Johannesburg Stock Exchange: Pioneering Sustainable Development

[caption id="attachment_8138" align="alignright" width="177"] Johannesburg[/caption]

Shifting attention away from the next quarter’s results towards sustainability parameters indicative of long-term objectives, has been a challenge for stock exchanges the world over. Only recently has the concept of socially responsible investment (SRI) moved out of its niche and onto the main market. The United Nations-supported Principles for Responsible Investment (UNPRI) Initiative – a set of six codes incorporating environmental, social, and corporate governance issues that investors may voluntarily adopt and adhere to – have now been embraced by well over 1,200, mostly institutional, investment funds representing about $34 trillion in assets.

The global financial crisis of 2008-9 provided an added impetus to investors to take a second look at SRI. A growing number of previously sceptical fund managers have now pledged to abide by PRI guidelines in recognition of the need to factor in more than just financial indicators when making investment decisions.

The upsurge in demand for corporate data on sustainability has led stock exchanges around the world to respond with the introduction of indices and rules that aim to encourage companies to embrace business practices that take ESG (Environment, Social, and Governance) values into consideration.

ESG Framework

The Johannesburg Stock Exchange (JSE) was one the first to design and implement a comprehensive framework for ESG reporting. The dismantling of South Africa’s apartheid system opened the country to outside investors eager to become part of the success story. As the rainbow nation shed its legacy, companies too had to address a range of social issues in order to adapt to the new reality. Even more than elsewhere, South African businesses found that social responsibility and sustainability issues could no longer be ignored. Likewise, local fund managers began to acknowledge the importance ESG.

"The Johannesburg Stock Exchange (JSE) was one the first to design and implement a comprehensive framework for ESG reporting."

As early as 1994, South Africa raised the bar on corporate governance by issuing a non-legislative code of conduct for private business. The King Report on Corporate Governance – named after retired Supreme Court judge Mervyn E King who chaired the committee that formulated the code at the behest of the Institute of Directors – outlined an approach to business that encompassed leadership, sustainability, and corporate citizenship qualities.

The King Report also emphasised the need for businesses to involve all stakeholders and consider their interests. The report drew wide attention outside South Africa and has been hailed as the most effective summary of best practices in corporate governance. The King Report was revised and expanded on in 2004 and 2010. King III concludes that governance, sustainability, and strategy are closely linked, and emphasises integrated reporting as a critical component of good governance. Full compliance with the King Report is now a requirement for all companies listed on the Johannesburg Stock Exchange.

Signing On

Early awareness of the importance of ESG values has led 28 South African investment funds to adhere to the UNPRI Initiative. This includes the Government Employees Pension Fund (GEPF) which manages assets worth around $150 billion and owns sizeable stakes in the country’s largest corporations. The JSE also signed on to the UNPRI – one of the first to do so.

At the forefront of ESG reporting, the Johannesburg Stock Exchange has identified and addressed five areas of concern.

Regulation (I)

The JSE has taken an early by incorporating sustainability principles – as outlined in the King Reports – into its regulatory framework. All listed companies are expected to be in full compliance with the latest revision of the King Report on Corporate Governance.

Investment (II)

The JSE has created a number of tools that investors may use to gauge a company’s ESG performance. In May 2004, the JSE launched the Socially Responsible Investment (SRI) Index that rates listed companies according to ESG parameters and enables fund managers to reach their responsible investment targets. The SRI Index now offers live values to investors worldwide.

Research (III)

With a proactive approach to strategy and planning, the JSE maintains a number of projects that aim to identify and explore opportunities across the spectrum of sustainable development. The challenges posed by sustainability concerns – such as the ongoing debate on climate change – also offer new opportunities that may add to South Africa’s attractiveness to investors worldwide.

Advocacy (IV)

The JSE is actively involved in promoting sustainable business practices though participation in public fora, policy entities, and advisory bodies. The exchange aims to stimulate public debate and play a part in the setting of policies by building partnerships with all parties involved in the promotion of the sustainability agenda.

Internal Sustainability (V)

As a private and listed company – and a corporate citizen – the Johannesburg Stock Exchange maintains various programmes that aim to contribute to the social advancement and empowerment of previously disadvantaged people. The JSE also runs a number of community programmes to help address skills shortages and create awareness about the working of capital markets. The exchange also instituted an internal Environmental Management Committee charged with mitigating the environmental impact of its operations.

Meeting Place

As a meeting place of businesses and investors, the JSE has pioneered the search for opportunity in a world that increasingly rejects unfettered depredatory economic growth in favour of sustainable development. Instead of bemoaning ESG values as a brake on growth and profitability, the JSE has shown that sustainability offers a wealth of opportunity to both investors and corporations.

By providing benchmarks and facilitating engagement, the JSE has contributed to a behavioural shift that benefits not just investors and businesses but the wider South African society as well.


Mukhisa Kituyi, UNCTAD: Sustainable Stock Exchanges and the 21st Century Challenge for Global Finance

Faced with common global economic, social, and environmental challenges, the international community is in the process of defining a set of Sustainable Development Goals (SDGs). As part of the United Nations post-2015 agenda, the SDGs will play a crucial role in catalysing efforts to address the most urgent priorities for the twenty-first century. Every institution, in every sector, will have a moral imperative to contribute to achieving the global goals. Stock exchanges and capital market regulators are gearing up to be part of the solution.

[caption id="attachment_8150" align="aligncenter" width="601"] UNCTAD Secretary-General Kituyi welcomes London Stock Exchange to the Sustainable Stock Exchanges initiative.[/caption]

UNCTAD and its partners are working with policy makers and stock exchange executives around the world to promote more sustainable business practices and responsible capital markets. Launched in 2009 by UN Secretary-General Ban Ki-moon, the Sustainable Stock Exchanges (SSE) initiative is a joint project of UNCTAD, the UN Global Compact, the UN-supported Principles for Responsible Investment, and the UNEP-Finance Initiative. Since 2012 at the UN’s Rio+20 earth summit in Brazil, the SSE has invited stock exchanges to join by making a commitment to promote improved environmental, social, and corporate governance (ESG) disclosure and performance among their listed companies. Market giants like NYSE, NASDAQ, London Stock Exchange and Deutsche Börse, along with about a quarter of the major exchanges in the world, have joined the SSE and committed to working with the UN.

“At present, the financial markets are not hard-wired to drive capital towards sustainable business and the achievement of the SDGs. This can and should change.”

Momentum is building in this space. In a recent review of more than fifty stock exchanges worldwide, we find almost half of exchanges offer at least one index integrating social and/or environmental issues; nearly one-third of exchanges provide either sustainability reporting guidance or training to the listed companies on their exchange; and a small pioneering group of leading exchanges require comprehensive reporting of environmental and social issues for at least some, if not all of their companies [1].

This illustrates an emerging set of best practices among exchanges regarding the promotion of sustainability reporting and sustainable business practices more generally. The wider policy landscape is also supportive: 19 members of the G20 have at least one regulation in place requiring disclosure of social and/or environmental metrics by companies.

Securities regulators are also increasingly involved in the promotion of sustainability reporting. Of the 32 regulators represented on the board of the International Organization of Securities Commissions (IOSCO), for example, more than one-third have introduced a sustainability reporting initiative.

While these numbers show that a “new mainstream” is already emerging among policy makers, regulators, and exchanges, further progress is becoming even more urgent in light of the expected introduction of the SDGs in 2015. At present, the financial markets are not hard-wired to drive capital towards sustainable business and the achievement of the SDGs. This can and should change.

Obstacles to investment in sustainable development include: The failure of markets and investors to price negative social and environmental externalities; a lack of transparency on ESG performance; misaligned pay and performance incentives; and regulation and accounting standards that promote a short-term focus to the detriment of long-term sustainable development projects.

These obstacles could be overcome by, among other things, better alignment of corporate incentive structures, reporting requirements, and credit rating assessments with public policy goals. There is also potential to reform financial regulations and accounting standards, discourage short-term trading, and better integrate sustainability considerations into investors’ fiduciary duties and corporate governance practices. Integrating the reporting of ESG issues with financial reporting would also help align corporate performance with sustainable development objectives.

SSE Partner Exchanges

Stock Exchange of Thailand (SET)
Thailand

Deutsche Börse
Germany

Jamaica Stock Exchange (JSE)
Jamaica

Lima Stock Exchange (BVL)
Peru

Mexican Stock Exchange (BMV)
Mexico

Stock Exchange of Thailand (SET)
Thailand

Colombian Securities Exchange (BVC)
Colombia

London Stock Exchange (LSE)
UK

Warsaw Stock Exchange (WSE)
Poland

Nigerian Stock Exchange (NSE)
Nigeria

Bombay Stock Exchange (BSE)
India

NASDAQ OMX
USA

BM&FBOVESPA
Brazil

Johannesburg Stock Exchange (JSE)
South Africa

Borsa Istanbul
Turkey

Egyptian Exchange (EGX)
Egypt

Sustainability reporting plays an important role in providing the tools that will be needed to implement the sustainable development goals. High-quality corporate reporting on the environmental and social issues that businesses face can help identify targets and measure progress. Such reporting can play an important role in driving investment to sustainable business practices, financing the sustainability outcomes that the world seeks.While some of these broader challenges lie outside their remit, capital market policy makers and stock exchanges have practical options at hand today to promote sustainable business. Guidance produced by UNCTAD, for example, offers suggestions as to how exchanges and policy makers considering sustainability reporting initiatives might proceed [2]. While recognizing that there is no “one-size-fits-all” solution, the guidance considers which institutions might be best placed to introduce sustainability reporting initiatives, and the regulatory and competitive landscape in which exchanges find themselves. It also considers what might be included in the policy, what model of disclosure might be pursued, and how exchanges and regulators might best implement a reporting policy.

