Can Malaysia Lay a New Silk Road?

Ben Lewis, The Asian Lawyer (20/02/12):

For many international lawyers, the term Islamic finance immediately calls to mind images of the sleek Persian Gulf financial centers of Dubai and Doha.

Kuala Lumpur is working to change that.

The Malaysian capital already has the world's largest market in sukuk, the debt instruments that are the basic unit of Islamic capital markets. Because of the Muslim faith's ban on the charging of interest, sukuk pay investors a rental fee tied to an underlying asset. According to Islamic International Financial Market, a global standards body for Islamic finance, Malaysia issued some $115 billion in sukuk over the past decade, almost 60 percent of the world total.

"Here is definitely where any Islamic finance lawyer would want to be," says Madzlan Hussain, a partner at one of Kuala Lumpur's leading law firms advising on Islamic finance. He says other countries' infrastructure and expertise are "miles behind" that of Malaysia.

There are several caveats to such confidence though. Malaysia's sukuk issues are still mainly for a domestic market rather than an international one. And Islamic finance is in any case still only a tiny part of global finance. Ernst & Young estimates that there are currently a little over $1 trillion being held in sharia-compliant financial assets, roughly half a percent of the global total. Several of the Islamic world's biggest sovereign wealth funds, including the Abu Dhabi Investment Authority and the Kuwait Investment Authority, notably do not restrict themselves to Islamic investments.

But Islamic finance is growing fast: the $84 billion of sukuk issued last year was 62 percent more than in 2010. Deutsche Bank predicts the market will double again by 2016. In January, the Malaysian government issued a record-breaking $10 billion sukuk to fund the privatization of the country's roads. That was followed last week by the announcement of another $9.9 billion issue to finance a mass rail project in Kuala Lumpur.

If the trend continues, lawyers at both international and Malaysian firms agree the Southeast Asian country has positioned itself well to become a global hub for Islamic finance.

"The Malaysian domestic Islamic finance market is probably the largest in the world," says an Islamic finance specialist in the Hong Kong, noting that the size of that market has allowed Malaysia to develop a greater infrastructure around such securities. "Given that fact, it is difficult to overplay its importance to the international market."

The Malaysian government has not been blind to the opportunity. In 2006, it set up the Malaysia International Islamic Financial Centre (MIFC), a set of initiatives aimed at attracting foreign issuers and underwriters. This included easing regulations to allow foreign banks to conduct the full range of Islamic finance, or even buy a share of Malaysian Islamic banks.

"As a country, Malaysia hasn't been a central hub [for finance] in the same way as Singapore and Hong Kong," says Davide Barzilai, a Hong Kong-based Islamic finance partner with Norton Rose. "That's what they've been trying to achieve with the MIFC. They're pushing very strongly in a well thought-through and developed way to make Islamic finance their unique selling point for this financial center. And it's starting to work."

Indeed. Deutsche Bank, Standard Chartered, and HSBC have all set up Islamic finance arms in Kuala Lumpur. Nearly half of Malaysia's sukuk issuers now come from overseas, and have included General Electric and The World Bank. The investors have become more international, too. When Malaysian sovereign wealth fund Khazanah Nasional Bhd. issued exchangeable sukuk worth $550 million in 2008, half the investors were based in the Middle East; 26 percent were in Europe; and 11 percent were in the U.S. More than half the investors in a $2 billion Malaysian sovereign sukuklast year were in Singapore and Hong Kong.

Despite Islamic finance's roots in religion, many of the newest participants in Islamic finance are drawn to it for more earthly reasons, says Man, who is not Muslim himself. "I think that in many ways it is viewed as an alternative source of funding," he says, noting that non-Islamic issuers of sharia-compliant securities are seeking to tap a new base of investors in Middle Eastern and other Islamic countries. For this reason, other regional financial centers, including Hong Kong, Singapore, Tokyo, Seoul, and Australia have introduced reforms designed to make it easier for companies to issue sukuk on their exchanges.

"Islamic finance in Asia accepts a larger variety of sharia principles and structures than Islamic finance in the Middle East," says Lim. "In Asia they take a slightly more liberalized approach. There is much more innovation vis-à-vis the structures that are used."

Hence the emergence of exchangeable and hybrid sukuk, and more recently, sukuk denominated in Chinese renminbi and Japanese yen--all of which appeared for the first time in Malaysia. (edited version)


Indonesia To Top "Happy Index"

Indonesian are the world's most content people according to new research.

Emerging markets and half of the BRIC economies (represented by India 2nd, and Brazil 4th) are top 4 in the recently published well-being or "Happiness" ranking. Mexico came 3rd.

The Economist reports (25/02/12):

"DESPITE global economic gloom, the world is a happier place than it was before the financial crisis began. That is the counterintuitive conclusion of a poll of 19,000 adults in 24 countries by Ipsos, a research company. Some 77% of respondents now describe themselves as happy, up three points on 2007, the last year before the crisis. Fully 22% (up from 20%) describe themselves as very happy—a more important measure, says Ipsos's John Wright, since whenever three-quarters of people agree on anything, "you need to pay attention to intensity in the results."

All such polls come with a health warning. The level of happiness is self-reported—and the term means different things to different people. The Ipsos poll, measuring degrees of happiness, is not strictly comparable with those that ask about "well-being" (such as Gallup) or "life satisfaction" (the World Values survey), so it is hard to test the validity of the conclusions against other efforts. The margin of error is wide, at plus or minus 3.1 points for most countries. Still, Ipsos has been doing its survey regularly for five years and the figures have proved fairly stable during that time, not wildly volatile which they would have been if they had been flaky.

Two conclusions emerge. Large, fast-growing emerging markets do not share rich industrialised countries' pessimism. The already large "very happy" cohort rose 16 points in Turkey, ten points in Mexico and five points in India. Even rich-country pessimism is uneven. The share of "very happy" people rose six points in—of all places—Japan, defying tsunami and nuclear accidents. But growth amid global misery does not explain everything: the biggest falls in happiness also occurred in large emerging markets, in Indonesia, Brazil and—a perennial miseryguts—Russia.

The second conclusion challenges the received notions of mankind's moods. A tenet of political science is that happiness levels rise with wealth and then plateau, usually when a country's national income per head reaches around $25,000 a year. "The richer a country gets," argued Richard Wilkinson and Kate Pickett in "The Spirit Level", an influential book of 2009, "the less getting still richer adds to the population's happiness." Many on the left have concluded that pursuing further economic growth is pointless. Even right-wing politicians such as Britain's prime minister, David Cameron, and the French president, Nicolas Sarkozy, have set up projects to study "gross national happiness".

But the Ipsos study shows the highest levels of self-reported happiness not in rich countries, as one would expect, but in poor and middle-income ones, notably Indonesia, India and Mexico. In rich countries, happiness scores range from above-average—28% of Australians and Americans say they are very happy—to far below the mean. The figures for Italy and Spain were 13% and 11% (Greece was not in the sample). Most Europeans are gloomier than the world average. So levels of income are, if anything, inversely related to felicity. Perceived happiness depends on a lot more than material welfare.

Two conclusions emerge. Large, fast-growing emerging markets do not share rich industrialised countries' pessimism. The already large "very happy" cohort rose 16 points in Turkey, ten points in Mexico and five points in India. Even rich-country pessimism is uneven. The share of "very happy" people rose six points in—of all places—Japan, defying tsunami and nuclear accidents. But growth amid global misery does not explain everything: the biggest falls in happiness also occurred in large emerging markets, in Indonesia, Brazil and—a perennial miseryguts—Russia.

The second conclusion challenges the received notions of mankind's moods. A tenet of political science is that happiness levels rise with wealth and then plateau, usually when a country's national income per head reaches around $25,000 a year. "The richer a country gets," argued Richard Wilkinson and Kate Pickett in "The Spirit Level", an influential book of 2009, "the less getting still richer adds to the population's happiness." Many on the left have concluded that pursuing further economic growth is pointless. Even right-wing politicians such as Britain's prime minister, David Cameron, and the French president, Nicolas Sarkozy, have set up projects to study "gross national happiness".

But the Ipsos study shows the highest levels of self-reported happiness not in rich countries, as one would expect, but in poor and middle-income ones, notably Indonesia, India and Mexico. In rich countries, happiness scores range from above-average—28% of Australians and Americans say they are very happy—to far below the mean. The figures for Italy and Spain were 13% and 11% (Greece was not in the sample). Most Europeans are gloomier than the world average. So levels of income are, if anything, inversely related to felicity. Perceived happiness depends on a lot more than material welfare."


NCCIM: Malaysian Economy to Retain Growth Momentum

OHOR BARU: Malaysia is expected to retain its growth momentum and expand at more than five per cent this year although faced with an uncertain global economic climate, said the National Council of Commerce and Industry Malaysia (NCCIM).

Its Secretary General Datuk Syed Hussien Al-Habshee said the implementation of projects under the Economic Transformation Programme (ETP) will help to drive the country's economy forward and retain its growth at more than five per cent this year.

"The confidence level of the business sector and consumers towards the country's economy this year would also continue to be high," he told Bernama in an interview.
Syed Hussien, who is also former Ambassador of Malaysia to United Arab Emirates (UAE), said the government led by Prime Minister Datuk Seri Najib Tun Razak had also managed the Malaysian economy successfully.

"Although faced with steep challenges following the Eurozone financial problems and the market uncertainty in the United States, the government has managed the economy well."

The economy grew at a 5.1 per cent rate in 2011 despite the worsening external economic conditions. It had recorded a 7.2 per cent growth the previous year.

Syed Hussien said the country's total trade last year saw a record figure, hitting RM1.3 trillion, while trade surplus grew 9.4 per cent worth RM120 billion.

"All this contributed positively to the economy," he said.

He also said that Malaysia could have seen an even higher growth if the world economy had not been burdened with the Eurozone problem and a slowdown in the US economy.

