Cross-disciplinary discussions redefine the service economy at KODW 2021

Source: HKDC. Guests at the opening ceremony for KODW 2021 included (from left) Lofai Lo, Director and GM, ViuTV; Dr Lay Lian Ong, Principal, Hong Kong Design Institute & Hong Kong Institute of Vocational Education; Victor Tsang, Head of Create Hong Kong of the Government of the Hong Kong Special Administrative Region; Professor Eric Yim, Chairman of Hong Kong Design Centre; guest of honour The Honourable Edward Yau, GBS, JP, Secretary for Commerce and Economic Development of the Government of the Hong Kong Special Administrative Region; Victor Lo, Chairman, KODW Steering Committee of Hong Kong Design Centre; Professor Kun-Pyo Lee, Dean of The Hong Kong Polytechnic University School of Design, and Dr Edmund Lee, Executive Director of Hong Kong Design Centre.

Over 50 global entrepreneurs and industry experts were tapped to inspire audiences during Knowledge of Design Week (KODW) 2021, a week-long event in June. Themed Reimagining Service Economy, the annual event is organised by the Hong Kong Design Centre (HKDC) and Institute of Design Knowledge (IDK), co-organised by Hong Kong Design Institute (HKDI) and The Hong Kong Polytechnic University School of Design (PolyU Design), together with Create Hong Kong (CreateHK) of the Government of the Hong Kong Special Administrative Region (HKSAR Government) as the lead sponsor.

At the Innovation for Future Service forum Clive Grinyer, Head of Service Design, Royal College of Art (UK) and one of the UK's leading service design consultants, defined service design: “That's what we call service design: we put the human at the centre – not the technology, not the business.” On what and who to design for, he said, “Let's design what is preferable, not just possible. Let's design for people, old and young.”

Tim Stock, the Co-founder & Managing Partner of US-based scenarioDNA and co-inventor of a patented methodology of culture mapping added, “We need to better examine the relationship between feasibility and desirability.”

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Those who missed the live simulcast can register online to revisit the on-demand sessions free, with unlimited access for 2 weeks.

CEOs see slower economic growth in 2020

- CEOs in every region across the world predict slower economic growth

- Confidence in companies’ own revenue growth lowest since 2009

- Findings from PwC’s 23rd Annual Global CEO Survey

CEOs are showing record levels of pessimism in the global economy, says PwC, with 53% predicting a decline in the rate of economic growth in 2020.

Source: PwC. Regression analysis on change in CEO confidence against GDP growth.

This is up from 29% in 2019 and 5% in 2018, the highest level of pessimism since the consultancy started asking the question in 2012. In contrast, the number of CEOs projecting a rise in the rate of economic growth dropped from 42% in 2019 to 22% in 2020.

These are some of the findings of PwC’s 23rd survey of almost 1,600 CEOs from 83 countries across the world, launched at the World Economic Forum annual meeting in Davos, Switzerland.

The pessimism is even more pronounced in Singapore with 84% of CEOs expecting global GDP growth to decline over the next 12 months and only 6% expecting it to improve. Two years ago CEOs in Singapore had a record level of optimism, where 57% expected an increase in GDP growth.

Yeoh Oon Jin, Executive Chairman, PwC Singapore said: “2019 was not an easy year for business leaders in Singapore, with record low GDP growth in Singapore and a highly volatile geopolitical environment globally. In addition to external pressures, many businesses are still on their digital transformation journeys and are embarking on upskilling programmes for their employees, both of which will require significant investments in the near term. It is therefore not surprising that while GDP is expected to pick up in 2020, only about one in four CEOs in Singapore are confident in revenue growth for the next 12 months.”

CEOs are also not as positive about their own companies’ prospects for the year ahead, with 25% of CEOs in Singapore saying they are “very confident” in their own organisation’s growth over the next 12 months (27% globally, 29% in the Asia Pacific region).

Global CEO sentiment about their own revenue growth prospects has proven to be an excellent predictor of global economic growth. Analysing CEO forecasts since 2008, the correlation between CEO confidence in their 12-month revenue growth and the actual growth achieved by the global economy has been very close. If the analysis continues to hold, global growth could slow to 2.4% in 2020, below many estimates including the 3.4% October growth prediction from the IMF.

In 2019, when asked about the top threats to their organisation’s growth prospects, uncertain economic growth ranked outside the top 10 concerns for CEOs globally, at No. 12. This year it leapt to third place, just behind trade conflicts – another risk that has risen up the CEO agenda – and the perennial over-regulation, which has topped the table as the No. 1 threat for CEOs globally.

In Singapore, trade conflicts* (97%) emerged as the top concern for CEOs, followed by uncertain economic growth (94%) in second and then protectionism (88%). The top three concerns point towards the strong influence that the global environment has on Singapore as a globalised economy.

Technology

While CEOs around the world express clear concerns about the threat of over-regulation, they are also predicting significant regulatory changes in the technology sector. Globally, over two-thirds of CEOs (75% in Singapore) believe that governments will introduce new legislation to regulate the content on both the Internet and social media and to break up dominant tech companies.

A majority of CEOs (51% globally, 59% in Singapore) also predict that governments will increasingly compel the private sector to financially compensate individuals for the personal data that they collect.

Skills

While the shortage of key skills remains a top threat to growth for CEOs and they agree that retraining/upskilling is the best way to close the skills gap, they are not making much headway in tackling the problem with only 16% of Singapore CEOs (18% globally) saying they have made “significant progress” in establishing an upskilling programme.

Top challenges Singapore CEOs faced when it comes to upskilling were employees’ ability to learn new future skills (22%) and retaining upskilled employees (19%). Despite the challenges around digital upskilling, there are visible signs of progress. A third of CEOs in Singapore said that upskilling programmes were very effective in driving greater innovation and accelerated digital transformation while two-fifths of CEOs linked it to higher workforce productivity.

Yeoh said, “In the quest for greater innovation, transformation and productivity through upskilling of the workforce, a key factor for success is a clear plan that is strategically aligned to meet business needs. Organisations must clearly identify skills gaps and mismatches, build a futureproof skills strategy and lay the necessary cultural foundation. Without these building blocks in place, business leaders risk implementing programmes that are not in line with their futureproofing strategies.”

Climate change

Globally, CEOs are also increasingly concerned about cyber threats and climate change and environmental damage. Climate change is still not in the CEOs’ top 10 threats to growth, having been overshadowed by other threats despite the increasing number of extreme weather events and the intensity of debate on the issue.

Although climate change does not appear in the top ten threats to CEOs’ growth prospects, CEOs are expressing a growing appreciation of the upside of taking action to reduce their carbon footprint. Compared to a decade ago, when we last asked this question, CEOs are now twice as likely to “strongly agree” that investing in climate change initiatives will boost reputational advantage (30% in 2020 compared with 16% in 2010) and 25% of CEOs today compared with 13% in 2010 see climate change initiatives leading to new product and service opportunities for their organisation.

Views from CEOs in Singapore are even stronger with 50% saying they ‘strongly agree’ that there will be reputational advantages and 41% seeing new product and service opportunities.

However, for these opportunities to turn into long term success stories, the principles of climate change need to be embedded right across a businesses’ supply chain and customer experience.

Explore:

Read PwC’s 23rd Annual Global CEO Survey – Singapore Report

Download the global report

Watch the associated video

*PwC conducted 1,581 interviews with CEOs in 83 countries, of which 32 were from Singapore, between September and October 2019.

The sample is weighted by national GDP to ensure that CEOs’ views are fairly represented across all major regions. Seven percent of the interviews were conducted by telephone, 88% online, and 5% by post or face-to-face. All quantitative interviews were conducted on a confidential basis.