Stock exchanges around the world continue to join the SSE initiative as Partner Exchanges to work on these practical measures – to share experiences, overcome common challenges, and engage with key capital market stakeholders. The SSE has seen its membership triple from its original five members to fifteen in just over two years. At the time of press, more than 16,000 companies, with approximately $36 trillion in market capitalization, are listed on SSE Partner Exchanges. We will continue to reach out to stock market stakeholders – policy makers, exchanges, investors, and companies – to help them further promote alignment between market signals and much needed public policy goals. That’s the 21st Century challenge for global finance.

References
[1] SSE (2014) Sustainable Stock Exchanges 2014 Report on Progress forthcoming.
[2] UNCTAD (2014) Best Practice Guidance for Policymakers and Stock Exchanges on Sustainability Reporting Initiatives.


Angela Merkel: Managing Europe’s Manifest Destiny

 The job of German chancellor is not one for the faint of heart. It all boils down to leading one of the world’s greatest powers, and safeguarding its many interests, without ever giving in to the temptation to actually flex the country’s muscle.

Where other countries may holler and shout at will should their affairs be threatened, Germany may at most whisper its concern. As soon as a German chancellor even thinks about wielding power, however modestly, his or her face will promptly appear on protesters’ placards besmeared with a toothbrush style moustache. Though fading slowly, the burden of history is not to be underestimated.

In office since 2005, Chancellor Angela Merkel has a keen sense of the do’s and don’ts that define Germany’s position in Europe and the wider world. Rather than feeling boxed-in, Mrs Merkel artfully pushes these confines to the limit – and even slightly beyond – without ever losing sight of other nations’ sensibilities. She does so in order to assume the role that is expected of her as the leader of Europe’s largest and possibly most robust economy. It is also a role not everyone is entirely comfortable with Germany assuming.

“Mrs Merkel is not about the flavour of the day, or the path of least resistance. Instead, she takes the long view and argues, quite convincingly, that Europe must put itself on a sound footing if it is to prosper.”

Still, Mrs Merkel has played her part exceedingly well and deserves lavish praise for. A former inhabitant of the German Democratic Republic (DDR) and fluent in Russian, she also developed her own form of “ostpolitik” by establishing a personal rapport with Vladimir Putin in an attempt to take the edge of Russia’s expansionist foreign policy.

In August, Mrs Merkel landed in Kiev for a crisis meeting with Ukraine’s president Petro Poroshenko after a Russian aid convoy lumbered into the country without bothering to comply with customs checks. Het impromptu visit sent a clear message to the Kremlin and resulted in the convoy hightailing back across the border.

Nine years into her chancellorship and with approval ratings reaching 77% this past summer, Mrs Merkel is far from a spent force in German politics. Her handling of the economic crisis was nothing short of exemplary. Imposing wage restraints from the get-go, her government managed to keep German industry humming throughout the lean years. Though elsewhere in Europe German-imposed fiscal austerity is hampering growth, at home monetary discipline is hailed as a key ingredient to lasting success.

However, Mrs Merkel faces growing opposition in Europe. This autumn, both France and Italy will challenge her economic leadership by arguing that the tight fiscal policies Mrs Merkel insists on are counterproductive, destroy social cohesion, and undermine long-term growth.

French minister for industrial renewal Arnaud Montebourg called Mrs Merkel’s economic policy both “Kafkaesque” and a “financial absurdity.” He openly called for his government to steer its policy away from Mrs Merkel’s “dictates.” Mr Montebourg’s exceptionally strong-worded criticism of the French government’s austerity drive contributed to the fall of the cabinet on August 25.

Mrs Merkel, however, is not one to be easily swayed and sticks to her guns even in the face of overwhelming opposition. As such she is to be admired. Mrs Merkel is not about the flavour of the day, or the path of least resistance. Instead, she takes the long view and argues, quite convincingly, that Europe must put itself on a sound footing if it is to prosper.


Deutsche Börse and Thai Exchange Join Sustainable Stock Exchanges Initiative

The Deutsche Börse is the latest of a growing number of stock exchanges that have joined the United Nations-supported Sustainable Stock Exchanges (SSE) Initiative aimed at encouraging listed companies to adhere to specific environmental, social, and corporate governance (ESG) guidelines.

The Deutsche Börse, a joint stock company formed in 1993 and headquartered in Frankfurt, lists close to 800 companies with a combined market capitalisation in excess of €1.4 trillion. Prior to joining the SSE Initiative, the Deutsche Börse had already started a number of transparency and ESG initiatives to facilitate socially responsible investment practices.

Both shares and bonds being traded on the Deutsche Börse capital markets may be included in a premium segment depending on their levels of transparency and compliance with ESG directives. Investors have access to an online information portal for sustainable securities that provides ESG data on some 1,800 companies included in STOXX indices.

“The organisation of transparent and stable capital markets of integrity is Deutsche Börse’s core competency,” says Hauke Stars, member of the exchange’s executive board. “We are pleased to have joined the SSE Initiative in order to support the ongoing dialogue on the sustainability of the financial markets.”

“The organisation of transparent and stable capital markets of integrity is Deutsche Börse’s core competency.”

Representatives of the Deutsche Börse will attend the upcoming SSE Global Dialogue in Geneva to discuss approaches to further improving sustainability and expanding on existing initiatives. The Deutsche Börse also wishes to contribute to the debate on the role of capital markets infrastructure providers within the sustainability movement. The German exchange is the 14th to sign on to the SSE Initiative.

Last month, the Stock Exchange of Thailand (SET) became the first Asean exchange to join the SSE Initiative. “This reinforces our regional leadership and will enhance SET’s international recognition,” says SET Chairperson Sathit Limpongpan, adding that this underlines the exchange’s aim to help develop the sustainability the Thai capital market in a concrete way. The Stock Exchange of Thailand will also be present at the SSE Global Dialogue in Geneva.

SET President Kesara Manchusree emphasised that the exchange maintains its own sustainability framework which focuses on five areas: Market value, business operations, employees, society, and environment. The bourse is now in the process of setting up working groups to formulate concrete sustainability policies.


The Underrated Modesty of Executive Pay at the World Bank

There are moments in time when the proverbial storm in a teacup serves to underscore a point. The World Bank Group is living one such moment.

The bank is in the midst of a possibly painful restructuring process that is to improve efficiencies, streamline operations, and increase lending capacity – already doubled for middle-income countries. The overhaul, set to result in savings of $400m on a $5bn operating budget, may ultimately affect some of the bank’s 15,000 employees.

With the restructuring process well under way and causing varying degrees of concern on the work floor, most World Bank employees were none too impressed when it was revealed, earlier this week, that at least four of the institution’s top directors would receive bonuses.

In an attempt to quell a full-blown revolt, the World Bank Group’s Chief Financial Officer Bertrand Badré announced that he would voluntarily forego his bonus. Though welcomed, the move did not entirely dissipate tensions at the bank’s offices in Washington.

"For an institution of this size, and considering the times, executive pay at the Wold Bank seems almost frugal and certainly in-line with the bank’s stated mission."

Interestingly, the pay-out Mr Badré gave up amounts to all of $94,000. This sum was to sweeten his $380,000 annual salary. In the UK, that level of remuneration would be considered “chicken feed” by the likes of London mayor Boris Johnson. According to Bank of England data, 2,188 UK bankers receive compensation packages worth in excess of €1m ($1.3m).

The salaries paid to top executives at the World Bank Group pale by comparison. Yet, the bank is widely considered a pioneer when it comes to finding innovative and often complex ways to finance development in the least advantaged countries. This, of course, requires a great deal of financial engineering talent. With a mandate to reduce poverty on a global scale, the World Bank Group provides around $30bn of loans annually.

For an institution of this size, and considering the times, executive pay at the Wold Bank seems almost frugal and certainly in-line with the bank’s stated mission. At a staff meeting last Tuesday, the institution’s president Jim Yong Kim argued that the World Bank needs to offer reasonably competitive pay packages in order to attract and keep the best talent. Indeed, Mr Badré arrived at the World Bank Group only last year from the French Société Générale to assume overall responsibility for financial and risk management strategies.

In many ways, the World Bank Group’s remuneration structure – along with that of institutions such as the Norwegian sovereign wealth fund (Government Pension Fund of Norway Global) – should dispel the persistent myth that salaries and bonuses reaching stratospheric heights are part and parcel of the banking sector without which it supposedly cannot function properly.

While the restructuring process currently unfolding at the World Bank Group may cause some discomfort, concerns about excessive executive pay do seem rather misplaced or even a tad overblown – perhaps a storm in a teacup.


James Zhan, UNCTAD: Investing in Sustainable Development Goals

[caption id="attachment_8171" align="alignright" width="195"] Author: James Zhan[/caption]

The SDGs, which are being formulated by the United Nations together with the widest possible range of stakeholders, are intended to galvanise action worldwide through concrete targets to 2030 for poverty reduction, food security, human health and education, climate change mitigation, and a range of other objectives across the economic, social, and environmental pillars.

The SDGs will have very significant resource implications across the developed and developing world. Global investment needs are in the order of $5 to $7 trillion per year. Estimates for investment needs in developing countries alone range from $3.3 to $4.5 trillion per year, mainly for basic infrastructure (roads, rail and ports; power stations; water and sanitation), food security (agriculture and rural development), climate change mitigation and adaptation, health, and education.

The SDGs will require a step-change in the levels of both public and private investment in all countries. At current levels of investment in SDG-relevant sectors, developing countries alone face an annual gap of $2.4 trillion. Especially in the so-called least developed countries (LDCs), public finances, though central and fundamental to investment in SDGs, cannot meet all SDG-implied resource demands.

