Cities across the globe are growing in size and in terms of how connected they are. Which cities are best at keeping their citizens safe and how do they do it? An updated version of the Safe Cities Index 2017, the 2019 index covers 60 cities across the globe and defines how to measure security in a rapidly urbanising world.
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The 2019 bleisure barometer: Asia’s best cities for work and recreation evaluates the bleisure potential of various cities in Asia-Pacific, based on a survey of global business travellers. It reveals that while Asia’s top bleisure destinations provide the right balance of business activity, high-quality infrastructure and top-flight leisure experiences, many less obvious choices stand out for different reasons, often involving opportunities for cultural exchange.
The key findings are:
Tokyo is Asia’s best bleisure destination, ranking first out of 26 cities in the region. The Japanese capital is joined by Singapore, Sydney, Hong Kong and Melbourne as a “five-star” bleisure city, as determined by a quantitative barometer constructed for this programme, based on survey responses. Raw scores and number of stars may not correlate perfectly, as the former is an absolute measure and the latter a relative one (see appendix I for the full methodology of barometer and star scoring). Less-affluent cities comprise most of the one-star destinations, with notable exceptions. Business travel may prove arduous in the emerging metropolises of South and South-east Asia, but greater GDP is hardly the only predictor of a high bleisure score. New Delhi and Hanoi tie for second (alongside Beijing and Hong Kong) in the category measuring opportunities for cultural experiences, providing them a leg up over cities with stronger infrastructure and a bigger international business scene. Shanghai and Beijing, often criticised for their poor urban environments, rank highly on business aspects such as quality of international links and level of digital connectivity, helping them best more ostensibly liveable cities, including Auckland, Brisbane, Seoul, Taipei and Wellington, in the overall ranking. Wealthy Adelaide falls in the one-star category, dragged down by low scores for quality of food and beverage and opportunity for cultural experiences. Ease of transportation is the top urban factor in a successful business trip. Other key aspects include street safety and quality of business venues, according to our survey. Regional differences emerge in these findings, with Asian executives prioritising transportation, while Europeans are less concerned about safety than those hailing from elsewhere. Dining out and enjoying local heritage are the chief ways busy business travellers unwind. These two factors rank well ahead of the third-place finisher, visiting an art museum or gallery. Regional nuances crop up here too: Asian executives are less likely to frequent the local drinking scene and more inclined to visit an amusement park.The report, including full scoring and star bracket methodology, as well as an infographic and video, can be found at: https://fivestarcities.economist.com/
As this report finds, cities need smarter and more flexible infrastructure to address these challenges— infrastructure that can make better use of existing space and resources, and that can adapt in accordance with uncertain, fast-moving future realities.
The idea of ‘flexible’ or future-proof cities is becoming more important. Imagine a roadway that works for today’s vehicles as well as tomorrow’s autonomous cars, an energy system that can provide reliable power despite spikes in usage (such as those that may come from greater adoption of electric cars), pylons that are mindful of overhead drones, a building that transforms depending on needs of its inhabitants, or an autonomous rail system that can double its capacity simply through changes to its operating algorithms.
Delivering infrastructure that is more responsive and flexible to future needs requires technological innovation as much as it does new approaches to planning, financing and procurement.
In this report, The EIU investigates the challenges facing cities and urban infrastructure in the near future, and the global trends and innovations in infrastructure that will be crucial in response. With an eye to international best practice, it focuses on the challenges and opportunities pertinent to Australia. Here, major cities are facing significant population growth forecasts that call into question their ability to continuously provide a high quality of life for their citizens. Challenges pertain to both meeting infrastructure need, and in delivering solutions, through effective planning, financing and collaboration, in time and on budget.
The key findings of the research include:
Australia is experiencing a number of growing pains. Population growth in cities is a universal trend—urban population is expected to rise by two-thirds by 2050 globally—but it is particularly acute in Australia, where cities must meet double or greater user demand without conflicting with the global targets set by the Paris Agreement and Agenda 2030. Such growth challenges the capacity and sustainability of cities’ infrastructure and the networks that connect them. Planners must also reckon with an ageing population, deteriorating infrastructure, adverse environmental change and evolving working patterns, altering the dynamics of how people operate in and navigate cities. A failure to respond to these challenges could result in declining economic productivity and threats to the quality of life for which Australian cities are renowned. To meet future demands, infrastructure builders across the globe are considering how they can expand the capacity of existing infrastructure and bolster the flexibility of new works. Updated networks like roads, railways and pipelines often need to accommodate twice their original usage demand without changing their physical footprint. The effective adoption of digital technology will be key to this transformation, such as updating metro systems with driverless trains and automatic controls, informed by large amounts of real-time data, to allow a more efficient use of capacity. Water and energy supply systems must also prove reliable in the face of natural disasters, shifts in market prices (such as oil or gas price shocks) or changes to supply sources (backups for solar generation, for example). New technological techniques and applications can help builders work more quickly, safely and cost-effectively. The design, construction and maintenance of infrastructure projects are increasingly driven by digital technologies, unlocking cost and time savings in building roads, railways and entire city centres. The cost and energy required to build with the highest safety margins could be reduced by remote monitoring through embedded sensors. Efficient, low-impact construction techniques will be important to reduce the disruption that construction and repairs have on metropolitan areas, too. Stakeholders are increasingly reliant on data to plan, build and optimise projects. Data generated by citizens and connected infrastructure are increasingly critical in delivering and operating smarter cities. Governments and infrastructure providers increasingly benefit from adding this data to their modelling and scenario planning. Open data can also allow citizens and third parties to solve problems or invent new applications that benefit all, from crowdsourcing potholes or reporting crime, to building new navigation apps. Australia’s state and federal governments, citizens, and commercial partners are still grappling with data ownership issues, but all are working to address the challenges. Mature financing and procurement practices help Australia attract international investment. Attractive markets encourage international competition for infrastructure procurement. Indeed, many of today’s projects are contracted to international players who bring advanced, ambitious proposals to government. And as demand for more advanced, flexible projects rises, players are increasingly presenting envelope-pushing approaches to win bids. Collaboration between governments, universities and commercial players is increasing, sparking innovation. Universities are playing a larger role in the advancement and application of infrastructure technology by partnering with private companies and government. New forms of collaboration are also more apparent among federal, state and local governments, and between governments and the private sector, potentially easing the problems posed by the historically disjointed nature of decision-making and long-term planning on major infrastructure. Australia has a strong record of robust infrastructure investment. Its leaders, institutions and businesses have identified the urgency and importance of responsible and smart infrastructure initiatives. As a result, Australia is well placed to wrestle with the challenges it faces, and, as it navigates infrastructure challenges earlier and with greater urgency than some other countries, could be a model for how other countries—in the OECD and in Asia-Pacific—can build smarter, more flexible, next-generation infrastructure in their cities.
Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.
Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.
The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade.
The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:
Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors.
To measure how nations are addressing the issue of illicit trade, the Transnational Alliance to Combat Illicit Trade (TRACIT) has commissioned The Economist Intelligence Unit to produce the Global Illicit Trade Environment Index, which evaluates 84 economies around the world on their structural capability to protect against illicit trade. The global index expands upon an Asia-specific version originally created by The Economist Intelligence Unit in 2016 to score 17 economies in Asia.
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The GCC-LAC agricultural trading relationship has thus far been dominated by the GCC’s reliance on food imports, specifically meat, sugar, and cereals. Over the past two years, however, there has been a notable decline in the share of sugar imported from LAC, and 2017 saw the biggest importers in the GCC—Saudi Arabia and the UAE—impose a ban on Brazilian meat.
Market players on both sides of the aisle are keen to grow the relationship further, but there are hurdles to overcome. In this report, we explore in greater depth the challenges that agricultural exporters and importers in LAC and the GCC face. We consider both tariff and non-tariff barriers and assess key facets of the trading relationship including transport links, customs and certification, market information, and trade finance.
Key findings of the report:
GCC will need to continue to build partnerships to ensure a secure supply of food. Concerns over food security have meant that the GCC countries are exploring ways to produce more food locally. However, given the region’s climate and geology, food imports will remain an important component of the food supply. Strengthening partnerships with key partners such as those in LAC, from which it sourced 9% of its total agricultural imports in 2016, will be vital to food security in the region.
There is a wider range of products that the LAC countries can offer the GCC beyond meat, sugar and cereals. Providing more direct air links and driving efficiencies in shipping can reduce the time and cost of transporting food products. This will, in turn, create opportunities for LAC exporters to supply agricultural goods with a shorter shelf life or those that are currently too expensive to transport. Exporters cite examples such as berries and avocados.
The GCC can engage small and medium-sized producers that dominate the LAC agricultural sector by offering better trade financing options and connectivity. More direct air and sea links can reduce the cost of transporting food products, making it viable for smaller players to participate in agricultural trade. The existing trade financing options make it prohibitive for small and medium-sized players too. Exporters in LAC suggest that local governments and private companies in the GCC can offer distribution services with immediate payments to smaller suppliers at a discount.
Blockchain technology is poised to address key challenges market players face in agricultural trade. Through a combination of smart contracts and data captured through devices, blockchain technology can help to reduce paperwork, processing times and human error in import and export processes. It can improve transparency, as stakeholders can receive information on the state of goods and status of shipments in real time. Finally, it can help with food safety and quality management—monitoring humidity and temperature, for instance, along the supply chain can help to pinpoint batches that may be contaminated, minimising the need for a blanket ban on a product.
Whilst the immediate effects have been severe, the pandemic has further accelerated trends that are reshaping the global investment landscape, such as the push for digital, sustainable and resilient solutions in a world that has turned more fragmented.
As a driver of economic growth and competitiveness, however, the science and production of digital technologies are also becoming an area of fierce competition between countries. Global spending on ICT (information and communication technology) has increased steadily at 4% annually for several years, reaching a total of US$4.9trn in 2019.1 Despite the pandemic-related slowdown in momentum for traditional type of hardware and enterprise software, spending on newer technologies such as IoT (Internet of Things), robotics, 3D printing, AI and VR is expected to grow at a faster pace. Global ICT spending is forecasted to increase from US$5.2trn in 2021 to US$5.8trn in 2023, with an annual growth of 6%. Newer technologies will account for 23% of total spend in 2023, up from 14% in 2018.2
The digital economy is also a considerable driver of international trade, with cross border exports of ICT good and services estimated at US$2.74trn in 20203. While trade in goods accounts for the highest share, trade in ICT services is growing annually by 7.7% (CAGR) between 2010 and 2017.4
Rapid recovery: Worldwide ICT spending, 2018-2023 (US$ bn)Several high-profile sub-sectors epitomize the rapid growth of and challenges faced by the digital technology sector. The worldwide revenue from the sale of artificial intelligence (AI) -based software and services stood at US$62bn in 2020 and is set to reach US$998 by 20285. One study estimated the potential value generated by application of AI techniques across various industries places the market between US$3.5trn and US$5.8trn.6 However, there are two main obstacles that hinder a widescale AI adoption: the shortage of good quality data and data scientists, particularly as the talent that drives improvements in AI is largely concentrated in large economies such as the US, UK, Germany and China.
Cybersecurity is also an area that has attracted growing investment from corporates and VCs. With the advent of the digital economy, cyber threats put organizations and societies at risk. Global revenues for cybersecurity services are projected to grow from US$67bn in 2019 to US$111bn in 2025.7 Funding for companies providing cybersecurity services has increased nine-fold to US$7.8bn in 20208. The pandemic has further highlighted security vulnerabilities faced by organizations, as the mass shift to remote working coupled with the increased use of cloud infrastructure and services have exposed many to cybersecurity threats.
The pandemic has also impacted semiconductors, a key commodity for the digital economy representing a market expected to grow to US$469bn in 2021.9 A rise in demand for digital services and computer equipment caused severe supply chain disruptions across the global semiconductor production. The shortages have thrown light on the inadequate resilience of technology sector supply chains. They have also underscored the extreme concentration of semiconductor production. Although US firms account for 47% of global sales, most exports originate from East Asia—namely Taiwan, South Korea and China. Moreover, the most advanced generation of semiconductors is currently produced at scale only by Taiwan’s TSMC and South Korea’s Samsung.10
Something’s phishy: Share of cyber security breaches reported by UK companies over previous 12 months, by type of breachAs digital dominates more parts of the global economy, governments are taking proactive action to include the digital economy within national industrial policy. The need to gain strategic autonomy, in light of growing geopolitical rivalries, is prompting governments to adopt policies aimed at protecting their national technology sector. Since 2008, 101 countries representing more than 90% of global GDP have adopted formal industrial development strategies.11 These have focused mainly on supporting technology innovation and the digital economy. The resulting risk of fragmentation of global technology supply chains is likely to stay high on the agenda for global technology companies and governments around the world.
