Oh Dear: The Sound of Your Keystrokes Could Leave You Wide-open to a Cyberattack

A simple video call could open your laptop to hackers, experts warn...

University researchers have created an AI system to decipher words from the sound of typing — with more than 90 percent accuracy.

That remarkable achievement comes with an obvious downside: it means that just typing your password while chatting over a video platform like Zoom could open the door to a cyberattack.

Industry experts say that as video conferencing tools have grown in use, and devices with built-in microphones become ubiquitous, the threat is real, and rising.

Researchers have created a system that can work out which keys are being pressed on a laptop keyboard, according to a report in The Guardian.

“I can only see the accuracy of such models, and such attacks, increasing,” said Ehsan Toreini, doctor and co-author of the study at the University of Surrey. The research was published as part of the IEEE European Symposium on Security and Privacy Workshops.

Toreini and colleagues used machine learning algorithms to identify pressed keys based on sound alone. It’s an approach that researchers recently deployed on the Enigma cipher device.

The process began by pressing each of 36 keys on a MacBook Pro, including all letters and numbers, 25 times in a row, using different fingers and with varying pressure. The sounds were recorded over a Zoom call and on a smartphone near the laptop.

Suid Adeyanju, CEO of IT firm RiverSafe, said it was “a wake-up call about the true risks” posed by artificial intelligence. “Far too many organisations are rushing to adopt the technology without conducting even the most basic due diligence tests,” he said.

“Over-enthusiastic executives should take note that AI may look like Barbie, but it could turn out to be Oppenheimer if the necessary cyber protections and regulatory procedures aren’t in place.”

While it is not clear which clues the system used to identify specific keystrokes, Joshua Harrison, first author of the study, from Durham University, said proximity of the keys to the edge of the keyboard could be a factor. “This positional information could be the main driver behind the different sounds,” he said.

The system was then tested on other data. It proved accurate 95 percent of the time when the recording was made over a phone call, and 93 percent of the time during a Zoom call.

The study was co-authored by a doctor by from the Royal Holloway, University of London, Maryam Mehrnezhad. The researchers say the work is a proof-of-principle study, and has not been used to crack passwords. But they warn of a need for vigilance, and say using a laptop in public places could present a risk.

The risk of such acoustic “side channel attacks” can be mitigated, experts say, by opting for biometric passwords or activating two-step verification. Failing that, it’s a good idea to use the shift key and create a password using upper and lower cases, numbers, and symbols. “It’s very hard to work out when someone lets go of a shift key,” said Harrison.

Feng Hao, a professor from the University of Warwick, said people shouldn’t type sensitive messages, including passwords, during a Zoom call. “Besides the sound,” he said, “the visual images about the subtle movements of shoulder and wrist can reveal side-channel information about the keys being typed, on the keyboard even though the keyboard is not visible from the camera.”


A One-Day Commitment for a Lifetime of Freedom

The gateway to a Greek golden visa in just one day? Emelia Beeson reports on a rapid route to the European dream...

Picture the scene, just months from now... You’re at a beautiful beach, minutes from the ruins that gave birth to democracy. In your hands lies a document giving you and your family the freedom of movement that many people can only dream of...

The document is a Greek golden visa. European residency begins with a smart investment — and a one-day business trip.

“Greece has become a hotspot for foreign investment, both private and institutional,” says John Hunter, residency and citizenship specialist at Holborn Assets. “There are huge perks, and there’s been a surge in demand. We have access to golden visas from €255,000. Many other entry points start at €500,000.”

There’s no minimum-stay requirement for a golden visa. You only need to be in Greece for a single day — to provide biometric data — and the rest of the application process can be completed remotely.

From that point, it takes an average of just two months to receive a “blue paper”, a receipt confirming submission of the application. This entitles the holder to all the benefits of the full visa, and serves as a temporary residency permit until the golden visa is issued.

From as little as two months after this step, you and your family have the right to travel visa-free across the 26 European Countries in the Schengen area. You can open a business and trade freely with the rest of Europe. In Greece, family is everything: “Your family” covers you, your spouse, your children, stepchildren, siblings, and grandparents — even the grandparents of your spouse.

Even for those with no intention of permanently relocating to Europe, as long as the visa is renewed — and the initial investment maintained — the reward is lifetime residency in Greece. After seven years, you’ll be eligible for EU citizenship — one year less for children if they attend a Greek curriculum school.

With citizenship comes the right to live, work and study in any EU country — and the ability to travel visa-free to 128 countries around the world.

Holborn Assets is a trusted wealth management partner with a 100 percent success rate for golden visa applications — and rated excellent on Trustpilot.

“We help you to choose your investments wisely, and secure your eligibility for a Greek golden visa,” John Hunter says. “We invest with only the most reputable partners to deliver you the best options for your portfolio, and your family.”

All this from a one-day business trip — what are you waiting for...?

More information: goldenvisaeu.com

Contact: john.hunter@holbornassets.com


Behold the New War: Same as the Old War, but it Comes with an App

On the battlefields of Ukraine, massive military kit is trumping technology, reports Wim Romeijn.

On the undulating plains of eastern Ukraine, tech wizardry powers and shapes a lethal cat-and-mouse game.

Here, loss of human life and the destruction of military hardware is accompanied by an unravelling of traditional doctrine. While drones buzz overhead, and troops on the ground receive battlefield information in real-time via smartphones, the battle arenas still look more like Great War than Star Wars. Infantry troops huddle in muddy trenches, facing a desolate no-man’s-land that evokes memories of a Flanders Field, pocked with shell craters and strewn with uprooted trees.

This is not what military planners and strategists had envisioned as they pondered the future of modern warfare, and technology’s place in it. Heavy battle tanks and self-propelled howitzers, until recently considered relics of a bygone era, are back in vogue. Artillery, while never discarded, has also earned renewed prominence.

Incantation Revised

The modern battlefield, awash with sensors that spot, record, and respond to enemy moves in near-real-time, imposes a need for constant, rapid movement to evade guided missiles and shells. The revised advice from strategists is now “Disperse, hide, and keep moving”.

Technology has brought firepower and intelligence-gathering down to platoon level; the role of headquarters has shrunk. With Starlink access, a smartphone and munitions, soldiers can detect and strike targets using data previously available only to top brass.

Dispersal brings with it certain logistical challenges: food, ammo, and medical care need to reach small units spread over a large area. Recruitment and training must be updated to match a much looser military hierarchy that demands initiative, decisiveness, and tech skills from soldiers in the field.

Though technology from space-based surveillance and broadband to drones and AI-powered battlefield management apps has undoubtedly changed the way war is waged, it has so far failed to materially affect outcomes. Armies adapt to new threats and adopt countermeasures on-the-fly.

Tech Over Mass?

A Ukrainian Spetsnaz battalion, supported by National Guard troops, chased invading paratroopers from Hostomel Airport at the start of the Russian invasion, and went on to wipe out 80 tanks in an armoured column heading to Kyiv. Strategists almost universally hailed this as a victory of tech over mass, vindicating their verdict on the obsolescence of tanks.

An App for That

But — after a humiliating defeat in the Battle of Brovary — Russian generals are starting to see the light. The Ukrainians’ remarkable fightback may have been grounded in courage and Western anti-tank missiles, but it owed much to a beta version of a homegrown battlefield management app.

Called Delta, the app has become standard issue, and is even being deployed in NATO forces. It bundles and analyses data from troops and civilian officials as well as military streams from sensors, drones, and satellites. The app merges these data in real-time to map the battlefield — including the position of enemy assets.

Leveraging the analytical power of AI, Delta not only improves troops’ situational awareness, it also suggests a collective course of action — complete with specific combat missions. During the initial assault on Kyiv, Delta provided up to 1,500 enemy targets per day to the city defenders.

The app facilitates combined arms tactics, the operational philosophy of NATO ground forces that was initiated in the 1910s as a more dynamic alternative to trench warfare. The tactic integrates all combat arms to fight as a single, mutually supportive, and reinforcing unit.

Though airpower is a crucial part of any combined arms operation, it was largely absent on the Ukrainian side. Deploying combined arms tactics without that crucial factor led to high losses, and commanders soon ditched it. They reverted to Soviet-era methods: massive artillery barrages, and a war of attrition.

Former spokesperson for the US Army’s Combined Arms Centre in Fort Leavenworth, Colonel (ret) Steve Boylan, is not surprised. “It has taken us many years of training and tinkering to master the tactic effectively,” he said, “without having to apply these lessons in a war while doing so.”

Up in the Air

So far in this war, airpower appears overrated; defences in place deny both sides air superiority. Ukraine’s ageing Mig and Sukhoi fighter jets, of late-1970s vintage, are mostly being used as missile platforms. They stay aloft only briefly, fire their ordnance at distant, over-the-horizon targets, and make a quick getaway. It remains unclear how the F16s, controlled by minimally trained pilots, can escape Russia’s beefed-up air defences and directly support infantry and armour on the ground.

New high-tech equipment has changed the patterns of advance and retreat relative to historical experience. Today’s lethal weapons appear to favour defenders: offensive operations often become prohibitively costly in terms of lives and material. A three-to-one advantage in troops and firepower — traditionally required for a successful offensive — no longer suffices. Some military planners suggest a nine-to-one ratio.

However, realities on the ground can reduce estimates to guesswork. The war has produced a baffling mix of offensive and defensive outcomes that lack a common denominator. The continuing importance of legacy systems such as tanks, mortars, and landmines hardly heralds an epic shift in warfare.

Value of Attrition

Historically, innovation does not usually determine outcomes. During World War I, the late appearance of aeroplanes and tanks may have helped to a degree — but did not clinch an Allied victory. Attrition and an unstable home front did that.

World War II saw the emergence of radio, radar, and high mobility. These advances failed to avoid bloodshed such as that seen at the Battle of Kursk, which cost the lives of hundreds of thousands of Russian and German soldiers, and involved 6,000 tanks — many of which were lost.

