The Real Gross Domestic Product (GDP) in Nigeria grew by 6.48% in Q3 2012, compared with 7.37% recorded in Q3 2011.The financial services sector, which includes the banking industry, recorded a real growth of 4.08% in Q3 2012, and compared with 4.04% growth in Q3 2011. The increase in growth in this sector was driven by increased lending activities by banks, as well as the continued favourable investment yields in the bond market, which has favoured institutions in the industry the likes of pension fund managers and insurance companies. The Banks in Nigeria had a mini crisis between 2008 and 2010, due to a credit boom, which then lead to an explosion of non-performing loans. Nigeria has dealt with this situation by creating a bank to buy out its banks’ bad loads – Asset Management Corporation of Nigeria (AMCON). Fitch Ratings has assigned a “B” range viability rating on Nigerian Banks, on the backdrop of the progress recorded by AMCOM.

The Central Bank of Nigeria (CBN) has taken steps to implement actions that have increased the general confidence in Nigerian Banks and the banking system. Developing specialisation, the adoption of the Internationals Financial Reporting  Standard (IFRS), safeguarding the Nigerian Banking system, are a few steps in which the CBN have taking top reforming this sector.

Banking Sector Financial Position

As at December, 31 2012 there were 20 banks operating in Nigeria with a total asset of c N17.7tn  an increase of c12.45% from December 2010. The bank with the largest assets was First Bank with a total asset of N2.4tn accounting for around 16.04% of the industry total assets. Zenith bank was a close second with N2.31tn and accounted for c.13.05% of the industry size. The largest banks as per asset size, First Bank, Zenith Bank, UBA, Access Bank and Guaranty Trust Bank all accounted for 58.42% of the industry total size. The largest contributor to the total assets was Loan advances which accounted for c39% of the total assets.

Total customer deposit liabilities which represent depositors’ confidence in the banking industry stood at N12trn an increase of 11.92% from N10.99tn in 2010. The bank with the largest deposit was First Bank representing 15.83% of the industry’s deposit. The total liabilities in the industry stood at N15.4tn. Customers’ deposit liabilities accounted for about 80% of the total liabilities.

The total Net Assets (Total Equity) of the banking industry stood at N2.34trn as at December 2011 representing an increase of 112.73% from N1.10trn as at December 2010. The bank with the largest total equity was Zenith Bank at N380.34bn accounting for 16.27% of the total. The first five leading banks by total equity are Zenith Bank (N380.34bn); First Bank (N364.52bn); GT Bank (N238.78bn); Access Bank (N197.04bn) and Union Bank (N196.55bn) and jointly accounted for 58.96% of the total equity in the industry.

Gross loans and advances stood at N7.05trn in December 2011. Out of the gross loans, the total performing loans stood at N6.66trn while the total classified loans (nonperforming loan) stood at N385.23bn. This resulted in non-performing loans to gross loans (NPL) ratio of 5.47% in 2011 down from 18% in December 2010. The activities of AMCON have reduced the non-performing loans drastically.

Industry Financial Performance

Gross earnings (interest income and fees & commission income) dropped marginally by 5.82% to N1.78trn in 2011 from N1.89trn in 2010. The breakdown of the gross earnings in 2011 shows that N1.22trn representing 68.70% was generated from interest income; N540.15bn representing 31.30% was generated from fee & commission. The bank with the largest gross earnings was First Bank which stood at N296.33bn and represented 16.64% of the industry total gross earnings. The first five largest banks by gross earnings are First Bank (N296.33bn), Zenith Bank (N244.07bn); GT Bank (N188.82bn);

UBA (N184.33bn) and Access Bank (N138.95bn) and controlled 59.14% of the industry total gross earnings. At N220.40bn, First Bank generated the highest interest income which represented about 18.02% of the industry size, while Zenith Bank generated the highest non-interest income of N83.55bn representing about 15.47% of the total industry non-interest income.

The industry’s Profit before tax stood at N71.9bn, a major decline from N454.34bn recorded in 2010. The decline in industry PBT was due to unanticipated losses of some banks arising from bad debts during the period. The banks that recorded losses are: Union Banks, UBA, Diamond Bank, FCMB and Ecobank. Profit after tax stood at N72.19bn down from N374.58bn in 2010.

Brief Individual Company analysis

As at December, 31 2012 there were 20 banks operating in Nigeria, I will be looking at the 3 largest banks according to market cap.

Guaranty Trust Bank (GTB)

Guaranty Trust Bank Plc. provides commercial banking services to its customers. The Bank’s services include retail banking, granting of loans and advances, equipment leasing, corporate finance, money market activities, and allied services, as well as foreign exchange operations. The bank’s only subsidiary is involved in funds and portfolio management services.

Share Price performance over 5 years

GTB v World Financials v World Commercial Banks

GTB v FTSE350 Banking v S&P 500 Financials

Highlights

• Analysis of GT Bank stock between 2007 and 2011 showed steady improvement and overall stability.
• GTB declared a dividend of N1.10kobo to its shareholders in 2011 and N1 kobo per share in 2010, it also declared a scrip Issue of 1 for 4 ordinary shares in 2011.
• The Earnings Per Share (EPS) increased by 4.46% between 2010 and 2011, and recorded a compound annual growth of 0.24% between 2007 and 2011.
• The Net assets per share declined by 10.27% between 2010 and 2011 to stand at N8.11 in2011 from N9.04 in 2010.
• 

• My calculation of fair value for Guaranty Trust Bank Plc stands at N22.54 per share – hence I believe GTB is trading at a discount of 14% below FV. I derived this value by using Discounted Free Cash Flow (DCF) method. The discount rate we applied on the Free Cash Flow is 20.97%, and the terminal growth rate is 6.48%. The 2012 EPS is N2.68 while the 2012 forward P/E ratio is 8.41x at fair value.

Zenith Bank

Zenith Bank PLC is a commercial bank with offices located in several parts of Nigeria. The Bank provides services to corporate, commercial and individual customers.

