EURASIAN FINANCIAL & ECONOMIC HERALD May 2018

Англ_Вестник_2_2018_обложка_Layout 1 11.05.2018 14:10 Page 1

Internationaler FINANCIAL & BANKING ASSOCIATION Russian Union OFFICIAL PUBLICATION OF FBA EAC, IBC Wirtschaftssenat of Industrialists IWS OF EURO-ASIAN COOPERATION and Entrepreneurs world economic council eurasian financial & economic

№ 2 (4) | 2018

THE FORMAT OF FORUM • Plenary sessions BREAKOUT SESSIONS • Breakout sessions

I секция Agribusiness: from intentions III секция International transfer of high technolo- to cooperation gies — new opportunities for Eurasian II секция At the speed of light — the latest integration trends and changes in the environment IV секция IBC Meeting «Risk assessment and its of financial technologies and regulation management in cross-border banking transactions»

Financial forum-2018: «Financial and Banking system of Russia: New challenges THE FIFTH and trends» Personality

MOSCOW INTERNATIONAL HERALD 10 FINANCIAL AND ECONOMIC Rajnish Kumar: FORUM B. Pejaković The banking sector Eurasian Union reform in Montenegro «The possibility of financial union and the EU: 27 А. Boldi within EAEU enhances EURASIAN FNANCIAL & ECONOMIC FNANCIAL EURASIAN search for new formats Gold Italy of cooperation the positive outlook 30 of the region…» November 30, 2018 I. Lengyel THE ORGANIZING COMMITTEE Real-time settlements

17 Kotelnicheskaya nab., Моscow, 109240, offices 400–408. 2018 | raise banks +7 495 663-02-08/13/19 competitiveness 4 60 [email protected], [email protected], № 2 (4) [email protected], [email protected] Англ_Вестник_2_2018_обложка_Layout 1 11.05.2018 14:11 Page 2 Award «Financial and Banking Elite of Eurasia»

November 30, 2018

Nominations 2018: 1 BANKER OF THE YEAR (for personal contribution to the development of banking business) 2 STANDARD OF STABILITY (bank leader on sustainable development, stability, holder of international and country ratings) 3 TRIUMPH OF TECHNOLOGY (bank leader in the implementation of modern IT technologies) Prize: Exclusive author's statuette The official award ceremony will be held on November 30, 2018 with the participation of representatives of business, political and cultural circles, national governments and banks, heads of trade unions and СOMPLEX associations, representatives of leading mass media of the countries of Eurasia BUSINESS SOLUTIONS

Applications for participation are taken Services for the effective work of small and medium-sized businesses until November 1, 2018. and their integration into the exchange system Registration Form and Terms of participation Organization and preparation of documentation for stock trading in the competition: www.fbacs.com Consulting on business activities and management www.salus.ru Organizing committee: Legal support of transactions [email protected] tel.: +7 495 6630208, 6630213, Trust asset management email: [email protected] [email protected] Investment activities 2 CONTENT HERALDeurasian financial & economic PERSONALITY № 2 (4) | 2018 R. Kumar. The best in our relations is yet to come... 4

FOUNDER’S PAGE. FBA EAC 8 FOUNDERS: Financial & Banking Association of Euro-Asian RSPP NEWS Cooperation (FBA EAC) Financial forum-2018: «Financial and Banking system of Russia: 10 New challenges and trends» International Banking Council AWARD WINNER (International Coordinating Council of Banking Beibut Kapyshev. From traditional banking to the digitalization 17 Associations of the member states of the of financial services Commonwealth of Independent States, Central and Eastern Europe) BANK. BANK. BANK D. Molomjamts. International Investment Bank goes to a new stage 22 of its development PUBLISHER: Financial & Banking Association of Euro-Asian BANKING SYSTEM OF THE COUNTRIES OF EURASIA Cooperation (FBA EAC) B. Pejaković. The banking sector reform in Montenegro 27 Editor in Chief: V. Murin PRACTICE Executive editor: S. Kiyatkina А. Boldi. Gold Italy 30 Editorial Board: E. Berezovaya, O. Ryazanov L. Камаrа. Investments and state 36 Translators: S. Arkhipova, K. Tereshenko Page-proofs: «Granitsa Publishing House» Ltd. PARTNERS’ NEWS А. Heimonen. A week in Davos with Caspian view 38 Association of Belarusian Banks: Digit is priority PUBLISHER'S ADDRESS: 41 17 Kotelnicheskaya nab., Moscow, 109240, Russia PROJECT +7 495 663–02–08/13 Industrial warehouse «Amega» 42 [email protected] www.fbacs.com PHOTO CONTEST «The world through the eyes of a photographer» 44 PRINTING HOUSE: MATERIAL FOR THOUGHT Released in the «Granitsa Publishing House» Ltd. Format 210x297 mm. 68 pages. Т. Galander. Germany — Russia: business-gravitation remains 48

INVESTMENTS D. Bagla. India — a country of great opportunities ISSUE DATE: 52 May 2018 BUSINESS IN THE COUNTRIES Foreign direct investments in the states of India 55 PRICE: Free

EXPERT OPINION I. Lengyel. Real-time settlements raise banks competitiveness 60 The editorial office is not responsible for the content of the advertisements. Advertised goods and CONTEMPORARY VIEW services are subject to mandatory certification. Reprint is allowed only with the written permission А. Bespalov. The window of economic opportunities 64 of the editorial office. Manuscripts are not reviewed FOUNDER’S PAGE. IBC and not sent back. Azerbaijan: Institute defending the interests of clients 66 EDITORIAL BOARD

Alexander Murychev, Chairman of the Editorial Board, Chairman of Coordinating Council of FBA EAC, Executive Vice-President of the RSPP, Chairman of the IBC

Anvar Abdraev, Hakob Andreasyan, Bakhytbek Bayseitov, Oleg Berezovoy, Andrea Boldi, Yves Pozzo di Borgo, President of the Union Chairman of the Union President of the Associa- General Director President of the company President of the of the Banks of Kyrgystan of the Banks of Armenia tion of Banks of the of FBA EAC AREZZO FIERE Parliamentary Friendship Republic of Kazakhstan E CONGRESSI SRL Group with Central Asia (Italy) In the Senate of France

Zurab Gvasalia, Veroljub Dugalić, Anatoly Kazakov, Elena Korobkova, Manish Kumar, Aleksandr Kuschynski, President General Director Chairman of the Executive Director of the General Director Chairman of the Association of the Association Coordination Council of Independent Association of the Soltex Group Ltd., of the Association of Banks of Georgia of Serbian Banks the Financial and Banking of Banks of Ukraine Head of the Representative of Belarusian Banks Council of the CIS office of FBA EAC in India, Sri Lanka, Bangladesh, Malaysia

Georgy Kuchkov, Istvan Lengyel, Amirsho Miraliev, Valery Murin, Zakir Nuriyev, Bratislav Pejaković, General Director Secretary General Chairman of the Board Editor in Chief of the President of Azerbaijan Secretary General of the Information of Banking Association of the Association magazine «Eurasian Banks Association of the Association of and Publishing Center for Central and Eastern of Banks of Tajikistan Financial and Economic Montenegrin Banks «Eurasia» Europe Herald»

Krzysztof Рietraszkiewicz, Anatoly Tkachuk, Dumitru Ursu, Bakhtiyar Khamidov, Chairman of the Polish Vice-President Chairman General Director Bank Association of FBA EAC of the Moldovan of Uzbekistan banking Bankers’ League association

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 A word to the readers

Dear colleagues and friends! nation Council of the Eurasian Center of Hu- «I’m engaged to India, I owe everything to her. I could man Resources, discuss- not express my feeling for India more clearly than identify es that topic in his article it with the feeling for my wife. She worries me like no other «The window of eco- woman in the world. Not because she is perfect. I dare say nomic opportunities». that she has more flaws that I see. But here there is a sense In February of this of indissolubility». These words of Mahatma Gandhi, as year, within the frame- well as possible, illustrate the attitude of our today’s authors work of the Russian to their country. The face of the cover is Chairman of the Business Week, a finan- Board of Directors of «State Bank of India», Rajnish Kumar, cial forum was held, whose interview is the central material of the issue. The in- which is annually organ- vestment opportunity of India is described by President ized by the Russian and Managing Director of Invest India, Deepak Bagla. Union of Industrialists A. Murychev, In this issue we continue to publish materials on the most and Entrepreneurs. Chairman of the Editorial Board of «Eurasian Financial interesting, debatable topics of the financial and banking in- The theme of the fo- and Economic Herald» dustry, the economy as a whole, fintech. The geography of rum was «Financial and Eurasia at that point is represented besides India by such coun- banking system of Russia: new challenges and risks». Distinc- tries as Mongolia, Azerbaijan, Russia, Belarus, Kazakhstan, tion of this forum from previous meetings of entrepreneurs Hungary, Kyrgyzstan, France, Bulgaria, Montenegro, and Italy. with representatives of regulatory authorities was a joint ses- Interesting material, in my opinion, is presented in the sion, which addressed the most important problems of the heading «Practice», which deals with the current state of af- national financial system. According to one of the represen- fairs in the system of international investment agreements — tatives of the banking community, the motto of the forum the basis for liberalization and the growth of the volume of could be the expression: «If everything is good, it means we international capital flows. Currently there are more than don’t have full information», which indicates the degree of 3000 bilateral investment agreements containing various frankness and severity of the discussion. It seemed to me im- dispute settlement mechanisms. The goal of the world com- portant to share with readers the impressions of what I heard. munity, according to the author of the article, Lai Kamara, The official rewarding ceremony of the annual interna- a well-known international arbitrator, is the conclusion of tional public award «Financial and Banking Elite of Eurasia» a world investment agreement that could fulfill the role of was held in November of the past year. In this issue we pres- an international investment code and replace existing bilat- ent the owner of «Gold bee» in the nomination «Develop- eral agreement. ment benchmark» — Optima Bank (Kyrgyzstan), and also In the heading «Expert opinion» our regular author Ist- offer to familiarize with the nominations 2018 to all those van Lengyel, Secretary general of Banking Association for who would like to become the next winner of our Award. Central and Eastern Europe, presents analytic material on FBA EAC, together with European financial and econom- the transformation of the world banking system due to the ic associations, began preparations for The Fifth Moscow In- inevitability and development of the fintech-revolution. ternational Financial and Banking Forum: «European Union The latest trends and changes in the environment of fi- and the EAEU: search for new formats of cooperation». Top- nancial technologies and regulation became the subject of ics of the sectional sessions of the Forum are listed on the discussion at a round table, organized by the Association of back cover of the magazine. More detailed information on Belarusian Banks in connection with the release of Presiden- participation in the Forum you can find on the website of tial Decree No. 8 «On the development of the digital econo- the FBA EAC — www.fbacs.com. my». According to the Chairman of the Association of Be- A photo contest «The world through the eyes of a photo- larusian Banks Alexandr Kuschynski, this document creates grapher» continues. We are pleased with how actively non- unprecedented conditions for the development of the IT in- professional photographers are taking part in it, what sin- dustry and gives serious competitive advantages to the coun- cerity and love fill their work. We have a difficult choice. try in the creation of a digital economy of the XXI century. Remember in Bulgakov's novel «The Heart of a Dog» Pro- Today a notable feature of globalization is the movement fessor Preobrazhensky taught his colleague Dr. Bormental of labor resources. The number of migrants in the world in not to read Soviet newspapers at dinner because it worsens 2017 was 258 million people, since the beginning of the cen- digestion. I declare with all responsibility that our magazine tury it increased by 49%. Russia is among the leaders in the has a positive influence not only on the digestive system, number of both migrants who have been accepted and mi- but also on the immune system, vision and touch. grated from it. Andrey Bespalov, Chairman of the Coordi- Read and write. We will be happy to your coauthorship.

3 Personality

RAJNISH KUMAR: «THE BEST IN OUR RELATIONS IS YET TO COME...»

INTERVIEW OF THE CHAIRMAN OF THE STATE BANK OF INDIA SHRI RAJNISH KUMAR

rbi.org.in

The possibility of financial “union within EAEU enhances the positive outlook of the region. RAJNISH KUMAR Chairman of the State Bank of India Shri Rajnish Kumar has been with the State Bank of India for over three decades, having joined the Bank as a Probationary Officer in 1980. An M.Sc. in Physics, apart from CAIIB, Rajnish Kumar has held several key assignments across various business verticals, including two overseas assignments in Canada and U.K. He has vast experience in handling large credit, project finance, foreign exchange and retail banking. Rajnish Kumar has assumed the office as Chairman State Bank of India on 7th Oc- tober, 2017

4 ЕВРАЗИЙСКИЙ ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ ВЕСТНИК | #2(4)-2018 hri Kumar, how would you institution that would be responsi- was based on the assessed potential estimate the prospects of ble for enforcing common standards in bilateral trade in goods, trade in cooperation between In- in the Union’s financial markets and services and investment. The study dia and Eurasian Econo- for providing proper regulation and has further recommended that ade- mic Union? supervision. quate focus may be given to the op- S— We pay close attention to inte- India has shared long historic ties erationalization of the International gration processes in the post-Soviet with Central Asian countries and North-South Transport Corridor area. The Eurasian Economic Union Russia. A blueprint for India, Central (INSTC) and Green Corridor be- (Russia, Belarus, Armenia, Kaza- Asia cooperation was outlined in In- tween India and the EAEU to take khstan and Kyrgyzstan) is a new- dia’s ‘Connect Central Asia Policy’ in full advantage of the FTA. comer among regional integration 2012. Connect Central Asia Policy is organizations. It has been operating expected to bring numerous bene- — Could you, please, give more as a Customs Union since 2011, and fits to both the sides. India is de- details regarding financial aspects as an Economic Union since 2015. Es- pendent on imports for its energy re- of the Free Trade Agreement? tablishing the EAEU is no doubt a quirements. EAEU with its vast oil — The FTA specifically aims to landmark achievement for its mem- and gas resources can no doubt increase trade and commerce be- bers after they had repeatedly en- emerge as a major non-OPEC player tween the member countries and In- dured two integrations «false starts» from which India can benefit. dia. However, for trade relationship in the 1990s and 2000s. At the same time, India is in a po- to flourish, there is a need to estab- EAEU is a common market of 182 sition to offer good and affordable lish basic financial arrangement for million people and has an aggregate pharmaceutical drugs that can help facilitating the flow of commerce. As GDP of approximately $2 trillion. in poverty alleviation measures and on January 2018, there are only two EAEU accounts for 3% of the world also is in a position to extend coop- major Indian banks in the region viz. GDP. In addition to geopolitical objec- eration by setting up civil hospitals / Commercial Indo Bank LLC, tives, it is based on a specific long-term clinics in Central Asia. There are also Moscow (60% owned by State Bank economic agenda viz. free mobility of discussions within Connect Central of India) and JSC Tengri Bank, Kaza- goods and services, labour and capital. Asia on setting up a Central Asian e- khstan (49% owned by Punjab Na- EAEU is a diverse market. The network with its hub in India, to de- tional Bank). Except for Russian Union’s largest economies are those liver tele-education and tele-medi- Banks, there is no major Central of Russia and Kazakhstan. The mak- cine connectivity, thereby linking Asian bank in India. ing of this union has created a large all the five Central Asian States. This Thus, as we move closer to the common market in pharmaceuti- will enhance the quality of human FTA, the bilateral financial relation- cals, a common market in power capital within the region. ship is in its infancy. Given the com- and a common market in oil and gas. It, therefore, comes as no surprise plementarities between the two re- Furthermore, EAEU member states that the Joint Feasibility Study Re- gions, India-EAEU member states are beginning consultations on a port of the Ministry of Commerce may soon have examined possibility very complex matter— creation of has concluded that the proposed of cooperation in the financial sector an EAEU financial regulator by Free Trade Agreement (FTA) is fea- through banking presence in both 2022–2025, a supranational financial sible and mutually beneficial. This the regions. At the same time, it may

5 ban and rural customers, a segment which is still characterized by small value transactions. The policy of the bank on Financial Inclusion is geared towards promoting financial education and making credit available to productive sectors of the economy, including the rural and MSME sectors. This is being done at the most affordable rates and it is en- sured that the benefits of all Govern- ment-run schemes reach the target population in full, without any leak- ages. The Bank has successfully leveraged technology for propagat- ing Financial Inclusion by introducing internet based Kiosk Banking, Card based and Cell phone messag- ing channels. As a result, SBI ac- counted for the largest share of accounts with around 35 percent under the Pradhan Mantri Jan Dhan In 1955, the Reserve Bank of India Yojana which led to universal bank acquired controlling interests of the coverage in India in 2014. In the coming years, the bank Imperial Bank of India and SBI was Shedding the normal stereotypes, «will look at various regions created by an Act of Parliament to SBI today is recognized as techno- of the globe including EAEU take over the functions of the Impe- logically advanced bank in the as a potential opportunity rial Bank of India. country. With the launch of sbiIN- SBI is the largest commercial TOUCH in 2014, State Bank of India bank in India in terms of assets, dewas the first Bank in India to intro- become imperative to open offices of posits, profits, branches and employ- duce the concept of «Digital Bank- general insurance companies in the ee strength. As on April 1, 2017 and ing». State of the art technology like region to develop risk mitigation after the merger of five Associate Debit Card Printing Kiosks, Interac- product for furthering trade and in- Banks & Bharatiya Mahila Bank, the tive Smart Tables, Interactive Digital vestment in the region. bank commanded a market share of Screens, Remote Experts through around 23% in the banking industry video call etc. were introduced to — And what could you tell us of India. According to The Banker providing a completely different ex- about the work of the State Bank magazine, as on 31st March 2017, the perience through online self-service of India? Bank ranks 54th among global mode. The key feature of these — State Bank of India (SBI) is one Banks in terms of assets. With 22,000 branches is that you can open your of the oldest financial institutions of plus branches, it has the largest savings bank account on Account India with a sterling legacy of over branch network in country catering Opening Kiosk (AOK) within 15 200 years, SBI is now serving more to providing a wide gamut of finan- minutes. than 420 million customers across cial services to its more than 420 the globe. million customers through its staff — And what does the interna- The origins of SBI date back to numbering 263,538. tional activity of SBI involve? 1806, when the Bank of Calcutta SBI has been at the forefront of Fi- — SBI being a Government was established. In 1921, the Bank of nancial Inclusion initiatives in India. owned bank has closely aligned its Bengal and two other Presidency The Bank is the pioneer in the Busi- business with stated development banks (Bank of Madras and Bank of ness Correspondent (BC) model, an goals of the Government of India. At Bombay) were amalgamated to alternative mode for providing the same time, it has not compro- form the Imperial Bank of India. banking services to cater to both ur- mised on commercial principles

6 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 which have made it one of the most tion of the retail franchise SBI UK fol- cial union within EAEU enhances profitable public enterprise in India. lows after Bank had opened its doors the positive outlook of the region Although the major share of its rev- to UK residents in 1921. because of its low dependence on enues comes for its domestic opera- In the coming years, the bank will foreign credits accompanied by con- tions, with the progressive liberaliza- look at various regions of the globe siderable structural similarities with- tion of India economy since 1992, including EAEU as a potential op- in the economies. So the best in our the Bank has developed a sizable portunity. The possibility of finan- relations is yet to come. foreign presence. Today, SBI has 207 offices in 35 countries. The International Operations of the Bank are generally guided by the overarching principle of supporting global Indian corporate, In- dian Diaspora and bilateral trade spread across geographies. The Bank is also focusing on local populace to tap local business in some countries such as in Nepal. In tandem with the domestic operations of the Bank, the International Banking Group (IBG) of SBI functions with considerable autonomy and has dedicated verticals in Credit & NPA management, Compliance, Treasury Management, Human Resources, Operations and General Banking issues. The international operations of SBI have always followed a smooth course owing to its policy of zero-tol- erance to non-compliance of regulatory prescriptions. Due to the global economic crisis, regulations in most countries, especially for Foreign Banks, have become very stringent leading to high compliance cost. The Bank has successfully announced the launch of its UK subsidiary, SBI (UK) Ltd in April 2018. Subsidiarisa- Founder’s page. FBA EAC

ASSESSMENT CENTER On February 16 there was a meeting of the Council for Professional Qualifications Development where it was GENERAL MEETING OF FBA EAC announced about registration of the FBA EAC Quali- fication Assessment Center (QAC). A. Bespalov, Chair- MEMBERS man of the Coordination Council of the Eurasian Cen- ter of Human Resources received the Registration Cer- On March 2, 2018 the Financial and Banking Association of Euro-Asian Coop- tificate. eration held the General Meeting of its members. The main topic of the discussion was Association’s activity in 2017, goals for SIGNED 2018, rotation of the members of the Supervisory Board and Coordinating Council, approval of amendments to the Charter of FBA EAC and approval of the new version of the Provisions of membership in FBA EAC. FBA EAC President B.Bayseitov headed the Meeting. In his speech he underlined the importance, awareness and credibility of Association. He stated as the main task of Association the development of effective financial instruments for business demands of the members and partners of Association. «FBA EAC has shifted from the traditional concept of a banking association as a structure for protecting the professional interests of a certain pool of participants, to the build-up of a multilevel client-focused system of relations between businesses and banking society», — said FBA EAC General Director Oleg Bere- zovoy. The Chairman of Coordinating Council A.Murychev touched upon the joint meetings of Supervisory Board and Coordinating Council in 2017. They covered such issues as integration of SME into the common exchange system in On March 8, 2018 a Memorandum of cooperation was the EAEU area; installation and development of multicurrency clearing system; signed with the Association of trade entrepreneurs of launch of the international net of HR service and qualification assessment cen- Kazakhstan. The signees of the Memorandum were ters to serve labor migration, etc. And decisions taken at those meetings, be- the Vice-President of the Association of trade entre- came the basis for the report of Department of economic and financial policy preneurs of Kazakhstan Zh. Azhibaeva and the Gen- eral Director of FBA EAC O. Berezovoy. of EEC, which certainly highlights the importance of the projects, carried out by FBA EAC under the auspices of EEC. For the future the Meeting approved the following focus areas for the Associ- ation: the ongoing project of common exchange area on the territory of Eurasia, development of multicurrency clearing and transferring it to blockchain technology platform, creation of the centers for personnel training and customs audit in EAEU, development of the «bank of projects» with innovative financial instruments, launch of financial and investment funds. The agenda also included program projects of FBA EAC. In 2017 FBA EAC Qual- ification Assessment Center was registered and the first Assessment Center in Armenia (Erevan) was launched at the premises of Russian-Armenian Univer- sity. On April 5, 2018 a Memorandum of cooperation was signed with the Eurasian business union. The signees Resulting from the reports of the management and the Audit Commission of of the Memorandum were the General Director of Association the Meeting recognized the work of Association acceptable, point- FBA EAC O. Berezovoy and the Chairman of the ed out its progress and approved the focus areas for 2018. Board of the Eurasian business union V. Kambolov.

