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Brunswick ISMEA Quarterly Newsletter - May 2017

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A quarterly roundup of news, analysis and ideas from the world’s most dynamic emerging markets

Published in: Economy & Finance
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Brunswick ISMEA Quarterly Newsletter - May 2017

  1. 1. India, Southeast Asia, Middle East & Africa Group QuarterlyNewsletter Volume3 May 2017
  2. 2. 2 Table of contents 2 Bringing the outside world in Highlights from Brunswick Insight’s Perspectives research Motoring ahead Car manufacturing as a barometer of Africa’s rising middle class Upcoming Events The ISMEA Team 6 8 9 4 12 14 16 17 18 Singapore RegTech rises Middle East Hubs emerge Africa Market dynamics matter India A FinTech race Focus on Financial Technology: How can Africa live up to its potential? An interview with international trade expert Catherine Grant Makokera Brunswick Exclusive:
  3. 3. 3 This is the May 2017 edition of the India, Southeast Asia, Middle East and Africa (ISMEA) Group Newsletter, a quarterly roundup of news and analysis from Brunswick team members based in the world’s most dynamic emerging markets. In this edition, we look at how technology is shaping the financial services industry. Emerging markets, including those across the ISMEA region, have long been hotbeds of innovation in payments, driven by large underbanked populations and the spread of mobile phones. With traditional banks and mobile operators evolving their business models and start-ups racing to the market, it’s a rapidly evolving space. Thisintroducesarangeofimplications for commercial opportunities, broader social and economic impact of enhancing financial inclusion, and regulatoryand risk considerationsthat come with needing to protect financial data. Theissuealsofeatureshighlightsfrom Brunswick’s ground breaking study capturing the perspectives of nearly 43,000 adults across 26 markets on business and financial, political and social issues. The survey revealed fascinating and varying insights from across the region. A common finding is that companies today must juggle myriad stakeholders with a wide range of attitudes and opinions, and many of whom hold sharply negative views toward the business community. Taking a look at Africa, we examine the importance of connectivity and international trade for tapping Africa’s growth potential, and the rise of the automotive manufacturing sector as an indicator of the continent’s expanding middle class. We hope you will enjoy this glimpse into key trends in the ISMEA region. From the dynamic field of FinTech to international trade linkages and Africa’s automotive market, the challenges and opportunities facing business are vast – with smart and informed engagement with stakeholders required for success. Introduction 3
  4. 4. India A FinTech Race India’smovetowardsalesscash economyopensapaymentsbattlefield In India, cash is king – but it is on notice. Prime Minister Narendra Modi threw down the gauntlet last November, with an executive order extinguishing 86% of banknotes in circulation. In a country where 78% of all consumer payments by value are in cash, PM Modi’s action amounted to another aggressive notice of intent to transform India by ridding it of unaccounted, illegal wealth and moving it towards a less cash economy. For many of India’s array of FinTechs, from payment apps to digital wallets and everything in between, Mr Modi’s intervention was a welcome shot in the arm. It would invigorate activity and attention around FinTechs after a year that saw venture capitalists apply the brakes on funding: after a bumper 2015, investments in FinTechs more than halved in 2016. One fallout of the funding drought has been that FinTechs are increasingly collaborating with incumbents – established banks. While some of India’s behemoth banks have had run-ins with a handful of their challengers, for example, over a lack of security on their apps, there has been growing recognition that the young FinTechs bring real strengths to the table: speed and agility; passion for product design and customer experience; specialised young entrepreneurial talent unencumbered by legacy ways. For their part, the banks have in their armament something any start-up would envy: scale and reach. Banks also bring seasoned knowledge of the consumer psyche, rigorous compliance and back-end processes typical of a highly regulated environment, and the trust that comes from their mature status. In the battle for the millions of new customers, the winners will be the smartest alliances. India’s unbanked population continues to evaporate, down to around 133 million from 415 million in 2014 won over by faster, simpler and more convenient financial services through the rapid penetration of technology, mobile and digitization across the country. The commercial prize aside, industry participants also stand to gain from the societal recognition and goodwill that comes from contributing to India’s development as FinTech is increasingly recognised as a tool of responsible growth and governance, squeezing several decades’ development into one. This has garnered for the FinTechs high-level political support, benign regulation, private capital, all packed as social enterprise with smart solutions in the pursuit of financial inclusion. One such solution is India Stack, an integrated digital architecture built on top of India’s unique biometric ID system or Aadhaar (meaning Foundation). Designed by a small army of volunteer technologists devoted to digitising national public services, India Stack will allow over a billion registered citizens to store and share personal data such as bank statements and utility-bill payments. This will, in turn, open up access to a slew of additional products and services, such as loans and insurance. 4 FinTech | Focus on Financial Technology In India, it is now possible to make payments through the touch of a fingerprint.