Share Price performance over 5 years

Zenith v World Financials v World Commercial Banks

Zenith v FTSE 350 Banking Sector V S&P500 Financials

Highlights

• The EPS increased by17.65% to N1.40 in 2011 from N1.19 in 2010.
• Zenith Bank stock between 2010 and 2011 shows improvement.
• Zenith Bank paid a dividend of 95kobo to its shareholders in 2011 from 85kobo in 2010.
• The net asset per share increased from N11.58 in 2010 to N12.11 in 2011.

• My fair value for Zenith Bank Plc is N23.29 per share which means that it I trading at a discount of 10% below FV. The figure was derived by using the  Discounted Free Cash Flow (DCF) method. The discount rate we applied on the Free Cash Flow is 25.81%, and the terminal growth rate is 6.48%. The 2012 EPS is N2.49 while the 2012 forward P/E ratio is 9.34x at fair value.

First Bank of Nigeria

FBN Holdings PLC provides commercial banking activities. The Bank offers merchant, investment banking, trusteeship, fund management, registrars, and advisory services through its subsidiaries. FBN further sells insurance policies and mortgages via subsidiary companies.

Share Price performance over 3 years

Highlights

• Analysis of First Bank stock between 2010 and 2011 showed improvement
• The EPS increased by 47.37% to N1.40 in 2011 from N0.95 in 2010.
• First Bank paid a dividend of 80kobo to its shareholders for the year ended December 31, 2011. While it paid a dividend of 60kobo for the year ended 2010.
• The net assets per share stood at N11.20 in 2011, up from N7.98 in 2007.

• My fair value for FBN Holding Plc is N20.03 per share. I calculated this value by using Discounted Free Cash Flow (DCF) method. The discount rate I applied on the Free Cash Flow is 24.63%, and the growth rate is 6.48%. The 2012 EPS is N2.30 while the 2012 forward P/E ratio is 8.70x at our fair value.

Conclusion…

Last year, JP Morgan announced the inclusion of Nigerian government Bonds in the JP Morgan Emerging Market Bond Index, this annoucement coupled with the favourable sovereign credit rating on Nigeria have generated a lot of interests in government securities, causing prices to rise and yields to drop. Looking at 2013 and beyond, I expect yields on fixed income securities to drop further because of the improvements in the macroeconomic environment in Nigeria. This will mean that a huge proportion of the interest & similar income of banks will drop going forward if they are to maintain the current position. I think it’s fair to say that these banks are cheap at the moment but will not remain this cheap for long.

Until next time,

your friendly neighbourhood Brownbear..

Five key market trend

1.Five years ago, Game mainly through the host platform and PC platform, but now, with the popularity of smart phones and tablet, players’ money and time put in the mobile game increased significantly.

2. Free Games is the second key trend of mobile gaming

3. Game is service. In order to let players invest more time to get the income, the Issue businessman must continue to retain players.

4. To balance the business model must constantly optimize the game for free players get pleasure and seize paying subscribers at the same time.

5. The emerging market has become a necessary part of the game company strategy.

newzoo pointed out that Britain has the highest fees users, 38% of British mobile games  are paying players.Currently 33% of the smart machine and tablet downloads from the game download, 66% of the revenue from the game.

If you are looking for a full guide on all professions and a complete leveling guide for game then check out

• In 2010, two out of three adult Americans are overweight or obese.
  
• From 2000 to 2010, the amount of time teens spend playing videogames has more than doubled; time on the computer has tripled.
• 220,000 health procedures done in 2008. Total cost: $3.7 to $5.7 billion.
• Estimated new cases of diabetes since 2000: 8 million
• Five years ago, the health and wellness industry is worth $200 billion dollars in sales. Recently, this wellness business has grown to over $500 billion in sales, and it is projected to continue growing and reach $1 trillion for the next five years.

In the fall of 2012 I decided to buy a Nike FuelBand.

For those of you who don’t know the product the FuelBand it is an activity tracker created by Nike that is worn on your wrist. The FuelBand is supposed to allow the wearer to track his physical activity, steps taken daily, and amount of calories burned.

In general I was unimpressed with the first stab at the device. Though I applaud Nike for trying to make a product that helps keep people accountable for physical activity on a day-to-day basis I had a few issues that kept me from being a believer.

• Nonsensical Metrics: The FuelBand uses “NikeFuel points” as the metric for work throughout the day. While it makes sense that different movements have different values, the only discernable way to determine what physical activity you’ve actually done. If I go do full body exercises in the gym I get way less points than if I go play basketball.
• Cardio Centric: To my point above, the FuelBand is much more suited for cardio than for overall training. Because the NikeFuel points are based on movement of the device exercises like running and playing basketball lead to high scores — not cycling (which lacks wrist movement) or lifting weights.
• Bulky Rigid Design: Though the FuelBand does its best to be aesthetically pleasing, I did not enjoy having the product on my wrist. It was pretty bulky, is very rigid, and did not look good in work attire with a watch on the other wrist. I would like to see the next generation allow for more flexibility and be much thinner / lighter.

Overall, this is a good attempt at being a market leader in the fitness tracking space, but I think that there is still a lot of work to be done. I look forward to seeing where Nike goes with this product next. My advice for getting on track with personal fitness is to find a partner with similar goals and stay accountable to each other. Also — if any of my friends (Rob Lay) who have worn the product religiously would like to refute my claim please comment!

In my opinion, this is all part of the economic evolution that we have seen since the beginning of time.  Most developed markets today began as commodity intensive/agrarian market exporters before their industrialisation stages and eventually they experienced growth driven by total factor productivity-mainly technological advancement.  This gives me the notion that Africa could follow the same route.

It might be worth taking a look at our history books, reviewing the past, searching for a trend in history, looking back at how economic patterns shifts and studying how these nations went from agrarian to technology driven.  Let us begin with the new millennia, the GDP per capita for agrarian India and China was c. $460, by 1500 Italy had a GDP per capita of $1,100 as one of the leaders of the pack.  In 1700 the United Kingdom had experience some growth in GDP, at $1,250 GDP per capita, almost double that of India and China, the same year the Netherlands emerged, with GDP per capita of $2,130.  In the mid-nineteenth century Britain grew into the highest GDP per capita in the world leading the industrial revolution with steam power, textile mills, railways, ship building and coal mining.  The demand for steel was the thrust the nation needed.

