April 12, 2020

Global Democracy in Retreat, Says EIU

In a previous post on this blog, I present a number of criteria such as security, political stability, government effectiveness, legal and regulatory, and tax policy to consider when choosing an export market for your product. Having worked in industrialized and developing countries worldwide, I can attest that the strength of these items often correlates to the openness and fairness of the country's institutions. Therefore, if you are considering expanding to a market outside of your home country, I recommend reading The Economist Intelligence Unit's Democracy Index, which "provides a snapshot of the state of democracy worldwide in 165 independent states and two territories. This covers almost the entire population of the world and the vast majority of the world's states (microstates are excluded)."

The EIU's 12th edition of the Democracy Index records how global democracy fared in 2019. "The Democracy Index is based on five categories: electoral process and pluralism; the functioning of government; political participation; political culture; and civil liberties. Based on its scores on a range of indicators within these categories, each country is then itself classified as one of four types of regime: 'full democracy.' 'flawed democracy,' 'hybrid regime' or 'authoritarian regime.'"

According to The EIU's measure of democracy, "almost one-half (48.4%) of the world's population live in a democracy of some sort, although only 5.7% reside in a 'full democracy,' down from 8.9% in 2015 as a result of the US being demoted from a 'full democracy' to a 'flawed democracy' in 2016. More than one-third of the world's population live under authoritarian rule, with a large share being in China."

Moreover, "76 of the 167 countries covered by the model, or 45.5% of all countries, can be considered to be democracies. The number of 'full democracies' increased to 22 in 2019, up from 20 in 2018, as Chile, France and Portugal joined the top-ranked countries (those scoring more than 8.00), while Malta was relegated to the 'flawed democracy' category. The number of 'flawed democracies' fell by one to 54 in 2019. Of the remaining 91 countries in our index, 54 are 'authoritarian regimes,' up from 52 in 2018, and 37 are classified as 'hybrid regimes,' down from 39 in 2018."

The 2019 Democracy Index disappointingly notes that "the average global score for democracy fell from 5.48 in 2018 to 5.44 (on a scale of 0-10). This is the worst average global score since the index was first produced in 2006. The 2019 result is even worse than that recorded in 2010, in the wake of the global economic and financial crisis, when the average global score fell to 5.46. From 2011 onwards the average global score recorded a gradual, modest annual improvement, but in 2015 and 2018 the score stagnated, and in 2016 and 2019 it declined."

What is more, "The decline in the average global score in 2019 was driven by a sharp regression in Latin America and Sub-Saharan Africa, a lesser one in the Middle East and North Africa (MENA) region, and by stagnation in the remaining four regions covered by the Democracy Index. Latin America was the worst-performing region in 2019, recording a fall of 0.11 points in its average regional score compared with 2018, to 6.13. Starting from an already low base, the regression in Sub-Saharan Africa was also striking: the average regional score fell by 0.10 points year on year, to 4.26. The democratic deterioration in the MENA region was more modest but followed a trend of steady regression that started in 2012, when the gains of the Arab Spring began to be reversed."

Slightly more positive, however, the EIU says "three regions stood still in terms of their average scores, as gains in some countries and categories were erased by setbacks in others. Asia and Australasia and eastern and western Europe all failed to make headway in the Democracy Index in 2019. The exception to the regression rule in 2019 was North America (Canada and the US), whose average regional score moved up by 0.03 points because of a modest improvement in Canada's score."

Finally, the report explains:
In 2019 some 68 countries experienced a decline in their total score compared with 2018, but almost as many (65) recorded an improvement. The other 34 stagnated, with their scores remaining unchanged compared with 2018. There were some impressive improvements and some dramatic declines ... with Thailand registering the biggest improvement in score and China the greatest decline. There were ten changes of regime category, six of them positive and four negative. Three countries (Chile, France and Portugal) moved from the "flawed democracy" category to be classified as "full democracies." Malta moved in the opposite direction, falling out of the "full democracy" category to become a "flawed democracy." At the other end of the democracy spectrum, Iraq and Palestine moved from being classified as "hybrid regimes" to "authoritarian regimes." Algeria moved from being classified as an "authoritarian regime" to the "hybrid regime" category. El Salvador and Thailand moved out of the "hybrid regime" category into the "flawed democracy" category, while Senegal moved in the opposite direction, from being a "flawed democracy" to a "hybrid regime."

Many companies will find it easier to conduct business in those countries that rank high in the Democracy Index. A country that is able to attract inward foreign direct investment will find it easier to build a strong infrastructure of schools, transportation networks, and hospitals, and train their citizens to work jobs that pay a living wage, which in turn will increase consumerism and tax revenue. I am hopeful those countries at the bottom half of the Democracy Index will implement necessary reforms to climb up the scale.

Do you find this report useful in choosing your export market?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

April 10, 2020

'China Cements Its Position as a Global Leader in 5G,' Says GSMA Report

"2019 was a pivotal year for the Chinese mobile industry," according to a report, The Mobile Economy China 2020, authored by GSMA Intelligence, the research and consulting arm of the GSMA, a UK-based trade organization. "The country was one of the first globally to launch 5G services. With operators and enterprises forging ahead in the development of 5G services, and growing consumer excitement, China has cemented its position as a global leader in 5G."

While 4G is "the dominant mobile technology across China, accounting for more than 80% of total connections (excluding licensed cellular IoT) ... 4G's share will peak in 2020 (at 82%) as 5G grows significantly." The report, available in English and Chinese, adds that 70% of global 5G connections in 2020 will come from China.

