December 31, 2022

Challenges, Opportunities and Trends to Watch in Seven Sectors in 2023

"The continuing pandemic, the war in Ukraine and high inflation have forced many companies to scale back their forecasts" in 2022, the Economist Intelligence Unit (EIU) notes. Will 2023 will be any better?

The 12th edition of the EIU's annual report forecasts growth and key risks in seven business sectors for 2023, as the war in Ukraine pushes up commodity prices and the cost of living. The report argues that the war has disrupted the recovery from the covid-19 pandemic, and businesses now face increased risks as economies slow or tip into recession, particularly in Europe.

The EIU's report also provides key global forecasts for each of the seven industries:
  • Global sales of new vehicles will be flat in 2023, but sales of electric vehicles will rise by 25% to 10.7m units.
  • In 2023 retail growth volumes will be respectable at 4.9% in US-dollar terms, which will mainly reflect high inflation. In real terms, global sales will slow or fall in most markets.
  • Global energy consumption will rise by just 1.3% as the global economy slows. The energy crisis will force some countries to increase their use of coal or rethink plans to phase out nuclear power.
  • Weakening economic output and rising interest rates will lead to more difficult conditions for banks, insurers and fund managers. Formerly fast-growing fintech companies will be hit by the capital-market crunch.
  • Global healthcare spending will rise by 4.9% year on year in US-dollar terms, which will mask falling investment in real terms, as countries struggle to cope with continued demand.
  • The metaverse will not become a mass-market in 2023, but this will not stop heavy investment into this technology. The drive to standardization and the battle with web3 will be at the forefront.
  • International tourism arrivals will rise by 30% as China slowly loosens its covid-19 restrictions. This will follow 60% growth in 2022, but will still leave total arrivals below 2019 levels.

The EIU also presents the following key forecasts for each industry:

Automotive outlook 2023: Bright spots amid stalling growth
  • The automotive industry will remain vulnerable to global headwinds in 2023 including the energy crisis, slower global demand and continued supply-chain problems.
  • Global new-vehicles sales will remain flat in 2023: new-car sales will rise by 0.9% and new commercial vehicle (CV) sales will fall by 1.3%.
  • Sales of electric vehicles (EVs) will be the only bright spot, growing by 25%, but governments will restructure their incentive schemes.
  • Governments' focus will turn to charging networks, which are inadequate to meet the expanding EV fleet.
  • Autonomous vehicles will take a leap forward, as UN regulators lift their speed limit.

Consumer goods and retail outlook 2023: Retailers respond to pricing pressures
  • Inflation will push up global retail sales by a robust 5% in US-dollar terms in 2023, but the lower volume of sales and surging costs will weaken retailers' profits.
  • The rollout of automation technologies will offer opportunities to limit wage growth, which means that retail employment is unlikely to return to 2019 levels.
  • Online sales growth will slow, but the online share of retail will edge up to about 14% of global retail sales.
  • Inflation-wary consumers will prefer to shop at discount stores, helping these retailers to increase their market shares.
  • The economic slowdown in China, caused in part by its zero-covid strategy, will mean fresh challenges for global luxury brands already affected by the loss of Chinese tourists.

Energy outlook 2023: Surviving the energy crisis
  • Global energy consumption will grow by only 1.3% in 2023 amid a slowing economy.
  • Despite decarbonization targets, coal consumption will grow marginally to compensate for gaps in gas supplies.
  • More extreme weather events will force many countries to fall back on fossil fuels, delaying the energy transition.
  • Renewable energy consumption will surge by about 11%, with Asia leading the way, but investment will weaken.
  • The energy crisis will prompt some governments to backtrack on efforts to phase out the use of nuclear power.