On a lesser scale, Operation Goodwood, a 1944 British offensive in Normandy — described as “the Death March of Armour” — resulted in a painful Allied setback when up to 400 tanks were knocked out by German defenders in just three days. In the Italian theatre, Allied forces sustained over 40,000 casualties in repeated attempts to pierce the Gothic Line.

While new and more lethal technology does matter, opposing forces can adapt to it and dampen its effect with a combination of grit, dispersion, concealment, and countermeasures.

The change that military technology delivers is evolutionary, rather than revolutionary. The mothballing of tanks and other armoured hardware, a 40-year trend within NATO, was premature, and possibly based on wishful thinking and budgetary constraints.

The essence of war has not changed, and nor has its objective: To occupy and hold disputed territory by whatever means available.


Argentina Looks to Eccentric Outlier For an Economic Fix

A far-Right libertarian candidate has burst from nowhere to claim centre stage in Argentina’s election race.

Javier Milei, a 52-year-old, self-described “anarcho-capitalist”, wants to shutter Argentina’s inept central bank, replace the long-suffering peso with the US dollar, abolish all but a handful of government ministries, ditch nearly all social programmes, and privatise most of what’s left.

Milei recently cruised to victory in the open presidential primary election, securing 30 percent of the vote. The upset caught pollsters, pundits, and nearly everyone else by surprise. Analysts had predicted that voters would be put off by Milei’s crackpot ideas and “colourful” character.

Sporting a smart leather jacket, luxuriant sideburns and a bushy crop of hair — it hasn’t seen a comb for almost 40 years, by his own admission — Milei cuts a remarkable, and eccentric, figure. He owns four English mastiffs named after liberal economists: Milton (Friedman), Murray (Newton Rothbard), Robert (Patrick Murphy), and (Robert Emerson) Lucas. Through a medium, he allegedly remains in touch with Conan, their deceased progenitor.

[caption id="attachment_25902" align="aligncenter" width="900"] National Congressional Plaza, a public park facing the Argentine Congress in Buenos Aires.[/caption]

The former “tantric sex professor” and TV pundit became a fixture of the talk show circuit for his baffling honesty and bombastic demeanour. Milei promotes an ultra-individualistic agenda that, he says, will empower citizens and free them from stifling state rules and regulations that inhibit free enterprise and enable corruption. He campaigns like a rock star, and has built a strong following with young voters frustrated by Argentina’s crisis-as-usual establishment.

Milei blames a “depraved caste” of politicians, administrators, and assorted rentiers of bleeding the country dry, appropriating its natural resources for personal gain, and perpetuating its economic and social decline. On contemporary global issues, he is no less outspoken. He calls China an “assassin state,” opposes the “cultural Marxism” of feminism, the LGBTIQA+ movement and minority rights, and expresses an admiration for Donald Trump and far-Right former Brazilian president Jair Bolsonaro. He also holds the late Margaret Thatcher in high esteem.

In the 2021 legislative election, Milei landed a seat in the lower house of congress. He promptly laid siege to the Kirchnerists, an offshoot of the Peronist Party that had dominated Argentine politics for 20-odd years with a peculiar mix of clientelism, corporatism, and populism.

Milei bombarded the Kirchnerists with a suite of seemingly outlandish proposals: ending compulsory education, outlawing abortion, slashing taxes, and axing state expenditure. He assured voters that his “chainsaw plan” would cut through whatever austerity the International Monetary Fund (IMF) sought to impose. He promises to eliminate the budget deficit —4.5 percent of GDP — “within months” of getting elected.

But he is no admirer of the IMF; he says he won’t sign any deals with the fund, nor accept any of its money. “The IMF is just a bunch of bureaucrats who know that a bank’s business is to charge interest,” he said. “If I’m elected, it will be to solve Argentina’s problems.” He said that after 22 bailout packages, it had become clear that the IMF was “clueless” when it came to fixing Argentina’s economy — and an “enabler” of graft.

Former IMF Western Hemisphere director Alejandro Werner is particularly concerned about Milei’s dollarization plan. “The Argentine economy is not closely linked to (that of) the US,” he said. “This means that monetary policy decisions made in Washington will often not be appropriate for Argentina.”

Some analysts fear that Milei’s libertarian ambitions may clash — possibly violently — with the dismal social and economic reality of Argentina in 2023. Around 40 percent of the population — 46 million people — live in poverty; net forex reserves are estimated to be $7bn in the red. “To dollarize an economy that has no dollars is a problem,” says Darío Epstein, who leads the candidate’s planning team, “but we’re working on that.”

Among Milei’s more outlandish views are his dismissal of climate change as a “socialist hoax” and a proposal to legalise the harvesting and sale of human organs. He did, on reflection, dismiss the latter idea: “It was just an impromptu answer to a reporter’s question.”

Nutty Professor?

It could be a mistake to dismiss the maverick libertarian as an oddball shooting nonsense from the hip. Milei obtained a double PhD in Economics from the Universities of Belgrano and Torcuato de Tella. For two decades, he lectured in Argentina and abroad on monetary theory, macro-economics, and econometrics. He developed a deep appreciation for the Austrian School of Economics — which rejects the classical view of capital — and its most revered exponent, Friedrich Hayek (1899-1992).

Hayek, recipient of the 1974 Nobel Memorial Prize of Economic Sciences, inspired neocons like Margaret Thatcher and Ronald Reagan with his teachings, writings, and critiques (The Road to Serfdom) emphasising individualism and classic liberalism. Even the former Argentine president, Carlos Menem, who died in 2021, was a Hayek convert. In 1991, he bolted the national currency to the US dollar, causing a brief interlude of strong growth and relative prosperity. It ended in debt, deficits, default, and tears 10 years later.

Milei thinks he can do better, and expects the same policy to deliver a different outcome. He looks to Ireland for a model: “They did the reforms, and their per-capita GDP has more than sextupled in the last 30 years. I want Argentina to be like Ireland.”

To achieve that, Milei wants to reduce the number of government ministries from 18 to eight, replace the public healthcare system with one based on vouchers, “blow up” the central bank, and privatise the nation’s flagship carrier, Aerolineas Argentinas, and the state oil company, Yacimientos Petrolíferos Fiscales.

Market Upset

Markets reacted as if stung by bees when Milei pulled off his surprise victory in the primary election. After the parallel (blue) market dollar rate widened the official exchange rate gap to almost 100 percent, the central bank was forced to devalue the peso by 18 percent, and raise its benchmark interest rate to 118.

The Milei upset immediately hit voters in the wallet: overnight, prices of imported goods rose by double digits. The government announced restrictions on beef exports to keep domestic prices in check, only to rescind the policy hours later in a sign of increasing desperation. Inflation in Argentina runs at about 100 percent annually. On this grim measure, it is “beaten” only by Lebanon (269 percent), Venezuela (120-200 percent), and Zimbabwe (104 percent).

Economy minister Sergio Massa, the Peronist candidate in the October presidential election, came in second in the primary, with 21 percent of the vote. He was trailed by Patricia Bullrich of the Together for Change (Juntos por el Cambio) coalition, a moderate conservative platform, who secured 17 percent.

Though ostensibly a free-marketeer, Massa has been unable to deliver on promised reforms. He’s steering a perilous course through a minefield of Peronist politics. Curiously, his campaign promises more of the same: “We have a vision for this country, and we will win again at the polls… despite everything we may not have accomplished throughout these years.”

Cunning Plan

Massa, cunning and hungry for power, tends towards frequent changes of tack. He ran for president in 2015, promising to send the outgoing Cristina Fernández Kirchner — the current vice-president — to prison, along with her “corrupt” cabal. He went on to become her anointed candidate for the upcoming vote. Massa’s unenviable job is to avoid the collapse of the economy before then.

He has weaved a patchwork of short-term policies, aimed mainly at pleasing the IMF. He ponders the disbursement of the next $7.5bn tranche of its record-shattering $44.5bn bailout package, and nursing whatever forex is left. A prolonged drought and crop failures have cost the country an estimated $20bn in lost exports, compounding its woes.

But on the IMF front, major issues are not expected — if only because Argentina is, by a considerable margin, its largest debtor. It evokes the old cliché: “If you owe the bank a million dollars, you have a problem; if you owe it $44bn, the bank has a problem.”

Massa hopes that Javier Milei’s sudden surge in popularity may be nothing more than a momentary expression of national discontent. Voters, he believes, are likely to see the error of their ways once the economy stabilises, and they learn more about Milei’s true character.

But the result signals that voters are willing to contemplate a break with the past — and are prepared to look to the Right for radical change.

By Wim Romeijn


Otaviano Canuto: The Dollar’s ‘Exorbitant Privilege’ Remains

Otaviano Canuto discusses the ongoing role of the greenback in international monetary systems...

There has been talk of “de-dolarisation” of the global economy, with recent initiatives and policy moves by China and other countries to extend the reach of use of the renminbi in the international monetary system.

The greenback’s share in global reserves has slightly shrunk in relative terms, sparking frequent debate about what all this means in terms of global currency functions, and as means of payment and store of value.

While we point out a relative decline of the dollar’s weight in those functions, there are gravitational factors that tend to uphold its position. The “exorbitant privilege” that the US dollar has provided to its issuer is likely to remain.

The financial sanctions on Russia after the invasion of Ukraine sparked speculation that the weaponization of access to reserves in dollars, euros, pounds, and yen would stimulate a division in the international monetary order. China would tend to strengthen its international payments system and accelerate the establishment of the renminbi as a rival reserve currency to reduce its vulnerability to moves against it. Countries facing geopolitical risks in their relationship with the US and Europe would seize the opportunity to switch out of the dollar system. However, there is a way to go between willing and doing in this case...

In March, Brazil and China agreed to use local currencies in their bilateral trade. China is the destination of more than 30 percent of exports and the origin of more than 20 percent of imports. Given the trend towards surplus flows on the Brazilian side, it is assumed that Brazil will accumulate reserves in renminbi (RMB).

