Can Investors Bet on a Broad Emerging Markets Recovery?

Can Investors Bet on a Broad Emerging Markets Recovery

  • Following the 2008 financial crisis, emerging economies rebounded. But since 2011 things have changed.
  • Emerging economies are now richer than ever. And while these countries still have an opportunity to grow in the future, their growth rates are likely to be slower than in the past. 
  • As advanced economies recover and their monetary policies return to more conventional policies, further weakness in emerging markets’ equities and bond markets is expected.

During the global financial crisis the world economy stabilized thanks to vibrant emerging markets. Now, emerging economies are weakened by slower growth, rising financial vulnerabilities, and outflow of capital attracted by higher interest rates in the U.S.

What happened after the financial crisis?
Following the 2008 financial crisis, emerging economies rebounded. But since 2011 things have changed. In 2013 growth was 4.5 percent, compared with 6.5 percent two years earlier. Except for Arica, all emerging market regions were marked by some form of economic slowdown. These were the growth rates of the following areas in 2013 : Russia (1.5%), developing Asia (6.5%), Latin America (2.6%), MENA (2.4%), and Central and Eastern Europe (2.5%).
Emerging economies are now richer than ever. And while these countries still have an opportunity to grow in the future, their growth rates are likely to be slower than in the past. This is normal when a country’s catching-up process succeeds in raising its per capita income and its economy approaches a steady state. For example, Chinese GDP per capita tripled in a decade. At 7.5% in 2013 and 7.3% in 2014, China’s growth is lower than during the past decade, but it remains strong for a country where the GDP per capita is about to reach $10,000 this year.
The problem is that Chinese growth is unbalanced. China’s economy continues to rely on high investment and too much credit. In contrast, consumption is weak; it only represents 35% of the GDP. This low level of consumption reflects the macroeconomic challenges faced by the world’s second largest economy—as it redistributes income in a way that enables sustainable growth—and a larger middle class that benefits the economy by enabling more people to be consumers.
In other emerging and developing countries the problem is reversed. Consumption is too dynamic compared to production capacities, and growth is blocked by supply constraints and a lack of investment. Thus, in places like India, Brazil, Turkey, Indonesia, and South Africa current account deficits have widened to alarming levels .
These external imbalances in emerging countries indicate a contradiction between the aspirations of a growing and educated middle class—looking for more consumption—and production whose development is impeded by the lack of investment and inefficiency of the administration. Lately, these contradictions have resulted in growing political tensions (in Brazil, Turkey, and Ukraine) and increased financial fragility.
Countries with high external deficits are usually vulnerable to unexpected monetary shocks, leading to capital outflows. When the U.S. Federal Reserve hinted at its intention to put an end to its accommodative monetary policy last summer, many emerging markets—particularly those with weak fundamentals—experienced strong reversals of capital inflows as investors reacted to the expected “tempering” by reducing their investments in riskier assets (including the assets of emerging markets).
What to expect?
Renewed troubles and retrenchments of capital flows have certainly not led to a new financial crisis, and none of the emerging countries have defaulted on their debt or called for the IMF’s support (which was often the case in the 1990s).
Whereas this is a strong sign that emerging economies have become stronger, the cost of external financing for these countries increased, their currencies depreciated, and their monetary authorities had to raise interest rates (to contain inflationary pressures). All the same, equities and bond markets dropped.
Fighting inflation and preventing a currency from depreciating require tighter monetary policies. But this hampers domestic demand and weakens growth. Moreover, currency depreciations aggravate public deficits and create the sentiment that emerging countries are less able to service their debts denominated in foreign currencies.
As advanced economies recover and their monetary policies return to more conventional policies, further weakness in emerging markets’ equities and bond markets is expected. Emerging markets will face challenging headwinds this year.

The article is written by Dr. Charbel Cordahi for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Advertisements

Can Brands in the MENA Region keep up with the Oreo Moment?

Can Brands in the MENA Region keep up with the Oreo Moment

  • Creative agencies will need to collaborate more with content production groups to create standout real-time marketing for their clients
  • Crucial to any brands objectives is creating sustainable, engaging customer relationships and improving the overall experience of the customer  
  • In 2017 it’s predicted that 87% of spending in the entertainment and media industries will be allocated to digital media
  • New media is globally reshaping brand communication strategies which demand high quality content that is more cost effective and faster to create

Hot on the topic of conversation at the moment is creating that triumphant “Oreo Moment.” From the US to Saudi Arabia, brands are preoccupied with finding that one pivotal moment of glory in the new media space that grabs everyone’s attention. Are we ready to create standout real-time marketing in the MENA region?

