Innovation

small-tiles Jackson Kam | 11 Jul 2019

Is the next global financial crisis just around the corner? If so, will it be markedly different from the last crisis? And is there a possibility the contagion will come from today's emerging markets, such as China, Turkey or Argentina? While the future is uncertain and uncontrollable, you can take calculated steps as a business leader to prepare now for what may come later. Emerging Market Economies Are on the Rise   The strength of emerging market economies was one of several top concerns for leaders in 2018, according to the Mercer Global Talent Trends study, and it continues to be a concern today. While Asia, Latin America and Africa steadily replace the North-Atlantic-centric economies as the world's engines of growth, the global economy is experiencing increasing impacts due to their growing strength. Ardavan Mobasheri, managing director and chief investment officer at ACIMA Private Wealth, believes the global leadership baton will have been completely passed to the faster-growing economies by 2030. He states, "By the end of the third decade of the century, the transition will likely be complete, with the anchors of global economic growth cast across the Pacific and the Southern Hemisphere." But as the world adjusts to the growing strength of emerging market economies, it must also adapt to those economies' inevitable speed bumps. "Speed Bumps" Are Starting to Form Globally   Emerging market assets are now retreating in the face of increasing headwinds across their geographies, including production slowdown, rising debt, higher inflation rates and slides in currencies.1 "The contagion in emerging markets happens through different channels, and it tends to be greater in periods of monetary tightening in developed markets," Pablo Goldberg, a senior fixed-income strategist with BlackRock, tells CNBC.2 "Liquidity is an issue. Investors will sell what they can sell." Desmond Lachman, a resident fellow at the American Enterprise Institute and former deputy director for the International Monetary Fund's Policy Development and Review Department, writes that U.S. economists and policymakers are ignoring risks posed by emerging economies at their own peril. "They fail to see that years of massive Fed balance sheet expansion and zero interest rates created the easiest of borrowing conditions for the emerging markets," Lachman writes. "By so doing, they removed economic policy discipline from those economies and allowed large economic imbalances in those economies to develop, especially in their public finances." Now that more capital is flowing back into U.S. assets deemed safer than emerging market assets, the acute economic vulnerabilities built up within the emerging market economies during the years of "easy" money are being revealed. These vulnerabilities, if left unchecked, will likely continue to grow and spread globally, extending their implications even further into the years to come. Business Leaders Can Adapt — Here's How   To best prepare for an uncertain financial future and avoid those vast repercussions, you'll want to first take notes on the aftermath of the last financial crisis — it can teach some strong lessons on how the global economy and financial system work. For example, according to the Mercer report, "10 Years After the Global Financial Crisis: 10 Lessons to Learn," one of the most important lessons from 2009 shows that U.S. policymakers' policies, record low policy interest rates, vast liquidity injected into the banking system and quantitative easing produced unexpected outcomes across the globe. While the monetary policies haven't been inflationary in terms of consumer prices, they have been inflationary in terms of asset prices. Now, policy rates are increasing in some economies, but the full consequences of the last crisis' aftermath on all of the world's economies are still unknown, even today. Keeping that in mind, you can take these three steps as a business leader to prepare for the next crisis: 1.  Don't abandon diversification, widely known as "the only free lunch in investment." 2.  Be dynamic, and be prepared to rotate out of assets currently at close-to-record highs if they become unfavorable once investors realize their valuations may not be based on strong fundamentals, such as underlying growth in profits. 3.  Don't abandon active management, as conditions will inevitably change. Taking these three simple steps will allow you to stay nimble and flexible enough to adapt to any situation — even a financial crisis. As markets endure various metamorphoses, remember these lessons and keep these tips in mind to ready your organization for any crises to come. Sources: 1. Teso, Yumi and Oyamada, Aline, "Emerging Markets Retreat Amid Global Growth Concerns: EM Review," Bloomberg, February 15, 2019, https://www.bloomberg.com/news/articles/2019-02-15/emerging-market-rally-abate-as-trade-concern-returns-em-review./ 2. Osterland, Andrew, "Emerging markets, despite strengths, still get no respect," CNBC, October 1, 2018, https://www.cnbc.com/2018/10/01/emerging-markets-despite-strengths-still-get-no-respect.html. 3. Lachman, Desmond, "We ignore risks posed by emerging economies at our own peril," American Enterprise Institute, September 17, 2018, http://www.aei.org/publication/we-ignore-risks-posed-by-emerging-economies-at-our-own-peril/.

