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[WORLD FINANCE REVIEW - MAY 2016] -
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Editorial Features

» Rebuilding Resilience, Trust, Confi dence and Growth in Financial Markets: What Bankers Actually Do
It’s been over three years since International Business and Diplomatic Exchange (IBDE) launched the international programme on responsible banking. Although we have seen a signifi cant progress in terms of improvement in banking corporate governance, standards, conduct and culture, the tsunami regulatory initiatives that have been introduced or are on the way clearly show that there is still much to be done in the banking industry so as to rebuild its trust and confi dence among politicians, regulators, customers, investors, the general public and the banks themselves.

» Education is a Reputational Good
Access to quality and relevant tertiary education is rare in most developing and emerging countries. There are few universities to start with and only a fraction deliver modern education designed to increase students’ employability. Qualifi ed and dedicated faculty is typically also a scarce resource. In some countries, the value associated with a degree from a local university or college is also often questioned. It is said that sometimes, relationships or favours matter more for determining fi nal grades than academic achievements. As a consequence, many intelligent and motivated students are dissatisfi ed with their local (higher) education opportunities.

» Will the Oil and Sanctions Reality Check Force Russia to Create a More Competitive Economy?
When asked about how Russia’s economy has performed in the two years since the start of sanctions and twenty months since the start of the oil price slide a common answer from most pragmatic government offi cials is “it could have been worse”. And they are right, it could have been. While many observers predicted a steeper recession and a near bankrupt state by this time. Russia today appears to be far from that doomsday scenario.

» Russian Banks Face Rough Going This Year
Low oil prices and the weak Russian ruble will continue to take their toll on the fi nancial health of Russian banks this year, in our view. Standard & Poor's Ratings Services expects asset quality to continue to deteriorate in 2016 for the Russian banking sector. We expect credit costs (new loan loss provisions) of 3.5%-4.5% of gross loan books will be needed this year to cover loan losses that the banks are likely to face. This could further weaken their capital positions. For that reason, we cannot exclude the possibility of downgrades on certain Russian banks this year, as refl ected in our negative outlooks or negative CreditWatch placements on 31 out of the 37 we rate.

» Russia in 2016: Good Times Bad Times?
Both market performance and economic data witnessed in March and April prove that the second adjustment of the Russian economy to weaker oil turns to be softer than the fi rst one saw in 2014 - 2015. This could bring lower growth contraction at weak oil prices than suggested initially, limited chances of FX panic, a more favorable mid-term infl ation outlook and, hence, require somewhat less tight monetary policy to ensure overall stability and meet infl ation goals. However, the Russian budget has to be adjusted more to a new period of weaker oil prices. With all of that, we keep our scenario approach, showing in Figure 1 how Russian macro could vary this year at different oil prices.

» Asset Management in Russia Keeps Developing on Domestic Money
On the positive side, comparing Russia to Europe and the US, the role of compliance and legal teams is more to support business rather than to prevent business. Europe and the US have taken compliance to such an exaggerated level that it is tough to perform for clients and to be effi cient given the number of restrictions. Central Bank of Russia is also moving in this direction but I hope they take a softer approach than the West and can learn from their shortcomings. Another positive in Russia is a very hardworking, young and talented staff, especially very advanced in mathematics. My team manages to surprise me positively everyday!

» REER Valuation: Looking for Natural Suspects
We apply the REER concept to key CIS currencies to assess their valuation. We fi nd the Armenian dram (AMD) and Georgian lari (GEL) to be the most overvalued in real terms on a relative basis, fl agging a risk of nominal depreciation ahead unless the CPI differential turns negative. Of the commodity currencies, AZN, KZT and RUB, the RUB might have the weakest relative position, but all three have already adjusted a lot. Overall, KZT is our top pick as we believe it is likely to see the greatest upside, if oil prices stay fl at or rise.

» Eurasian Development Bank: A New Development Institution for the Newest Economic Bloc
The Eurasian Economic Union is quite a new player in the fi eld of global economic competition, established only in 2015. Paradoxically, at the same time, it is probably one of the world’s oldest existing economic blocs – if we remember that its member states (Russia, Kazakhstan, Belarus, Armenia and Kyrgyzstan) were once all republics within the USSR.

» M&A Market: Prospects for Ukraine Against the Background of World Records
Currently, the global investment markets are on the rise, fi nancial and strategic investors are in active search for investment objects. According to the 13th Global Capital Confi dence Barometer (CCB) prepared by EY, 59% of global companies plan to be actively involved with acquisitions in the next year. This is the highest fi gure for the entire six-year period of the survey preparation.

» 2017 Recovery in Ukraine
Real GDP dropped by 9.9% in 2015 due to decline in domestic and external demand as well as military action in Eastern Ukraine. Economy is expected to move from stabilization and rebound of economic activity in 2016 to gradual but full-fl edged recovery in 2017. However, there are plenty of risks remain high. To ensure recovery the Government should continue implementing reforms, which are envisaged in the IMF Program and the Program of new Cabinet of Ministers. Below we present some insight into the IER forecast of the macroeconomic development of Ukraine during next two years.

» How We Work with Ukrainian Exporters to Pierce the EU Veil
“Two years into the fresh chapter of “New Ukraine”, marked by economic hardship and currency collapse, Ukrainian producers are still slow to show concrete results in the country’s export strategy. The Deep and Comprehensive Free Trade Agreement came into effect with the European Union on January 1st 2016.