8 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 FBA EAC DEVELOPS TIES WITH ITALIAN BUSINESS On March 22, 2018 the Chairman of Coordinating Council of BUSINESS TRIP TO FRANCE FBA EAC A. Murychev and the General Director of FBA EAC On March 8–10, 2018 the Association management visited Paris O.Berezovoy had a business meeting with the President of with a business trip. At the meeting the Association was repre- AREZZO FIERE E CONGRESSI Srl (Italy) Andrea Boldi. sented by the Chairman of Coordinating Council A. Murychev The parties decided to develop cooperation and to organize a and General Director Oleg Berezovoy. The French party was rep- special session for jewelers, within the framework of the Fifth resented by Ive Pozzo di Borgo and the member of the Manag- Moscow international financial and economic forum «Eurasian ing Board of Claresco Finance Lai Kamara, a well-known French Union and the EU: search for new formats of cooperation». The lawyer and international mediator. Forum will be held on November 30, 2018 in Moscow. The parties discussed ways to attract to FBA EAC platform the representatives of business society from Europe, Africa and the Middle East, the opportunities of interaction with the French- Russian Chamber of commerce and the perspectives of investment fund. The Association also offered some other projects to be fulfilled in France. The parties agreed that the work of French business on FBA EAC platform will provide for new prospects and allow to use the whole range of financial and trade instruments, available in the Association and implement them on the territory of Eurasia. DEVELOPING BRANCH NETWORK New FBA EAC Representative offices were opened at the beginning of the year. COURSE ON CÔTE D'IVOIRE

In April, 2018 Deputy General Director of FBA EAC Egor Ivankov visited Cote d’Ivoire. On April 11, 2018, together with Marc-Olivier Tetchi, FBA EAC Head of Representative office in Cote d’Ivoire, he held a press-conference where he spoke about future business projects of FBA EAC on the territory of Cote d’Ivoire. These projects will be implemented with the help of the company SALUS, which has recently entered African market and is rapidly developing there now. Jerome Clausen, Marc-Olivier Tetchi, Yaghoup Jamali, Head of Representative Head of Representative Head of Representative Projects cover a wide range of areas such as education, scientific office in France office in Cote d’Ivoire office in the Islamic research and agriculture. Republic of Iran

9 RSPP news

FINANCIAL FORUM-2018 FINANCIAL AND BANKING SYSTEM OF RUSSIA: NEW CHALLENGES

AND TRENDS www.рспп.рф

IN EARLY FEBRUARY WITHIN THE RUSSIAN BUSINESS WEEK THE ANNUAL FINANCIAL FORUM WAS HELD BY THE RUSSIAN UNION OF INDUSTRIALISTS AND ENTREPRENEURS (RSPP). UNLIKE THE PREVIOUS MEETINGS BETWEEN ENTREPRENEURS AND REGULATORS, THE HALL- MARK OF THIS FORUM WAS A UNITED SESSION WHICH COVERED THE MOST CRUCIAL CHAL- LENGES OF THE NATIONAL FINANCIAL SYSTEM. AS ONE BUSINESSMAN MENTIONED THE FORUM COULD HAVE THE SLOGAN: «IF EVERYTHING IS GOOD, IT MEANS WE DON’T HAVE FULL INFORMATION».

10 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 A. Shohin, President of the RSPP A. Murychev, Executive Vice-President of RSPP, Chairman of Coordinating Council of FBA EAC

his welcoming — challenges of 2018; planning and financing of business speech the pre- — governmental plans for regula- processes. sident of RSPP tion update; Representatives of the Russian Alexander Sho- — future of digitalization in fi- business pointed out that they sup- Inkhin pointed out that in this coun- nancial intermediation and banking port the CBR’s efforts of the recovery try there are general macroeconom- sector in particular. in banking system and financial mar- ic conditions for economic growth ket in general and they understand due to the Bank of Russia and its ef- Positives of 2017 that in 2018 the trend will remain. It forts. «At the same time the demand First of all the forum participants un- was mentioned that in 2015 licenses from business is still unsatisfied with derlined that the Central Bank of were revoked from 93 commercial regard to long-term financing and Russia had managed to stabilize in- banks, in 2016 there were 97 such funding of investment projects, a flation growth, to achieve and even banks, in 2017 — 47. Last year licens- number of business areas face the exceed the announced target of in- es were revoked from 30 insurance lack of working capital financing. flation for 2017. The regulator was companies, while in 2015–2016 150 And a logical question emerges: how planning to decelerate nominal in- insurance companies left the mar- to balance the interests of govern- flation down to 4 percent. But ac- ket. Other segments of the Russian ment, corporates and commercial cording to Rosstat, customer infla- financial market find themselves in banks», — said Shokhin. tion was at the level of 2.5 percent by a similar situation. The forum moderators A. Mury- the end of the year. And it is the The regulator’s efforts to improve chev, the vice-president of RSPP, the lowest level since 1992. For the cur- discipline and responsibility of com- Chairman of the Coordinating rent year the Bank of Russia expects mercial banks for adherence to pru- Council of FBA EAC defined several the inflation of consumer prices dential requirements have led to a hot topics for discussion: again at the level of 4 percent. This more open financial intermediation. — positives of 2017; stabilization created conditions for In future it is supposed to raise trust

11 Another positive moment of the year 2017 was a slight drop in the share of non-performing loans in the banks’ loan portfolios which also means a certain stability. According to the Bank of Russia in 2017 the share of non-performing loans reduced from 6.72 percent in the beginning of the year (after the peak of 7.39% in March) to 6.68 percent. A little bit more considerable reduction of NPL share was in the retail loans — from 8.1 to 7.3 percent. in credit organizations from the firm this. The interest-rate policy of Total assets of the banking sector part of business and individuals, to the banking sector followed the in- in 2017 showed growth of 4.9 per- calm situation in the interbank mar- terest-rate policy of the regulator cent or RUB 3.9 tn. after their drop ket, reduce credit and operational (see chart). Moreover for some in 2016. The fastest growth was in re- risks. credit products the interest rate was tail lending: the retail loan portfolio In spite of the drastic cut in the decreasing faster than the CBR key grew during the year almost by RUB number of commercial banks the rate. 1.5 tn. or by 14 percent. And the re- population and companies still trust The biggest reduction of interest tail lending contributed 38.4 per- the national banking sector. It is rates on loans is for the products cent into the growth of total assets. reflected in the rise of deposits by supported by the state programs, in The main part of lending was mort- 7 percent from individuals and by particular mortgage loans. gage loans. 9 percent from legal entities. Among positives of 2017 the par- During 2017 the Bank of Russia ticipants stressed good profits of the Challenges of 2017 reduced the key rate 6 times from sector: in spite of a drop of 15 per- 10 to 7.75 percent. In early 2018 the cent in comparison to 2016, it still Share growth of public sector banks regulator keeps to this policy (on amounted to RUB 790 bn. Accord- February 9 the Supervisory Board of ing to regulator among 515 commer- Approving the support for the Cen- the Bank of Russia reduced the key cial banks 420 reported about prof- tral Bank’s recovery policy, the par- rate by 25 b.p. to 7.50 percent). itability. It is worth mentioning that ticipants expresses concerns about Basically it resulted in lower RUB 647 bn. (81.9%) from RUB 790 the policy of nationalization of fi- rates both for corporates and indi- bn. of profits was earned by Sber- nancial intermediation and narrow- viduals. And the CBR statistics con- bank of Russia. ing of space for private business. The fact that unbalances market compe- Dynamics of average market interest rates on loans in 2017, % tition seems to be the concentration Resource: www.cbr.ru/statistics/?PrtID=int_rat of ¾ of total assets in the banks with a large share of public sector. Loans January November Average 2017 2017 decrease, In late 2017 only two private com- p. p. mercial banks were in the top 10, Consumer loans, incl. up to 1 year 22,88 19,66 3,22 and five in the top 20. However experts estimate that there are only Consumer loans, over 1 year 16,85 14,09 2,76 three banks, totally independent SME loans, 14,77 12,79 1,98 from the state, and in 2016 there incl. up to 1 year were eight. The share of public cred- SME loans, over 1 year 12,78 9,94 2,84 it organizations grows, while the Non-financial entities loans, 11,61 9,67 1,94 space for private banking business incl. up to 1 year narrows. Non-financial entities loans, 12,46 9,74 2,72 State banks already dominate in over 1 year the markets of the most attractive banking products. Their expansion

12 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 is also backed by the direct legislative acts determining the lists of banks with which the most effi- cient Russian companies should be. As well as the lists of credit organizations allowed to provide certain services (for example guarantees for budgetary contracts); take deposits of temporally available state funds; maintain accounts of the funds for overhaul of apartment blocks etc. Such approach of legis- G.Tosunyan, President of the Association A. Aksakov, Chairman of the Council of lators on the one hand aims at the of Russian Banks the Association banks of Russia, Chairman safety of budgetary funds and on of the State Duma Committee on financial market the other hand gives privileges to public banks and unbalances mar- The demand — supply mismatch ty of their collateral. Banks must stick ket competition. in loans to rules, but companies can’t ensure it. Another challenge is that the pos- Moreover according to G.Tosun- sibility of certain services depends In spite of the fact that last year the yan, the President of the Association on the capital amount of a credit or- banks managed to increase their loan of Russian Banks, credit organiza- ganization, and it also gives better portfolios, their structure has nega- tions are more and more cooperat- opportunities to public sector banks. tively changed. Thus during the year ing between each other rather than Thus the Directive of the Govern- there was a cut in the share of loans financing the real sector of economy. ment of Russia #986 dd. 19.08.2017 to non-financial organizations. The During the year total liquidity of the determines the placement order of most considerable cut was seen in banking sector increased by 26 per- budgetary funds in the accounts of the share of loans longer than 3 cent, banks’ funds on accounts — by commercial banks with the follow- years — from 15.88 to 9.54 percent. 57 percent, corporate loans portfo- ing requirements: general license, Corporates had sustainable demand lio — only by 0.2 percent, consumer equity capital not less than RUB 250 for development loans, but not al- loans — by 7 percent. bn., ACRA credit rating not lower ways did they have possibilities to than A+(RU), ExpertRA rating not satisfy it due to numerous problems: Governmental measures lower than ruA+, participation in — non-financial organizations are the deposit insurance system, debt not happy with high interest rates Better regulation environment clearance. on over one year loans, while banks The CBR’s policy of discipline im- can’t decrease them because of ex- In his speech A. Aksakov the Presi- provement in the banking sector is pensive funding; dent of the Association «Russia», followed by license revocation — — required additional reserves of Chairman of the State Duma Com- starting from the beginning of 2018 credit organizations. Although offi- mittee on financial market told the regulator revoked licenses from cially the NPL level decreased in about the plans of deputy corps re- 6 commercial banks. According to 2017, according to ACRA rating garding the improvement of regula- RIA Rating in the mid-run at least 4 agency its actual level is much high- tion in financial intermediation. He commercial banks from top-50 er — 12–15 percent. According to da- pointed out the following steps: might be recognized insolvent, be ta last year the number of bankrupt — amendments to the current deprived of license and be exposed legal entities grew and in the second legislation with a stress on the use of to financial rehabilitation. As a result part of the year the growth speeded independent rating agencies, not on there still remains high volatility on up by 12.4 percent over the same pe- the capital amount of financial inter- interbank markets and mutual mis- riod in 2016. All together 13 557 mediaries when determining their trust of players. In particular it is in companies were adjudged bankrupt access to budgetary services (there evidence with regard to the growth during the year — same level as in is positive experience in housing; of funds which are mostly kept in 2009, the crisis year; currently the State Duma discusses the Bank of Russia and not put forth — strict requirements to solvency different offers including the ones to interbank markets. of potential borrowers and the quali- from the banking society);

13 — amendments to the legal acts aimed at deoffshorization of the Russian economy, revision of the list of financial centers which prohibit transactions for Russian residents (besides it will demand changes into the legal regulation of the idea of «foreign investor»); — preparation in the State Duma of legislation for the new tax amnesty;

— the functions and responsibili- S. Shetsov, the First Deputy Governor of A. Afanasyev, Chairman of the Board of ties of the financial ombudsman for the Bank of Russia PAO «Moscow Exchange» insurance sector have been coordinated in the committees; federal law a draft law regarding transactions offer a long-term governmental pro- is pending; with derivatives, but a number of is- gram of development of the national — the State Duma has approved sues weren’t approved (including financial market up to 2020. The the spread of deposit insurance re- the obligatory margining of deals); Bank of Russia believes that the quirements to SME funds in the — the regulation of information medium and long-term financing amount of RUB 1.4 m. (the relevant economy is also being actively dis- demand will be satisfied due to a draft law is expected during the cussed, as well as two draft laws number of measures: spring session); from the Ministry of Finance of Rus- 1. In 2017 the Federal Law #486 — there is also a draft law (passed sia and the Bank of Russia (a com- dd. 31.12.2017 «On syndicated cred- the second reading) to increase the promise not found yet). it (loan)» entered into force. It de- attractiveness of exchange market termines this product and allows to for private retail investors — it im- Available development funding combine funds of credit organiza- plies insurance of funds on individ- tions and non-banking companies ual investments accounts; According to S. Shetsov, the First for long-term development lend- — another draft law has passed Deputy Governor of the Bank of ing. the first reading in the State Duma — Russia, this year the regulator will 2. The regulator takes efforts to encourage companies to raise funds in the exchange market, and these efforts turned out to be successful. For example corporate bonds grew by almost 20 percent in a year. The trend is confirmed by A. Afanasyev, Chairman of the Board of PAO «Moscow Exchange». He underlined that last year Russian companies IPO peak was exceeded. He also listed some hallmarks of the process: — medium size companies have started IPOs; — there are more «double issues» (16) when issuers place securities simultaneously at the Moscow Exchange and at other foreign exchanges; — large Russian issuers leave foreign markets, list at the Moscow Ex- change and shift their trades to the national trading platform.

14 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 bank’s model is based on market principles, and the corporate management is based on an effective model. With these requirements met the work of a state bank doesn’t really differ from the privet ones, and they shouldn’t be opposed. Nationalization of the banking sector is the result of its recovery. The Central Bank doesn’t strive to become the owner of the rescued

M. Rastrigin, First Deputy Minister D. Tulin, First Deputy Governor of the banks. At the same time the state Bank of Russia can’t refinance insolvent commercial banks with budgetary money: if 3. Banking sector recovery in the MED is responsible for budgetary budgetary money is contributed to last few year lead to decrease in the transfers, while the control bodies capital of a rescued bank, the state number of investment banks, and as are entrusted with a duty to control must become its owner. a result there is a deficit in national conditions, goals and the order of Today public sector banks start to underwriters. The Bank of Russia is these transfers. VEB is «appointed» compete with each other, and the now working on the solution to the a «factory» manager, responsible for trend is likely to develop. In the end problem. selection of investment projects, and it will improve banking market com- At the same time, according to an organizer of syndicated loans. petitiveness. New market players S.Shevtsov, the activity of issuers is There are several sources of fund- (rescued credit organizations), well restricted by the unwillingness of ing the «factory»: asset contribution capitalized and excess liquidity will many Russian companies to become and federal budget subsidies, long- also drive the competition. public and disclose information term public bond offering via special Another line of regulator’s efforts about their activities. association of project finance (SAPF), for the development of fair compet- 4. The Central Bank’s manage- syndicated loans with participation itiveness on the banking market is ment thinks that the development of private investors. M. Rastrigin the support for small and medium of digital technologies will stipulate says the bond financing is expected credit organizations. The entry into Russian companies to openness to cover 40 percent of the «factory’s» effect of the Federal Law # 92-FZ on which will diversify funding re- funding demand. MED assumes it proportional banking regulation sources. will develop the Russian bond mar- will allow small and medium credit 5. In future the regulator is going ket, and the players will get a reli- organizations to get license and con- to lay stress more on independent able debt instrument. tinue their activity and support of rating agencies and audit with re- Besides long-term financing gives local economies. gard to prudential requirements. the project another advantage — However G. Tosunyan says that But it will become fully possible on- low fixed interest rates for the whole the long list regulatory measures ly after the reform of audit. period of investment projects. doesn’t include two important offers According to M.Rastrigin, First of the Association of Russian Banks: Deputy Minister, investment fund- The role of public sector banks — to create a «bad debts bank» ing will become more available in which would imply a prevention 2018 due to a new mechanism, D. Tulin, First Deputy Governor of mechanism of bankruptcy or banks worked out by the Ministry of Eco- the Bank of Russia underlined that rehabilitation. Such bank could ac- nomic Development of the Russian the regulator has no certain plan re- cumulate bad debts on a preventive Federation. The mechanism is called garding the number of banks in the base (in proportion to bank’s capi- a «factory of project finance» creat- country, and CBR doesn’t aim to na- tal). Rehabilitation is certainly better ed at the premises of VEB. MED as- tionalize the banking sector. It has than bankruptcy, but the best is not sumes that the «factory» will soon be the only task — higher quality of the to allow either of them; launched, and later the largest Russ- banking business. — to decrease regulatory burden ian banks can join it, such as Sber- According to D.Tulin the form of on banks. One should realize that bank, VTB and Gazprombank. property doesn’t really matter if the the uprise of crypto currencies is the

15 should tackle the following five is- the premises of Ministry of Telecom sues: and Mass Communications of the 1) normative regulation of digital Russian Federation. The regulator economy; estimates that it will improve com- 2) establishment of relevant in- petitiveness because the clients will frastructure; be able to quire terms from several 3) cyber security; banks and chose the most favorable 4) staff training; ones. Here the main challenge is per- 5) development of professional sonal data security without banks competence in digital economy and participations; research. — instant payments system. In

O. Skorobogatova, First Deputy Governor Today the chaotic development the coming year cards are expected of the Bank of Russia, member of the of the retail digital market is a real to remain as a means of remote ac- Supervisory Board of CBR challenge for regulatory authorities. cess to a bank account, while new Discussions of laws showed that au- types of payments will develop. The result of excess banking regulation thorities agree on basic notions, but instant payment system is expected which forces financial intermedia- don’t have a consent on the possibil- in 2019; tion to less regulated segments. ity to exchange crypto currencies — a wide application of innova- for fiat currency. The Bank of Russia tive financial technologies which Future digitalization of considers crypto currencies as high will require profound tests and risk banking sector risk for average consumers. assessment. With this aim the Bank All representatives of banking soci- At the same time innovative finan- of Russia has initiated the so called ety pointed out that it’s hard to cial technologies have huge potential. «regulatory sandboxes». plan business without certain regu- So the regulator must find a compro- As for the digital platforms of lation of innovative financial tech- mise between the development of credit organizations, the Bank of nologies. The CBR’s position was new technologies and protection of Russia believes that its product cleared out by O. Skorobogatova, customers’ interests. A draft law is ex- won’t push out other incentives First Deputy Governor of the Bank pected by the end of the first quarter from the market. of Russia, member of the Superviso- of 2018 in the State Duma regarding The speech of O. Skorobogatova ry Board of CBR. She stressed that digital deals and assets. was added by her colleague S. Shev- the use of digital technologies posi- The Bank of Russia is working on tsov who said that the risks of digi- tively influence the economic a number of research projects: talization in financial intermedia- growth. But to take the full advan- — remote identification plat- tion are stipulated by a human fac- tage from them the Central Banks form — in force from 01.06.2018 at tor. The Federal Law on business reputation of financial market players means that all of them should be responsible for the financial risks taken. Now the Central Bank is working out amendments and an- nexes to the Code on corporate governance to raise the responsibility of banks’ owners for the reliable financial figures, business decisions and negligence. Yet another task is to balance the rights of Board members to take business decisions and their responsibility for the results of these decisions.

