Category Archives: Analysis

As the UK Pivots to ASEAN, Indonesia’s President Jokowi Visits London

Indonesia’s President Joko Widodo (Jokowi) has completed his first UK trip as President on an EU tour also taking in Germany, Belgium and the Netherlands. The visit saw several deals signed, including a £4 billion (US$5.75 billion) aerospace deal for Airbus and Rolls Royce to upgrade the fleet of Indonesia’s flagship airline Garuda Indonesia.

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Indonesia is the world’s third largest democracy, and the world’s largest Muslim majority nation. The UK is a significant investor in the country, with UK companies investing in 267 projects in the country in 2015, realizing annual investment of US$503.22 million.

When the UK’s Prime Minister Cameron visited Indonesia in July 2015, four memoranda of understanding (MoUs) were signed relating to aviation, maritime affairs, research and innovation, and terrorism and transnational crime. During that visit, Cameron announced that the two countries would cooperate in constructing a microsatellite as a part of the countries’ bilateral maritime cooperation.

Jokowi represents the 16th largest economy in the world, which is forecast to be the seventh largest by 2030. The archipelago of 250 million residents grows by 4.5 million people each year, equivalent to the entire population of the Republic of Ireland.

Indonesia’s economy is forecast to grow at 5.3% in 2016, just below the average of 5.4% GDP growth over the 2000-2015 period. The economy has recently been hit by the global commodity slump and slowdown in China, which led to 2016 growth being downgraded from 5.5% by the World Bank.

Indonesia’s Maritime Security

Indonesia’s ambassador to the UK Dr Rizal Sukma mentioned in March in an interview with Asia House, that the issue on the top of his agenda as ambassador was to build maritime cooperation.

His Excellency revealed that Indonesia intends “to build ports and increase our capacity in port management. It’s also about ship building, ship repairing, maritime safety, fishing, and security cooperation between the UK and Indonesia such as coastguards and defence cooperation.”

Indonesia and the UK signed an MoU in September 2014 to enhance bilateral cooperation between their navies in information sharing, exercises, education training, logistics support and exchanges of visits.

Maritime cooperation has been at the top of the agenda of late, with several visits to the UK by Indonesia’s Minister of Maritime Affairs and Fisheries Susi Pudjiastuti. Since the Minister assumed office, there has been a mixture of a tough crackdown on foreign fishing in Indonesian waters involving sinking captured vessels, and encouragement of investment in the country’s seafood processing industry.

Opportunities for UK Education

Indonesia represents a large market for British higher educational organisations within Britain, and for British investors in the country’s education sector. According to British Council estimates, Indonesia will have 7.7 million enrolled in tertiary education courses by 2020, over double that of Japan.

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The Council expects Indonesia to be the fourth fastest growing tertiary education market in the world, and to have the world’s fifth largest such markets by 2020. The Council also predicts that the UK will be the world’s second most significant host for international students in 2020.

Companies in the UK education sector would do well by capitalizing on the opportunities in secondary and tertiary education in Indonesia.

UK Exports to Indonesia

UK businesses exporting to Indonesia benefit from the country’s membership of the Association of Southeast Asian Nations (ASEAN), a regional free trade area.

In 2015, some of the fastest growing UK exports to Indonesia were:
–           US$4.08 million in machinery for plants and laboratories excluding heating implements, a 76.29% increase from 2014;
–           US$2.85 million in electric generating sets and rotary converters, a 190.13% increase from 2014; and
–           US$2.86 million in machinery for use in the manufacture of rubber, plastic and other products, a 262.15% increase from 2014.

Indonesia’s domestic consumption is responsible for 55.8% of the country’s GDP, which has helped to protect it from the global economic crisis.

Indonesia’s Improving Infrastructure

President Jokowi was able to put into place much needed energy subsidy reforms in the country, and as such has benefited from the global oil price crash. Reducing subsidies has allowed the government to pursue its infrastructure investment programme, focusing on the ports and roads which connect this archipelago of over 17,000 islands.

Related: Indonesia: World Bank Pledges $10bn for Infrastructure, Poverty Reduction

On his UK visit, he highlighted the openness of the country to large scale foreign investment in infrastructure projects, using the example of a US$5.5 billion Chinese-invested high speed rail link between Jakarta and Bandung.

Practical Steps to Investing in Indonesia

President Widodo explained the vision behind the country’s reform process in his address to the 2016 UK-Indonesia Business Forum, explaining that it was defined by the concepts of “openness and competition”.