1IDC, Global ICT Spending: Forecast 2020-2023: https://www.idc.com/promo/global-ict-spending/forecast 2 Ibid 3 Estimated using World Development Indicators and IDC data. 4 Ibid 5 Grand View Research, Artificial Intelligence Market Size, Share & Trends Analysis Report, 2021-2028: https://www.grandviewresearch.com/industry-analysis/artificial-intelligence-ai-market 6 McKinsey Global Institute, Notes from the AI Frontier, 2018:https://www.mckinsey.com/featured-insights/artificial-intelligence/notes-from-the-ai-frontier-applications-and-value-of-deep-learning 7 The Business Research Company, “Cybersecurity Industry Overview Shows US To Account For The Largest Share Among Countries, In The Global Cyber Securities Market 2020”, November 2020: https://www.globenewswire.com/news-release/2020/11/05/2121251/0/en/Cybersecurity-Industry-Overview- Shows-US-To-Account-For-The-Largest-Share-Among-Countries-In-The-Global-Cyber-Securities-Market-2020.html 8 Crunchbase, The Rise Of Global Cybersecurity Venture Funding, 2021: https://about.crunchbase.com/cybersecurity-research-report-2021/ 9 Semiconductor Industry Association, 2021 Factbook: https://www.semiconductors.org/wp-content/uploads/2021/05/2021-SIA-Factbook-May-19-FINAL.pdf 10 Ibid 11 UNCTAD, World Investment Forum 2018: https://unctad.org/system/files/official-document/wir2018_en.pdf
Prior to the Covid-19 pandemic, consumer goods accounted for a quarter of the world’s trade in goods, representing US$4.8trn in 2019.1 In 2020 private consumption declined by nearly 11% in the UK and Italy, 6-7% in Germany, France and Japan and 4% and 3% in the US and China respectively.2 Some goods sectors suffered more than others. Travel, entertainment and hospitality were some of the hardest hit, while others, like electronics, saw demand increase as remote working became widespread. The pandemic has further accelerated several structural changes already underway. These include a rapid growth in e-commerce and digitalisation of global supply chains, an increased focus on sustainability, a move towards greater servicification and the reshaping of global value chains.
Pandemic shock: Change in private consumption during the Global recession (2009) and Covid-19 pandemic (2020) | Real annual change (%)
During the pandemic, consumers pivoted to digital channels, with 60% of consumers worldwide changing their shopping behaviors during the pandemic, most of whom intend to continue with their new behaviors.3 The migration from high street stores to e-commerce platforms has accelerated digitalisation, with businesses that had already invested in e-commerce coming out as chief beneficiaries. Amazon, for example, posted a 70% increase in earnings during the first nine months of 20204, with profits three times higher than 2019.5
The pandemic also highlighted the issue of resilience and sustainability of global supply chains. Multinational enterprises (MNEs) in 2020 slowly started to scale back their supply chains, considering the geopolitical and economic tensions between the US and China and the growing issue of sourcing from a single geography. Significant supply chain disruptions were faced by businesses during the pandemic, with one survey on supply chain executives in the food and consumer goods industries highlighting that at the height of the pandemic, 91% of respondents said they had problems with suppliers.6 These tensions are playing out in the context of rapidly changing geographical distribution of global trade patterns. In the decade since the 2008 financial crisis, Chinese share of global exports has increased to 17% (from 11.5%) and 13.4% of global imports (from 8.7%).7 The Asia-Pacific region is now largely expected to outgrow developed markets in consumer goods, accounting for up to 35% of the global industry share by 2022.8
The changing game of trade: The export volume of goods index rebased to 2010=100
The rise of digital and sustainable consumption poses significant opportunities and challenges for businesses in the consumer goods sector. The online retail market is forecast to double in size by 20259, with new or low frequency users expected to drive a 160% increase in e-commerce purchases over the coming years. Businesses are showing some strong interest in harnessing the trends of digitalization with 80% of executives in the industry specifically allocating investments to improve their e-commerce shopping platforms in 2021.10
Digital future: Share of on-line retail on total retail sales (%)Sustainability has also moved high in the consumer goods agenda, with more than half of consumers across all markets intending to purchase more sustainable products once the pandemic subsides.11Businesses are adapting to increase resilience and sustainability of their internal businesses and their supply chains. Advances in cloud software, blockchain, artificial intelligence (AI) and satellite technology can be harnessed to enable flexibility and resilience in supply chains.
1 UNCTAD. ‘Key statistics and trends in international trade 2020’ (internet). United Nations Conference on Trade and Development. 2021 (accessed 9.6.21). Available at: https://unctad.org/system/files/official-document/ditctab2020d4_en.pdf 2 Remes, J. Manyika, J et al. ‘The consumer demand recovery and lasting effects of COVID-19’ internet). McKinsey. 2021 (accessed 9.6.21). Available at: https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-consumer-demand-recovery-and-lasting-effects-of-covid-19 3 McKinsey. ‘Perspectives on retail and consumer goods’ (internet). McKinsey & Company, 2020 (accessed 7.6.21). Available at:https://www.mckinsey.com/~/media/McKinsey/Industries/Retail/Our%20Insights/Perspectives%20on%20retail%20and%20consumer%20goods%20Number%208/Perspectives -on-Retail-and-Consumer-Goods_Issue-8.pdf 4Takefman, B. ‘Amazon profits increased nearly 200% since start of Covid-19 pandemic’ (internet). ResearchFDI. 2021 (accessed 14.6.21). Available at: https://researchfdi.com/amazon-covid-19-pandemic-profits/ 5Sky News. ‘Amazon’s profits more than tripled in the first three months of 2021’ (internet). Sky. 2021. Accessed 14.6.21). Available at: https://news.sky.com/story/amazons-profits-more-than-tripled-in-the-firs... 6 Alicke, K. Gupta, R. Trautwein, V. ‘Resetting supply chains for the next normal’ (internet). McKinsey. 2020 (accessed 8.6.21). Available at: https://www.mckinsey.com/business-functions/operations/our-insights/resetting-supply-chains-for-the-next-normal 7 Eurostat. ‘World trade in goods’ (internet). Eurostat - statistics explained. 2020 (accessed 8.6.21). Available at:https://ec.europa.eu/eurostat/statisticsexplained/index.php?title=World_trade_in_goods#World_trade_in_goods:_developments_between_2008_a nd_201f 8 Accenture. ‘A new era of trade for consumer goods industry’ (internet). Accenture, 2020 (accessed 8.6.21). Available at: https://www.accenture.com/_acnmedia/pdf-73/accenture-new-era-of-trade-for-consumer-goods-industry.pdf 9 EIU. ‘Digital disruption: risks and opportunities in the shift to online’ (internet). Economist Intelligence Unit. 2020 (accessed 14.6.21). Available at: https://www.eiu.com/n/digital-disruption-risks-and-opportunities-in-the-shift-to-online/ 10 Deloitte. ‘2021 consumer products industry outlook: No-regret moves in the face of uncertainty’ (internet). Deloitte. 2021 (accessed 14.6.21). Available at: https://www2.deloitte.com/us/en/pages/consumer-business/articles/consumer-products-industry-outlook.html 11 YouGov. ‘International FMCG/CPG report 2021’ (internet). YouGov. 2021 (accessed 14.6.21). Available at: https://db42aa43a2d5ed566294-81964d36a501d7a15be4d8350b0feec4.ssl.cf3.rackcdn.com/YouGov-International-FMCG-Report- 2021%20(2).pdf
The pandemic has brought sections of the creative industry to a halt, but also accelerated structural changes within the industry, such as the transition towards digital platforms and a greater role for individual ‘content creators’.
The pandemic has impacted the creative industries asymmetrically. Segments dependent on live audiences and cross-border travel, such as performing arts, theatre and cinema, were hard hit by social distances measures, while digital creative industries boomed. Europe’s performing arts sector lost 90% of its revenue, while its music sector registered a 76% decline.3 The sector also suffered from low state welfare provisions, as most creative industry workers are self-employed or freelancers and therefore not always eligible for job protection policies put in place. In Europe 32% of cultural sector workers are self-employed and lack job protection, a total of 7.3m jobs in the sector at risk, representing 3.7% of total EU employment.4 The pandemic has also accelerated the digital transition of the sector, highlighting the centrality of digital technology for economic resilience. Quickened innovation in digitalisation and technology, as live performance shut down has given rise to streaming platform as well as unique digital creative assets built on the blockchain, like non-fungible tokens (NFTs). Growth has been notable in digital publishing, with the UK seeing a 37% increase in audio downloads, and a 24% increase in digital book downloads.5 The shift to online sales favored players that already had an established online presence, as well as those who swiftly adapted. This is seen to favor the advertising sector, which is forecasted to a strong recovery in 2021 in the UK, increasing to £29bn in 2022.6 This is largely attributed to the digital shift.
Annual revenue of global entertainment market (US$ bn)The digital transition shift has given birth to new producer tools, new distribution and dissemination platforms and the rise of the ‘creator economy’. These have profound implications for the sector’s growth, development and international trade. The music streaming and video on-demand revolution has established a new market and increased competitive tensions between players. On-demand video grew by 31% in 2020. There are now 1.1bn online video subscribers online, up 26% from 2019.7 The rise of the ’creator economy’, aided by the emergence of a growing range of tools allowing the production of high-quality content with minimal financial requirements, has also given birth to new forms of revenue in the creator space. One fifth of companies surveyed in a 2019 poll spend at least half their marketing budget on influencers.8, is a niche market that is growing rapidly. The rise of TikTok, for example, has generated US$20bn in sales from China in 2020 and forecasted global sales of US$40bn in 2021.9
Crucially, as a highly globalised, employment-intensive sector with a significant growth potential, creative industries are an important part of rapid and inclusive post-pandemic recovery. One study estimated that creative industries contributed 4.5% to US GDP – more than construction, transportation, mining or agriculture – and can significantly improve, not merely reflect, the health of the economy following a downturn.10 The creative sector offers economic diversification and can rapidly recover from a downturn, without being impacted by other slow growing sectors, or external volatility. As recognised by the UN, the creative economy has the potential to support developing and transition economies in diversifying production and exports and to deliver sustainable and inclusive development.11
1 UNCTAD, 2021: https://unctad.org/news/creative-economy-have-its-year-sun-2021#:~:text=UNCTAD%20has%20tracked%20trade%20 in,prospects%20look%20bleak%2C%E2%80%9D%20Ms. 2 UNESCO, 2018: https://en.unesco.org/creativity/sites/creativity/files/global_report_fact_sheet_en.pdf 3 The Guardian, 2020: https://www.theguardian.com/technology/2021/mar/12/non-fungible-tokens-revolutionising-art-world-theft 4 European Commission, 2020: https://ec.europa.eu/jrc/en/news/expert-investigating-pandemic-s-impact-europe-s-cultural-activities 5 Publishing in 2020 6 City AM, 2021: https://www.cityam.com/uk-advertising-sector-on-track-for-strongest-global-recovery/ 7 The Motion Picture Association, 2021: https://www.motionpictures.org/wp-content/uploads/2021/03/MPA-2020-THEME-Report.pdf 8 Wired, 2020: https://www.wired.com/story/influencer-economy-hurtles-first-recession/ 9 Bloomberg, 2021: https://www.bloomberg.com/news/articles/2021-06-10/tiktok-is-jacking-up-prices-as-it-builds-its-ad-business 10 Douglas Noonan: https://nasaa-arts.org/wp-content/uploads/2021/01/ArtsCultureContribEconRecovery-KeyFindings.pdf 11 UNCTAD, 2021: https://unctad.org/news/creative-economy-have-its-year-sun-2021
The GCC’s pivot to Asia has yielded some strategic partnerships with the region’s giants, including China and India, but the relationship with the ASEAN countries remains underdeveloped. Imports from the ASEAN countries made up just 6% of the GCC’s total imports between 2016 and 2020. Although exports from the GCC to ASEAN have been on the rise, they mainly consist of crude oil and plastic polymers.
This research report highlights areas for deeper collaboration, particularly among ASEAN’s growth sectors of food and agriculture, e-commerce and fintech.
Executive summary
Sentiment on the economic promise of Africa seems to ebb and flow. African economic growth has been anaemic over the past decade, and the continent continues to grapple with fundamental challenges around improving transport infrastructure and electrification. Since the start of the covid-19 pandemic, some of these development priorities have been pushed further down the agenda.
The continent’s governments must recognise that addressing these challenges will be pivotal in realising Africa’s potential. But to achieve these goals with limited resources, African governments must cultivate relationships with other regions, not just as potential investors in African businesses and infrastructure but also as markets for their products and services.
This report, following on from a series of reports prepared by The Economist Intelligence Unit over the past seven years, examines the potential for Africa to deepen ties with the Gulf Co-operation Council (GCC) countries, in the context of sectors currently poised for growth as well as those that are greatly in need of external support.
The key findings of this report are:
Africa must get the basics—including regulation and infrastructure—in place to spur growth in key sectors. ‘Burdensome regulation and bureaucracy’ was the top impediment to business growth in our survey, cited by 59% of respondents. In addition, addressing the continent’s transport, electricity and digital- infrastructure deficits will be critical in delivering growth in key sectors. Executives in financial services and fintech (90%), healthcare (89%), agriculture and food (87%) and retail and e-commerce (74%) are expecting revenue to expand in 2022.
