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Volume 04 Issue 02 | 2020
Sandah is improving financial access for the unbanked in Upper Egypt and Delta region
THE
INSIDE STORY OF EGYPT'S MICROFINANCE
FINANCE | TECHNOLOGY | ENERGY | REALTY | BRANDS | EDUCATION | GBO AWARDS
EDITOR'S NOTE GBO MAGAZINE SEPTEMBER 2020
It is time for a change The global banking industry is undergoing a transformative phase which will decide its future in a post-pandemic world. The latest Global Business Outlook edition seeks to explore what the future might be like in light of the current circumstances. The cover for this edition leverages the power of microfinance and the company behind this transformation in Egypt’s vast banking landscape. Sandah, a joint venture between Arab African International Bank and Sanad Fund, is reforming the microfinance industry on many levels despite the protracted pandemic—especially in the Upper Egypt and Delta region. Sandah CEO Bassel Rahmy explains the company’s position in the industry and its contributions to financially support micro, small and medium enterprises in the country. As Rahmy points out, “Microfinance is a key instrument in the development plan of Egypt’s economy,”—and that is what the cover seeks to understand for readers in the industry and beyond. The dichotomy within the global banking industry has stoked interest and raised questions on what are the contributing factors. In the west, for example, things are vastly different. Wirecard has changed the industry’s micro perspective on the back of a huge scandal—a wake up call for regulators, customers and neobanks. With that, the current edition progressively analyses the current situation and how it has panned out for all stakeholders. On the other hand, Qatar is revolutionising green finance with new developments taking place in recent years. But on the bright side, healthcare is flourishing on a global scale, in fact even leading to the rapid adoption of sophisticated digital technologies. This points to the rise of artificial intelligence in the UAE—which is heavily investing in virtual medicine. This is only a glimpse of what the edition has to offer for our readers as it features other developments in oil and gas, technology and renewable energy.
Kimberly Rivers Editor kimberly@gbomag.com
Global Business Outlook | September 2020 | 3
CONTENT
GBO SEPTEMBER 2020
COVER STORY
12
BANKING
Reforming microfinance in Egypt Financial inclusion is vital to the economy
FINANCE
TECHNOLOGY
ECONOMY
Qatar's green finance development
Africa’s digital transformation is huge
Africa is on a slow path to recovery
6
28
56
INSIGHTS BANKING AND FINANCE
INDUSTRY
The rise of mobile banking in the UK
A breakthrough initiative in climate change
72 percent of adults in the UK will use mobile apps for payments and transactions by 2023
The OGCI has pledged to reduce carbon intensity
18
38
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ANALYSIS Director & Publisher Krushikesh Raju Editor Kimberly Rivers Production & Design Brian Williams David Brenton Ian Hutchinson
ENERGY
Vietnam is revolutionising solar
22 power REAL ESTATE
How is Kenya’s real estate
34 developing? TECHNOLOGY
Germany’s banking system will see
44 new reforms HEALTHCARE
48
The beginning of AI revolution in UAE healthcare
Editorial Stanley Rogers Rachel Taylor, Lucas Cooper Alice Parker, Tom Hardy Business Analysts Ryan Anderson, David Pereira, Nick Luis, Ron Athelstan Business Development Manager Benjamin Clive, Mike Lloyd Marketing Danish Ali Research Analysts Richard Sam, Sophia Keller Accounts Manager Edyth Taylor Press & Media Contact Craig Penn
Registered office: Global Business Outlook Magazine is the trading name of ADVERTORIAL
HDBank is modernising operations
16 for new-age customers
Business Outlook Media Ltd Winston House, 2 Dollis Park, London, England, N3 1HF Phone: +44 (0) 207 193 3740 Fax: +44 (0) 203 725 9247 Email: media@gbomag.com
FEATURE BANKING AND FINANCE
SUSTAINABLE PROJECTS QATAR GREEN FINANCE
Inside Qatar’s green finance development MARK HANS
Banks and the government have launched various initiatives to firm up green financing in the Arab country
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G
reen finance has revolutionised the financial industry at great length. In recent years, its sub sectors including banking, credit and microfinance have been at the forefront of adopting environmental friendly practices. It is reported that the global green bond market reached ÂŁ258 billion in 2019. In fact, economies around the world are expected to inject $90 trillion by 2030 to achieve their global sustainable development and climate objectives. London is currently considered as the hot bed for green finance development. That said, India ranked the second largest market for green bonds with $10.3 billion worth of transactions in the first quarter of 2019. The green bond market has grown to more than $100 billion of bonds issued annually. Due to its rapid development, green finance has ample commercial opportunities for financial services organisations globally. Despite rapid growth, a large amount of windfall is needed to support transition to a low-carbon world.
Global Business Outlook | September 2020 | 7
BANKING AND FINANCE
QATAR GREEN FINANCE
Qatar is fostering sustainable global growth through green finance Qatar is one of the Gulf nations to have strictly vowed to curb air pollutants and reduce carbon emissions to address climate change. The government of Qatar has implemented several clean energy projects and initiatives to contribute towards its sustainability goals. The country’s Ministry of Municipality and Environment plays a pivotal role in cooperation with international organisations and bodies concerned with environment and climate change. It is one of the few nations to sign agreements such as the United Nations Framework Convention on Climate Change in 1996, the Kyoto Protocol in 2005 and the Paris Agreement in 2016, which it ratified in 2017. In this context, Qatar’s premium Doha bank has been actively involved in green financing. As a part of the Qatar Vision 2030, the bank has rolled out a
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special green car loan facility exclusively for purchasing environmentally-friendly vehicles. This move is anticipated to encourage customers to purchase energy friendly vehicles for building a sustainable and efficient environment. Other developments of the bank include the launch of internet banking, paperless banking, SMS banking, ATM banking and phone banking. Doha bank has also implemented its own channels such Doha Souq, eremittances and online bill payments. Furthermore, the bank has introduced a green credit card and green account under its belt. Doha Bank has an exclusive green banking website dedicated to promoting environmental safety within the community by catering to both public and private sectors. Earlier this year, Qatar National Banks’ QNB Group launched QNB Green, Social and Sustainability Bond1 to approve projects related to energy efficiency, clean transportation, renewable energy,
sustainable water and wastewater management, environmentally sustainable management of living natural resources and land, affordable housing, pollution prevention and control, socio-economic advancement and empowerment and green buildings. Qatar’s ambitious efforts to transition toward sustainability has led to the implementation of compressed natural gas (CNG) as a fuel in the transport system. It aims to deploy CNG as an alternative fuel in the country’s transport system. This initiative provides increased fuel security and develops the local gas distribution network in the country. Additionally, CNG usage will curb the effects of greenhouse gas emissions. The country’s Hamad International Airport has been awarded the Level 3 ‘Optimisation’ status in the Airports Council International (ACI) Airport Carbon Accreditation progra mme, making it the first airport to receive
this recognition. The award has been given to the airport authorities for their extraordinary work in handling, reducing and engaging other stakeholders on the airport site and reducing CO2 emissions as a part of the airport industry’s encounter with climate change. The level accreditation is associated with the rolling out of solar power stations by the government. This is also a crucial step towards the expansion of its Qatar’s electricity production sources and increasing reliance on renewable energy sources. As a part of efforts to reduce air pollutants emitted from transport, the introduction of the electric bus project also promoted sustainable transport in the country and helped to achieve integration with the Doha Metro project. Coming to the oil and gas sector, Qatar has been working with Clean Development Mechanism (CDM) project Al-Shaheen Oil Field Gas Recovery and Utilisation Project since 2007. The project aims to reduce greenhouse gas emissions at the international level. That said, there is another project which is considered to be one of the largest environmental projects of its kind in Qatar. The project known as the Jetty Boil-Off Gas Recovery Facility was launched in the last quarter of 2014 — and the facility is responsible for collecting boiloff gas and transporting to a central compressor prior to returning it to the LNG plants where it is used as fuel gas, or convert back into LNG. Every year, the facility cuts down 2.5 million tons of carbon dioxide emissions and assists Qatar’s government to curb the dangerous emissions. The facility is considered to be a premium among the Middle Eastern countries. Furthermore, the bank has launched Qatar’s first ‘Green Mortgage’ home loan programme. The facility allows
Every year, the Jetty Boil-Off Gas Recovery Facility cuts down 2.5 million tons of CO2 emissions and assists Qatar’s government to curb the dangerous emissions
customers to choose environment friendly options while purchasing a house. The offer has discounts and waiver for interest rates on homes that are certified as energy-efficient. Customers have the option to make the loan repayment within 20 years with an interest rate up to 3.99 percent which will save the utility cost. In addition, the bank does not take mortgage and zero management charge and provides free fire insurance for a year. Furthermore, customers can avail a lifetime platinum or Visa infinite credit card with a choice to acquire two other complementary cards. The customers which take the
home loan will be provided an optional free mortgage interest saver account with many other benefits. The savers account will give a 1.25 percent interest to customers who maintain a minimum balance in the account every month. The maximum deposit amount is QAR 2 million.
Developments despite the pandemic The pandemic is reshaping the world's budgetary framework and organisations are considering making changes in their financial systems. Against this background, organisations in Qatar are urged to
Global Business Outlook | September 2020 | 9
BANKING AND FINANCE
QATAR GREEN FINANCE
put maintainability at the core of their speculation and business procedures to escape the current situation. It is a remarketable strategy in the best interest of the environment and highly beneficial to individuals. Investors are still focusing on climate issues amid the time of unprecedented capital outflows from emerging markets. In a move to close the Real Economy Green Investment Opportunity (REGIO) fund, The International Finance Corporation (IFC) and HSBC Principal Investments attracted approached investors from different countries to raise $475 million. The REGIO fund, which is the first global green bond fund targeting companies in emerging markets indicates that despite the current global market situation, green bonds in emerging markets are still an attractive investment opportunity. The pandemic has also opened up enormous opportunities and taught economies of the world that they cannot self-isolate from climatic changes but
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prevent and control harsh weather conditions. It is reported that $1 trillion worth global market related to green buildings, carbon efficient transportation, renewable energy, climate-smart agriculture are floating worldwide. Global leaders and investors who embrace climate as a business opportunity and offer these low-carbon technologies, goods and services will be the front runners of our future as time has come to boost efforts towards a lowcarbon future.