With the help of content creators, the answer is yes. We’re living in an era where previously unsung content creators become the heroes, and will be pivotal in defining a new value chain industry model. Agencies will focus on collaborating more with content production strategists to ensure that the immediacy of new media can be achieved

Advertisers and marketers have realised the importance of human-to-human conversations with their audiences, regardless of whether they are businesses or consumers. Creating sustainable, engaging customer relationships and improving the overall experience of the customer is a critical objective. The consumer is captured by stories that make them feel emotionally connected to the brands they use. It’s now common knowledge that the most effective way to form that connection is through the use of visuals: an image, a video, a gif etc. By 2017, video will account for 69% of all consumer Internet traffic according to Cisco, whilst it’s common knowledge that almost half our brain is involved in visual processing.

As speculation gains traction that the old media industry will eventually implode, the future of content becomes clearer. Talking for the sake of talking, creating content that doesn’t ignite engagement or generate interest isn’t enough. Never has strategy been more important. Content management has to be driven by specific goals, a defined plan that addresses the meaning of success.

Content distribution has to be quick, relevant and impactful. Audiences across all media channels, social or otherwise, are bombarded with content which means only the salient brands will succeed. With the rise of free open source content readily available to all, the responsibility to communicate in ways that are authentic and interesting pose opportunities and challenges for all brands. It means that old ways of doing things has to be reassessed.

The amount of content generated on a daily basis on new media channels supersedes perception. Only campaigns with powerful ideas that are professionally produced carry across the right message to the right audiences, filtering through the algorithms that determine what type of content audiences are seeing. In 2017 it’s predicted that 87% of spending in the entertainment and media industries will be allocated to digital media.

The MENA region has an opportunity to focus on strengthening the quality of ideas and content created for new media channels. Campaigns should be produced with the same creativity and craft as traditional media campaigns. Content producers, such as stills and video production houses, will become more and more relevant as the region begins to adapt to real-time marketing models.

The media world’s paradigms are changing. New media is globally reshaping brand communication strategies and collaborations with content production strategists, to generate better content that is more cost effective and faster to create, will become more important than ever.

Source: http://www.pwc.com/us/en/industry/entertainment-media/publications/enter…

The article is written by Jesus Blanco for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Renewable Energy Adoption: Why it means much more than a simple diversification of energy base for the Arab nations

Renewable Energy Adoption

 

  • The abundance of renewable resources in the region, coupled with negligible environmental impact, are the key enablers for renewable energy adoption in the region.
  • Most Arab nations have announced big ticket renewable energy projects and have set ambitious renewable energy targets to reduce dependence on the oil economy.
  • However, apart from diversifying their energy base, Arab governments can utilize this opportunity to address macro issues such as youth unemployment, and lack of entrepreneurial and R&D ecosystems in the region, and build a more sustainable future.

Arab region has been a late but strong starter on renewable energy bandwagon: While the developed countries of the Western world have a significant head-start when it comes to embracing renewable energy technologies, the Arab world has been late to join the race. This lack of initiative was largely driven by easy availability non-renewable energy resources, which get heavy government subsidies creating an entry barrier to ‘relatively expensive’ alternate energy sources. This was also backed by lack of technological knowledge and policy framework in many countries.

In the last few years, the region has made strong progress towards adopting renewable energy and many countries in the MENA region have acknowledged the potential of renewable energy to ensure sustainable energy sources for many years to come. The major factors that are driving the growth of Renewable energy in the region:

1. Energy security for net-oil importers: With growing population and rapid urbanization, energy demand in the region is increasing faster than ever. The demand growth is driven by increasing need for electricity for domestic use and devices, heating, cooling, and desalination of water. Meeting this demand will become even more difficult for most countries considering the rising oil prices. Therefore, investing in alternate sources of energy can help these countries ensure energy security for future. This is the key driver for growth of renewable energy in countries that are net-oil importers.

Chart 1: Renewable Energy Investments – Oil Importers vs Oil Exporters

Renewable Energy Adoption 1

Source: Arab Business Review, REN21

Net-Oil Importing countries: Djibouti, Israel, Jordan, Lebanon, Malta, Morocco, Palestinian Territories, and Tunisia

Net-Oil Exporting countries: Algeria, Bahrain, Egypt, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Syria, UAE, Yemen

2. Substitute for domestic oil usage for net-oil exporters: For countries that are net-exporters of oil such as Saudi Arabia, Kuwait, and UAE renewable energy sources can be used to substitute the oil used for domestic electricity generation. With the declining cost of modern renewable energy technologies this investment makes even more sense as it can boost present oil-export volumes, while ensuring a sustainable solution for domestic energy consumption for future.

