Invest

small-tiles John Benfield | 16 May 2019

Times are changing. The world is moving toward an ethical, long-term sustainable way of investing. Forward-looking governments are increasingly emphasizing the role of financial markets in fostering sustainable development. Investor demand for responsible investment (RI) solutions has increased significantly, as observed by the growth of assets being allocated to RI-related investments. Combined with the shift toward low-cost equity index tracking, this has led to an increase in the number of RI indices that are now available. We expect RI indices to become an important first step in integrating environmental, social and corporate governance (ESG) considerations for many investors with existing passive or factor-based investments. At Mercer, we define Responsible Investment as the integration of ESG factors into investment management processes and ownership practices in the belief that these factors can have a material impact on financial performance. Meanwhile, in the GCC region, with efforts to diversify the economy, governments are gaining awareness around the importance of responsible investing. The GCC makes up four of the six Sovereign Wealth Funds (SWF), which founded the One Planet SWF Working Group in December 2017 at the occasion of the "One Planet Summit" in Paris. Within the UAE itself, numerous initiatives — such as The Green Economy for Sustainable Development and Green Agenda — are propelling the country into the future of responsible investing. In keeping with the diversification strategy, these initiatives support Vision 2030 by aligning with the nation's economic growth ambitions and environmental sustainability goals. Abu Dhabi is contributing to the agenda in a major way through various developments, such as Masdar City — a multi-billion dollar green energy project.1 Meanwhile, Dubai set up an energy and environment park called Enpark — a Free Zone for clean energy and environmental technology companies.2 As the business case for responsible investing gets stronger in the GCC, there is a growing demand for incorporating ESG factors or sustainability themes into investment decisions and processes. Institutions are factoring the benefits of responsible investing, not only to their investments but also to their reputation and bottom line. Sustainable investing offers attractive opportunities to tap into the growth potential of companies providing solutions to various challenges of resource scarcity, demographic changes and changes in the evolving policy responses to a range of environmental and social issues. Studies and industry evidence have shown the benefits of integrating ESG factors on the company's long-term performance. For example, Deutsche Bank reviewed more than 100 academic studies in 2012 and concluded that companies with higher ESG ratings had a lower cost of capital in terms of debt and equity. Another study in 2015 by Hsu (Professor at the National Taichung University of Science and Technology, Taiwan) and Cheng (Professor at the National Chung Hsing University, Taiwan) found that socially responsible firms perform better in terms of credit ratings and have lower credit risk.3 With companies operating against the setting of public concerns around environmental and social issues, incorporating ESG considerations is now also considered best practice. Employees increasingly want to work for and invest in companies that make a positive environmental impact. Global initiatives and bodies, such as the CFA Institute, have highlighted the financial and reputational risks of not taking ESG considerations into account. While the GCC is beginning to understand the benefits of applying ESG, the region hasn't been too far from its concept. Sharia-compliant investing has been around for the last two decades. Both frameworks apply the negative screening approach and seek investments which provide a sustainable return. With the combination of ESG factors and Sharia screening, Islamic investors can improve investment performance while meeting social and environmental goals at the same time. As the UAE is now focusing on diversifying its investments, it can highly benefit from creating a responsible investing market and culture where strategy and processes go hand-in-hand as important steps for successful integration. When seeking sustainable growth, an additional layer of insight and oversight is extremely crucial to mitigate emerging risks, like climate change. To that end, implementing ESG assessments will help set clear KPIs and identify where and how projects generate value and mitigate risks associated with them. For example, Mercer applies an Investment Framework for Sustainable Growth with its clients, which distinguishes between the financial implications (risks) associated with environmental, social and corporate governance factors and the growth opportunities in industries most directly affected by sustainability issues. Measuring impact and mitigating risks has become increasingly important and represents a strong investment governance process. The benefits of adopting ESG are numerous. While the GCC has started with the implementation of ESG principles, more work still needs to be done in making sure governments are fully engaged with stakeholders, including investors, and strategies are aligned across the region. Regulatory pressures to meet global standards of ESG integration will only increase in the coming years. Instead of hiding from it, it is time for companies, investors and governments to come together and define a way of working that moves the GCC forward in terms of responsible investing and sustainable growth. 1Carvalho, Stanley, "Abu Dhabi To Invest $15 Billion in Green Energy," Reuters, January 21, 2008, https://www.reuters.com/article/environment-emirates-energy-green-dc/abu-dhabi-to-invest-15-billion-in-green-energy-idUSL2131306920080121 2Energy and Environment Park:Setup Your Company In Enpark, UAE Freezone Setup, https://www.uaefreezonesetup.com/enpark-freezone 3Chen, Yu-Cheng and Hsu, Feng Jui, "Is a Firm's Financial Risk Associated With Corporate Social Responsibility?"Emerald City, 2015, https://www.emeraldinsight.com/doi/abs/10.1108/MD-02-2015-0047

