Author: Ashton Wenborn

‘It’s Mexico’s moment’ says Infonavit CEO

Posted on by Ashton Wenborn

Mexico’s Institute of the National Housing Fund for Workers (Infonavit) is at the heart of innovation in the country’s mortgage sector, providing its citizens with affordable plans to achieve housing. Since its conception, the institute has become one of the main financial institutions in the world in terms of the size of its portfolio, which stood at $70bn at the end of 2013. World Finance speaks to Alejandro Murat, CEO of Infonavit, to speak more about its success.

World Finance: Well Alejandro, investors are increasingly looking towards Mexico. What are the main reforms being initiated by Mexico’s government?

Alejandro Murat: Clearly it’s Mexico’s moment. Today, President Enrique Peña Nieto has pushed forward more than 11 reforms in less than 18 months. The most important reform is the energy reform. A reform that’s focused on the oil, the electric and gas sectors. By generating a new model of public and private synergies to impact productivity, competitiveness, and clearly generate more opportunities for the underprivileged, and to decrease inequality in Mexico.

Another example can be the competition reform. This reform clearly establishes a stronger legal framework, so that we have a stronger antitrust authority that has the capacity to enforce this type of legislation, and to have the opportunity to establish a level playing field that will impact the consumers in prices and competition. Now we also have the fiscal reform. A reform that’s focused on a progressive tax system to increase the tax collection to focus more on public goods and services. Another important reform is the education reform, that is focused more on human capital expenditure and less on operation expenditure.

Clearly it’s Mexico’s moment. Today, President Enrique Peña Nieto has pushed forward more than 11 reforms in less than 18 months

World Finance: Well, housing is a major sector in Mexico. What strategies are envisaged to better integrate planning and investment for housing and urban development?

Alejandro Murat: This new government understands that urban planning has to have an integral perspective. You have to incorporate housing into urban planning to generate an agenda on competitiveness, productivity, regional development and quality of life. And how can we achieve that? Well, the agenda established in these reforms focus on four big pillars. The first pillar is better inter-institutional relations. Horizontally on the three levels of government, and also vertically on all the federal government. Second, a big agenda on urban planning. In Mexico, we were only focused on housing. Now we need to generate the right infrastructure to generate the right surroundings.

World Finance: What is Infonavit’s approach to sustainability?

Alejandro Murat: By having more efficient use of all the good around us. Second, an impact in the social aspects, generating stronger fundamentals in the social interaction of the people, but also in the opportunity of having more public goods and services. How can we achieve that? By having workshops and more subsidy programs. And the third and most important, an impact in your economy. That is generating a stronger net worth.

World Finance: One of your main value propositions is your green mortgage scheme. What are the main results you’ve seen in this area? 

Alejandro Murat: In the last years we’ve been able to give 1.6m green mortgages. And why is this important and what do we understand by a green mortgage? Well a green mortgage is the capacity to increase your credit possibilities by incorporating in the housing model eco-technologies that give an impact on the workers in their expenditures and their quality of life. In the last year, just in 2013, we were able to generate reductions of more than 250,000 C02, which is basically around 700,000 trees. We are also talking about more than $60m in expenditures, around $17 per household per month, that we were able to generate savings on. And the last element is that we are also concerned, if we compare around 20 million cubic metre of water that we were also able to save with these green mortgages.

[J]ust in 2013, we were able to generate reductions of more than 250,000 C02, which is basically around 700,000 trees

World Finance: What measures are you considering to target workers who are not eligible to acquire Infonavit’s financial solutions?

Alejandro Murat: One of the three pillars in this agenda is to reduce the housing deficit, and we’ve been able to analyse two fundamental aspects. The opportunity to use our platform and other platforms of housing institutions in the public sector and in the private sector to increase this demand. We’re able to serve the municipal and state workers that in the former years we weren’t able to serve. But these workers are in the formal sector, and this is a way to increase demand, we’re talking about maybe 2.5 million workers.

Another scheme that we’re working on is with the Minister of Finance. This is to incorporate the possibility for more people to use the social security benefits, and of course the benefits that Infonovit gives with the housing scheme.

World Finance: Well finally, what other sustainable initiatives are in store for you for 2014?

Alejandro Murat: For the first time in the history of Mexico, we were able to establish a universal insurance coverage for the quantity of the houses. Second, we are also pushing forward an improvement program of the housing units that were constructed already. Out of four people in Mexico, one lives in this type of housing unit. So we’re going to go into these units to have three fundamental aspects. A technical approach, a social approach, and a cultural approach. We’re going to go into the public areas and rehabilitate these areas.

We will go also in house with credit services so that people can improve their houses. In the social aspect, we are generating workshops and also subsidy programs to generate a better and more efficient surroundings. And the cultural aspect is that we’re incorporating, of course, other programs like painting programs, and for the first time, wifi public areas for free so that people can generate more interactivity.

World Finance: Alejandro, thank you.

Market conditions threaten Malaysia Airlines’ survival

Posted on by Ashton Wenborn

The centre of not one but two of 2014’s biggest news stories, no one can deny that Malaysia’s national carrier has had a rough year. Following the unsolved disappearance of Flight MH370 on 8 March and the alleged shooting of Flight MH17 over Ukraine three months later, major restructuring is crucial if Malaysia Airlines is to survive.

Even before the first disaster struck, the airline had been haemorrhaging cash for years – over a 13 year period, a cumulative Rm17.4bn ($5.3bn) has been pumped into the company. In August the carrier announced losses of Rm8.4bn ($2.6bn) over the same period. A total of four restructuring plans have been introduced over the years and gradually phased out, and the central thread is always efficiency. With approximately 19,500 staff, Malaysia Airlines’ workforce is 30 percent larger than that of comparable airlines and its revenue per employee is just 51 percent of Cathay Pacific’s and 38 percent of Singapore Airlines’: its two main competitors.

Further parallels can be drawn between Swissair and Malaysia Airlines in that both were facing a dire financial situation before the tragedies struck

In addition to its financial woes, the reputation of Malaysia Airlines has taken quite a beating. The damage can be seen by browsing the company’s most recent press releases, with many dedicated to debunking rumours of further disasters reported on by the world’s media. A statement from 17 September, which addresses the authors of a book claiming to offer the ‘scoop’ on MH370, reads: “An independent assessment by self-proclaimed experts with no access to reliable data is hearsay at its most extreme, or fantasy at its most benign. The authors and publishers should quite simply be ashamed of themselves for what is nothing more than a cheap and maligned publicity stunt, seeking to simply cash in on the suffering of the families and undermining the dignity of all of those onboard.”

