Author: World Finance

Tax in Argentina: GNP Group on reducing fiscal pressure

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The tax burden in Latin American countries has been on the rise since 2002. In Argentina, that marks the end of the country’s great depression, when a focus on improving tax collection helped the government spend its way back to growth. Nearly 15 years later, is it time for a review? Juan Elias Perez Bay, Partner of GNP Group, outlines the four main taxes that are putting pressure on businesses. But, he explains, the system’s complexity also presents opportunities for businesses to save.

World Finance: The tax burden in Latin American countries has been on the rise since 2002. Now, in Argentina, that marks the end of the country’s great depression, when a focus on improving tax collection helped the government spend its way back to growth. Nearly 15 years later, is it time for a review? Juan Elias Perez Bay from GNP Group joins me down the line.

Juan, talk me through Argentina’s growth story over the last decade, and how the tax landscape has changed.

Juan Elias Perez Bay: Well Paul, Argentina’s GDP has grown about 10 times over the last 12 years, while national public spending has grown 20 times in the same period. Naturally, this has had a strong impact on fiscal pressure, since tax collection precisely grew 20 times in the same period, in order to finance the growth of this public spending.

World Finance: Now, all Latin American countries have expanded their tax collection in recent years; what makes it particularly difficult in Argentina?

Juan Elias Perez Bay: Well, today’s fiscal pressure in Argentina exceeds 40 percent of GDP, measured by government indicators. About 10 years ago, fiscal pressure was approximately 20-25 percent of GDP. This situation puts Argentina at a clear disadvantageous situation in terms of competitiveness regarding its neighbouring countries.

If we consider Latin America, Argentina is today the country with the highest fiscal pressure: even higher than Brazil, with its complex fiscal system. And considering it has been historically the one with the largest fiscal pressure of the region.

This is the reason why the tax area in Argentina has taken on significant importance over the last years.

World Finance: So, talk me through the complexity. Which taxes have increased, and what makes them difficult for businesses to reconcile?

Juan Elias Perez Bay: The system is Argentina is based on four taxes, according to its participation in complete tax collection. VAT, income tax, tax on bank debits and credits, and export duties.

VAT increased due to GDP’s increase, and due to technical improvements in tax wealth systems and inspection processes, which contributed to reducing the informal economy in Argentina.

Income tax increased because of annual inflation of about 30 percent, in a country without any inflation accounting adjustment. So the result is the taxation of fictitious profits, as there is no adjustment for inflation in accounting statements.

The last two taxes: tax on bank debits and credits, and export duties, are relatively new taxes created in 2002. They have no joint participation with provinces; its growth is related to local GDP increase, and the increase of agro-industrial exports during the last 10 years in our country.

World Finance: Are there currently discussions to review some of these taxes? What might happen, and what’s the timeline?

Juan Elias Perez Bay: We have no certain idea about the timeline, but they surely have to be discussed and modified, of course. But, we clearly think that a discussion has to take place regarding taxes. We also think that when possible investment arrives in Argentina, the fiscal factor has to be considered as the one to keep an eye on.

Argentina right now is the country with the biggest fiscal pressure of the region. As the tax system is complex, with a good fiscal strategy (within legality, of course), it is possible to reduce the impact in a large part.

World Finance: So tell me about what can be achieved in reducing the impact of that taxation for businesses.

Juan Elias Perez Bay: Our philosophy consists of having the focus on fiscal strategy, taking into account that the economic conditions in Argentina has taken the tax matter to be really important.

We provide to our clients a team of highly trained businessmen dedicated to fiscal consultancy. And we find that our fiscal legislation has enough complexity to allow us to make fiscal management models that generate fiscal savings or tax delays – which considering an annual inflation of about 30 percent – which will cause important financial fiscal savings to companies, and in this way get important economic benefits.

 

Don’t treat Turkey as any other emerging market – Zurich Turkey

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This year is seeing emerging high-growth economies such as Turkey struggling with a number of issues: comparatively lower economic growth, high inflation, depreciating currencies, and uncertain geopolitics. But there are certain sectors bucking the trend. Zurich Turkey CEO Yılmaz Yıldız discusses how Turkey is outperforming other emerging market economies, the importance of achieving equality in the insurance sector, and how the company has bucked trends to maximise profits in non-life insurance.

World Finance: 2016 is seeing emerging high-growth economies such as Turkey struggling with a number of issues: comparatively lower economic growth, high inflation, depreciating currencies, and uncertain geopolitics. But there are certain sectors bucking the trend. With me to discuss is Yılmaz Yıldız, CEO of Zurich Turkey.

Yılmaz, uncertainty is plaguing most economies, developed and developing. How is Turkey responding?

Yılmaz Yıldız: The growth rate is around three or four percent. During a time of turmoil now, three or four percent is a pretty decent growth rate. Debt to GDP is around 35 percent of GDP, which is the best in Europe and one of the best in emerging markets. Budget deficit is around 1.5 percent of GDP. The low indebtedness actually reduces volatility and uncertainties that may come.

There has been the mistake of putting all these countries – emerging countries – into one bucket, and assuming that they all have the same characteristics. But what’s happening in commodity importing countries, when the commodities prices go down, these countries benefit. And Turkey is one of those. And according to the latest statistics, Turkey will benefit at least $25-30bn dollars from the reduction in oil and gas only.

And if you add a strong banking sector to that, and good infrastructure: I’m quite optimistic.

World Finance: And the insurance sector? How does that fit into this?