Retire

small-tiles Anil Lobo | 27 Jun 2019

Supplementary retirement savings plans can provide security and stability for older people who no longer have a steady paycheck — and India's National Pension System (NPS) aims to do just that. NPS is a supplementary Defined Contribution pension plan, and subscription to the scheme is purely voluntary in nature. Like most of the world, India's population is aging, and lifespans are increasing. As a result of improved health and sanitation conditions, the global life expectancy is forecast to increase from an average of 65 years in 1990 to 77 years by 2050.1 For most people, living longer means more non-working years to enjoy. But for growing numbers of people around the world, maintaining enough income to live comfortably during those non-working years is expected to be a challenge. Not only are most older people no longer earning income, but as the years advance, the cost of living and inflation continue to increase. As government leaders around the world consider ways to help citizens prepare for retirement, they can look to India's NPS as a model for boosting retirement savings and helping aging workers avoid poverty during old age. The Basics of India's National Pension System   In 2004, the Indian government launched its National Pension System with the goal of providing retirement income to its citizens.2 The system aims to institute pension reform and foster the habit of saving for retirement. Initially, the program was made available for government employees only, but in 2009, NPS became available on a supplementary basis for all Indian citizens between the ages of 18 and 60. A Tier I NPS account (a mandatory account offering tax benefits) is designed in such a way that it discourages early withdrawal until the account owner reaches retirement age. If the account owner intends to withdraw before retirement age, they are allowed to withdraw only 20%, and the balance has to be used to purchase annuity. The NPS offers a decent tax benefit for its participants — contributions are made before taxes — but a portion of withdrawals are subject to taxes. On reaching the retirement age, one can withdraw 60% of accumulations, which are tax free, and the balance of 40% has to be utilized to purchase annuity from approved annuity providers. One can defer the withdrawal and stay invested until the age of 70 or continue to make fresh contributions, if desired. Tier II NPS accounts provide voluntary savings options without stiff exit penalties or lock-ins. There is a proposal to provide some tax benefits under Tier II NPS, which would require a lock-in period of three years; however, this proposal is yet to be confirmed. Since the launch of the system, the Indian government has created additional social security programs to encourage retirement saving, especially among the working poor. In 2010, the government's Swavalamban Scheme committed to depositing 1,000 rupees into the accounts of each saver who contributed 1,000 to 12,000 rupees into their own account annually and was not covered by a government or employer pension. But in 2015, that plan was scrapped in favor of the Atal Pension Yojana (APY), which guarantees defined pension distributions during retirement for savers who meet certain qualifications based on their contributions. APY also offered a government contribution of 50% of the saver's total contribution or 1,000 rupees per year, whichever is lower, for a period of five years (from 2015 to 2020). India's NPS has gone through a few iterations and continues to evolve, but the plan is helping to boost retirement savings among Indian citizens. It's also shifting citizens' expectations: Instead of relying on younger family members to support them in their old age, many are now adjusting their savings and preparing to support themselves in their retirement years. On top of that, NPS is one of the cheapest investment products. Overall costs of the NPS are far lower than those of other products, and it is perhaps the cheapest pension product available. 3 Lessons You Can Learn From India's Model   For organizational leaders around the world, India's experiment in providing a national pension program for all its citizens offers a number of valuable lessons. 1. Unsustainable National Debt Requires New Solutions   Long before the NPS was launched, India's federal and state government employees were covered by a tax-funded defined benefit pension program that provided a 50% replacement wage at retirement with an inflation-linked adjustment. In the mid-1980s, this program cost the country less than $0.5 billion annually, but by 2006, with people living longer, the price tag jumped to more than $600 billion per year.3 Maintaining the program was unsustainable, and leaders realized they needed to develop a replacement program to ensure successful retirements for future workers and protect the nation's finances. Since the launch of NPS, all new government employees have been enrolled in it, fostering a responsibility among workers to prepare for their own retirement and protecting the government from continuing to run up unsustainable pension debt. 2. Tax Advantages Are Key for Supplementary Retirement Savings Plans   Most participants choose to invest in the NPS due to the tax benefits. However, some Indian citizens report that they did not opt for participating in the NPS as they perceived that some mutual fund instruments and private retirement savings vehicles have greater potential to beat the market and also provide better tax benefits. In order to encourage citizens and promote NPS, the government developed three categories of tax-saving options. The third of these options is exclusively for salaried employees whose contributions are made through the corporate model of NPS. All three categories can be availed together and exclusive of each other. Moreover, there was a recent relaxation in the tax-free withdrawal limit of corpus allowed at the time of retirement (from an earlier limit of 40% of corpus to 60% of corpus). Originally, though 60% was allowed to be withdrawn, the balance of 20% was taxed at normal rates, and making it entirely tax free has made it even more attractive. While a few senior executives may have access to other retirement savings plans, including employer-sponsored Defined Contribution superannuation plans, most of the population (particularly among the working class) do not have access to other retirement savings plans, and hence, the tax advantages inherent in NPS are crucial encouragement for them to save for retirement. 3. Citizens Need Education About the Model's Benefits   While the NPS offers a number of benefits to savers, participation rates remain relatively low.4 Some respondents to a recent survey revealed that not understanding the importance of saving and the advantages of compounding interest could have influenced their choice to stay out. NPS leaders have used a variety of methods for communicating and educating the population about the system. For instance, pilot programs staged in two different geographic areas hosted workshops, meetings and camps targeting unorganized sector workers and key stakeholders. Information was also distributed through cable television networks, radio, mobile publicity vans, seminars and road shows. India continues to measure the success of its pension program and may make more changes in the future. Many countries are struggling to solve the potential challenge of poverty in old age, but the NPS in India is an encouraging step toward protecting the future for many of its citizens, and it's worth taking a look at the model for inspiration. Sources: 1. United Nations: Department of Economic and Social Affairs,"World Population Prospects — 2017 Revision: Global life expectancy," United Nations: Department of Public Information, June 21, 2017, https://www.un.org/development/desa/publications/graphic/wpp2017-global-life-expectancy./ 2. "National Pension System — Retirement Plan for All," National Portal of India, October 22, 2018, https://www.india.gov.in/spotlight/national-pension-system-retirement-plan-all. 3. Kim, Cheolsu; MacKellar, Landis; Galer, Russel G.; Bhardwaj, Guatam, "Implementing an Inclusive and Equitable Pension Reform," Asian Development Bank and Routledge, 2012, https://www.adb.org/sites/default/files/publication/29796/implementing-pension-reform-india.pdf. 4.Zaidi, Babar, "5 Reasons Why Investors Stay Away From NPS. But Should You?" The Economic Times, December 27, 2018, https://economictimes.indiatimes.com/wealth/invest/5-reasons-why-investors-stay-away-from-nps-but-should-you/articleshow/61890679.cms.

