TWFR NovDec 2019 Final 1-single-exact

TRFWihenovearilnedwcial Carbon Dioxide: From Villain to Asset November - December 2019 world nancialreview.com •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• Technology is Transforming Banking for SMEs. •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• The Key to a Sustainable Digital Future •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• Key Drivers to Transform African Agriculture Exclusive Interview with Sasha Baillie LUXINNOVATION CEO Agency for INNOVATION: how Luxinnovation supports Luxembourg’s economic development ambitions empowering communication globally USA $22 EU €17.5 CAN $22 UK £15

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The World Financial Review empowering communication globally NOVEMBER - DECEMBER 2019 Global Economy Africa 8 World Economy On The Brink 44 Identifying Key Drivers to Help Graham Vanbergen Transform African agriculture Development Mills Soko 12 Development Paths of the UK and China at Different Digital Transformation Historical Times: Similarities and Differences 49 Strategies for Managing the Cyber Security Risk Guanghua Yu Anthony Young Top Investment Destinations for Business Growth in 2019 52 Can AI really Make Compliance Easy? 16 Agency for Innovation: how Luxinnovation supports Colin Bristow Luxembourg’s economic development ambitions Exclusive interview with Sasha Baillie, 54 The Key to a Sustainable Digital Future; Luxinnovation CEO Human Rights Safeguards Sabrina Rau Global Business 23 Becoming a Global Hub for Start-ups Innovation 58 Innovation and the Art of Transformational Ramy Jallad Leadership Banking 26 How Technology is Transforming Banking for SMEs Mostafa Sayyadi Alain Vansnick Art 62 Why art is the secret weapon in the battle to 28 Trapped in the past? Moving Banking Beyond the Prison Paradigm make business more productive Jouk Pleiter Patrick McCrae Sustainable Investment 31 Carbon Dioxide: From Villain to Asset Leadership 65 Explore Soft Leadership to Achieve Rowena Sellens Global Stability, Peace and Prosperity Islamic Finance 34 Financing the SDG Agenda: The Potential of M.S. Rao Sukuk The Indonesia Case 69 FedEx Corporation’s Philosophy Employees First, Dalal Aassouli and Ebi Junaidi Customers Second, and Shareholders Third M.S. Rao Russia 40 Russia Excels at Art and Invention but Stinks at Knowledge 74 What's The Most Holistic Model for Knowledge? Commercial Technical Innovation Loren Graham Mostafa Sayyadi empowering communication globally

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From the Editors Looking forward to a brighter future amid shifting tides “The real problem is that the world has not faced up plan spans industries, technologies and public and private to the real aftermath of what happened in 2008 sectors in pursuit of the government’s ambitious economic and unexpected events now dominate global objectives, and how the agency inspires companies to inno- growth as a result.” – Graham Vanbergen vate and grow in an intelligent way and prepare themselves well for the challenges of the future. In this year-end issue of The World Financial Review, we want to celebrate what we have achieved in the past year, Further on the theme of development, Millis Soko reflect on the lessons we could learn from these events, and highlights the African continent and argues that African look forward to creating a better future. countries need to realise their agricultural potential by looking at the example of the green revolution practised On the state of the global economy, Graham Vanbergen in India and how it has propelled India from a country observes that 2019 has not only been the weakest global plagued by famine and drought to the top wheat-producer expansion in a decade, another fracture in the financial in the world. system is also producing more rising dangers in shifting political economies yet. He makes the case that there is In the Middle East, Ramy Jallad takes us to know more a lot more at stake than just another recession. Are we about Ras Al Khaimah, the northernmost and one of the better prepared this time than we were during the last seven Emirates that make up the United Arab Emirates. financial crisis? Despite that the Emirate is not as widely known as the other Emirates in UAE, Ras Al Khaimah has developed a While protests and anti-government movements around sound reputation as the hub for entrepreneurs. the world have sprung up in recent months for different reasons and causes; it is essential to look beyond the main- In Asia, we explores how Indonesia’s promotion of stream media coverage to understand the historical context Sukuk has transformed its economy and the vital role of their respective social and political evolvement. Guanhua Islamic finance plays in achieving the SDGs and market Yu looks at the development paths of the UK and China at stability in the region. different historical times, and reflects on the drivers of the recent events in Hong Kong. Further in the issue, we also highlight the ever so important role of technology in transforming the banking and financial In our Top Investment Destination for Business Growth services industry, the ethical risks we might encounter in our feature series, which is also the Font Cover story of this increasingly digital future, as well as the critical leadership and year-end issue, we are delighted to highlight one of the safest organisational strategies for today's fast changing world. and most innovative countries in the world – Luxembourg. We have an exclusive interview with Ms Sasha Baillie, CEO We hope you enjoy reading this year end issue, and we of Luxinnovation. want to send you our utmost gratitude for your continous support, and we wish you a peaceful and joyous Christmas, She recounts how the agency’s many-stranded campaign and a prosperous and successful 2020! Production & Design: Angela Lamcaster Print Strategy: Stefan Newhart Production Accounts: Lynn Moses Editors: Elenora Elroy, David Lean Group Managing Editor: Jane Liu Editor in Chief: The World Financial Review Publishing Oscar Daniel READERS PLEASE NOTE: The views expressed in articles are the authors' and not necessarily those of The World Financial Review. Authors may have consulting or other business relationships with the companies they discuss. The World Financial Review: 3 - 7 Sunnyhill Road, London SW16 2UG, Tel +44 (0)20 3598 5088, Fax +44 (0)20 7000 1252, [email protected], www.worldfinancialreview.com No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without written permission. Copyright © 2019 EBR Media Ltd. All rights reserved. ISSN 1756-3763 empowering communication globally

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Global Economy WORLD ECONOMY have still not been learned though. ON THE BRINK Our species is, after all, inherently flawed as are the financial systems we BY GRAHAM VANBERGEN build around us. 2019 has already proved to be the consequences of living and since the Last year, in an article for The weakest global expansion in a decade birth of money – so are economic reces- European Financial Review (The and another fracture in the financial sions. And it appears that no matter Predicted 2020 Global recession Oct system is producing yet more rising how much meddling and tinkering we 2018), I wrote that by late summer dangers in shifting political econo- humans do, even with the advantage 2019, economists all over the demo- mies – ill-prepared for a second assault of our collective history and technical cratic West would be talking of like the last. Graham Vanbergen advances – all three are as assured as another financial crisis. They are, but makes the case that there is a lot more each other. with ever more shrill warnings of a at stake than just another recession. repeat of the most ruinous economic It was not so long ago that the slump in history, which is yet still to It was Benjamin Franklin that opined global banking system suffered its fully recede. that in this world nothing can be near-death experience. In its death said to be certain, except death and rows, flashbacks of the 1920s depres- The IMF reports that that global taxes. Both, of course, are the normal sion years came and slowly went. The economy is in a synchronized slow- lessons of these and other recessions down and is now performing at its slowest pace since the global financial crisis. In its October report – rising trade barriers, increased geopolitical tensions, low productivity growth and aging demographics in advanced economies are the key issues. Investor confidence is also draining away. All these issues are a problem, but they were not unexpected.1 8 The World Financial Review November - December 2019

The real problem is that the world has Roubini makes the point that there are In its wake, the democratic four global collision courses being played out. world is seeing a shift of not faced up to the real aftermath of what First, is the zero-sum game of chicken repre- ideologies – the rise of sented by the US-China trade war. Then, the populists, the far-right and happened in 2008 and unexpected events escalating and highly divisive political trench religious conservatism. warfare in the UK over Brexit and its effects Isolationism, nationalism now dominate global growth as a result. upon the European Union – (just as America and racism are some starts prodding it with tariff barriers to of the hallmarks of its The impact of the last crash has been far more force the EU to comply to its own standards progress and declining devastating than the financial ruin of millions. reductions). Then, there is the potential fallout middle-classes along with In its wake, the democratic world is seeing a shift in the Middle-East as American influence austerity is its ringleader. of ideologies – the rise of populists, the far-right wanes and finally, the economic implosions of and religious conservatism. Isolationism, nation- South America.3 alism and racism are some of the hallmarks of its progress and declining middle-classes along Roubini says that additional economic pres- with austerity is its ringleader. sures are building into political outcomes and King asserts that the institutions put in place Steve Bannon, the architect of Donald to protect global economies from another Trump’s ascendency to the Whitehouse likes to bank-led crisis don’t have the firepower to insu- brand it “economic nationalism.” The falsity of late from another emergency. this is that its ideology takes greater control of the markets – far from the free-market system Roubini: he espouses. “A full-scale trade, currency, tech, and cold war between the US and China would push the current Mervyn King, the former governor of the Bank of England has recently made the point downturn in manufacturing, trade, and capital spending that another global financial crisis is not just inevitable but actually en-route. into services and private consumption, tipping the US The Western banking system has proved and global economies into a severe recession. A failure to beyond doubt that it was neither robust nor disciplined enough to make the necessary compromise would lead to a collision, most likely followed adjustments to future-proof markets and as King asserts – the democratic West is strolling by a global recession and financial crisis.” blindfolded straight into a new slump, turning King: the Great Recession into an epoch. “Following the Great Inflation, the Great Stability King rightly warns that – “Another economic and and the Great Recession, we have entered the Great financial crisis would be devastating to the legitimacy of a Stagnation. It is the failure to face up to the need for democratic market system - and sticking to the new ortho- action on many policy fronts that has led to the demand doxy of monetary policy and pretending that we have stagnation of the past decade. And without action to deal made the banking system safe means we are sleepwalking with the structural weaknesses of the global economy, towards that crisis.” there is a risk of another financial crisis, emanating this King goes on to say that – “No one can doubt that we are once more living through a period of political time not from the US banking system but from weak turmoil. But there has been no comparable questioning of financial systems elsewhere.” the basic ideas underpinning economic policy. That needs The lethal combination of Trump’s global trade wars, Britain's democratic failure to to change.” contain Brexit alongside, Europe’s fragile euro and the aforementioned triggers of economic Nouriel Roubini the economist that advised difficulties almost guarantees another fracture the IMF, the US Federal Reserve and World in a system ill-prepared for a second assault Bank also warns of the rising dangers of these like the last. shifting political economies. The real problem is that the world has not faced up to the real aftermath of what happened in 2008 and unexpected events now dominate global growth as a result. worldfinancialreview.com 9

Global Economy 2019 has already proved to be the weakest The decade long economic perfect storm global expansion in a decade. was passing but political ripples are once again turning into the breaking waves of economic Last month's United Nations trade and devel- shocks and dramatic political change with opment body, Unctad warned that – “A spluttering far-reaching implications. north, a general slowdown in the south and rising levels of debt everywhere are hanging over the global economy: Today, we are witnessing the failure of neolib- these combined with increased market volatility, a frac- eralism to deliver its “trickle-down” promises tured multilateral system and mounting uncertainty, are and as this 40-year project of failure continues, framing the immediate policy challenge.” the liberal global order is disintegrating. Autocratic rulers, demagogues and populists The UN argues that the slowdown in growth are now leading countries that contain well over in all the major developed economies around half the world’s population.4 the world are relying on easy monetary policy and asset price rises to stimulate demand. This Our system of financing the global failure to act on the crisis of the last decade will economy is the very cause of its own demise produce, at best, “ephemeral” growth, while tax – with democracy now at threat even in places cuts for corporations and wealthy individuals is like Britain. failing to trigger productive investment. Britain is a burning example of economic Rising economic and political failure failure where vulture capitalists now circle The result of this failure of economic manage- and hedge funds are backing its decline and ment is evidenced all over the world and even shorting its currency. Brexit is nothing more in historically stable countries. From months than the accomplishment of disaster capi- of rioting in France to mass public protests talism – itself nothing more than evidence of in Britain. The ʻjust about managing’ are economic mismanagement. reacting against a political economy that is not working for them. Neoliberalism is crushing its most revered jewel where tolerance, freedom and economic Anti-government protests or one-sided polit- prosperity has quickly been replaced with its ical economies have ignited protests in a dozen ugly twin – Steve Bannon’s economic nation- other countries around the world – and as the alism, not just in America but of all places in saying in Chile goes – “If there's no bread for the the world – in Britain. poor, there's no peace for the rich.” It is not just the world economy that stands on the brink but the social democratic political systems that underpinned it. Graham Vanbergen is the founder and contributing editor of TruePublica and author of Brexit – A Corporate Coup D'état. References 1. https://blogs.imf.org/2019/10/15/the - world - economy - synchronized - slowdown - precarious - outlook/ 2. https://www.theguardian.com/business/2019/oct/20/world - sleep- walking - to - another - financial - crisis - says - mervyn - king 3. https://www.project-syndicate.org/commentaryplaying - chicken - with - global - economy - trump - china - iran - argentina - by - nouriel - roubini - 2019 - 09 4. https://www.hrw.org/world-report/2017/country - chapters/dan gerous - rise - of - populism 10 The World Financial Review November - December 2019

