Author: World Finance

Reyes Reinoso, Felipe Laverde, Ana Choucair on the Cartagena refinery | Reficar | Video

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Rising exploration and a favourable environment has made Colombia an attractive destination for oil and gas investment. As the Cartagena refinery expansion draws closer to completion, Reyes Reinoso, CEO and President; Felipe Laverde, Vice President of legal and corporate affairs; and Ana Choucair, Director of Financing; for Refinera de Cartagena, discuss the country’s burgeoning oil industry.

World Finance: So what’s the economic outlook in Colombia today?

Reyes Reinoso: The Colombian economy is actually the third largest economy in Latin America, after Brazil and Mexico. The GDP has been growing steadily from four to five percent. We also have a lot of opportunities in the oil and gas business, both onshore and offshore, for oil exploration and production and that interest is actually the result of the government strategy to make the contractual and fiscal terms the most competitive in Latin America.

“We’ve gone from 640,000 barrels a day six years ago, to over a million barrels a day now”

World Finance: And how has Colombia’s oil industry changed in recent years?

Reyes Reinoso: Well, with that government strategy of making the contractual and fiscal terms more flexible, the interest on investing in the oil and gas in Colombia has really gone exponential. Our last round of business has brought up to 80 major or medium oil companies. We have companies such as ExxonMobil, Shell, and ConocoPhillips, who are currently with other medium and smaller private companies in Colombia, both onshore and offshore. So the production rate also has obviously increased with all that effort. We’ve gone from 640,000 barrels a day only six years ago, up to over a million barrels a day now, during this year, and still increasing. Our target is by 2015 we will have 1.3mn barrels a day in production.

World Finance: With the new refinery Colombia is moving into a new age. Which historical limitations are being overcome with this project?

Reyes Reinoso: This is the most important project currently in Colombia. The investment is over $6.5bn. This is a project that will allow Colombia to stop being a net importer of products and actually be exporting at the highest level. But beyond that, this project has brought several things in its favour. Not only the independence, energy-wise, for Colombia, but it’s a project that has brought the refining business onto a different level. This is a very modern refinery, highly complex, with the top technology, a fully automated refinery. So that brings not only the hardware of a refinery on a competitive level, a highly heat integrated design where saving energy is a must for being a competitive player in the market, but also has opened the possibilities for future expansions into the petrochemical side too.

“The Cartagena refinery is the most important project currently in Colombia”

World Finance: What have been the main environmental and social impacts of the refinery expansion?

Reyes Reinoso: There are a lot of advantages to this refinery. To do any construction, we had to eliminate some trees, for example, and we are reforesting. We are planting tress at a ten-to-one ratio. The other has to do with the fuels. The quality of the fuels are top-notch and environmentally competitive anywhere in the world. For the social part, being the biggest project in Colombia, this has had a very important impact in the community, in the city of Cartagena. 70 percent of the workers, we’re talking currently around 12,000 workers, come from Cartagena. We didn’t originally have the skills, so we had to prepare a $6mn project to train the people for the construction site, bringing jobs to so many people and increasing their income level to three to four times their previous jobs’.

World Finance: So how has the project set new milestones in Latin American project finance?

Reyes Reinoso: You can see that the time we went out to look for funds, it was actually around 2011, was in the middle of the banking crisis in Europe, so it was not an easy task. However, we have a wonderful, very talented group on the financial side, and their strategy was based on looking into the private and public sector, joining forces, so we have state oil companies backing us up. But initially we went to the credit agencies, which are the most difficult ones to obtain resources from, and after we complied with their requirements we went out to look for funds at that time with commercial banking communities. We ended up with over $3.5bn of funds for the project, and it proves that in Latin America we do have the capability of raising resources for mega-infrastructure projects.

“The industrial facilities in Cartagena are bound to be a future hub of business for the oil industry”

World Finance: Finally, as Reficar’s refinery expansion draws to conclusion, which is slated for 2015, what new opportunities are there for investors here?

Reyes Reinoso: Once you have a refinery with such technology, a lot of companies who have provided us with goods, technology, parts, and equipment will be interested in steady growth of their business in Colombia. The industrial facilities in Cartagena are bound to be a future hub of business for the oil industry. The future also holds a lot for the petrochemical industry. Downstream of the refining, a lot of the raw material is produced at the refinery.

World Finance: Reyes, thank you.

Reyes Reinoso: My pleasure.

Safak Herdem and Altug Atilkan on Turkey | Herdem and Co

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Having weathered the global financial crisis better than most, Turkey is now seen as a promising emerging market with large scope for investment. Safak Herdem and Altug Atilkan from Herdem and Co Attorneys at Law, an Istanbul-based corporate law firm which deals with multinational transactions, discuss the role Turkey plays in the global economy, its approach to foreign direct investment, and the country’s economic and political outlook.

World Finance: Safak, what role does Turkey play within the global economy?

Safak Herdem: I think Turkey put a new face on the attractiveness of investments. They changed the laws very quickly, and they are very well arranged for the economic infrastructure, both on the legal and operational side. There are many companies who are interested in Turkey just for the locations and using it as a hub, but nowadays, beyond the fact that it’s geographically a well located country, it’s much more important for them how they can develop their business to the regions. Turkey today is of value in the region, and it’s time to benefit, to penetrate the market as quickly as possible, as long as the sustainability continues.

Turkey has put a new face on the attractiveness of investments

World Finance: How does Herdem and Co fit into this?

Safak Herdem: We are actually a combination of business skills and legal practices. We are mostly a transactional law firm and focus on the sectors and industries that affect the economy in Turkey. Together with the financial aspect and the legal aspect, we advise the client on how to manage, how to structure, and how to exit their policies in their business.

World Finance: And how does Turkey approach foreign direct investment?

Safak Herdem: When you set up your company in Turkey, it’s a Turkish company and you can benefit from the incentives if the laws and all the infrastructure are ready, and you can join all the tenders, there is no legal obstacle to run your business as a foreign direct investor.

World Finance: Altug, a third of Turkey’s top 500 companies have already been approached by international investors. What makes Turkey such an attractive point?

Altug Atilkan: When you look at the last decade, the Turkish government have changed a lot of legislation and presented new incentives in the scope of foreign direct investments. As an example, since January 1 2012, the new foreign direct investment laws have been revealed, and after these regulations the ministry of the economy has separated foreign direct investments into four parts. In the scope of these parts, they are looking for the largest scale incentives, the strategic incentives, regional incentives and general incentives. Now the foreign investors are usually interested in the strategic and regional incentives, because when you look into the tax incentive benefits of Turkey, they can benefit from the custom due to tax exemptions, corporate tax reliefs, and also VAT exemptions. Another part I would like to emphasise is from 2013 the Turkish government will try to focus on angel investments in Turkey, and after February 2013 the Turkish government made a new regulation to encourage angel investments in Turkey. I predict that this will mainly provide and encourage the stocked up projects in Turkey and that new potential investment opportunities will arise after these regulations.

The Turkish government have changed a lot of legislation and presented new incentives in foreign direct investments

World Finance: Which sectors have the greatest opportunity for investors and why?

Altug Atilkan: When we analyse the Turkish economy in the last years, the Turkish government will mainly focus on some industries and sectors because they are looking for the near privatisation and liberalisation opportunities in this market. As an example, if you ask me the sectors, I would give you the energy infrastructure and the cost reduction industries. Energy is one of the most important issues in Turkey, because generally Turkey is an import-dependent country in terms of energy, and after that they have decided to change the policies and try to provide new opportunities for energy investors. They are mainly focusing on electricity, renewables, and oil and gas markets. Another circumstance about Turkey is the new stock exchange will be established next year, and after that investors will find some potential to get good pricing opportunities on the electricity market.

