Brian Hinchcliffe, Executive Chairman of BTL stated: “On behalf of the Board, we thank Guy for his leadership in the founding of the Company and for his hard work and dedication to BTL. We appreciate that Guy has offered to be available to the Board in the future to provide advice and his insight as required, and we wish him well in his future pursuits.”

BTL is a technology platform provider that owns Interbit, a third generation blockchain platform, which enables business applications to be built quickly, easily and with security. It is listed on the TSX Venture Exchange and operates from both the Canada and the UK – with offices located in Vancouver and London.

“The last three years have been an incredible journey, and I would like to thank all of the management, board and executive team for all of the hard work that has gone into making BTL the leader that it is today.” Said Guy Halford-Thompson himself.

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Ahead of the 3rd Edition Risk Audit in Banking conference, Sarah Daly, Director and Head of Internal Audit at Bank of Montreal Ireland plc shared her views on the impact and importance of regulatory changes on risk, the difficulties involved and the actions that need to be taken.

What are the main changes in the risk space for this year and what is the impact of these changes on credit, counterparty credit, market and operational risk?

There are a number of changes that will have substantial implications. For some changes, such as IFRS 9, risk data aggregation and IT (BCBS 239) as well as the revised IRRBB standards, the impact is understood. However, for others, the impact has yet to be fully determined. The Basel Committee on Banking Supervision (BCBS) is expected to finalise the remainder of its banking framework (Basel IV) in 2017. The key revisions can be summarised as follows:

• Credit Risk – a revised standardised approach, the introduction of an IRB risk weighted asset floor of 75% and constraints on the use of internal models for specific credit portfolios.
• Counterparty Credit Risk – the introduction of a new standardised approach and an IRB floor and the elimination of the internal models approach in the calculation of the credit valuation adjustment.
• Market Risk – a revised trading and banking book boundary; revised internal model and

standardised approaches, emphasis on expected shortfall rather than VaR and desk level internal model eligibility criteria.

• Operational Risk – the replacement of the existing measurement approaches with a new standardised approach using a ‘business indicator’.

The EU Commission published its banking reform package end November 2016 outlining proposed amendments to CRD IV and CRR. The package introduces amongst other measures the finalised BCBS reforms, for example, the leverage ratio and the net stable funding requirement, market risk rules, the standardised approach to counterparty credit risk, and the tightening of the large exposures limit.

Both sets of reforms have substantial implications for the calculation of regulatory capital and the use of internal models. Banks need to examine the individual components, fully assess the potential impact of these revisions on their business model and operations, and implement the necessary changes to ensure compliance.

Why is regulatory risk so important, especially at a time of numerous regulatory changes?

Regulatory risk management assumed heightened importance in the aftermath of the global financial crisis. Financial stability is the new watchword and the gaps identified in regulatory oversight are being plugged through enhanced regulatory frameworks and guidelines. Banks are expected to be able to effectively manage their regulatory risk. However, new regulations are becoming even more far-reaching and complex; they can significantly impact a firm’s business model/strategy and there are higher penalties for non-compliance. I believe that an integrated approach is required to ensure that the impact of new regulations is understood and the required changes are implemented.

What do audit teams need to do to stay on top of new and emerging regulation?

It is easy to feel overwhelmed by the sheer volume and complexity of regulatory change. A number of audit functions are establishing regulatory development focus groups to monitor the regulatory environment. This is done so that they can proactively identify emerging regulatory issues and accordingly update audit coverage and also, if required, audit methodology.

Alternatively, audit functions can leverage off the processes in place within the organisation to manage upstream regulatory risk and proactively engage with risk and compliance functions to understand the impact of new regulations and the steps taken to ensure the new requirements are implemented.

Why is it difficult to audit non-standard risks?

Risk Management continues to struggle to develop appropriate frameworks to effectively manage non-standard risks. These risks are often difficult to quantify and are by their nature ambiguous. Auditing these risks involves a considerable level of judgement as there is often limited quantitative evidence that these risks are being managed effectively. The first step is to ascertain how these risks are being managed and monitored, and then assess the adequacy and effectiveness of what has been implemented.