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Development Development Paths of the UK and China at Different Historical Times: Similarities and Differences BY GUANGHUA YU The logic and activities requires political organizations to underlying the consider the broad interest of society to gain polit- In Violence and Social Orders, North and his open access order ical power to run a government. colleagues divide countries or regions into natural is not the only states and open access orders. Natural states solve way of achieving This note argues that the logic underlying the the problem of violence by limiting to elite coalition open access order is not the only way of achieving groups any access to political organizations and activ- economic economic and human development in the contempo- ities, and any economic organizations and events. In and human rary non-Western world. Evidence from Japan shows this way, natural states maintain stability and make development in that it is open access in the economic sphere, as well as broad social interaction possible. As natural states the contemporary institutional building related to the protection of prop- have to implement higher rents or privileges to please non-Western erty rights, contract enforcement, financial market, the dominant coalition, these countries or areas are rule of law, and human resource accumulation that less likely to have a vibrant and dynamic economy, world. determine economic and human development. The compared with countries or regions with open access case of Singapore similarly supports the claim that orders. Although using different terms of inclusive Violence and Social open access in the political sphere is not a necessary and extractive political and economic institutions, Orders: A Conceptual condition for economic and human development. Acemoglu and Robinson share a similar logic with Framework for The successful development story of Singapore is North et al. in Why Nations Fail. In the view of Interpreting Recorded consistent with my position that successful economic Acemoglu and Robinson, extractive political and/or Human History and human development requires open access in economic institutions make(s) it possible for the few A book by the economic sphere and for interconnected institu- controlling elites to exploit the rest of society. As a Douglass North tions to support that endeavour. China’s successful result, long term growth is impossible. development story in the past several decades further supports my argument here. The open access order advocated by North and his colleagues requires that a country have open If it is indeed open access in the economic sphere access to political organizations and activities, and and institutional building related to the protection open access to economic organizations and events. of property rights and contract enforcement, finan- Open access in the political sphere makes it diffi- cial market, the rule of law, and human resource cult for the government or any political faction, to accumulation that determine economic and human manipulate the open access order in the economy. development in Japan, Singapore, and China, we Similarly, open access to economic organizations still need to know the reason the West, particularly Britain, led the world in the past several centuries. Put another way, why did elite democracy promote 12 The World Financial Review November - December 2019

significant economic development in Britain when also govern the country very effectively. Evidence While a one-party other countries still possessed an agricultural or prim- bears that out. Since 1978, China, under the rule of rule resulted in a itive economy? This note tries to answer the question. the Communist Party of China, has gradually moved series of failures towards greater open access in the economic sphere. and disasters in My answer is that it is open access in the economic In connection with the open access in the economic China after 1949, sphere, as well as institutional building related to sphere or the expansion of inclusive economic when properly the protection of property rights, contract enforce- institutions (using the language of Acemoglu and used, one-party ment, financial market, the rule of law, and human Robinson), China also started to establish intercon- rule can also resource accumulation that determine economic and nected institutions related to contract enforcement, govern the country human development. This explanation is correct better definition and enforcement of property very effectively. both for Britain in the seventeenth century and rights, financial market, the rule of law, and accu- Evidence bears beyond, and China in the latter twentieth century mulation of human resources. As a result, China that out. and beyond. Britain and China, however, differ in enjoyed a very high rate of economic development. the way of moving towards that direction. In Britain, Also improved significantly are human development elite democracy through parliament played essential records in terms of infant mortality rate, school roles in gradually enlarging open access in the polit- enrolment rate, and the rate of life expectancy. ical sphere. This was essential when Britain was still a feudal society under the rule of a monarch. While China has developed very well in terms of economic growth and human development indi- After the Glorious Revolution, Parliament cators, it does not follow the model in the United started to represent the interest of the growing or Kingdom by allowing open access in the political diversifying economic, commercial, and industrial sphere. Opposition parties are not allowed, organi- sectors. In that gradual process, it is difficult for a zations such as trade unions and NGOs are tightly single party to emerge and represent the interest regulated, corporations are required to establish a of the whole society due to high transaction costs branch of the Communist Party of China, news- of transportation and obtaining local information. papers are heavily censored, and academic freedom Using Parliament is a better institutionalized way is subject to the one-party rule regime. Neither of enlarging open access in the political sphere. contestation by different parties for government Open access in the political sphere then led to control nor popular elections of high-level legis- the gradual open access in the economic sphere lative and executive officials are adopted. In other and the building of institutions related to contract words, China is not a democracy. enforcement, better definition and enforcement of property rights, financial market, the rule of law, The above discussion led to the conclusion that and accumulation of human resources. During that elite democracy in Britain led to open access in the process, Britain developed ahead of other countries. political sphere. Open access in the political sphere, in turn, resulted in the open access to economic In contrast, China experienced a different path organizations and activities in Britain and other of nation building. The Communist Party of China Western countries. Open access in the economic emerged and developed through its struggle against sphere and the establishment of institutions related foreign interests in China, particularly the Japanese. to contract enforcement, property rights definition Domestically, the Party and its troops experienced and protection, financial market, the rule of law, and a nationwide Civil War against the Guomindang accumulation of human resources supporting the Government. Establishing a one-party rule regime open access in the economic sphere naturally caused in China was very costly. While a one-party rule significant economic and human development. While resulted in a series of failures and disasters in China open access in the political sphere played important after 1949, when properly used, one-party rule can While China has developed very well in terms of economic growth and human development indicators, it does not follow the model in the United Kingdom by allowing open access in the political sphere. worldfinancialreview.com 13

Development roles in Britain, open access in the political sphere is not development can be sustainable. While the absolute rate of adopted in China. In sum, both Britain and China developed economic development will decline, the quality of economic significantly at different historical times due to open access in and human development will improve in the future. Acemoglu the economic sphere and the construction of interconnected and Robison further argue that China’s economic growth is institutions supporting the open access in the economic sphere. not sustainable because the nature of development in China is That is the similarity. The difference is that open access in the based on catching up and massive investment only. Xiaodong political sphere in Britain played important roles in shaping Zhu’s research indicates, however, that China’s rapid economic the open access in the economic sphere and the establishment growth in the last three decades is mainly due to productivity of interconnected institutions supporting open access in the growth rather than capital investment. Recent evidence on economic sphere. Still, open access in the political sphere does patent registration and high-tech sector growth in artificial not appear to be relevant in China. intelligence and telecommunications suggests that a great deal of innovation has occurred because of better reshaping of The discussion raises a further question about whether property rights rather than simply catching up. China’s economic development is sustainable. Acemoglu and Robinson have explained that China’s economic growth is not There is no reason to believe that coordination of elites sustainable. This is so because China’s political institutions between political parties in the West or elsewhere is necessarily are extractive. The reason that China’s political institutions more efficient or effective compared with coordination of elites are extractive is that China is under the rule of one party, the within one party, other things being equal. While democracy in Communist Party of China. My view is that Acemoglu and terms of contestation and inclusiveness has played important Robinson are wrong. By following their logic that extractive roles in the West in shaping the open access in the economic political institutions allow the few elites to exploit the rest sphere and the establishment of interconnected institutions of society, the Communist Party of China does not have to related to contract enforcement, property rights definition and exploit the rest of society if the party takes into consideration protection, financial market, the rule of law, and accumulation of the broader interests of the people in the country. This can be human resources, democracy has also encountered the following achieved when the party absorbs elites in various sectors of the problems. In the first place, when a country or region has already economy or country to make the party inclusive. achieved open access in the economic sphere and developed the interconnected institutions supporting the open access in A survey done at the beginning of this century indicates that the economic sphere, further popular participation increases about 40 percent of lawyers are members of the Communist transaction costs of policy making without corresponding bene- Party of China and around 30 percent of private entrepre- fits. Secondly, the higher degree of popular participation is not neurs or capitalists are members of the party. In essence, the consistent with specialization and division of labour. Thirdly, the Communist Party of China itself is very inclusive, although Jury Theorem shows that when each person is more likely to be China does not follow the political model of the West. Due to wrong than correct and when people in the group are making the nature of the inclusiveness of the ruling party, China can independent decisions, corrective decisions are more likely to maintain open access in the economic sphere and to improve be wrong when the process involves more people in the group the interconnected institutions supporting the open access in or society. Fourthly, when a country or region is experiencing the economic sphere. Viewed in this way, China’s economic troubles of separation or identity struggle, a higher degree of contestation and popular participation may lead to chaos and civil unrest. The recent example of Hong Kong reflects the trouble of all the above problems. Demonstrators defy a ban on face masks at a protest in Hong Kong on Guanghua Yu is a Professor of Law, at the October 4, 2019. ©Tyrone Siu | Reuters Faculty of Law of the University of Hong Kong. He graduated from the University of Toronto School of Law and York University School of Law. His specialized areas of teaching and research include law, development, and governance. 14 The World Financial Review November - December 2019



Top Investment Destinations for Business Growth in 2019 Agency for INNOVATION: how Luxinnovation supports Luxembourg’s economic development ambitions Exclusive Interview with Sasha Baillie LUXINNOVATION CEO We are a small country Luxembourg turns its small size to advantage and the need to respond favourably to them and one of our great by being light on its feet when it comes to very often mean that you have to rely on your attracting investment and innovation to the employees to be able to gather all the key infor- advantages is the country. Luxinnovation CEO Sasha Baillie mation relating to each of the files under review. real accessibility to recounts how her agency’s many-stranded campaign plan spans industries, technologies Based on a good briefing and relevant guide- decision-makers. and public and private sectors in pursuit of the lines, it is easy to be able to make the right government’s ambitious economic objectives. decisions at the right time. It also requires, of course, great flexibility and agility to be able to Thank you so much for taking the time cope with any last-minute changes, as well as a to meet with us today. To start with, can clear mindset to be able to deal with dossiers that you please give us an insight into how sometimes contain a very different content. top-level business leaders like yourself kick-start a day? What are your tips for You became the CEO of Luxinnovation in optimising daily productivity? 2018. How has it been so far? What are some of the important highlights or milestones of The most important thing is to be well the agency under your leadership until now? surrounded. The accumulation of requests First of all, I had to immerse myself completely in the structure, which was facilitated by the fact that I can count on a very dynamic organisation of some 70 people with different professional and cultural skills and experience, with whom it is very stimulating to work. 16 The World Financial Review November - December 2019

LUXINNOVATION trusted partner for business It was then necessary to articulate the We know that this requires significant invest- Luxinnovation is a key government’s approach, its economic devel- ments to integrate new technologies, artificial and trusted partner for opment priorities and the diversification of the intelligence, the use of massive real-time data, those who are interested sectors of our economy, with the notions of the sustainable use of resources and, in this in – and committed to innovation for which Luxinnovation lends its context, the development of new materials. – launching successful full support. This is also one of our priorities, in order to innovative activities improve productivity and competitiveness. in Luxembourg, from It was therefore first necessary to clarify entrepreneurs, managers what Luxinnovation is and what the agency is Luxinnovation is a key and trusted of start-up companies tasked to do. This could only be achieved by partner for those who are interested in – and researchers to constantly listening – and still listening today and committed to – launching successful foreign enterprises – to understand the expectations that the innovative activities in Luxembourg. Can and investors. country’s various economic players have of you describe Luxembourg’s innovative Luxinnovation, whether they be companies, start-up ecosystem today? from the smallest to the largest multinational groups, or public players, particularly in the Historically, this ecosystem has developed field of research. under the impetus of the public sector, with the establishment of the first incubators We must constantly understand their needs (Technoport, Ecostart) and support initiatives in order to understand what they expect, (via Luxinnovation, the Chamber of Commerce knowing that there is really a great diversity in or through state subsidies). these expectations. However, in recent years, the private sector This has led to a reorganisation of our has also positioned itself strongly, with many services, with a resolutely customer-centric investments and initiatives that have enabled the approach, which allows us to be even more development of a complete ecosystem dedicated responsive and efficient. to the creation and acceleration of innovative start-ups. This ecosystem is now emerging on an Luxembourg is strategically located at the international scale and we can see this with the heart of Europe and is referred to as “the gateway to the European market”. What are the unique advantages and business opportunities in the Grand Duchy? What industries are most likely to be attracted to what Luxembourg has to offer? We are a small country and one of our great advantages is the real accessibility to decision- makers. Combined with great agility, this allows us to make things happen quickly and pragmatically. This is an approach that is highly appreciated by companies from abroad. We are attentive to the needs of companies and we know how to adapt and find solutions that meet these needs. Moreover, interactions between the private and public sectors are notably direct and are always part of a joint desire for efficiency. In particular, we have identified three priority sectors on which we focus our efforts: automotive, cleantech and ICT. However, more broadly, we are also very committed to the development of initiatives around Industry 4.0. worldfinancialreview.com 17

