The steps you can take to become a great trader

For a trader to be successful, they need many attributes: research and analytical skills to monitor broad economic factors; concentration to focus in fast-moving environments; self-control to regulate their emotions when things are not going to plan; and accurate record keeping.

Gaining insight from an established broker can also be of great assistance, which is why World Finance spoke to Giles Coghlan, Chief Currency Analyst at HYCM, to learn what it takes to be a successful trader and what practices are best avoided.

Learn your lessons
Common mistakes that traders initially make include over-leveraging their investment, risking too much capital and desperately trying to win back earlier losses. The latter, known as ‘revenge trading’, encourages individuals to increase their risk before jumping in on any trade and often results in losing more money. It is important, therefore, to master the skill of conviction as a trader, because, as Coghlan said, “when you are convinced about your trade you should be able to hold it”.

The biggest lesson Coghlan has learnt from his life of trading is to “never over-leverage”. The Swiss National Bank’s surprise decision to unpeg the Swiss franc from the euro in 2015, for example, provided a great learning experience for any trader, demonstrating the importance of being prepared for all outcomes when trading.

Too much risk can lead traders to cash out profits prematurely, entering and exiting the market out of fear, rather than at the most beneficial moment

“The lesson was that unexpected events can, and do, occur in the markets – there are no ‘certain’ trades and no ‘sure-fire’ winners,” Coghlan explained. “Always expect the unexpected.”

Similarly, Coghlan emphasised that the idea of luck in trading is, in reality, more often the result of being prepared for all scenarios: “The way to manage unexpected price moves is to ensure that you have stop-loss and take-profit orders on every trade you place in the market and are, therefore, prepared for any scenario. I always tell traders to focus on their trading education – this is more integral to their success than Lady Luck.”

Choose wisely
When selecting a broker, individuals need to consider how regulated the broker is. Coghlan used the UK as an example: “Financial-Conduct-Authority-regulated brokers are backed by the UK Government, and so if the company were to ever collapse, the Financial Services Compensation Scheme would remunerate you up to a specific amount.” A trusted broker is not as likely to collapse, of course, but it is important to be aware of what provisions are in place should such an event occur.

More specifically, some individual traders have made an impression on Coghlan, leading him to believe inexperienced traders should heed their advice. “One trader I admire is Jarratt Davis,” Coghlan told World Finance. “I admire his ability to not only trade using fundamentals, but also his ability to explain that concept fully. From dealing with Jarratt, I admire his personality – he’s not only a great trader but also a great guy.”

For traders looking to improve, Coghlan recommends taking fewer risks. Too much risk can lead traders to cash out profits prematurely, entering and exiting the market out of fear, rather than at the most beneficial moment.

Of course, risk is unavoidable when it comes to investing. At HYCM, contract for difference (CFD) trades are always accompanied by a ‘high-risk investment warning’. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage – 67 percent of retail investor accounts lose money when trading CFDs with HYCM. Every investor should consider whether they have a full understanding of CFDs before they start trading.

“For me, a great trader is someone who manages risk and their emotions, and picks their moments carefully,” Coghlan said. “They responsibly manage and use their wealth not only for their own benefit but also for the good of those around them.”

The dangers of fiscal Europe

Since it was established, the EU has harnessed tax measures to stimulate economic growth among its member states. Through the creation of a single market, it ensured the total abolition of customs duties between member states, as well as the elaboration of a common customs system. This system of free trade has made a significant contribution to the prosperity of European citizens.

But the single market – founded on liberal principles – was accompanied by a common agricultural policy based on opposing ideas. This common agricultural policy led to the subsidisation of loss-making productions and made many self-employed farmers dependent on the state.

The single market also unified rules on the taxable basis for value-added tax (VAT), which helped foster trade between states. What is less well known, however, is that this harmonisation is still incomplete, as it does not concern rates of VAT. Over time, the EU has started to take a position here, setting minimum – but not maximum – VAT rates. Unfortunately, this helps pave the way for a European fiscal policy that prevents tax competition without protecting taxpayers.

A Europe that can collect more taxes will have a larger budget and will more easily acquire additional capabilities

Stifling competition
With the exception of the EU Savings Directive, Europe has done little in the field of personal tax – in principle, its institutions don’t have the power to do so. In the field of corporate tax, though, there is an increasing number of directives that harbour the sole objective of reducing tax competition between countries by preventing states from granting advantages to businesses.

This policy is dictated by the larger, more influential members of the EU – such as France and Germany – and imposed upon the smaller ones. Unlike France and Germany, countries such as Belgium, Luxembourg, the Netherlands and Ireland can’t offer businesses access to a wide net of customers. As a result, they have always felt the need to attract foreign companies through tax advantages. These tax advantages are lawful so long as they are not selective – that is, providing they are equally accessible to all.

Today, the European Commission is trying to erode these advantages by using rules of competition law that have not been designed for this purpose. This is dangerous for small countries with tax systems that provide benefits by reducing their tax base. Without tax advantages to offer, these states could lose their appeal among foreign businesses.

The EU is issuing more directives like this, including anti-abuse measures, bans on granting intellectual rights benefits, limits on deductible corporate interests and, most recently, new reporting obligations in the aggressive tax planning area. These directives are almost exclusively intended to maintain a certain degree of taxation. Fundamental issues such as the establishment of a European ‘fiscal shield’ – which would limit taxation in relation to GDP, or the taxation of each individual in relation to their income – are never discussed, as they’re not of interest to the EU. In fact, only the protection of tax revenues in individual members or the bloc itself seems to justify the EU’s interest.

Certain EU states – principally the smallest – react by keeping tax rates low. This is what Ireland has long done with its 12.5 percent rate for corporations. Bulgaria, Romania and Lithuania also offer low rates, while Hungary has the EU’s lowest corporation tax at just nine percent (see Fig 1). This is a logical move that helps these nations remain competitive, but it is feared that the most federalist or statist Europeans could push for a set minimum corporate tax rate. As a result, the EU could start treating states in the same way it treats companies that operate in violation of EU competition laws.

This is in line with the approach adopted by the European institutions that have never hidden their desire to achieve a uniform tax system. We can see this through the introduction of the Action Plan on VAT and the proposal for a Common Consolidated Corporate Tax Base. The European institutions believe that such measures could lead to the introduction of a single European company tax.

All for one, not one for all
In light of these factors, a question inevitably arises: does Europe actually need taxes? In the EU, the principle of fiscal sovereignty generally prevails. This means that states freely regulate their tax systems and choose whether or not to implement certain types of tax, thereby determining their taxable base. The EU benefits from certain tax resources, such as customs duties or a small part of VAT, but can’t otherwise tax nationals or residents of the union. For this to happen, a treaty must grant it such power.

In this period of European crisis, those who advocate greater European integration are torn between two contradictory feelings. On the one hand, Brexit is a danger to European unity – as one of the most important members of the union, many spectators fear that the UK’s departure could set a precedent among other states. On the other, federalists – those who dream of a United States of Europe – see this as an opportunity. The UK has never been a proponent of strong European integration and has often blocked common policy development. As such, its departure may lead to some European progress on policies that the UK had blocked.

Some of these federalists want to give the EU greater influence over taxation, favouring a union that can levy a tax on the income of individuals or companies. In other words, they seek to implement the US model of taxation, in which there is a corporate and personal tax at the federal level, while states collect income taxes for their own benefit. In the case of indirect taxes, however, integration is most advanced in Europe.

The introduction of additional tax power – on income, for example – at a union level is a key issue in the development of the EU and its possible orientation towards a federal system. Political power always depends on a state’s ability to raise taxes; a Europe that can collect more taxes will have a larger budget and will more easily acquire additional capabilities.

Europe as a federation
We must ask ourselves whether it is desirable to create a European federal body with significant fiscal powers. The EU has made a significant contribution to the prosperity of its inhabitants by increasing freedoms, particularly through the creation of a single market. In doing so, it has somewhat reduced the influence states can impose on their citizens.

But this has also restricted some freedoms. When the EU moved towards becoming a political authority, it began to regulate whole areas of the economy and people’s lives. It has itself become a power that is exercised – directly or indirectly – on businesses and individuals. By granting additional capabilities to the EU, at best, one only shifts the burden from individual states to a higher level. This means that the principle of subsidiarity – according to which, decisions must be taken as close to citizens as possible – will be further eroded.

Worse still, there has been no instance of a government agreeing to reduce its revenues: for example, although the Federal Government of Belgium consistently claims that it is cutting taxes, its revenues are increasing in tandem. It seems certain that if the EU were to be granted fiscal power, individual states would not reduce their revenues and would continue to raise tax as much as they do now. The granting of fiscal power to the EU will, therefore, lead to an increase in taxes for businesses and individuals.

Europe is already the most taxed continent in the world. Granting the EU taxation powers would only exacerbate this situation, making the bloc unappealing to investors and reducing its members’ competitiveness on the global stage.

Fubon eases the pressures of an ageing population by providing professional healthcare education

Life insurance benefits individuals and stabilises society. At Fubon Life Insurance, we uphold a spirit of serving the common good by bringing positive social influence to Taiwan. We have been awarded the title of Best Life Insurance Company in Taiwan by World Finance on eight occasions and have received numerous other industry awards, including in five categories at the Taiwan Insurance Excellence Awards and being named Best Insurance Company at the 2019 Insurance Faith, Hope and Love Awards.

Fubon has placed great emphasis on tackling the complications that can accompany an ageing population

Fubon maintains a great focus on the sustainable development of the company. By leveraging our business strength, product innovation, digital services and community development projects, we have been able to act on market trends while maintaining stable growth. The company provides timely assistance to the public through considerate and efficient customer service, demonstrating our determination to serve the Taiwanese market.

Community care
Taiwan’s insurance penetration and density rates are among the highest in the world (see Fig 1), but the overall market and social environment still poses risks. Fubon is always introducing innovative new products to meet the insurance needs of customers at every stage of their lives. For example, in response to the needs of our ageing society, we encourage policyholders to engage in health management and disease prevention. Taiwan’s government has launched an ambitious long-term care plan, which offers subsidised nursing, meals and transport to senior citizens. We have responded to this policy by introducing basic insurance protection for older individuals.

Fubon has placed great emphasis on tackling the complications that can accompany an ageing population, such as the increase in dementia cases. A major concern is that individuals may become disorientated and get lost, placing them in danger. To manage this issue, we have introduced a missing patient bracelet that is prescribed by physicians after a definitive diagnosis of dementia. This has assisted in the creation of a dementia patient searching network across more than 100 hospitals in Taiwan. In a short space of time, the adoption rate of this identification bracelet has increased by 33 percent. According to our data, nearly 100 percent of missing dementia patients are found if they are wearing the bracelet.