World Finance: And finally, there is an election looming in 2014. Tell me a bit more about how this will reflect on the stability?

Altug Atilkan: When you look into the 2014 election, I don’t predict any change in the scope of the government and I strongly believe that the political and economic stability will continue in Turkish markets.

Safak Herdem: Considering the way that investment grew up to it, because especially after 2002 the same one party government followed and the projects followed, and they dominated. Today the FDI in Turkey is about $12.5bn, but last week the Prime Minister announced that there are projects values at $250bn within 10 years, so this shows how the government stability is going to be vital to the market and how the government is eager for this. So this is quite important for the foreign investors.

World Finance: Safak, Altug, thank you very much.

Safak Herdem: Thank you.

Altug Atilkan: Thank you.

Tim Harford on why economists can’t predict | Video

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The financial crisis has put global economics into the spotlight. Undercover economist Tim Harford explains how experts’ forecasts can be so unreliable (but despite this, why a handful of specific economists did point to problems before the global financial crisis), discusses the difficulties with trial and error in macroeconomics, and explains his concerns about economic growth in the UK.

World Finance: So Tim, probably a question you’re a little bit sick of being asked, but I think it’s interesting anyway; why did economists fail to warn us about the financial crisis?

Tim Harford: Well I think the big picture answer to that is, no experts ever successfully warn us about anything! Or certainly any social science problem.

There’s a wonderful investigation carried out by the psychologist Philip Tetlock. Over 50 years when he quizzed different experts. Some were academics, some were more practical people like diplomats or even spies. Journalists. Some were economists, some were psychologists, some were historians, some were regional specialists. All of these experts. And he just asked them to make specific forecasts about real world events. He made all his forecasts quantifiable. And he waited. He waited nearly two decades. And having collected nearly 30,000 forecasts from about 300 experts, he came to the conclusion that basically, no expert can forecast anything! We’re all just terrible.

So this is not specifically a problem about economics and the crisis. This is really a problem about being humble in the face of what’s a very complex world.

“Specific economists looking at some detail were pointing to trouble, but the big picture stuff is always really tricky”

That said, I do think there were certain economists who were able to point to specific things that were of concern. So, you can think of, for example, Raghuram Rajan, who was chief economist at the IMF – hardly a minor figure – who was pointing to the perverse incentive structures of the way that mutual fund managers were being paid.

There was Robert Shiller, who was looking at price earnings ratios, and then price-rent ratios in the housing market. He pointed to the dot.com bubble, called it a bubble, and did the same for the housing market in 2005. I could list others. There were specific economists who were pointing to trouble. And I think what they had in common was an interest in some detail. Rather than just saying, ‘Right, I’ve got a simple model of the entire economic system, and nothing’s problematic,’ they were detail-oriented. They would look at a particular thing. ‘I’m worried about the contracts that investment managers are paid under,’ or ‘I’m worried about the way the housing market in Boston is performing.’ And those specific real-world focuses produced results. But the big picture stuff is always really tricky.

World Finance: Well since the financial crisis then, do you think the perception of economists has been changed?

Tim Harford: Oh no, I think people always knew we couldn’t forecast anything, to be honest. There’s a slightly ironic situation, because on the one hand, clearly economists deserve some blame for – I wouldn’t say so much for not seeing the crisis coming, but for not understanding that there were certain structures in place that seemed likely to cause damage. That was partly due to us. Not solely due to us. There were lawyers involved! There were accountants involved, there were politicians involved, but it’s partly our fault.

And people blame us for that, and they’re right to blame us for that. But at the same time, people want to know what’s going on. And when you want to know what’s going on, who do you turn to at this point? Well, quite often you turn to an economist. So, people love us but they hate us. I guess I’ll have to deal with that.

“The longer we go without a recession, the less people think about risks”

World Finance: Well a lot is said about boom and bust, so is it not just another time for a recession?

Tim Harford: No no, I completely disagree with that. It’s just not true that we’re due recessions from time to time, and there’s due chastisement, and we just have to take our medicine and purge the rottenness from the system. I think that’s just medieval thinking, to be honest.

The one thing I will say is, the longer we go without a recession, the less people think about risks. And you can actually track this across generations. So, you can see the years in which people were born, the economic environment they experienced as teenagers and in their 20s, when they were forming strong impressions about how financial markets work. You can track that throughout their investment careers, and people who grew up during the Great Depression see stock markets very differently. People who grew up during the 1970s see stock markets very differently from people who grew up during the 1980s. You can track it. And people who have experienced these traumatic economic events are very conservative. They don’t like leverage, they don’t like to take a lot of risks, because they’ve seen how bad things can get. And so, there is this self-correcting thing going on.

If the market is working brilliantly, the stock market is booming, there hasn’t been a recession for years and years and years and it wasn’t very serious last time, people are going to get careless. So, that is the only way in which I agree with you, that sooner or later we just relax too much.

World Finance: Based on your theory of trial and error, we know that Keynesian economics has worked in the past, so, five years on, why are we still suffering from a recession?

Tim Harford: It’s never as easy as that though, is it? I mean, I’m a believer in Keynesian economics, within reason. I think that Western governments should have spent money, particularly channelled into investment, long-term investment projects. But even though I believe that that’s true, I do not think you can say ‘We proved that conclusively in the past, and therefore it will always be true.’

“The long-term questions about the structure of the British economy haven’t been answered yet”

The wonderful thing about the trial and error that I espouse is that you can do it on a small scale, you can run randomised control trials, you can learn very specific lessons, you can scale them up. That’s much harder in macroeconomics. It’s always possible to say, ‘Well, this time it’s a bit different, the structure of the economy is different, the structure of the shock was different, banking was very different in 2008 compared to 1929…’

So, even if we could agree what happened in the 1930s – and we don’t! – that still doesn’t tell us what would work now. So, that’s the challenge for anybody who is interested in macroeconomic problems. Trial and error is the way we understand the world, but trial and error is just a very difficult thing to do when it comes to macroeconomic affairs.

World Finance: Finally, the question I think we all want answering: is the British economy now growing, and where do you see the next bubble coming from?

Tim Harford: Well if I could answer that question, I’d be arguing that economists can forecast, and I think I’ve argued very strongly that economists can’t forecast!

It is growing, we don’t know whether it will continue to grow. The things that concern me are basically just the quality of the growth. To what extent is the growth just dependent on inflation in house prices? It doesn’t mean there’s a housing bubble – although it might. But it does mean that it isn’t coming from production, it’s basically coming from consumption.

I’ll take it, for now. It’s better than no growth at all. But the long-term questions about the structure of the British economy haven’t been answered yet.

World Finance: Tim, thank you.

Tim Harford: My pleasure.

Tim Harford on insider trading and incentives | Video

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Insider trading: is it the scourge of the market, or completely harmless? Tim Harford, author of The Undercover Economist Strikes Back, explains how the problem with insider trading isn’t about individual traders winning or losing because of inside information: it’s what people with power within a corporation might do if they’re allowed to trade.

World Finance: Tim, insider trading: is it as bad as it’s made out to be?

Tim Harford: Insider trading is one of those things that has a real appeal to financial journalists like me, and to regulators, and to anyone who wants to get cross about the City, or Wall Street, because it’s a financial crime that seems to be really easy to understand. And to be honest, there aren’t very many financial crimes that are easy to understand.

Insider trading: these guys knew something, and they took advantage of that secret information to make money, and took advantage of other people. And it just seems so straight forward! So that’s why I think it’s very appealing to write about it and talk about it and engage in these big whodunnits.