“In LDCs, a doubling of the growth rate of private investment would be a desirable target.”

Today, the participation of the private sector in investment in SDG-related sectors is relatively low. Only a fraction of the worldwide invested assets of banks, pension funds, insurers, sovereign wealth funds, foundations and endowments, as well as multinational firms, is in SDG sectors. Their participation is even lower in developing countries, particularly in the poorest ones.

In LDCs, a doubling of the growth rate of private investment would be a desirable target. In these countries, where investment needs are most acute and where financing capacity is lowest, about twice the current growth rate of private investment is needed to give it a meaningful complementary financing role next to public investment and development aid.

[caption id="attachment_8177" align="aligncenter" width="616"] Strategic Framework for Private Investment in the SDGs.[/caption]

Increasing the involvement of private investors in SDG-related sectors, many of which are sensitive or of a public-service nature, leads to policy dilemmas. Policymakers must find the right balance between creating a climate conducive to investment and removing barriers to investment on the one hand, and protecting public interests through regulation on the other. They must find mechanisms to provide sufficiently attractive returns to private investors while guaranteeing accessibility and affordability of services for all. And the push for more private investment must be complementary to the parallel push for more public investment.

Increasing private investment in SDGs will require leadership at the global level, as well as from national policymakers, to provide guiding principles to deal with these policy dilemmas; to set targets, recognizing the need to make a special effort for LDCs; to galvanize dialogue and action; and to guarantee inclusiveness, providing support to countries that otherwise might continue to be largely ignored by private investors.

There is a range of options available to policymakers to make a Big Push for private investment in sustainable development. Examples include:

A new generation of investment promotion and facilitation. Establishing SDG investment development agencies to develop and market pipelines of bankable projects in SDG sectors and to actively facilitate such projects. ‘Brokers’ of SDG investment projects could also be set up at the regional level to share costs and achieve economies of scale.

SDG-oriented investment incentives. Restructuring of investment incentive schemes specifically to facilitate sustainable development projects. This calls for a transformation from purely “location-based” incentives, aiming to increase the competitiveness of a location and provided at the time of establishment, towards “SDG-based” incentives, aiming to promote investment in SDG sectors and conditional upon their sustainable development contribution.

Regional SDG Investment Compacts. Launching regional initiatives towards the promotion of SDG investment, especially for cross-border infrastructure development and regional clusters of firms operating in SDG sectors (e.g. green zones).

This could include joint investment promotion mechanisms, joint programmes to build absorptive capacity, and joint public-private partnership models.

New forms of partnership for SDG investments. Establish partnerships between outward investment agencies in home countries and IPAs (Investment Promotion Agencies) in host countries for the purpose of marketing SDG investment opportunities in home countries, provision of investment incentives and facilitation services for SDG projects, and joint monitoring and impact assessment.

Enabling innovative financing mechanisms. Innovative financial instruments to raise funds for investment in SDGs deserve support to achieve scale. Options include innovative tradable financial instruments and dedicated SDG funds, seed funding mechanisms, and new ‘go-to-market’ channels for SDG projects. Re-orientation of financial markets also requires integrated reporting. This is a fundamental tool for investors to make informed decisions on responsible allocation of capital, and it is at the heart of the Sustainable Stock Exchanges initiative.

These and other ideas will be discussed at UNCTAD’s World Investment Forum, from 13-16 October in Geneva, which has as its theme Investing in Sustainable Development, and which will bring together heads of state, ministers, CEOs of major investors, pension and sovereign wealth funds, the investment promotion community, and many other investment stakeholders.

About the Author

Mr. James Zhan is Director of the Investment and Enterprise Division at the United Nations Conference on Trade and Development (UNCTAD). He is also Editor-in Chief of the UN annual World Investment Report and the journal Transnational Corporations.

Mr. Zhan has 28 years of national and international experience in the areas of trade, investment, technology, business facilitation and enterprise development, including policy research, consensus-building among 190 member countries and technical assistance to over 150 governments.

Mr. Zhan is Global Agenda Council member of the World Economic Forum, and member of the Advisory Board for the International Investment Centre at Columbia University in the USA. He holds a PhD in international economics, was research fellow at Oxford University, and was a member of the Academic and Policy Advisory Board for the Centre of International Business and Management at Cambridge University in the UK. He has published extensively on trade and investment related economic and legal issues.

About UNCTAD

Established in 1964, UNCTAD promotes the development-friendly integration of developing countries into the world economy. UNCTAD has progressively evolved into an authoritative knowledge-based institution whose work aims to help shape current policy debates and thinking on development, with a particular focus on ensuring that domestic policies and international action are mutually supportive in bringing about sustainable development.


Zambia Set to Impress and Welcome Investors

Zambia has seen foreign direct investment (FDI) increase significantly to well over $1bn in 2013 – up 31% over the previous year. The number of projects receiving capital investment from outside the country went up as well. Greenfield investment in telecommunications projects amounted to $300m last year while the financial services sectors attracted $100m of FDI. Slightly over 40% of capital inflows now come from African companies.

Minister Robert Sichinga of Commerce, Trade, and Industry aims to keep the momentum going as he heads a delegation to the United Nations-sponsored World Investment Forum taking place in Geneva, Switzerland, between October 13 and 16.

Last year, the government of Zambia unveiled several ambitious programmes to accelerate development and provide up to a million new jobs. Sizeable investments are needed across a range of sectors such as agriculture, tourism, manufacturing, and construction.

“Given our plans, we must hurry to implement those strategies that will assist in the fight against poverty. We need to encourage investments in the identified sectors to achieve our objectives. Zambia is hungry for investment, wealth creation, and alleviation of poverty,” said Mr Sichinga on the eve of his trip to Geneva.

"In Geneva, Mr Sichinga is to showcase the investment opportunities in his country, particularly as they relate to sustainable development – the main theme of the forum."

The country’s open capital markets and floating exchange rate regime have contributed to the diversification of its economy. Earlier this month, Mr Sichinga reported to parliament that in 2013 earnings from non-traditional exports have increased to $2.2bn and now account for fully 33% of outgoing trade as measured by value.

In Geneva, Mr Sichinga is to showcase the investment opportunities in his country, particularly as they relate to sustainable development – the main theme of the forum. The delegation includes representatives of the Zambia Development Agency. At the meeting in Geneva, Zambia will make a presentation on Challenges and Constraints of Promoting FDI.

The World Investment Forum provides a meeting place for government officials, investors, and development professionals from around the world. The forum is organised by the United Nations Conference on Trade and Development (UNCTAD) to discuss challenges, opportunities, and policy frameworks that encourage sustainable development.

The Zambia Development Agency comes to Geneva armed with dossiers on an impressive number of concrete projects that are available to investors. Tourism is one of the focus areas. The Zambian government has recently put both fiscal and non-fiscal incentives in place to encourage investment. A massive road rehabilitation project is underway as well to facilitate access to the country’s more remote tourist destinations. It is expected that for the first time Zambia will receive over a million visitors this year.


Graça Machel: The Only First Lady of Two Countries

 She is the only known woman to have been the first lady of two countries. Graça Machel (68) is, however, best known for her dedication to the plight of refugee children around the world. She gained wide respect as an authority on the subject with her 1996 report for UNICEF – the United Nation’s Children’s Rights and Emergency Relief Organisation – on the impact of armed conflict on minors.

Mrs Machel is currently engaged in promoting pan-African unity. Speaking recently in Johannesburg, she concluded that for Africa to live, “the nation state must die.” In her lecture, Mrs Machel argued that a new generation of leaders is called for “to steer the people of the continent beyond the thinking and views of its component parts to a broader one of unity without losing Africa’s great diversity.”

Mrs Machel emphasises that a variant of her lecture’s title – that the tribe must die for the nation to live – does not hold true. “In Africa, it’s only Tanzania that has a semblance of cohesion despite its diversity. Africa is much more than French, Portuguese, or English speaking countries. There must be value added in the drive for an African identity.”

Graça Machel was born in the Gaza Province of Portuguese East Africa – today’s Mozambique – and attended a series of Methodist mission schools that prepped her for further studies at the University of Lisbon, Portugal. Fully fluent in Portuguese, Spanish, Italian, French, English, German and her native Shangaan language, Graça Machel returned home in 1973 and promptly joined the Mozambique Liberation Front (Frelimo). She also took a job as a teacher.

“After her husband’s death, Mrs Machel focused on her humanitarian work for children and refugees. In 1995 she received the prestigious United Nations’ Nansen Medal in recognition for her outstanding service to the cause of displaced persons.”

Barely two years later, Graça Machel had become the country’s first post-independence minister for education and culture. That same year, 1975, she married Samora Machel, the socialist revolutionary who headed Frelimo’s struggle for independence against the Portuguese and became the country’s first president. In 1986, President Machel died tragically in a plane crash while en route to South Africa.

After her husband’s death, Mrs Machel focused on her humanitarian work for children and refugees. In 1995 she received the prestigious United Nations’ Nansen Medal in recognition for her outstanding service to the cause of displaced persons.

Through her work, Mrs Machel met and got acquainted with South African president Nelson Mandela whom she married on his 80th birthday on July 18, 1998. That same year, Mrs Machel (who kept her first husband’s surname) was awarded the North-South Prize by the Council of Europe for her efforts at promoting human rights.

Currently, Mrs Machel serves as chairperson of the advisory board of the Association of European Parliamentarians for Africa (AWEPA), an entity aimed at furthering parliamentary democracy in Africa. Mrs Machel is also president of the School of Oriental and African Studies at the University of London.


World Bank Group: Can Resource-Financed Infrastructure Fix the Natural Resource Curse?

