Chile Minister of Economy, Development, and Tourism José Ramón Valente: Escaping the Middle-Income Trap

Early in November, the International Monetary Fund (IMF) paid homage to Chile’s economic resilience and progress.

[caption id="attachment_13529" align="aligncenter" width="1000"] Minister José Ramón Valente (right) talking to CFI.co[/caption]

It lavished praise on the country for its willingness to embrace the structural reforms with which the administration of Chilean President Sebastián Piñera aims to push the nation into the ranks of the world’s most advanced economies. Piñera has repeatedly vowed to transform Chile into Latin America’s first fully developed market.

To achieve that status, Chile needs to boost productivity. In its latest statement on the country, the IMF suggests that some innovation, and a rewriting of Chile’s rigid labour laws, could go a long way.

"We sincerely think that a closely integrated world equates to a better world."

Meeting with CFI.co at the recent World Investment Forum in Geneva, Chile’s Economy, Development and Tourism Minister, José Ramón Valente, explained that history offers a valuable lesson to countries such as his to avoid the dreaded “middle-income trap”.

“Empirical evidence tells me that in order to break out of this trap, societies first need to reach a political consensus around a suitable development model,” he said. “In other words, a national sense of purpose seems to be a requirement to avoid getting stuck in the swelling ranks of middle-income countries.”

Steady as She Goes…

For the last 20 years or so, Chile has maintained a uniform and predictable set of economic policies supported by the twin pillars of open borders and light-touch regulation. On the Economic Freedom Index, compiled annually by the Heritage Foundation, the country claims a spot within striking distance of the US and the Netherlands – and eons removed from its Latin American peers, with Brazil and Argentina scraping by as “mostly unfree” economies near the bottom of the global league. On the World Economic Forum’s Global Competitiveness Index, Chile again leads the continent, ranking alongside Spain, and significantly ahead of Italy and Portugal.

If these lists prove anything, it is that Chile already has all the outward signs of an advanced economy. But Valente cautions that an economic environment that fosters growth and spurs development consists of a fragile and easily disturbed balance of interests and policies. He points to Venezuela to make his point: “When the political consensus breaks down, as happened in Venezuela, any gains made may be quickly lost.

“Look, quite a few countries in the region have enjoyed their 30 years of national glory. Argentina enjoyed its ‘glorious 30’ towards the end of the 19th Century. Brazil looked unstoppable as the up-and-coming industrial powerhouse of the world in the 1960s and 1970s. Half a century ago, Venezuela was an almost fully developed country.”

Chile, Valente says, enjoyed its glorious 30 between 1985 and 2012, and wavered a bit in the years that followed, discussing myriad ways – some sensible, others less so – to “rebase” its development model.

Can-Do Spirit

While welcoming debate, Valente is worried that changes to a winning team may not guarantee better results. “Late last year, Chilean voters reaffirmed their commitment to the development model that has yielded stellar results since 1985. That’s why I disagree with The Economist and remain convinced that our country can, and will, escape the middle-income trap.”

In an article published in September, The Economist hailed the return of billionaire businessman Sebastián Piñera as president, but the magazine’s editors worried that he may not find his groove. Facing a sceptical congress, the president is encountering resistance to his ambitious reform programme which aims to turn back the clock on the rigid and confusing corporate tax code introduced by his predecessor to raise education funds, but which has instead angered small businessowners and scared-off investors.

“Our job is to defeat pessimism with action,” said Valente, emphasising that to push GDP growth to 4% or higher, productivity and investment levels need to increase: “Hence, we must preserve the political consensus, and reconnect with our success formula, to push the economy and latch on to the Fourth Industrial Revolution that is taking shape.” Valente is adamant that some of the more bearish analysts miss the point. “A few outside observers are still stuck on the refrain that Chile’s economy represents a rather simplistic edifice, erected on the abundance of natural resources.

“Just a quick look at the country’s export mix and corporate matrix is enough to expose the fallacy of this argument. Chile has been the birthplace of large multinational companies. The country gave rise to the largest airline company in Latin America [LATAM Airlines], the largest retailer of the region [Falabella], and the second-largest grocery store network on the continent [Cencosud]. Moreover, Chilean wineries and fruit packers serve global markets, as do its fisheries.”

To Valente, these corporates offer tangible proof that Chile’s economy has successfully diversified from commodities, with mining representing just 10% of its GDP, which “implies a highly complex economy and one that is able to thrive in a competitive environment”. Valente notes that Chilean exporters have managed to challenge incumbents in a number of major markets. “Farmed salmon and wine are prime examples of this,” he says. “We started from close to zero and are now home to some of the most competitive companies in these sectors. There is absolutely no reason why these remarkable feats cannot be repeated going forwards.”

Free Trade Champion

A significant degree of Chile’s corporate savvy may be attributed to the country’s eagerness to seal international trade deals. No other country sustains more free-trade agreements than Chile. “Trade, however, is just one part of the equation,” says Valente. “It is just as important to have deals that allow companies to conduct business entirely outside their home market. Right now, Colombia and Peru receive significant investments from Chilean corporates which have turned away a little from Brazil and Argentina to look for perhaps more exciting opportunities elsewhere. One must not forget that Chile’s domestic market comprises only about 17 million consumers.”

Successful business soon outgrow the domestic market and must look abroad for expansion, he believes, and it is of paramount importance to have as many trade and investment deals as possible.

Valente explains that, at last count, Chile had 64 free-trade agreements in place, covering around 90% of global GDP: “We sincerely think that a closely integrated world equates to a better world. Chile is now determined to expand existing trade agreements to include frameworks that ensure regulatory equivalency. We want to move way beyond tariffs and take down other barriers to cross-border trade as well.”

Chile is currently revising its free-trade agreement with the EU in an attempt, welcomed by Brussels, to reduce or eliminate non-tariff obstructions. “Precisely because neither one of us is in any particular hurry, we have an opportunity to calmly analyse the present and come up with ways to harmonise regulation and promote frictionless trade,” he said. “Chile’s main advantage is that the country already now has its borders open to outside goods, services, and capital. After adhering to the same policies for well over 30 years, our credentials are well established. That stability has not gone unnoticed, and helps explain why Chile remains one of the most important recipients of foreign investment in Latin America.”

Most promising investment sectors: Agribusiness // Infrastructure // Biotechnology // Renewable Energy // Tourism

“Controversy over Paul Romer Now Closed”

Late last January, World Bank chief economist Professor Paul Romer quit his job after questioning the downgrading of Chile’s ranking on the Ease Of Doing Business Index, which followed a revision of the criteria used to compile the annually updated list. Romer noted the country’s downward slide from 34th place in 2014 to 55th spot four years later, and attributed the fall to a former director of the World Bank Group. The director allegedly tinkered with the methodology to penalise the country for having elected left-wing president Michelle Bachelet for a second non-consecutive term in office in 2014.

In the firestorm that followed his formal apology to Chile for the “politically motivated” downgrading of its position on the index, Romer was encouraged to resign. A recipient of the 2018 Nobel Memorial Prize in Economic Sciences, Romer has since returned to the New York University Stern School of Business to teach and continue his research on the theory of endogenous growth, which he helped formulate. This theory examines the impact of domestic factors on economic development such as education, innovation, and policy elasticity (the ability to adapt to change circumstances).

Chile’s Minister of Economy, Development, and Tourism, José Ramón Valente, considers the Romer-episode closed. “This was mostly an internal World Bank matter,” he said. “As I understand it, Paul Romer criticised the changes in the methodology used to compile the Ease Of Doing Business Index and how these changes affected our country. However, even his own staff disagreed with his objections, and Paul Romer ended up quitting his job over the resulting controversy.

“Now, we fully understand that it is quite normal to revise and update the methodology used to calculate any given index. However, as this episode shows, it is quite important that any and all changes be debated openly and adopted in a transparent way. By the way, the World Economic Forum has also just updated it Global Competitiveness Index.

“The entire controversy has caused significant harm, not so much to Chile’s own reputation and standing, but to the World Bank’s own credibility.”

Read from CFI.co Winter 2018-2019 Issue.


MIGA Exclusive Interview: Business Priority to Work With All People

Interview from February 2019, with Keiko Honda, Executive Vice-President and CEO of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA).

[caption id="attachment_13537" align="aligncenter" width="680"] Executive Vice President & CEO: Keiko Honda[/caption]

CFI.co: You have been at the head of MIGA for almost six years. Is there a key lesson that this journey has taught you about making socio-economic development impact?

Keiko Honda: There are two key lessons I’ve learned. First, private solutions, in addition to private finance, can add value in development for many cases. Private enterprises are typically more flexible and more nimble so they get off the ground quickly.

For example, I have seen private enterprises catch up on construction delays by identifying issues and fixing them quickly - this kind of agility can make a big difference. Private investors also know they need to cooperate with local communities, so they talk and work with them. We, of course, disclose our performance guidelines so investors know what is expected of them. The reason I emphasize this is that a lot of people expect that a product or project brings in money, but it’s not just about money. It’s also about the solutions investors can bring.

"Much research shows that leveraging all people, including women, helps the economy to expand. Therefore, it is a business priority to work with all people."

Second, what we are missing is not always money, but more investable projects. Private investors need to recover their investments – so, for example, tariffs should cover the cost for the projects that we ask private investors to work on. Of course, this is not unusual for the mobile phone industry, for example, but the power sector is more complicated. We should mainstream the upstream policy work MIGA has been doing with the World Bank. I see under the spirit of the World Bank Group that we understand the needs and concerns about affordability for the longer term, and also how we can leverage private investment. This has been working well and we aim to do this more so that overseas development assistance is targeted at projects for which private investment cannot be leveraged.

CFI.co: In which sectors, and in which countries, is this shortfall of investable projects and available finance particularly clear?

