My name is Frank van der Linden, 25 years old and raised in’s-Hertogenbosch. In October 2014 my student life came to an end, as I obtained my master degree in finance. Currently, I am working as young professional at Eiffel, located in Arnhem. In 2009 I started the bachelor business economics at Tilburg University, which I completed in 2013. During my third year of the bachelor the first problems arose. I realized my English skills were still insufficient, which wasn’t very practical as the bachelor thesis finance and master finance were completely in English. Therefore, I decided to extend my bachelor phase with an additional year. This gave me the opportunity to improve my English skills by participating a summer school in Ljubljana (Slovenia) as well as joining study association Asset | Accounting & Finance. In 2012 former board member and good friend of mine Marjan Martens, puts me under pressure, in order to join A&F. At that time, I thought that members of study associations were a bunch of geeks lacking social capabilities. Nevertheless, I became member of A&F by joining the iFinance 2013 committee responsible for organizing a finance symposium. I shortly noticed that my opinion was completely misplaced, as I met a lot of wonderful people, which are nowadays still good friends of mine. Being chairman of iFinance 2013 definitely helped me developing my personal skills, which would never be the case by only attending college. Moreover, I was totally convinced that being member of A&F was a valuable addition to my student life. Therefore, after organizing a successful edition of iFinance, I joined the third lustrum committee, were I started as treasurer for the lustrum trip. Shortly, I also became the chairman of the general lustrum committee consisting of 10 people. Although, this was a huge challenge, I think we made it a great success. People are still talking about the classy gala, beer cantus in Bruges and the other exciting days during that week. It makes me still very proud, that I was part of the organization. I can say that joining A&F definitely enriched my student life, as it were one of the most exciting years of my life. Moreover, I can say that these extracurricular activities helped me a lot during job interviews. Although, I attended a lot of recruiting activities during my master phase, I wasn´t convinced about what kind of company and job fits best to me. Therefore, I thought it would be useful to join a detachment company such as Eiffel. Eiffel gives me the opportunity to work for various companies and functions, which is very exciting. Additionally, it helps me explore what type of company and functions suits best to me. Currently, I am working for McKinsey & Company in Amsterdam to support the finance department. During four months I am responsible for setting up a staff and salary administration and the transition of this administration to a shared service center in Poland. Before this assignment, I worked for municipal Veenendaal, where I assisted the internal audit department. Most assignments have a duration of less than 8 months, which give me the opportunity to obtain a lot experience at various companies. Moreover, I think this job is very useful for my network, as I will meet many ambitious people. I am convinced that when I am ready for the next step in my career, my Eiffel experience will be crucial in order to find a job that suits me best.
The Euro: to be or not to be?
Frans Somers, owner of SBC International, talks about the advantages and disadvantages of the introduction of the euro. He raises the question whether the euro should have been introduced after all. In hindsight, according to many experts the euro should never have been introduced; at least not for countries such as Greece, Italy, Spain and Portugal. Additionally, before the common currency was introduced around the year 2000, quite a number of economists strongly doubted the advantages of the system. Even worse, monetary integration beyond the existing system of fixed but adjustable exchange rates (the European Monetary System – EMS) was assumed to be very risky. The main reasons for introducing the common currency from an economic point of view were the following: to further promote intra-European trade and competition and to strengthen the EU as a global powerhouse. Competition is the keyword in this context. European integration had the intention of removing all the barriers of internal trade: tariffs, border controls, different legal regulations and product requirements, etc. The abolition of national currencies was considered as the final step in this process, because a common currency would remove all transaction costs and currency risks associated and guarantee market transparency. Hence, promoting the mobility of goods, services and capital. A crucial point was also that by abolishing national currencies, there would no longer be the option to take an ‘emergency exit’ for individual countries to escape from international competition: competitive devaluations were essentially ruled out. Until then, countries with increasing costs and high inflation rates could restore their international competitiveness overnight by a simple devaluation. This was common practice in countries like Italy, Greece and Spain; reason why one could receive enormous amounts of liras, pesetas or drachmas for a guilder or mark in the end. Taking away this monetary instrument meant that these countries would become fully exposed to international competition and the discipline of the market. Weaker European countries would be forced to improve or they were driven out of the market: a matter of sink or swim. As a result, competitiveness would not only be reinforced in individual European countries, but also for the EU as a whole, strengthening its position on world markets and thus promoting overall European growth, employment and prosperity. A nice theoretical model, but would it also work in practice? In the early nineties of last century, the pros and cons of a common currency were fiercely debated. The case against the euro focused on two arguments: – The European Union definitely did not meet the criteria for an Optimal Currency Area (OCA). This theory was originally developed by Robert Mundell as early as 1961. In an OCA the benefits of a single currency are intended to be greater than the costs. An OCA presumes flexibility in either prices/wages costs and/or factor mobility. It means that, if a country has a relatively high inflation rate, it will loose market share, leading to shut down of firms and unemployment. Adjustment will take place either through lower wages and prices (price flexibility) or migration of workers to efficient countries (factor