» Unleashing the Potential of Agriculture in Ukraine
Ukraine’s black soils are legendary, yet average productivity remains lower than many other European countries with less fertile soils. Why is Ukraine not fully leveraging its comparative advantage in agriculture? The answer lies in the administration of the country’s farmland. Today, more than 25 percent of the farmland is still in state hands—10.5 million ha of 40.9 million ha of agricultural land with about 8 million ha being arable land. By comparison, Germany’s total arable farmland is about 12 million ha, and in Switzerland it is just a fraction of Ukraine’s with about 500 thousand ha.

» Reduced Customs Duties Following Kazakhstan’s Accession to the WTO and Electronic Invoices – How They are Linked and What Kazakhstan Business Needs to Know about Them
Kazakhstan’s accession to the World Trade Organisation (WTO) is an important landmark in the country’s history – the completion of a negotiation process that has helped Kazakhstan integrate fully into the global community. One of those integration measures was Kazakhstan’s approval together with Eurasian Economic Union (EAEU) members of a list of goods (WTO List) on which Kazakhstan will apply reduced customs duties (WTO Rates) when importing them from outside the EAEU.

» Will SEZ Become more Attractive for Investors in Light of New Amendments to Tax Law?
Reducing tax burdens and tax liabilities have always been important issues for entrepreneurs and organisations. However, today’s companies only have a few tools at their disposal provided by civil, employment and tax law to reduce or defer taxes.

» New Wave of Privatization in Kazakhstan
Continued low oil prices and weakened external demand slashed Kazakhstan’s real GDP growth from 4.1 percent in 2014 to 1.2 percent in 2015 and pushed the current account into defi cit for the fi rst time since 2009. This was accompanied by the move to a fl oating exchange-rate regime in August 2015, which led to a sharp depreciation of the tenge and negatively affected private domestic demand and intensifi ed infl ationary pressures. Growth is expected to remain low, pushing the authorities to intensify their efforts on structural reforms and diversifi cation of the economy.

» Kazakh Banks Face High Risks in 2016 from Thinning Capital Cushions as the Economy Stagnates
Standard & Poor's Ratings Services believes the Kazakh economy will stagnate or contract modestly in 2016, due to low oil prices, weaker exports, and shrinking consumption. This backdrop, together with a volatile currency, complicates operating conditions for the country's banking sector.

» Kazakhstan: Constructive Policy Approach
We see that both state and private sector representatives know that Kazakhstan is facing challenging times and they are aware of both the magnitude of what they have to do and how to do it – i.e. We found them all realistic and pragmatic. We think devaluation is largely done, while upcoming reform and privatisation efforts should bring the country longerterm gains. In the current volatile oil price environment, we maintain our scenario approach for Kazakhstan.

» Survival Game
In 2016, almost 1,500 executives from 84 countries, including more than 50 CEOs of companies in Kazakhstan, shared their thoughts about the challenges facing the private sector within the framework of the global CEO Survey. The Kazakhstani edition was conducted with support from Forbes Kazakhstan.

» Kazakhstan Joins the WTO
On 12 October 2015 Kazakhstan ratifi ed the Protocol on Kazakhstan’s accession to the World Trade Organization (WTO). As of 15 December 2015 Kazakhstan was announced the 162nd member of the WTO. WTO accession requires Kazakhstan’s legislation to be brought into conformity with the provisions of international trade law, including WTO rules. To that effect, the President of Kazakhstan has already signed the relevant law to introduce amendments into a number of legislative acts.

» Eurasian Development Bank: A New Development Institution for the Newest Economic Bloc
The Eurasian Economic Union is quite a new player in the fi eld of global economic competition, established only in 2015. Paradoxically, at the same time, it is probably one of the world’s oldest existing economic blocs – if we remember that its member states (Russia, Kazakhstan, Belarus, Armenia and Kyrgyzstan) were once all republics within the USSR.

» Supporting Eurasian Regional Integration
Since the end of World War II, multi-lateral fi nancial institutions (MFIs) have supported the reconstruction and development of Europe and newly independent states to the east. A shared priority today is improved regional economic integration across Eurasia.

» Uzbekistan Opening New Doors for Private Sector
Uzbekistan is one of the fastest-growing economies in the world, and aspires to become an upper middleincome country by 2020. With the largest population in Central Asia, abundant natural resources, and a strategic location, Uzbekistan has signifi cant potential to grow. To take advantage of this potential and foster sustained economic growth, the country should continue to promote a vibrant private sector, supported and enabled by effi cient public services and investment and a renewed focus on market-relevant skills in the labor force.

» The Arab International Women’s Forum: A Development Organisation Leading the Way Forward
The Arab International Women’s Forum (AIWF) has a clear aim to support and enhance the role of women in the social and economic development of their countries and across the Middle East region.

» Special Economic Zone DUQM
In 2011, the government of Oman established The Special Economic Zone Duqm (SEZD) to implement His Majesty’s vision 2020 to reach social & economic development of the Wusta Region & diversify sources of national income in the country. Characterized by its enthusiasm, SEZD takes pride in what it has to offer to the world. It's prime location, political stability, natural resources, exceptional topography, and breathtaking scenery makes it an excellent choice for business and tourism.

» Oman: 20/20 Vision
The Sultanate’s oil wealth has been a traditional pillar for growth of the economy which approximates to 90% of government revenues and accounts for more than 50% of GDP; however, the Government has been actively making efforts to diversify its reliance on oil sector and focus on a development plan of diversifi cation, tourism, industrialization and privatization. Oman Vision 2020 has laid out plans to boost industrialization within the Sultanate and to encourage the private sector to take a more active role in the economy and generate employment opportunities, both of which are measured as key drivers for growth.




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