October 30, 2021

The EIU Presents Its Ten Risk Scenarios That Could Impact Global Growth and Inflation in 2022

"We expect the post-pandemic recovery to continue in 2022, with global GDP expanding by 4.1%," according to a paper published by The Economist Intelligence Unit (The EIU). "However, this rebound will mask great variations in the pace of recovery across different regions. In addition to this baseline outlook, we are also tracking a host of scenarios that could derail the post-pandemic recovery and have an effect on global business operations." Through this paper, The EIU aims to summarize some of these key risks that could impact global growth and inflation.

Below are The EIU's top ten global risk scenarios for 2022:
  1. Worsening US-China ties force a full decoupling in the global economy;
  2. An unexpectedly fast monetary tightening leads to a US stockmarket crash;
  3. A property crash in China leads to a sharp economic slowdown;
  4. Tighter domestic and global financial conditions derail the recovery in emerging markets;
  5. New Covid-19 variants emerge that prove resistant to vaccines;
  6. Widespread social unrest weighs on the global recovery;
  7. Conflict erupts between China and Taiwan, forcing the US to intervene;
  8. EU-China ties worsen significantly;
  9. Severe droughts prompt a famine; and
  10. An inter-state cyberwar cripples state infrastructure in major economies.

The EIU explains that it tracks "these risks and score them in terms of probability (how likely are they to happen?) and impact (if they happen, how great is the impact on businesses?)." Furthermore, the UK-based organization combines "these probability and impact scores to produce an intensity rating to support our clients in their ongoing risk monitoring requirements, helping them to answer the question, 'how worried should we be?'. Below is a snapshot of scores for our ten global risk scenarios."

Worsening US-China ties force a full decoupling in the global economy is a risk scenario that concerns me the most. As The EIU explains:
The US and China are vying for global influence. The US president, Joe Biden, is trying to convince "like-minded" (mostly Western) countries to collaboratively put pressure on China. This has included restrictions in the areas of trade, technology, finance and investment, along with sanctions, forcing some markets (and companies) to choose sides. Although most evident in the technology arena, there is a risk that this strategy will encompass industrial or consumer-facing sectors. In an extreme scenario, this could lead to a neutral stance becoming economically prohibitive for third countries, dividing China-supporting and US-supporting economies. Full global economic bifurcation would force companies to operate two supply chains with different technological standards. Implementation of 5G telecommunications networks could be postponed in some countries, and sanctions by China would heighten uncertainty surrounding global trade and investment.
Unexpectedly fast monetary tightening leads to a US stockmarket crash is another risk scenario that I am watching closely. The EIU points out that "Supply-chain disruptions, higher energy prices, ultra-loose monetary policy and a recovering real economy have all contributed to a sharp uptick in US inflation in 2021." The paper adds that "Although many of these factors are likely to ease as the US economy rebalances post-pandemic—indicating that spiking inflation will not be long-lasting—they nonetheless give cause for the Federal Reserve (Fed, the central bank) to start tightening monetary policy gradually by tapering its asset purchases. However, if slow and clearly signaled monetary tightening fails to rein in inflation in the medium term, a rise in interest rates by mid-2022 may be necessary." Moreover, "Given that US stock price/earning ratios are currently higher than before both the 1929 and the 2007-08 crashes, accelerated interest-rate increases could be enough to initiate a sharp stockmarket adjustment. The high number of retail investors means that falling stock prices would weigh heavily on consumer spending, possibly halting the US economic recovery and risking a recession."

And those who live or hold business interests in emerging markets should be mindful that tighter domestic and global financial conditions could derail the recovery in these markets. The EIU says "Inflationary pressures stemming from rebounding commodity prices have already led some emerging markets, including Brazil, Mexico, Russia, Sri Lanka and Ukraine, to raise monetary policy rates in 2021." What is more, "In a context where sovereigns have grown increasingly leveraged as a result of the pandemic, interest-rate normalization will feed into higher debt-service costs for governments. This could ratchet up pressure for aggressive pro-cyclical fiscal consolidation that ultimately sets back the recovery of emerging countries. In particular, the potential for US bond yields to rise faster than expected in the coming months could drive higher emerging-market risk premiums, leaving them vulnerable to sudden drops in capital inflows." The paper crucially notes that "[r]isks will be especially elevated in countries where indebtedness in foreign currency is particularly high, for example in Argentina and Turkey, where bond sell-offs could trigger currency and/or debt crises."

Which risk scenarios concern you the most? What strategies are you employing to make your company resilient should any of these risks materialize? 

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

October 29, 2021

GSMA Presents Recommendations to Asia Pacific Policymakers for How To Accelerate Investment and Innovation for a Digitally Inclusive Society

Following from the previous post about GSMA's 2021 report about China's mobile economy, the UK-based organization that represents the interests of mobile operators worldwide, also produced a similar report focused on Asia Pacific's mobile economy. For the purposes of Asia Pacific report, the GSMA clarifies that "industry data and analysis does not include Greater China (mainland China, Hong Kong, Macao and Taiwan), as opposed to previous editions of the report. As a result, the aggregate regional data in this report is not directly comparable with previous reports. Industry data and analysis for the Greater China region are presented in The Mobile Economy China 2021 report."