Top Investment Destinations for Business Growth in 2019 We undertake, with eligible companies, a 360° an action plan is then put in place to improve analysis of their situation, to fully understand their performance, with precise KPIs that guarantee business and guide them towards appropriate the success of the programme. solutions to improve their performance and, by the same token, their competitiveness. These programmes are co-financed by the Ministry of the Economy and the Ministry for high attendance at our pavilions at events such Small and Medium Sized enterprises, which as VivaTech or the Web Summit in Lisbon. provides considerable government support for our companies. The strength of this Luxembourg start-up ecosystem is based on the ability of public Fit 4 Start is a little bit different; it is an and private players to work together in the acceleration programme for innovative start- interests of entrepreneurs. The greater the ups. Twice a year, a 16-week coaching session is proximity, the more efficient this ecosystem organised. For the edition that just started this will be, as the emerging “seeds” will be quickly autumn, more than 300 start-ups from all over identified and efforts pooled to make them the world applied and we selected 20 companies the success stories of tomorrow. in the ICT, healthtech and space sectors. Thanks to Luxinnovation offers a range of perfor- The feedback we have is very positive, Luxinnovation, without going into detail. research and mance programmes (like Fit 4 Start, Fit development and Long established as a world leader in innovation have 4 Innovation, etc.) that aim to support the twin sectors of fund administration evolved in an and private banking, Luxembourg is the unparalleled way SMEs in developing their innovation activ- eurozone’s leading financial centre and in Luxembourg number 12 in the world. How does the and probably even ities. Can you tell us more about these agency help in fostering solutions to shape in international the future of financial services? comparison over the programmes and share with us some of the past three decades. This more-specific component is provided best feedback that you have received from by another national agency, Luxembourg for said Deputy Prime Minister Finance (LFF), which is specifically dedicated and Minister of the Economy the programme participants? to the development of the financial centre’s Étienne Schneider, in his activities. It goes without saying that we opening speech to celebrate These performance programmes are one work closely with LFF, as well as with the the 35th anniversary of of the pillars of our business. We undertake, Luxembourg House of Fintech (LHoFT), Luxinnovation this year. with eligible companies, a 360° analysis of their housed in the House of Startups. We are in situation, to fully understand their business and regular contact with entrepreneurs who have guide them towards appropriate solutions to created solutions or applications for the improve their performance and, by the same financial sector and we obviously ensure the token, their competitiveness. It is also about link with our various partners. strengthening their capacity to innovate, develop and ensure their sustainability while How will the rapidly developing financial sustainably increasing their activity. technology start-ups in the country be likely to transform the current financial landscape As I said earlier, our approach is customer- of Luxembourg and globally? centric and is applied through these different programmes, whether it is for digitalisation (Fit 4 The challenge for so-called “traditional”- Digital), innovation capacity (Fit 4 Innovation), financial institutions is enormous. If they do business model improvement (Fit 4 Growth), not adapt and radically transform the way implementation of circular economy principles they operate by offering their customers the (Fit 4 Circularity) or improved customer services fluidity they can find in most of the other (Fit 4 Service). services they use today, they will very quickly be overtaken by other players. These programmes are both unique and complementary; with the help of consultants, a diagnosis is established within the company and 18 The World Financial Review November - December 2019

LUXINNOVATION trusted partner for business Luxinnovation offers a wide portfolio of services to companies lence around green technologies and the and public research organisations in order to foster innovation, thus promotion of an ecosystem conducive supporting the Government’s economic development objectives. The to spin-offs/start-ups. agency also ensures that Luxembourg continues to attract international investment, companies and skills that are a perfect fit for the country. There is already an incubator dedicated to ecotechnologies, which However, since, at the same time, you share with us what are the inimi- opened a year ago in the south of the these banks have had to face a sharp country, and for which we are partners. increase in the costs associated with all table advantages and features of the new regulations and legislation that Business opportunities are quite have come into force, this has given Luxembourg’s green tech platforms? wide for companies in the cleantech the scope for fintech to develop and sector in Luxembourg, knowing that offer digital solutions for the entire What are Luxinnovation’s initiatives facilitating the transition to a circular financial sector. In particular, there is a economy is a national priority. The special enthusiasm for regtechs, which to develop and encourage sustaina- demand for innovative solutions is, work to facilitate the implementation for example, stimulated by cradle-to- of all these new regulations. bility in Luxembourg’s business and cradle construction projects and by the continuous conversion of former The creation of the LHoFT in financial sectors? brownfield sites into ecological districts. 2016, which welcomes start-ups from There is also a clear focus on devel- all over the world and benefits from Promoting clean technologies and oping smart mobility and supporting partnerships with prestigious interna- the transition to a circular economy is developments in areas such as clean tional organisations, contributes to the a priority in Luxembourg. The country transport, shared mobility and intel- dynamism of this ecosystem. is a strong advocate of sustainable ligent transport systems. development, in economic, ecological Green technology is one of the and social terms, with the imple- Luxembourg also plays a emerging industries nowadays. Can mentation of policies to facilitate pioneering role in the use of finance the adoption of clean technologies to achieve sustainable objectives. and products. We benefit here from The Luxembourg Green Exchange is an attractive economic environment the first global platform exclusively for entrepreneurs who seek to create dedicated to sustainable securities, value while reducing pollution, waste with nearly half of the world’s green and energy consumption. bond volume and an estimated one-third of sustainable and social bonds. The Innovation and research in the fields Luxembourg Finance Labelling Agency of renewable energies, energy efficiency ( LuxFLAG), an independent and inter- and smart cities, districts and buildings national Luxembourg financial labelling are among the areas in which we are agency, awards a responsible investment involved, both with companies and label to investment vehicles. with the University of Luxembourg or the Luxembourg Institute of Science In the latest edition of the Global and Technology (LIST). The govern- Green Finance Index, Luxembourg ment’s programme also includes the ranks fourth (after Amsterdam, upcoming creation of a centre of excel- London and Zurich, out of 64 financial centres) and more specifically second only to Amsterdam in terms of green finance “penetration”. Business opportunities are quite wide for companies in the cleantech sector in Luxembourg, knowing that facilitating the transition to a circular economy is a national priority.

Top Investment Destinations for Business Growth in 2019 It is also for all these reasons that our country has been chosen to host the Cleantech Forum Europe in 2020 (on 18-20 May 2020), an interna- tional event that will bring together for three days the best of the best in Europe in this sector. Luxembourg’s forward-thinking regulators Fit 4 Start More than ever, we want to be recognised by participants companies and entrepreneurs as a trusted partner and partnership with other countries for the benefit from for them, enabling them to find pragmatic solutions the support for their innovative development projects. exploration of space resources make the country of specialised coaches as well We have formidable diverse and complementary a hub for technological advancement. Recently, as from the skills. If we can communicate well with each other, mentorship of if we can dialogue, if we can bring out these skills, Luxembourg joined Russia in the field of space the experienced we will make exceptional progress. entrepreneurs and innovation, extending its expertise and a global venture capitalists Luxembourg promotes networking, confi- that make up the dence-building and the implementation of joint network of partners in scientific cooperation selection jury. projects. This is an advantage we have over other countries. In addition, Luxinnovation must be an and research. How do these developments help essential link in this collaborative approach. Luxembourg position itself as the global leader In the coming years, Luxinnovation will have to inspire our companies to innovate, to grow in an and the centre of space business? intelligent way and to prepare themselves well for the challenges of the future, with new and partly It is not only with Russia that we have signed also disruptive technologies. partnerships. This was the case with China and the United States. Wilbur Ross, the US Secretary of We would like to be the aggregator of all the Commerce even came to Luxembourg in person players of economic development so that they all join to sign such an agreement. forces to advance the country in a sustainable way. It would be pretentious to position ourselves as Our ambition is to be a facilitator of synergies a world leader and centre of the space industry, but and to bring added value to the country’s economy, we are clearly positioning ourselves as a major player whether at the national level or by promoting in this “New Space” industry. We want to attract the country internationally, by enhancing the companies active in this field to Luxembourg and by strengths of our economy and by encouraging this means create a hub of experts. We have already companies around the world to carry out projects set up a chair and university training in this area. with us here. The “New Space” sector will undergo profound disruption in the coming years and Luxembourg is What are the key messages you would like to already playing a role in these changes. get across to industries and businesses that are wondering about the status quo of Luxembourg’s The Director of the European Space Agency investment and business opportunities in today’s perceives Luxembourg as a pioneer in this field and this autumn we also just signed agreements with NASA. What are the agency’s short-term and long-term plans for the country’s economic development and innovation capabilities? Where do you see the agency in the next five to ten years? In the coming years, Luxinnovation will have to inspire our companies to innovate, to grow in an intelligent way and to prepare themselves well for the challenges of the future, with new and partly also disruptive technologies. 20 The World Financial Review November - December 2019

LUXINNOVATION trusted partner for business As far as stability is concerned, Luxembourg is positioned comparatively at the forefront, whether in political, social or fiscal terms. This is obviously a highly valued asset for foreign investors – not to mention that the country is also among the safest in the world. global environment of political and economic business leader like yourself does to recharge her batteries during a day off from work. uncertainty and volatility? It is always very difficult to disconnect completely First of all, I would like to tell them that, as far from work, but family time spent with my children is as stability is concerned, Luxembourg is positioned naturally a very valuable breath of fresh air. I really comparatively at the forefront, whether in political, appreciate these special moments, whether at home social or fiscal terms. This is obviously a highly valued or while travelling, in surroundings that help one asset for foreign investors – not to mention that the revitalise, and also in the company of good friends. country is also among the safest in the world. To end this interview, would you share with Many international benchmarks also show the us your views about the important business country’s attractiveness in terms of the business and technology trends to watch out for in the climate: the country has the second highest level of coming years? productivity in the world behind Norway, according to a study by the Conference Board Productivity Brief I am convinced that the economy will be and is also considered by U.S. News & World Report’s fundamentally transformed by access to data and 2019 “Best Countries” study as the most open country opportunities to develop new business models. for business, due to its favourable tax environment, Countries that can ensure through the establishment the government’s transparent and business-friendly of reliable and secure data-exchange platforms that approach and the low level of corruption. public and private data can be shared and valued while ensuring that privacy and individual freedoms Throughout its history, Luxembourg has always are maintained are those that will enjoy a favourable held a strategic position as a crossroads of nations. economic development in the future. Over the centuries, the country has encountered many influences and struggles of occupation Thank you very much Ms Baillie. It’s a pleasure and to survive, it has had to endure, observe and speaking with you. We learned a lot. understand. We have maintained this habit and we are trying to foresee the challenges ahead and are working to adapt to them. Luxembourg comes out on top in a recent Executive Profile study of cities in the world that offer employees the best working conditions. As the president Sasha Baillie is also a member of the Coordination of the agency, how do you keep yourself Committee of the Ministry of the Economy, which she happy and motivated whilst looking after your joined in 2014 as Deputy Chief of Staff and Diplomatic employees’ well-being? Advisor of the Deputy Prime Minister, following her 20-year career as a Luxembourg diplomat. You have to listen to your employees, give them the opportunity to express themselves, to evolve, to Within the Ministry of the Economy, Sasha Baillie contribute to the company’s results. I am convinced ran the initiative to reform Luxembourg's economic that a participatory approach is not only rewarding promotion that led to the creation in June 2016 of and stimulating for employees, but is also an essential the Luxembourg Trade and Investment Board. vehicle for innovation and progress. She also chaired the Luxembourg Nation Branding On a lighter note, we are interested to know what Committee until 2019 and steered the work that led the top things or activities are that a high-calibre to the creation in 2015 of LuxGovSat (a joint venture between the Luxembourg Government and SES) where she serves as Chair of the Board. worldfinancialreview.com 21



Global Business Becoming a Global Hub for Start-ups BY RAMY JALLAD Ras Al Khaimah is the northernmost Emirate In Ras Al Khaimah This head start has given the Emirate a thriving in the UAE. While not in the global spotlight as Economic Zone industrial, real-estate, and manufacturing sector, much as its neighbours Dubai and Abu Dhabi, (RAKEZ), the and a growing tourism industry. And all of that it has nevertheless been working quietly to Emirate’s fast- has led to a dynamic environment for a rapidly transform itself into a hub for entrepreneurs. growing business expanding SME sector. hub, primary Small and medium enterprises (SMEs) are, in source markets You might think that because they are SMEs effect, the backbone of national economies, for investments they aren’t international but actually to many, generating employment, fostering innova- are India, Egypt, Ras Al Khaimah is their second home. In Ras tion and delivering inclusive growth. In the UK, Jordan, France, Italy Al Khaimah Economic Zone (RAKEZ), the one study last year suggested they accounted for and Germany. Emirate’s fast-growing business hub, primary 51% of private sector turnover. Another study in source markets for investments are India, Egypt, the US claimed they generated more than half the Jordan, France, Italy and Germany. Reliable country’s jobs. infrastructure, strong government institutions, and excellent domestic and international transport The Gulf is a region people don’t associate with links have had a huge role to play in making the SMEs. They can think certain industries dominate, Emirate a draw for global entrepreneurs. assume legislation is oblique and support is limited. In 2019 they couldn’t be further from the truth. The UAE has had a historically close relationship with the UK, with a large expat population and As well as playing a significant role helping high levels of trade and investment between oil-dependent economies diversify, the SME the two countries. The UAE is already home to sector is fuelling fantastic opportunities for around 5000 UK-based businesses in sectors growth in the region, helping tackle the growing such as infrastructure, FMCG, fintech, media and challenge of creating jobs for the 20 million ICT. As the country grows and diversifies, more young people in the region expected to join the opportunities are available in food and beverage, workforce by 2025. trading and education. Also appealing to expats is Ras Al Khaimah’s ‘small town’ feel and low rents A case in point is Ras Al Khaimah, the northernmost Emirate in the UAE. While not in the global spotlight as much as its neighbours Dubai and Abu Dhabi, it has nevertheless been working quietly to transform itself into a hub for entrepreneurs. While the UAE has the seventh largest oil reserves in the world, Ras Al Khaimah has never been able to rely on oil and consequently had to start the process of diversification fairly early on. worldfinancialreview.com 23