Fubon organises workshops across the country to improve the lives of dementia patients and their carers. Through professional healthcare education, we work to ensure both groups receive the correct support. We are also involved in projects to raise public awareness of other age-related diseases.

Taking responsibility
We don’t just care for society through our policies, but also in the way our business operates. Through the adoption of digital finance and insurance technology, Fubon promotes paperless services to make the company more environmentally friendly. This doesn’t mean we have forgotten the importance of providing human interaction when delivering services to our policyholders, though. Fubon has optimised its operational efficiency at each stage of the insurance application process and has launched a smart claims system to ensure policyholders receive the best service. For example, applicants can now use video conferencing technology to communicate with our advisors.

Talent is the key to all sustainable business development. As such, Fubon seeks to create a workplace environment that encourages our insurance agents to move up the career ladder. Through our professional training programme, we are able to improve the expertise of our teams. This helps us optimise our existing services and create new business opportunities through innovative insurance technology, which our staff are fully trained in.

Being recognised for our work provides welcome validation, but it also reaffirms our responsibility and commitment to our policyholders. To protect the four million families that make up our customer base in Taiwan, Fubon has been actively embracing digital technology and focusing on talent cultivation to provide meticulous and well-rounded customer service. We are keen to respond to social trends and changing customer expectations, and are actively addressing the uneven distribution of resources between the rural and urban areas of Taiwan by expanding our service locations.

Fubon will continue to shoulder the responsibility of being the guardian of families in Taiwan, pursuing global expansion and striving to become the number one brand in the Asian life insurance market.

Mashreq Bank sets out new blockchain initiative to ensure greater client security

The global banking industry is going through a period of rapid transformation, heralded by disruption and driven by emerging digital technologies. The changing landscape requires extensive collaboration from governments, regulators, institutions and individuals to create a strong financial and regulatory ecosystem that spurs the growth of innovative financial services.

With many economies increasingly striving to be cashless, innovations in digital banking and disruption from fintech firms are pushing progress. According to EY’s Global Fintech Adoption Index 2019, India’s consumer fintech adoption rate sits at 87 percent, far above the global average of 64 percent. According to Indian think tank NITI Aayog, the value of the fintech market in India could reach $31bn in 2020, while Accenture reports that global investment in fintech ventures in China was worth $55.3bn in 2018, showing just how lucrative a developed fintech market can be.

Consumers are increasingly choosing digital banking services due to the added convenience they provide. With digital-only banks and mobile wallets proliferating, financial inclusion is only set to increase. Recognising this trend, the UAE Government has established strong technological support for the country’s banks.

Mashreq’s focus is to continue improving the banking experience for customers through ongoing investments in digitalisation

Regulatory initiatives such as the Emirates Blockchain Strategy 2021 and the Emirates Digital Wallet are already underway, making it clear that digital banking is a major priority in this part of the world. This digital mindset is reflected by Mashreq Bank, the UAE’s oldest privately owned bank. World Finance spoke with Mashreq’s Executive Vice President and Head of Retail Banking Group, Subroto Som, about the bank’s digital solutions and the role they are set to play in the country’s economic development.

How is Mashreq leveraging technology to improve its banking solutions?
There is a large opportunity within the banking industry to provide scalable, robust and low-cost technology solutions to customers and to increase the adoption of financial services through digital offerings. At Mashreq, our approach is solution-driven: we want to improve the customer experience for our customers and ensure they are getting the best possible service when they need it, wherever they are. To achieve this, we have invested a significant amount of effort and resources in improving the customer journey.

We are investing heavily in data analytics and artificial intelligence (AI), and are also using robotics to automate a lot of operating procedures, manual entries and activities that are repetitive in nature. We are also both early and advanced users of AI and robotics. Separately, we work with a large number of fintech firms in the retail space – particularly in the areas of payments, wealth management, credit underwriting and Know Your Customer processes. We have launched several digital services and platforms that make it easier for customers to bank with us.

One of the most prominent is Mashreq Neo: launched in 2017, it is the UAE’s first fully fledged digital bank. Over the past year, Neo has witnessed astounding uptake, accounting for approximately 70 percent of Mashreq’s retail customer acquisition. Neo offers a digital-only banking experience that facilitates instant sign-up and a wide range of products and services, such as a stored-value account. In 2019, we launched Mashreq NeoBiz, the nation’s first digital bank for SMEs and start-ups. We are working on several other major projects to expand these services beyond personal banking, catering to businesses and other client segments.

Further, we helped launch initiatives such as UAE Pass, a federal initiative to unify the digital authentication mechanism by unifying and providing one single username and password across several services throughout the Emirates.

What are the benefits of a high mobile penetration rate when it comes to banking?
Mobile penetration in the UAE ranks among the highest in the world, at 210 percent (see Fig 1). Easy access to smart gadgets, the government’s commitment to providing digital services and the strong data connectivity offered by the country’s telecoms giants all contribute to the region’s high penetration rate. The current focus on delivering 5G to the country’s mobile users will serve to boost digital commerce and foster even greater access to financial services for all citizens. High mobile penetration enables customers to manage their finances anytime, anywhere.

As a customer-centric bank, Mashreq is committed to offering easy access to financial services in the UAE and furthering financial inclusion. We understand this is only possible when services are delivered through a user-friendly and secure portal, such as our Mashreq Neo and NeoBiz platforms, which is why we continue to place them at the centre of our digitalisation strategy.

How advanced is digital banking in the UAE and how has it developed over time?
The UAE has always been an early adopter of cutting-edge technology and smart services. As outlined in UAE Vision 2021, the country is keen to achieve digital transformation in order to deliver economic diversity and prosperity. This strategic vision has reached the fiscal services sector, encouraging the country’s financial institutions to become more innovative.

As a leader in digital banking, Mashreq has been responsible for several firsts in the UAE. The public response to our initiatives has been extremely positive so far, with consumers embracing the convenience and flexibility Neo and NeoBiz offer. With a favourable regulatory environment, increasing demand from the market and the benefit of cost efficiency, we can expect digital banking to go from strength to strength over the coming years. As one of the oldest financial institutions in the country, Mashreq is committed to leading this change.

What are Mashreq’s most innovative digital banking products?
Mashreq continues to encourage the adoption of digital banking in the UAE and beyond. In 2019, we launched a programme to transform our branch network, introducing advisory services that encourage greater face-to-face interaction between employees and customers. For everyday transactions, customers benefit from state-of-the-art self-service facilities. We have plans to extend the range of these solutions to make banking quicker, easier and more accessible across our network.

Also in 2019, we added instant global investment capabilities for our customers through our mobile banking app, Mashreq Mobile. The newly added service provides access to international markets including foreign equities, gold trading and foreign currency accounts, and allows customers to open and trade various investment products. The launch enables instant account openings and trades over a diverse range of geographies, and allows customers to make and manage investments easily, 24 hours a day, at the touch of a button.

We were also the first bank to establish the payment solutions Masterpass QR and Alipay in the region, and one of the first banks in the country to introduce Apple Pay and Samsung Pay. In 2018, we launched our own digital wallet, Mashreq Pay, allowing our customers to simply tap and pay at retail outlets, and in 2019, we began investing heavily in emerging technologies, such as blockchain. Our blockchain initiative exemplifies technology that is secure, easy to integrate and automates the onboarding process for our corporate clients.

A first for the region, the platform ensures the protection of customer data while providing the convenience and flexibility of smart banking. With a launch planned for the first quarter of 2020, we aim to roll out the initiative to our business clients before exploring an expansion into additional segments. Notably, we also launched WhatsApp Banking, an initiative that makes it easier than ever for consumers to bank securely and quickly on the world’s most popular instant messaging application.

How has Mashreq contributed to the UAE’s economy and how will it continue to do so?

Mashreq has always supported Dubai and the wider UAE economy. We were at the heart of building some of Dubai’s most iconic projects and some of the UAE’s most significant infrastructure constructions, including the Palm Jumeirah, Dubai International Airport and the Burj Khalifa. We believe these iconic structures have changed the way people see Dubai. Beyond these projects, Mashreq has been the first mover on many occasions, demonstrating our commitment to the UAE’s citizens, businesses and the wider economy. We have introduced many innovative firsts to the UAE market, which are now considered standard among businesses and consumers.

Today, there is increased demand for more digital solutions in the region’s banking sector, and our digital transformation strategy remains a key pillar in our overall strategy moving forward. Our focus is therefore to continue improving the banking experience for our customers through ongoing investments in digitalisation. We strongly believe that by investing in the latest technology and the talent of tomorrow, we can introduce products that are innovative and relevant, while ensuring we are at the forefront of the changes taking place in the UAE and the wider region’s banking sector. We thank and appreciate our customers, whose adoption of these initiatives has created the ultimate boost for digital banking in the UAE.

Thai Life Insurance: serving local communities is key to business success

For more than 77 years, Thai Life Insurance has provided financial support to families. At the same time, the company has achieved sustainable business growth and adapted to meet the needs of a shifting market. We run our operations in a manner that prioritises stability to ensure we cultivate a sustainable competitive advantage. We are also careful to identify future marketing opportunities so we can respond to our customers’ changing needs and develop in tandem with new business trends. It is our mission to become the first brand that consumers consider for their life insurance needs.

The world is rushing headlong into the digital age. This is causing significant disruption to many businesses, with consumers expecting access to new products, services and information. Thai Life Insurance is determined to develop alongside this change.

Finding the right fit
Thai Life Insurance recently announced it would be reinventing its business model and revamping its corporate culture through technological innovation. This new model – which we have named the Life Innovation approach – includes changes to our work processes, products, distribution channels, service development and risk management. It will also involve a shift in mindset and personnel development across our IT systems, including the creation of social value through our sustainable development goals (SDGs).

Thai Life Insurance’s aims stretch far beyond boosting profit; we look to meet the needs of all stakeholders

This new business model moves the focus of life insurance away from death and disability and towards reflection on life. We will now look to emphasise illness prevention and health promotion to reduce the burden of ongoing medical expenses. Alongside this, we will support our clients with financial planning through new investment channels, which will help them and their families to have long, comfortable lives that are eased by wealth during retirement.

Thai Life Insurance has set a target of meeting every customer’s life insurance needs. In particular, we are keen to ensure our products are always customer-centric. We are developing five distinct insurance plans within our product range to deliver life-planning resources to our customers, regardless of their age.

The first of our five insurance plans is called Money Fit. It combines financial planning and monetary savings with additional benefits, such as insurance, tax deductions, mortgages and pensions. The second, Investment Fit, provides investment-planning support that promises the returns needed to create a stable life foundation for the customer. It contains our Universal Life policy – a flexible life insurance plan that comprises adjustable benefits based on the client’s needs. They can increase or reduce their coverage, add or withdraw savings, and switch to receiving higher returns from the many funds the company meticulously selects.