How can all the risks involved in a large project be mapped?

The key is to, at the outset of the project, put in place an effective process to identify risks, assess their potential consequences and then develop and implement plans to minimise any negative impacts. The status of these risks should be monitored continuously to determine if previously identified risks are still relevant and whether new risks are arising.

What would you like to achieve by attending the 3rd Edition Risk Audit in Banking conference?

I am really looking forward to engaging with other internal audit professionals on how they are dealing with the challenges of keeping abreast of regulatory developments and incorporating these into audit plans. I see the event as a great opportunity to share ideas and to advance the discussion as to how internal audit can continue to provide the expected level of assurance to our stakeholders that these risks are being managed and mitigated.

About Sarah Daly

Sarah Daly is a Director and Head of Internal Audit in Bank of Montreal Ireland plc (BMI). She will be participating in the 3rd Edition Risk Audit in Banking conference being held in London on September 18-19

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January 12, 2017: CAMRADATA, a leading provider of data and analysis for institutional investors, has collated the top 10 global investment trends for 2017 from a range of its asset management clients.

Sean Thompson, Managing Director, CAMRADATA says, “Our asset management clients have predicted that 2017 will be an extremely interesting year for investors. We are in a midst of a sea change in the global environment that will create both opportunities and risks.”

The top investment trends for 2017 from asset management firms:

A year of volatility in global markets

The political uncertainty in both the USA and Europe following the election of Donald Trump, Brexit negotiations and the forthcoming French and German elections are all going to have a big influence on the markets and continued volatility.

According to Mark Burgess, Chief Investment Officer EMEA and Global Head of Equities at Columbia Threadneedle Investments, “2017 will be a year of volatility as markets make sense of the promises and policies that politicians have promoted, and that volatility in markets provides the perfect opportunity for active management.”

Steven Bell, Chief Economist at BMO Global Asset Management EMEA, believes that Trump’s victory will be the ‘key driver of change’ and that the global economy is starting to heal. “A number of key indicators suggest that the world’s economy has been healing for some time. Monetary policy has played an effective role in this healing process but seems to have reached its limits with negative rates having disappointing effects in Europe and Japan. The baton should be passed to the fiscal authorities and Trump looks set to run ahead with it. Whether other countries will follow suit remains to be seen.”

Interest rate rises and falls

Most companies are predicting interest rate rises in the USA, but a fall in emerging markets.

Ricardo Adrogué, Head of Emerging Markets Debt at Barings, says, “Over the next year, global interest rates will likely move in different directions. As the US economy continues to gain steam, rates will likely increase while Europe and Japan appear on track to continue their accommodative policies. On the whole, EM local interest rates continue to fall as inflation remains healthy and growth remains tepid.”

Global inflation on the rise

Ricardo Adrogué, Head of Emerging Markets Debt at Barings, says, “Global inflation may rise but will likely remain relatively subdued over the next several years. Due to the lower inflationary pressures, we expect to see lower overall interest rates for EM local bonds where nominal yields offer significant compensation for risk.”

Bonds poised for solid performance

Robert Tipp, Managing Director, Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income, says, “Between the Brexit vote and the Trump sweep, 2016 was a year of surprises and bumps, but it was a generally productive year for the bond market. And, when we look at 2017, our best guess is that the opportunity in the bond market will once again outweigh the risks and that bonds are poised for solid performance.”

Embracing credit risk

Jan Straatman, Global CIO at Lombard Odier Investment Managers (LOIM), and Salman Ahmed, Chief Investment Strategist at LOIM, point out that in the world of largely low or negative rates, investors should consider increasing their exposure to credit risk through an allocation to corporate credit in 2017.

However, they say investors need to look beyond the higher-rated, investment-grade segment of this market where duration risk is a dominant force.

They comment: “We believe that to increase yield sufficiently, investors should move further down the credit spectrum. In our view, the so-called ‘crossover’ universe, which spans the lower quality investment-grade (BBB) and higher-quality high-yield (BB) rated issuers, provides significant return enhancement relative to investment-grade issuers while not exposing investors to the excessive default risk that is a feature of high-yield debt (rated B and below).”