If you are considering investing in open Indonesia, it pays to have local assistance in the investment process. Most foreign investment is administered by the Investment Coordinating Board (BKPM). Investment processes vary by industry, and separate licenses are issued for investors in banking and finance, insurance, and oil and gas. BKPM is currently pioneering it’s one-stop shop three hour investment license service for special cases, though most should expect the licensing process to take significantly longer.

For a free consultation on investing in Indonesia, get in touch with Charles at: charles@csmall.co.uk

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Blockchain Explained: Hashes and Hexadecimals

For cryptocurrency miners, the aim of the game is to calculate the correct hash of each block. Each hash calculated by a miner has the same chance of being successful in this. In this article, we use the example of Bitcoin to explain aspects of how hashes work in practice.


When a block is generated, its block header contains a 256-bit hash of the previous block header in the blockchain, and another 256-bit hash of the Merkle Root of the block itself.

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The 256-bit hash is often expressed as a number in hexadecimal format. Rather than using base 10 decimals, hexadecimals use 0-9 followed by a-f. Each hex digit expresses a 4-bit binary string. An example of a hash expressed as a hexadecimal string is:
9a1f3a322ff119def6f220fe2bb37297b4d87e09fb93905d70dc0cf049684789

Public and Private Keys

Hashes are also used in derivation of public and private keys.

The public key can be shared safely with others, and the private key can be used to verify ownership of a particular address. Think of the pair as a public account number, and a private PIN. Sample public and private key pairs for Bitcoin can be generated online, and in Bitcoin clients.

The private key is an unsigned 256-bit (32 byte) number, and the public key is usually expressed as a 33 byte number comprising of a 256-bit number and a prefix. These pairs are derived from hashes of the Eliptic Curve Digital Signature Algorithm (ECDSA) in the process shown below.

PubKeyToAddr

If you have downloaded a wallet client, the public/private keypair is stored in the wallet data file, usually identifiable by its file name “wallet.dat”.

Base58Check

Base58Check is used to create more widely shared Bitcoin addresses. For example, the address which received the reward for mining the Bitcoin genesis block can be noted as: 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa

The original Bitcoin client justifies using Base58 due to its exclusion of sometimes identical-looking characters 0, O, I and l. Use of this method was justified by Bitcoin’s creator due to ease of alphanumeric characters to be accepted as account numbers, ease of users to select an alphanumeric address by double clicking, and ability to express such addresses clearly in communications.

For more information, feel free to get in touch by emailing Charles at:
charles@csmall.co.uk

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Business and Security Risks to Operating in Indonesia

Indonesia, a country of over 250 million people, is the largest economy in the Association of Southeast Asian Nations (ASEAN). The archipelago of over 17,000 islands is vast and complex. London is closer to Baghdad than Indonesia’s northwesternmost point near Aceh is from the southeastern tip of its border with Papua New Guinea.

Getting to grips with this culturally and economically diverse country requires in-depth analysis. In this brief report, we cover two key business and security risks to doing business in Indonesia, giving an outlook on how we expect the situation to develop.

Business Risk – Extractive Industries

Businesses in the extractive industries are at risk of the growing tide of “resource nationalism”.

At the start of 2014, Indonesia’s government announced a total ban on exporting mineral ores of bauxite, nickel and tin, and progressive taxes on export of some minerals. The aim was to force exporters to build smelters in the country. However, slow progress has been made towards this.

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In 2015, construction only began on six new smelters, all small in size. This year, only one bauxite smelter, three lead-zinc smelters, and three nickel smelters are scheduled to begin operations.

Some multinationals have resorted to commercial arbitration and negotiations over implementation of the new rules. Freeport-McMoRan Inc. has appealed for leniency from the government before a US$530 million payment must be made for construction of a new copper smelter, in return for the government renewing a permit to export from its Grasberg mine in Papua. Its license expired on 28 January 2016, and the company aims to export 1 million metric tons of concentrates from its mine.

It remains an uncertain time for extractive industries in Indonesia. There has often been a gap between regulatory constraints and implementation in the country, and those involved in extractive industries will benefit from keeping up to date on developments.

Related: Indonesia: World Bank Pledges $10bn for Infrastructure, Poverty Reduction

Security Risk – Islamic State (IS)

Indonesia is at risk to threats from Islamic fundamentalist groups, particularly the Islamic State (IS).