The digital economy will be an essential component of African growth. In 2022, 35% of respondents to our survey are expecting online channels to generate the bulk of their revenue, compared with 22% in 2019. All the sectors poised for expansion in 2022 have strong digital delivery links— from fintech to telehealth, and from digital platforms for farmers to e-commerce for broader retail. There are some lessons that Africa could learn from regions such as the GCC, which have led strong digital transformation programmes domestically.
The GCC region can support Africa in addressing critical infrastructure deficits. GCC-based companies such as DP World and ACWA Power are making progress on transport and energy infrastructure in Africa. Etisalat is operating on the continent, expanding their telecommunications infrastructure, which is vital in enabling e-commerce, fintech and education, among other sectors, to thrive.
African businesses can help the GCC’s strategic initiatives too. Healthcare companies such as Mediclinic have been operating in the UAE since 2007, helping to expand services in this vital sector. Meanwhile, efforts to efficiently deliver agricultural products from Africa to the GCC can help with the latter region’s food security.
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As Latin American countries navigate the post-pandemic economic recovery, they are discovering that there are fresh opportunities to seize and new relationships to forge. Companies in the region are riding the surge in commodity prices, which benefits their agricultural and metal exports, and are positioning themselves as the partner of choice for companies that are diversifying their supplier base for products ranging from medical devices to cosmetics.
In this report we examine the sectors poised for growth in Latin America (LatAm) and opportunities for engagement with international markets. To this end we are taking a closer look at the trade and investment relationship between LatAm and the Gulf Co-operation Council (GCC) to identify areas where the GCC can be a destination for LatAm products, a supplier for key industries, an investor for growing operations, and a knowledge partner for industry best practice.
Key findings of the report:
LatAm growth will come from sectors that require engagement with international markets. The highest shares of executives who expect revenue to expand in 2022 are in the healthcare industry and the food and agriculture sector (cited by 97% in each). This includes producers of medical equipment, pharmaceuticals (including vaccines) and a host of food products from coffee to poultry. These products are among the region’s key exports and will continue to rely on external demand for growth. The GCC and Latin America have a complementary but limited trade relationship. The GCC imports iron ore from LatAm for the production of aluminium, which it then exports to LatAm. LatAm imports fertiliser for its agricultural sector from the GCC, and the agricultural outputs are then exported to the GCC. However, trade levels are low. In 2020, imports from LatAm accounted for just 3.2% of the GCC’s total imports and 1.6% of LatAm’s total exports. LatAm executives are starting to turn to the GCC for investments. Just 5% of the executives we surveyed in 2021 were engaging with the GCC to secure investments, but 28% said they were interested in doing so in the future. Between 2016 and 2021 the GCC invested US$4bn in LatAm countries, 77% of which was sourced from the UAE, 22% from Saudi Arabia and 1% from Qatar. There is an untapped opportunity for knowledge exchange between the two regions. The GCC countries have successfully executed road, electricity and telecommunications infrastructure projects. LatAm is home to a rapidly expanding fintech industry and has an established agricultural sector. There is an opportunity for sharing best practice in sectors vital for growth. Download Arabic Report
Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.
Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.
The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade.
The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:
Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors.Alongside professional services, it plays a pivotal role in the modern economy and international trade flows. The Covid-19 pandemic significantly disrupted the industry that was already being reshaped by the effects of the global financial crisis, sustainability drive and digital innovation. Digital transformation, changing customer preferences and regulatory pressures, are also challenging existing business models in financial and related professional services.
The Covid-19 pandemic has posed unprecedented disruptions to education systems; however it has also accelerated many of the structural changes undergoing in the sector and opened up new opportunities. The emergence online and hybrid learning models, the take-up of Massive Online Open Courses (MOOCs) and augmented and virtual reality (AR/VR) have the potential to reshape the sector and pose serious threats to current incumbents, if investment in supporting connectivity infrastructure and training is not embraced.
The global education sector has reached an impressive scale, having grown rapidly over the previous decade, and forecasted to double in market size within the next decade. Total enrollment across all levels of education reached 829 million students in late 2019, a 14% increase from 2010. In 2019, more than 5.5 million students studied in degree programmes outside their home countries, more than double the number doing so in 2000. The global education market is projected to continue expanding rapidly and more than double in size, reaching US$2.4trn by 2027, up from US$1.1trn in 2019.1
Growing student population: Global student enrollment, 2010-2019 (million students) growth ratesThe pandemic has accelerated the digital imperative, a likely irreversible change, that is forcing education providers to rethink their strategies. Although most students have returned to classrooms since the height of the pandemic, educational institutions can now be certain that blended or digital-only modes of learning are part of their future. Established high education providers can no longer afford to put off investment in the digital future, as growing competition from new entrants in the market intensifies. The strongest challenges are posed by online-only providers of MOOCs (Massive Online Open Courses). This segment has seen rapid growth in 2020, increasing its international base of registered learners by 50%, and reaching 180 million users (excluding China).2 US-based MOOC Coursera has led the charge, adding 30 million new users in 2020 and attracting substantial new funding to increase its expansion. There is growing expectations that MOOCs, as they refine their models, will have a larger impact on the sector in the years to come.
Global spending on education technology is also showing signs of expansion. Total spending worldwide in 2020 was US$227bn, accounting for 3.6% of total expenditure on education and training. Spending is expected to grow rapidly in the coming years, reaching US$404bn in 2025.3 Advanced technologies that enable immersive and multi-sensory learning methods, such as augmented and virtual reality (AR/VR), are expected to grow fastest to around US$13bn globally, while AI and robotics spend is expected to reach US$9bn.4 Investors follow the suit, as the EdTech segments attracted over US$16bn venture capital (VC) investment in 2020, up from just US$1.8bn in 2014.
EdTech boom: Global Venture Capital (VC) investment in EdTech, 2015-2020 (US$bn)There are however significant structural challenges that remain in place that may hinder the growth EdTech. The lack of high-quality broadband infrastructure needed to support more advanced forms of learning, coupled with teachers’ lack of readiness to embrace digital forms of learning are some of the biggest limits to the growth in the sector. Governments and telecom companies have a major role to play in upgrading the current broadband infrastructure, guaranteeing faster levels of connectivity and increasing digital skills training. There are further concerns towards data security and the need to ensure adequate data privacy practices by EdTech firms.
1 Fortune Business Insights, 2020: https://www.fortunebusinessinsights.com/higher-education-market-104503 2 The Report by Class Central, 2020: https://www.classcentral.com/report/the-second-year-of-the-mooc/ 3 HolonIQ, January 2021: https://www.holoniq.com/edtech/10-charts-that-explain-the-global-education-technology-market/ 4 Ibid As a driver of economic growth and competitiveness, however, the science and production of digital technologies are also becoming an area of fierce competition between countries. Global spending on ICT (information and communication technology) has increased steadily at 4% annually for several years, reaching a total of US$4.9trn in 2019.1 Despite the pandemic-related slowdown in momentum for traditional type of hardware and enterprise software, spending on newer technologies such as IoT (Internet of Things), robotics, 3D printing, AI and VR is expected to grow at a faster pace. Global ICT spending is forecasted to increase from US$5.2trn in 2021 to US$5.8trn in 2023, with an annual growth of 6%. Newer technologies will account for 23% of total spend in 2023, up from 14% in 2018.2
The digital economy is also a considerable driver of international trade, with cross border exports of ICT good and services estimated at US$2.74trn in 20203. While trade in goods accounts for the highest share, trade in ICT services is growing annually by 7.7% (CAGR) between 2010 and 2017.4
Rapid recovery: Worldwide ICT spending, 2018-2023 (US$ bn)Several high-profile sub-sectors epitomize the rapid growth of and challenges faced by the digital technology sector. The worldwide revenue from the sale of artificial intelligence (AI) -based software and services stood at US$62bn in 2020 and is set to reach US$998 by 20285. One study estimated the potential value generated by application of AI techniques across various industries places the market between US$3.5trn and US$5.8trn.6 However, there are two main obstacles that hinder a widescale AI adoption: the shortage of good quality data and data scientists, particularly as the talent that drives improvements in AI is largely concentrated in large economies such as the US, UK, Germany and China.
Cybersecurity is also an area that has attracted growing investment from corporates and VCs. With the advent of the digital economy, cyber threats put organizations and societies at risk. Global revenues for cybersecurity services are projected to grow from US$67bn in 2019 to US$111bn in 2025.7 Funding for companies providing cybersecurity services has increased nine-fold to US$7.8bn in 20208. The pandemic has further highlighted security vulnerabilities faced by organizations, as the mass shift to remote working coupled with the increased use of cloud infrastructure and services have exposed many to cybersecurity threats.
The pandemic has also impacted semiconductors, a key commodity for the digital economy representing a market expected to grow to US$469bn in 2021.9 A rise in demand for digital services and computer equipment caused severe supply chain disruptions across the global semiconductor production. The shortages have thrown light on the inadequate resilience of technology sector supply chains. They have also underscored the extreme concentration of semiconductor production. Although US firms account for 47% of global sales, most exports originate from East Asia—namely Taiwan, South Korea and China. Moreover, the most advanced generation of semiconductors is currently produced at scale only by Taiwan’s TSMC and South Korea’s Samsung.10
Something’s phishy: Share of cyber security breaches reported by UK companies over previous 12 months, by type of breachAs digital dominates more parts of the global economy, governments are taking proactive action to include the digital economy within national industrial policy. The need to gain strategic autonomy, in light of growing geopolitical rivalries, is prompting governments to adopt policies aimed at protecting their national technology sector. Since 2008, 101 countries representing more than 90% of global GDP have adopted formal industrial development strategies.11 These have focused mainly on supporting technology innovation and the digital economy. The resulting risk of fragmentation of global technology supply chains is likely to stay high on the agenda for global technology companies and governments around the world.
1IDC, Global ICT Spending: Forecast 2020-2023: https://www.idc.com/promo/global-ict-spending/forecast 2 Ibid 3 Estimated using World Development Indicators and IDC data. 4 Ibid 5 Grand View Research, Artificial Intelligence Market Size, Share & Trends Analysis Report, 2021-2028: https://www.grandviewresearch.com/industry-analysis/artificial-intelligence-ai-market 6 McKinsey Global Institute, Notes from the AI Frontier, 2018:https://www.mckinsey.com/featured-insights/artificial-intelligence/notes-from-the-ai-frontier-applications-and-value-of-deep-learning 7 The Business Research Company, “Cybersecurity Industry Overview Shows US To Account For The Largest Share Among Countries, In The Global Cyber Securities Market 2020”, November 2020: https://www.globenewswire.com/news-release/2020/11/05/2121251/0/en/Cybersecurity-Industry-Overview- Shows-US-To-Account-For-The-Largest-Share-Among-Countries-In-The-Global-Cyber-Securities-Market-2020.html 8 Crunchbase, The Rise Of Global Cybersecurity Venture Funding, 2021: https://about.crunchbase.com/cybersecurity-research-report-2021/ 9 Semiconductor Industry Association, 2021 Factbook: https://www.semiconductors.org/wp-content/uploads/2021/05/2021-SIA-Factbook-May-19-FINAL.pdf 10 Ibid 11 UNCTAD, World Investment Forum 2018: https://unctad.org/system/files/official-document/wir2018_en.pdf
Prior to the Covid-19 pandemic, consumer goods accounted for a quarter of the world’s trade in goods, representing US$4.8trn in 2019.1 In 2020 private consumption declined by nearly 11% in the UK and Italy, 6-7% in Germany, France and Japan and 4% and 3% in the US and China respectively.2 Some goods sectors suffered more than others. Travel, entertainment and hospitality were some of the hardest hit, while others, like electronics, saw demand increase as remote working became widespread. The pandemic has further accelerated several structural changes already underway. These include a rapid growth in e-commerce and digitalisation of global supply chains, an increased focus on sustainability, a move towards greater servicification and the reshaping of global value chains.
