the m-pesa story

Transcription

the m-pesa story

www.internationalfinancemagazine.com
January - March 2015
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WINNERS
pg.68
Volume I Issue 2
THE M-PESA
STORY
Safaricom CEO Bob Collymore on the
runaway success of mobile banking
in Kenya
pg.30
OIL PRICES: IT’S A MATTER
OF WHO BLINKS FIRST
pg.42
ROUBLE WOES
pg.22
PAYPAL: A NEW
BEGINNING
Note FROM EDITOR
M
obile phones have
changed our way of life
in a way that was unimaginable as recently
as two decades ago. First, we began
speaking without the limitations
imposed by telephone cables. Then, we
eliminated the need for an immediate
response by sending messages - the
SMS. The next revolution was chat.
The latest is mobile payments.
It is taking the connectivity that
mobile phones provide to an entirely
different level. Nowadays, companies
are talking of enabling people to place
their request even before they reach
the coffee shop only to have their order
paid for and waiting when they get
there. Twenty years ago, this is exactly
what millions were fantasising about
while waiting in queue for their coffee.
Come to think of it, what would you
be fantasising about next?
The interesting part is that the
potential was not tapped in some
tech-savvy nation, but in Kenya, which
has never been in the news for mobile
phone technology. Safaricom’s mobile
payment solution has revolutionised
not just the telecom sector, but left
bankers gaping at their failure to anticipate. If you would like to understand
how Safaricom took mobile payments
to the next level, the person to call is
Bob Collymore. Even now, bankers are
treading slowly. Their customers, on
the other hand, have adopted mobile
payment wholeheartedly having realised that this is the closest they have
come to the empowerment that they
hear about only in speeches.
Meanwhile, others are stepping in to
fill the gap.
For example, PayPal is offering credit — working capital — to its long-term
customers. The products and services
that mobile phones and the internet
are throwing up are mind-boggling.
But PayPal is fighting its own battles.
Having been taken over by eBay, it is
lagging in innovations, leaving space
for start-ups. They have not yet begun
treading on PayPal’s toes, but at the
rate at which they are coming out of the
keyboard, they soon
will. To correct this,
PayPal and eBay will
become separately
listed public companies this year. This is
expected to help
PayPal more
than eBay.
The payments service
provider will
focus more
on innovation, keep a
sharp eye on
the competition and stay
as nimble as
possible for
a company
its size.
You can
expect to see
and hear a lot of
both — mobile payments and PayPal
— in 2015. Best wishes
for the year ahead.
Director & Publisher
Sunil Bhat
Editor
Dhiraj Shetty
Production
Sarah Williams, Mark Miller,
Karan Belani
Editorial
Adriana Coopens, Jessica
Smith, Lacy De Schmidt,
Suparna Goswami
Bhattacharya
Business Analysts
Dave Jones, Adam Lobo,
Sharon Mendis, Ashton Ray,
Tanya Jones, Sean Thomas
Business Development
Manager
Steve Martin
Business Development
Newton Gois, Sunny Shah,
Ashish Shenoy
Accounts
Angela Mathews
Head of Events
Basant Das
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Rahil Shaikh Miya
Jan - Mar 2015 International Finance Magazine
INDEX
January - March 2015
04
46
Volume I Issue 2
78
Interview: Capital Bank
CEO Lasha Khoperia
36
OIL PRICES:
REFRESHING CHANGE
26
PayPal didn’t innovate
fast enough: Anuj Nayar
73
Summit: Gateway to
Islamic finance
You’re under cyber
attack... should you
pay the ransom?
Currency: Not
so cool
International Finance Magazine Jan - Mar 2015
COVER STORY
08 The M-Pesa story
52
60
Interview: ‘You can
bank on Landsbankinn’
118
Pictorial: Homes built
on a thick wallet
88
Diamonds make
Botswana shine
Column: Revolutionise
or fail
137
Where’s
the
DEMAND
100
Page-turners
4
You are facing A cyber attack...
should you pay
the ransom?
The advice from law enforcement is, of course, never to pay up. But that’s
not an easy decision
Tim Ring
byte by byte
I
n November, police
forces across seven
European countries
combined to arrest a
series of mainly teenagers
and young adults suspected
of serious cybercrimes,
including extortion and socalled DDoS attacks.
The scale of the operation
and the age of the suspects
drew attention to this growing threat to businesses,
both in Europe and worldwide: the rise in computer
hackers seeking to extort
your money.
The
online threat is now such
that most businesses annually suffer a cyber attack:
according to the latest
PricewaterhouseCoopers
‘Global State of Information
Security’ report, six in 10
companies experienced a
security incident in 2014, up
48% over 2013.
But the most ‘in your face’
of these e-crime threats
are the twin evils of DDoS
attacks and ransomware,
where the criminals seek to
directly extort money, and
will damage your business
until or unless you pay up.
With ransomware, the
hacker plants
mali-
cious software on your
individual business phones,
laptops and computers and
locks up the data on them
until you pay a ransom, usually a few hundred dollars/
euros/pounds per device.
With the more wide-scale
DDoS attacks, the hackers will stop your company
trading online by bombarding your website with tons
of traffic, only relenting
when they receive payment of typically tens of
thousands of dollars/euros/
pounds.
The burning question for
businesses faced with these
threats is: what can you
do if you’re attacked, and
should you pay the
money?
The advice from law
enforcement is, of course,
never to pay up. But that’s
not an easy decision –
borne out in November
2013, when the local police
department in Swansea,
Massachusetts, USA was
infected with the notorious
CryptoLocker ransomware;
they opted to pay 2 bitcoins
or roughly $750 to get their
data back.
If even the police succumb to cyber-blackmail,
ordinary businesses will justifiably be tempted. But is
it right or wrong, commercially wise or commer-
5
byte by byte
6
cial suicide?
Raymond Ijsselstijn, a
senior analyst with law enforcement agency Europol
and one of the team behind
the November arrests,
insists: “Businesses should
never pay the money.”
But even he accepts it
might make commercial
sense: “I can understand
from the business perspective they’re tempted to do
so, because of brand damage or they just want to have
access again to their important business data, and to
hopefully carry on business
as usual. They take a commercial decision — but it’s
not a decision a police officer would like to see.”
In luring you to pay, the
cyber-criminals are clever:
with ransomware, they pitch
the sum at a relatively low
level and make it easy to
hand over, to a web address
in just a few clicks. The latest ransomware, CoinVault,
even lets you choose one file
to rescue for free, to show
the hackers’ ‘good faith’ if
you go ahead.
Likewise, with DDoS attacks, although the demand
is for tens of thousands, the
criminals know the ‘mitigation’ services needed to get
a business back online cost
even more, and every minute the company website is
down and not trading, the
pressure is mounting to pay
up.
But experts point out the
problems if you do succumb.
Ijsselstijn said: “With
ransomware, even when you
pay, it doesn’t guarantee
that your files are unlocked.
The computer will still
remain infected, you will
still have to run your own
anti-virus and clean your
computer or mobile phone.”
And he points out: “Cyber
criminals are opportunists.
If companies just pay up,
the criminals will continue
doing it.”
This view is shared by
Charlie McMurdie, now a
senior cyber-crime advisor
with PwC, and previously
head of the London Metropolitan Police’s Central
e-Crime Unit.
She has seen what has
happened to PwC clients
who caved in to the DDoS
or ransomware demands:
“We’ve had phone calls from
customers who have paid
the ransom when they have
come under attack or suffered ransomware thinking
that would resolve things...
and then it hasn’t, so they’ve
then come to us.
“Once you take the bait
and start paying these criminals, it’s just encouraging
more of the same. There’s
no guarantee when you pay
that the attack’s going to
stop or that you’re not going
to get attacked again.”
But McMurdie has also
seen first-hand the impact
of these cyber-crimes: “The
attacks can be completely
devastating,” she said, “particularly to small businesses
that just haven’t got the
“
Cyber criminals are
opportunists. If companies just pay up, the
criminals will continue
doing it
Raymond Ijsselstijn,
a senior analyst with law
enforcement agency Europol
byte by byte
luxury or money to fork out
for substantial mitigation
services, can’t afford that
downtime, can’t afford that
loss of trade.”
So she recognises the
logic of paying to get the
business back up-andrunning. “If it’s going to cost
you 40,000 for mitigation
services and the demand is
only for 5,000, then companies sometimes are inclined
to pay the lower amount.”
McMurdie says the best
alternative is to be prepared
for the attacks – although
she warns few companies
have a tried-and-tested
‘incident response’ plan in
place.
Her advice? “Think
through what you’ve got in
place, where your dependencies are, and what the
impact and what your
response should be should
you come under attack.
Don’t just look at internal
infrastructure, but also the
dependencies you’ve got
in the supply chain around
you.”
Ijsselstijn echoes this:
“There’s a lot to do in the
prevention side. Back up
your files, inform your staff
of these potential threats
and update your IT infrastructure. There’s no one
golden rule, but report it to
police and get their experts
to try to find out who’s
behind it.”
Likewise, cyber-security
expert Tim ‘TK’ Keanini,
chief technology officer at
Lancope, refuses to rule out
paying the money demanded, but says well-prepared
companies are under less
pressure to do so.
“Everyone should be in
a state of readiness so that
when this happens, paying
the criminals is not the only
option,” Keanini said.
“If you look at the business side of things, cloud
backup solutions have gotten so good and so inexpensive that it is your best
defence against ransomware.”
To counter DDoS attacks:
“Smaller organisations
should just go with a cloud
provider that has their
act together in terms of
counter-measures. Larger
organisations don’t really
have that choice and have to
fend for themselves, but in
the end it is about a design
that has no ‘single point of
failure’.”
However, all these experts
accept that the number
and severity of DDoS and
ransomware attacks are
growing fast, as the ‘tools
of the trade’ become more
sophisticated, and easier to
use and get hold of through
‘dark web’ internet chat
rooms.
So the success of any ‘defence’ measures you deploy
may be limited, while the
chances of being cyber-extorted continue to grow.
As McMurdie said: “Rehearse, practise what your
response will be when you
come under attack because
if you haven’t come under
attack or suffered a data
breach as yet, then you
certainly will.” IFM
7
Once you take the bait
and start paying these
criminals, it’s just
encouraging more of the
same. There’s no guarantee when you pay that
the attack’s going to stop
or that you’re not going
to get attacked again
Charlie McMurdie,
now a senior cyber-crime
advisor with PwC, and
previously head of the London
Metropolitan Police’s Central
e-Crime Unit
COVER STORY
8
COVER STORY
M-Pesa’s runaway success has thrust
Kenya into the role of global leader in
mobile money transfer
Suparna Goswami Bhattacharya
COVER STORY
Amoxers Wachira
9
COVER STORY
A
10
s the rest of
the world
strives to
adopt cashless
economies,
Kenya is emerging as an
unlikely leader in digital
finance, thanks to a mobile
phone-based money transfer platform which is spurring a cashless revolution
in the East African nation
(population: 44 million).
From paying for goods,
services and utility bills, to
fares in public transport
systems to booking a flight
or even remittances to
people in far flung villages,
M-Pesa offers Kenyans the
convenience of making
transactions at the touch of
a button.
The pioneering product
was the outcome of the collaboration between mobile
telephony giant Vodafone
and Safaricom, Kenya’s
leading tele-communication
company. With the only requirement for participation
being a basic mobile phone,
the success of M-Pesa does
not come as a surprise. It
is currently being used by
over 19 million Kenyans, an
equivalent of two-thirds of
the adult population.
Statistics indicate that the
mobile payments platform
handles well over $71.2
million (Kshs6.41 billion)
daily, with transactions
ranging from Kshs50 to
Kshs70,000. M-Pesa has so
far seen over $17billion in
peer-to-peer transactions,
estimated to be a third of
the world’s mobile transactions, a clear demonstration
of the system’s runaway
success.
At inception, M-Pesa was
marketed as an alternative remittance system for
Kenyans who had moved
to urban centres and were
looking for ways of sending
money back to their families
in their village. There were
two ways of doing that back
then: the expensive but safe
remittance service of the
Kenya Postal Corporation
or travel home to deliver the
money — a cheap but risky
alternative.
How M-Pesa works
Using data preloaded on
a SIM card, M-Pesa utilises
an SMS based interface to
transmit money virtually to
other phones.
A user is required to sign
up for the service at any of
Safaricom’s 81,025 M-Pesa
agents and put money into
the system by handing cash,
which is credited into the
customer’s virtual account.
To withdraw, M-Pesa
users visit an agent who
checks that the customer
has sufficient funds before
debiting their account and
handing over cash.
Users can also transfer
money to another mobile
phone user.
The virtual account can
be used to pay for goods or
services.
Meteoric growth
The single most reason
for M-Pesa‘s unprecedented
rise has been attributed to
Africa’s heavy adoption of
mobile phones. More than
80 per cent of Kenyans own
a mobile phone, or can easily access one.
M-Pesa’s huge adoption
demonstrates how readily
available technology and
culture can be blended to
deepen financial inclusion
in Africa, where most people
still remain unbanked or
under banked.
Safaricom’s chief executive Bob Collymore says,
“Electronic transfers save
people time, freeing them
to do other, more produc-
COVER STORY
tive things instead. We are
happy with such growth and
it definitely means Kenya
is slowly moving towards
a cashless society. Mobile
money has become a way of
life for more Kenyans and
there is still big room for
growth.”
But, it does not seem as
easy as it sounds.
There are only a few success stories in other African
countries.
Many say that the comparisons are unfair and it
would be wrong
to expect every company
to replicate the success the
British telecom giant enjoyed in Kenya. The reason
is each market grows at a
variable rate and is based on
factors which only partially
include regulation, mobile
network operator (MNO)
market share, population
density, willingness to
engage in the business by
banks among
others.
David
Klei-
man, Laos-based senior
consultant for digital financial services and branchless
banking, PHB Development,
says, “To say that others
have not been able to emulate M-Pesa is like saying
that none of the world’s top
tennis players can emulate
Roger Federer. There is
a lot happening in
this space
and
we should not let one
player’s success obfuscate
the basic truth that there is
a strong field out there.”
It is also important to
understand the market
situation in 2007 when MPesa was launched. Romal
Shetty, partner and head of
telecom practice, KPMG
in India, says, “One of
the biggest differences
11
COVER STORY
12
between Kenya and other
African countries is that
when Safaricom introduced
M-Pesa, the company was
able to capitalise on its
near-monopoly in Kenya’s
telecommunications market.”
Another reason for the
slack uptick of mobile
money in other countries
is tough regulatory environment, which differs
with each country as well
as region.
For instance,
though West
Africa brought
in regulations
for mobile
money in
2006, Central
Africa is yet
to come up with
any. Even with
West African countries, for some nations,
it is a bank-led service while
for others the service is led
by mobile operators.
Nonetheless, regulators
in many markets are paving the way for e-money
and the entry of non-bank
operators. Business models
and systems for electronic
remittances — both domestic and international — have
already been well tested
in other markets around
the globe, say McKinsey
analysts.
Scenting an opportunity,
many financial providers
are getting into collaboration with mobile companies.
A few months ago, Bank of
Khartoum became the first
to launch mobile payments
in Sudan. The product is
called Hassa which means
‘Now’ in Arabic. Kashif
Mohammed Naeem,
EVP & group head
(Retail,
SME & Microfinance), Bank
of Khartoum, says, “Banking penetration in Africa
is around 20% and mobile
money targets unbanked
Africa. Sudan is no different from other African
countries. We have just
0.27 bank
branches
per
1000 km square and about
15% banking penetration.
However, mobile penetration is around 75%.” Hassa
is targeting the unbanked
and converting the existing
un-official means of money
transfer into a formal channel of mobile money.
How far they, and others,
will succeed cannot be predicted, but one thing is for
sure: Kenya has shown the
world that a mobile phone
is more than just a device
meant for talking. IFM
“
Electronic transfers save
people time, freeing them
to do other, more productive things instead.
We are happy with such
growth and it definitely
means Kenya is slowly
moving towards a
cashless society. Mobile
money has become a
way of life for more
Kenyans and there is
still big room for growth
Bob Collymore,
chief executive,
Safaricom
COVER STORY
What an idea
T
he idea of M-PESA was conceived by a London-based team
within Vodafone, led by Nick Hughes and Susie Lonie. They
believed that mobile phones could play an important role
in lowering the cost of accessing financial services. The idea
was seized by the Safaricom team in Kenya, led by then CEO Michael
Joseph and product manager Pauline Vaughn.
The going, however, was not easy. Safaricom needed to set up a
widespread network of agents to enable customers to access their
cash. Susie Lonie, who was instrumental in launching and running
the service, says, “The real challenge was convincing the agents. They
were dealing with something that was completely new.” The company
started with 185 agents for the whole country before ramping up the
number to 2,000 at the time of the launch.
13
Mobile money and MFIs
M
obile banking has come handy for
microfinance institutions, whose
clients are typically from the
unbanked section. According to
Global Mobile Money Adoption 2012, there are
more mobile money accounts than regular bank
accounts in Kenya, Madagascar, Tanzania and
Uganda. Also, there are more mobile money
James Onyutta,
outlets than conventional bank branches in 25
CEO,
countries.
Musoni
M-banking has become an alternate delivery
channel for many microfinance institutions.
Take the case of Musoni, the Kenyan MFI which is 100% cashless.
“Ours is the first microfinance institution in Kenya, which is 100%
mobile. The concept is based on mobile banking. Clients receive loans
and repay through M-Pesa,” says James Onyutta, CEO, Musoni, which
started operations in April 2010. It now has about 20,000 customers.
“Thanks to mobile banking, we are able to reach out to clients far
and wide with minimal investment in physical offices,” says Onyutta
adding that Musoni manages with 50% of the cost it would incur were
it to operate without mobile banking.
COVER STORY
Case Stu
Before
Name: David Muturi
Age: 32, Occupation: Tailor
Location: Pangani, two kilometers outside the capital, Nairobi
Marital status: Married, with three children.
Before M-Pesa came in 2007;
I was a young family man
I had a bank account
but it was not
effective
The little money I
saved used to get
depleted fast due to
hidden charges by
banks
I had to visit the bank
regularly to make
deposits
14
Those days, I used to close
shop for an entire day to
deposit my weekly earnings
Also, paying for
electricity and water
bills was hectic
I would spend a lot of
time in the queue
Transferring money was a
tedious affair. I used to send
money to my wife who lives in
the rural area by use of courier
services, which were
expensive
At times, I could send money
with friends and neighbours
whenever they were travelling.
But it was risky; some could not
be trusted and ended up
spending the money
The other players
Mobikash is an independent
mobile commerce platform,
which consists of an integrated
mobile banking, mobile money
transfer and payment system. It
operates across all mobile
networks, banks and financial
institutions, bill issuers,
merchants and agents.
JamboPay is an online payment
gateway that allows users to
securely make and receive
payments through mobile
phone. Shoppers can pay for
goods and services online while
sellers can receive payments for
purchases made online.
Equitel, a subsidiary of Equity
Bank, is set to give M-Pesa a run
for their money, as it integrates a
banking model and a mobile
phone money transfer platform
to make payments even more
seamless.
COVER STORY
dy
After
As a tailor, I get many orders, especially during the festive season.
My customers give me orders for specific fabrics that they like. I
have to source these fabrics from the nearby Gikomba market,
then sit down and work on the suits. One suit takes me an average
of two days to sew. Most often, I have very tight schedules. This is
where M-Pesa comes in handy
Some of my
clients pay me via
M-Pesa
M-Pesa
came in
2007
This way, I have been
able to better utilise my
time and make more
money. I can concentrate on sewing rather
than wasting time to
fetch fabrics
Nowadays, I don’t have to visit the
busy market to get the fabrics. I
check whether the material I
want is available. I then send
money via M-Pesa. The fabrics
are delivered at my shop
Tangaza Pesa enables anyone
with or without a mobile phone
to send or receive money. Users
can make peer to peer domestic
transfers, pay bills, make bulk
payments, buy airtime, or
disburse or repay loans.
Tigo Pesa allows corporates to
receive funds from their
customers or subscribers for
goods and services. It targets
organisations that receive many
payments from the public, or
anyone seeking convenience
and timely payments for their
customers.
Currently, I do not have a bank
account as my needs are met
by M-Pesa. It is my bank. I can
save money on my phone,
send money to my family
upcountry, pay for goods and
services and do much with my
small phone, anywhere,
anytime
I can also lock my
savings for up to six
months via M-Shwari,
another service linked
with M-Pesa
Lipuka integrates bank and
payment channels to enable
music downloads, bill payments,
and information services via
WAP. It is powered by Cellulant, a
company that serves over 60
million subscribers throughout
Sub-Saharan Africa.
15
COVER STORY
Key
statistics
M-Pesa
Safaricom ownership
19.3
mn
customers have signed up
35%
Govt. of
40%
Kenya
Vodafone
for M Pesa. Of these,
11.6
mn
are active users.
81,025 15,478
The number of
M-Pesa outlets
in Kenya
16
25%
free float
new outlets
opened in 2014
M-Pesa
34%
Named biggest
of airtime
top-ups are
done directly
through
M-Pesa
tax payer by the
Kenya revenue
authority
Contributes about Kshs
26.56
bn
of Safaricom’s annual revenue of Kshs
144.67 bn
COVER STORY
M-Pesa spin offs
Lipa Na M-Pesa
allows people to pay fares for public transport, locally known as Matatus, with mobile
devices instead of cash. The plan was announced at the end of last year. Over 36,749
merchants have signed up for Lipa Na M-Pesa. Over 140 fast moving consumer goods
(FMCG) distributors use M-Pesa. It competes with Google's Beba Pay, an electronic card
compatible with several bus systems. Other competitors include Kenya Commercial
Bank’s Abiria Card and Kenya Bus Services’s Beba Card.
Lipa Karo
Diaspora
remittances
were most recently added to
the list of Safaricom's services.
The company partners with
Skrill, a UK-based online
payment company. All the
customer needs is a full name
and M-Pesa account number
to transfer money back home
to family or friends in Kenya.
Skrill charges a 1 percent fee
for each transfer.
BUY
SELL
PAY
SAVE
allows customers to pay for
school fees through mobile
phones by depositing money
through one of the outlets and
sending it to the school
administrators via a
specific code.
Lipa Kodi
lets Kenyans manage and
pay rent through mobile
transactions among banks,
landlords, tenants, and
homeowners.
M-Shwari
is a partnership between Safaricom and the Commercial Bank of Africa (CBA). It allows customers to take out loans and save money on their mobile phones. The program has had success since
its launch in 2012, boosting the number of bank accounts in Kenya. M-Shwari now has over 2.4
million active customers with KES 1.8 billion in deposits, KES 0.8 Billion in loans, with NonPerforming Loans standing at 3.8%.
# At the end of November 2013,
the number of mobile money
agents stood at 112,947, a 50 per
cent increase from 75,226 in the
same period the previous year.
# In 2013, the Central Bank proposed to open the money transfer system under
the draft National Payment System (NPS) regulations to allow for interoperability of mobile money services among the four telecom providers — Safaricom,
Orange, Yu and Airtel. If passed, this would mean that other mobile operators
will access Safaricom’s M-Pesa platform, increasing the options for customers.
Source: Central Bank of Kenya
17
COVER STORY
INTERVIEW
‘M-Pesa is the single
largest contributing
18
factor to financial
inclusion in Kenya’
Safaricom CEO Bob Collymore tells IFM that M-Pesa continues to
transform lives even nearly a decade after its launch
COVER STORY
19
Bob Collymore,
CEO, Safaricom
COVER STORY
20
Tell us about M-Pesa
M-Pesa is a revolutionary mobile money transfer
solution that was initially
developed by Vodafone and
launched in Kenya eight
years ago as a Person- toPerson (P2P) transaction service. Initially, we
conceptualised M-Pesa as
a tool that would primarily
be used by rural women to
pay for loans. Over time, we
quickly realised that it could
be used to transfer small
amounts of money between
subscribers, and the service
was commercially launched
in March 2007, enabling
them to send and receive
money, top-up airtime and
make bill payments.
M-Pesa has
now become
a household
name in Kenya
and is the most
successful
service
of its
kind
globally. It has
emerged
as the most
efficient, safe
and convenient
way to send money
across the country,
and now, beyond. It has
transformed into a products and services facility
necessitating the need for us
to develop an interface for
business to consumer (B2C)
transactions.
What would you attribute the success of
M-Pesa to?
There are four key factors
that you could point to that
contributed to the growth of
M-Pesa.
First is the fact that the
service offered users a
safe and quick means of
transferring cash across distances, without the need for
a formal bank account. This
shift meant that consumers would not have to wait
for public service vehicles
to send money upcountry.
They could do it from the
comfort of their neighbourhood outlet and be assured
that the money
would
arrive
safely
and instantly.
MOBILE
BANKING
We can attribute this to the
reliability and trust that
was formed in our agent
network, which now covers
85,000 agents spread across
the country.
Secondly, M-Pesa
emerged as a cheaper
option to send money
faster, thereby solving needs
within the shortest possible
time. For exam-
financial product has been
able to in this market.
Fourth would be the fact
that Safaricom, and the
team that was running the
product at the time, were
so willing to test this new
product and had the passion
to see it to its launch. The
regulatory environment was
extremely instrumental in
the growth
ple,
if you need to
send money to a
relative who is
sick, you can
actually advise
them to start
their journey to
a hospital and
before they get
there you will have
sent the funds.
Third is the dynamism
of the product. M-Pesa
keeps evolving, and it
taps into new pockets of
customer needs much
faster than any other
of the product, as
policy makers were willing
to observe and oversee the
growth of the service and let
it grow organically.
Personally, I think the
service has grown at the
pace that it has purely as a
result of the Kenyan spirit.
Workers in the cities are
typically from rural towns
that are quite some
distance away. Having a
tool that allowed them
to meet their familial
obligations and securely
send money back home is
really what gave this product its impetus.
