The CEO of BDO for Europe, Middle East and Africa was in Mauritius recently. He discussed the possible contours the global economy and financial markets may take in 2018 in the interview below.
By Himanshu MARCHURCHAND, BUSINESS MAGAZINE
BUSINESS MAGAZINE: Mr. Trond-Morten, a lot has been said about the world economy over the recent weeks. From your perspective, do you see the global economy peaking up this year?
Trond-Morten Lindberg: There has been a lot of uncertainty caused by numerous political and economic events. Exactly a year ago, we were quite unsure about how the US presidential elections would affect M&A activity and impact Europe.
Today, we know a little more and some level of predictability has returned. The defeat of populist candidates at the elections in Holland and France, and Chan-cellor Merkel's victory in Germany have all contributed to reducing the fears of anti-European populism and have therefore strengthened businesses and investor confidence in the European project. At the same time, the Eurozone economic recovery has gathered pace and it looks as the Old Continent is celebrating a comeback, notwithstanding the Euroscepticism in Italy and Southern Spain.
Furthermore, it has become apparent that President Trump's trade policies have proven less radical than his campaign pledges. Mr. Trump's greatest political success so far, the implementation of tax reform, is supporting the US economy. But what are the long-term effects on the US budget deficit and how sustainable will the tax cuts be remains an open question.
BUSINESS MAGAZINE: What will be the main drivers of growth, even if stunted, this year?
Trond-Morten Lindberg: The outlook is bright. Strong economic fundamentals, better political stability than at the beginning of 2017, US tax reform, an ongoing investor-friendly envi-ronment in the capital markets are all positive indicators. Oil is expected to stimulate the American and Canadian economies. As for sectors, we expect industrials and chemicals, followed by technology, media and business services, to remain the most successful areas. The comparative weakness of the dollar, global liquidity, the gathering pace of global growth and the increase of commodity prices also drive growth. In Africa, growing middle-class spending, mineral and resource demand and rapid infrastructure development will drive business.
BUSINESS MAGAZINE: How do you evaluate the economies in Middle East and Africa, even though it cannot be referred to as a collective bundle?
Trond-Morten Lindberg: Africa is a mixed bag! It is 54 countries and markets, which are all moving at a different pace. Each economy is facing its own challenges. BDO is primarily present in sub-Saharan Africa and East Africa, which is experiencing economic growth. The East Africa belt is attracting investors thanks to its stability and its vibrant private sector supported by investments in infrastructure.
In South Africa, the change in political leadership has been welcomed and all the ingredients are in place for the economy to kick-start. The change in leadership in Zimbabwe has also sparked renewed optimism. On the West Coast of Africa, BDO is present in Ivory Coast — the economy there too is doing well, and investors are seeing Ivory Coast as a hub for West Africa. Northern Africa — Morocco, Egypt and Algeria — remain stable and we are optimistic about future developments.
Although the Middle East and Africa are distinct regions, Dubai seems to evolve into a major trading platform for Africa — greatly helped by the reach of the Emirates airline which is improving connections to African cities.
BUSINESS MAGAZINE: We are noticing that financial markets internationally are increasingly under pressure (Bitcoin, stock markets, etc.). Should this be interpreted as signs that the worse is yet to come?
Trond-Morten Lindberg: I think a pending trade war and protectionism may impact the markets more than Bitcoin does. Overall, I'm optimistic though — and I find the topic of cryptocurrencies a very interesting one. Even though some of the hype is justified, most people — and industries — should not be overly concerned whether Bitcoin lives or dies. The Blockchain technology that drives Bitcoin, on the other hand, might be just about the most disruptive thing since the introduction of computers. BDO's Blockchain task force expects to see huge savings for our clients in cost, time, and risk mitigation. Costly and time consuming reconciliations are all but eliminated and an instantaneously verifiable audit trail discourages bad actors and potential for fraud.
BUSINESS MAGAZINE: Are you of the opinion that financial markets have always been ahead of the curve when it comes to predicting crises?
Trond-Morten Lindberg: It is not straightforward to predict crises. There is great value in looking at global trends and at BDO, we do so consistently. In BDO's recent global risk landscape report, c-level executives identified disruptive technologies, reputational risk and cybercrime as the challenges that are most likely to test them over the next ten years. There is a growing need and legislative pressure to demonstrate high standards of corporate governance. BDO's experts help clients to meet those challenges.
To come back to your question on the crisis, a noteworthy development presently is shadow banking which grew by 8% in 2016, to $45.2 trillion. In Asia for instance, there's lack of protection for both lenders and borrowers and this, combined with unlicensed opera-tors with no proper credit or risk controls could create a situation similar to the scale of the US sub-prime lending crisis in 2008-09.
BUSINESS MAGAZINE: What is your evaluation of BDO Mauritius? Is it well structured to service Africa?
Trond-Morten Lindberg: BDO in Mauritius is in the forefront of development in BDO. Currently, they are holding a leading position in the audit and advisory market. With rotation, there will be a new set of challenges, but the firm has the agility to respond to those challenges with their diversified
service offerings. At the same time, they are providing internal services for other leading BDO firms around the world, amongst them our highly important global conflict of interest process.
However, what I find most impressive is their ability to raise the bar when it comes to setting the ambitions for BDO. The leading partners and their staff are tech savvy, they demonstrate digital mindset and they are curious to challenge our way of working to stay in front of com-petition. Their skills, attitudes and ambitions will most definitely contribute to development of BDO not only in Mauritius but also in the region.
BUSINESS MAGAZINE: Lately it seems that regulators are lagging behind when it comes to regulating new financial products. The Bitcoin is one such example. What are your comments?
Trond-Morten Lindberg: Fintech is seen as being in competition with traditional, regulated financial services providers and we are noticing significant regulatory uncertainty and expect regulatory arbitrage. However, Fintechs also supplement the services that traditional service providers offer. The challenge for regulators is to ensure that Fintech develops in a way that maximises the opportunities and minimises the risks for society. For example, the German BaFin has established a new unit that concentrates on innova-tive financial technologies.
In the US, the Commodity Futures Trading Commission has a new initiative called LabCFTC, which will focus on better regulating Fintech start-ups — it will serve as a platform for international and domestic regulators to deliberate best practices. BDO's challenge is to help clients of all sizes operate under today's highly regulated scrutiny, while keeping the focus on their needs and strategic objectives.
BUSINESS MAGAZINE: The global business sector in Mauritius is going through an evolutionary phase. The revision of the tax treaty in India has brought about many takeovers of business by large international groups. While this is a positive sign for FDI and certainty, are there reasons to be concer-ned about this?
Trond-Morten Lindberg: Mauritius is an international financial centre of substance and repute. The regulatory framework will evolve in light of changes happening globally and Mauritius will adapt to main-tain its competitive advantage.
The country is well regulated yet business friendly. The recent takeovers have not only brought FDI but also bear testimony to the quality of the jurisdiction, the buyers are clearly acquiring future profits. This is a very good sign. Mauritius has a large pool of qualified professionals which represent the goodwill of the jurisdiction and an important asset to have. I have had the pleasure of meeting some of them, including the team we have at BDO Mauritius. These professionals are leaders and have also entrepreneurial flair to take the global business to its next level.