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India, Singapore, Middle East and Africa – quarterly review

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This quarterly newsletter focuses on the three overarching themes impacting the region: Connectivity, Commodities and Energy, and the Rising New Middle Class. The unprecedented connectivity between these nations is enabling unprecedented movement of people, goods, services, and ideas accelerated by innovation and new technologies. Their economies are driven by commodities and energy fueling economic growth and creating future opportunity, while presenting long-term challenges from pollution to climate change.

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India, Singapore, Middle East and Africa – quarterly review

  1. 1. India, Singapore, Middle East & Africa Group Quarterly Review Volume2 February 2017
  2. 2. 2 Table of contents Rising Middle Class • Brunswick Exclusive: Interview with Mr Tirad Al-Mahmoud, Group CEO, ADIB 4 Commodities and Energy • HowwillPresidentTrumpimpacttheGCC? • OilstrengtheninglinksbetweenIranandAsia 6 Connectivity • Demonetisation in India • Singapore Government setting the tone for cyber security • Africa is on the cusp of a digital revolution 11 Upcoming Events17 Introduction3 2 Image: SheikhZayedMosque, AbuDhabi,UAE. ISMEA Team18
  3. 3. 3 Introduction Welcome to the January 2017 edition of the India, Southeast Asia, Middle East and Africa (ISMEA) Group Newsletter, a quarterly roundup of news, analysis and ideas from Brunswick team members based in the world’s most dynamic emerging markets. With more than 2 billion upwardly mobile people, the ISMEA region accounts for some of the most exciting markets to trade and invest today. From regional economic tigers such as Singapore and India, to the rapidly growing countries of the GCC, to the frontier economies of sub-Saharan Africa, our region holds immense potential for global business. We live in countries with vast natural resources, favourable demographics, greater social and economic opportunities for their citizens, and virtually unlimited future potential waiting to be untapped. They are also nations with major challenges before them. This quarterly newsletter focuses on the three overarching themes impacting this region: Connectivity, Commodities and Energy, and the Rising New Middle Class. The unprecedented connectivity between these nations is making the way for unprecedented movement of people, goods, services, and ideas accelerated by innovation and new technologies. Their economies are driven by commodities and energy fuelling economic growth and creating future opportunity, while presenting numerous long-term challenges from pollution to climate change. The rise of the middle class is introducing countless new dynamics from questions over the distribution of wealth, youth, culture, education and other areas with lasting impact on the countries and the wider region. These are the economies of the future, where we live, work and support the great value-creating companies of the region and the world. We hope to provide you with unique insight to help you answer some questions and spark new ones for you. 3 Image: LittleIndia,Singapore.
  4. 4. 4 Rising Middle Class Brunswick Exclusive: How the private sector can create opportunities for the youth of the Middle East Youth unemployment is a fundamental issue throughout the Middle East, where up to one third of 15 to 29 year-olds are not working. The creation of employment opportunities for youth is vital for political stability and economic growth. Tirad Al-Mahmoud is the Group CEO for Abu Dhabi Islamic Bank, one of the world’s largest Islamic banks by assets. He has over 30 years of experience in banking and finance and is a prominent voice in the global debate on ethical banking. Mr Al Mahmoud spoke to Brunswick about his strong belief that the private sector can play a key role in creating opportunities for young people in the region. Q: A defining issue in the Middle East is youth unemployment. What can the private sector do to address this issue? Young people in the Middle East have the tools and ambition to succeed, but frustratingly not the opportunity. Our universities are producing ever- larger numbers of graduates with excellent qualifications; however, they do not always find employment upon graduation. We expect there to be 100 million job seekers in the region by 2020, which underscores the importance of creating opportunities for young entrants to the work force, and fast. Despite a number of organisations and programmes in the region to address this, the private sectors in these countries have a role to play too. Some sectors, such as the financial sector, have made good progress due to the scale of corporates, and ADIB has made a point of recruiting graduates fresh from university, but the challenge remains for smaller companies. Q: You are a believer that young people are interested in ‘ethical banking’. Could you elaborate on this? How can ethical banking help young people in the region? I am, but my view is not limited to young people. In the post financial crisis world, where banks are rebuilding trust, the principles of fairness, transparency and simplicity have universal appeal to all customers. These principles, which are the fundamentals of ethical banking, are the cornerstones of Islamic banking. When speaking specifically about youth, we believe digital technologies and an emphasis on sustainable practices are essential in reaching a younger consumer base. We have put a lot of effort and investment into building one of the strongest digital banking platforms in the UAE, and we know that this is very largely being driven by youth banking, or what we call “Gen Y”. We believe that the combination of these trends both play extremely well for the youth of the Middle East. Q: You are an advocate for entrepreneurship as a gateway for success for youth. What can the region do to encourage young people to become entrepreneurs? Small and medium-sized enterprises make up over 90% of the UAE’s private sector, so entrepreneurship is the backbone of our economy. Young people, with ambition, skills, and understanding of new technologies and information make excellent entrepreneurs. There is a strong will in the region to create a supportive environment for SMEs, with many governments and businesses in the region coming forward with incentives and programmes. 4 Brunswick interviews Tirad Al-Mahmoud, Group CEO of Abu Dhabi Islamic Bank. Mr Tirad Al-Mahmoud is Group CEO of Abu Dhabi Islamic Bank. “We expect there to be 100 million job seekers in the region by 2020” Rising Middle Class
