Key Person GONE! Is your business protected?

“Risk is caused by people” Robert Lehman

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Risk identification and management have always been vital elements of our Firm’s business. Whether entering new markets, advising clients on financings, or mergers/acquisitions, buying a business, or seeking to protect one’s family, partners, or employees, risk management strategies were ever-present and various insurance tools have been utilized to mitigate those risks. In the next few posts, we will look at various risk mitigation tools businesses can utilize in their domestic and international operations.

With the global spread of the Covid pandemic claiming lives of millions of people, the risks have increased significantly and forced us to take a much deeper look at the potential problems and ways to mitigate them. In this article, I want to focus on a very important, but frequently overlooked risk of losing a key person and explore how a business based in the US, or one entering the US market, can protect itself.

Every business, whether it is a sole proprietorship, partnership, or corporation has folks vital to the ongoing success of that enterprise. Loss of these key people to death, or disability, whether it is CEO, CFO, Head of Sales, Chief Scientist, will have a crippling and costly effect.

So how do key business stakeholders protect themselves? Couple of obvious, but highly underused tools are Key Person Insurance and insurance funded buy-sell agreements.

Key person life and disability policies are meant to compensate the business for losses incurred by a loss of its vital personnel, or shareholders. Such policy premiums are paid by the business and the business will receive any insurance payouts to help cushion the impact of losses. Normally, key person life insurance is structured as a fixed premium 10 or 20 year term policy and the benefit amount of the policy is calculated to compensate for the value of the expected loss. For instance, if a company has a key Sales Manager, who produces $2 million per year in revenue and it is expected that it would take 6 months to a year to replace such a person, a $1 to 2 million term life should be taken out. The investment in such a term policy is negligible compared to the benefits business will receive should a catastrophic loss occur.

Another very interesting situation occurs in closely held corporations, partnerships or sole proprietorships. If an owner, partner, or a significant shareholder succumbs, or becomes disabled, their ownership interests oftentimes pass to the family members, who oftentimes are unwilling, or unqualified to continue running the business, or perform shareholders duties. In such cases, buy-sell agreements should be funded by term insurance policies large enough to cover the fair market value of the ownership interests. In case of a loss of a sole proprietor, the owners family should carry the life insurance/disability insurance to compensate it for the loss of the bread winner. Alternatively, business managers may use a business Key Person policy to buyout the owner’s family and take over the business.

Thus in today’s business climate, any entity not managing its key person risks is remiss and is putting its own survival at risk. To learn more about key person risk mitigation, or to discuss other types of risk management, please email info@broadstreetcap.com

The fate of US Ex-Im Bank

By  CC Solutions 

The Export-Import Bank of the United States (“EXIM”) is in the midst of a reauthorization battle. Whether or not EXIM gets reauthorized depends entirely on Congressional votes. Unfortunately, there are a significant number of vocal, powerful Congressional members who are seeking to shut the Bank. We ask readers to help reauthorize EXIM by engaging with elected officials and industry groups. Our collective voices need to be heard so Congress can be best informed as they prepare to vote on this critical issue.

Below are online petitions for the reauthorization EXIM. They take just a few moments to complete.

http://www.eximthoughtbank.com/?gclid=CIy2v-TzicACFYMF7AodnloADQ
http://www.secondtonone.org/site/PageNavigator/SecondToNone/Petitions/ExImBankPetition.html

Additionally, you can email your local Congressman/Congresswoman and Senators to let them know you support EXIM. We encourage you to write a short note asking for their vote to reauthorize EXIM. To find your Representative, click here and type your zip code. To find your Senator, click here, then navigate to their web page and write a quick note.

And here are some other organizations you can contact to voice your opinion in favor of EXIM:

National Association of Manufacturers (NAM)
Bankers Association for Foreign Trade (BAFT-IFSA)
Coalition for Employment through Exports (CEE)

Why is there such a challenge to EXIM’s existence? According to EXIM’s website, it has supported more than 1.2 million private sector jobs and has generated >USD 2 billion for US taxpayers since 2009. Nevertheless, many Congressional Conservatives and Tea Party activists consider EXIM to engage in corporate welfare due to loans supporting large exporters. While EXIM certainly finances the export of large capital goods, last year nearly 90% of transactions supported American small businesses.

And what if EXIM did not exist? American companies will be at a competitive exporting disadvantage to exporters in 59 other major exporting countries that have active export credit agencies. Republican Rep. Tom Reed states, “To unilaterally kill the Export-Import Bank would be a huge hit the the competitiveness of American companies.” Republican Rep. Chris Collins seconds the opinion, “This isn’t a government handout.” Jay Timmons, CEO of NAM articulates the competitive need for EXIM, “Our trading partners have larger export credit agencies and are growing them to boost their exports much more than the United States.” The closing of EXIM would negatively impact the US economy; lost sales, lost jobs, lost tax dollars. Please do your part and help save EXIM. Thank you.