Keiko Honda: I would say most middle to lower-income countries don't have enough power, and around the world, about a billion people still do not have access to power. We’ve helped address this in the last five-and-a-half years, helping at least 47 million people gain access to power through the projects that we are guaranteeing.

CFI.co: How has your background as an MBA from Wharton – as well as working for McKinsey and Bain – aided you at MIGA?

Keiko Honda: At the World Bank, we have a lot of people that majored in development finance or economics, and many of them worked in development finance institutions. I, on the other hand, majored in finance at business school, which provides a foundation for working in development finance.

At MIGA I also draw on my experience from working with numerous firms, including insurance companies and private equity firms. I analysed strategic options that I developed for clients at McKinsey, and the experience there helps me to have an understanding of what motivates and constrains them.

CFI.co: How critical are gender finance and inclusive finance for transformation, empowerment and development?

Keiko Honda: Research shows that leveraging all people, including women, helps expand economies. Therefore, it is a business priority to work with all people.

MIGA has instituted a Gender CEO Award, and this year's theme was Women Leading Climate Finance. The reason we began this award is that we want to raise awareness on gender equity. Therefore, among private investor clients, we try to identify individuals who contribute to increasing awareness on gender issues in developing countries. We have a Diversity and Inclusion team that works with the management team to identify great candidates.

CFI.co: SDG goal #9 includes bridging the digital divide. Could you give examples of how MIGA makes a difference?

Keiko Honda: It is important that all people have ways to access information, so bridging the digital divide is a high priority. Globally, a third of the population still does not have access to telecommunications. MIGA has been helping private investors roll out mobile and broadband networks in countries such as Central Africa, Indonesia, Sierra Leone and Mali.

"A lot of the work we do on gender issues is not 'super central', but we definitely want to demonstrate that we care. Therefore, among private investor clients, we try to find somebody who is definitely contributing to the gender issue in developing countries."

CFI.co: We know from field research that when people get a mobile phone, it increases their productivity and professional standing. Suddenly they can communicate, and they can get access to financial services. We all know how critical that is in today's age – and how poorer societies that do not have that access remain trapped in the digital divide, and stuck with its socio-economic consequences.

Keiko Honda: I agree.

[caption id="attachment_13542" align="aligncenter" width="900"] MIGA’s Support of Sustainable Development Goals: Core areas of expected development results, FY14-FY19H1. Source: MIGA.[/caption]

CFI.co: MIGA’s efforts to bridge the digital divide are impressive. One of the lessons we have learned here at CFI.co, from working with emerging and frontier economies across the globe, is that frequently, you also need power. Digital infrastructure without power is not exactly great – as the UN has also found. We have initiated an awards programme with multi-laterals and the private sector on this topic, and one of the initiatives we have is a program where we identify champions that help bridge the digital divide. Would you say that's a worthwhile focus, and an important area for the sustainable development goals?

Keiko Honda: I agree, and I would say a lot of people can leapfrog development with the assistance of digital infrastructure. Second, access to mobile phones improves productivity and gives flexibility on when and where to work. I think in the near future people will start to have multiple jobs, and broadband communications infrastructure will be essential.

About keiko Honda

Keiko Honda is executive vice president and chief executive officer of the Multilateral Investment Guarantee Agency (MIGA), the political risk insurance and credit enhancement arm of the World Bank Group. MIGA supports cross-border equity investors and lenders by providing coverage against currency inconvertibility and transfer restriction, expropriation, war and civil disturbance, breach of contract, and non-honoring of financial obligations. Honda works to further the World Bank Group’s mission of ending extreme poverty and boosting shared prosperity. To that end, MIGA’s portfolio supports investments in regions where capital is most scarce. MIGA is now the leading political risk insurance provider in fragile and conflict affected countries. As part of a personal commitment to raising the visibility of female leaders, Honda launched MIGA’s first Gender CEO Award in 2016. The award acknowledges the achievements of a woman leader among MIGA’s clients, and showcases the importance of women in leading and spurring private sector activity in developing countries. In a personal capacity, Honda is also a member of the Investments Committee of the United Nations. Previously, Honda was the first woman Senior Partner at McKinsey & Company in Asia. During her 24 years at McKinsey, she supported financial institutions after several financial crises. Honda also served as a visiting associate professor at Hitotsubashi University Graduate School and as a professor at Waseda University Graduate School. Prior to that, Honda worked for Bain & Company, and Lehman Brothers. Honda holds a bachelor’s degree in consumer economics from Ochanomizu University and an MBA from the University of Pennsylvania’s Wharton School, where she was selected as a Fulbright Scholar.

MIGA: Supporting SDGs with High-Impact Power and Telecom Infrastructure Projects

Investment guarantees are an essential instrument for driving investment into the SDGs.

In the words of Keiko Honda, executive vice-president and CEO of the Multilateral Investment Guarantee Agency (MIGA), her organisation’s guarantees “help private sector projects access finance that would otherwise be unavailable to them, or help countries to obtain access to financing at lower rates for large amounts and longer tenures than governments typically are able to obtain on their own”.

MIGA has supported projects that have advanced the UN’s Sustainable Development Goals, providing power to more than 38 million people, creating an estimated 90,000 jobs, and reducing greenhouse gases (GHGs) by 3.2m metric tons (infographics - left).
As of the 2017 financial year, the organisation has issued $19.5 bn in guarantees in countries including Myanmar, Afghanistan, Senegal, Bangladesh and Zambia.

Governments need to learn more about what drives private investors and foreign direct investment. Governments could set appropriate tariffs or provide support to get projects off the ground. Honda believes that governments can do a lot to further FDI: “What we’re missing these days isn’t the money. What we’re missing is investable projects.”

One of the solutions is risk-sharing. Risk (actual and perceived) is one of the most crucial determinants for investors, so reducing it – and sharing it – is an important component to ensuring a project is attractive to the investment community.
MIGA’s underlying philosophy is to work with countries to ensure development goals are realised. The institution’s position can get high-risk projects off the ground by providing guarantees that deliver development impact.

“We know that mobile phones and telecommunications infrastructure is one of the highest-risk sectors in conflict countries,” Keiko Honda said. “Even though that risk is high, MIGA wants to continue working on these projects anyway, because we know just how vital that infrastructure is in delivering development outcomes.”

MIGA’s toolbox contains essential instruments to drive private investment in developing countries, in particular those with high risk and high socio-economic development impact.

Read from CFI.co Spring 2019 issue.

Read via CFI.co App: Apple or Android


Courtney Campbell, Victoria Mutual Group: Fervour and Effort for a Truly Inclusive Jamaica

[caption id="attachment_19286" align="alignright" width="300"] President & CEO: Courtney Campbell[/caption]

President and CEO Courtney Campbell joined the Victoria Mutual Group in April 2016, and it came as no surprise to anyone that he was approached to take the reins of the iconic Jamaican business.

Campbell had already developed a reputation of excellence. His 30-plus years’ experience in banking included leadership roles at some of the region’s biggest and most profitable businesses. But Campbell’s motivation to join the Victoria Mutual Group had little to do with career ambition and more to do with purpose.

Courtney Campbell found, in the story of Victoria Mutual, a meaningful alignment with his own goals. Victoria Mutual was established to help economically marginalised Jamaicans, and Campbell, a man of strong religious conviction, is motivated to help where he can.

His mission coincides with that of Victoria Mutual: to spread financial inclusion. Campbell realised that his role would allow him to follow his life’s purpose.

He is driven to change the status quo in Jamaica, which currently has an unequal society, especially with respect to key products associated with financial well-being.

Jamaica’s mortgage penetration and savings rate lags behind regional peers, and the disparity between the rich and poor is stark. The national savings rate is relatively low, at 11% – Trinidad and Tobago rates are at 25.9%. According to 2017 data, Jamaica has the lowest mortgage penetration measured by mortgages as a percentage of GDP.

Through the efforts of the Victoria Mutual Group, which includes money transfer services, pensions management, wealth management, property services in addition to the savings and loan products offered by the building society, Campbell is leading a charge against that inequality.

Campbell, a lay preacher, believes in democratising access to investment options, a move being effected through the work of Victoria Mutual Wealth Management. The inequality caused by inadequate pensions savings is being tackled by Victoria Mutual Pensions Management. Home ownership and savings numbers are being fortified by the work being done by his team at the Victoria Mutual Building Society and Victoria Mutual Property Services.

Through a dedicated effort to provide financial education, those who receive remittances via Victoria Mutual Money Transfer Services are being encouraged to save more. These are some of the ways in which Courtney Campbell is working to achieve financial wellbeing for all Jamaicans. He believes in his team and urges them to be led by passion, urgency, and an ambition to achieve a better Jamaica for all.


Victoria Mutual Group: Building on Dreams, With Some Solid Foundations

Victoria Mutual Group was established just over 140 years ago on the shared dream of a group of clergymen who wanted to create a more equal society for hardworking but economically marginalised Jamaicans.

In this dream, all people had access to home ownership, and could achieve financial independence. The business has grown significantly over the years in its drive to make that dream come true.

Victoria Mutual has increased its offerings and has a reach that has expanded into other regions. What has remained consistent is the purpose of the business: to help members and clients to own their homes and achieve financial independence.

Victoria Mutual Group is composed of The Victoria Mutual Building Society, Victoria Mutual Wealth Management, Victoria Mutual Pensions Management, Victoria Mutual Property Services, Victoria Mutual Money Transfer Services, and VM Finance (UK). British Caribbean Insurance Company is an affiliate company.

The wide range of the group’s offerings enables the team to effect its mission to empower Jamaicans in many different ways. And the team is committed to the cause. Since 2016 the group has been involved in a transformation process led by its president and CEO, Courtney Campbell, who will position the business to impact even more lives.

"The wide range of the group’s offerings enables the team to effect its mission to empower Jamaicans in many different ways."