Rebranding, or at the very least, restructuring, is necessary for the airline to have any hope of returning to the market as a genuine contender. So when a recovery plan was announced in August by Khazanah Nasional, the airline’s biggest shareholders, many waited with baited breath.

A number of external factors, which have contributed to Malaysia Airlines’ difficulties since 2001, are mentioned within the plan, ranging from the September 11 attacks and the SARS pandemic to the rise of new low-cost carriers and the financial crisis of 2008. Whereas privately-owned, discount competitors in the region are expanding rapidly, the combination of state ownership and a powerful union has hindered Malaysia Airlines’ efforts to adapt to a changing climate, and the carrier has been unable to keep up with its younger rivals. The airline’s struggle to compete takes place in a time when air travel supply in Malaysia is growing at ten percent per year, outstripping an eight percent growth in demand.

The recovery plan involves the creation of a new company, the delisting and eventual relisting of the airline’s shares and the relocation of its headquarters to Kuala Lumpur International Airport. Also mentioned is the investment of a further Rm6bn ($1.9bn) into the business, a 30 percent reduction of the existing workforce, resulting in the loss of 6,000 jobs, and major alterations to leadership – including the appointment of a new CEO. There are further plans to reduce the amount of unprofitable long-haul routes flown, which Professor Mohan Ranganathan, Head of the Mechanics and Systems Department at the University of Tours, agrees with. He added that to contend with discount competitors in the region, the airline would need to focus on reducing prices on routes within Asia.

The mammoth task Malaysia Airlines has on its hands brings to mind memories of the US’s first international carrier, Pan American World Airways. The airline shut up shop in 1991, citing the effects of the Gulf War and subsequent economic recession on commercial travel as the main contributing factors. However, the 1988 crash of Pan Am Flight 103 over Lockerbie, Scotland, which killed all 259 people on board and a further 11 on the ground, seemed to have a detrimental and irreversible impact on consumer opinions of the carrier. And, while one tragic incident cannot be identified as the sole driving force behind its demise, many patrons expressed reluctance to use the airline following the disaster.

Other carriers have been more fortunate, or perhaps strategic, in recovering from similar crises. Following a crash off the coast of Nova Scotia in 1998, which killed all 229 passengers and staff onboard, Swissair, the national carrier of Switzerland, was forced to liquidate its assets in 2002. A new national carrier, Swiss International Airlines (known as simply ‘Swiss’) rose out of the ashes, and the country’s self-proclaimed “quality airline” saw a major turnaround with respect to both its reputation and profits.

A total rebrand can have an adverse effect, though. “Malaysia Airlines may be tempted to rebrand entirely. However, by doing this, it faces the danger of a far greater backlash. By trying to distance itself from the tragic events too quickly, Malaysia Airlines may be perceived as attempting to disassociate itself from any responsibility for them,” says Frances Ingham, Director General of the Public Relations Consultants Association. He suggests that maintaining the brand, and dealing respectfully with the aftermath of the tragedies is their best course of action.

Further parallels can be drawn between Swissair and Malaysia Airlines in that both were facing a dire financial situation before the tragedies struck, and the public’s interpretation of Swissair as a symbol of national pride was a key saving grace in its recovery.

By trying to distance itself from the tragic events too quickly, Malaysia Airlines may be perceived as attempting to disassociate itself from any responsibility for them

Citizens felt committed to the brand, in much the same way Malaysians support their national carrier, but Malaysia Airlines has been on the receiving end of heavy criticism for how the crisis was handled. Accusations from the media include withholding vital information from victims’ families and intentionally flying over an internationally recognised combat zone, meaning the airline will need more than the goodwill of the Malaysian people to recover its reputation. Former Malaysian prime minister Mahathir Mohamad was quick to voice his doubts, writing on his blog: “Khazanah has been in full control of MAS all this time. And all this time MAS has been bleeding profusely…So why should anyone believe that with 100 percent control, Khazanah will not keep on losing.”

The recovery plan recognises the failings of the past, as well as just how important a total overhaul is to the future of the airline, and the fact that changes were already under consideration before the two disasters is stressed repeatedly. Taking an optimistic outlook, an excerpt reads: “This unique combination of attributes – MAS as a national icon, economic enabler, domestic bond, and link to the world – makes the success of the national airline an imperative for the Government and the Malaysian people.”

The national pride tied to the airline is referred to often, and it is repeatedly emphasised that the involvement of the Malaysian public is crucial to its success. An article in The Sun Daily, Malaysia’s national free newspaper, encourages the support of the masses, claiming: “There’s no higher calling for us Malaysians and friends of Malaysia now than to embark on this gigantic journey to nurse our national carrier back to profitability. If we need a mass movement to galvanise support to bring back Malaysia Airlines to its glory days, so be it. Let us invoke our sense of nationalism to help achieve this objective.”

The debate over the economic viability of national flag carriers in modern society is nothing new. Pressures from the government and demanding unions leave these airlines struggling in a fiercely competitive and constantly evolving climate. As a result, most state-owned airlines have failed to adapt to the influx of low-cost competition since the privatisation and liberalisation of the industry. Those that have been successful, Emirates and Singapore Airlines for example, differ from Malaysia Airlines in that they enjoy the financial benefits of state ownership whilst operating as commercial entities. Meanwhile, Malaysia Airlines is now 100 percent government owned and, without smaller stakeholders weighing in on major decisions, further mistakes could be made.

The fundamental problem is that few other options are available. Privatisation plans are rarely successful because the potential losses and debt incurred scares investors away, yet slashing thousands of state jobs and fears of a disconnect from the rest of the world ensure liquidation remains a last resort. These fears are largely unfounded though, countless nations have survived after the demise of their flag carrier: Belgium and Greece to name a few.

National pride is a noble sentiment, but that alone is far from enough to sustain a failing business in an increasingly challenging global market. Despite Malaysia Airlines boasting one of the world’s best airline safety records prior to 2014 with just two fatal accidents in 68 years, the ongoing controversy surrounding MH370 and MH17 means that the restoration of its reputation will be an uphill battle.

China concerned of ‘Scotland situation’ with Hong Kong

Posted on by Ashton Wenborn

‘Hong Kong is not ready for democracy’ reads the party line of China. But tens of thousands of people on the streets of the city disagree. Beijing’s announcement in September that candidates for Hong Kong’s next leader must be vetted by the Communist Part of China has sparked widespread condemnation and mass protests in one of the world’s financial powerhouses. World Finance speaks to Kerry Brown, Director of the China Studies Centre at the University of Sydney, to discuss what the future holds for Hong Kong.

World Finance: Kerry, Chinese officials often liken Hong Kong to an insolent child, and mainland China as the wise mother. But Hong Kong is an economic powerhouse which has run successfully for decades, so why does China want to meddle in that?