Invest

small-tiles Damien Balmet | 09 May 2019

Sovereign wealth funds (SWF) adopt differing mandates based on a country’s macroeconomic profile and the government’s priorities. Saving for future generations – as is the case with the Abu Dhabi Investment Authority (ADIA) or the Kuwait Investment Authority (KIA) – is the widely adopted mandate. But more recently, governments have begun to leverage their funds to transform their economies by adding an economic development component to their fund’s mandate. Consider the Kingdom of Saudi Arabia’s Public Investment Fund (PIF), which has identified several economic development initiatives under its ‘Public Investment Fund Program 2018-2020’, prioritizing maximising the value of PIF’s investments in Saudi companies; launching and developing new sectors; developing real estate and infrastructure projects and companies; and undertaking giga-project initiatives (developments costing more than $10 billion). One reason why countries establish sovereign wealth funds is to both professionalise and institutionalise the way the sovereign invests and manages its wealth. With this in mind, the combination of a strong governance framework and a highly experienced investment team are integral for success. When pursuing an economic development agenda, sovereign wealth fund investment professionals have a complex dual role to fulfil: Not only are they instructed to look after and transform the existing portfolio, but they are also tasked with identifying, initiating and leading new investment opportunities. Transforming a direct investment portfolio occurs through various initiatives aimed at improving the performance of the portfolio companies or monetising some of them. To improve performance, the critical first task is to implement best-in-class governance, often requiring the training or replacement of directors representing the sovereign wealth fund on the boards of portfolio companies. In turn, boards become more business savvy and gain more clarity on shareholders’ expectations, putting them in a stronger position to fulfil their fiduciary duties. When the situation requires drastic actions (for example, when a direct investment operates at a significant loss), the fund needs to swiftly engage an external advisor to identify strategic options, then supervise the implementation of the selected strategy. Such drastic actions can be expedited when the sovereign wealth fund owns 100 percent of the company or has the majority control of the board. Portfolio transformation also occurs when the sovereign wealth fund decides to monetise one of its portfolio companies. This can occur for various reasons, such as the need for cash to re-invest into more promising opportunities, or the need to eliminate excessive downside risk. In the Middle East, the sale of a state asset often requires an intermediary step consisting of corporatising the entity. This process aims to transform state assets or government agencies into corporations with a legal structure and financial statements for the last three or five years. Going through this process is usually the first step towards a sale or an Initial Public Offering (IPO). When it comes to new investment projects, sovereign wealth funds can operate in a structured approach. New viable investment opportunities need to be built on a detailed understanding of the economic sectors and strengths of a country. Once a sector or opportunity of interest has been identified, a more in-depth study should be performed to confirm the opportunity, its profitability, landscape of potential partners, risks, and employment potential of the project. A compelling example is the concept for a downstream aluminum cluster pursued in Bahrain by its sovereign wealth fund, Mumtalakat. One of its portfolio companies, Aluminum Bahrain (Alba), is currently building a sixth smelter line that will add 500,000 metric tonnes of aluminum per year, starting in 2019. In parallel, Mumtalakat is teaming up and co-investing with international partners to create joint ventures in Bahrain that will utilise this additional capacity while creating 2,000 new employment opportunities. By developing a strong understanding of attractive sectors in a country or a region, sovereign wealth funds should be in a position to quickly form an opinion on an opportunity. If an established player from overseas or an adjacent country has a compelling business case for expanding in the Middle East or in the country of a SWF, then the SWF should engage with the potential partner to further assess the opportunity. Funds with an economic development agenda represent a great opportunity to accelerate the development of their economy. Some African countries such as Angola (Fundo Soberano de Angola - 2012)1 and Nigeria (Nigeria Sovereign Investment Authority - 2012)2 set up their sovereign wealth funds over the last decade and both have developmental components in their mandates. Egypt passed a law in May 2018 to establish its own fund3. One of the contemplated objectives for this fund is to manage state companies ahead of listing on a stock exchange. The PIF in KSA has a huge task ahead of itself as it is expected to play a major role in the stimulation of the Saudi Arabian economy. The large and rapidly growing value of assets managed by sovereign wealth funds as well as the leadership expected of them in their countries’ economic transformation agendas is placing them in the public spotlight. It does not come as a surprise that citizens want to know how their public funds are being employed to their benefit. In developed countries, governments have traditionally focused on the regulatory aspect of an industry and then let the private sector flourish. On the contrary, in the Middle East and other developing countries, significant industries have often emerged from the will of the government. Sovereign wealth funds can be an effective tool to make this happen. To learn more click, here. 1International Forum Of Sovereign Wealth Funds https://www.ifswf.org/assessment/angola 2International Forum Of Sovereign Wealth Funds https://www.ifswf.org/assessment/nigeria. 3Egypt Plans Sovereign Wealth Fund-of A Kind https://www.gfmag.com/magazine/may-2018/egypt-swf