It is said that M-Pesa
transactions have an
impact on the Kenyan
economy. Can you
elaborate?
It is true that M-Pesa
has had an impact on the
Kenyan economy. Allow me
to illustrate:
• More than 12.8 million Kenyans use M-Pesa
each month for at least one
transaction
• There are 85,000 MPesa agents in the country
who employ thousands
COVER STORY
more.
• More than 90% of all
utility bill payments are
made using M-Pesa.
• M-Pesa is the single
largest contributing factor to financial inclusion
in Kenya. If you remove
M-Pesa’s contribution,
the level of financial
inclusion drops from 70% to
under 30%.
How has M-Pesa grown
vis-à-vis the Kenyan
economy?
M-Pesa has enjoyed
double digit growth since it
was launched, illustrating
that it has been growing at a
faster rate than the Kenyan
economy.
Has M-Pesa reached
saturation point? What
new features are in the
pipeline to maintain
your leadership position in the telecom
sector?
Currently, we are seeing
an average Sh121.3 billon in real time payments
per month, with person to
person payments growing
by 20%; person to business
transfers growing at 64%;
and business to person
payments growing at 83%.
We would like to encourage
more growth amongst our
active users who currently
carry out just over five
chargeable transactions
per month – so there is still
room to grow. We see that
growth coming as more
businesses start to use our
services for individual as
well as bulk payments.
The overriding benefit for
businesses as they join this
growing ecosystem is the
fact that M-Pesa has numerous benefits over cash and
other payment modes, key
among them being security,
speed of moving cash, and
the fact that mobile penetration in Kenya is high.
Have you got operations outside Kenya?
What are your plans for
expansion?
Safaricom’s M-Pesa does
not have operations outside
Kenya. We do, however,
have strategic partnerships
with Western Union and
MoneyGram International
that have enabled customers to send money directly
to M-Pesa customers. There
remains a lot of room for
growth in Kenya, particularly given that 9 out of 10
transactions in Kenya are
still made using cash.
(Under the Vodafone
brand, a similar mobile
money transfer product
is offered in Egypt, India,
Lesotho, Mozambique, Romania and Tanzania)
Have you been able to
replicate the success
that you achieved in
Kenya?
Kenya pioneered in the
launch and adoption of
M-Pesa globally. Kenya’s
case has, therefore, been the
benchmark in the rollout of
M-Pesa in other countries,
bearing in mind that markets may be different.
What attracted you to
Safaricom?
When I joined in 2010,
I was attracted by the
challenge that it presented
as a mobile business that
was entering the second
phase of its growth in a
market that was maturing.
I continue to be amazed
at how transformative the
company is on a daily basis
and the opportunity for new
facets of growth that are so
ripe in this market. There
are great prospects for our
business in Kenya, and I am
privileged to be part of the
country’s continued journey
towards becoming a world
leader in mobile innovations. At the end of the day,
what drives me and the
rest of the more than 4,000
employees at Safaricom is
the desire to transform lives
through everything
we do. IFM
21
Four key factors
contributed to the
growth of M-Pesa
Bob Collymore
PAYPAL: A NEW
22
BEGINNING
Analysts expect faster growth once the payment
services provider becomes independent
of eBay this year
Tom Groenfeldt
A
s PayPal becomes
independent
of eBay — the
two will become
separately listed public
companies this year — it will
have better opportunity to
direct its investments and
grow, perhaps by providing
payment services to eBay
rivals such as Alibaba and
Amazon, and Apple Pay
competitors like Samsung
and Microsoft, while still
maintaining a business
relationship with eBay.
The spinoff, which corporate raider/activist Carl
Icahn had been advocating
since early this year, had
faced strong resistance from
eBay and its CEO John J.
Donahoe. The dynamics of
the e-commerce marketplace and users, such as the
car service Uber, which uses
PayPal for its payments, are
moving so fast that a pay-
ments
system tied to the corporate structure of an online
auction/sales company
couldn’t move fast enough,
said analysts. Both eBay and
PayPal have been criticised
for being slow and bureaucratic. Icahn, who called
eBay among the worst-run
companies he had ever
seen, said Mr. Donahoe
was “either incompetent or
negligent.”
“PayPal is an admirable
company and it has been a
true innovator and pioneer for many years,” said
Zilvinas Bareisis, a senior
analyst in Celent’s banking practice. “But it is no
longer seen as an innovator. However, its position is
very, very strong. They have
relationships with online
merchants, their wallet is
heavily used and through
acquisitions, they have added various different assets
that are quite interesting.”
Since eBay bought it in
2002 for $1.5 billion as
a way for buyers to pay
eBay sellers
online, PayPal has grown
impressively and now accounts for more than 40
percent of eBay’s revenues.
It processed payments of
more than $200 billion in
the last 12 months from
more than 152 million active
users in 26 currencies in
203 markets globally. The
company says it facilitates
one in every six dollars
spent online and is the number one payments processor
for business-to-consumer
exports for Chinese merchants.
As a soon-to-be separate
company, PayPal will have
as CEO Daniel H. Schulman,
who led the alternative and
mobile payments at American Express, including the
Bluebird product launched
with Walmart, which drew
more than one million users
in its first year. He has been
a leader in looking to cards,
mobile phones and ATMs
23
Coming out of the eBay
auction world, which
recently accounted for
less than one-third of
its total dollar volume,
PayPal will have to
develop some new skills
in mobile and also think
about its pricing model
Andrew Copeman,
industry analyst for banking
at Aité Group
at drug stores and
convenience stores as a way
to provide banking services
without a physical bank.
(David Marcus, the former
Since eBay bought it in 2002 for $1.5 billion,
PayPal accounts for more than 40 percent of
eBay’s revenues. It processed payments of more
than $200 billion in the last 12 months from more
than 152 million active users in 26 currencies
in 203 markets globally
24
president of PayPal, left in
early June for Facebook,
leading to speculation about
the social media giant’s
plans for payments.)
Andrew Copeman, industry analyst for banking
at Aité Group, said that an
independent PayPal has the
opportunity to pursue more
alliances with firms like
Alibaba. The company has
lagged in innovation, creating few new products of its
own but making some smart
acquisitions, including
Bill Me Later (now PayPal
Credit).
Last September, PayPal
bought Braintree, for $800
million, landing a company
which did $12 billion in payments, including $4 billion
with users such as Uber,
Airbnb, LivingSocial and
GitHub.
“They had this vision that
payment is only one small
step in the purchase experience,” said Bareisis. “Apps
like Bill Me Later, Braintree
and Venmo propel them
into contextual payments.
They have made it easy to
make payments from a merchant app where companies
like Stripe have made good
strides.”
Chris Morse, a PayPal
spokesperson, said that
PayPal users can browse
businesses in the area, order
something like a banana
berry smoothie, have it
waiting for them 10 minutes
later and it’s already paid
for.
“At a restaurant you can
sit down, tell the server you
are paying with PayPal and
you can see the whole process. You can order a drink
while you wait, then order
another glass of wine, and it
will alert the POS and your
drink will come up. We are
reducing complexity in payments; the payment almost
disappears.”
Shops can send offers out
to PayPal users in the vicinity; a baby store in Austin
has developed new business
by sending out offers to customers of Dominican Joe, a
coffee shop next door.
Coperman said that PayPal has had to rejuvenate
its offerings, particularly
around mobile.
“Coming out of the eBay
auction world, which recently accounted for less than
one-third of its total dollar
volume, PayPal will have to
develop some new skills in
mobile and also think about
its pricing model. They will
struggle unless they can figure out a breakout strategy
around pricing. There’s a lot
of pressure from regulators
on banks and service providers to reduce merchant
pricing
“They are very, very ex-
pensive from a merchant acceptance view. If a merchant
is shopping around for the
best deals on acceptance,
unless he is desperate to
get the PayPal community
on board, he will prefer to
pass.”
PayPal charges 30 cents
per transaction plus 2.9
percent on accounts doing
up to $2,000 monthly,
dropping to 2.2 percent on
accounts doing $10,000 to
$100,000.
PayPal has been strong
with SMEs but is eager
to get large merchants on
board, Coperman added.
Meanwhile, the SMEs are
looking around for other
options as the ecommerce
market matures and other
payment solutions become
available.
“Braintree’s One Touch
technology opens up new
doors for them in the mobile
area,” said Coperman. “I
think they have struggled
with plans to develop a
meaningful mobile application.”
The company has grown
beyond payments to providing credit to both consumers, which it was able to do
through Bill Me Later, and
now providing credit to
merchants, said Morse.
“We offer merchant
credit, PayPal working
capital, for small businesses.
PayPal is an admirable
company and it has
been a true innovator
and pioneer for many
years. But it is no longer
seen as an innovator
Zilvinas Bareisis,
a senior analyst in
Celent’s banking practice
A whole neW world
The Braintree’s acquisition also landed PayPal
Venmo, a mobile payments company acquired the
year before for $26.2 million, and one that is highly
popular with millennials.
If you are a PayPal merchant, you can apply for up
to a $60,000 line of credit.
You pay only when you
make a sale, and you can
determine how much from
each transaction goes to the
credit. We can assume the
risk because we have a 10-14
year relationship with the
merchants.”
A seller of computer peripherals borrowed $20,000
for holiday inventory, paid
$800 in fees and has been
back three times for new
loans, Morse said.
Unlike bank loans, which
can take weeks and stacks
of paper, PayPal can supply
credit in seconds, faster
than the user can toggle
over to see the transfer of
funds into his account.
“It gives merchant the
capability to get access to
capital quickly so they can
capitalise on trends. If you
are selling T-shirts and a
design goes viral, and you
could sell 10.000, you might
not have the capital to fulfill
those orders. We can do it,
and do it very quickly. We
loan out about $1 million a
day.”
Coperman thinks PayPal
has great potential, although
the payments world will be
highly competitive in the
next couple of years.
The payments business
is like an annuity, he said,
with high fixed costs, but
once you have them accounted for, it makes significant money.
“You need to feed in as
much as you can until you
get past the breakeven
point,” he added. “The lay
of the land in two or three
years will be fascinating.”
In the UK PayPal faces
competition from VocaLink’s Zapp, which supports
payment from any mobile
banking application. Coperman said Zapp pays merchants in 10 to 15 minutes
and he expects its price will
be below PayPal’s.
Zapp has 20 to 25 merchants and utilities and a
wide range of high street
retailers are prepared to
accept it. PayPal needs to
avoid being bypassed by
recent startups and existing
players using their scale and
connections to develop businesses, he added. IFM
Venmo has a social aspect to person-to-person
payments because the payment can be accompanied
by a description of what it is for — such as a share of
the rent, drinks, or taxi fares. Bareisis found a funny
discussion online where the break between 30-year
olds and under — who were happy to share payment
information — was a stark contrast to those in the office over 35 who shuddered at the lack of privacy.
Zach
I actually think these apps are the greatest things
ever
I use venmo several times a week, for typical things
like splitting checks but also splitting bills with my
roommates etc. venmo is great also because it is sort
of a social network too, like you have to put in a sort
of “memo” field and so you see a news feed of what
your friends paid each other for…people write funny
things.
Like if my lazy roommate didn’t pay his hunk of the
power bill, I can charge him on the app and it’ll push
onto his phone
That’s more useful than the social part
The older folks in the office expressed horror at this
casual sharing of personal information.
Chris Morse, PayPal spokesman, said Venmo appeals to millennials who make up a large share of
PayPal’s customers.
“Eighteen percent of the US is considered a millennial and 25 percent of our customers are millennials.
Venmo is smart, innovative and it has found a niche
with millennials who use it to split bills and share
money”.
25
26
innovate
‘We didn’t
fast enough…’
PayPal is making up for it and will strive to be the best option for consumers,
says Anuj Nayar, senior director of global initiatives
Tom Groenfeldt
T
he payments
world in the last
two years has gone
through nothing
short of a revolution,” said
Anuj Nayar, senior director of global initiatives at
PayPal. And the revolution
is still growing, judging by
the number of new firms
targeting payments. Silicon
Valley’s AngelList, an online
resource for Silicon Valley
startups, venture capital
firms and developers, lists
1,522 new innovators in
payments.
“In a month and a half,
over 10 new companies have
launched thinking they have
nailed payments innovation,” Nayar added. “It is
definitely a hot space.”
PayPal was founded in
1998, went public in 2002
and was acquired by eBay
the same year to make it
easier for people to buy
and sell on the ecommerce
site. It will be spun off as an
independent company this
year with Dan Schulman, a
former American Express
vice-president who ran its
Serve and Bluebird programs, as CEO. After a few
years of drifting, PayPal has
been moving aggressively to
grow its position, especially
in mobile payments.
Industry analysts have
said that PayPal lost some
of its drive to innovate, and
Nayar admits, “We didn’t
innovate fast enough in the
developer space and let a
gap open up that smaller,
nimbler fellows like Braintree stepped into in the
mobile payment business.”
PayPal responded by buying Braintree in September
2013, acquiring its end-toend payments processing
business that had already
signed up Airbnb, Fab, LivingSocial, Uber, Twilio and
GitHub as clients.
PayPal also got Venmo,
a P2P mobile one-touch
payments system and social
platform popular with mil-
lennials, which Braintree
had bought in August 2012.
Venmo lets users split payments during a night out
while adding comments
about how their friends
behaved, or didn’t, or users
can harangue their friends
online for overdue rent
contributions. By bringing
together the three platforms, PayPal made up for
a lag in its development and
innovation while Braintree
and Venmo suddenly could
reach 160 million existing
PayPal users.
The acquisition was
timely, just as mobile payments were taking off. In
November, said Nayar,
mobile payments accounted
for 20 percent of PayPal’s
business. In 2010, it was
less than 1 percent.
“Mobile went from a
rounding error in our business to a fifth of our volume.
Acquiring Braintree was
a massive accelerant for
Braintree and we got into
27
In a month and a half,
over 10 new companies
have launched thinking
they have nailed
payments innovation
Anuj Nayar,
Senior Director,
global initiatives, PayPal
28
a space we hadn’t nailed as
well as we could have done.”
Industry observers were
initially concerned that
PayPal would dumb down
Braintree and Venmo and
slow their innovation. The
opposite seems to have occurred.
Bill Ready, the CEO of
Braintree, has been placed
in charge of all next generation development, ending
the fiefdoms and duplication of development projects
that had plagued PayPal. In
September, PayPal launched
One Touch, extending the
Venmo easy payment process to all of PayPal.
One of the biggest
problems for online, and
especially mobile payments
made on a small screen, is
that users drop off, leaving
their shopping carts behind
because the payment process is too slow, too compli-
cated or too hard to navigate
on a phone’s screen.
Now Braintree offers
merchants a software development kit (SDK) that lets
them integrate One Touch
in 10 to 15 minutes. Then
they can accept payments
from PayPal, Braintree,
Venmo, Apple Pay, credit
cards, debit cards and soon
even bitcoins. Merchants
have reported double-digit
growth in conversion rates
— the percentage of shoppers who complete their
transactions.
That’s because they can
enter their credentials with
a merchant once and then
buy without entering their
name and passwords again.
Braintree reported that its
transactions on Thanksgiving — traditionally the
beginning of the American
Christmas shopping season
— were 3.1x last year’s and
the company’s mobile transactions were up 4.2 times.
[One Touch is] “removing friction from the mobile
buying experience and
eliminating the need for
things like user names and
passwords and instead
letting customers pay in a
single touch,” wrote Ready
in a blog post.
StubHub, an online ticket
marketplace, reported a 13
percent increase in order
value through PayPal as
well as a nearly a 50 percent
increase in total sales and
transactions through PayPal
on iOS with One Touch, the
company said. It is rolling
out One Touch with PayPal
in in Australia, Canada,
France, Germany, Italy, the
Netherlands, Spain, Sweden
and the UK.
Tim Clem, product
director at GitHub, told the
Braintree web site: “GitHub
has been using Braintree to
process credit card payments since we launched
in 2008, and the new
APIs supporting PayPal fit
seamlessly into our existing billing system. Thanks
to the Braintree integration, it’s easy for us to offer
PayPal as a payment option
to the more than six million
developers who use GitHub
already, and to reach new
users who prefer to use
PayPal.”
“Now a lot of our new
customers are mobile
first,” said Nayar, “and the
paradigm is shifting where
their first interaction with
the internet, let alone with
retail or shopping, is from a
mobile device.”
Integrating Online and
Point of Sale (POS)
PayPal is also expanding
from a mostly online pay-
ments service to promoting point-of-sale (POS) in
physical retail stores. In
2010 and 2011, it made a big
push into stores like Home
Depot and worked with
Discover to roll out PayPal
at POS locations around the
world.
PayPal has realised that
many retailers have a difficult time integrating their
online and physical businesses.
Nayar has seen the retail
challenges himself with
a national clothing chain
which sends him online
discount coupons because
he buys a lot from the store.
But he doesn’t shop at the
online store; he goes to a
branch that is on his way to
work. To use the coupons,
he has to go online and
redeem them at the physical store. But if he wants to
return an item, he can’t go
to the store he drives every
day, he has to ship it back.
The retailer hasn’t integrated the two channels.
PayPal offers a single way
to pay online or in stores,
using credit cards or PayPal
credit, debit, prepaid cards
or loyalty points, all stored
on a phone.
Chris Marcus, a spokesman for PayPal, said that
PayPal can offer its large
merchants, like Foot Locker
and Abercrombie & Fitch,
a comprehensive payment
method for online and at
physical store checkout.
PayPal also makes it easy
for customers to redeem
coupons in either place, he
said.
Helping retailers with
integration is a core focus at
PayPal.
“{Bill} Ready is driving
real integration for developers and the merchants
those developers serve,”
said Nayar. “We provide
integration with multiple
ways to pay, which is a huge
step forward. We provide
consumers options and we
make PayPal the best option
for them.”
Speaking from rural Vermont where he was visiting
his in-laws over Christmas,
Nayar was pleased to see he
could pay with his phone at
local stores, even in an area
where people are outnumbered by cows.
“There’s a lot more interest and a lot more people
testing what is possible from
a consumer point of view.”
Mobile payments grow
fastest in cities, though,
especially when people
become accustomed to using their phones to pay for
trains and buses.
Nayar said Japan has had
mobile payments for subways and the convenience
stores around them, for
more than a decade.
“We are seeing a lot of
mobile phones adoption in
developing markets. For
users there, this is their first
access to all these things
mobile, including payments
and the internet. They don’t
have the same level of reticence because they haven’t
moved from desktop to
laptop to mobile. They are
coming to mobile to start.”
One of the most popular
uses of mobile is ordering
and paying for coffee and
then just swooping in and
picking it up with no wait
in line — filling a need most
people didn’t know they
had.
“We have been doing a
lot of work on order ahead
with independent coffee
houses in Sydney,” Nayar
said. “Now there are more
than 2,000 coffee shops
where you can order your
coffee ahead. It clearly was
fixing a consumer need. One
coffee shop would adopt and
they would see a boost in
sales, while other neighbouring coffee shops would
see a drop, so merchants
clamoured for it. While consumers liked that they could
go to the front of the line
and grab their coffee.”
Similar services are also
available in some sports
stadiums where the lines at
concession stands can be
long.
Mobile payments are just
taking off and PayPal is well
positioned with its Braintree
and Venmo acquisitions,
and the expansion of One
Touch across its whole
product line, to maintain a
leadership position. IFM
29
30
It’s a matter of who
blinks first
Either one of big oil producers will cut supply or a non-conventional
producer will go bust
Peter Taberner
31
OIL PRICES
A
32
s oil prices
continue to fall
precipitously, the
economic fallout
can be felt across Europe,
in what is a game-changing
development.
Brent crude oil per barrel has dipped below the
symbolic $50 per barrel,
and has been trading for as
relatively little as $45.75,
the lowest in the past 10
years.
The price of WTI crude
has fallen even further,
beneath the $45 per barrel
mark, and has only been
lower over the past decade
in 2009, in the midst of the
severe global recession.
Bank of America Merrill
Lynch’s latest Global Energy
Weekly Report states that
the supply side is the main
driver of the reductions in
the price of Brent crude oil.
According to the report,
Libyan oil production is
making a comeback while
Saudi Arabia has failed so
far to react to the changed
circumstances.
OPEC has all but given
up its traditional role of
keeping supply and demand
in check, and the policy to
continue oil production
at the same level has been
backed by the United Arab
Emirates, who believe that
shale oil producers are necessary, and that the market
will stabilise.
Sabine Schels, head of
fundamental commodities
research, for the Bank of
America Merrill Lynch’s
Graph 1: World economic growth,% change y-o-y
World
“
There has been an
increase in production
from sources such as the
shale oil boom in the
US. This ensures that
the crude oil process is
not as sustainable for
the non-conventional oil
producers.
Diego Valiante,
2014E*
US
Euro-zone
Japan
OECD
head of capital markets and a
research fellow at the Brussels
based Centre for European
Policy Studies
2015F*
China
India
Brazil
Russia
0.0
2.0
* E = estimate and F = forecast.
Source: OPEC.
4.0
6.0
8.0
OIL PRICES
global research department, said: “Cuts in the
non-OPEC supply of oil will
not come very easily, as the
operating cash costs are
below $40 per barrel.”
“Despite lower prices,
due to fuel efficiencies, we
expect a six month lag and
a limited response from
OECD countries. It will be
up to China and India to
deliver the bulk of global oil
consumption for this year
and next year.
“50% of the demand for
oil over the past 10 years
came from oil producing
countries, a worrying trend
when economic growth in
the Middle East is slipping
and Russia is heading for
recession.”
The Bank of America
and Merrill Lynch report
says that the market can be
rebalanced, only by destroying market based supply,
or if incremental demand
increases as prices continue
to fall.
Even though they see a
growing risk that prices
could drop even further to
$35 a barrel for WTI crude,
and $45 for Brent, for 2015
they forecast average prices
of $72 and $77 per barrel,
respectively.
Diego Valiante, head of
capital markets and a research fellow at the Brussels
based Centre for European
Policy Studies, reflected:
Graph 1.1: Crude oil price movement, 2014
US$/b
US$/b
OPEC Basket
WTI
02 Dec
25 Nov
18 Nov
11 Nov
04 Nov
28 Oct
21 Oct
14 Oct
07 Oct
30 Sep
60
23 Sep
60
16 Sep
70
09 Sep
70
02 Sep
80
26 Aug
80
19 Aug
90
12 Aug
90
05 Aug
100
29 Jul
100
22 Jul
110
15 Jul
110
08 Jul
120
01 Jul
120
Brent Dated
source: OPEC
33
OIL PRICES
Graph 2: World oil demand and non-OPEC supply
growth, y-o-y
mb/d
1.90
1.70
1.50
1.30
1.10
0.90
2014E
2015F
2015F
Jul 13
Aug 13
Sep 13
Oct 13
Nov 13
Dec 13
Jan 14
Feb 14
Mar 14
Apr 14
May 14
Jun 14
Jul 14
Aug 14
Sep 14
Oct 14
Nov 14
Dec 14
2014E
World oil demand
Non-OPEC supply
E = estimate and F = forecast.
Source: OPEC.
34
Table 5.2: Non-OPEC oil supply in 2015, mb/d
Americas
of which US
Europe
Asia Pacific
Total OECD
2014
19.67
12.67
3.56
0.50
23.72
1Q15
20.29
13.20
3.68
0.53
24.50
2Q15
20.65
13.65
3.53
0.54
24.72
3Q15
21.11
13.95
3.42
0.53
25.07
4Q15
21.38
14.06
3.64
0.50
25.52
2015
20.86
13.72
3.57
0.53
24.96
Change
15/14
1.20
1.05
0.01
0.02
1.23
Other Asia
Latin America
Middle East
Africa
Total DCs
3.51
5.01
1.34
2.41
12.26
3.59
5.18
1.37
2.44
12.58
3.55
5.12
1.36
2.40
12.42
3.51
5.14
1.34
2.38
12.37
3.46
5.07
1.33
2.35
12.22
3.53
5.13
1.35
2.39
12.40
0.02
0.12
0.01
-0.02
0.13
FSU
of which Russia
Other Europe
China
Total "Other regions"
Total Non-OPEC production
Processing gains
13.41
10.56
0.14
4.24
17.80
53.78
2.16
13.41
10.56
0.14
4.29
17.84
54.92
2.17
13.32
10.54
0.14
4.27
17.73
54.87
2.17
13.29
10.53
0.14
4.29
17.72
55.16
2.17
13.34
10.55
0.14
4.35
17.83
55.58
2.17
13.34
10.54
0.14
4.30
17.78
55.13
2.17
-0.08
-0.02
0.00
0.06
-0.02
1.35
0.01
Total Non-OPEC supply
Previous estimate
Revision
55.95
55.91
0.04
57.10
57.07
0.03
57.05
56.85
0.20
57.33
57.04
0.28
57.75
57.65
0.09
57.31
57.16
0.15
1.36
1.24
0.12
Non-OPEC oil supply is forecast to grow by 1.36 mb/d in 2015 to average 57.31 mb/d, representing
an upward revision by 0.12 mb/d from the previous MOMR. There have been various upward and
downward revisions to the 2015 supply forecast, coming from changes to the 2014 supply forecast
and historical revisions from 2013. Non-OPEC supply is expected to experience increases in all
quarters of 2015 on a y-o-y basis.
“The reason why the prices
have fallen is down to the
dynamics of supply and
demand. It’s a retaliation
from conventional sources
of oil production, countries
like the US or Saudi Arabia,
against the less conventional producers, which place oil
in the market.
“There has been an
increase in production from
sources such as the shale
oil boom in the US. This
ensures that the crude oil
process is not as sustainable
for the non-conventional oil
producers.”
Valiante believes that
oil prices will remain as
low as they are for the next
few months, but is unsure
whether the current low per
barrel prices can stretch into
most of this year.