At the Russia-China summit in March, Vladimir Putin said that business transactions between Russia and countries in Asia, Africa, and Latin America would be conducted in RMB. Last December, China, and Saudi Arabia conducted their first yuan transaction, following Saudi statements that they were looking to diversify from the US dollar. Add Iran, another country grappling with US sanctions, and petrodollars might be replaced by "petroyuans".

Also worth noting is French company Total Energies' purchase of liquefied natural gas (LNG), settled in yuan, from Chinese state-owned CNOOC. Since the global financial crisis, China has sought to extend the use of the renminbi in international trade and as a reserve asset at central banks. It pursued a proliferation of currency swap lines with central banks in other countries — including Brazil.

It is not surprising that the "de-dollarisation" of the global economy, "multipolarity" or "bipolarity" of the international monetary system have become buzzwords. However, it is crucial to gauge the real scope of what is happening.

Currencies for Payment

Consider the difference between using currency to settle transactions — as a means of payment — and its role as a store of value. From the point of view of a central bank that needs to be ready for those payments, using the currency in transactions tends to lead to the constitution of reserves in the corresponding currency.

But it is worth distinguishing between currencies’ uses for payments (flows) and stores of value (stocks, reserves) because transactions may be settled without using a store of value. The recent Brazil-China agreement means that importers will make payments in local currencies, with settlements happening periodically. A similar scheme was used in the past by Brazil and other Latin American countries to economise on the need to use the greenback on all individual cross-border transactions (reciprocal payments and credit conventions, or CCR in Portuguese and Spanish).

It should be noted in this context that the bulk of foreign exchange transactions corresponds primarily to financial operations, not trade in goods and services. The size of Chinese foreign trade constituted a basis for the potential use of its currency — but not on the financial transaction side.

In 2015, when the RMB was approved to be part of the special basket of currencies that serves as the base for Special Drawing Rights (SDRs, the accounting currency issued by the IMF). It joined the dollar, euro, yen, and pound because of its weight via China’s foreign trade, not for its use in financial transactions.

The global use of the dollar in the international monetary system is much higher than the relative size of the US economy (Figure 1). The dollar's shares of foreign trade invoicing, international debt issuance, and cross-border lending are well above the country's shares of international trade, international bond issuance, and cross-border borrowing would suggest.

[caption id="attachment_25906" align="aligncenter" width="500"] Figure 1: The US dollar’s role in international monetary system eclipses America’s presence in the global economy.[/caption]

Trade can stimulate trade finance in a currency. Lenders extend credit to facilitate the cross-border movement of goods and services. The renminbi’s share of trade finance has more than doubled since the invasion of Ukraine, as its share by value of the market rose from less than two percent in February 2022 to 4.5 percent a year later (Figure 2). That reflected the use of China’s currency to facilitate trade with Russia and the rising cost of dollar financing since the start of the ongoing Fed’s interest-rate hikes (Locket and Leng, 2023).

[caption id="attachment_25907" align="aligncenter" width="500"] Figure 2: China has more than doubled its share of global trade finance.[/caption]

While the euro and yen account for six and less than two percent of the total respectively, the dollar’s share was 84.3 percent in February 2023, down from 86.8 percent a year earlier.

The renminbi’s rising share of trade finance reflects China’s drive to accelerate its internationalisation. It constitutes a challenge to the West’s use of sanctions to bar major Russian financial institutions from using the Swift platform of payments. The renminbi’s latest rise among trade finance currencies has not been matched by greater use in international payments made on Swift, which have plateaued at about two percent of the global total.

China had already made an effort to internationalise the renminbi in the years leading up to August 2015, when a devaluation led to severe capital flight. China’s central bank reversed course and imposed draconian capital controls that stalled its progress in promoting the currency. It seems to have shifted back to pushing internationalisation since the beginning of 2022 by searching for greater use of the currency in the settlement of cross-border commodities trades and improving global access to derivatives tied to renminbi assets.

Stores of Value

Besides approaching the weight of currencies in their use as the primary conduit to conduct international transactions (flows), either for trade or for finance, one needs to measure their roles as reserve currencies of choice (stocks) by central banks and other cross-border wealth holders.

Trade transactions and reserves from central banks and other global public investors could bolster the renminbi's position as an alternative currency to the dollar, euro, yen, and sterling. However, to go beyond the settlement of transactions and trade finance, the qualitative leap towards the internationalisation of the renminbi as a reserve currency will only happen when confidence in its convertibility is sufficient to convince private investors to keep reserves of it.

Central banks must have reserves in currencies with which they can operate in the various exchange-transaction areas. It is not by chance that foreign exchange swap lines with China have been little used, while those of countries with the US Federal Reserve have been activated in times of need to stabilise flows. Tight capital controls maintained by China will curb the renminbi from dramatically moving up the ranks of global payments currencies and a stock functioning as a store of value.

Over recent decades, some two-thirds of the world’s foreign reserves were maintained in US Treasuries and other quasi-sovereign USD assets. A gradual decline in the dollar’s share in total reserves occurred in the 2000s, and it was interpreted as a natural diversification by central banks reflecting trade and financial globalisation. Even the introduction of the euro, despite bets at the time, did not substantially change the dollar’s dominance in foreign reserves.

That dominance remained despite the falling share of US GDP. From the 1970s, it survived the end of gold convertibility and the fixed exchange rate regime inherited from Bretton Woods. Its presence in banking and non-banking transactions grew after the 2007-08 global financial crisis.

The International Monetary Fund (IMF) releases quarterly data on official foreign exchange reserves (COFER). The latest report shows a reduction in the degree of dollar dominance, with its share of central bank reserves falling 12 percentage points from 71 percent in 1999 to 59 percent last year (Figure 3).

[caption id="attachment_25908" align="aligncenter" width="500"] Figure 3: U.S. dollar share of global reserves. Source: Richter (2023)[/caption]

That is not in favour of the pound sterling, the yen, or the euro, despite the rise that the latter experienced in its first decade of existence. Instead, it favours what Arslanalp et al call “non-traditional reserve currencies” (Australian and Canadian dollars, Swiss franc and others). The Renminbi reached 2.6 percent of the total (Figure 4).

[caption id="attachment_25909" align="aligncenter" width="500"] Figure 4: Currency Composition of Global Foreign Exchange Reserves 2014-2022 (percent). Source: Richter (2023)[/caption]

At the end of Q4 of last year, non-US central banks held $6.47tn in USD-denominated assets, such as US Treasury securities, US corporate bonds, and US mortgage-backed securities. Even as the dollar’s share has dropped since 2014, holdings of dollar-assets rose from $4.4tn in 2014 to $7.1tn in Q3 2021 before falling as the Fed initiated its QT and interest-rate hikes.

These figures must be adjusted to compensate for fluctuations in relative currency prices and avoid distorting the perception of climbs or downfalls in their reserve status.

De-dollarisation will remain slow and bounded.

Four gravitational factors favour the continuation of the dollar's central position in international financial markets, in trade invoices and payments, and in public and private foreign exchange reserves. Call them “network — complementarity and synergy — effects” (Arslanalp). The relative expansion of the other currencies depends on how successfully they manage to offset those factors.

First, the more extensive installed base for dollar-denominated transactions favours the currency. The increase in liquidity and the reduction in transaction costs in the “non-traditional” foreign exchange markets — including technological improvements — helped reduce this.

No other monetary system offers an equivalent volume of “investment-grade” government bonds. That volume allows central banks to accumulate reserves and private investors to use them as a haven, something reinforced by the quantitative easing since the global financial crisis.

There was a significant announcement by then-President of the European Central Bank, Mário Draghi, in the euro crisis in 2012, that he would do “whatever it takes” as a last-resort provider of liquidity for euro-denominated assets issued in the eurozone. The European Recovery Fund was created last year. The global supply of liquid and safe-haven assets usable as central bank reserves tended to widen in favour of the euro.

Third, it is also worth noting that “non-traditional currencies” were favoured by a partial search for returns in reserve management. Central bank balance sheets — of advanced and emerging economies — have taken on enormous proportions. Some of them separate what would be the appropriate tranche for “liquidity management” (the reason why there are reserves in liquid and low-risk assets, with the purpose of stabilisation), from another “investment tranche” (possible to be allocated in less liquid, but more profitable, assets).

Many countries have created SWFs (sovereign wealth funds) to manage the investment tranche of the public sector’s foreign currency holdings. The search for diversification helped “non-traditional” reserves.

This is illustrated by Figure 5, taken from an April 2 tweet by Brad Setser (from the US CFR, or Council on Foreign Relations) displaying how the foreign acquisition of US treasuries and agencies has decoupled from official dollar reserves. Brad Seter recently compiled data suggesting how the accumulation of dollar assets by official institutions other than central banks has grown in the past decade. He remarks that “the big [current account] surplus countries (China, the GCC, Russia, Singapore) have large state sectors that dominate the balance of payments”, and that “state asset accumulation outside of reserves is, well, quite strong”.

[caption id="attachment_25910" align="aligncenter" width="500"] Figure 5: Drivers of foreign purchases of U.S. Treasuries and Agencies. Source: Brad Setser (CFR), Tweet of April 2, 2023.[/caption]

The fourth gravitational in favour of the dollar would be the absence of regulations restricting liquidity and asset availability, including capital controls. Despite the sanctions already applied in Iran, Venezuela and Russia, there is a difficulty here for Chinese bonds compared to those in dollars and the other three major currencies.

Since the global financial crisis, China has sought to extend the use of the Renminbi in international trade and as a reserve asset at other central banks. This was followed by a proliferation of foreign exchange swap lines with other countries.

While trade transactions and reserves by central banks and other global public investors may reinforce the renminbi's position, the qualitative leap toward the internationalisation of it as a reserve currency will only happen when confidence in its convertibility is sufficient. It is not by chance that the currency swap lines with China have been little used, while those of the countries with the Federal Reserve have been activated in times of need to stabilise flows.