By the late 19^th century, Germany and America were not far behind in Steel production. Ruhr Valley provided an excellent location for the German steel industry.  The creation of the German empire in 1870 gave further impetus to rapid growth.  Through the 19^th century, Germany, France, Australia and the US began to grow more quickly than the UK.  By 1900 the US was the largest producer of steel led by the likes of Andrew Carnegie; and in 1913 American and German exports dominated the world steel market, as Britain slipped to third place.  Foreign investments began to drive the growth for the likes of Russia, fuelled by oil and grain, and the Japanese were skilled in less capital intensive manufacturing and textiles.

In the mid-1900’s no one spoke of China except as a communist state.  Asia, with its poorly drawn borders was rife with political instability, religious and ethnic warfare, disease, illiteracy, malnutrition and a post-colonial stigma weighted down by authoritarian rulers who ensured that any revenue generated by its natural resources was spent for their personal gain- this almost sounds like the Africa of today.  The GDP per capita of South Korea and Singapore were circa $400. By 1980’s the Tigers, Hong Kong, Singapore, South Korea and Taiwan, were born.  China was a little late arriving in 80’s; and about a decade ago, Africa joined the party.  Now the technological advancement of Kenya is on everyone’s lips with the introduction of mobile banking (M-PESA), a technology that allows people to transfer money from one account to another created by Safaricom and Vodacom.

In my opinion, a few things will affect the markets this year, slow global growth and low fixed income yields.  Investors still have an appetite for risk and are seeking higher yielding investments, the growth of the sub-Saharan African markets are accelerating faster the rest of the world.  The evolution has begun.

Until Next time…

The Brownbear

One of the biggest un-tapped markets current for Apple’s warrior the iPhone funnily enough is china. The phone only debuted in December of 2012, with the apple iPhone 5 (luckily enough, just in time for the festive period). It would not bad a bad assumption to say that Apple is going to dominate the Chinese market, just like they have every other market this not currently the case. A tiny Chinese company armed with a sub-$100 smartphone is outselling Apple’s iPhone. The smart little device is known as the “coolpad” (Sound a bit like a existing apple product but cant put my finger on what?) There have been rumours of an inexpensive iPhone on the market and after hearing this new, it may be something that may start to be taken seriously. The cool pad retails at less than 20% of the cheapest iphone in the Chinese market, and with its very promising sales highlighting how the lack of low-cost products limits the iPhone-maker in emerging nations. It is rumoured that China Wireless expects sales to rise to a staggering 40 percent this year to 28 million phones. Mind blowing figures. The figures are down to the fact“our company is focused on the low end of the Chinese market,” China Wireless finance chief Jiang Chao told Bloomberg. (This low cost low risk really does work).

Que “Apple should release an cheap iPhone” Qassée drives a number of interesting points home on his blog. “For Apple to enter and prosper in this segment, it has to determine two things: What sort of premium can it get for a low cost iPhone, and what would the device mean for the rest of the product line?”

I don’t know the mathematics, but I believe that it going to be a very hard challenge to lower the manufacturing cost in order to compete with the very low cost of the Chinese market, after all this is there specialty, but it clear the apple do need to invest in this market.

Per NPD DisplaySearch Research Director Shawn (via Yahoo News): Most mobile phone subscribers around the world can’t afford to spend more than $200 for a smartphone, on top of their service plans. Low-cost smartphone manufacturers create these new products quickly without much investment, which has allowed them to extend their telecom subscriber base to emerging regions.

Whilst China has become particularly aggressive in grabbing a large portion of the low-cost market, I do not think apple should retaliate. I believe there brand is stronger than this. The bottom day the product is a luxury item and is almost a reward for your hard work. I don’t own a ferrari and don’t see them catering to the middle class market anytime soon, but when I do buy my first Ferrari is because I have worked for it. Maybe it is unfair to compare the two together but in this example Ferrari are staying true to there brand, I believe apple should do the same. They are one of a few brands who can charge a premium there products.

Bringing out a low cost mobile phone could damage the brand, in terms of the image and the quality you expect from the products, but I am an “Apple fan” boy I would say that. What do you think, should apple target these emerging markets, or should the continue to do what they do best?

Driving back from the gym, I stopped at a local Vodafone store to pick up a Blackberry and top-up my account. For those who haven’t been to Ghana before, or perhaps anywhere in West Africa, walking into a Vodafone store is like being transported back to the UK. Pristine counter tops, cool climate and formal service.

“Hi, may I help you?”, came the friendly remark from a staff member. “Yes please, I’d like to buy a Blackberry, could you show me what you have?”. It took her about 30 minutes to find the right person because they had just one expert on Blackberries. After a 5 minute consultation, where I was asked very specific (and pointless) questions about data plans, he gave me some options. After mentioning I was not interested in a contract, I had a number and just wanted a phone, he felt betrayed. His formal training clearly did not work out for him! So he then gave me a catalogue with all my options, after picking the one I wanted, he then referred me to a third person. Yet another person I had to go through my entire story all over again. An hour into my visit, I was ready to pay. But if only things were that simple. A fraction of a second before my transaction was complete I was informed that my phone was locked to Vodafone (I have an MTN sim, a competitor). “What’s the reason? I am buying the phone outright”. Apparently, protocol from HQ.

I left angrily and popped next door to the MTN office.

MTN were out of stock but the shop assistant wasn’t phased. “No problem, please wait for me”, he came back with the one I wanted, from his friends down the road (he promised to give one back from another one of his branches). I sheepishly asked if they took card, but they didn’t. “No problem, come with me”. He locked the shop door and walked me to an ATM.

I left the shop 15 minutes after I arrived, with a connected phone (he helped me set it up) and a smile on my face.

Now, I am sure there is some sophisticated and eloquent way to say this, but that’s not what I am known for. When did the West lose their thirst for commerce and become so enslaved by processes?

I feel like every shop I enter in the west, every government official I speak to, union, non-profit, NGO, association and committee is built around a series of “Nos”. No, we don’t do things that way. No, that is not possible. No, that person has left and no one else knows how to do it here. No, our hours of operation are over. Well Vodafone, that doesn’t work in Africa!

When did we limit ourselves to a set of rules? What happened to being commercially astute and helpful to one another? How are we to know a decision is wrong unless we make it (quickly) and realise sooner rather than later?