Our Legacy Fit plan allows clients to create a family heritage fund or save for a child’s education in order to pass on stability to a loved one. Customers can create business protection collateral to use against a mortgage or an emergency reserve fund – including a scholarship fund – to accompany a child’s estate.

Life Fit, meanwhile, provides life insurance and health protection when the insured individual is in good health, meaning there is a discount on the insurance premium and various privileges related to healthcare. This insurance plan aims to provide holistic healthcare and promote the four key areas of our Circle of Wellness scheme: self (strong physical health), sense (strong mental health), stability (financial wellbeing) and spirit (spiritual happiness). Finally, our Health Fit plan delivers health and medical expense coverage to individuals and their families, including additional health insurance contracts, accident insurance and protection in the event of a serious disease diagnosis.

Life skills
In addition to creating our Life Innovation approach, Thai Life Insurance has worked on developing new technology that will deliver faster and more convenient services while increasing operational efficiency and boosting workflow. Our new business model attaches a great deal of importance to changing the attitudes of people within the organisation. In particular, we recognise that our life insurance agents are more than just salespeople: with their understanding of the life insurance field, they have the knowledge and compassion to be support systems for our customers.

To ensure all our employees are able to create value and deliver it to our customers, we regularly assess our personnel according to each individual’s skills, qualifications and production results. We are happy to provide guidance and support to ensure our staff join the training programme that suits their skill set and career ambitions. All employees must possess three key skills.

Thai Life Insurance was among the first life insurance firms in Thailand to place an emphasis on social responsibility and champion it alongside business success

First, knowledge is vital: our staff must have a strong grasp of various life insurance products, health insurance solutions, financial savings opportunities, potential investment areas, tax regulations and health developments to deliver the greatest value to clients. Technological aptitude is another vital skill: technical know-how helps our employees be more effective, whether they are making sales presentations or creating smart contracts. We call the third attribute the ‘spirit skill’. This is characterised by service that comes from the heart, displaying the kind of empathy and sensitivity that sets the agents at Thai Life Insurance apart from those at other firms.

By focusing on building skills across these three core competencies, we aim to shift the mindset of Thai Life Insurance sales personnel and empower them to cater to each customer’s needs. We also organise an annual Thai Life Family Spirit seminar, which allows sales agents to gain valuable customer insights regarding the importance of maintaining a human connection even as we embrace the latest technological innovation.

The greater good
Encouraging our employees to realise the value of life and people while creating shared benefits for the company and wider society is of the utmost importance to Thai Life Insurance. Our aims stretch far beyond boosting profit; we look to meet the needs of all stakeholders, from customers to employees, shareholders and business partners.

As an organisation that places a high value on operating responsibly, Thai Life Insurance maintains a commitment to serving the local community. In 1995, we established the Thai Life Insurance Foundation to focus on community service. Since then, we have taken particular care to offer support to the country’s armed forces. To uphold our corporate social responsibility values, the company has set itself three SDGs.

The first goal involves our ‘promise’ strategy, which emphasises the importance of managing the organisation with progressive human resource values and a strong adherence to good corporate governance. The second, our ‘protect’ strategy, seeks to bolster customer trust by delivering quality products and services that meet the needs of every consumer group, while also incorporating effective risk management. The third goal is our ‘prosperous’ strategy, an initiative that furthers our other SDGs by ensuring our operations are consistent with broader economic, social and environmental trends.

Thai Life Insurance was among the first life insurance firms in Thailand to place an emphasis on social responsibility and champion it alongside business success. When it comes to achieving SDGs, private enterprise and wider society must work together to achieve a brighter future for all.

The path of least resistance – understanding the important role friction plays in finance

The field of economics has long modelled itself after Newtonian physics. When physicists analyse a complex problem, they usually begin with the simplest version and neglect any complicating effects, such as friction. These can always be added later if the model is not sufficiently accurate.

In economics, the term ‘friction’ is used in a similar way: to represent sand in the gears of the perfect market. For example, when the American economist John Bates Clark developed the theory of marginal productivity in his 1899 work The Distribution of Wealth, he wrote: “The distribution of income to society is controlled by a natural law… This law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates.”

In other words, markets lead to an optimal distribution of wealth – if friction is ignored. Similarly, since inflation only changes nominal prices, as opposed to ‘real’ prices, it should have no effect on economic activity – again, if friction is ignored. Here, friction is caused by things like the inconvenience of stores having to update their prices, which leads to a loss of efficiency.

Following the 2008 financial crisis, a basic criticism of mainstream models was that they did not account for the financial sector. This triggered a debate about the role of financial friction. In 2010, during a US House of Representatives hearing on the promise and limits of modern macroeconomic theory in light of the economic crisis, V V Chari from the Federal Reserve Bank of Minneapolis insisted that “mainstream macroeconomic models do have crises driven by financial frictions. Any assertion to the contrary is false”.

If you continue to add grains of sand, the sandpile will eventually converge – or self-organise – to a critical state

By 2018, these frictions were still a work in progress. One of the conclusions of a report on the Rebuilding Macroeconomic Theory Project in 2018 was that a focus should be put on “incorporating financial frictions rather than assuming that financial intermediation is costless”. Elsewhere in the report, Paul Krugman stated that, while there have “been many calls for making the financial sector and financial frictions much more integral to our models”, their absence “wasn’t the source of any major predictive failures”.

Many economic theories assume that friction is actually zero. For example, the efficient market hypothesis posits that market prices adjust instantaneously to new information. Not only is there no role for friction, but even inertia doesn’t appear. A broader question would be, is friction even the right way to think about this?

Losing grip
For most people, the financial crisis did not feel like a sudden outbreak of friction. It was the opposite – a complete loss of it, as prices made huge swings with little, if any, resistance. Financial crashes are often compared to another event that involves a breakdown in friction: earthquakes. The time scales are different, but a plot of price changes for the S&P 500 over the course of 2008-9 closely resembles a minute of seismographic data recorded during an earthquake. So, when one of the traders at Lehman Brothers told a BBC reporter in September 2008 that it felt “like a massive earthquake”, she was accurate.

The correspondence goes even deeper than that. It turns out that the frequency of both phenomena is described by the same kind of mathematical law. If you double the size of an earthquake, it becomes about four times rarer. This is called a power law, because the probability depends on the size multiplied by some power – in this case, two. Studies have shown that the distribution of price changes for major international indices follows a power-law distribution with a power of approximately three.

This power-law distribution is an indicator of a state that complexity scientists call ‘self-organised criticality’. The classic example is a conical sandpile with sloping sides. If the slope is shallow, adding a few extra grains to the top of the pile won’t cause much disturbance. In this state, the system is stable and dominated by friction between sand particles. Standard economic models assume the existence of an underlying equilibrium.

However, if you continue to add grains of sand, the sandpile will eventually converge – or self-organise – to a critical state. In a sense, this state is maximally efficient because it has the steepest sides and reaches as high as possible without becoming fully unstable and chaotic. But it is not very robust: adding grains of sand will create avalanches that range in size and follow a power-law, scale-free distribution. The system is not chaotic or stable, but on the border between the two.

On the brink of chaos
Viewed this way, it becomes clear that the way to improve standard economic models is not to add friction, but to do the opposite, considering how the system breaks free from friction as it traverses the fine line between order and chaos.

How would such models differ from existing ones? One clue is that financial systems already have a feature that is free from friction – namely, the creation and transfer of money. As noted in a 2015 Bank of England article: “Banks that create purchasing power can technically do so instantaneously and discontinuously, because the process does not involve physical goods, but rather the creation of digital money through the simultaneous expansion of both sides of banks’ balance sheets.” It is an on-and-off process, not a smooth, mechanical one. The same holds for events such as credit default or bankruptcy, and the flow of information in general.

To incorporate such effects, the first step is for economists to break away from the old Newtonian view of the economy and embrace a new kind of economics based on information – in particular, the flow of money – rather than machines. But to do that will require overcoming a different kind of friction: the resistance to new ideas.

Global North should turn to the South for transport inspiration, says report

In the 1980s, former German Chancellor Willy Brandt proposed a way of dividing the world into the ‘haves’ and ‘have-nots’. The so-called Brandt Line provided a handy visual depiction of the north-south economic divide that had developed by that time.

Although the Brandt Line continues to be used, it has also been criticised for promoting outdated stereotypes regarding the Global South. Certainly, several of the economies found on the ‘wrong’ side of the line have surpassed their northern counterparts in terms of digital technology, and many of their inhabitants live prosperous lives. Today, if the Brandt Line is used at all, it is alongside the caveat that it does not tell the full story of global development.

In particular, recent evidence suggests that the Global North could learn a few things from the developing world – especially in terms of transportation. The International Transport Forum’s 2019 Transport Innovations from the Global South report challenges the commonly held view that progress, regardless of the industry in question, comes from the countries in the Northern Hemisphere.

On its head
Innovation does not take place in a vacuum: new ideas build on the work that has been carried out previously and benefit from a constant exchange of information. Unfortunately, despite sharing plenty of problems when it comes to transport infrastructure, the Northern and Southern Hemispheres have not cooperated much.

Despite sharing plenty of problems when it comes to transport infrastructure, the Northern and Southern Hemispheres have not cooperated much

In the Global South, where there is generally less legacy infrastructure, innovation can be easier to cultivate. For example, Malawi’s Department of Civil Aviation created a drone corridor in collaboration with UNICEF for use in transport, imaging and data transmission. The trial has been successfully used to deliver medical supplies to remote areas and has led to similar initiatives being pioneered in Vanuatu and Kazakhstan, as well as several other African states.

“Shared transport solutions are seen as the norm in the Global South, where rail networks are often less widespread and there are far lower levels of individual car ownership,” Eleanor Lane, a partner in CMS UK’s infrastructure and projects team, told World Finance. “Less pre-existing regulation permits greater innovation. A historically lower level of state involvement has fostered a culture of people working together to create their own solutions. In addition, a less ‘joined-up’ approach across and beyond individual countries allows communities to choose what works best for them.”

A look across the Global South reveals a number of solutions that would probably face restrictions, logistically or legislatively, in more developed nations. Sometimes, without the weight of existing processes pressing down on the transport sector, new solutions can emerge. In India, a relay trucking system has changed the country’s logistics industry, while in Colombia, cable cars are not only a tourist attraction but a way of reducing social inequality in Medellín, the country’s second-biggest city.

Better together
Despite the innovation being witnessed in the developing world, the Global North isn’t rushing to adopt these developments. There are some good reasons for this. Substantial regulatory overhaul would have to take place in the developed world to leave room for bottom-up innovation. This doesn’t mean stripping away transport safety rules, but it does mean reviewing outdated policies.