Syed Hussien also said that NCCIM would be organising a roundtable forum to discuss specific economic issues and the challenges posed by them this April 16 at the Mutiara Crowne Plaza here.

Former prime minister Tun Dr Mahatir Mohamad is expected to chair the event, which is to be attended by 120 leading local business figures. -- BERNAMA


Mines and Money Beijing 2012

Mines and Money Beijing is where mining companies from around the world come to raise capital in China. The event takes place in the capital city of the world’s most important natural resources buyer on 21 – 22 June 2012. Mines and Money brings together some of China’s most active institutional and private investors, mining entrepreneurs, brokers and investment analysts to network, shape the future and meet the latest projects seeking Chinese capital. It is the fastest way to meet with so many people in one place with the same common interest: Mining Investment. The relationships you build at Mines and Money will support the success of your projects for the next year.

Visit the Mines and Money Beijing event website for more information: http://www.minesandmoney.com/beijing/

If you are interested in sponsoring, speaking, exhibiting at or attending Mines and Money Beijing as a delegate please contact:
Pablo Martin
Events Sales Director
Tel: +44(0)207 216 6063
pablo.martin@aspermontuk.com


The list is dominated by billionaires from the BRIC economies (65% out of the total number of billionaires).

Of these, the Russian (and one Ukrainian) makes up more than half of the billionaires from BRIC economies and 38% of the total. They almost all made their fortunes in steel, mining and oil.

Latin America (represented by Brazil, Mexico, Chile and Colombia) has one in four of the world’s top 40 emerging markets billionaires.

The populous China (including Hong Kong) and India makes up a further 23% of the billionaires.

The Middle East and Africa only represents 10% of the list.

The richest on the list with $74 billion in net worth made his initial fortune primarily in mobile telecom. However, the single Malaysian representative was the only other billionaire to advance through telecom. The majority of the top 40 billionaire’s monies appear to have been made in steel, mining and oil. The boom in the prices and world-wide demand for commodities have translated into extraordinary successes for some and created the majority of the top new billionaires from emerging markets.

Still, many of the billionaires have made their monies from “old fashioned style” finance, including banking, investments, real estate and diversified holdings.

[caption id="attachment_92" align="aligncenter" width="419"] Top 5: C. Helu, L. Mittal, E. Batista, M. Ambani, L. Ka-shing[/caption]

Table 2: CFI Top 40 Billionaires in Emerging Markets 2012

Rank
Name
Wealth
Age
Industry
Country

1
Carlos Slim Helu & Family
$74 B
72
Telecom
Mexico

2
Lakshmi Mittal
$31.1 B
61
Steel
India

3
Eike Batista
$30 B
55
Mining, oil
Brazil

4
Mukesh Ambani
$27 B
54
Petrochemicals, oil & gas
India

5
Li Ka-shing
$26 B
83
Diversified
Hong Kong

6
Vladimir Lisin
$24 B
55
Steel
Russia

7
Thomas & Raymond Kwok & family
$20 B
N/A
Real estate
Hong Kong

8
Prince Alwaleed Bin Talal Alsaud
$19.6 B
56
Investments
Saudi Arabia

9
Iris Fontbona & family
$19.2 B
N/A
Mining
Chile

10
Lee Shau Kee
$19 B
84
Real estate
Hong Kong

11
Alexei Mordashov
$18.5 B
46
Steel
Russia

12
Mikhail Prokhorov
$18 B
46
Investments
Russia

13
Vladimir Potanin
$17.8 B
51
Nonferrous metals
Russia

14
Alisher Usmanov
$17.7 B
58
Steel, telecom, stocks
Russia

15
Azim Premji
$16.8 B
66
Software
India

16
Oleg Deripaska
$16.8 B
44
Aluminum
Russia

17
Rinat Akhmetov
$16 B
45
Steel, coal mines
Ukraine

18
German Larrea Mota Velasco & family
$16 B
58
Mining
Mexico

19
Shashi & Ravi Ruia
$15.8 B
68
Diversified
India

20
Mikhail Fridman
$15.1 B
47
Oil, banking, telecom
Russia

21
Vagit Alekperov
$13.9 B
61
Oil
Russia

22
Aliko Dangote
$13.8 B
54
Sugar, flour, cement
Nigeria

23
Roman Abramovich
$13.4 B
45
Steel, investments
Russia

24
Jorge Paulo Lemann
$13.3 B
72
Beer
Brazil

25
Savitri Jindal & family
$13.2 B
61
Steel
India

26
Viktor Vekselberg
$13 B
54
Oil, metals
Russia

27
Robert Kuok
$12.5 B
88
Diversified
Malaysia

28
Mohammed Al Amoudi
$12.3 B
67
Oil
Saudi Arabia

29
Alberto Bailleres Gonzalez & family
$11.9 B
80
Mining
Mexico

30
Joseph Safra
$11.4 B
73
Banking
Brazil

31
Viktor Rashnikov
$11.2 B
63
Steel
Russia

32
Luis Carlos Sarmiento
$10.5 B
79
Banking
Colombia

33
Horst Paulmann & family
$10.5 B
77
Retail
Chile

34
Nasser Al-Kharafi & family
$10.4 B
68
Construction
Kuwait

35
Eliodoro, Bernardo & Patricia Matte
$10.4 B
N/A
Paper
Chile

36
Gautam Adani
$10 B
49
Commodities, infrastructure
India

37
Iskander Makhmudov
$9.9 B
48
Mining, metals, machinery
Russia

38
German Khan
$9.6 B
50
Oil, banking, telecom
Russia

39
Dmitry Rybolovlev
$9.5 B
45
Fertilizer
Russia

40
Ananda Krishnan
$9.5 B
73
Telecom
Malaysia

Source: CFI, Forbes, Other


Few will argue about Vladimir Putin being the most powerful man in emerging markets this year. On the back of his long term track record of domestic economic success and foreign policy strengths, he will soon be re-elected as President of Russia. Russia’s has vast land with an abundance of resources, including commodities such as metals, oil and gas. Russia also has strong military power and also skilled elite scientists. These factors combined with a still centralized government with the President at the helmet, makes Putin the most powerful man.

The Chinese government and party representatives are well represented on the list because they hold powers over an enormous labor force, the world’s largest army, production capacity and natural resources (including rare earth) as well as cash and securities (denominated in foreign currency).

Also, India has a skilled and aspirational labor force and knowledge capacity. Thus, they are represented by their visionary entrepreneurs and experienced head of government. As a politically powerful economist Manmohan Singh is helping India fulfill its potential.

Some of the world’s richest men, including Carlos Slim, Lakshmi Mittal, Li-Ka Shing, Alisher Usmanov and the royalty from the Middle East, are on the list because they use their considerable capital not only to produce returns, but also as a power tool to advance their projects and agenda - all creating progress for mankind. Capital yields power to impact developments.

Some wield powers by producing ideas that move the world to impact our lives through persuative diplomacy (incl. Ban Ki-Moon,) and integrity (e.g. Dalai Lama) rather than military power (e.g. Kim Jong-il) or the capital wealth aforementioned.

Other heads of government, such as Dilma Rousseff (Brazil) and Recep Erdogan (Turkey) heads up successful countries on the way up and personifies that democracy and a sense of fairness are conducive to economic growth.

Table 1: CFI Top 25 Most Powerful Individuals in Emerging Markets 2012

Rank
Name, Title
Organization
Age

1
Vladimir Putin, Prime Minister
Russia
59

2
Hu Jintao, President
People's Republic of China
68

3
Abdullah bin Abdul Aziz al Saud, King
Saudi Arabia
87

4
Sonia Gandhi, President
Indian National Congress
64

5
Dilma Rousseff, President
Brazil
63

6
Carlos Slim Helu, Chairman
Telmex
71

7
Wen Jiabao, Premier
People's Republic of China
69

8
Zhou Xiaochuan, Governor
People's Bank of China
63

9
Manmohan Singh, Prime Minister
India
79

10
Zhou Yongkang, Secretary of the Commission for Political and Legislative Affairs
People's Republic of China
68

11
Ali Al-Naimi, Oil Minister
Saudi Arabia
76

12
Rostam Ghasemi, President
Organization of the Petroleum Exporting Countries (OPEC)
47

13
Lou Jiwei, Chairman
China Investment Corporation
60

14
Ashfaq Parvez Kayani, Chief of Army Staff
Pakistan
59

15
Kim Jong-ul, Supreme Leader
North Korea
28

16
Ban Ki-moon, Secretary-General
United Nations
67

17
Li Ka-shing, Chairman
Hutchison Whampoa Limited
83

18
Lakshmi Mittal, Chairman
ArcelorMittal
61

19
Recep Erdogan, Prime Minister
Republic of Turkey
57

20
Dalai Lama, Dalai Lama
Tibet
76

21
Khalifa bin Zayed Al-Nahyan, President
United Arab Emirates
63

22
Ahmed Shuja Pasha, Director-General of Inter-Services Intelligence
Pakistan
59

23
Azim Premji, Chairman
Wipro Limited
66

24
Xi Jinping, First Secretary of the Secretariat of the Communist Party
People's Republic of China
58

25
Alisher Usmanov, Oligarch
Ukraine
58

Source: CFI, Forbes, Other


Forbes: Brazil's Booming Economy Is Creating 19 'Millionaires' Every Day

Brazil has been adding 19 ‘millionaires’ per day since 2007 — and that statistic will likely be repeated over the next three years as Latin America’s economic super-power continues to deliver stellar GDP growth and consumption rates, according to bankers. Note that these are millionaires in Brazilian currency terms. Someone worth 1 million Reais has a net worth of roughly $540,000.

Speaking on the fringes of the Private Banking Latin America 2011 conference last week, Guilhermo Morales, head of Latin American private banking for Portuguese lender Millennium BCP, said Brazilian consumption continues to grow very strongly, boosting the fortunes of retailers, banks and a plethora of industries that are clamoring for size. As these businesses grow, so does their owners’ wealth.