  5. 5. 5 An entire section of the population will start to build a credit history, which is critical as banks reverse a historic hostility toward lending to India’s rural poor. The advent and swift progression of India’s digital infrastructure has also given way to structural reform of its banking system, including the introduction of new categories of financial institutions, such as the ‘payments bank’, a stripped-down version of a bank, reaching customers mainly through mobile phones rather than physical branches. The recipients of new payment bank licenses hail from a range of sectors, including micro-finance, telecoms and online payments. Along with the introduction of government- sponsored interoperable platforms, such as the Unified Payments Interface (UPI), for easier online payments and money transfers, India’s FinTech ecosystem now has strong roots. Yet for all of the strengths of these progressively ubiquitous and accessible services, FinTech still has some convincing to do before there is wholesale adoption in India. For a start, India still has a long way to go before it consigns cash to the history books. While millennials – two thirds of India’s 1.3 billion population is under the age of 35 - will remain immediate or early adopters of tech innovations, India as a whole remains a stubborn user of cash. After an initial spike in the number of digital payments soon after Mr. Modi’s purge on high-value banknotes, the volume of online transactions fell back in the early months of this year as old notes were replaced with new ones. Building trust in the security of digital transactions will be a big step in weaning India off cash. It doesn’t help that India has had a number of high- profile cyber incidents. Last year, 3.2 million debit cards had to be blocked or recalled by Indian banks after a data breach. In March, Aadhaar details of MS Dhoni, a national cricket icon, were accidentally posted on social media by a government bureau that facilitates enrolment for the biometric identity scheme. Participants across the chain, from private sector start-ups to large government agencies responsible for data will need to be better prepared for the fallout of such incidents when they occur, and do more to educate both employees and customers on the steps to take to try and avoid them in the first place. Regulation will need to keep pace with change. So far, the approach to regulation has been to do as much as possible to enable the domestic FinTech industry to blossom, especially in the payments space. Other areas, such as disbursing loans, including peer-to-peer lending, and blockchain, are more complex and will require firms to engage with regulatory bodies by contributing to consultations and industry dialogue on the new rules necessary for effective governance. Finally, whether competitors or collaborators, newcomers or incumbents, organisations will need to be prepared for the next innovation or idea threatening to make them obsolete, much like Mr. Modi’s assault on cash. AzharKhanisaPartnerintheMumbai officeofBrunswickGroup. 5 Source: PwC, Government of India India's Unbanked Population (million) Internet Users in India (million) Source: Assocham, Deloitte FinTech | Focus on Financial Technology Numbers at a glance 133 million India’s unbanked population; down from 557 million in 2011 600million internet users in India by 2020; currently around 350 million 520million Estimated smartphone users in India in by 2020; currently around 240 million 1.1billion Registered with Aadhaar (National biometric identity scheme); including 99% of India’s adult population $500 billion Forecasted value of digital payments in India by 2020, a 10x increase from 2016 Google and Boston Consulting Group. PwC; Government of India. 135m figure presumes every Jan Dhan Yojana (Government initiative to bank the unbanked) account has gone to a new user since 2015 Assocham; Deloitte Assocham; Deloitte UIDAI, Government of India
  6. 6. Singapore RegTech Rises Tech-basedcomplianceandregulatoryservices growinFinTech’sshadow In May 2015, not long after ride-hailing app Uber had begun gaining widespread global adoption,TheWall StreetJournalobserved that the market was quickly getting saturated with an Uber for everything. App makers were claiming they had created the Uber for anything and everything, from personal shoppers to bartenders to even medical services. It appears that the same is happening with technology and FinTech now. In the space of two years a number of other ‘Techs’ have emerged: InsurTech, WealthTech, and LegalTech. The recent addition that is quickly gaining prominence? RegTech. As the name implies, RegTech is the application of technology into compliance and regulatory services, particularly within financial services. The case for it appears simple and straightforward – by automating mundane and time-consuming compliance tasks, human capital is freed up and can be redirected to more productive and strategic use. The longer term potential is its ability to draw insights from machine learning and artificial intelligence, and over time be able to anticipate compliance issues and help regulators nip them in the bud. A double-barrelled boost to the global economy The linkages between FinTech and RegTech have also prompted comparisons between the two and optimism that the latter would drive the economy forward the same way FinTech has in recent years. At first glance, FinTech’s growth performance does offer much to be hopeful about RegTech. McKinsey reported that the number of FinTech companies globally stood at around 800 in April 2015; within the span of 10 months this figure rose by over 150% to exceed 2,000. Venture capitalists have also been quick to jump on the bandwagon – in 2014 alone over USD 12.2 billion was invested in FinTech firms. FinTech has also attracted significant attention in Asia, which recorded over USD 1.2 billion in funding in Q3 2016, surpassing both North America (USD 900 million) and Europe (USD 200 million) combined. If RegTech were indeed anything like its elder cousin, its potential would be immense. However, prophesizing RegTech’s potential through FinTech- tinted glasses risks overlooking a fundamental fact: the two are borne of vastly different impetuses at different ends of a spectrum. For a start, FinTech had already been around for a number of decades – with PayPal being one of the more identifiable examples – even before its tremendous growth spurt in the past half-decade. RegTech, on the other hand, remains a fairly recent development. FinTech | Focus on Financial Technology 6 PayPal - An identifiable example of FinTech technology