RSPP Commission on Banks and Banking

16 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 award winner

FROM TRADITIONAL BANKING TO THE DIGITALIZATION OF FINANCIAL SERVICES

THE BANKING SECTOR PLAYS AN IMPORTANT ROLE IN THE SUCCESSFUL DEVELOPMENT OF THE COUNTRY'S ECONOMY. HOW ONE OF THE SYSTEMICALLY IMPORTANT BANKS OF KYRGYZSTAN — «OPTIMA BANK» — OPENS UP NEW DIGITAL OPPORTUNITIES FOR FINANCE, SUPPORTING TRADITIONAL BANKING PRODUCTS, BEIBUT KAPYSHEV, CHAIRMAN OF THE BOARD OF «OPTIMA BANK» OJSC SAYS.

www.optimabank.kg hat a position pendent Kyrgyzstan’s formation a lish high-net-worth-segment of pri- does «Optima quarter of a century ago, and there vate individuals with maximum in- Bank» hold on are young students who only recent- comes) provides for a number of the market now? ly used our banking services to pay features and an individual service What is its role in for online learning or buy a new- system and a range of banking prod- Wthe development of the banking fashioned gadget on the Internet. ucts. sector and the economy of Kyr- This is really a large scale of the ac- We also give full attention to the gyzstan? tivities of our bank, which allow us work with small and medium-sized — Today, the situation of «Opti- to offer the full range of banking businesses. In terms of lending, «Op- ma Bank» in the domestic banking services, serve the broadest cus- tima Bank» and the EBRD almost system is truly unique. «Optima tomer audience, successfully imple- every year sign loan agreements, Bank» is a stable financial institution, ment innovations and move the which are used to finance small and a bank with a good balance sheet economy of Kyrgyzstan forward. medium-sized businesses. structure, a diversified loan and de- Since «Optima Bank» is universal, Taking into account the develop- posit portfolio, and a balanced geo- we serve a very wide range of con- ment of Internet trading, «Optima graphical coverage throughout Kyr- sumers. Bank» is actively working in the gyzstan. Among the bank’s customers are field of Internet acquiring, which By the end of 2017, the market the largest companies, both regional enables Kyrgyz trade and service en- share of «Optima Bank» was 24%, and global. The structure includes a terprises to accept payment cards of the loan portfolio — 15%, the client separate unit that works with large international payment systems Visa deposit base — 16% according to net corporate customers. A special office International, Union Pay Interna- profit; these figures undoubtedly has been opened in the capital to tional and Elkart national payment bring us to the leading position in work on short-, medium- and long- system for the payment of goods the banking sector. The bank is one term loans, structured trade and and services through POS-terminals. of the largest taxpayers in Kyrgyzs- project financing for corporate cus- The bank’s focus on building a dig- tan. The amount of taxes paid to the tomers, for example, pre-export fi- ital society and transferring business budget for 2017 is KGS 333.5 mln, for nancing of commodities transac- to a new digital age is one of the main 2016 — KGS 361.4 mln. tions, operations with financing of directions now. Therefore, we are ac- About 1,000 employees in more import liquid goods transactions, tively developing non-cash pay- than 52 offices across Kyrgyzstan and imports of equipment for local ments, regularly conduct marketing serve more than 186,000 customers. producers, warehouse operations campaigns aimed at motivating the and financing of local sales. population to switch to online pay- — Who are the key customers The VIP-service center of «Opti- ments gradually. Internet banking of the bank? ma Bank» provides Private Banking OPTIMA24 is just one of the main — Customers are our main asset. services. Financial services for afflu- tools for digitalizing financial retail Among them — accomplished busi- ent customers are allocated in a sep- services for the Kyrgyz citizens. nessmen who started their entrepre- arate line of business, since working We are striving for digitalization neurial path at the dawn of inde- with the HNW segment (from Eng- to make the business more flexible,

18 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 adapted to the realities of the mod- guished by using advanced tech- — In what direction does the ern day, competitive in the emerg- nologies in conducting banking bank plan to develop in the fu- ing «digital world», bringing cus- transactions) 7 times in a row. «Opti- ture? What are the plans? tomers an excellent result and a sta- ma Bank» has been annually award- — We are facing new challenges, ble profit to shareholders. ed a diploma «The Best Bank of Kyr- and «Optima Bank» looks at the fu- gyzstan» for the 1st place in a rating ture with optimism. It is planned to — What makes the work of of banks of the Kyrgyz Republic ac- significantly expand the network of «Optima Bank» so successful? The cording to the results of the financ- ATMs and payment terminals, intro- main factors? ing activity conducted by the infor- duce many interesting banking — The basis of bank positioning mation resource Tazabek (AKIpress) products that will make our cus- is laid down in the slogan: «Conve- for 8 years in a row from 2010 to tomers’ lives more comfortable, in- nience. Technologies. Reliability» 2017. cluding the implementation of high- For more than 25 years of active In 2017, «Optima Bank» became tech projects in the field of payment and stable work, the Bank has confi- the award holder of the internation- technologies and Internet payments. dently become one of the leaders of al prize «Financial and Banking Elite «Optima Bank» is always up to the banking system of the country of Eurasia» established by the Finan- speed on the situation, we under- and has acquired a reputation of the cial and Banking Association of Eu- stand where, how and why the mar- most dynamically developing bank, ro-Asian Cooperation (FBA EAS), ket is moving, we stay one step ahead a reliable partner that respects the having won the «Standard of Relia- of it, and we forecast trends in the interests of its customers and share- bility and Development» nomina- modern world where everything holders. The Bank was recognized as tion. changes with the speed of Internet a leader in the nominations «Bank Three pillars, which the success- signal transmission. This particular No.1 in Kyrgyzstan», Domestic Re- ful activity of «Optima Bank» is model allows us to carry out a tail Bank of the Year according to based on, is high professionalism of smooth transition from traditional the financial edition of the «Asian the work collective, competent banking to fintech-innovations. In Banking and Finance» and Kyrgyzs- management, customer-oriented ap- addition, we carefully lead the way tan Domestic Technology & Opera- proach, raised to the highest degree, our customers, offering them the best tions Bank of the Year (award given modern technologies of business service, up-to-date banking products, to the financial institutions distin- management and quality control. and a high degree of reliability.

19 FINANCIAL & BANKING ASSOCIATION OF EURO-ASIAN COOPERATION

WWW.UB.KG

Forum topic: Banking technologies, services and payments Green economy and sustainable financing Information Security

June 1–2, 2018 Bishkek — Issyk-Kul, Kyrgyz Republic

Bishkek International Finance Forum is an annual major business event, which is an optimal platform for exchang- ing opinions, discussing the latest trends in the financial sector, offering ready-made solutions, announcing already begun projects, finding partners in the Kyrgyz Republic and other countries. Rustam Sarybaev: [email protected] +996 312901058+108 The largest company in Kyrgyzstan operates as a multifunctional holding company, which through its subsidiaries provides services in the sphere of law, ﬁnance, industry production, agricultural production, building construction, economics, sales and marketing

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5000 workplaces export of products to a number of countries more than 30 dynamically reliable and stable partner developing companies

distribution of food and beverages fair and open competition throughout Kyrgyzstan

new technologies in production 12 partner countries and progressive methods of wor

close-knit team of professionals BANK. BANK. BANK

INTERNATIONAL INVESTMENT BANK GOES TO A NEW STAGE OF ITS DEVELOPMENT

www.iib.int

The results of the Bank's activities in “2013–2017 consolidate its new quality as a modern multilateral institution of development, demonstrate the success of the comprehensive reform DEMCHIGJAV MOLOMJAMTS Senior Advisor to the Board of the International Investment Bank. Doctor of Economic Sciences, Honored Economist of Mongolia Date and place of birth: September 17, 1951, Zavkhan Aimag, Mongolia. In 1975 he graduated from the Irkutsk Institute of National Economy with a specialization in «Finance and credit». From 1975 to 1982 he held a position of economist and then became the senior economist and a Head of the Foreign Exchange Policy Department in the Ministry of Finance of Mongolia. From 1982 to 1984 — Head of the Budgetary Policy Department of the Min- istry of Finance of Mongolia. From 1984 to 1990 — Minister of Finance of Mongolia. From 1990 to 1992 — Minister and Head of the Government Office of Mongolia. From 1992 to 1996 he worked as Governor of the Central Bank of Mongolia (Mongolbank). From 1996 to 2016 he was a Member of the Board, Deputy Chairman of the Board at the International Bank for Economic Co- operation.

22 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 THE INTERNATIONAL INVESTMENT BANK (IIB) IS ONE OF THE OLDEST DEVELOPMENT BANKS IN THE POST-SOVIET SPACE. IT WAS ESTABLISHED IN 1970 BY MEMBER COUNTRIES OF THE COUNCIL FOR MUTUAL ECONOMIC ASSISTANCE (CMEA) FOR THE IMPLEMENTATION OF INVESTMENT PROJECTS OF THE MEMBER COUNTRIES OF THIS BLOC. INITIALLY, ALL FOR- MER SOCIALIST COUNTRIES WERE ITS FOUNDERS. THE AGREEMENT ON THE ESTABLISHMENT OF IIB AS AN INTERNATIONAL FINANCIAL INSTITUTION WAS REGISTERED IN THE UNITED NATIONS SECRETARIAT UNDER NO. 11417. IIB'S HEADQUARTERS ARE LOCATED IN MOSCOW, AND SINCE 2015 THE EUROPEAN REGIONAL OFFICE OF THE BANK OPERATES IN BRATISLAVA. IN SOVIET TIMES, IIB WAS THE LARGEST INVESTMENT BANK IN THE TERRITORY OF THE CMEA MEMBER COUNTRIES AND DUE TO ITS FINANCING MANY LARGE FACILITIES WERE BUILT AND PUT INTO OPERATION. OVER THE ENTIRE PERIOD OF ITS ACTIVITY, THE BANK TOOK PART IN LENDING TO MORE THAN 200 FACILITIES IN VARIOUS COUNTRIES AND PROVIDED LOANS WORTH MORE THAN 7 BILLION EUROS.

fter the collapse of accordance with the mission and ob- a multilateral development institu- the world socialist jectives, the main directions of the tion, has as its main objective the system a new his- transformation and the tasks are de- promotion of economic growth, the tory of the fined, the implementation of which enhancement of the competitiveness Bank's development began. From will enable IIB to successfully devel- of national economies, the expan- Athe Bank came out East Germany, op and actively support the sustain- sion of trade and economic relations Hungary and Poland, and in place of able development of member coun- and the possibility of interaction in Czechoslovakia formed the Czech tries. the investment sphere in the inter- Republic and Slovakia, and they be- Over the past 6 years, the Council ests of the member countries. Refus- came members of the Bank. Hun- and the Bank's Board have been car- es from the principle: one country gary in 2015 returned to the IIB. rying out purposeful work to trans- has one vote. Henceforth, in making Thus, today the members of the In- form the IIB into a modern financial decisions in the Board of Governors ternational Investment Bank are development institute. An impor- and in the Board of Directors, each nine countries: Bulgaria, Vietnam, tant stage in the Bank's reform was member of the Bank is vested with Hungary, Cuba, Mongolia, Russia, the decision of the 101st meeting of the number of votes, in proportion Romania, Slovakia and the Czech the Bank's Council of May 8, 2014 to the amount of its share in the paid Republic. Today the bank provides (Havana, Cuba) on introducing share capital of the Bank. Increased three continents: Europe, Asia and amendments to the Agreement on authorized capital to EUR 2.0 billion Latin America. Totally, the coun- the formation of the International and the unpaid portion of the quotas tries-members of the bank occupy Investment Bank and its Charter. All distributed among members of the 14.4% of the Earth's territory, and member countries approved and Bank is capital on de- their population is 4.1% of the signed the Protocol on Amendments mand, which will be world's population. Thus, IIB be- to the Agreement on the Formation used to increase the comes an economic bridge linking of the International Investment Bank paid authorized countries located on these conti- and in the near future, after receiv- capital of the nents. Russia is the main shareholder ing the written consent from all Bank. Based on of IIB, it owns almost 50 percent of member countries regarding the im- the experience the paid part of the authorized cap- plementation of the internal proce- of internation- ital of the bank. The mission of the dures for ratification of the Protocol, al financial in- bank is to promote socio-economic the Bank passes to the application of stitutions, development, increase the welfare new statutory documents. The goals the bank of the population and economic co- and objectives of the bank are de- moves to a operation of member countries. In fined in a new way. The Bank, being three-tier management system. The Bank's formation of IIB into a modern mul- credit and investment activities of management bodies are the Board of tilateral development bank. the Bank. For successful develop- Governors, the Board of Directors An important stage in the further ment of lending activities, the Bank and the Management Board. The development of the Bank, was the pays special attention to the forma- highest collegiate management body successful implementation of the IIB tion of the client base, which in- of the Bank is the Board of Gover- Development Strategy for 2013–2017, volves attracting more reliable bor- nors. The Board of Directors is the approved by the Council of the rowers and expanding the geo- collegial management body of the Bank in June 2012. One of the most graphical diversification of the loan Bank, which exercises overall man- important directions for the imple- portfolio by strengthening the coun- agement of the Bank's activities. The mentation of the Bank's Strategy is try approach, which implies greater IIB member countries are faced with credit and investment activity. The proportionality between the share new tasks related to ensuring not on- bank refuses from the old practice of of the particular member country in ly economic growth, but also a qual- point-to-point lending facilities and the bank's capital and the amount of itative improvement in the life of the gradually shifts to new priorities of credit resources allocated by the population, formation of a favorable credit activity, in particular, to par- bank for borrowers from this coun- environment for the development of ticipate in syndicated lending and to try. Within the framework of the man and society, ensuring long-term provide investment resources to re- Bank's Strategy for 2013-2017, the IIB prospects for socio-economic devel- gional and national financial institu- Board together with its member opment, and deepening the develop- tions to support small and medium- countries developed and implement of economic cooperation sized entrepreneurs. mented country strategies that take among member countries of the The spectra of the products and into account the national interests of Bank. These and other time factors services provided are substantially the member countries, as well as the are taken into account in the trans- expanded, first of all, within the economic situation in them. In par-

24 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 ticular, in determining the most im- of the Bank. Over the past five years, Bank's assets will increase by 2.4 portant prospects for the positioning the Bank's own funds, including times as against 2015 and by 53% of IIB in each of the member coun- paid-up share capital, have increased compared to 2017. The loan portfo- tries, the level of development of its by more than 90 percent. The results lio will increase by 46.8% compared financial and credit system is taken of the Bank's activities in 2013 -2017 to 2017, and own funds by 10%. In into account, as well as the need to consolidate its new quality as a mod- accordance with the decision of the invest in certain areas of the econo- ern multilateral institution of devel- 108th meeting of the Council of De- my. Thus, the Bank's activities are opment, demonstrate the success of cember 8, 2017 (Bratislava, Slova- fully oriented towards the member the comprehensive reform and the kia), the Bank's Management Board, countries and is guided by the prin- first results of the implementation of since 2018 ciple of replenishment of national the updated development strategy. launches a new IIB capitalization economies of the member countries The bank carries out with one party, program, and Mongolia has already of the Bank. This made it possible to more conservative, but with another increased its share in the authorized simplify the procedure for raising relatively balanced credit, invest- capital in the amount of 2.0 million funds on the world capital market ment and deposit policy. In one euros since the beginning of this year. on acceptable terms, including words, the Bank began to form a bal- Over the past five years, IIB has through the issue and placement of anced strategy in the credit, invest- established business relationships Eurobonds by the Bank. The bank ment and deposit spheres. As a re- with the main economic institutions received international investment- sult of these measures, the financial of member countries, in particular, grade credit ratings: The interna- position of the Bank becomes even chambers of commerce and indus- tional rating agency Fitch Ratings more stable compared to 2012 and try, national development banks, has assigned IIB a long-term IDR at the balance sheet structure of the profile ministries and departments, the level of «BBB» and a short-term bank is improving. Over this period, as well as international financial in- IDR of «F2», a «positive» outlook. the loan portfolio has more than stitutions. IIB became a member of The Chinese rating agency Dagong doubled. As of December 31, 2015, the International Development Fi- assigned IIB a long-term IDR «A», a the Bank's asset is 1.1 billion euros, nance Club (IDFC). positive outlook. The international and thus, compared with the end of rating agency S&P assigned Long- 2014, assets increased 2.6 times. The term IDR at «BBB+» and Short-term capital adequacy ratio of CAR in ac- IDR «A-2» to IIB a «positive» out- cordance with the requirements of look,The Moody’s «Baa1» a «posi- the Basel Committee on Banking Su- Reference tive» outlook. These ratings are cur- pervision (Basel II) was 37.85%, Strategy implementation: larger loan portfolio rently the highest among all finan- which is a very good indicator char- The participation in syndicated lending together with the cial institutions based in Russia. Due acterizing the reliability and sustain- leading development institutes: to the receipt of these high invest- able development of the Bank. > EBRD — loan to XacBank of Mongolia, the forth important ment ratings, IIB, for the first time in Successfully implementing the bank and the leader in lending to small business in the its history, gained access to funding IIB Development Strategy for country; in the stock market, attracting re- 2013–2017, from the year 2018, the > International Financial Corporation — loan to Xac Bank of Mongolia, the largest lender in the country, and to sources, including from the largest IIB is gradually moving to a new Transcapitalbank, which ranks among top 50 Russian international financial structures. stage of its development. The Coun- banks by assets and capital; In accordance with the imple- cil of the Bank in 2017 approved a > The Dutch Development Bank — loan to Trade and Devel- mentation of the Bank's Strategy, new Development Strategy for the opment Bank of Mongolia; > VTB Capital — loan to the second largest phone company shareholders take step-by-step meas- Bank for 2018–2022. and thus since of Bulgaria Vivacom; ures to increase the Bank's own re- this year, the Bank is moving into a > Vnesheconombank — loan for construct completion source base. For the first time since new strategic cycle. In order to im- of the third and the forth blocks of Mochovce nuclear the bank was founded, it was decid- plement the new IIB Development power plant (Slovakia). ed to capitalize on it in the amount Strategy for 2018–2022, in March Opening of credit lines to special financial intermediaries for financing of SME in member-states: Bulgarian Develop- of 176 million euros, in particular 2018 the Bank's Management Board ment Bank (Bulgaria), MSP Bank (Russia), VietinBank, Ro- 76.0 million euros from retained approved the IIB Business Plan for manian leasing company BTLeasing, Trade and Develop- earnings of previous years and 100.0 2018-2020 as a target and set more ment Bank of Mongolia. Opening of credit line to EXIMBANK of Russia for financing of foreign trade operations. Issuing million euros from additional con- ambitious tasks until the end of a loan to Centrinvest Bank for SME lending. tributions from member countries 2020. For example, by 2020, the

25 450 Monetary funds in financial markets. The limit of Deposits in financial institutes 363,0 credit risk is established for treasury 400 Investment securities Loan portfolio net of reserves operations on EDB. A striking exam- 350 Investment property, ple of cooperation between our two 300 capital assets and other assets banks was the loan agreement 306,3 283,7 signed in March 2017 between the 250 IIB, the Eurasian Development Bank 200 240,3 (EDB) and the limited liability com- 162,8 241,1 pany Nord Hydro-White Threshold 150 71,5 100,1 135,9 117,7 123,2 (LLC NGBP) on financing the con- 100 103,7 111,8 102,7 111,2 96,4 100,4 96,0 struction of small hydroelectric 91,8 50 51,0 49,1 34,3 45,0 39,1 power stations Beloporozhskaya 13,9 8,4 65,7 59,4 54,0 0 19,3 GES-1 «and» Beloporozhskaya HPP- 31.12.2011 31.12.2012 31.12.2012 31.12.2014 31.12.2015 31.12.2016 2 «in the Republic of Karelia at the Main assets articles of IIB, million Euro expense of credit funds from two of

Resource: www.iib.int/files/presentation/prezentaciya_mib.pdf our banks. In addition to Russian banks, IIB IIB closely follows the develop- veloping business cooperation with is expanding cooperation with some ment of the integration process and the Eurasian Development Bank banks of member countries of the the financial sector within the (EDB). The International Invest- Eurasian Economic Union, in partic- framework of the Euro-Asian Eco- ment Bank and the Eurasian Devel- ular, Armenia, Belarus and Kaza- nomic Union (EAEU). The situation opment Bank signed on November khstan. The Bank established a in the banking sector of the member 21. 2014,Memorandum of Under- country limit on Armenia and suc- countries of the EAEU confirms our standing aimed at expanding mutu- cessfully cooperates with 3 banks — positive assessment of the prospects ally beneficial cooperation between CJSC Armbusinessbank, CJSC Ame- for the development of the banking the two development institutions riabank, CJSC Ardshinbank on trade sector in this region. Successfully de- and working in closer cooperation finance transactions. The Belarusian direction of the Bank's activity expands every year and IIB invests in the economy of this country through systemically important Be- larusian banks. Development Bank of the Republic of Belarus (the DBRB), VTB Bank Belarus, and Bel- gazprombank of the Republic of Be- larus are our main partners. The International Investment Bank is an open organization. Not only countries but also international financial organizations that share the Bank's goals and principles can be admitted to the Bank, as well as willing to assume the obligations arising from the Agreement on the formation of the bank and its charter. Participation in the IIB does not impede the implementation and development of financial and business ties between member countries among themselves, with other countries and international monetary and financial organizations.