Sustainability development for investors In light of the Climate Action Summit held at the UN Headquarter in the US, Qatar’s permanent delegation to the United Nations, in cooperation with the Green Climate Fund, had organised an event to address the topic of mobilising institutional investment for climate. The event has attracted participants from around the world who believe that for a sustainable development
and environment value creation, institutional investment is the right element to work upon as it will provide unique opportunities for everyone to achieve their goals. In the event, keynote speakers and participants also focused on best practices in the management of investment as well as diversified longterm assets for investment in climate. The delegations emphasised on establishing the base that would contribute to the unification and integration of the objectives of investment institutions to invest in developing countries. The event was a golden opportunity for institutions that want to invest in climate as a sustainable development goal and to announce investment institutions to the analysis and solutions provided by the Green Climate Fund. With reference to this development, the Qatar Investment Authority members said that the country has worked hard to achieve its sustainable development goals, along with indicating the country’s
efforts towards the construction of the Stadiums of the FIFA World Cup Qatar 2022, which have followed the highest environmental standards. Qatar has taken further measures to achieve the goals of sustainable development and the climate agreement, where it implemented huge infrastructure projects following building standards that consider climate and sustainable development goals, referring to the international awards received by the country. The country’s investment authority has fostered many initiatives including clean energy to public companies and a new electricity system that will be operated by QIA branches during the FIFA tournament. The members also spoke about the Qatar Investment Authority’s involvement in the One Planet Sovereign Wealth Fund. It is positive that many of the leading fund managers in 2020 have joined the Wealth Fund initiative, which has increased funding for projects to combat climate change. The event was concluded by pushing attention towards the value of the Sovereign Wealth Fund and its long-term investment prospects to ensure the future of the coming generations and achieve sustainable development goals.
Rising challenges that need to be addressed It can be harder for global investors to seal impact deals because those deals require a lot of time, partnerships and creativity to structure. The goals of impact investors have been fulfilled by catering to the needs of cities which have also paved the way for residents of many economies to utilise the environmental impact bond — a new financial model in the field of investments. The finance model can be utilised to support projects related to resilience-oriented and green infrastructure, which not only safeguards against pollution and natural disaster such as flooding
A definitive target of green structures has been established to reduce the negative effect of the environment on human well-being and the indigenous habitat
but also generate jobs and beautify underserved regions. The profits for investors from these projects are purely based on the extent to which the projects produce results; such as the amount of storm water diverted from flowing into nearby rivers. It is reported that many campaigners emphasise on investing money to create a sustainable economy, but $90 trillion is definitely required to fulfill the world’s economic needs by 2030. However, shifting the focus toward changing the flow of finance can impact the market in the longterm. Both investors and savers possess some degree of risk to generate returns because different economies have their own challenges. The highest return which is generated from the ideas during risky times has the capability to shape up a real and robust economy. The green finance sector will thrive as long as the risk-adjusted return from green assets is sufficiently positive.
Why green finance projects are vital
effect of the environment on human wellbeing and the indigenous habitat. This can be advanced by utilising water, vitality and different assets all the more effectively. Green structures can bring an assortment of social, financial and natural advantages for Qatari inhabitants. Through water gathering, grey water reusing and sustainable power source frameworks, green structures can advance water protection, vitality the board just as environmental change alleviation. In addition, this can bring a sizable decrease in activity expenses and offer long haul reserve funds. With the emergence of many world class sustainable constructions, there has been rapid progress in the green building sector in Qatar. The country has valuable experience and inputs to offer on the system’s local relevance and application as the region ranks fifth in accommodating environment friendly houses outside the US. According to the LEED system which measures houses in the Middle East, the UAE accommodates 65 percent of the environmental friendly houses followed by Qatar, Lebanon, Saudi Arabia and Egypt. Amid- Covid-19 pandemic, Qatar has been successfully tackling the challenges faced by its citizens. The green finance sector is pretty strong compared to other Asian nations because the government has planned and organised the goals and initiatives from time to time. Once the pandemic slows down and Qatar will definitely reshape its economy. The government of Qatar is focused on taking tax measures and developing infrastructure to enable better work performance and remotely without facing any issues.
Drastic improvement has been distinguished as one of the first concerns in Qatar's National Development Strategy. A definitive target of green structures has been established to reduce the negative
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COVER STORY BANKING
MICROFINANCE
Sandah
Reforming microfinance in Egypt Financial inclusion is important to the development plan of the Egyptian economy ALICE PARKER
In recent years, the Egyptian government has invested a lot of effort to encourage microfinancing in the country, drive financial inclusion and support low-income groups. And so, microfinance is effectively shaping up as a popular form of lending with the continuous support of the Central Bank of Egypt, the Financial Regulatory Authority and the Micro, Small and Medium Enterprises Development Agency. By numbers, microfinance beneficiaries reached 3.237 million last year, with a 2.8 percent growth seen in December 2018. Last year also saw the number of microfinance recipients increase by 11.8 percent and microfinance companies rank second with 1.134 million customers. For that reason, it was observed that microfinance can become a potential driving force in poverty reduction and socioeconomic development— which then led to the establishment of Sandah. Bassel Rahmy, CEO and managing director of Sandah, told Global Business Outlook, “Microfinance is a key instrument in the development plan of Egypt’s economy. With the support of the Egyptian government, the microfinance market expanded by 60 percent year-
Global Business Outlook | September 2020 | 13
COVER STORY BANKING
MICROFINANCE
on-year between 2018 and 2019 to reach approximately EGP 19 billion disbursements by the end of 2019.”
Sandah is committed to serve underexplored financial markets Sandah is vital to Egypt’s lending landscape. The reason is because microfinance is a core entry point for the company which works in line with Egypt’s vision 2030 to achieve financial inclusion and sustainable development. It was in fact the first company to be established with the backing of international investors since the Egyptian Financial Regulatory Authority’s introduction of the new framework governing microfinance. In terms of ownership, Arab African International Bank holds 70 percent while Sanad Fund owns the remaining 30 percent of the company, with KfW Development Bank and the European Union as some of its investors. Sandah is also the first microfinance institution in the country to launch an online banking form on the website to facilitate the application process in light of the coronavirus pandemic— with a deep focus on low income segments, especially in Upper Egypt. As a subsidiary of Arab African International Bank, the company also reflects the bank’s commitment to tap into uncontested markets like microfinance. The company’s establishment is anticipated to help Egypt realise its vision and deliver on the market’s full potential. Rahmy said “We are transforming the microfinance industry by integrating advanced technologies to reach the various beneficiaries.” Certainly, Sandah is transforming the microfinance industry by deploying advanced technology to reach the various beneficiaries. The company is helping low-income households and making lending accessible to micro, small and medium
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enterprises in the Middle East and Africa. In this context, Rahmy said, “As a non-bank financial institution, Sandah plays a pivotal role in reaching the unbanked and contributing to alleviating poverty and providing employment opportunities, especially across Upper Egypt governorates.”
Why Upper Egypt is a big focus in microfinance In the last six months, the company has demonstrated strong performance in the Egyptian market. Rahmy said “Through its expanding network of branches across the governorates of Upper Egypt and Delta, Sandah seeks to contribute to the ongoing private and public sector efforts to facilitate access to financial services for microentrepreneurs and very small business owners. During the six-month period between October 2019 and March 2020 before the global effect of coronavirus, Sandah had achieved EGP 128-plush millions of micro lending portfolios serving 5139 new customers.”
In particular, Upper Egypt is struggling to gain proper access to financial instruments such as bank loans and insurance products to maintain households. The country having great scope for microfinance growth against this background necessitates sound financial institutions that can fuel microfinance penetration for micro, small and medium enterprises. Research over the years has shown that businesses have lacked sufficient access to financial tools despite their contribution to the Egyptian economy. The descriptive analysis of a research published by Cairo University highlighted that micro, small and medium enterprises are facing challenges on the back of banks becoming more risk averse toward them. This is where Sandah’s role became more pronounced under the greater vision of Arab African International Bank and Sanad Fund to support those enterprises in the long-term. Because Sandah is a subsidiary of Arab African International Bank and a joint venture between the bank and
SANDAH
Sandah’s expansion in Upper Egypt is because the people are hardworking and bound together by trust.
Arab African International Bank and Sanad Fund’s shared vision
the Sanad Fund for MSME, it works in line with the vision of Arab African International Bank to offer micro loans to the upper and lower ends of the small and medium enterprises market— facilitating financial empowerment to the less fortunate and unbanked. It is clear that Sandah is directed toward micro, small and medium enterprises in the region—with a strong inclination to promote economic growth and job creation across sectors such as agriculture, affordable housing and financial technology among others.
Home business loan strengthens the low-income segment One example of Sandah’s efforts in uplifting the unabanked is through the “Home business loan which seeks to support the lower segment of micro lending for smaller business operated at home due to financial capability constraints and has potential to grow as a standalone
business with Sandah Financing programme. This kind of product not only impacts the individuals’ lives but the society as a whole and Egypt’s economy,” Rahmy explained. Currently, Sandah is serving more than 14,000 customers across Upper Egypt and the Delta region. “Affirming its commitment towards financial inclusion and supporting Egypt’s low-income segments, Sandah for Microfinance is expanding in Upper Egypt and Delta after launching the 10 flagship branches in Aswan and the 12 the network reaches to 12 branches in January 2020,” Rahmy explained. This is especially important to micro and small business owners in the governorates of Upper Egypt and Delta region as they contribute to employment opportunities and increase generation of income for people. Interestingly, the company has opened its 10th branch in Ashwan in just over a year. It is even believed that
The Arab African International Bank envisions becoming a leading financial group in Egypt by providing innovative services with a strong regional presence and establishing itself as the gateway for international businesses to set up operations in the region. To that end, the bank aims to support its subsidiaries including Sandah which will further expand its financial outreach for projects and enterprises across Egypt. Rahmy explained the company’s relentless work in improving the life of Egyptians. “Since its first branch opening, Sandah has noticeably grown its track record and footprint. In July 2018, Sandah opened its first branch in Sohag and had successfully established a network of 12 operating branches by January 2020. Sandah is taking very big steps and confidently expanding in Upper Egypt and Delta Governorates, currently serving more than 12000 customers." In Rahmy's view, there are a few challenges faced while promoting microfinance for small businesses in Egypt. First: The understanding and awareness of microfinance facilities among target segments need to become more clear. Second: Businesses run by individuals who lack the right kind of knowledge is creating delinquency in microfinance customers. But “Sandah strives to support enterprises which really have a chance for growth but lack access to financial services, focus on business sectors which support the economy and are easy to be sustained by normal individuals like the local production services or trading,” he concluded.
Global Business Outlook | September 2020 | 15
GBO ADVERTORIAL
HDBank is modernising operations for new-age customers
F
ounded in 1990, Ho Chi Minh City Development Joint Stock Commercial Bank, also known as HDBank, is one of the first commercial banks in Vietnam. With 30 years of operational experience, it currently ranks among the top banks in the country and is reaching out for the world. HDBank prides itself on solid financial resources, use of cutting-edge technologies and a myriad of financial products and services targeting individuals, corporations and investors. The bank’s commitment to deliver the best for customers is seen through its innovative and comprehensive financial solutions.
