Adel S Al-Ghamdi: Saudi Stock Exchange Opts for Quality

[caption id="attachment_10161" align="alignright" width="170"] Adel S Al-Ghamdi[/caption]

Adel S Al-Ghamdi leads the Saudi Stock Exchange, the largest and most liquid in the Middle East and North Africa, since July 2013 when he left his job as general manager of the Corporate Finance and Issuance Division at the Capital Market Authority to become Tadawul’s CEO. Mr Al-Ghamdi is in charge of executing the process by which the Saudi Stock Exchange opens its trading floor to foreign investors. The liberalisation process now set in motion is not so much an exercise in raising additional capital, as it is one of improving the overall quality of the market by inviting in discerning and experienced investors who will help develop the Tadawul. It is hoped that long-term value investors will assume an active role in shaping the direction of listed companies.

Mr Al Ghamdi explained that active shareholder may help the exchange align with best global practices and encourage convergence to higher standards of corporate governance, investor relations, issuer disclosures, and broaden research efforts.

In an exclusive interview with CFI.co Mr Al Ghamdi addressed some of the more relevant events and consideration surrounding the opening of Tadawul to participation by foreign investors.

On access to Saudi Stock Exchange of foreign investors.

The launch of the QFI [qualified foreign investor] framework is a significant step in a gradual process that over the longer-run will serve to increase the level of professional participation in the Saudi stock market. We anticipate that the introduction of international institutional investors through this framework will help improve corporate governance amongst our listed companies, enhance research and market sophistication, and contribute to a reduction in volatility particularly as individual investors currently account for approximately 90% of day-to-day trading volumes.

“The Saudi Stock Exchange, as a major artery at the heart of the economy, does have a major role in advancing ESG values in the kingdom and will continue to seek further opportunities to enhance these values as we move forward, whether through the SSEI or organically.”

Indeed, the QFI rules have been specifically designed to ensure that only the largest and most experienced foreign investors are allowed to enter the stock market. Amongst other conditions, the rules require that foreign institutional investors have a recognised investment track record and assets under management of at least $5bn. This means that institutions deemed to be qualified under this framework are more likely to have high standards of corporate governance, advanced investment practices, and longer term investment horizons; attributes which are expected to enhance the stability and institutionalisation of the Saudi market.

[caption id="attachment_10164" align="aligncenter" width="673"] The Duke of York with Adel Saleh Al Ghamdi, CEO, and staff at the Saudi Stock Exchange.[/caption]

On corporate governance.

The Saudi Stock Exchange, amongst other capital market stakeholders, is exploring a number of options focused on enhancing corporate governance standards and practices at listed companies. Such options include the introduction of mandatory Board Induction Programmes for newly listed companies, which could be prescribed as a listing condition in future versions of the Listing Rules. Structural changes to the stock market could also be enacted, possibly leading to the introduction of a higher tier market segment, with higher standards of corporate governance. Incentives could also be introduced by the exchange, and other stakeholders, to encourage companies to comply with the optional standards prescribed in the CMA’s [Capital Market Authority] Corporate Governance Regulations.

The reporting requirements for listed companies are prescribed in the CMA’s Listing Rules, which were conceived following a rigorous benchmarking exercise against major developed and emerging markets back in 2010. These rules were approved in 2012, after public consultation, and comply with the highest international regulatory standards.

On ESG - Environmental, Social, and Governance.

Socially responsible businesses are an increasingly important asset class – indeed the international growth in recent years of Islamic finance reflects the high level of interest in investments that adhere to particular ethical standards. We anticipate that the introduction of qualified foreign investors will help to enhance businesses’ focus on their adherence to international standards in these areas. The Saudi Stock Exchange, as a major artery at the heart of the economy, does have a major role in advancing ESG values in the kingdom and will continue to seek further opportunities to enhance these values as we move forward, whether through the SSEI or organically.

On IPOs.

Since the promulgation of the Capital Market Law in 2003, which triggered the modern day Saudi stock market renaissance, a hundred companies have come to the market, raising a total of $31.1bn. Whereas 41 of these listings were in the form of discretionary IPOs (private companies coming to market at their own discretion), the remaining 59 were mandatory government-induced IPOs.

We have seen a number of IPOs in recent years – perhaps most notably the public offering of NCB, which was one of the largest IPOs in the world last year and one of nine companies listed on the Saudi Stock Exchange since the beginning of 2014.

As with any market, the IPO pipeline depends on the overall position of the economy and the attractiveness of the stock market as a source of financing. While many companies in the region have traditionally looked to banks, rather than the capital markets, for financing, the increasing maturity of capital markets in the Gulf is expected to cause a shift in this trend. While every company will approach its funding needs differently, depending on their particular circumstances, we anticipate that the capital markets route will continue to become increasingly more attractive for businesses in the future.

The Saudi Stock Exchange remains the largest and most liquid exchange in the Middle East and North Africa and the Saudi economy continues to expand – with the non-oil sector outpacing headline growth. As a result, we are confident that the exchange will continue to attract businesses looking to raise growth capital and gain access to the various qualitative and quantitative benefits of life as a listed company. As market professionalization continues to improve we expect this trend to continue.
That being said, the Saudi Stock Exchange does take an active role in trying to bring companies to market and has conducted several awareness sessions across the major cities of Saudi Arabia over the last three years. These events successfully attracted hundreds of small and medium sized enterprises interested in understanding more about the IPO process and the benefits the capital market offers to their businesses and ultimately, their sustainability. We plan to significantly increase our efforts, as we move forward, in a collaborative manner with other capital market stakeholders, to bring more companies onto our platform.

On market volatility.

International institutional investors participating through the QFI framework are expected to play an influential role in expanding coverage and enhancing the sophistication of analyst research, which should benefit market stakeholders as a whole.

We are also looking at means of promoting a more active corporate access culture amongst our listed constituents which should foster more progressive investor relations practices, periodic analyst interactions, and market guidance.

Other efforts are being invested in creating leading and lagging market intelligence indices to provide investors with simpler means of monitoring changes in the financial performance of the various market sectors, and changes in the investment behaviour of different investor classes.

Increasing market knowledge, whether by research or market information, is at the heart of our plans to enhance the professionalization of the stock market.

Please see for the article in CFI.co Summer 2015.


PwC: Africa’s Hospitality Sector Poised for Growth

Africa’s hospitality industry is set to meet the rising demand from international tourists, local business travellers, and the continent’s own growing middle class. The sector has seen substantial growth with many international brands descending around commercial and retail centres, growing their footprint across the continent.

PwC continues to stay on top of trends and developments that may impact hospitality companies, now and in the future. Recently, PwC published its Hospitality Outlook: 2015-2019 – the 5th edition in this series.

PwC’s report features information about hotel accommodation in South Africa, Nigeria, Mauritius, and Kenya. The accommodation sector in South Africa consists of hotels, guest houses and guest farms, game lodges, caravan sites, camping sites, and other overnight accommodation. For Nigeria, Mauritius, and Kenya only information on hotels was included in the publication.

South Africa, Nigeria, Mauritius, and Kenya have very different markets, which is reflected in their spending patterns. South Africa attracts a mix of business and holiday travellers and offers a wide range of hotel classes and accommodation. By contrast, Nigeria is largely an international business market with little tourism. Conversely, Mauritius is principally a resort market with most travellers on holiday and where five-star hotels constitute a significant component of available rooms. Kenya has a mixed market, predominantly attracting tourists through its beaches and safari offerings as well as business travellers.

“According to the PwC report, the accommodation market in South Africa enjoyed its third consecutive year of strong growth with a 9.1% advance following two years of double-digit gains.”

One of the most recent and significant developments in 2014 and 2015 in the South African tourism industry was the revision of South Africa’s visa regulations. Under the revised regulations tourists to South Africa will have to apply in person for visas to visit South Africa so that biometric data can be reliably collected. In addition, parents and guardians travelling with minors must have an unabridged birth certificate that shows the names of both parents and permission from any non-travelling parent.