Yılmaz Yıldız: The insurance sector is very much related to what happens in the financial sector. Since the GDP growth rate decreased from six, seven percent, down to three, four percent, we see a similar trend in the insurance sector. In the insurance sector we have three big segments. One is property and casualty: historical growth rates have been 20-25 percent, now it’s down to 10-15 percent. The life business is related to the bank loan business – it is sold with retail loans, and what happens on the retail loan volumes has a direct impact. So again, the growth rates from 35-40 percent are down to 10-15 percent.

Private pension side has been growing quite substantially, and there the growth rates are still 25-30 percent, pretty strong growth – supported by government incentives in terms of tax breaks.

World Finance: Now non-life general insurance in Turkey – especially global players – is suffering from a lack of technical profitability. But Zurich Turkey is bucking this trend. Why?

Yılmaz Yıldız: For us we define success – or our targets – in three main areas.

One is the financial results: we have to deliver what our shareholder asks us to deliver.

The second part is customer satisfaction. And what we mean by customers are one, the end users, the end customer; second, our distribution partners; and third, our internal customers, our employees.

And the third part is the risk and compliance environment.

For the past three years we’ve been growing roughly 15 percent more than the market. Being also one of the most profitable.

First of all we have the right segment mix. The more profitable parts of the business come from personal lines, and certain niches of commercial lines. So that’s where we focus. Secondly, the most lucrative part of the distribution channels are the bank distribution. So we increase our bank distribution share to 75 percent of our total business.

And thirdly you need to have the right product mix. And while doing all that, you have to make sure that you do it in a productive way. And if you look at the past three years again, our top line increased by 70 percent, while our headcount stayed the same.

World Finance: All around the world the financial sector is known for its weakness in diversity and female equality – how do you deal with this?

Yılmaz Yıldız: We started about three years ago, and we said, look. Within the company we will reach 50:50 female:male ratio. We have achieved that.

Secondly, we said manager and up positions, we will achieve 50:50. We have managed to do that. And thirdly, CEO and minus one positions – so positions reporting directly to me – we have managed to achieve 50:50 there too.

But reaching those numbers is not enough. Because then the recruitment, promotions, trainings, need to be 50:50. And our employee engagement score, global employment engagement score, came out a few months ago. And we have a huge increase – 22 percentage point increase overall. But what is even better is, we have almost 30 percentage point increase in our female employees’ engagement. Which is great. So we intend to continue that – but it’s a major thing, and it’s a never-ending process. And you have to continue, you have to push for that.

World Finance: You also have a lot of CSR initiatives – now how do you merge your business goals with these initiatives?

Yılmaz Yıldız: Business has to have goals that go beyond just making money. Ninety-eight percent of our employees voluntarily participate in our CSR activities. We think that investing in children is the best insurance society can buy for the future. So we focus on orphan children, in many different ways, with many different projects.

The other part is art. We have been one of the major sponsors of Istanbul culture and art foundation. And just last year, for example, our activities attracted more than 200,000 people in Istanbul, which is great. It’s what gives meaning to what we do.

World Finance: And looking at Turkey more closely now, what would you say the investment sentiment is like in the country?

Yılmaz Yıldız: Overall I think that Turkey will diverge positively within the emerging markets. On the negative side is the geopolitics, and what’s happening across the borders. So that part I think is creating some negative sentiments.

But if you look at that geography – if you have the resources, and you need to allocate capital, Turkey is one of the few places in which you can actually invest in and expect sustainable returns going forward. And as any high growth emerging market it will have ups and downs, but the trend will always be up.

Mozambique’s infrastructure revival to fuel investment surge – Lopes

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World Finance speaks to Fernanda Lopes, managing partner at Fernanda Lopes and Associates, on Mozambique’s staggering economic revival, and the investment opportunities that exist for those prepared for its challenges.

World Finance: Mozambique’s economic revival has been staggering, and represents many investment opportunities for those prepared for its challenges. Joining me down the line is Fernanda Lopes, managing partner at Fernanda Lopes and Associates.

Fernanda, how does Mozambique’s economy stand today?

Fernanda Lopes: Well it’s not standing up very well – mostly because of lack of investment.

We are all aware of the international crisis. So the majority of the investors withheld their investment, due to the crisis. So we’re not doing very well – but we’re picking up.

The opportunities are very big in Mozambique, so between crisis and opportunity, investors are slowly coming back and starting investments in Mozambique.

World Finance: And in terms of investor opportunities, what sectors should investors be looking towards?

Fernanda Lopes: Natural resources of course; mining, and gas.

I would look as well at agriculture – there’s huge potential for agriculture in Mozambique. I would also look at us as a tourist destination. There’s a huge opportunity, as you’re aware: we’ve got almost 4,000km of coast and sea.

Some of the ports that are corridors to the country, in the south, middle, and north of the country. So I think that the country will pick up very soon, and the opportunities are there.

World Finance: So what should investors be aware of when they’re first approaching Mozambique?

Fernanda Lopes: I would say two points. One is energy: we have some problems with energy. We’re looking at new dams, in order to build more capacity. And infrastructure: roads, ports, railways, need developing in order to shift goods from one side to another.

But we’re doing well on that. In the north of Mozambique the new railway is operating. In the centre of Mozambique the Sena line is operating. In the south everything is okay. So, it’s a matter of time, of course. You don’t build infrastructure from one day to another.

World Finance: So finally, Mozambique is currently placed 133rd out of 189 on the 2016 World Bank Ease of Doing Business report. What are the challenges moving forwards, and how can they be overcome?

Fernanda Lopes: Well you know, our background from the colonial times is very bureaucratic. And I think that we should try to ease the bureaucratic procedures in order to speed up the incorporation of companies, and all that is necessary for the set-up of companies, and for companies to start operating.

