The IMF, the European Commission and the ECB, to name a few, have complained of too little public and private investment in Germany, but the country ranks 111th in the world for ease of starting a business. So is it now red tape that’s holding the country back? World Finance speaks to Holger Schmieding, Chief Economist of Berenberg Bank, to discuss.
World Finance: Holger, is Germany’s weakening economy down to domestic politics?
Holger Schmieding: No, this is not caused by domestic politics. The current weakness is caused by geopolitical concerns, but it is definitely correct, Germany has too much red tape. All Germans could be richer, the economy could be even more dynamic than it is, if it would be easier to start a new business in Germany. Germany could do, like many other countries, with a dose of reforms, but those reforms do little to the short-term business cycle.
The Germans are basically happy
World Finance: Well Germany’s not responding to its slowdown, why?
Holger Schmieding: It doesn’t feel that bad, the slowdown in Germany. Employment continues to rise, there is no unemployment to speak of, public finances are extremely healthy. The Germans are basically happy. If there is a little interruption in the upswing, they think they can take it without having to waste money on accelerated spending. If there’s a good spending project, like repairing bridges, the Germans want to do it, they will do a bit more of it, but there is nothing in the German mindset which suggests that the situation is so bad that we now just have to take some money, spend it on a great project whether it’s useful or not just for the sake of creating some jobs, there is no appetite for a fiscal stimulus, the Germans don’t feel a crisis which would warrant such a weird response.
World Finance: Well last year, Angela Merkel and a number of Germany’s commercial leaders argues that America’s NSA surveillance was detrimental to the former competitive standing on global markets. Would you suggest we’re now seeing this play out?
Holger Schmieding: No. Industrial espionage is probably an issue that has been around for decades, if not for much much longer. Unfortunately it may still be around in a while. These are things which can make marginal differences for the longer term, but this is not an issue which drives the short term business cycle.
World Finance: So why are we seeing then so little private investment?
We will have a problem in Germany coming out of that in the sense that unqualified people will find it more difficult to get a job
Holger Schmieding: We are seeing private investment in Germany. The real estate market is doing pretty well. Secondly, we had a significant uptake in German business investment on plant equipment and the like until about April this year, and then came geopolitical concerns, Putin’s war against Ukraine, which made German businesses more cautious. As a result of this caution, they are now delaying some investment decisions. We have to wait for these exaggerated concerns to fade away, and they probably have started to fade away, and with a lag of one to two quarters thereafter, we will likely see a rebound in German private investment.
World Finance: Well we’ve heard a lot about Germany’s minimum wage and other socialist policies such as lowering the retirement age. What impact have these had?
Holger Schmieding: These new sort-of socialist policies are probably a small reason for less happy businesses. The real concern in the labour market for most German companies remains that they would love to have more qualified people whom they could hire, rather than their wages are too high. We will have a problem in Germany coming out of that in the sense that unqualified people will find it more difficult to get a job, because the wages they will have to demand will be higher with the minimum wage, but that is a fringe problem for parts of the labour market. Most German companies are looking for qualified labour to hire, they are paying far above the minimum wage anyway, and so most German companies will not be affected in a meaningful way by this, at least for quite a while.
Throughout most of the 20th century, robot traders would have been a mere figment of the (sci-fi film-influenced) imagination. But now they’re used by over 80 percent of trade markets, including the majority of investment banks and other big institutions, with retail trading remaining one of the only sectors still reliant on human brains. In short, the conventional trader depicted in clichéd Hollywood movies has almost completely died out, and with it the elements of risk-taking and intuition that defined the industry for hundreds of years.
Attempts at automated trading aren’t new – the Black-Scholes formula, taken up by traders when it was revealed in 1973, is proof enough that traders have long been trying to predict share prices in the most accurate and profit-reaping way possible. But computerised traders have taken it to the next level.
With these robot traders you’d expect the element of corrupt trades and dodgy dealings to disappear, but a lack of transparency continues to plague the high-frequency trading (HFT) industry, and the speed at which computers operate makes tracking individual trades nigh-on impossible without an audit trail.
Rise of the machines Eric Hunsader from US data firm Nanex believes robot traders fiddle the market, ordering then cancelling trades just before the critical buying moment. “If the regulator fully understood what the computerised trader was doing, it wouldn’t be legal,” he told World Finance. A recent case saw trading firm HTG Capital Partners accuse Allston Trading of that very activity, known as spoofing.
Nanex reported that the case marked the first time two large trading companies have been in a spoofing dispute, which led the CME, on which the exchange was made, to review its regulations. A source told Bloomberg that HTG believed the CME’s self-match prevention system (which stops a company carrying out a trade with itself) may have been exploited in spoof transactions, leading the CME to add that misuse of its software was a “violation” against trade regulations.
If the regulator fully understood what the computerised trader was doing, it wouldn’t be legal
In 2013, owner of Panther Energy Trading Michael Coscia found himself forking out $4.5m to regulators following an accusation concerning spoofing in commodities trading, and earlier this year co-owner of Visionary Trading Joseph Dondero and others involved were obliged to pay $2.5m to resolve claims they had carried out layering as well as spoofing. The potential for corruption in computerised trading is thus more than a mere myth, and it’s raised concern among various parties – not least Hunsader, who claims such trickery occurs every day. “Knight Capital and Citadel make fortunes from this obfuscation,” he says. Concern over the dangers of robot traders has led others to probe, including American Attorney General Eric Schneiderman, who is investigating their potential for manipulation.
Flash Crash
On 6 May 2010, the famed Flash Crash hit the stocks of the New York Stock Exchange, with a number of shares from key players, including Accenture and Procter and Gamble, plummeting to almost nothing, and others such as Apple surging to sky-high values of up to $100,000. The Dow Jones Industrial Average dropped by nine percent – 1,000 points – in the space of minutes.
A high-profile probe by the SEC found that computerised traders were behind the decline. “HFTs began to quickly buy and then resell contracts to each other – generating a ‘hot-potato’ volume effect,” the report read. “Between 2:45:13 and 2:45:27, HFTs traded over 27,000 contracts, which accounted for about 49 percent of the total trading volume, while buying only about 200 additional contracts net.”
According to Nanex, those moves might have been premeditated attempts at manipulation, although some, including the SEC report, refute the idea. Either way the circuit breakers put in place to prevent such shock incidents failed to act – a worrying indicator of their fallibility.
Hunsader says HFTs sometimes, somehow, work outside of the five to 10 percent parameters set by programmers. Since the so-called robots simply work by algorithms detecting differences in expected and actual stock prices, that shouldn’t happen. “There should be no decision making process, it should be very cut and dry,” says Hunsader. The Financial Conduct Authority (FCA) is only too aware of the frequently shady activity in computerised trades. “Unfortunately the nature of markets is that there always is potential for abusive activity, and with very, very fast trading, these things can happen very, very fast,” FCA boss Martin Wheatley told the BBC, adding that it’s then extremely difficult to detect the bad trades.
The Flash Crash isn’t the only example of robot traders gone wild; last year, in the space of 45 minutes, financial services company Knight Capital lost over $440m as a result of freak algorithm activity. Those blunders are likely to continue unless systems and regulators improve, according to Hunsader. “I can say we’re definitely going to get another sudden collapse in the market and it wouldn’t surprise me to see lots of stocks hit the circuit breakers,” he says.
Major firms are reluctant to implement that transparency, however, for fear other companies could copy their transaction patterns. US firm Virtu, one of the world’s biggest computerised trading software producers, indeed cited “extensive” scrutiny regarding regulation as one of the major disadvantages of its planned IPO earlier in the year. Head trader at US firm NorthCoast Asset Management, Frank Ingarra, agreed. “It could hurt them by opening them up to more scrutiny and regulation,” he told the BBC. “There’s just a lot of ambiguity and not a lot of regulation in that area of the market,” he added.
Hunsader believes computerised trading has potential to be “great” if regulation of HFTs does somehow come into force. That seems to be the view of Wall Street trader-turned-Cambridge University neuroscientist John Coates, who explores the risk-taking element of trading and its physiological effect in his book, The Hour Between the Dog and the Wolf. He writes that the biological response to risk-taking impairs human judgement, causing jumps and crashes in the stock market. Computers should theoretically be able to stabilise that, evading the problems human activity entails – but incidents like the Flash Crash suggest the contrary.
Insufficient replacements
What robot traders do evade are the human-specific elements that have for so long been fundamental – and beneficial – to trading. “In the old days, 10 years ago, a desk of equity traders would have between 80 and 100 of human traders at an investment bank. Today there’s maybe eight of them left,” Remco Lenterman, Director of technology trading company IMC Financial Markets, told the BBC. As human trader control wanes (and IT personnel monitoring the algorithms take over), so too does conscious risk-taking, decision-making and intuition, which computers simply cannot mimic. “They’re leeches on the system, they’re not contributing at all,” says Husander.
That lack of thinking capacity can add to the dangers; it was an absence of decision-making ability that saw the robots all suddenly withdraw from the Flash Crash (in reaction against the plunges), in turn sparking the stock spikes. And their inability to process and react to changes which might affect share prices in the way a human could means they can instigate significant losses. A sudden announcement that could transform a company in a matter of seconds and see share prices crash would go completely over the robot trader’s metaphorical head.
Eradicating humans also means reducing the diversity of traders. If one major HFT producer (such as Virtu) were to monopolise the market, then just one system would be responsible for all trading. That monopoly wouldn’t be unlikely given that the tech industry tends to be dominated by a few major players. According to Husander this too, would be detrimental to trading. “The most dynamic marketplaces, the ones most resilient to sudden shocks in the system are the ones that have wide diversity of participants,” he says.
