Wit, Knowledge and Intellect: Ronan Farrow Poised to Reassert Primacy of Reason

[caption id="attachment_6733" align="alignright" width="179"] Ronan Farrow[/caption]

Family connections, or at least bearing a name of near-universal acclaim, do seem to facilitate the breaking down of barriers guarding the entrance to the world of fame and its attendant fortune. To the scions of the famous, this is not necessarily a blessing.

CNN journalist and anchor Anderson Cooper, grandson of railroad tycoon Reginald Vanderbilt, had to put in quite a bit more than his fair share of work in the trenches of ABC and CBS before gaining recognition for his talents and skills. Others were less fortunate. Chelsea Clinton broke into NBC – a network traditionally not adverse to hiring famous progeny – but went on to fail rather miserably at her job of special correspondent.

Now it is Ronan Farrow’s turn. Son of Mia Farrow and Woody Allen, or Frank Sinatra as the case may be, Ronan now presides over his very own, hour-long, daily show on MSNBC. Predictably, the critics went into overdrive. Ronan Farrow was deemed over-excited and too informal. The set’s colour scheme was all wrong and the topics reviewed sleep-inducing. However, the host’s loud voice did keep the audience awake.

To employ a colloquialism that Mr Farrow might appreciate: Give the guy a break. After all, Stephen Colbert was but a goofball in the first season of his show. Rachel Maddow, of the eponymous MSNBC show and the first openly gay anchor to host a primetime show on US television, also took some time finding her groove. The Ronan Farrow Daily just needs a moment or two to find its even keel.

"He is amply supplied with the wit, knowledge and intellect required to go against the dumbing-down grain of US television and carve out a haven of informed and open debate."

Ronan Farrow has a lot more going for him than just name recognition. He graduated from college at age 15 and from Yale Law School at barely 21 after which the boy genius became a member of the New York Bar. He’s not adverse to a bit of “humblebrag” either. As a guest of John Stewart on the Daily Show, Ronan Farrow described himself as both a nerd and a failed doctor: “I may be less awesome […than my mom…], but I still want to be of some use. I did have this engrained sense of, gotta go into some kind of public service, and in addition to watching a lot of Netflix also try to give back something.”

During his studies, Ronan Farrow worked as an intern at the chief counsel’s office of the House Committee on Foreign Affairs. He inherited his mother’s penchant for international human rights and became a UNICEF spokesperson for youth affairs even before finishing his college education. Young Mr Farrow also gained a profile as a tireless advocate for youth and women caught up in the Darfur crisis. He actively assisted initiatives brokered by the United Nations to bring succour to the torn region. His mother Mia Farrow is of course a long-standing UNICEF Goodwill Ambassador.

Upon graduating from Yale, Ronan Farrow joined the Obama Administration in 2009 as an advisor on humanitarian affairs attached to the Office of the Special US Representative for Afghanistan and Pakistan. From there he went on to become special advisor on youth issues to Secretary of State Hillary Clinton. He left this position in 2012 to accept a Rhodes Scholarship at Oxford University. In between, Ronan Farrow found the time to write a number of well-researched essays that appeared in the pages of Foreign Policy, The Atlantic Monthly, The Guardian, The Wall Street Journal and other publications of distinction.

In the ongoing post-marital fight between Mia Farrow and Woody Allen, Ronan clearly stands at his mother’s side repeatedly calling his alleged father a child molester. “He married my sister. This makes me both his son and brother-in-law.” No DNA testing has been done to determine Ronan’s paternity. The issue came to the fore when Mia Farrow last year suggested in a Vanity Fair article that Frank Sinatra may be Ronan’s father.

As an up and coming intellectual of note, Ronan Farrow could do worse than steer away from the ugly and most unbecoming Farrow-Allen mud-slinging dispute. The law says Mr Allen is innocent of any and all charges levied against his person. Should Ronan and his mother happen to think otherwise – they know the way to the court. Not taking that way implies acceptance of the ruling.

Now, as far as Ronan Farrow’s new show goes: He is amply supplied with the wit, knowledge and intellect required to go against the dumbing-down grain of US television and carve out a haven of informed and open debate. The United States stands in dire need of a mainstream, primetime forum that takes whacky talking heads to task, exposes ill-informed pundits for the frauds they are, dims the spotlight on extremists and moves the radical fringe out of the picture. Mr Farrow is now uniquely positioned to successfully steer a course of reason and moderation, and to re-establish the primacy of core humanitarian values.

Hopefully, Mr Farrow will eventually conclude that folksiness is not a style that suits him particularly well. Addressing viewers as “you guys” and peppering the show with euphemistic f-bombs quickly becomes tiresome. Even in contemporary discourse, formality has a useful place and a like function. Unless he aims to become a joker, Ronan Farrow would be well-advised to adopt a slightly more serious style that better befits the topics his show means to broach.


Ernst & Young, Argentina: Legal Certainties in Argentina - Court Sides with Business

[caption id="attachment_6743" align="alignright" width="194"] Statue of Manuel Belgrano[/caption]

Sergio Caveggia and Leonardo Favaretto of EY explain the implications of the Spinna Argentina SRL case with regard to Income Tax Law and Argentine Business Associations Law and what current regulations say in these cases.

Recently, the Federal Court of Appeals on Contentious Administrative Matters in and for the City of Buenos Aires (the Court of Appeals) handed down a ruling in the Spinna Argentina SRL case, shedding light on the tax treatment of capital reductions.

Specifically, the case involves a corporate reorganization process and compliance with certain specific requirements set forth in Income Tax Law in a mandatory capital reduction process. For some background, Spinna Mortero Argentina SRL merged with and into Spinna Argentina SRL in a tax-free merger process.

According to the Court of Appeals ruling, the successor company (Spinna Argentina SRL) was required, after the reorganization, to reduce its capital on two occasions pursuant to section 206, Argentine Business Associations Law. These reductions were made within the two-year period following the reorganization date.

“In general, Income Tax Law favors application of the accrual method, for recognizing both income and associated expenses.”

The AFIP (Federal Public Revenue Agency) decided not to accept the corporate reorganization, arguing that the surviving company had failed to meet the requirement of maintaining the equity interest for a period of at least two years since the reorganization date.

Applicable Regulations

To bring greater clarity to the issue at hand, we will briefly describe the tax regulations governing this treatment and the requirements that need to be fulfilled in order for a business reorganization to be considered a tax-free process.

Section 77, Income Tax Law provides for a special system applicable to certain reorganizations carried out between companies, and basically provides for three types of reorganizations:

Mergers;

Spin-offs;

Sales and transfers between companies belonging to the same group.

Certain tax rights and obligations are transferable to the surviving company or companies in the cases of such reorganizations.

Income Tax Law sets forth that the income which may arise as a consequence of a reorganization will not be subject to income tax as long as the following requirements are complied with:

The surviving entity must continue with the same or a related activity as the predecessor companies for at least two years from the date of reorganization.

The reorganization must be reported to the tax authorities within 180 days of it taking place.

An equity interest (80% as mentioned above in the case of mergers) in the capital of the surviving company not lower than the equity interest held upon reorganization, as in the capital requirement, must be maintained for at least two years as from the time of the reorganization (in the case of listed companies this requirement would not apply provided that the company continues to be listed for at least two years. This requirement is also known as the future two-year ownership rule.

An additional requirement applies for transferring NOLs (Net Operating Losses) and benefits from special promotion systems:

The transfer of net operating losses from the predecessor company is limited to the extent that its shareholders can prove that, during the two years prior to the reorganization date, they maintained at least 80% of their interest in such entity. This requirement is also known as the prior two-year ownership rule.

This requirement is not applicable to the transfer of VAT credits, which are transferable only by complying with the rest of the tax-free system requirements. In other words, VAT credits are transferable under a tax-free reorganization regardless of actual compliance with the prior two-year ownership rule.

Additional requirements apply for mergers and spin-offs:

The merging companies must be active, i.e., they must be operating in furtherance of their corporate purpose.

Both companies should have carried out the same or related activities for at least 12 months as of the reorganization date.

The companies should continue to engage in one of the activities of the reorganized company or companies or of the other companies related to them for at least two years.

The Case at Hand

We mentioned that section 77(8), Income Tax Law sets forth as follows: “For the reorganization of companies to have the tax effects established in this section [being tax-free], for at least two (2) years as from the reorganization date, the owners of the predecessor companies shall hold an equity interest not lower than the one that they should have held in the surviving company’s equity as of such date, as provided for in each case by the regulations.”

The law’s administrative order confirms what is stated by the abovementioned section, asserting that what should remain the same is the equity interest amount and, therefore, not the actual percentage per se.

Lastly, section 206, Argentine Business Associations Law provides that “the reduction [in reference to the capital reduction] is mandatory when losses consume reserves and 50% of the capital stock”.

Now we get to the focal point of this discussion. In effect, the Court of Appeals analyzed whether the mandatory capital reduction established by the abovementioned regulations can be considered a breach of the requirement to maintain the equity interest amount under Income Tax Law.

In other words, if a law requires a company to reduce its capital stock because of a going concern issue to balance or even out its equity, can compliance of this cause the loss of benefits (in this case, tax benefits) granted by another law?

