Finance ExpertSpeak:Financial centers are not just about tax advantage but more so about wealth generation potential
Aaron Low, who chairs the CFA Institute’s Board of Governors out of Singapore, spoke to AfricaMoney on how Singapore is being modeled as a pro-business economy that constantly strives to be ahead of the winds of change in the Asian continent with the most advanced banking sector in Asia. He noted that prospects in Africa are good as low wages and a growing class of affluent consumers are all indicators of potential growth. Mauritius has some pre-requisites for being an IFC but would need to work harder to get to the next level as financial centers are not just about tax advantage but more so about assurance of wealth generation.(Image: Wazna Gunga)
Edited excerpts from an exclusive interview:
Singapore being a successful international financial centre (IFC), can you please highlight the main factors powering its success?
Singapore is modeled as a pro-business economy which strives constantly to be ahead of the winds of change in the Asian continent. It goes to great lengths to facilitate those changes and to take advantage of an efficient financial ecosystem that has been built up over the last few decades. Asia is pretty much a heterogeneous region with different political and structural regimes, which means that the leads and lags in economic and capital markets formation are very diverse. There are plenty of inefficiencies which can be arbitraged away and serviced by a world class financial market in the same time zone, with well trained professionals who have to undergo constant upgrading and continuing development to keep up with the more advanced markets of London and New York. Having said that, it must be remembered that it took quite a long while to build up a well-stocked country reserve and a triple A country rating that is absolutely critical in ensuring confidence and stability in the management of Asia’s wealth and capital requirements. This ecosystem of professionals, high-end infrastructure, global financial institutions, sovereign wealth capital and government support, backed by strong credibility and stable policies, is critical to reinforce and grow Singapore’s financial status in Asia.
Can you please comment on the health of the financial services sector of Singapore as well as its contribution to the GDP?
While Singapore is well known for its overall financial market development, there are variations in the depth and success of each of these sectors. First and foremost, the banking sector is arguably the best in Asia, supported by well-entrenched global banks operating in the region and using Singapore as the hub for their Asian operations. Forex trading here ranks just behind London, New York, and maybe Tokyo, in turnover. Fixed income trading is also robust. Augmented by the strong growth in private and wealth banking as well as trading activities by a select pool of asset managers, the banking sector is probably the strongest sector among financial services. In comparison, the stock exchange has fallen far behind the markets of Japan, China, Hong Kong and Korea. Even as there have been huge efforts in sourcing regional IPO pipelines, the markets in North Asia have been more than just competitive. The insurance sector has also fared as well as the banking institutions, and that is why there have been recent efforts to raise the levels of performance and efficiency in this arena, even though other centers have not focused too much in this space. Whether Singapore can raise its profile in the stock exchange and insurance markets is yet to be seen, but it would be a mistake to discount such a prospect prematurely.
Additionally, please advise which sub-sector is growing more in Singapore – whether it is insurance, banking, fund management or GBC ?
The sub-sector which is growing most rapidly in the last decade has probably been the private wealth management industry. Significant growth in private wealth in Asia has benefited the banking sector far beyond other markets. While the offshore market has been the focus of attention, we cannot discount the impact of the favourable immigration policy which has targeted the region’s most wealthy and talented. The movement of these large owners of capital has immensely benefitted onshore operations and is likely to continue to do so.
How do you view the financial sector of the African Continent, and what are its growth prospects in the short to medium term?
Prospects in Africa are good even with the end of the commodity super-cycle. Low wages and a growing class of affluent consumers are all indicators of potential growth, which looks very attractive indeed. This growth promises to support global excesses of liquidity that are constantly seeking higher returns in a new normal environment for a developed world that is struggling to return to basic growth levels. While opportunities abound, these can also pose challenges in the short to medium term. Africa has to improve the skill sets of its general working class as well as their education levels, implement better economic infrastructure, increase household wages, enforce rule of law and reduce political uncertainties. While these measures may sound basic, they are a critical step in paving the way for the continent to realise its potential.
Mauritius is targeting to become a robust IFC. What tips can you provide to the economy to help reach this goal?
The requirements for building a strong financial centre are well known. Professional workforce, stable and foreign friendly regime, strong rule of law and sovereign protection, tax efficiencies, credible policies and adequate sovereign balance sheet are a must have. But more important is the presence of a robust ecosystem and an end-to-end market that can smoothly facilitate wealth transfer and accommodate more attractive returns on capital. Mauritius has some of these pre-requisites but would need to work harder at some of the others to get to the next level. Financial centers are not just about tax advantage but more so about assurance of wealth generation.
Can you comment on how Mauritius can take a leaf out of Singapore’s book to build a strong financial services sector?
First up, I think Mauritius has done much with the hand it was dealt with. If it can generate a reputation for regional expertise in African businesses and capital markets, offer efficient services that are difficult or costly to obtain in the onshore continent, provide a haven of safety and security for financial activities, as well as uphold the global rule of law and intermediation, Mauritius will have accomplished a whole lot more. Bear in mind these are buzz words and the critical issue is the efficiency of execution on the ground and not just paying lip service or moving in a less than fully inspired manner.
What do you think about the legal framework that Mauritius should adopt to safeguard its financial sector and to be a credible platform?
It would be important to enforce globally accepted legal standards and reinforce a sense of duty towards asset and wealth owners. These are becoming the essential, bare-minimum standards in a global marketplace that is increasingly undergoing regulatory co-ordination, if not convergence. The global financial crisis has done more to wake up regulators to the real world of interconnectivity, contagion, regulatory and regime arbitrage, and the transcendence of market liquidity over physical borders, than at any point of time in the last century. And, they are now acting at a feverish pitch to patch up loopholes and weak links, leaving no stones unturned. Further, they now have the tools of big data to accomplish those tasks. The enforcement of globally accepted legal standards is imperative to building a long term viable and credible market platform.
Can you comment on how many CFA holders hail from Africa? Are Africans opting for such professional qualifications?
The growth in CFA candidates and members from the EMEA and African region is one of the fastest in our global regions. We have relatively recent societies in Nigeria, East Africa, Egypt, with some in the pipeline, while South Africa has been one of our larger and older communities. The number of CFA charter holders in Africa in 2014 was 2,073 and increased to 2,177 in 2015.
Finally, CFA qualifications imbue professionals with multiple ethics to follow in their professional life. How important are ethics for economic progress?
The CFA Institute views ethics and integrity as one of the prime pillars of sustainable economic progress. The key here is sustainability. While one may argue that the ends may justify the means for a one-off or a short period economic growth spurt, this argument would almost always fail in the long run or in a multi-period regime. And while one may rest on the rule of law to sleep soundly at night, it is always following the spirit of the law that is more reassuring in a world where there are real limits to just abiding by contractual obligations. We believe that fiduciary standards, where applicable, are simply more powerful than ‘suitability’ standards, and acting in the interests of your clients is always the right policy.
- By Wazna Gunga