He is certain it will not
fall further to £40 a barrel,
as that would spell disaster
OIL PRICES
Table 5.4: OPEC crude oil production based on secondary sources, tb/d
2012
1,210
1,738
499
2,977
2,979
2,793
1,393
2,073
753
9,737
2,624
2,359
Total OPEC
OPEC excl. Iraq
2013
1,159
1,738
516
2,673
3,037
2,822
928
1,912
732
9,586
2,741
2,356
1Q14
1,128
1,600
537
2,774
3,217
2,797
371
1,898
733
9,702
2,745
2,341
2Q14
1,158
1,646
541
2,768
3,266
2,786
222
1,895
729
9,675
2,749
2,337
3Q14 Sep 14 Oct 14 Nov 14
1,167 1,161 1,157 1,154
1,688 1,724 1,703 1,661
544
543
539
541
2,758 2,754 2,750 2,750
3,150 3,326 3,308 3,359
2,794 2,805 2,758 2,699
614
783
887
638
1,954 1,960 1,926 1,936
733
722
714
691
9,747 9,673 9,650 9,590
2,791 2,773 2,721 2,705
2,329 2,336 2,331 2,331
Nov/Oct
-3.3
-41.8
1.7
0.0
50.8
-59.4
-248.3
9.8
-22.7
-60.1
-16.6
0.0
31,135 30,198 29,841 29,772 30,268 30,560 30,443 30,053
28,155 27,161 26,624 26,506 27,118 27,234 27,135 26,695
-390.1
-440.9
Algeria
Angola
Ecuador
Iran, I.R.
Iraq
Kuwait
Libya
Nigeria
Qatar
Saudi Arabia
UAE
Venezuela
Totals may not add up due to independent rounding.
According to secondary sources, OPEC crude oil production, not including Iraq, stood at 26.69 mb/d in November, down by 0.44 mb/d
over the previous month.
source: OPEC
for the oil industry.
The reduction in prices
is not a full indication of
economic activity slowing
down in Europe he says, and
is a less significant factor
compared to the fall in 2008
and 2009.
“There is little doubt that
the economic culture at
the moment is more risk
adverse, there is a negative outlook. It is difficult
to make an assessment on
how oil prices will affect the
job market, as there will be
more disposable income in
the economy, but again the
negative outlook will affect
the investment needed to
create more employment,”
Valiante added.
One drastic effect of the
oil price situation is the contribution that it has made
to deflation in the Euro
zone, as confirmed by recent
Eurostat figures.
In December last year,
annual inflation slipped
to -0.2%, compared to the
same month last year, a significant fall from the 0.3%
inflation that was recorded
in November.
Energy prices were the
sole main driver of deflation, with a 6.3% decrease,
while there was an increase
of 1.2% for the value of
services; food, alcohol and
tobacco prices, alongside
non-industrial goods, remained unchanged.
The consequence of
deflation for the Euro zone
is clear, especially as for
the second quarter of 2014,
the collective public debt to
GDP rose to 92.7%; deflation will result in more
resources being directed to
service debts.
In response, the ECB
might also be provoked into
action sooner than what
they expected over the deflation risk, where government
bonds may be purchased in
a bid to boost the inflation
rate.
The ECB is monitoring
the oil prices closely, especially as the plummeting
value of oil has significantly
contributed to deflation in
the Euro zone.
The Harmonised Index of
Consumer Prices (HCIP) inflation has been increasingly
forecast downwards by the
ECB, due to the oil prices.
From information available
up to mid-November last
year, HCIP inflation was
pegged at 0.5% for 2014,
a reduction from previous
predictions.
Lower inflation is a
positive upshot from the
downward spiralling of oil
prices, as consumers should
feel the benefits, which potentially could act as a boon
to some industry sectors,
including vehicle manufacturers.
Daimler, one of the largest vehicle manufacturers in
the world, believes it is too
early to say if there has been
a positive effect on sales following the fall in oil prices,
and the future of oil prices
remains unpredictable.
There is the possibility
that car sales could increase
due to the rise in real disposable incomes. Although
it’s likely to be a different
story for their truck production line, as many of their
markets are also oil exporting countries, which will be
affected negatively by the
current conditions.
How the oil market reacts
to the existing situation is
uncertain. Action for price
stimulation could include a
cut in production. Policymakers and consumers alike
will be keeping a close eye
on ongoing developments to
see who blinks first. IFM
35
Falling gas prices mean more money
in the pockets of Americans,
which could boost the economy
Tom Groenfeldt
36
OIL PRICES
W
ulf Brothers Heating
& Cooling,
with 30
trucks on the road in Door
County, Wisconsin, has
enjoyed the savings of dropping gas prices.
“It’s made a huge difference,” said Cap Wulf, president of the company, which
operates 250 miles north
of Chicago. “We’ve seen a
steady decline in the cost of
fuel; it’s down a buck and a
half, which is a refreshing
change.”
Gasoline (petrol) prices in
the US have dropped to less
than $2 a gallon (3.78 litre),
including state and federal
taxes. For most Americans,
it is great news — Wells Fargo estimates families could
save $250 to more than
$800 a year, depending
on their driving. AAA, the
American Automobile Association, says the 102 days
of declining gas prices put
$14 billion into the pockets
of American consumers.
At the same time,
a continued low price
would threaten more than
200,000 jobs in oil producing states. In the 1980s, a
drop in oil prices devastated
some of the Texan economy,
but economists say the state
is much more diversified
now and a prolonged reduction in oil prices won’t have
such a huge impact on its
economy.
Causes are debated
Energy forecasters are
cautious about predicting when and where the
price will settle. Partly, that
reflects some confusion
about what is driving the
drop in oil prices — are low
oil prices just a function of
Saudi Arabia’s determination to maintain its market
share; an effort by a USSaudi alliance to hit Iran
and/or Russia by depressing
the oil income they desperately need; a Saudi effort
to drive high-cost shale oil
producers out of the market;
or all three?
Others point to a surplus
in oil production, 1-2 million barrels a day, without
seeking to determine players’ motivations. A stalled
economy in Europe, slower
than predicted growth in
China and reduced demand
in Japan have contributed
to the price reductions.
Although the US economy
added 252,000 jobs in December, and unemployment
fell to 5.6 percent, many of
those new employees are in
low wage jobs. In addition,
US labour participation was
only 62.7 percent in December, down from 65.9 percent
in December 2004, suggesting a lot of workers have
simply given up on finding
jobs and dropped out of
the labour force. If those
workers were still counted
in the job force, American
unemployment would be
more than 10 percent.
Demand for gas has declined also because American cars and trucks are
getting better fuel economy,
or at least they were until
gas prices dropped. Bloomberg reported that “gasoline
consumption has dropped
3.7 percent since 2010 even
as the number of miles traveled on US highways rose
0.8 percent.”
Low prices may change
those stats — Detroit has
been happy to see buyers
coming back looking for
pickup trucks and large
SUVs, which have very high
margins and higher gas
consumption.
“Pricing is strong across
most of the industry with
the exception of the hybrid/
alternative energy segment,
which dropped 1.2 percent
as gas prices hit a five-year
low,” said Alec Gutierrez,
senior analyst for Kelley
Blue Book, an auto pricing
and information service.
“Lower gas prices will
further help the market for
trucks and utilities, which
are traditionally popular in
December.”
Millennials are also playing a role in reducing gasoline consumption. Many
are moving to cities and
using mass transit, which
doesn’t interfere with their
right to text. While it used
to be common for young
people to practice driving
and get a licence as soon as
they turned 16, now many
are waiting to drive or not
planning to get a licence at
37
OIL PRICES
38
all. The percentage of high
school seniors with a driver’s licence dropped from
85 percent in 1996 to 73
percent in 2012. Some academics have suggested that
teens find they can hang
out with friends through
their phones, eliminating
the need to drive to meet in
person. Cars, and insurance,
are expensive, and between
Zip Car and Uber, the need
to own a car of your own has
declined, at least in cities
where the services are available. (Warning: these trends
are sometimes subject to
wishful reporting by urban
journalists who often think
everyone should live the
way they do.)
Oil stockpiles grow
The FT reported that
Chinese oil imports in
December topped 7 million
barrels per day for the first
time, suggesting the country
is taking advantage of low
prices to build up its reserves. Reuters has reported
that some major trading
firms are leasing supertankers for up to 12 months to
hold oil in the expectations
of better prices in the future.
“Brent crude is now
around $8 a barrel higher
for delivery at the end of
2015, with its premium rising sharply over spot prices
this week due to forecasts
for a large surplus in the
first half of this year, in a
market structure known as
contango,” Reuters said.
The oil markets are in
contango, the term for when
future prices are higher than
current spot prices. The
FT recently reported ICE
February Brent was $48.80,
more than $12 a barrel below prices for delivery a year
from now. Even at $44,000
a day, a 2 million barrel
tanker would generate a
profit of $16-plus million if
prices rose just $8, providing what George Johnson
at KPMG said is an “almost
risk-free profit.”
But futures markets are
nothing without hedging, so
note the “almost”.
Even a quick Google
search provides reason for
caution. In the New York
Times, veteran financial
columnist James B. Stewart
quoted Denton Cinquegrana, chief oil analyst for
the Oil Price Information
Service: “The national
average for a gallon of gas
is already below $3 and
headed lower.” That was
December 5. A month
later that projection seemed
quaint — gas was an average
of $2.13 across the country
and below $2 in 18 states.
The pace of the decline, as
Google citations show, has
been stunning and may well
continue as more capacity
comes on-line in Libya and
the Western hemisphere
while Iraq maintains its
production levels.
The role of politics
The US has banned the
export of crude oil since
the mid-1970s, but a recent
announcement from the
Bureau of Industry and Security authorised the export
of condensate, a very light
oil, which could amount of
640,000 barrels a day now
and go up to 1.8 million by
2020. A limited amount of
condensate is used to blend
with heavier oils, but mostly
it is used as petrochemical
feedstock, more in South
America, Japan and China
than in the US where petrochemical plants mostly use
ethane, a cheaper natural
gas liquid.
Texas Sen. Ted Cruz,
who is expected to run for
President, has been pushing for an end to the crude
oil export ban, a position
supported by the American
Petroleum Institute, and
majors like ExxonMobil and
ConocoPhillips. Refiners
oppose lifting the ban and
surveys show many Americans fear that lifting it will
lead to higher gas prices.
The oil price drop isn’t
universally welcomed, of
course. Big oil companies,
like ExxonMobil, have been
investing in development of
new fields expecting oil to
OIL PRICES
sell at $100 a barrel, so they
face the question of continuing with developments —
often very long-term — or
shutting them down and
restarting after oil prices
rise. Even when oil was
over $100 a barrel, major
oil companies consistently
needed to borrow to cover
their exploration and developments costs, the Wall
Street Journal reported.
Some of the smaller production companies issued
high-yield bonds; JPMorgan
Securities has estimated
that 40 percent of the high
yield energy securities could
default by 2017 if oil prices
remain below $65. Bankruptcy of some shale producers would accomplish
one of the goals attributed
to the Saudis.
Downside of low oil
prices
The energy web site,
oilprice.com, noted: “According to an assessment
from the Federal Reserve
Bank of Dallas, an estimated
250,000 jobs across eight
US states could be lost in
2015 if oil prices don’t rise.
More than 50 percent of
those job losses would occur
in Texas, which leads the
nation in oil production.
“Conversely, the jobs created within the energy space
are some of the highest
wage paying opportunities
available in engineering,
technology, accounting, legal, etc. In fact, each job created in energy-related areas
has had a ‘ripple effect’ of
creating 2.8 jobs elsewhere
in the economy from piping
to coatings, trucking and
transportation, restaurants
and retail…”
For those who aren’t
from Texas, the sharp drop
in gas prices makes this an
excellent time to raise taxes.
The New York Times notes
the federal tax on gas is 18.4
cents and hasn’t changed
since 1993, leaving the federal government’s highway
fund in danger of running
out of money by May. Easy
for New York Times editorial writers to say — they
ride subway cars to work
and don’t have to worry
about getting re-elected, but
an increase in the gas tax
is also being proposed by
a few Republican senators
and several Republican
governors. IFM
Intricacies of the oil business
T
he oil business is complicated. Jesse Thompson, a business economist at the Dallas
Federal Reserve Bank, wrote
about the plans to export condensate
whose production has been boosted
by new supplies from the Eagle Ford
Shale region of South Texas for the
bank’s quarterly magazine. In “Producers, Refiners View Strategies to
Trim Texas’ Glut of Ultralight Condensate Oil,” he notes that some exporters have skirted the ban on crude
exports and regulators have allowed
condensate exports by two firms.
Firms can invest in splitters that
“cut the condensate into lighter and
heavier parts that then qualified as
‘refined’ products under the law.”
So they can be exported. His article
noted that Kinder Morgan Energy
Partners is building a $360 million
complex on the Houston Ship Channel
to store, split and export products derived from condensate. It is expected
to be operating by the second half of
this year.
“Indeed, some firms have taken it
upon themselves to export stabilised
condensate from Texas without an
export permit, both testing regulators’
will to enforce the ban and, perhaps,
forcing a clarification of the rules.”
Texas has, after all, often thought it is
a law unto itself.
‘Refiners are getting as much of the
light stuff as they wanted,” explained
Thompson. “The refiners’ agility is
limited by cost — if you go too light
on your oil mix coming into a refinery,
then components of your refinery for
heavy stuff stop being used optimally
and the marginal cost for their total
throughput goes up.”
Some firms have been asking
whether they should invest in a
condensate splitter — BHP Billiton
has theirs up and running. Argus, an
industry publication, reported the
company “said it is planning to export
condensate without seeking preapproval, believing its process meets
the standards approved for the other
companies.”
If the condensate isn’t exported, it
could lead to lower prices for Ameri-
can producers, Thompson said.
“Trapped oil depresses prices.” But
if it is exported and used in petrochemical plants abroad, the condensate could help foreign producers
compete with US petrochemical
plants.
“Our big advantage is ethane, which
is very, very cheap, and probably will
stay that way for a long time,” said
Thompson. “Oil is more expensive
than natural gas and ethane, so we
have a significant cost advantage
that we didn’t have before shale. As a
result, there has been lots of investment to build petrochemical plants
for exports based on ethane. Exports
of US condensate could cause a lot
of that production to see increased
competition from foreign producers
who use petrochemical naphthas or
ultra light crude.”
The primary market for Texas
exporters of condensate is South
America and Asia; South America because it is so close and Asia because
the demand is so great, he added.
39
40
Mixed possibilities FOR
Nigeria
While the government is struggling due to lower revenue, the weak naira
offers an opportunity for foreign investors
Samuel Okocha
OIL PRICES
T
he global slump in
oil price presents
both challenges
and opportunities for Africa’s biggest
economy, according to analysts. As Africa’s largest oil
producer, Nigeria depends
on crude exports for 70% of
government revenue while
oil accounts for nearly 90%
of its foreign exchange earnings. But falling oil prices
has put pressure on the national currency and affected
revenue projection.
The increasing pressure
arising from the defence of
the naira forced the Central
Bank of Nigeria to devalue
the currency by 8%, fixing
the official exchange rate at
N168 to $1 instead of the
old rate of N155 to $1. But
the currency continues to
tumble in the free market,
exchanging for as much as
around N190 to 1$.
Lower oil prices forced
Nigeria to trim its 2015
budget by 12 percent after
it slashed its benchmark oil
price to $65 from an earlier
$78. Oil has, however, continued to trade below $50,
more than 60% drop since
June and the lowest in more
than five years.
‘’If oil price remains at
this price, the government
will find it difficult to meet
its obligations such that it
may be forced to increase its
domestic borrowing,” Ayodeji Ebo, head of research at
Afrinvest West Africa Ltd in
Lagos, said by phone. “This
year, we expect borrowings
to cross over N1tn because
of the need to finance the
recurrent expenditure.’’
Nigeria’s budget estimate
for 2015 shows the recurrent expenditure increased
by about 6.5% while capital
expenditure declined by
43%. As a percentage of aggregate expenditure, capital
expenditure accounts for
only 14.5%, a sharp decline
from 2014 when capital
expenditure amounted to
23.7%.
“We expect that with the
challenged revenue, the
government may not be able
to embark on significant
capital expenditure,” Ebo
notes. “That means less
infrastructural development
this year.’’
With the ‘weak macroeconomic structure’, Ebo says,
the country’s risk premium
(CRP) has increased. ‘’Overall, things will be challenging, especially because of
the projection that oil price
may go as low as $30 per
barrel,’’ he adds.
Despite the challenges,
however, an increasing
proportion of multinationals
continue to put Nigeria on
their watch list for potential
future investment. That’s
according to the latest Wall
Street Journal Frontiers/
FSG Frontier Market Sentiment Index.
The index tracks frontier
markets major European
and American firms are
focusing their attention
on and reveals trends in
corporate thinking by tracking the rate of change in
corporate sentiment among
clients of the Washingtonbased consultancy Frontier
Strategy Group. Nigeria
strengthened its position as
the most-watched frontier
market holding the top
spot since the index was
launched in June 2014.
According to WSJ, the
country’s problems may
provide an opportunity for
corporations looking beyond the short-term turmoil
to buy into Africa’s biggest
economy at a discount.
“Nigeria is about to enter
a world of hurt but these
are the times when you can
really make a difference –
both from investors’ point of
view and corporates’,” says
Matt Lasov, FSG’s global
head of advisory and analytics, in a report in WSJ.
The sharp devaluation of
the naira, according to the
report, will increase prices
of imported products and
allow companies that produce locally capture a huge
amount of market share
while the currency’s decline
will make the acquisition of
Nigerian assets cheaper for
foreign firms. IFM
“
If oil price remains at
this price, the government will find it difficult
to meet its obligations
such that it may be
forced to increase its
domestic borrowing
Ayodeji Ebo,
head of research at Afrinvest
West Africa Ltd in Lagos
41
42
Rouble
woes
The fall in oil prices could not have
come at a worse time for Russia, which
was already reeling under the effect
of Western sanctions
Tim Evershed
43
ECONOMY
A
44
fter staging a
brief rally at the
end of last year,
the woes of the
Russian rouble have returned this year as oil prices
continue to tumble.
In early trading on
January 14, Brent crude
had dropped 79 cents to
$45.80 a barrel, a level that
poses serious problems for
the Russian economy. The
falling oil price has seen the
rouble drop to 66 to the US
dollar.
Now investors and analysts are bracing for a cut
in Russia’s rating to below
investment grade status.
Fitch has already cut the
country’s rating just to
the brink of junk.
Russia is currently rated
BBB by
Fitch, BBB
by S&P,
both one
notch
above junk,
and Baa2
by Moody’s, two notches
above.
Regis Chatellier, director of EM sovereign credit
strategy at Société Générale,
says: “Russia is currently
rated BBB by S&P, but the
country was put under
negative watch two weeks
ago, hinting at a likely
downgrade in the next few
weeks.
“A downgrade from
Moody’s may come pretty
much at the same time:
statistically, nearly 60% of
the rating actions are taken
within the three to nine
months after being placed
under negative outlook status; as Moody’s put Russia
in negative outlook back in
October last year, a rating
BBB- from BBB
last week.
In the statement explaining
its downgrade,
Fitch noted that
the economic
outlook has
deteriorated
significantly
since mid-2014
following sharp
falls in the oil
price and the
rouble, coupled
with a steep
rise in
interest
rates.
action
from Moody’s is therefore
likely to come roughly at the
same time as that of S&P.”
In December 2014, S&P
said it was reviewing Russia’s credit rating, with at
least a 50% chance that
it would lower the rating
within the next 90 days.
A Moody’s spokeswoman
said it “keeps the market
updated with the likely direction of an issuer’s rating,
either through outlooks that
we assign or placing ratings
on review as credit conditions warrant”.
Fitch downgraded Russia’s long-term foreign
and local currency Issuer
Default Ratings (IDR) to
Western sanctions, first
imposed in March 2014, are
continuing to weigh on the
economy by blocking access
to external markets for Russian banks and corporates.
“Having grown by just
0.6% in 2014, Fitch now
expects the economy to
contract by 4% in 2015,
compared with our previous forecast of minus 1.5%,
as steep falls in consumption and investment are
only partially offset by an
improvement in net exports,
driven by a sharp drop in
imports.
“Growth may not return
until 2017. Plunging oil
prices have exposed the
close link between growth
and oil prices, notwithstanding the impact of a
more flexible exchange rate.
For 2015, Fitch is assuming oil prices average $70/
bbl, markedly lower than
the $100/bbl we assumed
in July 2014. If the oil price
stays well below this, it
could precipitate a deeper
recession and put further
strain on public finances,
severely limiting the authorities’ room for manoeuvre.”
The depreciation of the
rouble combined with intense market volatility and
sharp hikes in policy rates
to 17% from 10% have given
the Russian banking sector
a major shock. The authorities have stepped in to preserve financial stability,
doubling the cap on
insured deposits.
Inflation
ended
2014 at
11.4%
yearon-year and is
likely to remain in double
digits throughout the first
quarter of January 2015.
Fitch also noted a serious depletion of Russia’s
international reserves,
which ended the year at less
than $390bn, down more
than $120bn from end-2013
and lower than our previous forecasts of $450bn by
end-2014 and $400bn by
end-2015.
Fitch said: “Economic
policy coherence and credibility in the face of external
shocks remain important
supports for the rating. The
authorities have acted swiftly in raising interest rates
and supporting the financial
sector and plan early revisions to the 2015 budget.
ECONOMY
CLG15 - Crude Oil WTI (NY MEX)
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CLx1:47.82
Vol: 1052048
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Dec
Jan 15
Yahoo Finance
However, Fitch expects the
policy framework to come
under growing pressure
as external vulnerabilities
weigh on the macroeconomic outlook.”
The key to the woes of
both Russia and its battered
currency is the slump in oil
prices although Western
sanctions over the Ukraine
crisis have also deterred
foreign investment and
spurred capital flight.
Russian finance minister
Anton Siluanov has said
that the Russian economy
could shrink by 4% in 2015
and the country would run
a budget deficit next year if
the oil price did not rise.
“We need to have our
budget break even at $70
per barrel by 2017,” said
Siluanov, who also admitted that the country might
have to use its rainy day
Reserve Funds to prop up
the economy if the crisis
continues.
The rouble had dropped
to all-time lows of 80 to the
dollar before Christmas.
A rally in January saw it
reclaim some lost ground
before it fell back to 66 to
the dollar. That is about half
Nasdaq
the level it traded at during
the first half of 2014.
Russians consumers are
being hard hit by the falling
rouble particularly those
purchasing imported goods.
Even before the fall in the
oil price, the International
Monetary Fund had predicted Russia would grow only
0.2% this year and 0.5%
next year. This makes the
country by far the slowest
growing of the BRIC economies. Economic growth next
year is now likely to be even
lower than forecast.
Gavin Keeton of the
economics department at
Rhodes University in South
Africa, says: “Oil and gas
sales make up 68 percent of
Russia’s exports and more
than half its tax revenue.
Export earnings have
plummeted in dollar terms
and, because of the weaker
rouble, the cost of imports
has soared.”
In 1998, Russia defaulted
on its debt, setting off a
chain reaction that became
a crisis for emerging markets. It had begun the previous year in East Asia, when
foreigners started withdrawing their investments from
Thailand and South Korea
when it became clear these
countries could not repay
their foreign borrowings.
Keeton says: “When Russia defaulted on its debt,
investors began treating all
emerging markets as equally
risky, regardless of their
differing economic circumstances or levels of foreign
debt. This lead to the joke
‘Emerging markets are markets from which you cannot
emerge in an emergency’.
“Fortunately, few commentators are predicting
that recent events in Russia
will precipitate a similar
global crisis. Important
lessons were learnt in 1998,
including the need to let
exchange rates adjust in
response to large capital
outflows. Hopefully, in
similar circumstances, the
mistakes, which in 1998
led to localised problems
escalating globally, would be
avoided.” IFM
“
Oil and gas sales make
up 68 percent of Russia’s
exports and more than
half its tax revenue.
Export earnings have
plummeted in dollar
terms and, because of the
weaker rouble, the cost of
imports has soared.
Gavin Keeton,
economics department at
Rhodes University in South
Africa
45
46
Not
so
cool
Impact of the removal
of the cap on the Swiss
franc is being felt across
Europe and beyond
Tim Evershed
T
he surprise decision by Swiss National Bank
(SNB) to abandon its cap on the Swiss franc has
had far-reaching consequences across Europe.
From banks to spread betting firms, currency
traders to borrowers, tour operators to jewellers, the affects
have been widely felt and have often been quite serious
The SNB caught the financial markets off guard with the
announcement on January 15 that it was discontinuing its
exchange-rate “ceiling”, which had been set at CHF1.20 to
€1. In the wake of the decision, and reflecting the franc’s
ongoing appeal as a safe haven asset, the currency spiked to
CHF0.87 to the Euro but has since settled to around one to
one with the single currency.
The 1.20 francs per Euro cap, introduced at the height of
the euro zone financial crisis in 2011, was always regarded
as a temporary measure. However, markets have grown
accustomed to the control. The swiftness of its removal and
the SNB’s failure to communicate its intention or soften the
47
CURRENCY
The 1.20 francs per
Euro cap, introduced at
the height of the euro zone
financial crisis in 2011, was
always regarded as a temporary measure. However,
markets have grown
accustomed to the
control. The swiftness of its removal
and the SNB’s
failure to communicate its
intention or
soften the
impact
has
48
T
he surprise decision by Swiss National Bank (SNB)
to abandon its cap
on the Swiss franc has had
far-reaching consequences
across Europe. From banks
to spread betting firms, currency traders to borrowers,
tour operators to jewellers,
the affects have been widely
felt and have often been
quite serious
The SNB caught the
financial markets off guard
with the announcement on
January 15 that it was discontinuing its exchange-rate
“ceiling”, which had been
set at CHF1.20 to €1. In the
wake of the decision, and
reflecting the franc’s ongo-
ing
appeal
as a safe haven asset, the
currency spiked to CHF0.87
to the Euro but has since
settled to around one to one
with the single currency.
caused
consternation in many
quarters.