“There are many emerging companies growing very fast, especially in retail, but also in healthcare, real-estate, construction and other basic industries,” Morales pointed out. He said M&A activity is also gaining traction as many industries look to consolidate or large players (both locally and abroad)  snap up smaller ones. A case in point is Schneider Electric’s recent purchase of small Brazilian electrical supplier Steck Group for some $350 million.

Added Morales: “There are many undercover deals like this going on right now, involving several  industries and big payouts for the acquired company owners.”

Another factor accounting for the rising tide of millionaires are high executive and banker salaries, which Morales said often beat those paid in the US. He noted it’s common for Brazilian investment bankers to make a $539,000 ($1m reais) annual bonus these days while CEOs can make an average of $75,000 a year.

According to other bankers, Brazil’s booming real-estate industry has also generated huge wealth as property values have doubled in recent years and are poised to increase further, especially in Rio de Janerio, as the city girds up to host the 2014 World Cup and the 2016 Olympics.

Individuals with a net worth ranging from $539,000 – $2.7 million ($1m-$5m reais) make up the bulk of the new millionaires, Morales said, adding that most private banks tend to individuals whose net worth falls below $5.4 million ($10m reais).

“I think that this trend will continue for the next three years but I don’t see it lasting forever. After all, there is a limit to everything,” Morales noted.

Brazil’s economy has been growing at an annual average of 5% in recent years and is predicted to maintain that pace in the medium term. However, some economists have warned that the country’s economy could overheat as inflation rises to unsustainable levels.

The 19-millionaires-a-day statistic was measured by taking all of an individual’s wealth into account, including investments, property, savings and other assets in addition to cash. Some in the private banking conference said the statistic seemed a bit overhyped but Emerson Pieri, Head of Wealth Management, Latin America, at Haliwell Bank (which unveiled the millionaire statistics as part of a Brazilian wealth management study) insisted they are reliable.

He added Brazil currently has 137,000 millionaires and (according to Forbes’ 2011 World Billionaires’ list)  some 30 billionaires, with 70% of the country’s wealth concentrated in Sao Paulo and Rio de Janerio. Pieri said Brazil represents an enormous opportunity for private banks to meet the needs of its growing millionaire community as well an emerging class of ultra-high networth individuals.


Dubai’s Nakheel Says Back in the Black in H1

Nakheel, the Dubai developer that wrote down AED78.6bn ($21.4bn) from the value of its real estate as property prices in the emirate crashed, reported a first-half net profit on Monday.

The architect behind Dubai’s palm-shaped island said it booked profit of AED526m ($143m) in the six months to June, driven by the handover of real estate project stalled in the downturn.

The company gave no comparative data for 2010.

“Revenues.....were mainly driven by the handover of development properties in a number of Nakheel projects. Other business segments including retail and leasing also contributed positively to the results,” the company said in an emailed statement.

“The financial results of Nakheel are also indicative of a relatively more stable real estate market in Dubai.”

Revenues stood at AED1.5bn, mainly driven by the handover of development properties in a number of stalled Nakheel projects. Cost cuts also reduced overheads by AED 131m compared to the same period in 2010, the company said.

"The company has remobilised a number of its construction sites where work is progressing as per its business plan," it said in the statement.

Nakheel completed a $16bn debt restructuring earlier this year and is now wholly-owned by the Dubai government, after being carved out from parent company Dubai World.

Chairman Ali Rashid Lootah said in September he expected Nakheel’s 2011 profit to exceed the $234.1m posted last year. The developer said profit would come from its leasing and retail business which is yielding 20 percent above expectations.

“We have our collections from customers, from retail, from leasing,” he said. “Leasing and retail, we’re doing about 20 percent higher than planned. Sure [we’ll make a profit].”

Nakheel was one of the biggest casualties of Dubai’s real estate crash, suspending at least 100 projects in the wake of a property collapse that more than halved house prices in the emirate.

Some of its projects, including Nakheel’s Waterfront and Jebel Ali development, are yet to complete.

Dubai saw less than 1,700 real estate deals in the first ten months of the year, data from Dubai Land Department showed in November. Some 1,603 deals were signed off in the ten months to October, down from 5,363 during the same period in 2008.

But the figures reflect a 37 percent increase in property transactions when compared to 2009 at the height of the financial crisis, suggesting fledgling signs of recovery that may be linked to the wave of Arab Spring unrest that has rocked economies in the region.

House prices showed signs of recovery in the third quarter, with slight rises in prime projects such as Palm Jumeirah and Arabian Ranches, Jones Lang LaSalle said in September.

But analysts remain concerned that the estimated 33,000 new homes scheduled to hit Dubai’s market by end-2012 could cause fresh declines in rental and sale prices.


Market Braced as Sanctions Continue on Iran's Energy Sector

Iran's oil sector has been targeted by fresh sanctions from the US, while the EU is in talks over what extra restrictions it will place on the country's economy. A number of sanctions have targeted Iran's energy sector, prompting analysts to ask what impact restrictions could have on the oil market.

The Obama administration announced sanctions last month, which included declaring the Iranian banking system a threat. Iran's oil export business is conducted through its central bank, which acts as an intermediary between the national oil company and customers.

By making the central bank a threat the US could now put sanctions on any company or government dealing with it. However Iran could find ways around this. "Sanctions on Iran's central bank would make oil payments increasingly difficult but, given the critical importance of the sector, and the keen interests from customers, I am sure a way will always be found to make payments; perhaps barter transactions," Robin Mills, head of consulting at Manaar Energy Consulting tells AMEinfo.com.

The sanctions have been placed on Iran in an attempt to pressure the country over its nuclear enrichment programme. A recent UN report suggested that Iran is attempting to build a nuclear bomb and "credible intelligence" suggests this process "may be ongoing". Iran has denied the claims, saying its nuclear programme is peaceful.

Iran warns of global price hikes

Seyed Emad Hosseini, rapporteur of the Iranian Parliament's Energy Commission, told the Fars News Agency recently: "The oil producing countries are normally thinking of stabilising the market, while sanctions on Iran's oil, gas and petrochemical industries would be synonymous with a disruption in the world market, which in turn would push up crude prices."

Hosseini has also stated that its economy would not be negatively affected by any sanctions as it has unofficially been under sanctions for a long time already and has "overcome all problems throughout these years and achieved eye-catching growth." And that is a view upheld by oil industry experts.

"Iran has been rather inflexible in dealing with the financial sanctions so far - but that could change if things become critical. Iran has been under formal and informal sanctions of various kinds for many years, and so its economy is rather self-sufficient. Many of Iran's economic problems are due to its own mismanagement rather than sanctions," says Mills.

On a macro-economic level, this week an Iranian Foreign Ministry spokesman claimed that Western sanctions on the country's ability to export oil will result in prices more than doubling. "As soon as such an issue is raised seriously the oil price would soar to above $250 a barrel," Ramin Mehmanparast told the reformist daily Sharq.

However, such a rise seems unlikely. "The current sanctions are putting some upward pressure on prices. But the more significant effect will be shuffling around supplies and hence changing the relative pricing of different grades. Long-term effects depend on whether there is any military conflict, with highly uncertain effects. Assuming there is no conflict, sanctions increase long-term prices by hampering the Iranian oil industry," explains Mills.

Iran exports 2.2m barrels per day

Iran currently exports 2.2 million barrels per day. Should that figure be taken off the world market, the effects would be disastrous. However, this remains unlikely, with the destinations of exports changing a far more conceivable scenario. The EU may look to Iraq's Kirkuk crude or to reroute Saudi exports in order to make up its shortfall.

Iran's oil industry is facing another threat. A number of explosions have been reported recently at its energy facilities. Some of these have been blamed on covert attacks from the West and Israel, but there is also an issue of poor and ageing equipment being used.

"Some recent explosions may have been sabotage, including the pipeline accidents. But much of Iran's oil infrastructure is old and badly maintained. This is partly due to sanctions but, again, more caused by underinvestment," reveals Mills.

The EU is reportedly to announce its decision on sanctions in January and its foreign policy chief Catherina Ashton has said an oil embargo is still "being debated". However the impact of an EU import ban would be limited without the support of China, India, Japan or South Korea. China alone imports more oil from Iran and the four countries account for almost 60% of its oil exports. It is thought unlikely that any of these nations will join in the import ban.


Forum to Promote Trade and Investment Relations Latam-India

The potential of India for Latinamerican exports and investment opportunities was underscored during the presentation of a report “India and Latin America and the Caribbean, opportunities and challenges in trade and investment relations” sponsored by the UN Economic Commission for Latin America and the Caribbean, ECLAC.

“On the back of recent global economic events, India and the countries of Latin America and the Caribbean must rethink strategic alliances both globally and regionally. They need to reposition themselves in the world economy and enhance cooperation in innovation and human capital in order to diversify trade, add greater value and apply new knowledge to exports, thus helping to create more stable conditions for growth“ stated Alicia Bárcena, ECLAC Executive Secretary in Buenos Aires during the seminar, ”The New India and the New Latin America- Synergies and Complementarities”.

This meeting, organized by ECLAC and India, was attended by R. Viswanathan, Indian Ambassador to Argentina, Uruguay and Paraguay; Samuel Pinheiro Guimaraes, Mercosur Secretary-General; Marisol Argueta de Barillas, Senior Director and Head of Latin America, the World Economic Forum (WEF); Ambassador Horacio Salvador, Director General of International Economic Negotiations of the Ministry of Foreign Affairs of Argentina; and Osvaldo Rosales, ECLAC Director of the Division of International Trade and Integration.

According to the publication, India, and the other BRICS countries (Brazil, China, Russia and South Africa), has become one of the most important growth poles of the world. Economies in Asia-Pacific, led by China and India, are growing three times as fast as the industrialized countries.