The purpose of the latter policy is to stop child trafficking. However, tourism industry commentators in South Africa fear that international tourists – in particular travellers from China and India – will not consider South Africa as a destination, as they may have to travel long distances to obtain the necessary documentation before being allowed to travel to the country.

Any impact would not only affect hotels, lodges, and other accommodation but also the supporting services in the industry such as tourist transport, guides, restaurants, and curio vendors. Industry operators have already indicated that they have experienced a reduction in bookings. PwC is hopeful that the South African Department of Home Affairs and the tourism industry will be able to work together to find a solution suitable for all.

According to the PwC report, the accommodation market in South Africa enjoyed its third consecutive year of strong growth with a 9.1% advance following two years of double-digit gains. Growth in room rates will be the main driver of revenue, with new hotels in Cape Town leading the expansion. Cape Town is a dominant tourist attraction, with a total of R3.5 billion of investment planned for hotels over the next four years, which will result in adding 2,100 rooms to the overall market. Total room revenue in South Africa is expected to expand at an 8% compound annual rate overall and for the hotel sector, by 8.1% compounded annually.

Hotel Accommodation

In 2014 overall spending on hotel rooms in South Africa rose 9.1% to R18.9 billion, with rising room rates being the principal driver. Hotel room rates rose 7% just above inflation with five-star hotels achieving the fastest growth at 12.8%. Room revenue will expand at a 12.1% compound annual rate to R3.1 billion in 2019 from R1.8 billion in 2014.

Five-star hotels will increase their share of the market to 16% by 2019. Available rooms and stay unit nights were both flat for four-star hotels in 2014. Room revenue at four-star hotels is forecast to increase from R4.7 billion in 2014 to R7.2 billion in 2019, a 9.0% compound annual gain. Three-star hotels accounted for 36% of all available hotel rooms in South Africa and 33% of total hotel room revenue. Room revenue at three-star hotels is forecast to expand at a projected 8.8% compound annual rate to R6.5 billion in 2019 from R4.3 billion in 2014.

[caption id="attachment_10172" align="aligncenter" width="652"] Figure: Total room revenue.[/caption]

With the market now improving, there is renewed activity in the hotel industry as major hotel chains upgrade current facilities, renovate their properties, or make plans to expand and open new hotels. The report estimates that by 2019 there will be about 63,600 hotel rooms available up from 60,800 in 2014. Stay unit nights are projected to increase by 2.3% in 2015 and by an additional 3.0% in 2016 with more moderate gains expected in subsequent years.

Elsewhere on the continent, the Nigerian hotel market was hit by health concerns as a result of the Ebola outbreak in West Africa in July 2014. In October 2014, the World Health Organisation declared Nigeria Ebola-free. Despite the challenges faced, the hotel market continues to grow. It appears that the government has done a good job in protecting Abuja and Lagos, where most of the major hotels are located, from the terrorist attacks. A number of initiatives have also been put forward to promote tourism and positively impact the Nigerian hotel market.

Outlook: South Africa 2015 – 2019

Overall room availability in South Africa is expected to increase at modest rates in each category with guest houses projected to be the fastest-growing category averaging 1.0% compounded annually. Overall room availability is projected to increase at a 0.7% compound annual rate to 120,300 in 2019 from 115,900 in 2014.

The overall occupancy rate rose to 54.4% in 2014 with each category increasing. Guest houses/guest farms had the highest occupancy rate at 62.9%. The overall occupancy rate is forecast to climb to 58.3% in 2019.

Stay unit nights rose 3.6% in 2014 with most of the growth generated by a 10% increase in caravan/camping sites and other accommodation. Stay unit nights for guest houses and guest farms rose 4.8%, but hotels were flat.

It is also expected that average room rates for hotels will rise at a 6.0% compound annual rate, while guest houses will increase at a 7.1% compound annual rate, in both instances growing more slowly than in 2014.

Outlook: Nigeria, Mauritius, Kenya 2015 – 2019

The Nigerian hotel market was hit by health concerns in 2014 in the wake of the Ebola virus and concerns around terrorism. The three- and four-star hotel market was in particular hurt as revenue fell 7.7%. Nevertheless, the Nigerian hotel market continues to grow despite the numerous challenges faced. It is mainly corporate driven, as Nigeria remains a favourite destination for business in Africa.

The number of hotel rooms is expected to more than double during the next five years with that growth occurring predominantly in Lagos. Nigeria is forecast to be the fastest-growing market over the next five years with a projected 10.5% compounded annual gain in room revenue. Almost all of that gain is expected during the latter three years of the forecast period.

The number of tourist arrivals in Mauritius increased 4.6% in 2014, exceeding the one million mark for the first time. Although a stronger global economy is expected in the coming years, Mauritius is facing growing competition as a tourist attraction from Sri Lanka, The Maldives, and The Seychelles. The average occupancy rate is expected to remain relatively steady, edging up from 63.1% in 2014 to 63.7% in 2019. Mauritius posted a modest 1.8% advance in 2014, helped by an increase in tourism, but declining room rates held down revenue growth.

Kenya’s hotel market declined during each of the past three years, falling 7.1% in 2014 and by a cumulative 16% since 2011. Terrorism has been a major concern, leading a number of western countries to issue travel warnings that discouraged people from visiting Kenya. Despite recent problems, a number of new hotels are scheduled to enter the market. The number of available rooms is expected to increase from 17,800 in 2014 to 20,000 in 2019.

In spite of the challenges posed by the recent visa regulations, PwC is very bullish on the South African hospitality market’s ability to compete, grow, adapt, and succeed – especially as the global economy continues to improve following the recent economic uncertainty.

In its most recent global Travel and Tourism Competitiveness Index report, the World Economic Forum (WEF) found that South Africa’s performance in the tourism sector had improved significantly since 2013, when the previous study was conducted. The report, released on May 6, 2015, ranked South Africa as the leading country in Sub-Saharan Africa in terms of competitiveness and growth drivers, and 48th out of the 141 markets assessed overall.

Growth in travel and tourism is also expected to boost growth in the accommodation industry across the African continent during the next five years.

About the Author

Nikki Forster is the currently the leader of the Hospitality and Gaming industry specialisations within South Africa. Nikki Forster’s role incorporates:

Servicing a number hospitality and gaming clients in Assurance

Directing internal thought leadership and knowledge gathering on industry topics

Coordinating activities within the hospitality and gaming industries, to include feasibilities, due diligence, tax advice and more

Identifying industry targets and targeting opportunities firm-wide

Nikki has performed many international Quality review assessments.

Nikki, joined Price Waterhouse (PW) in Birmingham, UK in 1988 where she trained and qualified, initially in the small businesses group. She was then promoted to manager in 1993 before moving to South Africa and PW Johannesburg in 1994, where she was admitted to partnership in July 1999.


CFI.co Meets the Founder and President of P.I. Mabe: Juan Gilberto Marín Quintero

At the World Economic Forum Mexican businessman Juan Gilberto Marín Quintero drew attention to his country’s fast-paced development. Mr Marín noted that in Latin America, only Mexico and Chile had managed to implement the far-reaching reforms necessary to underpin accelerated economic expansion. While Mexico felt the effects of lower oil prices, the country still managed to register a solid 3% GDP growth. In Davos, Mr Marín emphasised that export-oriented manufacturing is doing particularly well in providing a solid basis for sustained economic growth.

Mr Marín is the founder and President of P.I. Mabe, a fully Mexican-owned manufacturer of disposable hygienic products and at the forefront of the quest to develop 100% recyclable diapers – a goal P.I. Mabe hopes to accomplish by 2020.

Mr Marín was born in Matamoros, Tamaulipas, Mexico on May 15, 1951. He obtained a bachelor degree in Business Administration from the Iberoamericana University, campus Santa Fe of Mexico City, as well as an MBA from the Instituto Panamericano de Alta Dirección (IPADE). Mr Marín also has post-graduate degrees in Commerce from the British Columbia University in Vancouver as well as in Mergers and Acquisitions from the University of Stanford.