In any case, can a taxpayer facing this dilemma choose what law to abide by or, in other words, choose which the lesser evil is and act accordingly?

AFIP challenged the tax benefit used by the taxpayer, arguing that the mandatory capital reduction caused the company to fail to meet the requirement of maintaining the equity interest amount during the two-year term following the reorganization date.

The Court of Appeals did not accept the arguments provided by AFIP and, therefore, dispensed with the tax requirement of maintaining the equity interest, ordering the losing party to bear legal costs.

It cited section 1,071 of the Civil Code which establishes that “when a person exercises one of their rights or complies with a legal obligation in a normal manner, no such act can be deemed to constitute an illegal act.” The opposite would mean placing the company in the false dilemma of whether to comply with one regulation or another.

Precisely, Argentine Supreme Court of Justice jurisprudence contends that we should not assume that legislators are inconsistent and, accordingly, laws are to be interpreted in such a manner so as to avoid attributing a meaning to them that will make their provisions come into conflict with each other; rather, the meaning to be attributed should reconcile them to each other and ensure that all remain in full force and effect.

We can only agree with the arguments of the Courts and, through this column, stress the fact that rulings such as these give economic players legal certainty.

About the Authors

[caption id="attachment_6740" align="aligncenter" width="289"] Sergio Caveggia and Leonardo Favaretto[/caption]

Sergio Caveggia (Partner) and Leonardo Favaretto (Senior Manager) are members of Ernst & Young’s Transaction Tax Department.


Mauldin and Tepper’s Code Red Reviewed: Code Red or Red Herring?

By Stephanie Kelton

If you aren’t already unnerved by what Bernanke & Co. have been doing for the last five years – things like quantitative easing (QE), a zero-interest policy (ZIRP) and large-scale asset purchases (LSAPs) – then reading John Mauldin and Jonathan Tepper’s latest, Code Red, may leave you seeing red. It’s a maddening tale of the harm that has already befallen savers as well as a warning about the longer-term damage that may be in store for all of us down the road.

As always, Mauldin and Tepper are fun to read. They don’t just excoriate the Fed for propping up banks with trillions of dollars created out of thin air, they deliver the message with fecal flair, using metaphors like, “free money is like a unicorn that leaves trails of tasty chocolate droppings wherever it goes.”

But they’re also taking on a serious (and to my mind dangerous) narrative that’s being promulgated by scores of economists, journalists and others, who are working hard to build the case that, like Colonel Jessup in A Few Good Men, Chairman Bernanke was the brave warrior we all needed, the one who’s policies (however distasteful) ultimately protected us all from greater harm.

“It’s a fascinating read with plenty of sound analysis behind it.”

Mauldin and Tepper do an excellent job of denying this narrative by pointing out that the Fed’s “unconventional” (or Code Red) policies “worked” not by improving the economic well being of the masses but by massively enriching those at the very top. Low, and sometimes negative, real rates chased investors into riskier assets in the hope that a rising bubble would lift all boats. It didn’t. Wealthy asset holders are wealthier than before, but the gains haven’t trickled down to everyone else as Bernanke hoped. Instead, the Fed’s policies widened the already gaping divide between the very well off and everyone else.

The hardest hit? Savers. “[T]hese unconventional policies are generally good for big banks, governments and borrowers, but they are very bad for savers.” The problem, the authors maintain, is that Code Red policies have taken away the free lunch, risk-free return that savers used to be able to count on when buying government bonds. This is considered an unjust form of “financial repression” that’s devastating for those who rely on interest income to build their net egg. “Try retiring at 60 at today’s interest rates,” they lament. “We live in a world where it’s no longer necessary for the market to decide short rates or long rates.”

The “financial repression” argument is a popular one, but it can also be misleading. The story generally runs as follows: If it weren’t for the Fed meddling around to keep interest rates artificially low, markets would be delivering a more “normal” rate of return. The truth, which I suspect Mauldin and Tepper know, is that in the absence of Fed intervention – either paying positive rates on overnight reserve balances or draining a sufficient quantity of excess reserves by selling bonds – the market rate (i.e. federal funds rate) would almost always sit at zero. Indeed, one might say that the natural rate of interest is zero and that whenever rates are positive, it’s because the central bank is keeping them artificially high. So it isn’t so much that the Fed’s low interest rate policy is punishing savers but that it isn’t supporting a risk-free lunch the way it used to. We may not like it, but it’s difficult to justify the outrage. After all, none of us is entitled to generous risk-free returns.

The bigger problem for savers, though, is the long-run damage that Mauldin and Tepper anticipate as a result of the widespread adoption of Code Red policies. And that’s what the book is really about. How should investors prepare for a world in which currency wars, speculative bubbles, debt crises and punishing inflation become the norm?

It’s a fascinating read with plenty of sound analysis behind it. However, it misses the mark on two important fronts. First, there’s an unwarranted obsession with the Fed’s balance sheet. Thus, while it’s true that QE flooded the banking system with excess reserves, there’s no reason for investors to anticipate higher inflation as a consequence. Here, Mauldin and Tepper fall prey to two flawed textbook theories: the deposit multiplier and the Quantity Theory of Money. For them, reserves are “potential money,” and it’s only a matter of time before banks suddenly start lending them out, causing the broad money supply to explode and inflation to take off.

Anyone relying on these textbook theories to reason through the implications of QE is almost certainly going to get things wrong. Banks don’t lend reserves (except to one another in the overnight market). Having reserves doesn’t make it more likely that a bank will lend, and not having reserves doesn’t make lending less likely. Banks are capital constrained, not reserve constrained, and inflation does not simply increase pari passu with increases in the monetary base.

As Martin Wolf wrote in a recent Financial Times column, “Fear of hyperinflation is based on a mechanistic model of the links between central bank reserves and bank lending, which is irrelevant to contemporary banking. Banks are constrained not by reserves but by their perception of the risks and rewards of additional lending.”

The other big argument that falls partially flat surrounds the issue of debt. Picking up on the theme from their prior book, Endgame, Mauldin and Tepper warn of a debt-burdened world in which the unwinding of some Code Red policies will place additional strain on government finances, increasing the potential for default. What would happen, they ask, if the central bank were to stop buying government bonds and markets refused to pick up the slack on reasonable terms?

The U.S. government is likened to a household that must find a way to “live within its means,” and Greece is held out as an example of what might eventually happen to the U.S. or Japan. And while we’ve all heard this kind of thing from politicians and media pundits, investors must be careful to distinguish shrewd rhetoric from prudent insight. Mauldin and Tepper must know that there is zero risk of a Greek-style default by the Japanese or U.S. government. To understand why, simply consider the following quote, which opens the first chapter of Code Red:

“[T]he U.S. government has a technology called a printing press (or today its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes.”

A household cannot do that, and neither can Greece. Actually, Greece could do it, when it still had the drachma and its own central bank, but it no longer can, and that’s the fundamental difference between the solvency risk of a currency user (like Greece) and a currency issuer (like the U.S., Japan or the U.K.). The former really can encounter payment problems, but a country like the U.S. or Japan can always pay its bills. So it’s wrong to say, “Japan will soon find it impossible to pay back its Godzilla-sized debt or even service the interest payments on it” or to chortle, “Somewhere, Charles Ponzi is smiling.”

My own view is that we aren’t going to see rising inflation because banks start lending out all those reserves, and I don’t think bond markets will go on strike, forcing rates to spike and governments like the U.S. or Japan to default on their debt. But that doesn’t mean inflation will remain low or that the Fed won’t eventually raise rates nor does it mean that the Code Red policies of the past won’t have unintended consequences that may wreak havoc in the future. Re-leveraging, speculation, bubbles, and more could, as Code Red warns, pave the way for recurring and intensifying crises. Mauldin and Tepper close out the book with sage advice for any investor who must navigate what will almost certainly be a turbulent road ahead. i

About the Reviewer
Stephanie Kelton, Ph.D. is Associate Professor and Chair of the Department of Economics at the University of Missouri-Kansas City. You can follow her blog at stephaniekelton.com


CFI.co Meets the CEO of Sarit Centre: Nitin Shah

Nitin Shah has registered over thirty years as the chief operations executive of the Sarit Centre – the first enclosed shopping mall in both Kenya and East Africa – a responsibility entrusted to him by the developers in 1982, barely a month after a coup attempt shattered the country’s economy.

Despite that inauspicious start to what in retrospective has been an outstanding career, Mr Shah assembled a basic management team and quickly got down to leasing the units of what in effect was a severely truncated project.

Given the unrest in Nairobi and the exodus of Asian businessmen, the developers had been forced to halt construction of what for its time was an architecturally ambitious mall project. Thus Sarit Centre opened with only 20% of its planned retail area.

As Mr Shah now confesses, he had at the time no clue about shopping centre management practices. He had to learn his trade on the job, figuring out the importance of an optimal tenant mix, the absolute need for optimal customer care, the essence of responding to shoppers’ requirements and the many other aspects and challenges of the mall business.

Mr Shah was born in Murang’a during the Mau Mau Emergency. He grew up and went to primary school in the upcountry township where his grandfather Vidhu Ramji Shah had started the family businesses comprising a hardware store, dairy and bookshop.