Global Business Ras Al Khaimah and general cost of living as compared to other Weekend, a global congregation of entrepreneurs has created a cities in the region. with experience of setting up start-ups. Not unique economic only did it provide a meeting ground for like- ecosystem that In RAKEZ alone, a large proportion of the minded entrepreneurs to learn from each other’s thrives on diversity 14,500 companies hosted are SMEs. Recognising the experiences, but it also offered access to venture and fosters the need to attract and sustain entrepreneurs, RAKEZ capitalists, which is crucial. At a government level, growth of SMEs was an early pioneer in offering co-working spaces, the National Bank of Ras Al Khaimah is one of from anywhere and accelerators and incubator programmes, which have the few banks in the region to maintain its focus everywhere. really taken off. For example, the Mubader Package, on SME lending; in fact, it is the largest small aimed at entrepreneurial young graduates and final business bank in the UAE. year students has been receiving high enquiries and demand so far. It offers low-cost packages that Ras Al Khaimah has created a unique include operating licences, shared workspaces, and economic ecosystem that thrives on diversity and a gamut of additional support services that are vital fosters the growth of SMEs from anywhere and for a small business. everywhere. So committed is the government that it has launched RAK International SME Fair Women entrepreneurs are yet another resource 2019 organised by the Emirate’s Chamber of for the SME sector. According to the Melinda Commerce and Industry. Running from 14th-16th Gates Foundation, only 2% of venture funding November, this is set to be a huge international goes to women-led start-ups globally. This is a event with SMEs from all corners of the globe barrier that needs to be dismantled. Encouragingly, coming together to network, build relationships, in the Middle East, we are seeing an increasing meet potential partners and investors, and exhibit trend in the venture capital community to look new ideas and products. at gender diversity as an important investment criterion. All this suggests the environment for SMEs has never been more conducive – particularly in In the UAE, women are pivotal to our economic places like Ras Al Khaimah. For those businesses future – they make up around 70% of university hungry for growth, footholds in new markets graduates and 44% of the workforce. Recognising mean access to new customers, fresh talent and this, RAKEZ has just launched a first-of-its-kind ambitious innovation. initiative in the UAE to encourage more women to get into business. The RAKEZ BusinessWomen Ramy Jallad is the Chief Executive Package provides simplified set-up processes, Officer of RAKEZ. His role is to fast-track visas and licences, and cost-effective develop and drive strategic growth, office space for women entrepreneurs. RAKEZ creating a thriving commercial and already has over 900 women-owned businesses in industrial business hub that attracts and fields spanning FMCG to media. Since the launch welcomes investors from all around the world. of the initiative, more than a hundred additional Mr Jallad has over 25 years of professional applications have been received, and the number is experience, where he has developed and led various steadily increasing. commercial and industrial free zones, business parks and mixed-use real estate developments. However, the UAE can confound entrepreneurs Mr Jallad holds a Bachelor of Science degree in with the same barriers they face throughout the Mechanical Engineering. He is also a Lead Assessor of world, most notably securing financing and seed the European Foundation for Quality Management capital. According to a recent World Economic and a certified trainer in sales, marketing, and Forum report, while SMEs in the MENA region customer care as well as people management. represent about 96% of registered companies and about half of employment, they account for only 7% of total bank lending – the lowest level in the world. Governments across the region are looking at solutions to close that gap, including the UAE. In Ras Al Khaimah, RAKEZ recently hosted Startup 24 The World Financial Review November - December 2019

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Banking HOW TECHNOLOGY IS to larger businesses – one that caters TRANSFORMING to their specific needs and individual BANKING FOR SMEs personalities. A small business owner may find that he has all the skills, products BY ALAIN VANSNICK or services to succeed but may then run into problems with regard to the admin, For years, banks have struggled many opportunities for the growth of bureaucracy and management needed to deliver a truly engaging digital SMEs, as have other factors such as to run a business. And it’s precisely here experience for their customers. the better availability of highly skilled where banks can leverage AI, data and However, we now find ourselves at a labour and greater digitisation1. analytics to help boost SMEs along their crossroads – one where data, advanced journey as they evolve from small firms analytics and artificial intelligence are Alongside trends like these, comes a to larger corporates. opening the doors for banking to become greater need for borrowing and the types more personal and tailored than ever. The of services that banks provide. According Once banks are able to get a clear impact of this will be felt across many to recent statistics from the European view of the business data, as well as the sectors and it’s exciting to consider the Commission, bank lending accounts for human needs of the owners, they can implications this will have for SMEs in 75% of all SME funding in Europe2. in turn obtain key information on the particular. unique requirements and potential of At the same time, around one in five small businesses. As economies grow, there is an SMEs report that they are struggling to opportunity and need for SMEs to scale get the funding they need to further The power that data has to unlock their business adequately. In the Nordics develop their businesses3. So, what the potential of SMEs is massive, given for example, increasing demand in the can banks do to address this issue? that it helps banks understand what domestic market has been creating they need and when they need it. A The truth is that SMEs require a data-driven approach enables banks to specific style of banking compared make decisions which are in line with the aspirations of SMEs, helping them make recommendations that are better aligned to their goals and aspirations. Banks can analyse data from the SME, as well as from other busi- nesses with a similar profile, to enable decisions which are based 26 The World Financial Review November - December 2019

on previous successes. Using the latest cloud left behind if they don’t make the shift to the Through a smarter technology, banks can also get their informa- cloud. It’s not a question of if – but a question of analysis of cash tion in real time, enabling them to deploy the when they make this move. The rest of Europe right advice and services when it matters. After faces a similar situation. flow, banks all, SME owners lack the time and resources can help SMEs to analyse data effectively and it’s here where Over the last few years, SMEs have evolved project future banks can add significant value by doing the from a position of struggling to survive, to one positions and work for them. where they are legitimately challenging the larger identify pressure players in their markets. As a result, today banks points, foreseeing Through a smarter analysis of cash flow, are competing more than ever for the attention moments when banks can help SMEs project future positions of SMEs. Those that succeed will be the ones working capital and identify pressure points, foreseeing moments that deliver the tailored service they need – one may run low. when working capital may run low. Other key that meets the disruptive, customer-focused, data ways that banks can add value is by tailoring driven nature of their own business. Banks must activities specific to the SME’s needs which are craft an offer that meets the challenges of an based on future expected commitments and SME’s growth cycle through embedded data and revenue data. This may include highlighting which people-focused engagement technology. payables could be deferred, providing discounts to customers who pay early and offering short Mr. Alain Vansnick is Regional term credit options – and all of this ranked in Director for Benelux and the Nordics terms of which options other customers found at Temenos, the World’s #1 Banking most helpful to their business. Software Company. Mr. Vansnick joined Temenos in his current role in The best part of this data-driven approach is March 2019. Prior to joining Temenos, Mr. that everybody wins. On one hand, the customer Vansnick was Senior Vice President at TAS Group gets to grow a successful business and the bank where he led business development for the EMEA also continues to get revenue from that customer, region. In his previous roles at ACI Worldwide, who may have otherwise had to file for bankruptcy. Clear2Pay and OpenWay, Mr. Vansnick delivered It also allows business owners to focus on what financial software solutions to the global payments, really matters, which is building and scaling up banking and consulting markets. Mr. Vansnick has their company; not worrying about how to survive. more than 25 years’ of experience in senior management roles driving high growth in interna- The banking sector is beginning to realise that tional organizations and motivating multi-cultural cloud-native, API-first technology can deliver teams through inspirational leadership. this tailored experience that SMEs require. This is further supported by recent research conducted References by Temenos and the Economist Intelligence Unit 1. https://www.statista.com/statistics/707314/survey - on - future (EIU), which shows that data and AI is becoming - growth - potential - of - smes - in - selected - nordic - countries/ a vital part of the new technology mix, improving 2. https://www.nasdaq.com/articles/sme-growth - markets%3A - personalisation and enabling more tailored offer- eus - long - term - solution - to - sme - funding - 2019 - 09 - 10 ings. 61% of banking executives worldwide think 3. https://www.nasdaq.com/articles/sme - growth - markets%3A AI will create better value for customer by 2025. - eus - long - term - solution - to - sme - funding - 2019 - 09 - 10 But the path will not be without its challenges, stemming mainly from legacy systems and a lack of skills to apply insights effectively. Banks in the Nordics, for example, have always been at the forefront of technology but now find themselves in a position where they might find themselves worldfinancialreview.com 27

Banking Trapped in the past? Moving Banking Beyond the Prison Paradigm BY JOUK PLEITER Some banks are so established that, as customers, and sees them haemorrhage customers. They may, in There is no room we think of them as part of the fabric of our fact, find that those bars were a more effective trap for for complacency lives; as immovable institutions. Maybe that was the bank than the customer. as incumbent once the case. But the rise of a new, modern business businesses environment is undermining that position. Apple So – why is the prison paradigm so flawed – and across the board pay and Facebook’s Libra are good examples of what can banks do about it? are faced with the market fracturing as big technology companies the neo-reality make strategic encroaches into finance. Similarly, Reading the Regulators that they must digital-first challenger fintechs are driving consumer Banking is a highly regulated sector. Incumbent banks digitise or lose expectations to new heights. There is no room for employ vast teams and invest in various technologies market share. complacency as incumbent businesses across the to keep compliance in check. So, we can understand board are faced with the neo-reality that they must why they might not believe that neobanks – with digitise or lose market share. young, lean teams learning as they go – will clear all the regulatory hurdles. In some cases, banks are responding and innovating themselves, recognising that the landscape And in a sense, they’ve been right so far. Most is shifting and they must shift with it. Others, though, of the neobanks that have made headlines have have fallen for their own image, and remain convinced revolutionised payments but not developed the that they are in fact immovable institutions. They rely ability to take deposits and arbitrage those funds, on shaky assumptions that the regulators will prove a nor to offer a broad suite of financial products block to the neobanks encroaching too far, and that – hallmarks of a true bank. There is much more inertia will keep customers sitting tight with their compliance work to come. Slip-ups such as Monzo’s current providers. pin number storage fiasco also undermine the idea that neobanks are grown-up enough to really rival In other words, these banks see bars – bars keeping the incumbents. the neobanks out, and bars keeping customers in – a prison paradigm. They may find themselves in for a But, will it stay that way? In many countries, surprise when trends such as open banking and digital- regulators see their role as encouraging innovation in first customer expectations will see customers move the banking sector, rather than acting as a block on it. more willingly and freely than in the past. They may The UK FCA’s regulatory sandbox is a good example. find that they are stuck with an outdated business Don’t expect regulators to give challengers a free pass model and mindset that no longer serves the market 28 The World Financial Review November - December 2019

by any means, but don’t assume they’ll act second-tier service provider. Even worse, Banks which don’t adapt to supress the new competition either. it is feasible that banks are pushed into will find their own resistance a utility role, providing the pipework for to change more powerful Customers Untethered other companies who capture the higher than their customers’. For Inertia can be a powerful thing – but it’s value businesses. traditional banks, creating important to realise it cuts both ways. a digital platform which Yes, a certain number of customers may Escaping the Prison Paradigm: is driven by consumer be quite sticky: perhaps they’re older and More Than Tech preferences must be the mistrust new techie brands, perhaps they What is a bank to do? In short, it must priority in this neo-reality. just have other priorities. This can be an become digital-first. advantage for incumbent banks as they go For banks, becoming digital-first in through their own digital transformation. Many interpret that as an investment in their technology, culture and business technology, which is important but only model is easier said than done, and it However, it shouldn’t be taken for one part of the process. Think of all the requires major overhaul of teams, lead- granted. Over time, digital-first banks banks that have built an app and stopped ership and processes – but the time to will only become more sophisticated there. That is an investment in technology, do it is now. and switching will only get easier. That but no one mistakes them for neobanks. sticky segment will be whittled away. Incumbent banks have trust, Banks which don’t adapt will find their Investing in technology means making credibility, healthy balance sheets and own resistance to change more powerful everything digital-first, and untethering customer relationships – for now. than their customers’. For traditional it from cumbersome legacy systems. It’s Neobanks will eat away at each of banks, creating a digital platform which not feasible to rip everything apart and those advantages if banks let them, not is driven by consumer preferences must start again, so think about how to build to mention the influx of competition be the priority in this neo-reality. the new without entangling it with the from the likes of Apple Pay and Google old. Moving the business model towards Wallet. Incumbent banks still have the The Cost of Inertia an API ecosystem internally is one way edge today – just about – but those that What happens if these banks fail to adapt to do this. Not only does this help move don’t escape the prison paradigm will and innovate? Look at what is already towards the digital hub future, it allows suffer for it. happening. There are a growing number different development teams to work of people who use a traditional bank as in parallel on different projects without As the founder and their primary account to receive their hindering one another or the day-to-day CEO of Backbase, Jouk salary, but then immediately transfer an operations of the bank. Pleiter has always stood amount to a neobank for their monthly on the forefront of digital spending, giving them the benefits of Just as important as technology innovation - growing instant alerts and rich features. For now, though, is a digital-first culture. Culture Backbase into a globally that is still profitable for the incumbent, permeates the organisation and affects recognised Digital-First Banking but they are losing grip on the customer’s all decisions. If leaders are of the view provider, improving the digital customer relationship with their money. that: “the bank is making money and interactions of more than 120 financial has an app, so why rock the boat?” institutions around the globe, including Some neobanks, like Starling, are then innovation will be stifled. The ABN AMRO, Barclays, RBC, Metro already starting to build an ecosystem app will persist, but stuck in a treacle- Bank, Discovery, Chebanca!, Keybank, of financial partners, offering services slow traditional development cycle, Citizens, and many more. like loans and pensions. They have falling farther and farther behind the realised that the future will be a digital neobanks’ rapid development. hub, which provides the customer with the primary relationship with their A bank led according to a digital-first finances, connecting them to other culture however, will operate at a speed service providers. that resembles the start-ups. Approaches such as Lean, Agile and DevOps will For banks, the choice is whether to try be implemented. ‘Innovation’ and and capture that position as the digital ‘digital’ won’t be siloed teams working hub themselves, or else be relegated to a in offshoot offices, but embedded throughout the bank.