In explaining how the mobile industry responded to the Covid-19 crisis in the Asia Pacific region, the report importantly says the industry was "particularly instrumental during this period and will be even more integral to the way people live and businesses operate post pandemic." What is more, "Across Asia Pacific, [mobile] operators are using the exceptional scale and utility of mobile networks and services to facilitate innovative digital solutions for large and small enterprises in line with Industry 4.0 objectives. In particular, 5G and IoT will play key roles in the implementation of digital transformation projects across different industries."

The report also presents the following key points:
  • 1.8 billion people in the Asia-Pacific region will subscribe to mobile services by 2025, representing 62% of the region's population. India will account for more than half of new subscribers.
  • 14 percent of total connections will be running on 5G networks by 2025. This is marked by significant 5G-related activities in several new markets, including India, Indonesia and Malaysia.
  • $860 billion economic value added generated by mobile technologies and services by 2025. Countries in the region increasingly benefit from the improvements in productivity and efficiency brought about by the increased take-up of mobile services.

On the topic of policies to enable digital advancement, the GSMA correctly notes that "The pandemic has emphasized the need for connectivity and the critical role of mobile technology. As Asia Pacific continues to deal with, and ultimately emerges from, the pandemic, connectivity will be crucial to rebuilding economies and making them more resilient to future shocks." Furthermore, "5G networks, cloud services, edge computing, AI, big data and IoT will all play a key role in realizing the full potential of a post-pandemic digital economy."

I support GSMA's assertion that "Now is the time for governments to reassess the business and regulatory environment for mobile services in order to accelerate investment and innovation for a digitally inclusive society." Steps policymakers should take include:
  • cultivate an enabling regulatory environment to bolster connectivity, which in turn supports digital transformation and innovation
  • adopt policies that facilitate infrastructure deployment and create a sustainable investment climate
  • create safe and trustworthy internet environments as more people come online
  • establish an effective spectrum policy that allows for timely and transparent allocation of harmonized spectrum to meet future connectivity demand.
"Actions taken today by policymakers should be seen as an investment into future economic growth, societal development and technological innovation."

Infographic: GSMA Intelligence

Do you agree with GSMA's recommendations to policymakers for how to accelerate investment and innovation for a digitally inclusive society?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

October 16, 2021

While 5G Is Growing in China, GSMA Has Concerns About the Government's Efforts To Impose Data Localization Requirements

In its 2021 report about China's mobile economy, the GSMA, a UK-based organization representing the interests of mobile operators worldwide, notes: "One of the most remarkable contributions of mobile connectivity to mitigate the impact of Covid-19 is the use of advanced and innovative digital solutions to support various response measures. Across China, mobile networks, and 5G in particular, have supported frontline healthcare efforts to stem the rate of infections while also enabling remote business operations to comply with social distancing rules. Indeed, the pandemic has presented a test platform for a wide range of 5G-enabled solutions, further demonstrating the benefits that the technology can bring to society."

Authored by GSMA Intelligence, the research and consulting arm of the GSMA, the report, which is available in English and Chinese, further says the growth of 5G in the world's largest mobile market: "Due to the rapid take-up of 5G in China, the region sits among the global leaders in terms of 5G adoption. In 2020, the region added more than 200 million 5G connections, taking its share of global 5G connections to 87%. Growth in 5G adoption in the China region is supported by aggressive network rollout and a growing device ecosystem."

The GSMA points out that over 80% of the population in China will subscribe to mobile internet services in 2025 and the country is predicted to have over 800 million 5G connections. "By 2025, over 200 million people across China will start using mobile internet for the first time, reducing the unconnected to less than 20% of the population." This presents an opportunity for the mobile sector, which is the first industry to have committed fully to the UN Sustainable Development Goals (SDGs), "to have have substantial positive effects on lives and livelihoods, with tangible results."

The report adds that according to GSMA's 2020 Mobile Industry Impact Report: Sustainable Development Goals, the mobile "sector has made particularly strong contributions in mainland China in 2020 on SDGs 6 (Clean Water and Sanitation), 7 (Affordable and Clean Energy) and 4 (Quality Education). Further, the country scores highest in SDGs 9 (Industry, Innovation and Infrastructure), 6 and 7."

On the topic of data protection and cross-border data flows, the report importantly explains that "Greater intra-regional and inter-regional alignment of data protection laws and a greater variety of mechanisms to facilitate cross-border data flows can boost the benefits expected from 5G, IoT and AI. Conversely, data localization or data sovereignty requirements to keep certain data in-country or to use local facilities can significantly hamper any such gains. This is particularly true for the proliferation of innovative IoT and industrial solutions that are critical to industrial digital transformation, which is being expedited by the pandemic."