  5. 5. 5 Two of the most commonly cited reasons for business failure are lack of finance and a shortage of the essential management skills to take businesses to the next stage of growth. Banks typically only begin to look at finance for start-ups after 3-4 years of operation, once the business is properly established. The development of skills is something that needs better development in the region; more can be done by banks to support the growth of SMEs and ensure their survival. The onus is on banks to move away from just being the suppliers of products to SMEs and move to an all encompassing advisory role. ADIB has been helping SMEs building the skills that they need to grow their business through our BusinessPulse events – a joint initiative from ADIB and Zawya to provide advice and support to SMEs. More banks in the region need to do this. InterviewwiththeBrunswickAbuDhabi office. 5 Brunswick Exclusive: Tirad Al-Mahmoud SMEs make up over 90% of the UAE’s private sector, so entrepreneurship is the backbone of our economy. Young people, with ambition, skills, and understanding of new technologies and information make excellent entrepreneurs. Image:ADIBBesmartFinancialEducationProgram.
  6. 6. 6 The early weeks of the Trump presidency already indicate a shift in US policy towards the Middle East. In following through on his ‘America First’ pledge, President Trump is implementing bold policies that may well change the world order. The GCC will not be spared, as the region’s governments try to make sense of a new leader at a particularly turbulent time. Yet for all of Mr Trump’s controversy, GCC governments remain optimistic about his arrival. At the heart of this relationship is security and economic cooperation. As former US Vice President Joe Biden noted on a visit to the UAE last year, bilateral trade between the US and UAE alone surpassed US$25 billion in 2015. Defense ties also run deep; the GCC proved to be one of the largest purchasers of US defense technology in recent years. The president’s remarks on key security and economic issues, such as trade, energy and international cooperation, suggest a new attitude towards the UAE and the wider GCC. Stronger GCC relations at the expense of Iran… For the GCC, the most significant promise of Mr Trump is his pledge to renegotiate the nuclear deal with Iran, a central issue of contention the Gulf states had with the Obama administration. The Joint Comprehensive Plan of Action (JCPOA), better known as the nuclear deal between the P5+1 and Iran, lifted international sanctions in exchange for Iran eliminating its stockpile of medium-enriched uranium, cutting its stockpile of low-enriched uranium by 98%, and reducing by nearly two-thirds the number of gas centrifuges for 13 years. For the next 15 years, Iran will only enrich uranium up to 3.67%, essentially halting any nuclear weapons efforts for that time but not dismantling the programme. During the presidential campaign, Mr Trump repeatedly criticised the nuclear deal, saying that dismantling it would be his “number one priority”. That is music to the ears of Gulf leaders, who felt that the Obama administration had given Iran free reign to meddle in the region, helping to embolden the country to extend its influence across the Middle East and beyond. The lifting of sanctions and a cash transfer of US$1.3 billion as part of the deal would provide Iran with the resources to potentially increase its support of groups like Hezbollah, and the Houthi rebels of Yemen, with whom the GCC states are fighting a pitched battle. Yet analysts warn that while Trump could nullify the nuclear accord, he would risk isolating the US from the international community as well as hamper a possible rapprochement with Russia. The sheer mechanics of unwinding the deal, analysts say, could also make it a non-starter. …but will the US maintain defense support? Trump also singled out America’s allies, who he says have not paid their agreed share in NATO and other alliances, stating, “We’ve defended other nations’ borders while refusing to defend our own and spent trillions and trillions of dollars overseas while America’s infrastructure has fallen into disrepair and decay. We’ve made other countries rich while the wealth, strength and confidence of our country has dissipated over the horizon.” The message was aimed at European states, as well as South Korea, Japan and others; however, Trump has also been critical of US financial and military involvement in Middle Eastern affairs. In a 2016 interview with the New YorkTimes, then-candidate Trump similarly criticised Saudi Arabia’s contribution to the global fight against ISIS as inadequate, stating, “We are not being reimbursed for the our protection of many of the countries… including Saudi Arabia.” 6 Commodities & Energy How will President Trump impact the GCC? Commodities & Energy Bilateral trade between the US and UAE alone surpassed US$25 billion in 2015.
