World Finance speaks to Brett Scott author of The Heretic’s guide to Global Finance on where responsibility lies.
World Finance: Now Brett: you’ve said that the financial industry is amoral, but wouldn’t you say it’s just society as a whole that lacks morals?
Brett Scott:Amoral means, in a sense, it doesn’t mean it’s immoral. It kind of, like… it tries divorce itself from the sphere of ethics.
You could argue that society itself is always complicit in forms of… lets, for example, say unsustainable investment. The average person maybe doesn’t understand or necessarily care about future issues like, for example, climate change; but we can argue that a large financial intermediary is in a much greater position of power to do something about that than, for example, a pensioner.
So that’s why in a sense you target financial… like, big banks; when you are trying to make changes in the system. In a sense you demand more of a fund manager than you do of a pensioner who is relying on the fund manager.
An economic expert speaks to World Finance about how currency devaluation and a move towards low-tech manufacturing is key to reviving the UK and eurozone economies.
Come back later for a full transcript of this video.
World Finance speaks to Phyo Aung and Min Wi-Oo from Ayeyarwady Bank, on the foreign investment a re-opened Myanmar is gathering, and the human resources challenge for the banking sector to continue to grow.
Achieving broad consensus on banking reform has been an issue riddling Myanmar’s political scene. Now here to tell us how banks are growing their capital base in the middle of this concern, Phyo Aung and Min Wi-Oo.
World Finance: First, can you tell me how deeply impacted was your banking sector after the 2008 financial crisis?
Phyo Aung: Myanmar – especially the banking sector – was not affected directly, because the country had actually been isolated for almost three decades and recently opened up after 2010.
But most of the Asian countries, especially Japan, Korea, Singapore, Thailand and China, are trade partners of Myanmar. And all these countries actually were affected hugely, so it would really affect Myanmar indirectly especially the trade sectors of foreign investment and the migrant worker industry. So it wasn’t really affected directly, but affected indirectly.
World Finance: Can you tell about the long-term impact on the retail sector?
Min Wi-Oo: The country just changed, the new government and new financial investment laws now they are new in the international retail sectors, they are trying to come into Myanmar and also starting new businesses. This year we are going to start on the YSE – Yangon Stock Exchange – in Myanmar now.
World Finance: So how important has attracting foreign corporations business to your bank been to your overall growth?
Phyo Aung: Of course we need foreign investment to boost the countries’ economy, as well as the Myanmar banking finance industry. As a private bank in Myanmar we are trying to develop ourselves to serve those multinational corporations, when they are actually interested and intend to invest in Myanmar.
In order to do that there are a lot of technical transfers, and then it will really help to reduce unemployment rate, and of course also boost consumption sectors.
So as a private bank of Myanmar we always try to be ready to serve those international corporations, together with some of the partners’ foreign banks.
World Finance: Obviously a dramatic reconceptualisation is required for the banking sector, where would you begin?
Min Wi-Oo:There are some issues: things that the government need to provide financial institutions, such as legal protection and also human capital. We need a lot of resources, human resources, talented experience, training, those would be the key issues.
World Finance: OK; so we think that foreign lenders of course are going to play a big role, can you tell about some of those big foreign players that we should watch out for?
Phyo Aung: Those foreign banks who’ve got the licence to operate some banking business in Myanmar. They will be playing a very important role to boost the country’s economy, as well as to help to develop the Myanmar entire banking sectors.
And as a private bank in Myanmar, we have also a lot of plans to work together with the foreign players, foreign banks to develop the country’s economy. Like strategic partnerships in some areas, trying to develop human capital, and provide a lot of seminars and training to educate bank users as well. And how the banks are playing an important role to develop the country’s economy.
So I think the foreign banks and foreign corporates role in Myanmar will be definitely important to develop the country’s economy, and of course our banking and finance industry.
World Finance speaks to Ricardo Roa, CEO of Empresa de Energia Bogota, on improving Colombia’s energy subsidies and infrastructure investment needs.
Colombia’s energy industry is flourishing, but still developing. It also offers a lot of untapped future potential. With me now to speak about the electricity sector is Ricardo Roa from Empresa de Energia Bogota, one of the leading electricity companies in the country.
World Finance: Well Ricardo, how is the Colombian energy sector structured and how do you fit in in this?
Ricardo Roa: Since 1991, Colombia’s public utilities system and structure has undergone a structural reform. By 1994, laws 142 and 143 were introduced that formed the basis of the structural reform. Since then, the sector has been articulated at three points.
The first of these is the Ministry of Mines and Energy, which governs the policies and establishes the long-term plans for the whole sector. There is also the Energy and Gas Regulation Commission, which establishes the rules and sets out each of the roles that agents should play while also focusing on quality and price for the end user.