Over the past several months, the Chinese government has imposed restrictions on sources of data in the name of protecting consumers. While I agree that companies should implement the most advanced tools to protect consumers' data, such restrictions could harm the benefits AI and IoT is trying to achieve through diverse data sources. Therefore, I support GSMA's assertion that:
Mobile operators and other players in the IoT ecosystem need common business models and technologies that can work anywhere in the world and regulatory frameworks that allow data to flow across borders to enable greater efficiencies and economies of scale. While the application of IoT business models, such as using data from sensors to provide new solutions and services, can lead to further gains for local businesses, these domestic gains can be improved by enhanced trade and investment across borders. Similarly, big data analytics and AI implementations depend heavily on the availability of data. While these may work within a country, particularly one the size of China, restricting the available sources of data may reduce diversity in the data and the value of insights learned from the data for greater regional economic growth.
Given the seriousness of this issue, I am including the report's concluding section in its entirety:
The GSMA has conducted evidence-based research that suggests that over half of the benefits from IoT would be lost if a country decided to implement localization restrictions. Specifically, data localization requirements can:
  • increase business costs through the need to duplicate expensive IT infrastructure, such as data centers
  • cut business efficiencies and competitive advantages by imposing restrictions on cross‑border data flows that hamper ICT companies and mobile operators, especially multinational operators, as they introduce new and better services across their footprint
  • reduce choice for businesses, communities and individuals, who will have access to more limited and lower-quality apps and services delivered from a smaller pool of domestic providers.
In effect, data localization requirements can weaken the business case for adopting IoT, even for the most profitable multinationals. Furthermore, increased costs from data localization requirements can result in suppressed economic activity across the entire economy, with negative impacts not just in GDP growth, but also trade flows, employment and investment. 
Infographic: GSMA Intelligence

Do you agree with the report's findings? Do you have concerns about the Chinese government's actions to restrict the available sources of data?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

October 15, 2021

Entrepreneurs From Austria Pitch Their Startup in Silicon Valley

While startup formation has increased since the coronavirus pandemic gripped the world, my interactions with founders was confined to video chats over the past 17 months. Communicating online is sufficient when gathering information about a new venture including its product or service, business model, and management team, but there is no replacement of gathering in a room to engage in a meaningful face-to-face conversation. It was therefore a pleasure to attend an event in Sunnyvale, Calif on Sept. 28th, 2021 that featured six startups based in Austria. Each company is listed below followed by the description they provided for the event program:
  1. Druckster is a free on-demand printing platform for university students, powered by a highly targeted employer branding algorithm. We print the right internships and job offers directly into the students’ study material, to connect them with the best career opportunities earlier than ever before.
  2. goUrban offers the globally leading operating system for shared transportation empowering fleet operators to design the mobility of tomorrow. We are driving the transition from ownership to a demand based service, by supporting all transportation use cases within cities. This enables fleet operators to create one shared fleet being available for B2B fleets, personal use and last-mile logistic companies.
  3. Kern Tec has developed several technologies to turn fruit pits from apricot, plum and cherry into new ingredients for the food, beverage and cosmetic industry. These raw materials have been a side product in the fruit industry and are now getting processed into delicious, upcycled food oils, protein powders and dairy alternatives. Over the last years Kern Tec has been able to build a production facility in Austria, process over 1.000 tons and gain +50 B2B customers.
  4. Naboto is an AI powered software that helps (medical) service providers to optimize and automate their scheduling processes (e.g. by predicting individual no-shows). This leads to increased revenue, better quality of care and higher patient satisfaction.
  5. TeamClimate is a climate subscription which helps users to measure, reduce and offset unavoidable CO2 emissions.
  6. Trees was founded by two brothers in Austria in 2019 to explore cannabinoids and help improve people's lives. They are bootstrapped and had their first big success in German teleshopping. The founders think tailored cannabinoid products are the future and should be in the arsenal of every athlete, especially when it comes to gamers. That is why we developed our brand-new CBD e-sports products.

Each presenter did a good job presenting their company's product and business model. However, I found Luca Fichtinger's presentation about Kern Tec particularly insightful. Mr. Fichtinger, Kern Tec's co-founder, explained how his company processes apricot, plum and cherry pits into natural oils, protein powders, and shell granulate. He said that "after the careful cleaning of the fruit pits, the oils are gently cold-pressed at a maximum temperature of 40 degrees Celsius. Guaranteed without additives such as aromas, flavor enhancers, preservatives or artificial colorings." In addition to baking, Kern Tec's products may be used for other applications including cosmetics and industrial products. The oils were made available for sampling at the event.

As co-founder of TeamClimate, Karim Abdel Baky explained that his company built a tool to calculate an individual's carbon footprint, and to offset their emissions and reduce the footprint to zero. According to Mr. Baky, "A subscription through TeamClimate funds three projects that makes you a climate-neutral human." Importantly, these projects are certified by independent parties.

Austrian entrepreneurs visiting
Silicon Valley
This event was a culmination of a trip the Austrian entrepreneurs made to the Bay Area to meet with serial entrepreneurs, venture capitalists, startup attorneys and advisors, and marketing experts.

Have you resumed attending in-person events? If so, please share your experiences in the comments.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.