HDBank’s growth trend in the last two years
In January 2018, nearly 981 million HDB shares of HDBank were ranked in the top 20 largest shares on HOSE by market capitalisation. The development saw an entry of other established companies into the stock market, thus enhancing market liquidity and opportunities for domestic and foreign investors. Then, the HDB shares were inducted into the VN30 Index which represents the top 30 shares by market capitalisation and liquidity. As of December 2019, the bank reported VND 9,810
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The bank has built a reputation for digitising its internal processes and transactions using sophisticated technologies
billion in charter capital, while its total consolidated assets reached VND 229,477 billion and owners’ equity reached VND 20,381 billion. The bank comprises nearly 300 branches and 17,000 points of sale of HD Saison, a joint venture between HDBank and Credit Saison. In essence, the bank’s well-integrated network has allowed it to serve eight million customers, of which, many were located in rural areas—and an ecosystem of companies across sectors like aviation, supermarket, telecommunications, banking and financial services.
Digitising processes and transactions for customers
HDBank is modernising its business operations with a long-term vision to achieve sustainable development. The bank is renowned for funding clean energy projects, hitech agricultural development and clean agriculture in green trade finance—making it the first bank in Vietnam to focus on such areas. On the digital front, HDBank has launched a host of services using advanced technologies. For example, the bank has digitised its internal processes and launched the HDBank app—transforming itself into a digital
bank. The HDBank app is built on a state-of-the-art security system having biometric login and smart OTP authentication for customers. It even comprises sophisticated financial and payment facilities for the creation of a new-age digital banking model. With that, customers can enjoy a full digital banking experience, while the app ensures secure financial transactions in real-time. Since August, customers were allowed to open an iMoney account and eKYC by downloading the app. The eKYC facility is built on artificial intelligence and has comprehensive biometric features such as facial recognition, image recognition, optical character recognition and identity document forgery detection to secure their documents. The bank’s efforts in digitisation points to the fact that it is a pioneer in creation of online accounts and runs transactions in a fast, secure and convenient manner. Against this background, HDBank has won the Global Business Outlook Awards 2020 for Best Innovation in Green Banking and Most Innovative Mobile Banking App—underscoring its innovation and competitive advantage in Vietnam's banking industry.
Global Business Outlook | September 2020 | 17
INSIGHT
DIGITAL FINANCE
BANKING AND FINANCE UK MOBILE BANKING
72 percent of adults in the UK will use mobile apps for payments and transactions by 2023 MARK HANS
What millennials seek from digital finance
34% Biometrics to make secure transactions
32% East credit access
30% Make investments or donate
28% Warnings on unsustainable spending habits
26% Financial advice using chatbots Source: GlobalWebIndex
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The rise of mobile banking in the UK
I
n recent years, mobile banking has become significantly popular in the UK. This trend can be attributed to the country’s rising number of active users. Experts believe that 72 percent of adults in the UK will use mobile apps for payments and transactions by 2023. To second that, statistics released by Eurostat indicate that the country ranks eight in terms of overall mobile banking users in Europe. Major banking firms are gearing up to offer both online and offline banking facilities. The popular banks which provide mobile banking in the UK: Barclays, HSBC, Lloyds Bank, Metro Bank, aNationwide, NatWest and Santander. In addition, LeoPay, Monzo, Revolut and Starling Bank are some of the famed neobanks operating in the country.
Demand for digital banking among UK consumers is burgeoning A 2019 industry report observed that 48 percent of the adults in the UK used mobile banking in 2018, which is higher than 41 percent in 2017. Another report published by the UK Finance notes that two billion bank payments were carried out through mobile banking in 2018, compared to 1.6 billion in 2017. Furthermore, the use of mobile payments apps such as Apple Pay and Google Pay have increased since last year as 16 percent of adults in the UK have registered for these services. The report also highlighted the fact that
debit cards accounted for nearly 40 percent of all payments in 2018. It was in the same year that 61 percent of consumers in the demographic of above 65 years carried out contactless payments compared to 50 percent in the previous year. The use of cash slumped by 16 percent that year and is expected to further decline in the future. Stephen Jones, chief executive of UK Finance, said in a statement, “More and more customers are now opting for the speed and convenience of paying with their contactless cards or using mobile banking to check their balances and make transfers while on the move. This rapid rate of technological change is set to continue over the coming decade, as people embrace the ever-widening number of ways to pay and manage their finances, depending on their needs and lifestyle.”
Increase in neobanks customer base in the UK
7.7 Million 2018
Inside FIS’ report on mobile banking According to FIS’ 2019 report, mobile banking facilities grew rapidly among the majority of UK banks. With that, most of the UK’s population have preferred digital channels to carry out operations such as balance check, payments and deposits. First: It was found that 71 percent of banking related queries are taking place online, especially using tablets or smartphones, while only 6 percent of in-person interactions were carried out at a bank branch since 2019. Second: Mobile apps for financial services are being used by 59 percent of UK consumers. The growth in online banking is the strongest among people aged between 18 and 27, while 40 percent prefer primary banking using a mobile banking app. Interestingly, the issuance of plastic payment cards are expected to be as low as 35 percent of consumers want banks to largely invest in new apps. The majority of UK banks have shown interest in investments related to digital security technologies such as facial recognition or fingerprint recognition. Also, 85 percent of consumers do not prefer to engage in robot banking, while only 15 percent expect banks to provide AI-based voice banking services. But this growing trend in digital banking does not imply it as a substitute for human interaction.
20 Million 2019
It is expected that the use of banking apps will touch 71 percent by 2024
71%
Mobile banking will outpace physical stores in the UK by 2024 According to a new report, the demand for mobile banking in the UK will surpass high street branches and other forms of internet banking by 2021. Caci, an American IT company in its 2019 report observed that 25 million people in the UK are using mobile banking. Its report titled The Growth of Digital Banking 2019 found that mobile banking is burgeoning rapidly due to the change in demographic in the UK. Furthermore, the reports said that digital channels will accommodate more than three quarters of savings accounts in the next five years. It is expected that the use of banking apps will touch 71 percent by 2024. The report also noted that the percentage of branch banking users will drop down to 55 percent by 2024.
UK banks seek customer attention as mobile banking flourishes Since the outbreak of Covid-19 pandemic, the majority of the people in the UK have shifted to mobile banking. Therefore, banks such as
Natwest and others are in a fierce battle to provide the best possible mobile banking experience for their current and new customers. Insider Intelligence's second annual UK Mobile Banking Competitive Edge Study highlighted that 68 percent of all UK respondents surveyed use mobile banking. That said, 86 percent of the mobile banking users referred mobile as their primary banking channel and 62 percent of the users are ready to change their banks if they undergo a bad mobile banking experience.
Global Business Outlook | September 2020 | 19
NEWS
BUSINESS & FINANCE
UOB launches new digital bank in Indonesia Singapore’s famed United Overseas Bank (UOB) has expanded its presence in Indonesia by rolling out its new digital bank TMRW. The launch of the digital bank took place earlier this month. It was reported that 96 percent of Indonesians own a mobile phone and the number of consumers having access to the Internet has steadily increased over the years. The new digital bank TMRW seeks to help people meet their financial needs and support them for the future. TMRW made its debut in Thailand in 2019. The new launch is part of the bank’s initiative to boost its growth across Southeast Asia and scale up its regional customer franchise to capture a thriving market opportunity in the region. According to UOB,
it will deliver an exclusive digital banking experience to Indonesia's enterprising and digital-savvy consumers. The bank provides an intuitive, seamless, fast and secure process for opening an account. The identity verification process is seamless compared to other digital banks.
UK’s top fintech startups see growth decline The UK’s three premium fintech startups Starling Bank, Monzo and Revolut have been adversely affected by the impact of the Covid-19 pandemic. Mozo’s annual report indicated that the startup 20 | September 2020 | Global Business Outlook
has incurred losses from £47.1 million to £113.8 million. According to the bank, it has faced financial uncertainties following the outbreak of the pandemic and indicated a slow economic growth this year.
Additionally, customer queries are handled by the bank’s 24-hour chabot. Other services such as Quick Response (QR) code payments are also offered by the bank. The trend in digital banking is increasing and new-age customers are seeking sophisticated methods to manage their financial transactions.
Many digital banks in the country have been in talks with their investors through virtual meetings to discuss growth plans. Prior to the coronavirus pandemic, many banking startups expected profit growth on the back of good revenue. On the other hand, Starling bank said that it remains on track to break even this year despite the current economic situation. The bank’s chief executive, Anne Boden remains optimistic about the bank’s future despite the £52 million loss incurred by the bank in 2019. She believes that the current prospect of the bank is good enough for growth. Furthermore, Revolut has losses worth £106.5 million in 2019, despite a jump in the revenue from £58 million to £163 million. It will be interesting to see how the British fintech survives under the current crisis and find a way to make profit.
BUSINESS & FINANCE NEWS BITS
Orange offers a host of banking services in Africa
Image: mediatheque.orange.com
Orange has collaborated with NSIA, a Nigeria-based financial services company to foray into the African marketplace as it launches mobile banking services in Ivory Coast. Orange chairman and CEO Stephane Richard told the media that banking is new to Orange’s range of businesses in Africa. However, foraying into the banking sector is in line with the company’s strategy as a multiservice operator. NSIA, under Orange Bank Africa, will offer services such as savings and profit facilities to its current mobile money product customers. It is reported that the company will also provide small loans at $8.83 with savings offering an annual interest rate of 3.5 percent. All the services will be digital like Orange’s operation in France and Spain. Orange also plans to expand the business in countries such as Mali, Senegal, and Burkina Faso in 2021. Apart from the new service launch, Orange Bank Africa will also offer Orange Money, a financial service which provides traditional cash-in, cash-out and mobile payment services. NSIA is a financial services company headquartered in Nigeria. The bank largely focuses on economies in Africa and operates a number of brands related to banking, insurance and brokerage.
UAE introduces new relaxations to banks The Central Bank of the UAE has launched an initiative which gives local and foreign banks in the country more flexibility and capacity. As a part of the initiative, the bank will temporarily halt the net stable funding ratio and the advances-to-stable resources ratio for other banks. The move is anticipated to support the implementation of the Tess measures worth Dh256 billion. The temporary relaxation of net stable funding ratio and advances-to-stable resources ratio will supplement other measures taken by the central bank to reduce the impact of the pandemic on private corporates, small and medium-sized enterprises and individuals. The initiative expects to boost the emirate’s economy and enable banks to effectively manage their balance sheets. Furthermore, the initiative is also a part of the state owned bank's Targeted Economic Support Scheme (Tess). TESS was rolled out in March as a weapon to boost the country’s banking sector and economy against the beginning Covid-19 pandemic. According to the central bank, the banks may go below 100 percent threshold for NSFR, but have to maintain above the 90 percent mark, while the banks may go more than 100 percent threshold for ASRR but not above the 110 percent mark.