By Håvard Halland, John Beardsworth, Bryan Land, and James Schmidt

[caption id="attachment_8188" align="alignright" width="229"] Copyright: Getty Images/Sam Edwards[/caption]

How can resource-rich countries ensure that a sufficiently large share of oil, gas, and mining revenues are used for productive investment rather than excessive or wasteful consumption? “Resource-financed infrastructure” (RFI) contracting is a new contract form that has evolved from experiences in several developing countries. RFI connects government revenues from resource extraction directly to infrastructure investment, thereby countervailing barriers to international capital markets, and bypassing capacity constraints that governments face when required to implement large infrastructure projects. A recent World Bank study, comprising an in-depth look at RFI by global project finance specialists Hunton & Williams LLP, and comments by some of the most internationally respected development economists and policy makers, debates the merits, challenges, and risks of the RFI approach.

To maintain wealth and build strong foundations for economic growth, countries need to offset the depletion of their natural resources by investment in produced capital – primarily infrastructure and human capital (Hartwick’s rule). However, in countries with weak governance and institutions, the use of government oil, gas, and mining revenues is often heavily tilted towards consumption rather than investment. Following oil or mineral discoveries, as the expectation of increased wealth spreads, pressures to spend typically become hard for politicians to resist: Public sector salaries go through the roof, wasteful spending increases, corruption may flourish, hidden foreign bank accounts may be established, and the number of unproductive “white elephant” projects grows. This type of spending often occurs despite a desperate need for investment in basic infrastructure including roads, schools, primary health clinics, and the like. In Africa, for instance, estimates indicate that an annual investment of $93 billion is required to address the continent’s basic infrastructure needs – more than double the current level of investment. The lack of productive investment of resource revenues is a critical component of the so-called resource curse: The observation that countries rich in natural resources frequently have slow long-term growth.

The Relevance of RFI

How is RFI relevant in this context? In recent decades, developing countries have started using access to their natural resources as collateral to realize other investments, countervailing the barriers they face when accessing conventional bank lending and capital markets. One result has been the type of oil-backed lending practices pioneered by Standard Chartered Bank, BNP Paribas, Commerzbank, and others in Angola in the 1990s. More recently there have been several sovereign bond issuances explicitly or implicitly backed by future resource revenues. Third, there have been packaged transactions, here referred to as early RFI deals, whereby access to oil or minerals has been exchanged for current infrastructure construction.

“To maintain wealth and build strong foundations for economic growth, countries need to offset the depletion of their natural resources by investment in produced capital – primarily infrastructure and human capital (Hartwick’s rule).”

Like oil-backed lending, RFI deals were pioneered in Angola. China ExIm Bank started offering this type of contract in 2004, and RFI type deals became a main vehicle for financing Angola’s post-war reconstruction. Early versions of the RFI mode of contracting were later used in several other African countries – predominantly by Chinese banks, including China Development Bank, but recently also by Korea Exim Bank for the Musoshi mine project in the Democratic Republic of Congo (DRC). According to Korea ExIm Bank (2011), “the [Korean version of the RFI] model was strategically developed to increase Korea’s competitiveness against countries which have already advanced into the promising market of Africa. This agreement is the first application of the model.”

Western mining companies commonly offer infrastructure as part of the compensation package, although this is usually a small part of the contract value and tends to address local infrastructure needs in the vicinity of the mine. In some cases, the value of the resources committed has been used as the basis for valuing the infrastructure package offered. In other cases, the basis for the valuation of the resource and infrastructure exchange, and the role of additional forms of compensation, is less clear. Back-of-the-envelope estimates based on publicly available information indicate the value of signed early-RFI type of contracts in Africa to be at least $30 billion, although it is unclear how many of these contracts have been fully implemented.

The RFI approach seeks to formalize the relationship between (a) the government’s future revenue stream from the resource component, and (b) a non-recourse loan, from the resource developer’s lender or another financial institution, to the government for the purchase of infrastructure. The loan is paid down with the committed future government revenues from the oil or mineral extraction. Loan disbursements for the infrastructure component are paid directly to the construction company to cover construction costs, and could also be used to pay operating expenses of the infrastructure (e.g., the operating costs of a health clinic, or maintenance of a road) for some period. Instead of receiving future taxes and royalties from the oil or mining company, the government receives, in exchange for a commitment of those revenues, completed infrastructure, such as power plants, railways, roads, information and communication technology (ICT) projects, schools and hospitals, or water works.

The RFI contracting process can, as described in the World Bank study, be understood as a combination of the traditional resource exploration and production licensing process, which should be according to international best practice, and a combination of one or more traditional infrastructure acquisition processes – from direct government purchasing through to public-private partnership relationships. As such, the beginning of an RFI transaction would be the undertaking of exploration activities by resource developers, and a government study to identify the infrastructure investments that would most improve economic growth or social welfare in the short term. Just as in any other contracting processes for resource development and infrastructure acquisition, adequate due diligence by all parties is required, including by the host government, for the identification of quality contractors, definition of technical specifications to assure contracting of appropriate infrastructure, and construction monitoring to assure quality delivery. The key to RFI, as discussed in the World Bank study, is creating the non-recourse link, by a special loan mechanism, between the committed future resource revenues and the current infrastructure financing.

Possibly the Best Option

One reason that early RFI deals have been seen as attractive by governments may be that the RFI type of transaction is perceived as an opportunity to provide fast returns to citizens while decision makers are still in office. Since mines and oil fields take a long time to develop, the infrastructure could be in use long before the extractive project is generating revenue or turning a profit.

In his contribution to the World Bank study, Paul Collier argues that, although by conventional principles RFI is undesirable because it reduces future fiscal flexibility, it might be the best option available to lock in infrastructure investment in contexts with weak public administration capacity and procurement systems. In that sense, RFI represents a commitment mechanism, enabling ministers to ensure that future decision makers devote a sensible proportion of resource revenues to the accumulation of assets. By the same token, Alan Gelb argues that RFI may reduce the risk of revenues from extractives either failing to be included in the national budget or, if included, being wasted or stolen. Similarly, as Justin Lin and Yan Wang point out in their contribution to the study, RFI may also reduce the risk of capital flight. RFI may furthermore limit the ability of a government to raid resource revenues accumulated in a sovereign wealth fund by a more responsible prior government. Conversely, oil-backed lending or resource-backed sovereign bond issuance do not offer this commitment mechanism.

Risks and Challenges

Despite its potential benefits, RFI also brings significant risks and challenges. Early deals approximating an RFI structure have generally been concluded on a non-competitive basis, with little transparency or attention to structuring the transaction as a true financing model. This has brought up questions related to the valuation of the deals – how much infrastructure now for a certain amount of oil or minerals in the future? In a mature RFI model, as addressed in the World Bank study, this question is dealt with explicitly, since the committed resource revenues are used to pay off a loan, and additional taxes and royalties are then paid directly to the government once the loan has been repaid. There have also been concerns with regard to the quality of the completed infrastructure, as well as regarding capacity for operation and maintenance – issues that in a mature RFI deal should be addressed through careful contracting, due diligence exercises, independent third-party construction supervision, and potentially by creating a public-private partnership for the infrastructure construction and operation components.

Lin, Wang and Louis Wells point out that not only governments but also the private sector partners to RFI deals take on a significant amount of risk since, once the infrastructure has been completed, there may be an incentive for the government (or a future government) to renege on the contract. To reduce investor risk, an element of official or semi-official concessional finance has been a standard component of the early RFI deals. Collier argues that if bilateral donors were to team up with their national resource and construction companies to bring more RFI deals to the market, the value of the deals could be determined through competition. Gelb suggests that concessional financing arrangements could take the form of interest rate buy-down or partial risk guarantees against the host-country government reneging on the agreement. Clare Short is joined by others in asserting that contract transparency is fundamental to reducing the risks of RFI contracting, as with other types of oil and mineral contracts. The World Bank study suggests issues for governments, lenders, and other stakeholders to consider and address when contemplating an RFI structure for a transaction.

A Fix for the Resource Curse?

So, can RFI contracting contribute to fixing the resource curse? Contributors to the World Bank study argue that “it depends.” As Wells points out, RFI deals should be evaluated like any other business arrangement, and carefully compared to alternative ways of obtaining returns from natural resources or financing infrastructure. Understood in that way, and with appropriate safeguards and procedures for implementation, RFI contracting may have the potential to be an important tool for countries struggling to escape that old curse.

About the Authors

Håvard Halland is a natural resource economist at the World Bank, where he leads research and policy agendas in the fields of resource-backed infrastructure finance, sovereign wealth fund policy, extractives revenue management, and public financial management for the extractives sector. Prior to joining the World Bank, he was a delegate and program manager for the International Committee of the Red Cross (ICRC) in the Democratic Republic of the Congo and Colombia. He holds a PhD in economics from the University of Cambridge.

John J Beardsworth, Jr, is head of the business practice group of the international law firm Hunton & Williams LLP and a member of the firm’s Executive Committee. With more than 30 years of experience, he focuses his practice on resource development, energy and infrastructure transactions, and project finance. Mr Beardsworth has extensive experience in restructuring and privatizing infrastructure enterprises, and in the development, financing, and construction of resource- and infrastructure-related assets. He is recognized for his long-standing practice in Africa. Mr Beardsworth earned a JD with honours from the George Washington University Law School in 1979 and a BA from the University of Pennsylvania, magna cum laude, in 1975.

Bryan C Land is a lead mining specialist at the World Bank and has been developing the bank’s research into the opportunities and challenges faced by resource-rich African countries. Prior to joining the World Bank, Mr Land led the Commonwealth Secretariat’s program on natural resource management. Previously he was at extractive industry consulting houses IHS Energy and CRU International and also spent three years in Papua New Guinea in the Department of Minerals and Energy. Mr Land earned a bachelor’s degree in economics from the London School of Economics and master’s degrees in international affairs and natural resources law from Columbia University and Dundee University, respectively.