  7. 7. 7 Moreover, the growth of FinTech has almost always been led by smaller firms and start-ups. RegTech is at its core a reaction to the growing costs of compliance demanded by a wide-range of stakeholders, including policymakers, governments, and a wider society that no longer trust financial institutions as much as they did before the global financial crisis. Ultimately, FinTech and RegTech are cousins who sit at the opposite ends of a spectrum – the former driven from the ground up by technology firms and start-ups and the latter from the top down by various – and often institutional – policy-makers and regulators. The longer-term motivations of these stakeholders will shape the evolution of both groups and will therefore be very different, even if they can immediately appreciate and benefit from their respective cost-efficiencies. Force for equality That is not to say that RegTech will always live in FinTech’s shadow. RegTech is viewed as a positive equalizer for smaller firms within the financial ecosystem, as it will allow them to more easily comply with the ever-increasing regulatory requirements that larger financial institutions are currently better equipped to address. Academics have also argued that the adoption of more mature RegTech could possibly surpass FinTech’s reach in the future, given its applicability to a wide range of contexts from monitoring and environmental compliance to even location tracking of vehicles on a real-time basis. Nonetheless, the broad reach of RegTech has also raised concerns that its proliferation will lead to widespread job displacement across industries. Co-existing in an automated future There is no running away from the fact that technology and automation will increasingly be core to productivity growth in the future, not just at the level of individual businesses, but across economies. A McKinsey Global Institute report found that automation could increase global productivity by 0.8% to 1.4% annually and that indeed, if countries were to achieve their desired per capita GDP growth, people would have to work alongside machines. The study also underscored that while some people will be replaced by machines, displacement will ultimately be accompanied by the creation of new, currently non- existent jobs. The pressing challenge therefore, beyond adoption, is for policymakers to create environments that incentivize such behaviour and encourage the workforce to upskill themselves and prepare for changing workforce needs. Singapore is particularly attuned to this. During Singapore Budget 2015, Deputy Prime Minister Tharman Shanmugaratnam announced an initiative called SkillsFuture, through which every Singaporean aged 25 and above receives an initial $500 of SkillsFuture Credit (to be topped up regularly) that can be used on a variety of courses aimed at renewing “deep skills that are critical for the next stage of Singapore’s economy.” The resource-constrained nation-state is also a keen embracer of technologies that present growth potential for its economy. In 2015 it established a FinTech & Innovation Group within its central bank and appointed a Chief FinTech Officer. Such early adoption and investment in FinTech resulted in Deloitte recently referring to Singapore as a “serious contender for the global number one spot in FinTech.” JeanTanisaDirectorandOngWeiJun isanExecutiveintheSingaporeofficeof BrunswickGroup. Deputy Prime Minister Tharman Shanmugaratnam FinTech | Focus on Financial Technology
  8. 8. Middle East Hubs Emerge HowthefourthIndustrial RevolutionaffectstheMiddleEast As the Middle East works to attract a greater number of industry start-ups, companies must clearly communicate their work in promoting greater financial inclusion in a crowded ecosystem. Earlier this year, the Dubai International Financial Centre (DIFC) announced its DIFC FinTech Hive, a platform and accelerator for FinTech companies in the emirate. This was quickly followed by an MoU between Abu Dhabi Global Market and Monetary Authority of Singapore to develop a bilateral framework to assist industry players, building links between the Middle East and Asia. Both developments reflect the pace of change in the Middle East, and the competition amongst the region’s leading financial centres – Dubai, Abu Dhabi and Bahrain – to position themselves as the premier hub for this new and disruptive sector. While still in its early days, FinTech is already having a profound impact globally. Nearly half of all adults globally own at least one mobile phone, creating new opportunities to provide financial services to previously inaccessible consumers in developing countries – a major opportunity for businesses to reach the 85 million individuals in the Middle East who remain unbanked, according to the World Bank. With the MENA region home to more than 80 FinTech startups, with nearly 30% based in the UAE, the Financial Times recently highlights the region’s potential for companies seeking to be a part of this changing landscape. Taking on the establishment FinTech is already having an impact on the region’s banking sector through offering alternative platforms for commercial and personal lending. By addressing fundraising needs in the region through offering newer products and services at lower fees with more open lending criteria, FinTech companies are now in competition with traditional banks for market share. In a recent survey by consultancy EY, 36% of respondents stated that up to 10% of the Gulf Cooperation Council banking sector’s business is at risk of being lost to stand-alone FinTech firms in the next five years. However, banks also see opportunities for synergies, as 70% of participants in the EY survey stated that the Gulf Cooperation Council banking sector is open to integrating FinTech innovations that could help enhance consumer experience and streamline their operations. Pros and cons One concern about the sector is that it may prove to be too disruptive, as automation – which is at the heart of many FinTech offerings – could result in potential job losses within the financial services sector. Indeed, high-skilled industry functions such as analysis, accounting, trading and even legal functions are becoming automated, resulting in the elimination of some jobs, which may be accelerated with the rapid growth of new technologies. However, bullish observers note that in previous industrial revolutions, while the introduction of new technologies saw some jobs become obsolete, they also created the need for new jobs. This trend could be replicated for FinTech, with the introduction of new professional services that ‘update’ rather than ‘kill’ industry jobs. Technological disruption is nothing new for the financial sector, as algorithms and automation have been used more frequently in recent years; however, despite the increase of new technologies, the workforces in major financial hubs such as the City of London and DIFC have actually increased in recent years, according to government reports. Regional challenges Challenges remain in further developing the FinTech industry in the region. Most notably, the Middle East remains one of the most cash-driven societies in the world. In the UAE alone, an estimated US$230 billion in payments – comprising 75% of all transactions – are still conducted by 8 FinTech | Focus on Financial Technology