26 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 BANKING SYSTEM OF THE COUNTRIES OF EURASIA

THE BANKING SECTOR REFORM IN MONTENEGRO

THE ASSOCIATION OF MONTENEGRIN BANKS IS A NON-PROFIT ORGANISATION THAT WORKS THROUGH MEMBERSHIP FEES. THE ACTIVITIES OF THE ASSOCIATION BODIES ARE HARMONISED THROUGH THE ACTIVITIES OF THE ASSOCIATION, THEREBY ENSURING THAT THE DECISIONS REFLECTING THE PROFESSIONAL POSITION ARE EXECUTED. THESE DECISIONS MAY DIFFER FROM THE POSITIONS OF THE GENERAL PUBLIC, WHEREBY THE ASSOCIATION MUST BRIDGE MISUNDERSTANDINGS. WITH REGARD TO CREATING BETTER ENVIRONMENT FOR BUSINESS AND RAISING THE LEVEL OF COMPETITIVENESS OF THE ECONOMY IN GENERAL, THE UBCG PROMOTES QUALITY COOPERATION THROUGH CONSTANT DIALOGUE AND PARTNERSHIP WITH THE REGULATOR, THE BUSINESS SECTOR AND PUBLIC INSTITUTIONS.

www.ubcg.info

According to the 2017 World Bank “Report for Montenegro, the growth in GDP was 4.4% and is leading in the region

BRATISLAV PEJAKOVIĆ M. Sc., Secretary General of The Association of Montenegrin Banks

27 ssociation of Montenegrin the more dynamic economic Banks Relationships with Banks (the UBCG) is growth. The current tax regime is es- Public Enforcement Officers aimed at strengthening timated to be one of the most com- The Association of Montenegrin confidence in the petitive in Europe, with a propor- Banks and the Chamber of Public Abanking sector. Fifteen banks li- tional corporate income tax of 9% Enforcement Officers seek to define censed by the Central Bank of Mon- and various tax incentives for large forms of cooperation in order to tenegro, as a regulator of the bank- investors. achieve, in a legitimate and meaning- ing market, operates in the banking For the period 2016–2017, infla- ful manner, mutual cooperation and system of Montenegro. The UBCG tion is projected on the basis of in- common functioning with regard to represents and displays the com- flation trends projected in the Eu- the compliance with positive legisla- mon positions of all UBCG mem- ropean Union, where price stabili- tion regulating each of these two ac- bers, and as such, it promotes co-op- sation is expected in 2018 with the tivities, with particular attention to: eration with domestic institutions expected annual inflation of — rules and bank’s compliance and participates in the design of around 2%. According to the 2017 with the requests of the public en- laws and regulations related to World Bank Report for Montene- forcement officers; banking business. The Association gro, the growth in GDP was 4.4% — public enforcement officers as monitors the trends of modern and is leading in the region. Non- bank clients. banking and initiates adequate performing loans fell from almost training of bankers. The quality of 26% at the level of the banking sys- Follow up of Principles, work is improved through adequate tem in 2011 to currently around 7%, Practices and Resources co-operation with similar foreign as- thanks to the reactions of the regu- of the Deposit Guarantee sociations and by applying best lator and the commercial banks in Scheme banking practices, trends and stan- Montenegro. The principles for the establishment dards of more developed banking of a deposit guarantee scheme in the and business systems. The activity Financial Reporting EU are laid down in the 1994 Direc- of the Association is realised The work on the reliability and tive (Directive 94/19/EC) and through the work of its bodies: the comparability of financial reporting amended Directive from March Assembly, the Management Board, has been ongoing, since it poses, as 2009 (Directive 2009/14/EC). In ad- the Secretary General, the Court of such, the preconditions for the effi- dition to the common reasons relat- Honour and Arbitration. cient financial market and the possi- ed to creating the conditions for the bility of minimizing the risk. Finan- harmonised development of credit Business Environment cial institutions (banks, insurance institution activities and the im- Business environment significantly companies, captain market partici- provement of free movement of cap- improved in the past ten years in pants, investor protection schemes ital, the main reasons for proposing Montenegro through the adoption etc.) manage their business risks and adopting the Directive of strategic documents and sets of le- with clients and total risks in their 94/19/EC are the establishment of a gal documents, which were aligned operations based on available finan- compulsory deposit guarantee with the EU standards, as well as cial information. It is therefore of scheme as an essential element for through the implementation of insti- great importance that regulators and the completion of the process of es- tutional and fiscal system reforms, financial market supervisors influ- tablishment of the internal market improvement of the framework for ence the quality of financial report- and the necessary addition to the the activities of the financial sector, ing of these institutions regulated system of credit institutions supervi- payment systems and other key and supervised by them. They sion through the joint assistance to business areas. Changes and transi- should also influence these institu- single market participant in case of tion have their own way, structural tions to require from their clients failure of any one of them. In March action and speed, where shifts are and those that expose them to high 2009, due to the urgency, guaran- evident to the market economy and risk to submit in the process of risk teed deposit amounted to 50,000 better development of a private ini- management (when approving euro in the EU, but there is also a tiative. In line with the policy of loans, issuing shares and other finan- possibility of considering guaran- openness, the competitive tax sys- cial instruments, insurance business teed deposit of 100,000 euro. tem and the evolving regulatory sys- etc.) verified, qualitative and timely It is important to note that each tem, the contributions were made to financial reports. insurance of deposit represents high-

28 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 er degree of safety. In addition, the cus is on the banking market, as sav- uncertainty explains up to 15% of new law significantly shortened the ings and borrowings are observed variation in savings and borrowings. payment deadline (from 90 days to from three sectors being house- It is more significant for households, 20 days and, as drafted under the holds, corporate and the state. As a while the impact on state decisions new law, to 7 days). In Montenegro, small and open economy, Montene- is very limited, or almost trivial (less the Deposit Protection Fund pays up gro is extremely vulnerable to exter- than 5%). We are pleased to point to 50,000.00 euro of guaranteed de- nal shocks. This is why the impact out that the uptrend of deposits in posits since 1 March 2013. The Bank of uncertainty from the European Montenegrin banks, both corporate Resolution Law is in the process of Union is particularly observed. In and retail, has steadily increased adoption and it will be an additional general, two indicators of domestic since 2006 despite lower interest guarantee for clients in banking op- uncertainty are defined: the volatil- rates on deposits with banks. There- erations. These are the processes that ity of the compulsory index and the fore, solvency and liquidity at the result from the alignment with the uncertainty of consumers based on system level is significantly above EU regulations. However, we had to the survey of the Montenegrin Sta- the prescribed levels. keep in mind how this is reflected on tistical Office — MONSTAT. All three Conclusion the obligations of banks, the costs of indicators of uncertainty corre- already existing burdens on banks' spond to basic stylized facts: uncer- The banking sector reform is a signif- operations and processes. Therefore, tainty is countercyclical and is the icant element of a country's transi- it was insisted on the transition peri- leading variable in relation to GDP. tion process. It is due to the fact that od and the length of the implemen- It is shown how the growth of un- the developed banking system is a tation. To that end, the Association certainty affects different house- prerequisite for the development of actively participates in decision mak- holds and companies in relation to entire economy and a driver for ing process. the state. Households and compa- many other areas of restructuring. A nies reduce savings and borrowings, sound and stable banking sector en- External Impacts on Business but with a time lag of ten months. sures the confidence necessary for The state, on the other hand, first domestic and foreign capital invest- The uncertainty since the beginning tries to act preventively by increas- ments. A quality banking sector also of the global financial crisis has being savings and reducing borrow- provides initial capital for perform- come increasingly important in ings. Households and companies are ing business activities, especially for macroeconomics. The shocks of un- waiting to make decisions on sav- small and medium-sized enterprises, certainty are increasingly stressed as ings and borrowings until uncer- which are the generator of econom- new causes of business cycles and tainty spills over to the real sector. ic growth. The Association of Mon- the uncertainty spills over to the re- Nevertheless, uncertainty has not tenegrin Banks is dedicated to al sector through the various chan- proved to be a key determinant in achieving these objectives through nels of economic entities’ activities, making decisions on savings and the positive practice and the ongo- and thus the banking sector. The fo- borrowings. Namely, the shock of ing process. practice

GOLD ITALY DEVELOPMENT PROSPECTS OF PRECIOUS METALS SECTOR www.arezzofiere.it

a short period of time the following company UNOAERRE Inhas become the largest in the world, it has generated then the filiation of other small production companies, 1,200 only in the city of Arezzo and about 10,000 in the national territory. The productive vocation has always been geared to exports so that more than 90% of the productions of jewels are destined for foreign markets, reaching levels of production in the 90s equal to more than 500 tonnes per year. The birth of this sector has then generated cascading the rise of pri- mary reality in the field of recovery and refining of precious metals from the waste that has occupied the positions of international leadership also in the recovery of metals from the waste of mine, electronic cards, cat- alytic converters and other. These realities now generate a total turnover of over 6 billion euro in the city of Arezzo alone. Based on this fact, a small provin- ANDREA BOLDI cial town of 100,000 inhabitants, President of Arezzo Fiere e Congressi srl Andrea Boldi, creates a company Born on July 17, 1967 Nemesis Srl, which first introduces President of the Association of Jewelry Enterprises of Italy, President of the Asso- the rapid manufacturing in the gold ciation of Art Craft Enterprises of Italy, Counsellor of crafts in the Chamber of Trade sector, applying the technique of 3d and Industry of Arezz. Since 2006 — Head of Jeweler Association of Arezzo, since 2013 he is the President of Art Craftsmen Association of Tuscany. Member of the printing in the production of jewel- Executive Council of the Association of Art Craft Enterprises of Tuscany, Co-founder ry, the technique which allows the of the Jeweler Council of Arezzo, which united four regional associations. President realization of artifacts directly from of Arezzo Fiere e Congressi since 2014 (organizer of exhibition Arezzo Gold). Today CAD design, and becomes a point of he is a member of the Supervisory Board in Nemesi SRL, engaged in jewelry. reference of technological innova- tion in the field of jewelry.

30 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 FROM THE BEGINNING OF THE LAST CENTURY, ITALY HAS BEEN A LEADING PRODUCER OF JEWELRY AND TRANSFORMER OF GOLD INDUSTRY IN WESTERN EUROPE. THIS IS THE FRUIT OF A SECULAR TRADITION THAT HAS ITS ROOTS IN THE HISTORY OF ITS ANCIENT INHABI- TANTS, FIRST THE ETRUSCANS, COMING FROM THE AREA OF CURRENT IRAQ, THEN THE RO- MAN EMPIRE WHICH IN ITS PERIOD OF GREATEST SPLENDOUR HAS REPRESENTED THE MAIN ADMIRER OF PRECIOUS METAL. THE ITALIANS HAVE ALWAYS BEEN PEOPLE OF ARTISTS AND CRAFTSMEN; OVER THE CENTURIES THEY HAVE DEVELOPED INCREASINGLY REFINED WORK- MANSHIP TECHNIQUES AND IN 1926 FOR THE FIRST TIME THESE TECHNIQUES WERE APPLIED TO INDUSTRIAL PRODUCTION IN THE CITY OF AREZZO, SITUATED NEAR FLORENCE IN TUS- CANY, THE HOMELAND OF THE ITALIAN RENAISSANCE.

Then, Andrea Boldi becomes interlocutor able to approach in an part of the gold reserves of the same President of the goldsmiths of Arez- effective and concrete manner the country, maintaining a strongly ag- zo, President of the Italian gold- main stakeholders in the world. The gressive and oppositional attitude to smiths of Italian artisans and crafts- political events and the strategies of any right-thinking force able to men and President of the artistic sec- major financial groups, mainly of An- break their position of power. tor of the Italian craftsmanship. In glo-Saxon countries, have led to the In order to prevent the growth of 2014 he became the President of paradox that the international gold world alternatives politics such fi- Arezzo Fairs and Congresses which and precious metals market is in the nancial groups have acted in various is the structure of promotion of the hands of a few players and from the directions: whole field of made in Italy jewelry countries which do not have even 1. To limit the access of operators with the event of world importance the direct availability of those re- to the pure metal, through interna- OROAREZZO, that takes place in sources and that with unfair and uni- tional regulations the same city for 39 years, with the lateral regulations prevent the possi- 2. To hold tight credit and finance participation of over 600 best com- bility to create stable direct relations for those who do not accept this sys- panies in the sector of Italian gold- between the raw material holders tem smith, and with the participation of and the transformers of the same. 3. To take the action with bureau- international buyers with a turnover The short-sighted greed of such cratic power directly to restrict the of more than 2,5billion euro. groups strongly advocates careless operation of holdings. With this background, Andrea sanctions, based on unfounded as- 4. To suddenly change the dy- Boldi approaches the Fair reality sumptions to Russia, promoters or namics of purchasing in order to with the intent to join together in a direct supporters of governments weaken the entire productive sys- coordinated manner the whole sec- that based on the patently false tems and to prevent that any other tor of precious metals in Italy, in or- news, have destroyed Iraq and pos- country can go ahead of them (ex. der to provide a unique and reliable sessed more or less directly to a large Italy). Table # 1 The export of pure gold of the city of Arezzo and the countries of destination Reference: data processing ISTAT-Coeweb

Countries EXP2014 EXP2015 EXP2016 Var% Var% 2014-2015 2015-2016 Switzerland 867 570 060 1 134 817 487 1 458 307 372 +30,8 +28,5 France 458 946 442 359 660 885 531 405 069 –21,6 +47,8 USA 170 251 672 162 908 793 184 932 601 –4,3 +13,5 U. K. 147 733 845 125 524 336 130 227 794 –15,0 +3,7 Spain 154 713 593 136 161 850 126 383 593 –12,0 -7,2 Germany 124 163 042 55 404 157 61 231 446 –55,4 +10,5 World 2 108 844 591 2 202 403 532 2 631 345 526 +4,4 +19,5

Table # 2 In the light of these analyzes, the The export of jewelry of three main goldsmith’s districts (Arezzo, Vicenza, Valenza) and Italy in 2016 need to achieve rapidly to strategies Reference: data processing ISTAT-Coeweb and processes capable to change the prospects of development of the Ital- Arezzo Value Var% Vicenza Value Var% ian goldsmith's sector and to pro- UAE 624 612 547 –16,4 USA 224 423 554 +12,3 mote the interchange with the part Hong Kong 223 248 380 +16,8 Hong Kong 221 870 968 –21,4 of the world which appears at the USA 147 622 356 +24,7 UAE 193 815 240 –15,1 moment more dynamic and able to World 1 814 702 980 –1,8 World 1 343 644 565 –9,0 grow, Andrea Boldi has joined into Alessandria Value Var% Italy Value Var% a dynamic and forward-looking economic organization such as FBA Switzerland 846 851 640 –9,4 Switzerland 1 163 463 686 –7,1 EAC, able to create synergies and France 265 278 034 –6,2 UAE 663 047 620 –9,2 USA 83 656 574 +9,9 Hong Kong 899 376 112 –14,8 collaborations between operators in World 1 548 835 099 –7,5 World 5 928 179 245 –4,4 the various countries, to generate significant prospects for their development. Table #1 data shows the export of Table # 3 pure gold of the city of Arezzo and Gold demand (tonnes) Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council the countries of destination. Table #2 data shows the export of 2010 2011 2012 2013 2014 2015 2016 2017 %* jewelry of three main goldsmith’s Jewellery 2055,0 2097,3 2138,7 2498,8 2498,8 2411,6 2053,6 2135,5 +4 districts ( Arezzo, Vicenza, Valenza) Technology 460,5 428,6 381,3 355,9 348,7 332,0 323,4 332,8 +3 and Italy in 2016. • electronics 326,6 316,1 288,3 279,2 277,5 262,1 255,6 265,3 +4 • other indastrial 88,3 76,3 64,6 53,7 51,2 51,0 49,8 50,6 +2 The plan of activities that we are • dentistry 45,6 36,2 28,4 23,0 19,9 18,9 18,0 16,8 –6 going to pursue in the Association Investment 1633,1 1732,5 1613,8 810,9 867,8 949,6 1595,5 1231,9 –23 will be carried out in the following • total bar and coin 1203,6 1500,4 1307,7 1722,9 1052,1 1074,7 1048,7 1,029,2 –2 directions: demand • creation of stable relations be- 920,6 1188,3 1011,9 1352,1 767,8 775,3 776,3 770,9 –1 • Physical bar demand tween Eurasian area raw material • official coin 195,8 228,1 185,4 269,8 204,8 224,3 207,2 186,9 –10 • medals/imitation coin 87,2 84,1 110,4 101,1 79,5 75,1 65,2 71,3 +9 extractors and operators/transform- • ETFs & similar 429,6 232,0 306,1 –912,0 –184,3 –125,1 546,8 202,8 –63 ers from Mediterranean Europe; products • technology transfer and know- Central banks & 79,2 480,8 569,3 623,8 583,9 576,5 389,8 371,4 –5 how, between the said countries other inst. with the settlement of productive re- Gold demand 4227,7 4739,2 4703,1 4492,6 4299,2 4269,8 4362,2 4071,7 –7 alities in the former USSR countries; LMBA gold price, U$/oz. 1224,5 1571,5 1669,0 1411,2 1266,4 1160,1 1250,8 1257,2 +1 • promotion of Made in Italy * Year-on-year% change. gold and jewelry and the support for the development of Made in