Banks may go below 100 percent threshold for NSFR, but have to maintain above the 90 percent mark
Global Business Outlook | September 2020 | 21
ANALYSIS ENERGY INDUSTRY VIETNAM RENEWABLES
How Vietnam is revolutionising solar power Vietnam’s cumulative solar installation will reach 5.5 GW this year, accounting for 44 percent of Southeast Asia’s total capacity TOM HARDY
I
n the last decade, Vietnam has witnessed a rapid growth in its energy industry on the back of rising demand for electricity. According to the Vietnam National Load Dispatch Centre data, the average daily electricity consumption of electricity in the country was 615 million kWh per day in the first few months of 2020, an increase by 7.5 percent compared to 2019. The energy demand in Vietnam is also expected to increase by 10 percent annually by the end of 2020 and by 8 percent annually between 2021 and 2030. For that reason, Vietnam has adopted renewables as a source of its energy. Renewables offer the country the prospect of a less expensive, cleaner, and more secure energy pathway. Vietnam is aiming to boost its power output produced from renewable sources to nearly 23 percent by 2030, according to
22 | September 2020 | Global Business Outlook
Andreas Cremer, director of energy and infrastructure for Europe, Middle East and Asia at German investment firm DEG. He pointed out that 10.7 percent of the energy mix will be sourced from renewables and 12.4 percent will be generated from hydro. In this context, Vietnam has invested heavily on solar. In fact, wind and solar power sectors are anticipated to reach a capacity of 19.9 GW by 2030 in the country. Solar will play an important role in helping Vietnam achieve its ambitious targets of producing 23 percent of its energy mix from renewables. It was reported that Vietnam aims to have a solar power capacity of 0.5 percent of national output by 2020, 3.3 percent by 2030 and 20 percent by 2050. Over the years, Vietnam has also undertaken a significant number of solar projects, most notably, The Dau Tieng Solar Power
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INDUSTRY
ENERGY
VIETNAM RENEWABLES
Complex, which is Southeast Asia’s largest solar project.
Vietnam is an ideal destination for solar investment Compared to other Southeast Asian countries, Vietnam gets between 2,000 and 2,500 hours of direct sunlight annually, making it one of the best located countries in the region to capitalise on solar energy. In the last decade, Vietnam has established itself as an ideal destination for solar investments. The growing demand for electricity has helped the country to establish itself as a renewable investment destination. To boost the development of solar energy, authorities in Vietnam have introduced policies such as the flexible FITs system, focusing on solar projects with solar-cell efficiency greater than 16 percent or solarmodule efficiency greater than 15 percent. A FIT will be fixed at 2,086 Vietnamese dong/kWh for generating electricity at the delivery point. It is argued by many experts that Vietnam might become the largest solar power installer in the Southeast Asian region two years after introducing the FITS system. Wood Mackenzie said in a report that Vietnam’s cumulative solar installation will reach 5.5 GW this year, which accounts for 44 percent of Southeast Asia’s total capacity. The decision to shift its focus on solar was taken by the Vietnamese government in 2017 when it decided to prioritise solar over other energy sources. In 2018, solar accounted for only 134 MW of renewable capacity, equivalent to 3 percent of Vietnam’s total renewable capacity. According to data released by state-owned utility company Electricity Vietnam (EVN), Vietnam’s solar generation in the first quarter of 2020 surged by 28 times to 2.3 billion KWh compared to the same period in the previous year. The
24 | September 2020 | Global Business Outlook
Solar farms
91
Capacity
4,550MV Aggregate capacity
25,000MV company further revealed that around 91 solar farms, with a total capacity of 4,550 MW, began operation in 2019, bringing the aggregate capacity of solar plants to 25,000 MW. This impressive feat allowed Vietnam to achieve its 2020 solar target of 4,000 MW, which is provided for in the Revised Master Plan and simultaneously overtake Thailand as the largest solar market in Southeast Asia. Earlier this year, Vietnam announced a new 550 MW solar project which will be developed by China Power Construction Group in collaboration with Thailand’s Super Energy. The project called the Luning Photovoltaic Project will be developed in Vietnam’s Pingfu province. The development of the project will be completed in three phases: design, procurement and construction along with support facilities. This is not the first time China Power Construction in overseeing a development of a solar project in the country. The company previously
completed over 70 projects totalling approximately 2.5GW of renewable energy capacity in Vietnam. China Power Construction said in a statement that its power projects in Vietnam represent approximately 65 percent of the country’s total installed capacity. Similarly, Hexagon Peak also signed a long-term power purchase agreement with New Wing Interconnect Technology (NWIT) for the largest rooftop solar system in Vietnam. Reports suggest that the project will have a nominal power output of 6 MWp and will be located at New Wing’s manufacturing facility near Hanoi, Vietnam. The project is part of the efforts of NWIT to reduce carbon emissions footprint and transition into sustainable and green manufacturing. The project will cut 113,520 tons of greenhouse gas emissions and will power around 25 percent of NWIT’s current manufacturing operations. It is worth mentioning that the Asian Development Bank (ADB) signed a
of its energy needs from solar sources. While the project is Southeast Asia’s largest solar project, it will also help the country attract foreign investors and put Vietnam on the list of top green investment destinations.
The renewable sector is challenged with complexities
$37 million agreement to finance the 47.5 MW facility at the 175 MW Da Mi hydropower plant in Vietnam. The project will be Vietnam’s first largescale floating solar power plant and also the first on a hydropower reservoir.
Southeast Asia's largest solar power farm is underway Vietnam is not only leading Southeast Asia’s renewable energy market, it also boasts the region’s largest solar power farm which has the capacity to produce 688 million kWh of electricity annually. The Dau Tieng Solar Power Complex was constructed on the Dau Tieng Reservoir which is also the largest artificial lake in Vietnam. The mega project is expected to generate 10 percent of the country’s solar energy and have the capacity to power 320,000 Vietnamese homes. The project was developed as a joint venture with the Thai industrial group B.Grimm Power Public Company. The complex has been developed with an
investment of around $391 million and occupies 540 hectares in Tay Ninh province, which is 100 km from Ho Chi Minh City. The complex comprises 3 projects which are Dau Tieng 1, Dau Tieng 2 and Dau Tieng 3. It is reported that the project is designed with solar photovoltaic technology which includes the main components of PV panel array, inverter, monitoring or control system, booster station system and transmission system. The general layout of the Dau Tieng Solar Power Plant, specifically the distance between equipment rows, angle and configuration of equipment, direction of equipment installation, is designed and calculated efficiently to reduce the cost and maximum the productivity from the plant. According to reports, the project will help Vietnam cut carbon emission of 595,000 tons each year. The project will also play an important role in meeting Vietnam’s ambitious plan to produce 20 percent
Despite a booming renewable energy sector, there are a number of challenges for the country to overcome and ensure a greener power supply. In Vietnam, rapid economic development has led to a surge in demand for energy, however, it has posed challenges in front of the Vietnamese government in terms of primary sources of energy such as coal, oil and gas. Vietnam’s deputy minister of Industry and Trade, Hoang Quoc Vuong, while speaking at the Vietnam Energy Forum 2020 held in Hanoi, said that energy has an extremely important position and a big impact on global sustainable development. During the energy forum, he pointed out that Vietnam’s energy sector has seen strong development, basically meeting with demand for production and people’s lives as well as contributing to the national defence and security. Demand in the past decade increased by 14.6 percent. Electricity alone saw an average growth rate of 9.5 percent. However, the current capacity was 6,000 MW, causing a need for further 5,000 MW to 7,000 MW annually. This has proved to be a challenging task for the government. Raising concerns, Hoang Quoc Vuong said that even though the Power Development Master Plan VII has been revised since 2016, it is further delayed. That said, there is a lot of work to be done by the Vietnamese government when it comes to solar development. Large scale renewable energy development Vietnam is still limited
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INDUSTRY
ENERGY
VIETNAM RENEWABLES
despite the booming solar sector. This could be attributed to the fact that power energy has not been synchronised with the development speed of renewable energy sources. This also brings us to the point that more investment is required from the government’s end to not only promote solar energy, but to attract foreign investment in the sector. Against this background, the government needs to develop a mechanism to attract investment capital for renewable energy development, especially in solar. Many experts argue the role of the private sector in renewable energy. They believe the participation of the private sector could create markets and accelerate the growth of the sector which will help Vietnam achieve its energy targets. Private sector participation in Vietnam’s energy sector would not only improve its energy security, but also create a transparent environment which would contribute to its sustainability. Wood Mackenzie in its report issued a warning that EVN, Vietnam’s only utility company will need to find more free space in the grid or their plants will not be producing to their designed capacity. In many of Vietnam’s important provinces, the installed capacity has already exceeded the grid capacity by 18 percent and the approved capacity for the Ninh Thuan and Binh Thuan provinces stand at 5 GW, which is more than double the grid usable capacity.
It is leading Asean’s solar PV market Vietnam is one of the fast growing economies in the Southeast Asian region. The International Monetary Fund (IMF) forecasted its economy to grow by 6.5 percent this year, prior to the coronavirus pandemic. Despite the pandemic, Vietnam is expected to have economic growth unlike many
26 | September 2020 | Global Business Outlook
In many of Vietnam’s important provinces, the installed capacity has already exceeded the grid capacity by 18 percent and the approved capacity for the Ninh Thuan and Binh Thuan provinces stand at 5 GW, which is more than double the grid usable capacity emerging economies who anticipate a negative economic outlook for 2020. The country is expected to push ahead with its plans for renewable energy, especially in solar. The pace in which Vietnam has taken up solar photovoltaic (PV) installations has surprised many and currently Vietnam has emerged as a leader in the Southeast Asian region. What is even more surprising is that Vietnam had only 134 MW in 2018, but reports suggest the country’s cumulative installed solar PV capacity to hit 5.5 GW this year. This could be around 44 percent of Southeast Asia’s total capacity, Wood Mackenzie said in its research report. During the period between June 2018 to June 2019, Vietnam added 4.45 GW of new solar PV capacity. According to Rystad Energy, the average time for construction and commissioning a solar PV project in Vietnam is around 275 days, which is quite impressive. The 4.45 GW of new solar PV capacity added in the last 24 months or so easily exceeds the 1 GW target set for solar PV electricity generation by 2020, according to Vietnamese media. EVN, the state-
owned utility company stated that as many as 82 plants with a combined capacity of 4.45 GW were connected to the national grid as of 30 June. As a result, the plants qualify for the feedin tariff (FIT) programme.
A positive outlook despite the pandemic Despite the Covid-19 pandemic, the renewable energy sector in Vietnam has a positive outlook. This is because investments are considered less risky compared to other forms of investments. And as a result of the global recession, investors may continue to invest in safe options such as renewables. There is significant potential in the Vietnamese renewables market and the country seems committed to adopt renewable energy as a primary source of energy in the future. Its commitment is clear from the recent development we have seen in the solar industry. The development in the sector will continue despite the limitations driven by the pandemic. However, the rate of development might slow down.