mobility). However, if wages and prices are rigid and workers stay in their own country, the only way out to restore competitiveness is a flexible exchange rate. Precisely as it used to be the case in the southern member states of Europe before the introduction of the euro. As a whole, the EU until today has been characterised by a high degree of rigidity of wages and prices, despite many efforts of structural reforms to address these problems. – The occurrence of asymmetric shocks in demand or supply. Normally, countries in a specific region are in the same stage of the business cycle. But in theory it may happen that some countries face strong growth, while others get stuck in a recession. With a single currency, there is no opportunity to differentiate monetary policy per country. An example of such an asymmetric shock is the exceptional boom in demand in Germany after the reunion in the early nineties of last century, whilst simultaneously other European countries were in an economic downturn. This aside, an economic and monetary union (EMU) presumes in principle that countries are in a similar stage of development. Therefore economic and social cohesion has been strongly emphasized in various EU treaties. Various convergence programmes have been set up in order to prepare member states for participation. Finally, member states could only join the Eurozone if they satisfied five convergence criteria: similar inflation and interest rates, a budget deficit of less than 3%, public debt less than 60% of GDP and a stable currency. Nonetheless, at the decisive moment in 1997, none of the candidate countries fulfilled all of these criteria – not even Germany, France, The Netherlands and Luxemburg. Countries like Italy, Spain, Portugal and Greece did not satisfy any condition at all, however were allowed to join the Eurozone nevertheless. Needless to say that this could be identified as a false start for the euro. Why was it decided to establish the EMU anyway, despite the theoretical objections and practical complications? Why were even weak member states so eager to join the Eurozone? By far the most important motive is political. Weak countries envisaged that by becoming a member, they would automatically forced to improve their economies, driven by intensified competition. Governments would come under supervision of European authorities, preventing in particular the unstable ones to overspend and make a mess of government finances. Further, we should not forget that the nineties in the last century were an era of high economic prosperity and progress, along with high growth rates. This created an optimistic view on future developments. The dramatic events of the early 21st century were not foreseen, however. The debt crisis of 2008, starting with the fall of Lehman Brothers bank, had a devastating effect on the world economy. But more importantly for the EU the crisis had a very different impact on individual European countries; this can be
Saving the university
In his column, David Hollanders elaborates on the future of the university. He states that a university that no longer reflects on its own aims does not deserve to be called a university On February 25th students occupied the Maagdenhuis, the seat of the board -aka College van Bestuur (CvB)- of the University of Amsterdam. Out of this occupation (or re-appropriation) has grown a movement that calls itself De Nieuwe Universiteit (DNU), which by now has co-movements in other university cities, including Tilburg. For an assessment of this movement, it is necessary to look beyond side-issues. One could disapprove of occupying, but at the same time endorse the goal it is meant to further (or vice versa). One could feel that the life-style of the occupiers –who could be described as engaged intellectuals or spoiled hippies, depending on your perspective- but nonetheless embrace the program (or vice versa). And one could object against the CvB letting loose the police against its own students, while rejecting the program all the same (or vice versa). These are all sideshows in the final analysis. The heart of the matter is the program, which I endorse in my role as lecturer and which is –I feel- worth considering by students –even if one rejects it, which one could. The last decades students have been hit hard on all fronts. Students do not receive much –if any- public financial support anymore, leading to a situation where one has to work (and de facto study part-time), load up with debt or be blessed with rich parents. Adding insult to injury, students are increasingly monitored on how fast they finish courses. This is justified on three grounds: First, taking on debt is framed as an investment in human capital, with a high return in working-life. This is problematic if not false. The job-market has been dire for years now and a master-degree is no longer a sufficient condition for a (well-paying) job. It is a necessary condition however, so one cannot refrain from it. Furthermore, education should –or so DNU argues- be more than trying to get in pole position for the labour market. It is also about Bildung, social cohesion and political participation. A second motivation for increasing the financial burden for students is that education has increased in quality –justifying higher prices. This is again problematic –if not false. The number of students per lecturer has increased dramatically. This has not only increased the work-load of staff –already pressured by job insecurity- but has inevitably taken its toll on quality: larger classes, standard multiple-choice exams, teacher-rotations and light-touch thesis supervision. A third motivation is that austerity is inevitable, and therefore students and universities cannot be spared. Even if one accepts the austerity argument –which many economists, including Krugman, Stiglitz, Jacobs and de Grauwe do not-, there is still the question whether one cannot do better with the money available. Do we want a government that spends scarce resources on research that caters to business interests? Do want universities to spend money on advertisement and public relations instead of research and education? Furthermore, do we want students that have learnt to conform as quickly as possible to whatever the educational system asks of them? Or do we want students who contemplate whether the expectations and demands of university and indeed of society more general make sense? If one feels these are important questions, one should embrace DNU, even if their answers are not always clear. For the DNU is pretty much the only movement that is at least asking the right questions. And a university that no longer reflects on its own aims does not deserve to be called a university.