Growth of global equities

The move into equities is another key trend.

Mark Burgess, CIO EMEA and Global Head of Equities of Columbia Threadneedle Investments, says, “Compared to their longer-term history, equities still offer better value than bonds – though this might change, should the ‘bond bubble’ burst in 2017.”

Steven Bell, Chief Economist at BMO Global Asset Management EMEA, says, “Higher US rates and a strong US dollar will see markets struggle to make much headway and although equities are our favoured asset class, stronger economic data could see bonds rally and shares fall at some point. In terms of sectors, recent trends look set to continue with cyclically orientated areas outperforming and bond proxies struggling. The prospects for emerging markets remain difficult as dollar strength and rising rates outweigh the benefits of better growth. But 2017 might be the year in which European equities finally outperform, ending half a decade of disappointment.”

Impact of technology

Technology will also have a significant impact in 2017.

According to Richard Turnill, Global Chief Investment Strategist at BlackRock Investment Institute, “Technological change is sweeping through industries, overhauling business models, reducing traditional jobs and limiting inflation. The rapid pace of technological change is causing disruption across industries and displacing jobs − and is arguably fuelling populist politics.”

Advances in artificial intelligence could have an even bigger impact on better-paying white-collar jobs in services industries such as finance. And fossil fuel companies risk being upended by renewables once energy-storage technologies improve.

Tony Kim, Portfolio Manager at BlackRock’s Global Opportunities Group says, “Artificial intelligence (AI) is the new electricity. The big bang is upon us. We have all this data, but we can’t do anything with it. AI is the solution.”

Opportunities for active investors to increase

Mark Burgess, CIO EMEA and Global Head of Equities at Columbia Threadneedle Investments, predicts that 2017 will be an active time for investors, and expects opportunities for discerning investors to increase. “Amid rising political uncertainty, fundamental analysis and expert asset allocation will be critical in order to achieve long term returns. The tide of global QE that had previously lifted all boats will begin to ebb in some regions and flow in others, and in that environment it will make sense to differentiate within and across asset classes.”

Challenges in Asia and Emerging Markets

Burgess predicts challenges for Asia and the Emerging Markets (EMs) that are exposed to the threat that Trump poses with protectionist policies. These include China, Mexico, Colombia, Malaysia, Korea and Thailand.

BlackRock Investment Institute also highlights China and the worries around China’s capital outflows and falling yuan. However, they also say China’s stabilising growth has eased some of the anxiety that rattled investors in early 2016. Nevertheless, there are still challenges ahead as ‘China is attempting a difficult balancing act: prioritising near-term economic growth while tackling debt issues for the longer-term good’.

Emiel van den Heiligenberg, Head of Asset Allocation at Legal & General Investment Management (LGIM), points out one of the key risks for 2017 is a significantly weaker Chinese currency driven by capital leaving the country. “Our base case is that the Chinese will manage a 5% real currency fall at the cost of lower foreign currency reserves and tighter capital controls, particularly given the Communist Party’s power transition in late 2017. We do not expect a sharp slowdown in growth. However, the risk of a faster devaluation is not immaterial and, as we saw in 2016, that would likely lead to weaker global equity markets.”

Major challenges in Europe

John Greenwood, Chief Economist at Invesco Ltd, predicts the challenges in Europe will lead to poor economic growth. The slow progress of bank resolution, the weakness of the European Central Bank’s (ECB) QE programme and the consequent descent into negative interest rates are among the headwinds holding back economic recovery.

He also highlights double-digit unemployment levels, leading to disruptive populist and xenophobic political movements, and referenda or elections in Italy, Holland, France and Germany. “At some stage, one or more of these electorates could overwhelm the governing elites, posing an existential threat to the established order – the European Union (EU) or even the Eurozone. Real GDP growth is likely to remain around 1.5% at best, with inflation falling far short of the ECB’s target of ‘close to but below 2%’.”