Innovation

small-tiles Eduardo Marchiori | 27 Jun 2019

Migration in the business world has evolved into a complex, global exchange of human power and intellect among nations with distinct cultures and workforce needs. This ongoing balancing of human capital with economic needs continues to impact the geopolitics of the world. However, digital transformation and the Fourth Industrial Revolution are changing the role and value of migrant workforces in profound ways. From Muscles to Motherboards   Machines and computers are increasingly able to perform jobs once held by low-skilled migrant workforces — with greater efficiency and lower costs, too. This worldwide development poses unprecedented challenges for migrant workers, nations and the global economy, as automation and tech continue to replace human labor in various industries, such as farming, automotives and manufacturing. A potential surge in unemployed workers with diminished earning prospects has many countries worried about widespread economic strife and political chaos. What, exactly, will the world look like when automation in the Fourth Industrial Revolution replaces the livelihoods of the 258 million international migrants who make a living by traveling to destinations that offer unskilled unemployment?1 The Promise of the Unknown   Like previous industrial revolutions, the Fourth Industrial Revolution will mean different things to different people. Digital transformation has made it easy to access almost any information via the Internet, and it's given entire populations — especially migrant workers — new opportunities to receive an education and learn new skills, trades and professions. Countries once hindered by poverty and economic isolation are embracing these new opportunities. For example, India, which has a population of 1.3 billion, expects its digital transformation market to reach $710 billion by 2024.2 For migrant workers, upskilling and professional development is critical to job security. Many countries and governments have recognized the need to provide their citizens with the skills and knowledge needed to compete in the age of automation — and that starts with workers having access to these technologies to edify their value and marketability in a competitive world. However, in countries like Argentina, Brazil and the U.S., people feel strongly that their fates are up to themselves instead of their governments and that they are individually responsible for handling the sweeping changes of digital transformation.3 For some, this means migrating to nations and economies that offer better prospects than their current circumstances. A World of Evolving Needs   As witnessed throughout history, migrant workers are drawn to regions where suitable jobs are available. In a world defined by automation and computer technologies, a new era of needs has emerged. In developed countries, such as Japan, South Korea, Spain, and the U.S., birth rates are declining at an extraordinary rate.4 Of particular concern in South Korea and Japan is societal aging, where the number of elderly people is increasing dramatically, while birth rates are declining — there's a lack of younger people who can care for the aging population and generate much-needed taxes through employment to fund retirement for older populations. Japan and South Korea are employing robots and automation to tend to the psychological, emotional and physical needs of elderly citizens, but these technologies are unable to provide the financial resources and domestic services these nations need to continue operating. Japan's Prime Minister, Shinzo Abe, has introduced extensive reforms, often referred to "Abenomics," which proposes to loosen long-held cultural constraints by integrating more women into the workplace at every level of influence. However, the most controversial aspect of Abenomics is the intention to open Japan up to migrant workers to alleviate internal workforce deficiencies that require uniquely human capacities — a move which many Japanese citizens consider to be a threat to their cultural identity.5 But without younger workers to stabilize the economy, Japan might not have a choice. The Fourth Industrial Revolution is changing the game, and many countries will need migrant workers to fill the gaps between the evolving roles of man and machine. For centuries, migrants have worked hard to fulfill their personal needs — which, in turn, also serves the needs of the employing countries that require their labor. In this modern economic landscape, automation and tech may force change upon job functions, but the need for human capital endures. Sources: 1. "International Migration Report," United Nations, 2017, https://www.un.org/en/development/desa/population/migration/publications/migrationreport/docs/MigrationReport2017_Highlights.pdf。/ 2."India Digital Transformation Market to Reach $710 Billion by 2024: P&S Intelligence", Prescient & Strategic Intelligence, 5 de março de 2019. https://www.globenewswire.com/news-release/2019/03/05/1747720/0/en/India-Digital-Transformation-Market-to-Reach-710-Billion-by-2024-P-S-Intelligence.html。 3. Wike, Richard and Stokes, Bruce, "In Advanced and Emerging Economies Alike, Worries About Job Automation," Pew Research Center, September 13, 2018, https://www.pewglobal.org/2018/09/13/in-advanced-and-emerging-economies-alike-worries-about-job-automation/。 4. Kotecki, Peter, "10 Countries at Risk of Becoming Demographic Time Bombs," Business Insider, August 8, 2018, https://www.businessinsider.com/10-countries-at-risk-of-becoming-demographic-time-bombs-2018-8。 5. Yoshida, Reiji, "Success of 'Abenomics' hinges on immigration policy," https://www.japantimes.co.jp/news/2014/05/18/national/success-abenomics-hinges-immigration-policy/#.XJr1GK2ZOgR。