RECOGNISING PERFORMANCE EXCELLENCE
NOMINATIONS OPEN FOR
2020
GBO AWARDS
Global Business Outlook | September 2020 | 27
FEATURE INDUSTRY
GLOBAL INSURANCE COVID-19 IMPACT
The pandemic forces global insurance to step up TOM HARDY
28 | September 2020 | Global Business Outlook
The industry is now accelerating digitalisation and developing new pandemic-related services
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INDUSTRY COVID-19 IMPACT
T
he world has experienced a new age of struggle and medical complexities in the last few months as a result of Covid-19 pandemic. Although pandemics are not a regular occurrence, insurers are now creating products that include cover against a virus outbreak — as a precautionary measure for the future. As a matter of fact, the pandemic is having a significant impact on not only the insurance sector but on almost all global economic sectors. So high is the magnitude of the change that insurers are creating products for a world where a virus outbreak or a pandemic would be considered normal.
Wimbledon has paid
$31.7 million
for pandemic insurance premiums since the Sars outbreak in 2003. The company is reported to receive
$142 million from
its insurers after the tournament which was cancelled this year due to the Covid-19 crisis
30 | September 2020 | Global Business Outlook
The pandemic has forced many businesses to shut down across various sectors. The hardest hit are the ones in the travel, tourism, supply chain and logistics sectors. Many big businesses have already filed for bankruptcy, most notably Chile’s LATAM Airlines, which filed for US bankruptcy protection in May due to the pandemic. This has made it crucial for insurers to have products at their disposal. These products are designed to cover losses incurred during a virus outbreak. The providers include big insurers and brokers introducing new products to the existing coverage as well as niche players who are seeing an opportunity in filling the void l by offering developing pandemic-friendly products. The pandemic has also highlighted the importance of insurance provision. To meet the needs of their respective clients, what insurers in all sectors should do is develop more publicprivate partnership solutions for pandemic risks. However, some insurers already provide pandemic coverage. For example, Wimbledon has paid $31.7 million for pandemic insurance premiums since the Sars outbreak in 2003. The company is reported to receive $142 million from its insurers after the tournament which was cancelled this year due to the Covid-19 crisis.
Impact of Covid-19 on insurance sector The coronavirus pandemic, which originated in the Chinese city of Wuhan last year, has impacted the insurance sector in numerous ways. Insurers across the globe are responding to the Covid-19 outbreak on multiple fronts, similar to all other businesses in different sectors. Now insurers are forced to respond to the crisis as claims payers, employers and capital managers. Each role carried out by them brings along its own distinct challenges — not just for the insurance industry — but for the economy and society at large. The most immediate concern for insurers is similar to the concern of any other business amid the pandemic, which is to protect their employees and prioritise the safety of their distribution partners as they strive to maintain business continuity. The pandemic has challenged insurers to review, update their crisis management plans and continue to operate with a minimum of disruption to clients. According to a report published by Deloitte, insurers should consider establishing cross-functional, emergency decision-making teams to coordinate the organisation’s response, set new safety protocols and assure quicker action as conditions continue to evolve. In its reports, Deloitte
INDUSTRY COVID-19 IMPACT
emphasises on a comprehensive communications system should also be in place to keep employees, distributors,and clients fully informed about the status of business continuity plans and instructions on how to protect oneself from the virus. The virus outbreak has also disrupted insurer’s client service starting with its distributors. Amid these difficult times, insurers have to overcome logistical challenges and deal with risk management. At the same time, direct meetings with prospects and clients have also become more challenging. According to the Insurance Information Institute’s first quarter report called the Global macro outlook, the impact of Covid-19 on global growth and the insurance industry is likely deeper and wider than the current consensus and could last well into the third quarter and beyond. The Organisation for Economic Cooperation and Development (OECD) in its report titled Coronavirus: The world economy at risk said that a longer-lasting and more intensive outbreak could reduce global growth to just 1.5 percent in 2020. As a result, insurers in all sub-sectors would feel the heat of a slowdown in economic activity which would undermine growth and perhaps even contract insurable exposures. Financially, insurers will also likely need to adjust their budgets and implementation plans, cash flow expectations and investment portfolios in light of recent developments. Potential tax implications should be evaluated for the contingencies. As this situation evolves, insurers are expected to continue to serve as shock absorbers for the economy and society. Financially, the industry prepares for large loss events such as Covid-19 and should
be well-capitalised for any onrush of claims. Insurers are also helped, in part, by reinsuring their books of business which is one of the ways the industry is able to spread risk. The profitability of the insurance sector has also taken a hard hit from the Covid-19 crisis. The estimated 2020 underwriting losses covered by the industry as a result of the pandemic is approximately around $107 billion. In addition to pandemic-related losses, investment returns will remain subdued as interest rates stay low for longer, impacting life and long-tail lines in nonlife. Rising corporate defaults would mean losses on invested assets. When it comes to the life insurance segment, claims payments due to Covid-19 will likely have a limited impact, with the countermeasures introduced by governments worldwide to tackle the spread of the novel virus will have a severe impact on profits this year. The pandemic is also going to impact the merger and acquisitions in the insurance sector. According to a report published by investment bank EY, the Covid-19 crisis will not lead to
any significant levels of merger and acquisition activities in short to medium term. However, the pandemic has pointed out the structural weaknesses in the insurance sector and often such weaknesses lead to consolidation, mergers and acquisitions. So in the long run we could see greater merger and acquisition activities or similar collaborations as insurers fight the crisis and do their best to survive. In its report, EY said that consolidations and wider merger and acquisition activities have been playing out across the insurance sector for many years. They do not expect the Covid-19 crisis to open the floodgates on merger and acquisition activities. Rather, they expect the crisis to reinforce and accelerate the trends that have underpinned consolidation activities in recent years.
Covid-19 has accelerated digital adoption In the last decade, a lot has happened when it comes to technology and the changes are seen in almost all sectors. Over the last couple of years, insurtech has emerged as a niche sector. The
Global Business Outlook | September 2020 | 31
INDUSTRY COVID-19 IMPACT
technological adoption rate is so high amid the pandemic that businesses are now fast adopting technologies that can enable them to continue their operations while remaining compliant with social distancing rules. The virus outbreak has also forced players in the insurance sector to adopt remote and digital ways of working and simultaneously driving a wider acceleration of technology adoption. As a result of the pandemic, the usage of online platform services such as Ping An's Group Doctor has seen growth levels of 900 percent in China. Another platform-based insurance model that is booming in China is mutual aid through which customers pay a small fee to belong to a collective insurance service comprising 300 million members. Insurers in many regions are collaborating to develop blockchainenabled platforms that enable the fast flow of information which in turn helps to process claims faster and make quicker payments through the online payments system. Insurers in China, the country where the pandemic started, have already adopted many technological changes. However, insurers in other parts of the world who still remain traditional have also increased their levels of digitisation in the wake of the Covid-19 crisis. Italy's large agent network that traditionally works through face-to-face meetings with customers has no choice now but to adopt more digital methods. Agents and brokers make up 85 percent market share of non-life business, while direct channels have never hit double digits. The situation could be a game-changer in this market,with huge shifts in how businesses are done. Although technologies have existed, they have not been disruptive. The Covid-19 pandemic has forced the insurance sector to accelerate business innovation and shift more quickly from physical to digital channels and products, with end-to-end automation
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and optimisation of processes from intake through to claims. Mostly, digitalisation in the insurance sector was limited to product level and largely focused on individual components of the value. But now the crisis has made the insurance sector understand the need of a digital transformation across the ecosystem. As a result of the crisis, the insurance sector is expected to focus more on technological innovation at almost all ends. Many experts expect to see more alliances and partnerships with insurtech startups and the greater use of technologies such as artificial intelligence, robotics and automation. Such advanced technologies will significantly help insurers streamline and enhance processes such as pricing of its products, underwriting, claims handling, policy holder interactions and fraud management. These technologies will help insurers detect, predict and prevent fraud patterns and attacks. We
Agents and brokers make up
85 percent
market share of nonlife business, while direct channels have never hit double digits. The situation could be a game-changer in this market, with huge shifts in how businesses are done. Although technologies have existed, they have not been disruptive
should see more collaboration between insurers and cloud service providers such as Microsoft or Amazon. The crisis has been a wake-up call for the insurance sector and also an opportunity for others. In a fast changing world, the ones who adapt quickly to the changes will survive the long haul.
A new age of opportunities for innovative products and services Over the years, insurers have launched products that protect clients from disasters such as floods and earthquakes. However, a cover against a pandemic was unheard of as the last pandemic that occurred at such a great magnitude was over 100 years ago. But things are changing fast amid the Covid-19 pandemic. According to the British risk managers association Airmic, the pandemic had contributed to a lack of adequate insurance at an affordable price and most of its members were looking at other ways to reduce risk. It is important to note that Lloyd's of London insurer Beazley has started selling a contingency policy last month to insure organisers of streamed music, cultural and business events against technical glitches. Similarly, Marsh, the world's biggest insurance broker, has teamed up with AXA XL, a subsidiary of France's AXA, and data firm Arity, which is part of Allstate, to help businesses such as supermarket chains, restaurants and ecommerce retailers cope with the challenges of social distancing. Marsh has introduced a price-by-mile insurance, which can be cheaper than typical commercial auto cover. Japan Today reported that tech firm Machine Cover is developing products that would give relief during lockdowns. Using apps and other data sources, the Boston-based company measures traffic levels around businesses such as restaurants, department stores, hairdressers and car dealers. If traffic
drops below a certain level, it pays out, despite the reason. Similarly, Elite Risk Insurance in Newport Beach, California, has been offering ‘Covid outbreak relapse coverage’ since May for businesses forced to shut down a second time. The policies sold by Elite Risk Insurance are crafted around specific businesses and only pay out when specific conditions are according to its founder. Global consultants Capgemini in its World Insurance Report revealed that the demand for usage-based insurance has increased significantly since the virus outbreak. According to its report, more than 50 percent of the respondents it surveyed wanted it. However, only half of the insurers surveyed by Capgemini have products that meet the demand. This highlights that the needs of customers are changing, and provides an opportunity for new insurers to enter the market with superior or upgraded products that suit the needs of their customers. Although some insurers provide policies that cover losses incurred
The insurance industry is showing resilience in face of the COVID-19-led economic downturn. The magnitude of premium losses will be similar to that seen during the global financial crisis in 2008
during a pandemic, customers tend not to opt for them due to the high rate of premium related to those products. However, the Covid-19 crisis will force businesses and individuals to rethink their approach. Over the coming years, we could see multiple new products and a greater willingness from clients to opt for such products from their insurers.