Celebrating 30 years of The Guernsey Investment & Funds Association FINANCE WE ARE SUSTAINABLE As members of the UN’s Financial Centres for Sustainability network, Guernsey is at the forefront of the development of green and sustainable finance. We are home to the Guernsey Green Fund, the world’s first regulated product in this sector, and registrations include some of the largest London-listed renewable energy funds. guernseygreenfinance.org UK Guernsey France INSURANCE INVESTMENT FUNDS TRUST & COMPANY PENSIONS INVESTMENT MANAGEMENT BANKING E: [email protected] weareguernsey.com T: +44 (0)1481 720071

Sustainable Investment CARBON DIOXIDE: FROM VILLAIN TO ASSET BY ROWENA SELLENS Sustainable investment is on the rise. With favourable environments globally for CCUS tech- Carbon Dioxide Molecule discussions about how to tackle climate change nology, policy support has, to date, been unstable. The Illustration: Sam Chivers, dominating policy across the globe, the attention report marked a welcome clarification of support for University of Toronto of investors is now turning to the technologies CCUS technology and called on businesses to invest Magazine that are presenting viable solutions to climate sooner rather than later. change. Carbon dioxide might seem an unlikely The Business, place to invest. However, with recent parliamen- Following the renewed support for CCUS, the Energy and tary reports suggesting that adoption of CCUS Government also recently announced funding for the Industrial Strategy (carbon capture, utilisation and storage) tech- UK’s biggest carbon capture project, set to be built (BEIS) committee nologies by businesses and governments alike is by Tata Chemicals Europe in Cheshire. The funding stated in a report essential for hitting net-zero carbon targets, we represents a long overdue move from the UK to use earlier this year are now on the verge of a shift in perceptions. carbon capture on a commercial scale: the first project that implementing Carbon dioxide is being transformed from villain of such a scale was the Sleipner gas field project in CCUS technology of the climate crisis to an asset. Norway, back in 1996. Indeed, globally, some coun- is imperative tries are more advanced in their support of CCU than if we want to Policymakers are at last recognising CCUS’s others; Canada, for instance, has funnelled substantial meet climate potential for helping to tackle climate change. investment into accelerating its carbon economy. change targets at Most notably for the UK, the Business, Energy minimum cost. and Industrial Strategy (BEIS) committee stated in But it is not only the UK government who are a report earlier this year that implementing CCUS waking up to the potential of CCUS as a solution to the technology is imperative if we want to meet climate climate crisis we are facing: the former U.S. Secretary change targets at minimum cost. The report forecasts of Energy and President and CEO of Energy Futures that the UK will spend 1-2% of its GDP every year Initiative, Ernest Moniz, lead a keynote address at (equating to an eye-watering £30-60 billion annually New York’s Climate Week in September, on how for 30 years) to meet the UK’s net zero carbon goal carbon removal technology is, in fact, a must-have by 2050. Ignoring the potential of CCUS would be for the climate. Policy experts and entrepreneurs a costly mistake. Concluding that these technologies warned that a rapid uptake of carbon capture tech- are ‘crucial’ to the 2050 net zero emissions target, the nologies is necessary if we are to seize the window BEIS report also voiced surprise that, despite the fact of opportunity for combatting climate change. that the UK is considered to have one of the most The discussion at Climate Week, in a convergence of global leaders and industry experts, represents a broader recognition of carbon dioxide as an asset. There is now a growing recognition that the tech- nologies that enable businesses to make use of carbon dioxide as a commercially viable resource are in fact worldfinancialreview.com 31

Sustainable Investment already a reality. One such company that the climate crisis – potentially saving the actions. It is the task of investors to scru- uses innovative technology to reduce equivalent of over two million cars’ worth tinise, as well as for CEOs to justify the emissions is ClimeWorks, which has of emissions per year – but they also sustainable practices of their businesses in pioneered technology to capture and demonstrate performances benefits too, the fight against the tide of greenwashing. purify carbon dioxide from the air before such as reduced flammability, improved using it as a resource in the food and agri- strength, and scratch resistance. Recognising the potential of carbon culture industries. Indeed, applications dioxide, rather than dismissing it merely of this long-lambasted compound as a With the business case for CCU tech- as a villain, is essential in taking action valuable waste product are vast: Deep nology presenting advantages across a against climate change. Opening eyes to Branch Bio have found use for carbon range of industry sectors, consumers are the possibilities offered by CCU tech- in making sustainable protein feed for also piling the pressure on businesses to nologies is a much-needed step forward animals. Meanwhile, CarbonCure tech- make sustainable investment choices. As to provide tangible ways of not only nologies capture recycled carbon dioxide climate change has risen to the forefront reducing emissions, but also in turning to improve the manufacturing process of news agendas, consumers are increas- this waste by-product into an asset for of concrete. Carbon capture and utili- ingly viewing sustainability as an essential a multitude of industries. With world sation (CCU) can provide a host of consideration rather than an optional leaders and industry experts sparking environmental, economic and perfor- extra. A growing consumer awareness an awareness of the range of economic mance benefits across industry lines. of the importance of sustainability was and environmental benefits of utilising reflected in a recent report by Nielsen, in carbon dioxide, it is not too late to Beyond these applications, CCU which 66% of consumers said they would tackle our climate crisis. Carbon dioxide technologies are also transforming the be willing to fork out more for sustain- could just be the next big investment polyurethane industry. For instance, the able products. This figure rises to 72% opportunity for those truly concerned catalyst technology developed by Econic amongst millennials. about the long-term sustainable solu- Technologies uses carbon dioxide as a raw tions to climate change. material in the manufacture of polyols, However, as the issue of sustainability the building blocks of the widely used gains greater media traction, so too does Dr Rowena Sellens is the polyurethane. Whether in the insulation the prevalence of greenwashing: the CEO of Econic Technologies. of our homes and fridges, in the elasto- practice of promoting false green creden- Her distinguished career in mers useful in off-shore applications and tials. With the chair of the International the polymer industry has led the transportation industry, or even in Accounting Standards Board declaring to her holding senior the soles of our trainers, polyurethane is greenwashing is ‘rampant’, investors management positions in R&D, manufac- a material that features in our everyday should be wise to the risk that their turing, sales & marketing and general lives. The potential impact of this tech- sustainability endeavours could be inad- management. Rowena joined Econic nology is wide-reaching, especially given vertently undermined. Sweeping claims from Lucite International where she was the global polyol market is valued at of sustainability must be held up to the firstly Director of Global Research, $24 billion. Not only are products made light: leaders must go further than glossy moving to Commercial Director and then with this technology helping to address credentials, and prove their dedication latterly General Manager, EMEA to environmental change with tangible Materials. In addition to her leadership qualities, Rowena has an extensive track Climeworks is a Swiss Company specializing in carbon dioxide air capture technology. The company filters the CO₂ record in new product delivery as well as directly from the ambient air. It is an adsorption-desorption process. experience commercialising ground- breaking technology. 32 The World Financial Review November - December 2019

School of Business and Economics MSc International Business Sustainable Finance Are you interested in analysing and solving financial problems in investment and business? Are you compelled by the ways in which sustainability issues are changing our understanding of the concept of finance? Do you want to know more about the interdependence between finance and sustaina- bility? Then the specialisation in Sustainable Finance could be right for you. As part of the master’s programme in International Business, the specialisation combines finance with the principles of sustainability: environment, society and governance. Following the 2008 financial crisis and on-going criticism of banks and corporations, there is great demand for finance professionals who can implement sustainability principles in a company while maintaining profitability. Bridging the gap between traditional capitalism and a new context of shared economic and social value, sustainable finance is quickly becoming a core part of the mission of financial institutions and companies. Join our Master International Business specialisation in Sustainable Finance maastrichtuniversity.nl/sbe

Islamic Finance Jakarta, Indonesia Financing the SDG Agenda: The Sukuk market is one of the fast The Potential of Sukuk growing segments in the Islamic The Indonesia Case financial industry with 24.2% of Islamic finance global assets in 2018 BY DALAL AASSOULI AND EBI JUNAIDI and a compound annual growth rate (CAGR) of 30.6% – between 2003 and Indonesia, the largest Muslim popu- climate change, women empower- 20181. The Accounting and Auditing lation country claims to first issue ment, agriculture, education, poverty Organisation for Islamic financial green Sukuk worth USD 1.25B, alleviation, and accountability – seen Institutions (AAOIFI) defines Sukuk as significantly contributing to the to have a natural connection to the certificates of equal value representing country’s national economic devel- Sustainable Development Goals undivided shares in ownership of opment and putting Indonesia as the (SDGs). The author discusses here tangible assets, usufructs and services world centre for Islamic economics how Indonesia, the first of the two or (in the ownership of) the assets of and finance. “Sukuk” is a Shariah countries to promote Sukuk trans- particular projects or special investment compliant, growing source of funding formed its economy and the vital role activity. Since its inception in 2001, the for development with key princi- that Islamic finance plays in achieving market witnessed new entrants from ples in financing projects that target the SDGs and market stability. non-Islamic sovereigns and corporates, increasing cross border transactions and has become an important source of funding for several countries in Asia, Europe and Africa. As a result, global Sukuk issuance is expected to reach $783 billion by 20232. Sukuk, often qualified as Islamic bonds, present two key features that position them as a viable option for 34 The World Financial Review November - December 2019

financing sustainable development projects. First, UN's Sustainable 2015 – can both complement and provide an alter- the asset-backing requirement facilitates their link Development Goals native to traditional sources of funding to realise the to the real economy and therefore widens the SDGs. Sukuk have played a key role in infrastructure scope of sectors that can be financed. Indeed, financing for public and private projects. An esti- Real asset backing is one of the key principles of mated $73.1 billion worth of infrastructure Sukuk Islamic finance whereby financing is based on real were issued by more than 10 countries between 2002 economic activities rather than pure financing. and the third quarter of 20153. These could include financing projects that target climate change, refugees, women empowerment, Recent innovations in the Sukuk market and agriculture, education, poverty alleviation, etc. the Potential for SDG financing The Sukuk market witnessed several innovations Second, Sukuk can be structured in various ways in the past years in the form of green and Socially using single or hybrid Islamic contracts such as Responsible Investment (SRI) Sukuk to meet the wakala, musharaka, mudaraba, ijara, etc. This flexi- SDGs with dedicated local frameworks. These bility offers tremendous opportunities for innovation include green and SRI Sukuk issuances in Malaysia and for addressing specific financing needs, even between 2015-2018 under the SRI Sukuk frame- though this complexity may lead to a lack of stand- work4, the republic of Indonesia green Sukuk ardisation and therefore higher transaction costs. in 2018 under the green bond and green Sukuk framework and the International Finance Facility However, the analysis of the global Sukuk market for Immunisation (IFFIm) debut Sukuk in 2014 shows the lack of sector diversification. At end of targeting vaccination programmes and health system 2018, governments led the total Sukuk outstanding strengthening in poor countries. These issuances are (54.96%), followed by financial services (24.17%) expected to influence the future developments of and utilities (6.19%), with the three sectors repre- the Sukuk market and direct efforts towards ethical senting more than 85% of Sukuk issuances. On the and responsible finance as it is the case in the bond other hand, sectors such as healthcare and energy market. It is important to note that themed bonds represented only 0.54% and 1.87% respectively of such as green, water, vaccine, microfinance and the global Sukuk issuances. green banking on women were developed since 2000, aiming to meet specific financing needs and The Sustainable Development Goals (SDGs) development objectives. Financing Gap There are several developments that could A report by the United Nations Conference on Trade enhance the contribution of the Sukuk market to and Development (UNCTAD) argues that about sustainable development financing and thus comply $2-3 trillion of additional investments per annum are with the “maqasidi”5 approach of development. required to meet the SDGs, which according to the First is the development of green Sukuk for climate United Nations Development Programme (UNDP) could open up $12 trillion of market opportunities in food and agriculture, cities, energy and materials, and health and well-being alone. The private sector can play a pivotal role in meeting this financing gap. In this regard, Islamic finance – as put forward at the Third International Conference on Financing for Development in Addis Ababa in July The Sukuk market witnessed several innova- tions in the past years in the form of green and Socially Responsible Investment (SRI) Sukuk to meet the SDGs with dedicated local frameworks. worldfinancialreview.com 35

