December 31, 2023

How Geopolitical Tensions, New Technologies, and Environmental Threats Could Upset the Economic Outlook for 2024

Though the Economist Intelligence Unit (EIU) expects modest global growth in 2024, continued monetary tightening, supply chain disruptions and geopolitical conflict could weigh heavily on the global economy next year. In a report that explores how geopolitical tensions, the advent of new technologies and persistent environmental threats could upset the outlook in the coming year, the EIU explains that its "operational risk scenarios evaluate the events that could have a severe impact on its core economic and geopolitical forecasts, challenging the operations of businesses worldwide." For example, "In 2023 resilience among consumers and a gradual fall in inflation reassured uneasy investors and supported modest global growth." The EIU expects "stable, but unspectacular, global growth to continue into 2024 as economic uncertainty recedes and major central banks begin to lower policy rates in the second half of the year. The UK-based organization's report "explores how geopolitical tensions, the advent of new technologies and persistent environmental threats could upset the outlook for 2024."

Below are ten risk scenarios that could reshape the global economy in 2024:
  1. Monetary policy tightening extends deep into 2024, leading to a global recession and financial volatility (moderate probability; high impact)
  2. A green technology subsidy race becomes a global trade war (moderate probability; high impact)
  3. Extreme weather events caused by climate change disrupt global supply chains (high probability; moderate impact)
  4. Industrial action spreads, disrupting global productivity (high probability; moderate impact)
  5. China moves to annex Taiwan, forcing a sudden global decoupling (low probability; very high impact)
  6. A change in the US administration leads to abrupt foreign policy shifts, straining alliances (moderate probability; moderate impact)
  7. Stimulus policy failures in China lead to increased state controls and diminished growth prospects (low probability; high impact)
  8. The Israel-Hamas war escalates into a regional conflict (very low probability; high impact)
  9. Artificial intelligence disrupts elections and undermines trust in political institutions (moderate probability; low impact)
  10. The Ukraine-Russia war spirals into a global conflict (very low probability; very high impact)

While business leaders should be mindful of the ten risk scenarios, there are three that I am watching closely. As someone who follows the green technology sector, I have concerns about how a subsidy race could turn into a global trade war. As the EIU explains: "Western economies are rolling out generous incentives for businesses to invest in clean energy technologies by boosting domestic industrial capacity and enabling greater competition with China, which is the leader in the production of many green technologies. These initiatives also aim to accelerate countries’ transition towards achieving net-zero greenhouse gas emissions, but most incentives include strict sourcing requirements for components (notably in the US). These requirements have already spurred tensions between the EU and the US, and will probably raise the cost of inputs and subsequently the green technologies themselves."

The report importantly adds that should "relations with China experience a severe downturn (including in relation to strengthening China-Russia ties or deepening concerns over China's state-driven industrial policy), Western economies could increase existing tariffs on Chinese imports or accelerate decisions on pending investigations into anti-dumping and state subsidy charges, further fueling price growth. China would retaliate, possibly by blocking exports of raw materials that are critical to the green transition agenda such as rare earths, making decarbonization efforts more expensive for developed markets. These costs would force economies to consider returning to carbon-based technologies, limit support from Western countries to fund emerging markets' energy transition and delay timelines for achieving net-zero emissions."

Regarding the spread of industrial action that will lead to the disruption of global productivity, the EIU says: "High global commodity prices, continued supply-chain disruptions, high food prices and continued currency weakness against the US dollar for some countries will continue to fuel discontent in 2024-25." What is more, "Wages have not risen as quickly as inflation in most countries, making it harder for poorer households to purchase basic staples. This could spark social unrest, expanding the small-scale protests and industrial action already seen in Europe, the US, South Korea and Argentina. In an extreme scenario, protests could push workers in major economies and who are employed by large manufacturers to co-ordinate large-scale strikes demanding salary increases that match inflation. Such movements, like those that have affected the automotive industry in the US and key services in the UK (healthcare, ports and railways), could paralyze entire industries or public services for an extended period and spill over to other sectors or countries, weighing on global growth."

As for artificial intelligence disrupting elections and undermining trust in political institutions, the EIU points out that "Global firms and governments have rapidly begun to test and integrate generative artificial intelligence (AI) into existing platforms and processes." Furthermore, the EIU believes "AI will augment (rather than replace) human capabilities, presenting an opportunity for firms to improve productivity. However, the widespread adoption of AI and its use in social media will raise the risk of a spread in disinformation campaigns via text, imagery, audio and video in the coming years. Regulation across different geographies is coming, but malicious actors will still look to implement wide-ranging programs aimed at fueling existing skepticism of some citizens towards governments." The report crucially notes that "This could potentially shift the result of major elections scheduled for 2024—including for the EU parliament, and in the US, the UK, India and Taiwan—and more broadly erode voters' trust in political systems."

The world is facing geopolitical tensions, the advent of new technologies, and persistent environmental threats that could upset the economic outlook for the coming year. Which of the global risk scenarios will you be watching?

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 26, 2023

Growth Prospects, Risks and Trends in Six Critical Sectors in 2024

The past few years have been turbulent for most companies as the pandemic, soaring commodity prices, high interest rates and political disruption resulted in profits for many and bankruptcy for some. A report published by the Economist Intelligence Unit (EIU) asks: Will conditions stabilize in 2024?

EIU's report provides growth prospects, risks and trends facing six critical sectors in the coming year, as inflation eases but geopolitical tensions remain high. The report argues that the biggest challenge facing businesses next year will be climate change and looks at how experimentation with artificial intelligence will give way to rapid adoption, changing corporate strategies and the nature of work.

Key findings include:
  • Climate change will drive demand in sectors relating to mitigation and adaptation. Insurers, companies and governments will struggle to price in the increasing risks.
  • EU and US regulations on environmental, social and governance (ESG) reporting will push companies to scrutinize their operations and supply chains. However, skepticism about ESG will harden in the US ahead of November’s presidential elections.
  • Corporate concerns over taxation will increase as the OECD introduces its global minimum tax rate and individual governments try to reduce budget deficits and national debt levels.
  • Geopolitical tensions and wars will complicate government and corporate responses to all of the above. Investment in supply chains, particularly for technology and the energy transition, will adapt to minimize political risk.
  • Generative artificial intelligence will disrupt a few sectors, but most companies will find ways to use AI to increase productivity.