Pandemic shock: Change in private consumption during the Global recession (2009) and Covid-19 pandemic (2020) | Real annual change (%)
During the pandemic, consumers pivoted to digital channels, with 60% of consumers worldwide changing their shopping behaviors during the pandemic, most of whom intend to continue with their new behaviors.3 The migration from high street stores to e-commerce platforms has accelerated digitalisation, with businesses that had already invested in e-commerce coming out as chief beneficiaries. Amazon, for example, posted a 70% increase in earnings during the first nine months of 20204, with profits three times higher than 2019.5
The pandemic also highlighted the issue of resilience and sustainability of global supply chains. Multinational enterprises (MNEs) in 2020 slowly started to scale back their supply chains, considering the geopolitical and economic tensions between the US and China and the growing issue of sourcing from a single geography. Significant supply chain disruptions were faced by businesses during the pandemic, with one survey on supply chain executives in the food and consumer goods industries highlighting that at the height of the pandemic, 91% of respondents said they had problems with suppliers.6 These tensions are playing out in the context of rapidly changing geographical distribution of global trade patterns. In the decade since the 2008 financial crisis, Chinese share of global exports has increased to 17% (from 11.5%) and 13.4% of global imports (from 8.7%).7 The Asia-Pacific region is now largely expected to outgrow developed markets in consumer goods, accounting for up to 35% of the global industry share by 2022.8
The changing game of trade: The export volume of goods index rebased to 2010=100
The rise of digital and sustainable consumption poses significant opportunities and challenges for businesses in the consumer goods sector. The online retail market is forecast to double in size by 20259, with new or low frequency users expected to drive a 160% increase in e-commerce purchases over the coming years. Businesses are showing some strong interest in harnessing the trends of digitalization with 80% of executives in the industry specifically allocating investments to improve their e-commerce shopping platforms in 2021.10
Digital future: Share of on-line retail on total retail sales (%)Sustainability has also moved high in the consumer goods agenda, with more than half of consumers across all markets intending to purchase more sustainable products once the pandemic subsides.11Businesses are adapting to increase resilience and sustainability of their internal businesses and their supply chains. Advances in cloud software, blockchain, artificial intelligence (AI) and satellite technology can be harnessed to enable flexibility and resilience in supply chains.
1 UNCTAD. ‘Key statistics and trends in international trade 2020’ (internet). United Nations Conference on Trade and Development. 2021 (accessed 9.6.21). Available at: https://unctad.org/system/files/official-document/ditctab2020d4_en.pdf 2 Remes, J. Manyika, J et al. ‘The consumer demand recovery and lasting effects of COVID-19’ internet). McKinsey. 2021 (accessed 9.6.21). Available at: https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-consumer-demand-recovery-and-lasting-effects-of-covid-19 3 McKinsey. ‘Perspectives on retail and consumer goods’ (internet). McKinsey & Company, 2020 (accessed 7.6.21). Available at:https://www.mckinsey.com/~/media/McKinsey/Industries/Retail/Our%20Insights/Perspectives%20on%20retail%20and%20consumer%20goods%20Number%208/Perspectives -on-Retail-and-Consumer-Goods_Issue-8.pdf 4Takefman, B. ‘Amazon profits increased nearly 200% since start of Covid-19 pandemic’ (internet). ResearchFDI. 2021 (accessed 14.6.21). Available at: https://researchfdi.com/amazon-covid-19-pandemic-profits/ 5Sky News. ‘Amazon’s profits more than tripled in the first three months of 2021’ (internet). Sky. 2021. Accessed 14.6.21). Available at: https://news.sky.com/story/amazons-profits-more-than-tripled-in-the-firs... 6 Alicke, K. Gupta, R. Trautwein, V. ‘Resetting supply chains for the next normal’ (internet). McKinsey. 2020 (accessed 8.6.21). Available at: https://www.mckinsey.com/business-functions/operations/our-insights/resetting-supply-chains-for-the-next-normal 7 Eurostat. ‘World trade in goods’ (internet). Eurostat - statistics explained. 2020 (accessed 8.6.21). Available at:https://ec.europa.eu/eurostat/statisticsexplained/index.php?title=World_trade_in_goods#World_trade_in_goods:_developments_between_2008_a nd_201f 8 Accenture. ‘A new era of trade for consumer goods industry’ (internet). Accenture, 2020 (accessed 8.6.21). Available at: https://www.accenture.com/_acnmedia/pdf-73/accenture-new-era-of-trade-for-consumer-goods-industry.pdf 9 EIU. ‘Digital disruption: risks and opportunities in the shift to online’ (internet). Economist Intelligence Unit. 2020 (accessed 14.6.21). Available at: https://www.eiu.com/n/digital-disruption-risks-and-opportunities-in-the-shift-to-online/ 10 Deloitte. ‘2021 consumer products industry outlook: No-regret moves in the face of uncertainty’ (internet). Deloitte. 2021 (accessed 14.6.21). Available at: https://www2.deloitte.com/us/en/pages/consumer-business/articles/consumer-products-industry-outlook.html 11 YouGov. ‘International FMCG/CPG report 2021’ (internet). YouGov. 2021 (accessed 14.6.21). Available at: https://db42aa43a2d5ed566294-81964d36a501d7a15be4d8350b0feec4.ssl.cf3.rackcdn.com/YouGov-International-FMCG-Report- 2021%20(2).pdf
The pandemic has brought sections of the creative industry to a halt, but also accelerated structural changes within the industry, such as the transition towards digital platforms and a greater role for individual ‘content creators’.
The global supply chains for food, agricultural products and technology experienced an unprecedented shock due to the pandemic. Despite the disruption trade in foodstuff remained remarkably resilient, highlighting the essential role of food supply in times of crisis. Nevertheless, global food systems are undergoing a structural transformation that is necessary, not only to feed the world’s growing population, but also to prevent damaging impacts of climate change and environmental degradation.
The globalisation of supply and markets has seen agri-food sectors become more integrated with other sectors of the economy, both within countries and across those value chains. International trade in food and agriculture has more than doubled in real terms between 1995 and 2018 to reach US$1.5trn.1 The total global food and beverages market was worth almost US$6trn in 2019, following annual growth of 5.7% since 2015. Prior to the pandemic, the market was forecast to reach a value of US$8.6trn by 2025, before climbing to nearly US$12trn by the end of the decade.2
The global food system has also become more “global”, as exports from developing countries and emerging economies made up more than one-third of global agri-food exports by 2018, with around a third of global agricultural and food exports traded within global value chains (GVCs).3 Agri-food value chains have been driven by foreign direct investment (FDI) and trade, allowing companies to operate across multiple regions and making it easier for developing countries to integrate into global markets.
Globalised food: Agri-food exports and imports, average annual growth ratesHowever, the pace of this internationalisation has slowed down in recent years, and the global pandemic fuelled concerned about the resilience and sustainability of the global food system. While supply chains proved largely resilient, parts of the developing world experienced food security crises as a result of the pandemic. The Covid-19 pandemic further execrated the trends that saw the number of undernourished people increase by as many as 161 million from 2019 to 2020.4 The UN FAO warned that even though agri-food systems had proved resilient, the economic effects of the pandemic would cause acute and chronic food insecurity to increase, with the most vulnerable groups in society hit by lower incomes and employment.5 With the world’s population forecast to hit the 10bn mark by 2050, global food demand is expected to continue to grow significantly, putting further pressure on the global food system.
Meeting this demand will require development and adoption of innovative technologies and practices throughout the global value chain. In developing countries, for instance, agricultural technology (agri-tech) helps to empower the huge population of smallholder farms in areas including Africa and South Asia by giving them platforms for trading, connecting, learning and creating greater efficiency. More advanced technology, such as Artificial intelligence (AI), now plays a large role in agri-tech and is expected to become increasingly focused on precision agriculture with the optimisation of decisions on cropping, livestock husbandry and land management to improve farm efficiency and productivity. The new emerging precision ‘smart’ agriculture market is estimated to grow rapidly from US$13.8bn in 2020 to US$22bn by 2025.6
Many of the solutions developed by agri-tech providers target the urgent challenge of sustainability in supply chains and food production. With the food supply chain accounting for a quarter of all global emissions – 82% of which are attributed to food production – cutting emissions, ecological harm and waste are at the core of national sustainable development strategies.7 Food systems also have a negative impact on biodiversity, contributing to the mass extinction of species, ecocide, soil loss, land degradation, air pollution and emissions. A shift towards alternative sources of protein, nature-positive food practices, such as conservation agriculture, sustainable aquaculture (fish farming) and vertical farming, as well as sustainability standards and targets will all be required to make the global food systems ready to face the current and future challenges.8
Heavy emitters: Global agricultural greenhouse gas emissions 1FAO. ‘The state of agricultural commodity markets - agricultural markets and sustainable development: global value chains, smallholder farmers and digital innovations’. 2020. http://www.fao.org/3/cb0665en/CB0665EN.pdf 2Research and Markets. ‘Insights on the Food and Beverages Global Market to 2030 - Identify Growth Segments for Investment’ (internet). PR Newswire. 2021. https://www.prnewswire.com/news-releases/insights-on-the-food-and-beverages-global-market-to-2030---identify-growth-segments-for-investment-301202729.html 3FAO. ‘The state of agricultural markets 2020’. 2020. http://www.fao.org/home/digital-reports/state-of-agricultural-commodity-markets/en 4FAO. The Sate of Food Security, 2021. http://www.fao.org/state-of-food-security-nutrition 5FAO. ‘Covid-19, agricultural markets and trade and FAO’s response’. 2021. http://www.fao.org/3/nf041en/nf041en.pdf 6Markets and Markets, ‘Smart Agriculture Market worth $22.0 billion by 2025’. 2020. https://www.marketsandmarkets.com/PressReleases/smart-agriculture.asp 7Ritchie, H. ‘Food production is responsible for one quarter of the world’s greenhouse gas emissions’ 2019. https://ourworldindata.org/food-ghg-emissions 8UNCTAD. ‘Trade and development report 2020. From global pandemic to prosperity for all – avoiding another lost decade’. 2020. https://unctad.org/system/files/official-document/tdr2020_en.pdf; The Economist Intelligence Unit. ‘Changing trends in food: discovering and utilising alternative crops’. https://foodsustainability.eiu.com/blogs/changing-trends-in-food-discovering-and-utilising-alternative-crops/ The Covid-19 pandemic has posed unprecedented disruptions to education systems; however it has also accelerated many of the structural changes undergoing in the sector and opened up new opportunities. The emergence online and hybrid learning models, the take-up of Massive Online Open Courses (MOOCs) and augmented and virtual reality (AR/VR) have the potential to reshape the sector and pose serious threats to current incumbents, if investment in supporting connectivity infrastructure and training is not embraced.
The global education sector has reached an impressive scale, having grown rapidly over the previous decade, and forecasted to double in market size within the next decade. Total enrollment across all levels of education reached 829 million students in late 2019, a 14% increase from 2010. In 2019, more than 5.5 million students studied in degree programmes outside their home countries, more than double the number doing so in 2000. The global education market is projected to continue expanding rapidly and more than double in size, reaching US$2.4trn by 2027, up from US$1.1trn in 2019.1
Growing student population: Global student enrollment, 2010-2019 (million students) growth ratesThe pandemic has accelerated the digital imperative, a likely irreversible change, that is forcing education providers to rethink their strategies. Although most students have returned to classrooms since the height of the pandemic, educational institutions can now be certain that blended or digital-only modes of learning are part of their future. Established high education providers can no longer afford to put off investment in the digital future, as growing competition from new entrants in the market intensifies. The strongest challenges are posed by online-only providers of MOOCs (Massive Online Open Courses). This segment has seen rapid growth in 2020, increasing its international base of registered learners by 50%, and reaching 180 million users (excluding China).2 US-based MOOC Coursera has led the charge, adding 30 million new users in 2020 and attracting substantial new funding to increase its expansion. There is growing expectations that MOOCs, as they refine their models, will have a larger impact on the sector in the years to come.
Global spending on education technology is also showing signs of expansion. Total spending worldwide in 2020 was US$227bn, accounting for 3.6% of total expenditure on education and training. Spending is expected to grow rapidly in the coming years, reaching US$404bn in 2025.3 Advanced technologies that enable immersive and multi-sensory learning methods, such as augmented and virtual reality (AR/VR), are expected to grow fastest to around US$13bn globally, while AI and robotics spend is expected to reach US$9bn.4 Investors follow the suit, as the EdTech segments attracted over US$16bn venture capital (VC) investment in 2020, up from just US$1.8bn in 2014.
EdTech boom: Global Venture Capital (VC) investment in EdTech, 2015-2020 (US$bn)There are however significant structural challenges that remain in place that may hinder the growth EdTech. The lack of high-quality broadband infrastructure needed to support more advanced forms of learning, coupled with teachers’ lack of readiness to embrace digital forms of learning are some of the biggest limits to the growth in the sector. Governments and telecom companies have a major role to play in upgrading the current broadband infrastructure, guaranteeing faster levels of connectivity and increasing digital skills training. There are further concerns towards data security and the need to ensure adequate data privacy practices by EdTech firms.