3. Abundance of renewable resources: While the Arab region is characterized by its rich oil and gas reserves, the abundance of renewable resources in the region had gone unnoticed until very recently. Due to its geographical location, the region gets highly concentrated sunlight and has several sites with suitable wind speeds for developing highly efficient wind farms.

4. Favourable policy frameworks: As per REN21, by mid-2013 all 21 MENA countries had set renewable energy policy targets, and 18 countries had introduced renewable energy promotion policies to help achieve their respective targets. If all the countries are able to meet their targets, the renewable energy capacity of the region will reach a massive 107 GW up from 2012 levels of approximately 1.7 GW.

Chart 2: Projected Non-Hydro Renewable Energy Capacity in the MENA Region

Renewable Energy Adoption 2

Source: REN21

5. Reducing environmental footprint: According to World Bank, 85% of GHG emissions in the MENA region come from energy production, transformation and use. Gradual substitution of oil based domestic energy – which has significantly high carbon emissions – with renewable energy is definitely the right prescription for MENA economies, which are often criticized for doing little towards pushing the sustainability agenda.

With all these factors combining to create an ecosystem that will drive renewable energy growth in the region, governments in the region have the opportunity to build a local supply-chain for the renewable energy industry.

This will enable them to address several macro challenges by taking steps such as:

  • Breeding local entrepreneurs: The governments should create more business opportunities for local entrepreneurs, so that they can be a part of this growth story and reduce dependence on expats in the long run. For example: The Saudi Government has created an environment. For example, the Tunisian Government launched the PROSOL programme in 2005 aimed at building local solar energy supply chain, while revitalizing the solar thermal market in the country. Encouraged by the Government’s initiative TuNur Ltd. – a joint partnership between a group of Tunisian investors and UK-based Nur Energie, aimed at constructing a 2,000 megawatt Concentrated Solar Power (CSP) plant in 2015. This project is expected to create 1,500 direct and 20,000 indirect jobs for the manufacturing and operation of the plant.
  • Creating an efficient R&D ecosystem: While extensive R&D programs related to the renewable energy are being undertaken across the globe and the governments have an option to buy the solutions, there is still scope for improvising and localising the available technologies to deliver best results in the atmospheric conditions that prevail in the Arab region. The Government can take this opportunity to facilitate local R&D by investing in the required infrastructure.
  • Skilled employment: The government can also invest in institutions that can support the demand for skilled workforce required by this industry. This will help them address the problem of youth unemployment which most of the MENA countries are facing right now.

Case Study: Local Content Promotion by Saudi Arabia

In 2012, Saudi Arabia unveiled its renewable energy targets of installing 54 GW of renewable energy by 2032, which break down as 25 GW of concentrated solar power (CSP), 16 GW of solar photovoltaic (PV), 9 GW of wind 3 GW of waste to energy, and 1 GW of geothermal energy.

While achieving these targets, the government also plans to address the larger goal of boosting the local economy, and has come out with a white paper detailing the proposed competitive procurement process. The procurement has been designed to not only get the most competitive price for the projects, but it also has check-in mechanisms to ensure promotion of local content. Some of the salient features of the procurement programme are:

  1. Project bids will be assessed based on price as well as “rated criteria,” which include the developer’s financial capability, experience, development status, and the project’s local content. The rated criteria will have 30% weightage in the overall bid score.
    • The local content will be evaluated as a percentage of local spend from the overall project budget, and bidders achieving 60% local content will be rated highest.
    • The local content requirement will encourage bidders to launch joint ventures with local players and establish manufacturing plants, which will give a fillip to the local economy.
  2. The project winners will also be required to invest back in the local economy through training facilities, research advice, and procurement from local manufacturers.
  3. Two separate funds sourced by taxing project revenue have been created to train local employees on solar PV and CSP technologies, and fund local renewable energy R&D projects.
  4. Developers are incentivized for employing local labour – employers who are top 5% in terms of local jobs will be compensated higher than average for every employee.

We believe that these features can help Saudi Arabia address its larger problems of unemployment and lack of entrepreneurship culture, to a certain extent and other MENA countries facing similar problems can learn from them.

SourceREN21, K.A.CARE

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

ISO 26000 as CSR thinking guide to achieve sustainable business

ISO 26000 as CSR thinking guide to achieve sustainable business

  • Social responsibility is an organization’s legal and voluntary duty to consider its social and environmental impact of its decisions and activities.
  • ARAB Business needs social responsibility as way of doing business because the successful businesses of tomorrow will be those that lead and create value both inside and outside the walls of the company.
  • ISO 26000 covering sustainability pillars as thinking guide can help your business to run in an environmentally, economically and socially responsible way.