  9. 9. 9 notes and coins, impacting the market demand for technology-driven financial services. Regulation remains another hurdle, as authorities in the region are only beginning to formally regulate the sector. To date, only one peer-to- peer lender has received regulatory approval by the Dubai Financial Services Authority, as regulators in Dubai and Abu Dhabi have only gone as far as to announce proposed frameworks impacting the majority of FinTech companies. Differences in laws and regulations between (and even within) countries contribute to a highly fragmented regional ecosystem, impacting companies’ ability to scale and enter new markets. Additionally, product demands and user experience are vastly different from country to country, impacting how companies can deliver products and services to each regional market, making a one-size-fits-all model for products and services unrealistic. Communications implications As a new industry, FinTech companies must communicate their shared value proposition and pre-empt any concerns or fears that may be raised by regulators, traditional financial institutions, other competitors, customers and the public in general. As the region continues to attract ideas and innovation in this new sector, it is important for FinTech players to communicate their business, strategy and societal benefits clearly. JamesAllanisanAssociateintheDubai officeofBrunswickGroup. Brunswick outlines five communications considerations: 1 2 3 4 5 Explain your contribution to financial inclusiveness: With the potential to serve the large unbanked and underbanked population in the Middle East and across the ISMEA region, FinTech companies need to demonstrate the societal benefit of their products and services. Companies must show that their purpose is beyond corporate profit and that they are key to facilitating financial inclusion and wider positive change. Demonstrate alignment with government initiatives: The influx of FinTech start-ups reflects the private sector’s alignment with many government initiatives, such as those by the Gulf Cooperation Council governments. In the UAE, FinTech aligns with the UAE Innovation Strategy, UAE Vision 2021, and many other national agendas to promote economic diversification. Similarly, in South Africa, FinTech initiatives can support the country’s transformation and economic development agenda. Increase market education: This is essential in raising awareness of how these FinTech products and services can benefit consumers, businesses and the region as a whole. Demonstrate synergies with traditional financial institutions: The fluidity of this new sector means that new FinTech players should highlight synergies and areas for collaboration, rather than solely focus on differences and disruption of existing models. Address risks: FinTech players should proactively address issues like cyber security and personal data protection in order to allay the fears and concerns of consumers, investors and regulations. FinTech | Focus on Financial Technology
  10. 10. 10 Africa Market Dynamics Matter Africaisnotacountry.Investorsmustdo theirhomework Given Africa’s combination of low banking and high mobile phone penetration, there has been much excitement about FinTech’s potential to improve financial inclusion across the continent. Investors should nevertheless do their homework to understand the specific trends and increasingly strict regulations in their target markets before making acquisitions or jumping in with products and services that do not take into account local dynamics. A recent report, AfricaandtheGlobal FinTechRevolution, by AfricInvest, a pan-African private equity firm with $1bn assets under management highlights that the uptake of FinTech will play out differently across the continent (see graphic for trends). AfricInvest is currently raising funds for investments in African financial insitutions and FinTech companies. While the growth of FinTech will likely be driven by partnerships or acquisitions, mobile money models differ across the continent. In some countries, mobile operators are driving change by partnering or acquiring financial services firms. Orange Mobile, which acquired a 65% stake in Groupama Banque in France, recently announced its intention to roll out mobile savings and credit across 18 African operations. East African telecoms operator Safaricom, meanwhile, has made great strides with M-Pesa, which according to Quartz Africa saw transfers amounting to US$25bn in the first three quarters of 2016. In Zimbabwe, Econet Group’s Ecocash model has grown strongly and now provides customers with a MasterCard backed by the Group’s Steward Bank, while Zoona, a start-up mobile money transfer venture in Zambia is also thriving and profitable without a banking or mobile partner. Even so, Africa still remains a predominantly cash-based economy. The potential fiscal and financial market risks associated with digital money have seen regulators take a cautious approach. For example, the Kenyan Central Bank notes that the M-Pesa model could be a “plausible fiscal risk”, while the Nigerian Central Bank has strict requirements for deposit taking operators. Regulators’ concerns range from fraud and money laundering to security of funds. In line with their counterparts around the world, African regulators are looking to tighten cyber security even as innovations around blockchain and artificial intelligence develop. For FinTech investors, this means understanding their target markets and meeting ever tighter regulations. They need to communicate to regulators and the wider public how they intend to balance technological progress with industry disruption and disintermediation of traditional banking and insurance services. They must build strong reputations and security systems to ensure that customers will entrust them with their money, much as if they were a traditional bank. Furthermore, if they can show how they contribute to economies – through innovation, skills transfer, job creation and taxes – they are on to a winner. IrisSibandaisaDirectorinthe JohannesburgofficeofBrunswickGroup. Africa’s three largest economies, Egypt, Nigeria and South Africa are included in the global top 15 countries by mobile penetration for mobile subscriptions. Source:AfricanmobiletrendsJumia. FinTech | Focus on Financial Technology
