Not just to create new jobs, but to create new entrepreneurs

The speech of Francesco Confuorti, Advantage Financial President, at Advantage Footprint for Trade and Growth held in UNIBA for G7 on May 11, 2017 at Università degli Studi di Bari


The topic of the conference will be growth supporting trade and cooperation between Italian entrepreneurs and African entrepreneurs. Some participants are from the private sector, other from the government or NGO.  To me You all, and many in the audience as well, are nothing less than entrepreneurs, who spend Your energy across different spaces, the economic, the social, the ecological and the political space. My dear guest speakers, You all bring us their different perspectives and experiences, and I am sure that by sharing this diversity in a constructive way, we will create the seeds for more learning and also more cooperation between us, the institutions that we represent, and our country of origin and of residence. Let me first introduce the conference with some data on the structure of trade between Italy and three high growth countries such as Tunisia and Kenya, which are represented by keynote speakers in this meeting, and Romania, which is another country we are going to work with.  I will then start the debate   by summarizing what we have done at Advantage Financial in the last few years.

Some data on trade structure

The first chart I want to show You (CHART 1) is a map of the world measuring where colors  measure how diversified and sophisticated is the industrial structure of each country.  The most sophisticated countries are red, the less sophisticated are light yellow. Notice that Tunisia and Romania are orange, namely are relatively sophisticated, and Kenya is in dark yellow,  which means it is one of the most sophisticated economies in Africa. The level of sophistication of a country relative to its income bracket has been found a very good, in fact the best predictor, of future growth, and  Kenya is scored by this index as having the highest growth potential of all world countries.    [1]

I then show some slides detailing the structure of how much Italy import from and export to Tunisia, Romania and Kenya (see CHART 2,3 and 4). Each square is proportional to the size of trade. Colors measure sectors (e.g. light blue is for the mechanical sector, apparel is green, food is orange and energy is brown. Notice that the colours of import and exports from Italy to Tunisia (and Romania) are similar. This means that the two value chain of the two economies are very integrated. This leaves space to improve the ecological footprint of individual exporters  thanks to the subcontracting process.

This is not the case of trade between Italy and Kenya, which is still based on specialization, with Kenya exporting commodities and energy and Italy exporting manufactured goods. The main area of overlap , hence of cooperation, is in the agri-food and construction business. But I would add that financial services and telecoms, which belong to the service sector and are not tradable and hence are not included in the table are very important area of cooperation, for example via FDI.

Advantage Financial Footprint initiatives

I am sure we will go back to some of these issues in the next speeches. Let me now move on and tell You a few words on how we look at these issues at Advantage Financial. Since 2012 at Advantage Financial we are doing research on the link between the ecological footprint and the cost of debt. In addition, we have just launched a sustainable finance initiative called, which covers B2B, credit, and sustainable consumption of food, household and durable goods, and that should be soon flanked by a specialized on-line magazine posting readers accordingly

Dulcis in fundo, we have just signed a remarkable R&D agreement with the University of Bari Aldo Moro, which is hosting the conference. More such agreements are to come next, starting with the Strathmore University of Nairobi form Kenya, a country which I happen to represent as Honorary Consul in Italy. Let me give some introductory remarks based on our vision and experience at Advantage Financial.  I will dwell on three main themes.

a) I will start with finance and look at the different ecological footprint between green and brown bonds. We measured in a number of studies the link between the ecological footprint and the cost of debt and we find a strong link, much stronger than on the cost of equity.

b) Most of the companies that disclose fooprint data are capital intensive. I will argue instead that we need more indicators, in order to better track the ecological and footprint of the Made in Italy sectors, which are capital light, with a larger share of SME and are more reluctant to disclose data. Our green, as well as other initiatives in pipeline, is a step in this direction.

c) I will conclude by detailing the scope of our agreement with the University of Bari, which is also the focus of the speech of the Magnifico Rettore Antonio Uricchio.

a) Green and brown bonds and their relative cost of debt

At Advantage Financial, we approach financial debt sustainability by envisaging a continuous scale between Green bonds, which finance environmentally friendly projects, and Brown bonds, which finance environmentally dirty projects.  We measure the ecological footprint of companies based on their ESG disclosure and map it in a continuous way to some indicators of the cost of debt. Our approach is more general than the typical approach, which focus on the relatively small green-subset of the bond market. We ask whether the bond market is able to discriminate between the brown and green bonds by charging a differential spread.