Chinese financial authorities do not appear to be considering relinquishing control. They will probably seek to expand the use of the renminbi without relinquishing controls and without the ambition to build some parallel regime or substitute. The reserve issuer must accept that large amounts of its currency circulate the world and, therefore, that foreign investors have some weight in determining domestic long-term interest and exchange rates.

After Russia invaded Ukraine, portfolio foreign capital movements in and out of China were illustrative of the potential costs for China of rushing out of its existing regime. Data released by the Institute of International Finance (IIF) revealed a large outflow of portfolio (debt and equities) capital from China. Such flows remained stable in other emerging economies.

Although it was later partially reversed, the timing suggests that it had some correlation with the war in Ukraine and sanctions. The same sanctions that stimulated the rise of the renminbi on transactions also sparked capital movements out of China. Given the magnitude of repressed domestic financial wealth in China, one may guess dramatic outflows would follow that capital-account liberalisation in search of diversification as it happened in 2015.

One may conclude that the relative dominance of the US dollar appears to be declining, but at a gradual pace. Events have boosted the renminbi as a payment-and-reserve currency, but any declaration of “de-dollarisation” seems to be premature.

In the 1960s, Valéry Giscard d'Estaing, then the French Minister of Finance, coined the term “exorbitant privilege” to describe the dollar's position as a primary global currency. Such a position allows a country to supply cash or safe assets needed by the rest of the world in exchange for goods and services or long-term assets.

“Countries that issue reserve currencies, especially the United States, tend to benefit from what is called an ‘exorbitant privilege’,” he said. “This broadly refers to the effect of the global demand for safe assets on the reserve currency issuers' funding costs, which tends to tilt consumption towards the present and leads to higher investment.

“Global demand for reserve assets also tends to appreciate the currency of reserve issuers. These effects unambiguously weaken reserve currency issuers’ current accounts … The estimated coefficient suggests that for each 10 percentage points of global reserves held in its currency, a country’s current account balance, is weakened by about 0.3 percent of GDP.”

Country-level mismatches between supply and demand for safe assets appear in the evolution of corresponding net stocks of safe foreign assets. Figure 6 portrays the US and euro area below the line, as safe-asset providers, while China, Japan, oil producers, and emerging Asia ex-China are net purchasers above the line.

[caption id="attachment_25911" align="aligncenter" width="500"] Figure 6: Net safe positions as a fraction of world GDP. Source: Caballero, R.J., Farhi, E., and Gourinchas, P.O. (2020).[/caption]

To the extent that the world stock of safe assets moves upward, cross-border net purchases of safe assets give carriers of the “exorbitant privilege” a higher amount of goods and services and investment assets from the rest of the world in exchange for those safe assets.

There are those, however, who see that “bonus” as an “onus”. It all hinges on whether the goods and services and investment assets “imported for free”, corresponding to a certain level of current- and/or capital-account deficit that the issuer of safe assets can incur in exchange for the provision of those assets, come in addition to or replacing local production, regardless of whether the “safe-asset provider” runs a surplus or deficit in the other balance-of-payment accounts.

The “onerous” view is presented by Pettis, for whom it “allows many of the world’s largest economies to use a portion of American demand to resolve deficient domestic demand and fuel domestic growth, for which the US economy must then make up by increasing its household or fiscal debt.

“These economies, in other words, can increase their international competitiveness by lowering the relative share households retain of what they produce. They can then run the large surpluses needed to balance their domestic demand deficiencies while keeping growth high. This is the form of beggar-thy-neighbour trade policy that Keynes most urgently warned against.”

Pettis’ argument, however, is not solely framed against the balance associated with the provision of safe assets, which he blurs into the broader issue of U.S. current-account deficits (Figure 7): “Without the widespread use of the US dollar as the mechanism that allows global imbalances to be absorbed by the US economy, these imbalances cannot exist.”

[caption id="attachment_25912" align="aligncenter" width="500"] Figure 7: U.S. current account. Source: Stell and Della Rocca (2023).[/caption]

Excessive or insufficient current-account balances are better approached through the IMF’s methodology of evaluation of current-account imbalances relative to countries’ fundamentals in its annual external sector report (IMF, 2022). The “exorbitant privilege” should not be confounded with countries’ occasional shortcomings in obtaining full employment or efficient allocation of resources.

Despite the drive by China for a higher plurality of main currencies, raising the use of the renminbi, de-dollarisation looks bound to be partial and limited. Higher speed and depth of such a transformation would require a metamorphosis of China’s regulatory and policy regime, which the country most likely will not have the desire to implement right now.

While the euro has remained mostly a regional reserve currency, the US may retain its exorbitant privilege through the provision of dollar-safe assets for longer.

A previous version was published by the Policy Center for the New South

About the Author

Otaviano Canuto, based in Washington, D.C, is a senior fellow at the Policy Center for the New South, a nonresident senior fellow at Brookings Institution, a visiting public policy fellow at ILAS-Columbia, and principal of the Center for Macroeconomics and Development. He is a former vice-president and a former executive director at the World Bank, a former executive director at the International Monetary Fund and a former vice-president at the Inter-American Development Bank. He is also a former deputy minister for international affairs at Brazil’s Ministry of Finance and a former professor of economics at University of São Paulo and University of Campinas, Brazil. Otaviano has been a regular columnist for CFI.co for the past 11 years.

Follow him on Twitter: @ocanuto


South Africa Looks on While Brazil and India Face Off China and Russia

Johannesburg BRICS Summit (22-24 August 2023)

Is the Johannesburg summit anything more than just a chatgroup meeting for importers and exporters? Wim Romeijn reports.

A champion of moderation, and its own interests, India seems determined to thwart plans by Russia and China to transform the BRICS group of emerging economies into a non-aligned movement.

The five countries are meeting for their annual summit in Johannesburg, South Africa. Some 20 countries have formally asked to join the forum; Russia and China support the group’s expansion, while India and Brazil appear happy to keep BRICS as it is. India’s foreign secretary, Vinay Kwatra, said that his country keeps an open mind on new members — but added that a consensus on the criteria was needed.

[caption id="attachment_25915" align="aligncenter" width="900"] More countries are vying to join BRICS as the group tries to counter Western influence. Image: JAMES OATWAY/REUTERS[/caption]

South Africa, the first — and so far only — addition to the original group of four, is straddling a desire to cosy up to Russia and China while not straying too far from the US and Europe. Under president Cyril Ramaphosa and his predecessors, the country has drifted away from the West under the guise of multilateralism.

In a televised address to the nation, Ramaphosa said that South Africa would not be drawn into a contest between global powers. He calls for a more balanced global order. For South Africa, this implies a deeper insertion into the Global South — a loosely defined collection of emerging economies in Africa, Asia, and Latin America. It may enjoy some greater economic heft there.

The trouble, for BRICS, is that it lacks a clear purpose. In its 14-year history, it hasn’t really outgrown the chatgroup stage. Attempts to create a reserve currency that lessens members’ dependency on US dollar — discussed since BRICS celebrated its 2009 inaugural meeting in Yekaterinburg, Russia — have produced no discernible results.

No-Strings Cash

Though the Shanghai-based New Development Bank (NDB) was set up in 2015 as a counterweight to the International Monetary Fund and the World Bank, it so far largely failed in a bid to extend loans in local currencies (aside from the Chinese renminbi). The development bank is chaired by Dilma Rousseff, a former president of Brazil who resigned in 2016 after being impeached on what are seen by some as politically inspired charges.

The NDB has deftly managed the fallout of the bank’s exposure to Russia, which holds 19.4 percent of its capital. Though the bank’s credit rating was downgraded by one notch to AA, it managed to retain access to US capital markets — where it successfully placed a $1.25bn green bond in May. Unfortunately for Rousseff, American investors don’t “do” rand, rupee, rouble, or real.

Rousseff says the bank has been forced to suspend all Russian operations to avoid sanctions. “We cannot deny that the international financial system exists,” she said, “and just have to live with that.” The NDB chair said that the bank has a $33bn credit portfolio, and — unlike the IMF and World Bank — its loans do not come with political or ethical conditions. “We repudiate any kind of conditionality and respect the policies of each country.”

That may sound like a disaster waiting to happen, but the NDB is part of a broader network of interlocking policies, institutions, and initiatives that seeks to affirm China’s position in the developing world.

Before the summit, President Xi Jinping conferred with his South African host to press the case for BRICS expansion. Though officially receptive, South Africa’s already limited clout in the group could suffer from the accession of new member states. That’s a concern shared by Brazil and India, who suspect China of plotting to stymy their attempts to secure a permanent seat on the UN Security Council.

Criteria, Please

The Johannesburg summit will probably try only to define membership criteria, and leave the admittance of new members for another occasion. This is sure to disappoint the leaders of candidate countries, who were invited to come to the Johannesburg event but excluded from participation.

Russian president Vladimir Putin was in March indicted in The Hague for the abduction of Ukrainian children, a war crime. He did not make the trip to South Africa, sparing the host nation the embarrassment of having to either comply with an arrest order from the International Criminal Court or risk falling foul of its treaty obligations as a party to the court.

Putin’s absence will be a relief to some participating heads-of-state who, like Ramaphosa, are reluctant to join Western condemnation of Moscow — but would not necessarily want to be seen shaking his hand.

The apparent lack of purpose that characterises the BRICS states is rooted in economic divergence. While China and India have registered sustained, accelerated GDP growth since the inception of the group in 2009 (138 percent and 85 percent respectively), Russia (13) and Brazil (four) have lagged behind. Over that period, South Africa saw its GDP shed five percent. China now represents 72 percent of the BRICS combined GDP, perhaps justifying the country’s insistence on getting its way.

From a different perspective, BRICS is a club: two of the world’s biggest commodity importers, and three commodity exporters. A sceptical observer could conclude: “Move on, nothing to see here.”

That onlooker would probably be right — but maybe not for long.


Inverted Yield Curves and Central Bankers Pull Focus to the Tetons as BRICS Founders

Another day, another financial event — the 46th US Federal Reserve Summer Symposium — for Wim Romeijn to ponder...