This involved a revision of strategic goals to become a modern mutual and a strong integrated financial group, supported by a clearly defined mission and core values. Group chief strategy officer Kathya Beckford provides leadership support in the area.

Group human resources, led by chief human resources officer Laraine Harrison, has been driving structural change, ensuring the optimal framework for achieving the group’s bold ambitions. This has included a dedicated training, development and talent management programme which has been yielding impressive results.

Thanks to the group’s HR efforts, two-thirds of vacancies within the organisation are now filled internally. The group prioritises engagement and implements inventive ways to inform and inspire its team members. This effort is supported by assistant vice-president Clover Moore and her corporate affairs and communications team. They have created a weekly internal video series - the VM Insider - as well as a monthly internal newsletter – Mutually Inclusive. These productions showcase victories and provide useful and engaging information. The team also stages investment, mortgage and savings bootcamps where the team receives guidance on how best to achieve financial wellbeing.

[gallery size="medium" link="file" ids="19289,19290,19291,19292,19293,19294"]

An Employee Value Proposition was created to explicitly declare Victoria Mutual’s commitment to the financial and professional progress of its team. The group has also adopted a “Great Place to Work” agenda with flexi-work arrangements and a relaxed dress code for a modern workforce. Victoria Mutual has modernised its performance appraisal system and refreshed its Culture of Accountability programme, which ensures team alignment with the values of the organisation.

In 2017 the group made amendments to the rules of the mutual, which were approved by its members. The change was led by the group’s chief legal, risk and compliance officer and corporate secretary, Keri-Gaye Brown. The rules had not been changed in 30 years, and this important move has facilitated the introduction of new products including auto, commercial, and unsecured loans, as well as the introduction of new service delivery channels.

Victoria Mutual has also introduced specialised lending in the UK, where it operates three representative offices. The launch of the new products has been led by Peter Reid, head of building society operations, and his team of experts who are committed to offering the service and products that members and clients have been requesting. The team works closely with the Michael Neita-led Victoria Mutual Property Services to help members and clients select, purchase and manage properties to achieve financial empowerment.

Efforts to empower members and clients are spread across the Victoria Mutual Group. Victoria Mutual Wealth Management, led by Rez Burchenson, is engaged in building wealth for clients through the strategic application of its team members’ expertise.

This involves introducing innovative investment solutions which are best-in-class, allowing ordinary Jamaicans to build wealth, and growing small and medium businesses, with various products and services. This is aimed at an important segment of the Jamaican economy, benefitting many.

Victoria Mutual Pensions Management, led by Conroy Rose, is focused on addressing the low rate of participation in pensions arrangement in Jamaica, where pension coverage falls below comparable developing countries. Victoria Mutual Money Transfer Services, led by Michael Howard, ensures that, alongside its provision of remittance services to its customers, it focuses heavily on providing financial education to encourage customers to save.

Victoria Mutual has been a pioneer in forging relationships with members of the diaspora, and was the very first Jamaican financial institution to establish overseas representative offices to serve this segment. The first VMBS overseas representative office was established in the UK, and it now also operates offices in the US, in Florida and New York.

Victoria Mutual is engaged in a bold digital transformation strategy. The aim is to reimagine the way in which services are delivered, in keeping with modern mutual ambitions and the group’s commitment to delivering worthy products and services. The transformation is being led by COO Rickardo Ebanks and assistant vice-president of digital transformation, Sheena Wedderburn-Reid.

The drive enhances customer experience, convenience, and accessibility, as well as introducing products that are easily accessible. The future will see investment in technology, implementing process automation, and upgrading locations across Jamaica to reflect more modern capabilities, look and feel.

Significant branch upgrades have begun, with new offices in Fairview, Montego Bay, which feature intelligent ABMs (iABMs) and a modern setting with a strong digital focus. Customer feedback has been positive. The Half-Way Tree location was recently transformed, and now boasts two iABMs. Transaction migration, automated back-office functions, and upgraded web and mobile technologies are on the horizon.

There is increased emphasis on mergers and acquisitions, and in January, a special unit was created for this purpose. Headed by group chief investment officer Devon Barrett and supported by assistant vice-president Adam Harris, the team is focused on local and regional opportunities.

Victoria Mutual is proudly “customer-obsessed”, and has appointed a group chief customer and brand officer Judith Forth-Blake. She ensures that customer service is constantly improved and processes and products are designed and managed in an effective way for customer satisfaction.

In 2018, the Victoria Mutual Group was awarded six of seven sectional awards, as well as the coveted Large Business Category Award, at last year’s Jamaica Customer Service Association’s Service Excellence Awards. It top-scored in leadership, training and capacity, monitoring and measurement, reward and recognition, complaints management and international benchmarks.

In keeping with its strategic objective to be a model corporate citizen, it officially launched, in 2018, the VM Foundation, giving greater structure and focus to philanthropic efforts. Headed by Naketa West, the VM Foundation focuses on leadership and nation building, youth empowerment and improving health and family life. It hosts a scholarship programme that provides financial support to students at the secondary and tertiary levels, among other projects.

Victoria Mutual provides financial education to empower members and clients – because it cares. It believes in giving them the information they need to make the best financial decisions for themselves and their families. It participates in public and private speaking engagements and hosts periodic Wealth Talks, led by the VM Wealth team.

Exciting times at the Victoria Mutual Group. The business is buzzing and is on a path to growth. More lives will be positively impacted. For Victoria Mutual, this is the most important thing.


Atlas Shrugged Meets Mad Max: Billionaires Heading for the Hills

The lone Trump supporter amongst the billionaires of Silicon Valley, venture capitalist and angel investor Peter Thiel (50) – worth an estimated $2.6bn – has all but given up on the future. Convinced that systemic collapse is but a few keystrokes away, Mr Thiel acquired a 477-acre sheep station on New Zealand’s sparsely-populated South Island where he hopes to survive Armageddon.

Already in 2011, the German-born businessman – Mr Thiel is an American by choice – managed to fast-track his application for Kiwi citizenship by securing ministerial sponsorship. Though Mr Thiel had only visited the country briefly and claimed no intention to live there, the New Zealand government of the day swiftly granted his request on the basis of vague promises to support local IT start-ups and promote the country’s business interests overseas.

Mr Thiel is by no means alone in his love of New Zealand. The country has become a promised land for moneyed preppers, a sort of latter-day Galt’s Gulch where Ayn Rand’s Real Men of Genius – the vilified heroes of Atlas Shrugged – find the freedom to pursue their lucre without hindrance or guilt. Far away and separated from evil by vast seas, pristine New Zealand has thus become the Mount Ararat of people with more money than trust in tomorrow.

Snake Oil

Take the trailblazing Peter Thiel who also sports a loony side. Mr Thiel, for example, swears by the rejuvenating power of parabiosis – the snake oil which, amongst a great many other things, claims that blood transfusions sourced from young people can add years to the recipient’s lifespan by reversing the ageing process.

In a 2016 Vanity Fair interview, Mr Thiel took a strong stand against confiscatory taxes, totalitarian collectives, and – remarkably – the ideology of the inevitability of the death – “of every individual.” Just as he is currently able to buy citizenships, Mr Thiel shortly expects to buy life as well.

Mr Thiel and many of his fellow doomsters are part of a cult that coalesced around a rather obscure libertarian treatise published in 1999 and written by James Dale Davidson – an advisor to the über-rich on how to extract profit from adversity – and William Rees-Mogg – a former editor of The Times and father of Jacob Rees-Mogg, esteemed dealer in alt-truths and enfant terrible of Brexit Britain.

The Sovereign Individual: Mastering the Transition to the Information Age is, at first glance, an unlikely candidate for cult status – the book’s lame title doesn’t hold much promise. However, inside, the authors present an apocalyptic view of a future derailed by disruptive technologies that shatter democracy and obliterate the nation state – both condemned as protection rackets devised by the mediocre many to steal the thunder of the talented few – aka liberalism.

Flights of Fancy

From this echo chamber in which Atlas Shrugged meets Mad Max arises a brave new world led by a “cognitive elite” – a class of individual sovereigns each of whom commands vast resources and shapes local government to suit his or her needs, subjecting those less gifted (and sovereign).

Though this all sounds rather esoteric, if not far-fetched and exceedingly fanciful, The Sovereign Individual is, alas, not at all a tract that can easily be dismissed for lacking in intellectual rigour or depth: the book is actually well structured, well written, and well argued. However, to those not in possession of the proverbial silver spoon, the book is a dark read indeed.

Then again, the dystopia of some may be the utopia of others. And so it is with Mr Thiel who can already now picture himself on his throne, ruling as a sovereign individual over his fiefdom whilst the world is being consumed by synthetic pestilence, vengeful artificial intelligence, nuclear winter, or some other cataclysmic event.

The book’s authors point to New Zealand as the likeliest stage for the resurgence of human society, albeit in its feudal 2.0 guise. An enterprising journalist found that Messrs Davidson and Rees-Mogg already in the mid-1990s anticipated the end times and bought a large ranch on the southern tip of New Zealand’s North Island. There, they were joined by former finance minister Roger Douglas who in the 1980s almost singlehandedly disassembled New Zealand’s welfare state and reshaped the country’s economy by selling off state assets and deregulating its markets – thus creating the very conditions that now proof irresistible to millionaire preppers.

Dark Thoughts

It is almost as if Mr Thiel and his fellow survivalists – Marc Andreessen (founder of Netscape), Reid Hoffman (founder of LinkedIn), Sam Altman (Silicon Valley grandee) et al – cannot wait for the eschatological script to unfold and hit the global reset button. In that particular sense, the affluent Silicon Valley or New York doomsayer is no different from the Primitive Baptist in Topeka, Kansas, who prays every day for the end-times sequence of Great Tribulations, Rapture, and Second Coming to begin.