James A Schmidt is counsel with the international law firm of Hunton & Williams LLP. With more than 25 years of experience, Mr Schmidt focuses on electric sector restructuring and market design, creating legislative and regulatory frameworks, developing independent regulatory agencies, and negotiating infra-structure projects for private developers, governments and their utilities, and public-private partnerships. He served as lead attorney for energy and regulatory reform matters in the legal department of the World Bank between 1996 and 1998. He was also a law clerk for the US Court of Appeals for the Fourth Circuit between 1986 and 1989. Mr Schmidt earned a JD from the University of Wisconsin Law School in 1986 and a BA from Lawrence University in 1983.


WIF: Start-Up Democracy Tunisia Steals the Show

[caption id="attachment_8219" align="alignright" width="216"] Mehdi Jomâa[/caption]

Interim Prime-Minister Mehdi Jomâa of Tunisia has offered to host the next World Investment Forum (WIF), scheduled to take place two years from now. In Geneva for the 2014 WIF, an event organised by the United Nations Conference on Trade and Development (UNCTAD), Mr Jomâa said his country – which he called a “start-up democracy” – is fully committed to pushing through broad economic reforms that will provide investors with a full range of opportunities. The prime-minister added that Tunisia has already proved its attractiveness to investors and is putting a framework in place that aims to ensure that investments benefit the entire society.

Later this month, Tunisians elect a new parliament while presidential elections are scheduled for November 23 with a second round of voting taking place on December 28. This is the second election cycle since the Jasmine Revolution of January 2011 ousted the administration of long-time president Ben Ali. The upcoming elections are widely considered to return Tunisia to sustained economic growth. While GDP increased 2.8% in 2013, the country is still suffering the aftereffects of the political turmoil that followed in the wake of the revolution.

"The upcoming elections are widely considered to return Tunisia to sustained economic growth."

So far this year, tourist arrivals are still 17% lower than in 2010. Though elevated unemployment levels contributed to the ousting of President Ben Ali, the joblessness rate today stands at 15.7% and remains significantly higher than in pre-revolutionary times. However, Prime-Minister Jomâa is optimistic and emphasised in Geneva that his country unites all the conditions conducive to profitable investments.


Sustainable Stock Exchanges: The Relevance of Green Indices

[caption id="attachment_8203" align="alignright" width="242"] NASDAQ's Sandy Frucher[/caption]

At the fourth Global Dialogue of Sustainable Stock Exchange (SSE) Initiative, last Tuesday in Geneva, Nasdaq OMX vice-chairman Meyer “Sandy” Frucher livened up discussions by spelling out a few hard-hitting truths. Though delivered in way that elicited chuckles from the participants, Mr Meyer reminded all present that green indices compiled by stock exchanges have so far failed to attract the attention of major investors: “No one trades on these green indices. Perhaps, investors are not yet wholly committed to sustainability values.”

Mr Frucher suggested that while most CEOs of listed companies are fully aware of the need for putting their businesses on a sustainable footing, they also know that investors seldom, if ever, ask about sustainability: “When CEOs brief analysts in quarterly conference calls, they are never grilled on the subject. Basically, nobody cares. Investors want returns and little else.”

The Nasdaq OMX vice-chairman also noted that institutional investors such as pension funds have a primary fiduciary obligation to those putting up the money. “Stock exchanges, now mostly private businesses, may need to shift their primary fiduciary obligation from investors to the investing public. This is what happened in Hong Kong and it’s a step in the right direction.”

“When CEOs brief analysts in quarterly conference calls, they are never grilled on the subject. Basically, nobody cares. Investors want returns and little else.”

- Sandy Frucher

Mr Frucher called for the creation of a global standard that clearly puts environmental, social, and governance (ESG) principles at, or near, the top of considerations as fundamental and material. “We need basic benchmarks against which to measure the impact of corporate operations on the wider society. From this starting point a thousand ideas will bloom.”

Mr Frucher praised the European Union for taking the lead with the introduction of its non-financial and diversity reporting directive which will mandate companies to disclose sustainability data. The directive is set to double the number of large companies that report such information. Mr Frucher expressed hope that the United States would follow suit but cautioned against expectations too great.

Richard Howitt, a member of the European Parliament for the East of England, was present in Geneva to explain the coming changes: “The new directive applies to companies with over 500 employees. In the EU there are about six thousand such companies and they will now have to regularly disclose information on environmental matters, social impact, human rights, workforce diversity, and anti-corruption policies.”

While Mr Howitt also recognised the urgency of formulating solid yet simple ESG benchmarks, he emphasised that much has already been accomplished: “With its new directive on the reporting of non-financial data, the European Union has not reached an end-point. It is now working on a shareholders rights directive and will continue to push for a strengthening of rules and regulations that improve sustainable business development.” Mr Howitt also said that the EU will focus on efforts to improve the quality of ESG reporting.

However, as Mr Frucher dryly noted in so many words: we like green, but like greenbacks even better. The main challenge facing the Sustainable Stock Exchanges Initiative is to make ESG best practices profitable and, as such, essential to a healthy bottom line.


Sustainable Stock Exchanges: Urgent Need for Simple Metrics

The 4th biennial Global Dialogue on the Sustainable Stock Exchanges (SSE) Initiative, concluded yesterday (10/14) at the United Nations Geneva headquarters, unveiled the urgent need for all stakeholders – stock exchanges, regulators, investors, and businesses – to adopt simple, yet effective and standardised, ways of measuring and reporting non-financial corporate performance.

[caption id="attachment_8194" align="aligncenter" width="616"] Global Dialogue on the Sustainable Stock Exchanges[/caption]

“Right now investors are largely flying blind and mostly clueless when it comes to determining the level of a given company’s adherence to sustainability parameters,” said Mark Wilson, CEO of Aviva Group which manages about £250bn through its Investors Global Services arm. “Most information available pertains to short-term corporate objectives only. The situation is actually getting worse and, as a result, the sustainability agenda is not getting any closer to becoming reality,” he added.

Mr Wilson said consistent reporting rules on sustainability are needed: “While the Amsterdam, Helsinki, and Johannesburg exchanges have made great progress in providing clear data, and now lead the way, there are simply too many initiatives that try to stick different metrics on sustainability data, creating confusion amongst investors in the process.”

"While the little sustainability data available to investors lacks uniformity, most exchanges are paying more than just lip service to ESG and are actively looking for ways to encourage the reporting of non-financials by listed companies."

The Global SSE Dialogue took place at the fourth World Investment Forum organised by the United Nations Conference on Trade and Development (UNCTAD). The event brings together investors, government officials, development professionals, and other stakeholders from around the world. The forum aims to be a global meeting place for the exchange of ideas and experiences on development and poverty-reduction policies and initiatives.

The Sustainable Stock Exchanges Initiative seeks to underline the importance of environmental, social, and governance (ESG) issues for business and development. The Global Dialogue, a roundtable gathering of high-level officials, showcases the many sustainability-related opportunities and challenges facing capital markets.

While the little sustainability data available to investors lacks uniformity, most exchanges are paying more than just lip service to ESG and are actively looking for ways to encourage the reporting of non-financials by listed companies.

Chairman Upendra Sinha of the Securities and Exchange Board of India also made an appeal for the global standardisation of sustainability reporting requirements. “This idea now needs to be taken to the next level, and that means finding and adopting a sustainability baseline.” Mr Sinha called on market regulators to exert pressure on large institutional investors to modify their parameters to include sustainability data: “As substantial shareholders, these large investors can better defend against corporate pushback.”

From Peru came a slightly different sound. Lilian del Carmen Rocca, superintendent of the securities market, said that it would prove hard to push investors one way or the other: “However, clear rules can help them make up their mind. Though Peru still lacks sustainability reporting requirements, we are developing a number of initiatives aimed at improving corporate governance by defining a set of metrics that facilitate reporting.”

Mrs Chitra Ramkrishna, CEO of the National Stock Exchange of India, noted that attitudes have already changed considerably: “For companies, the implementation of corporate governance frameworks used to be merely something good to have. Now it is being considered an essential element for any company that wishes to access public money through a stock exchange. The same could happen to sustainability frameworks. But, we do need a set of metrics for that.”


Cityscape Launches Inaugural Event in Kuwait

Region’s Largest Real Estate Event Shines Spotlight on Kuwait Real Estate Market

Cityscape Kuwait, the premier international real estate investment and development event in the State of Kuwait is scheduled to open doors on 7 – 9 December 2014 at Kuwait International Fairgrounds. The exhibition and conference is the latest from the world renowned Cityscape portfolio of events and set to be the largest real estate event ever to be held in Kuwait.

Organised by Informa Exhibitions and Maksab Project Management, and extending over an area of 7000 sqm, the exhibition provides local, regional and international participants with the opportunity to network, seek out investment opportunities and create joint venture partnerships. It brings together investors, developers, architects and designers, governmental authorities, key decision makers and senior real estate executives involved in the design and construction of both public and private real estate developments.

Deep Marwaha, Group Director of Informa, said “Cityscape is committed to producing market-leading events that support development, help bring industry transparency and encourage collaboration. With the confirmed support from the local real estate community including developers, regulatory bodies, as well as international players, I am sure Cityscape Kuwait will quickly become a permanent fixture for the regional real estate and investment community.”

Amongst the exhibitors participating at Cityscape Kuwait 2014, the local real estate development community will be showcasing local and regional projects to the 5000+ visitors expected. These include amongst others, Al Mazay Holding Co. National Real Estate Company, Wafra Real Estate, and United Real Estate Company.