The IPO story
The IPO story: it’s all about being prepared In the first quarter of 2015 €34.9bn capital was raised through IPOs (Initial Public Offerings) worldwide, of which €15.3bn was raised in the EMEIA region. Also Euronext Amsterdam stock exchange started strong in 2015 with the IPOs of GrandVision, Lucas Bols, and Refresco Gerber, after a number of years of limited activity. GrandVision raised €1.0bn in capital and ranked in the global top 10 of IPOs. The number of IPOs we see today is no coincidence as an IPO is not a spur of the moment decision. The recent IPO activity reflects the trust Dutch companies currently have in the economic climate but also proves that investors with available funds are looking for returns. Successful IPOs follow an extensive IPO readiness process that transforms privately held investments into listed and scrutinized investment opportunities for both institutional and private investors. Preparations are crucial to be ready when the IPO window opens. 1. Start early with an IPO readiness assessment and make an informed decision In order to be able to act and operate like a public company, companies should begin their IPO readiness process sufficiently early. They should be agile enough to respond to pressure to move swiftly into registration while the window of opportunity is available. As IPO readiness involves accepting and implementing change in every aspect of the business, executive management, organisation, and corporate culture – companies that start early are better prepared. Being IPO ready means among other things, to have your company ready to meet accounting (IFRS, US GAAP), tax (structuring) and legal and financial reporting requirements. Key systems that need to be in place in order to achieve this include internal controls, risk management, compliance, corporate governance and internal audit. 2. Commit substantial resources to building the right team Preparing for an IPO is an intense and demanding process and it is all too easy for management and employees to be distracted from other important issues by the sheer enormity of the task. The company must strike the right balance between managerial focus on the IPO transaction and the day-to-day operations of the company. It is necessary to prepare an experienced management team, robust financial and business infrastructure, and a corporate governance and investor relations strategy.IPO candidates often underestimate the time their IPO journey will take and the level of scrutiny and accountability faced by a public company. This is why successful companies approach their IPO as a transformational process, rather than a final destination or just a financing event. 3. Have a plan B alongside the IPO as part of a multitrack process Evaluate alternative exit strategies and keep the options open. Before opting for the IPO route to growth capital, most IPO candidates explore alternative strategies. Taking a multi-track approach increases a company’s strategic options, improves negotiating leverage and reduces execution risk. The mergers and acquisitions market, private equity-backed deals and dual-track approaches (such as a concurrent pursuit of both an IPO and an M&A transaction) are viable alternatives for raising capital and offer their own unique strategic advantages. 4. Be aware of investor requirements in a buyer’s market in all parts of the issue concept A recent survey of institutional investors conducted by EY shows that the combination of the right team, right story and right price is key to success. Being prepared – in other words, having achieved IPO-ready status – is a prerequisite for this. The infrastructure-building process should include development of a strategic investor relations program for marketing the company prior to the IPO. This ensures that key investor-relations professionals are on hand to guide the planning for and performance during the IPO road show. Investors are clear about what they look for in a successful IPO. Good quality companies priced right, run by the right team and with a good story to tell will command the attention of the market, even when market windows are opening and closing fast. Investors rank the top five success factors for IPOs as attractive pricing (the leader by a considerable margin) followed by a compelling equity story, confidence in management, the right timing and, last but not least, IPO readiness. 5. Pricing: Use multiple methods, gain knowledge of indicators and agree on threshold values Being able to articulate a compelling equity story backed up by a strong track record of growth sets the company apart from its peers while increasing value for owners. 60% of investors base their IPO investment decisions on financial performance measures – in particular, growth in EPS, EBITDA and profitability – and attribute an average of 40% of their IPO investment decisions to nonfinancial measures, giving most weight to management credibility, corporate strategy and brand strength. A compelling equity story covering all these aspects is therefore key to marketing an IPO. Moreover, size is a decisive factor when it comes to entering selection indices and gaining broader access to investors. A high free float will facilitate the necessary post-IPO liquidity. 6. Timing: Create flexibility and the ability to get off to a rapid start, especially when entering the hot phase before the IPO roadshow When the market timing is right, it’s the companies that are fully prepared which are best able to leverage windows of opportunity. Companies that are flexible when it comes to kick-starting their IPO execution phase will benefit from the visibility of the fastest and first company that present the IPO with high attention and market awareness when IPO windows are open. Companies around the world continue to ready themselves to go public. Whether a company is owned by its founders, a family business, conglomerates, government, private equity or venture capital, building confidence and trust among investors in the public spotlight of capital markets is vital. Being IPO ready in all areas is the ideal foundation for achieving this. 7. Living up to the expectations During the IPO process, in the prospectus, and during the roadshow, companies set expectations about their future performance. Immediately after the IPO