The report also provides key global forecasts for each sector covered:
  • Automotive: The automotive industry will face another subdued year in 2024, weighed down by slow consumer spending, high interest rates and disruption to supply chains due to geopolitical tensions. The only bright spot will be the electric vehicles market, with sales expected to soar by 21% to 14.9 million unit as governments and consumers try to mitigate the worsening effects of climate change. The report notes that established carmakers will have to fight hard to hold off competition from China.
  • Consumer goods and retail: A slowdown in inflation will bolster retail volume growth by 6.7% in US dollar terms and 2% in volume terms in 2024. However, reduced savings and high food prices, worsened by the effects of climate change, will act as dampeners. The EIU also points out that high food prices will continue to cause problems in Asia.
  • Energy: Global energy consumption will grow by 1.8% in 2024, largely driven by strong demand in Asia. Despite still-high prices and unsolved supply chain disruptions, demand for fossil fuels will reach record levels, but demand for renewable energy will rise by 11%.
  • Finance: High interest rates will determine the success or failure of almost every part of the financial services sector in 2024. Though painful for borrowers, banks will enjoy strong net interest margins margins and revenue flows until margins begin to narrow mildly in late 2024. Property firms and funds, however, will suffer.
  • Healthcare: Healthcare spending will rise by 2% in real US-dollar terms, following two years of decline, as inflation eases. However, resources will remain constrained as governments try to bring down fiscal deficits and public debt levels.
  • Telecoms and technology: Geopolitics will continue to affect technology in 2024. The tech battle between the US and China will persist in areas including artificial intelligence (AI), chips and quantum technologies. AI will continue to develop, particularly generative AI, but will encounter challenges from new regulations in the EU and other major jurisdictions, as well as complications from US-China tensions.

I appreciate how the annual industry outlook provides businesses with foresight of the critical global trends and threats that will affect their sector 2024. Which trends and threats are you watching in the coming year?

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, 2023

Recommendations for Reinventing American Democracy for the 21st Century

There is much discussion among my peers about the fragility of American democracy. Some hold the view that American democracy is unraveling through shifting political, economic, and social forces. Others see the current challenges America's democracy is facing as an opportunity to refocus on the principals the country's founders endowed over 200 years ago. Efforts to refocus will require a redesign of American institutions so that they are simultaneously responsive and accountable. A report published by the American Academy of Arts & Sciences explores how to reinvent American democracy for the 21st century.

Segmented into six sections, the report presents 31 recommendations on how to reinvent American democracy in the 21st century:

STRATEGY 1: ACHIEVE EQUALITY OF VOICE AND REPRESENTATION

Recommendation 1.1
Substantially enlarge the House of Representatives through federal legislation to make it and the Electoral College more representative of the nation’s population.

Recommendation 1.2
Introduce ranked-choice voting in presidential, congressional, and state elections.

Recommendation 1.3
Amend or repeal and replace the 1967 law that mandates single-member districts for the House, so that states have the option to use multi-member districts on the condition that they adopt a non-winner-take all election model.

Recommendation 1.4
Support adoption, through state legislation, of independent citizen-redistricting commissions in all fifty states. Complete nationwide adoption, through federal legislation, that requires fair congressional districts to be determined by state-established independent citizen-redistricting commissions; allows these commissions to meet criteria with non-winner-take-all models; and provides federal funding for these state processes, with the goal of establishing national consistency in procedures.

Recommendation 1.5
Amend the Constitution to authorize the regulation of election contributions and spending to eliminate undue influence of money in our political system, and to protect the rights of all Americans to free speech, political participation, and meaningful representation in government.

Recommendation 1.6
Pass strong campaign-finance disclosure laws in all fifty states that require full transparency for campaign donations, including from 501(c)(4) organizations and LLCs.

Recommendation 1.7
Pass "clean election laws" for federal, state, and local elections through mechanisms such as public matching donation systems and democracy vouchers, which amplify the power of small donors.

Recommendation 1.8
Establish, through federal legislation, eighteen-year terms for Supreme Court justices with appointments staggered such that one nomination comes up during each term of Congress. At the end of their term, justices will transition to an appeals court or, if they choose, to senior status for the remainder of their life tenure, which would allow them to determine how much time they spend hearing cases on an appeals court.

STRATEGY 2: EMPOWER VOTERS

Recommendation 2.1
Give people more choices about where and when they vote, with state-level legislation in all states that supports the implementation of vote centers and early voting. During an emergency like COVID-19, officials must be prepared to act swiftly and adopt extraordinary measures to preserve ballot access and protect the fundamental right to vote.

Recommendation 2.2
Change federal election day to Veterans Day to honor the service of veterans and the sacrifices they have made in defense of our constitutional democracy, and to ensure that voting can occur on a day that many people have off from work. Align state election calendars with this new federal election day.

Recommendation 2.3
Establish, through state and federal legislation, same-day registration and universal automatic voter registration, with sufficient funding and training to ensure that all government agencies that have contact with citizens include such registration as part of their processes.

Recommendation 2.4
Establish, through state legislation, the preregistration of sixteen- and seventeen-year-olds and provide educational opportunities for them to practice voting as part of the preregistration process.

Recommendation 2.5
Establish, through congressional legislation, that voting in federal elections be a requirement of citizenship, just as jury service is in the states. All eligible voters would have to participate, in person or by mail, or submit a valid reason for nonparticipation. Eligible voters who do not do so would receive a citation and small fine. (Participation could, of course, include voting for "none of the above.")

Recommendation 2.6
Establish, through state legislatures and/or offices of secretaries of state, paid voter orientation for voters participating in their first federal election, analogous to a combination of jury orientation and jury pay. Most states use short videos produced by the state judicial system to provide jurors with a nonpolitical orientation to their duty; first-time voters should receive a similar orientation to their duty.

Recommendation 2.7
Restore federal and state voting rights to citizens with felony convictions immediately and automatically upon their release from prison, and ensure that those rights are also restored to those already living in the community.

STRATEGY 3: ENSURE THE RESPONSIVENESS OF GOVERNMENT INSTITUTIONS

Recommendation 3.1
Adopt formats, processes, and technologies that are designed to encourage widespread participation by residents in official public hearings and meetings at local and state levels.

Recommendation 3.2
Design structured and engaging mechanisms for every member of Congress to interact directly and regularly with a random sample of their constituents in an informed and substantive conversation about policy areas under consideration.

Recommendation 3.3
Promote experimentation with citizens' assemblies to enable the public to interact directly with Congress as an institution on issues of Congress's choosing.

Recommendation 3.4
Expand the breadth of participatory opportunities at municipal and state levels for citizens to shape decision-making, budgeting, and other policy-making processes.

STRATEGY 4: DRAMATICALLY EXPAND CIVIC BRIDGING CAPACITY

Recommendation 4.1
Establish a National Trust for Civic Infrastructure to scale up social, civic, and democratic infrastructure. Fund the Trust with a major nationwide investment campaign that bridges private enterprise and philanthropic seed funding. This might later be sustained through annual appropriations from Congress on the model of the National Endowment for Democracy.

Recommendation 4.2
Activate a range of funders to invest in the leadership capacity of the so-called civic one million: the catalytic leaders who drive civic renewal in communities around the country. Use this funding to encourage these leaders to support innovations in bridge-building and participatory constitutional democracy.

STRATEGY 5: BUILD CIVIC INFORMATION ARCHITECTURE THAT SUPPORTS COMMON PURPOSE

Recommendation 5.1
Form a high-level working group to articulate and measure social media's civic obligations and incorporate those defined metrics in the Democratic Engagement Project, described in Recommendation 5.5.