As BRICS leaders discuss ways to challenge US hegemony and overthrow the mighty dollar as the global reserve currency, the minders of the financial status quo are descending on Jackson Hole.

The picturesque town — refuge for the millionaires and artisans of Wyoming — sits at the foot of the rugged Teton mountain range. The event drawing the financial shot-callers is the three-day US Federal Reserve Summer Symposium, an annual meeting of the world’s pre-eminent central bankers.

This 46th edition is organised by the Federal Reserve Bank of Kansas City, and has an impressive roster of central bank governors and academics in attendance.

[caption id="attachment_25920" align="aligncenter" width="900"] Jackson Hole, Wyoming[/caption]

It’s a get-together of more consequence than the BRICS sideshow in Johannesburg, where rather bored-looking leaders sit on throne-like white seats facing an audience of people deemed very important by those who are less so.

Xi Goes AWOL

China’s President Xi Jinping failed to show up at the BRICS event, his whereabouts a mystery. Just hours before his vanishing act, he had received the Order of South Africa, an award coined for the occasion, for unspecified services to the host nation. Professional Jinping-watcher Bill Bishop of the Sinocism newsletter noted that throughout August, Jinping has been avoiding public view, cancelling commitments without explanation.

Also absent, of course, was Russian President Vladimir Putin. He stayed in Moscow, fearing arrest on a war crime warrant issued by the International Criminal Court in The Hague. That left South African President Cyril Ramaphosa visibly annoyed and flanked by just two of his BRICS fellows, Prime Minister Narendra Modi of India and President Luis Inácio da Silva of Brazil.

Meanwhile, investors and market analysts are primed to record, weigh, dissect, and replay every word uttered by Jerome H Powell, chair of the Board of Governors of the US Federal Reserve System. The hunt is on for clues about where the interest rate may be heading. Powell is expected to signal a “higher-for-longer” policy, and refrain from declaring victory over inflation. (It hasn’t yet been accomplished, although it is on a downward trajectory.)

Central bankers must now fine-tune their policies to arrange a soft landing for the economy, without hurting the job market or prices while coping with ripples from the pandemic and the war in Ukraine. The Fed, the European Central Bank (ECB) and Bank of England (BoE) are struggling to determine an inflection point for their benchmark rates. The Fed and the ECB seem to favour a pause in rate rises, while the BoE may be eyeing the upward path.

A Cautionary Tale

China, so notably absent in Jackson Hole, has shown what happens when interest rates are kept too high for too long. This week, the People’s Bank of China shaved a tenth of a percentage point off its key one-year rate, taking it to 3.45 percent — but left the five-year rate used for mortgages and consumer credit unchanged at 4.2 percent.

Earlier this month, the bank lowered its interbank rate by 0.15 percentage points. By slightly increasing the spread between the one-year and interbank rates, policymakers granted commercial banks a slightly wider profit margin. That may help to offset some of the losses suffered since China’s housing bubble burst in 2021.

Chinese property developer Country Garden, an estimated $200bn in debt, last week issued a profit warning expecting operating losses to exceed $7.5bn after the company missed a $45m bond coupon payment on August 8. Market watchers consider a repeat of the infamous Evergrande collapse a distinct possibility.

A Bit Problematic

With inflation in retreat and manufacturing output slumping, the job market in the US and Europe remains surprisingly strong. Its resilience prompted Raghuram Rajan, former governor of the Reserve Bank of India, to call the recent data “a bit problematic”. Rajan is worried that a strong job market signals a long “last mile” to reach the two percent inflation target maintained by most central banks.

Most of the participants of the Summer Symposium fear that the so-called neutral rate of interest — when it neither encourages nor discourages economic growth — may have crept up from its pre-pandemic level of 2.5 percent (0.5 percent in real terms, after discounting two percent inflation). Researchers of the New York Fed suspect “R-star” may indeed have gone up, but expect it to come back down.

The much-desired soft landing, the current holy grail of central bankers, may again prove elusive. The yield curve hit its deepest inversion since 1981, a sure sign of economic trouble ahead. An inverted yield curve happens when the yield of short-term bonds exceeds the one of long-term bonds in a reversal of the norm.

Analysts have been quick to point out that since 1978, the yield curve has inverted six times — and preceded a recession on each of those occasions. Currently, two-year T-bills yield 4.95 percent against just 3.86 percent for the 10-year treasury notes.

Banks borrow short and lend long. An upside-down yield curve makes this an unprofitable proposition, and takes an average of 15 months to deliver a recession.

The current inversion started a year ago. Is a downturn due by next October?


Care, Fairness, Trust, and Respect Allow Copernicus to Look Beyond

Deep financial expertise and a holistic approach to business drive Swiss firm’s expansion

Independent financial group Copernicus is true to its name: it puts its clients firmly at the centre of the business universe.

Founded in Switzerland in December 2016, Copernicus has offices in Lugano and Zurich. The group is majority-owned by its founding partners, and is comprised of Copernicus Wealth Management, Finpartner Financial Services, and Thalia Capital Advisors.

[caption id="attachment_25930" align="aligncenter" width="1000"] Lugano, Switzerland: Via al Forte 1[/caption]

For large and complex estates, Copernicus deploys all aspects of its expertise to care for clients’ assets. Services range from wealth- and succession planning and family office services to asset management, risk advisory, and consolidated reporting.

Firmly established in a stable business environment and supported by a loyal client base and a skilled team, Copernicus focuses on the efficient delivery of holistic expertise to create value over time.

To ensure the quality of its products and services, Copernicus supports and encourages staff training and education, at all levels. Complementary skills are key to the group’s united corporate culture, with transparency, feedback, and knowledge-sharing as the norm.

[caption id="attachment_25931" align="alignright" width="300"] Chief Executive: Marco Boldrin[/caption]

Banking on these qualities, the group is on a strategic expansion path, looking to grow its business organically and by external lines. Chief executive Marco Boldrin says he has great faith in the strength of the Copernicus team “and in our experience in providing support to clients”.

Individual attention means that various degrees of complication in clients’ wealth structure can be ironed-out and simplified. In the current environment, many independent actors in Switzerland are required to structure their companies in response to the broader scope of regulation.

At the same time, selected banks’ stability is being put into question, says Boldrin. “We see a real opportunity to grow our business substantially within Switzerland, catering to the same type of clients that form our current strategic target.

“Our values speak to the concerns that wealthy clients and families have in the current, unstable environment. Among that set of values, ‘care’ is the standout: an expression of how we stand out in a crowded market.

“At the heart of our growth ambitions is the skillset of our team, delivered in an independent way, free of product- or service constraints. We seek growth by external lines, with similarly minded professionals. We’re open for dialogue with prospective partners in Switzerland or abroad, and we welcome any opportunity to present our vision.”

Copernicus Wealth Management, authorised since 2017 by the Swiss Financial Market Authority as a manager of collective assets, offers dedicated fund vehicles for the management of personal wealth, and manages a set of funds for external distribution.


Vive, Île-de-France! Go-ahead Region takes its Leading Role On Sustainability to its Heart

As a capital region, this historical part of France is a major European political and financial hub

The Île-de-France region is globally recognised, thanks to the cultural heritage of Parisian landmarks and sites of historical and artistic importance.

It is equally famous for the broad range of activities developed by local authorities, and is hailed as one of the most attractive territories in the world in touristic, economic, and financial terms.

With state-of-the-art industrial sectors and major French companies headquartered there, home to extensive farmlands and almost half of national R&D teams, the region is an economic and financial hub that accounts for 30 percent of the French GDP.

More than 12 million inhabitants, representing 18 percent of the national population, are spread across eight counties. These encompass the Parisian metropolis as well as substantial agricultural and forest areas.

[caption id="attachment_25943" align="alignleft" width="300"] Deputy General Manager: Paul Berard[/caption]

Île-de-France is a regional government centre; 209 representatives, elected for six-year terms, form its executive body, chaired by Valérie Pécresse. She is the head of 10,300 agents working together on regional development. As the region is responsible for secondary and tertiary education, transport, and housing, the agents have a wide range of functions.

They are legal experts, accountants, town planners, SME support, IT specialists, architects, engineers, vocational training specialists and project managers, and their role is to implement the decisions taken by the Regional Council.

To efficiently cover all these topics, the Île-de-France manages an annual budget of €5.5bn. Sustainable development is a priority for the local authority, and has been for years. Genuine attention is paid to implementing environmental assessments and green goals. The 2023 Regional Master Plan (Schéma Directeur Environnemental de la Région Île-de-France) is a clear demonstration of this: it has been redesigned to specifically focus on environmental challenges. The region includes its financial strategy early in this commitment. Since 2012, it issued 11 green and sustainable bonds for a total of €5.2bn.

These responsible bonds have covered almost all its financing needs since 2016, raising the region’s profile in sustainable investment policies, financial strength, and ESG quality. The executive committed to 100 percent green and sustainable financing in 2019, on the first conference on territorial sustainable finance hosted by the region. Thanks to this pledge, 85 percent of the authority’s outstanding debt is green and sustainable — and there is a commitment to achieving 100 percent by 2028.

The Île-de-France region complies with existing sustainable financing standards, and takes the initiative as it strives for continual improvement. The sustainable bonds issuance process is framed by a reference document, The Green, Social and Sustainability Bond Framework, which highlights the screening process applied to all funded projects. This document was updated in 2021 and respects the most rigorous norms. The framework takes into account ICMA principles and emphasises the use of proceeds, project evaluation and selection, management of proceeds, and reporting and external review.

The region is working on alignment with European Taxonomy Regulation, and integrates technical screening criteria (TSC) on climate-change mitigation, and the Do No Significant Harm (DNSH) criteria for transport. A revision of the document is under way, aiming to extend DNSH criteria to all projects. Île-de-France is planning a green budget to highlight the way it responds to environmental and social challenges.

Paul Berard is the deputy general manager in charge of finance, and the finance directorate monitors initiatives with operational departments. A Sustainable Finance Committee, set up in 2022, discusses annual reporting projects and green and sustainable funding practices. The latter gathers managers from the finance, ecological transition, transport, and high-schools divisions, and two qualified personnel at the Paris Region Institute, regional body dedicated to territorial studies.