Forty-six percent of companies had revenues of US$1 billion or more; 35% of companies had revenues between US$100 million and US$1 billion; and 15% of companies had revenues of up to US$100 million. Fifty-five percent of companies were privately owned.

**It should be noted that the survey was conducted in September and October 2019, before the US-China trade war deal signed in January 2020.

China's President pledges to build a prosperous society

President Xi Jinping delivered a New Year speech in Beijing on new year's eve to ring in 2020, pledging to achieve the first centenary goal of building a moderately prosperous society in all respects, reported the China Daily.

"Let's seize the day and live it to the full," Xi said.

Highlights included:

- China's gross domestic product (GDP) is expected to near US$14.37 trillion in 2019. Per-capita GDP is expected to reach US$10,000 in 2019.

- China has established diplomatic relations with a total of 180 countries.

Xi extended best wishes to Hong Kong and Hong Kong compatriots. Hong Kong has seen protests since March 2019.

"The situation in Hong Kong has been everybody's concern over the past few months," said Xi.

"Without a harmonious and stable environment, how can there be a home where people can live and work happily!" Xi added. "We sincerely hope for the best for Hong Kong and Hong Kong compatriots."

A prosperous and stable Hong Kong is the aspiration of Hong Kong compatriots, as well as the expectation of the people of the motherland, he said.

McKinsey: Asia is the hottest global economic hotspot

Source: MGI website. White tiger.

Asia is now the centre of global economic activity, says McKinsey & Company, with China competing as an economy with the US; India poised to overtake the UK to become the world’s fifth-largest economy, and sizeable growth among smaller and midsize countries.

These observations are from research by McKinsey & Company, in partnership with the McKinsey Global Institute (MGI). Future of Asia is a new multichannel, multiyear research effort that examines how Asia will lead.

“If you want to understand the global economy and its future, you need to understand Asia,” said Oliver Tonby, Chairman of McKinsey in Asia.

“Not just its stunning economic ascendancy, but its complexity, resilience and interconnectedness through industrialisation, investment, infrastructure, trade, culture and innovation.

“The 21st-century will be characterised by a pivot toward Asia, and business and market leaders will need an accurate picture of what a future Asia will look like as they set long-term strategies.”

MGI has also released a discussion paper, Asia’s Future is Now, which provides an overview of Asia’s role in four areas: trade flows and networks; corporations in Asia; technology; and the Asian consumer. MGI will return to each of these topics with more in-depth, standalone research reports over the coming 12 months.

McKinsey’s research highlights that the region is on track to top 50% of global GDP by 2040 and drive 40% of the world’s consumption. Further, as consumption rises, more of what gets made in Asia is being sold locally instead of being exported to the West.

Jonathan Woetzel, a Senior Partner at McKinsey and Director of MGI, said intraregional trade is increasingly important to Asia with supply chains becoming shorter and more localised. Today, 52% of Asian trade is intraregional.

“While the previous era of globalisation was marked by Western companies building supply chains that stretched halfway around the world as they sought out the lowest possible labour costs, today only 18% of goods trade involves exports from low-wage countries to high-wage countries,”  Woetzel said.

As wages have risen in China, countries like Vietnam, India and Bangladesh have managed to grow their exports of labour-intensive manufactured goods by annual rates of 15%, 8% and 7%, respectively.

The Asian services trade is booming too. While the trade intensity of goods has declined, service flows have become the connective tissue of the global economy – and Asia’s services trade is growing 1.7 times faster than the rest of the world’s.



Growing companies

More than 40% of the world’s 5,000 largest companies are Asian. The 2018 Fortune Global 500 ranking confirmed that 210 of the world’s 500 biggest companies by revenue were Asian. Their presence is game-changing - not just in sheer numbers, but also in performance, the consultancy said.

The region’s share of top-performing firms has grown from 19% to 30% in the past two decades. Most of these companies are from China, India, Japan, and Korea, and the most dominant sectors within this group are computers and electronics, automotive, and banking.

Wonsik Choi, Managing Partner of McKinsey in Korea and a founder of the Future of Asia project, said: “Our research has found that ‘superstar’ firms in the top decile of performance are generating higher economic profits than ever before, while losses are growing among the worst-performing firms, some of which are ‘zombie’ firms that actually destroy value.”

In the decade since 2005-07, the economic profit produced by top-quintile Asian firms has increased by 57% (versus 33% in North America). Meanwhile, the economic profit destroyed by bottom-quintile Asian firms increased sevenfold (versus 2.5 times in North America). This effect tends to squeeze the firms in the middle of the distribution. This phenomenon is global, but it is particularly pronounced in Asia.

Asian numbers

The superstar effect in the corporate world is mirrored by widening disparities between cities, regions, and population segments. Asia may be replicating some of the patterns that have taken hold in the West.

Asia already accounts for half (2.2 billion) of the world’s Internet users; China and India alone account for one-third. The region’s enormous pools of digital consumers support a flourishing and innovative technology sector.

As a major worldwide investor in digital technologies and one of the world’s leading adopters of new technologies, China is already shaping the global digital landscape and supporting and inspiring entrepreneurship beyond its own borders.

Asia also has ample venture capital to support technology innovation and entrepreneurship. China provided 20% of the world’s venture capital between 2014-2016, with India not far behind. China now ranks second only to the US in terms of startup investment.

Innovation hubs are starting to take root too. As of April 2019, Asia was home to more than one-third of the world’s unicorns (startups valued at more than US$1 billion). Ninety-one of these companies are in China, followed by India with 13, South Korea with six, and Indonesia with four.

By 2020, Asia’s middle class will be around 3 billion strong and may be home to half of the world’s middle class. Southeast Asia alone, which had 80 million households in the consuming class only a few years ago, is now expected to double to 163 million households by 2030.

These newly-prosperous consumers will have income levels that allow them to make significant discretionary purchases. McKinsey projects that, over the next decade, the region may fuel half of consumption growth worldwide.

The Asian consumer resists easy characterisation. Asia’s Generation Z has very different buying behaviours and values to the region’s seniors, who will drive 15% of global consumption growth, adding some US$660 billion to what they already spend today. This post-90’s generation of consumers are starting to shift their preference for foreign brands and bias against domestic brands; in fact, they are starting to choose local over foreign brands more often.

Brands will need highly targeted strategies to succeed across such a diverse and fragmented region, McKinsey says. In the months ahead, McKinsey and MGI will release a series of comprehensive research reports.

“We hope to illuminate not only the region’s future trajectory but also how Asia is putting its own stamp on the world economy,” said Tonby.


MGI, the business and economics research arm of McKinsey & Company, was established to develop a deeper understanding of the evolving global economy. The partners of McKinsey & Company fund MGI’s research; it is never commissioned by any business, government, or other institution.

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Read more about the Future of Asia research

Download the report

Financial inclusion could accelerate economic growth in the Arab world

The International Monetary Fund (IMF) has called for the development of small and medium sized enterprises (SMEs) and financial inclusion in the Arab world.

Christine Lagarde, MD, IMF spoke at the World Government Summit in Dubai, UAE about doing more in Arab countries to increase growth and job opportunities for all. She noted that SMEs help create jobs, diversify economies, and support growth.

"In the Arab region, SMEs represent 96% of registered companies. They also employ half of the labour force. Yet their access to finance is the lowest in the world: lending to SMEs in the region is only 7% of total bank lending.

"We found that closing this financial inclusion gap – with respect to the average of emerging and developing countries – would yield multiple economic benefits:

"- It could boost annual economic growth by up to 1%o, potentially leading to about 15 million new jobs by 2025 in the Arab region.

"- It could also increase the effectiveness of fiscal and monetary policies, by improving domestic revenue mobilisation and monetary policy transmission.

It is clear then, that supporting and enabling SMEs is a key component of any inclusive growth agenda," she said.