Kerry Brown: Well, I think that the dynamics have changed so much since 1997 when the handover happened.

Then, China was the ninth, tenth biggest economy in the world, and it probably didn’t expect to be so quickly the number two, and be so dominant.

And so I think Hong Kong has become less important, in a way, to Beijing. And what we’re seeing now is a Beijing government that feels more confident and assertive.

The Hong Kong economy is about 10 percent of the Chinese economy. It’s kind of an area of its sovereign territory which may be very disruptive, and have democratically elected leaders. Its mindset is obviously not prepared for that, and so it’s acted very assertively lately.

I think the problem really is that the chief executive of Hong Kong now, CY Leung, has proved really incompetent

World Finance: Will they just encourage the communist party to be even more stringent when it comes to vetting governmental candidates for Hong Kong?

Kerry Brown: I think the problem really is that the chief executive of Hong Kong now, CY Leung, has proved really incompetent. He’s meant to represent the interests of Hong Kongese in Beijing, and he obviously hasn’t.

And it’s also meant that Beijing has not really been able to speak to the people of Hong Kong, because nobody’s really listening to CY Leung there. Although the protestors have said they will start a dialogue with him.

There may well be compromises, but not until people get off the streets. And what we have to do is, we have to look at Hong Kong now as being a very politicised place.

World Finance: Economically speaking, how much do Hong Kong and mainland China rely on each other?

Kerry Brown: Beijing now is really tactical. They have big interests in overseas investment going via Hong Kong. They appreciate the rule of law in Hong Kong, and the fact that it is a very stable, open finance centre. So for those things Beijing I think still values Hong Kong, and wants to preserve them.

But if it’s an issue of it accepting these because it has to accept a political system that it obviously isn’t prepared to accept at the moment – a universal franchise that might throw up leaders that might be as fractious and difficult as, for instance, the Scottish leadership in the UK!

I think Beijing looks and thinks, we do not want a special administrative region in Hong Kong that could have a leadership – a very popularist leadership – elected, that could then be absolutely defiant.

World Finance: So what knock-on effect is this causing?

Kerry Brown: Well, the Hang Seng index has lost the value that it’s accrued over the last few months, so short-term, yes, it is having an impact.

There’s a simmering resentment, and that will erode confidence in Hong Kong eventually

There’s a simmering resentment, and that will erode confidence in Hong Kong eventually. It’s in no one’s interest to have so many people feeling that they’ve really been done down.

This is not an issue about the UK or America or others getting involved. They have no real big role in this, they already said their bit in the colonial period. So I think really, it’s about the people of Hong Kong , realising that they’re kind of on their own, and that they have to speak directly to the leadership of Beijing.

And the one thing they have is economic importance, and Beijing doesn’t want to jeopardise that. So I think that for the protestors they will need to work with constituencies, business constituencies in Hong Kong, to bring them over to say: we need a better deal than the one we’ve got at the moment, for the future prosperity of this amazing international centre.

World Finance: So you don’t think this might be the start of Hong Kong losing its crown as one of Asia’s main financial districts?

Kerry Brown: Well I think it’s already very competitive in Asia. Shanghai is being very assertive as the portal to the domestic finance market in China. It’s growing and expanding, yet no one pretends that this is at the moment up to the global standard, but Shanghai’s aspirations can’t be taken lightly.

And so you could say in Beijing, well if Hong Kong really wants to walk off a cliff, then we do have a ‘Plan B’.

I don’t think it does want Hong Kong to walk off a cliff: clearly it doesn’t. But there is a world outside of Hong Kong for the Beijing leadership now, unlike in 1997. Really Hong Kong is not a super-big priority.

World Finance: Well finally, is this good news for Europe? As banks we once feared would move to Hong Kong might now reconsider? Or could it go the other way, and maybe that will be the final push towards Shanghai?

I don’t think it does want Hong Kong to walk off a cliff

Kerry Brown: I think it’s a big problem in Europe, because for investors they really really do look at Hong Kong as a place of reassurance, a place of law and regularity. And it’s not a great thing that it’s now so full of uncertainty.

I think many will be scratching their heads thinking, this is kind of like a ‘do or die!’ Either we have to walk into this great uncertainty and get more involved in Shanghai, or we really do have to step back and reconsider our greater China strategy.

For many people engaged in the China market, they’re going to have to think much harder about who they work with, where they go, how they do it, and the Hong Kong reassurance is not quite as strong as it was even a month or so ago.

It can get that back: it depends on what sort of political deal is done. But all this talk about Hong Kong being a place for business, a place for economics, and that’s all that matters? No. Hong Kong is a political issue now.

Engro Corporation on the challenges Pakistan faces

Posted on by Ashton Wenborn

From coal to food, demographic shifts in Pakistan have lead to a dramatic maturation of the local resources sector. But what does this mean for its economy? World Finance speaks to Hussain Dawood, Chairman of Engro Corporation, about what the future holds.

World Finance: According to your 2011 sustainability reports, you have achieved very high dispatch rates and as a result seen a lot of strong performance in your sector. Now, can you tell me what the energy outlook is for your country right now?

Hussain Dawood: The energy situation is quite desperate. The reasons are that the total generation within the country is inadequate. In addition to that you have a situation in which the amount that is being generated is not efficient. You have a capacity but you are not able to utilise the full capacity because of the inefficiencies that are within the system.

So in other words, the overall net ability declines further. So we have a situation where in the country there should be about 18,000MW of generating power, and it never goes beyond 14,000MW. So there are challenges from that viewpoint.

The energy situation is quite desperate. The reasons are that the total generation within the country is inadequate

In addition to that when you look at the population growth that is taking place, and the fact that there is a rising expectation particularly because of the increasing middle class, the demand for energy is going up also – so you have double whammy. One is the population and the other is the expectation – and the demand for that power is going up. And that is compounding the overall demand supply situation – the delta is getting larger.

If we look at the growth of the population, according to the United Nations, Pakistan will be doubling its population by 2050 and then we will be at 350 million people or more. In such a situation, the energy challenge becomes even greater and the Prime Minister has indicated in one of his speeches, that he thinks we will have to go as high as 50,000MW of power generation, which is a significant difference from where we are today. From 18,000MW to 50,000MW will entail a lot of investments.

World Finance: So do you think the Government, in making this speech and declaring essentially that there really has to be more of a ramping up of efforts, is doing its part?

Hussain Dawood: I think his understanding is correct, however to go about and create this type of change you have to be attracting foreign investments. Where do you get the foreign investments from? This is the great challenge.