The SNB justified
its policy change on the
grounds that the degree
of overvaluation in the
Swiss franc is now less than
when the ceiling was first
imposed back in late 2011,
at the height of the euro
zone sovereign debt crisis.
Although the precise reason
for the policy shift seems
likely to remain a secret, it
looks as if the bank timed
its decision to abandon the
ceiling to broadly coincide
with prospective sovereign
bond purchases by the ECB.
This was due to the assumption that the euro would fall
further in value with these
purchases and take the
Swiss franc with it.
The decision certainly
took investors and currency
traders by surprise. Bets by
speculators that the Swiss
franc would weaken were at
their highest level in nearly
two years and many investors were left frantically
trying to close positions as
the franc soared in value.
Major banks were hit,
with the losses suffered by
Citigroup, Deutsche Bank
and Barclays estimated to
total around $400 million
while Credit Suisse and
Saxo Bank warned their
profits would be down.
However, Morgan Stanley
said it expects the impact to
be minimal while Bank of
America (BofA) bucked the
trend by making money for
itself and its customers.
BofA would not have
been the only winners with
foreign depositors in Swiss
CURRENCY
bank accounts seeing a
significant rise in the value
of their deposits compared
to local currencies.
The big losers were hedge
funds, forex brokers and
spread-betting firms that
were much harder hit.
UK-based foreign
exchange broker Alpari
became one of the biggest
casualties after filing for administration on January 19
due to its clients sustaining
heavy losses while US-based
foreign exchange broker
FXCM had to accept a
$300m lifeline from Leucadia National after concerns
that it would breach capital
requirements.
Meanwhile, hedge fund
Blue Crest has closed down
the trading books of one of
its senior currency traders.
And spread-betting firm IG
Group warned investors to
expect a dent in the company’s profits resulting from
£12 million of market losses
and £18 million of client
credit exposure.
There were also repercus-
sions in Eastern Europe, as
the rise in the Swiss franc
against the value of their
local currencies means an
increase in mortgage repayments. Franc-denominated
loans are popular across
Poland, Hungary, Austria
and Croatia.
Hungary has already
forced banks to convert
Swiss franc loans into local
currency credit at favourable rates and there are
growing calls for similar
moves in Poland and Croatia.
For years, banks in
Poland advised customers
to take out a mortgage in a
foreign currency, mostly the
Swiss franc, because the interest rate was much lower
than on a Polish zloty loan,
and the expectation was that
the zloty would appreciate.
An estimated 566,000
Poles have taken out Swiss
franc-denominated loans,
which accounts for almost
40% of the Polish mortgage
market. Those borrowers
were hit in 2009 when the
zloty lost value against the
franc and this week, the
Polish currency fell another
21% against the franc.
Switzerland is far from
immune to the consequences of the SNB’s decision
and Swiss companies are
already warning of a plunge
in exports, tourist revenues
and profits.
Exports make up 70%
of Switzerland’s GDP with
almost half of that coming
from trade with the Eurozone. The Economist Intelligence Unit has lowered its
growth forecast for exports
of goods and services in
Switzerland to 2% next year.
Overall economic activity
in Switzerland is also likely
to be compromised by weaker business investment,
as companies — especially
exporters — potentially
cancel new capital spending plans and/or postpone
replacement of existing
capital stock in response to
the additional uncertainty.
The famous Cartier
brand, which is owned by
49
“
Clearly, this is acutely
damaging for Swiss
tourism and will price
many people out of
Switzerland for their ski
holidays
Craig Burton,
managing director of the tour
operator Ski Solutions
CURRENCY
The country’s economy
is dominated by the service
sector, which includes banking, financial services, retail
and tourism.
Foreign tourists will find
that prices in Switzerland
could rise sharply along
with the value of the local
currency.
The rising strength of the
Swiss franc will further dent
the country’s share of the
UK ski market. British holidaymakers heading out to
Richemont, has announced
that it will increase prices
for watches and jewellery by
five percent in the euro zone
to limit the damage to its
margins following the surge
in the Swiss franc.
“We are going to raise
prices by 5% in the Eurozone. This applies to both
jewellery and watches, but
we are keeping prices in
Switzerland stable,” said
Cartier Chief Executive
Stanislas de Quercize.
hit by the economic issues
faced by Russia, as wealthy
Russians stay at home
because of the plummeting
rouble.
The reasons for the
SNB’s removal of currency
controls may remain a mystery outside of the bank’s
walls, but the impact of its
decision is being felt across
Europe and beyond. IFM
Swiss ski resorts this season
now face increased in-resort
costs in a country where
prices are already steep.
“Clearly, this is acutely
damaging for Swiss tourism
and will price many people
out of Switzerland for their
ski holidays,” said Craig
Burton, the managing director of the tour operator Ski
Solutions.
It is another blow for the
country’s top ski resorts,
which have already been
C
A5
72.5 % 457,693,371,548
A5
50
B
O
10.4 %
65,857,483,332
O
A
631,183,475,908
631,183,475,908
A
89.6 %
565,325,992,576
B
A3
26.8 %
168,874,388,714
68.6 %
432,880,216,679
A4
57.4 %
362,366,045267
O GDP (current US$}
A Gross national expenditure
O
GDP (current US$)
A
Agriculture, value added : 0.7 % 4,615,715,646
A5 % 70,514,171,412
B
Industry, value added
A6 Gross capital formation : 21.0 % 132,445,775,897
C
Services, etc., value added
A3 Final consumption expenditure, etc.
A4 Household final consumption expenditure
AS : General government final consumption expenditure :11.2
B External balance on goods and services
Help : How to read and make sense of the Circloid?
Each slice of a circle is the summation of the sub-slices in
the layer on top of it. i.e.
O=A+B
A=A3+A6
A3=A4+A5
Help : How to read and make sense of the Circloid?
Each slice of a circle is the summation of the sub-slices
in the layer on top of it. i.e.
O=A+B+C
Data Source: Worldbank: World Development Indicators
51
COLUMN
52
COLUMN
COLUMN
Peter Ku
Revolutionise
or fail
Tougher stress tests bring banks to an impasse
J
ust before Christmas the
results of the first stress testing
exercise for the UK banking
system were revealed. The
test scenarios modelled a financial
doomsday in which the housing market crashes, unemployment spikes and
inflation rises. The aim of the exercise
was to determine which banks had the
capital adequacy to survive extreme
fluctuations in market conditions.
Despite the Co-operative Bank
failing — and both Lloyds and RBS
narrowly escaping a similar black
mark — the supervising bodies are
confident that the UK banking system
has become significantly more resilient. However, with fears around the
Eurozone rising, fluctuating oil prices
and uncertainty over interest rates,
financial institutions cannot rest on
their laurels and assume that they’ll
pass the same tests again next year.
Regulators have already set out
their intentions to widen the remit
of stress testing and will use the next
year to probe even deeper for cracks
in the defences of UK banks. For those
banks that girded themselves strongly
enough to withstand the first round
of stress testing, the threat of tougher
test conditions and scenarios are just
around the corner.
Searching for stress fractures
UK banks are already gearing up for
these tougher tests. Santander passed
this year’s tests with flying colours
but the possibility of stress testing
against leverage ratio, a measure of
the banks’ ability to meet financial
obligations, could cause concern. As a
result, Santander UK has been handed
£300m by its Spanish parent to bolster
the bank’s capital position further.
However, the advent of more robust
tests will heap pressure on those banks
whose approach to compliance is now
more puncture-patch than tyre. In
the last banking crisis, a lot of banks
were unaware of their exposure to risk.
As a result, it’s no surprise that Mark
Carney, the governor of the Bank of
England, has already indicated that
overseas risk could also be a factor of
the next test. This scenario could prove
to be much more challenging for banks
53
COLUMN
54
who do a lot of their business in Asia.
Today’s financial institutions must be able to
determine exposures across
the business in real-time. To
do this, they have to have
the right information when
lending to new customers and understand how
much risk they are exposed
to across different divisions. The latter can only
be achieved by being able
to bring together data from
multiple sources.
For example, a mortgage
loan packaged as a mortgage bank security is traded
on the public market. Banks
need the ability to understand who that mortgage
belongs to and their credibility so that they have an
accurate view of counterparty risk exposure. In
turn, this means that
banks need to understand: what are the credit
conditions locally? What
are the interest rate fluctuations in other countries?
Who is the customer?
lowing firms to take advantage of best practices and
technology that allows for
efficient and effective execution. However, the amount
of data being produced versus the amount that needs
to be captured, consumed,
analysed and understood is
a challenge.
Banks can no longer just
continue appointing more
people or building specific
systems for each regulation.
The increased pressure from
regulators is already beginning to uproot the existing
gaps between people, technology and architectures
across traditional business
silos that have prevented an
enterprise wide view of risk.
With each round of regulation and impeding
deadlines
Reaching an impasse
Bank stress testing is a
fact of life for the global
financial industry to
help regulators monitor and measure
systemic risk
across markets. Satisfying
these demands
requires banks
to have adequate means
of accessing
and utilising
the right data
for ongoing
risk management and compliance. More
importantly, al-
has come another tackedon solution and another
patched-up process. This
approach has built a creaking, siloed and unwieldy
infrastructure for managing
data, reporting and compliance. A system that means
stress tests are as much a
test of reporting process as
they are of actual ability to
withstand tough economic
conditions. This chronic
underinvestment in people
and rudimentary tools has
brought banks to an impasse: revolutionise or fail,
extremely publicly.
The meta-data trail
In light of this, managing
data must be taken seriously and regulators are
forcing the board’s hand in
this matter. An organisation can’t continue
to blame their risk
and compliance
applications
for not being
able to meet
stress-testing
demands. The
root of all pains
is often the underlying foundation for managing the data
which feeds
those systems.
Regulators
require detailed
explanations
about the lineage
of data and how
information is captured,
transformed,
and calculated so that
they can
understand
the
amount
of capital
set aside to cover market,
credit, operational, and
liquidity volatility and risk.
Increasingly, the regulators are defining how data
should be managed and governed, as evidenced in BCBS
239. This could mark the
beginning of more stringent
audits and requirements
for firms globally. If banks
are to satisfy regulator
demands, a comprehensive,
scalable, enterprise wide
data management platform
will be a crucial investment
to create the transparency,
trust, speed and data audit
trail required. The success
of such a platform has a
number of technological
and process driven dependencies. To deliver on its
promise, it must be supported with access to all enterprise data, have rigorous
data quality management
enabled by data governance
and master data management, as well as integrating
with business and technical
metadata.
The difference in approach comes down to not
treating the regulations
as yet another separate IT
project or system. Instead,
banks must establish a common framework for risk,
compliance, sales, marketing, and customer facing
systems and operations.
Adopting this approach will
help provide insights into
where risk exposure is and
ensures transparency in
how data is handled from
the source all the way to
the reporting function. This
will also help reduce the
costs and risks of managing a ‘hairball’ of separate
systems and integrations.
Overhauling a data
infrastructure may seem a
COLUMN
55
daunting prospect to banks
built on a creaking tower of
legacy technology. However,
the persistence and growing power of the regulators mean that the current
patchwork and siloed
approach cannot continue.
Financial institutions need
to look at the underlying
systems to ensure that they
can give the regulators the
information they need on an
ongoing basis. If they are to
achieve this, banks can no
longer manage risk behind
the Chinese walls of business unit siloes.
The good news is that
support for data management projects is gathering
pace at the board level. Even
better news is that such a
project delivers above and
beyond the short-term
needs of providing better
access to data. Investment
in a common data management platform can provide
the means of avoiding
patchwork systems and oneoff processes of the past.
Through this, banks can
establish a foundation to
serve the data needs of the
enterprise for compliance,
growth, and cost reduction.
2015 will be a year of
change for banks and their
data strategies, but one
thing’s for certain; the
puncture-patch approach to
compliance has reached the
end of the road. IFM
About Peter Ku
Peter Ku is Senior Director of Global Financial
Services at Informatica
and is responsible for
Global Industry Marketing. He has 20 years’
experience evangelising,
educating and promoting
enterprise data management solutions to help
drive business success
across financial services.
He is an expert in enterprise information management strategy, architecture, and best practices
and a regular speaker,
blogger, and presenter
to the global financial
services industry.
About Informatica
Informatica (NASDAQ: INFA) is the
world’s number one independent leader of data
integration, data quality,
master data management, data security, and
cloud data management
solutions. Over 4,200
organisations, including
600+ financial service
companies, around the
world are gaining a
competitive advantage
with comprehensive,
timely, consistent, and
certifiably accurate data
to improve risk management, combat fraud,
ensure compliance, attract and retain customers, accelerate mergers
and improve operational
efficiencies.
ADVERTORIAL
56
Competitive advantage
is the key
The Mediolanum Asset Management Limited team believes that how
your business is positioned relative to your competitors will ultimately
determine your success
ADVERTORIAL
M
ediolanum
Asset Management Limited (MAML)
is the asset management
arm the Italian Mediolanum Banking Group, who
has had operations based
in Dublin for over 16 years.
At the recent International
Finance Magazine Awards,
MAML were presented with
the ‘Best Asset Management
Company Ireland 2014’ and
the ‘Most Innovative Investment Management Company Ireland 2014’. These
awards are a testament to
the continued hard work of
everyone involved at MAML
with regards to innovation
and product quality.
Identifying, establishing
and maintaining key competitive advantages within
the asset management industry is key to the survival
of a business and provides a
means to which the business can evolve and adapt
quickly to dynamic financial
markets and to changing
customer needs. Sustainable
competitive advantages cannot be implemented overnight and often take years
to implement successfully.
They should be unique to
your business and not easily
duplicated by competitors.
Predicting future trends,
constantly researching competitors, adapting to your
customers’ needs and wants
whilst incorporating the entire ‘customer journey’ will
cement a brand’s position.
Competition is a natural
and integral part of doing
business. How your business is positioned relative to
your competitors will ultimately determine your success. Competing on product
alone in a fiercely competi-
tive, saturated market, is
often difficult. The relationship you build with your
customers before, during
and after the purchase, offers tremendous opportunities to differentiate yourself
in the market.
MAML’s key differentiator is their continued focus
on client centricity. This
focus on client centricity
must be embedded into the
DNA of the organisation to
be successful. MAML has
established a culture that is
based on their core brand
values of investment quality, execution excellence and
client centricity and delivering them consistently to
our customers. This means
focusing on what customers
value most, in line with their
business strategy and brand
promise.
In such a dynamic
marketplace, businesses
that place such an emphasis on the customer will
thrive by delivering ontarget solutions that satisfy
client expectations every
time. MAML has a clear
understanding that no two
customers are the same
and that each has varying
needs and expectations.
This understanding has
allowed MAML to establish
the building blocks upon
which client solutions can
be developed and evolved.
Products evolution
Products evolution is key
and Mediolanum’s client
solutions are developed,
evolved and supported
through their proprietary
product development process MedInSynC®, which
embeds their core brand
values at the heart of all
of the investment solutions and services that they
deliver. This process is not
static, it is constantly evolving. This continuous evolution is due to the recognition that financial markets
and customer needs are
constantly changing. And
as such, so is the need for
product evolution. This is
achieved by listening to and
incorporating feedback from
not only their customers,
but from their distributors, instilling confidence
in both that Mediolanum
will deliver and continue to
deliver investment solutions
that are superior to their
competitors and will remain
relevant to their customers
over the long run.
MedInSynC® is complemented by MAML’s investment management process,
Med3®, which ensures that
MAML’s products specifically meet the needs of
investors and deliver on the
commercial promise upon
which they were originally
proposed. Med3® is based
on an active management
approach whereby investment opportunities are
identified through the use of
fundamental and technical
analysis, combined with
an appreciation of investor
sentiment and behavioural
biases.
Customer satisfaction
It is not a difficult concept
for product or service providers or their customers to
understand. If the customer
is 100% satisfied, then the
highest level of quality has
been achieved. Unfortunately, this is not possible all of
the time. As such, customer
satisfaction needs a constant
focus to ensure an improved
overall customer experience. This again involves the
57
ADVERTORIAL
platforms can best be described by IBM themselves,
“The introduction of data
warehousing and analytics platforms support the
company’s customer-centric
strategy – enabling more active, agile product management and faster delivery of
information to clients.”
58
entire customer journey —
from the very first time that
a customer engages with
your brand, right through to
the advice, the investment
stage and beyond! Many
firms tend to associate client
satisfaction based solely on
their product performance
and disregard the rest of the
journey. This can be rather
short-sighted and one that
can have serious repercussions for brand loyalty, as
returns and alpha are very
volatile even for the most
successful and competent
managers.
It is essential to constantly modify the current thinking on client satisfaction
and quality. Clients expect
investment solutions that
address their needs now and
into the future; distributors
expect investment solutions
that consistently deliver on
their commercial promise
and are of a higher quality
than those of competitors.
To build a truly customer
centric business, the central
starting point should always
be your customer. The customer journey and lifecycle
should be mapped out from
the outset. Its operating
model must enable customer centricity; technologies and processes should
be aligned so that they
support and drive customer
engagement. It is critical
to incorporate customer
feedback into processes
and behaviours, and it
must engage staff as well as
executives and leaders from
both inside and outside the
organisation.
In this context, the choice
of your product distributors
are key as they play a fundamental role in the client
experience. As such, a focus
on client centricity must
be engrained within their
DNA and not just in glossy
marketing materials.
Technology factor
Investment in technology,
such as digital media, analytics, cognitive computing
and ‘big data’ has become
a key basis of competition
and growth for businesses
today. A recent collaboration with IBM has allowed
Mediolanum to collect and
analyse quality-related
data that has guided their
action in the key areas of
client centricity, investment
quality, execution excellence
and innovation. This has
ensured a constant focus on
delivering on the expectations of both clients and
distributors. Investment in
technology and ‘big data’
has enabled Mediolanum to
unlock significant value by
making information more
transparent. It also allows
for narrower segmentation
of customers and therefore
more precisely tailored
products and services.
The importance of such
Benefits of location
Ireland has proven to be
an invaluable hub of global
intelligence through its special mix of leading IT companies and financial services
organisations. Its innovation ecosystem has been 20
years in the making with
the country now renowned
globally as one of the key
drivers of R&D and innovation. MAML has recognised
this and has leveraged
internal capabilities, which
complement Mediolanum’s
internal strengths.
Over the years, MAML’s
business model has evolved
to such an extent that we
have now built an established network of key
industry partners and contributors, which has allowed
the company to essentially
‘crowd-source’ ideas from
a professional network that
can then plug into Mediolanum’s own organisational
know-how. The contributions received from this network of ‘industry disrupters’, when combined with
MedInSynC® and Med3®,
has not only supported their
innovation and product development initiatives, they
have also complemented
their asset management
capabilities. IFM
59
INTERVIEW
‘You can
bank on us’
IFM spoke to Steinthor Palsson, the CEO of
Landsbankinn whose resurgence is mirroring the
positive outlook for Iceland
Tim Evershed
60
Steinthor Palsson,
CEO,
Landsbankinn
61
INTERVIEW
INTERVIEW
62
How would you evaluate
Landsbankinn’s position today?
Landsbankinn’s performance and financial
position are sound. A comparison of 1,000 banks from
every corner of the globe
made by The Banker – the
FT owned magazine – last
summer found that Landsbankinn is well positioned
as regards equity position and return on assets.
According to the analysis
undertaken by The Banker,
no bank in Western Europe
has a stronger equity position and only a few dozen
banks show a stronger
return on assets. In January
2014, international rating
agency Standard and Poor’s
(S&P) issued Landsbankinn
the rating grade BB+ with
a stable outlook but revised
the outlook to positive in
October. S&P states that
they see a positive trend for
economic risk in the Icelandic banking sector and
would expect to upgrade the
bank if its view on the sector
continued to improve.
We have, over the last few
years, enjoyed a turnaround,
mainly by streamlining
operations, increasing revenue and cutting costs and
by setting very ambitious
yet clear goals. But we, as
do all banks, certainly still
face challenges. The years
from 2008 to 2010 were
difficult in Icelandic banking but we have managed
to reverse the situation,
mainly because, as of late
2010, we put great emphasis
on rebuilding the financial
strength of our customers,
both on an individual and
corporate level. So all in all,
the bank’s position is strong
and allows it to support
growth in the economy and
meet the increasing demand
for financial services from
households and companies.
How has Landsbankinn
rebuilt its reputation
and trust with its customers?
A reach-out by the bank
in 2011 was fairly successful.
We hosted open meetings
with the public and meetings on job creation in
municipalities around the
country. The overall change
in attitude in-house and the
bank’s corporate culture has
made a notable difference.
Other important changes
include restructuring of
household and corporate
debt, best practice in corporate governance, improved
risk management, a new
code of conduct and last but
not the least, the effort we
have put into always emphasising customer interests.
Trust is slowly growing, but
it will take time to regain
what was lost. We believe
that a sustainable operation
based on a service-minded,
humble approach to customer relations is the right
way forward.
Will the firm list on a
stock exchange? If so,
which one and when?
We expect the Icelandic
state, which holds 98% of
shares in the bank, to sell
up to 30% of its holding
in 2015 and 2016. We also
expect that following such a
sale, the bank will be listed
on a stock exchange, which
would certainly be very important for Landsbankinn.
Please explain the
bank’s new agreement
with LBI.
Landsbankinn and
Winding-up Board of LBI
reached a settlement in
December 2009 under
which the bank agreed to
issue a bond to LBI denominated in foreign currency.
The principal amount of
the bonds was compensation for the net assets and
liabilities transferred to
Landsbankinn from LBI. In
May 2014, Landsbankinn
hf. and LBI agreed to amend
the settlement, which means
that the final payment of the
bond will now take place
in October 2026 instead of
October 2018, lessening the
burden of repayment considerably. This new agreement was widely regarded
as excellent news for the
Icelandic economy, as it also
significantly lightened the
overall repayment burden of
the country in foreign currency. As such, it represents
an important step towards
resolving national debt
issues and lifting capital
controls. The terms of the
new bond are very manageable for Landsbankinn and
will facilitate its efforts to
secure financing in international markets. This is
therefore an extremely
important milestone for
Landsbankinn, one we have
worked tirelessly to achieve
in recent years.
What is the economic
outlook for Iceland?
The latest macroeconomic
forecast of Landsbankinn
Economic Research suggests that economic growth
will average 3.5% from 2014
to 2017. This is slightly
more positive than the forecasts previously published
by Statistics Iceland and
the Central Bank of Iceland.
Economic Research expects
unemployment levels to
continue to fall; real estate
prices to rise and inflation
will be 3.2% on average.
While economic growth
in 2015 is expected to be
driven largely by increased
INTERVIEW
Iceland and the
2008 crash
private consumption, capital
formation is expected to
grow by almost 7.6% on average through 2017. On the
other hand, new numbers
from Statistics Iceland indicate that headline inflation
is now lower than expected,
even believed to be below
1%, leading to suggestions
that economic growth in
2014 might be overestimated. All things considered,
we are, however, justifiably
optimistic about 2015.
The bank takes corporate social responsibilities (CSR) very seri-
ously; please explain its
activities in this area.
As a financial undertaking, Landsbankinn wishes
to lead the development of
a sustainable society in Iceland by integrating economic, social and environmental
concerns in its operations
and to ensure that both its
owners and society at large
benefit from its activities.
Landsbankinn was the first
company in Iceland to hire
a fulltime CSR Officer and
is actively working on CSR
issues domestically and on
the international stage. The
bank is a signatory to Global
Compact, the UN Principles
for Responsible Investment
and is member of the UNEP
Financial Initiative.
We are also proud of
several smaller yet equally
important projects on the
CSR front and the bank has
in recent years actively been
collaborating with stakeholders like the Federation
of Icelandic Industries and
Tourism Iceland on how
the financial sector can help
these industries grow in a
responsible manner. IFM
History of Landsbankinn
Landsbankinn was born out of the wreckage left by the failure of its predecessor
Landsbanki, one of the largest banks in Iceland, during the crash of 2008. It has been
state owned since inception. Icelandic State Financial Investments holds 81.33% of the
shares while the rest is owned by the winding-up receivership for Landsbanki.
It was created after the government had taken control of the insolvent Landsbanki and
decided to split all domestic operations into a new version of the bank while leaving the
foreign operations for bankruptcy and winding-up proceedings.
Key to the demise of Landsbanki was a UK deposit scheme called Icesave. It was an
easy-access, on-line savings account, Icesave became an instant success, transforming
Landsbanki’s balance sheet and funding profile. After launch, Icesave grew rapidly, due
to its attractive interest rate, and soon deposits totalled £2.8 billion with over 80,000
accounts opened.
After the bank announced in October 2008 that Icesave was no longer processing
withdrawals or deposits, Icesave was declared in default on October 8, 2008, taking
Landsbanki with it in its fall.
The banking crisis of
2008 was a truly international event, but it hit
Iceland harder than just
about any other nation.
The country, which has a
population of just 325,000
and a small GDP, was
dominated by a bloated
banking sector. At the time
of the crash, the banking
sector’s total balance sheet
was over 10 times larger
than Iceland’s GDP.
This combined with a
property bubble, overvalued local currency and
an overheating economy
proved a near-lethal
cocktail when the crisis hit.
The country’s three largest
banks, Giltnir, Landsbanki
and Kaupthing, went into
receivership within days of
each other.
The Icelandic economy
was plunged into a sharp
recession. Stock prices fell
by 85%, housing prices
fell by 38% in real terms,
private consumption fell by
16% and capital formation
by 58%, while exports grew
by 11%.
Prime Minister Geir
Haarde said: “There was a
very real danger... that the
Icelandic economy, in the
worst case, could be sucked
with the banks into the
whirlpool and the result
could have been national
bankruptcy.”
It took three years for
the impact of the crisis to
abate and the country’s
economy to start growing
again. Now, after much
hard work and pain, the
current economic outlook
is at last favourable once
again.