The same applies to our governments. I guess a lesson can be learnt in the West, to be faster and more nimble when it comes to making decisions. Procrastinating over banks’ capital regulation, tax brackets, subsidies, government debt limits, the fiscal cliff etc. Emerging markets, I guess, are used to shocks and changes (coups, natural disasters, you name it). As a result decisions are made more quickly and efficiently.

Rant over. I look forward to exploring opportunities here in Ghana.

1. China will become more global and powerful than before

2. The world would start to re-focus on emerging markets but frontier markets will be the most talk about

3. In 2012 it all about global government debt and currency but in 2013 country, sector and company picks would be back in vogue

4. Equities will see more inflows than bonds in the 2nd half of 2013

5. Commodities prices will rise, talk of global inflation will be back and so will the speculation of end of quantitative easing

6. Geo-political risk will pick up led by domestic dissatisfaction with income gap and low growth

7. The talk of hard landing in China and fallout of Europe fails to happen

8. Investors and corporates start to gear-up again

9. Technological advancement will be key driver of productivity instead of cost management

10. The new era of tech bubble will start to build as cheap money chase innovations/dreams and hopes

Before i moved into the long waited sectoral views for those that miss the Part 1 and 2 earlier on you can review it with the links below

http://jeffreyyap.com/2013/01/01/the-trends-and-shape-of-the-worlds-economic-and-financial-markets-in-2013-part-1/

http://jeffreyyap.com/2013/01/03/the-trends-and-shape-of-the-worlds-economic-and-financial-markets-in-2013-part-2/

Given what has been said thus far, we are in a new era of which  Mohamed El-Erian says a new normal. In his context he refers to the global economy from financial and political perspective. I look at it more from a microscopic level, what would it mean to our day-to-day life and it is the day-to-day activities of the seven billion people in the world which will shape the world’s economy.

Some of you have probably read this week, many countries in the world faced one of the worst winter in many decades and as i said in part 1 of this analysis extreme weather is something we should all start to get use to. As a result of extreme weathers, urbanisation will speed up even more and as a result create more demand for urban homes. What would be implications? This would leave fewer people farming for crops for example.In a similar deduction, cities with moderate weather such as Hong Kong, Sydney, and Singapore will attract more affluent professionals and businessmen to house their families.

The industrial sectors which will see most technological advancement this year would be robotics, green energy and online commercialisation. There are many successful stories in 2012 on retail automations. This was helped partly by the growth in smart phone usage and mobile technology. I am sure many of us have noticed the use of Iphone in order taking in restaurants, Ipad usage for browsing of products in shops etc. The year of 2013 is the year of robotics with rising cost of labour and shrinking pool of cheap labour. Robotics is the way forward to maintain or increase productivity globally. On green energy, given the extreme weather and governments pressure to contain inflation and pollution with rising population green energy has to be the sector of focus for most large nations. Cost of production came down substantilly in recent years and the commercial viability is slowly becoming reality. Online commercialisation is another key theme this year. In 2013 we will see more people purchasing songs (not CDs) tv series (not DVDs) clothing (not shops), services (not in person). Have you used online personal trainers and dieticians? Is it coming our way big time. Consider this; will you learn to play golf from Tiger Woods and soccer from Lionel Messi online if they were available? Answer would be yes no matter how impersonal it may be. This wall of awkwardness is coming down EVERYWHERE.

Sectors which i like in terms of investment this year are as follows:

1. Retail Sector – Companies with mega brands with huge brand value as Porter’s five forces are less prominent these days. Companies using technology to reach global consumers with rising income in an aging population. Look at most of the countries where there is aging population which sector continue to flourish? Retail!

2. Green energy - solar, wind and water will prove to be winning sectors with potential rising crude oil price and technological advancement and governments backing globally to support this sector in 2013

3. Property - I am not a big fan of developers. Nevertheless, given the whole world is getting more centralized than before – seen the rise in density in global cities lately?? I like companies with good portfolio of investment properties as consumption growth and rising replacement cost would make these companies attractive. Look for those with huge landbank and solid properties in prime location

4. Healthcare  – In here i am talking about pharmaceutical  industry which produces drugs, vaccines, supplements for this growing aging global population. I am talking about companies that make technological breakthrough in terms of medical machinery Have you seen doctors and nurses in hospitals holding the latest IPhone and Samsung Galaxy but hospitals still running on old medical equipments?

5. Banks – As the number of players shrunk the survivors post Lehman with global franchise will do good in this less borderless world. I am talking about those facilitating cross border financing and investment business not propriety trading here..

6. Services - Education, Social Network, Nursing and Retirement homes are some of the services which will see an increase in importance. Everyone would want their child to go Harvard, MT, Oxford or Cambridge. Everyone would want feel connected through Facebook, Twitter or LinkedIn. Everyone would hope their retirement home is like staying in Fourseasons or Mandarin. If anyone can achieve that kind of stigma or following the world its their oyster.

It is that time of the year again-earnings season has begun! Samsung Electronics leading the tech pack with Q4 operating profits hiting a record for the fifth straight quarter to reach Won8.8tn ($8.27bn), an increase of 88% YoY. Revenue rose 18% to approximately Won56tn.

This is due to the record sales of their Samsung Galaxy S3 handset.

Brown Bear

This report is the most comprehensive treatment of the biofuels market available. Worldwide data is provided on biorefineries, conversion and separation technologies, manufacturing, research and development, organic biofuels, consumption, capacity, components and competition.

via Pocket http://agrogas.net/blog/global-biofuels-market-opportunities-emerging-technologies-and-production/ December 30, 2012 at 06:50PM

When dealing with global diversity, organizations with products to sell also need to keep the customer in mind as well. If your company is looking to expand globally, how much does your workforce know about other countries customers and what they want and desire in products? General Motors learned that a global perspective is an economic imperative when they considered marketing the Cadillac brand in China.

Cultural differences in the Chinese market are reflected in the styles they gravitate towards–smoother and curvier than that featured on the Caddy’s new sharp, angular lines. Automotive News reports that “Cadillac needs to hear what Chinese buyers are saying” if they want to meet their sales objectives of selling more than 75,000 cars in 2018. Is your organization listening to customers from the emerging market that its hoping to capture?