32 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 Table # 4 Gold supply and demand in the world market Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council 2010 2011 2012 2013 2014 2015 2016 2017 %* SUPPLY Mine production 2744,1 2845,6 2911,5 3072,9 3149,9 3222,6 3263,0 3268,7 0 Net producer hedging –108,8 22,5 –45,3 –28,0 104,9 13,4 32,8 -30,4 – Recycled gold 1683,2 1667,7 1691,5 1262,6 1188,8 1119,7 1295,1 1160,0 –10 Total 4318,5 4535,9 4557,6 4307,6 4443,6 4355,7 4590,9 4398,4 –4 DEMAND Jewellery 2043,0 2090,3 2132,5 2722,4 2526,1 2455,5 1995,1 2122,0 6 Technology 460,5 428,6 381,3 355,9 348,7 332,0 323,4 332,8 3 Total 2503,5 2518,9 2513,8 3078,4 2874,7 2787,5 2318,5 2454,8 6 Total bar and coin 1203,6 1500,4 1307,7 1722,9 1052,1 1074,7 1048,7 1,029,2 –2 demand Russia, supporting the design ETFs & similar products 429,6 232,0 306,1 –912,0 –184,3 -125,1 546,8 202,8 –63 schools and professionals dedicated Central banks & 79,2 480,8 569,3 623,8 583,9 576,5 389,8 371,4 –5 other inst. to the jewelry production; Gold demand 4215,8 4732,1 4697,0 4513,2 4326,4 4313,6 4303,7 4058,2 –6 • to bring the trade exchanges in Surplus/Deficit 102,7 –196,2 –139,3 –205,6 117,2 42,1 287,2 340,2 18 the field of precious metals of the Total demand 4318,5 4535,9 4557,6 4307,6 4443,6 4355,7 4590,9 4398,4 –4 former USSR countries to at least LMBA gold price, U$/oz. 1224,52 1571,52 1668,98 1411,23 1266,4 1160,06 1250,8 1257,15 1 5 billion euro over the next three * Year-on-year% change. years; Table # 5 • to encourage joint ventures in Jewellery demand in selected countries, tonnes companies with the creation of Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council more productive units in various 2010 2011 2012 2013 2014 2015 2016 2017 %* countries belonging to the Associa- India 661,7 619,3 595,2 617,4 627,5 662,3 504,5 562,7 +12 tion; Pakistan 26,5 24,2 26,1 23,3 21,8 23,2 26,2 28,1 +7 • to promote the creation of a fi- China 461,9 557,2 599,4 938,8 806,8 753,4 630,4 646,9 +3 nancial center dedicated to the ex- Hong Kong 23,0 42,3 47,6 82,6 60,0 51,4 41,4 44,3 +7 Taiwan 7,7 7,1 7,2 9,9 8,4 7,0 6,6 6,3 –5 change of precious and of financial Japan 20,8 15,9 16,1 17,0 16,4 16,5 16,9 16,6 –2 instruments on them structured by Indonesia 33,4 33,4 35,2 41,2 36,5 38,9 38,4 38,6 +1 exploiting existing platforms in the Мalaysia 10,5 8,2 8,4 10,5 10,2 8,4 7,8 7,3 –6 countries participating in the Asso- Singapore 8,5 8,9 9,7 14,3 14,0 12,2 12,1 11,8 –2 S Korea 17,8 18,6 16,6 22,9 22,9 25,6 24,1 22,7 –6 ciation. Тhailand 7,1 6,9 9,1 14,9 12,4 12,2 11,8 11,4 –3 The cooperation will be a key in- Vietnam 14,2 12,8 10,5 11,8 12,5 15,6 15,4 16,5 +7 strument also from the point of view Saudi Arabia 69,9 54,7 49,0 66,4 68,4 69,5 49,4 45,7 –8 of the normative system transfer, in UAE 66,9 56,3 49,4 64,4 56,0 51,4 43,4 42,8 –2 Kuwait 9,0 8,4 7,7 11,7 14,2 13,2 12,6 13,0 +4 order to provide conditions for the Еgypt 53,0 34,1 42,1 45,6 45,1 38,3 25,5 22,0 –14 development of an independent Iran 41,5 45,0 45,2 63,7 39,3 37,2 40,5 45,4 12 manufacturing in the acceding Other Middle East 14,0 15,3 15,2 23,0 25,2 23,8 21,6 21,9 +1 countries. Тurkey 67,9 73,6 65,9 79,9 68,1 49,0 40,8 41,3 +1 Russia 60,3 64,4 67,7 79,7 67,0 38,0 33,8 35,0 +3 Starting point perfectly matching USA 122,3 115,8 107,1 112,5 116,6 119,5 118,8 122,1 +3 with the current global needs and Каnada 16,7 14,6 13,2 13,2 14,0 14,2 13,8 14,1 +2 demand of gold, divided by sectors, Меxico 22,8 18,9 15,3 15,9 15,8 16,6 16,9 16,5 –2 which is well exemplified in the Brazil 28,7 25,0 27,1 24,2 22,2 20,0 18,9 19,2 +1 table data. France 20,7 19,2 15,7 14,9 14,2 13,6 13,4 13,3 –1 Germany 13,7 12,0 10,7 10,1 10,0 10,2 10,3 10,4 +1 The analysis of these data makes Italy 34,2 26,9 22,6 21,1 19,9 19,2 19,0 18,8 –1 it clear how the component result- Spain 12,6 10,1 8,6 8,6 8,0 8,2 8,3 8,3 +1 ing from demand for the production U. K. 26,0 21,4 20,0 21,2 25,7 25,9 25,2 23,1 –8 of jewelry represents the most signif- Total above 1973,5 1970,6 1963,4 2480,6 2287,7 2204,4 1857,5 1937,2 +4 Other & stock change 81,5 126,7 175,3 221,2 211,0 207,2 196,1 198,3 +1 icant component of the gold request World total 2055,0 2097,3 2138,7 2701,9 2498,8 2411,6 2053,6 2135,5 +4 in the world markets, with over 52% * Year-on-year% change.

33 Table # 6 of the total demand and therefore it Total bar and coin demand in selected countries, tonnes is absolutely clear that the junction Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council of the extractive sector with that of 2010 2011 2012 2013 2014 2015 2016 2017 %* transformation can lead to economies India 340,1 354,7 319,0 341,2 206,0 194,9 161,6 162,4 2 of scale and stabilization of demand Pakistan 7,4 15,7 13,2 20,9 13,9 14,5 16,0 16,9 5 mining of the former USSR coun- China 183,8 259,1 257,0 406,7 198,5 228,1 248,6 306,4 8 tries and at the same time produc- Hong Kong 1,2 1,5 2,0 2,6 1,4 1,5 1,4 1,7 20 Taiwan –1,4 5,8 5,0 8,5 8,3 6,4 5,9 5,8 –2 tion capacity and market penetra- Japan –39,8 –52,3 –11,0 3,9 –2,7 16,2 17,1 –2,8 — tion for the countries, in the first Indonesia 17,2 27,4 26,4 46,9 26,9 20,1 21,1 20,2 –4 place Italy, which will come in this Мalaysia 5,5 9,8 7,7 10,3 8,2 6,8 5,2 5,8 11 value chain. Another element of re- Singapore 1,4 4,2 5,1 6,5 6,5 5,9 5,0 4,8 –4 S Korea 1,3 7,9 11,3 17,7 16,3 19,4 14,4 17,7 24 flection is given by the reduced both Тhailand 64,2 106,6 100,9 138,9 96,4 78,0 69,7 64,0 –8 the metal component absorbed from Vietnam 68,2 90,6 73,8 87,9 54,2 47,8 42,9 37,4 –13 the huge mass of financial deriva- Saudi Arabia 14,5 17,7 16,9 18,3 15,6 14,9 10,8 9,9 –8 tives on it constructed which allow UAE 10,0 11,9 10,7 14,1 9,9 8,7 6,0 5,5 –8 Kuwait 1,4 1,3 0,9 1,2 1,0 0,8 0,7 0,7 6 a few financial actors, as set out in Еgypt 2,3 2,3 2,1 7,1 6,0 4,9 2,7 2,5 –8 the first part of this article, to distort Iran 43,5 53,2 57,0 64,0 36,1 30,1 –4,4 18,3 — the dynamics of price with an exces- Other Middle East 1,3 2,0 2,3 3,9 3,6 3,2 3,4 3,5 4 sive leverage effect on a few real re- Тurkey 40,9 71,9 48,1 104,2 48,6 23,1 29,4 52,4 78 sources. Russia 0,0 0,0 0,0 0,0 7,9 4,8 3,7 3,1 –17 USA 104,2 82,2 53,2 75,1 47,7 71,5 93,0 39,4 –58 The table #4–6 instead, shows Каnada 3,7 5,9 3,9 5,7 3,7 2,9 3,6 2,6 –28 the main components of gold supply Меxico 4,7 2,9 3,1 2,5 2,2 2,2 2,0 2,1 9 and demand in the world market. Brazil 0,5 0,9 1,0 1,4 1,3 1,4 1,3 1,0 –19 The overall demand is basically France 1,3 6,5 2,7 1,9 1,0 –0,5 –4,2 –3,4 — Germany 122,9 142,4 108,2 133,3 101,3 116,0 110,8 106,3 –4 stable between the 4,300 and the U. K. 14,9 17,6 15,1 11,6 7,7 8,6 11,3 10,0 –12 4,600 tonnes per year, with a pro- Switzeland 86,9 96,8 62,2 61,7 47,7 50,3 45,6 42,5 –7 gressive increase of extracted gold Austria 13,7 15,1 10,4 13,0 10,2 12,2 10,8 9,7 –11 than that from recovery, this shows Other Europe 48,6 55,8 41,5 40,0 28,6 33,7 27,0 23,3 –14 Total above 1164,1 1417,5 1249,5 1651,4 1013,9 1028,4 998,3 971,4 –3 how the countries holding of raw Other & stock change 39,5 82,9 58,2 71,5 38,2 46,3 50,4 57,7 15 materials may gradually acquire World total 1203,6 1500,4 1307,7 1722,9 1052,1 1074,7 1048,7 1029,2 –2 power in determining the dynamics * Year-on-year% change. of the metal value itself. The same considerations on financial leverage of derivatives and a further reflec- tion element is given by the component very low absorption by the central banks, corresponding to a moment in which is introduced into the world a lot of new currency, and this from the sense of how such an economy cannot that undergo a financial crisis in the short if this currency does not find an anchorage on shared foundations to precious metal, in innovative ways respect to the Bretton Woods Institutions. The study of the above data reflec- tion regarding jewelry demand in Russia and in CSI countries which dropped from 167,6 tonnes to 109 tonnes (2010–2017). Overall, although falling, is an important question of

34 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 about 4 billion euro, on which to gion combined with a policy that base. It is necessary to give reliability start building an important pole of links the currency, whether tradi- to the sector, to contaminate re- production in Russia and other relat- tional or newly created cryptocur- gions, to create excellence, to go be- ed countries through the exchange rency, to this indicator. The proof is yond borders and to give trust and of skills and technology, where FBA that in all emerging economies gold tools to all operators. This is the EAC is doing a promoter and Italy reserves are increasing. great challenge that FBA EAC wants represents the spearhead of tradi- Microeconomics means support- to face in the coming months. tion and quality. ing the manufacturing industry and A separate chapter deserves to be therefore the need to create new Table # 7 dedicated to the policy adopted by potentials for the challenges faced Тоp 40 reported official gold holdings the central banks in anchoring the by companies in the region and for (as at Decemder 2017) emissions of currency to the actual the need to be open to a new con- Country Tonnes % of re- physical gold reserves in the coun- taminations and market dynamics. serves try. As it can be seen from the below The closure of markets dictated by 1 USA 8133,5 75 table, the reserves are not propor- protectionist policies of «untouch- 2 Germany 3373,6 70 tionate to the currency circulating able» balances (sanctions) and arti- 3 IMF 2814,0 — which is thus gradually emptied of ficial monetary dynamics leads to 4 Italy 2451,8 68 meaning and sustained only by in- critical issues for export-related 5 France 2436,0 65 creasingly fragile conventions in companies, such as lack of finance 6 China 1842,6 2 trade. project and difficulty in action. The 7 Russia 1838,8 18 In the end, we should try to give current challenge is to live this crisis 8 Switzeland 1040,0 5 a pragmatic view of the current context, from the Greek crisis or 9 Japan 765,2 3 framework and strategies to be put change, then to maximize the op- 10 Netherlands 612,5 66 in the field, trying to identify three portunities that are generated, opti- 11 Тurkey 564,8 22 areas to focus on; macroeconomics, mizing production based on new 12 India 558,1 6 microeconomics and the one that questions, with the creation of in- 13 ECB 504,8 28 14 Taiwan 423,6 4 we should define as «fluidity sys- terchange between macro-regions, 15 Portugal 382,5 61 tem». the exceeding of limits imposed 16 Saudi Arabia 322,9 3 For Macroeconomics the efforts with sanctions, and the relocation 17 U. K. 310,3 9 should be concentrated on the cur- of production and know-how ex- 18 Kazakhstan 301,0 40 rent needs of the states or better still change between Made in Italy and 19 Lebanon 286,8 21 of macro-regions to adopt develop- Made in Russia. 20 Spain 281,6 17 ment policies coordinated and inte- For Fluidity of system, it should 21 Austria 280,0 54 grated solutions that are focused on be understood the ability to face the 22 Belgium 227,4 36 conquesting the market confidence problem of the denominator of each 23 Philippines 196,4 10 and the solidity of the currency economic «war» between macro-re- 24 Venezuela 191,3 77 placed at the basis of the exchanges gions or the currency. It is necessary 25 Algeria 173,6 7 between the same. to access the system liquidity but al- 26 Тhailand 154,0 3 It is absolutely clear that policies so to understand that we are in a 27 Singapore 127,4 2 designed to disrupt and discredit of context in which the «currency» 28 Sweden 125,7 8 economic blocs ( for example word is becoming anachronistic. 29 South Africa 125,3 10 through sanctions, or media discred- Therefore, to encourage the creation 30 Меxico 120,2 3 itation on financial markets) can only of solutions that go from creating 31 Libya 116,6 6 be contrasted by effective actions to fluidity in terms of just interbank re- 32 Greece 112,9 60 generate a suitable dynamic of funda- lations, to an articulated fluidity in 33 S Korea 104,4 1 mental and therefore of the asset quotations of companies with the 34 Romania 103,7 10 (gold, gas, oil, etc.) and confidence in possibility also for midrange compa- 35 BIS 103,0 — 36 Poland 103,0 4 expansionary policies with a conse- ny to access to a new potential in- 37 Iraq 89,8 8 quent increase in internal consump- vestors on new financial markets 38 Indonesia 80,6 3 tion and exports. It is therefore clear (creation of markets exchanges) up 39 Kuwait 79,0 9 that gold is the decisive tool for as- to experimentation and opening of 40 Еgypt 76,4 9 sessing the degree of solidity of a re- block chain projects with a gold

35 practice

Laï Kamara, International arbitrator, General Secretary of the World Organization of Experts, * NGO accredited by The United Nations Counsels and Arbitrators (OMECA)*, EU Expert for «EU-Central Asia Rule (Public Department of Information, Economic and Social Department) of Law Platform» INVESTMENTS AND STATE BILATERAL OR MULTILATERAL INVESTMENT TREATIES TOWARD A NEW SYSTEM OF ARBITRATION FOR DISPUTE SETTLEMENT THE EUROPEAN UNION APPROACH

The EU approach ious kinds of mechanism for dispute That means that no member of settlement. European Union is allowed to dis- All countries wish to be attractive Since the treaty of Lisbon, signed in cuss or approve an investment agree- for foreign investors. That is why so 2007 by 27 European States, the nego- ment with a non-EU country. many investment codes and invest- tiation and the signature of new bilat- This situation is particularly im- ment treaties are in force. eral investment treaties are reserved to portant concerning the arbitration Actually, there is in the world, the European authorities (articles mechanism for Investor-State Dis- more than 3000 BIT containing var- 206,207 and 218 of the treaty). pute Settlement (ISDS) which is

36 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 In Europe, in order to fight This European regulation permits complices by establish a scale of dis- “against the capital laundering to identify the real persons control- suasive sentences and negotiating an ling entities and profiting from the international prosecution agree- and terrorism financing, income of private companies. ment in the frame of international the third directive 2005/60/CE The efficiency of such a policy investment treaties. has developed the notion implies a new duty for the national of «effective beneficiary». State of the supposed investor, in- Toward new international This European regulation quiries and inter-States cooperation investment arbitration courts permits to identify the real for data swap. persons controlling entities Because investment arbitration in- Avoid fraud and profiting from the income volves more financial and political in international implications than commercial arbi- of private companies. arbitration tration as the contracting State, the Fraud in international arbitration is investor’s country, the State seat of also to be watched. arbitration and the States where the different from commercial arbitra- According to the fact that by in- award can be executed may be af- tion. vestments treaties, States accepts the fected, a new transparent and public In this case, the issues have to be enforcement of the awards and do system must be imagined. decided in accordance with a treaty not grant their diplomatic protec- In the new investment treaties and the principles of public internation to their nationals, arbitration negotiated by EU, it is proposed to tional law that leads to important fi- can be sometime a handsome shelter create a court of arbitration, com- nancial and political implications, for developing various strategies posed of qualified members with ac- because countries may be seriously against States. knowledged competence and skill affected by an investment arbitra- That’s why it is essential to iden- in arbitration, investment and pub- tion award. tify the real investor (end investor) lic law, as the best means to insure For instance, in the case of CETA and the origin of companies’ assets all the parties about the seriousness treaty negotiated between EU and (money laundering, secret funds in- of this new dispute resolution sys- CANADA, the discussion about the vested for State or Government tem. system of arbitration is always con- destabilize ation, corruption …) Clear definition of investments, tested by certain European States re- As arbitration has become a real of investors (stating clearly require- fusing the Anglo-Saxon private arbi- and very lucrative business, it is also ments regarding place of their incor- tration model. necessary to know the underground poration and shareholding allowing Bilateral or multilateral invest- relationships between third party them to benefit from the system) ment treaties main aim is the protec- funds, counsels and arbitrators. and of substantive rights protected tion of investor’s substantive rights Recently, we have seen the emer- under the new convention is thus es- against arbitrary expropriation, na- gence of a new disloyalty in interna- tablished. tionalization, unfair and inequitable tional arbitration: the refusal by pri- The awards and courts decisions treatment and discrimination. vate companies to pay their share of rendered under the auspices of that On the other hand, a fair interna- arbitration costs, leaving the public institution have to fall into the pub- tional arbitration system has to pro- institution — generally claimant — lic domain, the traditional secret tect the host State national sover- assuming all the expenses. around arbitration decisions being eignty. As recent arbitration scandals no more acceptable when public in- The host State has to be sure that have put in light the special behav- terests are in balance. an investor is definitely a real in- iour of some arbitrators whose lack The eastern Euro-Asian countries vestor and not a simple speculator of independence and impartiality could find a great interest to open or middleman acting for foreign hid- has tremendously justified to discussions with European Union to den illegal interests. strengthen penalties for breach of replace all actual bilateral invest- In Europe, in order to fight truthfulness, its seems necessary to ment treaties by this new type of against the capital laundering and create an incrimination of «interna- convention to promote European in- terrorism financing, the third direc- tional state swindle» against arbitra- vestments and economic, financial tive 2005/60/CE has developed the tors, counsels, beneficiaries, and and technologic transfers. notion of «effective beneficiary». eventually litigation funds, as ac- It could also involve the reverse.

37 Partners’ News

Andrey Heimonen, Marketing Director of Salus business solutions GmbHBerlin A WEEK IN DAVOS WITH CASPIAN VIEW WITH THE WORLD SHIFTING TO A MULTIPOLAR ORDER A VITAL NEED ARISES FOR COOPERATION BETWEEN POLITICAL LEADERS, BUSINESSMEN AND OUTSTANDING SCIENTISTS WITH THE AIM TO BRIDGE OVER REGIONAL, POLITICAL AND NATIONAL BORDERS. THIS IS THE REASON WHY EVERY YEAR AT THE END OF WINTER FINANCIAL, POLITICAL AND BUSINESS ELITE CONCEN- TRATES IN A SMALL SWISS TOWN DAVOS. NO RESOLUTIONS OR ANY OTHER DOCUMENTS ARE MADE HERE, BUT DAVOS FORUM IS AN OPPORTUNITY TO MEET AND DISCUSS IN AN INFORMAL SETTING A LOT OF WORLD’S CRUCIAL ISSUES, SET BUSINESS CONTACTS, HOLD NO-TIE AND TETE-A-TETE MEETINGS. THIS YEAR THE WORLD ECONOMIC FORUM IN DAVOS WAS HELD ON JANUARY 22–26.

ne of the main This year the partner of the (FBA EAC), of the Universal com- events at the Fo- CaspianWeek was SALUS in the per- modity Exchange — Eurasian Coop- rum-2018 was son of Egor Ivankov. SALUS devel- eration, of International Bank for the CaspianWeek ops international exchange trades. It Economic Co-operation (IBEC), cre- Оheld with the support of the Swiss has 10 subsidiaries in Russia and in ated in 1963. SALUS collaborates company IntegralPetroleum. Caspi- 15 countries of EAEU, CIS, Eastern with the International Research No- anWeek is a meeting of world lead- and Western Europe, Asia and bel Center (IRNC) and with other ers of business, politics and other so- Africa. Its approach is open, and its public organizations and associa- cieties. One of the guests of the partners network expands rapidly. tions, global development institutes, CaspianWeek-2018 was the Presi- SALUS is a member and strategic legislative and executive authorities dent of Tatarstan Rustam Nurgaliye- partner of Financial & Banking As- to create and develop a balanced, vich Minnikhanov. sociation of Euro-Asian Cooperation no-barrier global ecosystem of com-

38 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 modities and funds, to protect intel- Cooperation development be- Hong Kong. VP Bank has reliable eq- lectual property rights on the prin- tween the Caspian region and the uity capital and rating А — (S&P’s). ciple of «Trade Diplomacy» rest of the world was one the goals Another important task of the For a variety of reasons today the at the CaspianWeek-2018. With this CaspianWeek is to introduce innova- Caspian region is among those regions aim there were meetings of experts tive technologies in the region. This which affect world geopolitical situa- in business, financial institutes, year much attention was paid to dig- tion. Caspian region reflects global banks, logistic and transport, pro- ital technologies in financial sector, trends in economy, ethics, confes- duction and investment companies. trade and logistics. The participants sions, social environment and culture. Any business idea, no matter how discussed the implementation of the The slogan of the CaspianWeek is bright it is, needs financing. So one new technologies in state and com- «Finisoriginependet» which means of the CaspianWeek partners was mercial projects, development of fi- «The result depends on the start». VP Bank — one of the leading banks nancial technologies, governmental The project CaspianWeek makes the of Lichtenstein, created in 1956. Its support and global cooperation in first steps in Davos, it is organized for focus area is structured assets and as- these issues. One of the most interest- the second time only but it is target- set management, investment adviso- ing discussions at the CaspianWeek ing to success. 11 sessions of the ry for private clients and intermedi- was: «Bitcoin is dead! Long live cryp- CaspianWeek-2018 gathered 48 aries. Today the bank is represented to currencies!» involving Alexander speakers, more than 1200 guests on Moscow, Vaduz, Zurich, Luxem- Sloboda, Michael Hattman, Dr. joined different events of the project. burg, Tortola (BVI), Singapore and Daniel Heller and Jeffrey Wernick.