What unites the millionaire doomsters and the members of the Westboro Baptist Church is a pitch black view of humanity and the conviction that before – way before – everything used to be so much better. Hope is not something appreciated, let alone cherished, by doomsters, survivalists, and other societal hypochondriacs.

The antidote to this soul-numbing affliction is Professor Steven Pinker, a Canadian-American psychologist and writer roundly hated by all who sustain doubts and keep dark thoughts. Prof Pinker isn’t one to confuse pessimism with profundity; in fact, he strenuously objects to being called Panglossian, arguing that in Candide, Voltaire did not at all satirise the optimism of the Enlightenment but instead had Professor Pangloss justify the religious theodicies that dismiss human suffering as irrelevant since creation is by its very definition a work of divine perfection. To Steven Pinker, professional optimist, Prof Pangloss – a literary figure hailed as the greatest philosopher of the Holy Roman Empire – is a pessimist at heart because he does not believe in a better world.

Enter Light

In Enlightenment Now, Prof Pinker presents a striking manifesto for science, reason, humanism, and progress – all the things rejected by the cognoscenti now flocking to the ends of the earth. His new book follows the path beaten by The Better Angels of Our Nature (2011) which showed, over 832 pages, how violence has declined across the world to an all-time low thanks to the interplay of four motivators – empathy, reason, self-control, and morality (the four “better angels”) – which nudge humans towards cooperation and altruism.

In The Better Angels, Prof Pinker drove libertarians up the wall with his assertion that social contract theory, such as first described by Thomas Hobbes in Leviathan, is largely responsible for the steep decline in violence. The nation state that emerged in the 16th and 17th centuries claimed a monopoly in the legitimate use of force, strongly inhibiting individual coercive action. Libertarians and individual sovereign wannabees traditionally consider any neutering of humankind’s more base impulses and instincts a direct assault on their individual freedom to dominate others. Hence, any agent or agency that limits or restrains those “freedoms” is suspect and even inimical.

In his latest book, Prof Pinker adds insult to injury by claiming that we are now also healthier, safer, happier, and better educated than at any time in history. The upbeat professor informs his readers that over the past quarter century, every single day some 137,000 people managed to climb out of poverty. In other news: between 2003 and 2013, Kenya’s population saw ten years added to its life expectancy. And, outside a few African trouble spots, famine has now been banished. Finally, for more than half of humanity there is no time like the present: whilst full equality may not yet have been attained, modern women enjoy historically unprecedented levels of freedom.

Prof Pinker piles on data to prove, sometimes to beyond the point of reason, that life has never been so good. However, he does not claim that progress is unidirectional or irreversible. The professor admits that the world is still far from perfect and that humanity has a long way to go before progress has run its course.

Past Performance No Guarantee

Even in history, past performance is no guarantee of future results. Thus, when Prof Pinker states that improvements in the human condition are likely to continue, he ventures into the realm of judgement. Just as Aristotle warned never to call a life good until it has ended, celebrating humanity’s progress is perhaps a bit premature in a world ruled by Donald, Vlad, Kim, Ali and other assorted wingnuts and gunslingers.

Prof Pinker is, however, ahead of the curve and delivers a passionate appeal for an urgent reappraisal of science and reason in the face of growing scepticism. In fact, wherever and whenever experts are dismissed and reason is replaced by alt-truth, things tend to go horribly wrong. From Brexit Britain to Trump’s spend-now-pay-never America and the schizophrenic Iran of the ayatollahs, the exit of reason heralds without fail the arrival of chaos.

Prof Pinker attributes humanity’s good fortune almost exclusively to achievements originating from the Enlightenment when humanism, science, and reason replaced blind faith, superstition, and myth – and allowed humankind to tackle its problems systematically.

Of late, the Enlightenment is, of course, blamed for nearly all ills of modern society such as the materialism that deprives life of its (imagined) inner meaning and the utilitarian rationalism that dehumanises and even, it is claimed rather preposterously, opens the road to Auschwitz.

Whilst Nietzsche declared God dead, modern man – the pessimist living in near-constant fear of some apocalyptic event and powerless to take charge of his own destiny – seeks meaning where there is none: after all, science tells us that we are but stardust and, as such, apparently of no lasting consequence. For some, this lack of ulterior purpose – i.e. existential flatlining – is severely unsettling and requires a deity, or sacred cause, to be called into existence and provide meaning.

Not so Prof Pinker who cheerfully insists that increased trust in science and reason runs in tandem with human progress across all metrics. Regrettably, Enlightenment Now suffers from a deficiency common to Anglophone thinkers who usually lump European philosophy together under the “postmodernist” catch-all: the writer stubbornly refuses to understand the true meaning of Nietzsche regarding the great German philosopher at best as a crypto-fascist avant-la-lettre. Thus Prof Pinker misses out on a vast body of thought and a rich cultural universe that could have provided him with added ammunition.

What makes Prof Pinker’s work both interesting and a valuable antidote for doomsday fears is its well-argued message to keep calm and carry on – and be happy as science works hard at removing whatever still troubles us – from cancer to climate change. Simplistic, perhaps, but surely a lot better – and much more sensible – than to stock up on canned beans, lock and load the AR-15, and head for the hills – or New Zealand.

The Sovereign Individual: Mastering the Transition to the Information Age by James Dale Davidson and William Rees-Mogg – Touchtone (€24.40) – ISBN 978-0-6848-32722-2.

Enlightenment Now: The Case for Reason, Science, Humanism, and Progress by Steven Pinker – Viking (€17.00) – ISBN 978-0-5255-5902-3.


Aquashield: Securing Nigeria’s Offshore Oil and Gas Assets

Aquashield Oil & Marine Services limited (AQS) is a Nigerian-owned company incorporated in 2009 to carry out maritime security and offshore support services for the oil and gas and marine industries. AQS provides services for several clients including international oil companies.

In the defence market, AQS is a private maritime security company that has signed a memorandum of understanding with the Nigerian Navy for the provision of armed naval personnel on board its ballistic and non-ballistic, fuel-efficient fast security patrol vessels to ensure maritime security coverage to offshore assets within Nigeria’s territorial waters.

AQS is currently involved in a very sensitive contract for the provision of long-range security escort services to secure multi-million dollar-assets for a major player in the oil and gas sector. This project is quite challenging because AQS escorts an average of two marine assets per day using its state-of-the-art ballistic vessels that are equipped with cutting-edge technology.

In starting work on a new project, or with a new client, AQS carries out due diligence before its team of professionals assess the scope of the work in order to develop a comprehensive work plan to ensure the efficient delivery of services. In analysing the scope of the work, AQS doesn’t compromise on safety, standards, or integrity. This to ensure that the outcome is as expected.

Aquashiled Continued Efforts

Aquashield continually strives to maintain its technological edge to deliver superior services and ensure that its work is consistently successful.

AQS is committed to provide cutting-edge and innovative maritime solutions to its clients, anchored on professionalism, integrity, and high ethical standards whilst returning value to all stakeholders in the business.

To achieve this, AQS has ensured that professionalism and integrity have been inculcated as part of its business culture and are applied to all its dealings with clients. The firm’s approach to client services is to be courteous and highly professional in a collaborative manner to ensure that services are optimally rendered as required.

After every job completed, Aquashield sends out feedback forms to clients for a comprehensive assessment of its performance. This allows the company to sustain its quality and identify areas with room for further improvement. This feedback enables AQS to continually fine-tune its standards in order to maintain its standing as one of the preferred private maritime security company in Nigeria.

The defence market includes the provision of armed naval personnel on board patrol vessels to ensure maritime security coverage to both assets offshore and those located within Nigeria’s territorial waters.

The sector was created as a result of the upsurge in militancy between 2007 and 2008 in Nigeria and the Gulf of Guinea. At the time, the spiralling wave of piracy and other forms of maritime criminality demanded collaboration with the Nigerian Navy. This became a challenge to oil companies which appealed to private maritime security providers to fill the gap in safeguarding vessels and offshore installations.

Other challenges faced by Aquashield include the reluctance of financial institutions to support the business by classifying it belonging to the oil and gas sector rather than the maritime sector. Other issues concerned the lack of uniform standards.

The internal culture at AQS centres on team work with an ownership mentality where every member of the staff carries out their task diligently whilst providing efficient and qualitative maritime security services to clients. AQS cultivates this culture by implementing firm and result-oriented policies that reward hard work and seek to increase efficiency.

The future of the business may be challenging but also looks bright as uniform standards are now being put into place to ensure that companies who do not have what it takes to render such highly sensitive services are not engaged. This benefits those companies, such as AQS, which have made significant investments in provider world-class marine security services.

AQS is currently embarking on a proposal to determine the possibility of a synergy between relevant government agencies and the company for the deployment of sophisticated non-marine hardware to increase the security cover for protected marine assets. This proposal aims to make maritime security more efficient and proactive.

In the broader defence market Aquashield foresees increased cooperation amongst the nations bordering the Gulf of Guinea nations based on the European Union’s Atalanta Operation in the waters surrounding the Horn of Africa which provides protection to vessels of the World Food Programme and combat piracy.

Aquashield Management

[caption id="attachment_22957" align="aligncenter" width="214"] Aquashield CEO: Nasir M Saulawa[/caption]

Aquashield CEO Nasir M Saulawa, an entrepreneur per excellence with a vast experience in marine and offshore security, started his career as a cadet officer with the Nigerian Ports Authority in 1993 whilst studying Nautical Science at the Maritime Academy of Nigeria. After completing his studies, he obtained a certificate of competency from the Nigerian Maritime Authority (NMA) and quickly rose to the rank of chief mate.

In 2000, Mr Saulawa joined Adnan Mansoor (Damas Marine) where he served in various capacities from chief mate to captain. He subsequently moved to the Glasgow College of Nautical Studies where he obtained a certificate of competence master unlimited.