For Sale: Eastern Europe

An entire region is trying to unload everything from national railroads to postal services.

By UDAYAN GUPTA, The Wall Street Journal

Photographs (from left) by Adam Lachs/NYTimes/Redux; James Reeve/Getty Images; Darrell Gulin/Getty Images; Adam Panczuk; Getty Images

From left: Manor House, Szteklin, Poland (Asking Price: $2.5 million); National Rail Freight, Bucharest, Romania (Minimum Bid: $81 million); Real-Estate Holding Firm, Warsaw, Poland (Minimum Bid: $77 million); Bridges and Toll Roads, Turkey (Minimum Bid: $3 billion); Production Studio, Warsaw, Poland (Minimum Bid: $215,000)   READ MORE

Emerging Markets Business: Keys To America ™

Unlocking American Business, Capital & Consumer Markets by Companies From Emerging Markets

BY ALEXANDER GORDIN ⋅ 

Sitting in my office, at the heart of New York’s financial district and looking out at the Statute of Liberty, New York Harbor and the curves of the Verrazano Bridge majestically suspended over the Narrows Straits, I cannot help but put this amazing American gateway into the context of international business.

In today’s rapidly changing and ever more global world, two distinct  business trends have become more evident than ever. Just like ships sailing in and out of the New York Harbor, these trends are Inbound desire to tap American markets by international investors and companies, counterbalanced by an Outbound quest by American Companies, investors, exporters and franchisors to enter rapidly growing Emerging markets around the world.

Opportunities for both inbound and outbound market participants are phenomenal. Although American markets can be considered mature and are highly competitive, the U.S. still represents one of the top three global consumer and business markets. It has most developed regulatory and legal systems, attractive business environment, reasonably priced real estate and inexpensive currency.  U.S. also has terrific brand equity as a nation. It is perceived as a very high quality manufacturer of goods, leader in technology development and commercialization, creator of global franchise brands and systems, as well as home to leading educational institutions and financial markets. Despite problems and issues that exist, it is still the gold standard for capital safety trend setter for global culture.

Many companies, individuals and scientists seek to tap numerous American business and consumer markets.  Some come as investors, buyers of real estate, seekers of technology partners or licensees, buyers of Franchise rights, or sellers of their products and services; others seek to tap American manufacturing know how, purchase U.S. goods and services, tap our financing markets or learn how to use US government’s  trade and development programs to help them finance projects abroad.  No matter what their goals are, inbound investors clamor to unlock American markets and secure their own piece of the American Dream.

At the same time, as their economies grow, emerging market countries are aggressively building infrastructure, and developing their own commerce.  These countries need a host of sophisticated human, technological and financial resources such as equipment suppliers, professionals, investors, franchisors et cetera from outside their borders to help them capitalize on their potential.  Many companies from North America particularly from the U.S., are eager to provide outbound products or services to these rapidly developing markets. However, markets of connecting these buyers and sellers are extremely inefficient to say the least, wasting valuable time and money. READ MORE

Related articles

• Why Most American Companies Are Terrible At Globalization (businessinsider.com)

 

CHINA PLAYS BY ITS OWN RULES WHILE GOING GLOBAL

By JACK CHANG, AP

MEXICO CITY (AP) — When Venezuela seized billions of dollars in assets from Exxon Mobil and other foreign companies, Chinese state banks and investors didn’t blink. Over the past five years they have loaned Venezuela more than $35 billion.

Elsewhere around the Caribbean, as hotels were struggling to stay afloat in the global economic slowdown, the Chinese response was to bankroll the biggest resort under construction in the Western Hemisphere — a massive hotel, condominium and casino complex in the Bahamas just a few miles from half-empty resorts.

All over the world, from Latin America to the South Pacific, a cash-flush China is funding projects that others won’t, seemingly less concerned by the conventional wisdom of credit ratings and institutions such as the World Bank.

• In this July 14, 2012 photo, train tracks cross a farm near Pergamino, Argentina. China agreed to cooperate in financing the modernization of the Belgrano Cargas railway, which connects Argentina capital Buenos Aires with 13 of Argentina’s 23 provinces, including the main soybean producing areas in the north of the country. China is a leading buyer of Argentine soybeans. China has emerged in recent years as the largest provider of development loans to Argentina, Venezuela and Ecuador, according to the Gallagher report. (AP Photo/Natacha Pisarenko)

  

• This Jan. 12, 2013 photo released by Baha Mar shows construction of the Baha Mar resort on the beach on New Providence island, Bahamas. For commercial projects such as the Bahamas resort, China is filling a gap left by western investors and bankers retrenching after the 2008 financial crisis. (AP Photo/Baha Mar, Jeong Ku Hwang)

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• FILE – In this Oct. 28, 2008 file photo, a man walks past a satellite dish station in El Sombrero, Venezuela. The Venezuelan government said a satellite developed and launched in China for Venezuela will guarantee the South American country’s autonomy in telecommunications. Chinese money is breathing life into government infrastructure projects that otherwise might have died for lack of financing. (AP Photo/Howard Yanes, File)

The Chinese money is breathing life into government infrastructure projects that otherwise might have died for lack of financing. For commercial projects such as the Caribbean resort, China is filling a gap left by Western investors retrenching after the 2008 financial crisis.