He has been very successful in going over to China and encouraging them to take interest in investing. The Chinese are coming forward in a very significant way, to invest in the energy sector of Pakistan. We ourselves are deeply involved with the Chinese in developing energy resources in several investments, rather than in a single one.

World Finance: You are operating in a country that unfortunately has seen a lot of political instability in the last decade. Has that instability in any way detracted attention from your company’s efforts locally?

[T]here is an eternal law of economics, and that is that returns have to match risk

Hussain Dawood: You have to realise there is an eternal law of economics, and that is that returns have to match risk. It’s a natural law and nobody is able to manipulate that in any way. So when you have this type of political instability, naturally rates of return go up because the risk factors are higher. The second thing you must realise is that you can’t make money if everything is bland – you make money in ups and downs. So you want some movement within the market place, and that’s what provides the interest and the excitement.

World Finance: In those up periods when you are peaking, you must be thinking about expansion goals or taking the company forward because the market is working in your favour. Tell me about some of those expansion plans.

Hussain Dawood: Pakistan has the fifth largest coal deposits in the world – 175 billion tonnes of coal. And we have a block there of two billion tonnes, and that block is capable of supporting 4,000MW of power for 50 years, so we are developing that.

We are developing not only the mining, but the power generation which has come from that. We are already the largest power generators in the country – we do about 12 percent of the country’s generation. And with this, we will be able to make a further contribution.

World Finance: A very exciting time, it sounds like for your company. Mr Dawood – thank you so much for joining us today.

Hussain Dawood: It has been a great pleasure, thank you very much for inviting me.

France budget cuts fall short of EU targets

Posted on by Ashton Wenborn

The French socialist government presented its 2015 budget with the aim of reducing its public spending – almost the highest in the EU – and lowering its budget deficit.

The deficit is projected to reach 4.4 percent of national income in 2014 before dropping to 4.3 percent in 2015 and 2.8 percent in 2017. But the reduction is not enough to meet an EU target of 3 percent by the end of next year.

The EU deadline set for achieving the reduction to 3 percent had already been extended twice

The plans, which are the most drastic seen since Hollande came to power in May 2012, involve cutting the state’s budget by €21bn in 2015 to achieve an overall reduction of €50bn by 2017. Sectors targeted include the welfare system, civil servants and local authorities.

The EU deadline set for achieving the reduction to 3 percent had already been extended twice. But Finance Minister Michel Sapin said the most recent projections are “realistic” given the eurozone’s low inflation rates and the country’s slow economic growth. He told a news conference at the finance ministry: “We are committed to being serious about the budget, but we refuse austerity”. He added that “the French will not be asked to make an additional effort” for fear of damaging economic growth and causing a recession.

In 2016 France’s public debt is expected to hit a high of 98 percent of annual output. It reached a record high in the first half of 2014, topping €2trn.

Gaspard Koenig on saving France's Economy video

Watch the video: Gaspard Koenig on saving France’s economy

The country aims to cut its structural deficit by 2.4 percent of GDP in 2014 but next year that reduction will slump to 2.2 percent. Public spending is set to reach a high of 56.5 percent of GDP in 2014 and drop to 54.5 percent in three years’ time.

According to the FT, France is set for talks with the EU, in which Sapin plans to maintain that the country’s situation is “legitimate and [well] argued”.

Corrupt France: ‘the tax structure is unimplementable’

Posted on by Ashton Wenborn

World Finance: 35 hour work weeks, strikes, astronomical tax, super-rich fleeing the country and getting citizenship abroad. That’s what we hear about France, and it sounds like bad news for the economy. But with a cabinet reshuffle, is there light at the end of the Eurotunnel? With me now is Gaspard Koenig, founder of the French think-tank GenerationLibre.

Gaspard, the new economy minister Emmanuel Macron said “France is sick, and there’s no choice but reform”. So what are the country’s ailments?

Gaspard Koenig: The welfare state, which has been created after the war – probably for good reasons at the time – has grown out of control.

V14WF142JH_FrancesFailingEconomy_Interview_C

Watch more Gaspard Koenig videos:

France: the sick man of Europe?

Public spending as a proportion of GDP is 57 percent, which makes it the seventh largest in the world, after countries such as Cuba and Lesotho. France is really doing extremely badly in terms of its public sector.

Another thing that is linked to that is weight of public investment in the country. France has built a traditional public sector, which in itself is not bad. It’s healthy. But it’s now tied with so many regulations – it’s stifled by so many statutes – that it is paralysing our economy.

World Finance: Well Francois Hollande, he’s the man who introduced a 75 percent tax on the rich. That can’t help the situation, so what was he thinking?

Gaspard Koenig: It’s a symbolic measure. You have to bear in mind for instance that income tax in France only makes up 15 percent of the state’s tax revenues. So people are always arguing passionately about the income tax, but it’s a marginal fraction of the tax that the state actually takes from people. It’s just that they don’t see it.

It’s a typical political trap, because it created enormous debate. It clearly tilted the election for Francois Hollande, because people thought, ‘Aw, finally this guy has guts.’ And it is just unimplementable, and actually not implemented at all.

And this is the kind of reform they don’t want to do, because they know it is stupid.

World Finance: The French do have a reputation for being a bit work-shy, with their 35 hour work weeks. Do you think this is fair?

Gaspard Koenig: Exactly like the 55 percent tax, the 35 hour week is merely symbolic, and doesn’t have much effect in the daily behaviour of workers.

[T]his is the kind of reform they don’t want to do, because they know it is stupid

So the average time that French workers do work in a week is 39.5 hours, which makes France among the 20 top countries where people work the most. And the productivity of workers is the third in the world.

World Finance: So why then did it ruffle so many feathers when Macron suggested abolishing the 35 hour work week?

Gaspard Koenig: Most of the people behind the scenes know exactly what needs to be done. But very few people can stand up politically to that, and very few people have the courage to confront the unions… and honestly, to confront the system.

You know, I was a speechwriter for Christine Lagarde for three years when she was a treasury minister. I got to see a lot of those meetings. And I think France is very corrupt. At the top of it, especially in the public sector or para-public sector, you have many people who hold each other.

It’s extremely difficult, where you don’t have a clear mandate. The only person who would be able to make those cooperations is a president clearly elected with a clear majority and a clear mandate.

World Finance: Well finally, how does France compare to more healthy economies such as Germany, and maybe even the UK, which is slated to take France’s place as the fifth-largest economy in the world by 2020?

Gaspard Koenig: Yeah, it’s been some years if not decades that the UK’s supposed to overtake us! I think we have a bit of time. Don’t forget the UK is the old fool. We still have some pride!