From 2004 to 2007, Mr Saulawa worked with various companies in the UK, including Everards Arklow shipping of Ireland, Gulf Shipping, and British Petroleum tankers in different capacities from second mate to captain.

June 2007, he re-joined Damas Marine as operations manager and oversaw projects involving sub-sea pipe-laying operations for Addax Petroleum Nigeria.

The security challenges in the Niger-Delta Region led to the foundation of Aquashield Oil and Marine Services. As a seasoned mariner with plenty of security experience, Mr Saulawa became one of the pioneers of offshore security in Nigeria.


Otaviano Canuto, Center for Macroeconomics and Development: China’s Rebalancing Act is Slowly Addressing Sliding Growth Figures

[caption id="attachment_13569" align="alignright" width="300"] Author: Otaviano Canuto (Photo: Fabio Braga/Folhapress, MERCADO)[/caption]

China’s economic growth has been sliding since 2011, while its economic structure has gradually rebalanced toward lower dependence on investments and current-account surpluses.

Steadiness in that trajectory has been accompanied by rising levels of domestic private debt, as well as slow progress in rebalancing roles between private and public sectors. With the ongoing trade war with the US still unfolding, it remains unclear which growth pace China’s rebalancing will follow.

The Necessity of Rebalancing

China’s GDP growth last year (6.6%) was the lowest in the past two decades. The IMF’s update of its World Economic Prospects in January brought a forecast of 6.2% for China in 2019-2020. See Chart 1.

China’s slowdown was expected, as signs of relative exhaustion were clear by the beginning of the decade. Back in 2011, when I was a vice-president at the World Bank, I represented the institution at the 10-Year anniversary of China's access to the World Trade Organisation (WTO) at the Hall of People in Beijing. In my remarks to then-President Hu Jintao, I conveyed some of the thinking that was to be fully displayed in 2013 in a joint report by the World Bank and the Development Research Centre of the State Council, PRC.

"China has the potential to continue its dynamic growth, quadruple per capita income to about $16,000, and become the world’s largest economy by 2030."

China has the potential to continue its dynamic growth, quadruple per capita income to about $16,000, and become the world’s largest economy by 2030. But, to realise that potential, China needs to overcome emerging new challenges, adapt its growth model to avoid the middle-income trap, reduce its large trade surpluses to mitigate tensions with trading partners, and increasingly play an active leadership role in global forums and multilateral institutions.

[caption id="attachment_13571" align="aligncenter" width="893"] Chart 1: Chinese year-on-year GDP growth. Source: 4X Global Research, “Chinese growth slowdown – project fear?”, January 30, 2019.[/caption]

China will need to increase services and consumption. By 2030, the World Bank estimates that China’s service sector could expand from 43% of GDP today to almost 60%. Consumption could also expand to 60%, from about 50% today.

Given China’s rising real wages, the country will need to upgrade to higher value-added industries, and progressively shift its labour-intensive production to lower-cost locations in Asia and Africa. This shift implies an increase in outward FDI.

China also needs to reform its state-owned enterprises to boost private sector growth and competition. Finally, to ensure sustainable growth, China will need to shift to a greener growth model.

In his final remarks at the 2011 event, President Hu Jintao said: "China will unswervingly commit to the opening-up strategy to help itself grow, and promote global development."

[caption id="attachment_13572" align="aligncenter" width="591"] Chart 2: China’s GDP sector structure (left) and investments and current account as shares of GDP (right). Source: IMF.[/caption]

The Chinese pattern of rapid growth with structural change had been accompanied by rising economic imbalances, just as the main pillars of growth seemed to be gradually weakening. High and sustained GDP growth-rates were based on elevated investment-to-GDP ratios – which were only possible with low shares of wage income and domestic consumption, as well as with cheap and repressed finance.

Another factor was dynamic markets abroad which were willing and capable of absorbing an expansion of Chinese exports – something that could not be indefinite, given the size of China’s economy. Growing income disparities were a domestic flipside of that model, a potential source of social strain along with changes in the external environment. As former Premier Wen Jiabao said in 2007, the country’s economic growth trajectory was “unstable, unbalanced, uncoordinated and unsustainable”.

Three mutually reinforcing paths of transformation were ahead, with a structural slowdown of growth on the cards.

[caption id="attachment_13573" align="aligncenter" width="588"] Chart 3 – Consumption- and investment-to-GDP: China vs emerging markets and advanced economies (left) and Social Spending as % of GDP (right). Source: IMF.[/caption]

First, the productivity increases seen through transferring resources from low-productivity agriculture activities to industry — a typical feature of economies moving from low- to middle-income levels — had, to a large extent, already happened. On the demographic front, the old-age-dependency ratio had started to rise. Gains in economic efficiency and technological progress – based on absorption of existing, imported technologies – would have to be increasingly replaced with local innovation. The set of second-generation policy reforms necessary for that would require time, whereas low-hanging fruit, in terms of productivity increases, would be less available.

Second, a sector-structure rebalance was expected. Higher shares of services and consumption, following rising wages, with a decrease in exports, savings and investment ratios-to-GDP, should accompany the increased reliance on domestic sources of aggregate demand. Government consumption was also to rise to meet social demand, as well as the needs of operations and maintenance. The income gap between coastal areas and middle and western regions should fall as the labour pool shrank. The popular perception of rising prosperity would probably be higher than before, with rising purchasing power – despite lower GDP growth rates due to lower investment-to-GDP ratios and total factor productivity increases harder to obtain.

Third, a shift up the value chain in tradable and non-tradable activities should underpin the previous paths of change. A transition to more sophisticated production processes was already being pursued.

While moving to a less spectacular growth trajectory, China would be morphing into a mass-consumer market economy, combined with supply capacity increasingly reliant on growth of “total factor productivity”.

Clarity of the roadmap did not mean an easy ride. Chart 2 shows how the GDP sector structure has been evolving as expected, and how reliance on investment and current-account surpluses has diminished.

On the other hand, the transition toward a less investment- and export-dependent growth model took place from a starting point of very low consumption-to-GDP ratios (Chart 3, left side). Besides high profit to wages ratios, low levels of public social spending have led to high household savings (Chart 3, right side). No wonder rebalancing toward a consumption-based growth model was expected to be gradually pursued, as GDP growth rates might have collapsed, rather than sliding down. The change of growth pattern would require time-intensive structural reforms. In 2017, private consumption and investment were, respectively, 39% and 44% of GDP. In the rest of the world, 60% is the average consumption to GDP ratio (Chart 3, left side).

Fears for the global economy in the aftermath of the Global Financial Crisis were followed by countercyclical policies. In the case of China, a “great Quantitative Easing (QE)” took the form of a combination of “shadow banking” and capital expenditure on housing and infrastructure, with a high role played by special purpose vehicles (SPVs) associated with subnational entities (Canuto and Zhuang, 2015). Lending by non-bank entities through shadow finance accounted for about two-fifths of new credit by 2016.

Two features of China’s economic policies – although instrumental to sustaining the smoothness of the downslide – have become sources of concern.

The first is that the attainment of official target growth rates along the gradual slide depicted in Chart 1 has been accompanied by overcapacity in some heavy industry and construction sectors, as well as increasing debt leverage of corporates and households. Chinese authorities have alternated measures to dampen such debt trajectory before vulnerability to a sudden stop reaches any critical point with periodic loosening of fiscal, monetary and financial restrictions to avoid drastic declines in growth rates. This is depicted in the evolution of corporate and household debt as well as in the comparison of credit and nominal GDP growth rates (Chart 4, left side).

[caption id="attachment_13574" align="aligncenter" width="592"] Chart 4 – China: Credit growth and debt-to-GDP (left) and Performance of State-Owned Enterprises (SOEs) vs private firms.
Sources: (left) David Lodge & Michel Soudan, “Credit, financial conditions and the business cycle in China”, ECB Working Paper Series 2244, February 2019; (right) IMF, China 2018 Article IV Consultation, July 2018.[/caption]

Secondly, the “reform of state-owned enterprises to boost private sector growth and competition” I mentioned in 2011 - and at the time referred to by Chinese authorities as part of a “rebalance between public and private sectors” - has stalled. Credit is still preferentially channelled to state businesses, and competition between private firms and SOEs remains uneven in sectors where the latter was thought to open space. While large state-owned banks keep lending to SOEs, infrastructure and real estate investments are supported by shadow finance. Performance indicators (Chart 4, right side) suggest that the absence of reform of state-owned businesses has come at a cost in terms of productivity and real returns foregone.

The motivations of tackling financial risk and avoiding a sharp growth slowdown point have been pursued with policy-tuning via targeted measures of tax cuts, de-risking and regulatory changes. A difficulty stems from decreasing returns in terms of additional output obtained with the maintenance of high investments and debt accumulation. China’s public capital stock per-head exceeds those of comparable economies, residential and infrastructure investments increased dramatically, and export-led growth faces rising challenges.

Over the decade, China has thwarted “incoming financial disruption”, and retains sufficient fiscal space and foreign reserves to implement any official bail-outs that may be needed. On the other hand, avoiding a deeper growth downslide by maintaining policies in place tends to become more difficult, with decreasing returns from investment-cum-debt at the margin. With an increasing amount of capital investment needed to yield incremental units of output, for China to hold steady would require ever-increasing levels of debt.

The US-China Trade War

The ongoing trade disputes have been sparked by the US with a double motivation: to force changes in bilateral trade-flows in its favour, as well to prompt changes in Chinese policies and practices regarding technology transfer. China’s rebalance toward raising its presence in higher value-added stages in global value chains have included a resource to piggybacking at low costs on external technological sources. To this end, forced technology transfers have been imposed on foreign investors interested in attending domestic markets, besides non-recognition of intellectual property, subsidies to state-owned companies, non-tariff barriers, and similar measures. That has happened even as China’s payments for the use of US intellectual property have increased faster than the former’s GDP (Chart 5).