Recommendation 5.2
Through state and/or federal legislation, subsidize innovation to reinvent the public functions that social media have displaced: for instance, with a tax on digital advertising that could be deployed in a public media fund that would support experimental approaches to public social media platforms as well as local and regional investigative journalism.

Recommendation 5.3
To supplement experiments with public media platforms (Recommendation 5.2), establish a public-interest mandate for for-profit social media platforms. Analogous to zoning requirements, this mandate would require such for-profit digital platform companies to support the development of designated public-friendly digital spaces on their own platforms.

Recommendation 5.4
Through federal legislation and regulation, require of digital platform companies: interoperability (like railroad-track gauges), data portability, and data openness sufficient to equip researchers to measure and evaluate democratic engagement in digital contexts.

Recommendation 5.5
Establish and fund the Democratic Engagement Project: a new data source and clearinghouse for research that supports social and civic infrastructure. The Project would conduct a focused, large-scale, systematic, and longitudinal study of individual and organizational democratic engagement, including the full integration of measurement and the evaluation of democratic engagement in digital contexts.

STRATEGY 6: INSPIRE A CULTURE OF COMMITMENT TO AMERICAN CONSTITUTIONAL DEMOCRACY AND ONE ANOTHER

Recommendation 6.1
Establish a universal expectation of a year of national service and dramatically expand funding for service programs or fellowships that would offer young people paid service opportunities. Such opportunities should be made available not only in AmeriCorps or the military but also in local programs offered by municipal governments, local news outlets, and nonprofit organizations.

Recommendation 6.2
To coincide with the 250th anniversary of the Declaration of Independence, create a Telling Our Nation's Story initiative to engage communities throughout the country in direct, open-ended, and inclusive conversations about the complex and always evolving American story. Led by civil society organizations, these conversations will allow participants at all points along the political spectrum to explore both their feelings about and hopes for this country.

Recommendation 6.3
Launch a philanthropic initiative to support the growing civil society ecosystem of civic gatherings and rituals focused on the ethical, moral, and spiritual dimensions of our civic values.

Recommendation 6.4
Increase public and private funding for media campaigns and grassroots narratives about how to revitalize constitutional democracy and encourage a commitment to our constitutional democracy and one another.

Recommendation 6.5
Invest in civic educators and civic education for all ages and in all communities through curricula, ongoing program evaluations, professional development for teachers, and a federal award program that recognizes civic-learning achievements. These measures should encompass lifelong (K–12 and adult) civic-learning experiences with the full community in mind.

Among the recommendations listed above, I strongly support ranked-choice voting in presidential, congressional, and state elections (1.2), changing federal election day to Veterans Day (Nov. 11th) (2.2), and adopting formats, processes, and technologies that are designed to encourage widespread participation by residents in official public hearings and meetings at local and state levels (3.1). While I also support amending the Constitution so that Supreme Court justices serve a term limited to a pre-set number of years, twelve- or sixteen-year terms are more reasonable than eighteen-year terms. Lastly, although same-day voter registration will improve access for people to elect their government leaders (2.3), universal automatic voter registration makes me nervous as I have concerns about any government agency implementing a registration system without the explicit consent of the individual.

In a letter published in Our Common Purpose, David W. Oxtoby, president of American Academy of Arts and Sciences, writes: "Throughout our country's history, the American people have confronted moments of crisis with resilience and an openness to reinvention, enabling our nation to become a better version of itself." He adds that "The recommendations in this report touch all sectors of American life and offer a bold path that will require all of us to commit to reinventing aspects of our constitutional democracy." Despite the currently challenges facing our great nation, I remain optimistic that Americans will take advantage of the opportunity to create a better version of our great nation.

What are you thoughts?

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 11, 2023

Forging a Resilient Digital Indonesia

"The government of Indonesia is keen to build a digital nation, in which digital technologies help improve the livelihoods of citizens and drive productivity in key sectors of the economy," according to a report by the GSMA. "This has been highlighted in several digitalization plans announced in recent years. The main elements of the plans align with the five components of a digital nation: infrastructure, innovation, data governance, security and people."

The UK-based organization adds that "Although steps have been taken towards a digital nation, there remains room for improvement and an opportunity to accelerate progress. This is particularly crucial in the context of 5G and other emerging technologies (such as AI and quantum computing) transforming Indonesian society and contributing to the government’s target for the country to become a top 10 global economy by 2030." The report encouragingly points out: "The industry (mobile operators and other ecosystem players) will invest nearly $18 billion between 2024 and 2030, mostly on 5G networks. 5G technology is projected to contribute $41 billion to Indonesia's GDP during that period."

Having advised government leaders in countries similar to Indonesia who are trying to build a digital nation, I appreciate the GSMA's assertion that "Realizing the government's vision of building a resilient digital nation and using digital technologies to drive economic growth relies on formulating and implementing policies to advance each of the five components of a digital nation." Accordingly, the report presents the following recommendations:
  • Infrastructure: Implement spectrum pricing policies and other policy initiatives to ensure sustainable private sector investment in digital networks. Such policies will facilitate the continued expansion of the high-performance mobile networks and other digital infrastructure required to build a resilient digital nation.
  • Innovation: Take a holistic approach to digital innovation across government, supported by agile policy approaches, such as regulatory sandboxes and policy labs, and make a concerted effort to increase research funding in Indonesia.
  • Data governance: Continue on the path to the full enforcement of the personal data protection law, which was enacted in 2022, and consult widely with stakeholders across the public and private sectors on guidelines on the use of AI and other emerging technologies.
  • Security: Develop a comprehensive cybersecurity law to streamline current fragmented laws, and adopt ecosystem-wide collaboration to strengthen cyber resilience, disrupt cybercrime and tackle other online threats.
  • People: Accelerate efforts to bring more people online by closing the remaining coverage and usage gaps. Implement initiatives to build a digitally-ready workforce with the necessary knowledge and skills to utilize digital technologies across different sectors of the economy.

The report's authors adds: "The task of becoming a digital nation is multidimensional, involving many different actors from the public and private sectors and non-state institutions. Meanwhile, digital technologies continue to evolve rapidly, offering new opportunities but also challenges that need to be approached holistically. In this context, a whole-of-government approach (WGA) is essential to streamline efforts and realize efficiencies in formulating and implementing digital nation initiatives. This approach will bring together multiple stakeholders and diverse resources to provide a common solution to key issues."

In addition to Indonesia, other members of the Association of Southeast Asian Nations (ASEAN) have plans to building a resilient digital nation. The recommendations presented by this report can be a useful guide for how to successfully use digital technologies to drive economic growth.

Do you agree with the report's recommendations?

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 9, 2023

Helping Policymakers and Stakeholders Understand Risk and Design Effective Policies for Urban Resilience

According to a report developed by Economist Impact and supported by the Tokio Marine Group, "The world is facing unprecedented challenges. Extreme weather events, from hurricanes and wildfires to flooding and heatwaves, are becoming more frequent and their effects more devastating." Furthermore, "Emerging risks like cyber-attacks loom larger as technology dependence deepens. Our cities are exposed to all of these risks and more. Lives and livelihoods depend on our ability to understand and mitigate the evolving threats to our urban centers."