France is such a wealthy country compared to the UK

You know what really amazes me is that France is such a wealthy country compared to the UK. Especially when you live in the UK, when you drive through the UK. It’s a country that really made a lot out of very little. Because they took risks, because they encouraged people to come from abroad and to help them build an economy, and they proved to be rather pragmatic.

In France it seems we’re so jaded. We have everything at home: we have a country which is rather healthy economically, we have people who are well educated, good infrastructure, and we sort of mess it up with very, very, very bad policies. And that’s extremely frustrating. And this is part of the reason why so many people are active, in order to turn that around. Because we feel we have incredible assets, and they’re about to get lost if we don’t react quite urgently.

World Finance: Gaspard, thank you.

Gaspard Koenig: Thank you Jenny.

Record redemptions hit Pimco following Gross departure

Posted on by Ashton Wenborn

Pimco’s bond fund, once the largest in the world, suffered from redemptions totalling $23.5bn in September, making it the largest amount to be pulled from the fund in a single month in more than a year. That brings the total outflows for 2014 up to $50bn and sees the fund having dropped from $290bn in 2013 to less than $200bn.

The fund is well positioned to meet potential redemptions – Pimco

The unprecedented departure of the fund’s co-founder and Chief Investment Officer Bill Gross sparked an immediate and abnormally high succession of outflows. The Wall Street Journal reported redemptions reached $10bn after the news of his exit, with outflows then slowing after the first few days, according to Pimco.

Morningstar consultancy downgraded the fund’s rating from Gold to Bronze. Eric Jacobson, Senior Analyst in Active Strategies, said the downgrade “reflects Morningstar’s high level of confidence in Pimco’s resources and overall abilities but also the uncertainty as to exactly how all of these parts will mesh in the wake of Gross’ departure”.

Competitor funds have felt the benefits, with DoubleLine reported to have received a boost of $800m from new investors over the space of three days. Rival Vanguard was even rejecting investment offers to ward off those only in it for the short-term.

Investors had been pulling money from the fund since the Federal Reserve’s announcement last year that it would tighten monetary policy.

Pimco said it was able to cope with outflows, commenting in a statement: “The core fixed income market in which the Total Return fund invests is one of the largest and most liquid markets in the world, trading on average $700bn of securities a day”. It added: “The fund is well positioned to meet potential redemptions, and short-term cash management is an area of expertise and strength at Pimco.”

But analysts believe that more money may soon be pulled from the fund. Pimco’s new managers have been discussing the matter in conference calls with investors in an attempt to stabilise the situation.

‘Eat the children’: Gaspard Koenig on saving France’s economy

Posted on by Ashton Wenborn

World Finance: So: a new economy minister for France. Is he the man to turn the country around?

Gaspard Koenig: He is clearly well-educated, understands the economy… has a grasp of it, at least. Much more than his predecessor.

Belongs to the modern, reformist, new-labour sort of the left. So it was extremely encouraging, and not only for him, but also there were many other appointees under him. They all belong to the same generation, and I thought clearly Valls – the prime minister – is about to wipe out the socialist party! And replace the old grandees with this young generation, which is globalised, knows the economy, and could really move the country forward.

World Finance: Well the former economy minister Arnaud Montebourge, he was known for turning away steel company Mittal, saying it wasn’t welcome in France. So now this new economy minister – is this the start of France turning its back on its socialist roots?

Gaspard Koenig: Montebourge was very vocal in the fact that he was a protectionist. He really wants to revive Colbertism, to revive borders, to repatriate all industries in France. So he’s living in the old industrial age.

france-economy

Watch more Gaspard Koenig videos:

Corrupt France: ‘the tax structure is unimplementable’

Clearly Valls, the prime minister, is about to wipe out the socialist party, but it lasted for about 14 days. Because the majority is so slim in parliament: the socialist party only has a one member majority, and among their 300 plus MPs, there are between 50 and 100 of them who are strongly opposed to the new policies of the government because they’re really lefty.

World Finance: So socialism and economics; do they work together, and are there lessons to be learned from France?

Gaspard Koenig: The agenda of Ed Miliband is very similar to that of Francois Hollande at the beginning of his tenure, so I think you should be very careful in the UK not to replicate the same mistakes.

It’s all a question of principles. There was this little pamphlet by Jonathan Swift at the beginning of the 18th century. And at the time there was a very big crisis in Ireland, because people were starving and there were too many children.

Just for fun, if you want – to be provocative – he said, ‘Well, people should eat the children, and then you resolve both problems at the same time.’

The thing is, economically, it makes sense. Economically, if you have a problem with pensions, you could send all the pensioners overseas. It makes sense economically. But why don’t you do it? Because you have principles which are not economic: which are philosophical, if you want.

And so, if you believe in socialism, you’ll find an economy that will make it work. If you believe in capitalism, you’ll find an economic way to make it work.

France: the sick man of Europe?

Posted on by Ashton Wenborn

In regards to its economy, France has been called the ‘sick man of Europe’. But does it deserve such a reputation when compared to economies such as Italy and Greece? World Finance speaks to Gaspard Koenig, President of the think-tank GenerationLibre, to hear his views.

World Finance: France is known as the ‘sick man of Europe’. But is this fair, considering the state of economies such as Italy and Greece?

Gaspard Koenig: It’s a situation many countries went through. The UK was branded the sick man of Europe in the 70s, and Germany in the 2000s.

eat-the-children-gaspard-koenig-on-saving-frances-economy

Watch more Gaspard Koenig videos:

‘Eat the children’: Gaspard Koenig on saving France’s economy’

France is the man that is the most problematic to Europe. Greece represents one percent of European GDP, so we can still come together and help Greece out. The problem is that France’s economy is structurally embedded in the European system, and in a way I think a model for many Mediterranean countries.

The day when France starts reforming itself, I think the rest will follow.

World Finance: But with inflation down to just 0.4 percent – way below the European Central Bank’s target – and France not likely to meet its EU deficit target until 2017, many are blaming French president Francois Hollande’s administration.

Gaspard Koenig: Structurally, Francois Hollande has only pursued the economic policies of his predecessor. There is very little difference between Francois Holland and Nicolas Sarkozy. Sarkozy’s public investment was up to €2.3bn a year, and Francois Holland’s is €2.2bn.

They cannot think in terms of major structural reforms. They haven’t for decades.

World Finance: But still as the world’s fifth-largest economy and Europe’s second, France – despite its ailments – is still a force to be reckoned with. And with a new economy minister in place, the world is watching to see if reform is genuinely on the cards.