The Indian economy is expected to surpass that of Japan as the world's third largest economy in 2011 in terms of GDP measured by purchasing power parity and has been responsible for almost 10% of world economic growth in recent years.

“Countries in the region must work together with India to anticipate this new scenario, adjusting their policies and strategies so as to take advantage of the growing potential of South-South economic links and cooperation,” states the publication.

Until now, Latin American trade with India has been concentrated in a small number of countries, led by Argentina, Brazil, Chile, Colombia, Mexico and Peru. The exchange between both parties is still at an incipient stage and is mainly concentrated in primary products and natural resource-based manufactures.

The report concludes that to promote trade and investment flows between Latin America and the Caribbean and India, the region must adopt an approach which firstly, pursues a more efficient and coordinated exploitation of natural resource-based comparative advantages and secondly, makes greater efforts to promote industrial development by improving the international competitiveness in manufacturing sectors.

According to ECLAC exports from Latam countries to India represented only 0.9% of the region's total exports in 2008-2010 and 6.2% of those sent to Asia-Pacific in 2010. The figure was lower than that of exports to other nations, such as Korea and China, which is clearly indicative of the potential for increasing trade in the medium term.


The Race by Brazil’s New Oil Tycoons

[caption id="attachment_448" align="alignright" width="300"] Eike Batista[/caption]

The race is on between Brazil’s billionaire oil tycoons, Antonio Augusto de Queiroz Galvao, Marcio Rocha Mello and Eike Batista to see who will come out ahead in the race of extraction in Latin America and Africa. But it is not just about extraction they are creating new growth opportunities for the emerging oil service sector in Brazil.

By Marco dos Santos

On a cold morning in January this year in New York, the Brazilian billionaire Eike Batista made a challenge to Marcio Rocha Mello, owner of HRT Holdings and its competitor in the oil sector, in the hall of the New York Palace luxury hotel:

- "You need to produce that oil you have promised, you know, Marcio?", Batista said.

- "I will be in production before you, Eike", Mello said.

- "I don’t believe that!", said the owner of OGX.

Both were in the United States to attract investors to their business of the black gold, the new frontier of wealth in Brazil in the XXI century. The pressure on the two companies with their billion-dollar market caps to begin to deliver the promised oil rose last week with the debut of a new competitor in the stock market, Queiroz Galvao Exploration and Production (QGEP).

The company, based in Rio de Janeiro, raised $1.5 billion in its IPO (initial public offering) and has already hit the market as the fourth largest producer in the country, second only to Petrobras and multinationals Shell and Chevron.

The company owns 45% of the Manati field, Camamu basin, off the coast of Bahia, which produces 50,000 barrels of oil equivalent per day and has eight exploration blocks, including the pre-salt reservoirs, in the Santos Basin and Jequitinhonha .

With the arrival of the QGEP three private oil companies in Brazil have reached a market capitalization of more than $70 billion.

In other words: the new breed of business tycoons of Brazilian oil, Eike Batista, Marcio Mello Queiroz Galvao and family already account for 20% of the giant Petrobras, created more than half a century.

Plus, the club of powerful businessmen will only grow over the next ten years, with investments estimated at U.S. $ 600 billion for the oil sector during this period.

Newcomers, they are - but not exactly inexperienced. "Our industry experience long predates the establishment of the company. We provide services for 30 years for oil and gas chain and are in operation for fifteen, "said the president of QGEP, Antonio Augusto de Queiroz Galvao, at the ceremony that marked the debut of its shares held at Bovespa in the old center of state capital, last Wednesday, 9.

The group Queiroz Galvao, which owns the fourth largest builder in the country and operates in sectors like roads, energy, steel and agribusiness, was founded in 1953 in Recife.

Today the company has approximately 30,000 employees and revenues over $7 billion per year. With its new oil and gas focus, it has potential to grow even more. "A business group that knows Brazil for so long could not stay out this time of so promising oil and gas industry, notably the discovery of the pre-salt," said the businessman.

In the documents delivered to investors QGEP reports that will use the money raised in the IPO to buy stakes in exploration blocks in the Campos, Santos and Espirito Santo.

Although the price of a barrel of oil is high, Queiroz Galvao raised less than the $1.8 billion financing originally planned, due to nervousness in the international market before the crisis in Egypt. Against this backdrop, capturing $1.5 billion in funding is already a success.

The QGEP reserves are small, compared to competitors as it has 345 million barrels of oil equivalent in resources (adjusted by the probability of success), while OGX has reserves estimated at 6.7 billion barrels and HRT, about 1.5 billion barrels. Petrobras' reserves are totaling about 15 billion, but this number could double when adding in its huge reserves of pre-salt layer. Extracting oil is a task for giants.

In the best style of the elite of contractors, the owners of the Queiroz Galvao speak little. Antônio Augusto, president of the board of the group, is the son of the patriarch Antonio Queiroz Galvao, who founded the company with the Mario brothers, John and Dario.

Engineer from the Federal University of Pernambuco, has specialized courses in oil in Texas and Louisiana in the United States. It is called by the president of QGEP, Jose Augusto Fernandes, a "great boss and leader." The debut on the stock reinforced its low profile style.

When the HRT raised R $ 2.6 billion in its IPO in November last year, Marcio Mello took dancers and musicians of the Beija Flor samba school to the floor of the Bovespa.

Nothing is further from the discreet ceremony of Queiroz Galvão, Antonio Augusto wept as he thanked his parents and wife, who were present. The soundtrack was in charge of a single group of choro. "They are much more restrained in their presentations to investors," says one of the financial advisors of the entrepreneur.

IPO of HRT: The company raised U.S. $ 2.6 billion and should capture other $ 500 million in Warrants

Monosyllabic, Antonio Augusto does not agree to be called the new Brazilian oil tycoon and even save the word "no" when asked by MONEY on your new status - it just makes one shake his head. Gentle, does not give interviews, but agrees to pose for the photos of this article.

Dealing with the demands of a public company will be a major challenge for the group, which has a conservative culture, even for the closed patterns of major construction.

While OGX and especially HRT themselves as competitors of Petrobras, Queiroz Galvao says that one of its greatest competitive advantages is its "good relationship with Petrobras." However, some analysts believe that this proximity is indeed a problem, because it makes QGEP more dependent on the state.

The arrival of QGEP was courteous received by the competition. "I think it's great to have competitors in the bag. The market is aggressive and punitive, and like charges results we will charge them too, "said the magnate Eike Batista.Batista put down the gauntlet and also said OGX is to start producing oil in August in a pit of high productivity in shallow waters of the Campos Basin.

"We passed our test of Sao Tome," he said, referring to the announcement that the well has Waimea Horizontal flow of 40,000 barrels of oil per day, one of the highest productivity rates in the Campos Basin.

The extraction cost per barrel is very low, $8, because the well is located in shallow water - and as much a reason to celebrate. "Hellooo! We will have a very high margin and next year the cash flow will be $ 1 billion, "said Batista, hitting the most common criticisms of the market to their businesses: they do not generate cash. For now, OGX is in red with losses last year.

Always optimistic, the business continues with big plans. OGX is to be listed in London during the second half of this year, in order to allow the inflow of investments from foreign pension funds.

[caption id="attachment_449" align="alignright" width="300"] Marcio Rocha Mello[/caption]

The company already was worth more than $70 billion in market cap, but dropped to $ 57 billion in mid-February. This year, the papers fell 10%, reflecting disappointment with the fact that Batista had not completed the sale of stakes in their oil wells to strategic investors, which was scheduled for the end of last year.

Batista says he is still negotiating with many groups, but no date has been set to close a deal. He credits the loss of market value to the "rumors" about his health and the possible stampede of executives from the group after the resignation of the President of OGX, Rodolfo Landim, in 2009.

Rocha Mello, who challenged Baptist in New York, has been more cautious and, since the HRT went public last November, tries to demonstrate that the onset of oil production is near. HRT due by the end of the year with production between 500 and 5,000 barrels per day in five wells in the basin of the Solimões in the Amazon.

“With our knowledge of operations, we have control of our destiny," says Rocha Mello. In addition to the participation of 51% in 21 wells in the Solimoes Basin, HRT controls another five in Namibia.

"We are focused on the Solimoes Basin and Africa. We want to play the next rounds of the National Petroleum Agency (ANP) outside the pre-salt, and grow in Namibia, Congo and Angola. He also intends to list the company on foreign stock exchanges, starting with Canada in 2012.

Rocha Mello is a geologist who made a career during 24 years at Petrobras, where he received the nickname of Mr. Go Deeper for writing scientific articles already in 2000 pointing to the possibility of deposits below the salt layer.

He was the founder of the first laboratory geochemistry of the state. He said the investment makes sense in Africa. "The continents are similar, you can find pre-salt reserves in Namibia and Angola," he says. Some see this African option with caution. Rocha Mello refutes criticisms. "Namibia is one of the most stable democracies in Africa."

Modesty, in fact, is not his forte: Rocha Mello says that his will be the largest independent oil company in the world and already next year will have a market value of $30 billion. Up until now, he has managed to convince the market. The HRT is the only company in the sector to rise in the stock market this year: 4.5%.

But so much euphoria about the oil will not be fleeting, with a view to increasing investment in renewable energy and the limitations of emissions traded internationally? Experts and the International Energy Agency (IEA) said no.

"The share of oil in the world energy matrix should remain high for long, as well as prices," said oil analyst at consultancy Trends, Walter de Vito.

[caption id="attachment_450" align="alignleft" width="173"] Antonio Augusto de Queiroz Galvao[/caption]

In its latest report, the IEA predicts that the era of cheap oil is over. In 2035, predicts the price of a barrel of oil should be between $ 90 and $ 140, depending amongst others on the policies adopted against carbon emissions.