IMF research has found that promoting SME financial inclusion requires a holistic approach. "To achieve meaningful, safe and sustainable SME access to finance, there is no magic bullet. And partial approaches are unlikely to suffice," she said.

Three success factors, Lagarde said, are sound economic fundamentals and financial sectors, institutional factors, and alternative channels for SME finance.

This translates into levelling the playing field for SMEs, maintaining a competitive economy and a banking sector that facilitates market entry for SMEs; good governance and financial supervisory capacity, availability of credit information, as well as strong legal frameworks; tapping capital markets and supporting the development of SME capital market segments.

"Fintech is also a potential game changer for SMEs: it can increase competition among credit providers and expand credit information," she said.

A departmental paper on how SME financial inclusion is at the core of the economic diversification, growth, and addressing job creation challenges many countries are facing was launched on February 12.

Source: IMF website. Infographic on boosting economic growth and job creation in the Middle East and Central Asia.

In other announcements the IMF said:

Jordan

Exports in Jordan increased in 2018, supported by the re-opening of the border with Iraq. Tourism has grown strongly, and credit to the private sector has grown at solid rates for the third consecutive year, according to an IMF team who visited Amman from January 27-February 7, to discuss the country’s recent economic developments; economic policies and reforms under Jordan’s reform programme supported by a three-year IMF extended fund facility (EFF) arrangement.

Team leader Martin Cerisola said economic growth remained at about 2% and inflation remained relatively steady, falling below 4% by year-end. "Weak growth and investment remain insufficient to generate more jobs, with unemployment at around 18%, presenting difficult conditions for the population," he said.

“The outlook for the Jordanian economy brings renewed momentum. The re-opening of the border with Iraq and associated trade and investment agreements; the extension and broadening of the trade agreement with the European Union; as well as other efforts to lower the cost of generating energy, all bode well for a steady recovery in investment, exports, competitiveness, and growth. However, challenges still remain, particularly from tighter and more volatile global financing conditions and elevated vulnerabilities."

UAE

The UAE economy is starting to recover from the 2015–16 slowdown caused by a decline in oil prices, the IMF said. Growth momentum is expected to strengthen in the next few years with increased investment and private sector credit, improved prospects in trading partners, and a boost to tourism from Expo 2020.

Non-oil growth is projected to rise to 3.9% in 2019 and 4.2% in 2020. The oil sector’s prospects have also improved with higher oil prices and output. Overall real GDP growth is projected at around 3.7% for 2019–20. Inflation is expected to remain low, notwithstanding the introduction of the value-added tax (VAT) earlier in 2018.

IMF directors agreed that creating a vibrant, diversified, and knowledge-based economy will require continued reforms to boost the role of the private sector and promote talent and inclusiveness. They welcomed recent reforms, including the liberalisation of foreign investment, and encouraged the authorities to swiftly implement them, while broadening and deepening policy initiatives to improve productivity and competitiveness.

Timor-Leste

Government spending is expected to regain momentum in 2019, with non-oil GDP growth projected at 5%. "Inflation rose in 2018 and is expected to reach around 3% by end-2019, below the government’s target of 4%," said Niklas Westelius of the IMF, who visited Timor-Leste from January 14-25 to conduct the 2019 Article IV Consultation discussions.

Westelius added, “Political uncertainty constitutes the main downside risk to the near-term outlook, with the potential to reduce public spending and slow reform efforts. Over the medium-term, insufficient progress to diversify the economy and create private-sector jobs could worsen labour market outcomes.

"Moreover, with oil revenue from active fields expected to end in 2022, continued drawdowns of the Petroleum Fund could pose risks to long-run fiscal sustainability. Beyond the medium-term, the development of the Greater Sunrise fields represents an upside risk, provided that the project is technically and economically viable and that proper safeguards are taken to minimise funding risks.'

Hong Kong

The Hong Kong SAR’s economy is expected to grow 3.5% in 2018 and 2.9% in 2019 according to IMF projections. The organisation said private consumption aided by a tight labour market and investment are expected to continue to support growth, with headwinds coming from the increased trade tensions, tighter global financial conditions, and slower growth in mainland China.

Risks to the outlook include the further escalation of global trade tensions, possible disorderly tightening of global financial conditions, slower-than-expected growth in mainland China, and a sharp housing market correction.

Explore:

Read the Financial Inclusion of Small and Medium-Sized Enterprises in the Middle East and Central Asia report

Hashtag: #finaccess

Singapore's 2018 Budget revolves around technology, innovation and capabilities

Source: Budget 2018 site. View of Singapore skyline.

In 2018, the Singapore Ministry of Trade and Industry (MTI) expects growth to be more broad-based across sectors, moderated from the high of 2017, said Singapore Financial Minister Heng Swee Keat during his Budget 2018 speech.

In his speech Minister Heng said Singapore must prepare for three shifts in the next decade:

- A shift in global economic weight towards Asia.

Some indications of this trend include China's new regional infrastructure bank and plans under the Belt and Road Initiative; economic reform in India, including the easing of restrictions on foreign investments; and a growing middle class in ASEAN countries, which are moving up the value chain, Heng said.

"All these developments represent significant opportunities for our firms and people. Our economy must be geared to ride on and contribute to Asia’s growth," he said.

- The emergence of new technologies, and its implications for lifelong learning.

"Firms will compete increasingly not on physical assets, but on intangible assets, such as intellectual property (IP), data, and user networks. First-mover advantage and time to market will be key.
"Securing better jobs and higher wages will not be just about how well we did in school, but how well we continue to learn, relearn, adapt and grow throughout our lives," he said.

- A greying population, with implicatons for healthcare and social expenditure, as well as the tightening of the labour market if productivity and "a calibrated inflow" of workers from abroad are neglected.

Heng sees the three shifts interacting to bring new opportunities as well as new challenges. He listed the possibility of technology helping older workers to stay productive, contrasting it with the rapid pace of change potentially causing the same workers to feel marginalised.

This year's Budget will guard against the challenges while capturing opportunities, he said, specifically:

- Developing a more vibrant and innovative economy

"We must anchor Singapore as a Global-Asia node of technology, innovation and enterprise, welcome investments, talent and ideas to Singapore, and be bold in venturing out into new markets. "To do this, we must make innovation pervasive in our economy, develop deep capabilities in our firms and workers, and establish strong partnerships locally and abroad. "The shifts in the global economy and the emergence of new technologies are to our advantage, because they allow us to seize opportunities beyond our borders," he said.

- Build a smart, green and liveable city.

"We should take full advantage of the latest technology to improve Singaporeans’ quality of life," Heng said. "To improve our liveability as a city, we must also enhance our urban sustainability and enable our economy to be more carbon-efficient."

- Foster a caring, cohesive society, and plan ahead for sustainable, secure future.

Strategies towards a more innovative economy include:

- Extending the Wage Credit Scheme (WCS). This initiative co-funds wage increases for Singaporean employees, up to a gross monthly wage of S$4,000. The WCS has been extended for three more years. It will provide 20% co-funding for 2018, 15% for 2019 and 10% for 2020.

- Enhance the Corporate Income Tax (CIT) rebate. For the Year of Assessment (YA) 2018, the rebate is raised to 40% of tax payable, capped at S$15,000. In YA2019, it will be at a rate of 20% of tax payable, capped at S$10,000.

- Better support for employees, including upgrading the current Work Trial scheme into a Career Trial scheme, with higher funding support for workers to try out new careers. In 2017, Heng said the government's Professional Conversion Programmes (PCPs) helped more than 3,700 mid-career individuals take up new jobs.