Invest

small-tiles Sean Daykin | 13 Jun 2019

Private equity (PE) is becoming increasingly important in the Gulf Co-operation Council (GCC) in light of recent intensified economic diversification and development efforts. It is emerging as a relatively new asset class in the region, with interest in "growth capital" rather than the more traditional "buy out" PE has seen in the developed markets of the UAE and Western Europe, in which fund managers take a majority stake. Indeed, venture capital (VC) has seen a surge of fundraising following the success of the region's VC unicorns, such as Careem, and the purchase of Souq.com by Amazon. Private equity can play an important role in driving economic growth. Factors, like the region's increasing wealth, recent important economic reforms and regional governments' strong initiatives to strengthen local entrepreneurship and promote small to medium-sized enterprises, make it highly attractive for PE investments. Governments in the region are attempting to foster further growth in VC by creating incubators and regional hubs with reduced regulations to encourage entrepreneurs to set up in the region. These efforts will ultimately drive sustainable economic growth, greater prosperity, and more highly skilled jobs. However, following the highly publicized case of Abraaj Group,1 the industry is calling for more robust corporate governance in the region. Local PE managers are facing far greater scrutiny as investors are starting to pay more attention to how their funds are handled. Regional investors are asking for a better understanding in gauging the performance of private markets. Buyers and investors want to base their decisions to enter the PE market on proven and tested information, considering factors like past performance and doing their due diligence on investment and operations. While measuring the absolute and relative performance of private markets is critical, it is significantly nuanced. As "value creation" is an important aspect in the private equity story, measurement should be not only accurate but also meaningful. As with all investments, evaluating past performance is always a factor when deciding whether or not to include private equity within the overall asset allocation of a portfolio. However, PE investors must look deeper to determine a Fund's true performance, through rigorous due diligence. A combination of metrics and qualitative measures are important for providing a holistic understanding of the Fund's track record and its future performance potential. In terms of quantitative metrics, the three most commonly used ones are Internal Rate of Return (IRR), Total Value to Paid (TVPI) ratio and Distributed to Paid-In (DPI) ratio. IRR is the most widely cited metric for measuring the performance of a private market investment. This is a time-based measurement which takes into account the investment made and acquired over a period of time. The longer an investment takes to mature (or sell at a given price), the more a given annualized IRR will fall. The second measure, TVPI, considers the total of how much value is received from investments (through dividends and a sale at the end), compared to the initial investment made. The final measure is the DPI ratio, which measures how much of the initial capital is returned (through dividends or other payments) compared to how much was invested initially. DPI is a barometer of realized value, not total value. All three of these metrics play an important role in helping investors evaluate a private equity fund's historical performance. While there is no single answer for comprehensively and accurately assessing the performance of a private equity fund, these metrics when employed together can help get a better understanding of it. Gauging past performance of a fund doesn't tell you much about the performance of the next private equity fund. These commitments have a long life, and it is, therefore, necessary to consider other investment related factors. They could include the stability of the investment team, looking at how the investment team sources deals or how they create value at their portfolio companies. Following the Abraaj case, assessing managers and back office operations have become an essential measure of due diligence. Effective internal controls, strong systems and a well-staffed operations team are also critical for a private equity fund to succeed. Measuring private market performance is certainly more complicated than measuring public market performance. It requires a clear view of relevant metrics and methodologies, is informed through multiple perspectives and demands specificity of analysis. Additionally, it can be subjective, prone to manipulation and ultimately represents an imperfect assessment of the success of a private market investment. However, private market performance measurement is likely to continue to evolve, thereby improving its current shortcomings. The key for investors is to identify investment talent who can generate strong investment sustainably over time. While past performance is useful in evaluating a managers' historical track record, it won't guarantee future results. Hence, an investor needs to undertake deep "qualitative" investment with operational due diligence together to assess the likelihood of future investment success. To learn more about how Mercer can help you with your investment strategies, click here. 1 Ramady, Mohamed, "Abraaj Capital: The Rise and Fall of a Middle East Star," Al Arabiya, July 3, 2018,https://english.alarabiya.net/en/views/news/middle-east/2018/07/03/Abraaj-Capital-The-rise-and-fall-of-a-Middle-East-star.html#.

Editors' Picks

Innovation

The Future of Blockchain: Empowerment Through Personal Data
Vineet Malhotra | 17 Apr 2019