In 1977, Mr Marín founded P.I. Mabe in Puebla, Mexico. Up to this day he still leads the company as its president and chairman of the board. The company operates two modern production plants in Mexico and has sales to over 40 countries worldwide. P.I. Mabe Mexico, Valor Brands Europe, Valor Brands USA, and Maquinsa are all part of the P.I. Mabe Group.

Other important companies Mr Marín has founded, and currently leads, are Seamless Global Solutions, a seamless clothing manufacturer, and Iler, a wind power generation company, amongst many others.

Mr Marín is a member of the advisory board of numerous companies such as Banamex (Citibank), Telmex, Bancomext, and the University of Las Américas, Puebla. He is also a member of the World Economic Forum as well as of the G50 and is a former president of the International Entrepreneurial Council of Latin America (CEAL) and a former chairman of the Mexican National Council of Foreign Trade.

Throughout his career, Mr Marín has been granted several awards such as the Business Merit Award granted by the Consejo Mexicano de Comercio Exterior Sur, the Agustín Reyes Ponce Award granted by the association of former students of the Universidad Iberoamericana and the Prix Franco Montouro business for merit, awarded by the Chamber of Commerce of São Paulo, Brazil.


CFI.co Meets the CEO of Professional Traders: Sushant Buttan

Sushant Buttan is a successful entrepreneur and businessman with over a quarter century’s worth of experience in international business. With a background in computer engineering, he started a company based out of India in the early 1990’s with a small staff of four people. This company - called Maximize Learning – was focused on building next generation technology-based educational courseware and content. As such, Maximize Learning became a pioneer of Internet-delivered e-Learning. Over the next fifteen years, Mr Buttan built his business into a multimillion dollar multinational organisation with a global staff base of over 500 employees.

Innovative work in the world of technology-based learning led to Mr Buttan being invited to share his knowledge as a regular lecturer at the George Mason University in Virginia. He also taught classes at the Villanova University in Philadelphia, contributing to the institution’s renowned executive MBA programme. Mr Buttan has also been instrumental in producing technology-based content for the Manage Mentor Programme of the Harvard Business School.

Additionally, Mr Buttan has contributed to authoritative books such as Organization and Management: An International Approach (90 0 157 7040). He has written a number of essays on technology-based learning for Chief Learning Officer and other publications.

Owing to the success of Maximize Learning and its broad and well-established base of international customers, the company was acquired by the US-based Aptara Corporation in 2005. As a result of the acquisition agreement, Mr Buttan moved to the US headquarters of Aptara Corp to take up a position as senior vice president of Business Solutions. He lived in the United States from 2005 to 2008 and during this time managed to significantly expand the client base of Aptara Corp.

Struggling with the underperformance of wealth management companies, and identifying the need for a sophisticated, reliable, investment organisation employing cutting-edge technology, Mr Buttan in 2008 founded Athena Smart Capital. The company is headquartered in Dubai, UAE, and focuses on using quantitative finance models to trade on the major international markets. The model employed is particularly suited for trading forex, futures, bonds, CFDs (contract for difference – a tradeable instrument linked to an underlying asset), and commodities.
In 2014, Mr Buttan acquired the UAE-based Financial Trading Company - Dubai Professional Trading Group. Now re-branded as Professional Traders - DMCC, this company has become one of the fastest-growing businesses, providing highly specialised technical infrastructure and funding for financial traders from all over the world. Mr Buttan, now CEO of Professional Traders, is dedicated to transform his company into the world’s largest financial trading centre by 2020.

Over the years, Mr Buttan has cultivated Fortune 500 clients from across the world, including prestigious corporations such as Microsoft, American Express, Morgan Stanley, Deloitte Consulting, and Ernst and Young in the United States; Motorola and Reuters in the UK; and SAP and Ericsson elsewhere in Europe.

For further information, please see: www.professionaltraders.com


CFI.co Meets the CEO of Hellenic Bank: Bert Pijls

In late 2014, Bert Pijls arrived in Cyprus on a mission to entrench Hellenic Bank as a key player in the nation’s economy. Mr Pijls came exceptionally well prepared for the job at hand: his international banking career took him to Germany, the United Kingdom, the Czech Republic, and the United States. The Dutch-born banker brings both experience and energy to his role as CEO of a bank he says is uniquely positioned to capitalise on the opportunities ahead.

Educated in the Netherlands and the United States, Mr Pijls, took over Hellenic Bank in the wake of the March 2013 financial meltdown that brought Cyprus’ banking sector and the country’s economy close to the brink of collapse.

Two years after the crisis, Mr Pijls notes that considerable progress has been made on both fronts. Cyprus has implemented rapid structural reforms, returned to the international capital markets, and in the first quarter of 2015 registered its first growth in three and half years.

Hellenic Bank has mirrored the country’s progress, significantly strengthening its position in the market as it builds on solid foundations. “The bank is not under any regulatory restructuring programme, has ample liquidity, and has been recapitalised,” says Mr Pijls.

This track record has only served to reinforce his optimism for the future. Committed to working collectively with the board of directors, the management team, and all staff of the bank, Mr Pijls is focused on delivering further growth for the bank and, by extension, supporting the economic recovery of Cyprus. “I look to the future with renewed energy and optimism. We are uniquely positioned to support the recovery of the Cypriot economy as well as grow the bank.”

His strategy is two-pronged: “On the one hand, we must continue to proactively address non-performing loans, and on the other, we must increase the amount of new loans we provide to viable Cypriot businesses and households.”

This requires a rigorous approach to lending policy as Hellenic Bank continues to offer restructuring solutions tailored to clients’ specific circumstances while making new lending available based on clients’ ability to service the debt.

The first bank CEO to be approved under the newly established European Single Supervisory Mechanism (SSM), Mr Pijls was born in Nijmegen, Netherlands, and studied Business Administration at the Dutch Nijenrode University and International Management at the American Graduate School of International Management (Thunderbird) in Phoenix, Arizona.

Mr Pijls started his career at Citigroup working in Germany, Belgium, and the US for ten years before moving to the New York-based Internet financial services start-up Moneyunion Inc. From there he went to Egg Banking Plc, first in London and later in Paris. After a stint at American Express in London, he returned to Citigroup in the Czech Republic, then went back to Egg Banking Plc in London. Before his appointment as CEO of Hellenic Bank, Mr Pijls worked for British Gas / Centrica.

Officially appointed CEO in January 2015, Mr Pijls is also a member of Hellenic Bank’s board of directors and chairman of Pancyprian Insurance Limited and Hellenic Alico Life Insurance Company Limited.


CFI.co Meets the MD of Lusitania Vida: Maria Manuela Rodrigues

A graduate in Applied Mathematics from the Lisbon Faculty of Sciences, Maria Manuela Rodrigues began her professional career as an actuary in the life sector of the major Portuguese insurance company A Mundial in the 1970s. Here, she was able to acquire considerable experience in product design, estimating and controlling mathematical provisions, profit sharing accounts, and in all technical and actuarial aspects of the life insurance business.

Later on, she was responsible for group insurance management for companies, preparing suggested benefit plans for workers according to the specific requirements.

A member of the Institute of Portuguese Actuaries, and one of its directors, Mrs Rodrigues took an active part in several meetings to discuss matters important to the insurance business in Portugal. As a specialist in life insurance and pension funds she also regularly participates in national and international congresses and seminars.

As an independent actuary she estimated pension plan responsibilities for large Portuguese enterprises and drew up the respective reports used to certify the accounts of these corporations to the Ministry of Finance. It is important to remember that, at the time, there were no pension funds in Portugal.

As director of the Department for Actuarial Procedures, Studies, and Planning – and her involvement with actuarial work and group insurance studies – Mrs Rodrigues closely engaged with the financial planning and control of all of the company’s life insurance business.

The Services Department of this large company allowed her to add to her technical and actuarial knowledge with training in accountancy and cost management. Doing so, she gained a thorough knowledge of the entire management structure of life insurance companies. She also received additional training in management geared to insurance companies, and in particular to lead management.