In the longer term, Singapore's transformation will rely in part on Industry Transformation Maps (ITMs) which outline how various industries can digitalise. To date, 21 out of 23 proposed ITMs have been launched, Heng said, with the remaining two to be introduced by end-March. The food services ITM was launched in September 2016, while the financial services ITM and the infocomm media industry ITM were introduced in November 2017. The security industry ITM was released in February 2018.

"The tripartite Future Economy Council (FEC) is now overseeing the implementation of these ITMs and the strategies laid out by the Committee on the Future Economy (CFE)," he said.

"Though new, the ITMs are helping to prepare our companies for a new phase of growth. For instance, as part of the precision engineering ITM, several companies in the sector, like Univac Precision Engineering and Globaltronic Precision, have undertaken projects to make better use of digital technologies in their manufacturing processes. This has enabled them to stay competitive and take advantage of the global economic recovery," he said.

In the next phase of the ITM journey, an ecosystem approach will come into play so that synergies can be reaped, interconnections strengthened, and opportunies explored, he said. The foundation for the ITMs lie in innovation, capabilities and partnerships, all of which will are a focus going forward, Heng said. "By strengthening these three enablers, we can anchor Singapore as a Global-Asia node of technology, innovation and enterprise."

New initiatives include supporting more firms to innovate across the entire value chain:

- Supporting businesses to buy and use new solutions. Existing grants that support the adoption of prescoped, off-the-shelf technologies will be consolidated into a single Productivity Solutions Grant (PSG).

- Tax deductions on licensing payments for the commercial use of intellectual property (IP) will be raised.

- A new Open Innovation Platform will be piloted this year. This marketplace will match companies looking for digital solutions to their challenges with infocommunications and technology (ICT) firms and research institutes to co-develop solutions, Heng explained.

- National research capabilities will be a focus for FY2018, backed by public sector R&D spending at 1% of GDP annually. This year, the National Research Foundation (NRF) and Temasek will launch an NRF-Temasek IP Commercialisation Vehicle.

 "This new investment venture will bring together Temasek’s global investment networks and NRF’s connections with the Singapore R&D community, to grow companies that draw on IP from publicly-funded research," said Heng. "At least S$100 million will go into this joint venture – S$50 million from the government, and at least S$50 million from Temasek."

In addition to the ITMs, special attention is on strengthening Singapore's position as an air and sea hub, leading to a new Aviation Transformation Programme (ATP) and a Maritime Transformation Programme (MTP) this year, Heng said.

"Through these programmes, our airport and seaport will become platforms for companies to develop, test and use new technologies," he said. "The solutions that emerge can be rapidly adopted in other parts of Singapore, or even exported overseas. We will provide support of up to S$500 million for the two programmes, with additional matching investments expected from industry partners."

The built environment sector is also singled out for attention this year with support from an expanded National Robotics Programme (NRP).

More targeted support is in the offing for enterprises:

- Merger of SPRING and IE Singapore into Enterprise Singapore this April

"Enterprise Singapore will provide integrated support to companies, for internationalisation as well as the development of other capabilities, so as to help them compete better both locally and abroad," Heng explained. "We will combine IE’s Global Company Partnership grant with SPRING’s Capability Development Grant, to form an integrated Enterprise Development Grant (EDG). The EDG will provide up to 70% co-funding for companies to develop a range of capabilities."

- Enhanced Double Tax Deduction for Internationalisation (DTDi) in YA2019

The amount of expenses that can qualify for the DTDi without prior approval has been raised from S$100,000 to S$150,000 per year of assessment as of YA2019. From YA2020, changes have been made to the Start-up Tax Exemption and the Partial Tax Exemption schemes. Tax exemptions under both schemes will be restricted to the first S$200,000 of chargeable income. Startups will enjoy a 75% exemption instead of 100% as currently, of their first S$100,000 of chargeable income from corporate tax.

"These schemes help lower costs for smaller firms and startups, but do not directly help firms develop capabilities. In addition, every profitable company should pay some taxes. This is sound and equitable," Heng said of the changes. "Even with these adjustments, corporate tax will remain low for startups and smaller firms. For a taxable income of S$100,000, the effective corporate tax rate is 4.3% for start-ups and 8.1% for older firms, as compared to the headline rate of 17%."

Digital transformation support includes:

- A possible nationwide e-invoicing framework to help companies improve productivity and enhance cash flow

- Expansion of the Tech Skills Accelerator (TeSA) into new sectors such as manufacturing and professional services, with the focus on digital technologies. Launched in 2016, TeSA has trained over 27,000 people in digital skills. Heng listed skills such as data analytics, artificial intelligence (AI), the Internet of Things (IoT) and cybersecurity as the focus today.

Equipping employees with "deep skills" in general continues to be important. A new ASEAN Leadership Programme under the the SkillsFuture Leadership Development Initiative (LDI) will help business leaders build networks and plan business expansions in Southeast Asian markets, Heng said. The LDI has already helped to train nearly 200 Singaporeans, with 180 in the pipeline, Heng said.
Existing initiatives to help the workforce develop deep skills include:

- The SkillsFuture Earn and Learn Programme, a work-learn programme;

- The Go Southeast Asia Award, which matches undergraduates with regional internships;

- The SkillsFuture Mid-Career Enhanced Subsidy;

- The PCPs, including the PCP for Southeast Asia Ready Talent which equips Singaporeans with the knowhow to do well regionally.

- Heng also highlighted private sector efforts, such as the Singapore Business Federation (SBF) and Singapore Management University (SMU) piloting the SBF-SMU LEAD-CHARGE Initiative this year to help small and medium sized enterprise (SME) leaders transform their organisations.

For older workers, the government has raised the re-employment age to 67, extended the Special Employment Credit, and enhanced WorkPro. WorkPro provides funding for the implementation of work-life measures, job redesign, improved workplace practices or flexible work schemes. Re-employment refers to the legal requirement for employers to give eligible employees the option to continue working, or to retire as they choose.

"With the close cooperation of the tripartite partners, Singapore’s employment rate for residents aged 65 and above rose from 14.4% in 2007 to 25.8% in 2017*," said Heng. "We will continue to encourage age-friendly workplaces, and review how we can better support our older workers."
A new Capability Transfer Programme (CTP) will also be piloted to support the transfer of skills from foreign specialists to Singaporean trainers and trainees.

Collaboration in technology, innovation and enterprise will be a government focus for the year. "Where synergies exist, we can achieve more when we work together, and draw on one another’s strengths to address common challenges and capture bigger and better opportunities," Heng said. "We will continue to encourage our companies to form strong partnerships, both locally and abroad."

Various partnership support measures will be consolidated into a single Partnerships for Capability Transformation or PACT scheme. Under PACT, companies can receive up to 70% co-funding for projects undertaken in partnership with others.

Innovation has gone global, the Singapore way. In the past year, Heng said that the Global Innovation Alliance (GIA), launched last year, has seen early progress. Overseas internship programmes at universities have expanded to new locations, GIA Beijing was launched, as was Block71 in Suzhou, China and Jakarta, Indonesia. The original Block71 in Singapore is a space for entrepreneurs and innovation. Heng added that global innovation is also being shared through initiatives like the Singapore Week of Innovation and Technology (SWITCH).

"As ASEAN chairman this year, we hope to make a meaningful contribution by developing an ASEAN Innovation Network. We hope this will strengthen the linkages among the innovation ecosystems in the region, and spark new collaborations and solutions," Heng said.

He also welcomed participation from trade associations and chambers (TACs) in forging partnerships and advancing the industry. Case in point is the Logistics Alliance, which last year launched the digital Transport Integrated Platform (TRIP) to enable easier tracking of container trucks, and reduce idling time, Heng said. The government will continue to support such efforts, through the Local Enterprise and Association Development (LEAD) programme, he noted.

The proposed carbon tax, to take effect in 2019, is on track, Heng shared. "We have to start preparing early so that industries have more time to adapt," he said.