“More developed nations are generally already heavily regulated,” Lane said. “Innovation requires flexibility; existing laws are inherently inflexible, and changing policies and procedures takes time. The drive for standardisation across borders permits ease of travel but reduces opportunities for innovation and flexibility of approach at a local, city and regional level. It is also likely that existing transport providers will resist change, viewing it as a potential challenge to their position.”

Other areas where the Global North could learn a thing or two include using transport innovation sandboxes to create a hierarchy-free environment, unburdened by regulation, in which to test new solutions. Greater interactions with non-traditional actors would also prove helpful, as these are often the entities driving progress in the fast-changing transport sector. Encouraging collaboration between these innovative actors and more traditional operators is one way of combining innovation with continuity.

Perhaps most importantly, the transport sector in the Global North could benefit from a change of mindset. An appreciation that important developments are taking place outside of the traditional markets might lead to unforeseen progress. Expanded horizons could deliver advantages on both sides of the Brandt Line.

Carnegie leverages its market position to drive responsible investment

Carnegie Investment Bank has played a central function in Nordic business for more than 200 years, first as a trading house and then as a financial advisor. We have built a bond of trust among the institutions, companies and private individuals we work with. Our knowledge of Nordic companies and their markets, combined with access to capital and ideas about growth creation, means we are well positioned to funnel capital into investments with growth potential. In every aspect of our operations, we take care to work with projects that contribute to a stronger society.

New technology and sustainable products will be important if companies are to overcome the challenges that society faces today. Financial advisors must be able to provide assistance in terms of the personal and corporate issues associated with transitioning to a sustainable economy. This is where Carnegie’s years of experience come to the fore.

Shepherding change
Being an industry leader like Carnegie means upholding a responsibility to always provide sound advice that meets the standards expected of a financial advisor. We are in a position to have a positive impact on the world, but this all hinges on the advice we give our clients and the long-term success of our own business. Through our research capabilities, which cover almost 95 percent of Nordic-listed companies, we can improve transparency and provide strong guidance to private and institutional investors. The risks and opportunities associated with environmental, social and governance (ESG) responsibilities are a natural component of this research. They form an essential aspect of decision-making for many investors in the Nordic market.

Farsighted investors can use shrewd funds to contribute to the long-term health of the entire planet. The reallocation of capital, both between and within sectors, intensifies the pressure on companies to drive their sustainability efforts. Companies with access to capital represent a huge force for change in building a better world. With smart products and a skilled workforce, they can shepherd the world’s consumers towards a more sustainable lifestyle.

Carnegie embraces sustainability throughout its asset management services, and we understand the importance of helping our clients navigate the complex financial issues associated with this transition. We screen 100 percent of the assets under our discretionary management in terms of their contribution to ESG principles.

Sustainable investment can be approached in various ways, but ultimately it is a matter of mitigating risks and generating better risk-adjusted returns. Investment managers might select companies that are recognised for their commitment to sustainability, or they could choose to influence companies that their clients have a stake in. Sometimes, managers decide to exclude entire industries in order to meet their sustainable goals, although this can have a negative impact on risk-adjusted returns.

Carnegie has chosen to exert influence on the companies and management teams that are included in our asset management sphere. We believe this approach is a more effective long-term solution than exclusion.

Planning to succeed
Priming the next generation to take over substantial assets is an important part of creating a sustainable economy in the future. Carnegie provides support to families as they handle their legacies. Part of our long-term mission has always been to facilitate succession by helping the next generation take over their family business or other assets.

Carnegie’s Next Generation Academy is a six-month tutoring initiative that aims to provide structured learning to our clients’ heirs. Attendees are instructed in a wide spectrum of skills that can have an impact on their inherited assets, including entrepreneurship, tax law, property ownership, investments and digital security. At the end of the course, we invite participants to join a network of past attendees. Through this network, we offer ongoing opportunities to meet and benefit from Carnegie’s experts.

As part of the wider business community, Carnegie recognises our capacity and responsibility to facilitate the growth of new players in the market. For several years, Carnegie has offered a meeting place to promote the emergence of these early-stage companies. For example, each year they have the opportunity to gain broader exposure to investors and the wider world. We are committed to the idea that enterprise is a cornerstone of a dynamic business sector and a sustainable economy.

As Carnegie continues to advance its position in the Nordics, we are also striving to enhance our role in capital markets. The importance of responsible advisory services is growing all the time, and Carnegie remains committed to leveraging its market position to stimulate responsible investment.

Sovcombank issues subordinated Tier 1 bond ahead of prospective IPO

Sovcombank, one of Russia’s largest private-sector lenders, has issued a new subordinated Tier 1 bond with a coupon rate of 7.75 percent. Demand for the bond has been particularly strong, with an order book of $1.9bn allowing the bank to tighten the spread by 75 basis points when compared to initial price talks. Demand eventually closed at an impressive $1.4bn.

Proceeds generated from the bond sales will be used to bolster Sovcombank’s capital reserves and build its reputation in the public market ahead of a planned initial public offering (IPO), which is expected later this year. The bond will also increase the bank’s capital buffers, helping it in its efforts to gain recognition as a domestic systemically important bank.

Demand for the bond has been particularly strong, with an order book of $1.9bn allowing the bank to tighten the spread by 75 basis points

The breakdown of bond orders emphasised Sovcombank’s broad appeal, with 22 percent of orders allocated to continental Europe, 12 percent coming from Asia and the Middle East, 12 percent from the UK and nine percent from the US. The remaining 45 percent came from Russia.

“We are pleased with and grateful for the interest in our bank from such a wide investor community,” Dmitry Gusev, Chairman of the Management Board at Sovcombank, said in a statement. “We attribute this to the bank’s reputation, business model and financial performance.”

The IPO roadshow – which took place between January 24 and January 29 across Moscow, Dubai, Zurich, Geneva, London and New York – brought the bank into contact with a huge number of potential investors, helping to drive interest ahead of its prospective IPO. High-profile financial institutions, including JPMorgan Chase, Sberbank, VTB Capital, Gazprombank, Alfa-Bank, Renaissance Capital and Emirates NBD, acted as bookrunners and joint lead managers for the bond issuance.

With six million clients and RUB 1trn ($15.8bn) in total assets, Sovcombank is already one of Russia’s largest banks, but this has not blunted its ambition. Late last year, the bank received rating upgrades from the Big Three credit rating agencies: Standard & Poor’s, Moody’s and Fitch Ratings. In addition, the bank recently expanded its customer offering through the acquisition of Liberty Insurance for an undisclosed amount. Collectively, these developments look promising ahead of the bank’s upcoming IPO.

Finding success with BAWAG Group’s European retail banking roadmap

We are living in one of the most dynamic and transformative periods of banking. The next decade will bring about rapid change as the traditional banking model is challenged by new and evolving technology and shifting customer behaviour. The future guarantees only one thing: change. Banks that fail to address these changing currents will find themselves unable to compete.

On the surface, the situation today for European lenders does not look promising. Negative interest rates, lower margins, multiple restructurings and anaemic growth all tend to paint a rather challenging picture of the entire banking industry. These factors are particularly pronounced in mainland Europe, a region with a vast number of lenders of all shapes and sizes – by all measures, a region that is overbanked and seemingly unable to consolidate for a variety of reasons.

Customers don’t care about a company’s internal processes – they want the most simple, easy to use and easy to understand products and services at a fair price

Since 2007, both the EURO STOXX Banks Index (which represents publicly listed eurozone banks) and the STOXX Europe 600 Banks Index (which represents listed pan-European banks, including those outside the eurozone) have decreased by more than 70 percent. According to the European Central Bank (ECB), the average return on equity of eurozone banks in 2018 was around six percent, with a cost-to-income ratio of 66 percent.

Focusing on negative rates or the structural differences between Europe and other regions related to bond yields, capital markets or the lack of a banking union is not without merit. In our view, however, this is not the greatest culprit causing the banks’ struggles. Financial institutions need to embrace simplification, leverage technology and have a keen focus on efficiency to transform their business models for the better.

Keeping things simple
Despite the aforementioned all-too-familiar challenges, at BAWAG Group, we see many opportunities across the European banking landscape. In order to take advantage of these, banks’ management teams should foster a clear commitment to simplification and efficiency. Defining core competencies, being laser-focused on a handful of core products and services, and simplifying end-to-end processes across the organisation are key to driving efficiency throughout a company (be it at a bank or any other firm).

Consumers are increasingly looking for the most simple, straightforward and easy to use banking products that offer 24/7 connectivity. Providing a straightforward and simplified product offering requires simple and streamlined end-to-end processes, whether the product involves mortgages, consumer loans, leases, credit cards or current accounts. At the end of the day, customers don’t care about a company’s internal processes – they want the most simple, easy to use and easy to understand products and services at a fair price.

This will ultimately drive banks to become more efficient, which is a key competitive differentiator. Companies still talk about technology through the traditional lens of IT, referring to it as a siloed function that is distant from the rest of their operations. Banks should take a different view, very much placing technology at the heart of every aspect of their business. This includes engagement with customers through mobile applications, e-banking, online payments, advisory services, underwriting, loan processing and customer service centres – everything needs to be underpinned by technology.

Retail banking is becoming more commoditised in the way that it enables financial institutions to truly benefit from technology to create seamless processes. Our own experience at BAWAG Group required us to understand our end-to-end processes before transforming the organisation. In doing so, we were able to reduce the amount of complexity within our product offerings and services, which, in turn, simplified our middle and back-office functions. However, embracing this focus on simplification required buy-in across the organisation, becoming data-driven in our decision-making and empowering employees to be agents of change. Ultimately, the culture of simplification and consistent improvement took hold and became ingrained in how our organisation operates.

Sound fundamentals
If we zoom in to focus on a specific core European market, the situation for banks in the DACH (Germany, Austria and Switzerland) region looks particularly interesting: the average return on equity for German banks is 2.4 percent (see Fig 1); Austria is one of the most densely banked countries in Europe; and Switzerland’s banking sector is recognised the world over for its stability.

The region is at times mischaracterised as being unprofitable for banking. A good deal of the below-average profitability in the region can be attributed to very high cost structures and, to a certain degree, a fragmented banking market. We see both as opportunities, in terms of applying an industrialised approach to banking and presenting ample opportunities for consolidation. More importantly, our view is largely informed by the very strong macroeconomic backdrop of the region.

The DACH region is home to more than 100 million people – roughly one third the size of the US market. According to the OECD, the regional GDP growth rate is approximately one to two percent – Austria is the front-runner here, recording GDP growth of 2.7 percent in 2018 and 1.8 percent in 2019. Unemployment in the DACH region, meanwhile, lies between a healthy three and four percent.