It is these data that excite investors. The next wave of companies coming to sell shares on the stock exchanges are the providers of services to the oil and gas chain. One such company is Petroserv, which operates equipment and the distribution of oil.

Odebrecht Oil & Gas, an arm of the Odebrecht group in the industry, aimed to list, but instead received $400 million in investment from the sovereign wealth fund Temasek, Singapore.

In the U.S., services companies represent 35% of the capitalization in the oil sector and in Norway, 80%. In Brazil, the oil service companies represent less than 5%. With the oil exploration and production tycoons racing so busy, the Brazilian oil service sector could have a promising future of growth with its own tycoons yet to emerge.


Chow Tai Fook’s $2.8B H.K. IPO May Beat Prada

Chow Tai Fook Jewellery Group Ltd. aims to raise as much as HK$22 billion ($2.8 billion) in what may be Hong Kong’s biggest initial public offering this year as luxury-goods companies tap growing affluence in China.

The jewelry chain with revenue greater than Tiffany & Co., set a price range of HK$15 to HK$21 for the 1.05 billion new shares on sale, according to a prospectus released yesterday. The proposed deal may give Chow Tai Fook a price-earnings ratio almost double Tiffany’s. The Hong Kong-based jeweler, controlled by real-estate billionaire Cheng Yu-tung, will set the price Dec. 9.

“We are confident that the company will continue to benefit from China’s robust retail sales growth in the long term, and we’ll focus on expanding our retail network in Greater China,” Henry Cheng, executive chairman and Cheng Yu-tung’s son, said during a video conference call in Hong Kong yesterday.

The offering will test investors’ appetite as Prada SpA dropped since first trading in June after raising $2.5 billion, including stock sold under the overallotment option, in Hong Kong’s biggest IPO this year. Sales of luxury items in China will more than double to about 180 billion yuan ($28 billion) in 2015 compared with last year, McKinsey & Co. estimates.

The jeweler’s shares will start trading Dec. 15, according to a term sheet.

‘Big Blessing’

Companies have raised more than $16.2 billion from initial public offerings this year in Hong Kong, compared with more than $50.3 billion for the same period last year, data compiled by Bloomberg show. As many as 20 companies plan to offer shares in Hong Kong this month, said Lawrence Fok, chief marketing officer for Hong Kong Exchanges and Clearing Ltd.

Chow Tai Fook, with more than 1,400 outlets in China, forecasts net income of more than HK$6.3 billion in the year ending March 31, according to the prospectus. Earnings per-share on a pro forma basis will be at least 63 Hong Kong cents, it said.

The deal would value the company at 33 times expected earnings, assuming the public offering prices at the high end of its range and only 1.05 billion shares are sold, according to Bloomberg calculations using data from the prospectus. That valuation is higher than local and overseas competitors. Tiffany’s stock is at about 18 times forecast earnings, while Hong Kong traded jewelers Luk Fook Holdings International Ltd. and Chow Sang Sang Holdings International Ltd. are respectively at 14 and 13 times forecast profit.

Founded in 1929 in the southern Chinese city of Guangzhou, the company was named after founder Chow Chi Yuen. “Tai Fook” means “big blessing” in Chinese.

Chow Tai Fook is initially selling 1.05 billion new shares, of which 95 percent will be allocated to an international offering. The remaining 5 percent will go to a Hong Kong public offering that starts tomorrow and ends Dec. 8.

Loan Repayment

The stock being offered will account for 10.5 percent of the company’s enlarged share capital, according to the prospectus. Shareholders, including the Cheng family and company executives, will have the option to sell 210 million shares, as well as the equivalent of up to 15 percent of the new shares being offered via an overallotment option to cover additional demand.

Half of the funds raised by the company will be used to buy raw materials and inventory, 36.5 percent will go toward repayment of loans and 5 percent will be spent on buying properties and renovating stores, according to the prospectus. The remainder will be used to buy production and research and development equipment, build an office in Shenzhen and for working capital.

Cheng said one of the reasons the 82-year-old family-run business is seeking a public listing is to improve transparency and make it more independent.

More Transparency

“The business will be under greater scrutiny from company directors and regulators after the listing, and it will operate in a much more transparent and systematic manner,” Cheng said. “I hope to expand the family business beyond the current generations. Seeking a public listing is the only way.”

Retail sales (TIF) in China climbed and average of 17 percent in the first 10 months of this year, according to government data. Sales will more than double to 40.5 trillion yuan in 2015 from 15.4 trillion yuan in 2010, according to a KPMG report released in April.

In Hong Kong, mainland visitors splurging on high-end shoes, watches and jewelry have driven monthly retail sales to record highs. Chow Tai Fook made 56 percent of its revenue in its last fiscal year in mainland China, with the rest coming from Hong Kong, according to data compiled by Bloomberg.

About 110 companies are seeking approval to list in Hong Kong, according to Fok of Hong Kong’s stock exchange operator. About 40 have permission to go ahead and 10 to 20 companies, mostly from mainland China, are likely to complete their share sales by the end of the month, he said.

Bigger Than Tiffany

Revenue for Chow Tai Fook jumped 53 percent to HK$35 billion, or about $4.5 billion, in the year ending March 31, 2011, while Tiffany’s sales rose 14 percent to $3.09 billion in its fiscal year ended January, according to data compiled by Bloomberg.

The Hong Kong-based company’s gross margin of 28.33 percent was about half that of Tiffany’s, the data show.

Chow Tai Fook has 12.6 percent of China’s jewelry market, and a 20 percent share in Hong Kong and Macau, the company said in its prospectus, citing a report from research firm Frost & Sullivan Inc. It sources rough diamonds from companies including Rio Tinto Plc and Diamond Trading Co., the distribution arm of De Beers.

Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc and JPMorgan Chase & Co. are managing the offering.


More Phones Than People in Brazil

[caption id="attachment_455" align="alignright" width="207"] Blackberry Curve 8520[/caption]

With the privatization in 1998, Brazil stopped being a country where the telephone was a privilege for the few. With over $ 235 billion of investments since then, the country is already has the world’s sixth largest telecommunications market. But more investment is still required in the broadband super highway infra structure.

By Marco dos Santos

The privatization of Brazil’s phone market in 1998 inaugurated a new era which led to plummeting prices for phones and eliminated the queues.

In 2010, according to the International Telecommunication Union (ITU), Brazil had the sixth largest roster of phones in the world with 42 million mobile phones and 202 million fixed phones.

In March this year, while the number of fixed remained stable, the handset market was already 251 million, well above the Brazilian population.

The privatization brought a new element to the market: competition. In fixed telephony, the territory was divided into three. For each region was created a mirror operator to compete with the main - GVT, the mirror of Brazil Telecom, and now controlled by France's Vivendi, was the only one that worked.

Besides them, there is Embratel, for international calls. In mobile telephony, the idea was that there were two competitors for the state. Here, the competition remains really fierce. "Today, all operate on an equal footing," said Juarez Quadros, a former communications minister in the government of Fernando Henrique Cardoso and partner at Orion Consulting Associates.

No carrier has more than 30% of the market, which is led by Vivo, controlled since 2011 by Spain's Telefonica, followed by Italy's TIM, the Mexican billionaire Carlos Slim, and the Brazilian Hi.

With increased competition, the prices dropped and the quality of services has improved.

To participate in this growth market, operators have been required to invest to ensure coverage in both north and south of the country. Also competition itself has forced companies to put their hands in their pockets in order not to lose customers. Between 1998 and 2010, operators have invested U.S. $235 billion, at an average of $18 billion per year. This is six times the investments made prior to the privatization.

Last year, operators invested between 18% and 20% of their net revenue, according to a survey done by the former minister. The exception was the GVT, which invested almost half of that was earned.

[caption id="attachment_456" align="alignleft" width="300"] Repair culture[/caption]

One of the fastest growing carriers in the country, a company controlled by Vivendi has a clientele different from competitors. The vast majority (over 90%) uses broadband - and speed up to 10 MB. "Because it has a very significant technological advantage, it is taking customers from other operators," says Quadros. "Racing is now taking the other customers. And this is one of the pillars of the revolution in telephony.

"To Luis Minoru Shibata, director of consulting PromonLogicalis this war for customers is intensifying with increased portability. "The competition is even more pronounced after 2008," said Shibata. "You can now change carriers without having to change the number."

He said that a byproduct of portability was a significant improvement in quality of care. "Nobody wanted to lose customers." With the number of new mobile lines breaking records every month and the models of the devices become more sophisticated, allowing Internet access, the demand became explosive in the country.

"If you look at the terminals who are launching today (tablets, smartphones, TVs), they will require more telecommunications infrastructure, "says Shibata. "The lines will start to connect not only people but things." The biggest problem is the broadband. "The demand is explosive and the network is being built now. Before the customers was happy with a speed of 64 kbps. Today it is a mega bit, "says Eduardo Tude, director of consultancy Teleco.

Companies need not only to improve the internet superhighway, but also extend the infrastructure to support new voice traffic, and also especially data traffic. By 2014, Vivo, for example, plans to invest U.S. $24 billion in its operation, more than 50% of disbursed in the previous four years.

[caption id="attachment_457" align="alignright" width="300"] Christ view spoiled by mobile phone masts[/caption]

Also TIM Hi plans to invest similar amounts to fund its expansion over the next half of the decade.

Rapid growth has also brought a problem: the poor quality of services. "The data fall all the time; the voice cracks up" complains Herberto Yamamuro, president of NEC of Brazil, a leading supplier of equipment for the sector. Also, "I sometimes receive SMS with three days late."

In addition to the substantial funds that have already been invested in the Brazil telecommunications market, a further boost in investment is required by the networks to

upgrade the quality of services, woo customers, and keep up with the soaring demand for broadband services and connectivity attractions.