Moreover, there is an inspection, monitoring and surveillance body called the Superintendency of Domestic Public Utilities, which oversees operators and guarantees the supply to the end user.
Consequently, we can say that we now have an infrastructure and regulations that are substantially adequate to provide for the future development of these services in Colombia.
World Finance: Your core business is in transmission and investment in electricity in Colombia, but how well developed is the industry in terms of infrastructure, inclusion and regulation?
Ricardo Roa: There is very good performance in terms of the infrastructure for transporting gas, and transmitting electricity.
The planning is done by the Bioenergy Planning Unit that also invites the three major players in the national transmission system to public tender, to participate in these expansions.
This week and this month, it will be defining the delivery of three very important projects to reinforce the entire national transmission system and ensure the possibility to provide for the country’s future energy supply. These projects amount to around $1.1bn.
Our company has submitted projects to the government amounting to around $2.3bn to guarantee reliability in the supply and transportation of gas. In this respect, we are awaiting some regulatory signals that favour these types of investments associated with providing reliability and guaranteeing a future supply of this energy input for the country.
World Finance: What challenges does the sector face and how are you addressing them?
Ricardo Roa: The most important point at the moment is the discussion about the matter of reliability.
In Colombia, we have two situations because of the availability of hydroelectric power: when there is no water, we have to switch the thermal power plants to gas in the main.
We have to regulate these priorities to fulfil the demand for gas at these critical times. This is a matter that has to be regulated and that we have to make progress on.
It is also important to establish alternatives and other substitutes for gas and hydroelectricity, such as liquefied natural gas for import or export, and other types of services that are still unregulated such as the storage of gas or some ‘peak shaving’ plants that we have defined to fulfil the demand if there is a need to ration gas.
World Finance: The electricity sector uses a system of cross-subsidies. How does that work exactly and why is it important?
Ricardo Roa: In Colombia we follow a system that promotes a constitutional principle of solidarity and distribution of income. It is a way for those who have more to contribute so that those who have less can use these types of electricity, gas, water and sewerage services.
Strata 1 and 2, which are the lowest in the national economy, can receive a grant of up to 60 percent of the cost of the service. Strata 3 and 4 do not receive a grant, they pay the full amount and users at strata 5 and 6, industry and commerce, provide a 20 percent contribution, a surcharge for the services that is used to compensate the need to fulfill the demands of the users that have low resources.
However, we have to raise awareness about the appropriate use of these grants and their focus. A much more efficient and rational State policy is needed. The policy needs to be much more focused on the vast needs still present in large parts of the country, where there are users who still do not even have enough to pay for their own consumption needs.
In other words, consumption for which the user is obliged to pay the full service price.
World Finance: What sort of investment potential is there in the industry?
Ricardo Roa: Well, as I mentioned before, there is still an awful lot to do in terms of the reliability of the provision of the gas transportation service.
There are many, some two or three million, people in the country who still do not have electricity, and much less have natural gas as an efficient, clean and very economical fuel for those living on low resources.
There is great potential here and in the possibilities our country offers as the power hub between Central America and South America, to be able to take the huge gas reserves in Venezuela and Peru and transport them across our electricity grids and gas networks to users in Central America who consume these services in an inefficient and costly manner.
World Finance: How big an issue is fraud an corruption in the Colombian energy industry and how do you deal with this?
Ricardo Roa: Fortunately the electricity sector in Colombia is well regulated; transactions between agents are very transparent.
Agents have been working in the market for many years and have created a culture of transparency, in terms of information, in the market. This has almost entirely prevented any incidents whatsoever relating to corruption or fraud of any nature in this sector.
World Finance: What is your strategy for future growth?
Ricardo Roa: The plan within our strategy is to have shares in companies within four years. These would be businesses that are already operating related to gas transportation and distribution in Mexico, electricity transmission and distribution in countries such as Brazil and Chile.
We also hope to develop our most important project in Peru called Contugas. To this end, we believe that an important element in guaranteeing the commercial operation and feasibility of this network of pipelines that we have developed in Peru could be the installation of a thermal power plant with a capacity of 250-500 megawatts.
This would facilitate the feasibility and operation of this network and consequently, the commercial operation of greater activity that would allow us to offer the service not only to 26,000 customers as we do now, but to at least 50,000.
We have another important goal, which is Cálidda. Cálidda is a company established ten years ago that distributes gas in Lima, and in which we hope to very quickly reach a growth rate of 100,000 customers per year to gain 1.5 million customers by 2024.
World Finance discusses how structural reforms may herald a new dawn for financial services.