1 Fortune Business Insights, 2020: https://www.fortunebusinessinsights.com/higher-education-market-104503 2 The Report by Class Central, 2020: https://www.classcentral.com/report/the-second-year-of-the-mooc/ 3 HolonIQ, January 2021: https://www.holoniq.com/edtech/10-charts-that-explain-the-global-education-technology-market/ 4 Ibid As a driver of economic growth and competitiveness, however, the science and production of digital technologies are also becoming an area of fierce competition between countries. Global spending on ICT (information and communication technology) has increased steadily at 4% annually for several years, reaching a total of US$4.9trn in 2019.1 Despite the pandemic-related slowdown in momentum for traditional type of hardware and enterprise software, spending on newer technologies such as IoT (Internet of Things), robotics, 3D printing, AI and VR is expected to grow at a faster pace. Global ICT spending is forecasted to increase from US$5.2trn in 2021 to US$5.8trn in 2023, with an annual growth of 6%. Newer technologies will account for 23% of total spend in 2023, up from 14% in 2018.2
The digital economy is also a considerable driver of international trade, with cross border exports of ICT good and services estimated at US$2.74trn in 20203. While trade in goods accounts for the highest share, trade in ICT services is growing annually by 7.7% (CAGR) between 2010 and 2017.4
Rapid recovery: Worldwide ICT spending, 2018-2023 (US$ bn)Several high-profile sub-sectors epitomize the rapid growth of and challenges faced by the digital technology sector. The worldwide revenue from the sale of artificial intelligence (AI) -based software and services stood at US$62bn in 2020 and is set to reach US$998 by 20285. One study estimated the potential value generated by application of AI techniques across various industries places the market between US$3.5trn and US$5.8trn.6 However, there are two main obstacles that hinder a widescale AI adoption: the shortage of good quality data and data scientists, particularly as the talent that drives improvements in AI is largely concentrated in large economies such as the US, UK, Germany and China.
Cybersecurity is also an area that has attracted growing investment from corporates and VCs. With the advent of the digital economy, cyber threats put organizations and societies at risk. Global revenues for cybersecurity services are projected to grow from US$67bn in 2019 to US$111bn in 2025.7 Funding for companies providing cybersecurity services has increased nine-fold to US$7.8bn in 20208. The pandemic has further highlighted security vulnerabilities faced by organizations, as the mass shift to remote working coupled with the increased use of cloud infrastructure and services have exposed many to cybersecurity threats.
The pandemic has also impacted semiconductors, a key commodity for the digital economy representing a market expected to grow to US$469bn in 2021.9 A rise in demand for digital services and computer equipment caused severe supply chain disruptions across the global semiconductor production. The shortages have thrown light on the inadequate resilience of technology sector supply chains. They have also underscored the extreme concentration of semiconductor production. Although US firms account for 47% of global sales, most exports originate from East Asia—namely Taiwan, South Korea and China. Moreover, the most advanced generation of semiconductors is currently produced at scale only by Taiwan’s TSMC and South Korea’s Samsung.10
Something’s phishy: Share of cyber security breaches reported by UK companies over previous 12 months, by type of breachAs digital dominates more parts of the global economy, governments are taking proactive action to include the digital economy within national industrial policy. The need to gain strategic autonomy, in light of growing geopolitical rivalries, is prompting governments to adopt policies aimed at protecting their national technology sector. Since 2008, 101 countries representing more than 90% of global GDP have adopted formal industrial development strategies.11 These have focused mainly on supporting technology innovation and the digital economy. The resulting risk of fragmentation of global technology supply chains is likely to stay high on the agenda for global technology companies and governments around the world.
1IDC, Global ICT Spending: Forecast 2020-2023: https://www.idc.com/promo/global-ict-spending/forecast 2 Ibid 3 Estimated using World Development Indicators and IDC data. 4 Ibid 5 Grand View Research, Artificial Intelligence Market Size, Share & Trends Analysis Report, 2021-2028: https://www.grandviewresearch.com/industry-analysis/artificial-intelligence-ai-market 6 McKinsey Global Institute, Notes from the AI Frontier, 2018:https://www.mckinsey.com/featured-insights/artificial-intelligence/notes-from-the-ai-frontier-applications-and-value-of-deep-learning 7 The Business Research Company, “Cybersecurity Industry Overview Shows US To Account For The Largest Share Among Countries, In The Global Cyber Securities Market 2020”, November 2020: https://www.globenewswire.com/news-release/2020/11/05/2121251/0/en/Cybersecurity-Industry-Overview- Shows-US-To-Account-For-The-Largest-Share-Among-Countries-In-The-Global-Cyber-Securities-Market-2020.html 8 Crunchbase, The Rise Of Global Cybersecurity Venture Funding, 2021: https://about.crunchbase.com/cybersecurity-research-report-2021/ 9 Semiconductor Industry Association, 2021 Factbook: https://www.semiconductors.org/wp-content/uploads/2021/05/2021-SIA-Factbook-May-19-FINAL.pdf 10 Ibid 11 UNCTAD, World Investment Forum 2018: https://unctad.org/system/files/official-document/wir2018_en.pdf
Prior to the Covid-19 pandemic, consumer goods accounted for a quarter of the world’s trade in goods, representing US$4.8trn in 2019.1 In 2020 private consumption declined by nearly 11% in the UK and Italy, 6-7% in Germany, France and Japan and 4% and 3% in the US and China respectively.2 Some goods sectors suffered more than others. Travel, entertainment and hospitality were some of the hardest hit, while others, like electronics, saw demand increase as remote working became widespread.
Clean growth means facilitating economic development and improving standards of living, while protecting natural resources and ecosystems on which our well-being relies. The transition to a low-carbon economy requires mobilising investment and innovation to develop opportunities for inclusive and sustainable growth.
Achieving global net zero greenhouse gas (GHG) emissions by 2050 requires investment of US$1–2trn per year, which equates to roughly 1–1.5% of global GDP according to the Energy Transitions Commission (ETC) – funding to facilitate a green industrial revolution.1 After years of underperformance and “boom–bust” cycles, several clean tech sectors are thriving, fuelled by consumer demand and private and public investment. The global market for low-carbon goods and services has been estimated at US$4.2trn, spanning everything from recycling and the circular economy to environmental performance analytics and labelling.2
Electric growth: Electric car stocks in selected countries, 2013-2018Rapidly increased demand and investment in innovation has made several clean technologies, such as the renewable energy, electric vehicles (EVs), and energy-efficiency systems cost-competitive and ready for broader deployment. Wind energy costs in the US, for instance, have fallen from over 55 cents per kilowatt-hour in 1980 to under 3 cents today.3 Globally, solar photovoltaic costs have fallen 82% over the last decade, according to the International Renewable Energy Agency (IRENA).4 However, the net zero transition requires further innovation in technologies and services, such as carbon capture and storage, synthetic biology, carbon accounting, and others to reduce emissions from hard to abate sectors and activities.
Global renewable energy employment by techology, 2019Given the scale and the global nature of the challenge, international trade and investment is critical to the necessary innovation, development and diffusion of green goods and services. It also presents significant opportunities for business and countries that are able to develop innovative and productive capabilities and capacities in key clean growth sectors. The “Build Back Better” vision of recovery programmes following the Covid-19 pandemic – in which the fiscal demands of crisis recovery are seen as an opportunity to grapple with longstanding economic and social problems – has diverted significant funding towards the clean growth transition.5 It is crucial that this “green industrial policy” aims to make the clean transition “just”, by alleviating the social and economic costs by diversifying economic activity and helping people adapt in a changing labour market, without resorting to unwarranted protectionism.
[1] https://www.energy-transitions.org/wp-content/uploads/2020/09/Making-Mission-Possible-Full-Report.pdf [2] https://ec.europa.eu/environment/eussd/smgp/facts_and_figures_en.htm [3] https://www.energy.gov/eere/next-generation-wind-technology [4] https://www.irena.org/publications/2020/Jun/Renewable-Power-Costs-in-2019 [5] https://www.oecd.org/coronavirus/en/themes/green-recovery
The global supply chains for food, agricultural products and technology experienced an unprecedented shock due to the pandemic. Despite the disruption trade in foodstuff remained remarkably resilient, highlighting the essential role of food supply in times of crisis. Nevertheless, global food systems are undergoing a structural transformation that is necessary, not only to feed the world’s growing population, but also to prevent damaging impacts of climate change and environmental degradation.
The globalisation of supply and markets has seen agri-food sectors become more integrated with other sectors of the economy, both within countries and across those value chains. International trade in food and agriculture has more than doubled in real terms between 1995 and 2018 to reach US$1.5trn.1 The total global food and beverages market was worth almost US$6trn in 2019, following annual growth of 5.7% since 2015. Prior to the pandemic, the market was forecast to reach a value of US$8.6trn by 2025, before climbing to nearly US$12trn by the end of the decade.2
The global food system has also become more “global”, as exports from developing countries and emerging economies made up more than one-third of global agri-food exports by 2018, with around a third of global agricultural and food exports traded within global value chains (GVCs).3 Agri-food value chains have been driven by foreign direct investment (FDI) and trade, allowing companies to operate across multiple regions and making it easier for developing countries to integrate into global markets.
Globalised food: Agri-food exports and imports, average annual growth ratesHowever, the pace of this internationalisation has slowed down in recent years, and the global pandemic fuelled concerned about the resilience and sustainability of the global food system. While supply chains proved largely resilient, parts of the developing world experienced food security crises as a result of the pandemic. The Covid-19 pandemic further execrated the trends that saw the number of undernourished people increase by as many as 161 million from 2019 to 2020.4 The UN FAO warned that even though agri-food systems had proved resilient, the economic effects of the pandemic would cause acute and chronic food insecurity to increase, with the most vulnerable groups in society hit by lower incomes and employment.5 With the world’s population forecast to hit the 10bn mark by 2050, global food demand is expected to continue to grow significantly, putting further pressure on the global food system.
Meeting this demand will require development and adoption of innovative technologies and practices throughout the global value chain. In developing countries, for instance, agricultural technology (agri-tech) helps to empower the huge population of smallholder farms in areas including Africa and South Asia by giving them platforms for trading, connecting, learning and creating greater efficiency. More advanced technology, such as Artificial intelligence (AI), now plays a large role in agri-tech and is expected to become increasingly focused on precision agriculture with the optimisation of decisions on cropping, livestock husbandry and land management to improve farm efficiency and productivity. The new emerging precision ‘smart’ agriculture market is estimated to grow rapidly from US$13.8bn in 2020 to US$22bn by 2025.6
Many of the solutions developed by agri-tech providers target the urgent challenge of sustainability in supply chains and food production. With the food supply chain accounting for a quarter of all global emissions – 82% of which are attributed to food production – cutting emissions, ecological harm and waste are at the core of national sustainable development strategies.7 Food systems also have a negative impact on biodiversity, contributing to the mass extinction of species, ecocide, soil loss, land degradation, air pollution and emissions. A shift towards alternative sources of protein, nature-positive food practices, such as conservation agriculture, sustainable aquaculture (fish farming) and vertical farming, as well as sustainability standards and targets will all be required to make the global food systems ready to face the current and future challenges.8
Heavy emitters: Global agricultural greenhouse gas emissions 1FAO. ‘The state of agricultural commodity markets - agricultural markets and sustainable development: global value chains, smallholder farmers and digital innovations’. 2020. http://www.fao.org/3/cb0665en/CB0665EN.pdf 2Research and Markets. ‘Insights on the Food and Beverages Global Market to 2030 - Identify Growth Segments for Investment’ (internet). PR Newswire. 2021. https://www.prnewswire.com/news-releases/insights-on-the-food-and-beverages-global-market-to-2030---identify-growth-segments-for-investment-301202729.html 3FAO. ‘The state of agricultural markets 2020’. 2020. http://www.fao.org/home/digital-reports/state-of-agricultural-commodity-markets/en 4FAO. The Sate of Food Security, 2021. http://www.fao.org/state-of-food-security-nutrition 5FAO. ‘Covid-19, agricultural markets and trade and FAO’s response’. 2021. http://www.fao.org/3/nf041en/nf041en.pdf 6Markets and Markets, ‘Smart Agriculture Market worth $22.0 billion by 2025’. 2020. https://www.marketsandmarkets.com/PressReleases/smart-agriculture.asp 7Ritchie, H. ‘Food production is responsible for one quarter of the world’s greenhouse gas emissions’ 2019. https://ourworldindata.org/food-ghg-emissions 8UNCTAD. ‘Trade and development report 2020. From global pandemic to prosperity for all – avoiding another lost decade’. 2020. https://unctad.org/system/files/official-document/tdr2020_en.pdf; The Economist Intelligence Unit. ‘Changing trends in food: discovering and utilising alternative crops’. https://foodsustainability.eiu.com/blogs/changing-trends-in-food-discovering-and-utilising-alternative-crops/ The Covid-19 pandemic has posed unprecedented disruptions to education systems; however it has also accelerated many of the structural changes undergoing in the sector and opened up new opportunities. The emergence online and hybrid learning models, the take-up of Massive Online Open Courses (MOOCs) and augmented and virtual reality (AR/VR) have the potential to reshape the sector and pose serious threats to current incumbents, if investment in supporting connectivity infrastructure and training is not embraced.