Aged 13, the young Mr Shah moved to Nairobi and enrolled at the Duke of Gloucester School (now Jamhuri High School) for his secondary education culminating in A levels. In 1974, he enrolled at the City of London Polytechnic to take the Higher National Diploma in Business Studies.

After graduating, Mr Shah returned to Nairobi in 1977 where he spent the next year in the family bookshop business before gaining a job at the local audit firm Kassam Lakha Abdulla & Co, now devolved to PKF Kenya – the leading audit and business consultants of East Africa.

In 1980, Mr Shah moved back to London in order to study for his Association of Chartered Certified Accountants (ACCA) qualification to which he later was to add the Certified Public Accountants of Kenya (CPA) certificate.

Back in Nairobi – in July, 1982 – Mr Shah married Priti. The couple was blessed with three daughters who all attended university and are now established with professional careers in their own right.

Mr Shah achieved national recognition as a badminton player and was also a strong volleyball player. However, his big love remains golf – a somewhat more relaxing pursuit and a weekend hobby which he took up in the early 1990s.

Mr Shah is widely travelled and is a regular participant of International Council of Shopping Centres (ICSC) meetings. He was the main speaker at an Africa Congress of the South African Council of Shopping Centres in Johannesburg. Mr Shah has visited the US, Canada, Australia, many of the Far Eastern countries, India, and much of Europe.

His extensive travels and research outside Kenya is being facilitated by the high level of expertise present in the expanded mall’s management team which was built up carefully over the year and now boasts a large number of dedicated and seasoned professionals.

Mr Shah is now looking forward to the opportunities that arise from the expansion of the mall which will allow him to head-up the planning team working on the next phases of the Sarit Centre’s development. The centre is set – and now well on its way – to become, over the next couple of years, one of the largest malls in Africa.


CFI.co Meets the CEO of Excellencia Investment Management: Ammar Dabbour

Mr Ammar Dabbour started his career in finance in 2001 and has since gained a broad scope of responsibilities ranging from clients’ risk analysis to financial advisor. The different activities undertaken to 2007 gave Mr Dabbour the opportunity to develop strong banking fundamentals in risk, sales, credits, and other areas of operation.

In 2007, Mr Dabbour moved to Luxembourg and became senior client advisor for the MENA Region (Middle East and North Africa) and market / associate director at UBS Wealth Management. Over this period, Mr Dabbour developed a robust knowledge of Islamic finance that allowed him to better serve the markets covered. Mr Dabbour also obtained the Islamic Foundation Certificate and Diploma.

In 2011, Ammar Dabbour was appointed to head the MENA Desk at KBL European Private Bankers. This enabled him to further develop his network in Arabic countries and gain an understanding of the potential of the MENA market.

A year later, Mr Dabbour founded Excellencia Investment Management. The company offers Shari’ah compliant services. Excellencia Investment Management provides comprehensive financial assistance to businesses.

The main objective of the company is to set up the first Islamic bank of the Eurozone. Eurisbank will be based in Luxembourg and is set to start operations by the end of 2014. The bank will have an initial paid-up capital of EUR 60m and will have branches in Amsterdam, Brussels, Paris, and Frankfurt.

Mr Dabbour said that the bank will be owned by members of the United Arab Emirates’ royal family, private investors and a bank of the GCC (Gulf Cooperation Council) Region. Eurisbank will service both corporate and retail clients. Private banking services will also be provided.

At the request of the Eurisbank’s founders, Excellencia IM is working with Deloitte Consultants to handle all procedures for the establishment of the bank. Regulatory approval has been applied for and is expected to be granted in April.

Excellencia IM is dedicated to comply fully with the principles of Shari’ah banking. The company focuses on long term investment in private companies combining Islamic private equity and structured financial solutions. From its Luxembourg Islamic hub, Excellencia IM targets Middle East and North African markets which are characterised by a dynamic demographic and boast strong economic growth potential.

The company aims to tap European markets as well for their high level expertise across different sectors. Excellencia IM originates and empowers its deals with an experienced investment team that relies on its own extensive global network.

The company designs sustainable and profitable securitization vehicles including certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services. Excellencia IM focuses on project finance, Islamic debt issuance (Sukuk) and cash flow management between European-MENA investors and partners.


CFI.co Meets the CEO of Jáuregui y Del Valle: Luis Gerardo del Valle Torres

Luis Gerardo del Valle Torres is the managing partner of Jáuregui y Del Valle, S.C. and a practitioner specializing in tax consultancy services including domestic and cross-border transactions; structuring of investment funds for real estate funds and pension plans; private clients, tax litigation and consultancy on tax policy matters.

He is a member of the Cambridge Overseas Trust, International Fiscal Association, the Mexican Bar Association (Barra Mexicana, Colegio de Abogados), the College of Professors and Researchers of Tax Law and Public Finance (Colegio de Profesores e Investigadores de Derecho Fiscal y Finanzas Públicas) and the National Association of Corporate Counsels (Asociación Nacional de Abogados de Empresa).

Mr Del Valle was awarded the Eduardo García Maynez and Gabino Barreda medals by the authorities of the Universidad Nacional Autónoma de México for obtaining the highest academic achievement in his class. He has also been awarded the first place in the National Contest of Administrative Justice organized by the Federal Tribunal of Tax and Administrative Justice (Tribunal Federal de Justicia Fiscal y Administrativa).

Mr Del Valle has written articles on tax law, tax litigation and amparo proceedings and is the author of The Mexican Federal Tax System - Its review under Economic and Legal Principles (Sistema Fiscal Federal Mexicano - Su Revisión ante los Principios Jurídicos y Económicos) edited by the Federal Tribunal of Tax and Administrative Justice.

Mr Del Valle graduated from the Universidad Nacional Autónoma de México Law School magna cum laude in 1999. He also read law at the University of Cambridge, Faculty of Law, where he obtained a Master of Commercial Law, British-Chevening Scholarship, in 2001. At New York University, School of Law, Mr Del Valle obtained a Master in International Tax Law in 2002.


CFI.co Meets the Chairman of Farazad, Investments, Inc.: Korosh Farazad

It is not often one finds the words banking and ethics in the same sentence. However, ethics is a core value and a founding principle for Farazad Investments Inc (FII). The founder and Chairman of the company, Korosh Farazad, adheres to strict market integrity and deploys an unconventional approach to structured financing.

This unique approach has been at the forefront of the firm’s success. It also paved the way for international recognition from regulatory bodies that now actively seek out Mr Farazad’s expertise. Regulatory compliance is a necessity that should be adopted by all reputable firms. KYC (Know Your Customer) checks and anti-money laundering practices are all common terminology firmly incorporated into today’s business language. This has had a positive impact on business transactions as it enables lenders to identify the end receiver and avoiding the bad practices common in the past.

FII fully supports regulated practices and complies with all the guidelines issued by regulatory bodies, thus ensuring that all transactions are likewise fully compliant. Internal due diligence on all transactions is conducted as a matter of course, along with comprehensive KYC checks.

It was back in the early nineties that Mr Farazad started his first job as an investment banker for a small cap IPO company, based in New York and with subsidiary offices in Maryland. He was an ambitious stock broker trainee, learning from the giants in the market and watching them rise and fall, like a bad trading day on Wall Street. Mr Farazad took an immediate interest in gaining a deeper understanding of the markets. After several years working the US markets, he had both the confidence and skillset to take a chance on his own. In 1996, Mr Farazad founded Farazad Oil Company Inc. and initiated his focus on the financing of oil wells in Mississippi and Louisiana.

This first step and venture into the world of business soon led to the expansion of operations. Key relations were developed with the world’s leading financial institutions and global oil suppliers. The business diversified concentrating on the buying and selling of prime bank instruments.

Mr Farazad’s unrivalled knowledge of international banking catapulted the core of the business and led to the foundation of Farazad Investments Inc. FII’s key activity was to facilitate medium to large scale structured finance plans for major corporations. Mr Farazad’s ethical approach and sound reputation resulted in solid relations with heads of states and senior officials within governments. FII currently operates across five continents, with a presence in the United States, Europe, Middle East, Asia Pacific and Australia. The firm boasts an ever-expanding portfolio and has new and innovative funding ventures in the pipeline.

It is Mr Farazad’s transparent approach to financing and his creative business philosophy which introduced an award winning in-house financing formula. This approach has been widely praised by international institutions wanting to adopt the formula to enhance their traditional funding methodology.

The 2008 world crisis severely impacted on structured funding as the lending markets were crippled. The effects of this crisis linger on, even today. FII certainly encountered challenges during these turbulent times. The survival of the firm required a redirection to seek out new partners with the financial capability, and the understanding, to invest in profitable ventures. Mr Farazad was fortunate to be introduced to prominent family offices that not only evidenced the funds but also the risk appetite to invest Worldwide.

FII’s capability in the lending market strengthened with access not only to regulated funding houses but also to the private family offices that often demonstrated a willingness to compete in the market. FII’s survival during these difficult times depended on Mr Farazad’s ability to both diversify and establish a secure platform by adapting the traditional mechanics of conventional financing to the conditions prevalent in a volatile market.