Global insurance sector to grow next year despite slowdown The Swiss Re Institute forecasts that total premium volumes in advanced markets will shrink by 4 percent this year. However, they predict the sector will return to positive growth of more than 2 percent in 2021. In the emerging markets, premium growth will remain positive in 2020 as well as in 2021. According to its reports, the sector will witness a 1 percent growth in 2020
and 7 percent in 2021. "The insurance industry is showing resilience in face of the COVID-19-led economic downturn. The magnitude of premium losses will be similar to that seen during the global financial crisis in 2008, even though this year's economic contraction of around 4 percent will be much more severe. Unlike for the global economy, we expect a strong V-shaped recovery in insurance premiums, a remarkable showing considering that the world is currently in the throes of the deepest recession ever,” Jerome Jean Haegeli, Group Chief Economist at Swiss Re said in a Swiss Re report published on their website. While insurance rates have risen for nine consecutive quarters due to large catastrophe losses and accelerating claims inflation, Fitch Ratings expects that technical profits won’t be seen until the second half of 2021 as a result of the effects of the coronavirus pandemic.
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ANALYSIS INDUSTRY
REAL ESTATE PROPERTY SALES DECLINE
How is Kenya’s real estate developing? GBO CORRESPONDENT
The sector will show stable performance after returning to normalcy 34 | September 2020 | Global Business Outlook
K
enya’s real estate sector was set to see a significant growth this year on the back of its growth recorded in 2019. However, the Covid-19 pandemic has dwarfed its potential to a large extent. Previously, the sector had witnessed sluggish growth in 2017 and 2018. In 2019, the real estate sector in Kenya recorded a growth rate of 5.3 percent, which is 1.2 percentage points higher than 4.1 percent growth rate recorded in 2018, according to KNBS Economic Survey 2020. The Cytonn Q1'2020 Markets Review further revealed that the real estate sector recorded moderate activity with average rental yields improving
marginally in the residential and commercial office sectors to 5.2 percent and 7.8 percent respectively, from 5 percent and 7.5 percent in the fourth quarter of 2019. The retail sector, however, has registered a 0.1 percent points drop in rental yields to 7.7 percent in the first quarter of 2020, from 7.8 percent in the last three months of 2019. Despite the outbreak of Covid-19 epidemic in the Chinese city of Wuhuan last year, the first positive case was reported by Kenya in the month of March. In the second quarter, the sector experienced a slump as Kenya entered a state of lockdown to curb the spread of the infection. During the last six months, the pandemic has created economic distress and the pressure has been felt by its real estate sector as well. According to MySpace Properties, a real estate and property firm headquartered in Mombasa, house and land prices in Kenya are anticipated to drop by 10 percent as a result of the Covid-19 pandemic in the short-term. It was reported that the country’s real estate sector has recorded slow growth in the first quarter of 2020 as pandemic continues. Another real estate firm Cytonn Investment said in its report that the pandemic’s severe impact on the tourism sector saw hotels suspending operations and in Kenya’s real estate, commercial properties would particularly suffer from the crisis.
Lockdown measures have slowed real estate growth To help curb the spread of the infection in the country, Kenyan President Uhuru Kenyatta implemented lockdown measures and urged citizens to stay indoors. Kenya also restricted all forms of travel including air and it sealed all borders. As a result of the lockdown measures introduced, the Kenyan real estate sector witnessed reduction in the labour force. The sealing of the country’s borders also led to disruption of supply chains, which further resulted in longer development periods. The country’s lockdown implies that all offices were closed delaying the process of approvals. Many developers in Kenya were also comprehensive about the Covid-19 crisis leading to global recession which indirectly led to developers reserving their cash at a time when market liquidity was likely to decline. The funding that came into the sector also reduced significantly due to general risk aversion amid the pandemic. Web traffic to real estate portals in Kenya has also dropped since the beginning of the infection
Cytonn's report revealed that the real estate sector recorded moderate activity with average rental yields improving marginally in the residential and commercial office sectors to 5.2 percent and 7.8 percent respectively, from 5 percent and 7.5 percent in the fourth quarter of 2019 spread across the country. Many ongoing projects were halted as developers struggled not only with finances but also securing materials that they need to protect to complete their projects. Developers who were willing to carry out construction activities amid the pandemic experienced a cash flow issue as many buyers held back on their instalment payments. In addition to the drop in new activities, there was a significant decline in new property sales as well. Rising fears of recession has caused banks in the country to become more reluctant in granting new loans which has further led to a decline in mortgage uptake by home buyers. On the rental front, landlords remain sceptical about losing their tenants. For that reason, most of them were forced to renegotiate their payment terms or agree to a lesser amount for leased properties. That said, many tenants vacated their properties due to financial constraints. It appears that there are an increasing number of reports pointing to people relocating to smaller homes even sharing spaces to cut costs. As a result, the number of vacant houses in Kenyan real estate market dramatically increased. When it comes to commercial spaces, around 75 percent of the commercial office spaces were vacant amid the lockdown period as the Kenyan government encouraged employees to work from their homes. As a matter of fact, many private companies have even vacated their office spaces as they resort to working from home and to cut costs. Over the last few years, real estate in Kenya has been lucrative to the diaspora
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INDUSTRY REAL ESTATE PROPERTY SALES DECLINE
market. But sealing of borders and flight cancellations have further led to a number of clients investing in the Kenyen real estate sector. Also, remittances coming into the country have dropped significantly as the infection has also affected Kenyans working abroad.
Government policies to support the real estate market To help the sector weather the Covid-19 storm, the government has introduced new policies and countermeasures. The Kenyan government has introduced policies or regulations such as lowering of the Central Bank Rate (CBR) to 7 percent. The apex bank also lowered its Cash Reserve Ratio (CRR) by 1 percent to 4.25 percent to increase lending activities between the bank and its customers. The government also announced a Kshs 53 billion 8-point stimulus programme which seeks to offer soft loans to hotels and related establishments through the Tourism Finance Corporation (TFC), thus stimulating the hospitality sector. The government of Kenya also amended the Tax Laws (Amendment) Act 2020 with the Retirement Benefits Act, which facilitates the use of pension savings towards economical activities such as securing a mortgage loan to buy a new house. Similarly, the government introduced the Business Laws Amendment Act 2020 which facilitates the use of advanced electronic signatures as a valid mode of execution of documents in Kenya. This move was in an attempt to help parties in the real estate sector carry out land transactions digitally at a time when social distancing was highly encouraged. There has been a drop in prices of real estate properties already in Kenya and developers are offering discounts to encourage people to buy property during this pandemic and at
36 | September 2020 | Global Business Outlook
the same time maintain a cash flow. Some developers are even coming up with personalised payment plans to suit their buyer’s special needs.
Rent and property prices decline As a result of the pandemic and its economic implications, prices of houses as well as lands have dropped in Kenyan cities such as the capital Nairobi, the surrounding cities and towns such as Kiambu and Kajiado in the second quarter of the year. Kenyabased HassConsult which conducts a quarterly property pricing index, recently revealed in its report that house prices dropped 0.2 percent between April and June, compared to a growth of 3.6 percent recorded during the same period last year. According to the Hass Property Index for Quarter 2, 2020, Donholm estate recorded the biggest quarterly drop in rent at 4.8 percent. Kitisuru, on the other hand, recorded the biggest quarterly-drop
on an annual basis, leading with rents reduced by 7.7 percent. That said, other estates have also recorded a dip in rental prices. This includes Gigiri recording 2.9 percent, Ridgeways at 2.9 percent, Lang'ata at 2.3 percent, Nyari at 1.6 percent and Lavington at 1.3 percent dip in rental prices. According to the report, the dip in rental prices is due to oversupply amid reducing demand because of the pandemic. The declines are worrying for Kenya because prior to the pandemic the real estate sector was booming in the country, especially in Nairobi. It is important to note that the sector has recorded a double-digit annual increase in recent years on the basis of increased demand for real estate. Rental prices in Kenya have increased by almost four fold between the period of 2001 and 2019. During this period, apartments represented 63.2 percent of the market, semi-
Prime residential prices in Nairobi fell by 2.9 percent over the first half of 2020 compared to a decline of 1.8 percent in the first half of 2019, pushing the annual decline to 5.1 percent in the year to June
detached houses accounted for 24.5 percent of the market and detached houses took up 12.3 percent of the market. The average rent collected for a property in Kenya had gone up from Ksh 38,516 in December 2000 to Ksh 153,447 in June 2020. According to the HassConsult report, the prices of land in Kenya have also dropped 0.74 percent on average in the second quarter compared to an increase of 0.6 percent in the second quarter of 2019. Land prices in Parklands and Spring Valley dropped by the biggest margin of 2.74 percent and 2.59 percent respectively. Knight Frank’s Kenya Market Update for the first half of 2020 reveals that prime residential prices in Nairobi fell by 2.9 percent over the first half of 2020 compared to a decline of 1.8 percent in the first half of 2019, pushing the annual decline to 5.1 percent in the year to June. Prime residential rents also declined during
the period by 6.55 percent compared to 1.67 percent over a similar period in 2019, taking the annual decline to 7.62 percent in the year to June.
Swift rebound in medium-term growth The IMF estimates the sub-Saharan Africa's economy to shrink by 3.2 percent this year as a result of the Covid-19 crisis. The recent forecast by the fund is 1.6 percentage points more when compared to its forecasts in April. The latest World Bank Kenya Economic Update (KEU) forecasts a growth of 1.5 percent in 2020. Taking into consideration that the pandemic would not end anytime soon, the World Bank forecasts a contraction to 1.0 percent for Kenya. It’s gross domestic product (GDP) is projected to decelerate substantially as a result of the countermeasures introduced to fight the virus. Kenya’s medium-term growth is projected to rebound fast to about 5.6 percent over the medium term on assumption that investor confidence will be restored soon after the Covid-19 pandemic is contained. A more recent report released by the Central Bank of Kenya (CBK) stated that Kenya’s economy is on a recovery path due to the good performance of the agriculture sector and the opening of international air travel. It is important to note that the country has a large informal sector and many in rural parts are engaged in it. According to experts, the pandemic has impacted the informal sector not only in Kenya, but in other parts of the world. As a result, various jobs were lost in the informal sector and its not just limited to rural Kenya. This will also impact the real estate sector in Kenya as people will lose the ability to pay rents and also many will reconsider their decision to buy new properties when there is a global economic crisis.
Market is expected to slowly pick up pace While the sector is indeed facing hard times, it might be a good thing in disguise for some buyers. As demand decreases further due to the pandemic, developers are willing to negotiate further than the pre-Covid levels as they are more eager to maintain a healthy cash flow to weather the Covid-19 storm. As a result, real estate developers are offering a 15 percent discount on selected units on their projects. Such discounts would not have been considered during preCovid-19 times. However, this is not expected in the long term as the many experts predict the market to pick up as soon as normalcy returns. Real estate investors in the country are in a position to obtain healthy capital gains on their properties as they will be able to sell at a much better price and benefit substantially from the pricing correction obtained after normalcy. The reduction in the CBK lending rate has led to Kenyan commercial banks lowering their interests on both mortgages and financial loans. This is also expected to favour the investors. Real estate, being a fixed asset also creates a hedge against inflations and partly to currencies fluctuations unlike investments in financial markets as well as easing succession and retirement planning as it guarantees income stability to its investors with minimal exposure to losses —as it is the case with other sectors.