63
ADVERTORIAL
64
Despite global slowdown,
ICD saw healthy growth
In the first half of 2014 alone, it approved 14 projects for a
sum of $138.77 million
ADVERTORIAL
I
slamic Corporation
for the Development
of the Private Sector
(ICD) provides financing and financial services
in accordance with Islamic
banking and finance principles as well as advisory
services for a range of client
requirements. Its mission
is to complement the role
played by Islamic Development Bank (IDB) through
the development and promotion of the private sector
as a vehicle for economic
growth and prosperity.
Its authorised capital
stands at $2bn, of which
$1bn is available for subscription. Headquartered in
Jeddah, it was established
by the IDB board of governors during its 24th annual
meeting held in Jeddah in
November 1999. Its share-
holders consist of the IDB,
52 member countries and
five public financial institutions. Its vision is to become
a premier Islamic multilateral financial institution
for the development of the
private sector.
The mandate of ICD is
to support the economic
development of its member
countries through provision
of finance to private sector
projects in accordance with
the principles of the shari’a
law.
ICD finances projects
that are specifically geared
to creating employment
opportunities and boosting exports. Furthermore,
it mobilises additional
resources for projects and
encourages the development of Islamic financing
and capital markets. It also
attracts co-financiers for its
projects and provides advice
to governments and private
sector groups on policies
aimed at encouraging the
establishment, expansion and modernisation of
private enterprises, development of capital markets,
best management practices
and enhancing the role of
market economy.
The board of directors
(BOD) is mainly responsible for the adoption of
policies, operations strategy,
budgets, and the general
conduct of the operations
of ICD within the powers delegated to it by the
general assembly. The BOD
consists of 10 members and
is chaired by the president
of the IDB Group. It also
includes the CEO & general
manager of ICD along with
representatives of IDB,
member country group from
Africa, Asia, Arab Asia, public financial institutions and
a permanent member from
Saudi Arabia.
ICD mainly focuses on
activities where they can
make the highest impact in
promoting the private sector
in its member countries. It
also plays the role of catalyst
for other project sponsors
to invest in its member
countries.
In sum, 2013 was yet
another successful year for
ICD to substantially expand
its support for private sector
growth to meet increasing
demand for infrastructure,
economic modernisation,
and financing for small- and
medium-sized businesses.
Despite the global downturn
and persistence of uncer-
65
»
H&D Industrie S.A, Dakar – Senegal
ADVERTORIAL
66
»
Mukalla Iron & Steel Company, Hadhramout – Yemen
tainties, ICD approved 28
projects, 4 Qard Hasan and
3 capital increase for total
amount of $508.18 million. These added value to
the economic and social
development of member
countries through new
job creation, technology
transfer and through crossborder investments.
The year 2014 has turned
out to be fruitful year. It
launched an ijara company
in Palestine while an ijara
company in Malaysia is
under establishment. In
the first half of 2014, it
approved 14 projects for a
sum of $138.77mn. The new
approvals have increased
ICD’s gross approvals since
inception to 279 projects
in addition to 46 approvals
to increase ICD’s participation in the equity of investee
companies, thus increasing
ICD’s total amount of gross
approvals to $3,301.6 mn.
By the end of second quarter, ICD has catered to nine
different sectors, wherein
the finance sector has the
largest share of the exposure with 60.6% followed by
industry and mining sector.
ICD’s presence stretches
to over 33 countries and five
regional projects.
Furthermore, ICD extends lines of financing to
commercial banks and national development financing institutions in member
countries to indirectly
finance their small and medium enterprises (SMEs).
ICD sponsors, manages
(as mudarib) and participates in mutual funds and
other special purpose investment vehicles designed
to invest or finance projects in accordance with its
mandate. At the same time,
it structures, arranges, and
underwrites syndications.
Furthermore, it manages
shares and securities issues,
makes private placements
and carries out securitisations for its clients.
Most recently, it agreed
to a joint venture with the
Republic of Chad to create
a local leasing company
and a local Islamic bank.
The organisation has also
extended a $6 million line
of finance to Tajikstan’s
Orienbank and is helping
to fund a specialist bank in
Bangladesh.
More broadly, it has
recently worked with
Thomson Reuters to develop and launch the ICD
Islamic Finance Development Indicator, a numerical
measure representing the
overall health and growth of
the Islamic finance industry
worldwide. IFM
67
A
n award is a
celebration of
hard work, innovation and
success. Everyone seeks
recognition, at least a
pat on the back for their
efforts. But recognition
is not easy to come by.
Hard work does not always
convert to success. Good
numbers do not always
translate into awards. After
all, most often, you are not
the only one in the field.
As if coming up with new
products was not tough
enough, there is the additional challenge of making
them better than that being offered by competitors.
Competition breeds more
competition, which translates into better products
for customers. When customers choose your products or services over that of
the competition, it shows
in your balance sheet. But
the feeling to cherish is the
look of awe in the eyes of
the competition. No award
can possibly make you feel
any better.
IFM is honoured when
such companies are
nominated for our awards,
which seek to celebrate
achievers and highlight
their achievements in the
larger business community. Achievements include
innovative products or
marketing strategies, new
standards in corporate
governance, path-breaking
initiatives in social or
charitable causes, and
other activities that have
an impact on the everyday
lives of people worldwide.
68
The aim of every business is to touch the lives
of people in such a way
that they turn into customers. The next benchmark
is to make that customer
come back for more. By
then, you should have
the customer talking to
others about your product
or services, which is the
ultimate compliment for
any company.
With a population of
over seven billion, there is
no dearth of people. It is
for companies to come up
with products and services
that can convert people
into customers.
Despite the huge population, competition is tough
because there is no shortage of innovative minds
or enterprising business
persons. Which is what
makes the job of our team
of analysts that much
tougher. No surprises then
that winners like to celebrate their victory at the
IFM awards.
And, why not! An award
means that you have set a
benchmark for the industry. It also means that you
have raised the bar for
yourself.
We respect and admire
this desire to constantly
improve yourselves, your
products, your companies,
your employees. Those
who set themselves on this
path are eventually going
to be the companies whose
standards others will have
to either match or surpass.
Let us raise a toast to the
ones who set new benchmarks.
Financial Awards
Fastest Growing Insurance company
Angola
Aon Angola
HQ: London, UK
Aon is the leading global provider of risk management, insurance and
reinsurance brokerage, human resources solutions and outsourcing
services. Through its more than 66,000 colleagues worldwide, Aon unites to
empower results for clients in over 120 countries via innovative and effective
risk and people solutions. Aon has been named repeatedly as the world’s
best broker, best insurance intermediary, reinsurance intermediary, captives
manager and best employee benefits consulting firm by multiple industry
sources.
Best Commercial Bank
Austria
Best Corporate Bank
Australia
Australia and New Zealand Banking
Group Limited (ANZ)
HQ: Melbourne, Australia
ANZ traces its origins to the Bank of Australasia, which opened its first office in
Sydney in 1835. It is a publicly listed company, and was incorporated on July
14, 1977 in Australia. Australia and New Zealand Banking Group Limited is the
main holding and operating company for the group and they are one of the five
largest listed companies in Australia and the number one bank in New Zealand. Best Corporate Bank & Best Customer
Service Bank Belgium
69
UniCredit Bank Austria AG
ING Belgium SA/NV
HQ: Vienna, Austria
Brussels, Belgium
Amsterdam, Netherlands - GLOBAL
Bank Austria has been a member of UniCredit, one of the largest European
banking groups since 2005. Among the large banks in Austria, it has one of
the strongest capital bases. The bank strives to maintain the highest level of
customer satisfaction as it looks back on more than 150 years of tradition
and experience. The bank maintains an extensive network in Austria, with
about 7,300 employees serving customers in some 280 branches.
Best Wealth Management Bank
Canada
ING is a global financial institution of Dutch origin with its headquarters
in Amsterdam. The group supplies products and services in the areas of
banking, investment, life insurance and retirement services to 47 million
customers in over 40 countries in Europe, North and Latin America, Asia
and Australia. ING’s 75,000 employees are fully committed to helping their
customers provide for their financial future. Best SME Bank
China
BMO Harris Private Banking
Agricultural Development Bank of China - ADBC
HQ:Chicago, USA
HQ: Beijing, China
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified
financial services organisation. It provides a range of retail banking, wealth
management and investment banking products and solutions. In the US, clients are
served through BMO Harris Bank, BMP Private Bank and BMO Capital MarketsTM.
Agricultural Development Bank of China (referred to as ADBC) is a state-owned
agricultural policy bank. The mission and purpose of the bank is to promote
development of agriculture and rural areas through the activities like raising funds for
agricultural policy businesses and undertaking agricultural policy credit businesses
specified by the central government.
Financial Awards
Best Private Bank
Colombia
Best Investment Bank
Czech Republic
GRUPO BANCOLOMBIA
Ceskoslovenska obchodni banka (CSOB)
HQ: Medellin, Colombia
HQ: Prague, Czech Republic
Bancolombia is the largest commercial bank in Colombia and one of the
biggest in Latin America. Founded in 1945, the bank is headquartered
Medellín, the second largest city in Colombia. It is a full-service financial
institution that provides a range of financial products and services to a
diversified individual and corporate customer base throughout Colombia, as
well as in other jurisdictions, such as Panama, El Salvador, Puerto Rico, the
Cayman Islands, Peru, Brazil, the United States and Spain
Ceskoslovenska obchodni banka, a. s. is a universal bank operating in the
Czech Republic. CSOB was established by the state in 1964 as a bank to
provide foreign trade financing and convertible currency operations. After
the purchase of CSOB shares from minority shareholders in June 2007, KBC
Bank became the sole shareholder of CSOB. ČSOB provides its services to all
groups of clients, i.e. retail as well as SME, corporate and institutional clients
Best Retail bank
Egypt
Best insurance Company
France
70
National Bank Of Egypt
Axa France
HQ: Cairo, Egypt
HQ: Paris, France
National Bank of Egypt is the oldest commercial bank in Egypt. It was established
on June 25, 1898 with a capital of £ 1 million. Throughout its long history, NBE’s
functions and roles have continually developed to meet the different economic
and political phases in Egypt. Since mid-1960s, NBE has been in charge of
issuing and managing saving certificates on behalf of the government
Present in 56 countries, the bank’s areas of expertise are reflected in a range of products
and services adapted to the needs of each client in three major business lines: propertycasualty insurance, life & savings, and asset management. Well established in the markets
of Europe, North America and Asia Pacific, the group will strengthen its growth in the
coming years through presence in high growth markets. Best Investment Bank
Hong Kong
The Hongkong and Shanghai Banking
Corporation Limited - HSBC
HQ: Hong Kong Island, Hong Kong
The HSBC Group is one of the world’s largest banking and financial services
organisations. The group has around 8,000 offices in 87 countries and territories
in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. HSBC
provides a comprehensive range of financial services through four customer groups
and global businesses: retail banking and wealth management; commercial banking;
corporate, investment banking and markets; and private banking.
Best Banking Group
Japan
Mitsubishi UFJ Financial Group
HQ: Tokyo, Japan
Mitsubishi UFJ Financial Group, Inc. is a Japanese bank holding / financial services
company headquartered in Chiyoda, Tokyo, Japan. It is Japan’s largest financial
group and the world’s second largest bank holding company holding around $1.8
trillion (JPY 148 trillion) in deposits as of March 2011. The group’s management
control functions have been strengthened to improve capital efficiency.
Best Islamic Bank
Malaysia
Best Insurance Company
Netherlands
Maybank Islamic Berhad
Aegon
HQ: Kuala Lumpur, Malaysia
HQ: The Hague, Netherlands
Malayan Banking Berhad (trading as Maybank) is the largest bank and
financial group in Malaysia, with significant banking operations in Singapore,
Indonesia and the Philippines. The bank also has large interests in Islamic
banking through Maybank Islamic Berhad and insurance via its Etiqa
subsidiary. In 2014, Maybank ranked 326th in the Forbes Global 2000
Leading Companies.
Aegon provides insurance, pensions and asset management in
more than 25 countries. Listed on the Amsterdam and New York
stock exchanges, Aegon has A-level ratings from the three main
credit rating agencies. They aim to be the most-recommended life
insurance and pension provider by customers and business partners,
as well as the most preferred employer in the sector.
Best Life Insurance Company
Poland
Best Private bank
Singapore
71
Generali Poland
DBS Bank LTD
HQ: Trieste, Italy
HQ: Singapore, Singapore
The Generali Group is one of the most significant players in the global
insurance and financial products market. Assicurazioni Generali, founded
in 1831 in Trieste, is the group’s parent and principal operating company.
Generali in Poland was first founded in 1837 and continued its operations till
the Second World War. Generali came back to Poland again in 1999. It offers
financial security to over 1 million Poles and hundreds of companies. DBS is a leading financial services group in Asia. They are headquartered
in Singapore, with a growing presence in Greater China, Southeast Asia and
South Asia. DBS is uniquely placed to deliver banking the Asian way. As a
bank that specialises in Asia, they leverage their deep understanding of the
region, local culture and insights to serve customers. Best Insurance Company
Spain
Mapfre Spain
HQ: Madrid, Spain
MAPFRE is a global group operating in 47 countries across five continents
and lead the Spanish insurance market. They are also the number one
multinational insurer in Latin America. MAPFRE has over 23 million clients,
employs 36,600 people and has a network of 5,500 offices all over the
world. In 2013, the group generated total revenue in excess of 25.88 billion
euros and posted net income of more than 790 million.
Best Commercial Bank
Thailand
The Siam Commercial Bank Public
Company Limited
HQ: Bangkok, Thailand
The Siam Commercial Bank PCL was Thailand’s first indigenous bank,
established in 1906 under a Royal Charter. The bank was Thailand’s
largest commercial bank in terms of total assets, as on September 30,
2014. It provides a range of financial services including corporate and
personal lending, retail and wholesale banking, foreign currency operations,
international trade financing, custodial services, credit and charge card
services, and investment banking services in Thailand. Jan - Mar 2015 International Finance Magazine
Financial Awards
Best Islamic Bank
USA
Fastest Growing Equity Fund
GCC
American Finance House LARIBA
LHV Asset Management (AS LHV Varahaldus)
HQ: Pasadena, USA
HQ: Tallinn, Estonia
American Finance House LARIBA is the oldest community-owned, riba-free
and shari’a compliant finance company serving the community in the US
since 1987. The bank claims to have a different style of approach when
compared to other riba-free models. .
LHV Asset Management (AS LHV Varahaldus) is a fund management company
supervised by the financial supervision authority of Estonia. LHV Asset Management
is owned by AS LHV Group, which is a holding company for LHV Asset Management
as well as LHV Bank. LHV was founded in 1999 and offers its services in Estonia,
Latvia, Lithuania and Finland. Best Fund Management Company
Estonia
Best Asset Management Company
Turkey
72
LHV Asset Management (AS LHV Varahaldus)
YapiKredi Asset Management
HQ: Tallinn, Estonia
HQ: Istanbul, Turkey
LHV Asset Management (AS LHV Varahaldus) is a fund management company
supervised by the financial supervision authority of Estonia. LHV Asset Management
is owned by AS LHV Group, which is a holding company for LHV Asset Management
as well as LHV Bank. LHV was founded in 1999 and offers its services in Estonia,
Latvia, Lithuania and Finland. Yapı Kredi Asset Management is one of the leading asset managers in Turkey,
administering a wide range of products in various asset classes. With a solid track
record in investment management, business performance and efficient CRM and sales
management services, Yapı Kredi Asset Management aims to become the indispensable
business partner of its clients, establishing a consistent foundation of long-term values.
Best Re-Engineering and Re-Branding Bank Best Wealth Management Bank
Georgia
UK
JSC Capital Bank
Coutts and Co
HQ: Tbilisi, Georgia
HQ: London, UK
JSC ‘Capital Bank’ (former JSC ‘Investbank’) was founded in 2003. The bank was
granted a license by the National Bank of Georgia allowing it to provide full range of
banking services. The bank is a principle member of Visa International, MasterCard &
China UnionPay.
With more than 300 years of experience, Coutts understands the dedication and
experience required to provide advice to its clients. The Coutts experience is not just
one of unsurpassed service, but is comprehensive in its commitment to providing
exceptional advice.
73
Gateway to
Islamic finance
That is what the UK is aiming for, Lord Sheikh, Baron Sheikh of
Cornhill, House of Lords, told delegates at the IFM’s EU Islamic
Finance and Banking Summit in London
Tim Evershed
SUMMIT
T
74
he time has come
for Islamic finance
to move into the
mainstream in
Europe, and the UK is leading the way, Lord Sheikh
told delegates at International Finance Magazine’s
EU Islamic Finance and
Banking Summit that took
place in London on November 18-19, 2014.
Modern Islamic finance
emerged in the mid-1970s
with the founding of Islamic
banks, but the growth has
been very rapid since the
1990s. It is forecast to grow
to $2.5 trillion by the end of
2015.
Globally, the market has
grown 50% faster than the
traditional banking sector.
Sharia compliant assets rose
more than 160% between
2009 and 2011.
Savings and protection
schemes launched by the
sector bear many similarities to the mutual insurers
and friendly savings societies that have come back into
vogue since the crash of
2008 that caused so much
disdain for the big High
Street banks.
Delegates were also told
that the ethical movement,
which is growing fast in the
West, is starting to work
with Islamic finance to
share risk and return.
And governments across
Europe are showing support
for the sector by levelling
the playing field around tax
and regulation.
The UK is the biggest
centre for Islamic finance
outside the Islamic world
with sharia compliant assets
in excess of $18 billion.
Lord Sheikh, Baron
Sheikh of Cornhill, House of
A panel discussion at the summit
Lords, says: “Islamic finance
presents an exciting highgrowth market opportunity.
It is the British government’s intention to establish
and maintain Britain as the
gateway to international
Islamic finance. The British
government would like to
ensure that principles of
fairness, collaboration and
commitment will apply to
Islamic financial arrangements and is actively encouraging sharia compliant
transactions.”
The Muslim population
of Europe now numbers
20 million people but Lord
Sheikh believes it is time
for Islamic finance to reach
out to the 450 million nonMuslims of the EU too.
He says: “Islamic finance
should not remain a niche,
but through its appeal to
everyone irrespective of reli-
gion, its market should be
part of the mainstream market, increasing its potential
manifold.
“Islamic financial institutions should target not only
Muslims but also non-Muslims, particularly in Western
countries, and their products and the pricing should
be such that it appeals to a
wider audience.
“To enable us to succeed
in achieving our expansion
for Islamic finance, we need
to develop and market a
range of products which will
fulfil the needs of people
and cater for local conditions in the relevant country
where we would like to write
business.”
Islamic finance is all to do
with ethical forms of investment, and also investing in
businesses and industries
that are good for society and
SUMMIT
the environment at large.
Its financial arrangements
work for the benefit of society. For example, there are
opportunities to invest in
the generation of energy by
renewable means in UK and
overseas.
As such, Islamic finance
should be making strides
across Europe due to
friendly regulatory environments, agreed Sheikh Bilal
Khan, Co-Chair of Dome
Advisory.
He pointed out that
Luxembourg, France, Paris,
Strasbourg, Brussels, Germany, The Hague and Turin
were among those welcoming Islamic finance with rule
changes and events.
Khan says: “It is a great
time because we now have
so many countries and jurisdictions that have enabled
Islamic finance. The ethical
movement in the West
is starting to work with
Islamic finance to share risk
and return.”
He highlighted the UK’s
first sovereign sukuk bond
of £200mn, which was
over-subscribed on the first
morning by over £2 billion.
Then bond has a maturity
of five years and use the
Al-Ijara structure. This is a
sale-and-lease back mechanism that means investors get paid a fixed rental
income on properties placed
in the structure rather than
conventional interest.
And in addition to the UK
bond, Luxembourg issued
the first sovereign sukuk
in Euros. It was €200mn
and was also hugely oversubscribed.
Lord Sheikh says: “The
government has made it
very clear of their intent to
cement Britain’s position as
a Western hub for Islamic
finance. With the recent
issuing of the sovereign sukuk, this ambition has been
realised. We are the first
country outside of the Islamic world to issue sukuk,
a feat I believe we should be
very proud of.
“The Muslim community
has for some time longed for
changes that would offer a
level playing field between
conventional and Islamic
products. These recent developments have provided
them with just that.”
The conference was told
that the UK has the political
will to ensure a level playing
field for Islamic finance by
Omar Sheikh, Executive
Board Member, Islamic
Finance Council UK.
He said that regulators need to consider that
Islamic finance is a very
young sector. “It operates in
secular areas and in ethical
areas. There should be a focus on shared values, which
will allow Islamic finance to
cross over into the mainstream finance markets.”
The low-carbon sector,
social impact bonds, life and
mutual companies are all
natural partners for Islamic
finance and areas where
the sector could make a big
contribution.
And it should be noted
that the crash of 2008 had
given these areas a boost,
as more traditional banking had failed in the eyes of
many consumers.
Omar Sheikh said: “There
has been a big moral bankruptcy in our banking system. It is something many
people have commented on.
Islamic finance can contrib-
Saker Nusseibeh, chief executive officer, Hermes Fund Managers participating in a panel discussion
75
SUMMIT
76
ute to solving this crisis of
capitalism.”
Lord Sheikh said: “The
problems in the financial
sector made people realise
the importance of Islamic
finance, which is based on
ethical principles and transparency.
“In context of its infancy, Islamic finance may
not have all the answers
today. However, it is clear
that many of its values are
shared amongst the other
great faith traditions where
a ban or strong aversion
to interest is a common
theme.”
Khan noted that political
will is one of four cornerstones that are necessary for
the furtherance of Islamic
finance in the West. Institution building, human capital
and regulatory progress are
the other three.
However, he noted that
the area was sometimes
perceived as complex with
its terminology that includes
names like sukuk, takaful,
zakat, riba and sharia.
Khan said: “Sometimes,
we have complicated Islamic finance. We need to
demystify it.”
The term sharia itself is
problematic in the West
as what is simply a system
of Islamic law has become
inextricably linked with
extremist regimes such as
the Taliban or ISIS that are
known for their brutality, in
the Western mind.
It is naturally hard to sell
something in the retail market if the consumer links it
with a group that forbids
women an education. So,
on the retail side, the role
of education and awareness
will play a key role in helping Islamic finance grow.
Islamic finance also faces
other issues such as the inevitable rise in interest rates
across Europe. Rock bottom
interest rates, as we have
seen across the continent
since 2008, do something
to level the playing field for
Islamic banks.
However, a rise in the
base rate would see them
struggle to compete with
savings rates being offered
by mainstream competitors.
Dennis Cox, CEO of Risk
Reward points out that
Islamic banks did not exist
in Europe pre-1982 when
base rates were at 15% and
above.
He says: “If you’re a
depositor with an Islamic
financial institution, you’re
going to get a very low rate
of interest. At the moment
everyone is getting a low
rate of interest, so it doesn’t
matter but how would you
feel if interest rates were at
15%?
“Many Islamic customers are also customers of
The summit was held at the Jumeirah Carlton Tower - London on November 18-19
traditional banks. What
will they do? Will there be
a herd mentality… causing
a strain on liquidity? The
honest answer is we just
don’t know.”
Another point is that
Islamic financial institutions
must work in conjunction
with a sharia board in order
to ensure they conform to
Islamic law. This is obviously an extra set of rules
and regulations and an extra
cost that must be borne
and eventually passed on to
customers.
Cox says: “We have a
higher requirement on
ethics and a higher requirement on making sure we
are sharia compliant. When
a firm says what they have
done is not sharia compliant, that is a horrible own
goal and that really hits reputational risk. Reputational
risk is even more important
to an Islamic bank.” IFM
Awards Ceremony 2014
IFM AWARDS
•
77
INTERVIEW
‘Our goal
is to get 1%
of total banking
sector assets by
2020’
78
Lasha Khoperia,
CEO, Capital Bank,
Georgia
79
INTERVIEW
INTERVIEW
Lasha Khoperia, CEO, Capital Bank, Georgia spoke
to IFM about their plans to increase market share
What does your bank focus on: retail or investment banking?
Every single customer is
very important and valuable
for JSC Capital Bank. We
are focused on universalism
and flexibility; the bank’s
mission is to offer and provide our private & corporate
clients universal and diverse
banking products. Also the
bank has high hopes for the
development of e-commerce
and has significantly succeeded during the last
months in this field.
How has the economy
developed since 2003
when your bank was
established? What was
the size of the economy
then? How much has
the economy grown
since then?
Over the past 10 years,
Georgia has seen a remarkable amount of economic
progress. Twenty years ago,
it was one of the Soviet republics, and struggled economically after the break-up
of the Soviet Union. Its
economic turnaround came
with the changes beginning
from 2004.
80
The impressive rise of
Georgia’s economic freedom has been propelled by
broad-based score improvements in such critical areas
as regulatory efficiency and
market openness. Notable
structural reforms have included trade liberalisation,
privatisation, implementation of competitive flat tax
rates, and modernisation of
the regulatory environment.
With the success in keeping inflation low, greater
monetary stability has been
achieved.
How has your journey
been during this time?
JSC Capital Bank is a
relatively new financial
institution in the Georgian
financial sector. The bank
has recently undergone a
re-branding process and received an award from International Finance Magazine
as the “Best Re-engineering
and Re-branding Bank in
Georgia in 2014”. We have
ambitious goals and plans
for the future.
How many branches
do you have now? How
many employees?
The year 2014 has been
INTERVIEW
81
very important for JSC Capital Bank, as the full process
of re-branding was carried
out. Technologies appropriate for modern standards
of services were introduced
and the bank offered its
clients services based on
individual approach. We offer online/distance services,
loans, deposits, money
transfer and other bank
products.
Today, we have about
one hundred employees.
Currently, we have three
service centers in Tbilisi,
of which one is at Tbilisi
International Airport. For
the next year, plans are on
to open a new service centre
in Batumi, which happens
to be the most popular sea
resort in Georgia.
What is the size of your
retail banking portfo-
lio & what is the size of
your investment portfolio?