Musicians, poets and philosophers have spent entire lifetimes asking the question, "Who am I?" In the not-so-distant future, the answer to that question may be stored in our personal blockchain profiles — digital "arks" that contain the details of every decision, action and purchase we've made since the day we were born. Say goodbye to your birth certificate, credit score, passport, professional resume and medical history, and say hello to the future of blockchain: your blockchain profile. Your unique answer to the question "Who are you?" will be a chronological, hyper-detailed, immutable record that says with unprecedented certainty, "This is who I am." Blockchain will not live inside our thoughts, emotions, dreams or nightmares. It will not capture the inner dialogues people reveal in personal diaries or while talking to the bathroom mirror in the morning. Blockchain will, however, never forget when you broke your arm at the age of five (climbing a bannister), how your heart rate spiked when you first met your spouse (you dropped your drink) or that you paid extra for rush delivery of a new pair of black shoes (your cousin's wedding). Blockchain may not be the "you" robed Greek philosophers had in mind, but it will be the "you" the rest of the world sees — ideally, with your permission. Know Your Rights in a Digital World   Businesses want access to your decisions. Information detailing why you choose to vacation in Vietnam, eat mussels at your favorite Italian spot every Tuesday night or only use a medium-bristle toothbrush is valuable to companies that want to sell you — and people like you — airline tickets, fresh seafood and toothpaste. Every online decision you make and action you take is data that reveals part of your personality and thought processes. In recent years, businesses and policymakers have debated how much access companies should have to an individual's personal decisions — especially what they read, click on and buy online. While there are powerful forces seeking to retain control over the data individuals create when using online services, the winds are shifting, and regulatory momentum is beginning to favor the individual. In May 2018, the E.U. set forth the landmark General Data Privacy Regulation (GDPR) that firmly establishes basic legal rights regarding data privacy, ownership, control, consent and portability for all of its citizens, regardless of where they live.1 In the U.S., the HIPPA Privacy Rule establishes national standards to protect individuals' medical records and other personal health information.2 These regulations are in place to protect citizens from organizations who may seek to use personal data for purposes other than what it was collected for, or for which consent has been explicitly given — and provide instruments to exact considerable penalties on entities that violate those laws. In an era of digital transformation, it is critical that people appreciate the value of their personal data and the extent of their rights to privacy. For Sale: Sleeping Habits and Exercise Routines   Personal data is now part of the supply-and-demand dynamics driving capitalistic enterprises. Consumers not only possess purchasing power but also access to the thoughts and activities that precede particular purchases. This information is invaluable to companies that use data-driven strategies to sell their products and services to targeted consumers. Before blockchain technology, it wasn't possible to have a comprehensive record that kept track of an individual's purchases and behaviors within the context of everything else happening in their lives. But now, it is possible. Today, blockchain makes it possible for people to have an immutable profile of unimaginable detail, one that begins on the day they're born and develops throughout their entire lives — recording everything from when they lost their first tooth to the names of their grandchildren. Every doctor visit, every homework question, every mouse click, every page view. Businesses, naturally, will develop innumerable ways to incentivize people to allow access to their data. With individual rights established as the legal default, consumers will hold the power in this relationship and can monetize their data by renting access to various aspects of their blockchain profiles — from their sleeping habits to exercise routines. As deeper access is granted and more data sources are connected, behaviors can be predicted with greater accuracy, increasing the value of an individual's profile. In effect, individuals will be able to self-identify as willing marketing targets who offer their comprehensive descriptive profiles for sale in an emerging digital marketplace for personal data — a development that will radically alter the business of advertising, data research and analytics. A World of 8.5 Billion "Personhoods"   In 2030, the global population is expected to reach 8.5 billion. By that time, blockchains could consistently, reliably and securely organize data around the individuals who comprise the world's communities and nations. This makes person-centric societies technically possible, where citizens' actions and behaviors are digitally recorded in their "personhood" — an immutable record that serves as a single source of truth to their experiences and sensibilities. People, in essence, will regularly create real-time data that is chronologically added to their collective profile — which includes health records, educational backgrounds, professional credentials, voter registrations, driver's licenses, criminal histories, financial status and any other notable aspect of being a person. "Personhood" could become the universally accepted record to which all identity-related information can be tied. All the processes once needed to validate identity will be replaced by an individual's comprehensive blockchain profile. The commoditization of personal data will profoundly impact how people relate to businesses and each other. Will being held accountable to one's own "personhood" — and knowing that the details of our lives will forever be recorded in our blockchain profile — change how we behave? Will attempting to increase the value of one's "personhood" become an extension of trying to improve their own lives? Or vice versa? The rise of "personhood" could change our collective understanding of ownership in ways the human race hasn't witnessed since the concept of personal property rights first emerged. The Future Challenges to a Blockchain World   There are always casualties to sweeping technological advancements. With the proliferation of blockchain technology and the rising value of individuals' data, societies risk becoming even more polarized along financial and class lines. Individuals with more purchasing power inherently possess data that is more valuable to businesses that sell products and services or governmental institutions that could benefit from their financial support or influence. Those without money or access to modern technologies will face profound disadvantages unless governments — especially those in growth economies — implement regulations that protect vulnerable citizens from being left behind. Growth economies must also find ways to integrate intermediaries who will fight the prospect of obsolescence as blockchain technologies become more popular. Though the future is difficult to predict, and change always creates challenges, history teaches us that where value is created, technology eventually wins. The future of blockchain presents the human race with the opportunity to understand each other, and ourselves, in unprecedented ways. By providing new insights into human behaviors, relationships and business interactions, we can learn from each other and improve conditions for everyone. Perhaps blockchain data will even convincingly demonstrate to humanity how similar we all are. In the future, the most important questions people can ask themselves is not, "Who am I as a person?" but, "Who are we as a society?" The answer to that question may create the type of civilization only dreamed of by musicians, poets and philosophers. Interested in learning more about blockchain? Check out: Mercer Digital's Blockchain 101 Overview. 1Palmer, Danny. "What Is GDPR? Everything You Need to Know About the New General Data Protection Regulations." ZDNet, https://www.zdnet.com/article/gdpr-an-executive-guide-to-what-you-need-to-know/. 2"The HIPAA Privacy Rule." Office for Civil Rights, https://www.hhs.gov/hipaa/for-professionals/privacy/index.html.  

