking to contribute to this growth, UOB Asset Management (Thailand) (UOBAM (Thailand)) can provide the expertise and knowledge needed to ensure positive returns. World Finance spoke with Vana Bulbon, the firm’s CEO, about Thailand’s investment climate and how it has developed over the past few years.

By treating sustainability as a critical factor, UOBAM (Thailand) places investments in a position to generate strong returns

What is the investment landscape currently like in Thailand?
Fixed income products are more common for investors in Thailand than they are in other countries. Because of sustained low interest rates, money market funds have become a favoured substitute for traditional savings accounts. In recent years, as Thai investors have become more knowledgeable, they have begun utilising multi-asset income and equity mutual funds as well as private funds as investment vehicles. Asset allocation and regular savings plans have become accepted as the general path towards building wealth and, for many, a way of planning for their retirement.

The Stock Exchange of Thailand and the asset management industry have also been active in educating the public on the merits of financial planning through regular events. At the same time, the Bank of Thailand has continued to relax regulations, allowing asset managers to market foreign investment funds to retail investors. Additionally, high-net-worth individuals are able to directly invest in foreign assets more conveniently.

Aside from private funds, what investment platforms does UOBAM (Thailand) offer?
As well as private funds and segregated mandates, UOBAM (Thailand) offers mutual funds and provident funds (defined contribution plans). Our services cover a spectrum of asset classes, including fixed income, multi-asset, equity and alternatives, such as real assets and private equity strategies. Through these platforms, UOBAM (Thailand) is able to serve individuals and juristic entities, including intermediaries and government agencies.

Private funds or segregated accounts offer unparalleled flexibility in comparison with mutual funds. Investors are able to mandate specific asset classes, the proportion of each asset class, and qualitative measures such as credit ratings and corporate governance ratings. Additionally, investors may change their mandate as market sentiments shift and benefit from being able to dynamically position their portfolio in a fluid environment.

Why should clients choose UOBAM (Thailand) over other private investment management services?
UOBAM (Thailand) believes the market to be inefficient, meaning there is alpha to be earned through active investment strategies. We are able to provide such strategies for our investors through our people and processes. Our people are experienced investment professionals who have been through multiple economic cycles, not just uptrends and downtrends, conducting their work through a process that is focused on maximising returns within the accepted risk tolerance of the investors.

As a subsidiary of UOBAM (Singapore), we are able to draw on our parent company’s regional strength, a benefit that directly contributes to the performance of our foreign
investment funds.

What types of assets are invested via the UOBAM private fund and what are their advantages?
Currently, our private funds cover a wide range of asset classes, each with its own characteristics. Starting from the lower end of the risk spectrum, fixed income instruments have the potential to generate income, mitigate downside risk and diversify a portfolio. They are favoured by investors prioritising capital preservation.

For multi-asset funds, we offer a broad range of investment options including absolute return, income and life cycle. For longer-term horizons, equity options that offer high levels of expected returns are available for those able to tolerate the possibility of capital loss.

Finally, investors can opt for funds that provide exposure to both alternative and inflation-sensitive assets and private investments in late-stage growth companies. This array of choices and capabilities allows us to meet the varied needs of our clients. On the whole, it is important to understand the characteristics and correlation of returns for each asset class in order to formulate a portfolio that is suitable to the investor’s risk tolerance. Furthermore, through active management of the portfolio, our fund managers can exploit the advantages of each asset class to generate returns regardless of market conditions.

What sort of clients do you serve generally?
UOBAM (Thailand) serves both institutional and individual investors. Within the institutional segment, our clients include private and public companies across a range of industries, endowments, foundations and insurers, as well as family offices. Within the individual segment, we serve retail investors and, through our private wealth department, high-net-worth investors are specifically catered for.

With our customer-centric approach, it is easy for a prospective client to learn about our services and open an account with us. Through our dedicated call centre, interested parties can contact our wealth service team and direct their enquiries to one of our highly trained advisors. Prospective clients interested in private funds will be directed to our private wealth department. Our relationship managers are able to meet with prospective clients to discuss their specific needs and assist them with account opening. Going forward, we aim to allow potential clients to complete the entire process electronically. In our view, that is the direction the account-opening process is travelling in with regard to the industry as a whole.

To what extent have digital technologies changed the private investment landscape in Thailand in recent years?
UOBAM (Thailand) recognises that the financial industry has been disrupted and, more importantly, will continue to be disrupted by technological changes. As such, we have developed an award-winning wealth management platform known as UOBAM Invest, which allows investors to monitor and manage their portfolios. The programme earned the title of Best Wealth Management Platform at Asia Asset Management’s 2019 Best of the Best Awards. UOBAM Invest is continually being monitored and improved to ensure it helps investors achieve their investment goals in a user-friendly manner.

With our customer-centric approach, it is easy for a prospective client to learn about our services and open an account with us

From a fund management perspective, we will continue to enhance our investment tools, using big data to evaluate stock prices, earnings and analyst recommendations in order to assess material shifts in the market. Again, the ultimate objective is to allow our fund managers to optimise their time and performance.

We are also keeping a close eye on the industry-changing implications of the growing fintech sector. Newly introduced or updated applications will ensure that investors have the best tools at their disposal. All asset management companies, including UOBAM (Thailand), continually optimise their platforms to achieve greater investor satisfaction.

How important is sustainability for UOBAM (Thailand) when managing investments?
Sustainability is a critical factor for us in managing investments. On June 14, 2017, UOBAM (Thailand) formally adopted the Investment Governance Code for Institutional Investors. In line with this code, our investment decisions will continue to be guided by professionals acting with the utmost integrity, free from insider information and corruption. This safeguards the company and the wider industry from involvement in the money-laundering process.

Also of significance is the inclusion of an environmental, social and governance framework in security selections. Each factor of this framework is given a value and each security is scored accordingly: negative, neutral or positive. By treating sustainability as a critical factor, UOBAM (Thailand) places investments in a position to generate strong returns.

What does the future of investing in Thailand look like and what role will UOBAM (Thailand) play within that?
Similar to other industries, the future of investing in Thailand will be defined by an increasingly sophisticated investor audience and a backdrop of technological innovation and disruption.
To prepare for the next generation of investors, UOBAM (Thailand) intends to enhance its existing products, platforms and services to stay ahead of the curve. Every decision the business makes will work towards bringing our customers the most seamless service and the best returns on investment.

Oil and gas companies must find new ways to attract investment as the energy sector evolves

The oil and gas industry is undergoing a transformation as it grapples with attracting new investors, a lack of pipeline infrastructure, competition from other energy sources, political pressure, relatively low commodity prices and investor demands for reduced carbon emissions.

As political pressure and concerns over climate change gain pace, further institutional funding cuts and share divestment from fossil fuel projects is expected. On September 23, around 130 international banks at the UN Climate Action Summit in New York committed to decreasing their support and investments in the oil and gas sector in the coming years, promoting renewables instead.

The oil and gas industry is undergoing a transformation as it grapples with attracting new investors

Despite these pressures, demand for oil and gas remains high. While some companies, including Shell, BP, Total and Equinor, have increased their spending on renewable energy and introduced carbon reduction targets. The sector must continue investing in new projects to meet future demand for oil and gas as economies in Asia grow.

Funding sources
While there is not a reduced appetite for investment in oil and gas, investors want to see attractive returns. This means exploration and production companies must maintain tight budgets and focus on efficiency. Continued innovation and new ways of working will be needed to ensure investors are paid the returns they expect.

Small and medium-sized producers, which are more exposed to debt markets and reduced financing, can struggle to get new projects off the ground. As a result, oil and gas companies must design more flexible and innovative financing packages, seek new sources of capital for their worldwide operations and communicate a compelling business plan if they are to maintain a healthy cash flow for returns on investment.