General Director of SALUS Egor Ivankov with Head of Trading Integral Petroleum Dmitry Akopov (on left foto); with Project Leader, Caspian Week Maria Berezikova, Marketing Director of Salus business solutions GmbHBerlin Andrey Heimonen

Thomas Westh Olsen (Head of Private Banking Central & Eastern Europe, Member of Executive Management) Managing director of Integral Petroleum SA Murat Seitnepesov

39 finds the most effective and the most unite the past and the future, reveal ecological solution. The wrap-up is to the spectators as much informa- expected next year at Davos-2019. tion about each country, as possible. Among other topics of Caspi- 10 paintings were put on auction. anWeek was culture. The region has Egor Ivankov, General Director of a diversity of cultures and religions SALUS bought the picture about as a result of empires and civiliza- Russia. Now it is in the headquarters tions on the shores of the Caspian of SALUS in Moscow. Sea. The peoples of the region have SALUS has a wide regional and a lot to show to the world, and the international branch network. It is interesting cultural program at the important for the Forum and espe- CaspianWeek confirms this. cially for the CaspianWeek, which There was yet another event supports cooperation of the region worth mentioning at the Caspi- with the whole world. Nevin Tevs (Client Advisor Private Banking), anWeek. Specifically for the Caspi- On the first day of the Davos fo- Enrico Muffeis (Financial Consultant) anWeek House Sergey Duboff, a rum the weather welcomed the par- tenor and an artist, painted pictures ticipants with snow, drifts and long After bitcoin the discussion shifted about the Caspian region including traffic jams. We hope that the Caspi- to other crypto currencies. Russia, Turkmenistan, Kazakhstan, anWeek helped to melt the ice. The The establishment of Caspi- Azerbaijan, Iran, Georgia, Turkey, sun is bright in the region, and it was anWeek Digital Award was truly im- Tajikistan. All the paintings have a bright in Davos. portant. The award aims to support unique QR code, by which you can It is pleasant to see that the the ideas of negative influence of ir- read information about a country in CaspianWeek grows every year and rational use of energy and energy re- different languages. The paintings gains strength in Davos. We hope for allocation. CaspianWeek Digital reflect reverential attitude of the the future, and next year we plan to Award in the amount of $1 million artist to the culture and history of invite more participants to make the will be presented to the one who different countries, and attempt to event one of the main at the Forum.

123

Guests of the Caspian Week: 456 Member of Federation Council Committee on Foreign Affairs Igor Morozov, Sergey Dubroff and the Russian historian and politician Sergey Stankevitch [1], General Director of Virtuoz Trading Limited Olga Lisitsina [2], the Formula 1 champion Jean Robert Alesi [3], Prime Minister of Georgia Giorgi Kvirikashvili [4], Prince of Libya Idris bin Abdullah al-Senussi [5], Governor of Astana Inter- national Finance Center Kairat Kelimbetov [6]

40 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 Partners’ News

DIGIT IS PRIORITY A ROUND-TABLE MEETING ON THE TOPIC «OPPORTUNITIES AND FEATURES OF APPLICATION IN THE BANKING SYSTEM DECREE NO. 8 «ON THE DEVELOPMENT OF THE DIGITAL ECONOMY» WAS HELD ON FEBRUARY 12, 2018, IN MINSK. THIS EVENT WAS ORGANIZED BY THE ASSOCIATION OF BELARUSIAN BANKS TOGETHER WITH THE LAW OFFICE «LEV, SHERSTNEV & PARTNERS». IT ASSEMBLED MORE THAN 100 PARTICIPANTS — REPRESENTATIVES OF THE NATIONAL BANK, BANKS AND NON-BANK FINANCIAL INSTITUTIONS, THE DEPUTY CORPS, THE BANKING PROGRESSING CENTER, THE HIGH TECHNOLOGY PARK, THE MINISTRY OF INTERNAL AFFAIRS, PROFILE BUSINESS ASSOCIATIONS, LEGAL AND IT-COMPANIES.

www.abbanks.by articipants of the the developments in the field of in- Belarus it is planned to create banks round table discussed ternational legal crypto-regulation. with the participation of Sectoral the opportunities and The head of the expert group of Council for the implementation of prospects opened by the the company EXADEL Sergey Bon- Decree No.8 «On the development Decree of the President of the Re- darev devoted his speech to the pos- of the digital economy». Ppublic of Belarus of December 21, sibilities of using blockchain tech- «For the banking system the imple- 2017 No. 8 «On the development of nology in banking systems. mentation of this document is a great the digital economy» for the domes- Anton Kulichkin, member of the challenge. We should clearly repre- tic banking system and the economy Expert Council of the Association of sent the limits of our competence, as a whole. Distributed Registry Technology, have qualified specialists to work in More about this, as well as possi- analyzed the world system of cryp- this direction. And they will need to ble risks that banks should take into to-instruments. be trained. It is planning to develop account when introducing innova- Aleksandr Kuschynski, Chairman the professional qualified standards tive digital technologies, said Boris of the Association of Belarusian and modern training programs aimed Lev, managing partner of law office Banks, reported that Presidential De- at implementing the document. «Lev, Sherstnev & Partners». cree No. 8 creates unprecedented Banks as representatives of one of the The legal aspects of applying the conditions for the development of IT most highly-equipped sectors of the provisions of Decree No. 8 were industry and gives serious competi- Belarusian economy are interested in commented on by Ivan Zhiznevsky, tive advantages to our country in the this as no one else. Therefore, on be- Deputy Director of the Administra- creation of the digital economy of half of the National Bank, our Associ- tion of the High Technologies Park. the 21st century. But it depends on ation will take an active part in this Matvei Levant, Managing Part- the heads, managers and specialists work», — A. Kuschynski said. ner of the International Bar Associ- who will implement them. On the ation, acquainted the audience with basis of High Technologies Park of Association of Belarusian Banks

41 project

INDUSTRIAL WAREHOUSE THE COMPANY «AMEGA», «AMEGA» MEMBER OF FBA EAC, www.amega.su OFFERS COOPERATION

THE INVESTMENT PROJECT IMPLIES A CONSTRUCTION OF A VEGETABLES WAREHOUSE TO PROCESS AND STORE 30,000 TONS OF POTATOES, WITH SPECIAL REFRIGERATE AND VENTILATING EQUIPMENT. TO IMPLEMENT THE PROJECT IT’S PLANNED TO INVOLVE THE COMPANY CONNECTED WITH «TURN-KEY» ENGINEERING OF VEGETABLE WAREHOUSES (VMT-AGRO LTD.), AND TO BUY PACKING EQUIPMENT, MATERIALS, VENTILATING EQUIPMENT FROM SPECIALIZED COMPANIES. THE OUTPUT OF THE PROJECT WILL BE THE CLEAN PACKED POTATOES OF CATEGORY 4SM +.

42 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 BACKGROUND. «Amega» Ltd. was SCHEDULE. Start of construction — ripeness, and reject spoiled and dis- created in March, 2017 in the Tula II quarter of 2018. Entry into ser- eased yield. At the first stage the region with the aim to construct an vice — IV quarter of 2020. marketing strategy aims to enter the industrial warehouse for potatoes market with a totally new product storage. FIGURES. Project profitability esti- and gain consumers. At the second mated by project originator: stage the strategy aims to keep posi- PROJECT ORIGINATOR. Group of > discount rate — 14.7%; tions, improve production and sale companies «Amega». > pay-back period — 8 years; channels, enhance its market share > discount pay-back period — 10 in the region and further. MAIN BUSINESS. Transportation. years; > net present value (NPV) — RUB REASON. The project was triggered 62,6 million; PRODUCTION by the acute shortage of warehouse > internal rate of return (IRR) — 16%. TECHNOLOGY capacities for vegetables in the Tula Acceptance of fruit region and in Russia in general. MORE FIGURES. Financial struc- and vegetable products ture of the project: BUDGET. Total cost is RUB 1.6 bil- > owner’s funds: RUB 478.4 million Dry cleaning lion. (30%); > borrowed funds: RUB 1.116 billion (70%). Classification

PROJECT FEATURES. The ware- Rejection of spoiled and diseased yield, house complex will include a high- besatz tech vegetable storage to provide for fresh potatoes during the whole sea- Container packing son. To store potatoes we will build a warehouse (container type) with capacity of 30 000 tons. The project Storage of fruit and vegetable products implies three storage sheds with capacity of 10 000 tons. There will be three construction stages. The out- Sales of Sales of seasonal-storage long-storage put yield will be put into storage vegetables vegetables and sold until the next June. The main sales period is the second quarter of a year. In the fourth quarter of a year (when putting into storage) AGREEMENT. Supply agreements spoiled potatoes will be sold (of cat- are concluded with the Defense egory lower than 4+). Ministry of Russia and large trade DISTANCE FROM MOSCOW. nets in the Moscow region and in 110 km. MARKETING. Most projects in the the Tula region. country do not meet modern requirements. There are only 20−25% PROJECT ADVANTAGES: modern warehouses. This project > market niche: there is shortage of will create relevant microclimate in warehouses; the warehouse and decrease loses of > support from the Tula region gov- a product during storage and im- ernment; prove its quality, besides it will low- > demand for the product — potato er energy expenses. These loses will is the main crop in Russia; be decreased due to fast and effec- > availability of the largest mar- tive classification of vegetables with kets — Moscow, the Moscow re- the use of special equipment which gion, the Tula region; will classify products by size, > new technologies.

43 photo contest

«THE WORLD THROUGH THE EYES OF A PHOTOGRAPHER»

In routine we usually don’t have a chance to see the beauty around us. To snatch a slipping moment and capture it is only possible for a photo camera in the hands of a receptive and creative person. Financial & Banking Association of Euro-Asian Cooperation launches a new project — photo contest «THE WORLD THROUGH THE EYES OF A PHOTOGRAPHER». This contest is for true lovers of their motherland’s beauty, for those who take photos not for profession but for hobby, self-expression, willingness to share joy from what they have seen and felt.

VENUE PHOTO STYLE PARTICIPANTS Russia, Moscow «Countries and cities», Non-professional photographers «Native nature», «Self-artist», from all countries without restrictions «World of emotions», are allowed to the contest «Snatch a moment», TIME LIMITS «Family album», PRIZE Works are received «Package of impressions», Each winner receives a laureate diploma from February to October 2018, «Incredible is close», and a chance to become famous. Best wrap-up on November 15, 2018 «Proactive attitude» works will be published in the Herald

E-mail: [email protected], [email protected], [email protected] CONTACTS: Теl.: +7 495 663-02-08, 663-02-13, 663-02-19

In the photo, the world OLGA KUPCHINOVA around seems brighter Born in Belarus in 1960. and more beautiful Economist

44 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 A photo is the moment that IRINA BELONOSOVA will remain with me forever Born in Russia in 1989. Eeconomist

Photography is a frozen TATIANA KALINA instant of beauty Born in Kazakhstan in 1980. Manager

45 photo contest

I value photos for KSENIA TERESHCHENKO the opportunity to cherish Born in Russia in 1994. lovely moments Legal Counsel

It’s a pity that I have MANISH KUMAR an opportunity to relax with Born in India in 1971. a camera in my hands President of the Soltex Group Ltd so seldom

46 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 I show my friends the places DEMCHIGJAV MOLOMJAMTS I managed to visit Born in 1951 in Mongolia, Economist

I like to transfer the mood ELENA ALASAVICHYUTE through photos Born in Lithuania in 1977. Translator

47 Material for Thought

Tatiana Galander, Head of Russian Business Group the company PricewaterhouseCoopers in Germany GERMANY — RUSSIA: BUSINESS-GRAVITATION

REMAINS www.pwc.de

MOST REPRESENTATIVES OF GERMAN BUSINESS IN RUSSIA ARE IN FAVOUR OF LIFTING THE EU SANCTIONS AGAINST RUSSIA AS SANCTIONS DON’T ACHIEVE THEIR POLITICAL GOALS AND CAUSE TANGIBLE FINANCIAL DAMAGE TO BUSINESS. BUSINESSMEN BELIEVE THAT THE DE- VELOPMENT OF EURASIAN ECONOMIC UNION (EAEU) WHICH INCLUDES RUSSIA, BELARUS, KAZAKHSTAN, ARMENIA AND KYRGYZSTAN, DOESN’T YET GIVE ANY ADVANTAGES FOR GER- MANY COMPANIES. AT THE SAME TIME, THEY AGREE WITH THE ABOLISHMENT OF CUSTOM DUTIES AND CUSTOM CONTROL AND NOTE THE GROWTH IN OUTLETS DUE TO THE EAEU, IN PARTICULAR THE RUSSIAN MARKET.

48 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 The current situation eration». On its basis, a number of resolutions of the Government of Since 2014, there has been a signifi- 55,6% the Russian Federation were devel- of the respondents cant deterioration in the German- have already localized oped. Russian foreign trade relations, as production in Russia On the one hand, the Russian well as relations with other coun- Federation intends to attract foreign tries of the Eurasian Economic investors to create production in Union: for example, the decline in Russia. For this purpose, there are German-Russian trade amounted to subsidies and other state guarantees. 30%. It is common knowledge that A very popular method of support the European Union imposed sanc- is a special investment contract tions against Russia; in response, in (SPIC) which requires the investor 2014, Russia prohibited the import 22,0% plan to launch to establish either production or production of agricultural products from the in the next 24,4% do not plan modernization of industrial produc- two years to launch European Union. This very prohibi- production tion in Russia, as well as investing at tion created preconditions for a sig- in Russia least 750 million rubles. nificant growth of Russian agricul- In June, 2016 the first such con- ture. Nevertheless, this growth German-Russian Chamber of Commerce Survey tract was signed by the German could be beneficial for German and among German companies on localization, company CLAAS KGaA, specializ- other foreign producers of agricul- October 28, 2016 ing in the manufacture of machin- tural machinery. ery and equipment for agriculture. Today we see the first improve- problems of the world hydrocarbon Although the sales of company after ment indicators of German-Russian market, the cheap ruble, the 2014 decreased by 40 %, it built a and in general European-Russian prospect of economic reforms in the new factory in Krasnodar, worth foreign trade relations, as well as country, mutual sanctions and, con- €120 million. For CLAAS this is the connections with the EAEU. For ex- sequently, the low solvency of busi- largest investment outside Germany. ample, direct investments of Ger- ness and citizens are unlikely to lead There are also regional programs, man companies in Russia grew to € to an increase in demand for Ger- including special investment con- 2,05 billion in the first nine months man products manufactured out- tracts at the regional level — regional of 2016. This is more than the entire side the Russian Federation. That is investment projects. previous year, not to mention the why the conference often heard On the other hand, the Russian year 2014, when German business, such words as «localization of pro- Federation has imposed restrictions according to Deutsche Bank, mas- duction» and «import substitution». on foreign producers in the form of sively withdrew assets from the As follow from a separate survey priority products and services of Russian Federation. of the import substitution and local- Russian origin for government or- In addition, the export of prod- ization, conducted in October 2016, ders. In certain cases, foreign goods ucts of machinery sector of German 56% of the respondents have already are not considered at all, or Russian to Russia increased by 22,5% in 2017 localized production in Russia and goods and products from the coun- and reached €5,3 billion. The growth intend to expand it. Another 20% tries of Eurasian Economic Union is solid but it is not so impressive like plan to launch its first production in are given preferences for prices. in 2012 with the export in € 8 billion. the next two years. Most German On January 12, 2017, a business companies see the potential in the conference was held in Düsseldorf, Russian market: they are not going devoted to prospects of German to reduce the business activity in the business in Russia. This forum was country, but on the contrary — they On the one hand, the Russian organized by the the Düsseldorf plan to expand the staff. “Federation intends to attract Chamber of Commerce and was Working conditions called «Russia on its way from the ex- foreign investors to create port market to the production site?» Our business relations in Russia are production in Russia. Pragmatic Germans are skeptical regulated by the Federal Law No. On the other hand, it has about the renewal of the export 488 of December 31, 2014 «On in- imposed restrictions on foreign boom with Russia. Obviously, the dustrial policy in the Russian Fed- producers…

49 Participation in large investment regard to the requirement for pro- ture. The maximum term of such a projects in the field of mechanic en- duction that is established the max- contract is 10 years. gineering is permitted only with the imum share of a foreign commodity At present, four investment con- prior consent of the state commis- and the need to imply certain pro- tracts have already been concluded sion for import substitution. duction processes and technological with German investors (Claas, DMG There is a ban on provision some processes in Russia. Mori, Daimler, Wilo). However, it government subsidies to foreign These new provisions often re- seems to me that the number of companies. quire from foreign producers to cre- them is still small. A very complicat- ate production in Russia in order to ed administrative procedure is re- Who is the Russian manufacturer? continue to work in the local market quired for the conclusion of the and participate in business, i.e. local- SPIC. It takes a long time to prepare Regulation of the Government of ize production in Russia. a business plan, to agree it with all the Russian Federation No. 719 dat- Currently, most German produc- bodies and to negotiate with the ed July 17, 2015 «On the criteria of ers have already adopted such a de- Russian Federation. Accordingly, it assigning goods to industrial pro- cision. In Russia, a number of facto- is for small and medium-sized for- duction having no Russian ana- ries have opened or the production eign investors such a SPIC is not the logues, produced in the Russian has expanded, for example: Wilo, most profitable way for receiving Federation», special criteria were Henkel, ZMS-Technology, Petkus, the government support at the level established for Russian products Horsch, ROPA, Amazone, Claas, of the Russian Federation. «Made in Russia». In certain indus- Daimler, Nestle, etc. tries, there are rules of the former The Russian Federation provides Legal literacy CIS countries («Rules for determin- certain advantages regarding the ing the country of origin of time of fulfillment of the «made in The main recommendation for in- goods»). Russia» criteria, that is, the investor vesting in Russia and the countries We could say that there are re- is granted a more flexible regime of of the Eurasian Economic Union is quirements to manufactures or re- fulfilling the terms and correspon- sufficient preparation and compli- quirements for production. The ding participation in state orders. ance with all local requirements of main requirement for producers is On the basis of the SPIC, a foreign in- the legislation. that a foreign company in Russia is vestor and its subsidiary may be It would seem that this is self-evi- necessary to have the right to man- granted tax benefits (reduction of dent, but in practice, foreign investors ufacture, modernize and develop a income and property tax to zero) are often not well prepared and are corresponding product for a period and benefits when renting an indus- not familiar with the laws in force. As of not less than 5 years, also to have trial site, and guarantees are provid- a result, for a number of reasons, bu- the right to a certain license. With ed for changing legislation in the fu- reaucratic, administrative, foreign investors are committed to violations, creating serious legal and tax risks, which should always be avoided. It should be added that the legislative legal framework conditions in Russia and in other countries of Eurasian Economic Union are very developed today. Unfortunately, this is rarely recognized and published in foreign media but this is evidence from the World Bank’s rating. So Russia takes the 35th place in terms of business. Kazakhstan takes 36th place in creating conditions for the protection of minority investors and Belarus is ranked 38th by terms of granting loans. Russian corporate law is developed and even more

50 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 modern than the German Civil Code (BGB). (This topic is worthy of writing a whole book, in which there may be more than 500 pages). What questions are cared about foreign suppliers? These are issues of tax registration, creation of permanent representation and the need to obtain a work permit. It is in the machinery industry that manufacturers not only supply their products to Russia, but also carry out mounting when installing machines or equipment at factories of Russian, Belarusian or Kazakh customers. Often they send their specialists to Russia, who carry out mounting or provide specific services to Russian customers. If such activities of German employees continue more than 30 cal- bor relations between the employee On the basis of migration legisla- endar days, there is actually a need and the employer also arise on the tion, there are certain exceptions, to register with the tax authorities at basis of the actual admission of the but it is necessary to first consider the place of business in accordance employee to work with the knowl- whether such exceptions are actual- with article 4, paragraph 83 of the edge or on behalf of the employer or ly applicable. Tax Code. But in most cases this re- his authorized representative in case For example, in accordance with quirement is not fulfilled. the employment contract has not sub-paragraphs 4 p. 4 of Article 13of Additionally to the question of been duly formalized. In accordance the Federal Law No.115 from July 25, tax registration it is necessary to ad- with article 67 of the Labor Code of 2002 «On the Legal Status of Aliens dress the issue of establishing a per- the Russian Federation, an employ- in the Russian Federation», a foreign manent representation and the ap- ment contract that is not executed citizen has the right to work without pearance of corresponding tax liabil- in writing is considered concluded a work permit if he is an employee of ities. In this sense, it is important to if the employee has started working a foreign legal entity (producer or remember the Tax Code of the Russ- with the knowledge or on behalf of supplier), performing installation ian Federation as well as the agree- the employer or his representative (supervision) work, guarantee and ment between Russia and Germany authorized to do so. service maintenance as well as post- for avoidance of double taxation. At the actual admission of the warranty repair of the delivered This agreement provides for an ex- employee to work, the employer is technical equipment to the Russian ception in clause 3 of Article 5: the obliged to formalize an employment Federation. construction site or installation proj- contract with him in writing not lat- In conclusion it is necessary to ect is a permanent establishment on- er than three working days from the mention the new Customs Code of ly in cases if the duration of their ac- date of actual admission. According- the Eurasian Economic Union, tivities is more than 12 months. But: ly, if a foreign employee works for which entered into force in January such an exception doesn’t apply to three days on the same construction 1, 2018, which includes introduction the installation supervision. site, it can be assumed that labor re- of simplified the customs legislation, Closely linked to tax issues are lations arise. transition to electronic data process- the issues of obtaining a work per- The question arises with whom ing that means the speeding up the mit for employees who are sent in such labor relations are concluded. relevant processes. It also includes Russia. In this case an employment There is a risk not only in relation to the automated release of goods. The contract is concluded. But in accor- a German or foreign investor, but al- existing customs procedures in prin- dance with article 16 of the Labor so with respect to the Russian con- ciple don’t changed, they continue Code of the Russian Federation, la- tracting party. to operate.