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The institution’s Board of Directors approved the Second Expenditure Rationalization, Energy Efficiency and State-owned Enterprise Governance Development Policy Financing (DPF) Project for a total of $1.443 billion, including guarantees from the governments of the United Kingdom ($371.82 million) and Canada ($72 million), a testament of strong international support to Iraq. The DPF’s key development objectives focus on: (i) supporting expenditure rationalisation; (ii) improving energy efficiency; and (iii) enhancing the transparency and governance of state-owned enterprises.

“Despite an ongoing war and low oil prices, Iraq is undertaking bold transformational reforms that will safeguard economic stability and lay the foundations for longer term private sector development and inclusive growth for all Iraqis,” said Ferid Belhaj, Director for the Middle East, World Bank. “The reforms will help build trust between Iraqi citizens and their government, by making the management of public funds more efficient and transparent and expanding social safety nets to reach the most vulnerable segments of the population.”

Separately, the Bank’s governing body also endorsed a $41.5 million operation for the Modernization of Public Financial Management Systems, which supports the overall objectives of the DPF series and aims to support Iraq’s public financial management system.

“This operation is complementary to the objectives of the DPF and will support the government in its goal to improve transparency in the management of public funds and financial information and modernise public procurement practices across many federal and governorate agencies,” said Robert Bou Jaoude, the Bank’s Country Manager for Iraq.

The overall financial assistance package is aligned with the government’s recovery blueprint for 2015-2018. It is also in line with the World Bank’s strategy for the Middle East and North Africa, which calls for renewing the social contract in fragile states, supporting regional cooperation, bolstering the resilience to refugee crises, and initiating reconstruction and recovery programs where needed.

With the new package, the World Bank’s present engagement in Iraq rises to nearly $3.4 billion, including multi-sectoral support to the reconstruction and rehabilitation of areas recently recovered by government forces and a transport corridor investment.

In addition, the Bank is providing wide-ranging technical assistance to the Kurdistan Regional Government.

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IFM Correspondent

January 3, 2017: The UK’s Payment Systems Regulator (PSR) has decided to foster a more competitive domestic playing field. PSR has three main objectives — promote competition, promote innovation and ensure that payment systems are developed and operated in the interests of users.

According to Hannah Nixon, Managing Director of the PSR, “The remedies we are putting forward today are another step in our strategy to bring about a once-in-a-generation change to UK payments. This will promote more effective competition and innovation that will help better meet the needs of all users of payment systems – be they consumers, small businesses or banks.”

The size of the payment system industry in the UK is £75 trillion and it mainly consists of bank controlled monopolies. But this is what PSR is seeking to change by introducing an environment that is conducive for domestic players and competition.

They aim is to improve the ability of entrants to gain direct access to payment systems by requiring open, fair access terms and conditions and regular reporting. Ultimately, it would like to support new entrants in the market by providing them with the required infrastructure.

The PSR is also pursuing the adoption of common payments messaging standards, like ISO 20022, for the payment service operators of Bacs and the Faster Payments Service (FPS). The authority is also looking at how to impose requirements that would promote competition in the area of procurement by Bacs, FPS and LINK when they’re buying infrastructure services from companies like VocaLink.

The PSR believes that the competitive pressure would provide impetus for service providers to offer better as well as efficient services to users.

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Alan Mellor

November 24, 2016: The UK government’s first – and last – Autumn Statement will be remembered for its sensibleness.

When faced with a crisis, Ronald Reagan had a catchphrase. Don’t just do something. Stand there.

Prime Minister Theresa May’s Chancellor is cut from the same cloth. Philip Hammond is not about fancy initiatives, meddling too much or tweaking things for the sake of a good headline. He does something only when it is required.

At a time when Brexit is going to change everything, we needed a sensible Autumn Statement from a government that lets businesses just get on with it. In years to come, I think we will look back at Theresa May’s style and be impressed.

As well as additional spending on housing (£1.4bn for 40,000 new affordable homes announced), there was confirmation that the ‘triple lock’ policy on the state pension would remain.