Emerging West Africa
In this article Marco Rensma, director of MEYS Emerging Markets Research, enlightens us about emerging West Africa. According to Mr. Rensma the countries in West Africa are in a good position to continue their strong economic growth path. Introduction With approximately 80 percent of world merchandise trade carried by ships, maritime transport remains by far the most common mode of international freight transport. It is the backbone to facilitating international trade, offering the most economical and reliable way to move goods over long distances. Ships can carry large volumes of merchandise and use free highways in the seas, which only require infrastructure investments at the seaports. For all countries, how ports perform is an essential element of overall trade costs. This is especially the case for Africa, as fifteen of its countries are landlocked and face severe infrastructural and trade facilitation problems. For the landlocked nations, ports — together with the inland waterway and land infrastructures (railroads and highways) — constitute a crucial link to the outside world and to the global marketplace. Consequently, high transport-related costs represent a fundamental constraint to these emerging markets global competitiveness and their sustained economic growth (African Development Report 2010, African Development Bank). Faced with sustained growth in volumes of cargo in recent years, African governments and international donors have invested strongly in expanding and modernizing ports, improving the regulatory framework and privatised port services making African ports more efficient. At the same time, transport links between ports and the hinterland are still relatively weak in many African countries. Intra-regional trade is therefore almost non-existent. Over the period from 2007 to 2011, the average share of intra-African exports in total merchandise exports in Africa was 11 per cent compared with 50 per cent in developing Asia, 21 per cent in Latin America and the Caribbean and 70 per cent in Europe. This relatively low share of Africa’s intra-regional trade is causing GDP growth to be lower compared to countries trading within common economic blocks like for example the European Union. Emerging West Africa With a total population of more than 330 million people, of which Nigeria has approximately 170 million people, and a combined GDP of 400 billion US dollars (20 per cent of total Africa), the West African countries form a strong economic powerhouse on the African continent. During the past decade the annual average economic growth rate for West Africa was six per cent, making it one of the fastest growing regions in the world. The strong economic growth rates with rising incomes in West Africa lead to a fivefold increase in total foreign trade over the past ten years to 250 billion US dollars in 2013. Source: UNCTAD Although these economic figures are spectacular, not everything has changed favourably for these countries. Life expectancy in many West African countries is still on average below 60 years, poverty is widespread – especially in rural areas – youth employment is mounting, corruption and fraud is deep rooted in many societies, and the majority of local enterprises are operating in the informal sector with almost no legal protection for company owners and employees. In addition, governments are often weak, a judicial system which in majority is non-transparent thereby creating a very challenging investment climate for foreign companies to operate in. Rising Foreign Direct Investments Although there are many obstacles, total Foreign Direct Investments (FDI) in West Africa have increased from 38 billion US dollars in 2002 to 145 billion US dollars in 2013. A threefold increase in just ten years. A remarkable achievement at first sight, but the majority of these investments went to the oil exporting countries in the region of which Nigeria was the main beneficiary (57 per cent) followed by Ghana (13 per cent). Also cash crop exporting country Cote d’Ivoire received a relatively large part (6 per cent) of FDI pouring into West Africa during the past decade. Source: UNCTAD Although FDI in West Africa increased in absolute terms significantly over the past ten years, the level of per capita FDI is still very low. The combined per capita FDI in West Africa is only one-eighth of that of South Africa. The already mentioned unstable political climate, and especially the lack of an independent judicial system protecting property rights in large parts of West Africa, are making many foreign investors hesitant to enter these emerging markets. Furthermore, the limited number of local financially strong private enterprises and