The Resilient Cities Index highlights three phases to resilience. "Preparation and mitigation come first. Understanding the risks, how they are evolving and taking steps to minimize their impact is essential if cities are to avoid the worst. The second phase is response, necessitating swift reactions and timely assistance to save lives and diminish the impact when disasters occur. Last is recovery, emphasizing the need to learn from tragedies and rebuild stronger, better-equipped communities for future shocks and stresses."

Aiming to help policymakers and stakeholders understand risk and design effective policies for urban resilience, Economist Impact developed a benchmark of 25 cities. To gauge the resilience of these cities, the report's authors took measurements across four pillars: critical infrastructure, environment, socio-institutional and economic. This white paper combines index analysis with expert commentary to identify patterns, common strengths, deficits and best practices across index cities.

Key findings from the inaugural edition of the Resilient Cities Index include:
  • Cities performed well in the critical infrastructure pillar of the index, but there are some weak points that require strategic focus. The cities with the highest scores were Dubai, Shanghai, New York and Singapore. These capital-rich market locations have greater opportunities to develop new infrastructure, compared with European cities constrained by decades- or centuries-old systems. Within this pillar, digital infrastructure and transportation were a drag on cities' resilience.
  • Cities that use data and technology to create operational efficiencies and share information with their citizens—i.e., smart cities—are better at dealing with shocks. Patchy internet quality, which can impede access to digital services, pulled down the overall resilience score in the critical infrastructure pillar. Digital technologies and advanced data analytics can help to predict risks, optimize existing systems and keep the public informed. Greater digitalization comes with risks, especially to critical infrastructure, but most cities in the index have built safeguards against this.
  • Most emerging economy cities lack adequate regulatory frameworks, strategies and incentives for futureproofing infrastructure. Only a few cities in the index achieved high scores for future-proofing, which involves ensuring infrastructure preparedness for shocks while managing current and future emissions. One way cities can future-proof is by incentivizing sustainable designs for buildings, such as installing green roofs, incorporating modularity and retrofitting for energy efficiency—a practice only found in high-income cities in the index.
  • Efforts to achieve environmental resilience are led by innovative solutions. Cities are employing a variety of nature-based solutions to adapt to flooding and heat stress, from planting rooftop vegetation and mangrove forests (green infrastructure) to rehabilitating wetlands (blue infrastructure). Cities are also decarbonizing by adopting renewable energy and negative emission technologies, such as carbon capture, storage and removal. However, the scalability of these technologies is likely to be challenging for resource-constrained emerging market cities.
  • Cities demonstrated poorer performance in the socio-institutional pillar, mostly due to income inequality and poor health and well-being metrics. Only nine cities have a single, comprehensive plan to support vulnerable groups. However, one bright spot is that cities are promoting a culture of readiness to act in the event of a disaster. The majority of cities scored highly on this or are working to improve their readiness.
  • Cities had the lowest average scores in the economic pillar, dragging down some cities that performed well in other areas. The low penetration of financial safety nets hinders safeguards against threats and undermines a city's ability to recover from shocks. Another aspect of economic resilience is a city’s ability to incubate innovation, which can foster solutions to a range of problems, from congestion to water stress. Unfortunately, most cities scored poorly on the indicator for start-up ecosystems.

The report's conclusion points out that "A resilient city is not only prepared for shocks but has the ability to bounce back and thrive. Recognizing both existing and looming threats will help cities better understand their vulnerabilities and design targeted actions. However, building such cities requires stakeholders from government, businesses and communities, as well as individual city-dwellers, to engage in holistic resilience thinking at community and municipality levels."

Moreover, "While resilience needs to be tackled in myriad ways, a number of critical strategies have been identified in the course of this research and are summarized below."
  • Empower the community to be active participants. This is contingent on the democratization of information. All city-dwellers should have equal access to government information, including what to do in an emergency. Some cities, like Singapore, do this very well, using digital channels to disseminate information to everyone simultaneously. Fostering a culture of readiness and the ability to manage hazards will require investment to train and educate people at governing and grassroots levels to be stewards of their city. Recognizing that information is key, municipalities could consider partnering with a digital platform to minimize misinformation and ensure the city moves in one direction, despite disruption.
  • Social cohesion efforts need greater advancement across the board. Cities are nothing without the people who inhabit them. Greater attention to social cohesion will help to ensure cities are less fragmented, adaptive and better prepared for shocks. City governments should overlay resilience efforts with initiatives that aim to improve the lives of urban residents. This process should be driven by city leadership and engage civil society. The majority of cities in the index have some way to go to strengthen social cohesion through integration programs for society's most vulnerable.
  • Early warning systems (EWS) are vital for safe cities but investment is needed to hit the 2027 target. National governments and municipality leaders will have to collaborate to ensure universal early warning systems coverage by 2027. There are two challenges that need to be met. First, capital is needed to bridge the investment gap for technologies with a greater push for the development and adoption of frontier and horizon tech–from drones to AI. Second, governments need to facilitate the necessary legislation to connect these EWS to emergency and response plans to ensure there are protocols and resources in place to deal with climate extremes and hazards. Community acceptance and responsiveness to early warnings are essential in the effectiveness of EWS. This can be achieved through systematic training and education and awareness programs.

What do you think of the report's findings and conclusions? Do you have additional recommendations on how policymakers and stakeholders understand risk and design effective policies for urban resilience?

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 7, 2023

5G's GDP Contribution in MENA Is Expected to Reach $60B in 2030, Representing 13% of the Overall Annual Economic Impact of Mobile in the Region

As the UN Climate Change Conference finds down in Dubai, many people unfamiliar with the Middle East and North Africa (MENA) are becoming aware of efforts to diminish the reliance on fossil fuel as the key producer of economic output. Having done business in the MENA region for several years, I have witnessed the efforts made by several governments to promote private sector development in several key industries including mobile technology. In its most recent annual report on the state of MENA's mobile economy, the GSMA points out that the region "home to some of the global leaders in terms of 5G adoption, reflecting the ambitious rollout plans of operators, backed by enabling regulations and strong demand from consumers for new services." Furthermore, "5G networks now cover 75% or more of the population in the GCC states, with operators in those markets increasingly shifting focus to improving 5G coverage in less densely populated areas while also ramping up investment to support the growing momentum behind use cases enabled by 5G standalone (SA) and 5G-Advanced." The GCC, or Gulf Cooperation Council, is comprised of six nations: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

The GSMA notes that "5G's GDP contribution is expected to reach $60bn in 2030, representing 13% of the overall annual economic impact of mobile in the region." The report's additional key findings include:

5G SA and 5G-Advanced will be at the heart of 5G's next phase

"By September 2023, six operators in MENA had already rolled out 5G SA networks, contributing to 15% of the global total. Operators in MENA have also begun planning for 5G-Advanced. The use case for 5G-Advanced is straightforward: to enable 5G to support new market demands while waiting for the arrival of 6G. 5G SA and 5G-Advanced will help operators to serve consumer and enterprise customers more flexibly. The adoption of private 5G networks, meanwhile, has been slower in MENA compared with other regions, but there is growing evidence that this is starting to change."