[caption id="attachment_25941" align="aligncenter" width="1000"] Finance directorate team[/caption]


Access Granted: Simple Policies in a Complicated Financial Ecosystem

The Access Bank UK is a Nigerian success story that has passed the $100m milestone for three years in a row.

The Access Bank UK Ltd, a wholly owned subsidiary of the Nigerian Stock Exchange-listed Access Bank Plc, is having a boom time.

Income growth saw the bank pass the $100m milestone — for the third consecutive year — in 2022. It was the first Nigerian Bank in the UK to be appointed as correspondent to the Central Bank of Nigeria, and to undertake infrastructure work on behalf of the Nigerian government. It issues letters of credit on behalf of the Nigerian government and Nigerian National Petroleum Corporation (NNPC).

[caption id="attachment_25954" align="alignright" width="350"] CEO & Managing Director: Jamie Simmonds[/caption]

It also provides trade finance, commercial banking, private banking and asset-management products and services for customers in their dealings with Organisation for Economic Co-operation and Development (OECD) markets and support companies wishing to invest in and trade in African, MENA, and Asian markets.

In the recently published report and statutory accounts for 2022, the bank demonstrated yet another year of significant all-round growth, achieving and exceeding the targets for all main growth strategies.

Like its parent, Access Bank is committed to developing a sustainable business model. This is reflected in its moderate appetite for risk, its passion for customer service, and a commitment to build long-term relationships by working in partnership with customers.

It plays a key role in the group’s mission to be “the world’s most respected African bank”. Access doesn’t chase unsustainable yields as a route to growth. Instead, it focuses on building business through the strength of its customer relationships.

In 2018, the Access Bank became a direct member of the three key UK payment-clearing systems: Bacs (Bankers’ Automated Clearing Services), C&CCC (Cheque and Credit Clearing Company’s Image Clearing System) and Faster Payments. The Access Bank UK’s chief executive officer and managing director, Jamie Simmonds, said it was “a great landmark for us, enabling us to build a sustainable platform with direct entry into the UK payment clearing system”.

He said this would enable the bank to enhance its level of customer service. “We have a clear commitment there, and we anticipate and respond quickly to market needs with the right technology, products and services,” he said. “Joining the UK payment clearing system is a clear example of meeting the needs of our customers.”

The Access Bank UK Ltd provides a number of services to support business activities in Africa and around the world. “We were awarded Confirming Bank status by the International Finance Corporation as part of its Global Trade Finance Programme,” said Simmonds, “further strengthening our trade finance capabilities.”

The commercial banking team offers relationship-based service for corporate and individual customers, with competitive rates, market leading systems, and top-quality service.

That last point is key: the bank has been built around a passion for excellent service. “We deliver innovative investment solutions to our discerning clients,” said Simmonds, “who value trust, integrity, and accountability as well as investment performance.

“We take a proactive approach to product and service delivery, and offer unique investment solutions tailored to our customers’ needs by a highly experienced private banking team.”

[caption id="attachment_25953" align="aligncenter" width="1000"] The Access Bank UK Ltd DIFC Branch situated in the iconic Gate Building of Dubai[/caption]

The Access Bank UK — Dubai Branch offers a broad range of products and services to assist customers in the MENA region with trade and investment needs in Nigeria and Africa. The DIFC Branch is committed to building a long-lasting relationship in the region, in line with the approach that has proven so effective for the Access Bank UK Ltd. “The combination of the Dubai branch and our presence in the UK and Nigeria delivers a wealth of expertise that significantly benefits our customers,” Simmonds points out.

Access Bank UK Ltd provides employees with ongoing support and development opportunities, reflecting corporate pride in their dedication and professionalism. “We are very proud that Investors in People (IIP) has awarded us platinum status.”

The bank is led by an experienced team dedicated to delivering superior financial solutions to businesses and individuals. Staff members have worked in international marketplaces, and offer a wealth of knowledge and in-depth experience.

Entitled Growing Internationally, the statutory accounts report highlights a strong operational performance by the main strategic business units (SBUs), and continued growth and expansion in Africa and the MENA region. Continuing income growth saw the bank pass the $100m milestone — for the third consecutive year — and achieve $131.5m for the year, an increase of 18 percent.

Trade Finance continued to be the largest SBU, growing overall income by 12 percent to $62.6m, up from $55.8m in 2021. Correspondent banks, excluding the parent, contributed income of $32.6m, representing 17 percent growth over 2021’s $27.8m.

The commercial banking division showed the largest growth of any of the SBUs, with income reaching $49.7m (against $37.6m in 2021) an increase of 32 percent year-on-year. Leveraging its proven relationship-based model to support customers at a critical point in Nigeria’s post-pandemic economic emergence was a key factor. Asset management showed a significant boost in income to $8.1m, a 62 percent increase on $5m in 2021.

[caption id="attachment_25955" align="aligncenter" width="1000"] The Access Bank UK Limited offices in the heart of the City of London[/caption]

Jamie Simmonds said of the results: “A difficult global trading environment did not impact on another strong core performance, with the bank increasing operating income to $131.5, the third year in succession that it has passed the important $100m income milestone.

“We increased operating income in 2022 to $131.5m, a rise of 18 percent on the $111.1m achieved in 2021, despite the negative impact on the Russia-Ukraine conflict on global financial markets, inflation, central bank rates, and commodity training.”

Chairman and non-executive director Herbert Wigwe added: “Securing the approval of French regulators for the bank to open a regulated branch in France was the highlight of a strong financial and operational performance in 2022.”

“I offer thanks to our customers for their support, and for entrusting us with their funds which, for the first time, now exceed $1.25bn in terms of customer deposits.’’

Access Bank is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. The Access Bank UK Ltd — Dubai Branch, situated in the iconic Gate Building of Dubai International Financial Centre (DIFC), is regulated by the Dubai Financial Services Authority (DFSA).


China Syndrome: A Wilting Economy, Financial ‘Long-Covid’, a Collapsing Property Sector — and the Spectre of Deflation Hovering Nearby

The global economy is supported by four pillars; two are wobbly, reports Wim Romeijn, and one is being rebuilt. The first in a series of four CFI.co investigations...

The world’s major economies are facing up to an era beset by war, climate change, and shifting power blocs.

In Germany, inflation refuses to budge, and the economy refuses to grow. Infrastructure is crumbling, and car manufacturers are struggling to deal with the electric vehicle revolution.

In Japan, a weakened currency has lifted morale and rekindled economic growth. A turning point seems near as the “lost decade” draws to a close.

[caption id="attachment_25959" align="aligncenter" width="900"] China: Shanghai[/caption]

The United States, meanwhile, is doing rather well, with 2023 GDP growth expected to come in at a comparatively robust 2.4 per cent or higher. The job market is also proving resilient, shrugging off repeated interest rate hikes. Businesses and households continue to spend whilst inflation was slashed to three percent — within striking range of the Fed’s two-percent target.

China Syndrome

In China, however, the expected post-lockdown surge has failed to materialise. The property market has collapsed, taking with it some of the country’s biggest developers.

What goes up doesn’t necessarily come down. The last time China’s GDP contracted was in 1976, by 1.57 percent. It was the year Mao Zedong and Zhou Enlai died, the Cultural Revolution collapsed with the denunciation and purge of the Gang of Four, and reformer Deng Xiaoping began his rise to the top.

Since those chaotic days, a national recession hints at a slower pace of growth. Last year, economic activity increased by just 2.99 percent in the wake of enduring Covid lockdowns.

Market analysts and observers have been predicting an economic meltdown — a China Syndrome of sorts. Without dependable data, the doomsayers are scouting for signs that could confirm their fears. They point to the weak housing market and mounting troubles for developers such as Evergrande, Country Garden, and Sino-Ocean. All are facing financial difficulties, missing coupon payments, or pleading with bondholders for better terms.

No Jobs for the Young

Youth unemployment stands at 20 percent. CEOs of Western companies with a presence in China detect a lack of confidence — which keeps consumers from spending and businesses from investing. The spectre of deflation hovers nearby.

International concern about China’s predicament is understandable: a recession there would reverberate around the world. In some quarters, the language employed by China-watchers is emotive: a “ticking time-bomb”, a “Lehman moment”, “imminent Japanification” and “economic long-Covid”.

Observers less given to hyperbole are equally worried. They point to President Xi Jinping’s “meddlesome” rule and his apparent inability to pacify the Americans. On a recent four-day visit to Beijing, US Commerce Secretary Gina Raimondo urged the leadership to reduce business risk, and warned that American companies are beginning to see China as “uninvestable”.

US Secretary of State Antony Blinken and Treasury Secretary Janet Yellen are also recent visitors to Beijing, recently to assure leaders there that America is not “’decoupling” and would prefer to stabilise relations.

This is not necessarily how things appear from Beijing; President Joe Biden has signed an executive order restricting US investment in Chinese semiconductor, quantum computing, and AI companies.

Zero Covid / Confidence

As China’s draconian “zero-Covid” policies were lifted, most analysts expected a release of pent-up demand. Forecasters expected GDP to jump by six percent this year. The current target stands around five percent, allowing the government some wriggle-room. The reality is harsher still: GDP is slated to advance by just three percent — or less.

The post-Covid splurge was short-lived and petered out almost as soon as it began. The gloom visited upon the Chinese during the pandemic was severe. Lockdowns forced consumer confidence from a high of 127 at the start to a low of 86 towards the end (100 represents equilibrium between optimism and pessimism). Confidence hasn’t snapped back since. In an authoritarian regime, bad news calls for suppression. China’s National Bureau of Statistics simply stopped publishing figures on youth unemployment and consumer confidence.

FDI in Q2 was down a staggering 87 percent year-on-year. The adage that the Party won’t bother entrepreneurs and investors if they don’t bother the Party no longer holds true. President Jinping tends to micromanage the economy (and society), and has introduced a measure of uncertainty.