WEF in Ethiopia: Shaping Africa’s Transformation

Addis Ababa, Ethiopia, 7 May 2012 – More than 700 leaders from business, government, civil society, academia, media and the arts from over 70 countries will meet at the 22nd World Economic Forum on Africa in Addis Ababa, Ethiopia, from 9 to 11 May. The meeting is being hosted for the first time in Addis Ababa with the support of the Government of Ethiopia.

Ethiopia, which is one of the world’s fastest growing economies, is home to the African Union and the United Nations Economic Commission for Africa. Thus Addis Ababa offers an exceptional opportunity to bring together pan-African and global leaders to discuss the future of the region. Under the theme Shaping Africa’s Transformation, the meeting’s agenda will integrate three pillars: Strengthening Africa’s Leadership; Accelerating Investment in Frontier Markets; and Scaling Innovation for Shared Opportunities.

“Africa is experiencing strong growth and despite the increasingly volatile global economy, African leaders are pursuing measures that will transform the region into the next global growth pole. In this context, the World Economic Forum on Africa will seek to leverage the positive political, economic and social progress of recent years by providing a true multistakeholder platform to develop new ideas and actions to achieve further sustainable, inclusive growth,” says Elsie S. Kanza, Director, Head of Africa, World Economic Forum.

Led by Prime Minister Meles Zenawi of Ethiopia and representatives from his government, other African leaders who have confirmed their participation at the meeting are: Djibouti, President Ismail Omar Guelleh; Gabon, President Ali Bongo Ondimba; Gambia, President Yahya Jammeh; Mauritius, Vice-Prime Minister and Minister of Finance and Economic Development Charles Gaëtan Xavier-Luc Duval; Namibia, Prime Minister Nahas Gideon Angula; Nigeria, President Goodluck Ebele Jonathan; Rwanda, President Paul Kagame; Tanzania, President Jakaya M. Kikwete; and Zimbabwe, Deputy Prime Minister, Arthur G. Mutambara.

In addition, leading international personalities who will be present include: Pascal Lamy, Director-General, World Trade Organization (WTO); Abdoulie Janneh, Executive Secretary, United Nations Economic Commission for Africa (UNECA); Jean Ping, Chairperson of the Commission, African Union; Gordon Brown, Prime Minister of the United Kingdom (2007-2010); Fahad Bin Abdulrahman Bin Sulaiman, Minister of Agriculture of Saudi Arabia;Beverley Oda, Minister of International Cooperation of Canada, Canadian International Development Agency (CIDA); and Rajiv J. Shah, Administrator, US Agency for International Development (USAID).

Co-chairs of the meeting are: Kofi Annan, Chairman, Alliance for a Green Revolution in Africa (AGRA) and the Africa Progress Panel (APP), Switzerland; Gao Xiqing, President and Vice-Chairman, China Investment Corporation (CIC), People’s Republic of China; Bekele Geleta, Secretary-General, International Federation of Red Cross and Red Crescent Societies (IFRC), Geneva; Monhla Hlahla, Chairperson, Industrial Development Corporation of South Africa (IDC), South Africa; Donald Kaberuka, President, African Development Bank (AfDB), Tunisia; Doug McMillon, President and Chief Executive Officer, Wal-Mart International, Wal-Mart Stores, USA; andTidjane Thiam, Group Chief Executive, Prudential, United Kingdom.


The Transformation of Africa's ICT Market

Event: Addis Ababa, Ethiopia 9-11 May 2012

Africa holds exciting new business opportunities for international companies in many sectors, including  in ICT (see below graphs and tables).

Africa is on the brink of a major transformation. Over the last decade, the continent was home to six of the world’s 10 fastest growing economies, and the outlook for the region remains bright at a time when the rest of the world is facing major political and economic challenges. However, attaining Africa’s aspirations in a new global context will require bold and actionable ideas, as well as strong leadership on regional, national and industry levels.

In 2012, Africa’s projected growth rate of 6% will be driven by improved macroeconomic and political stability, an ongoing resource boom and a growing consumer base. In addition, deepening links to fast-growing emerging economies and an increasing appetite of global and regional champions for long-term investments in Africa’s frontier markets are fuelling a renewed optimism about the continent’s future. At the same time, resource price volatility, youth unemployment, food insecurity and the adverse effects of climate change remain important challenges. Strengthening Africa’s leadership, accelerating investment in its frontier markets and scaling innovation will be essential in transforming Africa’s growth story into shared opportunities for present and future generations.

The 2012 World Economic Forum on Africa will be held in Addis Ababa, Ethiopia. Ethiopia is the second most populous country in sub-Saharan Africa and a prime example of the continent’s fast-growing economies. Home to the African Union and the United Nations Economic Commission for Africa, Addis Ababa will offer an exceptional

opportunity to bring together global and pan-African leaders to shape the region’s transformation.

CFI are looking to report from this event and other on Africa's transformation and challenges.


Arabian World Construction Summit 2012

Date: 20 – 23 May 2012

Location: Westin Resort & Spa, Abu Dhabi

Arabian World Construction Summit 2012 will be the definitive construction & infrastructure event in the Middle East and the only place to meet and hear from project owners and leading contractors from each of the core GCC markets, in addition to new and emerging markets in the Middle East and North Africa.

There is cause to be optimistic about the region’s construction sector. A revival of the projects market is expected in the UAE, with some $75 billion worth of construction projects planned between now and 2016. For contractors looking to broaden their presence there has never been a better time to look for business in the Middle East with multi-billion dollar construction and infrastructure programs now gathering pace.

This event will encompass market overviews, country profiles, project case studies, supply-chain and sector analyses of key projects in transportation, social infrastructure, power and water and alternative energy developments; these sectors being at the forefront of current regional infrastructure opportunities.
For further information on the event, use the link: www.awcs-me.com

To benefit from a 10% discount available to Capital Finance International subscribers to attend AWCS 2012, please email events@meed.com or call us on +971 (0)4 390 0049 quoting the promotional code CFI-Dis.

Please click here for a downloadable PDF Brochure.


Investing in São Paulo

Welcome to a world of opportunities!

Exciting information about the state of São Paulo. There are a lot of bussiness opportunities in this well developed region of Brazil, from agriculture to high-end technology, this state boast the best conditions for your investment.

Click on play to watch the video!


Gold Becomes Peru’s Main Export Item in the First Quarter of 2012

Peruvian gold sales totalled 2.57 billion dollars in the first quarter of this year, making the commodity the country’s top export, the National Mining, Petroleum and Energy Society, SNMPE, announced.

Total exports of gold soared 30% last year reaching 10.1bn dollars.

Gold accounted for 23% of Peru’s total exports of 11.38 billion dollars during the January-March 2012 period, SNMPE gold committee chairman Jose Morales Dasso said in a statement. Peru’s mining industry posted exports of 6.64 billion in the first quarter, with gold accounting for 39% of the total.

“With these results, gold has become the principal Peruvian export product and this performance is explained by the marked rise in the price of the precious metal on international markets. Gold exports soared 30% to 10.1 billion dollars in 2011, generating 2.3 billion dollars more than in the prior year. Peruvian gold is exported to 14 markets, including Switzerland, Canada and the United States", Morales said.

Mining projects have sparked numerous conflicts in Peru. The Conga gold and copper mining project, for example, has been rejected by the majority of residents of the northern region of Cajamarca.

The Yanacocha mining company, South America’s No. 1 gold producer, plans to invest 4.8bn dollars in Conga, but the government has set new conditions to reduce the project’s environmental impact and secure water reserves.

The company will have to accept the conditions if it wants to move forward with the project, officials said.
While the gold price remains high there is plenty of room for compromise.


HSBC Continues to Sell Non-Core Assets

[caption id="attachment_648" align="alignright" width="194" caption="Antonio Losada, President and CEO of HSBC Latin America and the Caribbean"][/caption]

HSBC is selling businesses in four South American countries as it carries on its plan of leaving what it regards as less promising markets.

The deal is still subject to regulatory approval but HSBC has reported the sale of its affiliates in Uruguay, Colombia, Peru and Paraguay to the Colombian group Gilinski, an operation involving 400 million dollars.

HSBC has now announced 11 deals to sell or close operations that it does not consider central to its growth plans.

Speaking about this latest deal, Antonio Losada, President and CEO of HSBC Latin America and the Caribbean, said: "We are pleased to have reached this agreement with Banco GNB Sudameris as we seek to focus on our operations where we see the greatest potential for sustainable growth for HSBC.

The combined the banks being sold have 62 branches across the four countries and assets worth $4.4bn

Before the operation is completed Banco GNB Sudameris must obtain the approval from the regulatory agencies in the four countries. The group said it expects the operations in Colombia and Peru will be closed in the last quarter of 2012, and in Uruguay and Paraguay in the first quarter of 2013.

Another bank on sale is Lloyds, which has been in Uruguay since 1863. Apparently there are ongoing talks with the local affiliate of the Swiss Banque Heritage.


Santander Committed to Brazil as Major Contributor to Bank’s Profits

Chairman Botin confirms the strategic importance of Santander Brazil, which accounts for the vast majority of the bank’s world-wide profits for the 1st quarter 2012.

By Marco dos Santos

[caption id="attachment_442" align="alignright" width="300" caption="Emilio Botin"][/caption]

The deepening crisis in Spain last week cast shadows over the financial system in Spain. On Monday, April 30, the ratings agency Standard & Poor's downgraded the notes of 11 local banks. The reasons for the poor numbers were the lack of economic growth and the increasing difficulty of the government to implement its austerity measures. The fiscal tightening could lead to, according to official calculations submitted to the European Commission, a 1.7% contraction in the economy this year and an increase of only 0.2% in 2013. Rising unemployment increases the risk of an increase in defaults, fatal to the results.

The words "bailout" was uttered with an uncomfortable frequency by economists and market professionals. In this scenario of uncertainty, the numbers of Santander bank are no exception. They need to clean up their portfolios of mortgages which contributed to cause a 24% drop in first-quarter results, which shrank to € 1.6 billion.