Finding a solution to the problems entailed by mechanising trade isn’t easy. A return to human-only trading is hardly viable given the difference in profits robots can generate in comparison to human traders; the fastest human cognitive processing takes around 200 to 300 milliseconds according to Coates, while an HFT can process at around a millionth of a second. Achieving hundreds of million trades a day, robot traders’ minor profit margins soon add up, and they dwarf those achieved by humans – that’s provided their predictions for share prices aren’t proven wrong at the critical buying moment.
Husander believes the future of trading lies in combining human intuition with computer processing capacity, via an almost cyborg-like interface that would allow humans to input information at a rapid rate. Given the potential for fraudulent activity already apparent in robot and human traders, that’s a somewhat frightening prospect, and regulating it would pose an even greater challenge.
Regardless of where trading goes from here, robots have and will continue to transform its nature by replacing human thought. What’s apparent is that computerised trading needs to be brought out of the mystery currently shrouding it if progress is to be made. The problem is that making computerised trading more transparent – and unveiling the illicit activity it entails – is exactly what some traders don’t want.
Tax is more often than not one of the main headaches for people and companies alike. World Finance speaks to the author of 3 Ways to Settle Your Tax about why every taxpayer has the right to organise their affairs to minimise the tax they pay – even major companies such as Amazon and Starbucks.
World Finance: Well Clifford, you offer advice to clients in the UK, Western Europe, America and Africa; tax jurisdictions in these areas must differ quite dramatically, so what challenges does this pose?
Clifford Frank: The first thing we always look to is the double tax agreement. That gives us, basically, a signpost and guide as to how we’re going to approach a transaction.
We then look at the tax information exchange programmes, because that provides a gateway for information to be exchanged between the different jurisdictions. While we’re not opposed to information exchange, we have to be in a position to see how we could manage that.
The next thing that we look at is the type of entity we should use to actually structure the transaction through: whether it should be a limited company, or partnership, or a joint venture structure, or a consortium.
World Finance: Well what are the advantages of being based in the UK, and what sort of clients and cases do you deal with?
Clifford Frank: We have very advantageous tax rates for corporations. Right now our basic rate of tax is 20 percent for profits up to £300,000. We then have a tax rate of 21 percent up to £1.5m, and that’s going to change from April next year to 20 percent.
Everyone knows about Google, Amazon and Starbucks. And what did they do wrong? They did nothing wrong
Another advantage is the ease of establishing a business in the UK. You can have a company set up within three hours. You can establish a public liability company in the UK for as little capital as £17,500.
We handle small companies with turnover up to £20m, we handle major cases with profit turnover up to £100m.
World Finance: What do you foresee will be the impact of the UK government’s strategy to reclaim billions of pounds from taxpayers accused of participating in avoidance schemes?
Clifford Frank: Everyone knows about Google, Amazon and Starbucks. And what did they do wrong? They did nothing wrong.
They used the laws that the government made in order to attract them to come and do business in the UK. They didn’t break any law; they didn’t do any criminal activities.
Had Google not come along, employed – how many thousands of people they employed – how would the government have generated jobs to keep themselves happy? And how much PAYE would they have lost if they didn’t create the jobs?
All we’re doing is applying the law. Every taxpayer has a right to organise their affairs in a manner which would produce the least tax burden.
In the press is just a small minority who have no ability to actually organise their affairs, because they have a simple salary, and they have to pay their taxes.
If I was in their position, without the flexibility – I’d feel the same way.
World Finance: The OECD has unveiled plans to tackle profit-shifting and tax avoidance of multinational corporations. What changes does this represent?
Clifford Frank: The proposal is basically a common framework for the exchange of information instead of every country implementing their own tax information exchange programme, we’re going to have one model based on the OECD model.
This policy is going to impact mainly on financial institutions – banks and credit card companies – who will be obliged to actually just give up their information to the different authorities.
This policy legitimises whistleblowing, which basically prevents employers from taking action against employees who behave badly by stealing information given out.
Every taxpayer has a right to organise their affairs in a manner which would produce the least tax burden
World Finance: Well finally, what should people be aware of when approaching tax?
Clifford Frank: People when they’re approaching tax planning have this notion that tax planning is a cheap exercise. They want to have it at the Big Mac price, and then expect a Rolls Royce service. Doesn’t work.
Currently we find a lot of smaller corporations seem to think that they can set up companies and use not many directors in various jurisdictions, and believe they’re not going to be affected. That’s a fallacy, never do that.
You must always trust your trustee, if you’re going to do an international transaction. Be prepared to give up control, because control is a test which is applied by the various tax authorities to see who’s in charge, and if they deem you to be in charge of an activity which is conducted outside of your jurisdiction in order to minimise your tax, you would negate the tax benefit.
Malawi’s systematic decline in foreign exchange reserves has been a prevailing theme for years now, despite efforts from various parties to maintain the balance between supply and demand. Add to that a rapidly weakening kwacha, which has fallen by more than four percent against the US dollar since the end of August, and the nation could be in for intense hardships in the not too distant future.
Although the country’s foreign reserve levels in the first half of 2014 increased by 72.9 percent compared to the same period last year, this progress was not enough to meet the recommended import cover of three months. Reserves currently stand at 2.5 months, but KPMG estimates a much lower import cover due to the susceptibility of Malawi’s main exports – namely tobacco – to weather conditions.
It is increasingly evident that the nation simply cannot rely on just one market sector for over half of its total foreign exports
At present, tobacco is Malawi’s main foreign exchange earner, making up a massive 53 percent of total exports. However, relying so heavily on a commodity-based sector makes the economy incredibly susceptible to market volatility and puts it in a vulnerable position. At the height of the tobacco season the kwacha was worth MK380 against the USD. Given that the tobacco season runs only from March to August and the commodity is the main driver of the kwacha appreciation, exactly how the nation will boost its currency’s value is a growing concern.
It is increasingly evident that the nation simply cannot rely on just one market sector for over half of its total foreign exports. However, if a more diverse range of exports was produced, reserves could be built up again, and the economy would be less vulnerable to the potential instability of one industry – so when tobacco growers have a slow year, it does not mean the entire nation has a slow year. At present, Malawi is a highly import-dependent economy – though officials insist that all it needs is time to produce more goods for export.
Counter-intuitively, the weak kwacha could prevent the nation from increasing and diversifying its exports, as the price of foreign imports required for the production process are rendered more expensive. Charles Chuka, Governor of the Reserve Bank of Malawi told The Nyasa Times: “We need a bit of time to start producing more exports. So, interest rates remain so high and until we have stabilised the economy and interest rates come down, diversification of exports will still be a problem. So, we have more demand for forex than we have supply.”
As Malawi also depends heavily on international aid, the biggest obstacle the country has faced is undoubtedly the prevailing ‘cash-gate’ scandal, which has seen the UK, its largest donor, suspend payments until the aid reaches those it is intended for. The country further suffers from an exceptionally volatile interest rate, which has averaged 26.02 percent since 2001 and climbed as high as 75.53 percent in February 2001.
The biggest obstacle the country has faced is undoubtedly the prevailing ‘cash-gate’ scandal
“Malawi is a top exporter of burley tobacco and as such has been affected by the global slowdown in commodities demand,” said Alfonso Esparza, Senior Currency Strategist at Oanda. “Oversupply from the biggest agricultural powerhouses has hit all producers as prices have gone down. Without that income the economy depends on foreign aid, which has been frozen as the international community awaits deep reforms to eradicate corruption.”
Attempts have been made to rectify the problem. In 2012, an African multilateral bank extended a $40m credit facility to a Malawi tobacco company as part of a currency swap programme to ease the pressure caused by forex shortages. However the country’s ongoing forex woes are an indication that such an initiative in isolation will not be enough.
For one, significant investment in the farming and production industries is required. Farmers Union of Malawi president Felix Jumbe told Export Development Fund in 2013 that if Malawi could produce and sell one million tonnes each of beans, groundnuts, soya and pigeon peas to an international market, the country could replenish its foreign exchange reserves in just one year.
Malawi desperately needs to build reserves back up for obvious reasons, but perhaps most significant is proving to foreign investors and donors alike that the corruption seen in the past will remain in the past. For the time being, international aid is not a sustainable solution to foreign exchange woes, and the nation must prove that it has more to offer the world than just tobacco.
The ever-increasing number of inhabitants residing in some of Mexico’s major metropolises has stretched the country’s infrastructural capacity to breaking point, and asked that the relevant parties take the reigns in restoring a measure of stability to the country’s roads. Enter the Siervo de la Nación highway project, which, on completion, will stand as one of the most important connections between the boundaries of Mexico City and the State of Mexico.
By linking three of the region’s main thoroughfares, the Naucalpan to Ecatepec highway, the Circuito Exterior Mexiquense and the México to Tepexpan highway, the 14.5km high-speed route will allow traffic to flow more freely in and out of the country’s most congested areas.
One of the most important benefits of the Siervo de la Nación highway is the reduced environmental spill over, gained by way of reduced CO2 emissions
A nightmare commute
The infrastructural deficiencies at large in and around the area in question mean that it can take up to 50 minutes for commuters to drive little over 25km from Las Americas mall in the heart of Ecatepec to Mexico City. The heavily populated areas, coupled with insufficient roadways have served only to exasperate congestion and prolong commuting. The objective of the project, therefore, is to better connect Ecatepec with Mexico City by building a new and expanded highway and thus save up to 75 percent of the time spent travelling prior to construction.
This project was granted by the Government of the State of Mexico through a public tender process in which bidders could submit a proposal for areas including landscape design, concept design, construction procedure, traffic manage logistics, construction programmes, monetary compensations to the government, tariff structure for the users, toll system project, investment amounts, experience and concession terms. In addition, the bidders were extended the opportunity to propose better project designs in order to make the plan more efficient, not just operationally, but also economically speaking.