From April 2017, the Personal Savings Allowance for income tax will be raised from £11,000 to £11,500 and the National Living Wage will increase from £7.20 an hour to £7.50.

The government recommitted to cutting the rate of Corporation Tax to 17% by 2020 and reducing the burden of business rates by £6.7bn over the next five years.

There was 100% Rural Rate Relief announced for businesses in rural areas, a cancellation of the planned fuel duty rise and over £1bn pledged for improving the country’s digital infrastructure.

There was also good news for the North West.

What is particularly good about this Autumn Statement is the good news it delivers for the regions. May understands that it’s not all about what happens in London.

The government has committed to raising productivity across the UK. With the Northern Powerhouse Strategy, there will be £1.8bn funding for regions through the Local Growth Fund. It will be interesting to see what this means for the North West as the new mayors are elected – I expect they will have the power to spend regionally.

The new £400m Digital Infrastructure Investment Fund and the commitment to rolling out fibre to more homes and businesses will also be good for the North West.

Perks for employees are set to cost more. Known as ‘salary sacrifice’ schemes, employees have traditionally been able give up part of their salary for a non-cash benefit allowing them to buy gym memberships, mobile phone deals and take car allowances. From April, the scheme will only be beneficial for people using it for childcare vouchers, cycle to work schemes and pension contributions.

In 2010, the Personal Savings Allowance was £6,750. So this has gone up massively in a very short space of time, particularly when you consider our low inflation rate in that time.

The Autumn Statement also announced a new 2.2% fixed savings bond, which will go on offer next year.

This catches the eye but in reality it’s fairly inconsequential. Savers can only invest a maximum of £3,000 in total over the three year period – making just £66 a year in interest.

This may not have been one of the most exciting Autumn Statements but it’s just what businesses need.

Alan Mellor is Managing Director of Cheshire-based Chartered Financial Planners Phillip Bates & Co

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IFM Correspondent

November 3, 2016: China’s services sector grew at the strongest pace in four months up to October as new business picked up, encouraging companies to hire more workers, a private survey showed.

The Caixin China General Services PMI (Purchasing Managers’ Index) came in at 52.4 in October, firming from 52 in September, according to the survey conducted by financial information service provider Markit. A reading above the 50 mark suggests expansion in activity on a monthly basis while a reading below 50 suggests contraction.

For service providers, the new orders segment in October grew at a moderate rate, but the demand for manufactured goods increased markedly, leading to the fastest increase in total new orders for both sectors combined since November 2014.

Service companies grew exponentially, and some firms also experienced backlog due to high demand and capacity constraints. Many firms were required to hire more employees to keep up with new orders. Firms that hired workers said that they are expanding and expecting orders to continue growing in the future.

However, the service companies reported that they had to maintain same selling prices or increase them by a small margin due to excessive competition in the service industry.

October’s business activity growth was ‘mainly due to a faster increase in manufacturing output’, said Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group, a subsidiary of Caixin Insight Group.

He explained that it would be possible to sustain stability in the fourth quarter if supporting policies are maintained and not relaxed.

There is a general opinion among service providers that business activity will flourish in the coming year.

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July 20, 2016: Brewin Dolphin, one of the UK’s largest independent private client wealth managers, announced the appointment of Louise Shaw and Nicholas Regan as Divisional Directors in the London office.  Nicholas will report to Simon Blowey, Divisional Director, Financial Planning, London and South East and Louise will report to James Campbell-Johnson, Divisional Director, Investment Management, London and South East.

Shaw joins Brewin Dolphin on 26th July after nine years at Kleinwort Benson where she was a client director.  Regan has over 20 years of experience in the financial services sector, and joins Brewin Dolphin on 8th August from BNP Paribas where he was head of Asian equities in Europe.  He previously held a similar role at Credit Suisse, prior to starting his career in fund management.

These appointments support Brewin Dolphin’s announcement in its last interim results statement that it has started on a long-term hiring plan to support its growth ambitions to increase discretionary funds by a third over the next five years.