Islamic Finance Greater development of retail Sukuk could reduce the dependence on foreign investors for infrastructure financing and promote retail participation in sustainable development financing. While we and environmentally friendly projects. The potential magnitude of the sustainable development invest- witnessed the of green Sukuk has long been discussed in recent ments needed across various sectors, investor months and dedicated frameworks were devel- activism reuniting both SRI and Islamic investors exemplary oped by countries like Malaysia and Indonesia to could drive the transformation towards sustainable role from the promote standardisation and investor confidence. economies in the future. government side The Malaysian SRI Sukuk framework distinguishes in Indonesia, the two key categories of eligible SRI projects (i) green Finally, promoting these themed issuances cannot private companies projects and (ii) community and economic devel- be achieved without multilateral development banks are unfortunately opment and waqf properties/assets whereas the (MDBs) support. In the case of the themed bonds not keen enough Indonesia green bond and green Sukuk framework market, for example, the role of the World Bank to follow suit. highlights nine eligible sectors. These are renew- and the other MDBs like the Asian Development able energy; resilience to climate change for highly Bank (ADB) and the African Development Bank vulnerable areas and sectors/disaster risk reduc- (AfDB) was instrumental in the development of tions; sustainable transport; waste to energy and these markets. Their inaugural issuances gave a good waste to management; green tourism; sustainable signal to the market, which subsequently attracted agriculture; energy efficiency; sustainable manage- other issuers and investors. MDB’s support can take ment of natural resources and green building. the form of technical assistance, credit enhance- ment or inaugural issuances. In fact, MDBs have the Second, greater development of retail Sukuk ability to leverage on their status, rating and exper- could reduce the dependence on foreign investors tise to provide policy guidance, technical assistance for infrastructure financing and promote retail and financial support. Their unique business model participation in sustainable development financing enables them to leverage their limited capital in while enabling investors to diversify their invest- order to mobilise private sector financing as well to ment portfolio, thus facilitating a transition from support sustainable development projects. savings-oriented societies to investment-oriented societies. This is the case for example in Indonesia The Indonesia case where retail Sukuk have been used for infrastruc- Indonesia has indeed been widely claimed to be among ture financing since 2009. This was facilitated by the first two countries – together with Malaysia – who the improving investment conditions of the Sukuk issued green Sukuk. It was back in February 2018, that market in general. the government of Indonesia, through its Ministry of Finance, issued the first world sovereign green Sukuk However, Green, SRI and retail Sukuk require worth USD 1.25 billion. The green projects to be a large ethical investor base that is conscious financed are twenty three green projects consisting of about Environmental, Social and Governance 727 kilometers of train double lines, 121 units of solar (ESG) factors. This means greater emphasize on power plants as well as waste management facilities for transparency, traceability and impact assessment. around 3.4 million households. Furthermore, tremendous education and marketing efforts are still required in spreading a sustainable A year after, Indonesia issued the second global investment culture among retail investors, and in sovereign green Sukuk. This time, the issuance some cases a financial and investing culture. Sukuk proceeds amounted to USD 2 billion divided into innovations could be labeled as new asset classes 5,5 years USD 750 million and ten years 1.25 billion that target both SRI and Islamic investors. Given Sukuk. It is important to note that both issuances the global development challenges and their impact were oversubscribed, securing around 146 inves- especially on the poorest populations as well as the tors on the first green Sukuk and 183 institutional 36 The World Financial Review November - December 2019

investors on its second issuance. This has shown Indonesia SDG established company/industry to promote its that targeting an institutional investor base might Symposium: growth and ability to compete against established not be a big deal in the Indonesia. As for the govern- Sustainability Science companies/industries, might be used for the case ment, in line with Deloitte and ISRA’s “sustainable and Solutions in the of Sukuk against conventional bonds. finance report”, the use of green Sukuk was done era of the SDGs as it allows the government to raise funds at low The expectation of corporations of a better cost, promote green financing as well as develop the conducive environment for Sukuk has been sharia-compliant market and broaden alternative captured by the Indonesia National Islamic Finance sources for state budget funding. Committee (KNKS). This newly launched insti- tution led directly by the President of Indonesia, Following the national news coverage of the global Joko Widodo, aims to accelerate the development green Sukuk issuance, many Indonesian retail inves- of Islamic finance in contributing to Indonesia’s tors contacted banks to invest in the instruments. national economic development as well as to be the Retail Sukuk are indeed a success story of Indonesia world center for Islamic economics and finance. which started offering them to public in 2009. In achieving this objective, KNKS then developed Retail Sukuk have were instrumental in achieving the Indonesia master plan for a sharia economy of the government’s objectives of domestic financial 2019-2024. Aside from the fundamental strategy, markets deepening, financial inclusion as well as the programs and targets, the master plan also set transformation of Indonesia from a saving-oriented several quick wins of each sectors of Islamic society into an investment oriented one. economics and finance. These quick wins are targets to be reached within short time periods. Following Indonesia’s success of retail Sukuk, the government is now initiating the possibility of issuing For capital markets, quick wins number three (out retail green Sukuk, taping the potential of retail inves- of 5 points), the committee has developed several tors, especially the millennials. During the previous solutions to promote Sukuk issuance by proposing Indonesia’s Annual Islamic Finance Conference a greenlane or fast tract for corporate Sukuk. This (AIFC) in Surabaya, East Java, the Ministry of Finance proposal is expected to shorten the time needed for has indicated that a study over this plan has been Sukuk issuance as well as cutting the bureaucracy by requested through United Nations Development facilitating the issuance license for Sukuk. Program (UNDP) Indonesia. This optimistic move was indeed reasonable as investors in recent retail Another interesting quick win in line with SDGs Sukuk issuances were dominated by the millennials. that needs to be noted in this masterplan, is the effort made to tap into sovereign social Sukuk of waqf- While we witnessed the exemplary role from linked Sukuk. This is, in fact, the number one quick the government side in Indonesia, the private win for sharia capital markets. Waqf is a charitable companies are unfortunately not keen enough to follow suit. This point has already been identified by key Islamic finance stakeholders in Indonesia. Junino Yahya, for instance, former finance director of PT. Indonesian Satellite Corporation (Indosat), in the seminar held by Indonesian Islamic Economics Society in Durham University Business School several months ago, indicated that the high cost of Sukuk issuance compared to conventional bonds has contributed to the low interest of corporations in using Sukuk for fund raising. As the man behind the first corpo- rate Sukuk issuance in Indonesia, back in 2002, he stressed the need to create the same level of playing fields for both financial instruments. He argued that the “infant-industry argument”, the rationale to justify the incentives given to a new worldfinancialreview.com 37

Islamic Finance endowment that plays a great role throughout the The objective of at the Durham Centre for Islamic Economics and history of Muslim civilisation. In this initiative, Islamic finance Finance, Durham University Business School. Indonesia Waqf Board (BWI), a state independent is to achieve the Prior to that, she worked at the International institution in charge of revitalizing Indonesia waqf human fallah; Islamic Liquidity Management Corporation (IILM) potential, together with ministry of finance will the walfare or in Malaysia where she assisted with the establish- utilise idle temporary waqf fund for state budget prosperity. ment of the IILM's Sukuk programme. Before funding through private placement. It is expected that, she held several positions in Europe where that projects in line with the SDGs as well as BWI’s she had exposure to the African, European and mission of community empowerment, can be real- Latin American markets. ised under this initiative. Her areas of research interest include Islamic Waqf-linked Sukuk is not only interesting since finance in general and its implications for corpo- it combines the classic financial instruments in rate finance, ethical finance, development finance, Islam, waqf, together with the modern innova- green finance, sustainable development and socially tion financial instruments, Sukuk. It can also be responsible investing. regarded as a reminder that in the end, Sukuk, as part of the instrument developed in Islamic Ebi Junaidi is School of Economics finance, cannot be separated with the idealism Lecturer at Universitas Indonesia. He is Islamic finance and economics, once initiated by currently pursuing his PhD in Islamic the Islamic finance founding fathers, that is to Finance at Durham University Business create the welfare of the people, to empower them. School. Prior to his academic career, he As argued by Professor Mehmet Asutay (2013)6 was researcher in ING – Baring Securities, Indonesia. His research area are Waqf, Trust, Venture Capital, the objective of Islamic finance is to achieve the Sukuk, Risk, Time Preference and Financial human fallah; the walfare or prosperity. Above all, Decision Making. He is the Chairman for Indonesia the Qur’an (Surah Al-Baqarah/2.30) mentioned Islamic Economics Society-United Kingdom that the human was created as the khalifatul Chapter (MES UK) 2017-2019. ardh; the steward, the care taker or those who give prosperity in these universe. In this case, as References targets in SDGs are in line with Islam, therefore 1. Islamic Financial Services Board (2019). Islamic Financial Islamic finance should play an important role in Services Industry Stability Report 2019. Kuala Lumpur: IFSB. achieving them. 2. Thomson Reuters (2018). Islamic Finance Development Report Building Momentum. Dr Dalal Aassouli is currently an assis- 3. Malaysia International Islamic Financial Centre (2015). tant professor of Islamic finance and Role of Islamic Finance in Infrastructure Financing. Program Coordinator at Hamad Bin Presentation at the Sub-Regional Expert Group Meeting for Khalifa University (HBKU) in Qatar. South-East Asian Countries. Kuala Lumpur. She is also an Islamic finance trainer 4. These include Tadau Energy Sdn Sukuk, Quantum Solar and advisor. Previously, she was a visiting academic Park Sdn Bhd Sukuk, PNB Merdeka Ventures Sdn Bhd Sukuk, Sinar Kamiri Sdn Bhd Sukuk, UiTM Solar Power Sdn Bhd and Sukuk Ihsan. 5. The term “maqasid” in plural means objective. It is a science that analyses the purpose behind the rules and prescriptions of Islamic law. 6. Islamic moral economy as the foundation of Islamic finance, in Islamic Finance in Europe: Towards a Plural Financial System, edited by Valention Cattelan, Edward Elgar, Cheltenham, UK. Waqf-linked sukuk is not only interesting since it combines the classic financial instruments in Islam, waqf, together with the modern innovation financial instruments, Sukuk. 38 The World Financial Review November - December 2019

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Russia Russia Excels at Art and mathematics, drama, theoretical physics) Invention but Stinks at found public expression, recognition, Commercial Technical Innovation and success much more often than creativity in technology. The more the BY LOREN GRAHAM Russian creative effort was expressed in ideas recorded on paper, blackboard, Russia has been known for its Tolstoy, Tchaikovsky, Prokoviev, canvas, or the internet1 (manuscript great contributions to the fields of Lobachevsky, Kolmogorov. But it texts, equations, scores, paintings, verses, literature, music and mathematics is a different story when one looks scripts, formulae, drawings, computer but never in commercial technology. for successful Russian creativity in programs) the more successful it was Many Russian inventors could have commercial technology. Just when have in finding expression and recognition, created a breakthrough in technology you gone into an electronics store and both nationally and internationally. The if not for the unevenness of support seen something you wanted, turned it more the creative effort was in material provided by the Russian society. over, and saw “Made in Russia” on the objects, new manufacturing processes, back? Probably never. It is difficult to or machines, the more difficult it was Russian creativity presents us with think of a single Russian technical inno- for that creativity to find success, a fascinating riddle. Why does vation that was successful on the world especially in international markets. Russian creativity express itself market. Russia is unique in the uneven- All this was true despite the fact that so brilliantly in some areas but not in ness of the fruits of its creativity. This others? Just think of the contributions uniqueness calls for explanation. What stopped Russian of Russians to fields such as literature, inventions from success music, and mathematics: Dostoevsky, Russian creativity in abstract thought was not overt prohibition and the arts (literature, music, poetry, but the characteristics of Russian society. 40 The World Financial Review November - December 2019 Image © Robot Innovation in Russia https://cdn.rbth.com/web/ de-rbth/images/2016-07/big/1-robot-dsc00477.jpg