The global education sector has reached an impressive scale, having grown rapidly over the previous decade, and forecasted to double in market size within the next decade. Total enrollment across all levels of education reached 829 million students in late 2019, a 14% increase from 2010. In 2019, more than 5.5 million students studied in degree programmes outside their home countries, more than double the number doing so in 2000. The global education market is projected to continue expanding rapidly and more than double in size, reaching US$2.4trn by 2027, up from US$1.1trn in 2019.1
Growing student population: Global student enrollment, 2010-2019 (million students) growth ratesThe pandemic has accelerated the digital imperative, a likely irreversible change, that is forcing education providers to rethink their strategies. Although most students have returned to classrooms since the height of the pandemic, educational institutions can now be certain that blended or digital-only modes of learning are part of their future. Established high education providers can no longer afford to put off investment in the digital future, as growing competition from new entrants in the market intensifies. The strongest challenges are posed by online-only providers of MOOCs (Massive Online Open Courses). This segment has seen rapid growth in 2020, increasing its international base of registered learners by 50%, and reaching 180 million users (excluding China).2 US-based MOOC Coursera has led the charge, adding 30 million new users in 2020 and attracting substantial new funding to increase its expansion. There is growing expectations that MOOCs, as they refine their models, will have a larger impact on the sector in the years to come.
Global spending on education technology is also showing signs of expansion. Total spending worldwide in 2020 was US$227bn, accounting for 3.6% of total expenditure on education and training. Spending is expected to grow rapidly in the coming years, reaching US$404bn in 2025.3 Advanced technologies that enable immersive and multi-sensory learning methods, such as augmented and virtual reality (AR/VR), are expected to grow fastest to around US$13bn globally, while AI and robotics spend is expected to reach US$9bn.4 Investors follow the suit, as the EdTech segments attracted over US$16bn venture capital (VC) investment in 2020, up from just US$1.8bn in 2014.
EdTech boom: Global Venture Capital (VC) investment in EdTech, 2015-2020 (US$bn)There are however significant structural challenges that remain in place that may hinder the growth EdTech. The lack of high-quality broadband infrastructure needed to support more advanced forms of learning, coupled with teachers’ lack of readiness to embrace digital forms of learning are some of the biggest limits to the growth in the sector. Governments and telecom companies have a major role to play in upgrading the current broadband infrastructure, guaranteeing faster levels of connectivity and increasing digital skills training. There are further concerns towards data security and the need to ensure adequate data privacy practices by EdTech firms.
1 Fortune Business Insights, 2020: https://www.fortunebusinessinsights.com/higher-education-market-104503 2 The Report by Class Central, 2020: https://www.classcentral.com/report/the-second-year-of-the-mooc/ 3 HolonIQ, January 2021: https://www.holoniq.com/edtech/10-charts-that-explain-the-global-education-technology-market/ 4 IbidThe Covid-19 pandemic has posed unprecedented disruptions to education systems; however it has also accelerated many of the structural changes undergoing in the sector and opened up new opportunities. The emergence online and hybrid learning models, the take-up of Massive Online Open Courses (MOOCs) and augmented and virtual reality (AR/VR) have the potential to reshape the sector and pose serious threats to current incumbents, if investment in supporting connectivity infrastructure and training is not embraced.
Alongside professional services, it plays a pivotal role in the modern economy and international trade flows. The Covid-19 pandemic significantly disrupted the industry that was already being reshaped by the effects of the global financial crisis, sustainability drive and digital innovation. Digital transformation, changing customer preferences and regulatory pressures, are also challenging existing business models in financial and related professional services.
Despite entering the pandemic more resilient than it has been prior to the previous crisis, and stronger than expected performance in 2021, the global banking sector may register losses as a result of the pandemic over the next years. These will show in the form of credit losses, with defaults expected to soar as state support is withdrawn. One estimate forecast the industry’s loss in revenue at US$3.7trn over the next five years.1 Moreover, the uneven nature of the post-pandemic recovery will hit some regions and sectors harder than others. There is limited scope for wider margins in developed markets, with interest rates low and financial services utilisation high. In developed economies there is much greater space to reach new customers, despite the increase in credit risks.2 Digital technologies are restructuring the way financial services are provided, the competition dynamics and how the customers interact with the industry. The rise of financial technology (fintech), blockchain and artificial intelligence companies, are threatening traditional providers of financial services through increased competition. Challenger neobanks (digital-only providers) and telecom providers are gradually increasing their share in the market, both in terms of processes and services offered to customers. Traditional providers that struggle to shift activities to digital channels risk losing market share and the ability to reach new customers. In 2018 fintech companies already accounted for 38% of unsecured personal lending in the US, while they are “economically relevant” in SME financing in China, the US and the UK, according the Bank for International Settlements (BIS).3
Fintech boom: Number of UK Fintech companies (rebased at year 2000), 2000-2020Digital currencies have increasingly become the focus in central banks around the world amid growing government, business and consumer interest. A Central Bank Digital Currency (CBDC) would allow central banks to issue electronic money available to all households and businesses, allowing them to make payments in CBDC. A report from the Bank for International Settlements highlighted that 28% of 50 central banks surveyed were looking into CBDC interoperability.4 Of the major world economies, China is thought to be the most advanced CBDC testing, with the e-CNY digital yuan expected to launch in 2022.5 CBDCs could bring wider access, stronger governance and privacy standards to digital payments systems, currently dominated by cryptocurrencies such as Bitcoin.
Going digital: Willingness of central Banks to adopt range of approaches to interoperabilty of Central Bank Digital Currency (CBDCs) (%), 2021There is also growing consensus that financial services actors need to upgrade their agenda towards climate finance, as net zero cannot be achieved without the funding needed to mitigate the physical risks of the impact of climate change. Global climate financing was estimated to have reached up to US$620 in 2019, the bulk of which through debt issuance. Financing a transition to a climate-resilient economy will require much greater investment than is currently being committed, and failure to provide it will result in even more investment for climate adaptation and mitigation in the longer term. Estimates suggest that US$100-150trn will be needed to reach the 1.5-degree target by 2050.6
Climate finance growth: Total global climate finance flows (US$bn), 2012-2019The growing prominence of institutional and private investment in climate financing has prompted regulatory efforts to drive climate related activities. Regulation is responding to market developments with new tools, such as green bonds, and shaping the disclosure requirements through the launch of the Taskforce on Climate-related Financial Disclosures. However, more needs to be done to incentivise climate financing and the financial services industry has a vital role in facilitating the tools and mechanisms that will help address climate change.
1 McKinsey. ‘Interim Results 2021’. 2021. https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review 2 The Economist Intelligence Unit (EIU).’Financial Services Global Outlook. 2021 3 Frost, J. ‘The economic forces driving fintech adoption across countries’. Bank for International settlements. https://www.bis.org/publ/work838.pdf, p.2 4 Auer, R et al. ‘CBDCs beyond borders: results from a survey of central banks’. Bank for International Settlements. 2021.https://www.bis.org/publ/bppdf/bispap116.htm 5 Lim, M. ‘What lies ahead for CBDCs, Bitcoin and other digital currencies?’. Fintech News. 2021.https://www.fintechnews.org/what-lies-ahead-for-cbdcs-bitcoin-and-other-digital-currencies/ 6 GFMA. ‘GFMA and BCG Report on Climate Finance Markets and the Real Economy‘. Global Financial Markets Association. 2020.https://www.gfma.org/policies-resources/gfma-and-bcg-report-on-climate-finance-markets-and-the-real-economy/
Whilst the immediate effects have been severe, the pandemic has further accelerated trends that are reshaping the global investment landscape, such as the push for digital, sustainable and resilient solutions in a world that has turned more fragmented. Estimates suggest that in 2020 global trade in goods fell by 8%, while foreign direct investment (FDI) flows fell by a record 35% to US£1trn, the lowest figure since 2005.1 2 The retraction in global cross-border investments was more severe in developed economies, where FDI inflows and outflows fell by almost 60%. On the other hand, developing economies saw FDI inflows and outflows fall by only 10% largely due to resilient flows in Asia, particularly in China and India.3
During the pandemic the internationalisation of major multinational enterprises (MNEs) stagnated, although the degree of this effect varied considerably across industries. The value of announced greenfield investment fell by 33% to a record low of US$564bn, cross border M&A investment fell by 6% to US$475bn while project finance deals registered a 42% decline to US$367bn in 2020.4 The UNCTAD forecasts suggest global FDI flows have recover some ground in 2021 and return to pre-pandemic levels (2019) in 2022. Developed economies are expected to drive the growth in FDI, particularly in M&A activity and public investment support. These measures will have a positive effect on infrastructure, green, and digital economy sectors.5
Over the past two decades, the increasing investment in services, enlarged pool of cross border investors and the focus on emerging technologies have shaped the global investment landscape. The gradual servicification of manufacturing and the rapid rise of global digital technology companies have driven an upwards trajectory for investment in services. Services accounted for 60% of announced greenfield projects and 71% of announced cross border M&A deals in 2020.6 The sources of the investment flows are also becoming more diversified, with the emerging markets accounting for almost one fifth of global M&A deals by value and almost half the total value of global greenfield and international project investment in 2020.7 State-owned investors (SOIs), including largely emerging-market-located sovereign wealth funds (SWFs) have also become prevalent in the investment landscape with a growing appetite for alternative asset classes and active investment strategies.
Changing guards: Top host economies by FDI inflows (2019-20)As the global economy recovers from the pandemic, major forces ranging from emerging technologies, investment policy sustainability and geopolitics will reshape the pattern of the global investment landscape. FDI regulations and policies, already gaining traction prior to the pandemic, have been deployed by national governments to address supply chain vulnerabilities and the risk of predatory takeovers of strategic sectors. The number of investment policy measures adopted in 2020 rose by 40% compared to 2019, with the ratio of restrictive policy measures to liberalisation measures increasing by 41%.8
GVCs will also adopt new modes of business operation to enhance resilience, flexibility and uncertainty of considering the current global business environment. This could involve elements of reshoring or regionalisation for businesses, while governments are expected to gear up efforts to increase sustainability of business operations through integration of environmental, social and governance standards into regulatory frameworks for foreign investments and capital markets. Geopolitics and the changing geography of global demand will impact the international investment as developing countries continue to deepen their participation in global investment flows and tension remains high in the rivalry between the US-China.9
Policies matter: Number of investment policy measures adopted globally between 2008-20201 “World trade primed for strong but uneven recovery after COVID-19 pandemic shock”; World Trade Organisation, press release (March 2021) 2 “World Investment Report 2021: Investing in Sustainable Recovery”; UNCTAD (June 2021). 3 Ibid. 4 Ibid. 5 Ibid. 6 “World Investment Report 2020: International Production Beyond the Pandemic”; UNCTAD (June 2020). 7 “World Investment Report 2021: Investing in Sustainable Recovery”; UNCTAD (June 2021) 8 Ibid. 9 “Globalization in transition: The future of trade and value chains”; McKinsey Global Institute (2019)
Clean growth means facilitating economic development and improving standards of living, while protecting natural resources and ecosystems on which our well-being relies. The transition to a low-carbon economy requires mobilising investment and innovation to develop opportunities for inclusive and sustainable growth.
Achieving global net zero greenhouse gas (GHG) emissions by 2050 requires investment of US$1–2trn per year, which equates to roughly 1–1.5% of global GDP according to the Energy Transitions Commission (ETC) – funding to facilitate a green industrial revolution.1 After years of underperformance and “boom–bust” cycles, several clean tech sectors are thriving, fuelled by consumer demand and private and public investment. The global market for low-carbon goods and services has been estimated at US$4.2trn, spanning everything from recycling and the circular economy to environmental performance analytics and labelling.2
Electric growth: Electric car stocks in selected countries, 2013-2018Rapidly increased demand and investment in innovation has made several clean technologies, such as the renewable energy, electric vehicles (EVs), and energy-efficiency systems cost-competitive and ready for broader deployment. Wind energy costs in the US, for instance, have fallen from over 55 cents per kilowatt-hour in 1980 to under 3 cents today.3 Globally, solar photovoltaic costs have fallen 82% over the last decade, according to the International Renewable Energy Agency (IRENA).4 However, the net zero transition requires further innovation in technologies and services, such as carbon capture and storage, synthetic biology, carbon accounting, and others to reduce emissions from hard to abate sectors and activities.
Global renewable energy employment by techology, 2019Given the scale and the global nature of the challenge, international trade and investment is critical to the necessary innovation, development and diffusion of green goods and services. It also presents significant opportunities for business and countries that are able to develop innovative and productive capabilities and capacities in key clean growth sectors. The “Build Back Better” vision of recovery programmes following the Covid-19 pandemic – in which the fiscal demands of crisis recovery are seen as an opportunity to grapple with longstanding economic and social problems – has diverted significant funding towards the clean growth transition.5 It is crucial that this “green industrial policy” aims to make the clean transition “just”, by alleviating the social and economic costs by diversifying economic activity and helping people adapt in a changing labour market, without resorting to unwarranted protectionism.