Equa Bank on the Czech banking landscape

Posted on by Ashton Wenborn

The Czech banking landscape is known for its strong risk-adjusted stability, and with prudent macro-economic policies and government finances, the country offers a stable operating environment for banks. World Finance speaks to Equa Bank’s Chief Financial Officer, Monika Kristková, and Head of Retail Banking, Jakub Pavel to find out more.

World Finance: Well Monika, if we might start with the Czech economy, how is is structured exactly?

Monika Kristková: The Czech Republic is an open, small, export-driven economy. Eighty percent of its GDP is comprised of exports, mainly automotive, and the engineering industry. We have very skilled, still cheap labour force. We have one of the lowest unemployment rates in Europe, 7.4 is the latest figure. The financial system is mainly bank based, we are operating in a low interest rate environment, and low inflation environment, as the rest of Europe right now.

World Finance: And Czech banking, obviously a stable industry, but how developed is it?

Monika Kristková: There are a few new players in the market right now, who bring a new competitive environment to the banking sector, they bring new technologies, new product innovations. In general, we are one of the countries that has most rapid penetration of mobile banking, online banking, the contactless payment or credit cards are a big trend right now. We have one bank account per inhabitant, one card per inhabitant, and 70 percent of all accounts have online banking services.

A certain slowdown on the German economy could jeopardise the fragile Czech growth

World Finance: Well consumer and business confidence is closely tied to external developments, and the Czech economy is highly export oriented. What challenges does this pose, and how does Equa Bank approach them?

Monika Kristková: Indeed, the Czech economy is highly dependent on foreign demand, therefore a certain slowdown on the German economy could jeopardise the fragile Czech growth. Indeed, we would not have to want to face another wave of recession. However, it needs to be said that the Czech national bank has the ability to use the floating exchange rate to mitigate the deflation tendencies from abroad. Therefore, the risk is lower. Equa Bank has demonstrated an ability to grow even in the stagnations times during the last two years, for twofold growth every year. Our loan portfolio has grown 96 percent, our deposit has grown 112 percent. Therefore, we are not afraid.

World Finance: Well according to the Czech national bank, Czech household debt increased annually by over 43bn CZK, and analysts have suggested that record mortgage rates are a contributing factor. Do you think this is fair?

Monika Kristková: According to the latest data, consumer debt has grown even 53bn CZK, and out of that 48 is household debt, and our mortgage rates are indeed in record lows, already for 1.5 years, so indeed that’s a major factor. On the other hand, consumer confidence was very strong in the first quarter of 2014. Also, terms and conditions, especially the fee conditions due to the strong competition in the banking sector, are tending to ease. At the same time, the underwriting criteria and standards have been kept the same. So all that together definitely impacts the increase in household housing debt.

World Finance: Well Jakub, over to you now, and mortgages are a large part of Equa Bank’s business. How have you adapted to client needs?

People in Czech Republic are very conservative, especially the cash-loan segment

Jakub Pavel: Actually, we didn’t have to adapt only to the client needs, but also to the needs of brokers who sell more than two thirds of all the new mortgages in the Czech Republic. So, as we had a few branches at the beginning, we actually had to tackle both the product propositions and the sales channel proposition. We started with refinancing. Refinancing was a big opportunity at the time, the big banks mostly neglected it, and a large portion of the mortgage portfolio, the interest rate fix was actually expiring. So we came up with the easiest refinancing product on the market, which was also a nice tie to the broker strategy, because they would call, before the end of the interest rate fixed period, they would call the client typically and offer a better rate. So our product came in very handy at the time, and gradually we were adding more and more mortgage products to the mix, but the refinancing product helped us to book great volumes at the very beginning.

World Finance: And what areas are you focusing on for future development?

Jakub Pavel: We are looking at sales channels, we would like to more than double the number of branches we would have by the end of next year. The reason being, people in Czech Republic are very conservative, especially the cash-loan segment. We will be building mortgage centres in order to be able to approach mortgage brokers who don’t want to deal through front-end systems, but rather face-to-face with the bank, there are still many of those. In terms of products, we are looking into tapping into a more affluent segment with more affluent debit cards with products attached to it such as assistant services or insurance services. We are looking into broadening our range of savings accounts products, In terms of lending, we are working on consolidated loans, not only on personal basis but also on a family basis. Going into the future, we are trying to implement pre-approved loans, also personal and family. Consolidation going into the future, that about sums it up.

World Finance: Jakub, Monika, thank you.

Abenomics review: can Japan’s Prime Minister reinvigorate its economy?

Posted on by Ashton Wenborn

In a series of World Finance interviews, we speak to Professor Janet Hunt, Economic Historian at the London School of Economics and Political Sciences, about the impact Abenomics is likely to have on Japan’s economy.

Part 1: Can Japanese PM Shinzo Abe end the country’s deflationary spiral?

World Finance: Janet, a lot of money and effort has been spent on getting Japan away from its dark deflationary past; do you think Japan is on the path that it needs to be on, in terms of its economic progress?

Janet Hunter: There’s a lot of evidence that it has increased confidence, it has increased the extent to which people are willing to spend. That in terms gives a stimulus to growth.

Whether it has progressed as far and as fast as people would like – that’s much more difficult. Because I think one of the things that we have to remember is that the sort of, third arrow of Abenomics, was structural change in the economy.

If the stimulus from the shorter-term fiscal policy is going to be sustained, he really has to deliver on structural change, and that’s a very difficult thing to do – particularly over a short time period.

There are clearly significant political constraints.

It is probably the only Japanese political party that has a degree of credibility

What I think we do have to remember is that Abe leads the largest party. It is probably the only Japanese political party that has a degree of credibility, and outweighs the other political parties collectively.

However, it is not unified within itself; it is divided; there are different views as to how best to go forward.

In some ways, politically, Abe has probably got the best chance of any political leader trying to carry this sort of thing through.

But he has to cope with his own party, he has to cope with the constraints of two houses of parliament, local government, local interests.

But I think the other thing that makes that the kind of radical, fast reform very difficult, is just people are conservative. Organisations are conservative. It is very difficult to change the way that people think, and act, and organise themselves overnight.

Part 2: Why is structural reform so hard to achieve?

World Finance: Take me into the Japanese psyche and explain to me: why is it so difficult for them to be open to change that in any other modern democracy, any other robust economic system, has already become commonplace?

Janet Hunter: I’m not actually convinced that change in other places is that easy either!

World Finance: But there is more of an appetite for change…

Janet Hunter: There may be more of an appetite for change.

World Finance: …you could say, in for instance the UK and the US.

Janet Hunter: Perhaps there is, and I think, as you indicated earlier, part of the answer to that lies in the nature of the political system and the way that people vote.

Any system that appears to deliver success generates vested interests, which make it more difficult to change.