Such a tax is likely to affect electronics manufacturers, for example. Heng said the carbon tax will be S$5 per tonne of greenhouse gas emissions from 2019 to 2023. The plan is to increase it to a rate of between S$10 and S$15 per tonne of emissions by 2030.

"The carbon tax will apply uniformly to all sectors, without exemption. This is the economically efficient way – to maintain a transparent, fair and consistent carbon price across the economy to incentivise emissions reduction," Heng said. The premise is that businesses will be encouraged to reduce their carbon emissions in line with requirements from other countries, as well as international agreements on climate change. At the same time, Heng estimated that the impact of the carbon tax on households would only be 1% of total electricity and gas expenses on average.

Heng also touched on a widely anticipated rise in taxes. National expenditure will require a higher goods and services tax (GST) from 7% to 9% from 2021 to 2025, Heng said. "The exact timing will depend on the state of the economy, how much our expenditures grow, and how buoyant our existing taxes are. But I expect that we will need to do so earlier rather than later in the period.
"This GST increase is necessary because even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap," he said.

Another anticipated increase in taxes - GST on imported services, widely thought to be an "e-commerce tax" before the Budget announcement - will come into play on 1 January 2020, he said. "Today, services such as consultancy and marketing purchased from overseas suppliers are not subject to GST. Local consumers also do not pay GST when they download apps and music from overseas. This change will ensure that imported and local services are accorded the same treatment," he said.

Industry reactions to the Budget included:

"Finally the end of the PIC scheme. It is welcoming that the Singapore government is providing more targeted support for companies to embrace innovation including raising tax deduction for IP registration fees to 200%, capped at S$100,000 a year. Some licensing payments, such as use of trademarks and brand names, may not lead to innovation. It remains to be seen what the scope of the enhanced deduction scheme is," said Lennon Lee, Entrepreneurial & Private Clients Tax Leader, PwC Singapore. PIC, or the Productivity and Innovation Credit Scheme, gave businesses 400% tax deductions/allowances for qualifying expenditure incurred in any of six qualifying activities from YA2011 to YA2018.

Lee said "all is not lost with the end of the PIC scheme". "...SMEs can now tap on the PSG which subsidises up to 70% of approved costs for the purchase and use of new productivity and innovative solutions."

"Laudable tax measures to encourage Singapore’s IP ecosystem. Enhanced tax deduction for Research & Development in Singapore, IP reregistration and licence payments should enable our SMEs to invest more on innovation and embrace greater use of technology to be efficient and effective," said Abhijit Ghosh, Corporate Tax Partner, PwC Singapore. Tan Tay Lek, Corporate Tax Partner, PwC Singapore added, "I had wanted to see the deduction limit raised to 300% but 250% is not bad. It helps put us in a good position to compete internationally for R&D dollars and more importantly, to attract R&D talent."

Alex Campbell, MD Asia, Xero, welcomed the government’s initiative to financially support small businesses adopting digital technology and saw the PSG in a positive light. “This year’s Budget is not a game-changer, which is great news for Singapore’s small business community. We need to keep our foot firmly on the accelerator and help digitise more homegrown small businesses, faster.

"For example, we recently released a study which found that small businesses here spend on average five workweeks each year manually chasing late payments from their customers. That’s a huge productivity drain which can be significantly minimised using digital technology - mostly funded by the newly-announced single PSG. Addressing these issues that are holding back small businesses is key to unlocking productivity, innovation and global expansion,” he said.

Adrian Lee, Research Director at Gartner, said that GST on imported services would impact digital service providers and consumers.

"To be expansive, the new GST ruling affects digital services like ride-sharing, food ordering, ticket sales (movies), and video on-demand providers. Broadening the tax base to include digital service providers should bring added resilience to the digital business ecosystem over the long term. Fairness can only be ascertained, if and when, the new GST ruling supports or disrupts local digital startups that create new digital workforces. Point of note, digital services constantly evolve. Innovative, forward-thinking service providers will take this in their stride as a matter of doing business in Singapore. They aim squarely at differentiating and gaining market share though unique and rich user experiences," Lee said.

"Digital service providers will face increased operational costs for compliance with the new tax regime. Service providers will need to ramp up to handle GST reconciliation with IRAS once they cross the S$100,000 threshold. Coupled with the proposed increase in GST to 9% across all businesses from 2021, this hits the digital service providers domiciled both in and outside of Singapore with additional margin pressures as they strive to remain profitable. Needless to say, this will dampen the growth of digital services in Singapore but should not constrain it, as consumers progressively digitise their services. It is a positive sign from the Singapore government that digital businesses are given notice until January 2020 to prepare for this," he added.

Consumers are also expected to rein in their online spending behaviour as a result. "In Gartner’s 2017 Mobile Apps Survey conducted across US, UK and China; music and video apps ranked as the 6th and 7th most used smartphone apps. Similarly in our mature market, 59% of all Singaporeans have reported purchasing a product or service online. B2C apps like Grab, Uber and Spotify occupy the top 10 spots with the most monthly active users," Lee said.

"Where there is no viable replacement service, i.e. Grab or Uber for Singapore transport, consumers might reduce and/or (consider) lower-value purchases. I do not think consumers will stop buying online. They will simply choose to spend more prudently."

Lee added that service providers will deal with the higher GST by:

- Offering their own ‘amnesty’ for a period to their high value customers to mitigate the effects

- Focusing on partnerships with digital payment providers/credit card companies to deliver greater incentives against spend

- Proactively lobbying for progressive tax structures to soften the impact, based on revenues earned.

"This should not, however, trigger any sort of a price war between competitive services as it applies across the board," Lee predicted.

Based on Gartner’s consumer personas, savvy "Enthusiast" consumers (24% of users) are expected to seek other digital providers to provide similar or comparable services, Lee noted. "The Internet is porous by nature and the new tax will alter consumption habits. For non-urgent needs, consumers will plan their online purchases for when a suitable promotion or campaign occurs."

Lee shared that in Gartner’s consumer personas, typically the 'Technology Late Adopters' (20% of users) will be held back by price, as one of their top barriers to consuming a digital service.

While an e-commerce tax was not announced, Lee is expecting one to be announced eventually. "Digital commerce service providers need to stand prepared. Innovative, forward-thinking physical retailers are already in digital commerce. These retailers are differentiating though a unified retail experience for consumers - with solid examples from Uniqlo, Sephora and Nike.

"Taxing pure players in digital commerce (like Shopee, Qoo10, Lazada, or Amazon) signals to traditional retailers that it is acceptable to do ‘business as usual’ in a declining physical retail market. Something needs to click for traditional retailers who insist on brick-and-mortar only. The tax might diversify the base, but on its own cannot sufficiently stimulate physical retail. In 2018, physical retailers should already be implementing/harvesting digital transformation; so as to respond to new retail models such as the unmanned store pilots from Alibaba, user-selectable delivery slots from Amazon Prime or digital wallets from GrabPay," he said.

"The reverse charge mechanism to tax business-to-business (B2B) transactions has long been in our GST legislation but was never effected until the Minister's announcement in Budget 2018. With the increase in cross-border services received by businesses in Singapore, the reverse charge could no longer stay dormant and would impact businesses in sectors such as financial services and residential property development which are unable to fully claim the GST on their business purchases," said Koh Soo How, Asia Pacific Indirect Tax Leader, PwC Singapore.

"If there is a question of how the Government would be able to enforce the GST registration for an overseas vendor for business-to-consumer (B2C) transactions, we must bear in mind that the tax authorities have exchange of information arrangements that would enable the jurisdictions to exchange information on overseas vendors which are already registered in the local territories."