What is sustainability?

Sustainability means:

 “Meets the needs of the present without compromising the ability of future generations to meet their own needs” – The classic definition of sustainable development established by the U.N. Brundtland Commission in Our Common Future (1987).

It is means that growth must be both inclusive and environmentally sound to reduce poverty and build shared prosperity for today’s population and to continue to meet the needs of future generations. It is efficient with resources and carefully planned to deliver both immediate and long-term benefits for people, planet, and prosperity.

The three pillars of sustainable:                                               ISO 26000 as CSR 1

  • Development – economic growth
  • Environmental stewardship
  • Social inclusion

Carry across all sectors of development, from cities facing rapid urbanization to agriculture, infrastructure, energy development and use, water availability, and transportation.

Cities are embracing low-carbon growth and public transportation. Farmers are picking up the practices of climate-smart agriculture. Countries are recognizing the value of their natural resources, and industries are realizing how much they can save through energy and supply chain efficiency.

Why ARAB Business needs Transnational toward Social Responsibility?

Social responsibility is an organization’s legal and voluntary duty to consider its social and environmental impact of its decisions and activities. A corporate responsibility strategy outlines the ways that an organization contributes to sustainable development, engages with its stakeholders and behaves ethically.

ARAB Business needs social responsibility as way of doing business because the successful businesses of tomorrow will be those that lead and create value both inside and outside the walls of the company.

How ISO 26000 covering sustainability?

ISO 26000 defines seven principles of social responsibility:ISO 26000 as CSR 2

  1. Accountability: being answerable for decisions and activities and their impacts on society, the economy and the environment.
  2. Transparency: openness about decisions and activities that impact on society and the environment.
  3. Ethical behavior: in accordance with accepted principles of right or good conduct
  4. Respect for stakeholder interest: respect, consider and respond to the interests of its stakeholders
  5. Respect for rule of law: mandatory
  6. Respect for international norms of behavior
  7. Respect for human rights

ISO 26000 covering sustainability pillars as thinking guide helping your business to run in an environmentally, economically and socially responsible way.

THE SOCIAL RESPONSIBILITY CHALLENGE:

  • It helps clarify what social responsibility is,
  • Helps businesses and organizations translate principles into effective actions and shares best practices relating to social responsibility, globally.
  • It is aimed at all types of organizations regardless of their activity, size or location.

THE ENVIROMENTAL CHALLENGE:

ISO 26000 makes recommendations on how to identify significant environmental aspects and minimize the environmental impact of organizations’ activities.

Principles such as the precautionary approach or environmental risk management should be respected and promoted.
Four topical issues are addressed in this core subject:
  1. Prevention of pollution Measures: aimed at preventing pollution and waste to improve environmental performance.
  2. Sustainable resource use: Key areas include energy efficiency, water conservation/access to water and material efficiency.
  3. Climate change mitigation and adaptation: In addition to climate mitigation, organizations need to address adaptation by understanding their vulnerability, identify significant climate risks, and plan and implement adaptation options.
  4. Protection of the environment and restoration of natural habitats: Protecting and restoring habitats and the various functions and services that ecosystems provide.
THE ECONOMIC CHALLENGE:
Sustainable business for organizations means not only providing products and services that satisfy the customer, without jeopardizing the environment, but also operating in a socially responsible manner. Pressure to do so comes from customers, consumers, governments, associations and the public. Far-sighted organizational leaders recognize that lasting success requires credible business practices and the prevention of such activities as fraudulent accounting and labor exploitation.

ISO 26000 contributes to the economic growth of companies  taking a step towards the pursuit of global performance and can increase client satisfaction and trust, and promote harmonization between corporate social responsibility and existing documents, treaties, conventions and other ISO standards.

Why ISO 26000 helpful for business?

The International Standard ISO 26000 help Business to:

  1. Design and build a social responsibility strategy tailored to any fields and size of business
  2. Adapt this strategy to any legal, cultural or political environment
  3. Manage social or environmental issues specific to any fields and size of business
  4. Engage employees, communities and business partners in your strategy
  5. Win greater trust and credibility as a socially responsible organization.

ISO 26000 as CSR 3

References:

http://www.worldbank.org/

http://www.iso.org/

http://pubs.iied.org/

http://www.earthcharterinaction.org/

http://www.internationallawoffice.com/

http://www.strategie.gouv.fr/

http://onlinelibrary.wiley.com/

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review