In 1987 Grupo Montepio Geral, the most important Portuguese group involved in mutual association and social economy, decided to found a life insurance company. At the time, Mrs Rodrigues was invited to manage this project. She accepted the invite with great enthusiasm.

As defined by the shareholders, the new insurer, Lusitania Vida, had to add value to the mutual association group and distribute profits for the benefit of its associates – a major challenge that was consistently met over the twenty-five years.

As managing director of Lusitania Vida, Mrs Rodrigues planned the underlying structure of the company based on a staff of qualified young people who were skilled in computer processing and were granted total management autonomy. Outsourcing was not used at all in order to reduce operating costs.

Setting up a company from scratch always constitutes a great challenge because of major demands in all areas: from recruitment and technical training for staff, preparing products for sale to defining the main underwriting policies, and investment and re-insurance, all the while aiming for technical precision, profitability, and proper risk management.
Since 1987, Mrs Rodrigues has led the company with the same diligence and dedication, working with – and encouraging – all employees to constantly improve to be able to respond to radical changes in the insurance sector and to be better prepared to meet the high demands of the company, the group, and the market.

Although not an enthusiast of the Solvency II regime that came into force throughout the EU on January 1, 2015, Mrs Rodrigues in recent years has been involved with the preparation of the new regime, already beginning its management in 2015 from the point of view of capital.

With a vast amount of work dedicated to the life insurance business, Mrs Rodrigues cannot but feel personally and professionally satisfied, and extremely proud, of the winning project that Lusitania Vida has clearly become.


CFI.co Meets the CEO of Casinos Austria International: Alexander Tucek

Battling the odds – an economic crisis, the surge in online gambling, and indoor smoking bans – Alexander Tucek has deftly managed to come out ahead. The CEO of Casinos Austria International, a gaming corporation with a global footprint and one of the world’s most respected casino operators, reinvented the business after a management shakeup in December 2013.

Playing to emphasise the strengths of the brick-and-mortar casino business, rather than fight a rearguard campaign to shore up perceived weaknesses, Mr Tucek set about making gaming into a multi-layered experience: “Taking stock of what we actually possess by the way of physical structures, one soon concludes that casinos are not just gaming venues but offer the perfect setting for a comprehensive short-break experience that includes fine dining, theatre, concerts, and a host of other activities.”

The process of overhauling the 26 land-based casinos operated by Casinos Austria International in eleven jurisdictions is currently in full swing and nearing completion. “It is our answer to the advent of online gaming which essentially remains a solitary activity and as such is deprived of the glamour on offer at our casinos. By accentuating the all-inclusive experience of an evening at the casino, we feel that our operations are only very marginally comparable to the online version of the game. In fact, I’d venture to say that any comparison between the two sorely misses the point.” This novel approach is already now bearing fruit: new players from distinct demographics are attracted to live the enhanced casino experience in which gambling is but one of a number of activities on offer.

With a degree in Business Administration, Alexander Tucek joined Casinos Austria in 1971. Seven years later Mr Tucek was transferred to Casinos Austria International (CAI), formed in 1977 to consolidate the international activities of the company. CAI not only operates casinos, it helps others with expert development and management advice. Partly owned by the Austrian state, Casinos Austria International is considered one of the world’s best-known and most-respected gaming operators: “We have helped establish well over a hundred casinos worldwide.”

CAI is specialised in developing small to medium-sized venues and enjoys a competitive edge because of its impeccable track record: “This allows us to help establish casinos in markets that are deemed quite difficult such as those in Asia. Our solid reputation allows us to engage with all stakeholders and develop the industry in niche markets overlooked by others.”

Mr Tucek earned his spurs as manager of several land-based and shipboard casinos before being named managing director of Casinos Austria Maritime and regional director for the Americas in 2005. In the latter capacity, Mr Tucek was responsible for CAI’s flagship Great Blue Heron Charity Casino near Toronto, Canada. After a six year stay in North America, Mr Tucek was called back to Vienna to become the CAI executive vice president for operations.

“We not only try to be the best, in our business we simply are the best,” says Mr Tucek with almost American-like swagger. He is, however, fully justified in his confidence with Casinos Austria International moving from strength to strength. CAI now also operates the casinos aboard five ultra-luxury cruise liners of the Silversea Cruises fleet and on the Bahamas Express day cruiser.

The company maintains a grand total of more than 400 gaming tables and 4,500 gambling machines. In a business where trust means profit, CAI is cashing in on its reputation: “We are the oldest operator in the international casino industry. As such, CAI brings a wealth of experience to the table. Our knowhow is unmatched and this brings with it a certain momentum. Authorities worldwide are keenly aware of our qualities and of the fact that we do not cut corners or seek to operate on, or anywhere near, regulatory margins. In order for our business to remain sustainable, we need to embrace both the opportunities for business as well as our responsibility to the public.”

Mr Tucek explains that CAI is not the least interested in extracting the last penny of its clients: “That is just not very smart. Our business model calls for a pleasurable experience, not one that causes harm to either the individual player or the wider society. CAI maintains rigorously enforced safeguards in place to protect players from themselves and ensure that a visit to one of our casinos is, at all times, an agreeable proposition that calls for repetition.”

While CAI’s enhanced casinos may offer better fun than ever before, their running remains a very serious business indeed. The solid approach pioneered by CAI under Mr Tucek’s overall direction – one devoid of flashiness but rooted in sound business management – has made the Austrian gaming company into a global giant to be reckoned with.


CFI.co Meets the Founder, Chairman and Chief Executive Officer of Seabury Group: John Luth

John Luth thrives on turbulence. As the airline industry weathers a succession of storms – seeking refuge in consolidation, streamlined operations, and peak efficiency – the former CFO of Continental Airlines offers winning formulae to troubled carriers.

Keeping airlines aloft and profitable is the core business of Seabury, an aviation banking and consultancy firm Mr Luth founded in 1995. At the time, Continental was just 21 months out of Chapter 11, but was running short on cash and had too many aircraft. Gordon Bethune, then CEO, asked Mr. Luth to stay on to manage an out-of-court process, but instead Luth struck a deal to allow him to cash out his severance package, reinvest in Continental stock options, and then through his new advisory company, lead a highly successful $550 million liquidity financing for Continental in 1995.

The results were that Continental was saved from liquidation, its stock soared by more than 12x and Mr. Luth made a small fortune which he used to capitalize what today is the Seabury Group. Initially conceived as a boutique consultancy providing both restructuring advice and investment banking services – a synergy pioneered by Seabury – to struggling carriers.

A communicator par excellence, John Luth strongly believes in transparency and sharing: “In negotiations, I usually begin by clearly stating our goal, in order that we may all help devise a roadmap that gets us to where we need to be.” With a reputation as an exceptionally strong, if not ruthless, negotiator, Mr Luth is widely recognised as one of the world’s premier airline restructuring experts.

Seabury holds a unique position in the aviation sector for operating on the crucial junction between corporate restructuring and aircraft financing: a previously inexistent niche John Luth carved out for his company. From an esoteric purveyor of operational expertise and aircraft financing options, Seabury quickly moved into the mainstream thanks to word of mouth and a string of successful turnarounds. Good news travels fast as well, and Seabury has seen its business grow by a 35% annual average.

“Airlines benefit from our unbiased approach. We are the outsiders looking in and, as such, unencumbered by historical baggage. Seabury’s professionals address all issues objectively, comprehensively and fast. Our integrated method to troubleshooting is based on the accumulated knowledge and experience of the Seabury team.”
Mr Luth stresses that Seabury only hires the best from the industry – people with proven track records and well-established reputations. “We put great stock in client relations. Having outsiders to revamp a struggling business may not always be appreciated in all quarters. However, we do try to make our interventions a fun process for clients by working closely together, bringing in seasoned professionals who become part of the team instead of know-it-alls fresh out of business school.”