The 14 January 2016 attacks in the heart of Jakarta’s central business district marked the worst attacks in the country since the twin hotel bombings of July 2009. The complex attack claimed by IS began at 10:45 local time when a suicide bomb detonated in the Starbucks of the Cakrawala (Skyline) Building. Two attackers then opened fire into surrounding crowds, killing one Canadian and one Indonesian citizen. Two motorcycle borne suicide attackers then opened fire on a police post and detonated explosives, killing the bomber. Other explosions were heard, and attackers were seen throwing grenades.

Police searches in the vicinity revealed one large and five small unexploded bombs. When the police announced at 14:30 that the attack was over, four attackers and three civilians had been killed, and 19 civilians wounded.

The international nature of the targets – an American-owned café and foreign civilians – illustrate that foreign nationals remain at risk in the country. The targeting of the police checkpoint is also in line with previous attacks on state apparatus.

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Hundreds of Indonesians have travelled to fight with IS in Iraq and Syria, and officials estimate that there are over 1,000 supporters of the group in the country. The police believe the attack was organised by Indonesian citizen Bahrun Naim from the Syrian city Raqqa.

Indonesia has a history of internal conflict between the state and Islamist groups. Since independence in 1945, Islamist insurrections took place in Aceh, Java, and Sulawesi, ending in the 1960s. Regionalist conflicts are also no longer the threat they once were.

The national philosophy of Pancasila espoused by the state embraces five pillars, including monotheism, in order to bring together the diverse archipelago. As such, the country recognises freedom of religion, and is at odds with the ideology of the Islamic State. Unlike in other regions, IS has not taken a permanent geographical foothold in the country.

Despite this, we believe that it is highly likely that similar attacks will be carried out in Indonesia, and businesses should make contingency plans accordingly. Get in touch for a free consultation by emailing Charles at:
charles@csmall.co.uk

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Blockchain Explained: Block Headers

In this article, we examine the contents of the block header in Bitcoin’s blockchain, including the previous block hash, Merkle Root, and other details.


Each block in Bitcoin’s blockchain public ledger has an 80 byte block header, which contains metadata about the block. The position of each block in the blockchain is identifiable by a hash of its block header and its number, known as its “height”. For the purpose of this example, we will look at Block 398765. The hash of our example is:
000000000000000004fb5c6a6285e983e49eec2b74078b5b0495a3cfe1bc7d25

Previous Block Hash

Every block other than the first genesis block contains a hash of the previous block in the block header’s 32-byte previous block hash field. The previous block in the chain is known as the parent, and a block can only have one parent.

In our example, the previous block hash is:
000000000000000006e070aceb085c3ffb1cfb714d86958c62f7cdbe98bf5132

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As a block’s header contains a hash of the previous block, changes in a parent block cause subsequent changes in the more recent “child” block next along in the chain, which in turn changes the next block. It becomes more difficult for rewritten transaction history to be accepted by nodes on the network when such an action would require changes to multiple blocks in the chain. This acts as a significant obstacle to manipulation of transaction information in the blockchain, particularly for older blocks.

Merkle Root

The block header also contains a 32-byte hash of a summary of the Merkle Tree of the block’s transactions, known as the Merkle Root. The Merkle Tree contains summaries of all transactions recorded within a block, and can be used to verify records of transactions in a block.

The Merkle Root for block 398765 is:
866cfa8c0a49fc9c2f462a8a32630ebcec2fb0c446163afa135922af2e616acb

Other Details in the Block Header

The block header also contains 4 bytes each of information on the version of software used, a timestamp (measured in seconds from Unix time) the nonce and difficulty target.

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The difficulty target is a representation of how difficult it is to mine a block, based on a periodic review of the network’s hashing power. The target is set according to the proof of work mechanism.

The header also contains the value of the nonce, a number which results in a block header hash under that expressed in the difficulty target.

For more information, feel free to get in touch by emailing Charles at:
charles@csmall.co.uk

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Blockchain Explained: Merkle Trees

In this article, we examine how Merkle Trees are used to verify authenticity of the blockchain public ledger used in Bitcoin, allowing the network to agree on transaction records.


In blockchain networks, each node verifies the authenticity of each block in the chain. To ensure that public records of transactions stored within the blocks are recognised as valid, blockchain technology makes use of the Merkle Tree. Each block in the chain contains its own Merkle Root.