It can no longer be assumed that the Chinese economy will keep growing. It’s on a downward trajectory in dollar terms; deflation and a weakening currency have wiped trillions off the dollar value of China’s GDP. According to Goldman Sachs analysts, this could shrink economic output by up to $3tn.

Market-watchers are wondering if this is a temporary funk or the sign of structural challenge. A middle-income trap looms, as does a reckoning with a shadow banking system running scared. In May, Xinhua Trust became the first Chinese shadow lender to file for bankruptcy. Since then, Zhongrong International Trust, the country’s largest, has missed a number of payments.

A Crisis Foretold

Operating largely outside the control and scrutiny of the People’s Bank of China, a 2020 clampdown on off-book lending notwithstanding, trust companies took in almost $2.7tn (RMB21tn) from (mostly) retail investors lured by the promise of annual returns of 10 percent or more. About a third of those deposits found their way, directly or indirectly, to the now ailing real estate sector. Another sizeable chunk was loaned to local governments, which are struggling to repay their estimated $7.2tn debt.

Investors have understandably been spooked by an opaque triad of trusts, property developers, and local governments. But most can’t withdraw their cash —most trust products carry terms that inhibit or prohibit early redemptions. Those conditions may yet help China to avert a banking crisis — if it starts to address its problems in earnest.

The trust issue fails to promote or sustain consumer confidence. Consumers are a fickle lot and can, as the Americans say, turn on a dime. It’s up to President Jinping to show his commitment to the pursuit of high growth — and a willingness to impose some self-restraint. But not even Jinping himself can prove that he will not change his mind yet again. He seems stuck in a web of his own making.

Yes Men

The president has repeatedly signalled his willingness to sacrifice “accelerated” growth for “quality” growth, which prepares the country for a sustained economic — and possibly even military — dispute with the US. National greatness, security, and resilience are priorities. This implies that business and politics are no longer separate issues, and must be merged towards a common end, however ill-defined they currently are.

In the past, policy errors accumulated: the sudden cancellation of the zero-Covid policy exposed fallibility. The crackdown on tech firms scared off entrepreneurs and stifled innovation. The central bank’s timid response to deflation — and its odd refusal to cut interest rates — hampers growth and dampens consumption. In the administration, technocrats are being sidetracked by party loyalists and dogma.

A storm appears to be gathering. Short-term issues coincide with unsettling long-term trends; there are concerns about the ageing population, mounting Western opposition to unbridled expansionism, and the transfer — voluntary or otherwise — of intellectual property. As the country began its remarkable ascendancy almost 50 years ago, China proved that democracy and an open society are not preconditions for rapid growth and development.

It is now finding out that centralised authoritarianism may prove detrimental to that cause.


Hydro, Hydro, and Off to Work Go Your Euros — RENAIO has its Game Plan All Worked Out

Unique combination of technology and sustainable asset management.

Hydropower is key to accelerating and diversifying the global energy transition — and RENAIO Assets, founded in 2019, has embraced that trend.

Today it is a leading asset manager for the sector in Europe. RENAIO focuses on financing infrastructure projects, and optimises and operates hydro-powerplants with its own technicians... and with great success.

The company started out just four years ago, with an unusual approach for an asset manager. The company focused on identifying investment opportunities in sustainable energy, but its team includes engineers and specialists. They ensure that facilities within the portfolio operate optimally and efficiently.

[caption id="attachment_25963" align="aligncenter" width="1000"] RENAIO’s predictive maintenance management and technical improvements can transform low-performing hydropower plants into high efficiency ones[/caption]

It has developed its own servicing and control software called the RENAIO Monitor to achieve these goals. The software allows technicians to perform "predictive maintenance". Computer-optimised service plans with real data-recording significantly reduce downtime and maintenance schedules for turbines and other high-maintenance parts. RENAIO has been awarded the ISO 9001:2015 quality management certificate for the area of "purchase with technical takeover and operation of power plants".

To ensure the best support and efficiency, RENAIO co-operates with local companies for care and inspections, and has maintenance contracts with turbine manufacturers and the designers of hydropower plants.

RENAIO’s predictive maintenance management and technical improvements can transform low-performing hydropower plants into high efficiency ones. By optimising the plants, efficiency can be increased by up to 20 percent.

[caption id="attachment_25964" align="aligncenter" width="1000"] From left: Oliver Platsch and Andreas Grassl, joint Managing Directors, RENAIO Group[/caption]

In contrast to traditional asset management companies, RENAIO covers the entire value chain: Purchasing, commercial-, technical-, and risk management, investment consulting, and sales.

Group managing director Oliver Platsch explains the underlying philosophy: "By offering our particularly green fund, we wanted to show that power generation does not necessarily have a negative impact on the environment. It creates a profitable offer for Investors who value highly sustainable investments. That's why we focus exclusively on investments in renewable energy projects."

Hydropower offers several benefits: Electricity generated this way represents the only baseload-capable power of all renewable energies. There are currently more than 157 gigawatts of installed hydroelectric capacity across the EU, and some 10,000 plants in the Alpine region alone. These are “technically mature” and cost-effective to operate.

The plants allow for more than 5,500 operating hours per year — and hydropower boasts the highest efficiency among all sources of power generation: more than 90 percent. Nuclear power is 33 percent efficient, wind power 30 percent, and photovoltaics 20 percent. Hydropower offers a high return per kilowatt of installed capacity.

The expected returns for hydropower plants with less than 5MW in Europe range between one and 10 percent, with Italy, Poland and Slovakia currently offering the highest yields.

Only 3.6 percent of funds in Europe meet the strict requirements of Article 9 — and the RENAIO Infrastructure Fund is one of them. This is proof that the company is serious about its commitment, and an important part of the EU Disclosure Regulation (SFDR). It makes it easier for investors to measure the sustainability of financial products.

The EU released its Sustainable Finance Action Plan in March 2018. The objective is to ensure stricter compliance with the principles of the UN's 2030 Agenda for Sustainable Development, and the goals of the Paris Climate Agreement.

With the RENAIO Water Infrastructure Fund, 100 percent of the assets are sustainable investments, according to the SFDR directive. As of December 31, 2022, the taxonomy ratio of the fund is 93 percent due to cash positions, with a minimum required ratio of 85 percent due to the SFDR directive. "We are very proud of the fact that our investment fund is a pioneer of sustainable investments in Europe, and one of the 'Dark Green Financial Products' providing exceptional environmental benefits," says Andreas Grassl, managing director at RENAIO Group.

Environmental commitment can pay off for investors, too: they have seen an average annual return of 8.5 percent since the fund’s launch in 2019. Investment in the mutual fund is less volatile, as it is not listed on a stock exchange and functions largely independently of economic cycles. Investors also benefit from the fact that capital committed and subscribed is invested swiftly — typically one to three months. Minimum investment is €200,000.

There is permanent compensation for electricity fed into the grid, and this provides predictable income in the long term through guaranteed electricity prices and a long-term cash flow with stable, partly guaranteed payments. Since hydropower is deemed to be one of the pillars of the energy turnaround in Europe, an investment should be “future-proofed”.

Investors have a holding period of two years, after which they can terminate with 12 months' notice, enabling them to be flexible in the face of unforeseen events. An investment in the RENAIO Water Infrastructure Fund is considered an infrastructure investment with an overall horizon of more than 10 years.

Investors receive annual financial statements with an auditor's report, including a review and performance notes. An overview of the activities in the fund and in investment properties is distributed quarterly.

The open-ended hydropower fund focuses on medium-sized and smaller institutional investors. Currently, the majority are BaFin-regulated pension funds and insurance companies. As of June 2023, the fund's AUM totalled €103m.


An Acronym with History and an Eye on the Future: LBBW’s ‘Niche’ is Global, and Growing

As its name suggests, Landesbank Baden-Württemberg — LBBW to its friends — has its roots in Baden-Württemberg, in south-west Germany near the borders of France and Switzerland.

With total assets of €324bn, it is one of the largest banks in Germany, and present in the world’s major economic and financial hubs. LBBW places its expertise at customers' disposal, with the unofficial motto: “We’re just as involved and innovative as you are. Because we think and act like an entrepreneur.”

[caption id="attachment_25967" align="aligncenter" width="1000"] LBBW Hauptsitz, Stuttgart[/caption]

It provides its services as a mid-sized universal bank to companies, retail and institutional customers and savings banks. As an institution under public law, LBBW is owned by the Federal State of Baden-Württemberg, the Savings Bank Association of Baden-Württemberg, and the City of Stuttgart.

The LBBW Group has some 10,000 employees at 100 locations throughout Germany. Its head offices are in Stuttgart, Karlsruhe, Mannheim, and Mainz. LBBW serves international customers at 17 locations in 16 countries, including the US, the UK, and Singapore.

In 2022, LBBW generated €901m in operating profit before tax. Despite market volatility and geopolitical crises, it was the highest company profit since 2006. And that figure excluded the effect of a 2022 consolidation that bolstered before-tax profit to €1.9bn. LBBW achieved this via a business model aimed at growth and relevance by supporting socio-economic development through sustainable innovations.

LBBW has earned a reputation as a bank you can depend on, in good times and bad. Trust is indispensable for a long-standing partnership in banking. The relationships that LBBW has cultivated have stood the test of time — sometimes over generations. “Wherever you are headed as a professional or individual,” a spokesperson said, “we are there for you and will provide the financial backing to enable you to achieve your aims.

“We know that companies don’t grow by themselves; they need capital and first-rate advice in their financing ventures. It’s been in our DNA for the past 200 years to operate on a sound basis while at the same time taking bold moves, and breaking new ground.

This mission statement is valued by companies of all sizes, from SMEs to global corporations. “We work hard to earn this trust, each and every day,” the spokesperson said.

The bank highlights its identity as a medium-sized universal bank, its strategy and its corporate values in its corporate brochure.

The quality of the bank’s services have won it recognition, confirmed by numerous awards and prizes. It focuses its energies on four strategic areas of action. It leverages its strength as a mid-sized universal bank and directs its energy to its customers.