Finance outlook 2023: A new test for financial stability
  • Weakening economic output and rising interest rates will lead to more difficult conditions for banks, insurers and fund managers in 2023 than in the past two years.
  • The impact will be particularly acute in North America and Europe, where governments will offer support. The environment will be tough in Asia as well, although policy rates will rise by less.
  • Heavily indebted developing countries will find it harder to refinance foreign debt, driving some to default or require rescues to avoid it. However, the International Monetary Fund will continue its lenient treatment of economies requiring its financing programs.
  • The current capital-market crunch will hobble a wide variety of loss-making fintech challengers that sought to outflank incumbents in banking, payments and other activities.

Healthcare outlook 2023: The aftermath of the pandemic
  • Healthcare spending will fall in 2023 in real terms, given high inflation and slow economic growth, forcing difficult decisions on how to provide care.
  • Digitalization of the healthcare system will continue, but the use of health data will come under stricter regulation in the US, Europe and China.
  • Patent cliffs for key drugs and measures to control pharmaceutical pricing in the US, India and elsewhere will force some major pharma companies to spur growth through deals.
  • Supply-chain disruptions will continue to push up drugmakers' costs, despite investment in more localized pharmaceutical production.

Technology and telecoms outlook 2023: The battle for digital supremacy
  • The metaverse will not become mass-market in 2023, but this will not stop heavy investment in the technology. The drive to standardization and the battle with web3 will be at the forefront.
  • Artificial intelligence (AI) will continue to develop, after several breakthroughs in 2022, but will encounter challenges from new regulations in key jurisdictions.
  • Semiconductors will continue to be a geopolitical tool between the US and China, involving many other countries. Some companies producing the most advanced products and equipment will benefit.
  • Asian telecommunications companies will continue to look for consolidation in 2023. Mobile markets with four or more mobile network operators, such as Sri Lanka, Japan and India, are the most likely to secure deals.

Tourism outlook 2023: Turbulence in the travel industry
  • Global tourism arrivals will rise by 30% in 2023, following 60% growth in 2022, but they will still not return to pre-pandemic levels.
  • The economic downturn, sanctions on Russia and, above all, China’s zero-covid strategy will be among the factors weighing on the industry.
  • Hotels, restaurants and airports will struggle to cope with labor shortages, wage demands, and high food and energy prices.
  • Even so, international airlines are expected to return to profitability, benefiting from continued pent-up demand.
  • The impact of climate change on the industry will become more apparent, with high temperatures, water shortages and floods forcing tourism destinations to take action.

Useful for companies developing their global business strategy for the coming year, the report presents the following macroeconomic key points:
  • The war in Ukraine, combined with lockdowns in China, has exacerbated supply-chain disruptions and pushed up global inflation, forcing EIU to downgrade its forecasts for economic growth in 2023.
  • Many governments, particularly in Europe, will be forced to scale back investment in public services, including healthcare, in order to protect households and businesses from the effects of higher prices.
  • While some businesses (particularly in commodities sectors) will benefit from high prices, many will be hit by weak demand and high input costs, particularly for energy.
  • Profitability will be squeezed, while corporate investment will slow amid rising interest rates.
  • However, some companies (notably in pharmaceuticals, technology and retailing) will take advantage of lower stock-market valuations, bankruptcies and government incentives to snap up strategic assets and position themselves for an eventual upturn.

"Amid all this gloom," the EIU encouragingly says "there will be areas of opportunity." Taking the EV market as an example, "online retail sales and tourism will continue to deliver strong growth, particularly in Asia and the Middle East," the report notes. "Innovations—from the metaverse to automated vehicles and data analytics (notably in healthcare)—will attract investment, with some companies also seizing on chances offered by volatile financial markets." I concur that "It will not be an easy year, but it could be a transformative one."

Lastly, The Economist produced a video that looks into which stories may be worth watching in the coming year.

What will you be watching in 2023?

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.

December 20, 2022

Risk Scenarios That Could Reshape the Global Economy in 2023

The Economist Intelligence Unit (EIU) produces an annual quantitative and qualitative assessment of economic, political and regulatory risks that help readers evaluate potential shifts in a country's operating environment. As this year's report explains, "In 2022 the global repercussions of Russia's invasion of Ukraine shifted global concerns away from coronavirus-related health issues and towards growing political, security and macroeconomic risks." The UK-based organization expects "that ripple effects from the war in Ukraine, global monetary tightening and an economic slowdown in China will weigh on the economy in 2023, with global growth slowing to only 1.6%." The EIU explains that its "white paper explores some of the risks that could lead to even slower growth, or even, trigger a global recession."