There are several projects going on, as far as the removal of bureaucratic procedures is concerned. And I think that it won’t take long for us to go faster than we’re doing now, recalling that several years ago we were much slower than nowadays.

Greece needs stability; Brexit would ruin that – Attica Wealth Management

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The global economy got off to a subdued start in 2016, with investment sentiment in Europe reacting demurely to the uncertain climate. Theodore Krintas and Stelios Stylianidis of Attica Wealth Management talk about Greece’s green shoots, the disruption that a Brexit might have on the country’s recovery, and Attica’s strategy to follow wealthy Greek investors overseas.

World Finance: The global economy got off to a subdued start to 2016, with investment sentiment in Europe reacting demurely to the uncertain climate. With me to discuss the economic environment in Greece are Theodore Krintas and Stelios Stylianidis of Attica Wealth Management.

Well Theodore, if I might start with you. Greece of course has had a rough few years of late. Bad loans still make up half of lending, and capital controls may stay in place until next year. So, any green shoots on the horizon?

Theodore Krintas: Well Jenny, we see a couple of those in the short-term, and maybe a handful in the middle- to longer-term.

Europe has decided it will not lose the war of reunification in Greece, and this is very, very important, because they’re very helpful. At least, that’s the way we at Attica Wealth Management see it.

Now at the same time, capital controls have imposed serious problems in our own industry. It’s putting a lot of pressure on it. At the same time, many, many Greek companies have become more extroverted – so, now they see, they have exports in their long-term plans. So exports are not future plans: the future is happening right now.

So I really believe these are a couple of very important changes, because we have been living somebody else’s life for a long time; and now we seem to be living our own life. So hopefully in the months or years to come, we’re going to see some positive reaction on that.

World Finance: And of course Stelios, Europe is gripped by the possibility of a Brexit. Now should this happen, what would that mean for Greece, and what do you think the knock-on effect would be?

Stelios Stylianidis: The direct impact for Greece would be on tourist arrivals from the UK. The UK market is the second biggest market for Greece – both in terms of arrivals and income.

But more important for us is the indirect effect. Our economy is in a very fragile position – a stable external environment is essential. A Brexit is exactly the opposite, as it may disturb the foundation of the European Union.

If Brexit materialises, then we’ll be talking again about a Grexit. And after Grexit, who knows? The European Union might have some serious problems.

World Finance: Theodore, of course investment sentiment has been down throughout Europe; and this hasn’t been helped by dropping commodity prices. So how are you responding to this?

Theodore Krintas: Well first of all, we have to remember that investors are human beings. And human beings are not very comfortable with changes. So although we are in a much better era – cheap oil, as opposed to peak oil – investors don’t really like what is happening. So now, many concerns are gathered around the fact that oil producing economies may face serious issues; and as a result a slowdown in the world economy.

We seem to be very afraid of a possible global slowdown. What we have to say as an economist is that a slowdown will happen within the next few months or few years. And we have to be prepared for that. On the other hand, many of us say that these bad sentiments are a kind of self-fulfilling prophecy: everybody’s expecting it, and as a result it might happen.

World Finance: And Stelios, what sort of trends are you currently seeing in the market?

Stelios Stylianidis: Currently we see uncertainty for about everything among the markets. Global growth concerns, deflation fears, and central bank policy divergence are three major issues that cause uncertainty, and lead to extreme market volatility.

So we see a trend from all of this uncertainty, and that is in investing in a multi-asset context, focusing primarily in international diversification and the minimisation of risk.

World Finance: Well Theodore, as Stelios just mentioned, multi-asset investing: it certainly does seem like the safer choice moving forwards. How are you approaching this?

Theodore Krintas: Multi-asset is one part. The other portion of our solution is actually low volatility investment, low volatility asset management.

We have to find ways to avoid losses in case of a world synchronisation. So we understand that we cannot follow investment based simply on international diversification according to Markowitz.

Low volatility means capital preservation, and in this world of low – even negative! – interest rates, capital preservation becomes a must. And this is the way we see that we should invest for the near future.

World Finance: Finally, talk me through Attica’s strategy moving forward for the coming years.

Theodore Krintas: We should focus on internationalising our business in the coming years in two ways.

The first one has to do with the fact that many Greek investors, during the crisis, have already taken a lot of their funds abroad. So we want to follow our Greek clients abroad, offer them wealth management solutions, while their funds are outside Greece.

And secondly, we believe we should also be offering business-to-business services, to peers of our own, internationally. Based on the fact that during the crisis, we needed to cut our cost base a lot. Senior investment managers in Greece cost one third of what they cost here in London, for example. So we can translate these cost advantages into a lower price, and offer it as a nice service to our peers.

What if cash expired? Oliver Davies revolutionises our monetary system

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With all the talk of late about negative interest rates and helicopter money, it seems the war on cash is just getting started. Central bankers are increasingly being asked to drive levels of spending – but this is an impossible task, says Oliver Davies. The author of One Month Money discusses the fundamental problems of our monetary system – and suggests the big idea that could fix them.

Come back later for a full transcript of this video.

African retail banking still has huge growth potential – Guaranty CEO

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Countries across sub-Saharan Africa are grappling with the challenges of sustaining high levels of economic growth, amid a backdrop of plunging commodity prices. Segun Agbaje, Managing Director and CEO of Guaranty Trust Bank, discusses Africa’s major economies, the sectors showing most growth, and how banks are turning away from corporates and towards SMEs.