After the proposals were collated and considered by the government, the project was awarded to a consortium of companies lead by Mota-Engil México, the concession contract for the project development. The offer also includes a landscape integration of bridges and viaducts in the region; green areas and new recreation grounds; trash removal from the Gran Canal surroundings; high-level lamp posts along the 14.5km entirety; and teleprocessing infrastructure development for the project.
The successful proposal makes specific reference to a road divided into two sections, one of 10km that runs alongside the Gran Canal, and a second 4km section on top of an existing railway. As part of the project, the contracted design is a 2×0 reversible lane infrastructure, open to the traffic from 6am to 11pm and different in some respects from the norm on similar developments.
The consortium submitted the design with a view to achieving two primary objectives. The group’s first is to ensure the highway operation is made far more efficient, in particular in the morning, where people commute from Ecatepec to Mexico, and in the late afternoon and night, when they commute back home from Mexico City to Ecatepec. Secondly, the group aims to ensure a far healthier financial structure by not building unnecessary infrastructure in the initial few years of operation. Nevertheless, as traffic demand closes in on 40,000 Annual Average Daily Traffic (AADT), the consortium will then look to build a second road section, eventually turning the highway into a 2×2 road.
Keeping a watchful eye
From the project’s first stage and onwards, the highway will work as an electronic free flow toll collection road. And in order for the group to manage the operation effectively, CCTV will be implemented, allowing the managers to observe real time incidents that might prevent the operation from running smoothly.
However, one of the most important benefits of the Siervo de la Nación highway is the reduced environmental spill over, gained by way of reduced CO2 emissions. However, when it comes to analysing the traffic situation before and after the project, there are factors aside from the environmental benefits to first take into account when considering its importance in paving the way for future infrastructure projects. In terms of traffic improvements, Siervo de la Nación aims to improve quality of life for the surrounding population by way of reduced congestion, commuting time and pollution, in addition to a range of alternative improvements.
By improving upon the road’s condition as well as expanding on the number of lanes, the project promises to reduce the time spent by commuters travelling to and from work, and more crucially, set a precedent for similarly minded and much-needed infrastructure projects in Mexico. The benefits of the Siervo de la Nación highway project may also be calculated by way of a number of alternatives. For instance, the reduction in commuting time plays a role, and, according to research by Cal y Mayor y Asociados consultants, using information obtained from the Mexican Institute of Transport, commuters look set to save a considerable sum of money once the project is completed. Researchers found that, when compared to the scenario prior to the project’s completion, overall travel cost savings equate to approximately $63.8m on an annual basis (see Fig. 1).
What’s more, the core concession business is to build, operate, preserve and maintain the road Siervo de la Nación in accordance with a contract scheduled to run for a 27-year period. The financial structure is under process, depending on negotiations with several banking institutions. The difficulties contained in the project however, are far from excluded to finances, and extend also to a number of logistical issues.
For example, in accordance with the concession contract, it is the co-responsibility of both the government and the concessionaire to take back the right of way in case of any incident relating to the project. In the event of this happening, all the proper actions to take this back would be achieved by the concessionaire or any other company hired by them.
Once construction on the project is complete, the operational stage will commence, which highlights the issues before the project is considered anything close to a success. If at any point during this stage the peak hour traffic reaches a road service level of C, according to the applicable law of the Secretaría de Comunicaciones y Transportes, and if this demand is sustained for the remainder of the concession period, the concessionaire will issue a request to the Sistema de Autopistas, Aeropuertos, Servicios Conexos y Auxiliares for an extension of the road.
The degree of the extension may be either partial or total, depending on the operational needs and the service level specified by the regulatory authority. This extension trigger is deemed necessary once the traffic flaw reaches a sustainable daily demand of 30,000 vehicles, and, according to the tender proposal, this stage could take place in 2017.
With the construction phase forecast to last approximately two years, investment will be distributed as and when it’s needed from the end of 2014 onwards. Assuming the project proceeds as planned, the roads in the Mexico City Metropolitan area will be better suited to facilitate ever-increasing waves of traffic while also improving upon the standard of living for those in the region.
As one of the world’s leading infrastructure management companies, Globalvia is well equipped to see ambitious projects through from conception to completion, not least in the case of the Metro de Sevilla, for which the company won the World Finance Rail Deal of the Year Award. “This transaction consolidates Globalvia as the private operator leader in transporting passengers by metro in Spain and gives the company great credentials to expand its business internationally,” says the company’s CEO Javier Pérez Fortea.
The Globalvia business model is based on the management and operation of assets, both brownfield and greenfield, during a given period in which management and development of the asset is sought.
The location of the railway is also key to the company’s success, given that Seville is the capital, financial centre and largest city in the autonomous region of Andalusia
And with a focus on the railway sector in particular, the company, – which was incorporated in 2007 with FCC and Bankia as shareholders at 50 percent each – is preparing itself for the challenges ahead by building on its portfolio and international renown.
An equity increase operation amounting to €750m was done later on in two phases. In October 2011 Phase I was completed, securing the support of PGGM and OP Trust, and in December 2013 Phase II was completed, with the Universities Superannuation Scheme joining the Globalvia team.
Owing to an astute business strategy and management model, Globalvia boasts a market presence in seven countries and manages more than 30 managed assets in a number of sectors. The company works primarily on highways, ports, and railways, and the acquisition of the Metro de Sevilla represents a key step in its bid for efficiency in the management of transport infrastructure concessions.
Wealth of experience
The Metro de Sevilla acquisition would not have been possible without a wealth of experience to draw on, and it is due to a keen understanding of the project financing process that the deal has gone through so smoothly. “It was a long and complex operation, above all because the significant number of participants in the deal – given their interests and concerns – differed,” says Fortea. “Both flexibility and creativity – on all sides – were necessary to complete the operation.”
The final stake acquired by Globalvia amounted to 88.23 percent for an equity value of €156.2m. The company commenced discussions with Desarrollo de Concesiones Ferroviarias, Iridium and Sacyr Concesiones, who represented a 66.78 percent share of the Metro de Sevilla. Following a lengthy discussion period, both the price of the shares and the share purchase agreement (SPA) were met during a demanding negotiation process.
Javier Perez Fortea, CEO of Globalvia
After having agreed the price and fundamental points of the SPA with a majority stake in the Metro de Sevilla, Globalvia offered the same conditions to the rest of the shareholders and acquired an additional 21.45 percent stake from Grupo GEA21 and Inversiones en Concesiones Ferroviarias (CAF), who owned an 11.15 and 10.30 percent share respectively. The grantor, who was responsible for 11.77 percent of the shares owned through the Agencia de Obra Pública de la Junta de Andalucia (AOPJA), was uninterested in selling.
The deal was closed at the same time as the signing of the SPA, with each shareholder maintaining the same price per share. The acquisition consolidated Globalvia’s position as a railway sector leader in Spain, and boosted the company’s credentials.
In keeping with an established Globalvia investment strategy, the Metro de Sevilla underlines the company’s commitment to a wide array of criteria, namely focusing on brownfield assets, monitoring shareholding interest, generating high and predictable cash flow, and providing a strong regulatory framework.
An attractive proposition
Aside from boosting the company’s business credentials in the infrastructure management space, the Metro de Sevilla itself is a unique asset, and has a number of qualities to it that make for an attractive proposition. The Metro de Sevilla is a long-term asset, and has 26 years remaining on its lifespan before it expires in December 2040. The project also enjoys recurrent cash flow and combines availability-type payments with traffic-linked revenues, while also generating high cash flow with distribution to shareholders from the first operational year.
The Metro de Sevilla is also an under-leveraged asset and presents an opportunity for medium term re-leverage. To underline the unique qualities of the acquisition subject, the Metro de Sevilla withstood the repercussions of the financial downturn and – despite operations beginning midway through the crisis – revenue performance grew through 2010 to 2012 at a compound annual growth rate of 1.8 percent.
View of the elevated viaduct over the Montequinto highway
What was, on completion, the first metro managed by a private operator in Spain – later joined by Metro de Málaga in July 2014 – has performed ahead of expectations and seen an increase in demand on a daily basis. “It is important for us to manage an asset that provides service to a high amount of clients and users. They appreciate the service that the Metro de Sevilla gives,” says Fortea. “This is a great honour for us and motivates us in improving the quality of our service on a daily basis.”
The concession was awarded in May 2003 by the AOPJA to a consortium formed by Desarrollo de Concesiones Ferroviarias, Iridium, Sacyr, Gea 21, CAF, Salvador Rus López Construcciones and Transportes Urbanos de Zaragoza. During the construction period, which ended in November 2009, several transactions took place between shareholders, leaving Iridium with 34.01 percent, Sacyr Vallehermoso with 32.77 percent, Grupo Gea 21 11.15 percent, CAF 10.30 percent and AOPJA with 11.77 percent.
The objective of the concession is to design, build, finance, operate and maintain Line 1, which spans 18.1km and passes through 22 stations. However, due to a significant increase in construction costs, an economic rebalance agreement was signed in 2009 that extended the concession term until December 2040 and increased the revenues (technical tariff). Additional financial rebalancing occurred again in 2011, resulting in an additional increase of the 2011 technical tariff, due to a requirement of additional works issued by the authorities.
Inside view of San Juan Alto metro station
Ideal location
The location of the railway is also key to the company’s success, given that Seville is the capital, financial centre and largest city in the autonomous region of Andalusia. With a population base of over 700,000, the city is the fourth largest in Spain and one of the 30 most populous municipalities in the EU, representing a key strategic market for those looking to capitalise on Europe’s budding financial prospects.