This data structure makes use of the SHA-256 cryptographic hash function to create a Merkle Root from the records of all transactions recorded in the block.

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Each transaction in the block is hashed using SHA-256, and the result of each hash is paired and concatenated with the result of another hashed transactions in the block. The results of these hashes are paired and hashed again until we eventually reach the root.

Make a Hash of the Leaves to Reach the Root

Consider a block in which three transactions are recorded, a, b and c.

As the Merkle Tree is binary, when the number of transactions in a block is odd, one of the transactions if repeated to facilitate pairing. In the example below, transaction c is double hashed twice. These are represented in the “leaves” in the bottom row of the below diagram.

D5 and D6 are hashes of concatenated pairs of double hashed transactions, and the double hash of this pair becomes our block’s Merkle Root.

Merkle Tree Upright

Merkle Paths to Blockchain Verification

In developed blockchain networks including Bitcoin, there could be thousands of transactions per block. No matter how many transactions, each block will have only one root. This root is a 32-byte hash, and is a summary of all transactions in each block.

In order to verify that a transaction has been recorded in a block, a Merkle Path authenticates that the transaction is connected to the root. The path to the record of a single transaction is traced through a binary logarithm, allowing nodes to identify paths to verify a transaction which are a mere fraction of the size of a whole block.

Identification of a transaction is still possible when a node downloads only the block headers, rather than the entire blockchain. As it can take days to download the blockchains of many popular cryptocurrencies, this is a significant plus. This method is used widely by Simplified Payment Verification (SPV) client nodes.

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One drawback to using SPV to verify a transaction is that an SPV client can be misled by dishonest nodes on the network which omit transactions from the blockchain. Connecting the SPV to multiple nodes does not remove this risk.

A second risk stems from inability to mask public addresses of users of the SPV client. If the client aims to reduce bandwidth by not downloading all blocks, requesting details of specific transactions from other nodes grants those nodes a view of all public addresses associated with the user. Bloom filters address this issue by requesting only matching transactions and partial Merkle Trees from other nodes.

See the Wood for the Trees

For blockchain technology to take hold globally, it needs to be able to operate efficiently in low bandwidth environments. Using Merkle Trees can be an effective way to facilitate this. The clear benefits of streamlining the verification process by reducing bandwidth should be kept in mind.

Interested in blockchain technology? For a free consultation, get in touch by emailing Charles at:
charles@csmall.co.uk

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Blockchain: Does it Scale?

Charles Small has managed multiple market research projects for companies considering establishing high-tech projects, including in-depth analysis of payment habits in the Asia-Pacific. For a free consultation, email Charles at: charles@csmall.co.uk


Scalability is the most integral part of building a successful enterprise. For a business to be scalable, it must be able to expand with minimal incremental cost.

For example, translation services are far less scalable than software services. While the cost in each professional translation project accounts for established expertise and human input, the cost of goods sold of a software product reduce dramatically following development of the first copy.

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For Blockchain, the issue now is whether the network itself has the capacity to support its user base. The distributed ledger in each block contains a record of the transactions which have taken place in the time the block was generated, and there is a limit to how much data each block can contain.

A team of researchers have released a paper addressing this issue, predicting from current trends that the blockchain will reach maximum capacity of transactions per block by 2017.

To Confirm, How Limited is the Blockchain?

For cryptocurrency standards, Bitcoin is slow-paced. It takes around 10 minutes for each confirmation of a transaction. Due to the risk of double spending, those accepting Bitcoin payments  often wait for two or more confirmations before the payment is processed. Other cryptocurrencies offer shorter block generation time, but risks associated with lower numbers of users mean that those accepting payments wait for many more confirmed blocks from the network before accepting the payment. This is far from instant.

The number of transactions which the blockchain can handle does not compare favorably to established payment providers. While Bitcoin can confirm up to only seven transactions per second, Visa’s network can confirm 2,000 on average.

The team of researchers state that “fundamental protocol redesign is needed for blockchains to scale significantly while retaining their decentralization“.

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The team suggests several techniques to support scalability of blockchain technology, including both incremental changes and radical redesigns. The researchers take on the issue of consensus in the network, and inefficiencies in the current system.

Bitcoin’s Network Plane is identified as the bottleneck in processing transactions due to a combination of local validation of each transaction by each node, and repeated propagation of transactions by nodes in both the validation and block generation phases. Simply put, each node in the network confirms that a transaction happens, broadcasts this to other nodes, then validates it in a block.