All three countries have strong fiscal positions, with a relatively small debt-to-GDP ratio and low levels of both consumer indebtedness and homeownership when compared with Anglo-Saxon countries. These are all great macro factors from a retail banking standpoint and should translate to a lower cost of equity given the stability and low volatility of the region. With a strong macro backdrop, stable legal systems and regulatory environments, and low levels of consumer indebtedness augmented by strong risk management, conservative underwriting and an industrial approach to banking, we believe this to be a formula for success in retail banking across the region.

Focusing on things you can control
Every business has to deal with constant change and disruption, whether it’s a bank, a manufacturing company, a technology firm or a cutting-edge start-up. However, if organisations choose their products, channels and markets with an absolute focus on customer needs, and drive simplification and efficiency across the organisation, this can create a formula for success in any industry, including retail banking.

In 2007, our bank was loss-making and undercapitalised with a fundamentally broken business model. The bank was sold in an administration process to an investor consortium led by private equity firm Cerberus Capital Management. More than 12 years later, our bank is now a publicly listed company on the Vienna Stock Exchange. It executed the largest initial public offering in Austrian history in 2017, and today ranks in the top tier of European banks in terms of profitability and efficiency, delivering a pre-tax profit of €573m ($630.2m), a return on tangible common equity (ROTCE) of 14.2 percent and a cost-to-income ratio of approximately 44 percent for 2018.

In terms of capital generation and returns, we target an annual dividend payout of 50 percent of the net profit attributable to shareholders and will deploy additional excess capital to invest in organic growth and pursue earnings-accretive mergers and acquisitions at returns consistent with our group ROTCE targets. This all comes as a result of focusing on the things we can control and truly impact.

For the first three quarters of 2019, we reported a strong profit before tax of €451m ($496.1m) and a net profit of €343m ($377.3m), both up five percent on the previous year. The increase was primarily driven by higher operating income. The bank delivered an ROTCE of 14.2 percent, a cost-to-income ratio of 42.7 percent and a Tier 1 common capital (CET1) ratio of 15.7 percent. Additionally, we received approval from the ECB for our share buyback programme of up to €400m ($440m), which we executed for the full amount in Q4 2019. Accounting for this and the year-to-date dividend accrual, the pro forma ROTCE was 17.7 percent for the first three quarters of 2019, with a pro forma CET1 ratio of 13 percent.

As well as making progress in our strategic capital actions, we continue to execute a number of operational initiatives. In fact, we are on track to deliver on all of our targets in 2019 and continue to adapt to a changing operating environment. While the market for European banking continues to be challenging, our fundamentals at BAWAG Group remain strong. We will focus on the things that we control, driving operational excellence and continuing to pursue disciplined and profitable growth.

Skills development and resource refinement are key to unleashing Africa’s trading potential

Africa is blessed with an abundance of natural minerals, but its rich supplies of copper, diamonds and oil have yet to translate into sustainable economic development. This is largely because Africa’s economy is driven by an ‘extractivist’ development model, meaning it sells resources in their raw state rather than developing them into more valuable exports. Consequently, the continent has poor value-retention levels, which in turn hinders job creation and economic growth.

To become a middle-income society, Africa must transition away from its extractivist development model and focus on increasing its processing and manufacturing capacity – not only will this boost Africa’s competitiveness in global trade, but it will also benefit its citizens more generally. World Finance spoke to Century Group CEO Ken Etete to learn more about the importance of investing in Africa’s people and natural resources.

Which of Africa’s resources currently show the most promise?
In my opinion, the most promising resource is our human capital. If we invest in human resources through education, then we will improve the general purchasing power of Africans and unleash their true potential.

If we invest in human capital through education, then we will improve the purchasing power of Africans and unleash their true potential

At the moment, most Africans are unable to turn their attention to creativity and innovation because they are struggling with the basic needs of life, such as food, housing and healthcare. This has very negative repercussions for the wider economy.

How can skills development in Africa boost economic growth?
A skilled working population is critical to socioeconomic advancement. If we are to unlock the value of Africa’s natural resources, we must first ensure that people have the necessary skills to do so.

People cannot develop these skills alone, though: governments and local authorities have a key role to play in establishing national programmes for skills development.

How can African countries make skills development a top priority?
At Century Group, we believe society needs to be thought of as a company – every resource must be utilised and nothing should go to waste. If Africa is to make the most of its resources, many changes will need to be made across the continent.

First, Africa needs to invest in its people from an early age, laying the foundations for their professional success. From childhood, everyone should be provided with proper healthcare, public services and infrastructure, as well as a high-quality public education. For gifted children whose parents cannot afford to send them to school, scholarship schemes should be made available. Support systems like these are crucial to ensuring that all children receive a good education. The curriculum must also address the needs of the job market. All of these elements are very important to helping people realise their potential at every stage of life.

Only when these factors are taken care of – and society has effective structures in place for rewarding performance based on merit – will Africa have a skilled workforce that can champion innovation and spur economic progress. If African countries adhere to this development programme, coming generations will be able to enjoy successful and fulfilling careers.

Is Century Group currently involved in any important projects?
Over the past two decades, we have played a part in a vast number of projects with a combined value of approximately $2bn. These projects range from the cost-effective development of oil fields to the operation and maintenance of offshore production and storage facilities, including early production systems, floating production storage and offloading (FPSO) vessels, flow stations and drilling rigs. We also offer services in mooring and installation, well intervention, drilling support, the chartering and management of offshore support vessels, procurement, the construction and installation of oil and gas facilities, logistics, and general engineering support.

In Nigeria, Century Group has backed the oil and gas industry, regulators and international oil companies through infrastructural support that generates around $200m annually. As part of these efforts, Century Group recently acquired two FPSO vessels, valued together at approximately $500m. This is yet another strategic move to improve domestic capacity in Africa’s oil industry. With these acquisitions, Century Group became one of the first African oil and gas companies to have full ownership of such assets.

On behalf of a client and its partners, Century Group is also leading well intervention and data acquisition projects for additional performance management analysis at a major facility located some 55km from the Nigerian coast. Century Group is spearheading and funding the entire operation to produce an extra 4,000 barrels of oil per day.

What impact have these projects had on local communities and the wider Nigerian economy?
Century Group supports the production of around 200,000 barrels of oil per day, which is approximately 10 percent of Nigeria’s daily production (see Fig 1). The company’s product offerings are designed around the local economy, providing employment opportunities for both the highly skilled and unskilled. We pride ourselves on the fact that 90 percent of our employees are native to Nigeria. This helps to retain value, reduce unemployment and promote wealth distribution across the country.

Why are projects like these important to Africa more broadly?
By embarking on major infrastructure projects, supporting the efficient development of the oil sector, prioritising cost efficiency, utilising local resources and teaching technical skills, we help Africa retain profits and generate long-term revenues from oil.

Although most of our transactions are off-the-shelf and very expensive, the technology used by the industry is no longer exclusive to certain parts of the world. Our belief, therefore, is that every African country involved in the extractive industry should endeavour to develop their resources and spur growth within the domestic market to retain jobs and, by extension, create wealth for the local population.

Why is investment in Africa so important?
The world currently faces several major challenges. From a business point of view, we believe that creating additional wealth and building more inclusive economies is exactly what is required to overcome them.

Our business is of no value if society is not peaceful and stable. Therefore, our strategy is to support economic inclusion and help reduce poverty, which is itself a weapon capable of significant damage to society. We should be deeply concerned about every person who cannot afford to live a decent life and the growing numbers of people who are falling into poverty around the world.

Africa is in a unique and precarious position, as it is not yet fully integrated into global trade. Without investment in our people and natural resources, we will continue to miss out on the benefits of greater integration. This not only presents a risk to Africa, but to the world as a whole. By investing in Africa and championing sustainable economic development in the region, we can lift the continent out of poverty and transform it into a haven for global investment.

In your mind, what does the future hold for Century Group?
In the near future, we want to become a public company. Our ultimate aim is to be internationally successful and respected. By harnessing African resources as a key driver of growth, we will expand our reach across the globe, allowing everyone to invest in – and benefit from – the huge wealth of resources in Africa.

We hope that when Century Group appears on the world stage, it will be a real win for the international investors who want to see what Africa has to offer. We are aware that African businesses have a responsibility to win the confidence of the global investing community. For this reason, we focus on minimising risks in the areas that we think are of the greatest value to investors. Put simply, we want to act as a guide for major investors hoping to explore opportunities that will add value to Africa and the global economy.

Centre stage: political disputes have thrown central bank policy into the limelight

“China is not our problem, the Federal Reserve is,” Donald Trump tweeted in October 2019, in one of his usual tirades in the small hours of the night. It was not the first time the US president had vented his anger at Jerome Powell, Chairman of the Fed, whom he appointed last February, but this time the message was clearer: “People are VERY disappointed in… Powell and the Federal Reserve. The Fed has called it wrong from the beginning, too fast, too slow.”

Although the US central bank had already cut interest rates three consecutive times, this was not enough, according to Trump: “We should have lower interest rates than Germany, Japan and all others. We are now, by far, the biggest and strongest country, but the Fed puts us at a competitive disadvantage.”

Criticism of central banks is not unprecedented in the history of the US: Richard Nixon famously pressured Arthur Burns, the Fed chairman at the time, to loosen up monetary policy in the run-up to the 1972 election. Ronald Reagan was equally harsh towards Paul Volcker. However, Trump’s remarks open a new chapter in the history of the relationship between politicians and central bankers, the latter traditionally seen as non-political figures who – out of virtue or necessity – stay out of the diplomatic fray.

“Trump has no intellectual or personal issues with Powell – he just finds him to be a convenient target,” said Professor Paul Wachtel, an expert on central banking who teaches at the New York University Stern School of Business. But, he added, Trump’s tantrums reflect a broader trend: “Powell has no political base of his own and bankers are a frequent target for anti-Semites and others; Trump is trading on the world’s hatreds.”

Autonomous no more
An independent central bank has not always been an axiom of global finance. The rise of monetarism in the 1980s convinced politicians that thankless tasks such as setting interest rates would be better off left to technocrats. Depoliticising monetary policy was deemed the key to unshackling central banks from the whims of public opinion and party politics; their governing boards were left alone to achieve price stability. In the UK, it was Tony Blair’s Labour government that granted independence to the Bank of England in 1997, while the European Central Bank (ECB) has been independent from the outset, with low inflation stated as a key target in its charter.

Slowly but surely, independence became the global norm, even in parts of the world where other institutions are particularly weak. A 2008 working paper from the IMF showed that the idea had been in the ascendant in emerging market economies since the 1980s, while international organisations such as the World Bank and the IMF often include central bank independence as a prerequisite to participating in loan and aid programmes. Even the People’s Bank of China, which is accountable to the State Council and the country’s ruling Communist Party, has occasionally resisted government pressure.