There’s just one problem, which is that it’s actually quite hard to figure out what harm insider trading causes. And I think one can make a case that it causes harm, but it turns out to be not as straightforward as you might initially think.

“The real worry is not the insider trading; it’s the way insider trading might generate a profit opportunity, that might itself then be damaging”

World Finance: Following on from your article on this, what were your initial thoughts when you went into this article, and did they sort of change, following research?

Tim Harford: Well I discovered new ways in which insider trading could be harmful, which is interesting. But I also had my initial view confirmed, which is that the reason people think it’s harmful is not the reason they think it’s harmful.

So, the reason you think insider trading is harmful, before you really think deeply about it, is… well. You want to buy shares, I own shares in a particular company, and I know that the profit report is just about to come out, and profits are bad, and the shares are about to fall. And I sell those shares to you, and then the next day the results come out, and the shares fall in value, you’ve lost money, and I’ve taken advantage of you. That seems to be straightforward.

But when you think about it you go, well hang on. You were going to buy those shares anyway. If you didn’t buy them from me, you’d have bought them from someone else.

I didn’t lie to you, I didn’t commit any fraud, I didn’t tell you the profits were going to be good. I didn’t phone you up and solicit your customer. It was just, you tried to buy shares – and you actually got a better price for the shares you were going to buy anyway because I was in the market selling them. So what’s the harm?

And in fact, that’s where you initially start. You go, gosh, this is quite tricky. So, what might the harm be? I think one form of harm that there is potentially in insider trading is the incentives to management. So, if you are an insider in a corporation, you know whether the shares are going to go up or down. If you were able to just constantly trade on that basis, well, there may be no harm in that. But then you actively acquire an incentive to make the shares of the company fluctuate up and down.

“You were going to buy those shares anyway. If you didn’t buy them from me, you’d have bought them from someone else”

You need to create surprises. Good surprises and bad surprises all the time. Because every time you create a surprise, there’s a new opportunity to make money from your insider trading. So it turns out that the real harm, I think, the real worry, is not the insider trading; it’s the way insider trading might generate a profit opportunity, that might itself then be damaging. And I think that’s a broader lesson for the way that we think about the city, and regulating financial activity, the way we think about regulating investment banks.

Often it’s not the superficial headline problem that is actually the problem. So, for instance, with performance related pay. The problem with performance related pay was not that people were being paid too much money, or that people were being paid money and they didn’t deserve it. The problem was – and economists knew this beforehand – performance related pay creates certain incentives to take all sorts of the wrong risks. So we’re actually paying people to cause damage. That’s the issue. So, there’s a broader lesson here, it’s not just about insider trading.

World Finance: All things considered then, do you think that maybe insider trading should be legalised to a greater extent? Because then I think other people could almost take advantage of this as well.

Tim Harford: Well, I think there are no simple answers. There is certainly a case to say that insider trading is really a civil matter. It’s a matter for an individual company’s corporate governance policies. And individual companies should take a view as to whether insider trading should be allowed or not by their directors, because that’s fundamentally the issue: what their directors and their managers go on and do if insider trading is allowed. And to be honest, I suspect that most large companies would ban it.

“Half of all insider trades are the trades that don’t happen rather than the trades that do. I simply fail to take action”

So I think there is a good case for that, that it’s an internal corporate governance matter. I think the main case for keeping it illegal is just to save trouble, and to say, just assume that all companies would ban it anyway, so who cares? But that case is not as strong as we might think. When you think about it actually, there are all kinds of insider trades that take place every day that never get punished. They’re the insider not-trades.

So, if I own shares and I’m about to sell those shares because I would like to buy a yacht, because I run a company, and buying yachts is what I do. And I happen to know that profits are good, and the shares are about to jump in value. I simply… fail to take action. I would have sold the shares, I don’t sell the shares. Then the shares go up in value, then I sell them. That’s insider trading. No one can find it, no one can punish it, no one can prove you were ever planning to do anything else. So it can’t be regulated. But half of all insider trades have got – by pure logical argument – have got to be the trades that don’t happen rather than the trades that do. And they’re legal because there’s nothing you can do to spot them.

“I think the main case for keeping insider trading illegal is just to save trouble”

World Finance: People are more savvy now when it comes to financial markets, so is the line being blurred between insider trading and people now just doing more research, or being more aware?

Tim Harford: Certainly there’s a less straight-forward line between amateur traders and professional traders, but I still think the professionals are always going to have an advantage. And I always advocate just a very simple, humble strategy.

I’m struck by the investment performance of the great John Maynard Keynes, the guy who invented macroeconomics. He had an absolutely terrible trading record for years. When he was trying to use his macroeconomic expertise, when he was trying to time the market and get in, and get out, and be very clever and forecast when the market was going to fall. If anybody could have done it in the world it would have been John Maynard Keynes, and he just couldn’t do it! And after about eight years of this he changed his strategy, and just went for a much more Benjamin Graham, Warren Buffett, almost passive investment. But value investing, just looking to buy and hold stocks that you understand, whose management you trust, really simple, no frills stuff. And just as Benjamin Graham did, just as Warren Buffett has done, achieved tremendous rewards.

So, if John Maynard Keynes cannot make macroeconomic forecasting deliver investment performance, then, you know. You can’t, I can’t, I don’t think anybody can. So maybe we all just need to… calm down, and show a bit of humility.

Anthony Browne on restoring banks’ reputations | British Bankers’ Association | Video

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Anthony Browne is the man tasked with cleaning up British banks. He explains what has been achieved in reforming the UK’s banking sector since the financial crisis and the Libor scandal, and what’s next in terms of embracing Islamic finance at a national level, supporting SMEs, and growing the economy.

World Finance: A tall order, so, over a year on and what do you think you’ve achieved?

Anthony Browne: Well it’s been an interesting year, both for the BBA and for the industry as a whole. A difficult year in many ways, but I do think we end it in a far better position than we started it. The beginning of this year was just after the wake of the Libor scandal, which caused a complete political storm.

The government set up the parliamentary commission on banking standards, which was like a public enquiry for the industry, investigating everything. We’re now at the tail end of that, Libor is largely restored, and I think confidence in the industry is being restored as well.

It’s helped by economic recovery. It’s helped by the fact that one of the publicly-owned banks is being returned to the private sector. Taxpayers are getting their money back. And it’s also helped by the fact that there’s real recognition that banks are reforming themselves, and doing the sort of things that the rest of the country want them to do. Putting the customer at the centre of what they do, and helping promote economic growth.

World Finance: Since 2008, banks have been widely criticised, and public sentiment has been at rock bottom. So do you think all this criticism was justified?

We need to make sure, in the wake of the crisis, that the regulation is right, that banks’ business models are right, that such a financial crisis can never happen again

Anthony Browne: Well I’m sure a lot of criticism wasn’t justified, but I’m also sure a lot of the criticism was justified. I mean, clearly the banks – or many of the banks, certainly not all of them, but some of them – completely lost the plot. On a number of different fronts.

I mean, clearly there was a major global financial crisis. Banks weren’t the only ones responsible, but they were definitely part of that. We need to make sure, in the wake of the crisis, that the regulation is right, that banks’ business models are right, that such a financial crisis can never happen again.

Banks also – some of them, not all of them – lost sight of their customer. We’ve had a lot of mis-selling scandals. PPI is the most high-profile one, but there’ve been others. And the industry as a whole needs to make sure that it’s more customer-focused, that the number of complaints come down. They are coming down now, latest figures are down 20 percent, year on year. And if the banks can restore their stability, and make sure that the crisis doesn’t happen again. If they put the customer back at the centre of what they do, and they can help play their role of promoting economic growth, then I’m sure confidence in the industry will be restored.