  11. 11. 11 The Cybersecurity dimension The intersection of digital technology and financial services has spawned a thriving FinTech sector, which seeks to change the way people and companies save, pay, borrow, and invest. This has the potential to revolutionise financial services by offering increased reach, flexibility and innovation – at both a lower cost and easy-to-access way. To counter the risks around cyber security, FinTech companies are embracing two key technologies – blockchain and artificial intelligence. Blockchain Blockchain – the “distributed ledger” technology that underpins the digital currency bitcoin - offers a number of benefits to the financial services sector. As a real-time, open-source and trusted platform that securely transmits data and value, blockchain is attractive due to its potential to enable banks to process payments faster and more accurately, while reducing transaction processing costs. Furthermore, blockchain’s transparent, decentralised nature can help increase security on multiple fronts, with uses ranging from blocking identity theft, to preventing datatampering,andstopping“denial of service” attacks. Some however fear the unknown nature of new programming code. They point to unknown potential vulnerabilities due to there not being a history of specialists examining it for flaws. Artificial Intelligence Artificial intelligence (AI) – which comprises technologies including natural language processing, machine learning, and expert systems – could help financial institutions transform and streamline some of their most fundamental processes. Through AI, financial institutions hope to cut costs, spot cyberattacks and potential fraud, improve data collection and analytics, as well as provide better customer recommendations. In recent years, AI has found a particularly useful niche in financial regulation. Dubbed ‘RegTech’, AI can help the financial services industry comply more efficiently with the burdensome task of regulatory compliance. The widespread adoption of AI in the financial sector currently faces several roadblocks. In addition to cutting thousands of jobs, there are also significant security and privacy concerns linked to mismanagement, design vulnerabilities and unforeseen occurrences. For instance, malfunctioning AI algorithms may create poor quality data on a large scale before it is detected and remedied; this could have a huge impact on markets. Similarly, machine-learning algorithms can also develop their own biases depending on the data they analyse. RachelChangisanAccountDirectorin theDubaiofficeofBrunswickGroup. Trends Business ModelsEnablers Intersecting factors • Disintermediation • Dematerialisation • Convergence • Disruptors • Blockchain • Big data & AI • Biometry • Internet • Mobile • Regulation • Direct Banking & Insurance • Payments • Lending & Insuring • Financial Management • Pure Technology Providers • Mobile network operators will be the main African disruptors • Winning and losing business models will differ in Africa from other parts of the world • Dematerialization will be much more rapid and profound than in other part of the world • Despite the advance of electronic money, Africa will remain predominantly a cash economy • Convergence will accelerate • Africa will finally achieve universal financial inclusion Source: AfricInvest, Africa and the Global Fintech Revolution FinTech | Focus on Financial Technology Africa’s path in the decade ahead
  12. 12. Bringing the outside world in BrunswickInsight’sPerspectivesresearchshows whybusinessleadersmustkeeppacewithawide spectrumofattitudesandopinions As President Trump’s election and Brexit drew many to conclude one can no longer make safe assumptions on how the public views critical financial, political and social issues. TheaftershocksoftheUSandUK votesbeartestamentthattoomanyin media,politicsandbusinessmadethe mistakeofinterpretingrealitywithout fullyinterrogatingtheirowncognitive biasesandsubjectivepersonalrealities. Tohelpthebusinesscommunity getoutsidetheirechochambers, Brunswickconductedanon-line surveyofalmost43,000peoplein25 languagesacross26marketsincluding keymarketsacrossAfrica,Asiaandthe MiddleEast. Ourstudy,oneofthelargestofits kind,lookedintoglobalperspectives ofnationalwell-being,criticalissues facingsocietyandattitudestobusiness. Weuncoveredfascinatingand interestingparadoxes. Foremergingmarketsacrossthe MiddleEast,AsiaandAfricatheresults areparticularlytellinggivenshifting demographicsdrivenbygrowing populations,mixedexpectationsof economicgrowth,theriseofmega- cities,burgeoningyouth,agrowing middle-classandincreasingly urbanisedpopulations. Inthisarticle,wehaveidentifiedthe keyfindingsandthemostrelevant takeawaysfortheISMEAregion. 1. Mixed views on the world today Ingeneral,emergingmarketsare moreoptimisticthandeveloped markets.Whenaskedabouthow muchtheircountrysupportseconomic opportunityandequalitytheUAE (75%),Singapore(64%)andIndia (53%)topthelistintermsofnet support.Incontrasttotheseemerging marketspeers,SouthAfricanshavea dramaticallymorenegativeoutlook withalmostathirdmoresayingthey donotthinkthecountrysupports economicopportunitycomparedto thosewhodo. Whilenet73%ofIndian,63%ofUAE and24%ofSingaporeanresidents believetheirchildrenwillbebetter off,SouthAfricansareonceagainthe outlierwithonlyanet1%feelingtheir childrenwilldobetterthanthem–the countryisevenlydividedbyoptimists andpessimists. 2. Support for globalization driven by the mega-city Netsupportforglobalizationis significantlyhigherinemerging marketsthanindevelopedcountries. Indiatopsthelistwith79%infavourof globalization,theUAE59%,Singapore 58%andSouthAfrica41%closebehind. Interestingly,50%ofmega-cities residentssupportglobalizationwhile only21%ofpeopleinsmallercitiesor townssupportit. 12 Are we listening? Do we understand? Business Leaders DO NOT understand challenges I face in my life (% Agree with Statement) 68% 67% 57% 52% 69% 68% 68% 68% 68% 68% 67% 64% 63% 63% 63% 62% 57% 56% 54% 54% 53% 53% 52% 52% 51% 51% 50% 45% 43% 38% USA INDIA FINLAND MEXICO SOUTH AFRICA SPAIN BRAZIL ITALY CHINA AUSTRALIA FRANCE UK BELGIUM UAE POLAND GERMANY INDONESIA SWITZERLAND SINGAPORE NETHERLANDS THAILAND AUSTRIA HONG KONG SWEDEN JAPAN DENMARK NRTH AMERICA BRAZIL EUROPE AISA Are we listening? Do we understand? Business leaders DO NOT understand the challenges I face in my life