World Finance: Countries across sub-Saharan Africa are grappling with the challenges of sustaining high levels of economic growth, amid a backdrop of plunging commodity prices. Here to discuss is Segun Agbaje, Managing Director and CEO of Guaranty Trust Bank.

Well Segun, first-off: can you talk me through the major economies in Africa – of course Nigeria is leading the way.

Segun Agbaje: Well yes, there is Nigeria. I mean, I try to think of north Africa away from Nigeria. So there’s Nigeria. There’s east Africa – I look at east Africa basically like one zone, it’s becoming an economic zone. In there you’ve got Kenya, Uganda, Rwanda, Tanzania. There is Ghana, which is smaller. Then of course there is South Africa. And then there is Egypt. I think today those are probably the biggest economies I see in Africa.

Then you have Angola, which is obviously oil driven, and Mozambique, which is a gas play, really.

World Finance: And where would you say are the major growth markets, and how are you approaching them?

Segun Agbaje: First in Africa there’s a lot of people who are financially excluded. So retail: banking individuals is a huge growth segment. And the telecoms companies have taught us that. You have countries where you have 140 million mobile lines, and you have 23 million bank accounts. So there’s still so much to do.

And then you have the small and medium-scale SMEs. There’s plenty to do there. There’s food: food is a big thing. There’s the garment industry. Those are the things I see as high growth. I mean, I’ve started moving away from the corporate-type businesses: manufacturing and oil and gas; and coming down to the SMEs and retail-type businesses.

World Finance: Well oil prices have really hit Nigeria – and indeed Africa – how are they impacting the banking industry?

Segun Agbaje: Oil prices is like seven years of plenty and seven years of deprivation: that’s where we are today.

In the banking industry the way you deal with it – at least, the way we are dealing with it – is you make sure that your loan book doesn’t go belly-up as a result of it. You look at the upstream sector, you look at the downstream sector, you try to safeguard your loans.

Also what it does is, you start to look for other parts of the economies that are doing well. And that’s why I just spoke to you about SMEs, retail, food, garment. So we’ve become a little more cautious with loans in the upstream, in the corporate sector. But we’ve become a lot more bullish about our retail and SME business.

World Finance: Well as you mentioned, SMEs are really driving economies in Africa. Do you think the banking sector’s doing enough to support them?

Segun Agbaje: Well, we didn’t start out by doing that. I think most of us functioned as high-end wholesale banks; we liked all the corporates. Then we started to do retail. And now we’ve seen that you need to do SMEs.

The truth about Africa is that probably one-in-three or one-in-two people is an SME. It’s a huge growth segment.

It has a lot of risk – so traditionally banks have run away from it – but we’re beginning to dimension the risk. We’re attacking it very differently; we’re doing things like market hubs for them, we’re doing payment engines for them, we’re giving them capacity in terms of accounting and understanding finance. I think in the next three to four years, that’s again one of the big growth sectors you’ll see in Africa.

World Finance: Now, mobile banking is becoming the norm in many parts of the world. How is the African banking sector responding?

Segun Agbaje: You know, I actually think the African banking sector’s ahead in terms of mobile banking. The test case everybody refers to is M-Pesa in Kenya, which is one of the most successful mobile engines. In Nigeria as well, mobile’s a really, really big thing. When I look at our mobile technology compared to a lot of developed economies, I think we’re a lot further ahead.

And there is a difference. A lot of it is localised. Because when you go to developed economies, you’re doing a lot of internet-type banking on smartphones. But in Africa there is still a lot of poverty, and most people don’t have smartphones. So we’re using what is called USSD technology, and we’re really doing big things in that mobile space for financial inclusion, and not just building a bricks-and-mortar branch network. I think it’s critical, and I think Africa will remain at the forefront of mobile banking technology.

World Finance: Well finally, what trends do you foresee impacting the sector in the coming 12 months?

Segun Agbaje: I think mobile is going to be very, very big. I think you’re going to see people doing a lot in terms of SME-type business. I think payment hubs, and I think payments is going to be a very, very big thing, all revolving around mobile technology.

And I think African banks are probably embracing disruptive technologies a lot quicker, because we don’t have as many legacies.

Jordan’s banks are a haven of stability in the Middle East

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The banking sector in Jordan is one of the drivers behind the country’s developing economy, but comes with its challenges. World Finance spoke to Musa Shihadeh, CEO and GM of Jordan Islamic Bank. He talks about the growth of Jordan’s banking sector, the central bank’s adoption of international regulations, Jordan Islamic Bank’s adherence to Sharia principles and its social responsibility.

World Finance: The banking sector in Jordan is one of the drivers behind the country’s developing economy, but comes with its challenges. With me to discuss is Mr Musa Shihadeh, CEO and GM of Jordan Islamic Bank.

Well Mr Shihadeh, if we might start with the banking sector in Jordan. How does it stand today, and since its implementation in 1978 how is Islamic finance growing?

Musa Shihadeh: Jordan banking is a stable sector, they are growing. Last year growth was in assets, almost five percent and in investments about seven percent and deposits about four percent. And they are sound, profitable and doing fine and keeping up with the international standards. Islamic banking started in 1978, my bank was the start. Now they have 15 percent of the assets of the Islamic countries banking sector; 22 percent of the investment, facilities and lending and about 16 percent of the deposits. So they are doing fine, all of them are controlled very well according to the Central Bank of Jordan regulations and applications.

World Finance: Well obviously there’s been a lot of unrest in the region, how is this impacting Jordan’s banking sector?