The idea, which we developed some years ago at Advantage Finance, is that ecological risk as a type of tail risk, which is better priced by debt rather than equity markets.  We find strong evidence of this link. For those who are interested, all our research papers are published on our website Our first study we look at a sample of more than 1100 nonfinancial listed companies who reports ecological footprint data. We find a significant impact of the ecological footprint of issuers on the cost of debt financing. SEE  Chart 5 reporting our results for the consumer cyclical sector (a proxy of the food sector).

Our next studies, which focus on the capital and energy intensive sectors and confirm a strong link between the ecological footprint and the cost of debt. The 2014 study, contains very detailed estimates of plant level data ecological footprint, based on the EEA disclosures of CO2 intensive sectors (energy, utilities, industrial metals and cement), that are matched to the interest coverage ratio of the plant owner company.

The 2015 study focuses on Electric Utilities focus the energy mix of each utility, which is a way to define how green or brown is the bond mix of each utility.  The shift in energy mix toward green (brown) bring on average to lower (higher) credit spreads.  SEE CHART 6.

b) The sustainability of the Made in Italy sectors

When we think about sustainability, we need to make a difference between capital and energy intensive sectors, which are the main direct contributors to CO2 emissions and also of various forms of toxic waste in the air, in the soil and in the water, and more capital light sectors of the Made in Italy, such as food, apparel and furniture.  For these sectors, we need to find additional footprint indicators and collect data on them (SME are not always willing to bear the cost to collect and disclose such data.

One new dimension relates to the intense international trade of food we experience in this globalized world.  This creates environmental costs for moving food along the planet (some think that trade in food is in fact a proxy for trading water, especially in poor and middle-income countries).

Further, trade in food creates a commitment to social responsibility for those food manufacturers who source basic inputs from farmers around Italy and around the world. This is an area of great potential, and as Honorary Consul of Kenya in Milan, I can tell that Kenyan farmers are very innovative and there is potential for a more ethical trade between our two countries.

Finally, when we speak about food we cannot forget the related dietary and health issues. This gives me the opportunity to move to the next topic, which is sustainable fintech for trade and growth.

c) Sustainable fintech

My future activities at Advantage Financial, which I describe below, are in the sustainable  fintech area. Firstly, we are fostering the creation of a Confidi system for local SME and entrepreneurs in Africa, starting from Kenya, and closer to home, in the Balkans. I am confident that  we will do very well by joining forces with fintech entrepreneurs both in Italy  and in Africa and New Europe (Think about the potential of Kenya, which is the world leader in smartphone based payment industry). The International lending institutions, such as the African Development Bank and the BERS will possibly be part of it. Secondly, our innovative app green, promotes sustainable consumption, thanks to its data architecture  which tracks the ecological, social and nutritional  impact of individual consumer product and brands.  The theme of creating apps for promoting sustainable consumption is the focus on the recently signed R&D agreement between Advantage Financial and the University of Bari and other Universities.

Both project entails the creation of one or more start-ups in cooperation with academic institutions and go to the core of the main themes we are going to debate today. Our goals is not just to create new jobs, but to create new entrepreneurs, which are multiplier job creators. I feel that our initiative will foster trade, growth, harmony and sustainability in some societies such as those from Africa, which share a common culture to Italy. It will also help forge a more constructive approach to the huge geopolitical problems such as the globalization backlash and the immigration drama we are experiencing in our times.

[1]  This chart is taken from “The Atlas of Economic Complexity” (Source:  The Index of Economic complexity was developed by economists and network scientists at Harward/MIT and tracks the complexity of national manufacturing systems, in terms of diversification and  specialization of productive structure. This is a proxy of the know-how of each country.  The ranking is different from the typical income per capita, educational or institutional progress which is used to measure growth potential, and is indeed a much better predictor of growth.


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