[caption id="attachment_13575" align="aligncenter" width="589"] Chart 5 – China: Payments for the use of U.S. intellectual property and GDP. Source: Santacreu, A.M. and Peake M. “A Closer Look at China’s Supposed Misappropriation of U.S. Intellectual Property”, Economic Synopses 2019 n.5, Federal Reserve Bank of St. Louis, February 08.[/caption]

On the trade side of the confrontation, the negative impact on China’s exports in 2018 has added challenges to keeping growth, even if secondary to the ones we have approached. On technology transfer policies, Chinese authorities may be prepared to offer something meaningful. Given the fact that their ambitions regarding technological breakthrough are now increasingly hinging on local, tacit and idiosyncratic knowledge – see my article on the Autumn issue of Capital Finance International – the Chinese cost-benefit calculation toward finding alternative forms of local technology support may well coax them to reaching some agreement. That would allow them to focus on the domestic challenges of rebalancing without the additional burden of trade confrontation.

Bottom Line

China’s economic growth has been sliding since 2011, while its economic structure has gradually rebalanced toward lower dependence on investments and current-account surpluses. Steadiness in that trajectory has been accompanied by rising levels of domestic private debt, as well as slow progress in rebalancing roles between private and public sectors. In the ongoing trade war, it remains unclear at which growth pace China’s rebalancing will tend to settle. Given China’s weight in the global economy – on trade, investment and financial flows – fingers are crossed in favour of its success in rebalancing.

About the Author

Otaviano Canuto is principal of the Center for Macroeconomics and Development, a senior fellow at the Policy Centre for the New South and a non-resident senior fellow at Brookings Institution. He is a former vice-president and a former executive director at the World Bank, a former executive director at the International Monetary Fund, and a former vice-president at the Inter-American Development Bank. Otaviano has been a regular columnist for CFI.co for the last six years. Follow him on Twitter: @ocanuto


Deloitte: Construction Hitches in the GCC Lead to Calls for Positive Change

[caption id="attachment_13583" align="alignright" width="300"] Author: Cynthia Corby[/caption]

Construction plays an important role in GCC countries’ long-term economic development plans and national visions, driving the involvement of the public sector towards delivering successful cities.

Whilst external factors – such as the tightening infrastructure expenditure and reduced volume of project awards – have had a negative impact on the construction sector, but there is an appreciation of the need to focus on traditional challenges that seem to affect contractors’ profitability and project delivery.

It can seem paradoxical that the same markets that welcome innovation and change – and have significant, planned investments in exciting new capital projects – still have a long way to go to embrace alternative approaches to construction project delivery, and overcome the challenges that adversely affect project performance.

"Market participants are eager to see positive change in the industry – not least through more-balanced contractual relationships."

Deloitte recently conducted a C-Suite survey with regional construction companies to gain insights on a range of issues affecting the industry.

The key findings:

Construction project margins are under significant pressure

The average time for contractors to receive payment for completed work is more than 200 days, and they have to indirectly fund projects themselves – with a knock-on effect on the supply chain

The number of disputes has increased in recent years, and many resolution timeframes have stretched to over two years

Access to finance is more difficult to come by than in previous years – mainly as a result of more stringent credit committee approvals, rather than a decline in lenders’ liquidity.

A highly competitive and price-conscious market has unfortunately led to a “lowest bid wins” model that has seen price as the deciding factor for awards. When you have choice in a highly competitive market, clients can demand quality and the lowest price – but this is not a sustainable approach for contractors or developers. Pressure to reduce costs to win work has often resulted in frequent disputes, and led to eroded profit margins, which ultimately affect project delivery.

[caption id="attachment_13584" align="aligncenter" width="587"] Figure 1: Views of respondents on likely changes in financial metrics of their company over the next 12 months.[/caption]

The ambition and scale of investment in infrastructure and capital projects in the GCC region is significant. There are currently planned projects worth more than $2.5tn. The biggest market, by a large margin, is Saudi Arabia, with more than $1.2tn worth of unawarded work, followed by the UAE at $716bn. Other markets range from $60bn (Bahrain) to $215bn (Kuwait) (Source: MEED Projects).

These capital projects are the fundamental building blocks of the GCC states’ national transformation programmes. However, successful delivery demands a more sophisticated contracting environment. Studies highlight continued project delays and cost overruns caused by a variety of issues around the volume of variations on contracts due to design changes. In a sector that has traditionally been reluctant to embrace new approaches, this causes significant cost overruns.

[caption id="attachment_13585" align="aligncenter" width="587"] Figure 2: Average time taken to receive payments for work done.[/caption]

Market participants are eager to see positive change in the industry – not least through more-balanced contractual relationships. Other positive changes include greater stakeholder collaboration focused on delivery; a sensible approach to risk allocation; quicker ways to resolve disputes; innovative delivery models; and the adoption of global standards that will prove attractive to international project financiers and investors.

Alternative models and digital innovations would help to break the traditional delivery structures that have begun to disrupt capital project delivery. The industry would benefit from the increased use of off-site methods, digital engineering, and Building Information Modelling (BIM). It would also benefit from adopting a digital mindset, with data and analytics at the core, so that real-time information can aid decision-making.

[caption id="attachment_13581" align="aligncenter" width="577"] Figure 3: Views on availability of finance.[/caption]

Moving forward, private sector capital is expected to play a bigger role – whether through PPPs or fully private projects. Attracting international investors will demand market improvements, including less adversarial relationships and a more balanced approach to risk allocation; solutions to prolonged payment periods; appropriate credit support arrangements, and allowance for exchange-rate adjustments for critical projects and the opportunity to commit long-term to the region.

As developers look for ways to build assets at a cost that’s recoverable through an acceptable ROI, there has to be more focus on the whole-life cost rather than just the initial capital cost. This paradigm shift will drive the change required in terms and conditions and in a collaborative approach between stakeholders.

[caption id="attachment_13582" align="aligncenter" width="245"] Figure 4: Projects pipeline in the GCC, by country, as of January 2019 ($bn).[/caption]

Changing the GCC contracting environment to have a more balanced approach to risks and rewards will not only make pricing more sensible, it will also enable more efficient and effective delivery of large capital projects for owners. This shift will not be easy, and requires the commitment of everybody in the industry, but it has the potential to be hugely beneficial and rewarding for all involved.

About the Author

Cynthia Corby is the Middle East Construction Industry Leader for Deloitte & Touche Middle East. Cynthia chairs industry conferences and writes articles on industry issues. Cynthia is an author and founder of the GCC Powers of Construction Publication issued by Deloitte & Touche Middle East, which includes expert views on construction opportunities and trends in the region. Her current portfolio of clients includes all the major construction companies audited in the UAE as well as number of international referral assignments.

Cynthia is an audit partner in Dubai office with over 20 years of experience in the profession. Prior to joining Deloitte Dubai in January 2006, and was a partner at Baker Tilly, United Kingdom, where she was the partner in charge of the audit department and prior to that she was with Deloitte in South Africa for 10 years. Cynthia was the first Female Audit Partner appointed in Deloitte & Touche (ME) in 2006 and is also the Director of Audit Operations for the Middle East, leading the practice comprising circa 1700 people.

Cynthia has worked with businesses ranging from quoted companies to large and small owner managed entities in the Middle East, United Kingdom and South Africa controlling overall service delivery. She has experience in advising on corporate transactions, including acquisition due diligence and group re-organisations. She is the Lead Partner for many International Subsidiaries with the Middle East operations head quartered in Dubai, reporting to the parent company auditors.


CBRE - Adapted Retail & Alternative Assets: Rental Trends  Adjusting With the Times

[caption id="attachment_13591" align="alignright" width="147"] Author: David Casas Alarcón CBRE Property Management Accounting Lead[/caption]

Economic growth is driving increased demand for retail and alternative real estate assets, while spare capacity is gradually being eroded, particularly in the big cities.

This could mean further rental growth in 2019 and 2020, especially for prime properties.

The continuing adjustment in consumer trends has been the catalyst for retail to reinvest in the aspects of physical shopping that the online experience can’t provide – but which remain relevant to shoppers. There have been high levels of take-up from food and beverage and leisure operators in prime centres, as landlords use these avenues to increase dwell-time, and improve the overall social experience of retail.

Asset managers should, however, remain focused on how their offering fits with target customers. Smaller convenience centres must avoid copycat offers that mimic regional malls by carefully creating food and beverage / service options that are more tailored to the type of shopping these centres attract. Food and beverage accounted for nearly 20% of all leases in Europe in the second half of 2018. In smaller centres we are seeing some growth in the use of service providers (hairdressers, beauticians and opticians) as well-placed convenience malls start to become truly local centres.

The level of retail investment in continental Europe remains strong and well above the 10-year average, also reflecting the contribution of maturing markets in CEE. However, negative sentiment from the UK and the US is affecting distribution and reducing the numbers of buyers in the market. More than just e-commerce penetration, these two markets are suffering from structural challenges that include council business rates costs (UK) and a heavy reliance on department store anchor tenants over-servicing retail space.

"Although e-commerce only makes up around 9% of total retail sales for Western Europe, this is will continue to grow, and the store is no longer the only viable way to purchase goods."

While these threats are not as pressing elsewhere in Europe, there is an underlying level of uncertainty. As a result, investors have become far more selective in their choice of assets.