Managed by more than 170 employees, the 18.1km line connects the centre of Seville with two key points of the metropolitan area (the municipalities of Aljarafe and Dos Hermanas) and serves the four areas of Dos Hermanas, Mairena del Aljarafe, San Juan de Aznalfarache and Seville Centre. It is a key asset for public transport in greater Seville, and, since its completion in 2009, is the region’s only metro line. Operational activities are managed in-house, while maintenance is mainly subcontracted to suppliers with a strong relationship with the previous shareholders. Globalvia believes that strong operational improvements can be achieved to the point of increasing outstanding quality ratios.
The concession has four revenue streams, combining availability payments and traffic-linked income, which make for solid growth with low elasticity in traffic variances. The opening times of the Metro de Sevilla are always focused on providing the city with as much support in transport as possible.
For example, at Christmas, Easter and the April Fair special, services are provided to extend the timetable and increase the running frequency at peak times. Service-strengthening devices have also been put in place, depending on other special events. During peak hours, there are 16 vehicles in operation, whereas on special occasions, such as the Annual Fair and football matches, all of the 21 vehicles could be in operation at any one time.
As a world leader in the infrastructure management sector, Globalvia and its management of the Metro de Sevilla project offers a glimpse into what can be achieved with an intelligent financial structure and the right partners in place.
Pension Deal of the Year – USS Pension Fund Financing
The Universities Superannuation Scheme (USS) is one of the largest pension schemes in the UK, representing academics and related support staff in the higher education sector. In December 2013 it announced that it had committed €150m to Globalvia, in the form of a convertible loan. Arranged by USS Investment Management (USSIM), a wholly owned subsidiary of USS and its principal investment manager and adviser, the structured facility added to the growing USS portfolio of infrastructure debt and equity investments. The transaction is also consistent with the company’s strategy to develop private-market investment opportunities that fit its long-term pension liabilities. The subsidiary committed €150m, alongside PGGM and OPTrust, who committed an additional €100m each following a €200m investment in 2011. This total of €350m from the three pension funds assisted Globalvia in expanding on its existing worldwide portfolio of infrastructure and reasserting its dominance in the infrastructure management market.
The financial close of the first gas-fired power station in Mozambique on May 30, 2014 marked the beginning of a new era for the country, as it took its first steps towards gas-to-power beneficiation and becoming a major energy player in southern Africa. The fact that this project is also Mozambique’s first IPP makes it even more significant. After a lengthy development period, construction on the $210m project commenced on the same day as financial closing.
Mozambique achieved its independence from Portugal in 1975, and after an extended period of civil war, peace came in 1992. Since then, the country has held four peaceful elections, and has strong political and economic ties with its neighbouring South Africa as a member of the Southern African Development Community (SADC). Economic growth and the development of large projects in mining, oil and gas infrastructure are key driving forces behind increased electricity demand in Mozambique.
At the same time, there is a shortage of energy supply in the Southern African region, which has created an opportunity for Mozambique to not only increase power generation for domestic consumption but also export to a power hungry region. Blessed with a wealth of natural resources, including coal, gas and hydrocarbons, the country’s potential energy generation could reach up to 16GW over the next decade; a huge step up from its current energy demand of 700MW per annum.
Economic growth and the development of large projects in mining, oil and gas infrastructure are key driving forces behind increased electricity demand in Mozambique
Generating capital
The figures highlight Mozambique’s potential to become a significant exporter of power to the region, though the key question is whether this will materialise and, if so, when.
The closing of the Gigawatt project is a clear indication of the government’s intent to develop power generation in Mozambique and to see the beneficiation of its natural resources take place locally.
However, the challenge of attracting investment to facilitate the country’s energy needs will depend on the ability of various stakeholders to overcome enormous challenges and to implement and fund the projects in the pipeline. The challenges of financing these projects include the country’s ability to attract capital (domestic and foreign), a lack of liquidity in the domestic banking system, political stability and the financial sustainability of the state and state-owned enterprises like, such as Electricidade de Moçambique.
It should be said that the success of the country’s energy generation is very much a necessity and, as such, various countries, including South Africa, Namibia, Botswana and Zimbabwe have a vested interest in seeing mega power generation projects come to fruition in Mozambique. None of the challenges for the energy sector are insurmountable, and with the collective effort of all the stakeholders in the region it is entirely possible that the country could become a power generation giant in southern Africa.
The gas fired power station is the first in the country to achieve financial close by an independent power producer and the largest project financing in the country’s power sector to date – which are two major achievements to be celebrated. Located in the Gigawatt Power Park at Ressano Garcia in Mozambique, the power station is close to the main transmission line that connects South Africa with Mozambique.
The project was developed by a local Mozambique company, Gigawatt, which holds a gas power generation concession from the country’s government that has been sub-conceded since 2012, for temporary power to Mozambique, South Africa and Namibia. Eaglestone Capital Advisory acted as a financial adviser to Gigawatt, Bowman Gilfillan was a legal adviser, and Worley Parsons and PB Power acted as technical advisers, with AON providing insurance advice.
Construction of the facility will be undertaken by a consortium consisting of South Africa-based WBHO and international Parsons Brinkerhoff. A joint venture between TSK Electrónica y Electricidad and Energy Experts Now will provide O&M services to the project.
The project is a significant step forwards in the supply of cheap and clean energy to homes and industry’s in Mozambique, and, on completion in Q4 2015, the project will provide more than 850 million kwh of energy to Mozambique per annum. Gigawatt has signed a long-term power purchase agreement (PPA) with Mozambique’s state power company, Electricidade de Moçambique, which will purchase all of the power from the project for a 15-year period.
The gas supply for the project will be provided by the Matola Gas Company under a long-term gas supply agreement. The gas will originate from the Panda Temani gas fields and is being transported through the 865km-long, 26-inch diameter Republic of Mozambique Pipeline Investment Company (Rompco) gas pipeline, running from the Panda Temani gas to gas fields in Mozambique and Sasol’s plant in Secunda, South Africa. Gas is already flowing to a temporary 240MW gas fired power station that has secured short-term power supply contracts with South Africa, Namibia and EDM. And once the permanent 100MW power station is operational the current 240MW temporary plant will be de-commissioned.
Sharing the cost
The pioneering spirit of the Southern African project finance market can be seen through the financing of the Gigawatt project, and at $210m it represents one of the largest project financings in Mozambique. The financial structure of the project, with a net gearing ratio of 80 percent, is aggressively geared in line with international experience and the security structure underpinning the PPA and Concession. Mozambique’s government, through signature of the concession contract, provides a level of support for EDM’s financial obligations under the PPA, delivering a typical IPP limited recourse project finance structure.
The funding structure for the project is made of $40m in equity, $159m in senior loan funding and $11m in sub-debt funding. The total $170m debt requirement on the project was taken on by Standard Bank with the intention of selling down a portion of its exposure after the deal had closed. The senior loan funding was structured with a door-to-door tenor of 12 years, utilising a sculpted capital redemption profile. Standard Bank acted as the lead arranger and underwriter on the debt financing, meeting all sub-debt requirements, and was appointed as the primary account bank for Gigawatt.
The $40m of equity required for the project was provided by a consortium of Mozambique shareholders made up of Gigajoule Power (Pty), Old Mutual Life Assurance Company (South Africa) and WBHO Construction (Pty).
The shareholding structure shows strong domestic shareholder participation, which is an important imperative when doing business in Mozambique, and both the debt and equity will benefit from long-term political risk insurance.
Mozambique’s government has shown its commitment to the development of the energy sector in the country and, most importantly, the beneficiation of its gas resources locally to deliver economic growth to the national economy. The government has also taken pains to make clear that the country’s natural resources will be exploited with the intention of benefitting local people. With 160TCF, the country has the fourth largest gas reserves globally and its prospects for coal fired power are also strong, with three large coal deposits at Moatize-Minjova, Senangoe and Mucanha-Vuzi in the Tete province and total coal reserves estimated to number at approximately three billion tonnes.
Rich in gas and coal resources and with over $12bn of projects in the development pipeline, there is no reason why the government of Mozambique will not achieve its 20 percent electrification target by 2020. One would expect that with the correct resolve, this target will be easily exceeded, and the country will also be able to increase its power exports to its regional neighbours in the Southern African Power Pool.
The success of Gigawatt could herald the beginning of a whole new era for the gas sector in Mozambique, with over 200MWs of projects in the wings of Gigawatt’s closing. This initial market activity in Mozambique should attract the attention of international power companies, especially where other more mature markets are not delivering attractive growth opportunities to deploy capital and/or skills.
Taking into account the country’s risk profile and the challenges faced by the energy sector in the region it will require a regional perspective, a pioneering spirit and patience. However, those who are able to stay the course will likely be richly rewarded when its energy sector takes off.
When the renewable energy sector in South Africa opened up in 2011, there were more questions than answers from the international community, and still the debate continues around long-term sustainability and the risk/reward trade-off in the South African renewable energy market.
Maybe it will be different for Mozambique, but only time will tell. In the meantime, projects such as the Gigawatt plant should give major industry names cause for confidence.
Germany’s economy has taken a set of hits that have shocked the world. For a long time the country has been considered Europe’s strongest in terms of GDP and stability. World Finance speaks to a world-renowned economist to ask whether Germany can recover from a major stumbling block.
World Finance: The German economy is the largest in Europe and has been leant on to pull the entire eurozone into prosperity and act as a guarantor of the European bailout funds. How much does EU economic dependency drain Germany?