If you can say that something has worked for 30 years, then it takes people a while to realise that it’s not working anymore. And it also makes it much more difficult to see what is going to work.

There’s quite a big appetite for change, but there’s also a feeling that they shouldn’t throw out the good things that they have, and a reluctance to do exactly what America might do, or England might do, or whatever.

So the question is really: who is going to bear the cost of the change?

World Finance: But there is a certain reality that everyone has to confront. And that’s economic reality the country’s in, they wouldn’t be pushing for such dramatic stimulus programmes if there wasn’t a need. Is that not enough to get people to want to change?

Janet Hunter: It’s clearly a significant factor, that people do recognise they have to face reality. And almost any Japanese person you might talk to will say, ‘Yes, we do need to change.’ But what we have to remember is that change comes at a price. It has a human cost.

And in any environment, if the cost is your job, or your livelihood, then change is going to be more difficult.

So the question is really: who is going to bear the cost of the change? In an environment where you have very strong vested interests, and really quite a conservative way of doing society?

Part 3: Will cutting corporation tax help or hinder Japan’s recovery?

World Finance: A slash in the corporate tax rate from 35 to 29 percent – are we seeing a system that is being structured in a way that will allow money to filter from the top to the rest?

Janet Hunter: In relation to the corporate tax, I think those of us outside Japan tend very often to forget that small businesses, family businesses, are enormously important in Japan.

I think the image that we often have is that the big businesses – the Toyotas – that is what Japanese business is. And clearly it’s a big part of Japanese business. But if you look at the predominance of small business and family business in Japan, it is far far greater than in England or the US. It is more comparable to what you’d find in, say, Germany. It’s a very big part of the economy.

So you could argue that by reducing corporation tax, you’re also assisting the smaller elements in Japanese business. And that’s very important for the domestic market and also for the external market.

As you say – quite rightly – you’ve got a situation in which there are lots of people who aren’t involved in business who aren’t going to be affected by that. Interest rates remain incredibly low in Japan, so for example, taking out a mortgage is not costly at the moment at all. It also means that saving is not very well remunerated. So in theory, people ought to be spending.

Where I think the problem has been is almost in terms of confidence. Not that people don’t have the money to spend – they just don’t have the confidence in the future. And that is one of the things that is very difficult to turn around. And I think Abe has to some extent begun to turn it around. But I think it’s really difficult.

Part 4: Will Japan’s special economic zones work?

World Finance: Now let’s talk about the Special Economic Zones that Abe is creating.

Janet Hunter: An economic zone in the same way as China in the 1990s developed economic zones, is not going to work in a very high income, high industrial economy such as Japan.

[H]e will be credited with some of the success for bringing Japan out of what has really been two decades of economic problems

I think if you see an economic zone as a way of trying to open up the Japanese economy – to deregulate what’s already there, to try to encourage foreign firms to come in – then clearly that may have significant advantages.

But Japan, as you will be aware, has conventionally had – in some respects – a very highly regulated economy. And there’s got to be a lot of evidence that it’s going to work, to attract people.

And I think the other thing is that conventionally, special economic zones have often been – as they have been in other parts of Asia – to allow foreign firms to come in and invest in local, cheap labour.

Japan’s labour is not cheap. At all.

There’s much less experience, I think, of how an economic zone might work in a country such as Japan.

Part 5: Is the outside world too judgemental of Japan’s economic efforts?

World Finance: Janet, do you think that I’m too judgemental? When I say me, I mean the outside world, who says Japan just has been getting it wrong all this time, and there isn’t this intimate understanding of how the economy is intertwined with culture?

Janet Hunter: I think we often are very judgemental. I mean, the Japanese themselves are pretty judgemental very often too.

You will find people in Japan saying, ‘We’ve got it wrong all these years!’

But if you look back to the 1980s, when the Japanese economy was doing well, you had people in the US saying ‘Oh well the Japanese have got it right! We need to do what the Japanese do!’ And it’s no easier to transfer that system to the US than it is to transfer a US system to Japan.

And I think what you need is a recognition that there are different strengths in different systems, which have evolved in different cultural environments. And there can be a mutual learning process, but if you just try and take something lock stock and barrel from one country and put it in another, it’s very unlikely to work.

If he manages to deliver on structural reform, if he manages to get re-elected, he will be credited with some of the success for bringing Japan out of what has really been two decades of economic problems.

But I think it’s very difficult. There is so much that has not changed, that probably does need to change.

US new home sales at a six year high

Posted on by Ashton Wenborn

Confirmation that the US housing market recovery remains on track came this week, when the Commerce Department announced that new home sales were up 18 percent from the previous month. August saw the market’s strongest sales pace in six years, and such heights have not been seen since May 2008.

Meanwhile, the re-sale of existing homes fell by 1.8 percent after four straight months of improvement, as investors who were previously snapping up and renovating distressed properties began to abandon the market. Investors accounted for just 12 percent of all transactions in August, the smallest share since November 2009.

“Two years ago, US housing was very cheap and it was a big investment opportunity. But now that there’s fewer foreclosures and not so much of the distressed supply that investors can snap up cheaply, that opportunity is really dwindling quite quickly,” explained Paul Diggle, Property Economist at Capital Economics. He added that the withdrawal of investors from the US market is not a new trend, and is likely to continue for some time. Compared to August last year, sales of existing homes had fallen by 5.3 percent.

Two years ago, US housing was very cheap and it was a big investment opportunity, that opportunity is really dwindling quite quickly

New home sales in the West climbed a massive 50 percent in August – the highest since January 2008 – compared to 29.2 percent in the Northeast and 7.8 percent in the South, whereas there was no change whatsoever in the Midwest. Meanwhile, the median sales price of a new house sold in August fell by 1.6 percent, to $275,600; the first price decrease in four months.

Experts insist there is no cause for concern, claiming the 18 percent climb in the sale of new properties is more than enough to maintain market growth. Diggle is confident that relaxed credit conditions and stronger job growth in the US will create the right environment for the conventional buyer to return to the market and fill the void left by investors.

SEC suspects hedge fund ‘cherry picking’

Posted on by Ashton Wenborn

Director of the Securities Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations, Andrew Bowden, has spoken out against hedge fund advisors manipulating their performance indicators to better reflect on results. Speaking at a CFA Institute conference, Bowden said the organisation’s quantitative analytics unit had uncovered evidence that as many as 13 funds had been assigning their trades to favoured clients, a practice otherwise known as ‘cherry picking’.

“We plotted the accounts that were allocated winning trades more often than losing trades. And we came out of that and found 13 hedge funds that had accounts that were being disproportionately allocated favourable trades,” he said. However, the agency official went on to stress that the investigation was yet to uncover conclusive evidence of misconduct: “I’m not saying it is a pinpoint but from an examination standpoint we’re zeroing in on issues that raise the spectre of improper conduct.”