Musa Shihadeh: Of course first of all it’s impacting the industry. We used to export to Iraq, Syria, Libya and Yemen. Now with the unrest there, trade and exports have turned down; and it’s affected the bank’s activities – supporting, helping and lending for these sectors. The banks turned to invest through the individuals, small projects, SMEs, in the country in order to enhance and develop their business. And the banks are still making a profit and doing fine.

World Finance: Well considering the instability nearby, Jordan actually acts as a peaceful hub for foreign investors, so what does the banking sector offer?

Musa Shihadeh: The banking sector is well-equipped, applying international standards. The staff in the banking sector is very educated and they service local and foreign investors. They welcome them, we keep up with all international standards and therefore foreign investors are welcome and will be serviced as if they are in any country outside Jordan.

World Finance: And in terms of regulation, how developed is the banking sector?

Musa Shihadeh: The banking sector is very developed, because Central Bank of Jordan applies international regulations. They keep up with the banking sector in order to make training for all to comply with these international applications.

World Finance: And how have you incorporated corporate social responsibility into your long-term plans?

Musa Shihadeh: Being an Islamic bank we have to apply the Sharia application in order to service the community in using our funds and money and services. The bank offers free loans for people to use in education, medicine, or sometimes any other needs.

There are two committees in the bank for social responsibility. One for the management and the other for the board of directors, to direct our business. And we have a plan to get social responsibility agreements; we were granted that for our ISO2600 applications. And that helps us a lot in our plans in order to further our business, help SMEs, help the unemployment and our investment and so on.

World Finance: And finally, what’s next for the bank; talk me through your future plans?

Musa Shihadeh: We concentrate on our customers. We try always to be trusted by our customer and ask our customer to be loyal to us by the services we give them. We always find new services or financing or tools in order to service them. We try to apply the latest technology in our services to let the banker feel and the customer feel, that we are a bank as if he is in Europe or any place. Because we feel that trust services and loyalty and products that help the customer, make him continue with us.

Middle East paves the way for a diverse real estate market

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Real estate, although it comes with its challenges, is a sizzling market practically worldwide and the Middle East is no exception. United Real Estate Company CEO Ahmad Kasem discusses the Middle East’s diversification in the wake of declining oil prices, government strategies to make the region highly attractive to developers from overseas, and his company’s latest luxury golf course development in Morocco.

World Finance: Real estate, although it comes with its challenges, it’s a sizzling market practically worldwide and the Middle East is no exception. With me to discuss is Ahmad Kasem from United Real Estate Company.

Ahmed, how developed is the Middle Eastern real estate market, where’s the highest amount, talk me through the sector?

Ahmad Kasem: The Middle East real estate market is the fastest growing market in the world today. It has grown from being a pure developers’ and real estate entity to become multi-national, and today we have countless real estate developers. If we take, for example, the United Arab Emirates, it has paved the way of diversification of its portfolio.

Whereas a lot of real estate developers were attracted to build and do business in their country, the United Arab Emirates have really focused on providing the state of the art infrastructure system to include bridges, roadways, ports, airports, etc. And that has helped and assisted all the real estate developers to focus and to come into the country, be attracted to the business opportunities, and together as a tax free country it has been a tax haven to those investors as well.

World Finance: This must represent huge opportunities but I also imagine challenges, what were you looking at exactly?

Ahmad Kasem: The biggest challenge that the Middle East has is the price of oil. The decline of the price of oil has prompted the governments together with all businesses to start taking a different look and become more efficient, more strategic and to diversify.

If we talk about the opportunities in the Middle East for the real estate sector, there’s the availability of land and the infrastructure. You have about 365 days a year of sunshine, which provides a good culture for clean energy, if you will, and the use of solar energy.

The government regulations have been in support of bringing investors into the real estate market. That provided a good climate for the real estate investors to come in and develop and succeed. And everybody has been really looking at the Middle East for that opportunity.

World Finance: How difficult is it to invest in this market for foreigners, what are the hurdles?

Ahmad Kasem: The Middle East governments for the past two decades have been really pushing to eliminate all barriers for all investors to come in and be able to invest in the real estate sector. And if we look at Oman, together with the United Arab Emirates, they have paved the way for such an opportunity by providing the ability to any foreign, non-national to be able to come in and purchase a freehold property and own a title to it. That has provided the environment for all investors and people who want to come and live in the Middle East the ability to do so.

World Finance: And what role did developers play in developing the market?

Ahmad Kasem: The developers play a major role in the real estate development market. As in the private sector they bring new projects, they have the responsibility of bringing new projects into it. They normally have to abide and comply with all the government and the local authority’s regulations and requirements.

By doing so all the new projects, whether it’s a design, whether it’s a zoning requirement, they have actually worked together and influenced those governments to adapt and make modifications and revisions to their requirement and regulations, to be in line with the international requirement for real estate developers.

World Finance: So with this in mind, talk me through your latest project in Morocco?

Ahmad Kasem: It’s an 18-hole golf course resort designed by the golf player Niall Cameron to be a desert like golf course, integrated into the natural landscape and that overlooks the Atlas Mountains. We are right now in a process of finishing the master plan to provide a resort which shall include themed villas, together with five star hospitality hotel, resort and a wellness centre, some small retail component, and some staff accommodation. All of this together is going to provide a development that is one of a kind and unique in its type and it will be a destination to a lot of people.

World Finance: Finally, corporate governance is developing rapidly alongside most sectors, so how do you approach this?