The problem of consensus has been addressed by some proof of stake cryptocurrencies, whereby those with a stake in the cryptocurrency have the right of block generation. However, the likelihood of successfully changing the nature of Bitcoin from a proof of work cryptocurrency is minimal.

The community is working hard to solve the problem of blockchain scalability, but it will be a gradual process. Expect more on this issue as we approach the transactions per block limit. Considering the high impact of negative news on cryptocurrency prices, this will come hand in hand with market volatility.

For more details, get in touch for a free consultation by emailing Charles at:
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Blockchain Voting: Direct & Indirect Democracy

Charles Small has managed multiple market research projects for companies considering establishing high-tech projects, including in-depth analysis of payment habits in the Asia-Pacific. For a free consultation, email Charles at: charles@csmall.co.uk


Many are familiar with the use of blockchain technology in Bitcoin and related cryptocurrencies, but its applications in voting systems are still largely unknown. Here, we explain how blockchain technology can facilitate simultaneous direct and indirect democracy.

Voting with Your Wallet

The traditional concept of voting in a representative democracy is straightforward. Voters physically travel to a particular place at a set time to cast a ballot, choosing their representative to stand up for them in government.

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Voting on the blockchain offers many more possibilities. When using this technology, an individual’s votes can be stored in and transferred from their personal wallet. All blockchain transactions are also publicly verifiable through the distributed ledger, meaning that all users can see which votes are cast. Lengthy vote recounts at the eleventh hour would no longer be necessary.

Additionally, it allows for a combination of political systems to exist simultaneously.

Simultaneous Direct and Indirect Democracy

Some traditional voting systems make use of direct democracy, whereby constituents vote on issues themselves in referenda or cantons. Most national governments use indirect or representative democracy, involving the delegation of power by the electorate to representatives in government. Several use a combination of the two.

Blockchain voting presents an opportunity for both systems to live side by side, and for members of the electorate to change between the two.

Imagine a situation whereby you choose a representative by assigning them your vote online. On the blockchain, this is recorded as a transaction, and the number of votes the representative receives from you and others is traceable and quantifiable. The representative can then use this legitimacy conferred on them by the electorate to vote on individual issues.

But what if you are unsatisfied with the way the representative votes?

In the U.S., the right to recall allows the electorate to remove a representative from office and prevent them from exercising votes. However, this system does not guarantee that the next representative will vote in the way the electorate wishes.

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By ensuring that blockchain voting transactions are reversible, the electorate could recall votes delegated to a representative immediately. These could then be used by individual voters directly to vote as they wish.

Simply put, this allows voters to be as engaged in the political process as they wish to be. Too busy to get involved in politics? Delegate your vote to a representative. Your views don’t align with representatives’? Vote on issues the way you want.

This raises the possibility that voting behaviour of representatives would change following implementation of such a voting system. It is likely that representatives could become more responsive to the wishes of the electorate who choose them.

For now, the inadequacies of the recall system mean that despite the democratic nature of many of the world’s political systems, the electorate’s views are inadequately represented. As the gap between the desire of the electorate and the actions of the government is the fundamental reason for political unrest, this new technology presents an opportunity to reduce political instability by bridging the gap.

Several groups have attempted to incorporate blockchain tech into voting systems, including 2014’s Project Votecoin, and Australia’s Flux. The potential for this disruptive technology to change the way political systems work should not be underestimated.

For more details, get in touch for a free consultation by emailing Charles at:
charles@csmall.co.uk

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Why Apple, Google, Samsung, and Facebook are Launching Payment Services

Charles Small has managed multiple market research projects for companies considering establishing high-tech projects, including in-depth analysis of payment habits in the Asia-Pacific. For a free consultation, email Charles at: charles@csmall.co.uk


Opportunities for payment service providers are phenomenal. There were an estimated 358 billion non-cash global transactions in 2013, and the World Bank predicts the global value of remittance payments alone will reach US$681bn in 2016.

Just as inadequate internet infrastructure incentivised the mobile payments revolution in East Africa, high-cost payments to intermediaries in traditional transfers encourage use of new payment methods. In the developing world, leapfrogging could leave traditional service providers behind; in Vietnam only one in three people have access to a bank account, as many as who use the internet on smartphones.