Health

small-tiles Catherine Li | 25 Apr 2019

In China, as in many other countries with growing economies, employee health management is a relatively new concept. This presents an exciting opportunity to create something new — but also generous room for error. A superior benefits program meets the diverse needs of active employees and retirees while aligning with the company’s business development and talent strategies. Although these dual goals may seem straightforward, it’s easy for HR to get sidetracked along the way. Have you steered clear of these four pitfalls? Misunderstanding 1: Benefits are Just for Brand-Building   Benefits design commonly goes through three phases: foundation-laying, boasting and returning to fundamentals. Young technology companies have a tendency to get stuck in phase two, coming up with fun, innovative and even newsworthy benefits. These less-traditional benefits programs have several advantages, including supplementing basic benefits and enhancing the program’s overall appeal. They can also help tech companies with a predominately young workforce connect with Millennial talent. For example, some Chinese companies offer an online shopping platform similar to Amazon through which employees can order household goods and other items to be delivered straight to their homes. Others focus on tokens of appreciation at stressful or eventful times of year. An e-commerce company might buy movie tickets for their employees and families after the hectic November 11 shopping festival — an online shopping bonanza that keeps e-commerce employees busy around the clock — to show gratitude for their hard work. But although such niche benefits are attractive in the short term, they have little long-term effect when applied on their own. Be careful not to get swept up in creativity at the expense of sound basic benefits. You can organize a race for charity to show you’re committed to employee health as well as social good, but if you can’t help an employee through a serious illness, how can you claim to care about the well-being of your workforce? The biggest health management challenge for Chinese businesses is staff turnover. New programs take time to launch, so little effect will be seen if the turnover rate is high. Investing in core benefits design yields more consistent results and helps retain employees, whereas short-term benefits solutions rarely build the brand. Misunderstanding 2: We Don’t Need to Design our Own Benefits Program – We can Just Copy our Competitors   Thoughtful design is by far the most important aspect of a successful benefits program for both basic and innovative offerings. Many companies focus on copying competitors’ designs or best practices. After all, benefits design is time-consuming and complicated; why not save on resources by leveraging an existing program? This line of thinking is dangerous. A benefits plan that works for one company, no matter how similar it seems, may not work for yours. Employee needs, business development goals, budget and future plans (in terms of costs and talent retention) must all be taken into account. It’s up to HR to look deep within the organization and ask fundamental questions: How much budget is available? Whom is the benefits program aimed at? What are the needs of the target employees and the corresponding risks? Caring for employee welfare means taking the time to customize a benefits program while taking into account the firm’s resources and priorities. Organizations with limited budgets profit from analyzing employee health data from biomedical screenings, medical claims and health risk assessments to identify the primary health challenges of target employees and design an appropriate program. Note that mental health, including managing stress, is just as important as physical well-being. Misunderstanding 3: Our Benefits are so Great, They Speak for Themselves   According to Mercer’s 2015 Benefits Communication Trend Survey of HR managers in China, more than 70% of employers think benefits communication is important. Yet only 17% of organizations have a specific role for employee benefits communication, and nearly 70% have little or no budget for benefits communication. Assuming your benefits programs will self-promote is a mistake. Even if your benefits are good, busy employees may not have time to learn about them and may misunderstand or underutilize them — substantially lowering your returns. Effective communication of benefits programs can: •       Improve employee retention and engagement •       Boost morale •       Improve employees’ health conditions and productivity •       Enhance employee trust •       Build the employer brand   Note that the organizations with high employee benefits satisfaction are the ones that effectively communicate the value of their benefits. Misunderstanding 4: All Aspects of our Benefits Program Must Show Returns   Return on investment (ROI) is a key performance indicator for many businesses. And with good reason — why invest in a project before ensuring a sound return on the investment? Although ROI is an excellent indicator of performance, not all benefits programs can be evaluated with numbers. When paired with comprehensive core benefits, health management programs and nontraditional benefits can have an underlying effect that is even greater than their immediately measurable impact. For many people, the feeling that their employer cares about their well-being means more than the money in their paycheck. The ongoing effectiveness of any benefits program ultimately depends on corporate culture: how your organization measures the value of benefits management, how it treats employees and whether it’s willing to put employee feedback into practice. Health management and benefits program design are still relatively new to Chinese companies, which tend to attach little importance to their employees’ health. But employee health is the foundation of an organization’s long-term success, and it requires investment in kind. In addition, in a high-growth economy with booming businesses, companies need to identify ways of attracting and retaining top talent. By avoiding these four pitfalls and focusing on tying programs to their firms’ long-term strategies, Chinese companies are enjoying the benefits of healthier, more engaged employees.