One of the most significant changes in the finance cycle is the dramatic reduction in lending from banks. While this doesn’t impact bigger players, which have a high credit rating and strong balance sheet, new and small players have it tougher as they will struggle to borrow capital for large infrastructure projects.

Hydrocarbon exploration – the process of digging deep into the Earth to find deposits of oil and gas – has traditionally been too risky for banks to finance, meaning companies have used alternative sources of finance, such as government funding, the bond market, project partners, private equity and export credit agencies. Private equity-backed companies and independent oil companies, such as Aker BP, are funding themselves by trading shares on the offshore stock exchange.

For midstream assets, the industry has seen a surge in investment from private equity firms and infrastructure funds focused on the upside potential of such assets. According to private capital tracker Preqin, oil and gas investments accounted for almost the entirety of activity in 2018, which saw 77 funds raise $89bn.

In the case of Africa, where GPB Global Resources operates, recent growth in the continent’s economies has boosted investor interest in African projects, with a wide range of financial incentives and structures being employed. International oil and gas companies are currently financing projects across Africa and allowing investments to carry, with loans repaid using cash flow from the project. If there is insufficient cash flow the repayment interest and the principal loan is prioritised.

Another popular method of financing is through corporate loans and bonds. Large, credit-worthy oil and gas companies can borrow money using their corporate balance sheet, allowing for relatively cheap loans. Consequently, the joint operating agreement structure often involves a large oil company financing its share of exploration and production costs by issuing corporate bonds or directing cash flow from more profitable projects.

The most common means of financing projects in Africa is through joint ventures with large international oil companies. Joint ventures tend to be formed between smaller exploration or production companies and large international oil companies.

Governmental support
Across all segments of the industry, there are opportunities to attract investment, reduce costs and mitigate risks. There is considerable scope for governments and international bodies to support innovation in these areas.

The oil and gas sector is a key source of economic growth for nations and the backbone of the energy sector, with their products underpinning modern society

For oil and gas companies in developing countries, perceptions of commercial and political risk play a significant part in investment decisions, especially if the country’s financial systems aren’t well developed or are characterised by weaker institutions. Good government leadership is therefore critical to reducing risks and allaying fears for private investors and state-owned enterprises.

Given the cyclical character of the oil and gas market and the long-term nature of investments, governments can facilitate investment by establishing clear regulatory and fiscal policies. In some cases, governments looking to stimulate investment may offer incentives to reduce the risks of exploration.

This can be done in the form of licensing exploration blocks onshore and offshore, agreeing favourable development rights with tax incentives and offering public-private partnerships. For example, in an attempt to incentivise and facilitate investment by oil and gas companies, the Bahrain Government has announced that it will allow foreign companies to own 100 percent of oil and gas drilling activities in the country.

Future success
The oil and gas sector is a key source of economic growth for nations and the backbone of the energy sector, with its products underpinning modern society. Though renewable and sustainable energy initiatives are gaining traction, they are still evolving and cannot produce energy at the volume or level of reliability required to satisfy demand.

The outlook for the sector is broadly positive, partly because many oil and gas companies are becoming leaner and more competitive. As the energy sector develops, so will the finance sources available.

To continue to attract investors and capital, the oil and gas industry must develop a value proposition that is consistent and favourable – one that combines cost reductions and margin increases. If it is to continue meeting investors’ expectations, the industry must prove that it can provide high returns on investment.

Competitive market conditions spark innovation in Russian banking sector

Russia is one of the most advanced markets in the world when it comes to banking technology, being home to a number of powerful actors that have set the pace for digitalisation. Organisations such as Sberbank and Tinkoff Bank have invested time and money to support their digital transformation efforts, forcing other players to respond and adapt in real time.

One institution that is following in the footsteps of these industry pioneers is Sovcombank. Having grown rapidly since its formation in 1990, the bank now has a presence in 1,027 towns across Russia and serves 5.4 million retail clients. What’s more, competition within the industry has helped the bank improve its services and become more efficient: for instance, robots now handle between 30 and 50 percent of all interactions with Sovcombank customers. Similarly, the bank’s collection business uses automation to handle over 50 percent of customer conversations and contacts. Clearly, digitalisation is moving rapidly in Russia, and is already having a positive effect on banks’ reliability, finances and customer retention.

With advances in robotics, people will increasingly lack personal communication – this is where Sovcombank’s branch network will make it more competitive

This helping hand is proving particularly useful at a time when the Central Bank of the Russian Federation (CBR) is looking to cut interest rates amid inflationary concerns and the spectre of slowing growth. With this uncertainty undermining the financial market, World Finance spoke to Dmitry Gusev, CEO and co-owner of Sovcombank, to learn how the organisation is embracing digital transformation while meeting shifting customer demands and protecting investor profits.

The CBR has been on a quest to rid the system of undercapitalised banks. How has this changed the banking landscape?
Due to the gradual withdrawal of private banks with negative capital from the market, the share of state-owned banks in terms of total capital and assets within the banking system has inevitably increased. As a result, the role of state-owned banks is much greater now than it was five years ago. This may not be ideal, but it won’t have much of an adverse effect on the system either. Obviously, the regulator did not want to increase the share of state-owned banks, but it had no choice given how many banks had negative equity and hidden problems. It was simply the lesser of two evils.

The entire process has increased customer confidence in privately owned banks simply because many of the peers that had insufficient or negative capital have disappeared from the market. In other words, this heightened confidence renders these developments beneficial to both the private sector and the industry at large.

What’s really important, though, is that the CBR has helped eliminate unfair competition. From the very start, banks with insufficient capital didn’t care about turning a profit. As a result, instead of developing an efficient and transparent business, their dubious practices stemmed from the fact that they were either actively inflating the cost of their liabilities or committing their assets on unfavourable terms, which created problems and skewed the competition. This is no longer the case, which is good news for the whole market.

What effect will the CBR’s campaign to reduce the key rate have on Russian banks and the industry overall?
Thanks to Russia’s comparatively high interest rate, which is much higher than its rate of inflation (see Fig 1), banks still have vast opportunities to make a profit and achieve a strong return on equity (ROE). At Sovcombank, we rely on a number of key solutions to protect our ROE amid the current market trend for lower interest rates. Our operations are broadly diversified, with each segment having almost the same share as any other. Further, a very significant part of our income comes from fees and commissions, which are not – or, at least, not always – affected by interest rates.

Our retail business also represents a sizeable share of our portfolio and is less vulnerable to interest rate changes. For example, our flagship retail product, Halva, is an instalment card that allows us to charge retailers for purchases made by our customers. Since it’s the merchant who pays the commission and not the cardholder, any fall in the interest rate actually results in increased profits thanks to a lower cost of liabilities against the same income. Put simply, we earn as much as before while paying less interest on our liabilities.

Do you think the regulator will continue to pursue lower interest rates in the foreseeable future?
Generally, the market has been expecting further gradual cuts in the medium term. At Sovcombank, we are basically in agreement with this suggestion, but a reversal is inevitable – the interest rate will start to move upwards at some point. The principal question is when.

For now, everyone is planning for a downward mid-term trend. As I said previously, the opportunities to make a profit remain strong, as the rate has been following and staying above inflation.

How are you adapting to the changing landscape and assuring shareholders that they will have a stable income?
First of all, we’ve disrupted the Russian market with Halva, a product that has given us an enormous competitive advantage. The result is that we now have more than 160,000 stores participating in the programme – this means that every fifth store in Russia pays us commission on every purchase made by Halva cardholders. This competitive advantage is impossible or very difficult to replicate.

Further, Halva is a great instrument for developing our entire retail portfolio – over the past two years, it has attracted several million customers. Although it’s not the most profitable consumer finance product on the market, Halva is a magnet for customers. By linking them with our bank, it allows us to offer a broader range of products.