But some in the Bahamas worry what will happen if the sprawling Baha Mar project fails. They picture an economy saturated with hotels, dragged down by an expensive Chinese white elephant. Likewise, the infrastructure loans are loading financially shaky countries with more debt and letting them avoid economic reforms that other lenders would likely have demanded.

“The Chinese play by other rules,” said Kevin Gallagher, a Boston University international relations professor who has studied Chinese lending to Latin America. “We’ll give you financing with no conditions, and we’ll finance things the International Monetary Fund won’t fund, things others won’t fund anymore, like big infrastructure projects. It allows countries to shop around, which has good and bad sides.”

Venezuelan leader Hugo Chavez talked up his independence last year while highlighting another $4 billion in Chinese loans, part of a wave of money that has translated into new railways, utilities and other projects.

“In a few days, they’re going to deposit 4 billion little dollars more from Beijing,” Chavez told reporters, holding up four fingers for emphasis.

“Fortunately, we don’t depend on the dreadful bank. What’s that one called that you mentioned? The World Bank. Poor are those countries that depend on the World Bank, the International Monetary Fund.”

Venezuela’s Oil and Mining Minister Rafael Ramirez says China has loaned his country $36 billion since 2008, and others put the figure even higher. The Spanish-language version of a report co-authored by Gallagher, “The New Banks in Town: Chinese Finance in Latin America,” estimates it at $46.5 billion.

The loans have added to Venezuela’s $95.7 billion in public foreign debt as of mid-2012, which has risen even as the country rakes in record-high oil revenue. Some analysts say the spending helped Chavez win re-election in October, despite battling cancer.

China has emerged in recent years as the largest provider of development loans not only to Venezuela but also to Ecuador and Argentina, according to the Gallagher report. All three are junk bond countries, ratings agencies say. In contrast, the World Bank and Inter-American Development Bank remain larger lenders in Brazil and Mexico, both countries with higher bond ratings.

In cases such as the tiny South Pacific islands of Tonga, China is lending enormous sums to countries few expect will be able to repay.

What has surely given the Chinese banks courage is the trillions of dollars in reserves the country holds in U.S. Treasury bonds, investments that pay almost nothing in interest. Making that money work harder for a return overseas has become nothing less than a national priority, part of China’s trumpeted “going out” strategy.

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China’s economy is the second largest after the U.S., and many of the deals stipulate repayment in oil and natural gas, locking in the commodities China will need to sustain its growth for decades to come.

In 2009 and 2010 alone, the China Development Bank extended $65 billion in such loans to energy companies and government entities from Ecuador to Russia and Turkmenistan, according to a report by Erica Downs, a China expert at the Brookings Institution, a U.S. think tank.

“If you’re lending tens of billions of dollars to a borrower …, you want to make sure that loan is secured against something,” she said. “In the case of Venezuela, it’s the most valuable thing they can offer. It’s just one way to ensure they get paid.”

In dozens of cases, the Chinese have also demanded that their own companies build the infrastructure that will help governments extract and ship the commodities used to pay back the loans. In Argentina, that means agreements to bring in Chinese companies to revamp the country’s decrepit rail system, which would speed up shipments of soy to Chinese consumers.

“The money goes from one account in the China Development Bank into the hands of small- and medium-sized businesses in China,” Gallagher said, while noting the majority involve big state companies.

The Chinese also hold a valuable trump card: They’re betting that Chavez and other financial pariahs won’t dare alienate their last source of affordable money by defaulting on Chinese loans or seizing Chinese assets.

“The Chinese have the upper hand,” Downs said. “The China Development Bank sees this country that’s thumbed their nose at the IMF. And if they borrowed from the IMF and had to be subjected to IMF conditionality, the regime would fall.”

Perhaps with that in mind, more than 30 Chinese consultants toured Venezuela in 2011 and handed Chavez a thick binder with recommendations on everything from exchange rate reform to agriculture.

While news cameras clicked, Chavez held up the book, thanked his Chinese benefactors and pledged to study the prescriptions. Unlike IMF loans, however, the Chinese recommendations weren’t a requirement, and Chavez has shown no sign of curbing public spending.

The investments and loans have contributed to a substantial shift in commerce toward China. Venezuela, for example, saw its trade with the U.S. drop from 26 percent of its GDP in 2006 to 18 percent in 2011, according to an Associated Press analysis of IMF databases. Meanwhile, Chinese trade grew from virtually nothing in 2001 to nearly 6 percent a decade later, much of it in the form of oil to repay loans.

But the money doesn’t necessarily save countries from their own bad financial bets.