Innovation

small-tiles 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.  

Editors' Picks

Retire

Asia Must Navigate Pensions Crunch
David Anderson | 03 Apr 2019

Asian pension systems are facing major challenges. The region is experiencing seismic demographic changes, with rapidly aging populations and declining birthrates. But investment returns are relatively low due to geopolitical uncertainty and minimal interest rates. With the region having relatively few robust retirement systems, many Asian countries will struggle to provide adequate pensions. Governments need to take positive action now to reduce financial pressures and avoid intergenerational conflicts between the young and old. Life expectancy at birth in the region has increased by seven to 14 years in most countries during the last 40 years, according to the 2018 Melbourne Mercer Global Pension Index (MMGPI), which ranks pension systems round the world on adequacy, sustainability and integrity. This is an average of one additional year every four years. The increased life expectancy of a 65-year-old over the last 40 years has ranged from 1.7 years in Indonesia to 8.1 years in Singapore. Much of the rest of the world is facing similar challenges relating to aging populations, and nations are pursuing similar policy reforms. These include raising pension ages, encouraging people to work longer, increasing the funding levels set aside for retirement and reducing the amount of money people can take out of their pension accounts before they reach retirement age. The 2018 MMGPI findings pose the fundamental question: What reforms can Asian governments implement to improve the long-term outcomes of their retirement income systems? The natural starting place to create a world-class pension system is ensuring the right balance between adequacy and sustainability. A system providing generous benefits in the short-term is unlikely to be sustainable, while a system that's sustainable over many years usually provides modest benefits. Without changes to retirement ages and eligibility ages to access social security and private pensions, the pressure on retirement systems will increase, which could threaten the financial security provided to the elderly. Increased workforce participation by women and older workers can improve adequacy and sustainability. Japan, China and South Korea rank near the bottom of the Mercer index. Their pension systems do not represent a sustainable model to support the retirement of current and future generations. If left unchanged, these countries will suffer social conflicts, since pension benefits will not be distributed equally between generations. Japan, for instance, is taking baby steps to reform its pension system by gradually raising the mandatory retirement age of some 3.4 million civil servants to 65 from the current 60 years of age. Japanese retirees can now choose to start receiving their pensions at any point between the ages of 60 and 70, with greater monthly payments offered to those who start at age 65 or older. Having the world's highest life expectancy and lowest birthrate, Japan's population is expected to shrink. This challenging situation is already contributing to skill shortages, which will further impact Japan's shrinking tax revenue base. The Japanese government could improve its pension system by encouraging higher levels of household savings and continuing to increase the level of state pension coverage, since 49 percent of the working age population is not covered by private pension plans. Introducing a requirement that part of the retirement benefit must be taken as an income stream and not a lump sum will improve the overall sustainability of the social security system — as would reducing government debt as a percentage of gross domestic product, as this improves the likelihood that the current level of pension payments can be maintained. China faces different issues. China's unique pension system comprises various plans for urban and rural populations, as well as for rural migrants and public sector workers. The urban and rural systems have a pay-as-you-go basic pension consisting of a pooled account (from employer contributions or government expenditure) and funded individual accounts (from employee contributions). Supplementary plans are also provided by some employers, particularly in urban areas. The Chinese pension system could be improved by increasing the use of workers' contributions to pensions to enhance the overall retirement protection of workers and increasing minimum support for the poorest retirees. A requirement that part of the supplementary retirement benefit must be taken as an income stream should be introduced, as well. More investment options should be offered to pension holders to permit a greater exposure to growth assets, while pension plans should improve their communications with members. Hong Kong should consider introducing tax incentives to encourage voluntary member contributions, thus increasing retirement savings. Hong Kong should also require that part of the retirement benefit be taken as an income stream. Older workers should be retained in the labor market as life expectancies rise. South Korea suffers from one of the weakest pension systems for the poor when expressed as a percentage of the average wage at just six percent. Its system would benefit by improving the level of support provided to the poorest pensioners, introducing a requirement that part of the retirement benefit from private pension arrangements be taken as an income stream and increasing the overall level of contributions. Singapore's well-structured pension system is ranked top in the region and has seen improvements in sustainability. Its retirement system, the Central Provident Fund, provides flexibility to its members, who include all employed Singaporean residents and permanent residents. But more can be done. Barriers to establishing tax-approved group corporate retirement plans should be reduced, and the CPF should also be opened to temporary nonresident workers who comprise more than a third of the labor force. The age that CPF members can access their savings should be raised, as well. Since pension systems are an intergenerational issue, they require a long-term perspective. Pension systems, which are one of the largest institutional investors in any market, should increasingly recognize the importance of acting as good stewards of the capital entrusted to them, including managing risks, such as climate change. With Asia's aging populations staying productive well into their 70s and even 80s, it is critical to improve the provision of adequate and sustainable retirement income. Raising the retirement age, expanding the coverage of private pensions for workers and encouraging financial planning and early savings should be the focus of employers and policy makers. Article originally published in Nikkei Asian Review.