  7. 7. 7 For GCC countries, this rhetoric worries some GCC countries who fear that the US may be turning away from security guarantees. The GCC has been one of the largest defense spenders in recent years, as most have reinforced their militaries and begun to cultivate new alliances in the event that the US defense support wanes. His message may have confirmed their concerns. Building on trade PresidentTrump’scampaignpromises centred on the reinvigoration of US industry and countering the influence of multinational institutions, and his inauguration speech reconfirmed his intention to ‘buy American and hire American.’ US trade with the UAE stands at about 33.5% of the total trade with GCC nations. From 2010 to 2015, US exports to the UAE increased by 97%, exceeding $22 billion. 2015 also marked the seventh consecutive year that the UAE was the largest export market for US goods and services in the region. This trend continued into 2016, as the US Department of Commerce states that trade between the UAE and the United States reached $12.84 billion in the first half of 2016, compared with $11.9 billion over the same period in 2015. In addition to trade, more than 1,500 US organisations have a presence in the UAE, with an estimated 50,000- 60,000 US citizens living in the country. As the relationship between the US and UAE is largely driven by US exports, Trump’s talk of enacting import tariffs on foreign manufactured goods may have only a nominal impact on bilateral trade with the UAE. Meanwhile the dirham peg to the US dollar will fuel continued demand for US products and services in the country. As a result, it is unlikely that a move by the new administration to curb imports (and the risk for potential trade wars with other countries) would directly impact the business interests of US and Emirati organisations in the near term. Oil and energy A cornerstone of the Trump campaign was a pledge to lead a resurgence in US industry, especially in the energy and manufacturing sectors. The US energy renaissance of the past decade made possible by fracking has presented a dramatic new challenge to the GCC. The technology has changed the global supply dynamics, turning the US – historically dependent on imports of oil – into a self-sufficient producer, and more recently, an exporter. President Trump has pledged to create ‘complete energy independence’ for the US. This pledge includes a variety of strategies to increase US oil production through changes to regulations and environmental policies, as well as implementing measures to encourage investment in US shale companies to increase exploration and production activities. The confirmation of former ExxonMobil CEO Rex Tillerson to the position of Secretary of State only underscores Trump’s determination in this area. How will President Trump impact the GCC? 7 Image:TrumpInauguration,January2017.
  8. 8. 8 Commodities & Energy An increase in US production could impact an already over-supplied global oil market, with a potential increase in production driving global oil prices lower, impacting GCC government revenues even further. Another scenario would be Mr Trump’s pledge to ban US imports of foreign oil. The US imports approximately 16 per cent of its oil from the Persian Gulf, and – while a ban on imports may reduce oil production globally, causing prices to potentially recover – it would have profound economic consequences and political implications on the region. Business interests and potential conflicts of interest A controversy surrounding the new administration is the potential for conflicts of interest related to President Trump’s business dealings in the region. While the president has pledged to hand over his commercial interests to his family, creating what has been referred to as a ‘half- blind’ trust, his ties in the UAE and elsewhere remain under scrutiny. Trump’s business interests in the region include ties with a luxury property developer with whom Trump partnered to develop an 18- hole golf course described as the ‘Beverly Hills of Dubai.’ Trump enjoys a longstanding relationship with that company’s chairman, who was recently Trump’s guest at his New Year’s party, in which Trump praised him as a good friend and business associate. The property developer has expressed interest in expanding its business relationship with the Trump brands. Shortly before his inauguration, Trump announced that he had declined a US$2 billion deal with the company, describing it as a potential conflict of interest. Despite this specific deal not materialising, the company’s chairman expressed hope that the election of Trump will benefit his business, telling journalists in January, “Naturally, I think we will benefit from the strength of the brand going forward.” President Trump maintains that there is no law or US Constitutional requirement barring him from having business interests while serving as president. As legal and ethics experts will look into Trump’s business interests, it is clear that the organisation’s international assets will remain a source of controversy, in both the UAE and elsewhere. 8 Image:StatueofPresidentAndrewJackson,TheWhiteHouse.