But there was a lot that was wrong in the industry; it’s now being put right.

World Finance: Banking standards have led to widespread reform; how are banks coping with these restrictions?

Anthony Browne: What the banks need now is a period of stability. There has been a huge number of reforms since 2007, implementing the G20 agenda, which is under the Financial Stability Board, a whole series of reforms to make sure that the crisis doesn’t happen again. On top of that there have been national reforms, both in the UK – we’ve got things like the ring-fencing of the retail banks from the wholesale banks, which we support. There’s a whole load of other reforms coming through in the UK through the parliamentary commission on banking standards, things like criminal sanctions for reckless banking.

What we need now, after these various different reforms, is a period of stability. So we can let the reforms bed down, so the banks can fully implement them, and then in a couple of years’ time, it can review them and say, well, what else needs doing? Is there anything else that needs doing, or have we now fixed the system?

World Finance: How important is a successful banking industry for the UK economy?

Having a healthy banking sector is essential for a healthy economy

Anthony Browne: Incredibly important. It’s not just that banks are – you can argue about the precise figure, but roughly 10 percent of GDP. They are the UK’s biggest export industry. It isn’t just serving the UK economy, it’s also serving the global economy.

The banks are also incredibly important for serving the rest of the wider UK economy, from SME lending, which is the subject of a big political debate; but also servicing the mid-sized companies, the big corporate companies, doing, if they want to raise money to invest, if they want to pay for mergers with other companies oversize, when they want to issue bonds, raise money. All banks do all that, and having a healthy banking sector is essential for a healthy economy.

World Finance: We’ve been hearing an awful lot about Islamic finance, so do you think the UK should sit up and listen?

Anthony Browne: Well absolutely, and indeed, I think a lot of them are. I think pretty much all the UK banks have got departments that deal with Islamic finance, as well as the international banks that are based in London.

It is a growing area, I mean it’s clearly not the biggest sector, but there is a lot of interest in it, because people realise the demand that there is for it. London as a global financial centre doesn’t just serve the non-Islamic countries, it also serves Islamic countries, Islamic governments, companies based in Islamic countries, and they have demands for certain types of finance.

Recently, just last week, the government announced it was doing the first sukuk, which is a bond which is compliant with Islamic finance. There are discussions with the Bank of England about making sure that its processes and the services that it offers are also compliant with Islamic finance, so that Islamic banks can then use the bank and interact with the Bank of England in the way that non-Islamic banks can.

World Finance: And finally, looking to the future now. What do you think are the biggest challenges facing the UK banking industry?

Anthony Browne: The biggest challenge for the industry now is to restore trust and confidence, to rehabilitate itself in the eyes of the customers, in the eyes of politicians, in the eyes of international regulators, and really get back on the front foot again.

Clearly, major financial crisis, major reforms needed; those reforms have been happening, the banks have also been changed in the way they work internally, and we now need to get back to a period of normality, as it were, with all those reforms in place, the changes in place, so that the banks can play the role that people want them to play, which is helping customers, helping businesses, and promoting economic growth.

Vicente Sevhila on Brazilian Law | Sevilha Contabilidade

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Sevilha Contabilidade has been working over 25 years to help companies and entrepreneurs settle their businesses in Brazil. Its tax expert, founder and CEO Vicente Sevilha talks about the challenges for international businesses entering Brazil, the tax implications for foreign investors, and his recommended strategy for companies with branches in Brazil.

World Finance: So introduce us to the firm, what type of service do you offer clients?

Vicente Sevhila: We work with accountant services, and our service starts at the very first moment in the company. We help anybody who wants to set up business in Brazil. From the setup of the company, we help you to understand how the Brazilian laws treat the establishment of a company in Brazil. After you have your company already established, we help you to control it, providing accountant services like balance sheets and PNL, and also to provide new managements reports and financial reports, so you can control your branch in Brazil, the internal taxation and international taxation questions. We also provide to our clients services relating to payroll and employees’ control.

World Finance: What type of challenges do you face within the jurisdiction, and how do you overcome those?

Vicente Sevhila: It starts from the first moment, to understand how Brazilian laws work. So everyone who wants to do business in Brazil can use our company to help them understand the Brazilian regulations, and to understand how to start doing business in Brazil, because this is the main point. After you understand how things work in Brazil, those challenges become daily work, and you can do it easily.

World Finance: And tell us more about the tax implications affecting foreign companies in Brazil.

Vicente Sevhila: If you think about any company in any place in the world, they start thinking of doing business in Brazil by comparing their products with the Brazilian market. So they look to the products that they have, and think “we have a good product with a good price, let’s introduce this in the Brazilian market.” At this very first moment, you can make some mistakes, because when you bring your goods here from Europe, for instance, at the moment those goods arrive at the port, you have to pay a lot of taxes. You pay in advance, and this will increase the cost of operations, so you cannot use the same price you use here in the Brazilian market. So what we do is help you to understand what kind of impact it will have when you deliver those goods within Brazil and how it will cost after that.

World Finance: So how can companies go about establishing a branch in Brazil?

Vicente Sevhila: Well, I see different strategies for different companies. For instance, if you think about a great company, who will manufacture things in Brazil, in this case the challenge will be to find a good place, and you will need to think about logistics. Because Brazil is a very wide country, it’s a very big country, and logistics are a main question. At the same time, when you think about logistics, and you choose a place to establish your plant, you need to think about taxations because, depending which state you put your business, you have different taxation impacts. So we help you to understand the different laws and different taxations between one state and another within Brazil. But if you ware talking about small to medium businesses, you can start doing business just offsea, and with this you start to explore the Brazilian market, making sales and contact and delivering your goods from your base in Europe, or any other place in the world to Brazil, distributing it within Brazil, and after a while you can then think about having your own plant in Brazil.

World Finance: And finally, what type of strategy would you recommend to companies who have branches within Brazil?

Vicente Sevhila: The first thing you need to think is, who will be the Brazilian resident people who will be the administrator of our business there? This is a very important point, because those men or women will be the last responsible for all operations in Brazil, so it needs to be someone you trust, someone that is capable to run the business in Brazil. Another question is the place you want to be established. You need to find an address, and dependent on each state you want to put that address, you have different impacts on your company. So these are the first two steps you need to think about. Where, and who will run the company back in Brazil?

World Finance: Vincente, thank you.

Vicente Sevhila: Thank you Eleni, it’s very good to be here with you again.

Anthony Browne on the EU banker bonus cap | British Bankers’ Association | Video

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UK banks are bracing themselves for contentious European rules that will take effect in 2014 to limit bonus payments. Anthony Browne, CEO of the British Bankers’ Association, talks about the impact such legislation would have on the UK’s banking industry, as well as on remuneration practices worldwide.

World Finance: Anthony, these new European Union rules: what effect will they have on bonuses?

Anthony Browne: The trouble with the bonus cap is two-fold. One is that it impacts the financial stability of the system. It goes against the financial stability board guidelines that actually, remuneration regulation should be counter-cyclical rather than pro-cyclical. So, what I mean by that is that the bonuses are a way that banks control their pay bills, their wage bills, overall. In the downturn, they don’t have to cut jobs, they just reduce peoples’ pay by reducing the bonuses. If you have very strict bonus regulation like the bonus cap, then they can’t do that, and the only way they can then cut costs in the downturn is by cutting jobs. And that means those people aren’t there when the business comes back again. You have to start going out and trying to hire new people, but they’ve all gone off and done other things. So it’s actually pro-cyclical, it makes the swings and roundabouts of the financial cycle more extreme, which is why it goes against global international regulation, and why most of the global regulators do not support this at all.