Over the last eight years, FII has successfully assisted in advising and structuring projects with funding requirements totalling more than $2.1bn. For 2014, it is projected that the total combined funding in the pipeline exceeds $3bn. FII’s operations in Australia will take lead and attract Worldwide accreditation for a fresh new concept in financing.

Mr Farazad’s vision for the future of banking is optimistic. He can identify opportunities aplenty in emerging markets and sees clear signs of solid recovery. Mr Farazad considers that the increases in both GDP and FDI (Foreign Direct Investment) to be experienced by emerging markets may soon challenge those registered in more developed countries.


CFI.co Meets the Managing Director of African Century Leasing: Stanley Matiza

Stan Matiza has been the Managing Director of African Century Leasing (ACL) since its inception in June 2010. ACL is a registered, stand-alone leasing company in Zimbabwe providing asset finance to the productive sectors of the economy. Stan is responsible for the strategic, operational, marketing, developmental, and financial performance of the institution. He is also the Chairman of the Finance House Association of Zimbabwe.

Prior to joining African Century Leasing, Stan was Head of Wholesale banking at Zimbabwe Allied Banking Group (ZABG) at which he also served in a number of senior management roles. He successfully steered the Bank through the liquidity challenges in the economy from 2007 to 2008. He has also worked at the Leasing Company of Zimbabwe (LCZ) as Managing director, gaining invaluable skills in asset finance, and before that as General Manager in the Group Risk Management Unit at CFX Bank.

Stan is encouraged by the growth and performance of the company over the past four years, since inception. The strong relationship that ACL has with funders and partners is enabling the company to satisfy the growing demand for asset finance. He is also cognisant that the company would not have achieved this growth without its clients and is grateful for their continued support.

Stan takes pride in the team that he leads and the passion that they have for business excellence and serving the company’s clients. “The greatest lesson I have learnt in my leadership role is to attract the best people for the organization and keeping them on their toes through perpetual optimism.” says Mr Matiza. He is a proponent of a strong organizational culture. His beliefs and values are his greatest asset while the goals that the team sets offer continuous inspiration and are a source of motivation for him and his staff.

Stan readily accepts that there are a number of challenges facing the leasing sector in Zimbabwe. Chief among them is the unavailability of funding as a result of perceived country risk. Due to massive de-industrialization of Zimbabwean industries over the past decade, there exists a large pent-up demand for equipment machinery to retool businesses across all sectors of the economy. As a result, the country needs extensive lines of long- term credit to meet this demand particularly in areas of renewable energy, infrastructure development (including water reticulation and sanitation), power generation, mining, and agricultural mechanization.

Agriculture is Key

Agriculture is a key sector for the revival of the Zimbabwean economy; however, without security of tenure for farming operations, it is difficult to extend credit to farmers as the risk profile is high. As a progressive leasing company, ACL has explored various ways to mitigate this risk and continues to work closely with policy makers to influence appropriate policy measures to support agricultural productivity.

Stan affirms that “We have created a solid platform for growth and an exciting working environment at African Century. We are well positioned to execute our unique leasing strategy which is anchored on future sustainability. Each day we make a difference to our customers and this is what really keeps me going.”

Commenting on his success, Mr Matiza adds “I thrive in difficult situations. I embrace challenges at the workplace with open arms. These help us to shape and refine our processes as we strive for continuous improvement. The current operating environment is the best one can ever dream of. A smooth sea does not make a good sailor.”

In spite of the challenges in the country, including a decade long period of de-industrialization and the resultant massive retooling required by businesses. Stan contends that Zimbabwe is a compelling case for Leasing. The country’s infrastructure remains largely intact while Zimbabwe’s human capital is arguably second to none in the region. The country also has the highest literacy rate in Africa and is endowed with people who are resilient, resourceful and well-known for strong work ethics.

“My vision for ACL is to become the leading asset finance company in Zimbabwe and the region guided by three pillars comprising of a high quality lease book, a robust risk management framework, and a sustainable funding base. My advice to other business leaders is that passion is contagious to your team, therefore be passionate about your business and everything you do. Acknowledge good performance as it promotes good behaviour and motivates staff. Vision is the glue that binds the organization together, and keeps the team striving for better results. Your vision must be anchored by perpetual optimism as this shapes the attitudes of employees in any organization.” concludes Mr Stanley Matiza.


CFI.co Meets the CEO of RAK Insurance: Andrew Smith

Andrew Smith is an accomplished senior executive with conventional and Islamic insurance experience gained in the UK and across the Middle East. He has worked for publicly listed multi-national organisations and privately owned businesses and understands the dynamics involved in achieving the best possible result for the organisation.

He possesses strong and effective leadership skills with an in-depth knowledge of insurance products, distribution networks and operational structuring. Mr Smith has significant knowledge in establishing and running insurance entities in the GCC (Gulf Cooperation Council) countries and in the Levant. He has built-up a sizeable financial and technical know-how with a number of years of experience in the financial services, insurance and Takaful sectors.

Mr Smith holds a postgraduate diploma in Islamic banking and insurance from the Institute of Islamic Banking and Insurance; a master’s degree in training development and performance management from Leicester University; a financial planning certificate from the Chartered Institute of Insurance and a graduate of business and finance from Kingston University; all acquired in the UK.

His areas of expertise consist of corporate governance, strategic planning and forecasting, fiscal management, underwriting, re-insurance, negotiation, organisational development, innovation, market penetration, and project, distribution and training development.

Mr Smith’s professional highlights include: Development of an organisation that empowers the employees within the controlled processes that led to improvement in employee satisfaction and resulted in the increase of the company’s profitability. He also managed the development of a complete organisation to operate in the insurance services market. This included the development of products; the establishment of supply chains; and meeting regulatory requirements to obtain licensing and enable the successful operation of the business. Mr Smith furthermore established structured financial reporting controls and mechanisms to allow for day-to-day control and move to proactive development instead of reactive correction. He led the product development activities of the organisation and was instrumental in implementing the products with particular attention paid to meeting underwriting strategy and appetite, negotiating re-insurance treaties where required and developing the operational models to control the technical requirements.

Mr Smith also chaired and managed a number of executive governance committees that led to improvements internally and recognition of the company attitude by local regulators. He has developed a customer care centre in emerging markets that led to a best-in-category culture of care throughout the organisation – not just in the servicing departments – and then expanded the concept into the sales organisation to improve market development and technical development.

Mr Smith had established a new organisation within a major multi-national group and led the management team in identification and mitigation of risk along international best practice models.
Mr Smith is responsible for the entire organisation of RAK Insurance with its head office located in Ras Al Khaimah and branches in Dubai and Abu Dhabi.

RAK Insurance is a public shareholding company listed on the Abu Dhabi Securities Exchange (ADX) and has been a pioneer on the insurance market in the emirate since its establishment in 1974. The company has gained a reputation for having excellent technical resources that are further strengthened by working with some of the world’s leading reinsurance companies, thus providing its clients optimum protection and security. It caters to all classes of business which include: Life, motor, casualty, marine, energy, medical, property, professional liability, travel, financial risks, personal accident, marine hull, aviation, engineering and special risk.


CFI.co Meets the CEO of Sultan Group: Bashir Amini

Bashir Amini was born in 1962 in Herat, Afghanistan. He attended the Economy School in Kabul as well as the Goethe Institute there and over the course of his education mastered four languages, including Italian, German, Farsi and English.

The family of Mr Bashir Amini led a successful trading company in Afghanistan and invested in various wellness and hammam projects. The company’s business portfolio also included the development of luxury apartments and offices in the Afghan capital and the export of various products, such as dried fruits, lambskin, cashmere wool, carpets and many more.

Due to the political unrest and at the request of his European business partners, Mr Amini relocated his company 1981 from Afghanistan to Europe. Since then he lives in Zurich, Switzerland. Mr Amini is married and father of three children.

In Europe, Mr Amini developed many real estate projects including hotels, residences and commercial buildings. Together with his family he also founded a trading company. This company is involved in the import / export business and has become a European leader in oriental, modern and branded rugs.

“The world economic crises did not only change the entire market, but also people’s mentality. Previously, experience was seen as a guarantee to do things right, even in hard times. However, a deep crisis, such as the one recently suffered, has not occurred in living memory. The United Arab Emirates’ property market was severely hit by the downturn. This caused me both worries and anxieties not just about my company’s future existence, but also for the thousands of investors and the chain reactions the crisis might unleash. I soon understood that this dreadful situation could only be survived by all affected parties sticking close together. Unity was to be key to survival. I immediately set about arranging meetings with all investors in order to find out individual possibilities and situations so as to find tailor-made solutions that would enable us to weather the storm. We established a multilingual team to advise and explain things to our clients in their language. We also started to forge new ways of cooperation in order to generate at least some return on the investment in completed properties. At that time, I was merely motivated to fight against the effects of the world crisis. However, now I am honoured to see that those efforts have made us one of the best agents in the UAE. We find ourselves, yet again, in an era of new experiences. We now need to learn to act in unison to recover. The economic rules of the past are no longer valid and we have to change in order to do things in a better way.