Commenting on these new appointments, David Nicol, Chief Executive, Brewin Dolphin said:  “We are delighted that both Shaw and Regan are joining us at an exciting stage in our development.  They both bring excellent technical expertise, but most importantly have an impressive track record in building strong relationships with clients.”

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Suparna Goswami Bhattacharya

July 1, 2016: The beginning of the new century saw the emergence of a new industry in India and other developing nation — the back office industry, or the BPO as it is popularly known. In early 2000s, BPOs were all about cost efficiency, which allowed a certain level of flexibility.

Cut to 2016, a new industry — distributed on-demand workforce model — is disrupting the BPO industry. An on-demand mobile workforce means a distributed workforce operating using their smartphones and who are available on a need basis.

Apurv Agrawal, founder, SquadRun, a mobile marketplace for crowdsourced work, says,  “We target back office work like data clean-up and enrichment, lead generation and qualification, etc. The idea basically is to disrupt the back office industry.”

“Most ecommerce platforms either have an in-house team or outsource the above-mentioned work to a BPO. Current outsourcing options such as BPOs / BPMs, are broken. They have a high initial and recurring fixed costs, are operationally intensive, inflexible, and the best ones are inaccessible for the mass market. Today’s businesses need a quick setup and instant turnaround times because operations move quickly. This is where we come in” says Agrawal.

For instance, any ecommerce marketplace gets several listings every day. These need to be curated, tagged along with the right caption and then placed in the relevant category. Companies like SquadRun tie up with housewives, students and part-time workers to do the job wherein they can earn on an hourly basis depending on expertise.  “People who sign up with us have complete flexibility to work when and as much as they want”.

Additionally, if a company needs to create an urgent outbound calling campaign to understand the market of a particular product, they can sign up with SquadRun and provide them with a script. SquadRun will outsource the work to people who have signed up for jobs on their app and whose profile matches the skill set required for completion of the work.

So far, the best option for a company was to hire a few interns and train them in these calls. But the process is time consuming and costly.

Pawan Gulani, director, operations & projects, Indifi Technologies, says, “The fixed cost of working with a traditional BPO is gone. We can calibrate according to our needs. It takes care of spikes and troughs in the incoming leads and gives us a platform to base our sales efforts on. The leads have become more qualified and we don’t have to put resources on sorting out the hot leads.”

Indifi Technologies is a startup that enables the country’s micro and small enterprises to gain greater access to debt financing.

A spokesperson from Shopo, a Snapdeal company, says although India has a low-cost workforce, it takes a lot of time for companies to define processes and set up internal tools to get this workforce to act productively. “Combination of trained workforce along with API based integration makes the on-demand workforce option attractive,” says the spokesperson.

Though the trend is still very niche in India, it has caught the fancy of many companies across the world.

Gigwalk, US-based mobile platform that helps find the right worker, believes the industry will gain traction in future. “I believe that the impact of mobile technology over the next 10 years will be significantly greater than that of desktop technology over the past 30 years. Workers are quick to adopt these new technologies. Smartphones have only been around for 10 years, but they are now being used by over a billion people. As mobile technology continues to be adopted in the workplace and society, this trend will only continue to grow,” says David Hale, CEO, Gigwalk.

He adds that mobile technology simplifies managing a distributed workforce and makes execution of complex field assignments more efficient. So building tools for a mobile workforce is an obvious transition for companies. Many industries are starting to use mobile applications to manage distributed teams just to remain competitive.

The trend

# Eight out of 10 respondents in Deloitte’s Global Human Capital Trends 2015 survey indicated a trend toward greater use of hourly, contingent, and contract workers

# Online talent platforms have the potential to increase global GDP by $2.7 trillion and employment by 72 million full-time equivalents by 2025 — McKinsey: Connecting talent with opportunity in the digital age 2015

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There is pent-up demand after years of sanctions but risks remain

June 10, 2016: Iran has remained outside the international business community for close to 40 years now. Hence when sanctions were lifted this January, it was a gold rush for many. Being the 29th largest economy by GDP, Iran’s return to the global economy is expected to generate a windfall for its civil aviation industry.