Operators look to monetize tower assets

"The majority of tower assets have traditionally remained in the hands of mobile operators in MENA. However, following STC's creation of Tawal in 2019, the first tower company in Saudi Arabia, an increasing number of operators in MENA have embarked upon infrastructure reshuffling, including the monetization of underutilized tower assets. Independent tower companies have been among the main acquirers of operator sites, utilizing multitenancy to drive profitability. In other instances, operators have spun off infrastructure in partnership with private equity groups or issued IPOs for their tower assets. Tower sales and spin-offs enable operators to reallocate capital towards areas with higher growth prospects."

GCC telcos target stakes in European counterparts

"International expansion has been a core growth and diversification strategy for GCC telcos looking for opportunities to scale up and drive new revenue and subscriber growth. Historically, GCC operators had bet big on emerging markets across South Asia, Southeast Asia, Sub-Saharan Africa and other parts of MENA. However, recent developments suggest a growing interest in long-established European operators. e& and STC are leading the charge, having made several high-profile deals and announcements since early 2022. The strategic rationale lies in the potential to become global players in the TMT space, both in terms of scale and innovation."

The shift to circularity gathers momentum

"In response to escalating concerns regarding the generation of e-waste and the unsustainable depletion of natural resources, the concept of circularity has surged to the forefront of the agendas for policymakers and industry stakeholders. This amplified focus on sustainability is particularly evident in view of the region's role as the host for the 2023 United Nations Climate Change Conference (COP28) in Dubai. Governments and industry participants in the region are taking proactive measures to establish new channels and suppliers dedicated to collecting, refurbishing and reselling devices and network equipment."

Regulatory enablers and innovation hubs fuel fintech growth

"MENA has experienced a significant surge in fintech services, driven by increased investments and regulatory enablement. Regulatory sandboxes and dedicated fintech hubs have been important contributors to this, with digital payment solutions gaining prominence in recent years, including
contactless payments, open banking and buy now, pay later (BNPL) services. Mobile operators are actively involved in the fintech space, expanding access and inclusion for consumers and businesses through a variety of financial-services products and partnerships with established fintech providers."


Infographic: GSMA

Significant opportunities exist for MENA entrepreneurs to develop localized solutions in AI, IoT, cybersecurity, EdTech, fintech, digital health, e-commerce, and enterprise services. As the report explains, "Beyond its contribution to GDP, the mobile ecosystem also supports over 800,000 jobs (directly and indirectly) and makes a substantial contribution to the funding of the public sector, with $20 billion raised through taxation in 2022. This economic contribution underlines the importance of stakeholders taking the right steps to sustain the impact of mobile services on the digital economy, with spectrum availability a key driver of affordable 5G for all."

What opportunities are you seeing in the region?

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.

November 24, 2023

SBA's Surety Bond Program

Investopedia defines surety as "a promise or agreement made by one party that debts and financial obligations will be paid. In effect, a surety acts as a guarantee that a person or an organization assumes responsibility for fulfilling financial obligations in the event that the debtor defaults and is unable to make payments." Moreover, "The party that guarantees the debt is referred to as the surety or the guarantor. Sureties can be made by issuing surety bonds, which are legal contracts obligating one party to pay if the other fails to live up to the agreement."

Benefits of having a surety bond include:
  • Protection against financial loss since a surety bond can protect your business from financial losses in the event that someone sues you or if you break a contract;
  • Shows that you are a responsible business;
  • Getting help in obtaining financing as banks and other lending institutions may be more likely to lend money to businesses that have a surety bond;
  • Helps you comply with regulations as certain regulations may require businesses to have a surety bond in order to operate; and
  • Helps you get government contracts as many government organizations require businesses to have a surety bond before they will award them a contract.

In conversation with a friend who owns a small business that is trying to win contracts, I introduced him to a program within the U.S. Small Business Administration Bond Guaranty Program that issues surety bonds which provides the customer with a guarantee that the work will be completed.

According to the SBA, "Many public and private contracts require surety bonds, which are offered by surety companies. The SBA guarantees surety bonds for certain surety companies, which allows the companies to offer surety bonds to small businesses that might not meet the criteria for other sureties."

The SBA Surety Bond Program is segmented into four steps:
  1. Surety bonds are requested: Some contracts require that the business doing the work be properly bonded.
  2. Surety partners with business: Authorized surety companies provide surety bonds to businesses that meet their qualifications.
  3. SBA guarantees: SBA guarantees surety bonds for private surety companies, so more small businesses can qualify.
  4. Small businesses benefit: Small businesses get SBA-guaranteed surety bonds so they can get to work.
The U.S. government agency importantly explains that it "guarantees contract bonds, but doesn’t guarantee commercial bonds. Contract bonds ensure the terms of a specific contract are fulfilled. Commercial bonds ensure all applicable laws and regulations are followed. Government agencies require certain companies or individuals to obtain commercial bonds, which protect the general public against things like fraud."

What is more, "Some contracts require surety bonds that cover specific situations. SBA guarantees surety bonds that cover several major categories of work":
  • Bid: Ensures full payment and performance bonding from the contract bidder.
  • Payment: Ensures full payment to the suppliers and subcontractors.
  • Performance: Ensures full completion of a contract by small business.
  • Ancillary: Ensures completion of requirements outside of performance or payment, such as maintenance.

With respect to the bond guarantee fee, the SBA notes that "all performance and payment bond guarantees require small businesses to pay SBA a fee of 0.6% of the contract price. If for some reason the bond is cancelled or not issued, SBA will return the guarantee fee. SBA does not charge a fee for bid bond guarantees."

Eligibility criteria in obtaining a surety bond include qualifying as a small business according to the SBA's size standards, have up to $6.5 million for non-federal contracts and up to $10 million for federal contracts, and meet the surety company’s credit, capacity, and character requirements.

What has been your experience with surety bonds?

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.

November 5, 2023

While Mobile Internet Adoption Continues to Increase, the Growth Rate Slowed in 2022

The previous posts in the forum addressed the economic benefit 5G will bring to the Sub-Saharan Africa economy in the near future and the challenges and opportunities for scaling e-commerce adoption by small businesses in Africa. While 5G is expanding rapidly in low- and middle-income countries and smartphone adoption is projected to increase in the coming years, which will allow people to connect to critical services such as education, healthcare, and financial services, and provide income-generating opportunities, significant digital divides exists. Not only do these digital divides inhibit entrepreneurs from developing innovative localized technology solutions, but they prevent investors from providing essential financial capital and advisory support.