“The owners of the banks didn’t have as much control over pay as they should have had. But the answer to that is not to have pay set by international regulation”

The second thing is that it doesn’t encourage the sort of behaviour that you want. There was a big problem with pay, absolutely. People were paid too high amounts, often they were rewarded for taking excessive short-term risks with other people’s money, and when they blew up, they didn’t get the money back. The danger with capping bonuses is, you limit the ability of banks to actually reward the sort of behaviour that they want to encourage. And all the previous regulation on bonuses had been encouraging more of it to be paid in shares, in longer-term instruments, having claw-back so that if things go wrong then you can claw the money back. And this goes against all that.

And the other fundamental principle that it goes against, which the UK and other governments have been trying to encourage, is that the shareholders of banks, the people who own the banks, should ultimately be the ones that determine the pay of the banks. And actually, the bonus cap again goes against that.

It’s obviously true that the shareholders, the owners of the banks, didn’t have as much control over the pay in the banks as they should have had. The answer to that though is not to have pay set by international regulation, but rather to give the owners of the banks, the shareholders, the powers that they need in order to make sure that they have remuneration policies that they want in the banks they own.

World Finance: It has been discussed that bankers are being paid too much, so do you think the argument that banks are just trying to retain the best talent really stands up?

Anthony Browne: There clearly has been an issue of excessive pay in the banking sector. The pay levels were too high for what people were actually doing, the incentives were wrong. People were being paid for taking very big short-term risks that then blew up, and they kept the bonus.

“It affects banks wherever they operate around the world. So an EU bank operating in New York will be constrained by the bonus cap”

But banking is a globally competitive industry. On the international banking, not necessarily the retail banking, but there is a pool of talent that moves around the world. London is competing with New York, with Hong Kong, with Singapore, with Tokyo, and there are global levels of pay there. And one of the things that’s happened is that the average pay in wholesale banking is actually far less now in London at almost all levels of an organisation than it is in New York or Hong Kong. And the banks are increasingly finding it difficult to recruit the talent to London, because of concerns about pay levels here and things like the bonus cap.

The other thing is that it’s international in scope. So it affects UK banks wherever they operate around the world. So an EU bank operating in New York will be constrained by the bonus cap in trying to attract talent, but any other bank – whether it’s an Asian bank or an American bank – working in New York, doesn’t have the same constraints. And it is already making it difficult for European banks to attract new talent operating in New York, because people don’t want to go there because they see this legislation coming down the line.

World Finance: You did touch on this, but these EU rules will probably affect London more, because this is where the majority of the big bonus-paying banks are based. So, how different is the banking industry here compared to Europe?

Anthony Browne: The overwhelming majority of those affected by the incoming bonus cap operate in London. Not just UK banks but actually international banks operating in London, often EU banks who have their wholesale operations here as well as American banks and Asian banks. And the reason for that is that London is a global financial centre, the likes of which Europe doesn’t really have elsewhere. The banks in London, the business deals being done in London, are on a global basis for global corporations operating in global wholesale financial markets.

“Badly thought-out regulation and legislation can really affect the status of financial centres”

The other financial centres in Europe tend to just be local or regional financial centres, that don’t operate globally in quite the same way. And the impact on that is on pay levels, because you’re then competing in a global financial market. And that’s why, actually, if you’re an ambitious banker from Germany or France or Italy, then more likely than not you’ll come and work in London and work in the banks here, because you’ll be operating at a higher global level than you would be if you were working in your home financial markets.

World Finance: So how do you see the future of the banking industry in the UK?

Anthony Browne: I think the danger of the future of London as a financial centre is regulatory over-reaction. I’m not saying we’re there yet, I don’t think anyone thinks the bonus cap itself signals the end of London at all. But if there is a lot more different things like this that damage competitiveness, then as we’ve learned from mistakes made in other countries, not least the US, that actually, badly thought-out regulation, legislation, can really affect the status of financial centres. We’re not there yet with London, but there are elements that are definitely unhelpful.

World Finance: Anthony, thank you.

Anthony Browne: Thank you.

Alejandro Garza, Sergio Ramirez Lomelin, and Luis Castilla, on the Atotonilco Wastewater Treatment plant | ATVM | Video

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Said to be the largest wastewater treatment plant in the world, the Atotonilco Wastewater Treatment facility is revolutionising Mexico’s ailing water supply and sanitation system. Alejandro Garza, President of Atlatec; Sergio Ramirez Lomelin, Water and Energy Director for IDEAL; and Luis Castilla, Chairman of Acciona Aqua; together the consortium for the project; disuss the importance of water sanitation on economic growth, the objectives of the Atotonilco plant, and the impact it will have on the lives of the local population.

World Finance: Alejandro, how does water sanitation affect economic growth?

Alejandro Garza: Water is one of the most precious resources that we can have. Unfortunately in Mexico, we have two main problems to solve. One is an imbalance in the water availability into the country, because the most important cities population and industry are located in places where we don’t have enough water.

For instance, Mexico City is in a place 2,000m above sea level, in the centre of the country, far from shores, where there’s little availability of water. Same with other important cities in Mexico.

So, we don’t have the level of water that we need in those cities in order to continue their growth. But at the same time we have a problem. In the last few years, we have not had enough wastewater treatment from the municipalities, creating an additional problem, of lack of quality of the available water in reservoirs or water basins.

Fortunately in the last years, supported by the National Water Commission, there has been a plan to improve the water treatment in the country with a very successful growth, like this project, for instance.

“Before the Atotonilco project, Mexico City only treated five percent of its water. Now it is going to treat 60 percent”

World Finance: How does limited water supply and sanitation affect people at a grass-roots level?

Alejandro Garza: The main problem is a health problem, of course. The other one is, in several cases, the untreated water used for low value crop irrigation, like corn, for instance. With all of these proposals we are improving the quality of the water, it is possible to have better health for the people, but at the same time to have better possibilities to crop better value, like broccoli or oil-value crops, that creates a better way of living for people around the areas.

World Finance: Sergio, tell me about the Atotonilco project. How has it revolutionised Mexico’s sanitation?

Sergio Ramirez Lomelin: Before the Atotonilco project, Mexico City only treated around five percent of its water. Right now with this project, Mexico City’s going to treat around 60 percent of its water. So with this, all the sanitation problems right now in Mexico will be solved in a large scale.

Around the plant there are around 300 people, so with clean water they are going to have a better way of living, and a better way of having their crops and irrigation: with clean water. So all the sanitation problems are going to be solved.

“We’re going to create more than 3,000 jobs, and more than 10,000 indirect jobs, during the construction period”

World Finance: What are the primary objectives of the plant? And what does it mean for Mexico?

Sergio Ramirez Lomelin: With this we’re going to treat more than 65 percent of the water of the whole country. We’re going to create more than 3,000 jobs during construction, more than 10,000 indirect jobs during the construction period.

After that, when the plant goes into commercial operation, we will have clean water for the irrigation system in the Tula Valley of Mexico. With that, more than 350,000 people there are going to have better crops and better quality of life.

World Finance: Luis, how will the plant control greenhouse emissions?

Luis Castilla: When we clean the water, we remove contamination, organic material, and we produce a side-product, and this is sludge. In fact, we are going to produce more than 2,300 tonnes per day of this sludge. In order to remove the environmental impact of the disposal of this sludge, we need to remove the organic material of the sludge, using a technology that is called anaerobic digestion.

Using the process of anaerobic digestion, we are going to produce a biogas. The biogas has more than 65 percent methane, and we will burn this methane to produce energy, using 12 cogeneration units with a total capacity of 32 megawatts. This energy will cover more than 75 percent of the total energy consumption of the plant.

“This is the start of a new generation of water treatment in our country”

World Finance: And finally Sergio, looking to the future, what are the priorities now?