Holger Schmieding: First of all, Germany is basically used to having France and Italy as not very dynamic neighbours. Germany is also probably benefiting, at least medium term, from the economic rebound we see in much of the periphery. Greece still looks shaky, but Spain, Portugal, Ireland, are very much on the right track. Most importantly, Germany is oriented not just towards Europe, it is more focused on the global market then almost any other economy in Europe. So the wobbles in the eurozone, which we are seeing again, for Germany will be not too difficult to stomach in a while, as growing exports to the US, to the UK, and still significant gains in exports to Asia, cushion Germany to some extent from eurozone concerns. Having said that, Germany is highly dependent on business investment intentions around the world, including Europe. Germany is a highly cyclical economy, but it’s less its exposure to the eurozone, it’s the German exposure to the global cycle of sentiment and business investment, which makes for the German ups and downs which we sometimes see in the cycle.
Germany is basically used to having France and Italy as not very dynamic neighbours
World Finance: In part does Germany have the Greeks to blame for this period of stagnation?
Holger Schmieding: In Greece, things are not going well, but they’re not going extremely badly. No. We can actually see that Greek business confidence over the last few months held up better than the German confidence. The German current stagnation is triggered by geopolitical concerns which have nothing to do with the eurozone. Of course, at the margin, concerns about the eurozone, that is basically what is going on in Italy, will Renzi deliver reforms, what’s going on in France, will Hollande finally deliver reforms, these concerns also have a bit of an impact on Germany, but that is of secondary importance, and it definitely is not the fault of Greece?
World Finance: So it’s not the time for Germany to send the bailiffs round?
Holger Schmieding: All countries that have been granted temporary assistance by the German Bundestag thought the European mechanisms, all these countries are on the mend, from Greece to Ireland, Portugal, Spain, and with even sign of that happening in Cyprus. The German approach to the euro situation is pretty good. The actual problems to the extent that we have them in the eurozone, and we do have some, are actually those countries, France and Italy, which never had to ask the German parliament for help.
Greece is finding its financial feet, but it will take time, reform and investment to establish the long-term sustainable growth required to match the fiscal consolidation process that is currently underway. PPPs (public-private partnerships) and innovative financing structures can be substantial contributors to this process, as exemplified by the recent closing of the Attika Schools PPP project.
All available data points to the Greek economy climbing out of the deepest recession since the Second World War, following a six-year long downturn. According to official statistics, its economy shrank by 0.2 percent in Q2 2014 compared with 2013 – the smallest contraction since 2008 – and a return to positive growth figures is anticipated for the fiscal year 2014.
In addition to the fiscal consolidation and structural reforms, the revival of investment activity is equally important in order to support a sustainable return to economic growth. However, growth is difficult when public spending is limited and liquidity so scarce.
The role of PPPs
The first issue that was in need of addressing was evidence of a relative stabilisation in the economic system and a restoration of confidence among consumers and businesses. To this end, the fiscal consolidation progress, labour and product market reforms, the banks’ recapitalisation along with the public debt re-profiling and re-pricing – to be discussed later this year – together make for a promising state of affairs.
Against this background, a number of private investments in the M&A, privatisation, real estate and infrastructure sectors have hit the market, with the successful restructuring of the Greek motorway PPP projects being one strong example. In this new era, PPPs, along with innovative financing tools and the EIBs support, can play an important role in promoting investment activity, while at the same time boosting public expenditure and improving quality of public services.
An artist’s interpretation of the Attika Schools PPP Project in Greece, which reached financial close in Q2 2014
This can be seen in the case of the Attika Schools PPP project, which reached financial close in Q2 2014, effectively overcoming all possible difficulties that a project of this nature might face. Tendered under the auspices of Law 3389/2005 in July 2010, the project is only the second to reach financial close in Greece and the first one to follow the onset of the sovereign crisis. It is also the first ever PPP project to utilise the innovative tool of Joint European Support for Sustainable Investment in City Areas (JESSICA), which is an initiative developed by the European Commission in cooperation with the European Investment Bank (EIB) and the Council of Europe Development Bank (CEDB).
Attika Schools PPP Project refers to two PPP contracts, involving the design-build-finance-operation and maintenance of 24 school units located in Attika, Greece. The two projects, one for 14 school units and the second for 10 (known as OSK 14 and OSK 10 respectively), were tendered individually in order to mitigate concentration risks, address size considerations and promote competition, and were financed on the basis of the same funding structure and debt providers.
The total budget for the project amounted to €110m, including VAT, and the contracts were awarded to ATESE and J&P Avax as the preferred bidders in December 2010 and January 2011. The contractual framework and risk allocation followed international best practices, reflecting the experience gained in the UK from the Building Schools for the Future PPP programme, after the necessary adaptations to fit the requirements of the local environment. The 14 schools project almost reached a close in 2012 when, at the peak of the Greek crisis, the availability of commercial bank financing collapsed.
At that point in time, the crucial question was how to revive the project without the need to retender, so as to secure the quantum of availability payments offered during the tendering process. Tendering for both projects was very competitive and resulted in an affordable price, lower than the original public budget. However, financing assumptions underpinning the preferred bids were at pre-crisis levels and no longer attainable. Therefore, all involved parties worked extensively for over a year in order to find the best possible solution, which eventually appeared with JESSICA Urban Development Fund’s involvement in providing debt financing.
JESSICA funding
JESSICA supports sustainable urban development and regeneration through financial engineering mechanisms. EU countries can choose to invest some of their EU structural fund allocations in revolving funds to help recycle financial resources and to accelerate investment in Europe’s urban areas. Owing to the revolving nature of the instruments, returns from investments are reinvested in new urban development projects, thereby recycling public funds and promoting the sustainability and impact of EU and national public money, compared to the traditional provision of grants.
As per the EU’s regulations, structural funds and national match funding are transferred to a JESSICA holding fund and later to Urban Development Funds (UDFs), which in turn invest these public resources in urban projects together with private investors. The management of the respective UDFs is awarded to competent parties – usually banks – through a tender. JESSICA aims to restore market failures by investing in sub-commercial terms to support viable urban projects that have not attracted sufficient private investment, due to an internal rate of return that is not sufficient on a purely commercial basis.
The structuring and financial closing of the transaction presented the usual complexities of PPP project financing while at the same time JESSICA funding should become part of the funding mix to ensure full compliance with respective procedures, requirements and criteria applicable to this product. Of paramount importance to the package was an effort to formulate terms and conditions in such a manner so as to obtain the necessary EU State Aid clearance, since JESSICA – by investing public resources in sub-commercial terms – is essentially an aid scheme.
Another important parameter was to restore economics of the project but only up to the minimum required level necessary to mobilise other debt and equity providers within the boundaries of the pre-crisis tender outcome. The transaction reached financial closing in Q2 2014, as a result of the coordinated efforts of the funding consortium (comprising of the EIB, the National Bank of Greece being the manager of JESSICA Urban Development Fund for Attika and Alpha Bank), the sponsors, the external advisors, the Contracting Authority (Building Infrastructure, formerly OSK) and the Ministry of Development/ Special PPP Secretariat.
The transaction reinforced the ability of Alpha Bank and the National Bank of Greece to structure, underwrite and manage complex transactions. Also on show was the EIB’s unrivalled capacity to provide finance and expertise for sound and sustainable investment projects that contribute to furthering EU policy objectives. The constructive approach of the PPP secretariat and the contracting authority, the ability of the advisory community to offer quality services, and the sponsors’ continuous commitment to support the project, honour their bid and accept the same unitary charge as per the 2010 bid. Above all, the project represents a lesson in the value of team effort and cooperation.
Lessons for the future
The experience gained from this process is valuable in light of the steady PPP pipeline that the Greek government is attempting to bring to the market. Throughout the course of Greece’s recovery process, two things have been important: the support of the Greek State; and second, the mobilisation of innovative financial engineering instruments like JESSICA in utilising state and EU funds through a structured procedure, along with the promotion of funding and guarantee mechanisms offered by multilateral organisations.
At the moment there is a strong pipeline of PPP projects in Greece, and of the 13 tenders for waste PPP projects, preferred bidders have already been selected for five of them. There are also six ICT PPP projects in the tendering process, including Attika Urban Transportation Telematics PPP project (signed in June 2014), Electronic Ticketing PPP Project for Attika Urban Transportation, and three Rural Broadband PPP Projects, for which the preferred bidders have been selected. With a string of impressive projects to come, the benefits for the Greek economy are clear for all involved, and the country will continue to promote PPPs in bringing high priority projects to fruition.
The Cross River State in south-eastern Nigeria is known for its wealth of natural minerals and stunning scenery, and is the country’s premier tourist destination. As it approaches its governor poll in 2015, World Finance speaks to the state’s current governor about its economic successes and challenges, including the risk of Ebola.
World Finance: Well governor Imoke, Nigeria is of course Africa’s largest economy, what does the Cross River State contribute to this?
Liyel Imoke: Our focus has been on a non oil-dependent economy, and we’ve tried to position ourselves as the leading service economy in Nigeria. We’ve focused on key areas the MICE industry, and the hospitality and tourism industry. We’ve seen significant growth in that area, with a growth in the middle class in Nigeria, so we’re also seeing not just investment coming in to those sectors, but we’re also seeing that for Cross River State we contribute about $10bn to the economy, and that’s over three percent of the total value of the Nigerian economy. This is in spite of the fact that in terms of population, we’re just about 1.8 percent.
[W]e contribute about $10bn to the economy, and that’s over three percent of the total value of the Nigerian economy
World Finance: Now you’ve been the Cross River State governor since 2007. How has it developed over that period of time, and what challenges does the state still face?