  9. 9. 99 Communications implications In addition to the policy implications for the region, the president has already used his Twitter account to attack brands and organisations that he disagrees with, and in turn, has changed the global communications landscape. Tweets and remarks complaining about the costs associated with government contractors are recent examples of the unprecedented reputational risks organisations face as a result of direct and unprovoked confrontation from the new president. In the case of one Fortune 500 aerospace company, Mr Trump publicly criticised the company’s costs for government contracts via Twitter, resulting in shares in the company falling immediately. While the decline was only temporary, it was enough to cause market uncertainty. Trump’s similar attack on US automotivecompaniesforoutsourcing automotive production – and his threats of implementing a ‘border tax’ – created a similar controversy, which played out in the public domain. In 2016, then-candidate Trump also stated his public support for the US Justice Against Sponsors of Terrorism Act (JASTA), commonly known as the ‘9/11 bill’. The act passed the U.S. Congress in September 2016, and allows US citizens to directly sue foreign governments and entities for damages resulting from acts of terrorism. The legislation was met with a swift response from Saudi Arabia (home to 15 of the 9/11 hijackers), which has threatened to liquidate the country’s estimated US$750 billion in total U.S. assets. As the controversy plays out between both governments, a harsh tweet or remark by President Trump could have profound commercial consequences for organisations in the US and GCC. In a new communications era where one man’s social media presence can move markets and impact global commercial decisions, both US and GCC companies must consider the reputational risks associated with being on the wrong side of the new administration. As the GCC is home to a number of individuals, institutions and even governments with complex and controversial relations with the US, it will only be a matter of time before President Trump turns his criticism towards organisations within the GCC. When that day comes, businesses will need to be ready to respond quickly and appropriately. HassanFattahiswiththeAbuDhabi officeofBrunswick,andJamesAllanis basedinDubai. How will President Trump impact the GCC? Image:TheCapitolBuilding,Washington,D.C.
  10. 10. 10 Oil strengthens links between Iran and Asia Will investment follow?   Post-sanctions Iran has increased oil exports to South and East Asian nations and investments in Iranian mega- projects are underway with Asian energy companies beating US competitors to market. While the lifting of some sanctions between Iran and the West last year represents an opportunity to re-integrate the Islamic Republic into the global economy, remaining trade sanctions coupled with internal politics within the US and Europe have complicated Iran’s ability to build links with the West. Asian companies have been happy to fill this void. Asia has been a regional ally of Iran long before the lifting of sanctions in 2016, as trade relationships between the country and many Asian nations have been in place for decades. These relationships have given Asian companies a competitive edge in accessing Iran’s most coveted resource: oil. Iran holds the fourth-largest oil reserves in the world, and is the second-largest holder of natural gas reserves, meaning its re- integration into the global economy represents a tectonic shift in an already oversupplied global oil market. The country is working to gain greater market share, increasing its production from approximately 3 million barrels per day (bpd) to a target of 4 million bpd. The first post-sanctions Iranian crude exports reached Europe last year, in addition to an increase in exports to Asian nations. However, the US is noticeably absent in this scenario. Remaining sanctions specific to banking and transhipment have made it impossible for the overwhelming majority of US companies to enter the world’s last great untapped petroleum economy. Longstanding restrictions on financial transactions between US companies and Iran have prevented major US international oil companies (IOCs) from engaging in discussions for potential market entry, as Chevron, ExxonMobil and others have cited existing US laws as preventing them from being able to do business with Iran. The recent inauguration of Donald Trump, who has publicly opposed the recent Iran deal struck by the outgoing Obama administration, creates further uncertainty about the future of US-Iranian relations. Here again, Asian companies have been quick to fill the gap. TheWallStreetJournal reported that since the lifting of select sanctions in January 2016, 70 per cent of Iran’s increased oil exports have gone to Asia; with China, India, Japan and South Korea all increasing their supply of Iranian crude in 2016.  China in particular has been a longstanding ally of Iran, and a major buyer of Iranian crude oil, increasing its crude imports to 611,338 barrels per day (November 2016). This increase in trade not only signifies strong links that existed between Iran and the continent, but also represents a likely catalyst in foreign direct investment from Asian partners into Iran, which is desperately seeking institutional finance to modernise its aging energy infrastructure. Energy partnerships are already being formed between the National Iranian Oil Company (NIOC) and Asian partners. In October last year, India’s state-owned India Oil and Natural Gas Corp. entered into a preliminary agreement with NIOC for a US$10 billion project for the development of Iran’s Farzad B gas field, which is expected to be confirmed in 2017. Meanwhile, Indonesia’s state-owned oil and gas company Pertamina and NIOC signed an agreement to co- develop two offshore Iranian fields with combined reserves in excess of 5 billion barrels. Lastly, in November 2016, China National Petroleum Corp. and French IOC Total SA signed a US$4.8-billion agreement for the development of Iran’s offshore South Pars gas field.  Expect this inbound investment to continue as theWallStreetJournal 10 The first post- sanctions Iranian crude exports reached Europe last year, in addition to an increase in exports to Asian nations. Commodities & Energy