Koh said that taxing the digital economy from 2020 will make e-commerce tax a virtual reality in Singapore. "The introduction of the e-commerce tax will make Singapore the first country in Southeast Asia to introduce a tax on the digital economy. This is likely to be followed by Thailand, Malaysia and Indonesia which are already considering such a tax," he said.

According to Koh, "The fact that the e-commerce tax will only apply to services show the practical difficulties and complexities that various jurisdictions face in trying to introduce an effective collection mechanism to tax low value imports of goods. We expect the government to take a wait-and-see approach and learn from the experiences of other countries before expanding the new rules to tax low value imports."

Said Ryan Goh, VP and GM, Zebra Technologies Asia Pacific: "There has been a worldwide shift toward an on-demand economy, which rewards businesses that are able to deliver what customers want, when they want it, and how they want it delivered. The ability to meet heightened expectations today can be achieved through a business’s digital capabilities. Aspects of these capabilities include their ability to leverage the 3A’s: analytics, automation and artificial intelligence.

"Any allocation of expenditure toward helping SMEs here tap on such solutions will go a long way toward giving them a leg up – so they are able to efficiently capture opportunities in and out of Singapore, particularly in the manufacturing sector.

"The impact of efforts to promote digital transformations will be particularly interesting to track in Singapore’s manufacturing sector, given the resurgence of this sector over the last year. This is especially so in the field of advanced manufacturing – which is one of eight emerging areas identified, under the SkillsFuture push to help equip adult learners with industry-relevant skills and prepare them to take on jobs.

"Notably, Singapore has a strong manufacturing base that’s leading the charge for advanced manufacturing – or what we call Industry 4.0. Far from being an endeavour for large enterprises only – we believe the journey toward Industry 4.0 holds great rewards for SMEs too."

Goh shared that in the APAC Manufacturing Vision Study by Zebra Technologies, manufacturers throughout the region are looking to tap on technologies for competitive advantages. "For example, the study predicted that 72% will have incorporated the use of mobile computers by 2022, compared to 27% last year. Similarly, 65% of respondents will use wearable technologies by 2022, while only 38% currently take advantage of such solutions. By leveraging technological solutions for increased operational visibility, manufacturers will be well-placed to respond to the on-demand economy by ensuring that the right assets are in the right place at the right time," he said.

Singapore also shared economic statistics as part of its Budget statement for FY2018:

- GDP grew by 3.6%**, up from 2.4% in 2016.

- Productivity grew 4.5% as measured by real value-added per actual hour worked, and 3.8% as measured by real value-added per worker. These are the highest figures since 2010.

- Real median income*** for Singapore citizens rose by 5.3%**** last year.

Singapore's financial year runs from 1 April to 31 March.

Explore:

Read the Budget Speech in full

Hashtag: #SGBudget2018

*Source: Singapore Ministry of Manpower's (MOM’s) Comprehensive Labour Force Survey

**Source: MTI’s Economic Survey of Singapore 2017.

***Median gross monthly income of full-time employed Singapore citizens.

****Source: MOM’s Labour Market Advance Release 2017.

INTA: Industries that invest in trademarks contribute significantly to ASEAN economies

Source: INTA. From left: James Allan, Director, Australia and Asia for Economic Frontier; Etienne Sanz de Acedo, INTA CEO; and Ai Ming Lee, Dentons, Rodyk & Davidson Senior Consultant.

The International Trademark Association (INTA) reports that industries which intensively use trademarks contribute significantly to five major economies in the Association of Southeast Asian Nations (ASEAN) region. Analysis from The Economic Contribution of Trademark-Intensive Industries in Indonesia, Malaysia, the Philippines, Singapore, and Thailand report indicates that trademark-intensive activities generate increased employment across sectors and added contributions to international trade. Trademark-intensive industries are defined as those industries which file more trademarks than other industries–weighted against total employment in that industry.

The release of the report coincides with the 50th anniversary of the ASEAN, which has successfully grown to become the world’s seventh-largest market and home to the third-largest labour force over the last half-century. INTA commissioned the report from Frontier Economics, an economics research firm. The study is the first of its kind to analyse the correlation between trademarks and their economic impact on contribution to GDP, share of exports, and employment in major markets of Southeast Asia.

From 2012 to 2015, trademark-intensive industries within Singapore generated a 50% direct contribution to GDP and 55% indirect contribution to GDP, reflecting interdependencies between trademark-intensive and non-trademark intensive industries. Trademark-intensive industries in Singapore comprised 60% of the country’s share of exports, including manufacturing of computers and electronics which contributed 21% of total manufacturing value added. In terms of employment, output, and value-added generated by trademark-intensive industries, workers’ share of the workforce represented 29% of total employment.

“A great brand is key to business success, especially in the digital economy, where there is intense competition for consumer attention. Companies that know how to use the right trademark strategy to protect their brand and grow it globally will have a strong edge over their rivals,” says Daren Tang, Chief Executive, Intellectual Property Office of Singapore (IPOS). “More broadly, the findings affirm the importance of IP as a business asset and a driver of Singapore’s future economic growth. IPOS, as an innovation agency, will build the right ecosystem to help businesses identify, protect, and more critically, commercialise their IP in Singapore and beyond into international markets.” 

Source: INTA infographic. Value of trademarks in Singapore.

“From employment to share of exports, this study illustrates the remarkable degree to which trademark-intensive activities positively impact the Singaporean economy,” noted INTA Member Ai Ming Lee, Consultant, Dentons, Rodyk & Davidson, LLP in Singapore. "In Singapore, trademarks and related intellectual property (IP) play a central role in driving economic development, strengthening international trade, and developing Singapore as an IP Hub.”

INTA CEO Etienne Sanz de Acedo said the results of the new study “underscore the immense potential for cross-sectoral economic growth that can be unlocked by promoting the value of trademarks with the business community, government, and the general public, and by further developing national trademark systems and trademark-intensive industries. As we explore the long-term economic and social implications of trademarks and related IP rights, it becomes increasingly important for both public and private sectors to scale up engagement on this issue, as well as support government efforts to further trademark and brand development and protection, including protection of goods in transit.”

Building on similar methodologies used by the European Union Intellectual Property Office (EUIPO) and the United States Patent and Trademark Office (USPTO), findings from the ASEAN report echo emerging analytical trends with regard to trademark-intensive activity. 

Interested?

Download the ASEAN impact report (PDF) 

View the Singapore-focused infographic (PDF)

Armenia's economy is picking up: IMF

On June 23, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation* with Armenia, noting that growth has been satisfactory with inflation under control, the fiscal situation broadly well managed, and foreign exchange reserves enhanced. 

In 2016, the IMF notes that GDP growth was at 0.2%, deflationary pressures persisted, and the fiscal deficit rose to 5.6% of GDP. Economic activity in 2017 has shown signs of recovery, accompanied by a pickup in inflation and private sector credit growth, supported by monetary policy easing.

Real GDP is projected to grow by around 3% in 2017, while inflation is estimated at 2% by end-2017. The risks are that a recent recovery in remittances and copper prices may not endure, and growth in key trading partners could be weaker than expected, the IMF said.

Executive Directors agreed** with the thrust of the staff appraisal, commending the Armenian authorities for their sustained efforts to enhance macroeconomic stability and satisfactory programme implementation despite significant external challenges. Directors noted that the economy is expected to gradually recover in 2017, but significant risks and challenges remain, including those from a narrow growth base and a sharp increase in public debt. They called for continued commitment to sound policies and structural reforms to ensure macroeconomic stability, and foster sustainable inclusive growth.

Directors called for continued efforts to advance structural reforms to foster sustainable and inclusive growth. They underscored the need to promote private sector development and diversify the economy by attracting FDI. In this context, they welcomed the authorities’ growth-promoting initiatives to improve the business environment, encourage competition, and strengthen governance.