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Many new providers make use of contactless near field communication (NFC) technology, already used widely in card payments, including at 250,000 UK retail outlets. In mobile payments, MasterCard Digital Enablement Service (MDES) and others provide an added layer of security above standard two-factor authentication (2FA).

appleApple is integrating its hardware and software business lines with Apple Pay. iPad and iPhone 6 owners can use the service to pay within apps. Apple Watch and iPhone 6s use MDS and are compatible with NFC in-store purchases using AmEx, MasterCard, and Visa. Within weeks of launching, Apple Pay had a 2% share of US digital payments. Over one billion iOS devices have been sold globally, giving Apple a unique advantage in market share.

googleGoogle is integrating Android Pay with its existing Google Wallet, released in 2011 in the US. Both use NFC. Android Pay works on Android 4.4 and over, and supports AmEx, Discover, MasterCard and Visa, and allows in-app purchases. Fingerprint verification is optional. Google Wallet uses coupons, credit and debit cards. It focuses on peer-peer transactions, including via Gmail.

samsungSamsung provides a unique offering through its 2015 acquisition of LoopPay. Compatible phones will first try paying with NFC. If that fails, devices emulate a magnetic strip to mimic traditional cards. Like Apple Pay, Samsung has integrated with MDES. It works in the US with AmEx, MasterCard and Visa. Samsung Pay is currently available in South Korea and the US.

facebookFree friend-friend Facebook Payments are supported for US debits cards in Facebook Chat. Facebook is rolling out in-site buy buttons and shops, and event page ticket purchases. CEO Mark Zuckerberg is open to partnering with other payment services, including Apple Pay. While not intending to become a payment business, it aims to keep users on-site to increase ad revenue.

Overcome payment challenges to amplify social network presence

Regulatory regimes are an obstacle. Alibaba and Tencent’s attempts to provide digital credit cards to shoppers were blocked by the Chinese authorities. Globally, differing regimes alter incentives. Due to interchange fee caps in the European Economic Area, Apple reportedly receives a significantly lower cut of Apple Pay payments in the UK than its 0.15% US cut.

Providers also need to adjust for lag in adoption. Although the UK raised the contactless transaction limit from £20 to £30, payment devices rolled out earlier have not all been adjusted.

Related: Tax Incentives in High-Tech Vietnam

Of the four companies, Apple most promotes its various security measures, claiming that it doesn’t track payments between banks, customers and vendors. Other measures currently include 2FA, fingerprint scanning, and not storing card numbers on devices using the technology. As Facebook currently offers only pin or password protection for its peer-peer transactions, the company should promote the use of mobile devices’ fingerprint scanners to take the place of traditional passwords.

Further leveraging social networks should be the target of service providers. Apps including Venmo already allow users to share financial transactions on social media, granting retailers and payment providers additional exposure. As mobile devices bridge the gap between in-store purchases and online presences, it is clear to see why we should keenly follow integration of payment services with Facebook’s network of over 1.5 billion reported users, who generate over a billion Facebook Page views a month.

For more details, get in touch for a free consultation by emailing Charles at:
charles@csmall.co.uk

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High-Tech Vietnam: Tax Incentives

Charles Small has worked in Vietnam since 2012, and has managed multiple market research projects for companies considering establishing high-tech projects in the country. For a free consultation, email Charles at: charles@csmall.co.uk


Tax Incentives for High-Tech Investment in Vietnam

When considering a presence on the ground, potential tax liabilities must always be considered. In Vietnam, the government promotes high-tech activities by granting foreign investors tax incentives to operate in the country.

Instead of paying the 20% corporate income tax (CIT) rate, those investing in high-tech operations in Vietnam could benefit from reduced CIT rates of 10% for 15 years, and 17% for a further 10 years. Incomes of certain high-tech enterprises may be exempt from taxation for up to four years, and benefit from a 50% tax reduction for a further nine years.

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High-tech enterprises in Vietnam are defined according to several criteria. They must derive at least 70% of annual revenue from high-tech products, and allocate certain proportions of resources to research and development (R&D).

For enterprises with capital of under VND100 billion (US$4.47 million) to be classified as high-tech, a minimum of 1% of capital should be allocated to R&D, with at least 5% of the workforce involved in R&D educated to bachelor level or higher.

Related: Vietnam’s Cyber Security Framework

For those with capital of VND100 billion or higher seeking high-tech classification, at least 0.5% of capital would need to be allocated to R&D, with at least 2.5% of a minimum of 300 employees involved in R&D educated to bachelors degree or higher.