  13. 13. 13 Supportforcapitalismalsovaried amongtheISMEAregion.Indiaandthe UAEtoppedthelistwith50%and45% ofitscitizens,respectively,statingthey haveafavourableviewofcapitalism. Incontrast,only26%ofresidentsin Singaporeand17%inSouthAfricaare insupportofcapitalism. 3. Business has an image problem Disappointinglybutperhapsnot surprisingly,globalcitizensagreethat businessleadersarenotlisteningand donotunderstandthechallenges peoplefaceinlife.IntheISMEAregion, thesentimentisconsistentwithabout ahalftotwo-thirdsofresidentsineach India(68%),UAE(56%),Singapore (52%)andSouthAfrica(68%)agreeing withthestatement. IntheISMEAregion,thesentiment thatbusinessleadersdonot understandindividualchallengesis strongestinSouthAfricaandIndia (bothat68%),whiletheUAEand Singaporeonlyreportslightlymore than50%ofindividualsinagreement withthatsentiment. 4. Yet people do believe business can make a difference Despitethenegativeattitudes towardsbusiness,thereiswidespread agreementthateveryonebenefits whenbusinessesdowell.Thisis particularlytrueinemergingmarkets includingtheUAE,IndiaandSingapore wherethemajorityseebusinessas broadlybeneficial.InSouthAfrica, however,only29%ofresidentsagree. Surprisinglythough,notwithstanding thepessimisminSouthAfricaonhow businesssuccessdeliversbenefits SouthAfricansareoneofthebiggest believersinbusiness’abilitytoprovide solutionstothemajorchallenges facingsociety.Infact,67%agree thatbusinesscanhelpsolvemajor challengesinthecountry.InIndiaonly 40%ofpeopleagreewhileSingapore andUAEfallinthemiddle. Sowhilethepeopleoftheworld maynotfullytrustbusinessleaders’ motivestheyknowthatthesesame businessleadersaresolution-focused andcangenerateresults. Globally,respondentsagreethat businesscanhavethelargestpositive impactintheareasof:quality education,economicopportunityand equality,communicationstechnology andsafetyandsecurity. Whenaskedonwhichissuescan nationalbusinessesmakethe biggestpositiveimpactcountries intheISMEAregionrevealslightly differentpriorities.ForIndiathetop issueisqualityeducation,UAEsafety andsecurityandSingaporethinks businessescanmostpositivelyimpact economicopportunityandequality. SouthAfricaprioritizesquality education,economicopportunityand equality. 5. Where to from here Brunswick’sresearchcomesata criticaltime.Politicsandsociety aregoingthroughmajorshiftsand increasinglytheonusisonbusiness tobeanagentforchange.Companies haveanevergreaterresponsibilityin society.Theyalsohaveanopportunity todevelopsocialpurposeaspartof theirbusinessmodels. Buttodoanyofthiseffectively theyneedtogetoutoftheirecho chambersandlisten.Theyneedto showstrongleadershipbypreparing stakeholdersfordisruptiveforces suchasthenewwaveofautomation, robotsandalgorithms.Infact,our researchfindsthatbetween10% and23%ofemployeesbelievetheir jobswillbereplacedbyautomation orceasetoexistwithemployeesin manufacturingandfinancialservices mostlikelytoanticipatetechnological unemployment. Businessleaderscannothide.They needtoengage.Theymustlistenand learnsothattheycanrebuildthesocial contractwithbroadersociety.Youcan readmoreaboutthisground-breaking researchbyvisitingourwebsiteor downloadingthereport. EmilyLevinisanAssociateinthe JohannesburgofficeofBrunswickGroup. Global agreement that business can provide global solutions Businesses CAN provide solutions to the major challenges (% Net Agreement) Which TWO of the following institutions is most effective TODAY in providing solutions to the major challenges facing your country? JAPAN SOUTH AFRICA NETHERLANDS FINLAND DENMARK BELGIUM FRANCE SINGAPORE POLAND SWITZERLAND SWEDEN UAE AUSTRIA ITALY BRAZIL UK AUSTRALIA SPAIN MEXICO GERMANY INDONESIA USA INDIA THAILAND 80% 67% 66% 64% 64% 64% 60% 59% 59% 59% 57% 56% 55% 55% 54% 53% 52% 51% 50% 49% 47% 43% 40% 40% Global agreement that business can provide global solutions Businesses CAN provide solutions to the major challenges The Five Gs that Define the World We discovered five key drivers to how someone feels, thinks and responds to the world, their work and their future: Generations – Millennials, Gen X and Baby Boomers Gender – Men and Women Geography – Emerging vs Developed Markets Global cities – City dwellers vs those living outside of cities Graduation – People with university degrees and without
  14. 14. 14 How can Africa live up to its potential? Brunswickinterviewsinternationaltradeexpert CatherineGrantMakokera Brunswick caught up with international trade expert Catherine Grant Makokera. Their conversation on the new trade dynamics for Africa zoomed in on some of the key topics that WEF Africa will be tackling on 3-5 May 2017 in Durban. Ms. Grant Makorera is Director at Tutwa Consulting Group. She is also a research associate at the trade law centre at Stellenbosch University and teaches at Wits Business School. Ms. Grant Makokera was a diplomat for New Zealand for over 10 years and was posted in New York, Geneva and Pretoria, where she was Deputy High Commissioner. Ms. Grant Mako- rera has held positions in trade and diplomacy with Business Unity South Africa, Southern African Development Community, and the South African Institute of International Affairs. What will be the impact of the Trump Presidency on global trade, growth and development? Historically, the US led the charge of mega regional trade agreements but President Trump is now backing out of these trade agreements. How Asia will respond will be critical going forward. The question is whether China will take up the mantle and push ahead with the integration of the Asian markets. This will be positive if China protects the multi-lateral trading system and advances free trade agreements. However, if the response is to simply trade more internally amongst Asian countries, then that could be detrimental to countries in the Middle East and here in Africa. The danger is that other countries respond with their own protectionist agenda, which will result in spiraling trade wars. The Chinese take a longer term view of these things so we might well see that they have a more nuanced response to increasing protectionism in developed markets. What