In explaining on how enterprises are taking tentative steps into the 5G era, the report says:
Companies across a range of verticals (such as manufacturing, power generation and aerospace) are evaluating their options for digitizing product assembly and general operations management. This presents an opportunity for operators that can offer 5G with complementary infrastructure for low-latency services (such as data centers close to the edge) and analytics. However, while a majority of enterprises recognize the benefits of speed gains brought about by 5G, other improvements (such as network slicing, edge computing and low-latency services) are not widely appreciated, with many believing 4G is 'good enough.' China is a clear exception in this regard: early partnerships and trials from local operators have paid dividends, as evidenced by the widespread intent among companies in the country's industrial sector to use 5G.
On the topic of edge computing, which Wikipedia defines as "a distributed computing paradigm which brings computation and data storage closer to the location where it is needed, to improve response times and save bandwidth," the report suggests "[e]dge computing is moving from concept to early-stage deployments as new use cases demand a more decentralized approach to computing and networking than a traditional, fully cloud-based model. Driven by the government's ambition to make China a global leader of new technologies and Industry 4.0, the country's ecosystem is looking to spearhead the development of edge computing."

As reflected in the image the right, edge computing will facilitate the ramp-up of various industries such as autonomous vehicles, gaming and e-sports.

Regarding mobile delivering social impact, the report says that "[w]ith 1.2 billion unique subscribers across China, and nearly 1.5 billion people covered by a mobile network, mobile is increasingly being used to access an array of life-enhancing services that contribute to and catalyze the achievement of the UN Sustainable Development Goals (SDGs)."

Moreover, "In China, SDG 9 (Industry, Innovation and Infrastructure) remains the most impacted goal: 99% of the population are covered by 4G networks, underscoring mobile’s role in providing critical infrastructure to spur innovation as well as inclusive and sustainable development. Mobile is also playing a key role in providing increased access to quality education (SDG 4), while helping reduce inequalities (SDG 10)."

Lastly, enacting effective policies will be essential to creating a thriving 5G future in China. "The success of 5G heavily relies on government support for timely access to the right amount and type of affordable spectrum, and under the right conditions," the report explains. "5G will need a comprehensive range of spectrum across sub-1 GHz, 1–6 GHz and above 6 GHz to satisfy the requirements of 5G services in the future. The lower- and mid-frequency ranges are key to improving 5G coverage, speed and latency compared to 4G, while spectrum above 24 GHz – mmWave spectrum – will be a critical component to enable super high speeds and ultra-low-latency applications."

What is more, "Since mmWave spectrum will play a vital role in the future success of 5G in China, particularly in the manufacturing sector, the GSMA recommends the following policy considerations:

  • "Continue to provide policy incentives by reducing frequency utilization fees for mmWave spectrum similar to those for the 2.6, 3.4–3.6 and 4.8–5.0 GHz bands.
  • "Allocate large and contiguous blocks of spectrum in the mmWave bands where possible – around 1 GHz per operator.
  • "Avoid setting aside spectrum for verticals in priority mmWave bands (e.g. 26 and 40 GHz). Sharing approaches such as leasing are better options where verticals require access to spectrum."

Infographic: GSMA Intelligence
How is your business preparing to take advantage of the opportunities presented with the rollout of 5G in China?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

April 6, 2020

The Use of Green Sukuk Grows to Support Environmental Projects

"If the world is to avoid catastrophic climate change, trillions of dollars of sustainable investments will need to be made every year between now and 2050," writes Melanie Noronha, senior editor for The Economist Intelligence Unit's (The EIU) thought leadership division in EMEA. "Much will have to come from capital markets where investors have already demonstrated an appetite for 'green bonds' which tie the proceeds to environmental projects. There are hopes that sukuk—a sharia-compliant financial instrument similar to a bond—could also be channeled towards environmental investments."

Supported by the Dubai Islamic Economy Development Center, Ms. Noronha's article, "A new shade of green: Sukuk for sustainability," is the first in a series by The EIU on "Innovation in the Islamic Economy." According to the article, "The first shoots of a similar 'green' instrument in the Islamic finance sector emerged not too long ago. In 2017, renewable energy group Tadau Energy issued the first 'green' sukuk, raising US$59m to finance a solar power plant in Malaysia, the birthplace of conventional sukuk in the 1990s. Indonesia issued sovereign green sukuk worth US$1.25bn in 2018 and US$750m in 2019 to fund environment-related projects."

Moreover, "There is activity in the Arabian Gulf countries as well. In 2019 Majid Al Futtaim, a UAE-based retail company, raised US$600m with the region's first corporate green sukuk. This was followed by a €1bn (US$1.12bn) green sukuk by Saudi-based Islamic Development Bank to finance renewable energy, green transportation and pollution control in its member countries."

Ms. Noronha explains that "[c]ompared to conventional sukuk, the market for green sukuk is tiny. Conventional sukuk issuance totaled US$162bn in 2019, while the total outstanding debt for green sukuk amounts to only US$7.9bn..." She adds that "some view it as a natural solution for low-carbon investment. Islamic finance is based on assumptions of fairness and social responsibility, and—while it has not always been observed—environmental stewardship is intrinsic to sharia principles."

What is more, "Since sharia forbids the receipt of interest, sukuk are backed by assets and investors are paid an agreed share of the profits before being returned the principal at maturity. This structure gives them confidence that their capital is being used for a particular purpose."

As a way to combat the effects of climate change, I am witnessing a rise of business and investment opportunities in Africa, Asia, and the Middle East in the automotive (electric vehicles) and renewable energy (wind, solar, and biogas) sectors. Recognizing an increasing interest among investors to support environmental, social and governance initiatives (ESG), I concur that "[t]he combination of investors seeking sharia-compliant investments and those with ... ESG priorities provides a wide investor base for green sukuk."

What instruments are you seeing used to support sustainable investments?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.