High-Tech Not All Low-Tax

Not all foreign investors have benefited from the incentives. Microsoft Mobile Vietnam, formerly Nokia Vietnam, recently paid VND191 billion (US$8.53 million) in CIT arrears and late payment fines to the Bac Ninh Department of Taxation for 2013 and 2014.

If the Ministry of Science and Technology had granted the relevant high-tech enterprises certificate, the company would have benefited from the 0% CIT rate for 2013-2016, as well as a 50% reduction in the CIT rate for a further nine years.

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However, after acquiring Nokia’s operations in 2015, Microsoft Mobile Vietnam reportedly only applied for the same incentives granted to projects in industrial parks in the same year. As such, the company only benefits from a 50% CIT reduction for the four years 2015-2018, and is paying arrears for the preceding period.

The issue here appears to be related to the Bac Ninh factory not submitting reports on nine criteria arranged with the Ministry of Planning and Investment, following Microsoft’s acquisition. Criteria were reportedly related to local content in products, and sales to the domestic market.

If you are considering setting up a high-tech enterprise in Vietnam, it pays to know which incentives your business could benefit from. Tax incentives are of course only one part of the picture. Investors in Vietnam also benefit from a computer-literate and low-cost workforce, government sector development programs, and a stable political environment.

For more details on how your business could benefit from establishing or expanding a presence in Vietnam, get in touch for a free consultation by emailing Charles at:
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China and Egypt: New Suez Silk Road

Charles Small holds an MSc in International Relations from the London School of Economics and Political Science (LSE), focusing on the relations between China and the Middle East. He speaks Arabic and Mandarin, and has worked in both China and Egypt. For a free consultation, email Charles at: charles@csmall.co.uk


China’s President Xi Jinping is visiting Cairo on 19-20 January in his first visit to the region. The visit is expected to see infrastructure deals signed, and provision of much-needed foreign exchange to Egypt’s banks.

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Much can be said of history. Chinese officials will talk of the six decades of relations between the two countries, rich cultural heritage of both nations, and the alignment of interests in the international sphere. Relations between China and Egypt are collegiate. The 1999 ‘strategic cooperation agreement’ between the two countries was upgraded in 2014 to a ‘comprehensive strategic partnership’. Egypt was a founding member of China’s Asian Infrastructure Investment Bank (AIIB), and the two participate in both the China-African Cooperation Forum and the China Arab-Cooperation Forum.

Egypt’s President Abdel Fattah Sisi is keen on building relations with the world’s second largest national economy, having visited China twice in 2015, and Egypt was one of only 17 countries to send troops to a Chinese military parade celebrating the 70th anniversary of the end of WWII. Symbolic events such as these help bolster the legitimacy of the Chinese state, and are a key pillar of maintaining domestic stability. That President Sisi recognises the importance of the domestic audience to China shows an deep understanding of the needs of the world’s largest emerging economy.

Egypt’s location straddling the Suez Canal makes it a key strategic partner for China. The recent expansion of the canal and implementation of a two-way section will ease the flow of Chinese goods to Western markets, and the Suez Canal Economic Zone presents opportunities for Chinese companies seeking a foothold by the Mediterranean.

What matters most to Egypt is what China can bring to the table. The visit is likely to include signing of multi-billion dollar agreements on key national infrastructure, including construction, energy and transportation.

Foreign Exchange Needed in Egyptian Banks

On the trip, President Xi is expected to sign off on a loan of US$1 billion to the Central Bank of Egypt, US$700 million in finance for the National Bank of Egypt Al-Ahly, and a further US$100 million loan to Banque Misr.

Egypt has struggled to attract foreign exchange reserves of late, in part due to the ongoing slump in tourism. Transfers of money from Egypt to China via Western Union have reportedly been curbed in order to prevent importers from bypassing capital controls imposed on Egyptian banks. The Central Bank is reportedly carrying out a policy of rationing, prioritising the import of essential goods over luxuries and limiting the dollar amounts of deposits. This has caused importers problems in opening letters of credit and clearing cargoes. While the Chinese loans will not solve Egypt’s structural problems, they will provide both foreign exchange, and multiplier effects on Egypt’s economy.

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President Xi is also to visit Iran and Saudi Arabia on his Middle Eastern tour.

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