Russian governments (tsarist, Soviet, post-Soviet) A new technology at the moment of first pres- A new technology are infamous for trying to control ideas through entation is usually much more imperfect than at the moment of propaganda or censorship, not for restricting new a work of art. An anecdote about the British first presentation inventions. What stopped Russian inventions from scientist Michael Faraday illustrates this feature of is usually much success was not overt prohibition but the character- early technology: When he developed a primitive more imperfect istics of Russian society. dynamo, he reputedly was asked “What is it good than a work of art. for?” We are told that he replied by asking “What It almost always is The fault here is not a failure in engineering or is a newborn baby good for?” New technology incomplete, even science. In fact, Russians were just as creative tech- developed by Russians, some of it brilliant, often unsuccessful, calling nologically as Russian novelists, poets, composers, died as a newborn baby without ever growing up. for improvement in and mathematicians were in ideas. In almost all the No one was interested in or took proper care of later years. forms of modern technology so important to the that baby. And the materials and means necessary world today (electric lights, radio, airplanes, televi- for that care were often unavailable. Notorious Russian sion, transistors, computers, lasers, rockets, space 'runaway' robot vehicles) Russian pioneers either led the world in The fact that a new technology is usually first that 'remembers strict priority terms or were equal to or barely behind presented to the public in a much more unfinished everyone it meets' competitors elsewhere. However, unless that crea- form than is the case with a new piece of art has shakes hands with tivity was backed by a state or military program, many implications. Since the new technology must Vladimir Putin which ignored the factors that make for commercial be further invested in, researched, improved, legally success, the creativity of these Russian engineers protected, manufactured, successfully marketed, and inventors was overwhelmingly blocked by the and integrated with existing technology, it is much obstacles in their environment. They almost univer- more dependent on societal infrastructure than is a sally failed to bring their potential innovations to piece of art. Art demands appreciation by at least a international markets, and their names usually fell small group of cognoscenti. Technology demands into oblivion. The clarity of this pattern can be much more. Where are the people who will see its seen in the difficulty of finding a Russian invention potential and invest in further research? Who will that became a success internationally. The excep- improve it after that research? Who will defend it tions are usually cases in which Russians emigrated legally against competitors or opponents, domes- abroad and succeeded in different environments tically and internationally, and what chance will (e.g, Zvorykin, Sikorsky, Durov). these defenders have in a corrupt legal system? Who will pay for all these investigatory, engineering, If all that a creative person in Russia needed legal, and economic steps? Who will manufacture to do to fulfill his or her idea was simply to make it? Who will advertise it? Who will integrate it it known (e.g., through publication, performance, or exhibition) that person had a chance for fame. If the fulfillment of that person’s idea was a complex matter in which publication or appear- ance was a first, inadequate, or even unnecessary step, the chances of success for that person were much smaller. For a brilliant inventor, publica- tion of an idea is easy but grossly short of its fulfillment. Publication might, in fact, be an obstacle to ownership of the idea. For a brilliant literary author or mathematician, on the other hand, publication is very nearly the culmination of his or her efforts. The difference between what happens after an inventor presents something to the public and a writer or composer does the same thing is crucial for understanding the unevenness of Russia’s successful creativity. worldfinancialreview.com 41

Russia New technology developed by Russians, some of it brilliant, often died as a newborn baby without ever growing up. No one was interested in or took proper care of that baby. And the materials and means necessary for that care were often unavailable. Art demands into existing technological systems? Art usually extending back several centuries.3 When artists appreciation by at does not face such obstacles, but technology does. or authors suffer in Russia many of their fellow least a small group And in a country such as Russia, which is deficient citizens sympathize with them and convert them in such infrastructures – especially those involving into heroes, even martyrs. Oppression and censor- of cognoscenti. investment, legal, manufacturing, and economic ship often raise their prominence and increase the Technology issues – taking a new technology from its newborn number of people trying to read, view, or listen to demands much status to adult readiness for the market is particu- their works. larly difficult. In many cases such a transition did more. not occur in Russia, although it should have for the When inventors and entrepreneurs suffer, on good of the country and the inventor. the other hand, few sympathizers can be found. Individual practical achievements are rarely objects A striking example of this kind of failure can of public adoration in Russia; should a rare entre- be found in the development of television; the preneur be successful and become wealthy, that Russian originator of a basic idea in the field, Boris feat is often a cause for suspicion or resentment. Rozing, was blocked in bringing that idea to frui- The celebration of beleaguered authors and the tion in Russia, but his student, Vladimir Zvorykin, disregard of equally beleaguered inventors is a char- succeeded magnificently with his teacher’s idea in acteristic of Russian society. the United States at the firm RCA. Other examples – Shilling and his telegraph, Lodygin and his light After the disappearance of the Soviet Union the bulb, Borodin and his chemical method of aldol newly-rich oligarchs were suspected, in many cases condensation pointing to industrial applications, correctly, of criminality. The “self-made man” was Popov and his radio, Shukhov and his method of not a hero, but a person who illegally and mali- petroleum cracking, Losev and his primitive tran- ciously manipulated the system to his advantage. sistors and diodes – are also relevant, along with There are few or no “Horatio Alger heroes” in many other examples from the history of Russian Russian literature or traditions. technology. These technologies could not succeed in the country in which their originators worked. Sadly, many of the obstacles to the fulfillment When the Russian Sergei Sikorsky did finally of creativity – both in the arts and in technology succeed with his aviation technology in the United – that were observable in tsarist and Soviet Russia States he wrote a book in which he cited as the are still present in Russia today, and there are even cause of his success the new political, economic, some new ones. Both the author and the inventor and social environment in which he was working need to worry about government policy as they after emigration.2 work. Both of them today are dependent on the permission of the government, or its leader, for There are many reasons why Russian writers, support, and that government and leader have composers, poets and mathematicians had (and their own criteria about whom deserves their have) an easier time fulfilling their dreams than approval. Many entrepreneurs and business inventors and entrepreneurs. The inadequate infra- people have recently been arrested, including structure in Russia is important, but only one. promising innovators. As a 2017 article in the An equally important reason is elusive but basic: New York Times proclaimed, “Russia Wants attitudes prevalent in Russian society. Artistic intel- Innovation But is Arresting Its Innovators.”4 lectuals are valued more in Russia than are inventors and entrepreneurs, as reflected in Russian literature Dmitrii Popov, a serial entrepreneur who came to the United states in 2014, commented, “And for the last year in Russia, I was just absorbing the 42 The World Financial Review November - December 2019

total deterioration of the business environment. and Mikron, for example – but they are not signifi- Russian scientist Everything was becoming so bad.”5 cant in the world market. Zhores Alferov Nobel laureate in physics I am a historian trained as an engineer. As a So here we see a continuation of the pattern that dies in Russia on historian most of my examples of Russian tech- we earlier have observed in Russian technological March 2019. nical brilliance followed by commercial failure come creativity: Russia excels at invention but stinks at from the past, but, as an engineer, let me conclude commercially successful innovation. by giving an example that is very recent. In fact, it affects the technology that you are probably carrying Loren Graham is professor of the history in your pocket right now. of science emeritus at MIT and Harvard University. One of his many books was a The story of the Russian scientist Zhores Alferov, finalist for a National Book Award. He who just died, is illustrative here.6 A Nobel Prize received the George Sarton Medal of the winner, he was a co-inventor of an important but, History of Science Society and a medal for “achieve- to the public, underappreciated technology called ments” from the Russian Academy of Sciences. heterojunction transistors. They are used in a multi- tude of ultrafast electronic circuits. The normal References consumer uses them in their smart phones, which 1. The Russian mathematician Perel’man did not publish his recent require fast and efficient circuits operating at room epochal solution of the Poincare’ Conjecture, just posted it on the temperatures. Heterotransistors can fulfill these internet. requirements. They differ from the older transis- 2. Igor Sikorsky, The Story of the Winged S, Dodd, Mead & Co., tors by incorporating a junction (a heterojunction) New York, 1941. of two dissimilar crystalline semiconductors. Older 3.Dostoevsky, Turgenev, Ostrovsky, Saltykov-Shchedrin, Danilevsky, transistors used only one type of semiconductor (a Gorky and other Russian authors described merchants or traders in homojunction). Heterotransistors permit a wider negative terms, as vulgar and money-loving. spectrum of manipulation by electrical engineers to 4. Andrew Higgins, “Russia Wants Innovation, but It’s Arresting achieve very specific effects. Its Innovators,” The New York Times, August 9, 2017, https://www. nytimes.com/2017/08/09/world/europe/vladimir-putin-russia-si- At what point in time would it have been correct beria.html, accessed 8/9/2017. to judge this invention a success? By 2000 it was 5. Puffer, et al., p. 146. a personal success for Alferov. Receiving a Nobel 6. Paul Josephson, Lenin’s Laureate: Zhores Alferov’s Life in Communist Prize is obviously an achievement of a lifetime. But Science, MIT Press, Cambridge and London, 2010. it was not until 2007 that Steve Jobs of Apple intro- duced the iPhone, calling it “a revolutionary and magical product.” It used at first a hetero-epitaxial layer of silicon on sapphire, a heterostructure made by Infineon, a German company. By this time heterotransistors were being success- fully manufactured in several countries. The country of one of the inventors of this device – Zhores Alferov – is not significant on that list. In that sense, Alferov’s creativity was never fulfilled in his own country. Russia plays today a very small role in the manufac- ture of transistors. Of the ten largest semiconductor manufacturers today, five are based in the United States, and one each in Taiwan, the Netherlands, the U.K., Japan, and Germany. The United States dominates the industry, with over fifty percent of world-wide production. One U.S. company, Intel, has twice the annual sales of its nearest competitor, Taiwan Semiconductor. Of course, Russia has some semiconductor manufacturers – Angstrom, Istok, worldfinancialreview.com 43

Africa Identifying key drivers to help transform AFRICAN AGRICULTURE BY MILLS SOKO The Green Revolution propelled India from a 31% of the to an importer of food and agricultural products. country plagued by famine and drought to the Agriculture currently accounts for nearly 24% of top wheat-producer in the world. It helped to fuel 821 million people gross domestic product (GDP) in Africa.5 one of the fastest-growing global economies and globally who it could be the example so many African coun- are affected by Farming in SSA is largely small-scale, with insuf- tries need to realise their agricultural potential.1 ficient irrigation, a lack of modern technology and hunger come from fertiliser resulting in poor output. Meanwhile, hunger W hile countries on the African continent Sub-Saharan Africa. is growing on the continent with the fastest growing have shown impressive economic devel- population on the planet. According to the Food opment and growth over the past decade and Agriculture Organisation of the United Nations and are expected to grow on average by about 4% (FAO), 31% of the 821 million people globally who in 2019, the African Development Bank (ADB) has are affected by hunger come from Sub-Saharan Africa.6 warned that there may be trouble ahead.2 The conti- nent is likely to be negatively affected by increasing Yet, the World Economic Forum estimates tension stemming from global trade wars, Brexit that agriculture is 11 times more effective when it and the resulting changes to investment and lower comes to reducing poverty in Sub-Saharan Africa demand for exports from Africa. This is in addition than other sectors.7 And at the first Africa Food to the crop failures and lower yields that are already Security Leadership Dialogue held in August 2019 being experienced as a result of climate change due in Kigali, the ADB, FAO, the International Fund to higher temperatures and lower rainfall.3 for Agricultural Development and the World Bank underscored the need to step up agricultural produc- To mitigate some of these impacts, the ADB tion in order to exploit its potential. has reiterated the need for greater trade amongst countries on the continent as well as placing more At the event, Rwandan President Paul Kagame emphasis on generating and improving the state of stated that: “Increased agricultural productivity is agriculture in the region. Sub-Saharan Africa (SSA) essential for eradicating hunger and undernourish- has enormous agricultural potential – the region has ment. But food security is not where we stop. We 60% of the globally available, arable land, but has want a continent that is truly prospering in every been unable to capitalise on it.4 The continent has sense of the term. And agriculture is undoubt- gone from being an exporter of food in the 1960s edly the foundation of Africa’s prosperity. That is the larger ambition we must challenge ourselves to achieve. We owe it to the generations that follow us.”8 44 The World Financial Review November - December 2019

Modernising agriculture Another area is the so-called agri- solar irrigation via a smartphone and While trade agreements like the recently tech field, where farmers invest in an app. The business concept enables concluded African Continental Free high-tech farming methods to reduce farmers to rely on more than rainfall for Trade Agreement hold much promise waste and raise productivity.14 New irrigation, allowing for greater produc- in terms of reducing tariffs, promoting technologies that allow farmers to tivity as well as for insurance in the digital payments and improving African gather data on soil, plants and weather event of unexpected crop loss.15 trade agreements, there is a more pressing – and to even use drones to spray crops need to modernise African agricultural – are changing the farming landscape in In one of the continent’s poorest practices, expertise and processes.9 more developed African countries like countries, Malawi, local farmers strug- South Africa. While more cost-efficient gling to survive due to drought are also African countries could learn so than traditional crop-spraying equip- making use of solar-powered pumps much from the example of India and ment, drones can reach difficult areas, while also choosing to grow drought- its Green Revolution.10 After years of spray pesticides and fertilisers with hardy sweet potatoes to supplement famine and food scarcity, the Indian precision, increasing crop yield as well maize crops. Water pumps installed government in the mid-1960s initiated a as reducing costs. with the backing of the Global slew of reforms in agricultural practices, Environmental Facility move water bringing in new technologies coupled Greener infrastructure from new borehole wells into reservoir with government funding for farmers. Closely linked to a more modern agri- tanks, where it is then piped to hydrants Within ten years, India had become the cultural sector, is the development into nearby fields as well as for use in top wheat producer in the world. Some of infrastructure to support farming local houses. The water systems can irri- of the successful initiatives included: operations, aid in manufacturing prod- gate about 20 hectares of land each.16 • Introducing high-yield seed varieties; ucts and distributing foods – access to • Making fertiliser and insecticides energy and water is vital. Green infra- Water is needed not only for irriga- structure is a growing trend that has the tion – but also to produce electricity. more freely available; potential to solve many of the complex In Ethiopia, hydropower accounts • Producing farm equipment; dilemmas faced by rural African farmers. for about 90% of electricity.17 This • Improving irrigation practices; These include innovative solutions, like makes the country particularly sensi- • Supporting farmers with subsidies, solar irrigation devices that make use tive to droughts and lower rainfall – or of new technology to solve problems. floods. Even a 5% decrease in rain- research into new seeds In Uganda, a company called GrowFast fall can cause nearly a 10% decrease provides thousands with pay-as-you-go in agricultural productivity. Workers In parts of Africa, like Ethiopia, from the REACH programme, a global new crop varieties have also been research programme to improve water seen to drive growth.11 The introduc- tion of a new kind of bean has helped Innovation solution: a solar pumping system (solar irrigation device) | Photo: ISAIAH ESIPISU local farmers move from subsistence farming to bigger operations capable of producing export crops. Beans currently contribute US$150m annu- ally in exports. Research into new seeds and crop varieties is critical – and making this information accessible to farmers and local producers even more so. Higher-yielding, stronger crops like semi-dwarf rice and wheat were central to India’s Green Revolution.12 Hybrid maize seeds have also been introduced in Ghana, allowing farmers to produce more tons per hectare, with crops that mature earlier and result in farmers increasing revenue.13 worldfinancialreview.com 45