Zimbabwe, which has received generous Chinese financing, saw inflation peak at 79.6 billion percent a month in November 2008. At one point, a loaf of bread reportedly cost 500 million Zimbabwe dollars. Gideon Gono, governor of the Reserve Bank of Zimbabwe, suggested one possible remedy: Adopt the Chinese yuan as the official currency. (Zimbabwe eventually overcame the crisis by switching to a mix of Western and African currencies.)

Argentina is fighting off an economic reckoning despite receiving more than $12 billion in Chinese loans, according to the Gallagher report. In 2001, the country defaulted on some $100 billion in loans. It struck a deal with most of its lenders, but over the past year, a group of creditors is insisting on payment in full.

“It’s extremely concerning,” said Margaret Meyers, a China expert at the U.S. think tank the Inter-American Dialogue. “Chinese financing won’t be able to sustain these economies unless they go through substantial macroeconomic reforms. For Argentina, that means open markets, reforming institutions, reforming the banking system, fiscal accountability, ending lots of misspending.”

Some in the borrowing countries have watched with worry as the Chinese bets play out.

Opposition politicians in Venezuela have slammed the deals for locking in contracts for everything from Chinese-made refrigerators to Chinese construction workers while giving Chavez free rein to spend billions of dollars.

“There’s no doubt we’re going to need China, they are an economic powerhouse,” opposition leader Henrique Capriles said last year. “But many of the agreements the government has signed involve political loyalties that don’t interest us.”

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On the beaches of New Providence in the Bahamas, hundreds of Chinese construction workers are toiling around the clock to ready the Baha Mar project for a scheduled grand opening in late 2014.

The project will add thousands of hotel rooms not far from the islands’ biggest resort, the Atlantis.

“Going forward, we have to achieve a sustainable tourism product,” said James Smith, the former state minister of finance for the Bahamas. “If we don’t, Baha Mar could be cannibalizing Atlantis.”

Baha Mar has opened sales offices all over Asia to promote and presell hundreds of pricey condos, hoping to imprint new travel habits on a continent that’s traditionally spent beach vacations in Southeast Asia. It is also working with the Bahamian government to open more consular offices in China to issue visas.

“In general, you would assume that a project of that size is generating its own demand and the idea would probably also be with Chinese money comes an influx of Chinese travelers,” said Jan Freitag, senior vice president of hospitality industry research firm STR. “The Chinese would argue that we can maybe attract a clientele that has not been with you before.”

When completed, the complex is set to boast brands such as the Grand Hyatt, Rosewood and Mondrian, and 313 $1-million condos being marketed to the international elite.

Business leaders have openly questioned the investment as Baha Mar rises just blocks from storefronts left empty during the latest downturn. The Wyndham hotel was closed for all of September and most of October because of low occupancy levels, and on Feb. 8 announced the need for “substantial cutbacks,” including layoffs.

“In a vibrant economy, we wouldn’t be having any concerns. The reason it comes into question is whether it’s right at this time,” said Winston Rolle, CEO of the Bahamas’ Chamber of Commerce.

The project had, in fact, been conceived in a different moment, more than six years ago, when the U.S. housing boom and global tourism seemed unstoppable.

One of the original developers, Caesar’s Entertainment Corp., formerly Harrah’s Entertainment, backed out of the project in 2008, and Chinese financiers stepped in after reaching a deal with project CEO Sarkis Izmirlian. The agreement brought in a state-owned Chinese construction company to build the resort.

“This project is essential to developing business in the Caribbean and into the U.S.,” said Tiger Wu, vice president of the construction company, to Bahamian media. “It’s only the beginning.”

All evidence indicates the Chinese are charging forward. They’ve made their $3.5 billion gamble in the Bahamas. Elsewhere, they’ve promised tens of billions of dollars for everything from dams to railroads. Guyana has hired the state-owned Shanghai Construction Group to build a 197-room Marriott Hotel on the southern edge of the Caribbean.

Meanwhile, traditional investors in the U.S. and Europe have been left on the sidelines. It’s China’s game now. And the rest of the world is waiting to see how the big gambles pay off.

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Associated Press writers Jeff Todd in Nassau, Bahamas; Ian James in Caracas, Venezuela; Ben Fox in San Juan, Puerto Rico; Michael Warren in Buenos Aires, Argentina; and Nick Perry in Wellington, New Zealand, contributed to this report.

EDITOR’S NOTE _ This story is part of “China’s Reach,” a project tracking China’s influence on its trading partners over three decades and exploring how that is changing business, politics and daily life. Keep up with AP’s reporting on China’s Reach, and join the conversation about it, using the hashtag (hash)APChinaReach on Twitter.