Engineer Ibrahim Al Saqa’abi, CEO of Al Mazaya Holding Co. said: “Al Mazaya Holding is keen to participate at Cityscape Kuwait considering  the leading position of Cityscape exhibitions in the region and its vital role in shaping the real estate industry landscape. Al Mazaya is keen to participate in key industry exhibitions such as Cityscape to consolidate its position in the real estate market as well as in the activities and services of multiple similar real estate projects in all sectors including residential, commercial, health and  logistics”.

Through its participation at Cityscape Kuwait, Al Mazaya will showcase to potential investors, various real estate products and latest projects. “Kuwait has a strong purchasing power and many nationals are willing to invest in projects inside and outside Kuwait”, said Al Saqa’abi.

Running in parallel with the main exhibition, the Kuwait Real Estate Summit will take place on 7 – 8 December 2014. The Summit will tackle vital topics related to the industry and will look to provide a platform for the real estate community to debate and discuss current issues. Other networking events planned provide attendees with a breadth of activities to keep them engaged throughout the three days of the event, including the Investor Round Tables, which provide senior executives to meet with likeminded professionals and discuss a variety of issues pertaining to real estate investment.


Nigerian Stock Exchange: Corporate Governance to Reign Supreme

[caption id="attachment_8237" align="alignright" width="250"] CEO: Oscar Onyema[/caption]

The buoyant Nigerian Stock Exchange (NSE), with well over two hundred listed securities representing a total market capitalisation in excess of $80bn (equities), is set to become the destination of choice for both investors and companies looking to raise capital, and their profile, in Africa. As recently as May of 2013, the NSE led African exchanges with a year-on-year dollar-adjusted return of 70.5% on its benchmark NSE-30 Index. Though the bull-run has tapered off slightly this year, mostly as a result of early profit taking, market watchers expect the pace to pick up shortly.

Interest from both domestic and overseas investors in trading on the NSE remains strong. The recent rebasing of the Nigerian economy – which raised the country’s GDP from $269bn to $509bn overnight – has kindled interest further, says NSE Chief Executive Officer Oscar Onyema. “The rebasing just validated what lots of people already knew; namely that the Nigerian economy is the most robust of the continent and also boasts the largest growth potential. A much bigger surprise the rebasing produced is the fact that the services industry now accounts for fully half of Nigeria’s national income.”

Mr Onyema also noted that the rebasing of the economy greatly facilitates the setting of effective policies and the construction of regulatory frameworks: “We now have a much better idea not just about the size of the economy, but also about its composition.”

"The NSE is already an excellent platform for creating durable wealth and will now expand on that value proposition and scale it across Africa.”

- Oscar Onyema

Mr Onyema stresses that Nigeria has become an increasingly attractive market for foreign direct investment (FDI) and portfolio investment (FPI) alike. “We are a thoroughly modern exchange equipped with state-of-the-art technology and operating in a truly open market. About 60% of the trading activity made through the NSE come from overseas. Foreign investors like our liquid market and face no restrictions on the repatriation of funds through the banking system as long as they came in through the certificate of capital importation process. Nigeria has no capital gains tax and only a 10% withholding tax (dividends).”

Competitive Edge

The NSE currently offers three trading platforms: equities, fixed income, and exchange traded funds. Two additional platforms – an options and futures market – are currently being developed and will be rolled out over the next few years enabling investors to better hedge risk. “We aim to be at least as competitive as other international capital markets. The NSE is already an excellent platform for creating durable wealth and will now expand on that value proposition and scale it across Africa,” said Mr Onyema.

The exchange’s CEO emphasised that Nigeria is a fiercely competitive market. “Nigerians are smart and highly intelligent businesspeople. During my travels in Africa I am told time and again that Nigerians pursue their business objectives in a very proactive manner that some may even call aggressive. If you come into this market and manage to survive by engaging on an equal footing with local partners, you are definitely set to make it across the continent.”

Mr Onyema added that most foreign investors enter the Nigerian market with the full intention of making it big: “Usually, the minimum expectation is a return of thirty percent or more. This goes for both FDI and portfolio investment. That’s a pretty big number and helps explain why so many large global companies, such as GE and Cargill, are now moving decisively into Nigeria. Meanwhile, the Chinese are also all over the place, making for a very dynamic environment in which opportunities abound and optimism prevails.”

[iframe src="http://www.youtube.com/embed/GNuzSN9YiOI" width="100%" height="480"]

Stock Exchanges and Sustainability

This week Mr Onyema visited Geneva to attend the World Investment Forum (WIF) organised by the United Nations Conference on Trade and Development (UNCTAD). One of the main WIF events was the fourth Global Dialogue on the Sustainable Stock Exchanges (SSE) Initiative which the Nigerian Stock Exchange signed onto last year.

The initiative aims to promote sustainable business practices that include environmental, social, and corporate governance (ESG) parameters. “We signed on to the SSE Initiative as we were developing our own corporate social responsibility programme and quickly realised that we needed to go beyond the exchange and find benchmarks against which to measure our performance. The SSE Initiative provides us an opportunity to imbibe best practices and to better understand the opportunities and challenges that exchanges across the world face as they try to include sustainability into the way they engage with the investor community and the listed companies.”

In his presentation on Tuesday at the United Nations, Mr Onyema explained that the NSE is fully committed to furthering corporate governance best practices amongst its listed companies. The exchange is now developing a number of initiatives and frameworks that seek to place governance on an equal footing with other parameters of corporate performance. “Listening to what other exchanges had to say about sustainability made it even clearer that we have to move at a swift pace if we are to meet and finance the Sustainable Development Goals (SDGs) that will be set in September 2015, otherwise we’ll be back in 2030 saying that little was accomplished.”

Mr Onyema is aware that finding sustainable ways of financing the SDGs must remain a priority for exchanges. The Global Dialogue in Geneva also underscored the fact that each jurisdiction requires a tailor-made approach to sustainability. “Each exchange finds that it must grapple with unique challenges and circumstances. No two jurisdictions are quite alike. The one-size-fits-all philosophy is not really applicable when exchanges and wider eco-system in which they operate, may be at different levels of development, however, setting minimum sustainability reporting standards."

Governance Reigns Supreme

At an early stage in the development of its sustainability programmes, the NSE opted to focus on the governance aspect. “That is not to say our exchange ignores the environmental and social dimensions; it is just that in our case governance is considered more important still. On November 3, the NSE is launching its corporate governance rating system which has been designed from the ground up to create awareness of governance best practices amongst the corporates listed on our exchange.”

Mr Onyema added that the rating system allows listed companies to see where they stand on governance issues in relation to their peers: “This also creates a clear path for companies to attain full compliance with global governance standards.”

The NSE’s new governance rating system is made up of four components: a self-assessment report, a probe into the fiduciary responsibilities of company directors, an opinion survey held amongst stakeholders, and an audit conducted by a panel of external assessors of high standing. “The last item is of particular importance. We want a group of older and widely respected people – pillars of our society with impeccable credentials – to audit the findings and certify them as truthful. This is essential if our governance rating is to have credibility. The same holds true for the opinion survey which will give all stakeholders – employees, suppliers, creditors, and many others – an opportunity to assess the company on its actual operational behaviour.”

Partnerships

Mr Onyema explained that the NSE governance rating system is being set up in partnership with the Nigerian Convention on Business Integrity and with assistance and guidance provided by the Humboldt-Viadrina School of Governance in Berlin. “For us it is very important that the NSE not only has credibility in Nigeria, but across the world. This is why we have asked international entities to rate and review our progress and to provide external assurances that when the NSE rates a company 70 out of a possible 100 for corporate governance this truly tells the whole story.”

The governance rating system to be launched in a few weeks is, however, but a first step. The NSE is also working on the launch of a governance index and the creation of a premium board which is to become the realm of companies that have scored exceptionally well on the governance rating system and also meet or exceed other stringent listing criteria. This premium board will be exclusive to companies with a market capitalisation of at least $1bn.

Mr Onyema revealed that pilot programmes have shown that companies which wholeheartedly embrace corporate governance best practices, and feature on the NSE premium board, may expect to outperform the overall market by as much as 300%. “This seems to offer proof that embedding governance best practices into a company’s day-to-day operations is a proposition that results in sizeable gains for all stakeholders.”


World Investment Forum: Seeking Ways to Unlock the Idle Trillions

As the United Nations Conference on Trade and Development (UNCTAD) celebrates its fiftieth anniversary, business and government leaders from across the world gathered this week in Geneva for the biennial World Investment Forum (WIF). The UNCTAD-sponsored four-day event brought together policymakers, investors, and development professionals as well as representatives of academia, research centres, and non-governmental organisations.

The forum, now in its fourth edition, aims to offer stakeholders a venue to present ideas, showcase opportunities, and swap experiences. This year, the forum focused on sustainable development and poverty reduction in general and more particularly on how to encourage the private sector to take an active role in defining the United Nations post-2015 development agenda of sustainable development goals (SDGs).

"Recognised as one of the world’s premier events that offers a platform for the setting of development policies at the highest level, the WIF also aims to promote an inclusive dialogue on best practices."

UN Secretary-General Ban Ki-moon opened the gathering with an appeal to take a cue from private sector approaches to innovation: “Collaboration and partnership can ensure that investment in sustainable development is inclusive and aligned with national priorities.” Mr Ki-moon reminded the participants that they have a unique opportunity to contribute to the improvement of the livelihoods of billions of people around the world.”