The potential is immense due to the pent-up demand after decades of sanctions. On a purchasing power parity (PPP) basis, the size of Iran’s economy sits somewhere between that of Australia and Turkey whose commercial airline fleets are in the range of 500-600 aircraft. In sharp contrast, Iran’s airline industry is believed to have an operational commercial fleet of just 175 aircraft, with one of the highest average ages in the world. A further 40 aircraft are grounded due to inability to maintain their airworthiness, an impact of sanctions.

Understandably, within hours of accepting the conditions laid out for lifting of sanctions, Iran announced a number of commercial deals, including one with Airbus for 118 aircraft with a valuation of $25 billion. Justin Dubon, Airbus Head of Global News, says the agreement is a significant step in the overhaul and modernisation of Iran’s commercial aviation sector and Airbus stands ready to play its role in supporting the process. “It has been publicly acknowledged in recent months that there is a need for some 400 new passenger aircraft to modernise and overhaul Iran’s commercial aviation sector, and this figure we believe is not exaggerated,” says Dubon.

Officially, Iran has quoted 581 as the number of aircraft it intends to fly by 2026.

John Strickland, director, JLS Consulting, says the Airbus and Iran Air agreement is only the beginning. “Demand for travel to/from Iran will be boosted by the large Iranian communities living in different parts of the world, including Europe and the USA,” says Strickland. There are estimated to be 5 million Iranians living abroad, many of whom will be looking to visit a more liberal Iran.

Boost to tourism

Iran scores high even as a tourist destination — it is home to 19 UNESCO World Heritage sites — and is looking to welcome 20 million tourists a year in the next 10 years.

Binit Somaia, director (South Asia) at Centre for Asia Pacific Aviation (CAPA), a consulting and research practice firm, says Iran currently receives around 5 million visitors annually of which approximately 50% is religious traffic to the important Shia shrines in the country. “A large proportion of the balance consists of people of Iranian origin. Pure leisure tourists are very few, but we expect the number to increase significantly as the market opens up. Iran offers a diverse range of unique tourism experiences, diverse natural attractions, and activities from skiing to diving,” he says adding that there is a need to invest in new hotel capacity to support the projected growth. Inbound traffic will also be boosted by increasing business and trade activity, adds Somaia.

The risks

However, despite all the opportunities there are risks involved as well.

With sanctions relaxed one is still faced with the challenge of entering a difficult market. Iran, according to latest data by Transparency International, ranks 130th out of 168 countries on the Corruption Perception Index.

Somaia feels that though Iran has the ability to absorb 300 aircraft over the next five years, there is a question mark on whether it will be able to do so. “I do not know how much of this is feasible in practice. Even in mature markets, such a rate of growth would place immense pressure on airport and airspace infrastructure. And it is will be particularly challenging for Iran, as the aviation ecosystem will need to adapt to a generational leap forward in aircraft technology,” he says.

Paul Lyons, Strategy Director, IBA (International Bureau of Aviation), states that another area requires more clarification is US licence approval for any aircraft containing more than 10% components from US companies.

Lyons, in his report titled ‘Iran: Minimising risk and Maximising opportunity’, states that regardless of the fanfare, cash is at a premium and many of the airlines are already heavily in debt. “This raises two concerns: how will purchases be funded, and what options will the seller have if a deal goes sour? The banking system is out-dated and there are question marks around the robustness of the legal system – unsurprising given the lack of international interaction,” Lyon writes in the report.

Though there are some who fear a return of sanctions, in practicality it will be difficult. “It gets tougher to reinstate sanctions as Iran’s economy gets tied to the world economy.  That said, if Iran keeps being belligerent (threatening Israel with annihilation), many companies will hold back. The lower the price of sanctions coming back, the easier they are to reinstate,” says Addison Schonland, founder and partner, AirInsight, a commercial aviation consultancy.

“Despite the positive nature of the Airbus deal, the majority of industry leaders we have spoken with highlight the various hurdles to negotiate – be they legal, regulatory, political, or commercial. Care will be needed in order to minimise risk and maximise opportunity,” adds Lyons.

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