However, the needle seems to have moved over the past few years. In various parts of the world, the privilege of central banks to set monetary policy unperturbed by external forces is increasingly coming under fire. In July 2019, Turkish President Recep Tayyip Erdoğan abruptly sacked the governor of the country’s central bank, Murat Çetinkaya. The reason, Reuters reported, was that Çetinkaya had refused to succumb to pressure for an interest rate cut – a move that would be in line with Erdoğan’s unorthodox view that high interest rates drive up inflation.

Depoliticising monetary policy was once deemed the key to unshackling central banks from the whims of public opinion and party politics

In India, meanwhile, Governor of the Reserve Bank of India Urjit Patel cited personal reasons for resigning in December 2018, but many at the bank suggest he was forced to leave after a series of clashes with the government which pressured the bank to use its surplus to plug budget gaps, increase spending before a general election and loosen up lending to tackle a shadow banking crisis.

Overstated powers
Central banks in advanced economies have not escaped this trend. In the UK, pro-Brexit politicians rebuked the Bank of England’s forecast that a no-deal Brexit would lead to recession and the collapse of the pound, referring to it as part of an anti-Brexit smear campaign known as ‘project fear’. The Canadian governor of the bank, Mark Carney, has become a bête noire for the Tory party’s pro-Brexit faction; the MP and prominent Brexiteer Jacob Rees-Mogg has called Carney the “high priest of project fear”.

Even that pales in comparison with the salvo of insults regularly unleashed by the US president, who never misses an opportunity to fulminate against the Fed and its chairman. In October, Trump said that he’s “not even a little bit happy” about Powell’s performance – he also hinted that he may nominate economic advisor Stephen Moore and former Republican presidential candidate Herman Cain to the bank’s board. Francesco Bianchi, an associate professor of economics at Duke University, told World Finance that one explanation could be that Trump “needs the backing of the monetary authority in light of his trade war [with China] and to confirm the narrative that the economy is doing very well”.

But public criticism of the Fed does not come without consequences: in a recent paper, Bianchi, along with London Business School academics Howard Kung and Thilo Kind, provided market-based evidence that Trump’s tweets have a direct impact on expectations about monetary policy: “Market participants believe that the Fed will succumb to the political pressure, which poses a significant threat to central bank independence.” Nor is this type of criticism a privilege of America’s conservatives: Bernie Sanders, a leading figure of the Democratic Party’s left wing, has often argued that the Fed is in bed with Wall Street interests.

One reason why politicians don’t hesitate to criticise central banks is the shattered reputation of the financial sector after the Great Recession. Paul Tucker, former deputy governor of the Bank of England and author of a book on the role of central banks in modern democracies, told World Finance: “Being the ‘only game in town’ in [an effort] to stave off complete collapse and then revive the economy has, perversely, made central banks part of the political game. And avoiding complete collapse did not cure concerns about inequality or persistently weak growth.”

Some take this argument one step further, claiming that central banks should be governed as any other political institution. In his book The Power and Independence of the Federal Reserve, Peter Conti-Brown argued that the Fed’s policies have political implications, and therefore the bank should be accountable to the public through increased congressional oversight.

Another reason is that fiscal policy – a tool still controlled by national governments – is used with a light touch by politicians. Public spending programmes, once a standard response to economic downturns straight out of the Keynesian rulebook, are avoided for fear of a negative reaction from global markets. Structural reforms such as those taken by Germany in the early 2000s can ruin political careers: Germany’s Social Democratic Party still hasn’t recovered from the backlash against its Agenda 2010, a programme of welfare system and labour relation reforms that laid the groundwork for the country’s economic rebound. The result of instances like this is that central banks are left alone to pick up the pieces when things go wrong. In Europe, many central bankers have pushed governments to use fiscal policy to stimulate the economy and undertake structural reforms, but with limited results.

Facing contradictory demands, central banks often find themselves in a bind: when they step into the breach, as the Bank of England did after the Brexit referendum by cutting interest rates and pumping liquidity into the system, they are accused of interfering in politics. When they shy away from decisions that may have political repercussions, they are accused of inaction – often by politicians.

“The spread of populism has increased the temptation for politicians to misuse the central bank as a scapegoat for their own failures,” Otmar Issing, former ECB chief economist, told World Finance. “Central banks are widely seen as having become too powerful, which has undermined the acceptance of independence and reduced the threshold for attacks.”

Central banks’ power to intervene in global markets has also been overstated: although expected to have a cure for all diseases, they are frequently powerless in the face of forces they cannot control. Changes in national monetary policy often have little impact on areas such as international trade, fiscal policy or even the increasingly globalised financial system. Tucker said: “Central bankers, charged with maintaining a stable monetary system, need to be clear about what they can’t deliver, such as generating improvements in underlying dynamism (productivity growth), and stay close to base in their commentary.”

The next crisis
If there is one issue that attracts the ire of politicians, it is the figure that central banks are supposed to get right by default: interest rates. Following the crisis in 2009, central banks on both sides of the Atlantic have stuck to a policy of low interest rates in an attempt to increase money supply and stimulate the economy (see Fig 1). It is this aberration from economic orthodoxy that drives the current US president’s preference for low interest rates.

But the policy may have reached its limits, said Wachtel: “Persistent negative interest rates, such as the negative 10-year government yields in much of Europe, are unprecedented and should be a matter of concern. There is some natural real rate of interest – it is small but positive, and rates around the world have been below this for almost a decade.”

The problem has been more acute in Europe, where interest rates hit the symbolic threshold of zero in 2012 and turned negative in many countries two years later. The ECB’s loose monetary policy has caused a rift in its ranks between southern and northern countries; the former favour any measure that eases the burden of sovereign debt, while the latter bemoan the impact of low interest rates on spendthrift citizens and their savings. In his parting shot in September, outgoing ECB President Mario Draghi announced a further cut to a record low of -0.5 percent. The move caused an unprecedented uproar, with an open letter signed by former central bankers denouncing the ECB’s policies.

Issing – one of the letter’s signatories and a widely recognised architect of the euro – told World Finance: “With central bank interest rates still at zero and below, the ECB has missed the opportunity to create at least some room for action. In general, central banks with their asymmetric policy to react even on mild slowing of growth have continuously weakened their position in case of a strong downturn of the economy.” However, the ECB is unlikely to change course, said Frederik Ducrozet, an analyst at Pictet Wealth Management: “The ECB is de facto committed to asset purchases and negative rates for an extended period of time, around two years in our view, and at least until they see inflation ‘robustly converge’ towards the target… the balance of risks remains in favour of more monetary easing, not less.”

When central bank independence became a sacrosanct mantra of the financial system in the 1980s and 1990s, the goal was to tackle rampant inflation. The Maastricht Treaty required signatories to keep inflation at low rates, aiming to bring high-inflation countries such as Italy and the UK closer to the European average. This goal has been largely achieved: in the UK, inflation has fallen to an average of 2.3 percent over the last decade from its peak of 24 percent in 1975. Global inflation, meanwhile, has lingered at a moderate four percent on average over the past two decades (see Fig 2).

However, many economists warn that low inflation, or even deflation, is becoming a more worrying problem. Central banks have been constantly missing their inflation targets since the Great Recession, limiting the effectiveness of monetary policy. The reasons go beyond the remit of central banks, according to Danae Kyriakopoulou, Chief Economist at the Official Monetary and Financial Institutions Forum, a think tank specialising in central banking. She told World Finance: “The current environment of low inflation largely reflects structural factors that go beyond monetary policy and the actions of central banks. These include, for example, slowing productivity growth, weak demographics that create incentives for rising savings, and a scarcity of safe assets.”

One tool central banks have been eager to use to stimulate the economy is quantitative easing, a policy that was deemed unconventional until 2009. Over the past decade, central banks have vastly expanded their balance sheets by buying bonds and other assets. In Europe, the ECB’s balance sheet has reached the unprecedented rate of 40 percent of the eurozone’s GDP, and in September, the bank announced it will revive its €2.6trn ($2.86trn) bond-buying programme after a break of 10 months. The Bank of Japan has been following the same policy for decades, while the Fed has been pumping up liquidity through injections in the repo market.

Critics point to potential conflicts of interest, as central banks hold bonds and equities while they are expected to oversee the financial industry as a neutral regulator. “The extent to which the Bank of Japan and the ECB have been holding corporate and private sector bonds or equities creates risk that could be a concern,” Wachtel said. “The slippery slope is that they buy things to help out favoured elements of the economy. That makes the central banks no different than a government making bailouts or strategic investments.” A report by the Bank for International Settlements, released in October, found that oversized balance sheets may have distortionary effects on financial markets, including scarcity of bonds for private investors, squeezed liquidity and fewer market operators purchasing bonds.

By pumping money into markets, central banks may have created a bubble of private and sovereign debt that could spark the next  financial crisis

An even greater risk, according to critics, is that the financial system may have become addicted to cheap money. By pumping funds into markets, central banks may have created a bubble of private and sovereign debt that could spark the next financial crisis. When this hits the real economy, governments and central banks may be toothless, with budget deficits and public debts already at high levels and monetary policy having reached its limit. “There is broad evidence that the positive effects of quantitative easing have declined over time and might have given way to negative effects on market liquidity,” Issing said.

Challenges ahead
Central banks may have to enter the political fray through a completely different route: tackling climate change. Their role in dealing with the biggest challenge facing our planet has already become a hotly debated issue: in April 2019, Carney and the Governor of Banque de France, François Villeroy de Galhau, published an open letter calling for central banks to take a more active role in the fight against climate change, including measures to “integrate sustainability into their own portfolio management”. The new head of the ECB, Christine Lagarde, also favours a green agenda, promising to make this a key priority of her tenure during a confirmation hearing at the European Parliament.

Some central banks are already taking action. In November, Sweden’s central bank ditched bonds issued by oil-rich regions in Australia and Canada due to their high carbon footprints. The rest of the world’s central banks also have a role to play in the fight against climate change, Tucker said: “In their stress testing of the financial system, in order to see how far essential services (payments, credit supply, insurance) would be interrupted under certain scenarios. That’s the purpose of central banking: systemic safety and soundness.”

Many economists and politicians go one step further, advocating green quantitative easing that would push central banks to favour green bonds – fixed-income financial instruments with a strong environmental focus. Critics point to the limitations of the policy: although the issuance of green bonds surpassed the $200bn threshold in October, this remains a small fraction of total bond issuance. A bigger threat, others warn, is the politicisation of central bank decision-making through the back door. In October, Jens Weidmann, head of Germany’s central bank, rejected the use of monetary policy to support a climate-focused agenda, arguing that green quantitative easing would threaten market neutrality and undermine central bank independence.