The financial services industry is changing, with demands to make it more inclusive. With me is Brett Scott, financial activist and economic hacker.
World Finance: So Brett; lets start with the occupy movement. Now, this give macro-level critique of structural flaws in our economic and social systems; and you say a new world of financial activism is coming. But can the little people really make a difference? And do the big financial institutions care what they think? And more importantly, should they care?
Brett Scott: Large financial intermediaries rely on small people. For example, people support banks with their deposits; people support the investment management industry with their pensions.
So actually a large part of the power dynamic in the financial sector is between a kind of diffuse group of lots of people, who then support these sort of centralised intermediaries who have lots of power.
And the question is ,when you sort of think about financial reform, is how do you mobilise the power of the diffuse, ordinary people in society, to try to balance and contest the power of financial institutions. And I think people are trying to work out ways in which you do that now.
World Finance: Perhaps the crux of the matter is that they don’t understand financial systems; I think you used the phrase “financially illiterate.”
Brett Scott: People on a sort of ground level have quite a good understanding of their day to day finances. I mean, a lot of financial literacy work goes around, how do I balance my personal budget and so on. There is a lot of good stuff around it, and actually people are quite good at that.
What tends to be missing from a lot of financial education – for example you would never find this in schools – is any kind of education around the political dynamics of the financial sector; and actually the philosophy that underpins it. For example, what even is investment supposed to be for?
World Finance: Well I read you said you’d like to see the financial system be more like Wikipedia; how so?
Brett Scott: Well I mean, Wikipedia is an example of an open source platform. You can sort of see a few different features of Wikipedia.
In the one sense, it is open to people participating, so you could actually go in and produce stuff on Wikipedia. So in a sense there is a lot of work to be done in opening up the production of financial services to the average person: for example, through things like peer to peer finance.
On the other hand, Wikipedia is also something that has widespread access, so there is a whole lot of work around financial inclusion: how do you expand access to the financial system? And then there is a third element of this analogy with Wikipedia, which is that it has a transparency process, or an accountability process, where people can contest changes.
World Finance: So in essence you’re talking about a free for all, maybe even getting rid of regulators. Might we not see a Snowden situation?
Brett Scott: The point is, you want to create a more diverse financial system. So right now the system that we have is very, sort of, passive consumers of financial services; then these quite aggressive financial intermediaries; and then regulators that have to try and keep the financial intermediaries under control.
You would actually want to try and create more of a balance between regulators, smaller financial institutions, and more citizen power in the process.
World Finance: Your book talks of zones of finance that feel intuitively wrong to a lot of people, what are we looking at exactly?
Brett Scott: People have a sense that the financial sector is some kind of mysterious thing outside of themselves. And they sort of think of Canary Wharf and these big towers.
And part of that is because of this issue of financial literacy; but also there are a lot of things that the financial industry does that is very large scale and quite opaque and complex; it give a sense of alien-ness to it.
World Finance: But isn’t this true of any industry, I mean the layman doesn’t understand, you know, most industries; so why does it even matter?
Brett Scott: Its true, I mean for example, we don’t understand necessarily how the bridge that goes across a river stays up, because we haven’t studied engineering and so on. But on average it seems to work, and in a way it doesn’t affect our day-to-day lives: the fact that we don’t necessarily understand that.
I would argue, personally, that in the realm of finance people’s day-to-day lives are constantly impacted by this; and they are constantly having to interact with the financial sector in quite a personal way.
So that lack of understanding has a lot more problematic dynamics, especially considering the fact that the financial industry has played such an important part in the overall economy, and it has a lot of political power. Not understanding it continues to help it get that political power in Westminster and other places.
World Finance: You’ve referred to an unspoken class cohesion between financial professionals and politicians who attend the same universities. So are you suggesting a problem with our education system, rather than isolating just one section of society?
Brett Scott: The political power that the financial sector has within the UK economy… there’s a lot of, sort of, class dynamic to that. The same person who is a fund manager also probably is friends with people who are politicians.
So to some extent there is a class analysis that you can do, and that obviously links up to education in this country.
For example Oxbridge. I did a masters degree in Cambridge University, and certainly in Cambridge University there is a very big implicit understanding that what happens there is that some people go to becomes politicians, some people go to become financiers or accountants or lawyers; so the high end. And others go and do other things.
But there is a definite sense that these universities bring together the elite class cohesion.
World Finance: So how do you foresee the landscape of the financial industry in the future?
Brett Scott: It’s very hard to know what will happen, there are so many chaotic different forces in the world.
I think one thing you could definitely say is that there is a generation change occurring over time. So for example, a lot of the management level in banks right now were educated say in the 1970s, 1980s. They had certain attitudes about the world.