Inches from Greatness!

 or

how Ukraine’s business can unlock at least UAH15 Billion of American financing in 15 months

By: Alexander Gordin, Managing Director, Broad Street Capital Group and Co-Creator of the Fluent In Foreign

September 24, 2012 New York, NY

Last week I attended a business dinner with a high-level delegation from the Ukrainian Government. The dinner was organized by the US-Ukraine Business Council and sponsored by couple of large corporate players and a private equity fund.  During the event, Ukrainian attendees, which included Governor of the National Bank of Ukraine, Ministers of Finance, Agriculture, Ecology, as well as Customs and Tax Chiefs, tried to signal to the U.S. companies in attendance how Ukraine has evolved into an attractive investment destination.

As I was listening to the presentations and discussions by several large corporate players focused on investments into the Ukrainian Oil & Gas and Agri sectors, I could not help but think that, as the Government of Ukraine is making a massive effort to attract U.S. direct investment from Fortune 500 companies and restart the IMF financing, it is leaving on the table billions of dollars readily available debt and equity financing, as well as investment by smaller strategic players.  There is an entire medium size business and project development sector in Ukraine that is begging to be funded and there are funds readily available in the U.S. to fund tens, even hundreds of companies and projects in sectors ranging from hospitality, food security and ICT to agriculture and alternative energy.

Injecting significant funding into this slice of Ukraine’s economy will generate thousands of new jobs; increase corporate efficiency and productivity by introducing latest western technologies and production tools. It will also create a multiplier economic effect, which will reverberate throughout the country’s business and consumer sectors.  Yet, for the last couple of years, only a tiny sliver of the entire American originated debt and equity financings that could have been done in Ukraine has been completed.  In 2011, U.S. was the in 10^th place of all the countries that had Foreign Direct Investment into Ukraine, with only $1bln invested.

The big question is WHY? For those of us both in the US Government Trade and Development Agencies and in the private sector, who are focused on financing projects, enterprises and trade, the answer is pretty simple – Disconnect, Distrust and Deficiency, or as I call them 3Ds.

There is disconnect in understanding of western financing process and of the requirements set forth by the U.S. Government agencies and private financial institutions.  Many Ukrainian businessmen spend a lot of time and effort in putting together sleek-looking presentations overloaded with information, setting up technical models and writing business plans using prepackaged software. Yet, most of them fail to truly understand the needs and requirements of the American financiers and their focus on project’s ownership, provenance, due diligence etc. They also do not understand that unless they commit financially to the capital raising process, they will not be perceived as serious players.  There is also a huge image problem that Ukraine has in the West. Although some of it is well deserved, a big part of it is gloom and doom that does not accurately portray the situation in the country.

Then there is distrust. Over the last two decades, Ukrainian business has been pillaged by every type of western con artist known to man. Many swooped in, promised Ukrainian businessmen untold riches, massive credits and investments, collected fees and then vanished.  No wonder today Ukrainian companies are wary, scared and mistrustful.

Finally, there is deficiency.  Deficiency of cross cultural knowledge among the process participants on both sides of the Atlantic; lack of early stage pre-project funding and absence of an integrated well-defined and officially endorsed process, which would nurture and properly prepare companies and projects to be able to take advantage of all the available opportunities.

Estimates are that in today’s environment only one of 20 potentially eligible projects and companies seeking financing in Ukraine get funded.  We at Broad Street Capital Group have been working on solving the above-mentioned problems in order to increase the quality of bankable projects for the last several years. We assembled a group of leading international experts in the fields of risk management, cross-cultural expertise, accounting and audit, corporate law, debt financing, equity funding and media public relations, Together, we have worked to develop a streamlined preparation process to help companies achieve their goals of cross-border market entry, international financing, technology partnerships and foreign direct investment.  The result has been a comprehensive multimedia platform called Fluent In Foreign Business™, which provides assessment, project screening, education, information resources, quality networking opportunities and expert mentoring support to government agencies, companies, investors, franchisors and project developers in over 100 countries.  What this process needs to unlock a floodgate of financing to Ukraine is a modest amount of UA Government support.  The Government should use one of its several investment promotion agencies to work with us in the private sector and to offer official endorsement, information dissemination, and participation leadership to encourage or even mandate Ukrainian businesses to take part in the process without fear of being duped.

Simply given the current portfolio of Ukrainian alternative energy, agriculture and ICT projects, which we are reviewing, we can confidently say that with just a modest amount of UA government support, combined with corporate focus, training and financial commitment, Ukrainian companies can attract at least UAH 15 Billion in low-cost debt, equity and trade financing in the next 15 months.  This is over two times the amount that Ukraine to receive from all International Financial Institutions (IFIs) in 2013 combined. Thousands of jobs and the multiplier effect generated by this initiative will help the government strengthen its business electorate base, improve country’s investment image and its overall economic condition. Thus if Ukrainian government officials are serious about improving the country’s economic situation, they should closely look at the what is needed to unlock a very significant slice of financial investment into a critical sector of its economy.  American businesses and professionals who are Fluent In Foreign Business stand ready to help Ukraine meet the challenge of successfully injecting UAH 15 Billion in 15 months.  November 28^th-30^th Broad Street Capital Group, along with Fluent In Foreign Advisory Board will hold a briefing and project review sessions for all interested companies, Ukrainian Central and Regional Government Authorities to select projects eligible for the 2013 financing and inclusion into UAH 15 Billion in 15 months Initiative.