A statement reads:

We support our customers as they adopt new business models in today's data-driven and connected world — and, in turn, seize all the opportunities afforded by digitalisation.

We are increasingly agile. We make decisions quickly, co-operate with others, and learn continuously to be able to respond ever more flexibly to customer requirements.

Sustainability is an integral part of LBBW's strategy, doing our bit to cultivate a growing market for green investments. We help our customers to make the successful transformation to more sustainable business models.

LBBW has become the first choice for companies, but it also caters to international banks and SSAs, commercial real estate and institutional customers, and the public sector. BW Bank, which is part of the group, has private customers and foundations in its portfolio.

LBBW fulfils the role of a central bank for the savings banks in Baden-Württemberg, Rhineland-Palatinate, and Saxony. It caters to retail customers, private individuals and SMEs in the core market of Baden-Württemberg via BW Bank, which fulfils the role of a savings bank in Stuttgart.

Landesbank Baden-Württemberg has more than 200 years of experience — and consistently high scores from international rating agencies. LBBW ranks among the most active issuers worldwide. The primary markets team partners with clients seeking to raise capital through the issuance of new securities.

LBBW leads the market for euro-covered bonds in terms of trades and volume. Last year, 73 covered bond issuers chose LBBW to lead-manage as many as 97 transactions. LBBW is actively involved in four of every 10 trades — more than any other dealer. That’s proof positive of LBBW’s continuous involvement in the market across market cycles and windows – whether risk-on, risk-off, or in-between.

As well as the largest market share, the bank has the largest number of jurisdictions, the most international franchise, the record for the most deals executed on one day, and leads the field in ESG-covered bonds.

The international recognition of the capabilities of the LBBW DCM department means it can serve a diverse issuer base with less bias on its home market. The bank enjoys respect for its strategic covered bond issuance, distribution capabilities, and execution.

LBBW’s boon to the sector is the reduction of execution risk and the delivery of incremental demand for an ambitious pricing outcome of strategic deals. Another plus is the issuer's ability to spot the right issuance windows and offer maturities that best suit investor demands.

This flexibility and efficiency provided issuers across all relevant jurisdictions access to the covered bond market when it is needed most — even during turbulent market phases. With extensive market expertise developed by the sheer number of transactions placed, LBBW is the frontrunner in terms of giving qualified advice to first-, second-, and third-tier banks.


No Sugar Coating for Kenya’s Cane Industry, but KISCOL has an Established Place in Industry

Increased competition and dwindling natural materials challenge some producers, but KISCOL is growing, diversifying, and ‘doing things right’...

Kwale International Sugar Company Ltd (KISCOL) knows full well the sweet taste of success.

The Kenyan firm boasts a $300m processing facility, 5,500 hectares of cultivated sugarcane, a mill capable of crushing 3,300 tonnes per day, an 18MW bagasse-fired power plant, and a sophisticated irrigation and water-management system.

CFI wanted to find out more about the organisation which prides itself on producing affordable, locally grown sugar. We put some questions to the KISCOL team behind the flagship project of the Pabari Group.

CFI: What are your hopes for the future of your business, and for the industry as a whole?

KISCOL Team (KT): In the immediate future, we plan to increase our sugar production output to 10 percent of the market share. In the long term, our plan is to create a diversified production company where we will be setting up an ethanol distillery, maximising our land bank by adding solar production to our power production — over and above the power generation from bagasse.

We also intend to set up a fertilizer plant and water utility entity by leveraging our water assets. For the industry, we foresee enhanced competition from the millers who have largely set up in the western part of Kenya, and do not have their own “nucleus”. Companies will either be forced to set up on their own or fight over the dwindling raw material.

This threat is coupled with the looming COMESA safeguards. Companies will be forced to innovate or perish. The situation may see increased imports into the country to cover the production gap.

An alternative outcome is that we may see large investors from abroad set up production entities to meet the market demand. All-in-all, the cost of sugar will remain high — which is an incentive to prospective investors.

CFI: What relevant changes to legislation or regulation would you like to see?

KT: The government set up a taskforce to look into legal and policy changes that will enhance the sugar industry. Part of that was the passing of a new Act of Parliament specific to the industry, as opposed to the existing one which covered many crops — and led to ineffective regulation.

The new Sugar Bill is currently with parliament, and this new law is welcome. We hope it will prompt a return of the sugar-development levy, particularly on imports that will go to create a development fund via financing inputs and price stabilisation.

There should also be regulation creating well defined zoning areas to avoid millers poaching one another’s raw materials. We would like a mandate for millers to bring imports into the country, rather than private individuals. This will ensure that the industry ecosystem benefits.

Lastly, we hope to have several tax-policy changes, such as exempting key inputs from taxation, to stimulate investment.

CFI: Can you pinpoint any pitfalls to help newcomers to the industry?

KT: Development of a greenfield sugar project is a capital-intensive endeavour due to our weak and segmented investment laws.

There should be a mechanism of investor protection from development until commercial operations begin. Any new investor should try to seek guarantees from government prior to investing.

CFI: Do you have any anecdotes to illustrate your progress over the years?

KT: When we were setting up the project, land prices within our area we around $500 per acre. As we speak, the price sits at $6,000 per acre; some are close to $10,000. This has created an increased demand.

Another issue is quality of life: the southern coastal region of Kenya has high poverty levels. Through investment, we’ve created employment to 2,000 local people. Money circulation has created many offshoot businesses, like hotels and eateries, rental companies, shopping centres, transport organisations.

We’re happy that as opposed to going to going to the main commercial town for shopping, one can now buy essentials within walking distance of the factory. Our infield roads have opened up many places which had been cut off from main infrastructure.

CFI: How do ESG parameters and sustainability principles affect the way your industry is run?

KT:  We fully embrace these parameters and principles. KISCOL has embarked on a number of sustainability efforts. We initiated a clean development mechanism (CDM) project to sell carbon credits on Certified Emission Reductions (CERs) to the Swedish government. This helps Sweden to meet its targets under the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC).

We teamed up with CAMCO on the conceptualising, drafting, and completion of the protocols-based CDM. When it was finalised, we were invited to present the project at the UNFCCC’s 17th Conference of Parties (COP17) in December 2011 in Durban, South Africa, through the International Emissions Trading Association (IETA) to the CDM executive board.

KISCOL was nominated for the AfriCAN Climate Good Practice Award in 2013 for its initiatives in adapting to and mitigating climate change in Africa. KISCOL is climate-conscious and ensures that its carbon footprint is minimal. The very nature of our operations means that transport and logistics must be closely inter-twined along our supply chains.

We’ve acquired and introduced a robust vehicle-tracking system that saw a 30 percent reduction in the waste or misuse of company-assigned fuel. This was another step to reducing our carbon footprint. “One step at a time” has been our motto in the quest for sustainability and environmental responsibility.

Most Kenyan factories are dated and old, but there is a trend for companies to confront these issues via legislation, advocacy, and bank financing. The initial cost of compliance is high, but we foresee positive outcomes.

[gallery columns="2" size="large" link="none" ids="25973,25977,25974,25976"]

CFI: What are some of the challenges you are facing?

KT: Mid-term challenges revolve around the cost of inputs. The weakening shilling is increasing the overall cost of production. The economic situation here is making the cost of finance higher: banks would rather lend to the government than to the private sector.

CFI: What is the single most important requirement to becoming a global business?

KT: Good governance ensures that the business is run on clear principles. With this you can, over time, build a firm framework to grow beyond your borders. Innovation ensures that you are able to diversify your business, and keep your enterprise competitive and relevant.

CFI: How do you see the short- to mid-term prospects for your industry?

KT: In the mid-term, we foresee the unfavourable shilling-to-dollar exchange rate affecting our purchasing power for critical industry components. Shelf prices will remain high due to the higher average costs of inputs. In the long term, better governmental fiscal policy should reverse this trend.

CFI: What excites you about the business world in general?

KT: The pace of innovation. The world has transformed enormously over a short period of time, and technology has been a key catalyst. What was thought unimaginable by our forefathers is what we experience in our everyday.

CFI: What have you learned over the course of your careers?

KT: The value of people and relationships. Nothing gets done without people.

CFI: What motivates and enthuses you about the business?

KT: The limitless potential and impact that the business can have. From cane, you can have sugar, power, fertilizer, CO2 distillery — all big businesses in their own right. This means that just one crop can have a major impact on society.

CFI: What is special about your organisation’s management style?

KT: We embrace a consultative management style with input from heads of departments and their heads of sections. Information flow is two-way, with input and feedback encouraged from all employees.

CFI: Can you share some management or organisational secrets?

KT: Sugar industry business has been around for generations, so I don’t think any secrets are left. One has just to do what has continually been done, in the best way possible.

CFI: What are the key strengths of your team?

KT: Our businesses are run on values driven by:

a) Integrity: we conduct business fairly, with honesty and transparency.

b) Understanding: Caring, showing respect, compassion to our colleagues and customers.

c) Excellence: We strive to achieve the highest possible standards in the quality of the goods and services that we provide.

d) Unity: Teamwork, cohesive collaborations, strong relationships based on tolerance and mutual co-operation.

e) Responsibility: We are sensitive to the cultures of the countries, communities and environments where we operate. Inclusivity marks our operations. We ensure that what comes from the people goes back to the people, and the soil, many times over.

CFI: How important is your support team?

KT: Support teams, in whatever cadre, are critical to improved productivity and effective results. The value of having a team that shares the company mission and vision cannot be overstated. Our support teams shore up the back-end so that the front-end shines. We encourage teamwork, cohesive collaborations, strong work-based relationships based on tolerance, and mutual cooperation.

CFI: What are the key traits of a good corporate leader?

KT: In today’s world, where everyone is to a large extent knowledgeable and has access to information, a leader should first be grounded in his or her understanding of their role. This creates confidence in people.

Secondly, a leader should be able to motivate his or her team to display eagerness and inspiration.