Therefore, it was with great interest to read GSMA's State of Mobile Internet Connectivity 2023 that "considers the importance of not just mobile broadband coverage but 'meaningful connectivity' – users having a safe, satisfying, enriching and productive online experience that is affordable. This requires an understanding of the key barriers and enablers for meaningful connectivity, including infrastructure, affordability, skills, safety and security, and relevant content and services. Each of these is considered in this report."

Below are the report's key findings (copied in verbatim):
  • Mobile internet adoption continues to increase, with 57% of the global population (4.6 billion people) now using mobile internet – but the growth rate at which people are adopting mobile internet slowed in 2022. Only 200 million people started using mobile internet in 2022, compared to 300 million in 2021 and in 2020. Just over three quarters of the growth in mobile internet adoption in 2022 came from low- and middle-income countries (LMICs), where 95% of the unconnected population live. In least developed countries (LDCs), almost 30 million additional people started using mobile internet in 2022, meaning one in four people in LDCs are using mobile internet.
  • Mobile broadband coverage has remained relatively unchanged, with 95% of the global population living within the footprint of a mobile broadband network. With only marginal growth in coverage in 2022, the coverage gap – those living in areas without mobile broadband coverage – stands at almost 400 million people (5% of the global population). The remaining uncovered communities, which are predominantly rural, poor and sparsely populated, are the most challenging to reach.
  • Most of those not using mobile internet live in areas covered by mobile broadband. In 2022, 3 billion people (38% of the global population) lived in areas covered by mobile internet but did not use it. With mobile internet adoption outpacing network expansion, this usage gap has been shrinking slowly in recent years, from 40% in 2021 to 38% in 2022. However, the usage gap remains almost eight times the size of the coverage gap. Considering only adults aged 18 and above, 23% are still not using mobile internet despite being covered by a mobile broadband network. The majority of those living within mobile broadband coverage but not using it do not yet own a mobile phone.
  • Connectivity varies significantly between and within regions and countries, with 95% of the unconnected living in LMICs. Sub-Saharan Africa remains the region with the largest coverage and usage gaps. In LMICs, adults in rural areas are still 29% less likely to use mobile internet than those in urban areas, while women are 19% less likely to use mobile internet than men. In LDCs, only 25% of the population use mobile internet, compared to 52% across LMICs overall and 85% in high-income countries (HICs).
  • The majority of the global population now own a smartphone, which is how most people are accessing mobile internet. At the end of 2022, 54% of the global population (4.3 billion people) owned a smartphone. Of the 4.6 billion people using mobile internet, almost 4 billion do so using a smartphone (49% of the global population) and around 600 million people do so using a feature phone (8% of the global population). There are also 350 million people who own a smartphone but do not use mobile internet.
  • 4G and 5G continue to expand, but 2G and 3G remain important sources of coverage in LMICs. While the overall broadband coverage gap has remained broadly unchanged since 2021, the deployment of 4G and 5G continues to expand. Globally, 90% of the population is now covered by 4G, and 32% by 5G (up from 25% in 2021). Almost three quarters of the 5G network expansion in 2022 was in Asia-Pacific, and there was particularly strong growth in 4G network expansion in Sub-Saharan Africa. However, most mobile operators will continue to maintain 2G and 3G networks for the foreseeable future, with a significant portion of users continuing to use these networks, particularly in LMICs.
  • Data usage and network quality continue to increase but significant differences remain between HICs and LMICs. Monthly global mobile data traffic per user increased from 8.4 GB in 2021 to 11.3 GB in 2022 – the largest absolute increase since it was first tracked in 2015. Network quality improved across all regions, driven by improved networks and consumers migrating to 4G or 5G. For the first time, all regions now have average download speeds of at least 10 Mbps, while the global average download speed increased from 27 Mbps to 34 Mbps. HICs record download speeds four times greater than those in LMICs.
  • Awareness of mobile internet continues to grow but has slowed significantly since 2019. In nine of the 12 countries surveyed, more than 80% of the population was aware of mobile internet in 2022. However, women and those living in rural areas remain less likely to be aware of mobile internet, and lack of awareness remains a critical initial barrier to mobile internet adoption in some countries.
  • Affordability and skills remain the two greatest barriers to mobile internet adoption and use. Across the countries surveyed, for mobile users who are aware of mobile internet but don’t use it, the top reported barriers to adopting it remain affordability (particularly of handsets) and literacy/digital skills. Safety & security concerns and lack of perceived relevance were reported less often but are also important barriers. For example, among smartphone owners, lack of perceived relevance is often cited as a top barrier to mobile internet adoption in several countries.
  • Affordability of devices and data continues to disproportionately impact the underserved. Across LMICs, affordability of an entry-level, internet-enabled handset remained relatively unchanged, while affordability of data continues to improve across most regions. However, while the affordability of an entry-level device across all LMICs is equivalent to 16% of average monthly income, this increases to 40% for the poorest 40% of the population and 55% for the poorest 20%. Across LMICs, it is equivalent to 24% of average monthly income for women, compared to 13% for men.


GSMA's report also points out that barriers to digital inclusion are complex and interconnected:
  • Knowledge and skills: "Improving digital skills and literacy, as well as driving awareness and understanding of mobile internet and its benefits, is critical to increasing digital inclusion. Digital skills initiatives should focus on users' needs and circumstances."
  • Affordability of handsets and data: "Approaches to improve affordability should include efforts to lower the cost of internet-enabled handsets and data through innovative data pricing strategies and handset-financing options, in addition to adopting tax policies and providing targeted subsidies that promote the uptake of internet-enabled devices and data services."
  • Safety and security: "Concerns about safety and security, including online harassment or cyberbullying, misinformation, disinformation and fraud, are preventing people going online and having a positive internet experience. Appropriate mechanisms and frameworks that recognize these online risks should be put in place to help build consumer trust. Stakeholders should provide users, especially women, with the tools to increase their knowledge and skills to mitigate online risks."
  • 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 and in their own language."
  • 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 appreciate how the report addresses the importance of having reliable mobile connectivity for people to access essential services. As the GSMA points out, "In recent years, mobile operators and governments worldwide have been working on advancing digital inclusion, recognizing its transformative potential for societies. While there have been notable achievements and mobile internet adoption continues to grow, this report shows that progress has slowed. Furthermore, with an ongoing cost-of-living crisis, many are now further at risk of remaining unconnected."

What are your recommendations on how to bridge the digital divide?

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.

November 1, 2023

5G to Benefit the Sub-Saharan Africa Economy by $11 Billion in 2030

In its annual report on the state of the mobile economy in sub-Saharan Africa, the GSMA says the mobile connectivity on the continent "continues to drive digital transformation and socioeconomic advancements. This underlines the need for continued efforts to address the persisting barriers that impact mobile internet adoption in the region, particularly the affordability of devices, online safety concerns and the lack of digital skills." The UK-based organization that represents the interests of mobile operators worldwide adds: "Meanwhile, authorities and enterprises see an opportunity to leverage growing 4G and 5G networks, alongside emerging technologies such as AI and IoT, to enhance productivity and efficiency in service delivery."