Ahmad Kasem: We established two entities, two departments. One is a compliance department and the other is risk management. Both of those look for any compliance issues and to ascertain that every deal, whether with our shareholders, with our management, with our customers, has to comply accordingly. We work very closely with the CMA, which is the Capital Market Authority in Kuwait and we make sure that we are compliant with their requirement and we actually work together and co-ordinate to benchmark. Corporate governance is very important and we ascertain, we ensure, we are compliant 100 percent in our daily work.

Major inflows now come from individual investors, says Eurizon CEO

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Markets have been up and down off the back of weak commodity prices and uncertainty. What is the best strategy for investors to weather the storm? Tommaso Corcos, CEO and GM of Eurizon Capital, discusses.

World Finance: Markets have been up and down off the back of weak commodity prices and uncertainty. Here to discuss what’s been happening in Europe is Tommaso Corcos, CEO and GM of Eurizon Capital. Well Tommaso, let’s start with European economies, now they were off to a rocky start for 2016. So what would you say is the investor sentiment on the ground today?

Tommaso Corcos: Well the investors’ sentiment is very conservative at this moment. Not too much given that a lot is already happening in terms of correction, but certainly the speed of the correction of the market, I think that took everyone by surprise in terms of the entity of the correction.

So now a lot of people are really questioning, or which is really a half of the economy, so probably many investors are waiting to be reassured in terms of the capability of certain engines to give support to the world economy.

So, I think that there is a lot of interest in the price of a lot of shares that are reaching interesting targets, but notwithstanding that, there’s still investors that are moving very cautiously, just for the reason that I mentioned.

World Finance: So this sort of investor sentiment, what kind of impact has this had on the asset management industries?

Tommaso Corcos: Starting from the last quarter of the past year and also in the first few months of 2016, we face a slow-down of inflows. But this is pretty normal, I mean you just read every day in the newspapers that the stock markets are going down, that you see a lot of volatility. And so I think that there is a feeling of being more conservative.

So if you have too much invested on the equities, you scale down your risk. Or if you want to invest you take more time to do it and so you wait for better times. I think this is pretty understandable and this is the reason why companies like us must support our distributors in giving the right advice to the savers.

World Finance: Well your company has certainly been bucking the trend with success after success. So what’s been your strategy?

Tommaso Corcos: The strategy is to combine, not only the importance of the performance of the product, but also the capability of giving the right advice, giving the right service to the customer. And this is our mantra, it’s something that we strongly believe, this double combination that is not only performance driven but service driven. Because in the past years the major inflows came from individual investors and not from institutional ones.

Because if you think about what’s happening to the sovereign wealth funds, they really reduced their investment on financial markets. So just being more focused on individual investors means that you must be capable of giving them a lot of service, because they’re not sophisticated like institutional ones.

World Finance: And your principles for responsible investment, talk me through those?

Tommaso Corcos: This is very important. You try to promote the best practice in corporate governance, respecting the environment and taking social responsibility. It’s a win-win situation, because it’s a positive for the final investor that you represent. It is positive for the companies in which you invest, because it’s pretty proven that the companies who practise in terms of corporate governance, have the better performance related to others who do not care for this principle.

Also, it’s very good and positive for the capital in the markets in general, just because a more sophisticated market where all the companies practise this principle is able to lure more investment from institutional investors. And this is very positive, that is why it’s a win-win situation.

World Finance: Now with so much uncertainty in today’s climate, how do you approach risk management?

Tommaso Corcos: In the past few months we scaled down on the risk, waiting for better times and more clarification, first on the economic scenario and second on the profit environment in which we are now. When the market will discount is a factor, we will again raise the level of risk and the fund manager will again increase their position. So risk management in moments like this are important to reduce the volatility of the product performance.

World Finance: So bearing this in mind, what investment trends are you looking towards in the coming 12 months?

Tommaso Corcos: We are still focusing our attention, and the attention of our investors, to move the asset product. What I mean by multi-asset product is an investment solution, an outcome oriented product, giving the possibility to the single customer to enter in a well-diversified solution. So with a single investment they can access the equity market or the bond market.

I think that in an environment like this, where the volatility is still very strong, it must be really clear for the investor what type of product he’s buying, what type of volatility he’s bearing and what type of targets he’s trying to pursue. So that the combination of all these situations can give a product that really feeds the needs of this customer.

How PPP is transforming Turkey

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With Turkey now the 18th largest economy in the world, it’s fast becoming a significant market for investors. Thomas Maier and Şule Topçu Kılıç discuss how the Turkish government is fostering this environment by promoting PPP as the model to deliver much-needed infrastructure. They also talk about EBRD’s successes in developing the country’s transport, and its recent programme to provide quality healthcare services that will also be bankable.

World Finance: Investment in infrastructure is fundamental to the development of any country. And this is a sector that’s burgeoning in Turkey, off the back of its buoyant economy. With me to discuss are Thomas Maier and Şule Topçu Kılıç from EBRD.

So Thomas, if I might start with you. Turkey today: how well developed is it in terms of infrastructure, and where are the challenges?

Thomas Maier: Turkey is a significant market for us, and for many investors. Because let’s remember: it’s the 18th largest economy in the world; the GDP per capita is now above $20,000. It has a lot of connections, both regionally and globally. And at the same time it has a lot of infrastructure needs.

For example, in the next 15 years, the government plans to triple the length of its high-speed rail network, double the motorway network, and increase the capacity of its container ports by about 20-25 percent.

So there are lots of opportunities there. And in addition, what encourages us very much is that the Turkish government promotes the PPP model as the key delivery tool to actually bring infrastructure to the people, and to those who require the service.

World Finance: OK, so talk me through your investment strategy in Turkey’s infrastructure, and your implementation in the PPP model in Turkey.