Invest

The Top 4 Threats to Asia-Pacific Growth Economies
Peta Latimer | 21 Mar 2019

Asia-Pacific (APAC) economies experience fluctuations in the global economy in unique ways, because each is defined by particular geographic, societal and financial circumstances. However, the accelerated pace of digital transformation and tightening geopolitical tensions have connected the fates of all APAC growth economies to the ubiquitous effects of globalization. Though APAC economies are projected to experience solid growth of 5.6 percent over the next two years, this optimistic forecast for the region remains prone to serious vulnerabilities.1 The areas of exposure can be organized into four categories: economic, geopolitical, technical and environmental. Let's take a look at each and how they may create challenges for nations poised for growth in the near future. 1. Economic: Debt & Housing   In 2016, APAC surpassed North America as the largest contributor to global debt. In fact, APAC accounted for 35 percent of the world's debt, marking a steady and significant rise since the financial crisis of 2008. This debt makes regional economies susceptible to increased interest rates and a potential default crisis. Each economy has specific areas of exposure. In China, for example, nonfinancial corporations and household debt are rising, while in Japan, the primary concern is public debt that exposes its sovereign bond market to risks. India is also facing the impact of US$210 billion in spending on nonperforming assets in state banks. Figure 1: Nonfinancial sector debt as a percentage of GDP across APAC. Housing prices across APAC have been growing faster than income since 2010, especially in places like Hong Kong, Australia, New Zealand and India — where families in Mumbai find affordable housing nearly nonexistent. Though the costly housing situation has the region feeling anxious about a looming asset bubble on the verge of popping, each country has unique credit lending mechanisms and household debt numbers that determine their risk levels. These economies must heed lessons learned from the 2008 U.S. housing market crisis, where private households unable to pay their debts contributed to a global economic crisis that continues to haunt the international banking industry. In fact, Australia currently has one of the world's highest levels of household debt. Considering that Australian bank portfolios are majority grown from mortgage lending — now at levels far surpassing the U.S. housing market just before the 2008 crash — many U.S. and global investors are more inclined to hedge the Australian market. Figure 2: Compound annual growth rate for real residential property price and GDP per capita for selected countries across APAC, 2010–2017 Housing price data from Bank of International Settlement, GDP per capita data from Economist Intelligence Unit. 2. Geopolitical: Protectionism & Inequality   In an interconnected global economy, every region is affected by international trade dynamics and tariffs. The escalating trade war between China and the U.S. threatens supply chains across APAC, and a trend toward protectionism could infiltrate the area's closely intertwined network of economies as some countries struggle more than others. Fast-paced geopolitical developments create uncertainty. That anxiety often compels businesses and policymakers to contract and insulate their economy's exposure to negative consequences. In fact, as China and the U.S. redefine their priorities, nations in APAC are forced to decide where and how they fit into this continuously evolving situation. From Australia to India, APAC economies must navigate the complexities of cooperating and competing with other nations without alienating business partners or sacrificing growth opportunities. Figure 3: Wealth GINI coefficient in selected countries in APAC, 2012–2017 Data from the Global Wealth Data book (Credit Suisse). While APAC seeks stability in chaotic geopolitics, many are experiencing seismic demographic shifts internally as a result of global trade and commerce. Access to trade-friendly seaports, modern technology hubs and high-skilled job opportunities has led to the rise of metropolises and megacities. The continued migration of younger generations to urban areas that offer innovative cultures, ideas and infrastructure is marginalizing peripheral and rural communities. This widening disparity between the haves and the have-nots could lead to income and wealth inequality, widespread resentment and civic unrest. Policymakers are attempting to manage the prevailing attitudes and regulations that shape human capital management in APAC. Josephine Teo, Singapore's Minister of Manpower, recently addressed the need for Singaporeans to travel and work in surrounding countries — asking her fellow Singaporeans to keep an open mind about opportunities in other growth economies in APAC, particularly as Singapore strengthens business ties with China.2 3. Technological: Miracles & Menace   Technology will shape the future of the global economy. Emerging devices and technologies are developing faster than governments can regulate them, and this gap in oversight will create unprecedented opportunities for economic growth, innovation and crime. Technology has helped APAC increase workforce productivity, advance social reforms and champion environmental sustainability. The impact of digital transformation for ASEAN nations is tremendous, especially in e-commerce, where ASEAN nations accounted for 40 percent of global sales in Q1 2017; in Southeast Asia alone, the number of people with access to the internet and all of its possibilities is expected to triple from 200 million to 600 million by 2025.3 While new technologies will result in the loss of some jobs, these same technologies are set to create many new jobs. In fact, many companies building AI systems have found that human employees play an active role in designing and running AI.4 History reveals that innovation leads to job creation. Take the advent of the computer as an example. While the demand for typist-related roles may have decreased, the demand for computer-based work created new jobs related to developing, operating and programming. These gains, however, come with modern challenges, too. Sophisticated cybercriminals from around the planet will continue to seek and exploit weaknesses in governments, institutions and enterprises of every size. As data and information become as valuable as natural resources, state-on-state cyber-attacks will increase in frequency and complexity. The confluence of alliances between governments and multinational corporations will have life-changing ramifications for populations and their rights to privacy. As different countries adopt different policies regarding human rights and access to personal information, a new generation of cyber-laws will emerge to set protective boundaries and mitigate human fallibility as people become more intertwined with their technologies. Figure 4: Weighing the benefits of technology against its various risks. 