[caption id="attachment_8223" align="aligncenter" width="621"] WIF 2014 Sustainable Stock Exchanges Global Dialogue: Opening speech by Mukhisa Kituyi[/caption]

Director-General Michael Møller of the United Nations Geneva Office emphasised that the World Investment Forum goes to the very heart of the UN’s mission: “These are not merely technical debates but hold the promise of breaking down the silos between public and private stakeholders in development.”

UNCTAD Secretary-General Mukhisa Kituyi noted in his opening speech that investors are becoming increasingly aware of the opportunities awaiting them in developing countries. These countries, in turn, are now more conscious than ever of the need for providing the legal and economic frameworks required by investors. “More is being done to attract investment and ensure it makes a positive impact on societies,” said Mr Kituyi.

Setting Policies

Recognised as one of the world’s premier events that offers a platform for the setting of development policies at the highest level, the WIF also aims to promote an inclusive dialogue on best practices. Minister of Economic Affairs Al Mansouri of the United Arab Emirates went to Geneva to share insights into his country’s push towards sustainability and economic diversification.

Non-oil sectors now represent fully 60% of the UAE’s economic output while growth is predicted to remain stable at around 5% annually. In Geneva, Minister Al Mansouri said that shaping and maintaining an enabling business environment proved key to the UAE claiming 21% of all foreign direct investment flowing to the wider Middle East region. “By encouraging innovation, research, and development, the UAE formulated a holistic approach to sustainable development that has not disappointed.”

The forum was attended by more than two thousand delegates from over 140 countries. A like number of business leaders and development professionals attended the event. Even Chelsea striker Didier Drogba made an appearance and appealed to the forum’s participants to make a “solid impact” on sustainable growth by releasing investments: “As much as we can do to raise money for poverty relief through charities, this will never be enough to get the job done. You, however, can make it happen and I fully expect you will.”

The forum was divided in over forty separate events, including ministerial roundtables, mini-summits, and sessions on a wide range of topics related to the financing of sustainable development initiatives. In its World Investment Report 2014, UNCTAD concluded that $3.9tn are needed annually to attain sustainable development goals. Current levels of investment cover barely a third of the funds required to banish abject poverty from the world. So far, no solution has been found to bridge the $2.5tn annual funding gap. Though many ideas were presented and initiatives proposed, the leaders gathered in Geneva failed to produce a coherent plan to address the issue. Though that may indeed not have been the idea behind the forum, a concerted global effort is needed to up investment streams to the required level.

Pile of Cash

According to UNCTAD calculations, large private corporations have in excess of $5tn available for investment. This pile of cash is currently sitting on the side lines – or lying idle on balance sheets – awaiting assignment to projects. Though these funds are not moving yet, the mere idea of unlocking this vast store of investment capital has an increasing number of countries scrambling to update legislation in order to become more investor-minded and friendly.

Thus, the idle trillions are already causing progress by convincing both governments and private parties to clean up their acts and get serious. The result of these subtle, yet profound, changes were on full display in Geneva. While the talk was all about sustainable investment, most conversations – both on and off stage – soon veered off in the direction of governance and its importance as a core driver of sustainable development.

While widely recognising that significant progress on improving governance standards has already taken place, most WIF participants readily agreed that much remains to be done – not just by the corporates, but by governments as well. In its 2014 Trade and Development Report, UNCTAD researchers concluded that greater policymaking flexibility is required if the global development goals of the post-2015 agenda are to be met.

Exchanges Take the Lead

Meanwhile, stock exchanges – and to a slightly lesser extend their regulators – have taken the lead in the dissemination of governance best practices. In Africa, the Johannesburg Stock Exchange pioneered innovative listing and reporting requirements that encourages private companies to focus on good governance as part of a broader push to sustainability that also includes environmental and social considerations. The example set by JSE has since been followed by the Egypt Stock Exchange, a founding member of the Sustainable Stock Exchanges (SSE) Initiative, and more recently by the Nigeria Stock Exchange (NSE).

The Egypt Stock Exchange in particular has been a relentless advocate of sustainability as a prime driver of economic growth. EGX Executive-Chairman Mohammed Omran delivered a passionate plea at the 4th SSE Global Dialogue on Tuesday in Geneva and called on all and sundry to embrace ESG (environmental, social, and governance) values to facilitate and boost wealth creation via stock exchanges. Mr Omran said companies embracing corporate sustainability principles have fared much better on the trading floor of his exchange than those that so far have not changed course.

A similar experience was reported from Lagos where the Nigerian Stock Exchange is working on a number of initiatives to further governance best practices amongst the 223 listed companies. According to NSE CEO Oscar Onyema a recent pilot project has shown that corporations willing to improve governance standards may expect their stock to outpace the average index by up to 300%.

Charles Anderson, director of the United Nations Environment Programme Finance Initiative, was adamant that sustainability requirements are not a burden on private business, but rather a boon: “I get somewhat upset when people tell me that ESG burdens companies with extra costs. That is nonsense and has been proven to be so time and again. Sustainability adds to the bottom line and increases profitability. Anyone who argues against this, ignores the facts.”

While issues remain and standardised metrics for measuring ESG performance are lacking, most delegates came away from the forum convinced that the vectors of development are now set: sustainable development is no longer merely a catchword, but an increasingly well-defined set of principles to empower all stakeholders as progress is made towards a more equitable world.

As UNCTAD Secretary-General Mukhisa Kituyi noted, “the momentum is building and our collective efforts to ensure that global investment contributes to sustainable development are bearing fruit.”


Frans Timmermans: A Knowledgeable Pragmatist

 He is rather unassuming and speaks softly without carrying a big stick. Dutch foreign affairs minister Frans Timmermans, however, has put his small country back on the world map after his predecessors beat a retreat to behind the dikes and levees of narrow nationalism.

While The Netherlands has historically punched above its apparent weight on the global stage, over the past decade the country veered away from long-standing internationalist policies to concentrate on furthering short-term national interests. Cooperation and consensus were replaced with obstruction and stubbornness.

The change did not pay off. Within the European Union, Dutch representatives gained a reputation for blocking even meaningful initiatives – often out of ill-defined spite – and seeking confrontation over the most minute of legislative or procedural details. The EU mostly ignored the quarrelsome Dutch. The Netherlands also lost its observer status at G20 meetings, a loss particularly painful since the country’s GDP (nominal) – the 17th largest globally – would seem to warrant inclusion.

“For all his modesty, Mr Timmermans has a commanding presence: He is fully fluent nine languages, is a classicist by heart, and knows European history inside out.”

Mr Timmermans has now reverted to a more pragmatic set of policies that aims to undo the damage wrought. In the aftermath of the air disaster with Malaysian Airlines Flight MH17, in which 194 Dutch lost their lives, Mr Timmermans managed to formulate a dignified response which culminated in an emotional yet well-balanced speech at the United Nations General Assembly in New York. The speech was watched over a million times on YouTube and drew wide applause from all corners.

By claiming the moral high ground, Mr Timmermans was able to keep heads cool and obtain tangible results such as the return of the remains and the belongings of those who perished. In the process, he gave Dutch foreign policy a face of balance and reason.

This newfound equilibrium should pay off handsomely in Europe where The Netherlands may now resume its natural role as a bridge between the all-powerful Berlin-Paris axis and the recalcitrant British who never seem to tire of kicking against the EU edifice. In The Hague, London may now again find a natural ally that tempers emotions and gets results.

For all his modesty, Mr Timmermans has a commanding presence: He is fully fluent nine languages, is a classicist at heart, and knows European history inside out. He is a voice of reason in turbulent times when shouting seems the norm.

A member of the Labour Party and a former career diplomat, Mr Timmermans is an expert on European integration. At the time the Treaty of Lisbon was being put together (2007), he successfully lobbied for a greater role of national parliaments in the European decision-making process. A firm believer in the concept of a united Europe, Mr Timmermans recognises the need for a more transparent and democratic European Union. He just doesn’t think this goal can be attained by hacking away at the EU’s foundations and proposes a slightly more constructive approach.


Forbidden Pleasures: France Flouting EU Budget Rules

[caption id="attachment_8249" align="alignright" width="222"] Brussels[/caption]

“A budget proposal written by poets and alchemists.” That’s how a visibly annoyed EU diplomat in Brussels described the 60-page draft budget for 2015 France submitted last week to the European Commission. While the document speaks of “substantial efforts at fiscal consolidation,” the French government aims to shear only a tenth of a percentage point off its already excessive deficit spending, reducing the fiscal gap in 2015 to 4.3% of GDP while allowing the debt to balloon to 97.2% of national income. The country promises to comply with the Eurozone’s 3% deficit norm only by 2017 – at the earliest.

The commission’s Directorate General for Economic and Financial Affairs now has until October 29 to either reject or approve the French budget proposal. Its position is all but enviable. In fact, the European Commission has to decide if all members of the EU, irrespective of size, are equal or if some are a bit more so than others.

Many of the smaller countries that have already been forced to comply with the EU’s budget rules will be watching developments closely. At a recent meeting of finance ministers in Brussels, these countries indicated that they will insist on equal treatment for all.

"To make matters worse, the French budget submitted to the European Commission is not bereft of wishful thinking when it comes to assumptions."

Meanwhile, France remains unfazed. Last month, the country’s prime-minister Manuel Valls was quite adamant that France should not be compared to smaller member states: “We will forbid that.” Mr Valls explained that France is a big country: “As such we cannot permit people to discuss our affairs in this context.” Last week, French Finance Minister Michel Sapin upped the ante and brazenly stated that France will neither raise taxes, nor cut expenditure any further. “We simply won’t do it. The €21bn in austerity measures already imposed are quite sufficient,” said the minister.

To make matters worse, the French budget submitted to the European Commission is not bereft of wishful thinking when it comes to assumptions. A public finance watchdog in Paris noted that the draft budget expects household expenditure to increase by 0.7% in 2015. This seems rather unlikely in the midst of an economic downturn. On the revenue side of the budget some items – such as the now dropped plan for a levy on heavy trucks – will simply fail to materialise.