Below are ten risk scenarios that could reshape the global economy in 2023:
  1. Cold winter exacerbates Europe's energy crisis (high probability; very high impact)
  2. Extreme weather adds to commodity price spikes, fueling global food insecurity (high probability; high impact)
  3. Direct conflict erupts between China and Taiwan, forcing US to intervene (moderate probability; very high impact)
  4. High global inflation fuels social unrest (very high probability; moderate impact)
  5. New variant of coronavirus, or another infectious disease, sends global economy back into recession (moderate probability; very high impact)
  6. Inter-state cyberwar cripples state infrastructure in major economies (moderate probability; very high impact)
  7. Further deterioration in West-China ties forces full decoupling of global economy (moderate probability; high impact)
  8. Aggressive monetary tightening leads to global recession (moderate probability; moderate impact)
  9. China's zero-covid policy leads to severe recession (low probability; high impact)
  10. Russia-Ukraine conflict turns into global war (very low probability; very high impact)

While I agree with the high placing of cold winter exacerbating Europe's energy crisis, I am more concerned with the risk of extreme weather adding to commodity price spikes which will result in exasperating global food insecurity. "Climate change models point to an increased frequency of extreme weather events," explains the EIU. "So far these have been sporadic and in different parts of the world, but they could start to happen more synchronously and for prolonged periods." Moreover, "Severe droughts and heatwaves in Europe, China, India and the US in 2022 are contributing to rising prices of some foodstuffs. In addition, the war between Russia and Ukraine (two of the world’s largest agricultural exporters) has led to severe price spikes and risks creating global shortages of grains and fertilizers (which are crucial for harvests) in 2023." The report worryingly warns that "The world could face a prolonged period of crop shortages and skyrocketing prices, raising the risk of food insecurity (or even famine).

Just as high food prices was a contributing factor that a series of anti-government protests, uprisings and armed rebellions that spread across much of the Arab world in the early 2010s, global food prices are again high could lead to social unrest. As the report notes, "Persistent inflationary pressures, caused by supply-chain disruptions and Russia's invasion of Ukraine, are pushing up global inflation, which is at its highest level since the 1990s. If inflation rises much higher than wage increases, making it hard for poorer households to purchase basic staples, it could spark social unrest." The report adds that "In an extreme scenario, protests could push workers in major economies and employed by large manufacturers to coordinate large-scale strikes demanding higher salaries that match inflation. Such movements, similar to those that have affected critical services in the UK (ports, postal services, barristers and railways), could paralyze entire industries and spill over to other sectors or countries, weighing on global growth.

Finally, my colleagues and I are closely watching the further deterioration in West-China ties that may result in the full decoupling of the global economy. "Western democracies, notably the US and the EU, are concerned about China's support to Russia following the invasion of Ukraine," the report explains. "In parallel, China is concerned about US-Taiwan relations and efforts by the US to convince other democracies to pressure it using restrictions on trade, technology and finance." Moreover, "The EU has also taken an increasingly confrontational stance towards China's human rights abuses in Xinjiang, unequal treatment of EU and Chinese firms, and its subsidy-led industrial model." The report adds that "In an extreme scenario, China could initiate military maneuvers in the South China Sea (most likely in Taiwan), exacerbating tensions and pushing the West to unite in imposing sweeping trade and investment restrictions on China. This would force some markets (and companies) to choose sides." China could, in retaliation, "block exports of raw materials and goods that are crucial to Western economies, such as rare earths. This would have disastrous economic effects and force companies to operate two supply chains while fearing operational disruptions."

Which risk scenarios do you think will affect your business? What strategies are you implementing to make your company resilient to those risks?

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.