The new generations that are now moving up the management ranks of banks have different viewpoints. They tend to be more liberal, they tend to have more understanding of environmental issues. That’s a positive trend.
I think it will be hard to see banks of the future not caring about, say, sustainability. Although you don’t know how long that will take. On the other hand, there’s also the element of technology: huge, big-data technologies to sort of, crunch consumer profiles, and target people and so on. So those are some potential trends.
World Finance speaks to Elizabeth Ebi, CEO of Futureview Group, on the potential for Nigeria’s equities market to successfully spring back from its lacklustre 2014, the economic impact of Boko Haram, and how the regulators’ efforts are preparing a stronger platform for foreign direct investment in Nigeria.
A rebound is expected for Nigeria’s equities market, this after a decline of 16 percent was recorded in 2014. Now here to shed light on these future prospects, Elizabeth Ebi.
World Finance: Elizabeth, thank you so much for joining us today. Tell me about some of the macroeconomic factors that contributed to the drop, and the successive uptake that followed.
Elizabeth Ebi: Our markets started very beautifully in the year 2014. Everything was in equilibrium, the exchange rate was in line, our inflation rate was as expected. We got good news from the National Bureau for Statistics that Nigeria had become the largest economy in Africa. Everybody was excited.
But then comes the third quarter; global markets started slowing down. China’s growth reduced, importation declined. Back home the production also was reduced, and that affected revenue inflow into the economy. The Central Bank of Nigeria (CBN) had to devalue the Naira in order to contain dwindling foreign reserves.
Boko Haram was threatening up north, with the insurgency. You are also aware that we are having elections right now: people are unsure as to what is happening for fear of currency risk. The foreign investors started taking off of the market, so that caused the market to decline.
When fund managers saw the rate of decline, they also saw opportunities. So they swooped on the market and began to pick up quality stocks again. So that saw the rebound towards the end of the year.
World Finance: Tell me about the recapitalisation efforts that have been announced by the Securities and Exchange Commission.
Elizabeth Ebi: As you are aware, our market is regulated by the Nigerian Stock Exchange and the Securities and Exchange Commission.
Since the global downturn, there has been a determination by both regulators to make sure that those organisations operate on world class standards.
For the stock exchange they have already put a robust platform – the X-Gen – to make sure that trades are executed seamlessly, efficiently, and transparently.
They’ve also ensured all their processes, corporate governance, everything is in line. And that’s why they were able to have been admitted into the World Federation of Exchanges.
With all of this in place, with a market as robust as that, it behoves the operators to have the right balance sheet, to have the right man power, to have the right processes in order to execute deals in a world class standard so that we have a perfect market.
World Finance: Everything that you say today Elizabeth, is imbued with this confidence in the ability for the market to really reassert itself and to continue this growth pattern. So investment prospects as a result you must also think are very positive for the country moving forward?
Elizabeth Ebi: We have the platform ready, the market is also in sync with these plans. The benchmark for lending has been set at 13 percent. We have inflation on a steady mode for the past 12 months. So it looks like everything is ripe!
We have Seplat shares selling at a discount of 61 percent, Dangote Cement at a discount of 40 percent, Nestle at a discount of 55 percent. That means that the market is ripe and is ready for investors.
However, I think what’s critical is for us to get this election right and have a proper transition, stabilise our currency; and we’re good to go.
World Finance: The government is going to play a decisive role, the future government that is. Tell me what sort of financial regulatory upgrades would you like to see put in place?
Elizabeth Ebi: The Nigerian Stock Exchange and SEC have really done so much to make sure we have all it takes in order to attract the world into Nigeria. And they already have a 10 year programme on what to do; and that takes off this year up to 2025.
So with all of that in place, I think what needs to be done is to make sure that we continue to stay focused.
I expect the government to provide all the necessary support, provide us with an enabling environment, a stable exchange rate, and a calm stable political environment so that people know that their monies are safe.
World Finance: Finally, what role would you like Futureview to play in the country’s growth in 2015?
Elizabeth Ebi: We’re looking at how we can support the economy. We are focusing on strategic alliances to help to deepen our products offerings, so that we can together support the growth areas in the Nigerian economy.
The oil and gas sector – there are a lot of companies that are struggling to raise finances.
We still have to explore our mining industry, which has a lot of potential to grow the market.
We are also looking at the agricultural sector: we have more than 70 percent of arable land that are yet to be cultivated. And the process, the value chain of agricultural production needs to be supported.
We’re also targeting those – the more than 70 percent of the population – that are the youths under 30, who are struggling to find their feet in the small and medium enterprises in the economy.
This is where we are as the time goes on. Futureview will continue to evolve, and as our name states we’ll always have the future in view.