Since the liberalization of India in early 90′s a number of Indian firms have adopted internationally accepted corporate finance policies. Share repurchase is one such wealth distribution method which has lately become reasonably popular in India. The scope of the current research is to try and understand the specific reasons for repurchase applicable to the Indian market. 

The conclusions of this study will give a clear picture on the characteristics of firms repurchasing in India, the short term and long term goals of firms proposing repurchases and the market reaction to such an activity. 

The challenge of this research is to identify and uncover subtle reasons of repurchases that are applicable to developing countries such as India where a large proportion of firms are promoter held. 

Engaged Investment has launched a pilot to test the creation of the world’s first investment index for the growing emerging market of social investment (‘impact investing’, as it is called globally). This is an important next step forward towards creating the infrastructure needed for the global expansion of social finance.

Original here, the presentation was not included in the original press relase.

The purpose of this index – EngagedX: The Index for Impact Investing – is to make impact investing marketable as an asset class to wider groups of institutional investors including private wealth management. This will enable impact investing to access broader and deeper sources of capital to get more money into social enterprises, charities and other investments for social purpose.

The idea of the index is to bring together in one place the investment data that investors need to assess this new market and its suitability for investment. This will be published as aggregated investment data for the market as a whole and by segment. Confidential information about funds and investees will be protected. The index will allow investors to answer crucial investment questions for the first time about the market, including how big is the market?, what is the level of current activity?, what is the yield of impact investing?, and what is the risk in impact investing?

Bringing together financial and impact data for the market, the index will analyse the market by sector, geography, and stage of development of investees, and will sub-divide the market into debt, equity and quasi-equity. Being financially as well as socially oriented, this index is complementary to the work Big Society Capital is doing or has commissioned on standards and definitions, specifically for impact reporting.

The pilot launch follows a kick-off meeting held with five of the UK’s leading social impact investors. The meeting was held on 8 November 2012 at the Guildhallin London with the support of the City of London Corporation and ACEVO Solutions. The City of London Corporation’s charity City Bridge Trust, Big Society Capital and Cabinet Office have offered cornerstone funding. Engaged Investment will present the pilot and report the evaluated results and conclusions in 2013.

As well as looking at a beta index compiled initially from a sample of UK data, the pilot will include the creation of an Index Steering Committee that will agree common data standards and definitions for the investment reporting and classification of impact investing. The Index Steering Committee will be an informal assembly of social sector and financial sector stakeholders, run on an open collaborative and practitioner-led basis, chaired by Engaged Investment. It will include impact investors, participants from mainstream investment and mainstream capital markets and other leading UK and international participants and commentators on the impact investing market.

Engaged Investment was founded by Dr Rupert Evenett and Karl H Richter, who bring together financial, charity and social investment experience. The Index, conceived and developed by the founders, is an example of bringing together this experience and adapting financial market structures for social purpose.

Engaged Investment Co-Founder and Joint Chief Executive Rupert Evenett said: “Investment loves an index and needs benchmarks. Richer market-wide investment data, clarity on risk and return and an index for investors are key steps in defining how emerging markets successfully emerge. An index helps impact investing to reach out to mainstream investors without diluting its focus on impact.”

Engaged Investment Co-Founder and Joint Chief Executive Karl H Richter said: “This market needs a single reference point for robust time series data, where investors know they can research and benchmark the market to support their asset allocations and compare impact investing with other investment markets, as well as looking at it in comparison with their philanthropic and socially responsible investing or ethical investing activities.”

Sir Ronald Cohen, a leader in UK social investment, said: “Social investment will need market-wide investment data for it to mature as an asset class – there needs to be a ‘Bloomberg’ for social investment.”

Nick Hurd MP, Minister for Civil Society, writing to Engaged Investment on the Index, said: “I would like to offer my support for Engaged Investment’s project to create and launch an investment index for the social investment market. This is the sort of initiative which an emerging market like social investment needs.”

Mark Boleat, Chairman of the Policy & Resources Committee at the City of London Corporation, said: “A social investment index would be yet another global ‘first’ for the marketplace, and again, the UK is in the lead. The City of London Corporation is glad to support this pilot, as part of its vision to place London at the centre of social investment globally.”

Contact details: contact@engagedinvestment.com

Notes to editors:

1. Impact investing, called social investment in the UK, is a form of investing which offers both a social return and a financial return. It is distinguished from philanthropy by using investment to finance social purpose activity instead of grants. It is distinguished from mainstream financial investment by targeting investment in activity aimed at creating social or environmental benefits and by expecting a blended return. It is a growth market and a global market in which the UK is a leader. For the UK, The Boston Consulting Group recently forecast a market size of £1 billion by 2016 (Sept 2012, The First Billion: A Forecast of Social Investment Demand, The Boston Consulting Group). Globally, JP Morgan has forecast a market size for impact investing of $1 trillion by 2020 (Nov 2010, Impact Investments: An emerging asset class, JP Morgan).

2. City Bridge Trust is a major charitable foundation which supports charitable activity across Greater London. The City of London Corporation is the trustee of City Bridge Trust.

3. Big Society Capital is an independent financial institution, established originally by the UK government to develop and shape a sustainable social investment market in the UK and to invest in social investment financial intermediaries to support their work in investing in front line social organisations and in developing the social investment market.

4. ACEVO Solutions is the consulting arm of ACEVO, which is the Association of Chief Executives of Voluntary Organisations and is the leading voice for chief executives in the third sector, with over 2,000 members nationwide.

5. Rupert Evenett is Co-Founder and Joint Chief Executive of Engaged Investment. He was a corporate financier and capital markets banker for twenty years and in the nine years since 2003 has been in the public sector as a civil servant and held various roles in the front line charitable sector and social investment sector. From 2005-11 he was Chair of national volunteering and environmental charity The Conservation Volunteers (formerly BTCV) and has also been a director and on the investment committee of The Social Investment Business, one of the UK’s largest social investors.

6. Karl H Richter is Co-Founder and Joint Chief Executive of Engaged Investment. He trained as an architect and has a background in urban regeneration and development, has an MBA combined with experience in advocacy, policy and consulting work in social investment and is an acknowledged writer and expert in impact investing. He speaks regularly at conferences internationally and is adviser to the Euclid network of European civil society organisations on social investment.