Thomas Maier: When we look at EBRD as a whole, about 20 percent of the business we do there is in transportation and utilities. About $1.5bn, supporting another $8bn or so of investments coming from our private partners and banks.

So it’s a very big segment of our business. And in the past we have concentrated initially on transportation infrastructure, for example: we did the first PPP in the Bosphorus tunnel, a tunnel that connects the east and west side of Istanbul.

We have also supported Mersin, which is the joint venture between Akfen, a very well renowned Turkish company; and PSA, the port authorities of Singapore. And we have recently done a number of transactions in what I would call social infrastructure: hospital facilities management.

We have, together with our partners in the Turkish government, created a programme that will eventually be around $18-20bn, and will supply 15,000 quality hospital beds that are urgently needed in the economy.

World Finance: And how have you measured this success?

Thomas Maier: I would measure the success in two ways. The first one is: does this programme attract international sponsors? Companies that are willing to put money and resources down. And the emphatic answer is yes, because we now have European, American, and global health investors that are coming to Turkey, and are running this programme.

The second one is that we have attracted institutional investors into this programme. And there are quite a number of institutional investors from Europe that are now actively looking and investing in the Turkish health sector. And that’s a great achievement, because it shows that bankable projects in emerging markets are attractive for European institutional investors.

World Finance: And Şule, talk me through your role in the PPP model in Turkey. How have you made it bankable?

Şule Topçu Kılıç: It was a long journey. It started back in 2008, and the Turkish minister of health took the UK PFI model as the basis for the development of the Turkish model.

But because of the differences between the legal framework in Turkey versus the UK, of course, it was not so easy to implement all the model structure of UK PFI to Turkey. And then we, as EBRD, played a very critical role in conveying the important bankability issues to the Minister of Health.

Thanks to the Minister of Health, they were very committed, very patient, listening to us on all the bankability issues such as forex mitigation, which is very important for Turkey because of the Turkish lira; termination and compensation mechanisms; and direct implementation and arbitration.

And certain measures were not really defined in the Turkish legislation, and the Minister of Health made some PPP law changes, in order to make it implemented. And we as EBRD played a very critical role in supporting the Minister of Health to make those bankability issues sorted out.

World Finance: What have been the challenges, and how have you overcome them?

Şule Topçu Kılıç: In a PPP programme which is newly developed in a country like Turkey, bankability issues and solving those bankability issues is one part of the challenges, which was sorted out successfully with the commitment we received from the Minister of Health.

The second challenge, which was very important, was the acceptance of the PPP programme by the public. And political acceptance as well was very important.

So with the technical support we have provided to the Minister of Health, value for money methodology is being developed at the moment, which we will show what the project, if it is done with the PPP model, will be providing in cost and benefit versus if it is done by the public.

Of course another challenge is, the Minister of Health needs to have the full infrastructure to monitor during the construction and operation period. And that’s another technical support we are currently providing.

World Finance: Şule, Thomas: thank you.

Thomas Maier, Şule Topçu Kılıç: Thank you.

Sunway Group commits to lifelong community development in Malaysia

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Malaysia has played a key role in the rise of Asia as a global economic powerhouse. One of the foundations of its growth: the country’s robust property and construction sectors. Tan Sri Dr Jeffrey Cheah, founder and chairman of property and construction developer Sunway Group, explains his vision of Sunway as a developer of communities – not just townships.

World Finance: Malaysia has played a key role in the rise of Asia as a global economic powerhouse. One of the foundations of its growth: the country’s robust property and construction sectors. I’m here with Tan Sri Dr Jeffrey Cheah to discuss how the industry is moving forward.

Tan Sri, first: Malaysia’s set an ambition of becoming a developed nation by 2020: how are the property and construction sectors supporting this?

Tan Sri Dr Jeffrey Cheah: As a fast developing economy, the construction and property sectors contribute significantly to Malaysia’s GDP which is set to grow four to five percent this year, and create millions of jobs that support the socio-economic development of Malaysia.

Last year I believe we will grow about five percent. And the construction and property sectors also have strong multiplier effects that cut across many industries in the country.

Our construction arm, for instance, contributes to nation building through infrastructure projects including the light rail transit (LRT), the mass rail transit (MRT), and the bus rapid transit (BRT) that help promote connectivity and accessibility in the country.

Our property arm continues to build communities that enable people to live, learn, work and play in a healthy, safe and connected environment.

Both sectors work hand-in-hand to promote better living and support the country’s vision of becoming a developed nation by 2020.

World Finance: And what makes Malaysia a particularly attractive destination for foreign investment compared with your ASEAN neighbours?

Tan Sri Dr Jeffrey Cheah: Malaysia is a multicultural, multi-ethnic nation with a relatively young population. Malaysia is also the gateway to ASEAN due to our participation in the ASEAN community, and in the Regional Comprehensive Economic Partnership Agreement.

We have competitive tax rates at only 25 percent. We have a wealth of natural resources from palm oil, to rubber, to oil and gas industries; a flourishing domestic market, and a globally competitive workforce.

We are the world’s top location for manufacturing, and we are listed in the top 20 for competitiveness by the World Economic Forum.

Despite a temporary slowdown in the global economy, I am confident that Malaysia remains as an attractive investment destination within the region.

World Finance: Tell me about Sunway Group then; what makes you stand out from the other property and construction developers in Malaysia?

Tan Sri Dr Jeffrey Cheah: It is our unique business model, Build-Own-Operate. And because we operate on the full real estate value chain, this diversifies our earnings base for our shareholders from our construction, property development, property investment and REIT divisions.