The findings come as the SEC closes out a two-year examination of recently registered hedge funds, all of which are managing over $100m in assets and have agreed to comply with the SEC’s regulatory framework, which strictly prohibits cherry picking.

Bowden’s announcement also comes hot on the heels of the regulator’s decision in August to broaden its investigation into how the ‘liquid alternative’ sector operates, after the SEC opted to extend its questioning of 15-20 funds to 35-40 funds.

The agency has, in the last four years, ramped up its efforts to uncover instances of non-compliance amongst fund advisors, and while the investigations have uncovered a long list of deficiencies, many of them are due to the complexity of new regulatory requirements. The 2010 Dodd-Frank overhaul and the SEC’s investigations combined mean that a hedge fund industry that has, historically speaking, been subject to loose touch oversight is now beginning to feel the pinch of sharpened regulatory scrutiny.

US Treasury announces targeted crackdown on tax inversion

Posted on by Ashton Wenborn

Months after President Obama spoke out against companies employing corporate tax inversions to escape tax liabilities, the US Department of the Treasury and the IRS has taken action to close existing loopholes. The practice involves a US parent company being replaced by a foreign parent, therein exempting the company in question from paying US taxes.

In a bid to escape the country’s 35 percent corporate tax rate, increasingly, US companies are exploiting tax loopholes and relocating to foreign countries to take advantage of lesser rates. “You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers,” said Obama to crowds gathered at Los Angeles Trade-Technical College earlier in the year.

You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers

The measures unveiled by the IRS prevent inverted companies from accessing foreign earnings by way of “hopscotch” loans, and the tax inversion process will also be made more difficult, given that the owner of the company must now own no less than 80 percent of the combined entity. In short, the actions restrict inverted companies from transferring foreign earnings tax-free either through a foreign subsidiary, and should help prevent the loophole from eroding the country’s tax base.

“These first, targeted steps make substantial progress in constraining the creative techniques used to avoid US taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether,” said Treasury Secretary Jacob Lew in a statement. “While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem.”

The crackdown should succeed in reducing the benefits for those choosing to go abroad, though the actions are by no means exhaustive. “Treasury will continue to examine ways to reduce the tax benefits of inversions, including through additional regulatory guidance as well as by reviewing our tax treaties and other international commitments,” said the Treasury in a statement.

 

Emerging markets are ‘at the heart of the recovery’, says Scotiabank

Posted on by Ashton Wenborn

With approximately 50 percent of earnings coming from the international segment Scotiabank, Canada’s most international bank, is a leading presence in emerging economies. World Finance speaks to its Executive Vice President and Head of Global Transaction Banking to find out how to approach emerging markets.

World Finance: Well Alberta, Scotiabank offers financial services in over 55 countries, but looking at banking trends now there has obviously been a lot of interest in emerging markets in terms of trade finance, because emerging markets have grown a lot more than established markets. But are they still the investment they once were?

Alberta Cefis: We live in a time characterised by a lot of geopolitical unrest, and that is playing out very much in the emerging markets, but I think one has to remember that not all emerging markets are the same. Emerging markets are still at the heart of the recovery. Even this year, GDP growth, 50 percent of it will come from emerging markets, so they’re really coming into their own as a major force. The final point is trade. Emerging markets are growing two to three times faster than developed markets when it comes to world trade. So if one puts all of this in context, yes, emerging markets are still fundamentally important and very viable to growth moving forward.

Emerging markets are growing two to three times faster than developed markets when it comes to world trade

World Finance: Well I read that you helped to establish global transaction banking as a viable option for Scotiabank. Now how did you navigate the different markets in the different parts of the world?

Alberta Cefis: We’ve always been a global transaction bank, before let’s say the use of this terminology. Trade and supporting trade corridors was always at the heart of Scotiabank’s mandate. For us, what global transaction banking has done is just put under the fold of one group capabilities around trade, correspondent banking, cash management payments, electronic banking and liquidity solutions to support our customers and to follow our customers wherever they might transact.

World Finance: Well what are the challenges in these regions for foreign banks and investors, and how do you approach these?

Alberta Cefis: For those that are doing business in emerging markets and are new to them, it’s so important to partner with the right financial institution. What we’ve seen in the past years, particularly since the global crisis, is that a lot of banks have pulled away from some of the emerging markets, or they downsize presence. So I think what’s important is to look for an established bank that knows the country, has local expertise, knows the culture, the language, how the business is done, but also has the network and that competence to follow their customers across inter-regional boundaries.

World Finance: How do you approach countries such as China, where national banks hold the monopoly?

Alberta Cefis: We have a rep-office, we have five branches. Our purpose there is not to compete at all with the local banks. It is again to be there to facilitate trade flows, and facilitate commerce. So we see our work in that region as one of, again, following our customers, supporting trade corridors so obviously China is an important trade corridor country for us, back to where we have the majority of our strength, which is the Americas, and North, Central and South America and supporting those trade flows for our customers.

Growth in the markets we’re in to further support our customers becomes really very fundamental for us now

World Finance: What do you see as the key trends in trade finance in emerging markets in the coming years, and what are the countries to focus on?

Alberta Cefis: Historically, trade was north/south, east/west. And now it’s south/south, meaning emerging market to emerging market. The other trend that we see is the emergence of Asia as the most important trading block. That’s for two reasons, inter-regionally and intra-regionally. So it’s expected that by 2020, Asia will account for 60 percent of world trade, so it’s just a tremendously large market. But what we also see is the importance of the China and India trade corridor, which is growing very very rapidly.

World Finance: What should companies be looking for when approaching these markets in terms of support?

Alberta Cefis: Given that one would have a business plan of what they want to do and what they have to accomplish, do they have a trusted team of partners that have both network capability, and that might be inter-regionally, intra-regionally, globally and then locally on the ground. Do they have the expertise, do they know the way to do business, can they support you on the ground with the ability to really transact and be operationally efficient. So again, when we think of the obvious partners one needs, which is a good high quality bank, which has the capital strength and the expertise necessary to operate in the market, and the accounting firms and the backup that are required, particularly around complex matter such as capital investment and tax. And then legal advice and legal expertise, because particularly in emerging markets, the regulatory framework is so different.

World Finance: Well finally, what are Scotiabank’s priorities for future growth?

Alberta Cefis: Growth in the markets we’re in to further support our customers becomes really very fundamental for us now, in a period of consolidation. Efficiencies and expansion within those markets.

World Finance: Alberta, thank you.