  11. 11. 11 reported that Iran is seeking approximately US$130 billion worth of investment for its energy sector, essential in modernising its domestic oil and gas facilities and reintegrating the economy into global oil markets.  Asian companies have been quick to respond to Iran’s needs for investment and partnerships, as both developed and emerging Asian economies require imported energy resources to fuel future growth. While the trade links are clear, Iran’s energy future remains uncertain. The country has been on the threshold of freeing up international trade and investment with foreign partners before. However, progress in past trade negotiations with the UK and EU stalled due to continued allegations surrounding Iran’s nuclear programme and several high profile international incidents, such as the 2007 seizure of 15 British Royal Navy personnel by Iranian forces in disputed waters. A similar incident occurred between the US Navy and Iranian forces in 2016. This complicated history with the West coupled with the complexities of a Trump administration create uncertainty over the future of relations between Iran and the West. With US energy companies on the sidelines for the indefinite future, and their European counterparts slow to enter market, expect ties between Iran and Asian economies to grow closer as the oil (and money) continue to flow. JamesAllanisanAssociatewiththeDubai officeofBrunswick. 11 Oil strengthens links between Iran and Asia Iran is seeking approximately US$130 billion worth of investment for its energy sector, essential in modernising its domestic oil and gas facilities and reintegrating the economy into global oil markets.  Image:Iranianoilfield.
  12. 12. 12 As Singapore progresses towards its vision of becoming a ‘Smart Nation’ – where citizens of this city-state are empowered by technology to lead meaningful and fulfilled lives – it has also taken strides in embedding cyber security measures. Regional companies can take practical inspiration from how the Singapore government has brought clarity and definition to making cyber security a national priority. Singapore announced its Smart Nation initiative in 2014, with the aim to support better living, stronger communities, and create more opportunities for all, by leveraging advances in digital technology. One of the key enablers identified that is necessary for Singapore to realise this vision is cybersecurity and data privacy. Last October, the Singapore government put forth for the first time a comprehensive national cyber security strategy. A key emphasis is on public awareness and making cyber security a challenge that needs to be collectively shouldered by citizens and corporations. As organisations continue to address their cyber security issues, including building internal capabilities and forging a culture that understands and is prepared for cyber threats, the Singapore government’s approach to articulating its cyber security measures can offer some practical inspiration. Establish a burning platform Singaporeans are used to living in a relatively safe environment and that sense of physical safety conflates with cyber safety. The government started a steady drum beat of news highlighting the threats the country faces as ‘an attractive target for cyber criminals’, including acknowledging that in the space of one year, the city-state has uncovered 16 waves of cyber attacks. This helps Singapore citizens understand why there is a sense of urgency associated with cyber security and creates awareness of the importance of becoming a safe, secure cyber nation. Similarly, organisations need to create a burning platform directly related to its business. A hotel company should help its employees understand how a privacy breach in customer data will unravel all its promises of providing a safe and trusted environment to its guests. A mobile internet start- up can lose its licence to operate if a cyber incident escalates. CEOs can be fired from their jobs because of data breaches. Establishing and repeating this burning platform keeps the importance of cyber security top of mind. More importantly, this firmly cements the ‘why’, providing rationale to galvanise action and instigate behaviour change in the work force. Socialise your strategy The government has a clear strategy that outlines its vision, goals and priorities in the online space, underpinned by four pillars: building a resilient infrastructure, creating a safer cyberspace, developing a vibrant cybersecurity ecosystem and strengthening international partnerships. This strategy is a direct response to the threats highlighted previously and also featured opportunities where Singapore can take regional leadership in building a cyber nation. This strategy was announced in the mainstream media – unveiled first by the Prime Minister, underscoring its importance – and then echoed by other ministers and subject matter experts in the ensuing months. The clarity of the strategy and the transparency of the announcement cemented cyber security as a national priority. This tactic can be used effectively in an organisation. Employees should be made aware of their organisation’s strategy to combat cyber threats, and internal communications around this should be clear, relevant and easily understood, frequently fronted by the company’s senior leaders. This is critical as most data security vulnerabilities are caused by employee behaviours. Making everyone understand their organisation’s position on cyber security and ensuring they are committed to championing this is crucial to establishing a successful cyber security strategy. 12 Connectivity Singapore Government sets the tone for cyber security measures. Will regional companies follow? Connectivity