Throughout history land ownership has provoked conflict and inspired grandeur, from civic monuments and sacred spaces to egotistical towers and pleasure palaces, Land ownership is, perhaps, the most ancient expression of wealth. Today the relationship between land – or property – and wealth is more complex and more commercial than ever before.

By 2012 the global private wealth invested in the large-deal sector increased by 111 per cent. Meanwhile, corporate investment in the same sector rose by only 43 per cent over the same period. These figures, detailed in a new report by Savills in partnership with Wealth-X, a Singapore-based consultancy, reveal the increasing importance of private investment in the world of property. I recommend trend is your friend for 2014/2015; property investments are well suggested.”


CFI.co Meets the CEO of Al-Waseet Financial Business Company: Khalifa Abdullah Al-Ajeel

Khalifa Abdullah Al-Ajeel is vice-chairman of the board and chief executive officer of Al-Waseet Financial Business Company. Mr Al-Ajeel is also chairman of the board of the Safat-Tec Holding Company (Kuwait) and is vice-chairman of the board of the Kuwaiti First Investment Company. He also is a board member of the Seera Investment Bank in Bahrain.

Mr Al-Ajeel obtained his bachelor’s degree in business administration from the University of Kuwait. He recently expressed his unlimited gratitude to all the employees of Al-Waseet for their commitment and efforts in keeping the company as the leading brokerage firm on the Kuwait Stock Exchange. Mr Al-Ajeel added that Al-Waseet does not only seek leadership in its field, but also aims to raise the bar when it comes to the brokerage business in Kuwait. The company continually strives to change the pattern of trading and expand its international client base.

Mr Al-Ajeel detailed some of Al-Waseet’s development highlights as the company maintains its position as the lead brokerage firm of the Kuwait Stock Exchange. Reigning at the top of the pyramid amongst its 14 competitors in terms of performance, quality and revenue is no mean feat. The company has now acquired a 12.5 to 18% market share of the total trading done on the Kuwait Stock Exchange. Al-Waseet has kept its leadership position for the past seven years.

Mr Al-Ajeel further explains that Al-Waseet Financial Business Company has gained recognition as an ISO 9001 certified organization for its premier brokerage facilitation and outstanding customer service quality. He also stated that this certification is a testament to the board’s vision to transform Al-Waseet from a traditional local entity to a major international player in the field of financial brokerage. The company has become the centre of a regional brokerage network.

Mr Al-Ajeel added that Al-Waseet has an expanding client base across different segments, including foreign institutions, and corporations in addition to a large number of other stakeholders in the market. He stated that, “80% of our client base is comprised of businesses of which 10% are foreign-owned.”

Mr Al-Ajeel emphasised Al-Waseet’s continued efforts to diversify its client base and keep up with the latest developments in financial markets both domestic and foreign. Mr Al-Ajeel concluded that Al-Waseet Financial Business Company is fully dedicated to maintaining its competitive edge in the market through the unparalleled quality of services delivered to the company’s clients. Excellence in service is mainly achieved through the efforts of an ethical, professional, and dedicated team that works tirelessly to provide clients with the best brokerage service available anywhere.


Mr Putin Spills His Coffee Reading the Morning Paper

[caption id="attachment_6749" align="alignright" width="223"] Vladimir Putin[/caption]

Where is a leader when you need one? He is probably jogging around the White House with his running-mate Joe Biden, trying to keep in shape while figuring out how to keep the Russians in check.

Meanwhile in Moscow, Mr Putin must certainly have spilled some of his morning coffee as he read the papers and learnt that Mr Obama might stay at home and not go to Sochi for the G8 get-together next June. European G8 leaders might commiserate and join him in pouting.

Leaving aside for a brief moment considerations of fairness, justice and democracy – often waylaid anyhow in times of warmongering and diplomatic posturing – how would the United States government like it, should another superpower decide to meddle in the affairs of a neighbour? Well, just look at Cuba.

When that nation decided to rid itself of a narcissistic and utterly corrupt despot, American understanding and magnanimity went out of the window and haven’t been seen since. Meddling by the then Soviet Union brought the world to the brink of nuclear war.

In fact and eerily enough, Cuba and the Ukraine are each other’s flipside. The Americans held on to their military base at Guantanamo Bay where they proceeded to imprison and torture people not charged with any crime. The Russians, meanwhile, cling to their naval base in Sevastopol and a few other harbours of the Crimea. Here they keep the Black Sea Fleet – a vast collection of vintage and rather decrepit warships. This fleet may look quite menacing but in contemporary, high-tech reality is quite inoffensive.

"Meanwhile in Moscow, Mr Putin must certainly have spilled some of his morning coffee as he read the papers and learnt that Mr Obama might stay at home and not go to Sochi for the G8 get-together next June."

The brinkmanship of then US president Kennedy tamed the Soviets and thwarted their plans for using Cuba as a forward firing base. President Kennedy understood the uses of power politics, much as Vladimir Putin does today. Mr Putin recently offered a master class in power politics when, with just a few decisive moves, he thwarted attempts by the European Union to lure the Ukraine out of Russian orbit.

Still, Mr Putin has been warned: Meddling in the Ukraine will have “a cost” – whatever that means. It is highly unlikely that Mr Putin will keep this cost in mind as he moves to protect and further the interests of his country. In the Crimea, he will create a fait accompli – a situation on the ground that cannot be undone.

Where, then, are the other leaders? As mentioned, Mr Obama is running through the corridors of the White House with Mr Biden in tow. Perish the thought: A chicken and head analogy comes to mind. Mr Obama is way too deep into domestic politics to take note of the rest of the world. Besides, Obama is no Kennedy and wouldn’t recognize power if it stared him in the face or bit him somewhere – waging war on third rate countries does not diminish the learning curve.

Europe doesn’t fare any better. EU president Van Rompuy is only dangerous insofar that he may cause a foe to perish from laughter. EU Commission president José Manuel Barosso is a skilful operator but, alas, doesn’t command an army, or anything else for that matter. German chancellor Angela Merkel commands a purse, but then again Mr Putin probably has a wrench he may throw into a gasworks. Mr Hollande has but puff and pomp that he mostly uses to awe Africans with, while Mr Cameron is busy dealing with unruly Scots.

So, Mr Putin may pretty much do as he pleases. Right now, Mr Putin seems severely displeased with events unfolding in the Ukraine. He also seems to regret his predecessor’s largess.

In 1954, Nikita Khrushchev, the notorious shoe-banger and possibly the most endearing leader the Soviet Union ever produced, gave the Crimean Oblast to the Ukraine. Back then, the Ukraine was a constituent part of the Soviet Union and as such a country in name only, and one without the trappings of sovereignty. It would appear Mr Putin wishes to, belatedly, correct this mistake. It’s also a most convenient way to punish the Ukraine for its drift toward Europe – away from its erstwhile mother country.

The “cost” Mr Obama rather preposterously warned of, is not one Russia will pay; it will be borne by the Ukraine as the price for asserting its sovereignty. This may be quite unfair to the Ukraine, and to the Tartars of the Crimea, but there is little anyone can do about it. You don’t poke the bear without getting a scratch or two.

It is also the price western powers have to pay for their navel gazing. While the US continues to be embroiled in internecine party politics that repeatedly paralyses the nation, and Europe is too busy worrying about a few Romanians and Bulgarians wandering the continent, the wider world actually moves on, shaping the 21st century as it does.

The balance of power has shifted and both the US and Europe would be well advised to get with it lest they eventually be relegated to the margins of history.


Qatar Tops Per Capita Investment in Dubai Realty (AED 6.71 million), Followed by Oman, UAE, KSA, Germany, India and Britain

Dubai, UAE, 25 February 2014: Qatar has the highest per capita investment in Dubai realty in 2013 (AED 6.71 million), followed by Oman (AED 5.77 million), the UAE (AED 4.56 million), KSA (AED 3.71 million), Germany (AED 2.37 million), India (AED 2.22 million) and Britain (AED 2.11 million).

These figures were released in connection with the International Property Show (IPS), which will be held from 8 – 10 April 2014, supported by the Dubai Land Department (DLD). According to the same DLD report, international real estate transactions during 2013 exceeded AED 114 billion.

The organizers of the 10th IPS, that will coincide with the 4th Annual Investment Meeting (AIM) at the Dubai International Convention and Exhibition Centre, said that the fact that the highest four per capita investment in Dubai’s realty come from GCC countries shows that the Gulf investors remain a key driver in the Emirate’s property sector, encouraged by new investor-friendly legislations, proximity and a rising confidence in a lucrative return on their investments.

HE Sultan Butti Bin Mejren, Director General of the Dubai Land Department said: “The figures once again reinforce Dubai’s status as a top-notch real estate investment hub in the Gulf and beyond. I foresee even stronger regional demand in 2014 and this is where specialized events like IPS will help in maximizing per capita investment from neighboring regions and the world.”

“The fact that the highest four per capita investment are from GCC strengthens Dubai’s position as regional property investment hub.”

- International Property Show

Other foreign countries which figured in high per capita real-estate transactions include France (AED 2.054 million), Russia (AED 2.051 million), Canada (AED 1.98 million) and USA (AED1.83 million).