December 15, 2022

Report Provides Recommendations for Closing Mobile Internet's 'Usage Gap' and Getting More People Online

In the latest version of its annual report of the state of mobile internet connectivity, the GSM Association (GSMA) notes that "By the end of 2021, 4.3 billion people were using mobile internet, an increase of almost 300 million since the end of 2020. Growth in mobile internet adoption has almost entirely been driven by people living in low- and middle-income countries (LMICs). As a result, for the first time, half of the population in LMICs is using mobile internet."

Funded by the UK Foreign, Commonwealth and Development Office (FCDO) and the Swedish International Development Cooperation Agency (Sida) via the GSMA Mobile for Development Foundation, the UK-based organization, which represents the interests of mobile operators worldwide, explains that the findings of its "report are based on the GSMA Consumer Survey and the GSMA Mobile Connectivity Index (MCI), along with a range of other industry reports. The GSMA Consumer Survey has been carried out every year since 2017 to understand access and use of mobile and mobile internet in LMICs." What is more, "This report presents the latest updates on mobile internet connectivity globally and by region, with a focus on LMICs, where 94% of the unconnected population live. For the first time, it also presents the data on connectivity for adults only. The report then examines mobile broadband coverage and infrastructure."

The report's key findings include:
  • Mobile internet use has reached 55% of the world's population.
  • Mobile broadband coverage continues to slowly expand, with 95% of the world's population covered by a mobile broadband network.
  • At the end of 2021, there were 3.2 billion people living within the footprint of a mobile broadband network but not using mobile internet.
  • Connectivity varies significantly by different socioeconomic groups and by country income levels, with 94% of the 'unconnected' living in LMICs.
  • Across all regions, there are now more mobile connections using 3G or 4G/5G smartphones than basic or feature phones.
  • Data usage and network quality continue to increase – but with a persistent gap between high- and lower-income countries.
  • Across the surveyed countries, mobile internet users are using their mobile phones more frequently for a range of online activities.
  • Awareness of mobile internet continues to grow but has slowed significantly since 2019.
  • Affordability and skills remain the two greatest barriers to mobile internet adoption and use.
  • Across LMICs, affordability of data has continued to improve but affordability of entry-level internet-enabled handsets has remained relatively unchanged.

The report correctly notes that a collective effort is needed to bridge the digital divide. "Strong collective effort is needed to achieve meaningful connectivity, which allows users to have a safe,  satisfying, enriching and productive online experience that is affordable. It requires informed, targeted action by all stakeholders, including mobile operators, policymakers, international partners and the broader private sector." Crucially, "Such strategies should factor in the structural issues underpinning the disparities in adoption and use, such as differences in income and education levels, and restrictive social norms."

The GSMA concludes its report by presenting the following barriers that should be addressed to bridge the digital divide:
  • Knowledge and digital skills: Improving digital skills and literacy, as well as driving awareness and understanding of mobile internet and its benefits, is critical to increase digital inclusion. Digital skills initiatives should focus on the life needs and circumstances of users.
  • Affordability of handsets and data: Affordability of handsets and data remains a key challenge. Approaches to improve affordability should include efforts to lower the cost of internet-enabled handsets and data, innovative data pricing strategies and handset financing options, in addition to providing targeted subsidies and tax policies that promote the uptake of internet-enabled devices and data services.
  • Relevance: Local digital ecosystems in many LMICs remain underdeveloped and under-resourced. Investment in local digital ecosystems and an enabling policy environment can accelerate growth in local content, services and applications that meet the needs of people in their communities, in their own language.
  • Safety and security: Concerns about safety and security, including online harassment or cyberbullying, misinformation, disinformation and fraud, are keeping people from going online and having a positive internet experience. Stakeholders should provide users, especially women, with the tools to increase their knowledge and skills to mitigate online risks. Appropriate mechanisms and frameworks that recognize these online risks should be put in place to help build consumer trust.
  • Access: Using the internet depends on enablers such as electricity, formal identification, sales agents and accessibility features. Stakeholders can increase mobile internet adoption by focusing on, for example, facilitating inclusive and transparent registration processes for mobile, and making services, sales channels and training facilities accessible to underserved groups, such as women and persons with disabilities, alongside improving accessibility features.