  13. 13. 13 Invest behind the strategy One of the most symbolic acts from the Singapore government to demonstrate the seriousness of cyber threats was the founding of the Cyber Security Agency (CSA). A senior military officer was placed in charge, immediately giving authority to the agency but also publicly signaling that cyber security is on par with the other national defense priorities. By investing in the right resources and infrastructure – and keeping the public informed – the government is visibly showing its commitment to dedicated and centralised oversight when it comes to the nation’s cyber security functions. Organisations can follow the government’s lead through enacting strong cyber security measures. This includes embracing the reality that cyber security is more than simply ‘nice thing to have’, but rather a business imperative that is essential to protecting an organisation’s reputation. Make cyber security a way of life The Singapore government continues to make cyber security a national interest. It has recently reframed the issue to include ‘cyber diplomacy’ – building alliances with other countries, both to exchange expertise, such as the latest in attack methods, and to regularly exercise and test its defences. To that end the CSA has signed bilateral cyber agreements with five countries: France, India, the Netherlands, the United Kingdom and the United States. The agreement with the US, signed in August, is the first cyber agreement between an ASEAN nation and the US. This opens the door to regular exchanges on cyber issues and gives Singapore a voice when the larger countries try to shape global cyber norms. While it’s still early days, the Singapore government has built a solid foundation for cyber security’s position in the country’s defense and technology narrative. Organisations should consider leveraging their internal communications channels and working with their communications teams to bring their employees on a similar journey, through a compelling internal strategy that can turn awareness into action, galvanising employees into active advocates for cyber security. JeanTanisaDirectorbasedinSingapore. 13 Singapore announced its Smart Nation initiative in 2014 with the aim to support better living, stronger communities, and create more opportunities for all, by leveraging advances in digital technology. Singapore sets the tone for cyber security measures Source:BrunswickInsight,2016. Ready to boycott a business? What would you do in response to a breach? Breaches are a test of faith How much do you trust companies to keep your data secure, compared to a year ago? Trust Less Trust the same amount Trust More Unsure Stop buying from that company Encourage family and friends not to use that company’s products or services Buy less frequently from that company Post a critical comment on their social media Write a negative online review Percentages do not total 100, due to multiple responses. 52% 42% 23% 21% 21% 43% 38% 16% Trust Less Trust the Same Amount Trust More Unsure Trust Less Trust the Same Amount Trust More Unsure
  14. 14. 14 Prime Minister Narendra Modi’s November 2016 decision to eliminate 86 per cent of the currency in circulation amounts to the most extraordinary redesign of economic fundamentals since free-market reforms were unveiled in the country 25 years ago. By inception, design and scale, this initiative bears the strong imprint of Mr Modi himself: it was shrouded in secrecy (Nobel Laureate Amartya Sen talks of a ‘despotic action’); its vision is transformational and laudable; and its scale fits the Modi model of sweeping, impatient change. For foreign investors, uncertainty has edged up. Many economists say fourth quarter GDP (four months to end March 2017) will decline. The long queues outside banks and the images of grief attest to the real, daily pain of ordinary people. Beyond India, demonetisation is hurting the large Indian diaspora in the UAE, Singapore and elsewhere, who regularly send money home. Many banks and money changers in international markets are refusing to accept rupees, significantly complicating financial transactions for Indian expatriates. Additionally, concerns over money laundering via air travel have prompted Indian tax authorities and even civil aviation authorities to implement new restrictive measures curbing travel. Why, then, has Mr Modi risked a record of credible economic management over the past 30 months of his prime ministership? The government is at the halfway mark in the electoral cycle, and its attention is assuredly fixed on a string of critical regional elections in 2017, and a general one two years later. This middle point, then, has been judged appropriate (in a country where there is never a best time, only a least bad time for tough decisions) for a policy change of profound boldness by a PM under intense political