Liyel Imoke: It’s grown significantly. As an administration we focus on the people, and our policies have been designed to ensure that our focus remained creating wealth for our people, and that is what has driven the economy and our policies and our programs. One of the key things that we’ve done is to ensure that we have the appropriate regulatory environment to drive investment into the economy. We’ve also ensured that there’s transparency in government, and we’ve ensured best practices across the board. So, as an administration, we’ve focused in improving healthcare delivery to the people, education standards have improved, and we’ve gone from 27th position in external exams in Nigeria to the fifth position in the last set of external exams. We’ve also ensured that we’ve introduced a social safety-net scheme, that is working very effectively.
World Finance: Well Ebola has been making headlines, and the Cross River State has been said to be at risk. So how well developed are your health facilities and crisis response?
Liyel Imoke: At the primary healthcare level, we can take care of 70 percent our ailments. Today we’ve gone from slightly under 300 health facilities in our rural communities, to close to 900, and with our hospitals our secondary level hospitals, what we’ve done is ensure that we’ve put in place training and more importantly sensitisation across board on the Ebola virus. In terms of risk, as a state we don’t see ourselves as being at any greater risk than any other state, other than the fact that of course we’re a tourist destinations in Nigeria.
World Finance: Economically speaking now, and the Cross River State is doing really well, it stands at 11 out of Nigeria’s 36 states. But wealth disparity is still an issue, so how are you addressing poverty?
Liyel Imoke: From the beginning, I have alway said that government must serve those who need government the most, and the only way to do that is to start from the rural dweller, and making sure that the most vulnerable in society are well taken care of. So we introduced a social safety net scheme, we’ve introduced free healthcare for children under the age of five and all pregnant women in the state. We’ve introduced a number of agencies of government that are providing access to funds and capacity building for our rural farmers and our rural dwellers, and we are also creating avenues for them to get access to markets, and creating much more value for their products.
World Finance: The main industries in the state are agriculture, minerals and tourism. So is this where the main investment opportunities lie?
Liyel Imoke: We have probably the fourth or fifth largest agrarian economy in Nigeria, so there are significant opportunities in agriculture, and we’re beginning to see that, but not just in a plantation economy. We are now looking at the entire value chain in agriculture happening in Cross River. In terms of mineral resources, we are also seeing significant additional investments in cement production. We have well over 50 companies quarrying and mining in the state, and creating employment and opportunities. So those are the key areas, and we are seeing significant investment coming in.
World Finance: How open is the Cross River State to foreign direct investment, and are there any government incentives to encourage it?
Liyel Imoke: One of the beauties of Cross River State is the fact that it’s the only state in the country that has two free-trade zones, and a third one is coming up. We are also working with the federal ministry of trade and investment to create the first economic zone out of Calabar. Of course, the fact that we already have two free trade zones means that we already have significant foreign direct investment coming in.
Boko Haram does not and has not existed in Cross River State.
World Finance: Well we have to speak about Boko Haram which has been plaguing Nigeria, so how affected has the Cross River State been by this?
Liyel Imoke: We are very proactive as an administration about security. Clearly, if you are going to secure investment, and if you’re going to actually ensure that you are going to grow your economy, then one thing you must have is peace. So for us, Boko Haram does not and has not existed in Cross River State. We are beginning to believe that the containment efforts of the federal government in making sure that Boko Haram remains in the north-east part of the country would yield the results.
World Finance: So finally, although Cross River State has a very strong economy, it has been fraught with some terrorist attacks, and with elections looming how safe is it for investors?
Liyel Imoke: Cross River State has not had any terrorist attacks. What you may be referring to as terrorist attacks is maybe at best we’ve had some incidences on our waterways, sea pirates or thieves. But we’re working with the Nigerian police, the marine police and the Nigerian navy in dealing with those challenges, but nothing too significant, nothing that’s affecting trade. We have the good fortune of being a state that is a border state, we are well positioned, because we have a sea port, an international airport, so in terms of access there is plenty of it into the state, and I think that’s one of the attractions of Cross River State. But in terms of security, it’s also tucked away in the corner of Nigeria, so access in and out of the state also is easily policed for us. It’s also the headquarters of the eastern naval command, the headquarters of the army’s amphibious brigade, so we have significant security presence in the state, which makes it a much safer place to do business.
Since its inception, the World Economic Forum – hosted in Davos – has been one of the world’s most important gatherings. It is here leaders from a wealth of fields hope to make a profound impact on politics, healthcare and business. But over the years, the WEF has attracted unwelcome attention from protesters who claim it to be ‘undemocratic’ and too capitalist. We take a look at the legacy of Davos’ big event, and what we can expect from it in 2015.
World Finance: It’s the A-list ticket of the year: transforming Davos’ snowy paradise into a collision course of political and business posturing, giving the global elite a chance to focus the global agenda ahead while getting in a close-up. Last year, a major focal point remained the stability and integrity of the markets.
Antony Jenkins: I think it’s cautious optimism for both the general economy and the banks.
James Gorman: The industry started shedding the businesses that were at the root of what got the big banks into trouble during the crises, which were the proprietary trading business.
World Finance: Sometimes-elusive political players also became enthusiastic participants last year. Take Iran’s president Hassan Rouhani – who proclaimed his country was prepared to end a nuclear weapons deal and encourage foreign investment in the oil-rich nation. Open discussions around Turkey’s plans to unlock regional economic development also sparked interest. But despite these progressive conversations, the event isn’t without its critics.
The world’s most influential business, political and civil society leaders have gathered by invitation only since 1971
Protestor: The World Economic Forum is an undemocratic, untransparent we could say corrupt organization. The forum represents the relationship between capitalism and corporations.
World Finance: The corruption quandary surrounding Davos partly lies in the fact that annual attendance fees have been growing at a staggering rate – this year’s hover around 5 to 600,000 Swiss Francs. But is there any intrinsic value in having these high level discussions or is it just part of an elitist sport? Mark Spelman – Managing Director with Accenture Strategy – is a 10 plus year veteran of the event.
Mark Spelman: One thing from a very corporate point of view. We would have at Davos something like 70 executives and C-level players from different companies. That’s almost impossible to replicate anywhere else in that period of time. So there’s real value for a corporation like ours to have that number of meetings.
World Finance: The world’s most influential business, political and civil society leaders have gathered by invitation only since 1971. Davos credits itself with providing an exclusive platform for addressing pressing global agenda items in the past… brokering peace deals between the East and West after the fall of the Berlin Wall…giving then-small players China and India international attention….even addressing the healthcare epidemics of the last two decades: including AIDS, tuberculosis and malaria. As in the past, Spelman says Davos will continue to play a central role in global campaigns.
Mark Spelman: Ebola is a huge issue particularly in West Africa. There’s going to be a lot of issues around how do you address the human capital issues particularly in West Africa and the impact that’s going to have. But that’s also going to have knock-on implications for people very concerned that it doesn’t impact on the rest of the world. So my expectation is that we will address the specifics of how do we accelerate looking after West Africa while stopping the spread of Ebola in the rest of the world.
World Finance: As political and business elite descend on the foothills of Davos in a few months – one thing is clear: the power the event possesses lies less in the backroom conversations than in being seen and heard among the top dogs. Publicity even you might be able to buy, if you have a few hundred thousand to spare. World Finance will be at Davos 2015.
In an attempt to crack down on tax evasion Belgium has changed its bank secrecy laws to give inspectors greater access to bank accounts. World Finance speaks to Jonathan Chazkal of Association Afschrift about how the rules have changed and what guarantees taxpayers have under this increased scrutiny.
World Finance: How much latitude do the tax authorities have under the old system to contact banks directly for client information?
Jonathan Chazkal: Basically, before the new law, a tax inspector was only able to check your bank accounts in Belgium in two particular situations. The first one would be if an administrative appeal would already be filed against a claim by the tax authorities. Then the tax inspector could go and check your bank accounts only for facts related to that claim. The second situation was in the event of an organised tax evasion, tax fraud, where even the bank would have collaborated with the taxpayer. So it was very particular situations in which the tax authorities could inspect your bank accounts.
World Finance: Now how have the rules changed under the new laws?
[I]t’s a much broader definition, it gives much more possibilities to the tax authorities to go and inspect your bank accounts
Jonathan Chazkal: According to the new law, a tax inspector could check your bank accounts in the event that he sees a sign of tax evasion. So it’s a much broader definition, it gives much more possibilities to the tax authorities to go and inspect your bank accounts, and the law gives examples of what is a sign of tax evasion. For example, the fact of having an account abroad that you have not declared, or for example not filing a tax report. What could not be upheld as a sign of tax evasion is the sole fact that you did not file on time a tax report. But because the definition is so much broader, it is easier for the tax authorities to ask the bank for information about the tax payer.
World Finance: Are there any guarantees that the taxpayer can expect under the new law?
Jonathan Chazkal: There are two guarantees, it’s not so easy for the tax authorities to just go to a bank and ask them to look into the bank account of a taxpayer. First of all, the tax authorities themselves have to send a questionnaire to the taxpayer himself, and it’s only in the event that the taxpayer refuses to answer that the tax authorities could go and ask the bank about his accounts. A question that arises and that was not decided yet in Belgium by a court is the right of silence, a right that is also applicable in tax matters, is that a refusal or is that an answer, and can or not the tax authorities then go and inspect your bank account? A second guarantee the taxpayer has is that in the event the taxpayer wishes to inspect his bank accounts, the tax inspector has to obtain the authorisation of his director. So that’s another guarantee the taxpayer has as well.
When they decided to introduce that new law, the Belgian government also decided to establish a central registry
World Finance: With all of these changes abounding, how will the Belgian government even be able to keep track of people’s bank accounts?
Jonathan Chazkal: When they decided to introduce that new law, the Belgian government also decided to establish a central registry where all the banks every year will have to file all the bank numbers of every Belgian resident. Those records will be kept in that central registry for eight years and for the tax authorities it would then be much easier to know which account is related to which taxpayer, because up until that central registry, the only accounts the tax authorities were aware of were the accounts with which the taxpayer would pay his taxes, or the one where he would ask for a reimbursement of his taxes.