I agree with the premise that ensuring people are able to use mobile internet, rather than focusing purely on network coverage, is the key to driving digital inclusion for 3.2 billion people worldwide. While this number impressively represents the equivalent of 40 percent of the world's population who are covered by a mobile broadband network, more must be done to reduce barriers that prevent them from getting online or what the industry calls the 'usage gap.'

What are your recommendations for eliminating the usage gap?

By the way, I recommend watching a webinar the GSMA produced that includes a discussion with the report's authors.

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.

December 1, 2022

GSMA Encourages Latin American Policy Makers to Enact Reforms to Promote Digital Skills and Education

In its latest annual report on the state of the mobile economy in Latin America, which is available in English and espaƱol, the GSM Association (GSMA) points out that "mobile connectivity remains the main form of internet connectivity, particularly as – for many – it is the only form of connectivity. At the end of 2021, the number of mobile internet users in Latin America exceeded 380 million, equating to 60% of the population. However, another 36% live in areas covered by mobile broadband networks but do not use mobile internet services (known as the usage gap)."

The GSMA, which is a UK-based organization that represents the interests of mobile operators worldwide, also notes that "Addressing the main barriers to mobile internet adoption, including affordability, safety and security, and knowledge and digital skills, will extend the benefits of the internet and digital technology to more people in society. This requires a concerted effort by the mobile industry and its partners."

What is more, "4G is Latin America's leading mobile technology, with more than 410 million connections at the end of 2021. Take-up has more than doubled over the past five years driven by network expansion and efforts by mobile operators to transition users away from legacy networks."

The GSMA also notes that "5G is currently at a nascent stage in Latin America. By the end of June 2022, seven countries in the region had launched commercial 5G services. The current adoption rate is around 1% of total connections; this is expected to grow to 11% by 2025."

The acceleration of 5G adoption will create new opportunities for companies developing mobile software as a service platforms optimized for the Latin American market. The report says "The Covid-19 pandemic highlighted the huge opportunity for digital technology to disrupt legacy business processes. This, in turn, is driving investments in the tech start-up ecosystem." Encouragingly, "In 2021, Latin American start-ups raised a record $19.5 billion in funding – more than three times the amount raised in 2019. This resulted in 18 start-ups in the region achieving 'unicorn' status (start-ups with a market value of $1 billion before going public). Fintech remains a significant driver, but several other sectors, including education and e-commerce, are seeing a growing share of investments."

The report also explains how "the metaverse, a parallel virtual world populated with avatars, has gained significant mindshare in Latin America. As such, the region is attracting the attention of global metaverse ecosystem players, such as Meta. In addition, a growing number of local ecosystem players, including government agencies, have announced activities across the metaverse value chain."

With respect to the mobile sector making a significant contribution to the economy and wider society, the GSMA says: "In 2021, mobile technologies and services generated 7.4% of GDP in Latin America – a contribution that amounted to more than $345 billion of economic value added." Moreover, "The mobile ecosystem also supported more than 1.6 million jobs (directly and indirectly) and made a substantial contribution to the funding of the public sector, with almost $30 billion raised through taxes on the sector. Over the period to 2025, mobile's contribution will grow by around $20 billion, as countries in the region increasingly benefit from the improvements in productivity and efficiency brought about by the increased take-up of mobile services."

The report's concluding chapter focuses on how policy decisions are key to accelerating Latin America's digital future. I support the GSMA's assertion that "Unlocking the potential of mobile connectivity requires policy measures to support network investments and improve the affordability of digital services for consumers. Policy priorities should be based on a country's local context and level of digital development, which requires granular and reliable data. There is also a need to promote digital skills and education across all parts of society."

What opportunities are you seeing in the further digitalization of the Latin American mobile economy?

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.