While the European Commission is not likely to be intimidated by the tough talk emanating from Paris, the incoming administration of Jean-Claude Juncker will also want to avoid a showdown. Mr Juncker counts on the support of German Chancellor Angela Merkel to keep the French in check. Still, the commission can only approve or reject the French budget and the latter option would have the impact of a nuclear bomb.

However, this being the EU, a compromise solution will eventually be found. One is already in the works. Mrs Merkel’s European policy adviser Nikolaus Meyer-Landrut recently assured that Germany will strenuously oppose any punitive measures against France. In return for their unwavering loyalty, the Germans will want the French to present a credible timetable for the implementation of necessary fiscal reforms.

For all its own tough talk on fiscal prudence, the German government wants to steer clear of a head-on confrontation with its wayward neighbour. “You can’t do that with France. Not with France!” exclaimed a close aide to Foreign Affairs Minister Frank-Walter Steinmeier. Because of their domestic fixation on fiscal austerity, the Germans do not wish to create the impression that they are responsible for any troubles that may arise between France and the EU.

Another possible way out is the dusting off of the previously shelved idea of “contractual agreements” – actionable instruments between the European Commission and a troubled member state that contain clearly delineated reform plans to be carried out within a set timeframe. Such an agreement would enable France to obtain yet another reprieve and see the deficit rules suspended for a few more years. The problem here is that the French have already twice received an exculpation from the rules.

Former European Commissioner for Economic and Monetary Affair Olli Rehn, now a member of the European Parliament, said that the reforms proposed by France are “wholly insufficient” and do not warrant any further reprieves: “If France must appeal to any exceptions, it should first deliver and then ask for permission to overspend.”

In a twist perhaps unique to European politics, Mr Rehn’s proposed successor as the EU budget tsar is former French Finance Minister Pierre Moscovici who – predictably enough – solemnly promised to respect the budget pact, and see to its implementation, during his parliamentary confirmation hearing.


Grant Thornton UAE: It’s Your Choice - Business vs Risky Business

When looking at Enterprise Risk Management (ERM) within organisations, the need for further clarification soon becomes evident. The process of ERM is something that we may unknowingly follow in our daily lives, when planning to go on holiday or planning our next business venture. We evaluate the risks involved and the processes that need to be undertaken to ensure these risks are minimised. The same can be said for any business: The risks need to be evaluated in order to be effectively managed and to ensure they do not become detrimental to the business in the future.

One of the main reasons that organisations are hesitant and may not have adopted an ERM process yet is perhaps because theorists and consultants have, quite unintentionally, made the risk management concept and process look and sound complicated. In fact, organisations may be adopting the ERM process on a daily basis without being aware of this. In a society such as ours, heavily reliant on technology, people are accessing various sources of information on ERM – often containing complex diagrams, charts, manuals, and metrics – that cause some confusion and may very well discourage them from adopting sound risk management processes.

“The changing dynamics of the economy and the global market crash further reinforced the need for risk management.”

Previously, ERM was not discussed as widely as it is today. Business leaders and managers perceived ERM as a complex and unnecessary process which was moreover seen as inefficient and an unwelcome overhead. Only financial services firms such as banks would embrace ERM to reduce risk levels. However, when we look at the current business environment and the rapid technological changes taking place, risk management procedures seem called for in nearly any type of business venture.

The changing dynamics of the economy and the global market crash further reinforced the need for risk management. Recent experience highlighted the need for organisations to protect themselves against uncertainties in order to minimise the risk of personal, financial and reputational losses. However, some business leaders remain hesitant, questioning the ROI (Return On Investment) and the possible benefits to be obtained.

Enhancing Awareness

There still remains a lot to be done, especially within the United Arab Emirates (UAE), in order to enhance the awareness and knowledge of ERM in the local business community. The nature, components, approach, outcomes, and benefits of establishing integrated ERM processes in any given organisation are not yet fully understood.

ERM processes should be seen for what they in fact are: Straight and simple in both their nature and mechanisms. An ERM process is a tool that allows directors and managers to take a number of sensible strategic, financial and operational decisions. ERM is also an integral part of any advanced modern business management process and should, as such, be a welcome addition to the toolbox of managers.

When looking at ROI from the perspective of a changing business landscape within the UAE and the wider Middle East market, ERM cannot go unnoticed. Take the leisure and hospitality sector that sees an abundance of travellers pass through hotels and other facilities of international renown. If risk is not minimised, the impact of even a small mishap on a company’s brand, reputation and/or market position could be considerable. Usually, the tiniest of unfortunate events leave the biggest dent. However, the same could be said for ERM: A relatively small risk could in reality pose the biggest threat.

In many organisations it is often noted that operational plans (if they exist at all) are not always aligned with the strategic plan. As a direct result of this mismatch an organisation may be exposed to various types of risks – such as the lack of controls or disconnects between different management levels.

In the UAE, ERM awareness is now gradually on the increase. It is embedded in government institutions and local businesses that lead change within the region. These organisations are establishing, developing, and implementing processes and functions that aim to mitigate risk. Training is also provided and innovative software is procured to support and underwrite these pioneering efforts.

Preying on Weakness

The construction and real estate sectors of the UAE are currently booming as Dubai gears up for Expo 2020. This calls for robust protection against risk. It is well known that periods of profound change also bring increased opportunity. However, exposure to risk rises as well and can be extremely high. Greater demand brings increased risk. Fraudsters of all stripes are waiting in the wings to leap on any weaknesses and deficiencies in processes and systems.

In any organisation, it is the ultimately the responsibility of the board of directors, CEOs, CFOs and other key managers to build integrated and comprehensive internal control systems of risk management. Failing to do so may prove very costly and could result in losing shareholders’ wealth. The credibility of business leaders is at stake as is the trust of investors.

Accordingly, corporate leaders should start thinking seriously about ERM as one of the main tools for managing and directing their organisation efficiently. The following steps can be taken to minimise risk in a business environment:

Embed a risk management culture in the business environment through awareness and training.

Establish a methodology and approach based on a standard such as ISO 31000 to adopt an ERM framework in its most simple and applicable style.

Appoint a consultant to assist in establishing and implementing the required processes, to help embed the methodology, and to train people.

Ultimately, it is the responsibility of business leaders to introduce and implement a comprehensive tool that enables them to predict the future and helps identify, mitigate, and monitor risks and threats before any harms is done to the business and its reputation. These methods should be embraced and considered carefully to protect the organisation and help achieve stability, profitability, and long-term growth.

About the Author

Mohamed Nassar is the Business Risk Services Partner at Grant Thornton UAE. Mr Nassar has over twenty years of experience. His professional portfolio includes ten years within the professional services prior to joining Grant Thornton. Mr Nassar worked in Cairo, Jeddah, and Dubai. He has also worked for some of the most reputable government agencies in the Middle East and for one of the largest oil & gas suppliers in the world. Mr Nassar specialises in a wide range of industries, such as oil and gas, hospitality, facility management, and financial services. He is a US certified professional of CIA (Certified Internal Auditor) and CCSA (Certification in Control Self-Assessment), and holds a public accountant registration.


Shinya Yamanaka: Unlocking the Potential of Cells

Professor Shinya Yamanaka of Kyoto University is in the business of time travel. He discovered that fully mature cells can be induced to revert to their earlier pluripotent state. Such a pluripotent cell has yet to develop into one of the three germ layers. Prior to Prof Yamanaka’s discovery it was thought that stem cell differentiation was a one-way continuum.

What Prof Yamanaka (51) found is that a cell may be reprogrammed to an earlier state in its development and assigned to generate any of the cell lineages in the body. The practical implications of this are manifold. Using the Prof Yamanaka’s techniques, scientists at the Joslin Diabetes Centre in the US earlier this year created the first human cells that offer insulin resistance. This could eventually help cure people suffering from diabetes type 2.

Prof Yamanaka’s work has other uses as well. Easily obtainable skin cells may be brought back to their pluripotent (stem cell) state and from there coaxed to become brain cells. Applying this procedure to the skin cells of, say, an autistic child allows scientists an opportunity, not previously available, to study the patient’s brain cells for clues to his/her condition and possible chemical fixes.

In 2012, Prof Yamanaka was awarded the Nobel Prize in Physiology or Medicine together with the British developmental biologist Sir John Bertrand Gurdon for their ground breaking work on transforming mature cells into stem cells.

As often happens with exceptionally gifted people, Prof Yamanaka answered his scientific calling in a roundabout way. After receiving his medical degree from Osaka Kyoiku University in 1987, Shinya Yamanaka found work as a resident orthopaedic surgeon. Though he stuck it out for two years, surgery was most certainly not “his thing” and colleagues soon christened him Dr Jamanaka – “Dr Obtsacle”.

However, Prof Yamanaka truly came into his own at the Nara Institute of Science and Technology where he won a research position by bluntly stating to the hiring panel that he would clarify the characteristics of embryonic stem cells. This he of course proceeded to do, landing him a Nobel Prize, besides many other awards, in the process.

Prof Yamanaka currently heads the Centre for iPS Cell Research and Application at Kyoto University – one of the world’s most renowned scientific research institutions. Since his discovery of induced stem cells in 2006, an entire new field in medical research has come into being with scientists the world over working to find and map the true potential of cell manipulation.

Scientists have now found shortcuts that allow for cell transformation skipping the stem cell state. They have also improved the delivery mechanism of pluripotency factors, increasing the overall efficiency of the process. Research is now focused on ensuring patient safety and reducing the risk of cell mutation and other genomic abnormalities.