Dawood Al Shezawi, CEO, Strategic Marketing & Exhibitions, organizers of IPS, said: “Overseas investments were key contributors to the turnaround of the UAE economy, driven by a maturing market, transparent legislations and regulations and a growing appetite for property investment. Our major focus in this year’s show is to expand the number of exhibitors and investors.”

“We will also be highlighting the role of regulation in driving transparency, market confidence and facilitating sustainable investment in emerging markets in conjunction with the IPS’ Official Knowledge Partner; RICS International,” added Al Shezawi.

[caption id="attachment_6757" align="aligncenter" width="549"] An illustrative graph showing countries having the highest per capita investment in Dubai realty in 2013.[/caption]

“We invite investors, developers, financiers, architects and consultants in property investment, development and construction to visit IPS and keep abreast of the latest market trends as well as meet with decision makers from the real-estate industry,” concluded Al Shezawi.


OPIC: Low Write-Offs in Emerging Markets Investments

[caption id="attachment_6761" align="alignright" width="214"] William Pearce[/caption]

What organization do you represent?

Overseas Private Investment Corporation, the U.S. Government’s development finance institution.

In your experience or view, is the invest in Africa story hype or reality? Explain your view using worked examples investment situations, good and bad news.

The investment opportunities in Africa are very real and very significant. However, it is important to recognize that Africa is composed of 54 countries and therefore the opportunities will vary across each country. One of the statistics most often cited to illustrate the overall opportunity, is the fact that most of the world’s ten fastest-growing economies are in Africa. However, to better understand the investment opportunity, you have to look beyond this headline. One of the reasons so many countries in Africa are enjoying strong economic growth is because many governments have adopted reforms that have fostered more friendly business environments. Another, related reason is that Africa is seeing explosive growth in its middle, or consumer class. From OPIC’s perspective, I think the size of the opportunity is illustrated by the variety of projects we support. OPIC financing includes support for major power plants, water desalination facilities, agribusiness, as well as lending programs for small and medium -sized businesses. We recently provided financing to help a Tennessee businessman introduce a plant propagation technology in Rwanda to help improve crop yields and boost food production. We also provided financing for the expansion of a geothermal power plant in Kenya to double its operating capacity.

Is your fund currently invested in Africa? If yes, what amount in U.S. dollars at most recent date, from what date, and in what asset classes, regions, sectors, companies. What percent of your total portfolio is Africa today? What will it be in 2020?

As the U.S. government’s development finance institution, OPIC invests around the world in three ways: financing, political risk insurance, and support for investment funds focused in emerging markets. In 2012 alone, OPIC committed $907 million to projects in Sub-Saharan Africa. Today, projects in Africa account for almost a quarter of OPIC’s $16.4 billion global portfolio, up from six percent a decade ago. While we cannot predict what this will be in the future, Africa continues to be a major area of focus.

What peer learning about your Africa investment approach would you share with investment professionals in Africa? What wisdom would you share about Africa, what pitfalls to avoid or some smart decision you made that helped you invest better.

The overall investment opportunity is varied, and investors still need to rigorously review each potential investment. One of the reasons OPIC has been successful investing in emerging markets around the world – in 2012 our write offs were less than 1% -- is that we apply the rigor of a private business to all our investments and only support projects with strong business plans. It is also important to understand local demographics and how they are evolving. While Africa continues to face major challenges related to poverty such as malnutrition and limited housing, there is also a growing consumer class, and an increasingly urban population, which has created demand for modern infrastructure, advanced mobile technology, modern healthcare as well as support for small businesses.

What advice would you give to Africa-based investment managers competing with global managers for mandates? How should African investment professionals think about competing with foreign-based peers?

We have witnessed and will likely continue to witness a transition towards local investment managers. The ever evolving political, social and economic landscape that exists within the African continent requires a local presence. Without such a presence, the ability to capitalize on the Africa investment thesis becomes quite difficult.

We have also found that collaboration among managers creates strong proposals for equity fund and traditional financing requests. When considering funding requests, OPIC carefully considers a fund’s past track record. On the ground knowledge and local team presence are valuable when coupled with the ability to access capital on a global scale.

Choose three most important factors in deciding how to be investing in Africa today?

For OPIC, track record or performance, integrity, and social impact are key decision drivers. However, it is important to note that OPIC’s purpose for investing in emerging markets will not always align with those of a private institution. Therefore it is incumbent upon each organization to first determine its own investment objectives and understand its risk/return profile.

Taking all of the above into consideration, one should first understand the broader macro-economic drivers (e.g. young demographic; commodity discovery; stabilizing political environment) that make the continent an attractive investment opportunity. From there, take the approach that Africa is comprised of 54 countries each with its own idiosyncratic risks and opportunities, and deconstruct the broader opportunity set. From this more micro vantage point an organization can then best align its investment objectives with the risks and opportunities of the African market.

Lastly, and as a general rule, patient capital (e.g. 5-15 years) is a requisite for the African market.

In what way is your investment in Africa similar or different to your investment in other emerging markets? How does your approach compare and contrast to investment in S. America, E. Europe, Middle East, SE Asia, India, or China?

While all of these markets have their own unique challenges and opportunities, there are really more similarities than differences throughout the developing world. All of these regions can be quite challenging places to do business, and all of them face multiple development challenges that present opportunities for experienced investors. Regardless of the market or region, OPIC applies the same rigorous due diligence process to each project.

What positive role can asset owners play to improve governance and build Africa’s fund management professionalism?

The responsibility to improve governance cannot be exclusively addressed by asset managers. However, what one tends to find is a predominate share of asset managers on the African continent (e.g. private equity fund managers) have either been trained or schooled in Europe or the United States, and as such many of the governance principles that are now commonplace in those more advanced markets have been replicated and instituted within the African private equity industry.

Additionally, limited partners, predominately development finance institutions such as OPIC, have historically encouraged and often times require the implementation of best practices not only as they relate to governance but also transparency (e.g. reporting). The eventual inclusion of more institutional equity participants will help to further this current trend.

DFIs demand a high standard of professionalism and frequently meet with local and state leaders to insure that the best in governance in the location as well as in the project will be available to the project to help to ensure a favorable outcome. We have found that going through a DFI selection process often results in rewards to the managers, and governance at many levels whether or not the proposal is selected.

Can you name an investment activity where integrating environmental, social and governance (ESG) factors helped your Africa investment. Suggest examples from any asset class, country or on any issue for example corporate governance in Nigerian banks or corruption in construction companies in South a Africa, etc.

OPIC has a due diligence process that incorporates all aspects of ESG and SRI parameters. Application of international best practices in ESG can help manage investment risks while at the same time potentially improving exit potential. It is much easier for a small company to attract a well-established strategic investor if they can demonstrate that they are able to meet the high standards that such investors look for to ensure better performance and lower reputational risk.

Do you expect that investment in Africa by institutional investors will grow in the next 5 years. Using 2013 as a baseline, growth measured in size of assets or number of deals.

OPIC looks at the life cycle of companies. It supports SMEs (small and medium enterprises) with the knowledge that as these scale, these companies become the target candidates for larger investments from larger funds and individual investors. As aggregation occurs in sectors and particularly along supply chains, the door to opportunity for small institutional investments will open.

Also contributed to this interview: Margaret Kuhlow, Vice President. OPIC Office of Investment Policy.

About Mr Pearce

William (“Bill”) Pearce was named Acting Head of OPIC’s Investment Funds Department (IFD) in December, 2012. Previously, he served as a Managing Director in IFD, which presently manages approximately $2.5 billion in commitments to over 35 funds. Within IFD he originated new fund opportunities, and managed the entire investment process to provide capital to emerging market private equity funds. He has managed funds that are: focused globally, or regionally on Africa, Asia, Latin America, and the Middle East; and that focus on general growth/expansion strategies, real estate, or renewable energy & resources.

Prior to OPIC, Bill made direct investments as a Director with EMP Global, manager of the AIG Infrastructure Funds. Prior to EMP he focused on U.S. direct investments, first with W.R. Grace & Co., and then with EXOR America, the U.S. family office of the Agnelli family. Bill also worked: in a line capacity in project finance with a portfolio company of EXOR, ICF Kaiser International; and as a High-Yield Bond Analyst with Oppenheimer & Co.

Bill is a graduate of the Wharton School at the University of Pennsylvania, and received his MBA from the Darden School of Business at the University of Virginia.

About OPIC

OPIC is the U.S. Government’s development finance institution. It mobilizes private capital to help solve critical development challenges and in doing so, advances U.S. foreign policy. Because OPIC works with the U.S. private sector, it helps U.S. businesses gain footholds in emerging markets catalyzing revenues, jobs and growth opportunities both at home and abroad. OPIC achieves its mission by providing investors with financing, guarantees, political risk insurance, and support for private equity investment funds.

Established as an agency of the U.S. Government in 1971, OPIC operates on a self-sustaining basis at no net cost to American taxpayers. OPIC services are available for new and expanding business enterprises in more than 150 countries worldwide. To date, OPIC has supported nearly $200 billion of investment in over 4,000 projects, generated $74 billion in U.S. exports and supported more than 275,000 American jobs.