Sergio Ramirez Lomelin: With these kind of projects, we can introduce new technologies to treat water, clean water, and reuse water. Save water for the future. And if we keep constructing and operating new plants, we will have the ability to have water, reusable water, both in industry, and maybe to a third level: for human consumption.

So, this is the start of a new generation of water treatment in our country.

World Finance: Gentlemen, thank you.

Alejandro Garza, Sergio Ramirez Lomelin, Luis Castilla: Thank you very much.

Matthias Kröner on social media | Fidor Bank | Video

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New methods of communicating are appearing online all the time. Fidor Bank believes that banks need to tap into this, and move with their client in order to regain trust. Matthias Kröner, CEO of Fidor Bank, talks about the innovative work Fidor has been doing on social media communications to get closer to its customers, and the technology solutions Fidor TecS is developing to improve its processes.

World Finance: Tell us about Fidor, and some of the work you’ve been doing.

Matthias Kröner: Well, Fidor Bank actually is following the mega-trends which we can see in the internet. So, Fidor Bank has a high target of integrating the customers, interacting with the customers, and delivering a lot of transparency.

One of the examples for integration of the customer, for instance, is our ‘Like’ interest rate, which you maybe know. The Like interest rate is driven by the Likes which we have on Facebook, so this is the first product and offer actually which integrates the customer, even within the pricing.

“The ‘Like’ interest rate is driven by the Likes we have on Facebook, it’s the first product that integrates the customer in the pricing”

World Finance: You plan to expand in the future, what’s your strategy around this?

Matthias Kröner: The technology of Fidor Bank is a technology made for an international approach, actually. So yes, we are thinking about expanding into other countries, and we’re in talks there already with some partners, or we do it on our own.

World Finance: And what are you doing in the UK? What are your operations here?

Matthias Kröner: The UK will be a part of our international strategy, that’s for sure. It’s a super-interesting market, with a very high range of online customers, so this seems to be absolutely interesting to us, and I hope I can surprise you within the next 12 months.

World Finance: You mentioned your international expansion, and you’ve worked with a number of partners; how do you select these?

Matthias Kröner: Well we’ve got two kinds of partners actually. One kind of partners are our innovative partners, which we integrate into our Fidor account technology, kind of as an app, actually. And the customer can use those partners via the app infrastructure. And the other partners we have are B2B partners, which use our banking technology, our payment technology, maybe in a white label or maybe the way it is. So, we are happy to have those partners as well.

“Other bankers talk about the risk of talking within social media platforms. I see the risk as not talking there”

World Finance: Innovation in banking technology is on the rise. Tell us more about Fidor TecS: What solutions does it offer?

Matthias Kröner: Well actually it’s the company, Fidor TecS, that’s providing this kind of technology. It’s the heart of our research and development within Fidor Group. It’s developing the technology, it’s maintaining, hosting, whatever you can assume coming with it. And Fidor Bank, for instance, is a customer to Fidor TecS, like some other companies as well.

World Finance: How easy is it for people to use your services?

Matthias Kröner: It always was the objective to be as easy as possible to access us. So, we have a community on the one side: if you want to register for the community you can use a Facebook connect process. I think we’re the only bank in Europe doing something like that. And even if you want to do your full KYC, we are the first bank in Germany offering you a digital, full KYC process. So there’s no bank which can be more easily addressed than Fidor Bank.

World Finance: What advice would you give to other banks who want to use these social media strategies?

Matthias Kröner: Well first of all I think it’s absolutely important to deal with it, not to try to avoid it. Most times I’m talking to other bankers, they talk about the risk of talking within social and communicating within social media platforms. I see the risk as not being there. Second advice would be, if you’re interested in more of our experience, I’m happy to have you as a guest in Munich, you can address me via email or Facebook, or twitter. Whatever way. And I’m happy to answer all your questions.

World Finance: Matthias, thank you.

Matthias Kröner: Nick, thank you.

Francois Pradel and Franck Thomas on asset management | Linedata | Video

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Linedata is a global solutions provider, dedicated to the investment management and credit community. Its Product Director, Francois Pradel, and Commercial Director, Franck Thomas, explain how the asset management industry has changed in recent years, how it has adapted its services to address the latest challenges, and the future for the company.

Stephen Wandera on insurance post-Westgate Kenya | Britam | Video

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Kenya’s economy appears to be on the cusp of remarkable growth, yet its insurance is still just a fledgling industry. Stephen Wandera, Regional Director with the British-American Insurance Company, talks about what is needed to boost the industry to a level where it can compete with other rapidly growing sectors, and how he expects demand for insurance against terrorism policies to increase, following the Westgate seige.

Nazym Tulchinsky on Kazakhstan Insurance | Eurasia Insurance | Video

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For the last 10 years, Eurasia Insurance has hosted an international risk management conference. Nazym Tulchinsky, Deputy Chairman of Eurasia Insurance, explains how Eurasia’s good risk management has helped the company through the turmoil of the financial crisis, and describes the current trends and future prospects for insurance and reinsurance in Kazakhstan.

World Finance: How has your risk management helped you through the turmoil of the financial crisis?

Nazym Tulchinsky: The conference has brought together leading economists, politicians and businessmen, from over 40 countries to develop solutions for the significant challenges to the global business community.

Our exceptional risk management programme has contributed to the development of Eurasia’s profitability and capital levels to date. Eurasia was able to foresee the consequences of the financial turmoil, and fortunately its project management was able to secure its investments while at the same time increasing its returns. And the process with which we accept risks, allows us to master the global financial crisis, and the rush of catastrophe events well. We’re confident that we are able to cope with any predictable losses, because we have the trust of our underwriters. If the insured sustains a loss, Eurasia is always prepared to foot the bill. It’s as simple as that.

“Our main clients include Egypt Shell, ArcelorMittal, and reinsurance for HSBC”

World Finance: Who are your clients in Kazakhstan, and how do you invest?

Nazym Tulchinsky: We have a unique market position. Being the largest insurance company in Kazakhstan, Eurasia supports other insurance providers by selling them our reinsurance capacity.

As for direct insurance, our main clients include oil and mining companies, such as Egypt Shell, ArcelorMittal and HSBC. Of course, we’re doing some reinsurance for major Kazakh banks: HSBC, for example. We prefer to write classical risks.

As for the investment issue, Eurasia invests in its clients with a first-class service.

World Finance: A third of your business is from international reinsurance. How important is this?

Nazym Tulchinsky: The change in Eurasia’s international business strategy came about in 2006, when Eurasia was the only company in Kazakhstan which received a rating from AM Best Rating Agency of B++. Since first writing inwards reinsurance business in 2004, from mainly Russia and member countries of the CIS, Eurasia now provides its reinsurance support on the risk allocated over the 130 countries worldwide. Eurasia is becoming a truly diversified global reinsurer.

However, in balancing Eurasia’s worldwide portfolio, we still remain cautious about the risks. Our goal is to build a profitable portfolio. Eurasia recognises that a company does not grow because it is writing big volumes of sub-standard business. Profitability for Eurasia comes before income. Eurasia strives to continue operating with economic autonomy. This means that Eurasia is able to finance its further growth, solely with this self-generated profits. And it is dedicated to avoiding any financial imbalances which might lead to contributions from shareholders.

“In balancing Eurasia’s worldwide portfolio, we still remain cautious about the risks”

World Finance: What are the trends and challenges that you’re currently facing within this sector?