4. Environmental: Natural Disasters & Man-made Solutions   Environmental factors will determine the future economic prospects and overall quality of life for APAC. Geographically, APAC is the most disaster-prone area in the world. Environmental events, such as floods and tropical cyclones, inflict tremendous damage on coastal areas — where most people, infrastructure and institutions are located. The unpredictability of natural disasters often results in the sudden — and sometimes massive — loss of human life, displacement of populations and widespread social and economic disruption. In the aftermath of such trauma, individuals and communities must navigate their way through emotional grief and destabilized healthcare operations until governments and other agencies can provide relief. APAC must be proactive about implementing integrated policies and systems that can mitigate the devastation natural disasters pose to their people and economies. This is already happening: More mature markets, like Hong Kong, have exponentially increased the ability to align resources and swiftly respond to events, such as hurricanes. As technologies and business interests continue to connect APAC more closely, governments will have to decide what, exactly, their responsibilities are to other nations and the region. Figure 5: Projected vulnerability changes for Asia and the Pacific. Data from UNESCAP   On a global scale, APAC plays an integral role in curbing harmful emissions and pollutants. Antiquated infrastructure and lax regulations must be replaced with modern technologies and policies. Change, however, can be slow and expensive. Many APAC economies are still dependent on legacy energy resources, such as coal and other fossil fuels. Yet, strong progress has been made on regional and local levels. China, for instance, has made remarkable progress in implementing green fuel technologies to replace coal and oil and reduce airborne pollutants.5 China's new initiatives to supplant fossil fuels with clean energy resources, such as wind and solar, has led to vastly improved air quality in cities, like Beijing — without negatively impacting the country's economy. In fact, China considers sustainable resources to be the future of energy and is aggressively investing in green businesses, such as high-tech solar panels (two-thirds of the world's solar panels are manufactured in China) and electric vehicles—surpassing even Tesla with a projected 7 million annual sales by 2025.6 APAC, as a region, has also agreed to frameworks and new technologies that promote renewable energy sources to combat air pollution and water scarcity issues that pose a direct and immediate threat. Balancing economic development with progress on climate and sustainability initiatives will be challenging but necessary. Climate change, as with other challenges in the region, will require a new era of cooperation among APAC nations, governments and workforces. With the withdrawal of the U.S. from the Trans-Pacific Partnership (TPP) in January 2017, APAC was compelled to consider a more regional approach to solving global issues. APAC leaders, however, persevered and, in 2018, signed a revised version of the TPP with commitments from Australia, Brunei, Canada, Chile, Japan, New Zealand, Malaysia, Mexico, Peru, Singapore and Vietnam. The new agreement, named the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), represents about 14 percent of the global GDP (down from the 40 percent the original TPP represented) and not only details new trade dynamics and oversight regulations among the participating nations but also compliance with mutually agreed-on environmental protection laws. Some of the clauses around intellectual property, arbitration and investment dispute resolution have been left out in the new treaty to allow for continuing reliance on ongoing multilateral collaboration on specific issues and local interventions by individual governments needed in public interest. The new treaty does not regulate movement of workers in the region, and member countries have ensured the interests of their agrarian and services economies are protected. An increasingly internally focused U.S. may compel APAC to strengthen their ties to each other, opening up more avenues for business opportunities, talent exchange and shared participation in worldwide digital transformation. With most members set to ratify the new treaty, this represents a glowing bastion of free trade amid an increasing protectionist rhetoric elsewhere in the world. There are many reasons to be optimistic about the future of APAC. Digital transformation offers the economies of APAC unprecedented growth opportunities and the ability to connect workforces to a global surge in technological advances, entrepreneurship and innovation. The pressing need to address environmental concerns and financial headwinds is creating a sense of urgency throughout APAC. The collaborative approach to solving problems bodes well for the future of APAC, as its committed leaders and locally based organisations coordinate their collective strengths to create prosperity throughout the region. As the global economy continues to evolve, APAC is poised to play an increasingly influential role. Read Marsh & Mclennan's 14 Shades of Risk in Asia-Pacific report to learn more. 1Evolving Risk Concerns in Asia-Pacific:, http://bit.ly/2APQVlZ. 2Lee, Pearl. "Ties with China Multifaceted and Strong: Josephine Teo." The Straits Times, 2 Mar. 2017, www.straitstimes.com/singapore/ties-with-china-multifaceted-and-strong-josephine-teo. 3"Asean the 'next Frontier' for e-Commerce Boom." Bangkok Post. https://www.bangkokpost.com/business/news/1249798/asean-the-next-frontier-for-e-commerce-boom. 4Mims, Christopher. "Without Humans, Artificial Intelligence Is Still Pretty Stupid." The Wall Street Journal,https://www.wsj.com/articles/without-humans-artificial-intelligence-is-still-pretty-stupid-1510488000?mod=article_inline. 5Song, Sha. "Here's How China Is Going Green." World Economic Forum, www.weforum.org/agenda/2018/04/china-is-going-green-here-s-how/. 6Jeff Kearns, Hannah Dormido and Alyssa McDonald. "China's War on Pollution Will Change the World." Bloomberg, www.bloomberg.com/graphics/2018-china-pollution/.