Large Stores and Local Service

Retailers are being far more selective in their chosen store format and network development. Although e-commerce only makes up around 9% of total retail sales for Western Europe, this is will continue to grow, and the store is no longer the only viable way to purchase goods. Nevertheless, with many larger retailers rationalising their store networks, the demand for larger store units is rising. A strategy of having fewer, larger stores is allowing retailers to maximize the contribution of every retail location. These strategic locations provide the opportunity for stores to be at the heart of the retailer’s omnichannel strategy, focus on providing in-store experiences and an avenue for customers to interact with products. While this may not necessarily generate in-store sales, the relationship between a positive store experience and online sales remains strong.

[caption id="attachment_13596" align="aligncenter" width="885"] Figure 1: Retail investment, Europe (excluding UK) rolling 4-quarter totals. Source: CBRE Research.[/caption]

Although prime areas can attract large occupiers using space for flagship stores, this is not necessarily the case for more local assets and high streets. This is where the greatest divergence between successful and failing retail is likely to exist. But assets, retailers and, increasingly, service providers that truly cater to the convenience aspects of retail could thrive by offering higher levels of convenience than online channels.

A growing trend of localism is also supporting occupier demand in these smaller conveniently placed assets. Retailers from food and entertainment options to bookshops are thriving in the right locations. Consumers are embracing original retail environments and products that have local credentials or claims, as they consider these products to be more sustainable, of higher quality and healthier than non-local alternatives.

Momentum for Eastern Europe

As retailers become more reluctant to expand in prime European locations, they are turning to the cities where expansion has not been as widespread but economic and retail fundamentals remain positive.

In the shopping centre market, there is a strong divide between east and west. In Europe, prime rental prospects appear muted, with real rental decreases expected in weaker properties and locations as brands appear more selective on their store portfolios. Key cities in Central and Eastern Europe (Warsaw, Budapest and Prague) are more buoyant, with retailer demand and rents growing in prime centres and secondary assets appearing more stable than their Western European equivalents. This is driving construction levels, as most European shopping centre construction is happening in eastern European capitals. While construction of new shopping centres in western Europe is subdued, centres in the better locations are using extensions to expand their leisure and food and beverage options, making these centres more experiential and more defensive against changes in consumer preferences.

Investors Engaging with Alternatives

Investors are taking an increasingly favourable view of opportunities in the alternatives sector. Student housing is the most popular in this respect, followed by retirement living, healthcare and leisure. The key attractions of the sector from an investor perspective are the availability of higher yields than traditional property investment classes, asset diversification, income stability and capital growth potential. These priorities will set the tone for 2019.

[caption id="attachment_13597" align="aligncenter" width="891"] Figure 2: Investor sector exposure to alternatives, EMEA. Source: CBRE Research.[/caption]

However, if investors are to realise their ambitions for increased exposure to alternatives, they will need to cross borders and engage with real estate structures and sectors that are, in many cases, not within their range of experience.

Some major institutions are already engaged in cross-border investment in a range of alternative real estate sectors, AXA-REIM being a notable example. Nevertheless, there has been a change in the number of investors taking such a holistic view. These include investors new to the sectors as well as those who, having developed expertise in one specific area, are now diversifying.

[caption id="attachment_13598" align="aligncenter" width="889"] Figure 3: Eurozone prime office yields and 10-year government bond yields (%), 2001-2023. Source: CBRE Research.[/caption]

Risks More Apparent

The economic outlook is positive at least for the next two years, but there are various risks. Property investors should be particularly alert to the prospect of a sharper-than-expected rise in interest rates. This could put upward pressure on yields, and could be associated with an emerging market default in view of the level of greenback-denominated debt held in some of these economies.

About the Author

David Casas Alarcón is an economist at the university of Malaga, Spain, with more than 10 years of experience in the real estate and finance industries. In 2012, he took over the role of Outsourcing Analyst for Capgemini Consulting, where he advised the company’s real estate clients on the most efficient solutions for financial process externalisation. Since 2016, Alarcón has been part of the CBRE Corporate Outsourcing Hub in Warsaw, which drives the finance process transformation for property management and other CBRE business lines across Europe, Middle East and Africa (EMEA) region, delivering efficiencies and compliance.

About CBRE

CBRE Group, Inc is a commercial real estate services and investment firm. It is the largest company of its kind in the world. It is based in Los Angeles, California and operates more than 450 offices worldwide and serves clients in more than 100 countries.

CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. The CBRE Global Investors subsidiary sponsors real estate investments via investment funds and direct investments that it manages. As of September 30, 2018, the division had US$104.5 billion in assets under management. The Trammell Crow Company subsidiary is the largest commercial real estate developer in the United States, according to Commercial Property Executive's annual ranking.

About CBRE Property Management

With a network across the Americas, Europe, Africa, the Middle East and Asia Pacific (EMEA), CBRE leverages global best practices and real-time data to improve Real Estate operational performance.
Their team collaborates across a complete spectrum of integrated services to help investors achieve optimal asset and portfolio management.They strategically position assets in the most diverse markets, through the most challenging market conditions - making significant investments each year in their service platform to deliver cutting-edge solutions. This includes employment of the highest industry standards in all of their processes to ensure regulatory compliance, consistency and service excellence.


Narendra Modi: Giving India Its Due

[caption id="attachment_13606" align="alignright" width="300"] Narendra Modi[/caption]

He definitely is the man of the moment. The establishment may disagree, but Prime Minister Narendra Modi of India sprang a surprise on his political opponents who had earlier dismissed him as a knee-jerk populist, peddling simplistic solutions to complex problems. Instead, Mr Modi proved a man of his word and managed to dramatically raise his country’s formerly modest profile on the global stage. During the 2014 election campaign, Mr Modi promised an Indian revival. He is well on his way to delivering just that.

The prime minister not only outsmarted the opposition; he also put the world’s sixth-largest economy on a sound footing, slashing the budget deficit to just 0.2% of GDP and consistently delivering strong growth. India’s economy now outpaces China’s, registering a 7.2% expansion of GDP in Q3 2017. Both the World Bank and the International Monetary Fund (IMF) expect India to remain the world’s fastest-growing major economy for the foreseeable future, displacing France (No5) as early as next year and Germany (No4) by the mid-2020s.

Narendra Modi is, arguably, the first Indian prime minister to have an excellent grasp of global power politics: he successfully deployed his country’s size to get a seat at the top table. The son of a humble green grocer, Mr Modi knows what it takes to forge ahead and burst through social and political barriers. He is not at all intimidated by power and will not play second fiddle to anyone’s tune.

The Indians, most of them anyway, absolutely love his every move. Three years into his mandate, Mr Modi boasts an almost unheard-of approval rating of 88%. Small wonder: though it experienced a rocky start, the Modi Administration has now shown to be exceptionally capable of managing the country’s accelerated development whilst rebalancing public finances.

As a result, India now ranks alongside China in the top ten of AT Kearney’s Foreign Direct Investment Confidence Index. India is, in fact, the only country with a per capita GDP of $5,000 or less to be included in the ranking. Though foreign investors find the country “chaotic”, they also perceive India as highly competitive and dynamic. Last year, India received almost $45bn in direct foreign investment (FDI) and is on track for a repeat performance in 2018 – all the more remarkable as the era of cheap money nears its end and the clamour for yield dissipates.

Challenges, however, remain. The growth of the country’s manufacturing sector, currently representing 18% of GDP, trails that of the overall economy, possibly derailing the government’s plan to boost its participation to 25% of national income. All the administrative reforms notwithstanding, India’s long-standing love affair with bureaucracy has so far not abated noticeably. Though introduction of a unified general sales tax was meant to streamline procedures, most businesses report that the complexity of the country’s fiscal system seems to have actually increased since 2014. According to global business consultancy Deloitte, India has the third-most complex fiscal regime in the Asia-Pacific Region, only slightly less bewildering than Vietnam’s and China’s.

Aware of the issue and undoubtedly working towards a solution, Prime Minister Modi is well aware of India’s unequalled potential as an economic powerhouse – held back for decades on end by policies that discouraged outside investment and cross border trade. A political innovator, if not a disruptor, par excellence, Narendra Modi aims to put paid to the notion that his country is merely a gentle, but not particularly efficient or attractive, giant. He may need a second term in office to finish the job and is highly likely to obtain the voters’ consent to do so. Meanwhile, the Modi Administration continues its efforts to transform India into one of the anchors of the global economy. Talks have just resumed on a far-reaching free trade agreement with the European Union. Earlier attempts foundered on British objections to Indian demands for a more relaxed visa policy. Now that the UK has decided to leave the EU, negotiators in Brussels and New Delhi are optimistic that a free trade agreement is well within reach.


UNSDG Health Summit in Geneva: Live Coverage

[caption id="attachment_13609" align="aligncenter" width="1024"] Panel discussion[/caption]

UNSDG healthcare summit is by invitation only, attendance is limited in order to maintain an intimate dialogue among all participants. The event is attended by State Heads, Health Ministers, Policy Makers, Chairman & CEO’s from industry & Civil Societies, High Ranking UN, WHO and NGO officials, noble Laureates and Leading Scientist.

For live coverage, follow our Twitter account or follow @UNSDGHealth.


From Little Things, Big Things Grow: Ostoul’s Acorn Becoming an Oak

At a time when the risk of setting up a fully fledged investment institution that offers an incomparable range of services was exceptionally high, Ostoul Capital Group still took on the challenge and over a mere span of three years, managed to cement its position in an extremely competitive market.

The stability of the Egyptian Stock Market over the past decade encouraged the establishment of Ostoul Capital Group in 2015 with the sole intention of becoming one of the largest financial institutions in Egypt.

Ostoul’s highly qualified and experienced team was determined to engrave the company’s name among the top-20 providers of similar services and within a short three years, Ostoul was indeed able to achieve its target through solid investment strategies, sound technical approaches, secure fundamental tactics, and a firm operational and managerial system.

The success story started off with the set up of the brokerage arm of Ostoul in 2015 – with only 21 clients in place. To secure recognised status in the brokerage world, Ostoul succeeded in obtaining a number of crucial operational licenses including online trading, same-day trading, margin trading, GDRs trading and foreign securities trading.