[1] https://www.energy-transitions.org/wp-content/uploads/2020/09/Making-Mission-Possible-Full-Report.pdf [2] https://ec.europa.eu/environment/eussd/smgp/facts_and_figures_en.htm [3] https://www.energy.gov/eere/next-generation-wind-technology [4] https://www.irena.org/publications/2020/Jun/Renewable-Power-Costs-in-2019 [5] https://www.oecd.org/coronavirus/en/themes/green-recovery
As a driver of economic growth and competitiveness, however, the science and production of digital technologies are also becoming an area of fierce competition between countries. Global spending on ICT (information and communication technology) has increased steadily at 4% annually for several years, reaching a total of US$4.9trn in 2019.1 Despite the pandemic-related slowdown in momentum for traditional type of hardware and enterprise software, spending on newer technologies such as IoT (Internet of Things), robotics, 3D printing, AI and VR is expected to grow a
Whilst the immediate effects have been severe, the pandemic has further accelerated trends that are reshaping the global investment landscape, such as the push for digital, sustainable and resilient solutions in a world that has turned more fragmented. Estimates suggest that in 2020 global trade in goods fell by 8%, while foreign direct investment (FDI) flows fell by a record 35% to US£1trn, the lowest figure since 2005.1 2 The retraction in global cross-border investments was more severe in developed economies, where FDI inflows and outflows fell by almost 60%. On the other hand, developing economies saw FDI inflows and outflows fall by only 10% largely due to resilient flows in Asia, particularly in China and India.3
During the pandemic the internationalisation of major multinational enterprises (MNEs) stagnated, although the degree of this effect varied considerably across industries. The value of announced greenfield investment fell by 33% to a record low of US$564bn, cross border M&A investment fell by 6% to US$475bn while project finance deals registered a 42% decline to US$367bn in 2020.4 The UNCTAD forecasts suggest global FDI flows have recover some ground in 2021 and return to pre-pandemic levels (2019) in 2022. Developed economies are expected to drive the growth in FDI, particularly in M&A activity and public investment support. These measures will have a positive effect on infrastructure, green, and digital economy sectors.5
Over the past two decades, the increasing investment in services, enlarged pool of cross border investors and the focus on emerging technologies have shaped the global investment landscape. The gradual servicification of manufacturing and the rapid rise of global digital technology companies have driven an upwards trajectory for investment in services. Services accounted for 60% of announced greenfield projects and 71% of announced cross border M&A deals in 2020.6 The sources of the investment flows are also becoming more diversified, with the emerging markets accounting for almost one fifth of global M&A deals by value and almost half the total value of global greenfield and international project investment in 2020.7 State-owned investors (SOIs), including largely emerging-market-located sovereign wealth funds (SWFs) have also become prevalent in the investment landscape with a growing appetite for alternative asset classes and active investment strategies.
Changing guards: Top host economies by FDI inflows (2019-20)As the global economy recovers from the pandemic, major forces ranging from emerging technologies, investment policy sustainability and geopolitics will reshape the pattern of the global investment landscape. FDI regulations and policies, already gaining traction prior to the pandemic, have been deployed by national governments to address supply chain vulnerabilities and the risk of predatory takeovers of strategic sectors. The number of investment policy measures adopted in 2020 rose by 40% compared to 2019, with the ratio of restrictive policy measures to liberalisation measures increasing by 41%.8
GVCs will also adopt new modes of business operation to enhance resilience, flexibility and uncertainty of considering the current global business environment. This could involve elements of reshoring or regionalisation for businesses, while governments are expected to gear up efforts to increase sustainability of business operations through integration of environmental, social and governance standards into regulatory frameworks for foreign investments and capital markets. Geopolitics and the changing geography of global demand will impact the international investment as developing countries continue to deepen their participation in global investment flows and tension remains high in the rivalry between the US-China.9
Policies matter: Number of investment policy measures adopted globally between 2008-20201 “World trade primed for strong but uneven recovery after COVID-19 pandemic shock”; World Trade Organisation, press release (March 2021) 2 “World Investment Report 2021: Investing in Sustainable Recovery”; UNCTAD (June 2021). 3 Ibid. 4 Ibid. 5 Ibid. 6 “World Investment Report 2020: International Production Beyond the Pandemic”; UNCTAD (June 2020). 7 “World Investment Report 2021: Investing in Sustainable Recovery”; UNCTAD (June 2021) 8 Ibid. 9 “Globalization in transition: The future of trade and value chains”; McKinsey Global Institute (2019)
Clean growth means facilitating economic development and improving standards of living, while protecting natural resources and ecosystems on which our well-being relies. The transition to a low-carbon economy requires mobilising investment and innovation to develop opportunities for inclusive and sustainable growth.
Achieving global net zero greenhouse gas (GHG) emissions by 2050 requires investment of US$1–2trn per year, which equates to roughly 1–1.5% of global GDP according to the Energy Transitions Commission (ETC) – funding to facilitate a green industrial revolution.1 After years of underperformance and “boom–bust” cycles, several clean tech sectors are thriving, fuelled by consumer demand and private and public investment. The global market for low-carbon goods and services has been estimated at US$4.2trn, spanning everything from recycling and the circular economy to environmental performance analytics and labelling.2
Electric growth: Electric car stocks in selected countries, 2013-2018Rapidly increased demand and investment in innovation has made several clean technologies, such as the renewable energy, electric vehicles (EVs), and energy-efficiency systems cost-competitive and ready for broader deployment. Wind energy costs in the US, for instance, have fallen from over 55 cents per kilowatt-hour in 1980 to under 3 cents today.3 Globally, solar photovoltaic costs have fallen 82% over the last decade, according to the International Renewable Energy Agency (IRENA).4 However, the net zero transition requires further innovation in technologies and services, such as carbon capture and storage, synthetic biology, carbon accounting, and others to reduce emissions from hard to abate sectors and activities.
Global renewable energy employment by techology, 2019Given the scale and the global nature of the challenge, international trade and investment is critical to the necessary innovation, development and diffusion of green goods and services. It also presents significant opportunities for business and countries that are able to develop innovative and productive capabilities and capacities in key clean growth sectors. The “Build Back Better” vision of recovery programmes following the Covid-19 pandemic – in which the fiscal demands of crisis recovery are seen as an opportunity to grapple with longstanding economic and social problems – has diverted significant funding towards the clean growth transition.5 It is crucial that this “green industrial policy” aims to make the clean transition “just”, by alleviating the social and economic costs by diversifying economic activity and helping people adapt in a changing labour market, without resorting to unwarranted protectionism.
[1] https://www.energy-transitions.org/wp-content/uploads/2020/09/Making-Mission-Possible-Full-Report.pdf [2] https://ec.europa.eu/environment/eussd/smgp/facts_and_figures_en.htm [3] https://www.energy.gov/eere/next-generation-wind-technology [4] https://www.irena.org/publications/2020/Jun/Renewable-Power-Costs-in-2019 [5] https://www.oecd.org/coronavirus/en/themes/green-recovery
The global supply chains for food, agricultural products and technology experienced an unprecedented shock due to the pandemic. Despite the disruption trade in foodstuff remained remarkably resilient, highlighting the essential role of food supply in times of crisis. Nevertheless, global food systems are undergoing a structural transformation that is necessary, not only to feed the world’s growing population, but also to prevent damaging impacts of climate change and environmental degradation.
The globalisation of supply and markets has seen agri-food sectors become more integrated with other sectors of the economy, both within countries and across those value chains. International trade in food and agriculture has more than doubled in real terms between 1995 and 2018 to reach US$1.5trn.1 The total global food and beverages market was worth almost US$6trn in 2019, following annual growth of 5.7% since 2015. Prior to the pandemic, the market was forecast to reach a value of US$8.6trn by 2025, before climbing to nearly US$12trn by the end of the decade.2
The global food system has also become more “global”, as exports from developing countries and emerging economies made up more than one-third of global agri-food exports by 2018, with around a third of global agricultural and food exports traded within global value chains (GVCs).3 Agri-food value chains have been driven by foreign direct investment (FDI) and trade, allowing companies to operate across multiple regions and making it easier for developing countries to integrate into global markets.
Globalised food: Agri-food exports and imports, average annual growth ratesHowever, the pace of this internationalisation has slowed down in recent years, and the global pandemic fuelled concerned about the resilience and sustainability of the global food system. While supply chains proved largely resilient, parts of the developing world experienced food security crises as a result of the pandemic. The Covid-19 pandemic further execrated the trends that saw the number of undernourished people increase by as many as 161 million from 2019 to 2020.4 The UN FAO warned that even though agri-food systems had proved resilient, the economic effects of the pandemic would cause acute and chronic food insecurity to increase, with the most vulnerable groups in society hit by lower incomes and employment.5 With the world’s population forecast to hit the 10bn mark by 2050, global food demand is expected to continue to grow significantly, putting further pressure on the global food system.
Meeting this demand will require development and adoption of innovative technologies and practices throughout the global value chain. In developing countries, for instance, agricultural technology (agri-tech) helps to empower the huge population of smallholder farms in areas including Africa and South Asia by giving them platforms for trading, connecting, learning and creating greater efficiency. More advanced technology, such as Artificial intelligence (AI), now plays a large role in agri-tech and is expected to become increasingly focused on precision agriculture with the optimisation of decisions on cropping, livestock husbandry and land management to improve farm efficiency and productivity. The new emerging precision ‘smart’ agriculture market is estimated to grow rapidly from US$13.8bn in 2020 to US$22bn by 2025.6
Many of the solutions developed by agri-tech providers target the urgent challenge of sustainability in supply chains and food production. With the food supply chain accounting for a quarter of all global emissions – 82% of which are attributed to food production – cutting emissions, ecological harm and waste are at the core of national sustainable development strategies.7 Food systems also have a negative impact on biodiversity, contributing to the mass extinction of species, ecocide, soil loss, land degradation, air pollution and emissions. A shift towards alternative sources of protein, nature-positive food practices, such as conservation agriculture, sustainable aquaculture (fish farming) and vertical farming, as well as sustainability standards and targets will all be required to make the global food systems ready to face the current and future challenges.8
Heavy emitters: Global agricultural greenhouse gas emissions 1FAO. ‘The state of agricultural commodity markets - agricultural markets and sustainable development: global value chains, smallholder farmers and digital innovations’. 2020. http://www.fao.org/3/cb0665en/CB0665EN.pdf 2Research and Markets. ‘Insights on the Food and Beverages Global Market to 2030 - Identify Growth Segments for Investment’ (internet). PR Newswire. 2021. https://www.prnewswire.com/news-releases/insights-on-the-food-and-beverages-global-market-to-2030---identify-growth-segments-for-investment-301202729.html 3FAO. ‘The state of agricultural markets 2020’. 2020. http://www.fao.org/home/digital-reports/state-of-agricultural-commodity-markets/en 4FAO. The Sate of Food Security, 2021. http://www.fao.org/state-of-food-security-nutrition 5FAO. ‘Covid-19, agricultural markets and trade and FAO’s response’. 2021. http://www.fao.org/3/nf041en/nf041en.pdf 6Markets and Markets, ‘Smart Agriculture Market worth $22.0 billion by 2025’. 2020. https://www.marketsandmarkets.com/PressReleases/smart-agriculture.asp 7Ritchie, H. ‘Food production is responsible for one quarter of the world’s greenhouse gas emissions’ 2019. https://ourworldindata.org/food-ghg-emissions 8UNCTAD. ‘Trade and development report 2020. From global pandemic to prosperity for all – avoiding another lost decade’. 2020. https://unctad.org/system/files/official-document/tdr2020_en.pdf; The Economist Intelligence Unit. ‘Changing trends in food: discovering and utilising alternative crops’. https://foodsustainability.eiu.com/blogs/changing-trends-in-food-discovering-and-utilising-alternative-crops/Clean growth means facilitating economic development and improving standards of living, while protecting natural resources and ecosystems on which our well-being relies. The transition to a low-carbon economy requires mobilising investment and innovation to develop opportunities for inclusive and sustainable growth.
Prior to the Covid-19 pandemic, consumer goods accounted for a quarter of the world’s trade in goods, representing US$4.8trn in 2019.1 In 2020 private consumption declined by nearly 11% in the UK and Italy, 6-7% in Germany, France and Japan and 4% and 3% in the US and China respectively.2 Some goods sectors suffered more than others. Travel, entertainment and hospitality were some of the hardest hit, while others, like electronics, saw demand increase as remote working became widespread. The pandemic has further accelerated several structural changes already underway. These include a rapid growth in e-commerce and digitalisation of global supply chains, an increased focus on sustainability, a move towards greater servicification and the reshaping of global value chains.