Nazym Tulchinsky: Eurasia’s building its inwards reinsurance portfolio based on a strong relationship with major brokers. Through the practice of not running away from risk, if and when it proves to be unprofitable. We will sit down with the brokers and tell them to offer underwriting guidance. Eurasia’s always aware of the fact that a few local and overseas sinners are acting as a distributor of poorly priced business. It is ready to price this market properly, by either declining their insurance, or by proposing more realistic terms for the risk involved.

It’s imperative that Eurasia’s underwriters are able to add value through leadership, and so help to create a meaningful product. We are well aware of the new capital flowing into the reinsurance market, and the effects of overcapacity. This increased capacity will drop when the first major natural catastrophes occur. This has been borne out in previous reinsurance cycles.

World Finance: And back to Kazakhstan. What are the current trends you’re seeing in the market?

Nazym Tulchinsky: The non-life insurance segment in Kazakhstan achieved growth of around 20 percent in comparison with 2012. This was attributed to the growth of the Kazakh economy, the existence of various compulsory insurances, and of course increased volumes of bank lending.

The life segment is growing well too. However, I can say that this is organic growth, because its main driver is compulsory employers’ liability.

Having said that, in general, the insurance market is steadily growing in Kazakhstan, although I have to admit that insurance penetration is still low. In 2012 it was below one percent, so there is a potential of an untapped market for Kazakh insurance.

“In 21 years we changed from a soviet republic to a market economy ranked as one of the 10 fastest-growing in the world”

World Finance: And finally, what is the future for Kazakhstan on the world stage?

Nazym Tulchinsky: Kazakhstan’s strategic aspiration is to become a model diversified economy, with a high valued-added and a high-tech component, well integrated into the global economy.

In 21 years, we have moved from a soviet republic, with no private sector, to a sovereign state with a market economy ranked as one of the 10 fastest-growing in the world. Our country’s geographical and geopolitical positions have played a vital role in promoting the country’s development.

Located in the centre of Eurasia, Kazakhstan is at the crossroads of the world’s most ancient civilisations and trade routes. the development of Kazakhstan’s economy is closely connected with integration into international relationships. It has unique reserves of energy and mineral resources, the vast possibilities of exporting industrial and agricultural products, optimum employment of the country’s transit potential, and the viability of highly qualified specialists. Kazakhstan is important to the alternative energy markets because it has significant oil and natural gas reserves. With sufficient expert options, Kazakhstan could become one of the world’s largest oil producers and exporters, within the next decade.

World Finance: Nazym, thank you very much.

Nazym Tulchinsky: Thank you very much.

Ignacio Aguirre and Carlos Berriochoa on the Antofagasta Hospital | Sacyr Concesiones | Video

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Sacyr Concesiones is a world leader in construction and infrastructure. As the company embarks on its Hospital de Antofagasta project, Ignacio Aguirre and Carlos Berriochoa, respectively Senior Project Manager and Investment Director from Sacyr Concesiones, discuss Sacyr’s strategy for selecting projects, the reasons behind the increasing use of PPPs in Latin America, and the unique challenges and solutions to building a hospital in Chile’s seismically active Antofagasta region.

World Finance: Carlos, what is the focus and strategy for this business area?

Carlos Berriochoa: Firstly, location. We exclusively target investment-grade countries, where the rules of the game are clear and stable. Secondly, project type. We focus on the kind of projects we know best, and where we have the most rated experience. Roads, railways, subways and hospitals. Any project we consider must have a strong construction component.

Thirdly, partnerships. We strive to identify and incorporate the right financial and local partners from the beginning. And finally, we define from the beginning a turnaround strategy, to ensure that our partners, the client, and ourselves, are all reading from the same page.

“This project involves an investment of €300m, and will benefit a population of 260,000 people”

World Finance: Ignacio, you’re now working on the Antofagasta project. Tell me how this project is unique?

Ignacio Aguirre: This project involves an investment of €300m, and will benefit a population of 260,000 people, within the region of Antofagasta. This region is characterised by being an area of high seismic activity. This project will be the largest hospital in Chile, built with the highest technical standards, and incorporating the most advanced architectural, structural, and functional solutions, designed to resist the effects of the seismic activity in the region.

It will be a hospital with 100 percent isolated structure, with about 400 seismic isolators. And the scope of the project also makes it unique. This is the first hospital concession in Chile to also include the purchase, maintenance, and replacement of the medical and non-medical equipment.

World Finance: You mentioned that this area is prone to natural disasters; how did you approach this?

Ignacio Aguirre: The first step was to assign highly qualified professionals in all areas: construction, concessional, and operator. In order to ensure the correct development and execution of the project.

With regards to the design, we put together a team with the best architects and engineers, with more than 20 years experience designing and building hospitals.

We have also incorporated several Chilean consultants with significant experience in the design of buildings, in areas of high seismic activity. And the 100 percent isolated structure is an extremely effective solution in reducing vibrations and damage to the building, equipment, and installations, in the event of an earthquake. The structure designed for this project will be the largest of its kind in Chile.

“This is the first hospital concession in Chile to include purchase, maintenance, and replacement of all equipment”

World Finance: Are these types of development becoming more in demand?

Ignacio Aguirre: The hospital concessions has provide citizens with earlier access to healthcare facilities, mainly for two reasons.

Firstly, because public budget constraints usually prevent governments from awarding direct construction contracts. And secondly, instead of tendering and negotiating several contracts for the design, construction, and operation, the concession model allows them to complete the whole process in just one step. The pressing need to increase efficiency in the public sector is one of the reasons why many governments around the world are adopting this concession model, and Chile is just one of them.

When the same company – in this case, the concessioner – is responsible for the whole project, the design, the construction, the operation of the building, for a term of 15 or 20 years, objectives get aligned, in order to achieve the best result at each stage.

World Finance: Carlos, you have vast experience within this industry. What is the key to this success?

Carlos Berriochoa: The vertical integration within the group companies of the constructor, the concessionaire and the operator, which significantly reduces the friction and the distress among the team members. These allow us to create more competitive commercial offers. But all of this while maintaining strict accountability of the results of each of the business lines. No cross-subsidies, and all relationships regulated through arms-length contracts.

And finally, a proven track record in the health sector, that enables us to understand and meet the needs of patients, medical staff, and health administrators.

“Since the beginning of the financial crisis, Sacyr has been awarded six concessions in Chile alone”

World Finance: How has the financial crisis impacted on construction and the industry?

Carlos Berriochoa: The financial crisis has dramatically reduced the number of projects financed through the exchequer. PPP projects have been affected to a lesser extent, but there has been an impact on the way of doing business. For instance, it has accelerated the need for international diversification, it has reduced the amount of available capital, leading to more complex partnering strategies. It has also complicated the financing of the project, requiring now more skills and efforts in this area. It has also changed the way risk is perceived, leading to a more careful approach to these projects, and also a reduced number of viable projects.

And finally, it has forced many concessioners to revise their asset rotation strategy, leading in many cases to their decision to devest. Sacyr Concesiones has adapted well to this new environment, and proof of that is the fact that, since the beginning of the financial crisis, we have been awarded with six concessions in Chile alone.

World Finance: And finally, what projects do you have in the pipeline?

Carlos Berriochoa: We are pursuing projects in countries like Chile, Mexico, Colombia, Peru. Countries where the pipeline of projects to be tendered are all fitting with our strategy. We are also active in Brazil, where we used to have some concessions. And the US. But in these countries, we have taken a more selective approach.

We are also active in some European countries, such as Ireland, where the market seems to be recovering. Also Italy, and more recently, Russia.

World Finance: Carlos, Ignacio, thank you.

Ignacio Aguirre, Carlos Berriochoa: Thank you.