and popular pressure to deliver on his multiple electoral promises, especially on manufacturing and job creation. For his part, Mr Modi has argued, first, that demonetisation was aimed at removing black (unaccounted) money, which runs deeply through Indian business and political life, and is used to fund terrorism. But the PM has progressively nuanced his case by talking of a parallel objective, a structural shift to a ‘cashless economy’. Laudable, yes, but for now both stubbornly Panglossian goals (another Modi characteristic). Only about 1 per cent of India’s 1.25 billion population pays income tax, which explains why India has one of the lowest tax to GDP and highest cash to GDP ratios in the world. Most tax payers are the urban middle class, who are big users of credit cards (easing the pain of demonetisation) but also hoarders of black cash to store their unaccounted wealth. The greater pain, and tragedy, has been felt in rural India, where an estimated 600 million people depend on daily wages from farming in local economies that run wholly on cash. There is pain but seemingly little overt criticism in rural India, even though many experts such as Kaushik Basu, a former economic advisor to the government of India, insist that ‘the worst may be yet to come’. 14 Demonetisation in India The sheer scale of India’s demonetisation policy will have a profound impact on Indians at home and abroad. About 1 per cent of India’s 1.25 billion population pays income tax, which explains why India has one of the lowest tax to GDP and highest cash to GDP ratios in the world. Connectivity
  15. 15. 15 Politicians belonging to the ruling BJP, and others too, talk of support among ‘ordinary voters’ tired of the corrupt primacy of black money that has persistently push them out of the queue for anything. Concurrently, the government had taken big steps to roll out financial inclusion among the rural poor. An estimated 233 million people remain unbanked, which means cash is still king across a vast geography and demographic segment. One institutional casualty of demonetisation has been the Reserve Bank of India, the central bank, sidelined ahead of last year’s announcement and humbled afterwards. The RBI, a globally respected body, has announced as many as 60 forced rule changes - averaging two a day to end December, the PM’s own deadline for having sorted things out - to keep ahead of the fantastic dynamics of a situation whose outcome remains uncertain. KhozemMerchant(Partner),AzharKhan (Director)andPragniKapadia(Associate) arewiththeMumbaiofficeofBrunswick. 15 Beyond India, demonetisation is hurting the large Indian diaspora in the UAE, Singapore and elsewhere, who regularly send money home. Many banks and money changers in international markets are refusing to accept rupees, significantly complicating financial transactions for Indian expatriates. Image:Shoppingstreet,Mumbai,India. Demonetisation in India
  16. 16. 16 Across Africa, improved and cheaper connectivity is enabling access to a wide range of services that help overcome social and economic issues. Mobile devices linked to faster broadbandnetworksarefuellingstart- up businesses, creating new income streams for the growing middle class, and also driving new tax revenues for governments. Notwithstanding, a number of challenges must be overcome for the digital revolution to truly become a reality for the majority of people on the continent. A new report by industry association GSMA points out that that less than half of Africa’s 1.2 billion people are mobile subscribers. Even fewer have access to the Internet or 3G services, according to International Telecommunication Union statistics. The reasons include unaffordability and a lack of infrastructure, particularly in poor rural areas where people are scattered in remote villages.Thismaychangeasayouthful and increasingly educated African population continues to urbanise and incomes rise. Furthermore, innovation is making previously unviable areas more attractive and driving down costs, allowing firms to make a profit from customers who do not use their phones much. Companies like IHS are using solar energy instead of more expensive and harder to source diesel to power cell phone towers across Africa. Liquid Telecom, majority-owned by Econet Global, is investing aggressively in international connectivity, fibre networks, data centres and Internet platforms across eastern, central and southern Africa. Having recently acquired Neotel in South Africa, Liquid Telecom is now able to offer corporate customers access via a single connection to over 40,000 km of cross border, national and metro fibre networks across 12 countries. International giants have also entered the fray. In a bid to bring the Internet to remote areas, Google’s Project Link is installing fibre networks in places like Ghana and Uganda, while Facebook is forging ahead with its Internet.org project despite a recent satellite failure. Investments are ramping up and there has been a proliferation of new tech start-ups. According to GSMA, there are approximately 310 active tech hubs across the region, including 180 accelerators or incubators. They develop myriad third-party messaging, billing, location, mobile money, commerce and entertainment solutions that are designed to appeal to local interests, cultures and languages. Seeing the opportunity, cellphone giant MTN is also moving fast to transition into a digital service player. It sees exponential growth potential in providing an inter-connected data platform that offers enticing services that cater for the ‘digital life’ of its 240 million customers across Africa and the Middle