As we’ve seen lately, people are tired of conventional credit cards; they simply don’t want to pay any interest whatsoever. Our idea is that while an instalment card is a niche product, accounting for somewhat less than one percent of the banking market, we expect this share to grow exponentially. As the biggest player in this segment, our goal is to continue leading the market amid skyrocketing growth.

What’s the reasoning behind your decision to go digital while maintaining a broad network of offices?
As we continue to emphasise, we are trendsetters when it comes to closing brick-and-mortar offices, helping to bring an end to the traditional full-scale branch model. At the same time, we have retained our offices, but these are lean and mean.

So long as people (our customers in particular) continue to go out for a walk, do some shopping or have a meal, we need to be around. Although a growing number of customers carry out their banking through apps, they occasionally need advice from our experts. Our staff members help educate and train customers on specific products and their advantages.

Additionally, while some customers do not visit our offices regularly, they need to know that they can do so should a problem arise. Having this option is important to them, and we expect this tendency to persist moving forward. With advances in robotics and wireless communications, people will increasingly lack personal communication – this is where our branch network will make us more competitive. On top of that, our offices ensure the continuous nationwide promotion of our brand.

How does Sovcombank plan to compete with banks that have an entirely digital service model?
We do not think banks that claim to be fully digital have any kind of advantage over us. Despite their digital-only model, they are still forced, like us, to employ a certain number of people, even if they are external agents. If we compare these and traditional retail banks in terms of the number of people or agents in relation to the corresponding assets, we don’t see any difference. Being digital doesn’t mean a bank like Tinkoff has no staff or doesn’t employ the same number of people to support its sales and collection network. In this respect, they are pretty much in the same position as the traditional players.

What’s more, digital-only banks tend to spend a lot more money on advertising. Unlike a branchless bank, we are well positioned to leverage our efficient branch network to promote our brand. In terms of profitability, we have had a similar ROE to Tinkoff in the past few years, so we don’t expect digital business models to be more profitable moving forward. We shifted most of our operations to less risky segments, such as secured retail lending and corporate banking. In this context, if we compare our risk-return ratio with digital-only banks, we can say that our shareholders have much more to gain.

STAR Market offers opportunities for investment into China’s tech industries

When China’s Science and Technology Innovation Board – or STAR Market – debuted on July 22, shares soared as much as 520 percent in a frenzied day of trading. By market close, stocks had gained 140 percent on average, more than doubling the board’s combined market capitalisation. (see Fig 1).

Chinese chipmakers and tech-focused healthcare firms made up some of the 25 companies that began trading on day one, though more than 140 firms signed up to list on the Nasdaq-style equities market.

STAR Market, which is operated by the Shanghai Stock Exchange (SSE), was launched in the hope it would boost investment in a new generation of home-grown tech start-ups, and even lure back Chinese success stories like Alibaba and Tencent that chose to list their shares abroad. “Establishing the STAR Market is a major step to implement the strategy of invigorating China through science and technology,” Lynda Zhou, Portfolio Manager at Fidelity International, told World Finance. Despite its initial success, some doubt the exchange’s ability to transform China’s capital markets.

The STAR market is less stringent about profitability: for the first time ever in China, certain companies can now go public before they are lucrative

Sparking interest
STAR Market is part of China’s strategy to further develop its hi-tech industries. However, the broader plan to boost the technology sector, Made in China 2025, has taken a back seat amid the ongoing trade war with the US.

Hostility between the US and China has escalated over the past year, and some policies – such as higher tariffs – have directly impacted China’s tech sector. The Trump administration even blacklisted Huawei, a Chinese maker of smartphones and 5G network supplies, over national security concerns. Through the introduction of the STAR Market, Chinese officials hope to develop their own capital markets in order to become less reliant on debt and foreign money. “At [the] macroeconomic level, it will help the country to sustain economic growth by funding technological innovation rather than through massive infrastructure spending,” Zhou explained.

Compared with other exchanges in China, STAR Market’s lenient listing requirements are designed to be more attractive to start-ups. For example, STAR is less stringent about profitability: for the first time ever in China, certain companies can now go public before they are lucrative. This was a logical move, according to Ufuk Güçbilmez, a senior lecturer in finance at the University of Bath, because the practice is “completely acceptable” in more developed markets like the US. “You want to go public at the point when you are still growing. When you are still growing, you tend to be unprofitable,” Güçbilmez told World Finance. “Now I think China understands that.”

STAR Market also conforms more closely to US markets by allowing unequal voting rights. In the US, dual-class share structures allow the founders of companies such as Facebook and Alphabet’s Google to retain control of their businesses even with a small portion of shares when those shares have higher voting rights. Although these structures receive some criticism, Güçbilmez said it is a good strategy for STAR Market, which is looking to lure in more innovative tech firms. “It’s all about making the STAR Market more attractive for
entrepreneurs,” he said.

In light of these changes, Zhou called STAR Market a “milestone” in the ongoing transformation of China’s capital markets and its shift towards an economy focused
on hi-tech industries.

Losing lustre
While the changes made by STAR Market are significant, this is not the first time China has launched a new exchange aimed at attracting top technology firms.

A decade ago, ChiNext was established with the same promise as STAR: to become China’s Nasdaq. In 2009, a report by The New York Times said ChiNext was “the start-up exchange for start-ups… making it easier for smaller Chinese companies to raise capital by reducing the requirements for going public”.

Although the exchange attracted a number of smaller companies, it failed to appeal to China’s foremost firms, such as Alibaba and, which both chose to list in the US in 2014 instead.

Güçbilmez’s research into this phenomenon showed a clear distinction between the companies that went public in China and those that chose to go abroad: large firms backed by foreign venture capital almost always preferred to list their shares on US exchanges, while smaller but profitable Chinese companies typically chose ChiNext. This was partly due to the fact that venture capitalists prefer to sell their shares in a liquid market – even today, liquidity can be an issue in Chinese markets. Moreover, the regulatory environment with ChiNext was always uncertain as it was used as a testing ground for new regimes, such as limiting share price movements. The market for initial public offerings was even shut down in order for reforms to be made. “This all creates uncertainty, and of course investors don’t like that. And they see the US as a safe option if their firm is good enough to go public in the US,” Güçbilmez said.

ChiNext also failed to go as far as STAR Market when it came to profitability requirements. Combined, these factors have led to poor performance. In 2017, the South China Morning Post reported that eight of the 10 largest companies trading on the board had warned of either profit declines or losses during the first half of the year. Although ChiNext has failed to live up to expectations, Güçbilmez said he was surprised when President Xi Jinping announced the introduction of a new Nasdaq-like board in November 2018.

“It seems [the Chinese Government wants], again, to use STAR Market as a testing ground, and they want to make a separate experiment compared to ChiNext,” Güçbilmez said. Now, ChiNext’s future is uncertain: “I think it would make more sense to actually keep working on ChiNext, because you have hundreds of firms listed there already… and it’s been operational for 10 years now.”

Educating the nation
Even though STAR Market has improved upon ChiNext, structural issues remain in the Chinese equity market. One issue the country still grapples with is extreme market volatility. After valuations soared on STAR Market’s first day of trading, many experts said the gains were overblown. “This [surge] is crazy,” Ronald Wan, CEO of Partners Capital International in Hong Kong, told CNN Business. “But it’s already overdone. I don’t think such gains can last long. It’s way too speculative.”

Daniel So, a Hong Kong-based strategist at CMB International, told the Financial Times soaring valuations were “pure speculation”, with the coming days likely to bring “huge volatility”. On the second day of trading, shares did pare their gains somewhat, falling by eight percent on average.

According to Güçbilmez, market volatility is not unique to STAR Market; wild swings in stock prices have long been a problem in China due to a lack of financial education among retail investors. Retail investors see stock markets “as an opportunity to make quick money”, but this is unsustainable, Güçbilmez explained to World Finance. “Prices can’t keep rising in the stock market. I think they still think that this is going to be the case, and that is a problem.”