Our goal is to get 1% of
total banking sector assets
by 2020 and total portfolio
should be 400 ml. Gel by
that time (approximately
$200 million). According to
those figures, corporate and
private portfolios should be
divided 50/50%.
Which sectors in Georgia are witnessing good
growth? Which sectors
are showing signs of potential for the future?
The country’s main
economic activities include
agriculture, manufacturing,
wholesale and retail trade,
transport & communication,
and construction. In 2014,
the largest contributor to
the GDP was agriculture,
making up 18% of the total
GDP. Likewise, for retail
and wholesale, the figure
stood at 14%, while transport & communications
made up another 14% of the
economy as a whole. The
share of manufacturing was
9%.
In the long term, for the
economy as a whole, trade,
tourism, manufacturing and
construction are expected
to be the main drivers of
sustained growth. The
growth in trade, especially,
will bolster the SME sector,
as will growth in tourism,
made up of small restaurants and hotels
How do you plan to
take advantage of this
potential?
JSC Capital Bank tries
to finance and take part
in many significant and
important state and private
projects, which are aimed
at developing the country’s
economy and make it mutually beneficial for both the
private sector as well as the
whole of Georgia.
In 2015, we are going to
open new service centers
in different regions, launch
new products for specially
targeted audiences and to
carry out a huge PR and
marketing campaign. IFM
82
Consumer
83
class
Increasing opportunities in Africa’s biggest economy
Samuel Okocha
W
84
ith a growing
population
and rising
middle class,
Nigeria is experiencing a
boom in consumer spending. To keep pace with
this trend, retail outlets
are springing up while ecommerce companies are
redefining the way Nigerians shop. Despite a huge
infrastructure deficit and an
Islamic insurgency that has
left thousands dead across
the county’s north, analysts
say opportunities abound in
Africa’s biggest economy.
“The most interesting
trend that we have come
to notice is that people will
always shop and this cuts
across every class because
there is always a need
to fill,” Hassan Uthman,
community manager at
e-commerce company MallforAfrica, said.
MallforAfrica recently
joined the list of companies
exploring business opportunities by providing direct access to various international
brands from market places
and discount stores such
as Amazon & Wal-Mart, to
departmental stores such as
Macy’s and Nordstrom and
high-end merchants like
Net-a-Porter.
“The Nigerian population
is predominantly young,
meaning we are generally very aspirational. In
addition, global cultural
convergence makes it easy
to relate and endorse international brands. This need
is inadequately met by local
retailers. MallforAfrica has
seized the opportunity to
fulfill this need,” Uthman
explained. “Access to international brands is no longer
restricted to those who can
afford to travel abroad.”
Retail industry and ecommerce
Nigeria’s leading online
stores record $2m worth
of transactions on average
each week, according to an
online shopping report by
Philips Consulting. Based
on a survey of consumers
and major online retailers
such as Jumia and Konga,
the report identified fashion
products, mobile phones
and services (including
restaurant and spa deals) as
the top selling items.
Although many Nigerians are yet to embrace
online shopping, increasing
internet penetration and
e-payment solutions are
encouraging more Nigerians
to shop online.
Earlier this year, PayPal
launched in Nigeria. In its
first week of operation,
consumers were reported
to have purchased items
from Britain, China and the
United States via its online
platform.
A recent report by global
consulting firm McKinsey
& Company reveals that
there are almost 40 million Nigerians with income
exceeding $7,500 per year.
According to the firm’s
growth estimates for the
economy, annual sales in
consumer goods could more
than triple to $1.4 trillion by
2030 from the current $388
billion.
Brick-and-mortar stores
are also cashing in. Multinational companies such as
Unilever Plc, Nestle Plc and
There’s a big opportunity for companies
which can formalise the
informal retail sector
Melissa Cook,
CEO,
African Sunrise Partners LLC
Shoprite Holdings continue
to deepen their operations
in Nigeria.
‘’Retailing is an interesting category,” says Melissa Cook, CEO at African
Sunrise Partners LLC, an
investment strategy firm
focused on the sub-Sahara
African market.
“Mega-shopping malls are
a tough economic proposition in Nigeria. Costs are
high for land, power and
security. People are used to
shopping based on their existing commuting patterns,
and it can be very timeconsuming to drive to a mall
that’s out of the way. We
think there’s a big opportunity for companies which
can formalise the informal
retail sector. Once there is
improved access to power,
companies can upgrade
stores with refrigeration
and lights. Convenient and
modern retail outlets can
be built on a smaller scale
in locations that are already
being used for retail.”
Where the growth
comes from
The growth stems from a
decade of strong economic
growth ranked as one of the
highest in the world at an
annual average of 7%. Oil,
Nigeria’s major source of
revenue, has been a driver
of this growth. However,
a rebased GDP in 2014
showed that the economy
enjoys far more diversity
than previously thought.
The major contribution to
growth came from manufacturing and various services,
which added more than 50
% to the GDP.
Although the World Bank
puts the poverty rate at
more than 60% of Nigeria’s
population, the country’s
growth has promoted a
culture of entrepreneurship
that could create more jobs
and add more people into
the growing middle class.
The African Development Bank describes stable
middle class Africans as
those who spend between
$4 and $20 a day. “These
people are not middle class
in developed country terms,
or even by the standards of
emerging markets,” notes
Calistus Juma, Professor of
the Practice of International
Development and Director
of the Science, Technology
and Globalisation Project at Harvard Kennedy
School, in a 2011 Finance
and Development report.
“But in African terms, they
have disposable income and
are demanding an increasing amount of goods and
services that contribute to
85
On October 20, 2014,
the World Health
Organization
declared Nigeria free
of Ebola. The
Nigerian response
to the outbreak was
greatly aided by the
rapid utilisation of a
national public
institution (NCDC)
and the prompt
establishment of an
Emergency
Operations Centre,
supported by the
Disease Prevention
and Control
Cluster within the
WHO country office.
The WHO declared
the outbreak was
over 42 days after
the last confirmed
case.
86
the overall well-being of
society.”
Nigeria is leading the
growth of new middle-class
households (consuming
from $15 to $115 a day) in
Africa with an estimated 7.6
million to be added in the
next 16 years, according to
a Standard Bank research
report, which surveyed 11
key sub-Saharan African
countries. Between 2000
and 2014, the report says,
Nigeria’s middle class grew
600% to 4.1 million middleclass households.
“Middle-class Nigerians
are very brand- and statusconscious,” notes Cook, who
led a team from African
Sunrise Partners LLC on a
power trip to Nigeria last
August. “Brands which are
just a bit out of reach — or
which represent an image of
a better life — are in strong
demand. This can range
from KFC for special occasions to a Heineken beer on
a hot Friday night.”
Nigerian travel business consultant Ikechi Uko
agrees. “Lifestyle is a driving
motivation for Nigerians,”
he told IFM at the10th edition of his Akwaaba African
Travel Market fair held last
October in Lagos. “They
have admired the lifestyle of
other people and these are
the things that have given
them motivation. So the first
time they have disposable
income, they want to spend
and live like the people they
have always admired. They
move their children to more
expensive schools, change
neighbourhood and travel
abroad.”
More opportunities
“We also see plenty of
opportunity for companies
to sell to consumers who are
just now earning disposable
income for the first time,”
Cook said. “We’re watching
agriculture and power sector reforms very closely to
see how much new spending
power they create, and how
many more Nigerians they
help bring into the middle
class. As people have more
income, they’ll buy small
quantities of items which
improve their lives — toothpaste, shampoo, diapers and
laundry detergent.”
Other sectors that should
benefit from the expanding
middle class, according to
Cook, include housing and
all that goes with it — furniture, kitchen and bathroom
fixtures, lighting, electrical
equipment and consumer
electronics. IFM
Lifestyle is a driving
motivation for
Nigerians
Ikechi Uko,
Nigerian travel business
consultant
NIGERIA
Population
173
million
(2013)
is equal to 1 million
GDP
87
$509 billion
is equal to 100 billion dollar
(2012-2013)
Major cities
Kano
Zaria
Kaduna
Ilorin
Ogbomosho
Ibadan
Lagos
Abuja
Enugu
Benin city
Onitsha
Warri
Aba
Ratio of
urban to rural
2013
54
rural
46
Porthacourt
urban
Boko Haram, a group fighting to enforce its version of sharia law across northern
Nigeria, has waged a five-year insurgency, which, according to Human Rights Watch,
has claimed more than 5,000 lives. Its activities gained global attention following an
attack on a school dormitory in Borno and abduction of more than 200 girls.
88
Diamonds make
Botswana shine
However, these precious stones happen
to have a darker side
Miriam Mannak
89
The African nation is home to
some of the world’s richest
diamond fields, which have
pushed the country from one
of the poorest nations to one
of the best performing economies
in the world
Botswana
A
90
lmost 50 years
have passed
since De Beers
stumbled onto
massive diamond reserves
in Botswana. It took the
company a good couple of
years to get the Orapa mine,
400km from the country’s
capital of Gaborone, ready
for extraction of the first
stones, which kicked off in
1971. Since then, diamonds
have played a key role in
Botswana’s economy.
More discoveries followed, heralding a brand
new chapter for Botswana,
which in 1967 – the year of
De Beers’s first diamond
finding – was known as one
of the world’s poorest nations. The income per capita
soon shot up, from $80
per year in the mid-1960s
to $435 in 1976. Trade
Economics figures furthermore show how Botswana’s
national GDP went up
from $0.05 billion in 1967
to $14.79 billion last year.
More importantly, the average real economic growth
has been set at 4.6% per
year, every year, between
1995 and 2011. Last but
not least, Botswana’s Gross
Domestic Product per capita
currently stands at $7,100,
which is significantly higher
than neighbouring South
Africa ($6,600).
One of the major diamond
finds in Botswana in the
last three decades revolves
around the Central Kalahari Game Reserve (CKGR).
Situated in the heart of the
country, this arid wilderness encompasses over
52.000m2 of plains, pans,
camel thorns, and stretches
of savannah-like vegetation. It is roughly the
size of Switzerland.
The reserve, which
was founded
in the 1960s,
harbours
not only an
abundance of
wildlife,
including
lions,
cheetahs and elephants,
but also some of the richest
diamond fields in the world.
The value of the diamond
deposits at one of the mines,
the Orapa open cast mine,
which started producing in
September last year, has
been estimated at $5 billion.
This means good news for
the economy, and for
exports. Diamonds,
both rough and
polished
stone, are
an im-
portant source of income, as
they account for some 85%
of Botswana’s total exports.
However, the sparkly
wealth hidden below the
earth’s surface has
a dark side
too:
the CKGR discoveries, for
instance, have gone hand in
hand with the forced
relocation of the
Kalahari’s indigenous inhabitants.
Known
as the
Bushmen,
these
traditional
hunters have
roamed
the region,
which is
now known
as the CKGR,
for 20,000
years, possibly
longer, living
off the land and
in harmony with
wildlife and the elements. As a matter
of fact, the reserve
was even established
for the purpose of conserving and preserving
the Bushmen culture
and way of life.
The tide changed in
1997, when over 1,700
Bushmen were moved off
the reserve. Two more
rounds followed, in 2002
and 2005. According to the
government, these measures were necessary to
stop Botswana’s indigenous
people from disrupting the
park’s wildlife.
Nonsense, says activist Jumanda Gakelebone,
born and bred in the CKGR.
He was forced to leave his
ancestral land in 2002,
together with the bulk of his
family, “The resettlement
of my people was directly
linked to the diamonds,”
he explains. “They don’t
want us to lay claim to the
wealth.”
Those who have been
thrown out of the CKGR are
struggling, as life in the various relocation settlements,
such as New Xade and Dekar, is very difficult. “There is
a lot of poverty, alcoholism,
unemployment and most
people rely on government
handouts,” Gakelebone
says. “We are marginalised
and oppressed, and have no
land rights. Over the past
years, we have been forced
to abandon our traditional
way of life, that whilst we
are the country’s indigenous
people.”
Gakelebone, who secured
New Xade seat in the local
Gantsi District council, adds
that the few hundred Bushmen who are still residing in
the reserve – thanks to various successful court cases
against the government –
don’t have it easy either. “As
a result of the hunting ban
they can’t survive. People in
the reserve are starving and
suffering,” he says, explaining that without being able
to hunt one can’t possibly
survive in the CKGR, technically a semi-dessert where
temperature easily surpass
the 45 degree-mark. “The
police and special forces
are monitoring them to
prevent them from hunting.
Every day, they are being
harassed. The Bushmen are
afraid of what might happen
if they do kill an animal.
I know three people who
were tortured to death after
shooting a Gemsbok for
food.”
A recent report by Survival International, an organisation which fights for
the rights of indigenous and
tribal people worldwide,
91
There is a lot of poverty,
alcoholism, unemployment and most people
rely on government
handouts
Jumanda Gakelebone
activist
92
amplifies Gakelebone’s
statements. ‘They have
killed me: the persecution of
Botswana’s Bushmen 19922014’ has revealed some
200 cases of assault, arrests,
abuse and torture allegedly
committed by government
officials. “The government
crackdown on the Kalahari
Bushmen continues, and
has possibly worsened,”
says the organisation’s
Rachel Stenham. “The hunting ban is the most recent
development. We saw plans
for this being ramped up
last year, when paramilitary
police – which is known as
the special support group
– started to go into the
CKGR in large numbers,
raided their huts for animal
skins, and threatened them
with violence and expulsion if they’re caught killing
animals.”
Despite the controversy,
diamond extraction in the
CKGR is going full steam
ahead. Last September, the
first underground diamond
mine in the country opened
its doors in the southeastern
part of the reserve. Operated by UK company Gem
Diamonds Limited, the deposits of the Ghaghoo mine
are estimated at 20 million
carats.
Apart from mining the
diamonds, Botswana has
embarked on value-add
activities, including polishing. That is makes Botswana
a strong economic player
in Africa, and an even more
important diamond country,
says Francois Stofberg,
economist at the South
African financial services
firm The Efficient Group.
”Botswana is one of the few
countries in Africa, which
has diversified its diamond
sector,” he says. “They
did so in 2009, during the
financial crisis. As a result,
the country bounced back
quicker than others. When
the world’s economy has
fully recovered and the
demand for diamonds normalises, I suspect Botswana
will do very well because it
will benefit from mining and
value-add activities.” IFM
93
INTERVIEW
INTERVIEW
INTERVIEW
94
‘There is a lot of potential in
South Africa’
Vinny Lingham discovered computers as a child and went on
to become one of the world’s most prolific internet
entrepreneurs. IFM spoke to him about the past, present
and why he decided to sell his hyper-successful
digital gifting app Gyft
Miriam Mannak
INTERVIEW
95
Vinny Lingham,
Entrepreneur
INTERVIEW
INTERVIEW
L
ast July, US-based South African businessman Vinny Lingham made international headlines when
he sold the majority share of Gyft to FirstData. Price tag: $54 million. The deal came as a surprise to
most, and left everyone wondering: “Why sell a company that was just two years old and incredibly
successful, with the definite potential to become even more successful?”
The decision seems to have been a purely strategic one. “FirstData is one of the largest credit card
processing companies in the world, one with 25,000 employees,” explains the entrepreneur from the sleepy
South African seaside town of East London. “The company, therefore, has the right infrastructure to help
Gyft grow into a global company.”
96
No exit strategy
Lingham stresses that
the sale doesn’t, in any way,
mean the end of his own involvement in the company:
“We don’t see this deal as
an exit strategy. The equity
structure has changed, but
the team has remained the
same. I will remain involved
in it.”
Gyft isn’t Lingham’s first
successful online venture
that started out humble and
grew to become a multimillion dollar enterprise.
His e-crusade started some
11 years ago while he was
still living in South Africa,
and it did so with Clicks2Customers. This company,
which still exists, was the
first of its kind that helped
companies and organisations to improve their
search engine rankings
through all sorts of innovative solutions. “I ran this
venture from my bedroom
in my townhouse for the
first few years” Lingham
recalls.
Because South Africa at
the time was lagging behind
the rest of the world in
terms of internet usage and
infrastructure, Lingham’s
brainchild initially relied
mainly on international
clients. “We were popular
overseas because we were
doing something very
unique. We only had one
South African client for the
first few years,” Lingham
says.
One-bedroom enterprise
Four years after its inception, Lingham decided to
partially sell Clicks2Customers to HBD, a South
African company founded
by billionaire technology
maverick and South Africa’s
first space tourist Mark
Shuttleworth. HBD invests
in early stage, innovative
businesses. The reason to
sell was simple: increased
competition. “More players
had moved into the arena. It
had become harder to keep
our edge. I am still proud of
that company. In four years,
we went from a bedroom
enterprise to a $10-million
revenue firm,” Lingham
says.
Barely a year after selling
his very first e-venture, he
packed his bags, left his
Motherland, and moved
to the United States. He
founded various companies,
including web development
platform Yola.com, which
helps small businesses build
websites. The platform has
currently over 10 million
users globally. Then there
was incuBeta Holdings, and
eventually Gyft. The idea
for the latter – an app with
which one can buy, redeem,
and send digital gift cards
– came about while purchasing a coffee at a local
Starbucks with a gift card on
his phone. “This made me
wonder whether this would
work for every merchant,”
Lingham says.
Fostering innovation
back home
His concept, which received backing from Google
Ventures, did work. Two
years after opening shop,
Gyft had taken the United
States by storm. The aim is
now to turn it into a global
company.
While Gyft and Clicks2Company can be considered highlights on
Lingham’s CV, his professional track record comprises more interesting elements. Take the founding of
Silicon Cape, a collaboration
INTERVIEW
More players had moved into the arena. It had
become harder to keep our edge. I am still proud of
that company. In four years, we went from a
bedroom enterprise to a $10-million
revenue firm
with fellow South African
entrepreneur Justin Stanford. The objective was, and
still is, to turn Cape Town
into South Africa’s very own
Silicon Valley by fostering innovation and helping techies to set up, run
and grow their businesses.
This one too did well. The
organisation’s database,
over the past five years, has
grown from zero to 8,500
members.
“There is so much talent in South Africa, and
particularly in Cape Town,”
he says, noting that some
have taken the global stage.
“South African digital
advertising agency Quirk
has, for instance, been
bought by global advertising
firm WPP. It is good to see
companies from my home
country disrupting the landscape and coming up with
innovative products
and solutions.”
Working
harder
than
anyone
else
Without wanting
to downplay his
successes, Lingham stresses
that what he has achieved
has been the result of con-
tinuous hard work. If there
is one tip for aspiring entrepreneurs, it is just that:
work as hard as you can.
“Starting a new company
and making it work is very
hard. It requires everything
that you have. If you are
serious about your business, you should be willing
to work 24/7. You have to
work harder than anyone
else,” he says.
Eleven years have passed
since Clicks2Customers
opened its doors, and much
has happened since
then, including
an ava-
lanche of recognitions and
awards. In 2006, he took
home the award for Top
Young ICT Entrepreneur in
Africa whilst Clicks2Customers won the Top Technology Company in South
Africa award.
They’re all children of
mine
In 2009, Lingham was
one of the finalists of the
Men’s Health Best Man
awards, after which he was
appointed one of the World
Economic Forum’s Young
Global Leaders. And then
there is the ongoing business success. The question is which venture is
his favourite. “I don’t
really have a favourite,” he responds
without thinking too
long. “All the companies I set up are
children of mine.
They are all special. I
still have people working for me who started in
2003. I am very proud of
that. Gyft was, for instance,
built in Cape Town. There
is a lot of potential in South
Africa.” IFM
97
I ran this venture from
my bedroom in my
townhouse for the first
few years
Vinny Lingham
ADVERTORIAL
COMPARATIVE
ADVANTAGE
98
Comparison websites have proven to be a
valuable tool in helping employees reach their
quarterly sales targets more efficiently
ADVERTORIAL
»
Jon Richards, CEO,
Compareit4me.com
F
rom their modest, experimental
beginnings in the
1990s to the reliable tool they have transformed into today, comparison websites have boomed
into a fully-fledged industry. In fact, in the United
Kingdom (UK) alone, the
price comparison industry
– which includes everything
from bank deals to retail –
is estimated to be worth a
staggering $1.5 billion.
While there’s no doubt
that the UK is a global
market leader in finance
comparison, there’s another
territory that’s definitely
worth keeping an eye on —
the Middle East.
When we launched Compareit4me.com in the United Arab Emirates (UAE) in
2011, there were a number
of banks and providers that
were not confident about
the finance comparison industry. Many had expressed
concern over having to part
with precious advertising/marketing spend on
a product that didn’t have
any local research to back it
up. Plus, there was also the
question of whether banks
felt comfortable having their
deals advertised alongside
competitors on one page.
However, within the
space of just under four
years, Compareit4me.com
has become the leading
finance comparison site in
the Middle East, helping
users to search and compare a plethora of products,
including credit cards,
personal loans, mortgages,
car loans, insurance and
bank accounts. We are now
live in four countries: the
UAE, Qatar, Bahrain and
Kuwait, while Saudi Arabia
is expected to debut by the
end of this month.
So what changed? Well,
it’s all down to the users.
As of the end of 2014,
Nielsen estimates that there
were around 125 million
Internet users in the Middle
East, which is 37% of the
total population. While the
penetration rate may be
relatively low, it still lies
above the global average of
35%.
But what separates the
Middle East from the rest
of the world is that over
the last 15 years, the region
has witnessed phenomenal growth, changing the
way its countries govern,
shop and do business. The
Middle East’s extremely
young demographic (44%
of the regional population
are under 20 years old) is
a major driving factor for
the increasing levels of
digital engagement. Over 53
million actively use social
media every day.
What’s even better is that
the growth rate of internet
users continues to increase
by over 30% on average
each year. This is great news
for the finance comparison
industry as we can offer an
ever expanding range of
opportunities for banks to
interact digitally with one of
the world’s major emerging
markets. And it’s all free for
users.
In 2015, banks and financial institutions are rushing
to take advantage of the exposure they receive on being
on a website like ours. We
consider ourselves to be an
extension of banks’ marketing teams – and they welcome that we are completely
impartial and not affiliated
to any one corporation. We
work with everyone to ensure that we have the most
accurate, up-to-date product
information and access to
promotions not otherwise
available to the general public. It’s a win-win situation:
banks sign on for a small
fee (better value for money
than a banner advert, for
example), users gain access
to all of their deals in one
easy-to-navigate page, and
banks win and retain new,
happy customers. At a time
when the majority of banks
are scaling back on staff,
comparison websites have
proven to be a valuable tool
in helping employees reach
their quarterly sales targets
more efficiently.
So what’s next for the
industry? A number of
global comparison providers are already beginning to
develop mobile applications
to allow users to access their
services on the move. And
it’s only a matter of time before the Middle East follows
suit. The region has one of
the highest mobile penetration rates in the world
and leads when it comes to
smartphone adoption. According to a recent report by
Google Our Mobile Planet,
the UAE has the highest
smartphone penetration in
the world – an impressive
73% (to compare, that’s 20%
more than that of the United
States), followed by Saudi
Arabia (72%). Countries
such as Qatar, Kuwait and
Bahrain aren’t far behind either. Considering these are
some of our biggest markets
in the region, it makes sense
to look have users connected at all times. IFM
99
Where’s
the
DEMAND
Peter Taberner
That’s the biggest worry for
SMEs according to the
European Central Bank’s
latest “Survey on the Access to
Finance of Enterprises”
100
SME
T
services, with 20% believing
this was their main issue.
Next came the availability of skilled labour, which
polled 16%, followed by
regulations and competition issues, where 15% and
14% respectively, said that
these areas provided their
businesses with the biggest
headaches.
When inspecting the
survey results more closely,
the divergences between
Euro Area countries were
palpable.
Access to finance in
Greece for SMEs was their
biggest obstacle, as 32%
said that borrowing capital
to grow businesses was
proving difficult.
he European Central Bank’s latest
“Survey on the
Access to Finance
of Enterprises” report has
revealed mixed results for
SMEs in the Euro Area (18
member states), as they try
to grow from the current
bleak economic conditions.
In a study that included
10,750 enterprises, where
91% of the respondents had
fewer than 250 employees,
access to finance was the
fifth most pressing problem
that SMEs face with 13%
saying that it caused them
the most concern.
The biggest worry for
SMEs was finding the
consumer demand for their
Unsurprisingly, the other
Euro Area members, which
suffered the most during the
peak of the 2008 financial
crash, followed the Greeks
in complaining over finance
availability.
Out of the SMEs who
were questioned in Ireland,
18% said that access to finance was their worst issue,
and enterprises in Spain
and Portugal were not far
behind, with 17% viewing
finance as the most troublesome area.
In Germany and Austria,
9% and 7% of their SMEs
respectively revealed that
obtaining finance was the
main problem, exposing
how experiences are differ-
ing in the current financial
conditions.
External sources of
financing were also focused
on in the survey. SMEs
reported a 1% net increase
in the need for a bank loan,
with SMEs in Italy and
France especially needing
the loans, out of the traditionally larger economies in
the Euro Area.
This was an improvement from the 5% increase
recorded in the previous
survey, conducted between
October 2013 and March
2014.
A total of 11% of the respondents believe that they
had an increased need for
a bank loan, and there was
The most pressing problem faced by euro area enterprises
(percentage of respondents)
101
40
30
20
10
0
’12
’14
Finding
customers
’12
’14
Competition
micro
’12
’14
Access to
finance
small
’12
’14
Costs of
production or
labour
’12
’14
Availability of
skilled staff or
experienced managers
medium
large
’12
’14
Regulation
Base: All enterprises. Figures refer to rounds four (October 2010-March 2011) to 11 (April-September 2014) of the survey.