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

The Role of Women in Saudi’s 2030 Vision
Najla Najm | 02 May 2019

Over the years, we have witnessed the truly remarkable transformation of women in the workforce in Saudi Arabia. The Royal Decree of 2017 recognizing women's right to drive was a monumental step toward enabling the mobility of female employees. However, significant changes began shaping the nation much earlier — from the appointment of the first female Vice Minister in 2009 to welcoming female members in the Shoura Council in 2013. The transformation has primarily been driven by an overall focus on educating women. In fact, in 2008, it was announced that Princess Noura University in Riyadh was the largest university for women in the world.1 These steps are just the tip of the iceberg as Saudi Arabia sets the stage for equal participation on the world stage, which will prove to be a crucial factor in the success of Vision 2030.2 From a global perspective, the Kingdom of Saudi Arabia is part of a wider dialogue taking place in the workforce. This conversation includes the issue of equal pay in North America, the lack of female board representation in Europe and everything in between. In fact, Mercer runs a campaign in collaboration with the World Economic Forum, which features a study called When Women Thrive. According to the study, at the current rate of change, it will take 217 years to close the global economic gap between the genders. At the same time, it is becoming increasingly clear that gender equality and the participation of women in the workforce must be taken into account for growth in business and society as a whole. The report also suggests that a diverse workforce is a business imperative proven to boost the bottom line. Organizations around the world are realizing the benefits and making a conscious effort to increase representation in senior leadership and enable the upward progression of women. From a local perspective, leading up to Vision 2030, there have been many announcements from notable organizations, including the government and private sector, appointing females in leadership, executive and board of director positions. Recently, Saudi Aramco, the world's most profitable oil company, appointed its first woman to the board, while Citigroup appointed a female as the head of their business in Saudi. Companies are making sustained progress in increasing representation in senior leadership, enabling the upward progression of women and closing the pay gap. They are hiring and promoting talent based on competence, as talent and capability are the determining factors in operational success, and women are ready to lead the way. So, how exactly can organizations in Saudi Arabia ensure women thrive, thereby driving Vision 2030? Today, almost 50% of the population in Saudi Arabia is female, but currently, only 20% of the workforce is female.3 At the same time, females tend to hold a greater percentage of higher education degrees. There is room for utilizing this talent by unlocking the enormous potential of women in Saudi Arabia. The When Women Thrive study outlines ways in which organizations can facilitate gender equality. For example, analyzing workforce data allows employers to see which career experiences have higher developmental value and assess whether or not women have equal access to those opportunities. Employers can then take into consideration reskilling opportunities and optimally deploy talent in a way that ensures female employees are satisfied with their learning. As a result, organizations benefit from having motivated employees that deliver value in new ways. With the large scale of transformation in Saudi Arabia, people and skills will be key to the success of Saudi Arabia's Vision 2030, as people are the driving force behind all great change. Given the recent advancements in opportunities for women and the knowledge and skills they will bring to an increasingly diverse workforce, sustainable growth is dependent on harnessing the right talent to fuel the future. The result is positioning Saudi Arabia from a country that was once oil-driven to one that is talent driven. Over the coming years, it will be fascinating to see how women continue to shape growth in Saudi Arabia to unleash the Kingdom's true potential on the world stage. 1"World's Largest University for Women Launched in Saudi Arabia", Arab News, May 2011,https://www.edarabia.com/21384/worlds-largest-university-for-women-launched-in-saudi-arabia/. 2"Our Vision: Saudi Arabia, the Heart of the Arab and Islamic Worlds, the Investment Powerhouse and the Hub Connecting Three Continents," Saudi Vision 2030, https://vision2030.gov.sa/en. 3Trading Economics, 20 Million Indicators From 196 Countries,https://tradingeconomics.com.  

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