According to Reuters, retail investors accounted for more than 90 percent of transactions on STAR Market’s first week of trading. China has the largest population of any country – around 18 percent of the global population – so its potential for retail investing is huge. Güçbilmez believes investor education will play a key role in ensuring China’s capital markets continue to develop in the coming years. If the lack of financial education is not resolved, STAR Market won’t be able to attract the best hi-tech Chinese companies. “If you can’t address this issue, you can’t become a major market,” Güçbilmez said.

A bright future
Chinese equity markets must also address the corporate governance issues that often deter foreign investors if they hope to stand on equal footing with other global markets. “Chinese companies have made progress in improving governance over the past 30 years,” Zhou said. For example, inclusion in the widely watched MSCI Emerging Markets Index and the launch of a ‘stock connect’ link between mainland China and Hong Kong have helped boost foreign institutional investors’ participation in recent years. “But [compared] with European and US companies, there is still a long way to go. Chinese companies have not prioritised governance enough,” Zhou added. As China continues to open up and foreign investors take more active stewardship roles, Zhou expects governance to improve.

While it remains to be seen whether any of China’s major success stories will return to their home market, Zhou believes there is a possibility that those that haven’t gone public yet, such as Ant Financial, would consider STAR Market. Still, she is cautious about the short term, as swings in valuation create volatility. Looking at the bigger picture, however, Zhou is optimistic: “In the long run, I keep my positive view [of] the STAR Market.” In time, Zhou sees STAR emerging as a “vibrant market” for China.

To make that prediction a reality, China must continue to address the concerns that cause foreign investors to avoid the market and cause China’s best and brightest companies to favour foreign listings. If these issues are addressed comprehensively, it is possible STAR could be a beacon of light for China’s hi-tech economy.

Italy’s private banks prepare for generational, digital, regulatory change

Three main forces will shape the Italian private banking market in the next five years, says Stefano Colasanti, Head of Business Development and Commercial Planning for BNL Private Banking and Wealth Management BNP Paribas Group. First: generational change, as wealth flows from current private banking clients to their heirs. Second: digitalisation, as all banks are forced to update their processes and offering. And third: regulation, as MIFID II comes into force. In this video, filmed in BNL Private Banking and Wealth Management’s Rome headquarters, he discusses these trends and explains how the bank is responding.

Stefano Colasanti: The Italian private banking market, served by private institutions, has been growing steadily in the last three years up to an overall value of €800bn at the end of 2018 – with an overall growth of eight percent with respect to 2015.

The Italian Association of Private Banking estimates project growth to continue also in 2020, when the market is estimated to reach €900bn.

At the end of 2018, BNL Private Banking managed around €34bn, positioning itself as the fifth competitor in the Italian private banking market.

Three main forces will shape the Italian private banking market in the following years: generational change, digitalisation, and regulation.

In the coming years, we’ll have a huge amount of wealth that flows from the current owners – the current private banking clients – to their heirs: millennials, generation X.

It’s very important for the major wealth managers to create, to build in time, a good relationship manager with their client heirs, because private banks that first prepare this generational shift will get a very important competitive advantage, and tap into the client base of the competitors that are not able to prepare this generational change.

The second force in Italian private banking market is digitalisation. Clients want to have the same customer experience by the financial institutions and non-financial companies – for example, Amazon. Private banks – Italian private banks – are not lagging, and they need to put digitalisation at the centre of their agenda, to offer clients this type of very high value customer experience during the relationship with the clients.

The last force in Italian private banking is regulation. The introduction of MIFID II in Italy will have a very important and significant impact on the Italian private banking market: for the first time, clients will be displayed the costs associated with their investment products and services. Private banks have to review their product offering by simplifying, making it compelling for their clients. It’s very important to offer to the clients the right services or products with the right costs, to respond to the right needs of the clients.

BNL Private Banking embarked on a transformation journey of its service and business model, which resulted in three key actions.

The first action is a new approach to wealth advisory, by reaching the offering services of non-financial products and services: corporate advisory, issuance advisory, real estate advisory; to manage the global wealth of clients, to be the partner of the client in managing their wealth.

The second key action is the digitalisation of the relationship model, by introducing a new, innovative, very important tool platform for the clients’ discovery – for example, humanist – or for managing their relationship with the bank such as the app, My Private Banking. In this way we want to create a very important relationship with the new generation of clients. We created a specific contact centre dedicated to our private bank clients, that is active 24/7: it’s a fast-lane, dedicated lane, to address the clients’ needs in terms of banking, financial, and non-financial needs.

Third is the role that BNL Private Banking can play in sustainability. BNL Private Banking can address the client to financial investments to sustain the environment, to sustain the economic growth, to sustain the growth of our country, to help the people.

I strongly believe these new strategic actions will give BNL Private Banking a competitive edge over its competitors, and innovative services, solutions, products and tool platforms that we are introducing will help us to be more attractive to the new generation of private banking clients.

Digitalisation is essential to Latin America’s blossoming wealth management sector

Following the global financial crisis of 2008, the wealth management industry endured a period of sweeping regulatory changes. Today, after more than a decade of growth, the sector is poised to enter a new period of transformation as the market responds to shifts towards digitalisation and personalisation. By 2020, consulting firm PwC expects the global asset management industry to reach $111.2trn in assets under management (AUM), topping previous forecasts of $101.7trn.

In Latin America, the Boston Consulting Group found that regional AUM grew at a faster rate from 2016 to 2017 than it had on average over the entire previous decade. It came as the region’s ultra-wealthy population expanded: in 2017, the number of high-net-worth individuals (HNWIs) living in Latin America was 4,220, estate agency Knight Frank found in its Wealth Report 2018. By 2022, the number of HNWIs is expected to grow by 30 percent to 5,470.

Wealth management firm Puente has provided its expertise in the capital markets of Latin America since 1915. World Finance spoke to the firm’s managing director, Marcos Wentzel, about what the future holds for the region’s wealth management industry.

As the sector itself transforms at a rapid rate, investor behaviour is also shifting; clients are adopting a stronger appetite for risk and seeking more diversified portfolios

How is the wealth management industry in Latin America faring at present?
Since recovering from the global financial crisis, the Latin American wealth management industry has shown robust growth. Social progress and a rebound in commodity prices have helped foster an environment where educated and innovative professionals are ensuring continued economic growth.

Latin America’s HNWIs are, on average, far wealthier than the affluent populations of other regions, and in recent years, their numbers have also rebounded from an earlier decline. Over the past 10 years, Puente has capitalised on this growth, achieving an average AUM growth rate of 35 percent per year.

How has the industry changed in recent years? What have been the most significant developments?
Aside from the growth in AUM and HNWIs, the needs and desires that clients require are changing. Personalisation has become more important as clients look for localised services. Moreover, transparency is now of utmost importance, driven by pressure from both regulators and investors.

To cater for these new demands, the standards of the wealth management market are rising. Today, the industry prioritises accessibility and sophistication. Local players have been the big winners in the wealth management industry over the past decade as investors seek out firms with a local presence. Large wealth managers that can compete internationally without compromising their local presence could secure the greatest number of new AUM.

At Puente, we aim to meet these demands by using our strength as the largest wealth management player in Latin America’s Southern Cone, which is home to countries including Argentina, Uruguay and Paraguay.

What further changes do you see on the horizon, and how will these come about?
The wheels of change are turning in our industry. New technologies, such as analytics, big data, robotics and cloud systems, have become critical and could reshape the sector. Other elements that are causing disruption in the wealth management sector include rising costs, tightening regulations and a challenging macroeconomic environment. As the sector itself transforms at a rapid rate, investor behaviour is also shifting; clients are adopting a stronger appetite for risk and seeking more diversified portfolios.

Over the next 10 years, the industry is set for even more growth. Wealth managers must keep a watchful eye for new trends and developments in order to stay ahead of the coming changes.