Note: The formulation of the question has changed over the survey rounds. Initially, respondents were asked to select one of the
categories as the most pressing problem. From round eight, respondents were asked to indicate how pressing a specific problem was
on a scale from 1 (not pressing) to 10 (extremely pressing). In round seven, the formulation of the question followed the initial phrasing
for half of the sample and the new phrasing for the other half. Additionally, if two or more items had the highest score in question Q0B
on the “pressingness” of the problems, a follow-up question (Q0C) was asked to resolve this, i.e. which of the problems was more
pressing, even if only by a small margin. This follow-up question was removed from the questionnaire in round 11. The past results
from round seven onwards were recalculated, disregarding the replies to question Q0C. Please see Annex 4 for more clarification and
information on how the current formulation is related to previously collected data.
SME
Change in external financing needs of euro enterprises
(over the preceding six months; net percentage of respondents)
30
25
20
15
10
5
0
-5
’12
Bank loans
’14
micro
102
’12
Trade credit
small
’14
’12
’14
Bank overdrafts
medium
large
Base: Enterprises for which the respective instrument is relevant. Figures refer to rounds four (October 2010-March 2011) to 11
(April-September 2014) of the survey.
Note: See the note to Chart 1. In round 11, the question was not put to those respondents who reported that a particular financing
instrument was not relevant to their enterprise (in short, “filtering based on Q4”). Past data have been revised accordingly. A financing
instrument is “relevant” if the enterprise used the instrument in the past six months or did not use it but has experience of it (for rounds
one to ten). In round 11, the respondents were asked whether the instrument was relevant, i.e. whether the enterprise had used it in
the past or considered using it in the future. Given that the current concept of a “relevant” financing instrument differs from in the past,
this might have an impact on the comparability over time for the following questions, and caution should be exercised when comparing
the recent results with those of the previous rounds (see Annex 4 for more information on the filters introduced in the questionnaire
and their potential impact).
also an net increase of 2% of
Euro Area SMEs, who said
they required more trade
credit.
From all of the sources
of external funding, fixed
investments and inventory
and working capital, were
identified as the main areas
to spend the money on.
The importance of SMEs
for the entire European
economy is highlighted by
the findings of the European
Commission’s annual SME
performance review.
Across all of the 28 European Union (EU) member
states, in 2013, 88.8 million
people were employed in an
estimated 21.6 million SMEs
in the non-financial
business sector, which
generated €3,666 trillion
in value added for their
products.
That is two in every three
people employed by an SME
in the EU, and out of every
Euro, 58 cents of value
added is created by the SME
sector.
Ben Butters, director of
EU Affairs for EUROCHAMBRES, who represent over
20 million businesses in
Europe, and focuses sharply
on finance and SMEs, said:
“First and foremost, the
many remaining barriers to
finance for SMEs within the
EU must be removed.“
The EU’s financing
environment is extremely
divergent: in Ireland, Italy,
Portugal and Spain, businesses report being offered
lending rates that are 400 to
600 basis points higher than
those reported by German
SMEs, rather than the 150
to 250 point spreads registered by the ECB on agreed
and disbursed credits.”
The ongoing fragmentation of EU rules for lenders
and borrowers, perpetuates
this divergence and exacerbates its negative impact on
SMEs.”
Butters suggest pursuing the completion of an
internal market that is fit
for facilitating SMEs in the
digital era, and access to developing economies must be
the priority for the 2014-19
political term under European Commission President
Jean-Claude Juncker.
Although it must not be
forgotten that revenue from
sales is and must remain the
main source of financing.
He also acknowledges
that in many European
countries, the smaller and
regional bank lenders, who
provide a higher share of
lending to SMEs, in comparison to large banks that
operate on a global scale,
are now deleveraging faster,
leaving their customers
struggling to find credit.
“In addition to these
changes, rapid restructuring of entire banking sectors
has left fewer players on the
market. This consolidation
has undermined smaller
businesses’ ability to discuss
their financing needs faceto-face with bank representatives, and many complain
of centralised, automated
SME
Purpose of the external financing as perceived by
euro area enterprises
(over the preceding six months; percentage of respondents)
60
50
40
30
20
10
0
Fixed investment
Inventory and
working capital
micro
Hiring and training
of employees
small
Developing and
launching new
products or
services
medium
Refinancing or
paying off
obligations
large
Base: All enterprises. Figures refer to round 11 (April-September 2014) of the survey.
Note: The figures are based on the new question introduced in round 11 (April-September 2014)
(please see Annex 4 for more clarification and information on how the question is related to
previously collected data).
loan request processing,”
Butters added.
The latest international
trade in goods figures compiled by Eurostat, estimated
that the Euro Area commanded an €18.5 billion
trade surplus for September
2014 with the rest of the
world.
Compared with the same
month last year, the surplus
has increased by €7.7 billion, whereas for the EU as a
whole, the surplus was €2.6
billion, a rise from September 2013 of €1.9 billion.
The export market to
China accelerated the most
from the EU, with a 10% upsurge of goods from January
to August, the flow of goods
to the Far East was exacerbated as the South Koreans
also expanded with an 8%
export increase, and the
USA market grew by 4%.
The EU trade surplus with
the USA has now increased
by €4.3 billion to € 65.1 bil-
lion, while the trade deficit
with China remains virtually
unchanged, rising by €100
million to €85.4 billion.
Germany celebrated the
largest trade surplus in the
EU totalling €138.8 billion,
while the United Kingdom
suffered the worse deficit
of - €89.8 billion, followed
by France (-€49.3 billion),
Spain (-€16.6 billion), then
Greece (-€13.6 bn).
Fredrix Erikon, senior
economist and director of
the European Centre for
International Political Economy, said: “The Euro Area is
expanding its trade surplus
while the EU is moving into
a trade deficit.”
“It reflects broader
changes in labour costs and
that some crisis economies
have seen an uptick in their
exports. Generally, trade
volumes are declining,
which is more worrying
news. If the trade pie does
not grow, there will be more
conflicts on how to redistribute trade shares, which
is never a good thing.”
“Germany is in a league
of its own. Its strong trade
performance reflects two
simple things: the country
has competitive firms in
these sectors where demand
is heavy due to emerging
market growth, especially
investment goods; and
second, the country’s aging
population leads to increased savings rather than
consumption, which pushes
down imports.”
He now believes that
the EU needs to focus on
clinching trade deals with
the largest markets around
the world, to change the
direction of the overall trade
performance.
To achieve this, it would
be the way forward to conclude the trade talks with
the USA and Japan, and
move for better trade conditions with China. IFM
103
First and foremost, the
many remaining barriers to finance for SMEs
within the EU must be
removed
Ben Butters,
director,
EU Affairs for
EUROCHAMBRES
COLUMN
COLUMN
William Yonge
104
Overhaul of
market regulation
An introduction to future changes to the European market abuse regime
COLUMN
O
n June 12, 2014,
the European
Commission
published the
Market Abuse Regulation
(MAR) and the Market
Abuse Directive on criminal
sanctions for market abuse
(CSMAD), together MAD II.
This will replace the existing market abuse directive,
MAD I and become directly
applicable in EU countries
from July 3, 2016.
MAD I was perceived
as having certain deficiencies, which became apparent after the onset of the
financial crisis in 2008 and
particularly after the LIBOR
manipulation revelations
in 2012. According to the
Commission, the new rules
on market abuse update
and strengthen the exist-
ing framework in MAD I to
ensure market integrity and
investor protection. MAR
will help keep pace with
market developments such
as the growth of new trading
platforms, including over
the counter (OTC) trading,
and new technology, such
as high frequency trading,
and the upcoming overhaul
of market regulation under
MiFID 2.
MAD II will broaden the
scope of the market abuse
rules and strengthen regulation to capture these new
markets, notably the spot
commodities market, multilateral trading facilities
(MTFs) and related derivative markets and explicitly
bans the manipulation of
benchmarks (such as LIBOR).
MAR is intended to create
a single, directly applicable
EU market abuse rule book
for regulators that will
increase their enforcement
powers in contrast to the
patchwork that arose from
national implementation of
MAD I. CSMAD will require
Member States to provide
harmonised legislation on
criminal offences for insider
dealing and market manipulation, and to impose
criminal penalties, including
up to four years’ imprisonment, for the most serious
market abuse offences. The
manipulation of benchmarks will be considered
criminal behaviour across
all EU countries. The UK
has exercised its discretion
to opt out of CSMAD on the
basis of already having an
established market abuse
regime, which goes beyond
CSMAD standards.
Like MAD I, MAR prohibits insider dealing, improper disclosure of inside
information and market
manipulation. The concept
of “inside information” is
central to the prohibitions
on insider dealing and
improper disclosure. Inside
information is non-public
information which is precise
in nature, relates directly
or indirectly to an issuer
or financial instrument,
and which, if it were made
public, would likely have
a significant effect on the
price of the financial instrument or the price of related
derivatives.
MAR has expanded
the definition to include
105
COLUMN
106
information on commodity
derivatives, spot commodity contracts and emission
allowances, where the information is “required to be or
reasonably expected to be
disclosed”. Whilst “inside
information” is defined in
MAR similarly to MAD I,
there are some changes.
Information relating to an
intermediate step leading
up to a particular event
can itself be precise and
constitute inside information. There is a rebuttable
presumption that a person
in possession of inside
information, who carries out
transactions connected with
that information, will be
deemed to have used it.
The scope of MAR is wider than that of the existing
rules to reflect an increasing
trend toward off-market
trades. MAR will apply to
financial instruments admitted to trading on an EU
regulated market for which
a request for admission
to trading has been made
as per the current regime.
In addition, it will capture
behaviour regarding financial instruments: (i) traded
(or for which a request for
admission to trade has been
made) on MTFs and OTFs
and any other conduct or
action, which can have an
effect on such an instrument regardless of whether
it takes place on a trading
venue or OTC.
MAR covers abusive
trading in spot commodity
contracts whose price or
value is based on a derivative financial instrument,
as well as spot commodity
contracts to which financial
instruments are referenced.
MAR captures attempted
insider dealing and market
manipulation activity, where
a transaction is intended for
“abusive” purposes but is
not actually executed.
MAR clarifies that the use
of one’s own knowledge of
one’s intention to acquire or
dispose of financial instruments does not constitute
use of inside information.
This clarification will facilitate stake building ahead of
public takeovers or mergers
provided the information is
not obtained through access
to the target or its management. It is also legitimate
under MAR for a legal
person to deal with securities while possessing inside
information as long as systems are in place whereby
the natural person making
the decision to acquire or
dispose of the instrument
was not in possession of the
inside information.
MAR retains the current safe harbour for share
buy-backs and stabilisation.
It does not apply to shares
bought back for the purpose
of reducing share capital
or redistribution of stock
options or call options in
debt instruments despite
a company buy-back of its
own capital being prima
facie trading in possession
of inside information. Stabilisation is where investment
banks maintain securities
prices artificially after an
initial public offering (IPO).
This may only be done
COLUMN
within limits and within a
predetermined period. Buy
backs and stabilisation need
to be notified to the competent authority, publicly
disclosed and conducted in
accordance with applicable
standards.
There will be a new
prescriptive procedure and
safe harbour for communication of information,
prior to the announcement
of a transaction, in order to
gauge the interest of potential investors in a possible
transaction and the conditions relating to it, such as
its potential size or pricing,
to one or more potential
investors, known as “market
soundings”.
For a disclosure to qualify
as a market sounding, the
disclosing market participant (DMP) must obtain
prior consent from the disclosee and warn them that
the information they receive
must remain confidential
and not be used to inform
a decision to acquire or
dispose of the related financial instrument for his own
account or on the account
of others. In particular, the
information may not be
used to cancel or amend an
order already placed, which
concerns a financial instrument to which the information relates.
The DMP should inform the disclosee that it
considers the information
inside information before
it proceeds with the market
sounding and has the responsibility to characterise
the information as inside information or not, and keep a
record of any due diligence
made, which includes an
explanation justifying the
conclusion regarding the
nature of the information.
The information should
include the disclosee’s opinion on whether it believes
the information is inside
information.
The DMP must inform
potential investors, who
have been wall crossed,
when the information
received is no longer inside
information, which allows
the disclosee to deal again.
However, it is up to the
disclosee to decide whether
or not they consider the
information inside information and they must put
the provided information
together with other information they hold in order to
decide whether the information is inside information
or not.
Asset managers, including
those outside the EU, who
manage funds or portfolios
containing instruments
captured by MAR will need
to consider a revision of
policies and practices. Any
instrument admitted to
trading on an MTF in the
EU will be subject to MAR.
New requirements under
MiFID II for OTC derivatives to be traded on OTFs
will mean that managers
will need to consider inside
information issues. IFM
William Yonge is a
partner in the Investment
Management Practice of
global law firm Morgan
Lewis
107
ADVERTORIAL
On the path towards
108
excellence
Within a short timeframe of only seven years, Bank Sohar has emerged as
one of Oman’s leading lending institutions
ADVERTORIAL
B
ank Sohar was
established in
2007 following a
successful initial
public offer and listing as an
SAOG Bank on the Muscat
Securities Market. It started
operations in April 2007.
Within a short timeframe
of only seven years, Bank
Sohar has emerged as one of
Oman’s leading lending institutions. Its vision is to be
a one-stop financial ‘super
mall’ offering tailored financial products and services
across various segments,
each with a unique set of
propositions, customised to
meet the evolving requirements of the different
customer segments.
Working towards this
vision and with a customer centric approach,
the bank has a broad range
of financial products and
services spread across four
primary divisions, catering
to the specific requirements
of every possible customer
– Retail Banking, Corporate Banking, Treasury
and Financial Institutions
Services.
The Retail Banking
Division offers an extensive range of products and
services that are customised
to meet the various life cycle
stages of its customers.
It offers a comprehensive
range of products and services under its ‘Al Mumayaz’
brand that includes savings,
deposits, special deposits,
flexi-deposits, personal
loans, mortgage, education loans, housing finance,
online banking and anybranch banking as well as
an array of innovative cards
that are tailor-made to client requirements.
The Corporate Banking
Division, on the other hand,
serves large, medium and
small corporates as well as
government entities with
products and services ranging from loans, overdrafts,
project finance, syndications
and advisory, LCs, BGs,
and other trade finance
services to risk management
services. Customer requirements are met by specialised Relationship Managers
who are equipped to understand the specific needs of
the customer and to provide
customised solutions.
The Treasury offers a wide
spectrum of services ranging from foreign exchange,
fixed income, interest rate
products and derivatives.
It provides regular up to
date information on various
markets and products to
our large corporate clients, small and medium
enterprises and various
government departments
and fund managers. Having
access to global money and
foreign exchange markets,
it provides comprehensive
cash management and risk
management solutions to
clients.
The primary focus of
the Financial Institutions
Services division is to set up
an extensive global banking
network. This is to facilitate
free flow of trade transactions across borders to help
clients not only facilitate
their business, but also to
access superior facilities
across the globe and thereby
enhance their trade volumes. This group studies
‘Country and Bank’ risks
across the world and sets
prudent exposure levels in
tune with the risk appetite
for such exposures.
In order to ensure its
customers are provided with
the best possible customer
service and to guarantee
24/7 access to their accounts, the bank has an
extensive network of 26
branches and 50 ATMs
across Oman. Bank Sohar
customers also continue to
enjoy the privilege of freeof-charge transactions in
over 1,000 ATMs under the
‘OmanNet’ platform. The
bank’s ATMs at Buraimi and
Wajajah borders continue to
operate with the ‘Dirhams
Dispensing’ facility; thus
adding immense convenience to businessmen who
travel and transact business
across the border on a regular basis, as well as to customers who visit the United
Arab Emirates. The bank’s
customers also enjoy the
advantage of a cash deposit
facility at all branch ATMs
as another value-added service. In addition, the bank’s
e-channels, encompassing
SMS and internet banking
services, allow customers to
access their bank any time
and from anywhere.
With the advent of Islamic banking in the region,
Bank Sohar gained a licence
to launch ‘Sohar Islamic’ —
its Islamic Banking window
— and opened its doors to
customers in April 2013.
Subsequently, four Islamic
window branches were
opened during the same
109
ADVERTORIAL
110
year. The bank formed a
Shari’ah Advisory committee and set up the requisite
systems and procedures to
offer 100% shari’ah compliant banking services to
its clients. Sohar Islamic
offers a full range of services
and products, with activities that include accepting
shari’ah compliant customer
deposits, providing shari’ah
compliant financing based
on murabaha, mudaraba,
musharaka, ijarah, istisna’a,
salam and providing commercial banking services,
investment and other
activities permitted under
Islamic Banking Regulatory
Framework. This window
has complete segregation of
systems, people, branches
and processes to maintain
the sanctity of Islamic banking.
The bank’s customerfocused approach and
dedication towards banking excellence has over the
years garnered numerous
awards locally, regionally,
and internationally for a
wide spectrum of achievements. In 2014 alone, the
bank received six awards for
its financial performance
encompassing the ‘Business
Excellence Award’ by Texasbased World Confederation
for Business (WORLDCOB)
at the Bizz Arabic 2014
Awards, ‘Best Financial
Brand Oman 2014’ award
by renowned UK based
Global Brands Magazine,
‘The Diamond Eye Award
for Quality, Commitment &
Excellence’ from the Francebased Otherways Management & Consulting Association, ‘Fastest Growing Bank
in Oman 2014’ by UK-based
International Finance Magazine (IFM), the ‘Best Bank
for Fast Growth / Middle
East’ Award from Milanbased IAIR Magazine and
was recognised as one of
the ‘Top 5 Large Corporate
Enterprises in the Sultanate’ for the third consecutive
year at the Alam Al Iktisad
Wal Amaal (AIWA) Awards.
In addition, the bank was
also the only financial institution from Oman to have
won three individual awards
from the Banker Middle
East Product Awards 2014
organised by CPI Financial,
based in UAE, for its Retail
Division consisting of ‘Best
Customer Service – Retail
Banking’, ‘Best Cash Management’ and ‘Best Corporate Card’. The bank also
received a ‘Strategic Award’
for its corporate website
(www.banksohar.net) from
the Lebanon-based Pan
Arab Excellence Awards
Academy as well as from
Oman Web Awards.
2014 also marked the
first time that Sohar Islamic
received an award, winning
the ‘Best Branding Award’ at
the recently held CPI Financial - Islamic Business and
Finance Awards 2014.
On the Corporate Social
Responsibility (CSR)
front, the bank’s year-long
environment awareness
campaign ‘Saving Water
Electricity…And Our Planet’
was recognised at the ‘Oman
Green Award 2014’ resulting in the bank receiving
the ‘Green Campaign of the
Year’ award. In addition,
the bank recently received
‘Most Socially Responsible
Bank Oman 2014’ Award
from International Finance
Magazine (IFM) & ‘Golden
Order of Merit in the field of
CSR’ by The Tatweej Academy for Excellence Awards
in Lebanon.
The bank is rated by
FITCH Ratings with a Long
Term Issuer Default Rating
of BBB+ (Stable Outlook).
Similarly, Capital Intelligence has affirmed Long
Term Foreign Currency Rating at BBB+ with a Stable
Outlook and Short Term
Foreign Currency Rating
at A3.
Despite its achievements,
the bank has no intention of
resting on its laurels. It has
already chalked out plans
to pursue vigorous growth
in 2015 and subsequent
years, both in terms of its
market share and diversity
of financial products and
services available to its rapidly growing customer base.
Also based on the strength
of the rapid growth since
its inception and with its
long-term strategy in place,
the bank is well equipped to
meet the intense competition in the financial services
sector. The growth strategies include expansion of
branch network, introduction of new products and
services and scaling up of
business with existing clientele and developing requisite infrastructure to meet
the expanding and widening
needs of the clients. IFM
CSR initiative
Bank Sohar launched
an initiative for conservation of water and
electricity
A calendar was
launched entitled
‘Saving Water, Electricity… And Our
Planet’, in association
with the Environment
Society of Oman
It was designed to create awareness among
all segments of society
in a creative way
The company ran social media campaign
giving tips to conserve
water and electricity
They ran an ad campaign to ensure the
message has the maximum possible reach
111
INTERVIEW
‘Our guests
are travellers
looking for a very
authentic
experience’
‘Our guests
are travellers
looking for a very
authentic
experience’
Visy Valsan
112
Kristin Intress,
CEO, Worldhotels
113
INTERVIEW
INTERVIEW
With a portfolio of 500 independent hotels
worldwide, Kristin Intress, CEO, Worldhotels says
that finding tailor-made solutions for each can be
very challenging at times
Kube Saint Tropez
understand that they are far
more than just order takers — that is when success
starts to kick in.
What did you bring
from that experience
to your job at Worldhotels?
To always keep the global
perspective in mind: Each
market is driven by local
influences, and solutions
that are right for one region
aren’t necessarily the best
choice for another one. At
Worldhotels, we understand
this very well and offer our
hotels solutions that are
tailored for their individual
needs and market demands.
What clientele is Worldhotels home to?
Our guests are travellers
looking for a very authentic
experience. They might be
travelling on business or for
pleasure, but they all want
to stay at a hotel that connects them to the place they
are visiting.
China Changsha Worldhotel Grand Jiaxing Corridor
»
international cuisine, the
second (40 seats) specialised in American comfort
food and the smallest one
(30 seats) was a pub-style
restaurant offering traditional Scottish dishes.
What are the lessons
that you hold on to from
that experience?
First of all, I learned that
in order to run a business
in a foreign country you
need to understand its
people — and learn to see
things through their point
of view. Customer needs are
inseparably linked to culture
and values. It was also during this time that I came to
realise the power of sales.
When you get your team to
»
114
Tell us about your experience of running a
restaurant?
I opened and operated three restaurants in
Scotland – and I would say
starting your own business in a foreign country is
always a unique experience.
As an example, one very
distinctive difference between the US and Scotland
are the covers. In the US, I
could easily do three covers,
whereas in Scotland I ended
up with two maximum, due
to cultural differences. In
regards to cuisine, I was offering different food in each
of the three restaurants:
the biggest one (up to 80
guests) was serving five-star
INTERVIEW
115
China Changsha Worldhotel Grand Jiaxing Exterior
INTERVIEW
INTERVIEW
Maldives Amilla Fushi Ocean house deck
116
What are the challenges
of managing a portfolio
of independent properties? What are the attractions of having such
a portfolio?
Finding tailor-made
solutions for each of our
hotels and their individual
needs can be very challenging at times. On the other
hand, it is very rewarding
to manage a portfolio that
is so unique and authentic.
Our hotels are owned and
run by people who live and
breathe hospitality. They
love their hotels and it really
shows. When you stay in
one of our hotels, you are
not staying at yet another
hotel that could be in any
city of the world – you feel
the local flavour throughout
your stay. Like we say in one
of our slogans – “When you
stay in Singapore, it should
feel like Singapore”.
When you buy a new
property, do you tap
into the existing brand
or go for complete rebranding?
We don’t buy properties.
Our hoteliers know just
how they want to run their
hotel – we’re just here to
help them achieve their full
potential.
How do you maintain
»
Maldives Amilla Fushi Ocean House
Tivoli Palacio De Setais exterior
»
»
Maldives Amilla Fushi Lagoon house deck
INTERVIEW
uniformity in standards
at all properties, especially since they are
spread over different geographies and cultures?
We have very high standards for our hotels. There
are over 1,000 criteria on
a list that we check every
year during a mystery shop.
These ensure that each of
our guests can expect a
certain level of comfort and
service during their stay.
These standards do not
interfere with the hotel’s
operations, meaning that
we do not dictate colour
palettes, furniture styles,
sprinkler systems, and so
on. So the hotel is free to be
who they are – which makes
them so special in the first
place.
With 500 properties
worldwide, how do you
keep in touch with customer needs and their
feedback?
We connect with our
guests through various
channels and at all stages of
their travels: before, during
and after their stay. We do
this via pre- and post-stayemails, our Social Media
Channels, newsletter communications and our brandnew loyalty programme,
Worldhotels Peakpoints.
In addition to that, we also
cooperate with guest review
sites such as TripAdvisor
and Trust You to stay on
top of our guest reviews and
feedback.
What are the latest
trends in travel that you
are tapping into?
I’d say it is experiential
travel. Guests today dream
bigger – they don’t look for
an accommodation when
selecting a hotel, they look
for local and authentic experiences and seek to fulfill
their dreams. This is true for
all generations, from baby
boomers to Millennials. Hotels today are ‘dream-catchers’ and need to provide
unique experiences in order
to stand out.
What are the challenges
that you are facing while
expanding into SubSaharan Africa?
We are obviously facing
the same challenges as most
businesses that are looking
to expand into this emerging market: non-uniform
political systems, inconsistent infrastructure as well as
security challenges, just to
name the major ones. However, this market also bears
great potential for our distinctive business model: Local operators are looking for
global partners like Worldhotels to help them increase
their international exposure
– as greater visibility gives
travellers re-assurance and
confidence to book local
brands, and makes them
The Worldhotels way
Through a comprehensive
range of services that includes
global marketing, sales,
training, e-commerce and
state-of-the-art distribution
and technology, Worldhotels
backs independent hotels with
the power of a global brand
while allowing them to retain
their individual character and
identity.
chose authenticity over
standardised international
chain products.
If you were to take a
two-week break with
your family, which destination would you all
choose to visit?
Somewhere we’ve never
been in Asia-Pacific. The
region is very rich in culture
and history and differs from
our Western world — be
in architecture, cuisine or
values. There are so many
places to discover!
Any hobbies that you
picked up in the course
of your work?
I enjoy cooking and
rebuilding/redecorating
houses. I get to see lots of
great hotels with great design and interior decoration.
This is my greatest source of
inspiration when it comes
to making the best out of
my own home. The same
applies to cooking. I love
visiting hotel restaurants
and then trying to replicate
their dishes in
my kitchen. IFM
117
“
Guests today dream
bigger – they don’t look
for an accommodation
when selecting a hotel,
they look for local and
authentic experiences
and seek to fulfill their
dreams
Kristin Intress
Homes built
on a thick
wallet
Billionaire.com lays out the world’s top 10 most
expensive listed properties for sale
118
The houses in the
world’s most expensive
properties list compiled
by Billionaire.com take
luxury real estate to
the next level. The list is
the result of extensive
in-house research by the
lifestyle resource for
ultra-high net worth
individuals and
consultations with the
world’s top
property firms.