But some change in central bank preferences might be inevitable, Kyriakopoulou said: “It is contradictory for central banks to have ‘brown’ [polluting] industries overrepresented in their portfolios on the pretext of market neutrality at the very same time that the governments they serve have signed the Paris Agreement, committing them to limit the increase in global average temperatures to below two degrees.”

Such an approach would finally break the taboo of central bank independence. Tackling a climate-driven economic crisis might be a task that is too political in nature to be left to unelected economists. Central bankers may well find themselves returning to square one, having to steer monetary policy towards certain forms of economic activity. This is where politicians might have to step in, Tucker said: “The big decisions on that would best come as legal constraints imposed by elected politicians. Otherwise, unelected central bankers would be making society’s trade-offs [on its behalf], which is adventurous without a democratic mandate. What’s at stake here could hardly be greater.”

ATFX Connect looks to China and South-East Asia for further growth opportunities

The retail trading market and the institutional trading market are different in a number of ways. While retail traders buy or sell securities for personal accounts, institutional traders buy and sell for a group or corporation that they are managing. Costs can vary for the two forms of trading, and institutional traders may find that they have access to investments that are not available to retail traders, such as swaps and forwards.

The differences between the two markets mean it can be difficult for brokers to transition between them. At ATFX, however, this hasn’t been the case. As a globally established company with 14 offices worldwide, our experience across numerous markets has provided us with a breadth of knowledge that enables us to adapt regardless of whether our clients come from retail or institutional spheres.

ATFX Connect wants to be the bridge between customers and an economy that continues to expand

We plan to expand even further during 2020, focusing on several emerging market locations as part of our global strategy to increase our footprint as both a retail and institutional broker. ATFX is already recognised among important regulators, including the UK’s Financial Conduct Authority and the Cyprus Securities and Exchange Commission, and we plan to achieve regulatory approval in several other markets in the near future.

We have recently opened our new London-based institutional arm, ATFX Connect. This fintech venture is set to launch a contract for difference (CFD) package, whereby the seller agrees to pay the buyer the difference between an asset’s current value and its value at the time stipulated in the contract. With this new package, we hope to set ourselves apart from the competition, as our clients will be able to pass their CFD pricing on to their own clients via an exchange data solution.

Another way we differentiate ourselves from other players in the market is by meeting our clients’ strong demand for financial education. This has become a core part of the company’s offering. ATFX wants to ensure that all its clients fully understand the basics of trading and the risks involved with entering new financial markets.

Eastern promise
China is currently the world’s second-largest economy and presents ATFX Connect with an exciting opportunity to expand its institutional business. Recently, the Chinese Government considered opening up the interbank foreign exchange market to include non-bank financial institutions; we believe this will drive huge demand from retail and institutional brokers, locally and on a global scale.

The company sees the potential to partner with wealthy, long-term investors that are looking for an experienced financial institution offering a high level of regulation in order to safeguard their wealth. As our name suggests, ATFX Connect wants to be the bridge between customers and an expanding economy. There will also be growth in the spending power of high-net-worth individuals (HNWIs) in the region – this is who the company’s bespoke services are aimed at, along with asset managers, regional banks, family offices and other brokers.

Considering the expected spending from this demographic, paired with middle-class consumerism, we see that sectors such as healthcare, travel and leisure will play a part in driving the region’s economic growth, presenting us with an environment in which to nurture and enhance our offering. Another opportunity lies with the growing number of brokers in Asia – especially in Hong Kong, South Korea, Japan, Singapore and Indonesia. We are confident that our liquidity solutions will meet their needs.

Asia is also recognised for its innovation, infrastructure and technology, and these key sectors reflect our ambitions and goals as a newly developed institutional broker. ATFX Connect’s head of operations, Matthew Porter, and senior sales head, Marc Taylor, have both participated in a media tour around South-East Asia in order to drum up interest in our solutions. The tour has been a testament to the relationships we have built with different media houses, as well as other professionals in the institutional sector. Porter and Taylor discussed topics including the technology powering our institutional platform and the investments behind our product offerings, providing insight into what next-generation execution services will look like.

A challenge worth tackling
The growing tension between the US and China has led to drastic declines for some Asian stocks. At the beginning of October 2019, Japan’s Nikkei 225 dropped by 0.8 percent, while Hong Kong’s Hang Seng Index fell by 0.3 percent and China’s SSE Composite Index by 0.1 percent. Beijing started printing economic data in 1992 and in the time since, the country has never had economic growth as slow as that being recorded now (see Fig 1). China’s Q3 2019 growth recorded just six percent. With the economy under this sort of pressure, it remains to be seen whether now is the right time to launch an institutional trading arm in the country.

Nevertheless, there is much to be excited about in the Chinese market – particularly the growing number of HNWIs. Real estate prices and the stock market appear to be the two main vehicles driving personal capital appreciation for HNWIs in China. Catering for HNWIs in this region is sometimes considered challenging by western institutional brokers entering the market, as they are a demographic known to follow specific rules of business etiquette, shaped by traditional cultural practices.

As such, we have positioned ourselves as the logical next step for China’s high-net-worth population. We have tailored our services to meet the demands of HNWIs, as well as asset managers, family offices and other brokers. We understand that wealth obtained by institutions and HNWIs must be carefully monitored, so risk management is and always will be a priority. ATFX Connect’s risk management solution enables the user to capture risk, view open positions and trades, and monitor equity in real time.

Branching out
We pride ourselves on being part of the AT Global Markets group, which has established a global presence. By combining this network with our establishments in the Far East, we plan to ease our transition from a retail-only broker to a rapidly expanding fintech company with the capability to facilitate and partner with a range of diverse clients via our new multi-access platform.

Having successfully opened our institutional division in London, the next step for our team was to head to South-East Asia to discuss future plans in the region. They visited Shanghai, Hong Kong, Taipei and Malaysia – all economies where the company sees huge growth potential that will attract further investment from local and global businesses.

Looking to the future, the company recently set up its bespoke digital platform, through which the fintech arm of the business can offer Tier 1 bank and non-bank liquidity solutions, competitive spreads, low latency and multi-platform access. We continue to invest in technology and infrastructure, and we are currently focusing on ways to enhance our own aggregator and bridge. Through our flexible, client-centric approach, we want to become the main institutional broker in China. Additionally, we want to expand to the Middle East and other regions in Asia in the future.

Latin America has also seen a marked increase in multinational cross-border activity in recent years, both in terms of financing and business. There is now a growing demand from HNWIs based in the region to trade financial products. With AT Global Markets opening an office in Mexico, we will be able to work with clients in Latin America, ensuring they have the chance to participate in international markets and currencies via our multi-access platform. Whether in Asia, Latin America, Europe or elsewhere, ATFX Connect will continue to deliver the best possible services to our clients so that all their trading demands are met.

Indonesia’s Iron Lady: how Sri Mulyani Indrawati reformed a financial sector riddled with corruption

“If you are corrupt, you are going to have to deal with me. I am not going to let you work here and I will put you in prison”

Sri Mulyani Indrawati

Despite being the fourth-most populous country in the world, Indonesia plays a relatively small role on the geopolitical stage. Rarely do its cabinet ministers garner any form of international recognition. However, there is one minister whose reputation precedes her.

Sri Mulyani Indrawati, Finance Minister of Indonesia, is highly respected at home and abroad. As well as being named the world’s best finance minister in 2006 by Euromoney, she regularly features on Forbes’ annual rankings of the world’s most powerful women. And her popularity shows no signs of waning: when she was reappointed for President Joko ‘Jokowi’ Widodo’s second term in 2019, the Indonesian rupiah strengthened by 0.6 percent.

“Investors appear to trust that she can run a tight ship,” Nicholas Antonio Mapa, Senior Economist at ING, told World Finance. After all, it takes nerves of steel to champion economic reform with as much commitment as Sri Mulyani – particularly when reform means undoing decades of corruption.

Honest achievements
Sri Mulyani is known for her no-nonsense approach. When she first became finance minister under President Susilo Bambang Yudhoyono in 2005, she sacked 150 of her departmental staff for corruption and penalised another 2,000. “If you are corrupt, you are going to have to deal with me,” she said in an interview in 2009. “I am not going to let you work here and I will put you in prison; that’s going to be my policy.”

Many saw Sri Mulyani Indrawati’s resignation as an indication that Indonesia was turning back the clock on much-needed economic and political reform

This hostility towards those who cheat the system was instilled in Sri Mulyani from an early age. For most of her young life, Indonesia was ruled by one of the most dishonest autocrats of all time, President Suharto. Through his system of patronage, the dictator’s family members and close associates dominated the economy.

Sri Mulyani’s first experience of this cronyism came while she was studying at the University of Indonesia, where the president’s daughter, Siti Hediati Hariyadi, was also enrolled. Already, Sri Mulyani could see that the entourage of the president’s daughter would be fast-tracked into high-flying business roles and cabinet positions that were out of reach for her fellow students. “That feeling of exclusion was very strong,” she told Bloomberg in 2017. “If you’re not a friend of those people, then your career path is going to be very different, and that is exactly what influences very strongly the way I think about economics and the economy in Indonesia.”

Born to academics, Sri Mulyani’s upbringing was modest. She had nine siblings, and her mother worked a second job to make ends meet. Her parents impressed upon her the value of education, and at university she excelled, earning a scholarship that allowed her to go on to pursue a doctorate in economics at the University of Illinois.

After graduating, she returned to her alma mater. It was then, while Sri Mulyani was working as a lecturer, that the country underwent radical change. The 1997 Asian financial crisis saw the devaluations of many East Asian currencies, including Indonesia’s rupiah. Across the country, there were widespread layoffs and bankruptcies. As anger towards the ruling class mounted, President Suharto – who had ruled for more than 30 years – was deposed.

During this tumultuous period, and in the years of uncertainty that followed, Sri Mulyani became more incensed by what she saw as “the wrong policy, the wrong approach” being executed by Indonesia’s politicians. Compelled to make a difference, she began looking for career opportunities beyond academia. She worked on strengthening local government institutions through the US Agency for International Development, and then became an executive director at the International Monetary Fund, where she represented 12 countries in South-East Asia before being appointed head of the Indonesian National Development Planning Agency. These positions focused mainly on development, preparing her for her most challenging role yet: managing South-East Asia’s largest economy as it recovered from crisis.

Enemies in high places
Analysts estimate that President Suharto stole as much as $35bn from Indonesia before he was deposed. Since his resignation, the country has changed dramatically. “The Indonesia of 2019 is almost unrecognisable from [that of] 1999,” said Tom Pepinsky, Non-Resident Senior Fellow at the Brookings Institution. “Not only has the country overseen a successful democratic transition, but it has also recovered from a massive economic crisis. The country has enjoyed two decades now of consistent economic growth, and politics has become far more open and plural than it was under Suharto’s authoritarian New Order regime.”