Although Puente has more than 100 years of experience in the market, we consider ourselves revolutionaries. Our company culture is hands-on, and we are prepared for constant change due to our strong relationships with our clients.

Can you talk us through business profitability trends in Latin America?
The importance of achieving both a strong operational efficiency and scale has grown in the wealth management industry as the sector deals with increasingly squeezed margins.
Concurrently, more stringent regulations are being introduced around the world, with rising levels of competition caused by new entrants looking to disrupt the wealth management industry, resulting in a reduction in fees. Bigger companies will benefit from economies of scale as the availability of low-cost products widens. This is expected to cause further consolidation in the industry.

Businesses will have to develop clear strategies to ensure their future success. At Puente, we have focused on our advisors’ productivity and developing new technology to create a truly scalable wealth management platform to meet the demands of investors.

How has new technology impacted the industry in recent years?
Technology is already having a measurable effect on the sector. The degree to which wealth management firms embrace technology’s potential will influence which companies find success in the years to come.

Further advances will fuel changes throughout the wealth management value chain, including the means of sourcing new clients and enabling investment advice to be personalised. Furthermore, we can also expect the transformation of portfolio management alongside middle and back-office services.

We see three dimensions to the future of employment: the work, the workforce and the workplace. With the introduction of automated artificial intelligence technologies, we must continue to assess our talent needs and work to redesign our workforce in line with the coming changes.

How has technology improved levels of productivity within the sector?
Productivity in the wealth management industry has remained at around the same level since the end of the 20th century. However, this will change significantly over the next decade.
In the coming years, the development of technology will bring changes to fees, products, distribution, regulation and more. As the sector continues to embrace the full potential of digitalisation, productivity will only improve.

Puente is focused on building a new economic model through which we can empower advisors to create step changes in their productivity levels and then distribute these productivity gains among clients.

Since recovering from the global financial crisis, the Latin American wealth management industry has shown robust growth

What is the difference between transactional and relational businesses?
Today’s clients are sophisticated. They look to wealth managers to cater to specific needs, rather than to offer generic products. Now, active, passive and alternative strategies make up the building blocks for multi-asset solutions.

Firms either need to achieve a scale that allows them to provide multi-asset solutions on a transactional basis, or operate on a high-service solution standard for a long-term relational business. Puente, for instance, is based on a long-term link relational business model. We have more than 35,000 clients and aim to continue growing consistently and sustainably. While demand for both passive and alternative strategies is expected to grow in the short term, the growth of active management will be slower.

What are the benefits of linking businesses?
Transactional businesses must constantly scale their growth amid lower costs and higher competition, meaning linked businesses are more stable over the long term.

Managers must fully understand their clients’ needs in order to shape personalised solutions. They should also prioritise optimising the company’s distribution channels. Additionally, it is important to focus on core differentiating capabilities and look to outsource any non-core functions. As investors have plenty of choice, they will not hesitate to move to whichever company provides optimal solutions.

Staffing and compensation are important aspects to maintaining and growing long-term relational businesses like Puente. We are also committed to using our tools and experience to inform our decisions about how we want to grow and evolve.

Where do you see the wealth management industry in Latin America heading?
During the coming years, AUM will continue to grow in Latin America. Over the next 10 years, AUM in Latin America will double to more than $7trn. The strong economic forecast and likelihood for new wealth to be created in the region over the next few years will give Latin America a good opportunity to thrive.

With more than 100 years of experience in the Latin American wealth management sector, Puente’s knowledge of the market is enviable. Our business has reinvented itself with the changing market and will continue to do so. Over the decades, Puente has achieved one of the highest and most consistent rates of growth in the region. In the years to come, we will continue to build on this strength as we adapt to the sector’s latest transformations.

Eurobank supports Greek banking’s recovery

In 2018, Greece achieved a positive GDP growth rate of 1.9 percent for the second year running.  This was a major milestone for the country: after years of financial turmoil, Greece’s economic outlook showed signs of improving. Additionally, at 4.4 percent of GDP, the primary fiscal surplus had exceeded its target of 3.5 percent of GDP for 2018 and unemployment dropped.

It now seems that the Greek economy is on track to recover from its chronic financial grievances. This recovery was hard earned. The successful completion of the third economic adjustment programme, together with the decision to implement midterm debt relief measures, has contributed to the country’s improving economic outlook.

As a result of the economy’s ongoing recovery, Greece’s banking sector is experiencing a period of renewed positivity

As Greece’s recovery process continues and its investment climate strengthens, it is likely that confidence in the country will grow. The recent lifting of capital controls has made for a more investment-friendly climate and, as such, we can expect to see credit ratings improve. Furthermore, the reinstating of several major development projects and continued growth within the tourism sector – which accounts for 20.6 percent of Greek GDP – will also aid the economy’s long-awaited turnaround.

A clear vision
As a result of the economy’s ongoing recovery, Greece’s banking sector is experiencing a period of renewed positivity. Despite lingering problems, international credit rating agencies maintain a positive outlook for the Greek banking system. Funding and asset risk management are expected to improve in the near future, while the abolishment of capital controls is likely to lead to a gradual return of deposits and increase access to the interbank lending market. As the economy gradually recovers and more investments flow into Greece, we are sure to see further deposit increases.

However, if the Greek banking sector is to continue on this upwards trajectory, it must ride the wave of digital disruption and unlock dynamic growth. By embracing digitalisation, banks will benefit from huge increases in their productivity, competitiveness and e-commerce development.

At Eurobank, we have a clear vision: to become the most mature digital bank in South-East Europe. Our customers’ banking preferences are changing rapidly; many people have high expectations of their banks and demand more convenient and efficient services. To meet these new requirements, we are investing heavily in human resources, digital services and technical infrastructure.

However, digital transformation also presents challenges. On the demand side, the patterns of consumption and the savings behaviour of customers have changed radically. Millennials and Centennials are becoming increasingly important customers as they join the labour force. It is therefore essential to understand the services that meet the needs of these younger generations. Meanwhile, on the supply side, the sector is facing a transformation of the competitive structure of the banking industry. This has been triggered by new entrants from the fintech market. An important challenge for regulators is to create a level playing field between bank and non-bank providers, as well as to ensure adequate control and supervision of these players.

Changing landscape
To address the changing structure of the banking system, the EU has introduced the Second Payment Services Directive (PSD2), a piece of legislation that aims to regulate payment services and their providers throughout the EU and European Economic Area (EEA). PSD2 updates and replaces the Payment Services Directive of 2008.

PSD2 is part of a global trend in the EU banking sector geared towards improving security, innovation and market competition. The intention of this specific directive is to create an integrated market for payments that will force banks in the EEA to open their application programming interfaces (APIs) to provide third parties with direct access to customers. This will create attractive opportunities for established payments organisations. Banks will need to adjust and use this market disruption to their advantage by harnessing their years of transactional experience and reputation as trusted financial institutions.

In retail and corporate payments alike, the biggest opportunities combine capabilities associated with PSD2 – such as data aggregation and account-to-account transactions – with improvements in settlement and clearing infrastructures – including faster payments. In both retail and corporate environments, payments will increasingly be embedded within digital applications that address the full value chain. For example, lifestyle apps tend to include consumer budgeting tools, consumer finance, mortgages, insurance and investments. Such a solution involves a much broader functional scope than banks typically offer, spanning the full customer shopping journey and drawing on data from a diverse set of sources, including social media, the internet and in-store searches.

The EU’s new regulatory framework supports Eurobank’s business strategy as it will help us offer more technologically sophisticated products to meet our customers’ needs. For example, to embrace this disruption, Eurobank introduced its Eurobank API Portal in May 2018. API technology enables the exchange of data, such as account information and payment services. The new portal therefore allows third-party service providers – such as payment institutions, foreign banking institutions and fintech start-ups – to develop innovative financial and payment services in collaboration with Eurobank. We are hopeful that PSD2 will ultimately support our vision to become the most innovative digital bank in South-East Europe.