European Investment Bank: Bank at the Heart of Europe’s Crisis Response

When the leaders of international financial institutions and development banks gathered in Washington DC for their bi-annual meeting a few weeks back, the key focus was somewhat different from the previous ones – for the first time in years, the spotlight was not on the economic crisis in Europe.

[caption id="attachment_6801" align="aligncenter" width="600"]<img class="size-full wp-image-6801" src="https://cfi.co/wp-content/uploads/2014/03/airport.jpg" alt="Airport of Porto and Faro - Portugal: The project consists of a mix of investments at the seven airports in Portugal owned and operated by ANA, primarily aimed at improving safety and service standards and alleviating specific operational and capacity constraints.  The main investments are at the mainland airports of Oporto, Faro and Lisbon; the smaller investments are at the four airports which serve the islands in the Azores archipelago off the west coast of Portugal." width="600" height="195" /> Airport of Porto and Faro - Portugal: The project consists of a mix of investments at the seven airports in Portugal owned and operated by ANA, primarily aimed at improving safety and service standards and alleviating specific operational and capacity constraints. The main investments are at the mainland airports of Oporto, Faro and Lisbon; the smaller investments are at the four airports which serve the islands in the Azores archipelago off the west coast of Portugal.[/caption]

That our situation no longer elicits raised eyebrows and worried glances among our international partners is no accident. An unprecedented downturn has been met with unprecedented reform efforts – which have yielded some encouraging results. The situation in Europe is still delicate, but we now see the light at the end of the tunnel.

A Coherent Strategy to Tackle the Crisis

For quite some time now, member states and EU institutions have followed a coherent anti-crisis strategy based on five major building blocks:

At the national level, the EU member states have been undertaking major, and often painful, adjustments to consolidate national budgets and improve competitiveness via structural reforms and better spending patterns.

New rules have been applied at the EU level to strengthen the oversight of national budgets.

The European Central Bank (ECB) has continued to play a crucial role. Its unprecedented liquidity support has been key in preventing a systemic credit crunch as well as a confidence crunch.

Resources have been pooled by the European Financial Stability Facility and the European Stability Mechanism to extend financial support more effectively and to signal commitment to fight financial contagion.

To address investment gaps and contribute to growth and employment creation, the European Investment Bank has significantly increased its lending.

These efforts have already started to bear fruit. Fiscal imbalances are being reduced. External adjustment has taken root and unit labour costs have declined sharply in the hardest-hit EU countries, some of which already see their exports grow in real terms. Risk premiums on peripheral sovereign debt have been on a downward trend.

“The EIB has assisted economic development in the region for several decades.”

Much has been achieved to underpin the EU economy and the euro, although more reforms needed to be completed to protect the currency – in particular we need to move ahead with the banking union, necessary for the euro area countries to better manage and contain financial sector risk.

At the same time, the economic crisis lingers. There is substantial underinvestment in many areas that are essential to our competitiveness. Gross fixed capital formation contracted massively early in the crisis and has remained feeble, almost 20% lower than five years ago.

A collapse of investment activity of this magnitude has inevitable repercussions for economic expansion in the longer term. If productive capital stocks do not grow – indeed, if they are not even maintained - our growth potential will inevitably shrink.

A revival of investment activity is therefore needed. This is where public finance providers such as the European Investment Bank come into play.

Significantly More Lending

Established by the Treaty of Rome in 1958, the European Investment Bank (EIB) is the only financial institution which is legally bound and technically equipped to serve all 28 of its shareholders – the EU member states. It has the top credit standing, a balance sheet of more than half a trillion euro and is the largest supranational lender and borrower in the world.

The Triple-A rating enables the EIB to borrow on the finest terms available. As a self-financing institution, and operating on a not-for-profit basis, the EIB Group – consisting also of the European Investment Fund, a risk finance subsidiary – passes on this advantage to its clients for the financing of investment projects. EIB conditions – interest rates, but also the maturity of the loan – are more favourable than what our clients would obtain elsewhere.

As an integral part of the European crisis response, the EU Bank made a deliberate U-turn, moving from a pro-cyclical to a clearly counter-cyclical course. This has been made possible by EIB shareholders, the 28 EU member states, who decided to substantially strengthen the capital base by paying in an extra EUR10 billion – new capital used as a cushion for new financing operations.

As a result of this capital injection, the Bank stepped up its lending activities by more than 40%, targeting annual loan signatures of nearly EUR70 billion from 2013-2015 in support of growth and job creation in Europe. In particular, the EIB Group seeks to safeguard access to long-term financing for small and medium-sized business, with the target for SME and mid-cap support in the magnitude of €20 billion for 2013.

The other priority areas of the bank’s Growth and Jobs Initiative include research, development and innovation, resource efficiency and strategic infrastructure.

New Instruments

Also, in response to the crisis to offer efficient and tailor-made instruments, the EIB widened its tool-box and rolled out some brand-new, mostly guarantee-oriented products.

In Greece, the bank signed its first Trade Finance Facility, acting as a safe bridge between leading Greek and foreign banks to the benefit of Greek importers and exporters. This facility has since been replicated in Cyprus.

Again in Greece, the EU Bank set up an SME guarantee fund. The fund is a joint initiative between the Hellenic Republic, the European Commission and the EIB. Established by using EUR500 million from unabsorbed structural funds for Greece, the fund will guarantee EIB loans to SMEs via partner banks in Greece totalling up to EUR1 billion.

In Portugal, the EIB signed an innovative Portfolio State Guarantee, providing for a lending envelope of up to EUR6 billion over the next years. Another area to support growth and jobs is the Europe 2020 Project Bond Initiative. This initiative provides an opportunity for re-opening capital markets as a source of financing for crucial transport, energy and communications infrastructure.

By layering structural funds with alternative sources of funding and assuming different levels of risk and return, the EIB Group has proven that the concept remains an effective way of mobilising public and private funding, achieving greater leverage than alternative methods of financing.

Furthermore, the European Investment Fund (EIF) – as part of the EIB Group – is a powerful tool to address market gaps. The bank – as its largest shareholder – stands ready to strengthen the EIF by extending its mandate of up to EUR5 billion over seven years to be implemented at the beginning of next year.

Also, an EIF capital increase of up to EUR1.6 billion has been envisaged, which has seen a general positive initial feedback from the shareholders.

The EU Bank is also working to mitigate market fragmentation. The Bank developed the SME Initiative, which is a joint attempt with the European Commission, aimed at stimulating SME lending through financial institutions. This SME initiative would combine budgetary contributions from Structural Funds (ESIF) and other EU programmes (COSME/Horizon 2020) with EIB Group’s own resources.

Another major social and economic challenge for the European Union and the EIB is youth unemployment. For this purpose, the EU Bank launched a dedicated programme titled Skills and Jobs – Investing for Youth with a lending volume of EUR6 billion for job-related skill gaps, vocational training schemes, student loans and mobility programmes for young employees.

A Key Market Player

However, the EIB is not a one-sided political institution. It is also a bank which is borrowing on highly competitive markets. Thus it is of utmost importance to continue to demonstrate both investors and international rating agencies that the EIB pays the highest attention to a geographically well-balanced portfolio in all 28 EU member states supporting strong and viable projects that ensure stable earnings with a likewise stable capital adequacy ratio under a conservative risk management with an eye to strict internal regulatory compliance rules.

The EIB is taking this very seriously and has just been rewarded by Standard & Poor’s which revised its outlook for EIB from AAA negative to AAA stable – against an environment where most of our shareholders do not currently have a top rating.

Looking Beyond the Current Downturn

The financial and economic crisis has brought to the fore one key question: Is Europe ready to remain an attractive continent and a competitive place at the edge of technological advance?

The answer is not simple. Of course we have to continue to tackle the crisis. But we also have to look beyond the current downturn because international competition has sharpened.

In particular, investing in research, development and innovation is critical for Europe if we do not want to be side-lined by new actors in the global game. Our future wealth will depend on how successful we are as innovators – that means how fast we convert ideas into products and services. Reinforcing the knowledge triangle has a positive impact not only on competitiveness, but also on fighting poverty, social exclusion and inequality.

We have to continue the necessary structural reforms and we have to put a strong emphasis on innovation. Then I am confident that Europe will come out of this crisis more unified, stronger and fit to continue playing its role as a key global political player.

The role of the EIB in this process is clear-cut: The EU Bank is fulfilling its duty, supporting the structural renewal of the EU economy to re-emerge as a highly competitive economic power in a globalized world.

About the Author

[caption id="attachment_6804" align="alignleft" width="219"] Author: Werner Hoyer[/caption]

Werner Hoyer has been president of the European Investment Bank and chairman of its board of directors since January 2012. Previously, from 2009 to 2011, he was German deputy foreign minister responsible for political and security affairs, European affairs, and the United Nations and arms control. In this position he was also commissioner for Franco-German cooperation. Dr Hoyer held the position of deputy foreign minister and Minister for EU affairs between 1994 and 1998.

Dr Hoyer is a longstanding member of Germany’s Free Democratic Party (FDP). He has served as whip, deputy chairman and foreign and security affairs spokesman of the parliamentary group. He was a member of the Bundestag for more than 20 years. Dr Hoyer has also served as president of the European Liberal Democratic Reform Party (ELDR) in Brussels.