Natdhanai Mankosol on Thailand insurance | Viriyah Insurance | Video

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As of mid-2013, it has become clear that Thailand’s floods of 2011 had a profound impact on the country’s non-life insurance segment. Natdhanai Mankosol, Assistant Department Manager, Marketing Department from Viriyah Insurance, talks about how motor insurance is growing off the back of the Thai government’s First Car Buyer scheme, as well as how Viriyah expanded its product range to better serve those affected by the 2011 floods.

World Finance: Thailand’s insurance market has been undergoing a transition. Tell us more.

Natdhanai Mankosol: The insurance market in the last year was growing tremendously, because of our two segments in motor insurance and non-motor insurance. In motor insurance, the industry is being affected by the government’s First Car Buyer project. The First Car Buyer project is the project the government is trying to stimulate the market, by boosting our sales in the car industry. And the motor insurance industry is growing along with the growth of the car sales.

The other reason is, after the flood, a lot of people realised how important insurance is in helping with their losses. So they’re looking for more insurance, because they realised the risks they face, and their insurance needs. So we could tailor our products to fit the customer needs in different areas in Thailand.

“After the flood, a lot of people realised how important insurance is”

World Finance: So tell me more about what happened after the floods. How were you able to meet your customers’ needs?

Natdhanai Mankosol: The flood in 2011 was one of the biggest losses we have in our history. We didn’t expect that to happen, but a lot of people lost their lives and properties. And now a lot of people in Thailand realise how important insurance could benefit their lives.

And so we developed some products to serve their needs, because our business is concentrated in motor insurance. So, the comprehensive insurance which we sell, it covers almost everything, including the flood itself. But not so for our non-comprehensive insurance. So we launched our products, called the Two Plus Extra and Three Plus Extra. Two Plus Extra is the fire and theft insurance, and the Three Plus is the third party insurance, and the Extra means we added more coverage for the flood.

World Finance: You have recently experienced tremendous growth, tell us about the numbers.

Natdhanai Mankosol: In the last year we grew over 28 percent. Which is above the market industry standard. I’d say the most successful story about our company last year is our people. We’re trying to improve our processes and recruit more people that have special training throughout our people. And fortunately, our turnover rate for our employees is not high at all. A lot of people stay with us, and are happy to be with us, and when our people are happy, they serve our customers happiness.

The renewal rate from our brokers and agents is over 80 percent, and we’ve been revising our training, and we’re trying to recruit some new technologies to use in our processes. The GPS is used with our claim surveyors, to use the smartphone to go to an accident site. And our claim surveyors will check in all through the process so we can collect all the information, and use it to improve our service level.

“We’re looking for more business partners in our neighbouring countries, to serve our customer needs”

World Finance: And finally, are there any plans for expansion?

Natdhanai Mankosol: The expansion is in the near future. Currently we have over 100 branch locations, which is a lot more than other insurance companies in Thailand. But it doesn’t cover every area in Thailand. We’re trying to expand more branch locations, and we will recruit more insurance agents and brokers to get in touch with our customers everywhere in Thailand.

Since the Asian economy communities are coming in the next few years, we will be seeing a lot of different kinds of people, and different kinds of businesses, coming over and through the regions. So, we’re trying to look for more business partners in our neighbouring countries, to work together and to serve our customer needs.

World Finance: Natdhanai, thank you.

Natdhanai Mankosol: Thank you.

Eduardo Vildosola on Chile’s pensions | AFP Capital | Video

Posted on by World Finance

In 1980, Chile reformed its pension provision from a public, pay-as-you-go system, to a private, individual capitalisation one. It was one of the biggest privatisation experiments of the time, and today the system is still far from perfect. Eduardo Vildosola, CEO of AFP Capital, discusses the purpose behind the original reforms, the challenges that are left, and how AFP Capital is working within that framework to support millions of Chileans.

World Finance: What is the foundation of Chile’s pension system today, and how has it changed?

Eduardo Vildósola: Basically, the current system is based on individual accounts. That means that every worker, every month, puts their money in their account, for their whole working life, which is roughly 40 years. And then they receive what they have been saving for, for that time. That is compared with the pay as you go system, where you were basically saving for passive workers in a common fund, and there was not a direct relationship between what they were saving, and what they were receiving at the end of their work life.

Besides that, the current system is based on these individual accounts, which is the mandatory saving. Adults also have the voluntary saving pillar, which is related to individual voluntary savings and collective voluntary savings. And also we have solitary pillar, which is for people that cannot save so much, or for so many years, and that is partially financed by the state. These are the three pillars.

World Finance: But the system is still not meeting the expectations of Chileans: why not, and what are these expectations?

Eduardo Vildósola: I would say that there’s not a complete answer to the question, because the system is still not mature at all. We have been saving for 30 years, and we need 40 years to analyse that. But the women who are living more than we are expecting and are contributing less than they were expecting, because sometimes they are not in the labour force, but at home. They have been facing lower replacement rates of 50 percent. So there’s a problem there, that we have to address.

In the case of men, the replacement rate has been 70 percent, which is basically what they have been expecting. Furthermore, seeing as the size of Chile has increased a lot, when you calculate the replacement rate with the last size, of course you have a very important impact on that. The system was created thinking on a replacement rate calculated on the average of the last 10 years size. So, when the size grows up, you have a big gap there. Probably that is part of the answer of the expectations that haven’t been fulfilled.

World Finance: So how can these problems be resolved?

Eduardo Vildósola: There are three or four basic ideas on that. The first, of course, is to increase the contribution rate. In Chile now, we have a contribution rate of 10 percent, which is very low compared with the OECD countries. That is, I would say, the first idea.

Probably the second one is, trying to foster voluntary savings, both individual savings and collective savings for the middle income range. Third, of course, we are living more, so we have to address that. It means that probably we have to review the age of retirement. And the fourth idea should be to see how employers contribute to their workers every month. We have to use the loopholes, the pension loopholes that we’re facing today, which are playing a much more important part of the lower replacement rates that we are seeing today.

World Finance: Might it be possible to delay some of these changes in order to address other problems, like loopholes in the system?

Eduardo Vildósola: I think that we should address both of them. Of course, pension loopholes is something very important to do, but it’s something that is a little bit outside of the pension fund managers. It has to do with the labour market, with the supervision of companies that are not contributing to the system. But the other changes are quite urgent. Because at the end of the day, people are living more, and women have retired so early, and because of the loopholes, we have to increase the contribution rate. You have to take account that in the old system, the contribution rate was almost twice the current contribution rate. It was 20 percent. So, 10 percent? Definitely it is not enough to get enough money for building the pensions that Chilean people are expecting.

World Finance: So how is AFP Capital performing within this context?

Eduardo Vildósola: I think that AFP Capital has done a very innovative approach to the pension business, because I would say, most of our competitors have been very focused on the characteristics of the product, but we have been focused on the necessity of building the pension at the end of the day. So we create the so called ‘Get your number’ campaign, which is basically a campaign where we try our hardest to be conscious, to be aware of the necessity of beginning to save, as soon as possible. Because of the impact of that savings in the pension. So ‘Get your number’, you say ‘Oh my god, what a big number to save.’ But that is very necessary.

Remember that this is a mandatory savings scheme, so most of the time people feel very far away of this necessity. At the end of the day, saving competes with consuming, and consuming is more appealing. So we have realised that we have to make our clients to be aware of that, through the ‘Get your number’ campaign, and today we have more than 400,000 clients that have already calculated their number, and are beginning to do a savings plan in order to finally get their pension. So, that is the way we have been competing, it is a very unique approach, and we are happy that our clients are more aware of what they have to do, to, at the end of the day, fulfil their dreams. Which is to get enough money at the pension moment, so they can do whatever they want at that time.

World Finance: Eduardo, thank you.

Eduardo Vildósola: You’re welcome.