Sri Mulyani’s economic reforms were key in shaping Indonesia during this period. After becoming finance minister in 2005, she tackled corruption head-on and pushed hard to raise tax revenue and slash private and public debt. By 2009, the nation’s debts had been reduced to 30 percent of overall GDP, down from over 100 percent a decade prior.

Sri Mulyani Indrawati in numbers:

2005

First appointed as Indonesian finance minister

2016

Returned to finance minister role

$700m

Cost to bail out Century Bank

90%

Salary cut to leave the World Bank

Suharto’s legacy of patronage and bribery was so entrenched within the system that Sri Mulyani had to fight hard to keep it out of her ranks. In this respect, she was ruthless. When the government’s human resources department was accused of manipulating the rotation for promotions, Sri Mulyani sought to fire the person responsible. But there was no way to work out exactly who it was, so Sri Mulyani told the director general to replace all 60 employees in that cohort. “Overkill is necessary and important to get the message across,” she said about the decision.

Not everyone took kindly to her tough reforms. One of many powerful enemies she made was Aburizal Bakrie, a member of Indonesia’s elite and chair of the Suharto-era Golkar Party. One of his family’s companies – Bumi Resources – was hit hard by Sri Mulyani’s tax crackdown. She also resisted pressure from Bakrie to prop up his coal interests with government funds. Like others in Indonesia’s old guard, Bakrie became determined to undermine her reform agenda.
The wheels were set in motion for Sri Mulyani’s resignation when she made the controversial decision to bail out Century Bank for $700m. It was not long after the 2008 financial crisis, and Sri Mulyani feared that the failing institution could be a contagion for the rest of the financial sector. But critics accused her of acting without legal authority. Bakrie’s Golkar Party seized the opportunity and backed a parliamentary inquiry into the bailout.

Although Sri Mulyani denied any criminal wrongdoing, her reputation in Indonesia suffered a significant blow as a result of the investigation. It didn’t help that President Yudhoyono was quiet on the subject for months. Eventually, he came to her aid, commending her “credibility and personal integrity”, but it was too little too late: the investigation was enough to convince Sri Mulyani that her battle against corruption had come to an end. A day after testifying, she announced her resignation.

Return to the charge
Around the world, many saw Sri Mulyani’s resignation as an indication that Indonesia was turning back the clock on much-needed economic and political reform. The Indonesia Stock Exchange tumbled 3.8 percent after her departure was announced.

But Sri Mulyani was not on the back foot for long. In June 2010, she became one of the three managing directors at the World Bank, with her experience as a reformist proving highly valuable for this career-defining role. The regions she was responsible for – the Middle East and North Africa – had endured the same corruption that Sri Mulyani tried to stamp out in Indonesia, and she championed reform in energy, health and education. During her tenure, she helped pull in significant donations for some of the world’s poorest regions and rose to second-in-command within the organisation, earning respect from peers around the globe.

It came as a huge shock when, six years later, Jokowi asked her to join his cabinet. She was on a three-day visit to the University of Indonesia when the president offered her the finance minister position. It was no easy decision: for one thing, it meant taking a bruising 90 percent salary cut. Ultimately, Sri Mulyani’s sense of duty got the better of her. “If a president, who was elected by the people, asked you to join him to realise Indonesia’s ambition, I don’t think anyone can say no to that,” she told the South China Morning Post.

Sri Mulyani was tasked with helping Jokowi find funds for his major road, rail and port infrastructure projects. She immediately put raising tax revenues at the top of the agenda. With this tax amnesty programme, Sri Mulyani hoped to boost tax revenues by as much as IDR 165trn ($11.7bn) in the first year. At the time, Indonesia had one of the lowest tax-collection rates in South-East Asia, with just 900,000 Indonesians submitting returns in 2014.

Sri Mulyani was keen to show that she’d lost none of her fire for economic reform. In her first interview as finance minister under Jokowi, she warned tax evaders that they had to choose between “heaven and hell”, and either accept a two percent tax penalty and have their “sins deleted”, or suffer the consequences. “I’m not going to play around,” she added. Indonesia’s tough reformist was back in town.

Room for improvement
Now that she’s been reappointed for Jokowi’s second term, the world is waiting to see whether Sri Mulyani can lift the economy out of stagnation. Jokowi sailed to victory on promises that he would transform the economy and achieve seven percent annual growth, but since coming to power in 2014, growth has remained sluggish at five percent. “Indonesia has churned out robust growth figures over the past few quarters, even in the face of several Fed rate hikes as well as concerns about the global economy,” Mapa told World Finance. “But five percent for the region’s largest economy doesn’t point to the economy hitting its potential.”

So far, the administration has struggled to attract the foreign investment it hoped for. The US-China trade war should have been a great opportunity for Indonesia as companies looked to relocate their manufacturing bases to avoid being hit by US tariffs. But of the 33 companies that announced plans to move operations out of China between June 2018 and August 2019, 23 chose Vietnam as their new base. None chose Indonesia.

One of the main reasons investors have cold feet is the vast amount of red tape that surrounds Indonesian business, causing significant delays. At the same time, poor road and rail connections can be a major deterrent for foreign companies. “Jokowi [is considering] further development of the country’s infrastructure, and as the country starts to lay out the details of the plan to move the capital from Jakarta to the eastern part of Indonesian Borneo, development financing will be a major priority,” Pepinsky told World Finance.

Sri Mulyani must now try to boost growth within a very tight budget. Despite her impressive credentials, executing the president’s ambitious vision for the economy will be a gruelling task. But no one is better suited for the job than Indonesia’s Iron Lady.


Curriculum Vitae

Born: 1962 | Education: University of Indonesia

1998
Sri Mulyani Indrawati became a lecturer in economics at the University of Indonesia, her alma mater, and was later appointed as visiting professor at the Andrew Young School of Policy Studies at Georgia State University.

2002
Inspired to take a more active role in economic development, Sri Mulyani joined the board of the International Monetary Fund as executive director, representing 12 countries in South-East Asia.

2005
President Susilo Bambang Yudhoyono selected Sri Mulyani as Indonesia’s finance minister. She was credited with strengthening Indonesia’s economy and safeguarding it against the 2008 financial crisis.

2010
After making the controversial decision to bail out Century Bank, a failing financial institution, Sri Mulyani resigned as finance minister and became a managing director at the World Bank.

2016
Sri Mulyani made her return to Indonesia’s cabinet as finance minister under President Joko ‘Jokowi’ Widodo, who tasked her with securing financing for his ambitious infrastructure plans and attracting foreign investment.

2019
When news came that Sri Mulyani had been reappointed as finance minister for Jokowi’s second term in office, it caused the rupiah to strengthen by 0.6 percent, its highest value in more than a month.

AFP Confía: artificial intelligence heralds a new era for Salvadoran pensions

El Salvador may be the smallest country in Central America – it has a population of just 6.4 million, according to the World Bank’s latest estimates – but its economy continues to show huge potential. Across 2018, GDP growth was measured at 2.5 percent, and its GDP per capita totalled $4,058. What’s more, pension funds, which make up 44 percent of El Salvador’s GDP, have registered a compound annual growth rate of more than 10 percent over the past 20 years.

At the heart of this success is AFP Confía, a subsidiary of the Atlántida Financial Group. Founded in 1998, the company manages pension savings and retirement benefits for more than 1.5 million employees and retirees across El Salvador. And with $6bn in assets under management – over $2bn of which is made up of cumulative returns – AFP Confía is the largest pension fund in Central America and the Caribbean, according to data published by the financial newspaper Moneda. In fact, AFP Confía paid over $250m in retirement benefits in 2018 alone.

Since launching, AFP Confía has been the largest pension fund (with the biggest monthly contributions) in the region and remains a market leader in almost every key indicator. We are keen to maintain this leading position moving forward.

Financing the future
Having played an active role in El Salvador’s pension system for the past 20 years, one thing has become clear to us: change is never far away. Armed with this knowledge, we have been able to navigate shifts in regulatory standards and customer expectations while continuing to lead the market. Strengthening performance, attracting new customers, reaching organisational goals and generating positive returns are just a few of the aims we have set ourselves during this period. Innovation, efficiency and a highly motivated team are some of the core reasons for our success.

Our investment team, which comprises young – but experienced – individuals who focus on achieving good investment returns and better pensions for our clients, has been pioneering investments in Central American markets since the day we opened our doors. Over the decades, this team has driven the regionalisation of our portfolios through investments totalling $500m in Costa Rica and Panama, including quasi-sovereign bonds, airports, petrol refineries, banking, communications and utilities.

Our portfolios are invested in fixed-income securities and are always grounded in robust research. What’s more, we’ve supported the economic development of El Salvador and other Central American markets by financing a wide variety of industries, such as municipal infrastructure, highway expansion and maintenance, agriculture, airport and port expansions, electricity projects, water utilities, sovereign debt, real estate investment trusts and bank securities. Our cumulative return over the past 36 months was 4.61 percent – the highest in the local pension fund system, according to a report published by the Salvadoran regulator, the Superintendencia del Sistema Financiero, in September 2019.

Adapt and thrive
As a result of our forward-thinking approach, we were able to adapt our core operating systems and investment strategies before the domestic pension system underwent significant reform in 2017. After years of debate, this much-needed reform was approved by the Legislative Assembly of El Salvador and received an actuarial validation by Mercer, the world’s largest investment consulting firm.

The 2017 pension reform increased mandatory contribution rates, issued a new fully funded longevity guarantee, set out a gradual increase in the retirement age and improved investment regulation. For the first time, the reform also allowed pension funds to directly invest up to 20 percent of total assets under management in international mutual funds and exchange-traded funds. For AFP Confía, this amounts to approximately $1.2bn.

As a way of anticipating future change, we remain focused on proven process management strategies like Six Sigma and new tools such as biometric identification and artificial intelligence (AI). We have supported these frameworks through a complete re-engineering of our processes and ensured that all of our business operations are focused on driving efficiencies, increasing savings and delivering best practices across the company.

With these strategies in place, we can guarantee that our clients are always our primary focus, keeping them abreast of the latest developments and remaining in direct communication as much as possible. To achieve this, we are using data analytics and machine learning to improve the services we offer, as well as implementing new channels of communication via AI and other cutting-edge technology to get closer to our clients and resolve their problems remotely.

Such tools will help us raise awareness of the pensions system, demonstrate how savings are invested and highlight the importance of savings in El Salvador. After all, it’s only with the continued support of our shareholders and the leadership of our clients that we will be able to anticipate and adapt to market changes long into the future.