Branching out, Seabury has developed a powerful software application that monitors airline performance in real time using a vast array of indicators and parameters. “It’s something we and our clients are really excited about. Carriers using our software can now evaluate how they are doing at any given time. Already three out of the four major US airlines are using this package to maintain their operations at peak efficiency.”

Eyeing expansion, Seabury is now setting its sights on the European aviation space and on applying its knowhow to other sectors such as the aerospace and defence industries. “We are also considering a move into merchant banking using our human capital and further exploring synergies.”

John Luth recently helped restructure Monarch Airlines in anticipation of its sale to a private investment group. He also facilitated the airline’s acquisition of thirty Boeing 737 MAX 8 narrow-body aircraft in a deal worth around $3bn.

Mr Luth holds a Bachelor of Arts degree (magna cum laude) in Economics from the College of the Holy Cross and a Master in Business Administration from the University of Pennsylvania’s Wharton Graduate School.


Playing to Win or Playing to Survive? Urbanisation and the Knowledge Economy

It is no surprise that cities around the world have been expanding over the last few decades. The pace of this trend is breath-taking. According to the UN’s World Urbanisation Prospects, 2014 is a turning point. For the first time in human history, a majority of the world’s population lives in cities, with rural areas accounting for just 46% of the total. To place this in perspective, in 1950, 70% of the population lived in rural areas, and projections suggest that by 2050 less than a third of mankind will live in the countryside.

This fact that more and more people are moving to urban areas has rather serious and profound implications. Some are mundane, in the sense that they are not new. Many countries plan with a focus only on survival, to avoid disasters: How do you handle the pressures of providing basic infrastructure for all the new arrivals?

Countries in today’s global world need to consider more sophisticated implications: playing to win requires a focus on sustainable growth. Countries like India, Brazil, and Egypt have struggled with this reality for decades. The inability to take a more aggressive stance towards tomorrow is genuinely associated with the problems of underdevelopment: where is the money to do more?

Most nation states in the third world cannot – even where there is political and social will – provide basic infrastructure services to their rapidly growing population. They simply do not have the revenues to make the capital investment needed. Developing countries are already challenged by poor planning, limited resources, and inefficient bureaucracies. Such limitations aggravate the problem of insufficient basic infrastructure, from non-existent sewage systems to underfunded schools and intermittent electricity supply. Thinking of tomorrow’s needs today seems a luxury.

Indeed, it is not easy to deal with the mundane, much less the longer term complex issues of global competitiveness. However, to thrive in a world economy whose hallmarks are change and competition, it is insufficient to think defensively of maintaining the status quo. The reality of globalisation means that few states can afford to be complacent about the structural transformation needed to compete in tomorrow’s world.

Revenues in the modern state come from taxes, and taxes derive from commercial economic activity, which itself depends upon basic infrastructure. In many Sub-Saharan countries, the cost of generating a reliable electricity supply through private generators is the single largest running cost for businesses, often greater than their payroll costs. This is a core policy issue today in almost every capital city, from Cairo to Copenhagen: how do you promote entrepreneurs to start new firms and how do small firms become larger and employ more people? Indeed, how do firms of all sizes remain innovative, profitable, create employment while staying in the formal sector?

This imperative is even greater in the developing world, where unemployment figures are high, and most commercial activity stubbornly remains in the informal sector. As cities receive increasing internal emigration from the rural areas by a population with traditional skills associated with labour intensive activities such as agriculture, how do you keep these people employed?

Unfortunately, in today’s world, jobs that can absorb unskilled rural emigrants are increasingly far and few between. The labour-intensive manufacturing sector in most developing countries is simply growing too slowly (and in some countries, such industries are, in fact, shrinking) to absorb all these workers. Generally speaking, the jobs that are available tend to require rather more skills than these workers have, a lot of which are in the service sector.

At the very least, workers need basic numeracy and literacy, to work as shopkeepers, waiters, or even to peddle phone cards on the street. Low skills and productivity equate to low wages, and because of the problems of setting up formal activities (again, due to inefficient bureaucracies or the absence of basic infrastructure) such low-wage jobs are also in the informal sector, and do not necessarily provide those that are successful the opportunity to expand. In other words, they do not generate taxes, put greater pressure on the existing infrastructure, and are unlikely to offer greater wages over time, or help support expanding families.

The simple answer would be education, but as with all matters of development, simple answers are rarely easy to execute. For the issue here is not simply about immediate needs of society, of providing people with subsistence-level employment. Job creation should be sustainable, because populations are growing, and as more people migrate to cities, it becomes further exacerbated with time.

The problem of basic skills and education remains, but the reality of the 21st century is that for a country to compete in open markets, more is needed. It is no longer a matter of basic education, but specialised education and training. For developing countries, it has been hard enough to meet the goal of universal literacy. But globalisation and liberalisation means that domestic firms (and jobs) in activities which were protected by distance and tariffs are now exposed to foreign firms and imports.

New sectors and industries that offer greater potential for sustainable employment growth require far higher skills, at the very least, post-primary and possibly increasingly, tertiary-level skills. Appropriate institutions with the right quality of experts to teach are hard to come by in developing countries. Besides, specialised skills are also not always easily assimilated through learning-by-doing, so that people will have difficulty entering such jobs without the appropriate certification, and firms that want to establish themselves and survive in international competitors need management, equipment, and capital to thrive.

Many countries have nurtured the tourism and hospitality sectors, but few have created low cost training centres and skills development schemes that fit such sectors. More broadly speaking, ICT skills are required for a growing variety of hitherto low-skilled activities.

The state sector has struggled to meet the provision of these basic social goods (such as basic infrastructure and education) at a nominal cost to society, even in developed countries, where debates are rampant about the degree to which these can be privatised. Indeed, in many places – rich and poor – the quality of public education has deteriorated to the point that families that can afford to do so prefer to seek education through the private sector.

These problems are not unique to developing countries, and to a fair degree these same issues are debated within the OECD countries. Even in developed economies, there is a growing structural mismatch of the skills available, the skills needed in the market, and the challenges of structural unemployment. How do you retrain car mechanics to become nurses, or construction workers to become school teachers? Although almost all the rich countries subsidise education at least until the secondary level, they have also not all been able to tackle the question of specialist training and skills with equal efficiency. They also grapple with their response to rapid changes in demand due to structural transformation and the arrival of new industries that change the supply and require retraining of appropriately qualified people.

This brings us to the question facing policy makers that has only recently begun to receive the attention it deserves. Every society makes available certain resources that are universally deemed to be made easily available to all citizens without discrimination, such as healthcare, education, security, roads, police, clean water, etc. Society has deemed these services as being necessary for moral, economic, or social reasons, aimed at reducing inequality and polarisation within countries. The definition of such social necessities varies from country to country, but even so there is some consensus across countries that society at large benefits from freely available education rather than a school system exclusive to those who can afford it.

In the knowledge economy that typifies the 21st century, it is no longer enough to think of generic secondary (or tertiary) training as the optimal level of education, much less a primary education. A number of governments today regard high-speed internet connectivity as an essential service and the ability to use computers as a basic skill in an interconnected world, in much the same way as access to public transportation, potable water, and electricity were regarded just a generation ago.

Modern economies must rethink how education is provided and delivered, and reconsider its breadth and the specialisations available, so that the workforce is suitable for an outward-looking, knowledge-intensive economy, and the range of new opportunities and threats associated with it.

About the Author

Rajneesh Narula is the John H. Dunning Chair in International Regulation at the Henley Business School, University of Reading, UK. He is a specialist on the role foreign investment in development, innovation and industrial policy, R&D alliances and outsourcing. He regularly acts as a consultant and adviser to the European Commission, UNIDO, UNCTAD and the OECD, and a variety of other international organisations.


Ellen Ochoa: How Dreams Come True

[caption id="attachment_10191" align="alignright" width="249"] Photo: NASA[/caption]

Going into space is the stuff of dreams, fiction, or fantasy. Plans for space tourism may materialise in the future, but currently astronauts are a very select group numbering around 550.