It is expected that the next Article IV consultation with Armenia will be held on the standard 12-month cycle.

*Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

**At the conclusion of the discussion, the MD, as Chairman of the Board, summarises the views of Executive Directors, and this summary is transmitted to the country's authorities. Read an explanation of any qualifiers used in the summings-up. 

IMF sees favourable outcome for Pakistan's economic growth

The Executive Board of the International Monetary Fund (IMF) concluded its Article IV consultation* with Pakistan on June 14, 2017.

Pakistan’s outlook for economic growth is favourable, the IMF said, with real GDP estimated at 5.3% in FY2016/17 and strengthening to 6% over the medium term on the back of stepped-up China Pakistan Economic Corridor (CPEC) investments, improved availability of energy, and growth-supporting structural reforms. Inflation has been gradually increasing but remains contained, the IMF team said, and the financial sector has remained sound.

However, macroeconomic stability gains made under the 2013-16 IMF Extended Fund Facility (EFF)-supported programme have begun to erode and could pose risks to the economic outlook, the IMF warned. Fiscal consolidation has slowed, with the 2016/17 budget deficit target of 4.2% of GDP (authorities’ latest projection) is likely to be exceeded, the IMF said.

The current account deficit has widened and is expected at 3% of GDP in 2016/17, driven by quickly rising imports of capital goods and energy. Foreign exchange reserves have declined in the context of a stable rupee/dollar exchange rate. On the structural front, while the successful implementation of business climate and financial inclusion reforms has continued, some renewed accumulation of arrears in the power sector has been observed, and financial losses of ailing public sector enterprises continue to weigh on scarce fiscal resources.

IMF Directors agreed** that the growth outlook remains favourable, but noted that policy implementation weakened recently and macroeconomic vulnerabilities are reemerging. They  emphasised that sustained fiscal consolidation over the medium term, in line with the Fiscal Responsibility and Debt Limitation (FRDL) Act, is critical to strengthen economic resilience, safeguard fiscal sustainability, and limit pressures on the current account and international reserves.

To this end, Directors recommended mobilising additional tax revenues by broadening the tax base and strengthening tax administration; and enhancing the composition of public spending by containing the wage bill’s growth, further reducing electricity subsidies, and increasing priority social spending. They suggested strengthening the national fiscal federalism framework and public debt management.

Directors stressed the importance of maintaining a prudent monetary policy stance to preserve low inflation, and of further advancing financial sector reforms to continue strengthening resilience and support financial deepening. They welcomed the progress in fostering financial inclusion and implementing the business climate reform strategy, and encouraged the authorities to press ahead with these efforts. Directors also recommended further strengthening social safety nets.

*Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

**At the conclusion of the discussion, the MD, as Chairman of the Board, summarises the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here.

New Zealand optimistic about the future

New Zealand is feeling the highest level of optimism in three years, according to the latest Mastercard Index of Consumer Confidence (MICC)*, which is conducted twice a year.

The survey** by Mastercard has upgraded New Zealand’s consumer confidence from neutral to optimistic with a score of 62.2. This is a 6.8 point increase since the previous survey was undertaken six months ago, the first time New Zealand has been classed optimistic since 2014.

The index, which measures the six month outlook on five economic factors including the economy, employment prospects, regular income prospects, stock market and quality of life, is calculated on a scale of 0 to 100, with zero as the most pessimistic, 100 most optimistic, and 50 as neutral.

The latest survey highlighted that New Zealanders are more confident across economic (64.3), employment (64.0), quality of life (52.4) and stock market (56.6) factors. Regular income confidence, the highest measure in the survey, dropped 2.1 points to 73.9.

“It’s great to see New Zealand break into the optimistic group of the survey for only the second time since 2010 – although it’s unsurprising considering New Zealand’s economy has been growing robustly in recent times,” says Peter Chisnall, Mastercard Country Manager for New Zealand and Pacific Islands.

“We’re seeing strong tourism and migration underpin consumer spending, while the housing shortage and Canterbury rebuild have buoyed building activity. And with annual GDP growth of 3.6%, this is not only historically strong, but in the top tier of growth performance across the developed world,” says Chisnall.

More than a third of Kiwi consumers expressed confidence in their future prospects and sense of health security.

“The labour market remains strong, particularly in Auckland, and we are continuing to enjoy high levels economic and political stability. This contributes to an ongoing stable business and social environment which in turn provides Kiwis with the confidence to seek new opportunities,” adds Chisnall.

Internationally, New Zealand’s consumer confidence score is just below the average for the rest of the Asia Pacific region, which came in with a score of 68.1. The country is significantly ahead of neighbouring Australia, which scored 46.5.

New Zealand remains ranked 9th overall, while Australia placed 10th out of the 17 surveyed markets.

Mastercard Index of Consumer Confidence New Zealand – 2H16

Overall MICC 62.2, optimistic; some improvement from six months ago (+6.8)

• Employment 64.0, optimistic; significant improvement from six months ago (+11.4) 
• Economy 64.3, optimistic; significant improvement from six months ago (+12.7) 
• Regular income 73.9, optimistic; stable compared to six months ago (-2.1) 
• Stock market 56.6, neutral; stable compared to six months ago (+1.7) 
• Quality of life 52.4, neutral; significant improvement from six months ago (+10.3)

Hashtag: #MastercardNZ

*The MICC Index score and the five component index scores range from 0 to 100 where 0 represents maximum pessimism, 100 represents maximum optimism and 50 represents neutrality.

**The Mastercard Index of Consumer Confidence survey has a 20-year track record of consumer confidence indices collected from over 200,000 interviews. It is the most comprehensive and longest running survey of its kind in the Asia Pacific region. In June 1997, the index revealed a decline in consumer confidence – one month prior to the devaluation of the Thai baht that triggered the regional economic crisis. In June 2003, the Index score for Employment in Hong Kong dropped to a low score of 20. This was subsequently reflected in Hong Kong’s unemployment rate, which peaked just before September 2003 at 8%.

The survey began in the first half of 1993 and has been conducted twice yearly since. Seventeen Asia Pacific markets now participate in the survey: Australia, Bangladesh, mainland China, Hong Kong, India, Indonesia, Japan, Malaysia, Myanmar, New Zealand, Philippines, South Korea, Singapore, Taiwan, Thailand and Vietnam.

Between November and December 2016, 8,723 respondents aged between 18 to 64 in 17 Asia Pacific markets, were asked to give a six-month outlook on five economic factors. Respondents were asked five questions pertaining to their six-month outlook on the economy, their employment prospects, the local stock market, their regular income prospects, and their quality of life. The results of their responses were converted in five component indexes which were subsequently averaged to form the MICC score. The MICC Index score and the five component index scores range from 0 to 100 where 0 represents maximum pessimism, 100 represents maximum optimism and 50 represents neutrality.

IMF says AML/CFT crucial for financial sector stability in Kyrgyz Republic

• Growth accelerated towards the end of 2016, reaching 3.8% with 0.5% deflation due in part to exchange rate appreciation of about 9% percent.
• Consolidation efforts should continue to meet the 2017 fiscal deficit target of 3% of GDP.
• The passage of the anti-money laundering and counter finance of terrorism law is vital for the stability of the financial sector.

An IMF mission led by Edward Gemayel visited Bishkek from February 9 to 15 to take stock of the latest economic developments, discuss progress on economic reforms, and prepare for the upcoming combined Article IV consultation and fourth review under the ECF programme planned for April. At the conclusion of the visit, Gemayel issued the following statement:

“With external pressures subsiding, economic indicators have improved, but the recovery remains modest. Growth accelerated towards the end of 2016, reaching 3.8% with 0.5% deflation due in part to exchange rate appreciation of about 9%. Despite a shortfall in tax revenue, the 2016 deficit was contained to 4.5% of GDP due to restrained spending on non-priority items and the rephasing of some investment projects.