East. MTN Group VP for Strategy and M&A Stephen van Coller is excited by the convergence of technologies. While these can be disruptive for traditional telecom operators, he points out the mobile phone – and increasingly the smart phone – is at the centre of the digital revolution. Consumers have a deeply personal experience with their mobile device, which is never very far away from them, and the trend to smart phones is well underway. According to the GSMA, smartphone connections almost doubled over the last two years to reach 226 million, accounting for a quarter of total connections. Driven by the increasing availability of low-cost devices, Africa will add a further half a billion smartphone connections by 2020, taking the adoption rate to more than half of total connections. Smart phones today already automatically access fibre or wi-fi networks in the home, office or coffee shop; and combined with the proliferation of WhatsApp and similar applications, mobile operators know they will to continue to lose traditional voice revenues. The advent of ‘soft SIM cards’, which will allow customers to easily swap between fixed, mobile and Internet operators at just at one click will exacerbate this. “This means you have to manage churn by managing your customer relationship very differently,” says van Coller, adding that MTN is well Africa is on the cusp of a digital revolution However, a number of challenges must be overcome to make this a reality. 16 Connectivity
  17. 17. 17 positioned to manage most of its 240 million customers’ digital lives. MTN already knows its customer’s location, identity and billing addresses; and with 33 million mobile wallet customers, it also knows these customers’ transaction history. It is for this reason that MTN is investing heavily in behavioural analytics over social media, location and payments – this information is vital to its strategic ambition to monetise and access the ecosystems around the digital life of its customers. Van Coller believes that Jack Ma of Alibaba has got this right. Ma has been able to successfully mine customers’ transactional data, thus connecting millions of small businesses to the world. This is the kind of information that a traditional telco like China Telcom would have had but left dormant. For MTN the lessons are profound – if it does not leverage and monetize the transactional data it already has, someone else will do this. With global giants like Google scaling up, one must keep innovating and ensure ‘stickiness’ of customers so that they do not churn. “You must make your ecosystem the best ecosystem for people to be there because you can no longer lock them in. It has to be about a great experience,” says van Coller. An area that is attracting competition is in ‘fintech’, particularly as mobile devices and block chain technologies promise to lower the cost of banking and drive financial inclusion. Initial research from MTN’s customer base shows that 80 per cent of customers using basic mobile money services are first time financial services users. There are clear benefits for those that get it right. TheEconomist, referencing an MIT report, highlights that Kenya’s Mpesa mobile money service resulted in 2 per cent of Kenyan households being lifted out of poverty between 2008 and 2014. Similar payment services in countries like Mozambique and Zimbabwe are thriving but the South African market, with its established banking and stringent regulatory system, has been harder to crack. While high costs have made mobile money offerings unattractive to bottom of the pyramid customers, plunging smart phone prices and cheaper business models that target under-banked customers effectively could be the game changers. What is clear is that the social impact of increased connectivity and new digital services have significant knock multiplier effects, stimulating economic growth due to new investments and the creation of new businesses. According GSMA, for every 10 per cent increase in phone penetration in developing countries, productivity improved by 4 percentage points. A doubling in mobile data usage increased annual growth in GDP per person by half a percentage point. But for the digital revolution to truly address the continent’s social and economic challenges, particularly in hard to reach rural areas, cost and regulatory barriers must be overcome. Governments too must come to the party by providing consistent regulatory environments, including transparent tax regimes and timely access to spectrum. This requires businesses to better articulate their role in society and to highlight shared value. Only by working together will the private and public sectors jointly be able to overcome current barriers to the digital revolution, thus leading to significant growth across the continent. MarinaBidoliisaPartnerwiththe JohannesburgofficeofBrunswick. 17 Africa is on the cusp of digital revolution Image: The youth are leading the digital revolution in Africa
  18. 18. 18 Upcoming Events OTC Pharma Asia Singapore 6-9 March 2017 Blockchain Africa Johannesburg, South Africa 1 - 3 March 2017 18 Blackhat Asia Singapore Africa 28-31 March 2017 Annual Invesment Meeting Dubai, UAE Africa 2-4 April 2017 BlockCon Asia Singapore Africa 28-29 March 2017 India@70 Delhi Africa 29-31 March 2017
  19. 19. 1919 South Africa Marina Bidoli Partner UAE Alex Blake-Milton Partner Hassan Fattah Partner James Allan Associate Singapore Kate Holgate Partner Jean Tan Director India Khozem Merchant Partner Azhar Khan Director For more information, please contact ISMEA@brunswickgroup.com. The ISMEA Group:

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