World Finance: Now have any international rules influenced the Belgian government’s decision to clamp down on this particular issue?
Jonathan Chazkal: I think that this whole new law and the whole lifting of bank secrecy has to do also with a broader international context. We are talking nowadays about exchange of information before older countries, members of the OECD. If you look today to what’s going on in Switzerland, we get clients that tell us that the banks told them that if they do not regularise their situation in their home country they should just leave the bank, so it is very important now to regularise the situation in your home country so you could still have these account abroad that offer always a very good private banking.
World Finance: Jonathan, thank you so much for joining us today.
The mean streets of Detroit have become synonymous with dereliction, bankruptcy and abandonment; empty houses, litter-lined streets and hopeless residents. That impression existed in the 80s, when Paul Verhoeven’s RoboCop was released, in which exemplary police officer Alex J Murphy is brutally gunned down in the line of duty in the deserted streets of crime-ridden downtown. But Murphy is soon reborn as RoboCop, and emerges as Detroit’s salvation; clad in metal and with guns a-blazing, he becomes the hero the city needs. Now, almost three decades later, Detroit needs a new saviour – an accountant.
The plot of Verhoeven’s film quickly descends into a brutal social commentary on gentrification, greed, privatisation and corporate capitalism; a tongue-in-cheek sci-fi classic that uses ultra-violence to mask its satire of the declining American dream. However, in the 20-odd years since its release, RoboCop has become something like a premonitory dream sequence to the events that would unfold in real Detroit in the late 1990s and 2000s. But in real life the enemy is not a robotics corporation, but the faceless threat of economic misadministration and urban decay.
Glory days The Great Lakes region of the US was the industrial heartland of the country at the beginning of the 20th century: Chicago was renowned for its meatpacking plants, Cleveland and Pittsburgh housed steel mills, and Detroit was ‘the motor city’. The semi-glamorous capital of America’s industrial heartland, it was the home of the Cadillac and numerous other now-defunct car manufacturers. “It was the Silicon Valley of America,” Kevin Boyle, a history professor at Northwestern University who has written extensively about the city, told the local Star Tribune. “It was home to the most innovative, cutting-edge, dominant industry in the world. The money there at that point was just staggering.”
The rise of the auto industry utterly transformed Detroit, attracting over a million new migrants to the city
Detroit first experienced affluence and prosperity during the First World War, when its factories helped propel the Allies to victory. In the 1920s, it quickly grew its industry into a global motoring-manufacturing powerhouse. In the 1950s, the city was thriving, its 1.85 million inhabitants happily employed in solid blue-collared jobs. “Detroit rose and fell with the automobile industry,” writes Thoman Sugrue, the David Boies Professor of History at the University of Pennsylvania. “Before the invention of the motorised, self-propelled auto car, Detroit was a second-tier industrial city with a diverse, largely regional manufacturing base. [Then] the auto industry took off.
“By the onset of the Great Depression, car manufacturing completely dwarfed financial concerns in Detroit. Many more of the city’s companies were somehow related to the auto industry, from machine tool manufacturers to auto supply companies to parts suppliers. The rise of the auto industry utterly transformed Detroit, attracting over a million new migrants to the city and, both through its demographic and its technological impact, reshaping the cityscape in enduring ways.”
By the late 1950s the city was one of the most affluent counties in the US, mostly due to auto-industry derived wealth. However, most of the power was concentrated in the hands of General Motors, Ford and Chrysler, which had grown so big they had put smaller firms out of business. At the same time, Detroit was establishing itself as the epicentre of a burgeoning labour movement, and Ford in particular was concerned about the implications this would have on his staff, who were “among the industry’s most well-organised, racially and ethnically diverse, and militant”.
Eventually, the Big Three manufacturers, led by Ford, started moving their factories into the suburbs, and that was the beginning of the end for Detroit’s industry. “What happened in Detroit is not particularly distinct,” explains Boyle. “Most Midwest cities had white flight and segregation. But Detroit had it more intensely. Most cities had deindustrialisation. Detroit had it more intensely.”
Slippery slope
By the 1970s, the city that had been the motor of the industrial heartland had seen a sharp decline in population (see table over leaf), as blue-collar workers moved away after the factories. Large swathes of the city lay abandoned as the city failed to attract replacement businesses. Detroit had also been the scene of race riots and labour movement riots over the previous decade – after the notorious riots of 1967, thousands of small businesses closed permanently or relocated. Though 43 people were killed and scores more injured, Coleman Young, Detroit’s first black mayor, wrote “the heaviest casualty… was the city”.
Detroit’s losses went a hell of a lot deeper than the immediate toll of lives and buildings. The riot put Detroit on the fast track to economic desolation, mugging the city and making off with incalculable value in jobs, earnings taxes, corporate taxes, retail dollars, sales taxes, mortgages, interest, property taxes, development dollars, investment dollars, tourism dollars and plain damn money.
“The money was carried out in the pockets of the businesses and the white people who fled as fast as they could,” wrote Young. “The white exodus from Detroit had been prodigiously steady prior to the riot, totalling 22,000 in 1966, but afterwards it was frantic.” As the population declined and the industry fled the city, tax revenues were down and unemployment was up (see table over leaf). Today, a little over 700,000 people live in the city, 23.1 percent of whom are unemployed – the highest rate among the 50 largest cities in the country, according to the US Department of Labour’s Bureau of Labour Statistics. Detroit is plagued by sprawling urban blight, having lost over half its population in three decades; levels of urban decay are unrivalled anywhere else in the US. In some parts of the city, more than half of all residential lots are abandoned.
The city’s problems were compounded by a succession of incompetent and corrupt leaders. In 2010, Kwame Kilpatrick, mayor from 2002 to 2008, was convicted on felony charges of counts of fraud, mail fraud, wire fraud, racketeering, perjury and obstructing the course of justice. He has been linked to a number of scandals, from funnelling state money for his wife to murder. Hardly the leader a beleaguered city such as Detroit needed – and he was not the only corrupt official by a long shot.
“I think it (the fiscal disaster) was inevitable because the politicians in Detroit were always knocking the can forward, not confronting the issues, buying off public employees by increasing their pensions,” said Daniel Okrent, a Detroit native journalist, to the Star Tribune. “They were always kind of confronting the impending crisis by trying to make it the next guy’s crisis.”
As expected, urban decay and corruption bring a host of other socio-economic problems, from high levels of crime and marginalisation, to poor health and education indexes. Detroit is like a ghost town today. Economically, the city is utterly unviable. There is no industry and large swathes of the population pay little or no tax. Since the economic crisis faced by the US in 2008, things have gotten even bleaker, as homes were reposed and left to rot.
The number of retirees outstrips that of active employees by a ratio of two to one, a figure nothing short of catastrophic for a city such as Detroit. The city has become the desolate dystopia Verhoeven envisioned in RoboCop almost three decades before. But Detroit is not a city without hope. The Michigan State Government, led by Rick Snyder, tried assuming control of the city’s finances in 2013 in order to lift it out of squalor, and before the city was declared bankrupt in May, an emergency financial manager was put in place to restore the city to financial health.
Parachuting in a hero
When Snyder appointed Kevyn Orr in 2013, he seemed like the fiduciary RoboCop Detroit needed. He did not appear daunted by the gargantuan task ahead of him. In his first report in charge of the city’s finances he wrote Detroit “is clearly insolvent. The City of Detroit continues to incur expenditures in excess of revenues, despite cost reductions and proceeds from long-term debt issuances. In other words, Detroit spends more than it takes in – it is clearly insolvent on a cash flow basis.”
By that point, the city had a negative cash position of $162m, with expenditure exceeding revenue by over $100m a year between 2008 and 2012. Additionally, the city had accrued around $18bn in debt, which Orr had to address. “The 45-day report I have submitted is a sobering wake-up call about the dire financial straits the city of Detroit faces. No one should underestimate the severity of the financial crisis. The path Detroit has followed for more than 40 years is unsustainable, and only a complete restructuring of the city’s finances and operations will allow Detroit to regain its footing and return to a path of prosperity.”
Detroit’s automobile industry hit its peak in the 1950s
Fast-forward two years and Orr’s emergency bankruptcy exit plan has just been approved, and a deal reached between the emergency manager and the elected city council. It is the first step into recovery after the city became the largest in the US to file for Chapter 9 bankruptcy, in late 2013. But the road to salvation has not been smooth for Orr, and it promises to remain rocky as the city moves to implement his recovery plan.
In the 18 months since his appointment, Orr has faced relentless opposition from the city of Detroit. When Snyder put Orr in control as emergency manager in 2013 he, in effect, gave this unelected official the power to overrule the city government. As Detroit was placed under state control as part of the Section 9 proceedings, Orr was given the power to override officials, rewrite labour contracts, negotiate deals, privatise services, open new contracts and sell assets. It is a difficult situation.
On the one hand Detroit has been burdened with decades of poor and at times corrupt management; on the other, Orr is not an elected official, and there are questions about how constitutional his appointment and subsequent actions are. Even municipal judges suggested the motion to file for Chapter 9 was unconstitutional.
“I think it’s very difficult right now to ask directly for support,” Detroit Mayor David Bing told the press at the time of the bankruptcy filing. “We’re not the only city that’s going to struggle through what we’re going through. We may be one of the first. We are the largest, but we will absolutely not be the last. And so we have got to set a benchmark in terms of how to fix our cities and come back from this tragedy.”