Growing up in California in the 1960s, schoolgirl Ellen Ochoa fantasised about space exploration at a time when only a handful of men had been selected for this awesome privilege – one emphatically out of bounds for women. That didn’t stop Ellen from pursuing her dream to become one of only 45 American women who have “slipped the surly bonds of Earth” to orbit our planet. She has now logged nearly one thousand hours in space travel.

A stellar academic career in science provided the gateway to space. Ellen Ochoa worked hard at school, studied Physics at San Diego State University, and went on to take a Masters and Doctorate in Electrical Engineering at Stanford University before moving to Sandia National Laboratories as a research engineer. She is the co-inventor on three optical patents.

It was not until 1978 that National Aeronautics and Space Administration’s (NASA) astronaut training programme began accepting women. Dr Ochoa applied in 1985. Two years later she was short-listed as one of a hundred finalists for the training programme. In the meantime, she started working at NASA’s Ames Research Center overseeing research and development of computational systems for aerospace missions.

To her delight, at the beginning of 1990, Dr Ochoa was selected by her employer for the rigorous astronaut training programme. This tough course involves physical and mental challenges. Trainees must master space sciences, astronomy, geology, oceanography, meteorology, first aid, survival techniques, and are also expected to become intimately acquainted with every component of the shuttle and its function.

Dr Ochoa qualified as an astronaut in July 1991 and her first trip into space took place two years later: a nine-day Discovery mission carrying out atmospheric and solar studies to improve understanding of the effect of solar activity on the Earth’s climate and environment. In 1994, on her second mission, Dr Ochoa spent eleven days in space as Payload Commander on the Atlantis Atmospheric Laboratory for Applications and Science. This mission studied the energy of the sun during an eleven-year solar cycle to learn how changes in its irradiance affect the Earth’s climate and environment.

In May 1999, Dr Ochoa went into orbit again on a ten-day Discovery mission carrying out the first docking to the International Space Station and delivering logistics and supplies in anticipation of the arrival of the first crew to live aboard the station. As mission specialist and flight engineer, Dr Ochoa coordinated the transfer of supplies and operated the robotic arm during an eight-hour spacewalk.

Her final trip into space came in April 2002 on an eleven-day shuttle mission to the International Space Station when she ventured out four times on spacewalks.

Back on earth, in 2007 she was appointed deputy director of NASA’s Johnson Space Center and was soon promoted to become the second female director in January 2013 – her current post. In a distinguished career, Dr Ochoa has collected a slew of prestigious awards, including NASA’s Distinguished Service Medal, Exceptional Service Medal, Outstanding Leadership Medal, and four Space Flight Medals. As a scientist, engineer, and astronaut, Dr Ochoa has become an inspiring role model whose scientific work enabled her to fulfil her childhood dreams. Not bad for a star-struck Hispanic kid from California.


CFI.co Meets the President and CEO of TD Bank: Mike Pedersen

[caption id="attachment_10203" align="alignright" width="311"] Mike Pedersen[/caption]

As green as its corporate logo – or greener still: TD Bank Group, one of the six largest banks in North America and the first to fully offset its corporate carbon footprint, has placed the environment at the core of its business model.

The Canadian-based bank has been carbon-neutral since 2010. A year later the bank opened its first net-zero branch, located in Fort Lauderdale, Florida. This facility produces as much energy as it uses and thus pushes the envelope of the LEED (Leadership in Energy and Environmental Design) rating system maintained by the U.S. Green Building Council. At the time, the bank’s Fort Lauderdale branch was one of only nine net-zero buildings in the entire country.

“Early on, TD recognised growing environmental awareness as a mega-trend and not just a factor for risk assessment, much less a passing fad. Green is set to guide future corporate policy and reshape the business world. Rather than wait for this trend to overtake us, TD decided to become a driver of events,” says Mike Pedersen, the president and CEO of TD Bank, the U.S. banking arm of TD Bank Group.

Mr Pedersen joined TD in 2007 just before the global financial crisis erupted. “Adhering to sustainable business principles has helped our bank weather the storm. The crisis also made us realise the value of a proactive approach to sustainability as a business model. Embracing environmentally sound corporate practices may entail challenges; it also offers a number of great opportunities.”

As TD adjusted its way of conducting business, and expanded the reach of its green policies, new and unexpected business opportunities arose: “We discovered a whole range of new products and services that resonated well in the market and promptly brought in clients who previously would not have considered banking with us. Thanks to our pioneering work on addressing environmental concerns, TD now enjoys a distinct competitive advantage which, in turn, helps sustain a solid bottom line.”

A former chairman of the Canadian Bankers Association and a graduate of the University of British Columbia and the University of Toronto, Mr Pedersen earned his financial spurs in London, where he held senior positions at major international banks. He returned to Canada in 2007, joining TD as Group Head, Corporate Operations, and in 2013 moved to the U.S. to take up the helm of TD’s U.S. bank, which now has more branches in the U.S. than in Canada. An avid outdoorsman, Mr Pedersen extensively walked and trekked the backwoods of British Columbia, where he spent his formative years.

Born in Denmark, he arrived in B.C. aged 12 after his mother married a Canadian and moved the family. Largely as a result of spending his teen years amidst the natural splendour of Western Canada, Mr Pedersen has long been actively involved with conservancy efforts.

TD’s commitment to the environment constitutes an ongoing process that is continually evaluated and adjusted to optimise efficiencies and synergies. By the end of this year, the bank aims to have reduced its paper use by 20% versus 2010. TD has been paper neutral since 2012 thanks to paper reduction initiatives and protecting critical forest habitats.

TD’s aggressive greening processes are driven by clients and employees alike: “We have sound business reasons for putting environmental concerns at the very centre of corporate operations and have now entered a virtuous circle that reinforces processes set in motion earlier. Customers demand this and businesswise it makes sense as well. As we progress, new opportunities arise to develop products that help businesses and retail clients reduce their impact on the environment.”

Mr Pedersen emphasises that the application of sustainable business practices need not – and indeed does not – detract from profitability: “At TD, we found that caring for the environment makes plenty of sense for all stakeholders and that includes investors. By spotting the trend earlier than most, TD has now gained an edge on its competitors – one that offers rewards significantly beyond what we could reasonably have expected when we started out on the journey.”


TD: Making the Environment Part of the Bank’s DNA

When Mike Pedersen joined TD Bank Group in 2007 as Group Head, Corporate Operations, he was tasked with putting an environmental strategy in place for the bank. Early on, he saw the need for full-time executive leadership to drive the strategy, and in 2008 Pedersen hired environmental scientist Karen Clarke-Whistler as Chief Environment Officer – a first for TD Bank Group, and indeed for any major North American bank. TD had long been committed to the environment – the TD Friends of the Environment Foundation is celebrating its 25th anniversary this year – but the bank’s leaders believed it needed to do more. The environment was a key issue that would shape the future and there was a need for greater understanding of the links between the environment and the economy. And it was important to customers and employees, which meant it was important to the bank.

TD’s strategy is simple: embed the environment across all business lines and in TD’s core business strategy, making it a factor in business decisions and how the bank operates. Today, the impact of this strategy can be seen across the bank, from the design of its facilities and approach to technology to its products and services and even the work of its economic think tank. Says Ms Clarke-Whistler: “We want to model an approach to business where the environment and business go hand in hand – where the environment is in fact a driver of success.”

The year Ms Clarke-Whistler joined TD, she and Mr Pedersen made a recommendation to the bank: that TD become carbon neutral — something it achieved in 2010, becoming the first North American-based carbon neutral bank. The impact has been enormous. For one thing it inspired a major green building initiative that has seen the bank open North America’s first two net zero energy branches and install solar energy generation at 116 facilities and counting.