Putting the customer first
Being customer-centric is not just about engaging with customers. It’s about recognising what they value beyond a company’s products and services and enhancing the brand-customer relationship. Many of the fintech firms currently disrupting the sector have built their businesses from the end user’s perspective rather than from a product perspective. This is what gives them their competitive advantage: they not only get results, but they also generate excitement around their brand.

In 2018, we decided to make sure that our customer-first principle was reinforced across all the sectors of our operations, including retail banking, private banking and corporate banking. Through our customer-centric model, we offer solutions, products and services that benefit both the consumer and the bank. For example, to become more efficient, we realised that we needed to streamline our processes: in 2018, we carried out a range of streamlining projects within our retail banking operations. The programme is proceeding well and will prove invaluable in not only improving our services, but also in reducing our costs.

In accordance with our customer-centric model, we constantly monitor customer needs and create tailor-made products in areas such as savings, insurance, investment and trading. For example, Eurobank offers a variety of deposit products, including accounts for everyday transactions, savings accounts and time deposits, as well as reward programmes. To support Greek households’ savings efforts and address the savings needs of each family member, the bank offers two products: the Regular Savings Account and the Growing Up Account, for customers under 18 years old. As well as an advantageous interest rate, the Growing Up Account offers customers the opportunity to participate in a biannual lottery as a way of potentially doubling or tripling their savings balance. Meanwhile, as part of our ongoing digital transformation plan, we recently enhanced our e-banking platform to allow our customers to open and manage all types of time-deposit products online.

Looking ahead, we will continue to cover all of our customers’ needs by offering the most innovative products and services that focus primarily on user experience. We are doing so by building tools and solutions that will provide a unique experience in daily banking and product acquisition. What’s more, we are soon set to launch a new series of tools and solutions that stem from PSD2 implementation, so that our customers can begin benefitting from their daily banking transactions straightaway.

Eurobank recognises the growing trend for online products and services, as well as for offering an enhanced omnichannel experience to customers. With this in mind, and taking into account the new regulatory environment, we will continue to invest in new products, services and technical infrastructure in order to provide the best possible banking experience, as well as the most efficient service, to all of our customers.

Major tech companies are ditching IPOs in favour of direct listings – here’s why

The global investment community watched with keen interest in 2018 when Spotify debuted on the New York Stock Exchange. The listing was not only significant because of the music streaming platform’s huge popularity, but also because of the unconventional route it took to the public market.

Spotify eschewed a typical initial public offering (IPO) in favour of a direct listing, where instead of issuing new shares to raise money, the company sold its existing shares directly to the market.

Although direct listings are not unheard of, Spotify’s was unusual. “Normally, companies ring bells,” Spotify founder and CEO Daniel Ek wrote on his blog ahead of the listing. “Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment. Normally, companies don’t pursue a direct listing.”

Spotify’s direct listing could have remained an anomaly on Wall Street, but just over a year later, messaging platform Slack became the next large tech firm to pursue one. Questions are now emerging over the future of the IPO as a model for raising capital.

Although the advantages of direct listings are clear for some firms, the sacrifices made along the way can make them illogical for others

Directing attention
Slack’s direct listing in June may signal greater prominence for the phenomenon. Jay Ritter, a professor of finance at the Warrington College of Business at the University of Florida, said the move showed Spotify’s direct listing was “not just a one-off event”.

With a new precedent potentially set, industry insiders are debating whether more companies will pursue this unusual type of listing. Airbnb, which has not set a date for an IPO, has been earmarked as a prime candidate, with signs suggesting the company is considering its own direct listing. Recode even reported in 2018 that Airbnb CEO Brian Chesky consulted with Spotify’s Ek about how Airbnb could seek its own listing.

A number of factors make the direct listing route attractive, but most notable among them is the cost savings. Companies that participate in traditional bookbuilding IPOs pay hefty fees to investment bankers, typically amounting to around seven percent of the proceeds of their IPO. Conventional IPOs also employ a lock-up period of up to 180 days – a time following the IPO during which large investors cannot sell their shares. Direct listings eliminate this lock-up window.

The lack of a lock-up period was a big draw for Spotify, as the company’s lawyers wrote in a case study for Harvard Law School’s Forum on Corporate Governance and Financial Regulation. Marc Jaffe and Greg Rodgers, partners at Latham & Watkins, wrote in the 2018 case study: “By forgoing the underwritten offering process, Spotify was able to accomplish its goal of providing liquidity without imposing IPO-style lock-up agreements upon listing, and, as a result, the Spotify shareholders were free to sell their shares on the New York Stock Exchange… immediately.”

Some investors find the absence of a lock-up period appealing. Phillip Braun, a finance professor at Northwestern University’s Kellogg School of Management, told World Finance: “My view is that direct listings occur at the request of venture capitalists and private equity investors so that they can cash out of their investments easily.”

However, in an interview with TechCrunch, Barbara Gray, the founder of investment research firm Brady Capital Research, highlighted how this can raise the risk of volatility: “Unlike with an IPO, with benefits of stabilising bids and 90 to [180-day] lock-up agreements prohibiting existing investors from selling their shares, a flood of sellers could hit the market.”

Through its direct listing, Spotify also wanted to ensure all buyers and sellers were given equal access. As Jamie McGurk, an operating partner for venture capital firm Andreessen Horowitz, wrote in an article titled All About Direct Listings, retail shareholders have the same access to shares as “the most sophisticated investment institution” when companies choose this route.

Of Spotify’s direct listing, Jaffe and Rodgers wrote: “This open-access feature and the ability of virtually all existing holders to sell their shares, and of any investor to buy their shares, created a powerful market-driven dynamic for the opening of trading.”

Small problems
Although the advantages of direct listings are clear for some firms, the sacrifices made along the way can make them illogical for others. For example, bankers tend to bundle analyst coverage in with the traditional bookbuilding process, meaning those seeking a direct listing would not be guaranteed any coverage.

While the huge reputations of Spotify and Slack ensured they would receive abundant analyst coverage following their direct listings, smaller companies taking this route wouldn’t be so lucky. Moreover, the conventional move also includes a road show, during which the bankers underwriting the IPO present the company and management team to a series of investors in order to drum up interest ahead of the listing. Removing these elements may not put off a company like Airbnb, which has already made waves in the investment community as an innovative disruptor, but lesser-known organisations could find them to be unsuitable until they can gain more exposure.

“Smaller companies that want analyst coverage from influential analysts will probably continue to use bookbuilding as a way of paying for the coverage,” Ritter explained to World Finance. Gray, meanwhile, suggested that even well-known tech firms appreciate the traditional process of bankers building excitement ahead of an IPO. She told TechCrunch: “I expect most unicorns will still choose to pay the fat underwriting fees to be paraded around by investment bankers.”

Due to the high bar that firms must meet to achieve a direct listing, Braun does not envision a big wave of companies following Spotify and Slack: “For a company to be able to [directly] list, it is necessary for the company to have positive earnings growth and a strong balance sheet. Very few new firms meet these criteria.”

Even Jaffe and Rodgers acknowledged this in their case study: “While Spotify proved that a direct listing is a viable alternative to an underwritten IPO, the process is certainly not right for every issuer.” They argued that Spotify was ideally positioned: it was well capitalised, did not need to raise funds and had a large, diverse shareholder base. What’s more, the brand was widely known and its business model was easily understood. “Companies that do not share these traits may not be the right fit for a direct listing,” Jaffe and Rodgers wrote.

McGurk, however, argued that the direct listing route could open up to lesser-known companies over time: “As direct listings become more popular, the need for brand recognition will dissipate. The job of buyers in both a traditional IPO and a direct listing is to get to know the companies coming to market long before they actually do.”