51 INVESTMENTS INDIA— A COUNTRY OF GREAT OPPORTUNITIES INTERVIEW WITH DEEPAK BAGLA, CEO AND MD, INVEST INDIA

investindia.gov.in

This year India entered the top-100 “countries of the World in the World Banks’ ease of doing business ranking. The «incredible jump» — as the World Bank CEO put it — from 130 last year is the highest for any country. DEEPAK BAGLA CEO and MD, invest India

52 ЕВРАЗИЙСКИЙEURASIAN ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ FINANCIAL & ECONOMIC ВЕСТНИК HERALD | #2(4)-2018 light of re- other great example of the progress World Banks’ ease of doing business cent protec- was given by FT’s FDI intelligence, ranking. The «incredible jump» — as tionist meas- which ranks India #1 in the world as the World Bank CEO put it — from ures being receipt n of greenfield FDI. This il- 130 last year is the highest for any Input in place by a select few coun- lustrates the long-term confidence country. The improvement is even tries, how can India continue to be of investors and highlights their be- stark along some of the key parame- an attractive destination for FDI? lief to profitability execute projects ters. For instance, India jumped — While it is true that we hear in India from scratch. from 99th position in 2014 to 29th certain protectionist voices, it doesn’t position now on getting electricity. affect India’s attractiveness as an in- — What are some of the process- Going forward, India needs to vestment destination. India has es in the policy framework that continue to minimize the variation emerged as a key investment destina- should be made simpler for new in- in the ease of doing business be- tion for both market seeking as well vestors? tween the states to ensure a uniform as export-base seeking investments. — From April 2014 till December experience throughout India. DIPP’s India’s GDP is set to touch $5 tn 2017, India received $209 Bn of in- Business Reform Action Plan with by 2025, and with both the manufac- ward FDI, the highest in its history. 405 specific recommendations across turing and services sector expected In fact, India is today one of the 12 parameters is aimed to achieve to grow by more than 10% annually most open economies in the world this. in nominal terms. in terms of sectors that are open for India’s consumer market will be foreign capital. More than 90% of — What role has Invest India $4 tn by 2025. Today, India is one of this FDI came in with no approvals. played with facilitation of invest- the world’s most open economies, Reforms have covered a wide range ment into the country? with a continuously improving busi- of topics from the country-level — At Invest India, we work with ness ecosystem, which is highlighted ground-breaking reforms such as the investors across their investment by the Ease of doing business rank- new GST law or the new bankrupt- lifecycle and translate these invest- ings, where India jumped 30 places cy and insolvency code to repeal or ments into well-paid jobs for the na- last year to break into the top 100. amendment of over 14,000 policy tion’s emerging workforce. So far, In- This massive leap means that the and procedural interventions across vest India’s efforts have created more confidence of investors in the credi- the central and state governments. than 100,000 jobs on the ground and bility of the system can now be tak- This has dismantled the inherent we are facilitating more than 85 bil- en for granted. Such ground-level complexity of rules and procedures, lion dollars of investments that are changes in business-climate are like- created over time. likely to create more than 1.8 million ly to have a multiplier effect on the This year India entered the top- new jobs. In a relatively brief period, investment and the economy. An- 100 countries of the World in the Invest India has been impactful

53 across many areas. It has been effec- need for increased real-time friction- in the presence of Mr Denis Mantur- tive in increasing the competitive- less coordination, we are linking the ov, Minister of Industry and Trade ness of doing business in India, sup- Indian missions, central ministries, of the Russian Federation. porting start-ups and facilitating pi- Invest India and state governments Russia Plus is a milestone for the oneering investments in major sec- on a first-of-its kind technological India-Russia relationship that has tors. The journey from its infancy in platform. This will ensure that the stood the test of time, and will 2014 to a global winner is best reflec- investors have a seamless experience strengthen the partnership that the tive of the story of new India — a from the boardrooms in global capi- two nations enjoy. transformation, unprecedented in tals to the districts and blocks of the Russia Plus acts as a one-stop so- speed and scale. And all this was states in India. lution for investors by providing achieved at a fraction of the budget Russia Plus was conceptualized handholding support that includes of global peers. by Prime Minister Narendra Modi business advisory, policy guidance, India works with all the state gov- during the India Russia Bilateral location assessment, assistance with ernments across India to make this Summit at SPIEF 2018, St Peters- regulatory approvals, issue redressal happen. To raise the bar of invest- burg, Russia in June 2017. The and expansion support. ment promotion and facilitation by Hon’ble Prime Minister of India, Mr We work closely with Russian State Governments, Invest India re- Narendra Modi announced in the companies to ensure that their in- cently conducted an in-depth eval- presence of President of Russia Mr vestments success in India. Our team uation of capabilities of state IPAs Vladimir Putin during SPIEF 2017 of sector and state experts work across India and conducted a na- the setting up of a dedicated Russia closely with investors through the tion-wide workshop to help them Desk at Invest India. entire investment cycle — from con- fill the gaps and facilitate knowledge This desk, christened Russia Plus, cept to implementation. With Russia sharing. Winning FDI is a collabora- was formally launched in Septem- Plus, Investors can benefit from In- tive effort with multiple actors ber 2017 by Mrs Sushma Swaraj vest India’s accomplished under- working in tandem. Recognizing the Minister of External Affairs of India standing of the Indian climate. business in countries

BELOW IS THE INFORMATION FOREIGN DIRECT ABOUT INVESTMENT OPPORTU- NITIES IN FOUR STATES OF INDIA: A GUIDELINE FOR INVESTORS INVESTMENTS TO INDIAN ECONOMY IN THE STATES OF INDIA

RAJASTHAN

MAHARASHTRA

MADHYA PRADESH

ANDHRA PRADESH

55 Rajasthan

ajasthan, or Abode of Kings, The cumulative foreign direct in- Success Stories R is the largest Indian state by vestment (FDI) into Rajasthan stood area, covering 10.4 per cent of the at US$1.5 billion in the period be- Japanese Industrial Zone, Neemrana, is per- total national land coverage. The tween 2000 to 2017. The construc- haps Rajasthan’s greatest success story. state covers a variety of topography, tion of the Delhi — Mumbai Indus- Around 1,100 acres of land near Rajasthan’s ancient historical town is set aside exclusively ranging from vast deserts to forest trial Corridor is likely to drive the for Japanese corporations. This was a result of hills, and has a total population of influx of FDI into the state, as a large an MOU signed between Rajasthan State In- 68.9 million. The state is adminis- part of it lies in Rajasthan. dustrial Development and Investment Corpo- ration (RIICO) and Japan External Trade Or- tered through 33 districts and Benefits of investing in the state ganization (JETRO). The total investment in recorded gross state domestic prod- include — location: 24.5% of Ra- the zone stood at US$656 million in 2015. uct of US$120 billion during finan- jasthan lies in the National Capital Global titans such as Toyota Motor Corp., Daikin Industries Ltd and Hitachi Ltd have cial year 2016–17. Region (NCR); excellent connectiv- clustered here. Ambuja Cements Limited, Rajasthan shares its borders with ity to Delhi, Mumbai, Ahmedabad, one of the biggest investors in the state, is the five major Indian states, offering Vadodara, Bhopal and Amritsar; second largest cement manufacturing company in the world. Kajaria Ceramics, the largest great potential in terms of market abundance of industrial power, rel- manufacturer of ceramic tiles in India with access. It is one of India’s leading evant infrastructure, land availabili- markets in more than 20 countries, has pro- mineral producing states and 70% ty, skilled manpower. duction operations in India. of its population is primarily de- The major sectors for FDI in Ra- pendent on agriculture. To tap into jasthan include — Infrastructure; IT The state has made several pro- the state’s enormous potential for & ITeS; Auto & Engineering; Renew- gressive efforts towards attracting in- economic growth, the Rajasthan able Energy; Tourism; Healthcare; vestors and ensuring that the state Government has implemented sev- Agro & Food processing; Minerals & ranks high in ease of doing business: eral measures and reforms to make Ceramics; Textiles; Defence manu- — the Government of Rajasthan it an attractive investment destina- facturing; Electronic hardware; and has introduced a Single Window tion. MSMEs. Clearance System; — the Rajasthan State Industrial Development and Investment Cor- poration (RIICO) has played an integral role in reforms relating to land availability and setting up of industrial areas; — labour laws have been re- formed and a Labour Department Management System (LDMS) has been established. This allows filing of applications, registrations, re- newals and online payments; — an e-governance platform called e-Mitra has been implemented by Department of IT and Com- munications to provide services related to different government work online; — speedy issuance of environ- mental clearances for setting up factories. Land records have been digi- tized, allowing investors to extract a copy of the records online.

56 ЕВРАЗИЙСКИЙ ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ ВЕСТНИК | #2(4)-2018 Maharashtra

aharashtra is India’s sec- М ond largest state located off its western coast, and is the country’s economic and industrial pow- erhouse. The state, divided in 36 districts, has a population of 114.2 million and gross state domestic product of US$279.3 billion in the financial year 2016–17. Consistently, one of the top five contributors to the country’s FDI pool, Maharashtra is poised to make an industrial investment of US$75.2 billion and create 2 million jobs in the state over the next five years. The state is investing heavily in developing new infrastructure, transportation and developing smart cities to hike up its growth rate. Agriculture, the services sector, infrastructure, IT and ITES, tourism and hospitality, and India’s biggest film industry — Bollywood, are major sectors in the state, which from April 2000 to September 2017, by the Lee Kuan Yew School of Pub- strengthens the state’s economy. along with Dadra & Nagar Haveli lic Policy. With 11 airports, 18 national high- and Daman & Diu. Investor interest The state leads in obtaining ap- ways and 6,000 km of rail network, has been augmented by the state’s provals for infrastructure-related the state is well connected to all ma- strong agricultural and industrial utilities, procedures for starting a jor markets. base, rich minerals and hydrocar- business has been reduced. Maha- Maharashtra received a cumula- bons deposit, proximity to financial rashtra passed a new Electronics Pol- tive FDI inflow of US$112 billion markets, skilled labour availability icy, which promises one window and advanced infrastructural and clearance, offers subsidies and Success Stories connectivity setup. The US$100 bil- makes the state competitive.

Taiwanese electronics giant Foxconn has lion Delhi-Mumbai Industrial Corri- To aid investment, Maharashtra made Maharashtra its destination in India; dor billed as one of India’s mega in- Industry, Trade and Investment Fa- General Motors consolidated its operations at frastructure projects will develop cilitation Cell (MAITRI), an online its existing unit at Talegaon, Maharashtra, with an investment of US$1 billion. new industrial cities en-route, as one-stop shop for investors has been The Maharashtra government is planning to Smart Cities, and converge the latest set up; The State has also passed a re- set up a 500 MW solar park in Dhule dis- technologies across infrastructure vised Maritime Development Policy trict.The entire investment in the park will come from private parties and the state will sectors. The key growth sectors in to focus on the PPP model and boost call for bids sometime in the next quarter. the State include auto and auto port infrastructure. Electronic firms, shortlisted for incentives by components; infrastructure support Maharashtra Rights to Public the Government, for manufacturing their products in India have invested US$160 mil- institutions; gems and jewellery; Services Act ensures 110 essential lion in Maharashtra under the Modified Spe- biotechnology. Bioinformatics; flori- services are delivered in a time- cial Incentive Package Scheme. culture; and food processing. bound manner for a nominal fee. Microsoft is helping to develop Maharashtra’s first smart village at Harisal in Amravati; Maharashtra is ranked highest in The State Government has also of- A US$769 million World Bank conservation Ease of Doing Business (EDB) met- fered Special Economic Zone (SEZ) and agriculture reforms project has been launched in Vidarbha and Marathwada. rics among the Indian states study policy to boost investments.

57 Madhya Pradesh

for time-bound clearance of ap- which is the world’s 2nd largest auto provals. testing track. adhya Pradesh (MP) is Madhya Pradesh is centrally lo- India is the largest importer of М considered the heart of cated, providing easy connectivity arms in the world, accounting for incredible India. The state is rich in to all the major commercial hubs of about 14% of the world’s arms import. mineral resources and has the largest India, including New Delhi, Mum- The State Government has un- diamond and copper reserves in In- bai, Ahmedabad, Hyderabad and veiled 2 progressive policies specifi- dia. More than 33 percent of its area Kolkata. cally for IT sector — IT Policy and is under forest cover and the The state has 229 Notified Indus- BPO Policy. There is availability of tourism industry here has seen con- trial Areas, 19 Growth Centers, four skilled technical manpower — more siderable growth. The total popula- notified Special Economic Zones than 100,000 engineering graduates tion of Madhya Pradesh Pradesh is (SEZs) and 12 product specific in- pass out of the state’s engineering col- about 73 mn. dustrial parks. leges every year. Plug and play infra- MP is known for its robust rail Priority Sectors For Investment in- structure is available for IT/ITeS com- network with 425 trains crossing clude Agri-business & Food Pro- panies in 4 major cities of MP — In- daily, dense road network of cessing. Madhya Pradesh has been re- dore, Bhopal, Jabalpur and Gwalior. 160,000 km, 5 airports and 5 Inland ceiving ‘Krishi Karman’ award for Madhya Pradesh has emerged as Container Depots (ICD), Madhya spectacular performance in agricul- the major pharmaceutical manufac- Pradesh offers excellent support in- tural production continuously for turing destination in the country. frastructure for industrial growth. the past 4 years. With the presence of More than 280 pharmaceutical units Madhya Pradesh is one of India’s 6 government owned modern food are operating in industrial areas of top investment destinations. Ac- parks and 2 private food parks, Mad- Dewas, Indore, Pithampur, Man- cording to the Department of In- hya Pradesh provides huge opportu- dideep and Malanpur. Around 200 dustry Policy and Promotion nity for food processing companies. Ayurvedic and 50 Homeopathic (DIPP) and World Bank report, The state has the strong presence medicine units present in the state. Madhya Pradesh ranks among top 5 in OEM’s and auto components Madhya Pradesh is the 5th largest states in Ease of Doing Business for companies. Madhya Pradesh is also producer of cotton in the country, 2015–16. The state ranks number the largest producer of radial tyres with a strong presence across all seg- one, in terms of allotment of land in India. Pithampur near Indore is ments of textile industry. The state and obtaining construction permits. the major auto cluster in the state. is the home of world-renowned Madhya Pradesh has implemented Pithampur also has National Auto- Chanderi and Maheshwari sarees an effective Single Window System motive Testing Tracks (NATRAX), and Bagh handloom products.

58 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 Andhra Pradesh

ndhra Pradesh is known as Three industrial corridors are com- Success Stories АIndia’s Sunrise State and ing up in the state creating a net- the gateway to the east. It is located work of industrial nodes, transport Mastercard has signed an MoU with Andhra on the southeastern coast of the linkages and support infrastructure: Pradesh to digitally transform the State’s de- country. In 2014, the northwest por- Visakhapatnam — Chennai Industri- livery of services to people, especially farm- tion of the state was bifurcated to al Corridor (VCIC), Chennai — Ben- ers, and drive financial inclusion. PepsiCo opened a new US$77 million manu- form Telangana. Andhra Pradesh’s galuru Industrial Corridor (CBIC) facturing facility at Sri City industrial park in longtime capital, Hyderabad, was and Kurnool — Bengaluru Industrial Chittoor district of Andhra Pradesh. It is tout- ed to become PepsiCo's largest plant in India transferred to Telangana as part of Corridor (KBIC). following a total investment of US$185 mil- the division, but remains the de jure Key growth sectors in the state in- lion. capital of the state for now. Current- clude agro and food processing; In 2016, Mondelez Foods has set up the first phase of its largest manufacturing facility in ly, Andhra Pradesh is budining its aerospace and defence; automobile Asia Pacific in Sri City, Andhra Pradesh fol- new capital city Amaravati. and auto components; electronics lowing an investment of US$190 million. The economy of the state is thriv- and IT; life sciences; mineral-based Kia is investing US$1.1 billion in Andhra Pradesh in a car manufacturing unit in ing, consistently registering double industries; petroleum, Chemicals Andhra Pradesh. digit growth. Although primarily an and Petrochemicals; textiles and ap- State-owned explorer Oil and Natural Gas agrarian economy, the industrial and parel; retail; tourism; energy and Corp Ltd (ONGC) will invest US$12 billion in the Krishna Godavari basin for producing hy- IT sectors have really come to the MSMEs. drocarbons and has signed an agreement with fore in recent years. The state is ad- In 2016, Andhra Pradesh ranked the Andhra Pradesh government. ministered through 13 districts and first in Ease of Doing Business in In- has a population base of 49.4 mil- dia, according to a list prepared by lion. The state recorded gross state World Bank and the Department of domestic product of US$105 billion Industrial Policy and Promotion during financial year 2016–17. (DIPP). The state received more than US$14.3 billion in FDI from April 2000 to September 2017. It is creating a conducive business ecosystem by introducing favourable policies and regulatory framework, such as flexible labour laws, policy on Inter- net of Things and Single Desk Policy. The State Government has also prepared a land bank of around 1 million acres while developing infrastructural and connectivity projects as well as a skilled labour force base.