Pandemic shock: Change in private consumption during the Global recession (2009) and Covid-19 pandemic (2020) | Real annual change (%)
During the pandemic, consumers pivoted to digital channels, with 60% of consumers worldwide changing their shopping behaviors during the pandemic, most of whom intend to continue with their new behaviors.3 The migration from high street stores to e-commerce platforms has accelerated digitalisation, with businesses that had already invested in e-commerce coming out as chief beneficiaries. Amazon, for example, posted a 70% increase in earnings during the first nine months of 20204, with profits three times higher than 2019.5
The pandemic also highlighted the issue of resilience and sustainability of global supply chains. Multinational enterprises (MNEs) in 2020 slowly started to scale back their supply chains, considering the geopolitical and economic tensions between the US and China and the growing issue of sourcing from a single geography. Significant supply chain disruptions were faced by businesses during the pandemic, with one survey on supply chain executives in the food and consumer goods industries highlighting that at the height of the pandemic, 91% of respondents said they had problems with suppliers.6 These tensions are playing out in the context of rapidly changing geographical distribution of global trade patterns. In the decade since the 2008 financial crisis, Chinese share of global exports has increased to 17% (from 11.5%) and 13.4% of global imports (from 8.7%).7 The Asia-Pacific region is now largely expected to outgrow developed markets in consumer goods, accounting for up to 35% of the global industry share by 2022.8
The changing game of trade: The export volume of goods index rebased to 2010=100
The rise of digital and sustainable consumption poses significant opportunities and challenges for businesses in the consumer goods sector. The online retail market is forecast to double in size by 20259, with new or low frequency users expected to drive a 160% increase in e-commerce purchases over the coming years. Businesses are showing some strong interest in harnessing the trends of digitalization with 80% of executives in the industry specifically allocating investments to improve their e-commerce shopping platforms in 2021.10
Digital future: Share of on-line retail on total retail sales (%)Sustainability has also moved high in the consumer goods agenda, with more than half of consumers across all markets intending to purchase more sustainable products once the pandemic subsides.11Businesses are adapting to increase resilience and sustainability of their internal businesses and their supply chains. Advances in cloud software, blockchain, artificial intelligence (AI) and satellite technology can be harnessed to enable flexibility and resilience in supply chains.
1 UNCTAD. ‘Key statistics and trends in international trade 2020’ (internet). United Nations Conference on Trade and Development. 2021 (accessed 9.6.21). Available at: https://unctad.org/system/files/official-document/ditctab2020d4_en.pdf 2 Remes, J. Manyika, J et al. ‘The consumer demand recovery and lasting effects of COVID-19’ internet). McKinsey. 2021 (accessed 9.6.21). Available at: https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-consumer-demand-recovery-and-lasting-effects-of-covid-19 3 McKinsey. ‘Perspectives on retail and consumer goods’ (internet). McKinsey & Company, 2020 (accessed 7.6.21). Available at:https://www.mckinsey.com/~/media/McKinsey/Industries/Retail/Our%20Insights/Perspectives%20on%20retail%20and%20consumer%20goods%20Number%208/Perspectives -on-Retail-and-Consumer-Goods_Issue-8.pdf 4Takefman, B. ‘Amazon profits increased nearly 200% since start of Covid-19 pandemic’ (internet). ResearchFDI. 2021 (accessed 14.6.21). Available at: https://researchfdi.com/amazon-covid-19-pandemic-profits/ 5Sky News. ‘Amazon’s profits more than tripled in the first three months of 2021’ (internet). Sky. 2021. Accessed 14.6.21). Available at: https://news.sky.com/story/amazons-profits-more-than-tripled-in-the-firs... 6 Alicke, K. Gupta, R. Trautwein, V. ‘Resetting supply chains for the next normal’ (internet). McKinsey. 2020 (accessed 8.6.21). Available at: https://www.mckinsey.com/business-functions/operations/our-insights/resetting-supply-chains-for-the-next-normal 7 Eurostat. ‘World trade in goods’ (internet). Eurostat - statistics explained. 2020 (accessed 8.6.21). Available at:https://ec.europa.eu/eurostat/statisticsexplained/index.php?title=World_trade_in_goods#World_trade_in_goods:_developments_between_2008_a nd_201f 8 Accenture. ‘A new era of trade for consumer goods industry’ (internet). Accenture, 2020 (accessed 8.6.21). Available at: https://www.accenture.com/_acnmedia/pdf-73/accenture-new-era-of-trade-for-consumer-goods-industry.pdf 9 EIU. ‘Digital disruption: risks and opportunities in the shift to online’ (internet). Economist Intelligence Unit. 2020 (accessed 14.6.21). Available at: https://www.eiu.com/n/digital-disruption-risks-and-opportunities-in-the-shift-to-online/ 10 Deloitte. ‘2021 consumer products industry outlook: No-regret moves in the face of uncertainty’ (internet). Deloitte. 2021 (accessed 14.6.21). Available at: https://www2.deloitte.com/us/en/pages/consumer-business/articles/consumer-products-industry-outlook.html 11 YouGov. ‘International FMCG/CPG report 2021’ (internet). YouGov. 2021 (accessed 14.6.21). Available at: https://db42aa43a2d5ed566294-81964d36a501d7a15be4d8350b0feec4.ssl.cf3.rackcdn.com/YouGov-International-FMCG-Report- 2021%20(2).pdf
The pandemic has brought sections of the creative industry to a halt, but also accelerated structural changes within the industry, such as the transition towards digital platforms and a greater role for individual ‘content creators’.
The pandemic has impacted the creative industries asymmetrically. Segments dependent on live audiences and cross-border travel, such as performing arts, theatre and cinema, were hard hit by social distances measures, while digital creative industries boomed. Europe’s performing arts sector lost 90% of its revenue, while its music sector registered a 76% decline.3 The sector also suffered from low state welfare provisions, as most creative industry workers are self-employed or freelancers and therefore not always eligible for job protection policies put in place. In Europe 32% of cultural sector workers are self-employed and lack job protection, a total of 7.3m jobs in the sector at risk, representing 3.7% of total EU employment.4 The pandemic has also accelerated the digital transition of the sector, highlighting the centrality of digital technology for economic resilience. Quickened innovation in digitalisation and technology, as live performance shut down has given rise to streaming platform as well as unique digital creative assets built on the blockchain, like non-fungible tokens (NFTs). Growth has been notable in digital publishing, with the UK seeing a 37% increase in audio downloads, and a 24% increase in digital book downloads.5 The shift to online sales favored players that already had an established online presence, as well as those who swiftly adapted. This is seen to favor the advertising sector, which is forecasted to a strong recovery in 2021 in the UK, increasing to £29bn in 2022.6 This is largely attributed to the digital shift.
Annual revenue of global entertainment market (US$ bn)The digital transition shift has given birth to new producer tools, new distribution and dissemination platforms and the rise of the ‘creator economy’. These have profound implications for the sector’s growth, development and international trade. The music streaming and video on-demand revolution has established a new market and increased competitive tensions between players. On-demand video grew by 31% in 2020. There are now 1.1bn online video subscribers online, up 26% from 2019.7 The rise of the ’creator economy’, aided by the emergence of a growing range of tools allowing the production of high-quality content with minimal financial requirements, has also given birth to new forms of revenue in the creator space. One fifth of companies surveyed in a 2019 poll spend at least half their marketing budget on influencers.8, is a niche market that is growing rapidly. The rise of TikTok, for example, has generated US$20bn in sales from China in 2020 and forecasted global sales of US$40bn in 2021.9
Crucially, as a highly globalised, employment-intensive sector with a significant growth potential, creative industries are an important part of rapid and inclusive post-pandemic recovery. One study estimated that creative industries contributed 4.5% to US GDP – more than construction, transportation, mining or agriculture – and can significantly improve, not merely reflect, the health of the economy following a downturn.10 The creative sector offers economic diversification and can rapidly recover from a downturn, without being impacted by other slow growing sectors, or external volatility. As recognised by the UN, the creative economy has the potential to support developing and transition economies in diversifying production and exports and to deliver sustainable and inclusive development.11
1 UNCTAD, 2021: https://unctad.org/news/creative-economy-have-its-year-sun-2021#:~:text=UNCTAD%20has%20tracked%20trade%20 in,prospects%20look%20bleak%2C%E2%80%9D%20Ms. 2 UNESCO, 2018: https://en.unesco.org/creativity/sites/creativity/files/global_report_fact_sheet_en.pdf 3 The Guardian, 2020: https://www.theguardian.com/technology/2021/mar/12/non-fungible-tokens-revolutionising-art-world-theft 4 European Commission, 2020: https://ec.europa.eu/jrc/en/news/expert-investigating-pandemic-s-impact-europe-s-cultural-activities 5 Publishing in 2020 6 City AM, 2021: https://www.cityam.com/uk-advertising-sector-on-track-for-strongest-global-recovery/ 7 The Motion Picture Association, 2021: https://www.motionpictures.org/wp-content/uploads/2021/03/MPA-2020-THEME-Report.pdf 8 Wired, 2020: https://www.wired.com/story/influencer-economy-hurtles-first-recession/ 9 Bloomberg, 2021: https://www.bloomberg.com/news/articles/2021-06-10/tiktok-is-jacking-up-prices-as-it-builds-its-ad-business 10 Douglas Noonan: https://nasaa-arts.org/wp-content/uploads/2021/01/ArtsCultureContribEconRecovery-KeyFindings.pdf 11 UNCTAD, 2021: https://unctad.org/news/creative-economy-have-its-year-sun-2021
Alongside professional services, it plays a pivotal role in the modern economy and international trade flows. The Covid-19 pandemic significantly disrupted the industry that was already being reshaped by the effects of the global financial crisis, sustainability drive and digital innovation. Digital transformation, changing customer preferences and regulatory pressures, are also challenging existing business models in financial and related professional services.
Despite entering the pandemic more resilient than it has been prior to the previous crisis, and stronger than expected performance in 2021, the global banking sector may register losses as a result of the pandemic over the next years. These will show in the form of credit losses, with defaults expected to soar as state support is withdrawn. One estimate forecast the industry’s loss in revenue at US$3.7trn over the next five years.1 Moreover, the uneven nature of the post-pandemic recovery will hit some regions and sectors harder than others. There is limited scope for wider margins in developed markets, with interest rates low and financial services utilisation high. In developed economies there is much greater space to reach new customers, despite the increase in credit risks.2 Digital technologies are restructuring the way financial services are provided, the competition dynamics and how the customers interact with the industry. The rise of financial technology (fintech), blockchain and artificial intelligence companies, are threatening traditional providers of financial services through increased competition. Challenger neobanks (digital-only providers) and telecom providers are gradually increasing their share in the market, both in terms of processes and services offered to customers. Traditional providers that struggle to shift activities to digital channels risk losing market share and the ability to reach new customers. In 2018 fintech companies already accounted for 38% of unsecured personal lending in the US, while they are “economically relevant” in SME financing in China, the US and the UK, according the Bank for International Settlements (BIS).3
Fintech boom: Number of UK Fintech companies (rebased at year 2000), 2000-2020Digital currencies have increasingly become the focus in central banks around the world amid growing government, business and consumer interest. A Central Bank Digital Currency (CBDC) would allow central banks to issue electronic money available to all households and businesses, allowing them to make payments in CBDC. A report from the Bank for International Settlements highlighted that 28% of 50 central banks surveyed were looking into CBDC interoperability.4 Of the major world economies, China is thought to be the most advanced CBDC testing, with the e-CNY digital yuan expected to launch in 2022.5 CBDCs could bring wider access, stronger governance and privacy standards to digital payments systems, currently dominated by cryptocurrencies such as Bitcoin.
Going digital: Willingness of central Banks to adopt range of approaches to interoperabilty of Central Bank Digital Currency (CBDCs) (%), 2021There is also growing consensus that financial services actors need to upgrade their agenda towards climate finance, as net zero cannot be achieved without the funding needed to mitigate the physical risks of the impact of climate change. Global climate financing was estimated to have reached up to US$620 in 2019, the bulk of which through debt issuance. Financing a transition to a climate-resilient economy will require much greater investment than is currently being committed, and failure to provide it will result in even more investment for climate adaptation and mitigation in the longer term. Estimates suggest that US$100-150trn will be needed to reach the 1.5-degree target by 2050.6
Climate finance growth: Total global climate finance flows (US$bn), 2012-2019The growing prominence of institutional and private investment in climate financing has prompted regulatory efforts to drive climate related activities. Regulation is responding to market developments with new tools, such as green bonds, and shaping the disclosure requirements through the launch of the Taskforce on Climate-related Financial Disclosures. However, more needs to be done to incentivise climate financing and the financial services industry has a vital role in facilitating the tools and mechanisms that will help address climate change.
1 McKinsey. ‘Interim Results 2021’. 2021. https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review 2 The Economist Intelligence Unit (EIU).’Financial Services Global Outlook. 2021 3 Frost, J. ‘The economic forces driving fintech adoption across countries’. Bank for International settlements. https://www.bis.org/publ/work838.pdf, p.2 4 Auer, R et al. ‘CBDCs beyond borders: results from a survey of central banks’. Bank for International Settlements. 2021.https://www.bis.org/publ/bppdf/bispap116.htm 5 Lim, M. ‘What lies ahead for CBDCs, Bitcoin and other digital currencies?’. Fintech News. 2021.https://www.fintechnews.org/what-lies-ahead-for-cbdcs-bitcoin-and-other-digital-currencies/ 6 GFMA. ‘GFMA and BCG Report on Climate Finance Markets and the Real Economy‘. Global Financial Markets Association. 2020.https://www.gfma.org/policies-resources/gfma-and-bcg-report-on-climate-finance-markets-and-the-real-economy/