About the Author: Alexander Gordin is a Managing Director of the Broad Street Capital Group (a USUBC Member since 2009) and co-creator of the Fluent In Foreign enterprise, which publishes Fluent Foreign online, Fi180 Global Business Atlas and weekly newsletter.  Since June, 2012 the edition has a dedicated section for Ukraine. Gov. Arbuzov’s interview with Mr. Gordin appeared in the inaugural edition of the publication. (https://fluentinforeign.wordpress.com/?s=arbuzov)

Mr. Gordin has been active in Ukraine as Direct Investor since 1995 and as Financier since 1996. Mr. Gordin and the Broad Street Capital Group have represented numerous Ukrainian Government and private entities and have been mandated for financing and political risk Insurance transactions totaling over US$1 Billion.

An Interview With Sergiy Arbuzov, the Governor of the National Bank of Ukraine

As Ukraine and Poland co-host EURO-2012 soccer (football) finals starting this week, we thought that it would be a good idea to spotlight these countries from the economic angle and track their development pre, during and post the EURO 2012 tournament.  Both these countries represent very interesting examples of emerging markets, each with a full set of issues, solutions, problems and potential business opportunities.  To help us achieve our goal we set up special pages on this blog called “Emerging Markets Spotlight  – Ukraine and Poland respectively.    On these pages we will profile each country and will attempt to highlight more interesting and pressing issues, both domestic and external.  We will also interview with various parties involved in economic landscapes of these countries.  Our first interview is with the Mr. Sergiy Arbuzov, The Governor of the National Bank of Ukraine.  Full text is found below

An Interview with 

the Governor of the National Bank of Ukraine – Sergiy Arbuzov.

National Bank of Ukraine

June 8, 2012

Today, as the world economy overcomes financial turbulence and experiences probably the most difficult period  since times of Great Depression, we interview The Governor of the National Bank of Ukraine Sergiy Arbuzov to find out how Ukraine, and particularly its financial community, is dealing with the these complex economic times.  Governor Arbuzov believes, that today’s challenges and problems require non-standard approaches from all participants of the financial market. With this objective NBU recently suggested considering a possibility of inclusion of platinum in the international reserves of the central banks.

As of today, out of all precious  metals only monetary gold is included in reserves of the central banks; though values of other rare metals, such as silver, platinum, and palladium, etc., continue to grow. Leading economic experts consider these metals for possible inclusion as additional currency reserve metals. If the world financial community will support Governor Arbuzov’s initiative, one more useful financial tool for management of tumultuous processes in the world economic markets will be created.

Recently, the Publisher of Fluent In Foreign blog, together with the Governor of National Bank of Ukraine discussed the work of the National Bank of Ukraine over the last year and explored interest of investors in new tools of NBU, which are currently under development and review.  Exclusive excerpts of this interview follow below:

• Governor, how do you assess the development of the economic situation in Ukraine already this year? What key factors determine it?

Ukraine has achieved significant progress in the implementation of a comprehensive strategy. Now we follow the large-scale transformation of all aspects of the economy and the social sphere. We introduce pension, customs, and tax reforms that are materializing into real results. Deregulation of the economy is taking place. The reform of the judicial system and criminal justice as well, is under the process of implementation. The National Anti-Corruption Strategy for the years 2011-2015 is approved. This year new laws to fight corruption started to operate. New Labor Code. – is under the process of devevelopment.

We have some success in the macroeconomic sphere. According to our estimates, in 2012 Ukraine’s economy will grow by 2-3%. As a result of stabilization in the sphere of public finance deficit of the State budget will amount to 1.8% of GDP. The level of inflation for the second year in a row beats minimum historical records, now it is 0, 6% in annual terms. Our inflation forecast for this year is about 5%. For Ukraine, it is an extremely good result. The National Bank of Ukraine will continue to make all the efforts to keep inflation stable at a low-level.

Development of economic situation in Ukraine is to a large extent dependent on external factors.  Together with the Government, we are following the developments in the global financial markets, and we have a comprehensive plan of action in case the negative external effects on the economy of Ukraine would happen.

• How NBU would change its policy and support banks in case of a deterioration of the situation?

We will continue to strengthen the role of the hryvnia in economic turnover and dedollarize economic relations. We have already tightened supervision of the banking system, launched the international mechanisms for the protection of the reserves, currency exchange rate and currency market as a whole from the pressure of demand on the cash market.

Undoubtedly, the NBU must have additional tools to support the banking sector in the event of a worsening of the situation. We are aware of our responsibility and are developing these tools. We working together with the banking community and consulting with IMF concerning our activities. In addition to have a good feel of the market, we always communicate with bankers, domestic and foreign investors, as well as representatives of hedge funds.  We intend to continue this dialogue with the purpose of creation of  favorable conditions for investing in Ukraine.