about the UK and the impact of Brexit? Trade agreements take a long time to negotiate so the current uncertainty could linger. It’s not clear what rules will govern trade with the UK as current trade agreements were negotiated when they were in the WTO as part of the EU membership. The UK does not have a set of commitments at a multilateral level. There are a whole lot of uncertainties and we know that business doesn’t like uncertainty. Nevertheless, the UK remains an important trading partner in its own right. Once it leaves the EU it will need to reestablish its place in the world as a trade negotiating country. It will need to form bilateral relationships, including with India, Africa and the Middle East. Statements from the UK are that it will be looking for even better market access than before. That may be bullish talk as they may not have the same negotiating leverage that the EU has as a block. However with some countries, possibly Australia and New Zealand where they had agreements prior to UK joining the EU, it may be relatively straightforward. They’ve indicated South Africa is a priority. That’s not surprising given that South Africa is the UK’s biggest trading partner on the African continent and the significant British investments in the country. However, South Africa will have to negotiate as a member of the Southern African Customs Union and that itself comes with complexities as you have five member countries. Also such negotiations take time – the India SACU deal, for instance, is not yet finalized despite being ongoing for at least 10 years. 14 Brunswick Exclusive Catherine Grant Makokera
  15. 15. 15 Why is intra-regional trade important? ManyAfricancountrieshavelimited marketsize.Manyarealsolandlocked. Efficienciesinthemovementofgoods betweenAfricannationsistherefore fundamental. Thisisalsoimportant duetotheuncertaintyaroundour traditionalmarketsbecomingmore protectionistandwhethertheywill remainasopentoexportsasinthe past.Buildinglinkagestolarger marketssuchasIndiaandtheMiddle Eastprovidesanavenuetoovercome someofthosechallenges. How do we open up opportunities with the wider region? InAfrica,wearestillstuckina traditionalresourcepatternoftrade. Wearenotyetleveragingthepotential fortheestablishmentestablishment ofnewmanufacturingbases.India, forinstance,hasbeensuccessfulin developingagriculturalmachinery insupportofsmallscalefarming, whichisalsoachallengefacingthe Africancontinent.establishment ofnewmanufacturingbases.India, forinstance,hasbeensuccessfulin developingagriculturalmachineryin supportofsmallscalefarming,which isalsoachallengefacingtheAfrican continent. What are the main barriers to intra-Africa trade? Itcomesdowntoadministration, customsproceduresandinfrastructure. Evenifwehaveagoodproduct,it’s oftencheaperandeasiertoship thesegoodsoverseasthantomove themaroundtheregion. Countries likeEthiopiaandtheDRCare geographicallylarge.Alackofrail androadinfrastructureoftenmeans thatyoucanhaveafoodshortageon onesideofthecountryandanexcess supplyontheother. Bottlenecks arealsocreatedbecauseofvested interests.Forexample,theownersof capitalintensiveroadtransportfleets inmanypartsofthecontinentare oftenthepoliticalelite–that’sone reasonwhyrailisnotefficient. Thereareotherchallengestoo. InBotswana,forinstance,landis controlledatthedistrictcouncillevel andevengettingaplottosetupa manufacturingoperationcanbea drawnoutprocess.Othercomplaints areaccesstofinanceandskilledlabour. Thoseinstart-upphaseoftenrequire someskilledforeignlabour,whichis increasinglydifficult. Fortunatelyhowever,progressis beingmadeinthemodernizationof customsformanyAfricancountries. Thatmayseemsimplebutitwillmake ahugedifferenceinefficienciesandthe reductionofcorruption. Are there any other lessons to learn? Improvingphysicalinfrastructure–the roads,railandborderpost–hasbeen akeyfocusformanygovernments. Butwe’venottakenaholisticview. Wealsoneedtofocusonthesystems andprocessesforthemanagementof ports. Sometimesgovernmentsgiveaway controlwhentheysignconcessions andoperationalagreementswith privatesectorcompanies.Forexample, theMaputoportchargesinUSDollars butthebulkofthetrafficiswithSouth Africa.SothemomenttheRandfalls, thenearbyRichardsBayportinSouth Africabecomesmuchmorecost effective.Youhaveaninefficiency there. What are roles of government and business? Theyshouldlooktounderstandeach otherandcreatemutuallysupportive objectives.Becauseyouwantto makeaprofitdoesnotnecessarily meanyouareanti-government.Nor shouldtheprivatesectornecessarily beseenasnotbeingsupportiveof governmentobjectives.Thereshould bemoreopenness. Publicprivate partnershipscanwork.Theycanhelp prioritizeinvestmentsandovercome obstacles.Therearesuccessfulcase studiesthatshouldbehighlighted. Theproblemisthatcommunications isoftendysfunctional.Wespeak differentlanguages.Organizations likeNEDLACcanprovidetheplatform formultiplestakeholders–including business,governmentandlabour–to communicateandunderstandeach other. What role can the media play? Unfortunately,thetendencyin manyAfricancountriesistocriticize, restrictortrytoshutdownnegative commentaryinthemedia.Instead, thefocusshouldbeonunderstanding mediaandthepowerofsocial media,andstrategicallyleveraging opportunitiestotellyourownstories. Goodcommunicationscangoalong way. EastAfricaisagoodexample. Kenyahasastrongdomesticmedia sector,withanactivesocialmedia environment.Politiciansandpolicy makersincreasinglydemonstrate understandingandleveragethistoget theirmessagesacross.Rwandaisalso followingsuite. AsAfricansweneedtotellourown stories.Wecannotjustrelyonthe viewsofoutsiderstotellourstories. Internationalmediahavebeenknown todriveaparticularAfro-pessimistic agenda.Itisthereforeuptoustomake thegoodstoriesmoreappealing.We mustfindwhatisinterestingand relevanttoourmarket. Should we fear the Fourth Industrial Revolution? Itisvitalthatwefindsustainableways ofovercomingthetrendofjobless growth. Industrializationpoliciesmust belinkedtoskillsdevelopmentand employment.ManyAfricancompanies areparticipatingintheso-called “FourthIndustrialRevolution”.Many areengagingaroundautomationand robotics. Theyshouldnotbehindered fromusingnewtechnologiesand pursuinginnovation.Howeveritis alsoimportantthatpolicymakers jointhisdiscussionsothatwecan jointlynavigatethechallengesand opportunitiesandgetthatbalance right. ThisiswhereWEFAfricacanplayarole inencouragingengagementbetween unions,policymakersandprivate investors.Wecannotputourheads inthesand.Itisclearthattherewill inevitablybetradeoffs. Solet’sengage earlyon. IrisSibandaisaDirectorinthe JohannesburgofficeofBrunswickGroup.