At the same time, this translates into a lifelong commitment to communities in our townships and sustainable growth for the Malaysian society. We are hoping to reach out to international communities in this part of the world as we expand our presence across Asia.

World Finance: You style Sunway Group as a Master Community Developer: what do you mean by this?

Tan Sri Dr Jeffrey Cheah: We build communities and relationships by creating jobs and opportunities, while fostering affordable and healthy lifestyles throughout the country.

In each of our flagship townships we remain the largest stakeholder. This way our communities are ensured a lifelong commitment from Sunway to continue growing and developing the townships.

Sunway Resort City is our first flagship township in Central Malaysia, where we have transformed 800 acres of wasteland into a wonderland that attracts some 42 million visitations every year. It is also the country’s first fully integrated green township as recognised by Malaysia’s Green Building Index.

World Finance: You’re not just building Malaysia’s communities, you’re also committed to building Malaysia’s education system. Why is this important to you?

Tan Sri Dr Jeffrey Cheah: My life’s philosophy is “I aspire to inspire before I expire,” and I believe that an investment in knowledge and education, in any society, always is the most powerful weapon to change the world, as Nelson Mandela says.

This is why I decided to set-up the Jeffrey Cheah Foundation: in perpetuity transferring the ownership and equity rights of Sunway Education Group’s 12 learning institutions into the foundation. This makes it the largest education-focused social enterprise in Malaysia to bring quality education to all.

We have forged academic ties with some of the world’s most renowned institutions. These partnerships allow a two-way flow of scholars and researchers between world-class institutions and the Sunway Education Group, to develop and elevate the standards of teaching and research in Malaysia.

As of 2015, the JCF has disbursed in excess of MYR 210m in scholarships to thousands of high-achieving and deserving students. We have also donated more than MYR 15m towards upgrading the learning environment of six of our adopted schools nationwide.

Is the Taiwanese insurance industry set to dominate Asia?

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According to government statistics, Taiwan’s insurance penetration of 18.9 percent ranks number one in the world. Tsai-Ling Chao, Executive Vice President of Fubon Life Insurance, explains why insurance products are so popular, and discusses how the sector will continue to develop and grow.

World Finance: According to government statistics, Taiwan’s insurance penetration of 18.9 percent ranks number one in the world, showing insurance products’ great popularity among the public. Joining me to discuss how the sector is developing is Tsai-Ling Chao, Executive Vice President of Fubon Life Insurance.

Tsai-Ling, Taiwan’s insurance sector has developed hugely of late; why is this, and why is the penetration rate so high?

Tsai-Ling Chao: Taiwan is a mature market: most people are aware of the importance of life insurance. The acceptance of reinsurance products is very high – especially Taiwan is aging, so it’s a priority. The pensions provided by government and employers are not sufficient, and people have to save for their own retirement – which creates high demand for savings and annuity products.

The other reason is that liquidity in Taiwan is very high. The bank deposit rate is so low that people are willing to transfer their savings to higher return insurance products.

Banks are also waiting to sell insurance in order to earn commission income. That’s why the bancassurance channel grew substantially in recent years.

World Finance: What would you say are the challenges of Taiwan’s insurance sector currently?

Tsai-Ling Chao: The main challenge is regulation change. During the fast growth of bancassurance in the past few years, the FSC changed the regulations to force insurance companies to offer longer duration products, in order to differentiate it from bank deposits. Which makes new business sales more difficult.

The other one is the consumer-privacy protector act, which restricts insurance companies’ ability to acquire leads – and the telemarketing channel suffered the most.

The other challenge is on the investment side. It is very difficult for an insurance company’s investment team to manage risk – and in the mean time generate a decent return under the low interest rate environment.

World Finance: Taiwan’s government does have some policies in the works aimed at building up competitiveness in the insurance sector to expand business in Asia – how are you responding to this?

Tsai-Ling Chao: We feel very positive about the policy. Taiwan’s market is very mature, and we have to go abroad to pursue growth opportunities.

There are many countries in Asia still in the developing stage. They have pretty big and young populations, just like Taiwan many years ago.

Fubon has a lot of insurance management experience, and is keen to expand into other countries. We have been reviewing many cases, and are open to all possible investment opportunities.

World Finance: Fubon Life has been one of the leaders among Taiwanese life insurers – so what are your plans for future growth, and how are these responding to the sector’s needs?

Tsai-Ling Chao: Fubon’s strategy is focusing more on value than volume growth. We feel that there is huge demand for retirement products in Taiwan, and we are trying to meet customers’ needs.

In order to do that, we have to grow our agency force more aggressively. Fubon’s agency force is mostly concentrated in the north and the metropolitan areas. Our focus for the next few years is expanding into the south and rural areas.

Also, recruitment for the total industry has been pretty challenging in recent years. Fubon’s agency force is still growing at 10 percent per year for the past six years. We usually recruit new agents directly from campus, and have built up a reputation as the most desirable insurance company among young people. We try to keep them by providing good training and competitive products.

The back office support is also very important, to make sure we provide a good service to our clients.

World Finance: And finally, how do you ensure your clients receive the appropriate cover they need – and do you review existing policies for clients?

Tsai-Ling Chao: We have built up a needs-based sales process and trained our agents to identify clients’ needs before selling the right products.

We also have a call-out system from home office to make sure the customer understands the products they have bought.

For existing customers, we use our CRM to identify their needs and send the information to our agents, in order to approach them. We invite them to attend seminars or other activities to help them review their needs.

We also allow them to convert their policies to other products if they don’t fit their current needs any more.