119
PICTORIAL
1
Penthouse at the
Tour Odéon Monaco,
Monaco
Price: $388 million
S
cheduled for completion in
early 2015, the Tour Odéon
Monaco will be the secondlargest building on the Mediterranean coastline and home to the
world’s most expensive apartment — a
five-floor penthouse costing $388
million. With 35,000 square foot of
space, ready to be designed according
to the buyer’s taste, the penthouse is
a mini-mansion. Outside, a waterslide
connects the dance floor to a circular infinity pool, which looks like an
enormous floating glass. As for other
apartments, prices start at $36 million.
www.knightfrank.com
2
120
The Manor,
Los Angeles, US
Price: $150 million
B
uilt in 1988 by entertainment tycoon Aaron Spelling
and his wife Candy, The
Manor was bought three
years ago by Petra Stunt (Ecclestone).
Since then, she has spent $20 million
on refurbishments and now has 123
rooms, including a gym, bowling alley
and screening room. The Manor sits
within 4.7 acres of LA’s most exclusive
land and would be the most expensive
house ever sold in the US should it
meet the asking price.
To be sold privately.
PICTORIAL
3
Beverly House,
Los Angeles, US
Price: $135 million
I
t famously appeared in the
movie The Godfather and was
the honeymoon spot for JF
Kennedy and his wife Jackie.
With almost 365 days of sunshine a
year, the house is purpose built to take
advantage of the Californian temperature, with floor-to-ceiling windows,
large cool rooms, an outdoor tennis
court, swimming pool and cascading
waterfalls. The terrace seats 400 and,
given that there is also a nightclub in
the house, it has all the ingredients for
a successful party.
www.christiesrealestate.com
4
Rancho San
Carlos, California, US
Price: $125 million
T
his 30-room Monterey
Colonial mansion, designed
in 1929 by American architect Reginald Johnson, is
surrounded by 237 acres of land in
one of America’s most sought-after
addresses; Montecito, Santa Barbara.
After 100 years, the Jackson family
estate, with 10 residential cottages,
horse paddocks and arenas, and 100
acres of cultivated orchards, is finally
likely to change hands. Oak-paneled
walls in the formal room, imported
from the Jackson’s Manor House in
England, are still intact, as is the English whisky pub with a secret door. The
house is built on two natural terraces
with views down the valley, across the
estate and over the Pacific.
www.sothebys.com
121
PICTORIAL
5
One Hyde Park,
London, UK
Price: $103 million
T
he Candy brothers launched
this billion-dollar complex
mid-way through the recession. Occupying an entire
floor, this apartment divides into two
wings, known as ‘The City’ and ‘The
Park’. A 65m hallway connects both
wings. The Mandarin Oriental hotel
provides prospective owners with
a 24-hour hotel concierge, spa and
recreation facilities, parking and valet,
use of a private wine cellar and room
service.
www.aylesford.com
6
122
The SherryNetherland,
New York, US
Price: $95 million
B
uilt in 1927, The SherryNetherland in Manhattan
is a luxury residential hotel
co-op with apartments for
sale. Apartment 17 occupies an entire
floor with seven bedrooms, eight bathrooms and a huge terrace overlooking
Central Park and downtown Manhattan. Would-be owners have access
to all the hotel amenities, including
room service from the Harry Cipriani
restaurant downstairs. Caveat emptor:
the hotel requires up to US$60,000 of
maintenance fees — per month.
www.knightfrank.com
PICTORIAL
7
The Penthouse at
The Pierre Hotel,
New York, US
Price: $95 million
O
nce owned by Martin
Zweig, a financial analyst
who famously predicted the
stock-market crash of 1987,
this palatial Manhattan penthouse
sprawls over three floors. But even if
you’ve got a spare $95 million, interested buyers must be first vetted by the
hotel committee. With 16 bedrooms,
a grand salon (formerly the Pierre
ballroom) and 360-degree views over
Manhattan, this has justifiably been
called the most spectacular penthouse
in the world.
www.sothebysrealty.com
8
123
Du Parc Penthouse,
Geneva, Switzerland
Price: $94 million
O
n the shores of Lake Geneva, surrounded by the
Dents du Midi mountain
range in the UNESCOprotected vineyards of the Lavaux, is
the former Palace Mont-Pèlerin. This
was renovated into 24 über-modern
apartments, the penthouse of which
costs $94 million. A key to one of
these apartments also offers lifetime
membership for the Lavaux Golf Club,
a 10-year membership for the Mirador Country Club and the services of
lifestyle group Quintessentially for one
year. Kempinski Hotel services, the use
of a Rolls-Royce, butler, wine cellar,
Davidoff cigar lounge and Givenchy
Spa come included in the price tag.
www.knightfrank.com
PICTORIAL
9
Private Island
Paradise, Exuma
Cays, Bahamas
Price: $85 million
T
his house comes with its
own private island. With
space for 22 guests and 29
staff, it’s the place to relax
in the hands of others. A self-generating power source, fuel, telecommunications system and a large
vegetable garden make the house
almost entirely self-sufficient. It is
a one-hour flight away from Palm
Beach and completely tax-free.
www.sothebysrealty.com
10
124
Lyndhurst Road
Mansion, London, UK
Price: $77 million
T
he front door of this North
London redbrick mansion
opens to a grand entrance
hall with an overhanging
chandelier, balustrade and marble fireplace. The decor is bleeding-edge ‘nouveau’, with every conceivable luxury,
including indoor pools, steam rooms
and a cinema. Upstairs, the master
bedroom with adjoined dressing room
has a large half-moon-shaped window,
which opens up to a view down the
garden and across London.
www.knightfrank.com IFM
The main catalyst
at this level is
want, not need
Suparna Goswami
Bhattacharya discussed
the properties on the list
with Christian Barker,
CEO and Editor-in-Chief
of Billionaire.com
125
PICTORIAL
How long does it take for such
high-priced properties to get
sold?
It can take many, many years or
just a few months, but it comes down
to pricing, opportunity and luck. The
main catalyst at this level of the market
is want, not need. The reality is, there
are plenty of UHNWIs in the world
who can afford assets of this nature but
in terms of UHNWIs actively looking
specifically for these assets, there is a
much smaller number.
Do the properties fetch the price
that is sought?
Buyers looking to spend upwards
of $100m are very savvy and have a
number of advisors working for them.
Whilst, of course, a number will act
on impulse, the majority of buyers
like to justify their investments, even
if just from a lifestyle point of view.
If the guide price is sensible and the
asset sits in a prime location, such as
Cap Ferrat, Tuscany, Courchevel 1850,
West Coast Barbados or the private
island of Mustique, you will undoubtedly get interest and sales at or very
near the guide price.
126
When such a property is up for
sale, how many people are in the
fray to buy it?
That really is the billion dollar question. In the current market, confidence
is still low given the economic turmoil
over the past number of years. This
being said; agents are beginning to see
an increasing number of active buyers
happy to consider spending this sort of
money again. IFM
127
feature
128
Cut to
If bespoke tailoring can be the mark of a gentleman, custom-made shoes are no
less. In fact, the two pretty much go hand in hand
Priyadarshini Nandy
feature
129
size
feature
130
Alessandro Sartori Berluti Creative Director at Berluti
feature
I
131
Dimitri Bottier
have your shoes made from:
Dimitri Bottier (Gomez), France
Considered to be one of
the most talented bespoke
shoemakers
in the world, Dimitri Bottier
(Gomez) works out of the
Crockett & Jones boutique
in Paris. With access to rare
hides from the best tanneries, his designs
Berluti shoes
»
famous
Lobb customers.
The story
of bespoke
footwear is as
fascinating as the history of
the world. And with time,
the mastery behind the
craft has only improved.
And while ready to wear
shoes inundate markets
across the globe, a handful of craftsmen continue
to make a pair of shoes,
by hand, painstakingly
giving form to an idea that
can only be compared to a
piece of art. However, you
should be willing to pay for
it, and how, because a pair
of bespoke shoes can cost
you anything from £600
upwards.
If you have the patience,
and the money, to wait for
that perfect pair, here
are some stores
across the globe
you ought to
»
n the 1960s, American
singer/actor Dean
Martin walked into a
Berluti store on Rule
Marbeuf in Paris with his
friend, Frank Sinatra, in
tow. He was a regular and
wanted Sinatra to get a pair
of handmade Berlutis as
well. Sinatra was informed
that he’d have to wait for
a year till his shoes were
ready. The My Way singer
was, of course, not willing
to wait that long and walked
away with a pair of loafers
from one of the first off-theshelf collections that Talbinio Berluti had designed a
few years earlier.
While on Martin and
Sinatra, the two were famous as patrons to another
brand – the British John
Lobb. The founder John
Lobb (1829-1895) was
known for his shoemaking
skills and was the holder of
a Royal Warrant as bootmaker to Edward, Prince of
Wales. And it was during his
time that Lobb shoes begun
to be known as a symbol of
elegance. And while over the
years John Lobb began to
design ready-to-wear shoes,
the family owned store at
St James Street, London,
continues to make shoes
only by hand and are known
to make only one pair at a
time. Diana Spencer, Andy
Warhol, Louis Mountbatten,
Laurence Olivier, Duke Wellington, and David Niven
were some of the
Jan
Jan -- Mar
Mar 2015
2015 International
International Finance
Finance Magazine
Magazine
feature
and craftsmanship are
enviable. Located at Rue
Chauveau-Lagarde, you can
see him only by appointment.
John Lobb, UK
Quintessentially English,
The John Lobb store at St
James’s Street, London,
continues to make shoes by
hand. You will, of course,
have to be patient if you
want that perfect pair.
132
Klemann shoes
»
Anello & Davide, UK
They’re known for their
work for dance, theatrical
and bridal footwear. For
bespoke shoes, you have
to write to them for an
appointment, or call their
store at Kensington, London. Anello & Davide was
awarded the Royal Warrant
for the Queen Mother in
1997 and Her Majesty the
Queen in 2001.
Berluti, France
While you can buy Berluti’s ready-to-wear shoes,
a bespoke pair is what you
ought to save up for. Their
stores in London, Paris, Italy, Singapore, Japan, New
York City, among others,
offer bespoke shoemaking services. Some
of these countries
have more
than
one store and not all have
the facility to custom make.
The Berluti website is a
good place to start looking.
owned business, Foster &
Son travels to the United
States of America and Japan
about twice a year.
Foster & Son, UK
With more than 170 years
of experience in custom
making shoes, Foster & Son
in London are known to
be one of the world’s most
preferred bespoke shoemakers. They are known for
their low-key presence, a
distinguished clientele and
top-of-the-line craft.
Still a family-
Klemann, Germany
A store in Hamburg
is what Benjamin Klemann works out of. His
custom-made shoes are
however bought by people
from across the world. They
use the traditional English
and Hungarian methods of
shoe-making, and if you’re
willing to wait about six
months for a pair, which is
perhaps better than having
to wait a year, you could
have your own Klemann
shoes. Klemann often visits Berlin,
Düsseldorf
feature
133
Benjamin Klemann
feature
Why bespoke
When it comes to buying
shoes, odd feet aren’t a rarity. While most retail brands
cater to a wide variety of
shapes and sizes, there are
always a few exceptions.
And that is precisely when
bespoke shoes come handy.
Yes, it is way more expensive than what’s available in
retail. After all, someone is
making your pair by hand.
But once it’s done, and
you’ve slipped your foot in,
we doubt you’ll ever go back
to off-the-rack footwear.
»
Andrew Mcdonald
and Münster as well.
Roberto Ugolini, Italy
Ugolini works out of a
small workshop in Florence.
The Roberto Ugolini shoes
are made completely by
hand, using a Florentine artisan tradition. Incidentally,
the shoemaker came into
the limelight after hosting
shows in Japan.
Andrew McDonald,
Australia
One of Sydney’s most famous shoemakers, Andrew
Most bespoke shoemakers
take immense trouble to put
your pair together. It takes
anything from a few months
to a year to get these handcrafted shoes out. If you go
through Dimitri Bottier’s
shoemaking process, you’ll
know why. From taking the
measurements, to creating
the last, cutting a pattern,
designing a trial shoe, to
Cutting, Closing, Lasting,
and then finally finishing the
product to suit your feet and
create a wonderful piece of
design – bespoke shoes are
truly a work of art.
Then there are always the
made-to-order shoes, where
you pick an existing design,
and it’s made according to
your size – a true gift for
those with slightly odd measurements.
Roberto Ugolini shoes
»
134
Masaru Okuyama,
Japan
A student of the famous
Japanese shoes craftsman,
Chihiro Yamaguchi, Masaru
Okuyama makes bespoke
shoes because he believes
that shoes are the way to
express your seriousness
about life. He’s a gold medal
winner in the Custom-Made
Shoes Category of German
International Shoemakers’
Competition, Inter-SchuhService, in 2010.
McDonald has been making shoes since the 90s.
McDonald visited London to study photography
and also ended up training at John Lobb, which
is when he decided to become a shoemaker. He
gives photography the credit, though, for his eye
for detail. IFM
feature
‘If you have five good
custom-made shoes,
you don’t really have to
buy shoes anymore’
Masuru Okuyama talks to IFM
about bespoke shoemaking, and
where it stands today
While the affluent
across the globe
invest in high-end
clothing, are they
aware of bespoke
shoes?
People still hesitate to
invest a lot of money in
shoes, especially when you
compare them with other
fashion products. I’d say it’s
because people don’t know
what bespoke shoes are
all about,
and that
you
can
literally wear
them forever,
with proper care and
repair, of course. If
you have five good custommade shoes, you don’t really
have to buy shoes anymore.
I remember this quote,
which explains what I am
trying to say: “I’m not rich
enough to buy cheap shoes.”
Do we need for
a few more
schools
when it
comes
to de-
signing shoes?
I am not sure if schools
will really help the industry.
Most good shoe designers I
know, or known of, were doing different things before
they ended up as shoe
designers. And what’s really
interesting is that they are
first attracted to the
craft of making the
shoes, and not
the designs.
Shoes by
most
highend
brands
cost the
moon,
and yet
they sell
fairly
well all over the world?
Then why aren’t there
as many bespoke shoe
designers?
The bespoke business has
to be very intimate with its
clients. So you can’t expand
quickly. You have to be able
to know what the client
wants exactly, by trying to
read between their lines. It
requires extreme concentration, and all the time, and
making those bespoke shoes
is physically tough as well.
It cannot be just a job; it has
to become your life.
What are the five thumb
rules for aspiring shoe
designers?
•
•
•
•
•
Learn the beauty of curves
and lines from nature. And
remember, there are no
awkward lines in nature.
Know how to make shoes
yourself. You should
know the technique and
the craft, and not how to
design shoes.
Understand material.
Have a good sense of
business.
And lastly, always dream
big. IFM
Masaru Okuyama shoes
»
Who do fashion weeks
around the world focus
a lot on couture clothes,
but rarely on shoes?
Shoes have nothing to do
with the short cycle of fashion, that’s why. And you’re
talking about bespoke shoes
– they don’t come with an
expiry date. Men’s dress
shoes have to be universal in design, and it is not
something where you come
up with a new design every
season.
135
MARK YOUR
Calendar
CALENDAR
INTERVIEW
136
11-13 March 2015
Australasian Oil & Gas Exhibition &
Conference
Power, Renewable Energy & Energy
Conservation industry
http://www.eventseye.com/fairs/
f-aog-australasian-oil-gas-expo-11983-1.html
http://10times.com/solarexpo
Perth, Australia
Shanghai, China
http://10times.com/china-international-optics-fair
Milan, Italy
19-21 March 2015
Golf Fair
Paris, France
f-salon-du-golf-a-paris-9084-1.html
8-11 April 2015
Railway, Shipping & Aviation Products
industry
Dallas, USA
http://10times.com/aea-international-convention-trade-show
24-25 March 2015
Power Generation Conference
Johannesburg, South Africa
f-power-generation-world-africa-14784-1.html
14-17 April 2015
International Trade Fair for Electronics
Manufacturers and Suppliers
Guangzhou City, China
http://www.eventseye.com/fairs/f-aleex-20050-1.html
24-26 March 2015
Arab Oil & Gas
Dubai, UAE
http://10times.com/arab-oil-gas
21-29 April 2015
International Automobile &
Manufacturing Technology Exhibition
Shanghai, China
f-auto-shanghai-8089-1.html
1-3 March 2015
Medical & Pharmaceutical industry
8-10 April 2015
25-26 March 2015
29-30 April 2015 Intermodal Africa is the largest Ports,
Minerals, Metals & Ores, Logistics &
Shipping and Logistics Exhibition &
Transportation industries
Australia
Conference event on the African continent Townsville,
http://10times.com/nq-expo
Lagos, Nigeria
f-intermodal-africa-north-17955-1.html
2-4 March 2015
25-26 March 2015
5-8 May 2015
Solar Middle East
North Sea oil & gas conference
MTB Shipyards
http://10times.com/solar-middleeast
f-oil-gas-outlook-north-sea-14797-1.html
http://10times.com/mtb-shipyards-dubai
Dubai, UAE
3-5 March 2015
Industrial Products, Minerals, Metals &
Ores, Real Estate Agents industries
London, UK
Aberdeen, UK
Dubai, UAE
30 March-01 April 2015
6-8 May 2015
International Property Show
Mining Australia
http://10times.com/international-property-show-dubai
http://10times.com/mining-australia-perth
Dubai, UAE
Perth, Australia
http://10times.com/appex-london
7-8 March 2015 1-3 April 2015
14-16 May 2015
The Listed Property Show
Solar Thermal
Renewable Energy
http://10times.com/listed-property-show
http://10times.com/solar-thermal-china
http://10times.com/renewable-energyworld-india
Harrogate, UK
Beijing, China
New Delhi, India
Page-turners
America’s Bitter Pill
By Steven Brill
This is one of the most-awaited books by Steven Brill, who
discusses the Affordable Care Act, popularly known as
Obamacare, how it’s been executed and whether it is changing the exploitation in the healthcare industry of the United
States of America.
The author, who had won the 2014 National Magazine
Award for Public Interest for digging into the country’s
healthcare crisis, goes a step forward in this new book.
From the perspective of an observer, he writes an account of
the fight, amid an onslaught of lobbying, to pass a 961-page
law aimed at fixing America’s largest, most dysfunctional
industry—an industry larger than the entire economy of
France. It’s a hard-hitting chronicle of how the profiteering
that Brill first identified in his Time cover story continues,
despite Obamacare. And it is the first complete, inside account of how President Obama persevered to push through
the law, but then failed to deal with staff incompetence and
turf wars that crippled its implementation. Brill questions
all the participants in the drama, including the president, to
find out what happened and why.
137
Page-turners
The Innovators
By Walter Issacson
After his biography on Steve Jobs, Issacson goes into the world of the people who
created the computer and the Internet. It is destined to be a standard for the history of the digital revolution and an indispensable guide to how innovation really
happens. What were the talents that allowed certain inventors and entrepreneurs
to turn their visionary ideas into disruptive realities? What led to their creative
leaps? Why did some succeed and others fail? In this book, Isaacson begins with
Ada Lovelace, Lord Byron’s daughter, who pioneered computer programming in
the 1840s. He explores the fascinating personalities that created our current digital
revolution, such as Vannevar Bush, Alan Turing, John von Neumann, J.C.R. Licklider, Doug Engelbart, Robert Noyce, Bill Gates, Steve Wozniak, Steve Jobs, Tim
Berners-Lee and Larry Page. This is the story of how their minds worked and what
made them so inventive. It’s also a narrative of how their ability to collaborate and
to master the art of teamwork made them even more creative.
138
Digital Destiny: How the New Age of Data Will Change the Way
We Live, Work, and Communicate
By Shawn DuBravac
In Digital Destiny, DuBravac, chief economist and senior director of research at
the Consumer Electronics Association (CEA), argues that the groundswell of digital
ownership unfolding in our lives signals the beginning of a new era for humanity.
Beyond just hardware acquisition, the next decade will be defined by an all-digital
lifestyle and the “Internet of Everything” where everything, from the dishwasher
to the wristwatch, is not only online, but acquiring, analysing and utilising the
data that surrounds us. But what does this mean in practice? It means that some
of mankind’s most pressing problems, such as hunger, disease, and security, will
finally have a solution. It means that the rise of driverless cars could save thousands
of American lives each year, and perhaps hundreds of thousands more around the
planet. It means a departure from millennia-old practices, such as the need for urban centres. It means that massive inefficiencies, such as the supply chains in Africa
allowing food to rot before it can be fed to the hungry, can be overcome. It means
that individuals will have more freedom in action, work, health and pursuits than
ever before.
Page-turners
Blue Ocean Strategy
By W. Chan Kim, Renee Mauborgne
This global bestseller, embraced by organisations and industries worldwide, challenges everything you thought you knew about the requirements for strategic success. Now updated with fresh content from the authors, Blue Ocean Strategy argues
that cutthroat competition results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool. Based on a study of 150 strategic moves (spanning
more than 100 years across 30 industries), the authors argue that lasting success
comes not from battling competitors but from creating “blue oceans”— untapped
new market spaces ripe for growth. The book presents a systematic approach to
making the competition irrelevant and outlines principles and tools any organisation can use to create and capture their own blue oceans. A landmark work that
upends traditional thinking about strategy, this bestselling book charts a bold new
path to winning the future.
139
The Last Stalinist
By Paul Preston
From 1939 to 1975, the Spanish Communist Party, effectively led for two decades by
Santiago Carrillo, was the most determined opponent of General Franco’s Nationalist regime. Admired by many on the left as a revolutionary and a pillar of the antiFranco struggle, and hated by others as a Stalinist gravedigger of the revolution,
Santiago Carrillo was arguably the dictator’s most consistent left-wing enemy. For
many on the right, Carrillo was a monster to be vilified as a mass murderer for his
activities during the Civil War. But his survival owed to certain qualities that he had
in abundance – a capacity for hard work, stamina and endurance, writing and oratorical skills, intelligence and cunning – though honesty and loyalty were not among
them. One by one he turned on those who helped him in his desire for advancement,
revealing the ruthless streak that he shared with Franco, and a zeal for rewriting
his past. Drawing on the numerous, continuously revised accounts Carrillo created
of his life, and contrasting them with those produced by his friends and enemies,
Spain’s greatest modern historian Paul Preston unravels the legend of a devastating
and controversial figure at the heart of 20th-century Spanish politics.
OUT
OF OFFICE
COLUMN
Spending time with family
and friends is my preferred
way of unwinding
Rino Sabatino is CEO at RAK Investment
Authority. He is based in Ras Al Khaimah, an
emirate in the UAE
140
What do you look forward to doing when you
are not in office – weekends or even weekdays?
The top-most thing is
spending time with my wife,
Lucia, who is my pillar of
strength. Since my work
hours can be very long with
frequent travel commitments, I do my best to maximise the time my wife and I
spend together. The two of
us make it a point to hit the
gym every day on weekdays
and spend time outdoors on
weekends.
What do you prefer —
eating out in a restaurant, catching a movie
in a hall or spending
time with family/
friends?
Spending time with family
and friends is my preferred
way of unwinding. Doing so
gives me the opportunity to
look at life from different
perspectives – from that of
my family. There is definitely more to life than just
work, but if you love your
job as I do then work/life
balance is hardly an issue. I
am fortunate to be blessed
with a very supportive family and I do everything possible to make time for them.
You stay in Ras Al
Khaimah. What is one
unique characteristic of
the place?
Ras Al Khaimah is easily
one of the most beautiful
places in which I have lived.
I wake up every day to the
sight of the majestic Hajjar
mountains in the distance
and a beautiful creek flowing by my residence. Ras Al
Khaimah is the only emirate
in the UAE with sand, sea
and mountains within close
proximity.
Do you buy the latest
gadgets/books?
I am not really into
gadgets but I do keep my
eyes on developments in the
fast-changing technology
world. Not only is technology an industry in itself, it
has completely transformed
the way business leaders
make decisions. To make
up for my lack of interest
in gadgets, I indulge myself
generously in books.
Which book did you
pick up recently?
I recently bought Give
and Take: Why Helping
Others Drives Our Success,
by Adam Grant. Anyone
who knows me well understands that I am not a
reader of fiction. I prefer
books that address issues at
the intersection of business, philosophy and social
science. Give and Take
examines why some people
are successful while others
are not; the author is a
highly rated professor at
The Wharton School.
Which book is on your
wish list? Why?
Lean In: Women, Work
and the Will to Lead, by
Sheryl Sandberg, is on
my wish list. I am a huge
proponent of promoting
women in the workplace
and firmly believe that
women can successfully balance careers and household
commitments. On the other
hand, male leaders have
to empathise and understand what it takes to retain
women and help them grow
in their careers. Although
written for women professionals, I look forward to
reading this book by the
COO of Facebook to gain
greater insight into the
topic.
What are your hobbies?
I am so regular with my
work-outs that I really do
like spending time in the
gym. I have found exercise
to be a great way to unwind
and de-stress. Besides
reading books, I also love
to travel. The UAE is such
a wonderful country to explore with each of the seven
emirates an eye-opener in
its own unique way. Right
across from Ras Al Khaimah
is the Sultanate of Oman,
another beautiful country
worth exploring.
What was your last
holiday destination?
Why did you choose that
place?
My wife and I visited
Istanbul in Turkey over a
year ago. I had heard from
many people that Istanbul is
a fascinating city. I thought
Rome was stunning but
when I visited Istanbul, I
could see why it is known as
the melting pot of the East
and the West.
What is your favourite
dish?
Although a proud Canadian, I must admit that my
weakness is Italian lasagna.
I guess it must have something to do with my Italian
roots! Besides, it is one dish
that I have mastered to
perfection. IFM
© 2014 Hilton Worldwide
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IT WAS MADE FOR YOU.
BECAUSE IT WAS.
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the m-pesa story

Transcription

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