About TD Bank Group

Headquartered in Toronto, Canada, with more than 85,000 employees in offices around the world, the Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (TD). TD offers a full range of financial products and services to approximately 24 million customers worldwide through three key business lines:

Canadian Retail including TD Canada Trust, Business Banking, TD Auto Finance (Canada), TD Wealth (Canada),TD Direct Investing and TD Insurance

U.S. Retail including TD Bank, America’s Most Convenient Bank, TD Auto Finance (U.S.), TD Wealth (U.S.) and TD’s investment in TD Ameritrade

Wholesale Banking including TD Securities

TD had CDN$1 trillion in assets on April 30, 2015. TD also ranks among the world’s leading online financial services firms, with approximately 10 million active online and mobile customers. The Toronto-Dominion Bank trades on the Toronto and New York stock exchanges under the symbol “TD”.

Becoming carbon neutral has also resulted in TD gaining a tremendous amount of expertise related to renewable energy and the low carbon economy. This expertise is helpful to customers and clients alike and has led to business opportunity. Last year, for example, TD issued a green bond – a first for a Canadian commercial bank. Proceeds from the $500-million, three-year bond will be used to contribute to the low carbon economy through renewable and low carbon energy and related infrastructure; energy efficiency and management, with a focus on green buildings; and green infrastructure and sustainable land use management. The bond sold out almost immediately, while attracting new investors to the bank. “This was a clear sign to us that there is a real appetite for these kinds of offerings,” says Ms Clarke-Whistler, adding that the expertise the bank had gained from its own carbon journey enabled it to put the bond together. Since 2006, TD has invested more than $7 billion in the low-carbon economy (see Our Low-Carbon Journey chart below). “It’s a clear illustration that the environment can be a driver of business success. The more people understand the economic benefits and opportunities inherent in the greening of our economy, the more they’ll support and embrace the transition to a low-carbon economy.”

***

2012 saw the bank launch TD Forests, which works to help protect critical forest habitat, grow urban forests and green space and encourage the responsible use of forest products. The program was inspired by two findings. In a survey the bank conducted within its North American footprint, more than 90% of respondents indicated that they thought forests were important and more than 90% said they were in need of protection. And when the bank asked customers what they felt the bank should do to help the environment, the overwhelming response was: “use less paper”. TD set a goal to reduce its paper use by 20% by the end 2015 (versus 2010), and through TD Forests the bank works with The Nature Conservancy of Canada and the Nature Conservancy in the U.S. to protect critical forest habitat equivalent to its paper use. “We are paper neutral as well as carbon neutral,” says Ms Clarke-Whistler.

[caption id="attachment_10210" align="aligncenter" width="900"] TD’s investment in the low-carbon economy (2006-2014).[/caption]

By the end of 2014, TD had helped protect nearly 33,000 acres of critical North American forest habitat. To grow urban forests and green space, particularly in low- to moderate- income communities, two key TD Forests programs come into play: TD Tree Days and TD Green Streets. Through TD Tree Days, employees, their families and friends and members of the public plant trees – mostly in Canada and the U.S., but also in the U.K. and Luxembourg. To date more than 185,000 trees have been planted, and this year that number will grow by more than 50,000. TD Green Streets provides matching grants of up to $15,000 to support urban greening and innovative municipal forestry practices in North America and the U.K.

TD’s commitment to the environment also means providing thought leadership. Two years ago TD Economics hired an economist to focus on the environment, working closely with the bank’s Chief Environment Officer. The result has been a number of papers that are helping to build understanding of the links between the environment and the economy.

Over the past year, natural capital has been a major area of focus for the bank, particularly the economic value of the environmental benefits provided by the natural environment. In Valuing the World Around Us: An Introduction to Natural Capital, TD Economics showed very clearly that our natural resources and ecosystems provide enormous, measurable benefits each year and that including natural capital valuation in decisions can give us a better understanding of the true costs, benefits and return on investment of planned activities. “Take Toronto’s urban forests,” says Ms Clarke-Whistler. “We have 10.2 million trees, which provide over $80 million worth of environmental benefits and cost savings to residents each year.” How? Through factors such as filtering pollutants from the air; reducing the strain on infrastructure by absorbing groundwater; cooling the air, leading to energy savings; and absorbing carbon dioxide. “Considering the natural capital value of trees is vital when it comes to urban development,” adds Ms Clarke-Whistler, “not just from a quality of life perspective but for very real economic reasons.”

To help build understanding of natural capital, TD has provided natural capital valuations of some of its own initiatives. For example, its net zero energy branch in Florida provides more than $100,000 of savings through reduced operating costs and natural capital impacts. And the value of the reduction in greenhouse gas emissions associated with the carbon offsets and renewable energy credits TD purchased in fiscal 2014 has a lifetime impact of about $118.5 million.

TD’s perspective is that the more people understand the economic benefits and opportunities inherent in the greening of our economy, the more they’ll support and embrace the transition to a green economy. “We need sound, transparent conversation about what a green economy can mean, and those of us who are proponents of a green economy need to put our money where our mouth is,” says Ms Clarke-Whistler.


Eduardo Galeano: Remembering a Forgotten Continent

In the last days of his presidency, José Mujica visited the Casmu Hospital in Montevideo to pay his respects to Uruguay’s foremost historian and poet. On April 13, Eduardo Hughes Galeano succumbed to lung cancer. A giant of progressive journalism, poet-laureate of the anti-globalisation movement, and – as is to be expected of any self-respecting South American intellectual – a former exile twice over Mr Galeano was not only beloved in his native Uruguay but throughout the world.

At home, Mr Galeano passing was marked with a wake held at the Hall of The Lost Steps of the Legislative Palace where his poetry, novels, and essays – occasionally banned from publication – were read. Mr Galeano thus secured his place amongst South America’s literary greats.

Eduardo Galeano started his career in journalism at the age of fourteen – having completed only two years of secondary education – by drawing cartoons for the socialist weekly El Sol. There he would also illustrate the columns submitted by trade unionist, and later founder of the left-wing guerrilla movement Tupamaros, Raúl Sendic.

“He went searching for hidden truths and he travelled throughout the parts of America with the greatest suffering, including that part which neither books nor academia ever reach.”

- President José Mujica

In the early 1960s, Mr Galeano moved to the editorial desk of the weekly newspaper Marcha. Four years later, he published an account of his travels in Mao’s China. In 1967, Mr Galeano followed up with País Ocupado, detailing life in dictatorial Guatemala after the 1954 CIA-backed coup that deposed the elected President Jacobo Árbenz.

In 1973, Mr Galeano was imprisoned and subsequently had to flee his native Uruguay. Moving across the River Plate, the writer found refuge in Buenos Aires where he promptly founded the magazine Crisis. His Argentinean sojourn was, however, short-lived and in 1976 Mr Galeano had to pull up stakes yet again to escape the clutches of General Jorge Rafael Videla and his military junta which had grabbed power and immediately set about “disappearing” people deemed inconvenient. Mr Galeano departed for Spain where Generalissimo Francisco Franco had just passed away and democracy was taking hold.

After the fall of the Uruguayan dictatorship in 1985, Mr Galeano returned home and together with other former Marcha staff members re-established and rebranded the paper – now called Brecha. In 2005, while under the spell of the populist Venezuelan President Hugo Chávez who considered himself Simon Bolívar reincarnate, Mr Galeano joined the advisory committee of the Pan–Latin American news network TeleSur which soon was turned into a mouthpiece of increasingly absolutist regime.

Mr Galeano’s most influential work was published in 1971 under the title The Open Veins of Latin America. In this book he gives a passionate yet matter-of-fact overview of the continent’s history since the arrival of the first Europeans.

Mr Galeano gives an account of the native experience in the early days of colonisation. The encomienda and later the hacienda system – both feudal in character – under the Spanish crown would ultimately come to define the region’s place in the world economy. The book offers an explanation for the disparity between the development of North America and South America. It attempts to show how imperialist powers worked to keep the region in its subservient place even after the collapse of the Spanish Empire with further exploitation coming first from the British and later the Americans.