In late April, the bank had announced their intention to open the capital of its Mexican subsidiary, selling 25% stake in the local market. The extent of bad news triggered a wave of rumors that Santander would be selling its operations in Brazil.

These rumors were dismissed by Emilio Botin, chairman of the board of directors of the bank, passing through Brazil on Tuesday May 1st. "This country has become increasingly important for the Santander Group," he told MONEY after a meeting with university presidents in Sao Paulo. "We have a great opportunity here." Days before, to disseminate the results of the first quarter of 2012, Marcial Portela, president of the Brazilian subsidiary, Santander has stated that the appetite for acquisitions. "We are looking for something to buy but could not find good quality assets at reasonable prices," he said. "Our operation is solid, and the results are gaining importance within the group."

For the first quarter numbers, Brazil accounts for 27% of the bank's results, followed by 25% from other Latin American countries and other 25% of continental European countries - Spain, Portugal, Poland and Germany. Santander's Brazilian operation announced profits of $1.76 billion in the first quarter, down 3.3% over the same period of 2011 and an increase of 7.5% over the last quarter of last year. The most notable result was an increase in defaults, which rose from 5% in the first quarter of 2011 to 5.7% this quarter, considering the delays of more than 60 days.

"The biggest increase occurred in the portfolios of bad debt personal loans and vehicle financing," says Portela. In addition to checking the progress of business in the country, Botín chaired a meeting of an international advisory board of the Universia network, an organization sponsored by Santander which supports about 1,400 universities in 23 countries. This year, the bank will allocate € 130 million for grants and funding language of international studies for students and teachers. According Botin, Brazilian universities participants will receive $ 200 million over the next two years. "This shows our long-term commitment to Brazil," said Botin.

Santander’s decision to expand away from Spain could prove to be their saving grace in these difficult times.


Air Travel Growth Continues to be Driven by BRICS Members and South East Asia

Asia leads the world’s growth in air travel and holds seven out of the ten busiest inter-city routes. In addition to the BRIC markets, Indonesia, the Philippines, and Chile showed an impressive growth, according to analysis by the market intelligence solution Amadeus Total Demand.

The review looks at trends in worldwide passenger demand between regions, countries, and specific airports, comparing the full 2011 passenger volumes with 2010 data. All figures relate to passengers travelling between a given origin and final destination airport, irrespective of the number of connecting stops.

The 2011 country statistics reveal, unsurprisingly, that the strongest growth in absolute passengers is led by the BRIC countries. China registered an additional 19 million in 2011 than 2010, Brazil 12 million, India 8 million, and Russia 6 million. Indonesia was the 5th strongest growth market with an additional 5 million passengers in 2011.

Brazil (17%), India (13%), and Russia (15%) also featured in the top ten fastest-growing countries by percentage growth. Chile (21%), the Philippines (15%), and Indonesia (11%) are also among the fastest growing travel markets. Egypt and Japan are among the fastest-shrinking markets, likely due to the Arab Spring and the Tsunami respectively.

Countries showing highest % growth in passengers between 2010 and 2011 (excluding markets with fewer than 5 million annual passengers).

Country
Pax 2011 (000s)
Growth vs 2010

Chile
9,306
21%

Brazil
82,334
17%

Philippines
24,392
15%

Russian Federation
44,541
15%

Saudi Arabia
23,345
15%

Turkey
34,398
15%

India
71,634
13%

Vietnam
16,097
12%

Indonesia
53,701
11%

It is interesting to note that the strongest traffic in between cities takes place within the same country. From the world’s top ten inter-city routes, seven are within the domestic borders of Asian countries, out of which three are in Japan.  In terms of volume, the route between Jeju and Seoul is the most important (almost 10 million passengers) followed by Rio de Janeiro and Sao Paulo (circa 8 million passengers).

Top world inter-city routes:

Region
Inter-City Route
Rank

Asia
Jeju - Seoul
1

South America
Rio de Janeiro –Sao Paulo
2

Asia
Osaka - Tokyo
3

Asia
Sapporo -Tokyo
4

South West Pacific
Melbourne -Sydney
5

Asia
Fukuoka -Tokyo
6

Asia
Beijing - Shanghai
7

Asia
Hong Kong -Taipei
8

Africa
Cape Town –Johannesburg
9

Asia
Mumbai - Delhi
10


Emerging Managers Summit

The Radisson Blu Aqua Hotel Chicago, Chicago, IL
May 30-June 1, 2012

If you are looking to expand and diversify your asset allocation by investing in emerging managers as well as women and minority owned investment managers, the emerging managers conference will provide the unique opportunity to access a diversified group of up-and-coming performance-oriented managers and manager of managers. The conference will explore the benefits and opportunities offered by investing in emerging managers as well as new strategies for implementing an emerging managers program. If you are an emerging manager, you will learn the procedures used by institutions to launch and maintain successful emerging manager programs. This event will showcase a variety of emerging mangers as well as minority-owned manager funds and other high potential smaller investment firms, and it will offer participants invaluable networking opportunities.

Additional Information


A View From São Paulo

From the outside Brazil’s new image seems unstoppable but this can quickly change on arrival in the country, starting with long queues for processing visas at São Paulo’s Guarulhos International Airport. Leaving is even tougher: at weekends, overstretched airports can end up cancelling or changing up to a third of flights. And this is just locals leaving town – whether the planned improvements to airports over the next few years will be enough to cope with the upcoming sporting events nobody is quite sure.

Attempts to improve things have been at stalemate which caused one of the more dramatic U-turns in the career of President Dilma Rousseff. Guarulhos and two other airports were to be sold off to provide money for their state-run management company, Infraero, with a view to expanding its services under government control. That idea was axed when she concluded that the problems were down to Infraero’s poor administration rather than a shortage of funds.

Politics here is a difficult business, with corruption and territorialism undermining the government’s public-private partnerships. It was easier to sell a majority stake in the airports rather than completely wrestle control from Infraero, it seemed. When the auction happened, it raised $14bn – several times more than was hoped for – largely from mid-level players from countries such as South Africa and Argentina. Business praised the move, not only because it proved profitable.

There is insufficient infrastructure nationally and much is in poor repair, and this was the first major move Rousseff had made to address the problem. The next move was to float a plan to sell concessions to firms to run some of Brazil’s roads, as many are in disrepair.

A lot of main roads already have tollbooths, which turn into virtual car parks on holiday weekends. During this year’s São Paulo Carnaval, it was not uncommon to hear Paulistas saying they would have liked to go somewhere else – maybe the beach, or Rio – but that doing so seemed impossible.
The government is popular with voters and respected by the business community, but finding ways to invest without turning to outside help puts it in a tough position. It has money, but the prospect of fiscal outlays causing inflation terrifies a country that remembers 80s and 90s hyperinflation. Rousseff’s ideological volte-face leads some to hope that she may be forging a new model, which relies on bringing in more international capital to work with the government to get ready for the World Cup and the 2016 Rio Olympics.

The country more generally will be hoping that a plan is thrown together quickly to upgrade creaking systems – which, in fairness, have been overwhelmed largely as a result of unexpectedly strong economic growth.

But this excuse will not wash when São Paulo hosts the World Cup opening ceremony. “The priority for the president,” wrote a leading national newspaper columnist “is to avoid having an embarrassing show, stain the image of the country.”
A lot needs to be achieved in a short period if this is going to be avoided.


World Pension Summit 2012

14 -16 NOVEMBER 2012

WorldPensionSummit is the platform ‘for and by’ Pension Professionals, exchanging knowledge and sharing the latest insights on Securing Sufficient Pension Provision.

Over 300 pensions professionals from 42 countries attended the Summit in 2011

The WorldPensionSummit is the only objective and strategic event of its kind, with 100% free of ‘sales presentations’

Interactive sessions, educational platforms, with strategic impact & unmatched networking

WorldPensionSummit offers a certified program by EBTN - the permanent learning standard for the Financial Services Industry

Key Topics Are:

Creating a sustainable pension provisionThe importance of corporate pensions and the revival of employee benefits | employer services | Managing risk and maximizing return | Creative next steps related to ageing | Creating essential pension awareness with participants | Downsizing the administrative complexity( (cost | transparency) | Managing the economic outlook (long term vs short term) | The disparities between pension systems and the issue of mobility

Check out the program details on www.worldpensionsummit.com


Emerging Managers Summit South

October 2012 - Las Vegas, NV

If you are looking to expand and diversify your asset allocation by investing in emerging managers as well as women and minority owned investment managers, the emerging managers conference will provide the unique opportunity to access a diversified group of up-and-coming performance-oriented managers and manager of managers. The event will explore the benefits and opportunities offered by investing in emerging managers as well as new strategies for implementing an emerging managers program. If you are an emerging manager, you will learn the procedures used by institutions to launch and maintain successful emerging manager programs. This event will showcase a variety of emerging mangers as well as minority-owned manager funds and other high potential smaller investment firms, and it will offer participants invaluable networking opportunities.

Click for additional details.


India’s Financial Sector – Defies the Global Trend – Continues to Emerge Stronger

[caption id="attachment_488" align="alignright" width="225"] Author: Manoj Kumar Vijai, Partner, KPMG India[/caption]

India has witnessed an excellent growth over past two decades. Indian economy has expanded at a CAGR of 6.9% during this period. Besides economic growth, the country has prospered in a number of other areas as well. Its professionals have made significant contributions in the areas of medical science and business globally. A number of multinational companies today are headed by people of Indian origin. India’s influence in various international forums has increased significantly. While the country’s claim for a permanent seat in the United Nations Security Council is still debated, it continues to be an active contributor to the peace and rehabilitation efforts in many countries.