  16. 16. 16 Motoring ahead Carmanufacturingasabarometerof Africa’srisingmiddleclass Africa’s burgeoning middle class continues to attract global investor attention. According to McKinsey Global Institute (MGI), African household consumption growth has been the second fastest of any region after emerging Asia. This will continue to rise strongly to reach $2.1 trillion by 2025, up almost 4% on current figures, largely due to a large youthful population, rapid urbanisation and rising incomes. The consultancy expects the continent to have a larger workforce than either China or India by 2034. One group to sit up and take note of this potential is the international automotive manufacturing and assembly sector. From South Africa to Nigeria, Kenya, Morocco, Algeria and Egypt, in-country manufacturing and assembly of vehicles and spares is fuelling skills and technology transfer, job creation and exports, while also meeting broader government objectives for industrial development and economic growth. Thanks to comprehensive, long- term state incentive programmes, South Africa – the continent’s most advanced economy – has benefitted from substantial investments from a range of global car manufacturers. Today, the automotive sector in one of the largest manufacturing industries in the country, contributing 7.5% to GDP and employing more than a 100,000 people directly. South Africa is not only seen as the continent’s manufacturing hub but also as a gateway to the rest of the continent. Besides the rising middle class, an expected increase in disposable income and still largely untapped markets, international vehicle manufacturers are also looking to key markets in Africa because of relatively lower labour costs. Consultancy Frost & Sullivan is particularly bullish about the potential of the automotive sector in Africa. In a recent report it states that “if new-vehicle sales in Africa grow to seven units per 1,000 inhabitants — a significant feat — total new-vehicle sales will reach about 7.7-million units annually. Africa would become the fourth- largest new-car regional market after China, the US and Europe and larger than Japan at 4.3-million units in 2016.” Ultimately Africa’s domestic vehicle market will be a barometer of the health and sustainability of the rise in Africa’s middle class. Unlike other markets where car ownership is in decline with the advent of Uber and other car-pooling services, this trend is still some way off in sub-Saharan Africa as car ownership continues to be aspirational and the hallmark of economic development. For foreign companies entering these markets, it is important they communicate their value offering to consumers, whether this be price, quality, safety or reliability. And once they have communicated they must deliver on the promise. When they fail to do this, they should expect African consumers and regulators to make their displeasure public in newspapers and on TV and radio shows, as well as on social media channels like Twitter and Facebook, which are booming across the continent. While new Far Eastern manufacturers have made strong inroads in African markets given their competitive price offerings, some have come under flak when this has been perceived to be at the expense of quality. Traditional Western brands too have been severely and publicly criticised, particularly when they failed to adequately respond to issues like safety and reliability. The opportunities are enormousbut to succeed in the long run it ultimately it comes down to building and maintaining a strong brand and reputation that consumers trust and desire. As the middle class continues to swell along with their disposable income, consumers will be even more discerning. Brand and reputation management will become a corporate imperative for all players on the continent. AtusayeMughoghoisanAssociateinthe JohannesburgofficeofBrunswickGroup. 16
  17. 17. 17 Upcoming Events World Economic Forum on Africa Durban, South Africa 3-5 May 2017 Euromoney Emirates Conference Sharjah, UAE 8-9 May 2017 The Euromomey Kenya Conference Kenya 9 May 2017 Smart Cities Expo 2017 New Delhi, India 10-12 May 2017 World Economic Forum ASEAN Singapore 1-12 May 2017 News Corp VCCircle Payments Forum 2017 Mumbai, India 17 May 2017 Tech in Asia Conference Singapore 17-18 May 2017 Middle East Investment Summit Dubai, UAE 22-23 May 2017 CommunicAsia Singapore 23-25 May 2017 Citibank India Investor Conference Mumbai, India 1-2 June 2017 Morgan Stanley India Summit Mumbai, India 6-8 June 2017 The Economist Nigeria Summit London 8-9 October 2017
  18. 18. 18 Brunswick is an advisory firm specializing in business critical issues. We help clients navigate the interconnected worlds of finance, public affairs and society to build trusted relationships with all stakeholders. Brunswick is a global partnership with 24 offices in 14 countries. Founded in 1987, the firm has grown organically, operating as a single profit centre – allowing us to respond seamlessly to our clients’ needs, wherever they are in the world. Brunswick has deep capabilities and local market knowledge across the India, Southeast Asia, Middle East and Africa region. We support the growing number of international clients with significant interests and exposure in the region and leading companies based locally. Our teams work closely with colleagues across the region to deliver intelligence, strategic counsel, and sector and specialist area expertise. For more information, please contact ISMEA@brunswickgroup.com The ISMEA Group South Africa Marina Bidoli Partner UAE Alex Blake-Milton Partner Singapore Kate Holgate Partner Jean Tan Director India Khozem Merchant Partner Azhar Khan Partner Iris Sibanda Director Emily Levin Associate James Allan Associate Hassan Fattah Partner

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