Prior to his political career, Dr Hoyer worked in academia. He was director of the economics and information department at the Carl Duisberg Society and associate lecturer and senior research assistant at the University of Cologne from which he holds a doctorate degree in economics.

When the leaders of international financial institutions and development banks gathered in Washington DC for their bi-annual meeting a few weeks back, the key focus was somewhat different from the previous ones – for the first time in years, the spotlight was not on the economic crisis in Europe.

[caption id="attachment_6801" align="aligncenter" width="600"] Airport of Porto and Faro - Portugal: The project consists of a mix of investments at the seven airports in Portugal owned and operated by ANA, primarily aimed at improving safety and service standards and alleviating specific operational and capacity constraints. The main investments are at the mainland airports of Oporto, Faro and Lisbon; the smaller investments are at the four airports which serve the islands in the Azores archipelago off the west coast of Portugal.[/caption]
That our situation no longer elicits raised eyebrows and worried glances among our international partners is no accident. An unprecedented downturn has been met with unprecedented reform efforts – which have yielded some encouraging results. The situation in Europe is still delicate, but we now see the light at the end of the tunnel.

A Coherent Strategy to Tackle the Crisis

For quite some time now, member states and EU institutions have followed a coherent anti-crisis strategy based on five major building blocks:

At the national level, the EU member states have been undertaking major, and often painful, adjustments to consolidate national budgets and improve competitiveness via structural reforms and better spending patterns.

New rules have been applied at the EU level to strengthen the oversight of national budgets.

The European Central Bank (ECB) has continued to play a crucial role. Its unprecedented liquidity support has been key in preventing a systemic credit crunch as well as a confidence crunch.

Resources have been pooled by the European Financial Stability Facility and the European Stability Mechanism to extend financial support more effectively and to signal commitment to fight financial contagion.

To address investment gaps and contribute to growth and employment creation, the European Investment Bank has significantly increased its lending.

These efforts have already started to bear fruit. Fiscal imbalances are being reduced. External adjustment has taken root and unit labour costs have declined sharply in the hardest-hit EU countries, some of which already see their exports grow in real terms. Risk premiums on peripheral sovereign debt have been on a downward trend.

“The EIB has assisted economic development in the region for several decades.”

Much has been achieved to underpin the EU economy and the euro, although more reforms needed to be completed to protect the currency – in particular we need to move ahead with the banking union, necessary for the euro area countries to better manage and contain financial sector risk.

At the same time, the economic crisis lingers. There is substantial underinvestment in many areas that are essential to our competitiveness. Gross fixed capital formation contracted massively early in the crisis and has remained feeble, almost 20% lower than five years ago.

A collapse of investment activity of this magnitude has inevitable repercussions for economic expansion in the longer term. If productive capital stocks do not grow – indeed, if they are not even maintained - our growth potential will inevitably shrink.

A revival of investment activity is therefore needed. This is where public finance providers such as the European Investment Bank come into play.

Significantly More Lending

Established by the Treaty of Rome in 1958, the European Investment Bank (EIB) is the only financial institution which is legally bound and technically equipped to serve all 28 of its shareholders – the EU member states. It has the top credit standing, a balance sheet of more than half a trillion euro and is the largest supranational lender and borrower in the world.

The Triple-A rating enables the EIB to borrow on the finest terms available. As a self-financing institution, and operating on a not-for-profit basis, the EIB Group – consisting also of the European Investment Fund, a risk finance subsidiary – passes on this advantage to its clients for the financing of investment projects. EIB conditions – interest rates, but also the maturity of the loan – are more favourable than what our clients would obtain elsewhere.

As an integral part of the European crisis response, the EU Bank made a deliberate U-turn, moving from a pro-cyclical to a clearly counter-cyclical course. This has been made possible by EIB shareholders, the 28 EU member states, who decided to substantially strengthen the capital base by paying in an extra EUR10 billion – new capital used as a cushion for new financing operations.

As a result of this capital injection, the Bank stepped up its lending activities by more than 40%, targeting annual loan signatures of nearly EUR70 billion from 2013-2015 in support of growth and job creation in Europe. In particular, the EIB Group seeks to safeguard access to long-term financing for small and medium-sized business, with the target for SME and mid-cap support in the magnitude of €20 billion for 2013.

The other priority areas of the bank’s Growth and Jobs Initiative include research, development and innovation, resource efficiency and strategic infrastructure.

New Instruments

Also, in response to the crisis to offer efficient and tailor-made instruments, the EIB widened its tool-box and rolled out some brand-new, mostly guarantee-oriented products.

In Greece, the bank signed its first Trade Finance Facility, acting as a safe bridge between leading Greek and foreign banks to the benefit of Greek importers and exporters. This facility has since been replicated in Cyprus.

Again in Greece, the EU Bank set up an SME guarantee fund. The fund is a joint initiative between the Hellenic Republic, the European Commission and the EIB. Established by using EUR500 million from unabsorbed structural funds for Greece, the fund will guarantee EIB loans to SMEs via partner banks in Greece totalling up to EUR1 billion.

In Portugal, the EIB signed an innovative Portfolio State Guarantee, providing for a lending envelope of up to EUR6 billion over the next years. Another area to support growth and jobs is the Europe 2020 Project Bond Initiative. This initiative provides an opportunity for re-opening capital markets as a source of financing for crucial transport, energy and communications infrastructure.

By layering structural funds with alternative sources of funding and assuming different levels of risk and return, the EIB Group has proven that the concept remains an effective way of mobilising public and private funding, achieving greater leverage than alternative methods of financing.

Furthermore, the European Investment Fund (EIF) – as part of the EIB Group – is a powerful tool to address market gaps. The bank – as its largest shareholder – stands ready to strengthen the EIF by extending its mandate of up to EUR5 billion over seven years to be implemented at the beginning of next year.

Also, an EIF capital increase of up to EUR1.6 billion has been envisaged, which has seen a general positive initial feedback from the shareholders.

The EU Bank is also working to mitigate market fragmentation. The Bank developed the SME Initiative, which is a joint attempt with the European Commission, aimed at stimulating SME lending through financial institutions. This SME initiative would combine budgetary contributions from Structural Funds (ESIF) and other EU programmes (COSME/Horizon 2020) with EIB Group’s own resources.

Another major social and economic challenge for the European Union and the EIB is youth unemployment. For this purpose, the EU Bank launched a dedicated programme titled Skills and Jobs – Investing for Youth with a lending volume of EUR6 billion for job-related skill gaps, vocational training schemes, student loans and mobility programmes for young employees.

A Key Market Player

However, the EIB is not a one-sided political institution. It is also a bank which is borrowing on highly competitive markets. Thus it is of utmost importance to continue to demonstrate both investors and international rating agencies that the EIB pays the highest attention to a geographically well-balanced portfolio in all 28 EU member states supporting strong and viable projects that ensure stable earnings with a likewise stable capital adequacy ratio under a conservative risk management with an eye to strict internal regulatory compliance rules.

The EIB is taking this very seriously and has just been rewarded by Standard & Poor’s which revised its outlook for EIB from AAA negative to AAA stable – against an environment where most of our shareholders do not currently have a top rating.

Looking Beyond the Current Downturn

The financial and economic crisis has brought to the fore one key question: Is Europe ready to remain an attractive continent and a competitive place at the edge of technological advance?

The answer is not simple. Of course we have to continue to tackle the crisis. But we also have to look beyond the current downturn because international competition has sharpened.

In particular, investing in research, development and innovation is critical for Europe if we do not want to be side-lined by new actors in the global game. Our future wealth will depend on how successful we are as innovators – that means how fast we convert ideas into products and services. Reinforcing the knowledge triangle has a positive impact not only on competitiveness, but also on fighting poverty, social exclusion and inequality.

We have to continue the necessary structural reforms and we have to put a strong emphasis on innovation. Then I am confident that Europe will come out of this crisis more unified, stronger and fit to continue playing its role as a key global political player.

The role of the EIB in this process is clear-cut: The EU Bank is fulfilling its duty, supporting the structural renewal of the EU economy to re-emerge as a highly competitive economic power in a globalized world.

About the Author

[caption id="attachment_6804" align="alignleft" width="219"] Author: Werner Hoyer[/caption]
Werner Hoyer has been president of the European Investment Bank and chairman of its board of directors since January 2012. Previously, from 2009 to 2011, he was German deputy foreign minister responsible for political and security affairs, European affairs, and the United Nations and arms control. In this position he was also commissioner for Franco-German cooperation. Dr Hoyer held the position of deputy foreign minister and Minister for EU affairs between 1994 and 1998.

Dr Hoyer is a longstanding member of Germany’s Free Democratic Party (FDP). He has served as whip, deputy chairman and foreign and security affairs spokesman of the parliamentary group. He was a member of the Bundestag for more than 20 years. Dr Hoyer has also served as president of the European Liberal Democratic Reform Party (ELDR) in Brussels.

Prior to his political career, Dr Hoyer worked in academia. He was director of the economics and information department at the Carl Duisberg Society and associate lecturer and senior research assistant at the University of Cologne from which he holds a doctorate degree in economics.