A niche market
For now, the bottom line for direct listings is that they are not the right fit for every company, and for that reason it is likely they will remain something of a novelty. “I expect direct listings to be a niche,” Ritter said. “I think that the most likely scenario is that a handful of large, highly visible companies will do direct listings.”

In Braun’s view, the fact that just two companies have pursued direct listings does not signify that any significant changes to the IPO process will flourish: “Direct listings can only occur for specific companies. I can only envision alternatives to traditional IPOs happening internationally, if at all.”

However, Spotify was not the first company that sought to break out of the confines of the conventional IPO process. In 2004, Google went public through a so-called ‘Dutch auction’. In theory, the auction process delivers a higher price than a traditional IPO while giving individual investors – rather than just fund managers – the opportunity to buy shares.

With traditional IPOs, the underwriter decides who gets shares (and how many, if the offering is oversubscribed). “In other words, with bookbuilding, underwriters have discretion in allocating shares, and in an auction, they don’t,” Ritter explained.

Although a handful of companies followed Google’s lead, the Dutch auction method did not take off. Ritter believes this was because underwriters were unable to allocate under-priced shares to their most profitable clients. What’s more, through IPOs, underwriters can also recommend a lower offer price to maximise the profits of their buy-side clients.

“Thus, bookbuilding is a win-win arrangement for the underwriters and their hedge fund clients, but the issuing firms are losers because they raise less money than they could have,” Ritter said. While it is unlikely that big departures from the traditional IPO process will occur right away, companies could begin to look to tweak the process here and there.

As Jaffe and Rodgers wrote: “For example, could IPOs without lock-up agreements or with shorter lock-up periods begin to enter the market? Will other companies choose to conduct an Investor Day like Spotify’s and forgo more traditional, small-group meetings held as part of a road show?”

As the tug of war between companies, investors and underwriters continues, changes inspired by the direct listing method could very well begin to transform the process of companies going public.

Sold down the river: how Paraguay’s infrastructure gap is hurting the country’s poorest citizens

Looking at the statistics, things are going well for Paraguay. Between 2004 and 2017, the economy posted an average growth rate of 4.5 percent, outpacing most of its regional competitors. In that period, total poverty fell by 49 percent and extreme poverty by 65. Although economic expansion is predicted to fall below four percent for 2019, sovereign debt is low. On the streets of the country’s capital, Asunción, however, optimism is in short supply.

The benefits of Paraguay’s economic boom have not always been shared evenly. In Asunción, this inequality comes to a head every time the rains arrive. Paraguay is no stranger to flooding but, earlier this year, two weeks of particularly heavy downpour caused the Paraguay River, which passes straight through the capital city, to burst its banks. A 90-day emergency was quickly declared, with many families – especially those living in less affluent neighbourhoods – forced to flee their homes.

A freak weather event is difficult to plan for; persistent heavy rainfall less so. Yet, each year Asunción fills with makeshift shacks providing temporary housing to those displaced from elsewhere in the city or other towns situated along the river. The proceeds of Paraguay’s economic growth, which look so good on paper, are much needed here.

When the floodwaters arrive, the inequality that normally remains hidden from government officials and corporate high-flyers is thrown into the light

Building bridges
It would be disingenuous to claim that Asunción has not benefitted from Paraguay’s economic growth at all. Private investment is rising, real estate prices are on the up and new construction projects regularly appear. Costanera de Asunción, a promenade running alongside the Paraguay River, opened in 2012 and the World Trade Centre Asunción followed three years later.

Nevertheless, in many areas, the city remains underdeveloped. For example, although its wider metropolitan area is home to almost a third of the country’s seven million people, Asunción does not possess a metro service. As a result, many of the city’s working population – those who cannot afford to live in its central district, at least – have to take to the roads for their commute. An estimated 600,000 vehicles carrying 1.5 million people do this trip every day. Twice.

As was demonstrated earlier this year, the city is also poorly equipped to deal with the heavy rainfall that regularly occurs between October and May. This is not a new problem. A 2012 World Bank report read: “Rapid unplanned urban population growth in metropolitan Asunción over the past 40 years has resulted in a substantial increase of informal occupation of public spaces, flood plains and environmentally sensitive areas, bringing with it the associated negative impacts to the environment that result from the lack of adequate stormwater drainage systems and solid waste collection and disposal, as well as water supply and sanitation infrastructure or services.”

Fortunately, work is underway to build the water treatment infrastructure the city so badly needs. Acciona, a Spanish infrastructure and renewable energy firm, has started constructing the Bella Vista wastewater plant in order to decontaminate Asunción Bay, with two other plants in the pipeline. It’s a start, but not much more than that. According to the Financial Times, some utilities experts estimate that Paraguay’s capital city needs to spend $1bn to improve its sewage and drainage infrastructure.

Holding back the flood
The role that infrastructure can play in reducing inequality is often overlooked. Better transport services provide easier access to higher-paid jobs, smoothing out kinks in the labour market. The same is true of improvements to communication infrastructure. Sumedha Bajar, a faculty member at the National Institute of Advanced Studies, wrote in a report published last year: “It may be that through increasing access to productive opportunities, through reducing production and transaction costs (and thereby leading to industrial or agro-industrial development), and by helping increase the value of assets of the poor, infrastructure can help reduce inequality. Additionally, by providing easier geographic access through improved transport infrastructure, labour mobility is enhanced, which can drive surplus labour to move to places where labour is in short supply.”

In Paraguay, these opportunities are much needed. No country has higher land inequality, with over 70 percent of all productive land in use by just one percent of farms. The poorest members of the population rarely have access to health insurance, and 23 percent of the population remains at risk of “catastrophic out-of-pocket expenditure”, according to the World Bank’s 2018 Systematic Country Diagnosis report on Paraguay.

When the floodwaters arrive, the inequality that normally remains hidden from government officials and corporate high-flyers working in shiny new office blocks is thrown into the light. Residents of slums like Ricardo Brugada, more commonly known as La Chacarita, are forced to make temporary accommodation elsewhere on higher ground. Local councillors insist that more permanent accommodation is available for the displaced some 20km to the east of the city centre, but given the poor transportation options available, many are unwilling to move from their riverside homes.

Better infrastructure around the country would also help lessen the pressure on Asunción and the Paraguay River. Around 45 percent of the population lives in rural areas, where poverty remains high. Currently, they have few ways to improve their lot other than by moving to the capital and joining the thousands already making the long trip to their jobs in the city centre every day.

The bigger picture
Countless reports have urged local and national politicians to improve Asunción’s infrastructure. Global Infrastructure Hub estimates that the country has a $12bn investment deficit regarding energy infrastructure, a $1.4bn gap in terms of rail transportation and a $1bn shortfall concerning telecommunications. The challenge lies not so much in identifying where more money needs to be spent, but in getting the money in the first place.

The country’s tax takings are low, which means social spending is too. Until 2013, in fact, there was no income tax at all. The current tax system is extremely regressive, with nearly 60 percent of all tax revenue stemming from indirect sources like VAT and excise tax. Overall, the OECD calculated the ratio of tax revenue to GDP to be just 13.8 percent in 2017, lower than all other South American countries.

Trust among Paraguayans in their local or national politicians is also low. There is a widespread perception that the lower a person’s income, the less their voice is heard. Research undertaken by Latinobarómetro found that 87 percent of respondents in the country believe politicians govern for the benefit of the powerful, one of the highest results in Latin America (see Fig 1).

Even if that is the case, it is never easy to convince a country that has enjoyed low taxes for so long that rates need to be increased; new president Mario Abdo Benítez is trying nonetheless. A bill that would reform the country’s tax system and result in a 10 percent increase in revenue collection – worth $300m a year – is now being discussed.

Local politics is also trying to improve the situation for Asunción residents. The city’s mayor, Mario Ferreiro, wants to improve riverbank defences and construct more flood-proof homes, but his plans have been held up by the municipal board. Although Ferreiro’s proposals would eat into already stretched budgets, allowing the current situation to continue makes little sense. Estimates indicate that the annual cost of rehousing the thousands in the city that are displaced by flooding stands at $20m.