stock and capital markets still in an infant state, are all adding up to the explanation of the relatively low levels of per capita FDI in West Africa. Ports crucial to economic growth For the countries in West Africa sea trade is of upmost importance to the development of their economies. No less than 95 per cent of total foreign trade is done by maritime transport, thus making an efficient functioning of ports crucial to the economic survival of the region. Measured by cargo port throughput Nigerian ports are by far the largest ports in West Africa followed by Cote d’Ivoire. This strong position of Nigeria is caused by the fact that the national economy depends heavily on the imports of construction materials, consumer goods and processed foods and drinks. Also the large oil and gas industry must import most of the necessary materials and equipment. The second position of Cote d’Ivoire is the result of large volumes in export of cacao. Cote d’Ivoire is the largest producer of cacao in the world which is exported through the local port of San Pedro. Source: various port authorities; compiled by MEYS Source: UNCTAD Although container throughput in West African ports increased eightfold during the past five years, volumes are still relatively low compared to the ports in South Africa and North Africa. But times are changing rapidly. Supported by large privatisation programs, national and foreign terminal operators active in West African ports are investing millions of US dollars in expanding terminal capacity to meet the growing volumes in
Tax dodging by corporations
In this column David Hollanders discusses how excusable tax avoidance or fiscal planning is. He explains that tax dodging can be legal, but why it will never be moral. Tax dodging by corporations: if not illegal, it is certainly immoral Nobody likes paying taxes and companies are no exception. So one part of running a company is minimizing tax payments. The finance-textbook of Berk and DeMarzo shows how leverage reduces tax payments. Interest-payments are tax-deductible and the resulting tax-reduction is thus called the interest tax shield (ITS). Of course the larger the ITS, the lower government tax revenues are. This in turn leads to higher taxes elsewhere, higher government deficits or lower public expenditure. One can however not blame companies for taking advantage of tax deductibility of interest-payments, just like one cannot blame citizens for deducting mortgage-interest payments. Some corporations however go much further than maximizing the ITS. They exploit tax loopholes, breaking the spirit if not the letter of the law. An example is Starbucks. The BBC reported that in 2013 “Starbucks, for example, had sales of £400m in the UK last year, but paid no corporation tax. It transferred some money to a Dutch sister company in royalty payment ”. So how can Starbucks make profits but not pay taxes? It has a small office in the Netherlands (in Dutch:”brievenbusmaatschappij”), set up for no other purpose than to avoid taxes. The mother company of Starbucks in the UK pays “costs” (the royalty payments) to their Dutch office; these costs are fabricated and only exist on paper. This artificially reduces profits in the UK to approximately zero (and increases profits in the Netherlands). The Netherlands has a special (low) tariff for royalty payments. The profits are channelled back to the UK, and are not taxed there, for they have been taxed already in the Netherlands, albeit at a (very) low rate. Et voila: zero taxation. Starbucks is not the only company to avoid taxation in their mother county in this way: Google and Amazon are other examples. The other way round, the Netherlands was named a tax haven by Obama in 2009 (other tax havens included Bermuda and Ireland). So is such tax avoidance –or fiscal planning as Starbucks and the likes call it- excusable? One can argue that such tax-dodging is legal and that the social responsibility of businesses –as Milton Friedman (in)famously remarked- is to increase profits. But this conveniently ignores the real issue. There are several activities that may be profitable but that many people nonetheless feel companies should not engage in, such as child labour, weapon-sales to dictators and polluting. While child labour is not the same as tax-dodging, it shows that businesses do have responsibilities. And one of these is to pay taxes, like everybody else in society. These taxes are used to finance –among other things- educating the future workforce and building dykes and roads –all benefitting companies. But, some would counter, isn’t tax-dodging legal and therefore excusable? In fact, it can be argued that tax avoidance is illegal as it entails implicit government support for large businesses –that can afford the high up-front legal costs-, which is illegal in the EU. But even if legal, it is noteworthy that large businesses are lobbying for special tax arrangements –they are not just taking advantage of existing rules, they are influencing the rule-making process. But even if corporations would refrain from lobbying, it is close to impossible to formulate tax-rules that cannot be bent by corporate lawyers, who make a living out of, well, bending the rules. And this brings us back to the real issue. Small companies and households cannot afford an army of lawyers and lobbyists to eliminate their taxes. But taxes need be paid by someone. Whatever large companies are not paying, the rest of us is paying extra. If not illegal, that is certainly immoral.