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INSIGHT OIL AND GAS INDUSTRY
GLOBAL CLIMATE CHANGE
BP’s declining oil output by 2030 Drop in oil production
40% Drop in refining output
30%
The OGCI has pledged to reduce carbon intensity to between 20kgs and 21kgs of carbon dioxide per barrel of crude by 2025
A breakthrough initiative in climate change
TOM HARDY The world’s biggest oil companies are coming together to create a warchest to exclusively tackle issues-related to climate change. Earlier this year, Saudi Aramco became the latest oil behemoth to join the elite alliance that has established the first industry-wide target to help tackle the climate crisis by setting carbon emissions goals. The alliance which also includes the likes of ExxonMobil and Shell has pledged to reduce the carbon intensity of their fossil fuel production to between 20 kilograms and 21 kilograms of carbon dioxide per barrel of crude by 2025, or 13 percent below 2017 levels. To be fully committed, oil companies will need to drastically reduce methane emissions that leak from oil and gas projects, cut gas flaring, invest and accelerate the development of carbon capture technologies.
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OGCI’s targets new developments by 2025 Reduce carbon intensity
21kgs
Invest in new projects
$1.4 trillion
The industry alliance was established in 2014 by the chief executives of oil companies responsible for almost a third of the world’s oil production. It has angered climate campaigners in the past for ‘greenwashing’ its activities which are dwarfed by the scale of members’ contribution to the climate crisis. The new alliance known as the Oil and Gas Climate Initiative (OGCI) comprises members like BP, Chevron, China’s CNPC, Italy’s Eni, Equinor, ExxonMobil, Occidental Petroleum, Petrobras, Repsol, Saudi Aramco, Shell and Total. More recently, the OGCI reconfirmed its pledge to reduce carbon intensity to between 20 kilograms and 21 kilograms of carbon dioxide per barrel of crude by 2025.
Impact of oil sector on climate change On the climate change front, the global oil and gas industry has had a far worse impact. Recent studies have concluded that the impact of fossil fuel on climate has been far more damaging than previous estimates. A study further indicated that human emissions of fossil methane have been underestimated by up to 40 percent. Methane has a greenhouse effect that is about 80 times more potent than carbon dioxide over a 20-year period and is responsible for at least 25 percent of global heating, according to the UN Environment Programme. It was reported that over a period of next five years, the oil and gas sector has plans to invest around $1.4 trillion in new projects
developing new oil and gas extraction. Experts believe this would lock in 148 gigatonnes of cumulative carbon dioxide emissions, equivalent to 1200 new US coal-fired power plants. Over the years, the major oil companies have come under immense criticism due to their lack of commitment toward climate change. According to a new report by the Global Gas and Oil Network, carbon emissions from the projects to be undertaken by the industry would push warming beyond 2 degree Celsius, way higher than the 1.5
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INDUSTRY OIL AND GAS GLOBAL CLIMATE CHANGE
US energy consumption by major fuel in 2018 Natural gas
35%
Petroleum
29%
Non-fossil fuel
21% Coal
15% Source: EIA
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degrees Celsius, which scientists view as a tipping point. If it is breached it will lead to sea-level rise, natural disasters, forced migration, failed harvests and deadly heatwaves. Around 85 percent of these planned activities will be undertaken in the US and Canada, according to reports. New oil and gas exploration activities are also planned in other countries such as Argentina, China, Norway, Australia, Mexico, UK, Brazil and Nigeria. Around 25 companies are responsible for nearly 50 percent of the production by 2050 resulting from new expansion of oil and gas in the next five years. These include supposedly progressive European oil majors such as Equinor, Shell, BP and Total.
How committed are the oil companies toward climate change? In the past two centuries, the amount of methane in the atmosphere has more than doubled. Even though it is not possible to attribute its cause to fossil fuels, it did play a role along with other sectors. In a joint statement, the chief executives of the OGCI’s member companies said, “Together we are increasing the speed, scale, and impact of our actions to address climate change, as the world aims for net-zero emissions as early as possible.” If the initiative achieves its target by 2025, it will remove as much as 52 million tons of carbon dioxide per year. The initiative plans to invest $1 billion over the period of next 10 years. We must also take into account the fact that the oil industry has suffered huge losses due to depleting oil prices, in addition to declining demand on the back of the coronavirus pandemic. The initiative also plans to accelerate emissions reduction, especially in methane. The members would also continue to support their respective
governments and honour the new laws and regulations introduced to tackle the problem of climate change. The member companies have also pledged their support to the Paris Agreement and its goals. According to a statement, industry leaders accounting for over 30 percent of global operated oil and gas production aim to play an active role in shaping the global pathway to net-zero emissions. Earlier this year, energy giant BP announced publicly that it will cut its fossil fuel production significantly over the next decade. It said that its oil and gas production will fall by about 40 percent by 2030, while its refining output will decline about 30 percent, driving down BP's direct emissions as well as those that come from its products. BP's announcement came the same day that it reported losing $16.8 billion in the second quarter of the year. BP’s announcement is the most promising so far among the world's leading oil and gas companies. Last year, it announced ambitious plans to address climate change, however, little has been done on the ground level. In February, BP chief executive Bernard Looney revealed that the company would reach netzero emissions by 2050. Other oil giants such as Royal Dutch Shell and Total have also announced some of the most aggressive emission reductions targets, but the companies have been criticised by climate experts for lack of detail in their respective plans. Many have also questioned the oil major’s integrity and level of commitment for setting targets as far as 2050 to achieve carbon neutrality.
NEWS
INDUSTRY
European oil majors focus on green energy transition
Africa’s aviation industry under distress The African aviation sector has been hampered by the coronavirus epidemic.It is reported that the impact by the pandemic on Africa’s aviation sector and its economies are worsening. The report has been produced by The International Air Transport Association (IATA). According to the report, 3.5 million people related to the aviation and related industries could lose their job. The number indicates half of Africa's aviation-related employment. The airline's traffic will reduce by 54 percent this year as compared to last year. Furthermore, the aviation industry’s GDP contribution is expected to drop by $35 billion. IATA’s Regional vice president for Africa and the Middle East, Muhammad Al Bakri said the pandemic has distrupted the African aviation industry. The situation has degraded the industry’s performance in the last few months. Due to the suspension of flights, economic fallouts are higher. Millions of people are at risk of losing their jobs. But now it is necessary to restart economic activities in Africa to recover from the pandemic losses. The governments of African nations such as Rwanda, Senegal, Côte d'Ivoire, Burkina Faso and Cabo Verde, have provided relief to its people. To resume operations, the aviation industry has to follow strict rules and guidelines of the International Civil Aviation organisation.
Major oil firms in Europe are shifting their focus on the clean energy sector as governments and investors and different countries are pushing for a carbon neutral era, media reports said. It is reported that these firms have new strategies and plans to reduce carbon emissions and achieve carbon neutrality by 2050. Some companies have started to directly sell renewable energy. For example, Europe’s most premium oil major Shell will set up a vast wind farm off the coast of the Netherlands. French giant Total has also committed to inject money into solar power in Spain and a wind farm off Scotland. The company has purchased an electric and natural gas utility in Spain and joined forces with the UK’s BP to launch its electric vehicle charging business. Majority of the European oil firms have cancelled their plans for oil drilling in other countries amid the Covid-19. Some companies are trying to cut back capital budgets. BP has vowed not to explore new oil projects in new countries and Shell has halted its projects in the coast of North Sea and Gulf of Mexico. It is reported that American oil majors such as Exxon Mobil and Chevron are taking more time to transition toward clean energy as compared to European companies.
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INDUSTRY NEWS BITS
Smart rolls out 5G services in the Philippines Smart Philippines, one of the most popular telecommunications companies, has rolled out 5G services in the capital city of Manila. According to the company, availability of smart 5G services in the Philippines will uplift its position among nations which are using the next generation mobile technology. With 5G services, Smart’s customers will seamlessly stream video, play games and carry out other streaming on their mobiles. The company has provided 4G services to 95 percent of the country’s population. Currently, the new 5G services are available for the company’s Smart Signature, Infinity and other Smart postpaid subscribers in major districts of Metro Manila. The subscribers have to use Smart-certified handsets with 5G-activated SIMs to avail the 5G services. The 5G services will also be rolled out in other places such as Mall of Asia Bay Area, Makati Central Business District, Bonifacio Global City, Araneta City and SM Megamall. These high traffic areas will also avail the 5G services- North Avenue in Quezon City and Taft Avenue in Manila, as well as in Ortigas CBD, and Clark Green City in Pampanga.
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Kenya’s real estate sector optimistic about recovery Kenya’s Mizizi Africa Homes believes that the real estate sector will have an upward trajectory despite the Covid-19 pandemic as economic activities in some of the African nations have resumed. It is reported that the company expects to make profits because it has noted increased activities in the real estate sector over the next quarter. According to Mizizi Africa Homes, the Covid-19 pandemic has forced other real estate companies to slash jobs for on-site employees. The pandemic has also disrupted supply chains which delayed project delivery timelines but currently the situation is improving. Mizizi Africa Homes Operations Director, George Mburu said that the company expects most activities to resume to make up for the loss of the development periods. The Subdued economic activities also meant that instalment collections for off-plan units were slightly disrupted. Almost 300,000 people are currently unemployed due to the impact of the coronavirus pandemic since the country reported its first case in March. In addition, most of the Kenyans could lose their job in the next six months as it will take time for the country to recover from the pandemic.
INDUSTRY NEWS BITS
Siemens Energy partners with Egypt’s Ethydco Siemens Energy has established a partnership with Ethydco, an Egypt-based company. The partnership will see the German company assisting Ethydco to carry out new developments in its industrial complex in Alexandria, Egypt.As a part of the partnership, Siemens Energy will sign a service contract with Ethydco for 10 years, covering three of its SGT-800 industrial gas turbines. According to the agreement, the work of Siemens Energy’s Industrial Applications team includes the maintenance of the gas turbines. Currently, Ethydco’s petrochemical complex in Alexandria is fueled by 150 megawatts of electricity. The partnership between the two companies will pave the way for technical teams to take necessary action against potential downtime and other problems. Siemens Energy’s preventive maintenance solution boosts gas turbines in terms of reliability and performance. The solution also cuts down operational cost by extending the duration between maintenance intervals. Furthermore, the German company has a strong presence among the major oil and gas
UK sees rise in Hong Kong home buyers
companies in the Middle East. In addition, the company is assisting other global oil and gas players to reduce carbon emissions and establish a sustainable environment for a green future.