Findings of the report, which is available in English and Fran├žais, include:

Growing 5G momentum

"In 2022, there was a marked uptick in 5G-related activities in Sub-Saharan Africa, including 5G commercial launches in 15 countries and a growing number of spectrum allocations. This comes at a time when 3G is the most dominant technology in the region (accounting for 55% of total connections in 2022) while 4G is already dominant in other regions, implying network and customer readiness for the transition to 4G. The approach to 5G in the region will need to consider the current connectivity landscape and unique market features that could affect the rollout and adoption of the technology. 5G network ecosystem players in the region must also find ways to deliver cost-effective and efficient 5G networks, balancing investment and value creation."

Steering growth with AI

"The emergence of new AI tools and use cases is accelerating the implementation of AI across various verticals and business processes. Most AI developments are occurring in advanced markets. However, the technology can be utilized in any scenario where there is sufficient data to draw insights. As a result, several industry players are already taking steps to apply AI across a variety of use cases in Sub-Saharan Africa. The potential benefit of AI in the region is significant, given that it can help offset the impact of limited resources and poor infrastructure in the delivery of many life-enhancing services, such as healthcare and education. Mobile operators in the region have employed AI at different levels, from improving network operations and customer services to achieving efficiencies and cost savings."

Climate-related risks spur circular economy principles

"The concept of circularity has risen to the top of the agenda for policymakers and industry players in light of growing concerns around the generation of e-waste and unsustainable levels of consumption of natural resources. Although the technical lifespan of a mobile device is now between four and seven years, the average use period of mobile devices is only around three years. Governments and industry players have a role to play in incentivizing consumers. This includes building new channels and suppliers to collect, refurbish and resell devices and implementing awareness campaigns on sustainability. Some operators in Sub-Saharan Africa are already taking a lead in this regard, with initiatives to drive circularity in mobile phones and other digital devices."

Infographic: GSMA

Improving smartphone access

"Smartphone affordability is a key barrier to using mobile internet. The average selling price of smartphones in Africa has reduced significantly in recent years, with an influx of devices priced at below $100 – but the cost remains unaffordable for many. The challenge for manufacturers is to produce devices at low enough price points that align with local earning capacities and allow them to gain market share. To ease the current cost burden, operators offer a range of initiatives, including device financing plans, instalment payments and entry-level smartphones through partnerships with manufacturers."

Collaboration and innovation in fintech is on the rise

"Fintech has become increasingly prominent in Sub-Saharan Africa, driven by the need to improve regional financial and digital inclusion. The industry has seen a rise in partnerships and innovation, leading to the diversification of products on offer, particularly in the payments segments. Operators have partnered with ecosystem players to expand products and offer options such as buy now, pay later (BNPL). At the same time, the growing fintech startup industry continues to attract investors, allowing them to improve access to a variety of financial products for both individuals and small businesses, such as microlending and B2B payments."

Policies for safe and inclusive development

"As cyberattacks continue to grow in scale and scope, governments face increasing pressure to protect their citizens and infrastructure and establish a framework for the mobile industry. Sub-Saharan Africa's rapid technological evolution makes the region an attractive target for fraud and cyberattacks."

Infographic: GSMA

According to the GSMA, "5G is expected to benefit the Sub-Saharan Africa economy by $11 billion in 2030, accounting for more than 6% of the overall economic impact of mobile." While it is encouraging to learn that mobile connectivity in Sub-Saharan Africa continues to drive digital transformation and socioeconomic advances, I have concerns about the mobile internet usage gap, which refers to individuals who are not using mobile internet despite living in an area covered by mobile broadband networks. of 59%. Nevertheless, the continent holds significant opportunities for entrepreneurs to develop innovative solutions in AI, IoT, cybersecurity, EdTech, fintech, digital health, e-commerce, and enterprise services.

What opportunities are you seeing the Sub-Saharan Africa's 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.

October 19, 2023

GSMA Report Highlights the Challenges and Opportunities for Scaling E-Commerce Adoption by Small Businesses in Africa

There is significant evidence that e-commerce can help micro, small and medium enterprises (MSMEs) reach wider markets and increase their profitability and resilience, according to the GSMA. However, in Africa, online retail as a proportion of total retail sales remains much lower than in other regions, indicating that the continent's MSMEs are not fully leveraging the e-commerce opportunity for growth. The UK-based organization, which represents the interests of mobile operators worldwide, published a report highlighting the challenges and opportunities for scaling e-commerce adoption by MSMEs in Africa.

The insights presented in this study are primarily based on surveys conducted with 1,500 MSMEs currently using e-commerce in over six African markets, comprising Egypt, Ethiopia, Ghana, Kenya, Nigeria, and South Africa. In addition, the GSMA conducted an extensive literature review and interviews with over 40 experts in these six markets, as well as in three additional markets that form part of this analysis: Rwanda, Senegal, and Tanzania.

The report's key findings include:
  • E-commerce offers micro, small, and medium enterprises (MSMEs) the opportunity to operate more efficiently and increase sales and profitability. "This is critically important in African markets where MSMEs play a central role in generating economic value and creating livelihoods. E-commerce can support MSMEs to scale by facilitating access to wider markets, lowering barriers to entry for micro and small firms, and enabling women to combine economic activity with other responsibilities more flexibly and efficiently."
  • There are three prevalent e-commerce channels: social commerce, the selling of goods via social media services such as Facebook, Instagram, X (previously known as Twitter) and WhatsApp; e-commerce marketplaces, which aggregate large numbers of sellers on a single platform; and own brand websites. "Each channel offers its own unique set of advantages and limitations. While social commerce is most accessible to MSMEs of all sizes due to low barriers to entry for even informal and micro businesses, exclusive use of social commerce, especially informally, limits the professionalization of the business. Much of the sales process in informal social commerce may remain manual, from arranging payments to delivery offline. E-commerce marketplaces digitize the entire sales process for MSMEs, from receiving orders to processing deliveries, but this comes at the cost of commission charges as well as decreased visibility with competing sellers. Meanwhile, company websites create unique brand identities and trust with customers but require more capital and digital know-how."
  • While improving connectivity and the steady uptake of mobile phones is spurring e-commerce adoption by MSMEs, much of the e-commerce opportunity remains unexploited. "E-commerce adoption is growing, and market forecasts suggest that there will be almost 600 million online shoppers in the region by 2027. However, the number of e-commerce users in the region in 2022 was estimated at under 400 million out of a total population of over 1.4 billion people, a relatively small proportion. In addition, only five to seven percent of retail payments were digital in 2020. There is therefore a vast opportunity for MSMEs to reach consumers via the trade of goods online."