Thus the book constitutes a devastating analysis backed up by an encyclopaedic knowledge of history. Through this work, Mr Galeano not only contextualises the state of his continent but also gives context and highlights the dehumanising facets of globalisation in general. Memory is a recurring theme for Mr Galeano who described himself as “obsessed with remembering; with remembering the past of the Americas and above all that of Latin America – an intimate land condemned to amnesia.”

And therein lays the vital message Eduardo Galeano delivered: discourse on the predicament of a people, or of an entire continent, quickly turns ugly without the benefit of a long memory. It is the forgetful observer who sees a region supposedly having enjoyed two hundred years of independence, but still gripped by systemic poverty, corruption, and political turmoil and concludes it must be the work of a handful of monsters, or worse yet, some innate disposition in the people themselves.

Those unwilling to step back and see the patterns will come to the simplistic notion that culpability must either be individual or genetic. Ultimately history cannot be understood by scrutinising the acts and motives of a handful of agents, but by the entirety of human activity. History does not admonish the capitalist, the aristocrat, the populace, nor does it mandate the tyrant, it merely remembers how we got here.

Like the migrating ants who are just following the chemical trail of the fellow in front, while the colony as whole ends up tracking in circles, we – while acting rationally, self-interestedly, and within the confines of our individual experience – contribute to a system determined to repeat itself. Within the ever narrowing present we are left wondering: how on earth did things get so messed up? We need to look at bigger – much bigger – pictures, on a scale where notions of individual culpability and even agency itself become unwieldy. This is the historical perspective.

In 2009, Venezuelan president Hugo Chávez, rather preposterously, thrust a copy of The Open Veins of Latin American into the hands of US president Barrack Obama at the opening session of the 5th Summit of the Americas held in Port of Spain. This resulted in a resurgence of interest in the book, propelling the tome to the top of Amazon’s best sellers list.

Of Eduardo Galeano, President José Mujica said: “He went searching for hidden truths and he travelled throughout the parts of America with the greatest suffering, including that part which neither books nor academia ever reach.” Mr Galeano’s last book Children of the Days was published in 2011. An anthology is scheduled to be released posthumously later this year. Mr Galeano is survived by his wife Helena Villagra and their three children.

By John Marinus


Otaviano Canuto, IMF: How Commodity-Dependent Are Latin American Economies?

The end of the upswing phase of the commodity price super-cycle, after its peak in 2011, has lowered economic growth prospects in most of Latin America. While that broad statement can hardly be disputed, Chapter 3 of the latest IMF Western Hemisphere Regional Economic Outlook calls attention to underlying significant differences among countries in the region. Growth implications of the commodity price evolution have varied substantially as a result of commodity-specific price patterns and country-specific exposures and composition of commodity specialisation.

Commodity-Specific Super-Cycles

Figure 1 depicts the three broad groups of commodity prices as following an overall common cyclical path since 2002. After a strong upswing lasting until the 2008 financial crisis, and a subsequent recovery from the plunge, mid-2011 has been dubbed the “sunset of the super-cycle”. Prices definitely ceased to climb during the plateau period (shaded area) and the three groups have all moved to lower levels after mid-2004.

However, Figure 1 also shows that evolution is taking place with different intensities. As we highlighted two years ago (Canuto, 2013), the dynamics of fundamentals in terms of relative supply and demand trends in the markets for each group were then divergent enough to lead to differences like those identified during the plateau period. In the case of crude oil, sector-specific supply-side developments were responsible for the sudden fall during the second half of 2014. The differentiation is starker when one disaggregates the three groups.

[caption id="attachment_10225" align="aligncenter" width="444"] Figure 1: Commodity prices. (Index: July 2011 = 100) Note: The shaded area corresponds to the plateau period referred to in the text. Source: IMF, World Economic Outlook database.[/caption]

A net exporter (importer) of a commodity enjoys (suffers from) a manna-from-heaven gain (thunder-from-heaven loss) when its price increases. The extent to which that price retreats back after the end of the upswing phase determines how much of that gain (loss) is reduced - or even possibly reversed. Therefore, country-specific impacts of the commodity price super-cycle have depended on which commodities – and how much of each of them – a country exports and imports.

The IMF Regional Outlook brings estimates of country-specific “commodity terms of trade” (CTOT) indices across the region. Those are indices in which price changes of individual commodities are weighted according to their (net) export value, and are then normalised by GDP. A certain increase (decrease) in CTOT is thus a way to gauge the net gain (loss) of commodity price movements in GDP terms.

Figure 2 exhibits cumulative changes in CTOT indices from average levels in 2002 to mid-2011 (the sunset of the super-cycle), August of 2014 (when the sudden plunge of oil prices started), and February of 2015. At least four aspects come to the fore:

[caption id="attachment_10226" align="aligncenter" width="441"] Figure 2: Commodity Terms of Trade, 2013-2015. (Cumulative change in CTOT indices from average levels in 2002; percentage points of GDP) Note: CTOT = Commodity Terms Of Trade. Source: IMF, World Economic Outlook database; UN Comtrade; and IMF staff calculations. [/caption]

As one can see on the horizontal axis, except for Uruguay, all Latin American countries therein derived GDP gains from the upswing phase. The ascent stage of the cycle was a potential economic blessing for most of Latin America.

Baskets of commodity exports and imports determined how much of that gain was retained during the plateau period (red squares) and afterwards (blue diamonds). This follows from different compositions of commodity specialisation regarding metals, food, and oil and their diverging price patterns over time.

Commodity prices have not in general declined to levels below those in 2002 and, therefore, the manna-from-heaven gains accrued until now have not been completely reversed. However, those gains were accrued in past and current GDP levels, while the contribution of commodity price shocks to GDP growth rates has become negative after the price peak. Positive commodity price shocks have multiplier-accelerator effects beyond changes in CTOTs. Provided that they are seen as permanent or prolonged, they spark investments that benefit directly or indirectly from them. Both potential and actual GDP move up as compared to the absence of shocks. Broad asset price hikes and capital flows may also follow. Nevertheless, once positive shocks fade out and corresponding multiplier-accelerator effects have run their course, there will be a deceleration of output growth even if prices stay high.

Magnitudes in GDP relative of terms-of-trade gains, and their subsequent partial unwinding along the cycle, have varied substantially among countries. First-order impacts as measured in Figure 2 do not tell the whole story of implications of commodity price cycles for a country’s economy. Second-order effects – like above-mentioned investments, asset price cycles, capital flows, and others – depend on sector- and country-specific features in addition to CTOT changes. The nature of economic policies accompanying price shocks can also – positively or negatively – magnify the impacts of those CTOT movements. However, even taking these factors into account, the discrepancies in quantitative relevance of the commodity price super-cycle still look very significant between, say, Venezuela and Chile on the one hand, and Brazil, Mexico, and Paraguay on the other.

Take the case of Brazil. It is true that ups and downs in neighbours’ economies more cyclically affected by commodity prices also weighed on its performance as a consequence of their relevance as markets for Brazilian manufactured products. However, it looks hard to state that the recent performance and macroeconomic prospects of Brazil can be predominantly explained by the commodity price super-cycle.

About the Author

Otaviano Canuto is the executive director at the Board of the International Monetary Fund (IMF) for Brazil, Cabo Verde, Dominican Republic, Ecuador, Guyana, Haiti, Nicaragua, Panama, Suriname, Timor Leste and Trinidad and Tobago. Views expressed here are his own and do not necessarily reflect those of the IMF or any of the governments he represents.

Mr. Canuto has previously served as vice president, executive director and senior adviser on BRICS economies at the World Bank, as well as vice president at the Inter-American Development Bank. He has also served at the Government of Brazil where he was state secretary for international affairs at the ministry of finance. He has also an extensive academic background, serving as professor of economics at the University of São Paulo and University of Campinas (UNICAMP) in Brazil.

Note from the author: adapted from my presentation at the Workshop on Commodity Super Cycles, jointly organised by the Bank of Canada and Federal Reserve Bank of Dallas, Ottawa, at the Bank of Canada Headquarter on 27-28 April 2015.

The views expressed are those of the author and do not necessarily reflect the views of the IMF.