Career

3 Secrets to Participating in India's Mega-Urbanization
Pearly Siffel | 30 May 2019

Explosive population growth creates a greater talent pool and, along with it, greater pressures on local municipalities, domestic companies and multinationals to accommodate the influx. How can organizations harness the benefits of rapid urbanization while ensuring workforce needs are being met? And, what is the best market entry strategy? Today, 5 in 10 people live in urban centers in Asia, representing 54% of the world's urban population1. Over the next two decades, one billion more people are expected to move to Asian urban centers; this equates to one million new arrivals each week. Soon, the continent will be home to 60% of the world's megacities. In India, this trend is even more accelerated, with more than 200 million people migrating in search of a better quality of life and greater financial prospects. Urban centers of India will grow exponentially in the next few years, and the bulk of the country's GDP is expected to come from cities. And given the pace at which Indian cities are growing, India will soon be home to new megacities and hundreds of new towns. On a trip to India, the country's expansive growth is palpable, its dynamism and vibrancy simultaneously exhilarating and overwhelming. The feast of colors, sounds, tastes and smells — from the open-air markets and street vendors to the hustle and bustle of hotel lobbies and meeting rooms — assaults the senses. At the heart of it all is people. Rapid growth, however, brings formidable challenges for cities, old and new alike, for highly connected — or "smart" — cities, as well as for startups, local firms and multinationals. To better understand the obstacles and opportunities, Mercer conducted an extensive study, People First: Driving Growth in Emerging Megacities, which provides an examination of living and working in emerging growth cities. The study gleaned perspectives of employers and workers across 15 cities globally, with four rapidly growing cities in India — Ahmedabad, Chennai, Hyderabad and Kolkata. The findings provide actionable insights for potential beneficiaries of India's urbanization. Below are our three key findings and imperatives. 1. Understand What People Value Most   The study explores people's expectations from cities and how well the cities are delivering on what they deem most important. Globally, there was a 30-point gap between workers' quality of life expectations and how a city is performing against those needs. Around the world, the top three factors that affect how people feel about the cities they live and work in are security, safety and lack of violence (first); affordable housing (second); and transport, traffic and mobility (third). The findings in India are strikingly similar; however, there are some regional differences. Residents of Kolkata feel challenged by the lack of sufficient career opportunities (gap of 25 points). People in Ahmedabad and Chennai, meanwhile, want their cities to perform better on managing air and water quality/pollution (gap of 14 and 19 points, respectively); and pay/bonuses emerged as the top challenge in Hyderabad (gap of 10 points).                                             Source: People First: Driving Growth in Emerging Megacities, Mercer To ensure cities can better meet residents' needs in the overpopulated and resource-constrained urban centers, governments and businesses must engage in a coordinated effort. The study found that workers do not expect any one group to be responsible for addressing the systemic issues of a city at scale.  Instead, they want effective collaboration between the city or local government (77%) along with the support of the national or federal government (62%) and large businesses (53%). No one entity can solve the infrastructure, talent or people needs of a rapidly growing city — this can and must be done through collaboration, shared interests and pooling of resources.  2. Prepare for the Future of Work   Cities are often the testing ground for automation and emerging technologies, and the workplace is typically one of the first areas to experience the benefit from their effects. In India, "connectedness" is a way of life — more so than in some other global economies — and digital platforms are widely used. According to estimates, more than 40% of purchases are set to be highly digitally influenced by 2030.2 India is one of the world leaders in creating a national artificial intelligence strategy; it is at the forefront of adopting blockchain technology and is pioneering the use of drones. Our research found that both employees (45%) and employers (52%) believe work will become more efficient with automation and AI. Globally, 62% of workers expect that AI could replace at least half of their tasks in the next 5-to-10 years. In India, automation is predicted to play a bigger role: 61% of employers and 8% of employees expect technology will take over more than 50% of their role. As a result, only one in five people are confident that they are not going to lose their jobs in the next five years — signifying a call to organizations to prepare for the future of work and the skills and workers that the future requires. There is a journey ahead. Our study reveals that, presently, only 30% of the Indian workforce in the cities of tomorrow has flexible working arrangements. As technology continues to augment human capabilities at an increasing pace, businesses will not only need to plan on where work gets done but also how it is done. They will need to explore alternative talent sources and new skills and place even greater importance on distinctly human qualities for a sustained competitive advantage — such as complex problem solving, creativity, superior client service, cross-cultural collaboration, judgment and empathy.  In effect, companies will benefit by putting people at the center of technology — not the other way around. 3. Be Indian, Buy Indian, Partner with India   As international companies seek to scale their operations and expand globally, they would be remiss to ignore India. By 2025, the number of Indian households will triple in size with 80% of them comprising middle-class families. And, with a growing middle class comes demand for a better quality of life, from basic necessities to luxuries and all forms of services, from better housing, education and health care to more robust transportation and safety. As global blue-chip firms expand into India, they will need to devise well-informed and relevant strategies. For some, the best mode of entry may be partnering with local companies with deep knowledge and expertise in how to navigate cultural norms, the regulatory environment and business practices. Expansion also means a shift in mindset, from considering India as a path to cheap labor and a valuable source of talented, educated people growing in their purchasing power. For all, it will mean letting go of traditional ways of working and, instead, adopting local partnerships, practices and leadership. Being patient and relentless in the pursuit of sustainable growth will drive value in the long term. Lastly, it benefits everyone to keep in mind that, before many of us retire, India will overtake the U.S. economy and will likely become the world's second-largest market.3 Growth, like time, does not wait. Done right, there is profitable growth potential in India's rapid urban expansion. Critically, for all to benefit means putting people first. To access more insights and practical advice on how companies and municipalities can accelerate their people strategies and realize commercial gains, download People First: Driving Growth in Emerging Megacities. 1U.N. Economic and Social Council, "Urbanization and sustainable development in Asia and the Pacific: linkages and policy implications," March 7, 2017, https://www.unescap.org/commission/73/document/E73_16E.pdf. 2Ojha, Nikhil and Zara, Ingilizian, "How India Will Consume in 2030: 10 Mega Trends," World Economic Forum, January 7, 2019, https://www.weforum.org/agenda/2019/01/10-mega-trends-for-india-in-2030-the-future-of-consumption-in-one-of-the-fastest-growing-consumer-markets. 3Wang, Brian, "World GDP Forecasts for 2030," Next Big Future, January 14, 2019, https://www.nextbigfuture.com/2019/01/world-gdp-forecasts-for-2030.html.

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