Tomorrow (5 Dec) in Brussels I will be presenting my views on the impact measurement discourse at a conference on “Measuring the Social Impact of Social Enterprises”. My approach will be to explore how to frame the discussion in the context of a market centric perspective as part of developing EngagedX – the world’s first financial index for impact investing. For the purposes of compiling an index, we are agnostic about specific metrics used and instead seek to determine a meta-framework approach for how to map and categorise the data of all metrics in use.

I welcome critique on my presentation below and look forward to your comments, please consider it as a “work in progress”. Best viewed in ‘fullscreen’ mode.

Original here: http://prezi.com/iizv44js7pvj/impact-measurement-a-conceptual-framework/

In the end, I didn’t give this presentation. During lunch before the event the organisers became interested instead in EngagedX – the world’s first financial index for impact investing we are establishing. So instead, I presented this.

Conference info below, see original here:

Meeting of working groups
Social Economy, Social Cohesion and Local Development and Internal Market & Services

December 5th
from 2:30 p.m. to 5:30 p.m.
at the Chambers of Commerce and Industry Paris/Ile-de-France
41, avenue des Arts, bte 7 – B-1040 Bruxelles

On the subject of

Measuring the Social Impact

of Social Enterprises

Introduction by Nicole Alix presenting an analysis of “The Worth of the Social Economy” edited by Marie Bouchard (permanent chair of social economy research in Canada),

in the presence of representatives of the European Commission (DG Markt, DG Empl)

With

• Ariane Rodert, EESC member
• Karl Richter, joint chief executive of Engaged Investments and advisor on Social Impact Investment, Euclid Network
• Bernard Bazillon, director of KPMG Social Economy, France
• Agnès Hubert, advisor on employment and social policies, Bureau of European Policy Advisors (BEPA), the European Commission
• Alain Coheur, director of the Mutualité Socialiste-Solidaris
• Marie-Christine Vergiat*, member of the European Parliament

*to be confirmed

Social entrepreneurship represents “new business models” that must “be reflected in the single market” (SMA I). “A social enterprise is an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders.” (Social Business Initiative)

The Commission has decided that it “will develop a methodology to measure the socio-economic benefits created by social enterprises” and “their impact on the community.” This method is intended to be “rigorous and systematic,” especially in its guiding of the European Social Entrepreneurship Fund and the Program for Social Change and Innovation (SMA II). Find here the expanded European texts.

The idea of measuring social impact is not new:

- For 20 years, cooperatives, mutuals and associations have developed specific evaluation tools for their type of enterprise (social balance sheet, cooperative review…) in order to apprise their stakeholders (above all, their members);

- Methods for demonstrating social impact on a society have emerged: measuring intangible goods, the social return on investment…all piloted by measurement specialists and accounting experts; and furthemore, new terminology is emerging (“impact economy”, “positive economy”…).

The outline for “social enterprises” extends beyond status (cooperatives, mutuals, associations or foundations) and fiscal regime (non-profit), European legislators are now searching for “functional” identification criteria. Moreover, public demand is pressing for discriminatory labels.

We can, therefore, pass from the stage of experimentation to that of including social impact measurements into European and national legislative texts. This is a strategic move because:

-One one hand, systems for evaluation are never neutral, crossed by specific social relations (Marie Bouchard, The Worth of the Social Economy); labels convey a logic of regulation by the market and not by States (Jacques Defourny, Marthe Nyssens);

- On the other hand, the resulting dispositive will draw a framework for social enterprise activity for the next 10 to 20 years, at the European and Member State level.

What reasoning underlies the measurement of a social enterprise’s impact? For whom and for what purpose does it serve? How do we build on existing experience?

Will every social enterprise be approached in the same manner? How can the adopted evaluation tools influence the way social enterprises function? Which governance model do we adopt to create these dispositives?

The debate will be held in English and in French. No translation will be available.

Please register with Christopher Flynn, tel: +32 2 213 62 72, cflynn@confrontations.org

Nicole Alix, Responsable of the group Social Economy, Social Cohesion and Local Development, Confrontations Europe

Carole ULMER, Director of Studies, Confrontations Europe

Made famous by the worldwide blockbuster, The Sound of Music, Salzburg is situated in Austrian Alps, near the borders of Germany and Switzerland, and is considered to be one of the most breathtaking cities in all of Europe. On my first truly solo tourist adventure, I did not by any means make it easy on myself. I left Venice on an overnight train (through an out of this world snowstorm) to Salzburg, arriving at 4:00 in the morning. Sleep deprived, cold, and confused, I entered the train station with little plan of how to kill 11 hours before returning for my train to Budapest to meet the other three in my crew. Find anything to warmth and food out this hour proved to be a struggle in this snowy, deserted city. In those first few hours, though, I actually had a lot of fun running around the empty streets and checking out all the big sights (Salzburg Cathedral, Mozart’s birthplace, Hohensalzburg Fortress) and being the only one there! However, eventually, the sun started to rise and the stores began to open for business. It was then that I began to really appreciate how majestic Salzburg and its surroundings were. Every ski town that I have been to in Vermont or Colorado seems to be almost modeled after this UNESCO city. Without much of a plan, I signed up for the Sound of Music Bus Tour, which actually provided a great tour of the area. I was skeptical at first, but it was actually quite fun, and the tour guide could not have been nicer. All in all, Salzburg was a fantastic stop on my trip, and I would definitely recommend a visit if you are in Vienna, Munich, or Zurich and looking for a getaway.

Next came Budapest. Six hours from Salzburg, but only three hours from Vienna, Budapest was an obvious next stop on our trip. Quite the fun foursome to travel with, everyone was on the same page about sightseeing until our feet hurt each day, enjoying a nice dinner, and passing out early so that we could repeat the next day. We also had the opportunity to meet up with our friend, Gracie, who also happened to be visiting Budapest. I was really impressed with Hungary, which felt to me like a combination of Austria, Russia, and the Czech Republic. Due to its unique location in Central Europe, it makes sense that it is a melting pot of different influences, especially the Habsburg Empire. The Buda Castle Quarter and Chain Bridge are absolutely must-sees, as well as the Great Market Hall, public bathhouse and the Parliament Building. Budapest is also well known for its crazy nightlife and prolific prostitution, but we steered clear of that. I would recommend staying on the Pest side of the river, as it is the commercialized side of the city. Considered to be one of the most beautiful cities in the world and a powerful emerging market, Budapest is not usually on most students’ lists of places to see in Europe, but I believe that it is truly an unexpected treat.