• What were main obstacles to the growth of investment in Ukraine last year? What did the Government and NBU do to make investors feel more comfortable?

I regularly meet with foreign and domestic investors and often hear complaints about imperfections of the legislative field, the bad reputation of the courts, overregulation and risks of working on the Ukrainian investment market.  Last year, the National Bank was focused on steps aimed at improving at least part of these issues.

Last year, with the Bank’s initiative, Rada adopted four important laws: on the protection of the rights of the lender; about improving the transparency of banks; about supervision on a consolidated basis; about the peculiarities of corporate governance in banks (adopted in the first reading). Moreover, the banking community and the international financial organizations were closely involved in development of each bill. This year Government adopted a law on the system of supporting deposits of individual persons. We handed over the withdrawal of problematic assets of banks from the market to the Fund supporting deposits of individual persons.

Also we simplified mechanism of repatriation of dividends to foreign investors: reduced package of documents, cancelled the confirmation of mandatory payment of all taxes from the income. In addition, we improved procedure of return on investment for operations of purchase-sale of securities on the stock exchanges. In the course of liberalization of the foreign exchange market, we have also allowed banks to conclude the currency swaps that would allow banks to attract cheap funds in the future, and issue other financial instruments both on domestic and international markets.

• Which priorities and tasks of the NBU for this year? Is there among them to improve the investment climate? What specifically you can offer investors?

As contribution to the improvement of the investment climate, The National Bank carries out  the support of price stability in the country, promoting the stability of the banking system and support the economic policy of the Government. Of course, we will pay attention to other activities, for example, improving the functioning of the stock market, which should become the main source of long-term capital for domestic investment.

The market of investment gold coins is functioning already (as well as silver and platinum). By the way, there is a high demand for this tool. We are discussing the question of Ukraine’s Development Fund creation.  We plan an expansion of lending instruments for banks. In particular, we want to allow lending to enterprises that own a license for mining, using the license itself as collateral.

In the final stages is the development of the program, which deals with improvement of the current  payment systems in Ukraine. We want to solve the problem comprehensively. In particular, we aim to seriously increase the share of cashless payments, reduce the underground component of this market and develop a system of electronic money.

A lot already has been done in the arena of Land Bank creation. After all, our calculations show that the launch of the land reform will increase the volume of investments into the economy of Ukraine and will give an additional impetus to the development of the financial market. We switched to payments for external contracts with Russia in the national currency. Also in the final stages are talks with China. The projects on improvement of the financial literacy of the population have been launched. The Bank started broadcasting channel-Bank TV.

• Is there intent by the National Bank of Ukraine to initiate  the issue of  inclusion of new financial assets as part of  global international reserves? What should be done to achieve this?

Searching of new approaches to the recent calamities and challenges that the world economy faced during recent years, is still very important.  In this regard, we pay close attention to the leading economies, as well as to the International Monetary Fund for development of innovations aimed at softening the world’s financial crisis and accelerating the recovery of sustainable growth of the world economy.

However, many of the initiatives undertaken, have a limited impact on the  emerging market countries (particularly Ukraine), mostly because the leading economies are themselves the beneficiaries of the innovative measures.   In this context, the National Bank of Ukraine appealed to the leadership of the International Monetary Fund with the initiative to consider the feasibility of expanding the spectrum of  international monetary gold reserves, and inclusion as part of them other  precious metals such as platinum.

On the one hand, the adoption of such a step would stimulate the general tendency of price increases for these metals on world markets. On the other, in contrast to countries, whose currency is freely convertible on internal markets,  economies with emerging markets do not have such advantages. Thus monetary easing  for them turns out to be much more difficult, because there will always remain risks of  impairment of their national currencies.  A reduction  of such risks and currency options for various countries could result from expansion of the list of monetary metals that are taken into account by the international community in the reserves of the central banks.

• How will IMF’s support for your initiative on this issue affect the level of international reserves of Ukraine?

Of course the enrolment of new financial assets in international reserves in Ukraine will increase their volume. Now, when there has been some turbulence on world currency markets, it is necessary to maximally improve the potential stabilization of our country, increasing its international reserves is one such instrument. That is why the actions of the National Bank of Ukraine are primarily aimed at finding new sources of their replenishment. At the same time, as already stated, the question must be treated in a wider context. It is about finding the extra liquid instruments, which have a global recognition and can be used in international currency dealings. Under this perspective, we believe it is necessary to consider the interests of not one country, but of the entire international financial community.

• Why the NBU is actively initiating increase of gold mining, and what will it offer to investors this year?