59 Expert opinion

REAL-TIME SETTLEMENTS RAISE BANKS

COMPETITIVENESS www.bacee.com

ow it’s time of a fight- back — banks in Eu- rope search for the ways to defend their Nfranchisee in the payment business. Payment monopoly of banks is unlikely, of course, but with a new strategy banks have a good chance to set back further client attrition to fin-tech. Traditional financial institutes have finally realized that it is the era of digytal commerce and payment technologies with electronic devices, where they will be active participants or outcasts. One of the main competitive weapons of banks against fin-tech ri- vals is the development of instant payments. It isn’t a totally new product — for many years there has been RTGS (Real-time gross settlement) for big payments with central banks as the most usual operators. The main advantage of RTGS is the speed and completeness of payments executed in the «central bank’s funds». ISTVAN LENGYEL Deputy Chairman of the Coordinating Council, These systems functioning in more Secretary General of BACEE than 100 countries originally were designed for a small number of big transactions and were considered a premium service at high price. Be- sides high price and «premium» sta- Banks must be ready for new tus RTGS have yet another prob- “challenges with regards to real-time lem — they are available only during working hours. payments. Otherwise they will lose After a long sleep banks — the considerable payment turnover. «Sleeping Beauties» — seem to have woken up finally, and during the last few years there was an outbreak in

60 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 SUPPORT OF PAYMENT OPERATIONS IS ONE OF THE KEY BANKS FUNCTIONS AND A SOURCE OF THEIR INCOME. FIN-TECH REVOLUTION HAS PUT UNDER QUESTION THE LEADING ROLE OF BANKS IN PAYMENT SERVICES — AT LEAST IN RETAIL PAYMENTS — BANKS TAKE A BACK SEAT TO PAYPAL, SAMSUNG PAY, APPLE PAY, ALIPAY, YANDEX MONEY. THESE PROVIDERS APPEARED AS A RESPOND TO HIGHER EXPECTATIONS OF CONSUMERS FROM PAYMENTS — CLIENTS DEMAND AVAILIABBLE, REAL-TIME AND CHEAP PAYMENT SERVICES. A COUPLE OF YEARS IT HAS ALREDY SEEMED THAT BANKS WOULD LOSE THIS BATTLE, AND A CONCIDER- ABLE SHARE OF SETTLEMENTS WOULD PASS TO COMPETITIVE FIN-TECH COMPANIES.

the development and transformation of bank payment services in accordance with the demands of the digital era. The year 2017 was a turn- ing point and it certainly can be considered the Year of instant payments. The number of instant payments systems in the world has grown up by 11 (in 2016 — by 5), and now these systems work in 30 countries, and 18 countries are planning Hungary has to introduce them. worked out its The main reasons for such a rapid own concept differ- development are: ent to the European so- — pressure from clients, corpo- lutions by a number of As a rate and consumer demand for items and to the current RTGS respond to wider functions and higher speed of valid in the country. The Central fin-tech challenge the payments on a 24\7\365 basis; Bank of Hungary is going to intro- Euro Retail Payments Board under — clients expectations of online duce a real-time settlements system the auspicies of the European Central payments at a lower price; on a mandatory basis for all banks of Banks in the late 2014 announced the — regulatory pressure and con- the country. need for an all-European real-time trol; settlements system. In order to devel- — spread of mobile applications All-European systems — op settlements on the territory of the which require online payments. SEPA Instant Credit Single Euro Payments Area (SEPA) Transfer Situation With the national systems of real- in Central Europe reference time settlements being an important

Today in Central Europe only step in the competition with fin- Hungary: special features of the System Poland has a valid national system of tech, their limited character does not of real-time settlements real-time settlements (KIR/Express allow the users to settle cross-border Payment currency: Hungarian forint. Elixir). The Czech Republic, Hun- payments which are becoming more Scope: obligatory for ALL Hungarian banks. gary, Lithuania and Slovenia are go- and more important together with Mandatory nature: ALL corporate and retail payments up ing to launch their own systems in the development of e-commerce. In to HUF 10 m. (about 33 000 Euro) must be settled through the real-time settlements system. 2018–2019. Estonia and Slovakia order to compete with fin-tech com- System operator: Clearing house of FOREX exchange stick to «wait and see» position — panies or even with quite traditional (KELER), 100% subsidiary of the Central Bank. these countries are in Eurozone, and payment cards it is necessary to unite Provision of liquidity: banks must place reserves in accor- for them it might be more favorable banks into regional if not global, pay- dance with pre-funding. Reserve accounts are credited during working hours through the Hungarian RTGS (VIBER). to join right to all-European systems ment systems which provide for re- The system will be launched on July 1, 2019. of real-time settlements. al-time settlements within a region.

61 the European Payments Council (a future other providers will join from non-commercial association of 75 Belgium, Malta, Portugal and Finn- payment services providers) was es- land, as well as from Germany and tablished and was tasked to work out Holland. SCT Inst is not a settlement 27% 32% framework conditions for real-time system but a set of conditions for re- in 2020 after 2020 settlements on the all-European area. al-time payments according to com- In November 2016 the Council pub- mon standards. lished the main document which reg- The main SCT Inst 28% 13% ulates the real-time settlements in 2019 in 2018 through SCT Inst — a new pan-Euro- elements pean system. According to the plan Openness. All recognized payments the conditions of SCT Inst will be ap- providers can join (not only plicable not only in Eurozone but al- banks) — like in SEPA system. EPC poll — When do you think the critical mass os so in other EU member-states as well Voluntariness. The participation is SEPA Instant Credit Transfer transactions will be reached across Europe as in 6 other countries (Iceland, not obligatory for providers (unlike, Liechtenstein, Monaco, Norway, for example, the Hungarian national San-Marino, Swotzerland) — all system). SCT Inst in the fourth element of toghether in 34 countries. Speed. Maximum settlement run- SEPA supplement to the three ones SCT Inst was started in Novem- time is 10 seconds (from the pay- exiting within the scheme of SEPA ber 2017, at first with 585 payment ment order to the crediting of a ben- (SEPA Credit Transfer, SEPA Direct providers from 8 countries (Austria, eficiary’s account). Credit Core, SEPA Direct Debit Busi- Germany, Holland, Spain, Italy, Maximum payment amount. At the ness-to-Business). Latvia, Lithuania, Estonia) — they beginning — 15 000 Euro, but later it Since the participation in SCT are yellow on the map. In the nearest may be increased. Inst is voluntary its success will

1. Austria 2. Estonia 3. Germany 4. Italy 5. Latvia 6. Lithuania 7. Holland 8. Spain 2 5 6

4 8

SCT Inst was started in November 2017 in 8 countries (they are orange on the map)

62 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 Today the challenge for RT1 is liq- to the changes in the work of treas- In November, 2018 a new settle- uidity supply during non-working ury of large companies. Probably in “ment system of European central hours. The system has a powerful the future they will offer to their banks will be launched — TIPS. support in the form of mutual credit banks or partners the placement of It will be open 24/7/365 and limits for the participants and re- available funds for several hours will ensure additional liquidity serves. However total defense from during the day... However it’s a long- a possible lack of liquidity during term perspective. to the participants of RT1 non-working hours in extreme con- In June, 2017 EPC conducted an at any time in the of «central ditions can be secured by joining online poll to know the opinion of bank money» through RT1 to the settlement sys- its users regarding the expected ad- tem of Eurozone central banks vantages of SCT Inst. (TARGET). In November, 2018 a Even for ЕРС it was a surprise to new settlement system of European know that almost a half (48%) of re- depend on the «critical mass» of central banks will be launched — spondents consider as the main ben- transactions. In 2017 most experts TIPS. It will be open 24/7/365 and efit the possibility for businessmen said it would happen before 2020, will ensure additional liquidity to to check the receipt of payment to while 32% of experts believe that the the participants of RT1 at any time their accounts immediately at the system will not reach the goal in in the of «central bank money». moment of selling goods or services. three years. It also means that according to the most respondents real-time pay- How will a real-time ments will compete with payment Pan-European private system payments system change cards! About 1/3 of respondents of real-time payments preferences of users with EBA CLEARING RT1 regard to different forms pointed out possible advantages of and the settlement system of payments? SCT Inst in the person-to-person of the European central payments, and 14% — in transactions The effect of the press of real-time between corporations. As it was mentioned earlier SCT Inst bank payments can be considered In any case banks must be ready is not a settlement system, but a set truly revolutionary. for new challenges with regards to of standards for real-time payments. For banks the work on a 24\7\365 real-time payments. Otherwise they In order to achieve their aims basis means huge investments into will lose considerable payment programmers of SCT Inst have to the information systems and soft- turnover. create a relevant settlement clearing ware. The 10-second base. EBA (Euro Banking Associa- payments will un- 14% For transactions 1% For goverment- between corporates related payments tion) decided to complete the task. precedentedly in- (ex: taxes...) It’s a non-commercial organization crease requirements 2% Other with three different pan-European to compliance and euro settlement systems functioning AML, and will prob- under its auspices (EURO1, STEP1 ably lead to further and STEP2). On November 21, 2017 automated processes simultaneously with SCT Inst, ЕВА and the use of ma- activated RT1 — the first all-Euro- chine intelligence. pean euro real-time settlement sys- For regulators tem. RT1 works 24/7/365. According such 24/7/365 bank- to SCT Inst rules payments are set- ing system means the tled within 10 seconds. Starting from need to control it in January 1, 2018 according to PSD2 the same mode and any payment services providers can to ensure urgent sup- join the system who comply with port at any time. Of 35% For person-to-person 48% For consumer-to-business payments payments, when small PSD2 (not only banks). At its launch course clients benefit businesses require to be paid 17 banks joined the system from 8 from such real-time on the spot (ex: moving company, antique dealer...) countries which give access to RT1 settlements first of for 500 payment services providers. all. In fact it may lead Online survey of EPC: advantages of SCT Inst. June 2017

63 Contemporary view

Andrey Bespalov, Chairman of Coordination Council of Eurasian Center for Human Resources THE WINDOW OF ECONOMIC OPPORTUNITIES

THE MAIN FEATURE OF THE WORLD ECONOMIC DEVELOPMENT OF THE RECENT 50 YEARS WAS THE GROWING INTEGRATION OF MARKETS LOCATED IN DIFFERENT REGIONS. WE CAN SEE IT IN THE GROWTH OF WORLD TRADE, FOREIGN DIRECT INVESTMENTS AND MIGRATION.

1950–2010 growth dustrial countries in the world ex- added value provide for new re- rate of global econo- port decreased steadily, and starting quirements to professional skills. my was 1.6 fold high- from 1980s it nearly tumbled. In The task to balance the require- er than the growth of 2010 the share of developing coun- ments with the skills exists at all lev- Inglobal GDP. In the recent years world tries in the world export of industri- els both on certain territories and in trade grew by 5% every year, while al products amounted to 1/3 — twice certain companies. GDP grew only by 2.9%. The share of as much as 25 years ago. Another feature of globalization FDI in the world GDP increased 5 Geographical and structural is the labor flow from the south to times, and recently — by 25% more. changes of trade affect the migration the north, as well as from the south The growth of trade was fol- of labor. The sectoral shift from agri- to the south and from the north to lowed by the changes in export culture to industry and services, to the north. The number of migrants structure. Since 1950s the share of in- the production of goods with higher steadily grows. In 2017 it reached

64 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 258 million, with half of them being tries there not so many educated cation and easier labor migration, working-age population. people, about 10–15%. the Council of Europe has created a The growth of global migration Another question is how mi- system of centers NARIC in each EU requires special measures to recog- grants’ potential is used at the Russ- state. nize their professional skills and ian labor market. «Most people In 2015 4.7 million migrated to qualifications. Any obstacle to labor cant’s find job relevant to their qual- the EU countries, 2.4 million of flow holds back economic growth ification and education. They lose them were not from the EU, and 2.3 and innovations especially in the potential, because Russia can’t use million people — from different countries with anticipated deficit of it», — considers Julia Florinskaya, countries of the European Union labor resources. head scientist researcher at the Insti- (domestic migration). As of January As for migration in Russia, ac- tute of social analysis and prognoses 2016 there were 16 million entrants cording to unofficial assessments, at RANEPA. in the EU. the accumulated number of eco- Basically the share of migrants There are some common rules in nomically active labor migrants in with higher education is 20%, how- the EU, but each country tries to reg- Russia amounts to 6-13 million peo- ever they usually work in places ulate the flow of professionals itself. ple, or 7 — 15% of general employ- where only secondary-level of edu- In general the European experts ad- ment in Russia. Many believe that cation is required or their functions mit that there is basically no auto- immigration inflow into Russia in- include just servicing. Weak possi- mated system for recognition of pro- cludes only uneducated and badly bilities to use human potential result fessional education. qualified people. But expert re- in situations, when a qualified obste- The process of mutual recogni- searches prove it is not true. Lately trician-gynecologist works as a wait- tion in our area is likely to meet a lot the education level of migrants has er. It happens very often. There is a of challenges, such as economic in- become higher than of those who lack in medical staff in Russia, but terests of those who work in educa- leave the country. operating medical entrants work in tion system and try to monopolize Constructors, supermarket assis- supermarkets. their assessment and certification tants, restaurant and café staff, deliv- Migrants remain of the lower po- standards. ery men and street cleaners — many sitions at the labor market. The high- What outcome do we see? Shift of them came to Russia after gradu- er positions are for local worker, the to complex solutions in the interest ation from universities and colleges. medium one — for domestic mi- of the whole economic union. Such The information about education grants, and the lower positions re- integration solutions should be level of the entrants in Russia is dis- main for migrants from other coun- based on joint documents, recom- torted to a large extend. tries. During their work many mi- mendations and contingence of as- «Statistic shows that education grants become more skilled, bit it is sessment procedures. level of entrants in Russia gradually not taken into account either. We A solution can be found in a mul- grows», — sais Nikita Mkrtchyan, should realize that migrants carry ti-agent net-centered structure, flex- head scientist researcher at the Insti- huge potential in case of economic ible for regional conditions but at tute of social analysis and prognoses growth. While employing migrants the same time being a common in- at RANEPA. only for low-technology production formation assessment field. In such Polls among employers and mi- units and out-of-date processes, we system clients will be close to exec- grants themselves revealed that la- hinder modernization and innova- utive centers, and also can get uni- bor migrants in general have lower tive development. fied services of the assessment sys- education level than most Russians, We expect that qualified labor in- tem for qualifications in all countries however in some professions en- flow into Russia will keep at the lev- of presence. Naturally the replica- trants are more skilled. el of 280 000 people (illegal inflow is tion of such mechanisms is easy, and 2015–2016 saw intense labor flows much bigger). The share of skilled its launch in other countries doesn’t from Ukraine, Armenia and Kyr- migrants of financial and banking cost much, which makes the whole gyzstan. And it turned out that they sector amounts to 2000–4000 peo- event profitable. were much better educated than ple per year. And their employment The establishment of FBA EAC Russians. Migrants from Moldova, is hindered by weak system of qual- platform of an international Qualifica- Ukraine, Armenia and some other ification recognition. tion Assessment Center at the premis- countries also come after higher ed- Let’s look and European experi- es of the Russian-Armenian University ucation while in Central Asian coun- ence? For easier recognition of edu- in Erevan is a good example.

65 Founder’s page. IBC

FINANCIAL OMBUDSMAN IN THE IBC MEMBER-COUNTRIES

AZERBAIJAN: INSTITUTE DEFENDING THE INTERESTS OF CLIENTS www.aba.az

IN RECENT YEARS THERE HAS BEEN A STEADY TREND OF GROWTH IN THE NUMBER OF COM- MUNICATIONS FROM CITIZENS TO STATE BODIES ON ISSUES OF CONTRACTUAL RELATIONS WITH BANKS. IT IS OBVIOUS THAT THE LEGAL RELATIONSHIP BETWEEN BANKS AND THEIR CUSTOMERS IS CHARACTERIZED BY THE COMPLEX OF LEGAL BASIS CONNECTED WITH BANK- ING ACTIVITY AS WELL AS THE LOW LEVEL OF FINANCIAL LITERACY OF THE POPULATION.

IBC Meeting. Azerbaijan, Baku, October, 2017

nfortunately, today where the client is not declared all negative impact on the image of the quality of bank- the terms of the loan when signing good faith banks that conduct an ing services leaves the contract and the client makes open policy with respect to their much to be desired. unexpected discoveries for himself clients. All this emphasizes the at- UOften the clients are not satisfied at home, when carefully read the tention of scientists and legislators with the illegal interest changes on contract already signed. on the search for new effective ways the loan, levying a commission in However not all disappointed and means of protecting the rights of the conduct of credit account, the customers go to the law because it individuals as participants of bank- procedure for processing a mort- involves significant material, moral ing relations. The world experience gage. Quite often there is a situation and time costs. This situation has a indicates that the protection of the

66 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 connection with the conclusion, modification, execution or termina- tion of contracts concluded with financial organizations. The dispute could be referred to the bank ombudsman only on the initiate of the individual — the client of the credit organization. The main goal of the organization is to provide an acces- sible, simple, fair extra-judicial procedure for resolving civil disputes between credit organizations and their customers. The amount shall not exceed 2000 ( two thousand) US Extended IBC Meeting. Kyrgyzstan, Bishkek, May, 2014 dollars on the day of filing an application in mantas or another equiva- lent currency in accordance with the official rate of the Central Bank of the Republic of Azerbaijan. This institute gives an opportunity of free resolution of disputes and relieves of the need to resort to costly and lengthy standard judicial procedures. The procedure for the settlement of complaints applies to all types of services, provided by banks. Accession to the institute of the IBC Meeting. Ukraine, Kiev, November, 2016 bank ombudsman of the Republic of Azerbaijan for banks is voluntary. It interests of clients of credit organi- 2017. At the same meeting, the Char- is formalized by a special declara- zations, promoting dispute settle- ter and the Provision on bank om- tion on the transfer to the bank om- ment arising between banks or their budsman were approved. On April customers, the organization of their 14, at the meeting of the Presidium REFERENCE interaction are among the most im- of the ABA, Ikram Heydar oglu Ka- portant tasks of the banking system. rimov was elected to the above post. International Banking Council (IBC) Under the prevailing circum- To the personality of the banking The International Coordinating Council of Banking Associa- tions of the countries of the Commonwealth of Independent stances, the banking community ombudsman, the requirements are States, Central and Eastern Europe (IBC) is a public organiza- represented by the Azerbaijan very high. In this regard, the activity tion open to banking associations of all countries interested Banks Association (ABA) has started of the bank ombudsman is capable in cooperation. Creation date — September 3, 2004. to examine the dispute settlement to influence the effectiveness of the The purpose of the association is to effectively coordinate arrangements between banks and system of citizens’ appeal to state the efforts of the banking associations to maximize the use their clients — physical persons and judicial bodies, freed from the of the banks' capabilities in interstate economic coopera- abroad. It was decided to establish need to consider minor disputes, tion. the Institute of Bank Ombudsman. which constitute a significant part of Members of the IBC are banking associations of Belarus, Kazakhstan, Kyrgyzstan, Russia, Azerbaijan, Georgia, Serbia, Its goal is the establishment of confi- their workload. Tajikistan, Uzbekistan, Ukraine, Moldova, Armenia, Montene- dent relations between banks and As a conceptual basis for the ac- gro, as well as the Financial and Banking Council of the CIS, clients, by resolving disputes. tivities of the bank ombudsman, our the Banking Association of Central and Eastern Europe, the Financial and Banking Association of Euro Asian Cooperation. The decision to establish the In- banks have chosen a German model, Currently the IBC includes 17 organizations. stitute of Bank Ombudsman was according to which this institute is The Chairman of the IBC is Executive Vice-President of the taken at the meeting of the General not a state structure. To competence Russian Union of Industrialists and Entrepreneurs, Chairman Assembly of the Azerbaijan Banks of the new institute includes the res- of the Coordination Council of the Financial and Banking Association of Euro Asian Cooperation Alexander Murychev. Association (ABA) on February 3, olution of civil disputes arising in

67 Ikram Geygar ogly Karimov, bank ombudsman of Azerbaijan budsman of disputes involving individuals — the bank’s clients. Thus, the consideration of disputes in accordance with the Regulation of the Extended IBC Meeting. Belarus, Minsk, October, 2014 bank ombudsman is possible only with respect to banks that have offi- cially joined this institute. Funding of the new activity is provided from a special fund, formed by the Azerbaijan Banks As- sociation due to earmarked contributions of members who signed the Declaration. We would like to note that both parties, during the preparation of the declaration and application, give special consent to the processing of any personal data related to them received during the consideration of disputes, including the publication of acts and information on disputes. Extended IBC Meeting. Serbia, Belgrade, May, 2017 An important element of this system is that the application is accept- — having personally come to the the right to apply to the state court ed on the condition that the client office of the bank ombudsman. for reconsideration of the dispute. has previously submitted a com- The ombudsman, on the basis of Obviously, only those banks that plaint to the bank and received a re- the documents submitted, decides are interested in providing quality ply that didn’t satisfy him or re- the question of the admissibility the services to their clients will be join- ceived no response after 30 working complaint in accordance with the ing the institution of the bank om- days. requirements of the Regulation. Fi- budsman, aimed at strengthening Written complaints describing nancial organization must submit a their long-term positions in the fi- the essence of the case and enclosing written response within one month nancial market through the imple- the necessary documents are sent to from the date of receipt of the com- mentation of honest, open client the secretariat of the bank ombuds- plaint, which is sent to the client. policy. man. The complainant can do in The decisions of the bank om- Without a doubt, in the near fu- three ways: budsman are voluntary for imple- ture the institution of the bank om- — filling out an electronic appeal mentation only for both parties. Ap- budsman will play no less important in a special section of the website; plicants — natural persons in case of role in banking than other relevant — by sending mail; disagreement with the decision have institutions.

68 EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018 Англ_Вестник_2_2018_обложка_Layout 1 11.05.2018 14:11 Page 2 Award «Financial and Banking Elite of Eurasia»

November 30, 2018

Applications for participation are taken Services for the effective work of small and medium-sized businesses until November 1, 2018. and their integration into the exchange system Registration Form and Terms of participation Organization and preparation of documentation for stock trading in the competition: www.fbacs.com Consulting on business activities and management www.salus.ru Organizing committee: Legal support of transactions [email protected] tel.: +7 495 6630208, 6630213, Trust asset management email: [email protected] [email protected] Investment activities 2 Англ_Вестник_2_2018_обложка_Layout 1 11.05.2018 14:10 Page 1

№ 2 (4) | 2018

THE FORMAT OF FORUM • Plenary sessions BREAKOUT SESSIONS • Breakout sessions

Financial forum-2018: «Financial and Banking system of Russia: New challenges THE FIFTH and trends» Personality