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We are all surrounded by brands, no matter where you are. The biggest market for consumers are no longer in USA nor Europe, they are moving to the biggest consumer market, BRIC (Brazil, Russia, India and China). Of course we cannot forget about Indonesia, whose GDP reached $1 Trillion, highest amongst the ASEAN countries, almost three times the GDP of the 2nd highest, which is Thailand, and over four times the favorite Singapore. Indonesia itself has a sheer number of hungry consumers and rising middle class. With a population of over 200 million, many investors and retailers are eyeing Indonesia each year.

A recent study from BCG shows that valuation of eight major luxury houses shows a 42% increase in the number of stores in Asia from 2008 through 2011, 28% in Europe and 31% rest of the world, which consists of 5% in North America. It is no surprise then that everyone is moving into Asia. Like I had mentioned before, many luxury brands are creating and catering more products for the Asian markets, such as the ‘Year of the Dragon’ Rolls Royce etc.

All these international luxury brands have no problem in marketing themselves, as most people have heard of or travelled and seen them before. But as we all have learned regarding ‘globalization’ and ‘localization’, the biggest threat for all these international luxury brands are actually not each other, but is coming from within the country itself. Local luxury brands are actually posing the biggest threat for these international luxury brands.

Take for example, the biggest jewelry brand in China is Hong Kong based Chow Tai Fook. They are actually bigger than Tiffany & Co. and brands such as Chopard, Cartier are actually finding problems trying to attain market share compared against Chow Tai Fook.

Next we look at Indonesia market, local attire that has been known all around the world as ‘Batik’, local luxury houses such as Iwan Tirta are the ones that has the locals favor. Most of the emerging market still works around word of mouth marketing, and consumers are driven to purchase more likely when being recommended by family & friends.

A study done by McKinsey & Co. shows that in store suggestion from the salesperson are more likely to influence a buyer in China than in USA. 45% to 24% respectively, therefore it shows the power of influence that a person has in purchasing decision in countries such as China and Indonesia.

This becomes more prominent when an organization decides to enter a potential emerging market like India.

If you are one of the organizations already in this race or looking forward to enter India market, this webinar can help you understand:

• Various product design strategies
• Key Product Design Considerations for Entering India Market
• Challenges you will foresee in your product design strategy
• Product Design Strategic Levers

Register Now, to attend this live interactive webinar.

Date & Timings: December 12, 1:30 pm – 2:30 pm GMT/8:30 – 9:30 AM EDT

I realize my first introduction to this topic was in a Leadership course during my doctoral work.  We looked at two coffee companies:  Nescafe and Starbucks.  One owned the world of fine coffee and believed that sticking to their model would continue to bring customers, another sought out new markets for beans as well as customers, new products, and a new method for getting quality coffee to individuals.  Through forward-thinking, Starbucks became the name in high-quality coffee (perhaps not gourmet, but considering the market share I doubt Starbucks minds), while Nescafe still exists but at nowhere near the influence or monetary level.  That was the only bit we discussed, however; there was no linking to Christensen in that discussion.