Ostoul Capital Group also became a listing agent in September 2016, and was the first company to obtain a Delivery vs Payment (DVP) line starting from $1.14m (EGP20m) in less than one year of operations. That line has now been extended to reach $5.7m (EGP100m) if needed.

With a solid plan in place, Ostoul succeeded in heading the brokerage firms in terms of growth for 2016, jumping 79 slots, from 111th position in 2015 to the 32nd in 2016. Then, in 2018, it leapt to an overall ranking of the 19th – with a whole-year total turnover of $321m (EGP5.64bn). The client base also grew to include a total of 940, with the assets under management standing at $28.9m (EGP507m) as of December 2018. Ostoul Brokerage has a presence in two Cairo districts, and is broadening its coverage with the launch of further branches throughout the country.

With a list of prominent shareholders in place, Ostoul Capital Group was established with the intent of incorporating all the licenses that would guarantee its clients a comprehensive bouquet of investment-related services.

By April 2016, Ostoul was licensed to provide the services of private equity, asset management and fund management. With an acute business vision, aggressive strategies, and a competent banking-experienced board, Ostoul’s portfolio management assets under management grew from a mere $261,877 (EGP4.6m) in 2016 to an outstanding $7.2m (EGP127m) in February 2019.

Ostoul is in the process of launching its first equity fund this year. In November 2017, it acquired the license to act as custodian, a service which earned it a client base of 306, with an assets value of $588m (EGP 10.34 bn) and with $398m (EGP7bn) in the pipeline due to Ostoul’s additional service of registering companies with the Central Depository System. In the same month, Ostoul also became an official Nile Stock Exchange sponsor.

Besides these services, Ostoul provides advice and solutions in mergers and acquisitions, loan and equity fundraising, sourcing new investment opportunities and divestitures or partial shares sales. In this specialised area, it provides client support throughout the deal cycle from initiation to completion, including due diligence, valuation, deal structuring, fundraising, documentation and negotiation.

Ostoul is aware of the country’s growing projects and future development plans, and went on to establish Ostoul Financial Consultancies in 2016 to assist investors in making informed business decisions through a variety of services including the performance of economic and financial research and studies, valuations, feasibility studies and the provision of solid business plans.

With all the right tools and expertise in place, Ostoul Capital Group’s vision is to continue to grow – and engrave its name, once again, at the top of the tree – this time among the top 10 service providers – within the shortest time possible.


Partners Who Put Their Faith in Egypt’s Burgeoning Economy

Aly El Ghannam and Marwan El Khedry – “The Partnership”, as they choose to be called – established Ostoul Capital Group in Egypt in 2015.

[caption id="attachment_26281" align="alignright" width="400"] Aly El Ghannam, Chairman & Marwan El Khedry, Managing Director[/caption]

With more than a quarter of a century of experience between them in the capital market, private banking and investment management fields, “the partnership” put their expertise – gleaned from positions in prestigious banks, brokerage firms, portfolio and fund-management companies – to good use.

They established Ostoul Capital Group with the avowed intention that it would become one of the leading investment banks in the market. Their extensive exposure to the Buy and Sell sides of the Capital Market also added value to the structuring of the institution.

Having been involved with a wide range of prominent clients as well as having maintained strong ties with the regulators and authorities, the two men were able to envision what clients would need and worked on providing the biggest range of financial services to accommodate a diverse range of clients.

They went on to develop a solid and fully fledged investment house, and made sure that the group’s list of shareholders bore some of the most reputable and prestigious names from diverse fields and industries.

When Ostoul Brokerage Services, a subsidiary of Ostoul Capital Group was granted the trading license in 2015, many believed it was taking on a huge challenge by entering the market at a time of instability and volatility.

Aly El Ghannam and Marwan El Khedry decided to take that risk, and pressed the “Go Ahead” button, with firm confidence in the promise and potential of the Egyptian Economy and Stock Market.

“The Partnership” was proven right when the Egyptian Economy started presenting robust results since the adoption of an economic reform programme at the end of the fiscal year 2015/16. The package was designed to leverage Egypt's strengths and tackle core challenges head-on, as well as focus on growth, job creation and social inclusion.

November 2016 was a turning point in the Egyptian Economy, when the Central Bank of Egypt took the long-awaited decision to liberalise the local currency against foreign currencies to boost confidence in the economy.

By the end of 2018, both the International Monetary Fund (IMF) and the Economist Intelligence Unit (EIU) revised upwards the projected real GDP growth for Egypt. Bloomberg agreed, using the IMF projections to break down sources for world GDP growth, and anticipated Egypt’s contribution to reach 1.3% from 2018-2019.

Egypt is witnessing improvements on all economic fronts, with a strong GDP growth, a lower budget deficit, dollar sources on the rise, the subsidy bill dropping, inflation easing and above all the stock market performing exceptionally well.

The country is determined to emerge as a favourable investment destination, with a unique value proposition for global investors. Since the stock market is a leading indicator, Ostoul strongly believes that 2019 is a year during which the market will outperform to reflect the positive results of the economic reform program, backed by declining interest rates in the coming future.

“Perseverance in Profit Making” was the slogan “the partnership” decided to take up for their institution to express the depth, meticulousness and patience they take on in making the right investment decisions. They set their mission to provide various well researched investment strategies as well as tailor made models to suit each client’s needs and preferences aiming to accomplish the best returns possible while minimizing the risks that may arise in such a market. With an in-house research team, technical analysts, custodian and broker in place, Ostoul succeeded in achieving the most difficult equation of maintaining high levels of integrity, diligence, competence, credibility and efficiency.

Just as “the partnership” had believed since the start of Ostoul, the Egyptian Economy went on to significantly improve in a few years as backed up by some of the renowned names in the field; IMF, the World Bank, Moody’s, S&P and Fitch and with the growing faith “the partnership” still has in the Egyptian Market, Ostoul Capital Group along with its subsidiaries will work hard to achieve even more to become among the top 10 service providers in the shortest time possible.


Humble Beginnings Followed by Rocketship Ride to Success: Andrew Bloom & Jon Hall

[caption id="attachment_15582" align="alignright" width="232"] CEO: Andrew Bloom[/caption]

After being named Best Digital Bank in the UK for the second consecutive year, Masthaven Bank’s founder and CEO Andrew Bloom and managing director Jon Hall are in an optimistic and reflective mood.

Optimistic because the specialist bank is about to move into new offices in London’s Covent Garden as its expansion plans take shape, and reflective because Masthaven is about to embark on another major development phase.

Masthaven Bank doesn’t forget its past — a meeting room at the new premises will be called Soho in honour of the bank’s old home off Oxford Street — but has a keen eye on the future, too.

“They say a week is a long time in politics,” says Bloom, “and the same is true in finance. Since we last spoke, it’s been a milestone year for us — but we mustn’t rest on our laurels. It’s easy to say, 'Great, what an achievement', then take your foot off the pedal and relax. We mustn't think like that."

So where to start? Of all the developments, perhaps the most important is the £60m investment secured last year from the alternative investment house Värde Partners. This will allow the bank to expand its lending line, and strengthen its position in the UK’s mortgage arena.

Värde identified Masthaven as an “exciting” brand in the UK challenger bank space, and recognised it as a force in the market thanks to its dedication to serving those borrowers locked-out by traditional high street banks.

“It’s time for us to further enhance our propositions for our existing customers and intermediary partners as well as future clients,” Bloom says of the Värde injection. “Masthaven will use the investment to bring more capacity to the UK market and enable us to innovate in our savings and lending propositions.”

[caption id="attachment_15583" align="alignleft" width="232"] MD: Jon Hall[/caption]

That means adhering to its philosophy of putting the “personal” back into personal finance by satisfying customer needs — whether on flexible savings, valued mortgage solutions or bridging and development finance.

The move to Covent Garden is testament to the bank’s growth and maturity in terms of colleagues, products and assets. Last year, Masthaven had around 150 employees; today, there are more than 180, and that figure is set to grow: the bank now has £750m in assets. And by revamping its short-term and buy-to-let propositions and launching its savings proposition on the Flagstone platform, Masthaven continues to offer modern, flexible lending and savings, with customer needs at heart.

"It would have been pointless to bring a new bank to market that's just like everyone else out there," explains Hall. "We're about something very simple yet rarely done: finding out what customers actually need, and delivering that to them – not just words, but actions."

As the bank heads to pastures new, Hall and Bloom will ensure that one thing is transported from old office to the new: a poster featuring a quote from US president Franklin D Roosevelt which reads: “Happiness lies in the joy of achievement and the thrill of creative effort.”

The Masthaven story

Andrew Bloom founded Masthaven Finance in the early 2000s, working in a serviced office with a team of four. He launched Masthaven Finance in 2004, initially specialising in bridging loans and development finance before expanding into mortgages. In late 2014, Hall joined him, and together they turned Masthaven into a retail bank.

Hall has a strong financial background, starting his career with PricewaterhouseCoopers before joining Aviva, then becoming CEO of Saffron Building Society. At Saffron, Hall’s entrepreneurial skills, digital edge and focus bloomed. Saffron was named one of the most digitally mature building societies, and was nominated for a clutch of other awards.

The desire to push boundaries has defined Bloom’s trajectory. After leaving university, he joined KPMG where he qualified as a chartered accountant. He moved to transaction services before working in the investment division of what is now Strand Hanson.

Success was never far away, and the lender was listed in 2015’s Sunday Times Virgin Fast Track 100 as the 81st fastest-growing private company in the UK.

In 2016 Masthaven was launched as a retail bank, becoming the first “challenger” bank to be regulated that year. In 2017, Masthaven was in the Financial Times’ Fast Track 1,000, the 240th fastest-growing private company in Europe.