The GSMA says there are several barriers to scaling e-commerce for MSMEs in Africa. These include:
  • Limited financial resources and digital skills: "MSMEs lack access to capital and credit, restricting their growth, and do not have sufficient business and digital skills to fully leverage the opportunities e-commerce offers."
  • Regulatory gaps: "Where e-commerce related policies and regulations are absent, dated, or fragmented, they are leading to low business and consumer confidence in online trade. These policies include cybersecurity laws, personal privacy and data protection laws, consumer protection laws, e-transactions laws, and intellectual property laws."
  • Implementation of legislation: "Weak implementation of e-commerce related laws is contributing to low consumer trust and therefore limited consumer uptake of e-commerce."
  • Low uptake of digital payments: "Cash on delivery remains the preferred payment method in many markets, impacting MSMEs' cash flows, making them vulnerable to losses and saddled with high delivery costs for items returned on delivery."
  • Challenging logistics and delivery: Poor road infrastructure, lack of national addressing systems, and fragmented delivery solutions make the delivery of e-commerce goods both expensive and unreliable, reducing the revenue MSMEs can generate from online sales."
  • Low consumer confidence and readiness: There are limitations to consumer readiness for uptake, such as limited penetration of smartphones, low digital literacy and digital skills that deter consumers from online purchases and transactions, and low confidence in the quality of goods that might be received via e-commerce due to lack of consistency in product quality.

The report importantly notes that "According to UNCTAD, digital commerce, if leveraged effectively, could add $180 billion to Africa's GDP by 2025. Improving connectivity and the steady uptake of mobile phones is spurring e-commerce adoption by MSMEs in the region." What is more, "The uptake of digital payments is steadily increasing, supporting the growth of e-commerce, although delivery challenges persist due to poor infrastructure and insufficient delivery providers."

The report also explains that "On the demand side, a growing youth population that is more digitally savvy, and a growing middle class in some markets means Africa’s MSMEs have a ready market for online retail. But e-commerce remains limited in urban areas and is yet to penetrate rural areas except for pockets of innovation in agri e-commerce and better last mile penetration in some markets such as Nigeria."

Moreover, "A significant opportunity for MSMEs to reach consumers via the trade of goods online to improve their profitability, create livelihoods and contribute more effectively to economic development therefore remains largely untapped. With the advancement of AfCFTA (African Continental Free Trade Area), there is an even greater opportunity to leverage e-commerce for regional gains."

I appreciate how GSMA's report highlights "some of the main barriers to scaling e-commerce adoption, including MSMEs' limited access to capital and digital skills, gaps in legislation or implementation of e-commerce related policies and regulations, a persisting preference for cash payments in the region and lower trust in digital payments, and poor logistics and delivery infrastructure for the reliable and affordable delivery of online purchases. These in turn impact consumer trust in e-commerce, suppressing demand for online retail."

Do you agree with the report's findings? What are your recommendations for how African MSMEs reach wider markets and increase their profitability and resilience?

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 5, 2023

Recommendations for Realigning the Global Financial Architecture to Achieve Financial Stability, Boost Productive Investment and Create Better Jobs

"Today, we see setbacks in indicators on poverty, hunger and gender equality, to mention just a few," Rebeca Grynspan, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), wrote in the Forward to The Trade and Development Report 2023: Growth, Debt and Climate – Realigning the Global Financial Architecture. Ms. Grynspan adds that "The
financing gap for the Sustainable Development Goals in the global South – which totaled $2.5 trillion in 2015 – now amounts to $4 trillion. Nearly half of all humanity, or 3.3 billion people, lives in countries that spend more resources on debt servicing than on funding health or education. At this pace, only 15 percent of the Sustainable Development Goals will be achieved by 2030."

Ms. Grynspan points out that UNCTAD's report "identifies three specific global challenges that have crystalized during the year 2023. Weak global growth, divergence between major economies and between developing countries, as well as the increased role of geopolitical factors, indicate that we are witnessing a change in the nature of global interdependence, or a transition from the period of hyperglobalization to one of polyglobalization."

Focusing on how to realign the global financial architecture, the report identifies five core policy priorities:
  1. Reducing inequality. This should be made a policy priority in developed and developing countries. This requires concerted increases of real wages and concrete commitments towards comprehensive social protection. Monetary policy is not to be used as the sole tool to alleviate inflationary pressures. With supply-side problems still unaddressed, a policy mix is needed to attain financial sustainability, help lower inequalities and deliver inclusive growth.
  2. Balancing the priorities of monetary stability with long-term financial sustainability. In light of growing interdependencies in the global economy, central banks should assume a wider stabilizing function within this landscape.
  3. Regulating commodity trading generally, and food trading in particular. This needs to be done internationally, using a systemic approach developed within the framework of the global financial architecture.
  4. Addressing the crushing burden of debt servicing and the threat of spreading debt crises. To do this, the rules and practices of the global financial architecture need to be reformed. The mechanisms, principles and institutions of global finance should ensure reliable access to international liquidity and a stable financial environment that promotes investment-led growth. Given the failures of the current architecture to enable the resilience and recovery of developing countries from debt stress, it is crucial to establish a mechanism to resolve sovereign debt workouts. This should be based on the participation of all developing countries and include agreed procedures, incentives and deterrents.
  5. Providing reliable access to finance and technology transfer to enable the energy transition. This would require not only fiscal and monetary agreements among the Group of 20, but also agreements within the World Trade Organization (WTO) to implement technology transfer, and within the International Monetary Fund (IMF) and World Bank to ensure dependable financing. Without eliminating the incentives and regulatory conduits that make cross-border speculative investment so profitable, private capital is unlikely to be channeled to measures to help adapt to climate change.
UNCTAD's report also presents the following specific policy recommendations for a development-centered global debt architecture:
  • Increase concessional finance through capitalization of multilateral and regional banks, and issuance of special drawing rights.
  • Enhance transparency in financing terms and conditions, using the digitalization of loan contracts to improve accuracy.
  • Revise the UNCTAD Principles for Responsible Sovereign Lending and Borrowing to motivate and underpin the importance of guiding principles throughout the stages of sovereign debt acquisition.
  • Improve debt sustainability analysis and tracking to reflect the achievement of the Sustainable Development Goals and empower country negotiators with improved data on their potential for growth and fiscal consolidation.
  • Enable countries to utilize innovative financial instruments such as sustainable development bonds and resilience bonds. Develop rules for automatic restructurings and guarantees.
  • Enhance resilience during external crises, for example by implementing standstill rules on debtors' obligations in crises, and create a space to enable the avoidance of debt distress.
  • Encourage borrowers to share information and experiences, drawing inspiration from private creditor coordination.
  • Initiate work on a more robust debt workout mechanism and a global debt authority.

With the global economy at a crossroads where divergent growth paths, widening inequalities, growing market concentration and mounting debt burdens cast shadows on the future, I appreciate how the report "outlines an approach based on balancing the pace of disinflation and the impact of high real interest rates not only against inflation indicators, but also in relation to economic activity, employment, income inequality and fiscal stability."

What are your recommendations for how to get the global economy moving in the right direction by using a balanced policy mix of fiscal, monetary and supply-side measures to achieve financial stability, boost productive investment and create better jobs?

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.