“Consolidation efforts should continue to meet the 2017 fiscal deficit target of 3% of GDP. It is important to continue to implement revenue and expenditure measures announced last year, including the elimination of the value added tax (VAT) exemption on flour, rationalising the public sector wage bill, and streamlining spending on goods and services. Resisting spending pressures will be critical in the run up to the presidential election. Developing a credible and transparent fiscal rule will help maintain fiscal discipline."

Gemayel added, “The passage of the anti-money laundering and counter finance of terrorism (AML/CFT) law is vital for the stability of the financial sector. The law is necessary to keep the Kyrgyz Republic on the white list of the Eurasian Group on AMl/CFT. Failure to pass the law could lead to loss of correspondent banking relations and cut the financial sector off from the outside world.”

IMF comments on Lao economy

The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation* with the Lao People's Democratic Republic in late January.

Real GDP growth is expected to moderate from 7.5% in 2015 to 7% in 2016. Domestic activity has slowed following a less favorable external environment, and credit growth has also moderated from a high level, the IMF said. While the overall banking system is well capitalised, state-owned bank balance sheets show signs of weakness, with rising non-performing loans (NPLs) and weak capital and profitability.

Inflation is expected to remain low and stable at around 2% at end-2016, aided by a strengthening kip exchange rate. As growth continues to moderate in the near-term, inflation is projected to remain in low single digits.

A failure to consolidate the fiscal position and bring down public debt could undermine confidence in the government’s macro policy framework, raise public debt further and worsen the external position. The economy is also exposed to external shocks, notably a further regional growth slowdown and a deterioration in terms-of-trade and capital inflows.

Executive Directors commended the authorities for their strong macroeconomic performance and progress on poverty reduction despite economic challenges. Directors noted, however, that there are significant vulnerabilities in the external, fiscal, and financial sectors, and that risks to the outlook could materialise from a regional growth slowdown, tightening in global monetary conditions, and capital flow volatility. Against this background, Directors emphasised the need to resume fiscal consolidation, tighten monetary conditions with gradually increased exchange rate flexibility over the medium-term, strengthen financial sector supervision, and introduce reforms to support economic diversification and private sector development. 

Directors noted the rise in NPLs and the under-capitalisation of state-owned banks. To safeguard macro-financial stability, they recommended promptly addressing NPLs, phasing out regulatory forbearance, strengthening sound lending practices and supervision, and recapitalising the state-owned banks. Directors emphasised the importance of addressing supervisory weaknesses and developing a crisis management framework. They also welcomed the Anti Money Laundering/Countering Financing of Terrorism (AML/CFT) law, and encouraged full implementation of the action plan as agreed with the Financial Action Task Force.

Directors welcomed progress on product and labour market openness and gains in poverty reduction. To support more inclusive and broad-based growth, they encouraged further reforms aimed at diversifying the economy, boosting private sector activity, and improving the business climate. In this context, trade integration and improvements in education and health infrastructure were encouraged. Enhancing financial deepening and financial access by small and medium-sized enterprises (SMEs) would also support macro stability and growth.

Interested?

View selected economic indicators for Laos, including projections for 2016 to 2018

*Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

PwC highlights growth opportunities in developing markets

Source: PwC. Cover for the report.

PwC’s Growth Markets Centre has recently launched its 2017 annual Winning in maturing markets report, which focuses on understanding growth opportunities in developing markets.

The report analyses growth opportunities across six key sectors – agriculture, health & education, manufacturing, retail, financial services and connectivity (transport & communication) – and highlights essential business capabilities that firms need to grow profitably in these markets.

According to PwC, growth markets should be considered mature and not volatile, and different markets follow distinctive growth paths towards stability and long-term prosperity. Despite recent stagnation in the pace of real GDP growth as a result of domestic and external factors – including domestic and foreign policy actions, falling global commodity prices, speculation around rising interest rates and unfortunate environmental disasters – growth markets will continue to register a rising share in global GDP growth in the next five years, reaching almost 65% by 2021¹.

To capitalise on existing growth opportunities, organisations need to better understand the shifts governing the market and operational landscape – in particular across these six key sectors, which are essential to achieving balanced economic and human development in the near future:

Agriculture

Sustaining growth in agriculture is of high importance to growth markets, for which the sector is a primary source of livelihood. A large majority of the global agricultural labour force (over 90%) still reside in developing countries². Growth opportunities in agriculture spread across production, enabling farmers to be more efficient and to deliver higher yield, and consumption – addressing the ever-changing food and drink preferences of consumers.

Health & Education

Pushed by the need to cover large infrastructure and resource gaps, health expenditure is expected to grow by 10.7% annually in growth markets versus 3.7% in developed economies by 2022. The opportunity size for maturing markets is also supposed to touch US$4 trillion in annual spend by 2022³ – creating new opportunities for life sciences companies, medical device manufacturers, pharmaceutical companies and delivery service providers.

Digital health is emerging as a growth sector worldwide, garnering US$13 billion in investments over 2014 and 2015⁴. Unsurprisingly, the adoption of technology-driven solutions is expected to increase, with growth markets looking at low cost and less resource-intensive options to bridge existing gaps.

Manufacturing

Growth markets are now responsible for almost 60% of all low and medium technology manufacturing worldwide. Even more noteworthy is the speed at which these markets have grown their share in high-tech manufacturing – accounting for almost 50% of manufacturing value-add globally. The introduction of new production technologies and changing cost dynamics are further expected to influence global manufacturing competitiveness in the coming years.

Retail & consumer goods

Domestic consumption is one of the most important factors in keeping a growth market’s economy moving upward direc. This is driven by the expansion of the middle class, who have a higher propensity to pay for quality and value, therefore boosting opportunities across the sector. This is especially so for discretionary and aspirational products such as clothing, entertainment, leisure and automobiles. Up until 2010, 46% of the world’s middle class lived in growth markets, but by 2020, this will have increased to almost 70% and to nearly 80% by 2030⁵.

Financial services

Expanding access to financial services amongst households will be key to improving the availability of domestic growth capital in growth markets. This can be achieved through technological investments, which are key to improving reach and accessibility to financial services; alternative payments such as non-cash transactions; and the launch of non-traditional sector participants such as e-commerce companies and mobile operators.

Transport & communications

Connectivity is fundamental to growth in any country, but in many growth markets the scale and quality of connectivity infrastructure, across both transport and communication is below what is needed to facilitate and sustain high growth. This presents many opportunities to venture into areas such as improving road connectivity, increasing third-party logistics services, and in furthering mobile and Internet penetration in both urban and rural communities in maturing markets.

The report also discusses capabilities required to navigate through the complex business environment and institutional voids associated with growth markets. Companies will need to develop flexible business models which are more suitable for the local market while developing new capabilities based on operational efficiency, innovation and go-to-market excellence.

David Wijeratne, PwC’s Growth Markets Centre Leader, said, “As we enter 2017, it’s clear that growth markets are on the verge of a new era of leading global growth in which they are projected to enjoy almost two times the absolute growth in GDP as compared to developed markets by 2021, and account for 65% of global growth within the next five years. This will create significant opportunities for private sector players looking to create and deliver value to the billions of people expected to join the middle class in these markets.”

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Download Winning in maturing markets

1 International Monetary Fund, World Economic Outlook, October 2016.

2 Business Monitor International, 2016.
 
3 World Economic Forum, Health Systems Leapfrogging in Emerging Economies, January 2014.

4 StartUp Health Insights, Digital Health Funding Rankings, 2015, 2016

5 PwC and Switzerland Global Enterprise, Rising Middle Class – Global Outlook and Growth Potential, April 2015.