After the balance of payment crisis in 1991, the Indian Government embarked upon the road of economic liberalization and globalization. The economy expanded at a CAGR of 7.8 percent during the last ten years. India has globalized at a faster rate with its gross capital inflows and outflows growing five times during the last 30 years. The country also witnessed strong savings and investment rates of 32.3 percent and 35.1 percent respectively, in 2011 (quick estimates) which has helped in attaining high per capita income. The services sector grew exponentially especially after the economic liberalization in early 1990s and emerged as the prime driver of this growth. Its share in GDP has consistently increased from 42.7 percent in 1990-91 to 59.0 percent in 2011-12 (advanced estimates).[1]

The pace of the economic growth could be imagined from the fact that while it took nearly 40 years for the real per capita income to double from the level achieved in 1950-51, it increased 2.5 times in the next 20 years in the post-reforms period. More importantly, the per capita income crossed the crucial level of USD 1,000 in FY11, which is considered to be the level beyond which an economy grows exponentially.[2]

A glimpse of increasing investments over the last decade

[caption id="attachment_413" align="aligncenter" width="467"] # FDI for April 2011-February 2012; FII for April 2011-November 2011 Sources: DIPP, SEBI[/caption]

This growth story has made India an attractive investment destination. India’s share of foreign direct investment (FDI) and foreign institutional investment (FII) has been increasing consistently since the last decade. FDI equity investments during April 2000-February 2012 were pegged at USD 246.6 billion and net FII investments (both equity and debt) were USD 111 billion during April 2000-November 2011.

India’s increasing investment attractiveness was also acknowledged in the World Investment Prospect Survey – 2010-2012 by the United Nations Conference on Trade and Development (UNCTAD) which placed India as the second top destination to receive foreign investments.

However, the last couple of years have witnessed a slowdown in the economic activity in India due to a combination of global and domestic factors. The global financial crisis in 2008 and the subsequent trouble in some of the European countries have impacted the foreign inflows into the country which, in turn, affected the equity, currency and exports markets. These global factors resulted in a slowdown in investment activity and exports which increased the cost of capital and declined capital expenditure.

The country’s high fiscal deficit, accentuated by the governments’ profligacy, could also impact the growth in medium term. Allegations of corruption against the Government, weakening business confidence, delay in many of the reforms process and weak infrastructure have made the macroeconomic environment look gloomier. All these have resulted in Indian economy growing at much below its potential during the last couple of years.

During the global financial crisis, India got impacted primarily due to a decline in FII and exports but financial services (FS) sector remained insulated from any direct impact of the crisis. However, there was an indirect impact due to the economic slowdown and NPAs.  Some of the foreign banks also deferred their growth plans in India due to turbulence in their home country. The equity markets witnessed a sharp decline due to a decline in foreign investment.

However, the impact on the FS sector remained temporary. Though the growth rate of bank credit marginally declined from a CAGR of 22.8 percent (during 2000-01 and 2009-10) to a CAGR of 20.4 percent (during 2009-10 to 2011-12), it was still one of the fastest in the world. [3]Domestic demand for loans, insurance, mutual funds and other FS offerings helped the sector avert any significant downfall due to global turbulence. Besides a strong domestic demand, strong regulatory landscape and conservative approach to economic integration and financial innovation helped India avert a crisis in the sector.

The Indian FS sector is a unique blend of Government and private partnership. On the one hand, the Government ownership of a significant portion of the Indian FS sector provides the sovereign guarantee and keeps people’s trust in the system. On the other hand, private sector participation and private savings, which are increasingly becoming more important, are fuelling the growth of the FS sector. Private players run some of the well-managed financial institutions and are driving innovation in the sector.

As stated above though there has been a bit of overall slowdown off late due to uncertainties/delays on the passage of crucial pending reforms bills, corruption charges against the Government, coalition politics’ compulsions, there is definitely a scope for the individual sub sectors of the financial sectors to grow eventually. The following paragraphs highlight the key aspects of each sub sector.

Banking

The banking sector has registered high growth rates and has supported the growth of the Indian economy during the past two decades. Although there was a marginal decline in bank credit CAGR to 20.4 percent between 2009-10 and 2011-12, it was still one of the fastest growing across the world. The sector also faced headwinds with increased NPAs due to an economic slowdown.

Although faced with these short-term challenges, the sector holds huge long-term growth potential. With a population of approx. 1.2 billion, India has one of the largest and fastest growing middle class. India is also one of the youngest countries in the world with an average age of 25 years and is likely to get younger. Further, the country’s working-age population is expected to increase by 240 million over the next 20 years. All this coupled with increasing income levels and high savings rate is expected to result in a huge demand for retail banking services.

Besides a strong middle class, India also has a strong population of high net worth individuals (HNWIs). Its population of HNWIs registered a strong increase of 20.8 percent in 2010 and figured among the top 12 countries in the world.[4] All this is expected to result in a high demand for wealth management and portfolio management services.

India also boasts of a buoyant corporate sector. On one hand, big industrial houses require huge funds to increase their operations both in domestic and overseas markets. On the other hand, a large number of growing small and medium enterprises (SMEs) are gaining significance and contribute more than 40 percent of exports and 17 percent of GDP in 2011.[5] All this would translate into a huge opportunity for banks to increase their retail and corporate lendingbusiness.

Insurance

The insurance sector is hugely underpenetrated with a penetration of 6.72 percent during 2009-10 (measured as total premiums as a percent of GDP). The sector witnessed significant changes after the regulator Insurance Regulatory and Development Authority (IRDA) allowed the entry of private sector players. The sector was completely transformed and today features 48 players offering a variety of products through multiple channels. The life and general insurance sectors witnessed robust growth of 35.9% and 19.0%, respectively, in total premiums during 2001-02 and 2010-11.[6]

However, the growth of the sector was affected during the last 3-4 years, primarily due to some regulatory directives and guidelines including the gradual detariffication in motor insurance, capping agents’ commission, curb mis-selling and promote traditional insurance over unit linked insurance plans (ULIPs). Though these steps have affected the growth of the sector in short-term, unarguably, these are expected to become the basic groundwork on which the sector will witness a long-term growth. Further, some of the intrinsic factors such as under-penetration of insurance products, a young population and increasing workforce and the Government’s emphasis on micro-insurance will enable the sector to sail through.

Asset management

Similar to the insurance sector, the asset management sector also witnessed a robust growth during the last decade which was stifled by some high handed regulations during the last couple of years. While the sector’s total assets under management registered a robust growth at a CAGR of 23.7 percent during 2000-01 and 2009-10, it witnessed a growth at a CAGR of only 4.1 percent during the subsequent two years.[7] Some of the regulations such as removing the entry load, removing the exit load on investments of more than a year and capping companies’ expense ratio have proved to be detrimental to the growth of the sector.

However, the asset management sector is quite small in India and is in nascent stage. The companies’ reach have been primarily limited to top 20 cities. With an increasing disposable income and equity investment culture, the country offers immense potential to bring in innovation (both at the product and channel level) to take mutual funds to masses in a profitable manner. With a little more policy impetus, the sector is bound to witness huge growth.  The ratio of AUM to India’s GDP called as MF penetration was 11% in 2009, up from only 6% in 2005.[8] Though the AUM in India is expected to increase by 57.2% by 2014 but it remains significantly lower than western countries where the AUM accounts for 20 – 70 percent of GDP.[9]  So though we may witness some consolidation in the near term, again no one can deny that there is significant potential for this sector to grow.

NBFCs

Efficient, competitive and deep financial markets are a pre-requisite for any economy to prosper. The Government along with the capital market regulator Securities and Exchange Board of India (SEBI) has been at the forefront of taking timely decisions to protect investors’ interests. While India has done well on equity, commodities and derivative markets, its debt markets still lack the depth and breadth. Equity markets with nearly 100 percent dematerialization and T+2 settlement system compare favourably with those of many developed countries. India was the first country to launch a demutualized stock exchange, National Stock Exchange, in 1992. Increasing foreign investments have been a testimony to the performance of equity markets. However, the debt market which is dominated by government bonds, still lack long term bonds and participation of private and retail sectors. The Government has been taking various steps to further deepen the equity markets and develop debt markets.

The country has a significant parabanking sector through non banking finance companies (NBFCs). These NBFCs adopt flexible business models to offer loans, distribution of insurance and mutual funds, wealth management, retail and institutional brokerage and investment banking services. These entities have been instrumental in extending the reach of the FS sector in far flung areas and have contributed immensely in the inclusive growth agenda of the country.

Overall, the global and domestic factors have impacted the growth rate of Indian economy during the last couple of years. Though there has been a delay in implementing some of the key reforms, the Government is fast progressing to implement key reforms like deregulation of diesel prices, implementation of Goods and Services Tax and Direct Tax Code. The Government constituted the 11-member Financial Sector Legislative Reforms Commission (FSLRC) in March 2011 to examine and harmonise more than 60 regulations governing the FS sector and arrive at the most appropriate means of oversight over regulators and their autonomy from the Government. The commission is expected to submit its report by March 2013. Meanwhile, we may see action on a number of key bills including the amendments to the Banking Regulations Act, amendment to the Insurance Act and a bill to empower the pension regulator in the coming days.

Regulators for the FS sector continue to be supportive of the growth. Recently, the banking regulator Reserve Bank of India decreased interest rates in order to boost the economy. IRDA and SEBI are considering ways to balance the customer interest with the sector’s growth.

Despite strong headwinds and global downslide of the FS sector, India’s FS sector defies the global trend and is expected to emerge stronger.

[1] The Economic Survey 2012

[2] The Economic Survey 2012

[3] Reserve Bank of India

[4] World Wealth Report 2011

[5] “Empowering SMEs for Global Competitiveness,” by SME Chamber of India

[6] Insurance and Regulatory Development Authority

[7] Quarterly bulletins of Association of Mutual Funds in India (AMFI)

[8] KPMG Mutual Fund report, 2009

[9] AMFI, CSO and “Indian Asset Management Profitability 2011,” released by Cerulli