For too long, improving the city’s neglected infrastructure simply didn’t feature very high on the government’s list of priorities. That may finally be about to change: there are plans to invest over $2bn in Paraguay’s north-western Chaco region in an effort to transform the semi-arid area into a hub for agricultural trade. While those living in slums along the Paraguay River may resent such expenditure, they too could stand to benefit if it provides much-needed job opportunities outside the capital.

Other infrastructural projects that will benefit the city directly, including the Asunción-Chaco Bridge, appear to be closer to fruition. They are part of a $2bn portfolio of developments that is set to benefit the capital and its surrounding area. If these projects are completed, they will provide much-needed relief to the citizens who have been denied their share of the spoils from Paraguay’s decade of economic growth. In the years to come, perhaps Asunción’s poorest may be able to finally enjoy the city’s prosperity. It’s just a shame it’s taken so long.

Banco Popular Dominicano leads the way with a new suite of digital products

The economy of the Dominican Republic has demonstrated impressive growth in recent times, averaging 5.1 percent annually during the decade between 2008 and 2018 (see Fig 1). Over the past five years, it was confirmed as the fastest-growing economy in the Latin America region. This expansion has helped to reduce poverty and expand the middle class, but not all citizens have benefitted equally from such growth.

Until relatively recently, many still lacked access to the basic financial services needed to ensure they benefitted from the advantages of this economic prosperity. Some of the country’s financial institutions, however, have worked hard to change this. Through new digital deployments, financial inclusion in the Dominican Republic has progressed substantially over the last few years.

One organisation in particular, Banco Popular Dominicano, has done more than most to ensure that individuals in the Dominican Republic have access to the relevant financial services. Founded more than 50 years ago, the bank has witnessed huge developments in the country’s economy.

The Dominican Republic has been on an upward trajectory for several decades, and Banco Popular Dominicano has been there every step of the way

After President Rafael Trujillo’s dictatorship came to an end in 1961, the Dominican private sector developed quickly and, at the same time, commercial banking services expanded to provide the capital required to support the country’s economic growth. There have been dark times since, including a banking crisis in 2003, but every country’s economy has its peaks and troughs.

On the whole, however, the Dominican Republic has been on an upward trajectory for several decades, and Banco Popular Dominicano has been there every step of the way. From the very beginning, the bank has focused on the democratisation of banking solutions and implementing essential social initiatives. World Finance spoke to Francisco Ramirez, Executive Vice President of Personal Businesses and Branches at Banco Popular Dominicano, about how this ethos continues to drive the bank forward even as it pursues new digital innovations.

What digital products and services does Banco Popular Dominicano offer?
Banco Popular Dominicano has a wide range of digital products and services that allow our customers to interact with the bank to fulfil all their financial needs. Our mobile app – the most downloaded app in the Dominican financial sector – offers our customers a handful of digital solutions for their individual needs, making their day-to-day lives easier. Alongside the capabilities provided by our online banking services, we possess the most visited and best-positioned website in the country within the finance industry.

To better facilitate transactions, we have deployed the latest generation of smart ATMs, through which customers can make online withdrawals and deposits, as well as pay their loans and credit card bills with either cash or funding from their accounts. This is a highly convenient and efficient process. We have also opened digital channels where customers can give us their opinions and suggestions or request additional information.

How have customers reacted to new digital deployments?
On the whole, customers have reacted very positively to our new digital technologies. Today, more than 80 percent of our transactions are digital and more than 50 percent of our clients are using our digital platforms. Moreover, according to the research we have gathered from various client surveys, our digital capabilities are our most valued attributes.

Our new digital centre, launched in September 2018, has continued to strengthen our digital leadership in the Dominican Republic’s banking sector, keeping us in line with the latest international trends. The digital centre brings a new concept of banking to the country, including more modern service solutions. It encourages the use of self-service channels among our clients and functions as a platform to launch technological innovations, as well as serving as a laboratory from which we will continue to strengthen our leadership. The centre, which incorporates an educational space that hosts talks on personal finance, industry trends and innovation, has been well received by our customers.

What are some of the main challenges the bank has faced when trying to engage in digital transformation?
Changing the habits and mindsets of our clients so that they are aligned with digital developments has been one of our main challenges. Also, we must continue to deepen our innovation culture, technological infrastructure and cybersecurity protocols so we can rapidly deliver innovative products, channels and services better suited to our customers’ changing needs.

What is the current state of financial inclusion in the Dominican Republic? Has it improved in recent years?
According to the World Bank’s Global Findex database, in 2017, the Dominican Republic surpassed the Latin American average for financial inclusion, with 56 percent of Dominicans over 15 years old possessing a bank account. This represents tangible growth in comparison with 2011, when this figure stood at just 38 percent.

How important is sustainability to Banco Popular Dominicano?
Since we opened in 1964, Banco Popular Dominicano has been committed to creating positive change in banking for the benefit of all Dominicans and the environment. As the largest privately owned bank in the country, we feel it is our duty to play a prominent role in creating a more sustainable world.

That’s why we have decided to take part in the United Nations Environment Programme Finance Initiative, a global partnership between the United Nations and the global financial sector, which aims to build a sustainable future through the principles of responsible banking. We are the first Dominican bank – in fact, the first in the Caribbean region – to join this initiative, and we are very proud to do so.

What are some of the bank’s key CSR programmes and what benefits have they delivered to the Dominican people?
Banco Popular plays an important role in promoting renewable energy and energy efficiency projects, with our work being recognised by the United Nations Framework Convention on Climate Change as falling into its ‘nationally appropriate mitigation actions’ category. This acknowledges our efforts to mitigate CO2 emissions and is the first Dominican environmental project to appear on the international registry of the United Nations.

We have 11,255 solar panels installed on the roofs and parking lots of our 54 offices, and we were the first Dominican institution to generate solar energy for consumption. Recently, we also installed our first photovoltaic charging station – a pilot unit that was launched in May 2019 and allows for the recharging of electric and hybrid vehicles using solar energy. We offer this facility for free to the bank’s customers and visitors.

In addition, for two decades we have been supporting Plan Sierra, the most important sustainable forest management programme in the country, through which our employees are actively participating in reforestation – a vital initiative for the island’s sustainability.

Internally, we promote a culture of responsibility in our employees, encouraging recycling and introducing ecological and recycled paper for our operations. There are already departments that have considerably reduced their consumption of paper and have started transferring all their operations to digital formats. Our model of digital transformation is a key driver for sustainability.

How does the bank encourage entrepreneurialism in the country?
Innovation is a core aspect of our operations. We remain committed to this approach by offering innovative products and services that suit our customers’ needs. Our agile digital banking model and advanced financial facilities support this drive.

We encourage an entrepreneurial culture throughout the country via several programmes. One of them is Challenge Popular, a design marathon in which participants are tasked with producing the best proposals for services or products during an intense 48-hour creative process. Another is Impúlsate Popular, a competition that seeks to encourage young entrepreneurs to grow their innovative projects and grants them access to seed capital for their business initiatives. Last year, we also launched a programme to support SME clients that want to become franchises or acquire an established franchise.

We also have Banquero Joven Popular, a CSR initiative that seeks to educate schoolchildren about the function of ethical and sustainable banking while improving their financial education, entrepreneurship and leadership skills.

What plans does Banco Popular Dominicano have for the next few years?
In our 55 years of activity, we have earned the trust of the Dominican people through the introduction of initiatives that add value to their lives. Our focus in this area has led us to develop and maintain innovative financial services that achieve a better user experience and more memorable customer service.

In the coming years, Banco Popular Dominicano will continue to focus on stimulating digital sales, improving digital experiences, promoting innovation, transforming traditional branches and strengthening cybersecurity, all while adhering to our model of responsible banking.