• A bit of history: Christensen starts the article looking at the reason that leading companies do not keep up with trends, and sees a paradox:  by serving a distinct population with distinct needs, these companies fail to see the needs of a more general populous.  Nescafe had the gourmet market, not seeing an upper end outside of it.  IBM had government contracts and did not see the need for microcomputers.  Keeping up with demand in the existing market does not allow for resources to go towards new markets.
• Quoting the article:  The technological changes that damage established companies are usually not radically new or difficult from a technological point of view.  This would make sense in terms of MOOCs.  The technology is not new at all, whether it be more complex like LMS or streaming video, or the basics like social networking and even BBS.  How do the changes damage established companies?  First, they typically present a different package of performance attributes – ones that, at least at the outset, are not valued by existing customers. Second, the performance attributes that existing customers do value improve at such a rapid rate that the new technology can later invade those established markets. Looking at this from the MOOC perspective, I see a correlation to the first point…the access of courses is unique and is not valued* by the existing customers.  The second one is the question — but that’s on a theoretical level from an edu perspective rather than the presumed systematic perspective of the xMOOC developers…the performance attributes of a learner would be better learning.  At present, this technology is (at the best) same learning for more people, and without a theoretical foundation of what MOOCs are and what they are supposed to do, measuring learning is impossible.
• Performance Trajectories is a term Christensen takes time to define.  What is the improvement of the product, and how can it be measured?  Christensen uses disk-drive technology to show growth, and then goes into more hardware-based examples.  Performance trajectories thus have inherent to their definition an assessment tool.  I don’t see this with MOOCs.  Perhaps the performance trajectory for the MOOC is the volume of student, but then retention becomes an issue, and we still haven’t dealt with that pesky learning definition.  Cost could be another performance trajectory (as in lowering), but then we need to determine the value of a degree; there is an abstract value of a degree from an accredited institution, but we still don’t have a credentialing system for the MOOCs.
• Now we get to disruptive technologies, and a great line here (that I had not come across in any other materials):  disruptive technologies introduce a very different package of attributes from the one mainstream customers historically value, and they often perform far worse along one or two dimensions that are particularly important to those customers.  xMOOC developers are not discussing this at present, but it’s important to look at.  What do mainstream higher ed customers value?  Well, they value the output — the degree.  We could argue that they value the experience, which means we are setting the customer into that traditional higher ed model that has been consistently chipped away at both through historical distance ed programs (global) as well as the proliferation of for-profit degree and credential institutions (mostly US).  If those are our variables, the different package really pinpoints access (both for individuals as well as the asynchronous nature, creating a greater pool of prospective customers students). Again, there is no difference in the theoretical approach to learning.  From a hardware perspective, this might not matter — personal photocopiers only changed the method of delivery in the photocopy industry.  But in an intangible world like education, if we believe that changing the method of delivery is the only valued variable, we are ignoring numerous fields of study that say otherwise.  The classroom experience is more than listening to a lecture, the educational experience more than fulfilling assessment exercises.  I don’t know if we can extract structure as the predominant issue and expect to get results.  We need to know what results we are looking for before we can go down that road, however.
• It’s important to note the difference between sustaining tech and disruptive tech.  From the article:  sustaining technologies tend to maintain a rate of improvement; that is, they givecustomers something more or better in the attributes they already value.  To me, the variable here is value.  On the photocopy example, the existing customers valued their big machines; they didn’t need a slow low-quality machine for their homes.  But thinking about that metaphor…when I’m at a place of business I don’t use a personal copier…I use the mondo one in the office because it’s better and can handle more.  But I see the point — to sustain is to keep improving the existing product on the variables of existing valued attributes.  Disruptive tech gets in that model first by establishing a want in a different customer base, and as they grow from that their growth allows them to match and eventually overtake the traditional customer base.
• Another important aspect of disruptive technologies is the emerging market.  Piggybacking from above bullet, the existing market is already served by existing and sustaining tech, so there must be an emerging market for the disruptive tech to latch onto.  What is that market for MOOCs?  Well, no published research exists so far on that, but 1) there’s a ton of existing Big Data (with more and more to be collected), and 2) the xMOOC developers discuss their product in terms of global access, so the market becomes those who cannot attend a traditional prestigious university due to location, age or finances.  This ignores the question of admission in the higher education process.  There is also an argument to be made for those without traditional prior knowledge being part of the emerging market, though they are less often mentioned in relation to xMOOC discussion.
• In discussing Seagate’s difficulty in moving to a smaller disk drive, Christensen mentions how Seagate only got into smaller drives when the existing base wanted it, rather than looking at the needs of the emerging market.  In that mode, the emerging market for xMOOCs would have to be global rather than domestic individuals of different ages and financial means; there has been a demand for distance ed programs for hundreds of years, and doing it online is nothing new.  That, or the thing being sold is the prestigious university online, which means this is a battle of branding moreso than quality (unless involved universities cannot see non-involved universities being competitive due to them not being part of the club).
• Interesting look at what makes a disruptive tech work — because most don’t.  Success means the disruption must be growing in relation to the growth and movement of the market.  Mainframe computer makers (this was written in 1995) were not hurt because personal computers could do more, but because the market could use personal computers for what they needed, so mainframe became obsolete.  The disruptive tech changed the playing field as it grew, to where the established market saw a benefit in cost and ease by working with the emerging players.  Same with the Nescafe/Starbucks debate.  But for this to work on the MOOC model in the education market, that means there must be a systemic change in how we view education.  Perhaps governmental budget cuts in conjunction with the emerging tech will be that catalyst, but the structure of formal education remains a means to an end, and the noble pursuit of learning for learning’s sake involves theoretical and pedagogical methods not expressed by the xMOOC developers.  So far, however, there is no end point for xMOOC students users participants.
• Christensen urges disruptive technologies to exist in organizations separate from the established organization.  This makes sense, as disruptive tech does not want to fight existing for resources, as well as issues of institutional memory affecting the development.  This is one place where a number of the xMOOC players (Coursera, edX) are in lockstep, though what happens with Blackboard and other LMS providers remains to be seen.

I’m certain there is a great deal more reading to be done on disruptive technologies; Christensen has turned this HBR article into two books and a host of speaking engagements, and his model likely exists in numerous articles, case studies, papers and dissertations (if anyone has suggestions, pass them along).  With a better understanding of the nuts and bolts of disruptive technology, I wonder how the intangible product of education (which is not only intangible, but is also a societal good) and its multiple aspects and benefits (in higher ed that including socialization of students, development of personal networks, community enrichment, production of arts and scholarly research, to name a few) can be worked under this model.  There is a big difference between a film camera and higher education, so it seems disingenuous to lump Polaroid with xMOOC.  While I can see someone argue that just because higher education has never run on a business model doesn’t mean it can’t now, the multitude of variables and superstructural elements are a unique challenge to any business model.  Calling MOOCs a disruptive technology at this point nullifies a great deal of the importance of education and its institutions.  

FINAL NOTE:  I haven’t gone back through my readings, but I wonder if cMOOC folk use the “disruptive technology” monicker when discussing their model.  Any help, #cfhe12?

The survey was commissioned to better understand the habits of business travelers around the globe. The survey polled just over 4,300 adults who travel for business in key cities throughout the U.S., the UK, Canada, China and Brazil.

According to the survey, 67 percent of Chinese travelers admit to inviting family to join them while away on business. That was the highest of any group in the survey. U.S. travelers were second at 52 percent, while UK travelers were the least likely to offer up an invite to family at just 33 percent.

Extending a business trip to include leisure time is also a must among the majority of Chinese business travelers (59 percent), and nearly half (48 percent) of U.S. business travelers. Once again, UK travelers clocked in with the lowest inclination to include leisure time on a business trip, with  68 percent saying they would rather not.

Another interesting finding about Chinese travelers: they are more likely to view business trips as a chance to experience a higher-end hotel. Meanwhile, close to a third of U.S. and Canadian travelers view business trips as an opportunity to explore a new city or area. Brazilian travelers on the other hand, view business travel as an opportunity to indulge on an all expenses paid trip.

Not surprising, the survey concluded that UK travelers are most bothered by business trips with 38 percent saying they either do not enjoy them or view them as a sacrifice of personal time and time with the family.

Commonalities amongst all travelers: Among all business travelers, close to half (46 percent) have extended a trip to include leisure time in the past, while a quarter (25 percent) always include some personal time when traveling for business.

Meanwhile, Wyndham Hotel Group continue to expand in China with the recent signing of four agreements to manage four new hotels under the Wyndham Hotels and Resorts brand. The properties, currently under construction in Sanya, Huangshan, Hangzhou and Xuzhou, will join Wyndham Hotel Group’s 470 total hotels in operation in China.

“China has proved to be an essential growth market for us for some time now. A strong emerging market, China boasts a wealth of development opportunities and a thriving tourism scene for both business and leisure,” said Frank Trampert, Wyndham Hotel Group’s managing director for Asia-Pacific.

Source: hotelmanagement.net