Ukraine has significant deposits of gold – more than 3 thousands tons. Given the significant growth of gold prices in the world, we started work on expanding gold production with the purpose of replenishment of the international reserves of the National Bank. To do this, the decision of the Cabinet of Ministers on gold-mining enterprise “Pivnichgeologia”  has been transferred to the balance sheet of the National Bank.  At this time, on the initiative of the National Bank, The State Service of Mining Exploration and Geology of Ukraine decided to issue to this enterprise special permits for subsurface  exploration of five new gold mines  Again I want to underline that following extraction of these deposits, gold in the future will be melted, processed and added to the international reserves of Ukraine.

• What advice would you give to our readers on investing in Ukraine?

Investing in Ukraine is promising. The country was on the path of reforms and transformations. We do everything to ensure that investors receive high dividends in the future.

• Thank You, Governor.

What Lies Beyond The BRICS? – A look at the most promising International Markets

What Lies Beyond the BRICS - a look at the most promising International Markets

Kazakhstan – An Attractive Investment Destination. Road Show Announcement

KAZNEX INVEST, Kazakhstan’s Export & Investment Agency Holding Investment Projects Road Show in U.S.

March 15th, 2012

NEW YORK, March 15, 2012 /PRNewswire/ — KAZNEX INVEST, the National Export and Investment Agency of Kazakhstan, has signed a cooperation memorandum with Fluent in Foreign(TM) LLC (fluentinforeign.com),to oversee a series of investor road show presentations in the United States. The presentations will take place in major U.S. cities, where Kazakhstani government officials and business leaders will present a wide range of current and planned investment projects and opportunities open to Foreign Direct Investment by American businesses and investors. Fluent in Foreign is part of an international financial advisory group that guides companies and organizations doing business and investing in overseas markets.

The organizer of the road show is Kazakhstan’s National Export and Investment Agency, KAZNEX INVEST, which provides free “one-stop-shop” services for investors worldwide.

Co-organizers of this event are the Embassy of Kazakhstan in the U.S., Kazakhstan Chamber of Commerce, Princeton Council on World Affairs and the U.S.- Kazakhstan Business Association. The Minister of Industry and New Technologies, Hon. Asset Issekeshev will head the Kazakh delegation that will include several high-level officials and business leaders representing a wide range of Kazakh business sectors.

The first events are scheduled for Washington, D.C. on April 10, New York on April 11 and Chicago on April 12. To request an invitation to the events, contact Ruth Sigalus at: rsigalus@fluentinforeign.com or visit http://www.invest.gov.kz for more information.

Although Kazakhstan is one of the biggest countries in the world, with vast deposits of natural resources, the government is shifting its priority from oil, gas and metals exploration and production to the development of non-extracting industries. In 2010, Kazakhstan President Mr. Nursultan Nazarbayev introduced a five-year state program for accelerated industrial and innovative development, providing economic preferences to foreign investors and opening Kazakhstan to the international business sector to build stable, progressive and mutually beneficial economic collaborations.

This road show is the first event that is entirely devoted to the presentation of investment opportunities in priority sectors in Kazakhstan. It will focus on the six main sectors of the economy: agriculture, chemical and petrochemical, machinery, metallurgy, IT and telecommunications.

“Kazakhstan has rapidly emerged as a nation that, through favorable legislation and market reforms, offers international trade and investment opportunities at all levels,” said Gordin. “There are tremendous growth prospects in a variety of business sectors.” Last year Gordin wrote Fluent in Foreign Business, which is a practical guidebook for U.S. companies looking to do business overseas, especially in emerging markets. Priority industries for Kazakhstan’s government include agriculture and food, alternative energy, aerospace, telecommunications, biotechnology, chemicals, construction, machinery, mechanical engineering, metals and light industry.

The Customs Union of Kazakhstan, Russia and Belarus, with about 170 million people and total GDP of USD 2 trillion provides additional possibilities for investors and new horizons for effective realization of investment projects in Kazakhstan. Investors will be able to freely promote their products in the Russian and Belarusian markets. Kazakhstan’s competitive advantage is its more favorable business environment in comparison with the other countries in the Customs Union. According to the World BankDoing Business 2012 report, the Russian Federation and Belarus rank 69 and 120 respectively, while Kazakhstan is 47th.

Kazakhstan had $1.8 billion direct investment in 2010. The major ratings agencies give Kazakhstan a stable to positive outlook, and the GDP growth rate for 2012 is projected at 5.6 percent.

Admission to the road show events will be complimentary and offered to qualified participants by invitation only. After the presentation there will be opportunities for one-on-one networking with Kazakhstan officials and corporate managers.

Fluent in Foreign LLC, based in New York, is a unique advisory and information service designed to help direct investors, franchisors and exporters prepare to enter or expand operations in foreign markets. The company publishes a number of proprietary analytical tools including the Fi180 Global Business Atlas and Fi3 Country Appeal Indices, which rank Kazakhstan’s appeal to investors at 70.6 out possible 100 points. Services include education, financing, political risk insurance, legal compliance and strategic business development for companies seeking to enter foreign markets.

Contact: David Reich, david@reichcommunications.com, 212-573-6000
Contact: Bambe Levine, bambe@bambepr.com, 212-490-6500

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