House prices have fallen steeply in Detroit over the decades
And so, amid opposition from city councillors, Orr devised a plan to rehabilitate Detroit’s finances. The city is still facing strong headwinds. Property tax revenues have slumped 19.7 percent in the last five years, as property values have declined. Income tax revenues have declined by $91m since 2002 – close to 30 percent – and by $44m since 2008 (approximately 15 percent) due to high unemployment rates. In the meantime the comparative tax burden per capita has gone through the roof, making it the highest in Michigan.
All these factors, compounded by continuing budget deficits and mounting debt, mean the city is in a liquidity crisis and can no longer afford to support itself. In April 2013, 40 percent of streetlights were not functioning. Detroit’s problems are not easily solved because of the decades of lack of investment in infrastructure; it continues to accrue tremendous costs associated with abandoned buildings, and almost all public assets (including fire apparatus, and police apparatus and facilities) need upgrading or replacing altogether. Essentially, nothing in the city is functioning to standard.
Orr’s plans revolve around the need to “provide incentives [and eliminate disincentives] for businesses and residents to locate and/or remain in the city”, and “maximising recoveries for creditors”. This will involve pension reforms, employment reforms, attracting outside investment to physically rebuild the derelict city in order to maximise the collection of taxes and fees, and offloading city assets that can generate capital. It is an uphill struggle.
Road to recovery
In the months since Orr released his report and outlined his strategy, he has been trapped doing vicious battle with the city council for the chance to implement his plans. At one point it looked as if he would be ousted, until, finally, at the end of September, a hard-fought deal was reached. The deal between Orr, Duggan and other councillors, means Detroit will remain under emergency management as Orr steers it through the final stages of Chapter 9. However, some of his overriding powers have been stripped, and he will no longer have final say over city contracts.
Graffiti in Detroit
The deal is being lauded as a victory for councillors. Council President Brenda Jones has been adamant to stress power has been returned to the hands of elected – and accountable – officials, but added Orr still has a vital role to play in the city’s recovery. “We do not want to stand in the way of the bankruptcy proceeding,” Jones said. “None of us are bankruptcy lawyers.”
Michigan Governor Rick Snyder, who appointed Orr as emergency manager in the first place, issued a statement praising the deal and the decision to phase out Orr’s role as emergency caretaker. “Detroit continues to move forward. Today’s transition of responsibilities is a reflection of the continuing cooperation between the state and its largest city,” the statement read. “Leaders are working together for the best interests of Detroit and all of Michigan. Emergency manager Kevyn Orr’s expertise and counsel to the mayor and city council are vital in guiding the city toward a successful conclusion of the bankruptcy process.”
However, despite conflicts, Orr’s role in putting Detroit on the road to recovery cannot be denied. It may have been an unpopular move, but filing for Chapter 9 Bankruptcy was the drastic initiative that had been lacking from local leaders who had allowed the precarious situation in Detroit to slide. The city is still fundamentally in ruins as reconstruction and regeneration have not begun, and it will take a Homeric effort to propel recovery forwards. But Detroit has an aim and a clear direction now. No reanimated fighting robot is necessary.
Germany has long been considered the backbone of Europe, and carries many of its neighbouring countries’ shaky economies. But with the second quarter of this year seeing a decline in GDP and manufacturing orders dropping, Germany’s economy is showing clear signs of weakening. World Finance talks to a top economist about whether the wheels are coming off Europe’s heavyweight economy.
World Finance: So Holger, what’s the business sentiment in Germany today, and with the fall in GDP, are people getting nervous?
Holger Schmieding: People are getting nervous, and businesses are nervous. The underlying situation remains good to excellent. Business by and large is happy. However, dark clouds have appeared on the horizon, and as a result business are holding back from investment, and there are some signs that consumers may also hold back from buying a new car later this year.
People are getting nervous, and businesses are nervous
World Finance: Well what are these nerves, what is the impact they are having on the rest of Europe?
Holger Schmieding: Germany is much more exposed to geopolitical concerns such as Russia, Ukraine, than most other European economies. We’ve seen similar of even more pronounced downturns in sentiment in Austria and Finland, but in Spain we’ve basically seen none of that. Germany, which will likely have economic stagnation for the remainder of the year, has a bit of an impact in its neighbours. The current situation is mostly a core-European, German problem, it is the German upswing has been interrupted by geopolitical concerns, but this is not really a pan-European problem. In Spain, in the UK, the economies are less exposed to the specific geopolitical concerns that have hit Germany, and as a result these economies are now showing only a little wobble.
World Finance: Is it all down to geopolitics, or are there other reasons that Germany’s economy is weakening?
Holger Schmieding: Longer term, Germany does have some problems. I mean, who doesn’t? Germany has excessive energy prices, Germany is now introducing a minimum wage which is too high, Germany has cut the pension age for a small number of people, but that was the wrong signal. So Germany is doing a few things that you can consider economic nonsense. Having said that, these things don’t have a big impact on business investment for a while. That we have, at the moment, a German turn to stagnation, from growth of about two percent at the beginning of this year, that is in a way a one off, that is geopolitics, and Germany is by geography exposed to Russia. Germany is also, by the nature of its economy, very exposed to confidence issues, because it produces the machines, the machine tools for investment and if confidence is shaky, businesses in Germany and abroad delay investment decisions, and that registers in Germany much more than it does for instance in France or Spain.
Longer term, Germany does have some problems. I mean, who doesn’t?
World Finance: Well for Germany’s weakening economy, could this be said it’s just the boom-bust economic cycle that we’re seeing?
Holger Schmieding: There has not been any excess which would have warranted a correction. This basically is a mid-cycle interruption in what I consider is an intact up-trend. We have now a pause of probably three quarters of a year. Once the geopolitical concerns fade, and there are clear signs they are fading in Ukraine, and hopefully even in Iraq and Syria, Germany a little while later will re-emerge and will have significant growth. You can compare the current German situation to a healthy adult who unfortunately catches the flu. For a limited period of time that adult is in bed and not doing well, but 99.9 percent of the cases, that adult gets healthy again and afterwards is about as healthy as he was before contracting the flu. So Germany has an interruption in its upswing, with a small risk of a recession rather than stagnation, but once the geopolitical triggers for that are over, Germany will get out of it and return to growth rates of close to two percent.
International financial services are a growing global industry. One of the firms shaping this dynamic sector is deVere group. World Finance speaks to its CEO, Nigel Green, about the evolving landscape and why the company sees Africa as such a massive area of potential.
World Finance: Nigel, how has the market for international financial consultancy developed over the past few years?
Nigel Green: The world’s changed dramatically over the last 20 years, people today are much more international. I notice that you don’t come from London yourself, and the reality is that people travel today, and people want to live in different countries and experience different cultures. Therefore they need different investment needs and different advice because of the fact that they’ travel.
World Finance: Now has Africa emerged as an interesting frontier market?
The world’s changed dramatically over the last 20 years, people today are much more international
Nigel Green: It’s very exciting. We’d say it’s the next far east, if we can put it that way. If you can imagine different markets as a lift, then you’d say that the mature markets are the very top floor, so there’s not so far to go. You’d actually say Africa is in the basement. That’s not a criticism of Africa, it’s just a reflection of where they’ve been in the past, and for lots of different reasons. There’s so much potential in Africa, massive resources, massive opportunity with a workforce that is keen to grow and to be educated.
World Finance: Can you give me some examples of some of those markets that are largely untapped as you said?
Nigel Green: All of them is the honest answer. So we do business in Zimbabwe, we do business in Uganda as you know. We do business in South Africa, we do business in Ghana. We’re looking to open up in Nigeria as well shortly. So, a big continent.
World Finance: Can you tell me about what’s really driving the demand for development in the sector that you specialise in?
Nigel Green: There’s natural resources in Africa, lots of natural resources. So therefore companies want to help Africa develop those, international companies, and they employ international people. And it’s those international people that are our main marketplace.
World Finance: In general, why do you think there is such a demand for the international financial consultancy services industry?
Nigel Green: People have tax issues. If you can imagine you’re an ex-patriot, let’s say that you’re from Canada, and you’re in Africa. You’ve got two issues. You’ve got one issue that you’re in, let’s say South Africa, and you’ve got South African tax, but at some stage you may want to go back to Canada, because it’s a beautiful country, and if you want to do that you need to not only be aware of the tax in the country that you’re working, but also the tax in the country that you’re going to end up. So you need an advisor that is aware, an international advisor, that can advise you on the tax situation, but you also need someone that understands the opportunities for international investment. It’s probably that you’re not going to want to put your investment, your personal money in one particular area, you’re actually going to want that money invested internationally as an international person. So we’d help you from both points, one from the tax point of view, and two from an investment point of view.
There’s many countries in Africa, there’s enormous potential
World Finance: Now you’ve told us a little bit about the profile of your average deVere customer. Can you tell me a little bit more about their particular ambitions in terms of growing their wealth and their business internationally?
Nigel Green: So a typical client would be an international-thinking person. So it could be the top end of the local market, someone who wants to take advantage of international investment opportunities. Those clients are looking for products that are portable so they can take them to wherever they end up, and they’re looking for good returns, they’re looking to create money for themselves and their families for the future.
World Finance: Now what’s in the pipeline for deVere?
Nigel Green: There’s many countries in Africa, there’s enormous potential. We’ll look at each of those and we’ll look at developing offices to be able to service our clients. You have to remember that if we open an office, let’s say it’s in South Africa, you’ll end up servicing clients, but those clients themselves will move to other places. So if enough of them move to, let’s say Kenya, then you’d obviously consider opening an office for the clients that have moved there. We’re always looking to expand, make sure that we’re the number one player in the financial advice field in Africa, and actually the world.
World Finance: Very exciting times indeed. Nigel, thank you so much for joining me today.