Africa security for the poor, recommends that climate-resilient but could also provide additional energy to the national power policies for allocating water and planning for reduced water utility. Unfortunately, red tape, policy uncertainty and political availability ought to be implemented to support farmers in tensions have adversely affected the productivity of the plant.19 the area. They underscore the need to provide easier access and dissemination of scientific information and an under- An integrated approach needed standing of current and future hydroclimatic situations. Their A recent report by McKinsey&Company researchers exam- research points to the need to sustainably develop additional ined what was needed for a Green Revolution to succeed on water sources like ground water, and to educate govern- the African continent.20 They concluded that the solution ment officials and employees in related institutions about lies with developing an integrated approach that includes climate change and water management. While their research market-friendly policies and greater investment in agricultural pertained to Ethiopia in particular, such recommendations sectors as well as attracting investment for farming-related could be applied to the rest of Africa as well. initiatives. The authors point to the efforts of bodies like the Comprehensive Africa Agriculture Development Partnership Agriculture is heavily reliant on energy and the lack of Platform, an annual forum that aims to address the issues stable sources of electricity hamper many farmers and manu- related to agricultural transformation in Africa, and to facturers in the sector. In more developed areas, where better support local governments in dealing with challenges such as: infrastructure exists, like South Africa, for instance, larg- • A lack of technical agricultural knowledge and skill; er-scale farmers have installed solar panels to generate their • Corruption, own power and reduce dependence on the national supplier.18 • Political tensions and instability; • Inadequate infrastructure; Other farmers have even built their own hydroelectric plants • Shifting priorities. – like the small L’Ormarins Hydro Plant on a wine estate in Franschhoek, which is able to supply not only the farm itself First photo: Cluster Farming to increase production of wheat, barley, and The McKinsey report assessed ways of implementing other crops. Second Photo: L’Ormarins Hydro Plant, Franschhoek agricultural development plans in more than 10 African countries, across public, private and social sectors. Their findings included: • Focusing on higher-impact initiatives Instead of having many strategies and programmes, efficacy improves when there are only a few targeted programmes with high-level support. In Morocco, for instance, the government decided to invest in a couple of high-value crops that would raise GDP growth while increasing income for farmers. Hundreds of thousands of acres were converted from cereal to citrus fruit and tomato cultivation, while in Ethiopia, a switch in the 1990s saw the agricultural sector revived through government and private sector collaboration in sesame and cut flower production. In 2011, oilseed and flowers were Ethiopia’s fastest-growing exports. • Developing markets This is a critical and often overlooked area – looking at where the increased agricultural output will go. Exploring export markets, domestic urban markets and the possibilities around food processing can determine much of the success of farming efforts. In Morocco, government helped facili- tate the export of high-value crops to Europe by assisting farmers to meet European certification requirements, as well as through technical assistance and reaching agreements for tariff-free access for Moroccan producers. And in the 46 The World Financial Review November - December 2019

Producing for local populations comes with a few requirements as well. The need for quality standards, roads for transportation, and electricity for processing and storage is important. Ivory Coast and Ghana, by cutting helped farmers in the Arsi Zone in financial globalisation, and business-gov- export taxes, these countries increased Ethiopia to increase production of ernment relations in South Africa. their share of cocoa processed in the wheat, barley and other crops. The country by up to 50%. cluster farming model often sees References • Improving local infrastructure farmers grouped together and given 1 . h t t p s : / / w w w. t h e h i n d u b u s i n e s s l i n e . c o m / Producing for local populations communal access to farming equip- opinion/the-paradox-of-indias-green-revolution/ comes with a few requirements as ment, fertiliser etc. with the help article27472671.ece well. The need for quality standards, of government funding. Due to 2.https://www.businesslive.co.za/bd/world/ roads for transportation, and elec- the success of the cluster farming africa/2019-08-18-risks-to-growth-increase-daily-afri- tricity for processing and storage is programmes, Ethiopia is on track to can-development-bank-warns/ important. In 2002 in Ethiopia, a within a few years stop importing 3.https://reliefweb.int/report/world/2018-africa-re- maize surplus went to waste as the wheat and solely relying on national gional-overview-food-security-and-nutrition-address- crop could not be moved to areas production of wheat.21 ing-threat-climate with food shortages due to the high 4.https://www.farmersweekly.co.za/opinion/by-invi- cost of transportation and the lack But what works in one country tation-africa-can-emulate-indias-agricultural-success/ of existing export infrastructure. will not work in another. There is no 5.https://www.modernghana.com/news/948444/ • Better partnerships with the one-size-fits-all solution. Africa is a vast how-agriculture-impacts-african-economies.html private sector continent with 54 countries, some with 6.https://www.weforum.org/agenda/2016/05/3- Agricultural programmes that are unstable governments, ethnic conflicts ways-to-transform-agriculture-in-africa/ built through public and private as well as serious developmental, health 7.https://www.un.org/en/sections/issues-depth/ sector collaboration have a greater and economic challenges coupled with population/ chance of success. The McKinsey rising environmental concerns. But 8 . h t t p s : / / w w w. n e w t i m e s. c o. r w / n e w s / k a g a m e researchers found evidence that even in these countries – some might -end-hunger-africa the active engagement of private argue that especially in these countries 9.https://mg.co.za/article/2019-07-10-africas-free- agents like farmers organisations, – the need to transform agriculture is trade-agreement-curse-or-blessing input suppliers, warehouse opera- critical not only to improve economic 10.https://www.farmersweekly.co.za/opinion/by-in- tors, buyers, traders and international conditions but also to transform vitation-africa-can-emulate-indias-agricultural-success/ trading programmes are hugely bene- communities from day-to-day subsist- 11.https://www.syngentafoundation.org/news/ ficial to agricultural efforts. Linking ence farming to surplus-providing recent-news/breeding-better-crops-home-and-abroad small farmers to markets, educating farmers, business owners and proud 1 2 . h t t p s : / / w w w. d e v e x . c o m / n e w s / o p i n i o n them about soil conditions or new members of their societies. -protect-our-food-fund-the-seed-95295 seeds, even private investment to 13.https://www.ghanaweb.com/GhanaHomePage/ improve roads and ports make a vast Mills Soko is Professor in business/Seed-producers-schooled-on-hybrid- difference. Private sector participants International Business and maize-seeds-774251 have competitive know-how as well Strategy at Wits Business 14.http://www.702.co.za/ar ticles/356195/ as operational expertise that can plug School. His research focuses crop-spraying-drones-are-taking-africa-into-greener- the gaps that exist in local authorities’ on business strategy, interna- pastures knowledge banks. tional trade, economic diplomacy, 15.https://www.esi-africa.com/industry-sectors/ emerging markets especially the BRICS future-energy/uganda-solar-irrigation-solution-ena- In many instances, a case can be countries, regional integration in Africa, bles-agricultural-benefits/ made for simply working smarter. 16.https://www.engineeringnews.co.za/article/ Like cluster farming, which has as-crops-dry-malawi-turns-to-solar-irriga- tion-2018-07-23 1 7 . h t t p s : / / w w w. c n b c a f r i c a . c o m / n e w s / e a s t -africa/2019/08/22/this-east-african-countrys-future- is-tied-to-water-a-vital-yet-threatened-resource-in-a- changing-climate/ 18.http://netwerk24.com/ZA/Eikestadnuus/Sake/ green-energy-gaining-momentum-20190717-2 19.https://www.news24.com/Video/SouthAfrica/ News/watch-red-tape-thwarting-sas-green-energy- projects-analyst-20190822 20.https://www.mckinsey.com/industries/public- sector/our-insights/four-lessons-for-transforming -african-agriculture 21.https://reliefweb.int/report/ethiopia/cluster -farming-improving-farmers-productivity-food-securi- ty-arsi-zone worldfinancialreview.com 47



Cyber Security Strategies for Managing cited as the most affected sector, with the CYBER SECURITY RISK the primary cause of these cyber inci- dents being attributed to third-party BY ANTHONY YOUNG failure, closely followed by hardware and software, and change management. The financial services industry is The financial services sector is used to regulation, but having an an obvious target for cyber This high incidence of attacks effective cyber security strategy is criminals because of the sheer attributed to third-parties is supported not as simple as ticking the boxes – volume of personal data that it holds, by findings from the Ponemon it needs to constantly evolve. This is as well as the amount of money that Institute2. It found that although many especially true when organisations it controls. The frequency of these financial services organisations still build competitive scale by under- attacks, or at least the reporting develop their own software, many are taking mergers, acquisitions and of them, seems to be increasing. becoming reliant on third-party inde- increasing their third-party suppliers. According to the Financial Conduct pendent vendors to deliver the latest Organisations need to understand Authority (FCA), reported cyber technology. However, according to the threats, regularly testing their attacks on financial firms increased the same report, many organisations own defences in order to best protect by 12 fold in 2018 when compared to do not require third-parties to adhere themselves from attack. the previous year1. Retail banking was to the same cyber security measures as themselves. But for established organisations to remain competitive, particularly against the challenger banks, they need to update their legacy systems. Investing in new technologies and transforming the customer experience is key to survival and third-party vendors are worldfinancialreview.com 49

Cyber Security Phishing email an important enabler in making this happen. maintaining confidentiality at all times. Keeping rates continue to Therefore, these suppliers need to be managed to these commitments while staving off cyber rise at an alarming – it’s not enough to transfer the cyber responsi- threats is complex, but, with reputations easily rate according to bility to them alone. damaged and large fines at stake, it needs to be Infoblox, meaning managed effectively. Understanding the threats that approxi- This is also something recognised by the The FCA offers a framework of advice to mately one out of European Supervisory Authorities (ESAs), ensure good practice which includes: every 200 emails who provide advice to the European • Putting good governance in place so that received by users Commission on strengthening EU cyber and IT security regulation in the financial sector3. cyber security is on the executive agenda worldwide is a It highly recommends that the commission • Identifying what needs to be protected, phishing email. should develop an EU oversight framework for third party providers active in financial including third party suppliers services, with a particular focus on cloud • Protecting assets appropriately, which service providers (CSPs). includes adopting long-term user education But third-parties are not the only risk for and awareness cyber security firms. Phishing email rates • Using good detection systems to tackle the continue to rise at an alarming rate according to insider threat Infoblox, meaning that approximately one out • Being aware of emerging threats and issues of every 200 emails received by users worldwide by sharing intelligence, insights and practices is a phishing email4. • Being ready to respond and recover by learning lessons from every incident And within the financial sector there are • Testing and refining defences also a number of different threat actors who may have different motivations for the attack. In fact, this last step is vital to ensure that organ- For example, state-sponsored attacks may steal isations improve their resilience to attack as well as financial data to monitor the activities of indi- their speed of recovery in the event of a breach. viduals, governments and industry, whereas The best way to do this is with ethical hacking. cyber criminals could be more interested in financial theft. In addition, insider threats need Hacking to ensure resilience to be considered – trusted employees could Ethical hacking is a way for financial organisa- be in it for the long game when the financial tions to test a particular element of their business rewards can be so large. and see how resilient it is to attack. Essentially, the ethical hacker will assess the system’s secu- Protecting assets rity and report back in terms of what they saw, Being an attractive target to such a variety of what they were able to do and how much went threat actors means that any vulnerabilities will unnoticed. Typically, the test will involve web be sought out and exploited to the maximum. application penetration testing, infrastructure But financial institutions need to enable both penetration testing or mobile device and mobile their employees and clients to access data while application penetration testing. Ethical hacking is a way for financial However, to fully test all areas of the finan- organisations to test a particular cial organisation, a red team engagement is element of their business and see required which takes things a step further. It how resilient it is to attack. doesn’t just focus on the technology elements. A full-attack simulation focuses on all areas of the organisation and could include social engineering, physical access attempts, active reconnaissance and the full suite of technical penetration testing techniques. A typical engagement is likely to take several months and should include some typical milestones 50 The World Financial Review November - December 2019