The UK property market has received interest from customers based in Hong Kong. The coronavirus pandemic has severely impacted the majority of the world’s real estate markets. It is interesting to see how Hong Kong’s interested buyers are willing to buy a house in the UK as the political situation in the Chinese controlled region worsens. New data indicates a surge in demand from Hong Kong’s home buyers. The report also suggest that the demand is likely to grow as the British government announces a new citizenship scheme for current British National Overseas (BNO) passport holders. The British housing market has faced a downturn since May and is slowly attracting buyers. Moreover, the current report indicates that overseas buyers are also showing more interest towards fresh properties. The report also adds that it will be easy for Hong Kong buyers who are willing to own a house in the UK if they don’t have any credit history in the country and get support from advisors. Currently, the rules and regulation in the UK mortgage market are changing frequently during the pandemic time. Therefore, advisors have to assist potential buyers to find their perfect home under difficult circumstances.
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ANALYSIS BANKING BANKING & FINANCE GERMANY’S BANKING SYSTEM
Germany’s banking system will see new reforms GBO CORRESPONDENT
The Wirecard scandal has raised concerns about the existing regulations and urged authorities to introduce new reforms Mired in an international financial scandal involving wide allegations of accounting malpractices, Wirecard has been pushed to the brink of bankruptcy. In June, Wirecard filed for insolvency after the Financial Times published a series of investigation reports along with internal documents revealing that €1.9 billion was missing from the company. This was followed by the shocking arrest of its chief executive officer Markus Braun. In 2015, the Financial Times took notice of the irregularities surrounding Wirecard and began publishing its “House of Wirecard” series on FT Alphaville raising significant questions regarding the company’s financials. During the time of collapse, the company was processing payments for many known fintechs such as Payoneer. As a result of bankruptcy, many of its clients saw their funds frozen as investigations were being carried out. Wirecard, which offered electronic payment transactions and risk management services, was valued at $28 billion. The investigations by authorities and the whole insolvency proceedings had left Wirecard’s creditors facing lengthy
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negotiations with administrators over recovery of their money invested in the company. Banks that loaned out money to Wirecard had been demanding more clarity from the company in return for the extension of almost $4 billion in debt. Markus Braun started Wirecard as a small Bavarian startup and eventually became a global fintech giant. The company became so successful that it knocked Germany’s Commerzbank out of the DAX stock market index in 2018.
Wirecard files for insolvency On June 25, 2020, Wirecard said that due to impending insolvency and overindebtedness, the company was forced to file for bankruptcy. Since the news of its bankruptcy broke out, its shares plunged by more than 90 percent over the following week after EY, its auditor, refused to sign off on its annual report. That prompted Markus Braun, Wirecard’s chief executive officer, to step down from his post. Soon he was arrested by German authorities on the basis of the allegations, according to whistleblower reports and the Financial Times releasing internal documents. After his arrest, Mr. Braun was released on a bail worth €5 million. Authorities also raided Wirecard's headquarters in Munich and four other properties belonging to Wirecard in Germany and Austria as a part of their investigation process. On July 22, German prosecutors arrested three former top executives of Wirecard. According to prosecutors, the three top senior executives were suspected in the criminal racket faking the company's accounts and bilk creditors of billions of euros. Questions were raised on Wirecard’s finances and business conduct for years, however, things started to crumble for the company only when its auditor revealed that around €1.9 billion went missing from its accounts. The German prosecutors accused the chief executive, who is also
the founder of Wirecard, of misrepresenting the company’s earnings by inflating its sales with falsified income using so-called thirdparty acquirers. Soon, Markus Brawn was replaced as chief executive officer of Wirecard by James Freis, a former compliance officer who previously worked at the Germany stock exchange. Interestingly, James Fries was hired to serve on Wirecard’s management board only the day before his appointment as the chief executive.
During the trial, many clarified that Wirecard was not included in the proceedings carried out by German authorities. German regulator BaFin is responsible for deciding whether a bank should file for insolvency, although there are other measures that can be taken when a lender runs into trouble.
Wirecard scandal calls for a banking reform in Germany Since its inception, a number of concerns were
Global Business Outlook | September 2020 | 45
BANKING & FINANCE BANKING GERMANY’S BANKING SYSTEM
raised regarding the ill practices of Wirecard, however, the matter was not escalated. Many perceive the collapse of Wirecard as a gross failure on the part of Germany’s supervisory authorities. The ability of the country’s governing bodies came under the scanner and were highly scrutinised when the news of the Wirecard scandal reached international media. It is no doubt that the German banking sector is driven by a political and business culture peculiar to Germany. Being well aware of the flaws and loopholes in its system, many in Germany turned a blind eye to the functioning and malpractices of Wirecard as it was rapidly evolving into a technological giant, which would in turn would flourish the fintech sector in Germany. It is no doubt that the German banking sector needs a huge reform, even though fintechs are booming in cities such as Berlin and Frankfurt. Deutsche Bank, a German banking giant, once a global force, is now a shadow of its former self. The emergence of Wirecard saw Commerzbank being knocked out of the DAX stock market index in 2018. The emergence of many neobanks means traditional banks in Germany have to deal with savings accounts with zero interest rates. Even the co-operative banks in Germany are not in a healthy position. Public sector banks dominate the banking sector in Germany as they are under less profit pressure than private banks. This often leads to lower margin interest returns and higher risk costs. Also, many distributors and independent financial brokers as part of the German banking system take in a lucrative margin. Such structures are not uncommon in Europe and only exist in the German banking sector. Unlike some European countries, Germany has extremely strict consumer protection laws, which make high interest rates for
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subprime customers in the credit card business impossible. So what are the changes that Germany can bring to its overbanked banking sector? Firstly, what Germany needs to do is vouch for the idea of transparency. It is an important factor since it involves finances and it also encourages the adoption of ideas and new methods which can bring in an revolutionary change to the banking sector. Embracing transparency also might prevent a repeat of a scandal of this sort. Secondly, the country must accept the fact that its economy, which is the fourth-largest in the world, would be strengthened not by protecting powerful personalities, but by keeping all parties involved under check. Finally, when it comes to the regulation, the government bodies involved in the process need a massive cultural change. After the Wirecard scandal, many argue that regulators in Germany should rather focus on market regulations instead of focusing on the elite. It is highly important for German regulators to understand their priority and initiate the right course of action for the nation to attain
a sustainable economic strength. Many top executives in the financial sector have called for more powerful auditing and accounting processes. It is no doubt that the audit process and tasks, powers and liability of auditors should be reconsidered by authorities to implement important decisions.
SoftBank’s $1 billion investments in Wirecard under scrutiny In recent times, Softbank has caught the world’s attention with the launch of its Vision investment funds that invests in potential companies across emerging markets. However, Softbank has also been heavily criticised for its investment strategy from time to time. The company has invested in companies such as Uber, WeWork and Oyo. Last year, the company invested around $1 billion in Wirecard, as part of a broader tie-up between the two on digital payments. However, the timing of the deal has raised questions as Wirecard filed for bankruptcy within months. The scandal has rocked the Munichbased payment company and its shares have fallen more than 80 percent.
It is no doubt that the German banking sector needs huge reform, even though fintechs are booming in cities such as Berlin and Frankfurt. Deutsche Bank, a German banking giant, once a global force, is now a shadow of its former self Analysts argue that the Softbank deal with Wirecard was structured in such a way that there was no financial risk to SoftBank. Also, Softbank made the investments knowing the allegations that were already being made against the company about its accounting practices. However, SoftBank did not notice any irregularities and they believed Wirecard’s books were sound, healthy and correct The transaction was completed by SoftBank Investment Advisors, the SoftBank subsidiary in charge of its huge $100 billion Vision Fund. Also, Switzerland-based investment bank Credit Suisse was hired as an advisor. The deal received shareholder’s approval in June, while Wirecard secured an investment-grade credit rating from Moody’s in August. The Zurich-headquartered investment bank also helped SoftBank further sell its debt to a group of institutional investors to book early profits and protect its investment. According to reports, the $1 billion financing came out of SoftBank executives’ pockets and not from its balance sheet, which further raised several questions on the matter.
Finance ministry announces reforms after Wirecard scandal According to the Financial Times, Germany’s Federal Ministry of Finance has announced a plan for significant reforms. The ministry has taken significant actions and updated its rules and regulations in the wake of the Wirecard scandal. After the Wirecard news spread like wildfire, the regulators in the country came under immense pressure and scrutiny as a scandal of such magnitude happened under their nose. As a consequence, the Federal Financial Supervisory Authority (BaFin), Germany’s financial watchdog, will be granted sovereign powers that will allow the agency to intervene immediately in publicly-traded companies, according to one of the new rules introduced by the finance ministry. The finance ministry also plans to strengthen APAS, the German agency whose mission is to oversee auditing firms. The ministry plans to empower the agency by providing it with the power to impose tougher sanctions. As per the new plan, companies would be required by law to change their auditor every 10 years. In addition, the Ministry said it would lobby to turn the European Securities and Markets Authority (ESMA), into a European Securities and Exchange Commission that would function like the US Securities and Exchange Commission, which has more power to demand information from listed companies.
The scandal raises serious concerns in B2B payments Wirecard somehow managed to falsely implicate that it had €1.9 billion in its Philippine banks, even if it did not and its auditors at EY missed it. So did the German regulators for a brief period of time. After the news of the Wirecard scandal broke out, many even feared that there could be
another Wirecard fraud to identify in the country’s financial landscape. Wirecard was involved in business to business (B2B) payments which are more complicated than business to customer (B2C) payments. B2C transactions are carried out face-toface. For example, customers buy groceries from a supermarket and pay immediately as a result completing their transactions. However, B2B payments involve invoices, adjustments and other obstacles that makes the matter complex. When we take into account all the B2B transactions happening everyday, we notice a huge amount of money moving from one account to another on a regular basis. The numbers go up to millions. However, it is very difficult to keep a track of such transactions as and when they happen. To keep a track on all these transactions, the sector would need a huge number of auditors which it does not have. So its very easy for a scandal like Wirecard to go unnoticed and that too for a long period of time. Wirecard shed light about poor oversight from auditors and regulators over an industry that is poorly regulated. The Wirecard scandal has brought out several implications when it comes to B2B payments. Many analysts are questioning how regulations will be managed if a holding company has various subsidiaries running different operations. In the case of Wirecard, its subsidiaries include Wirecard Card Solutions (UK), Wirecard Bank (Germany) and Al Alaam (UAE). Many experts are also wondering how can a sector stop a scandal like Wirecard from happening if no reforms take place? Another interesting fact is that Wirecard’s auditors EY missed the scandalous transactions in its books for quite some time. It also raises serious questions on whether the audit process can always be trusted.
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ANALYSIS TECHNOLOGY
HEALTHCARE UAE HEALTHCARE
The beginning of AI revolution in UAE healthcare The UAE is the first country in the world to have a designated minister for AI MARK HANS
G
lobal healthcare is at a turning point with the deployment of advanced technologies. Data science and machine learning are becoming essential components in developing prescriptive and predictive analytics — and AI-enabled software is transforming the healthcare industry by reducing costs and increasing efficiency in all aspects of patient care. A doctor who can predict a patient's medical history and present health needs will be able to create personalised treatments that meet the most critical needs for a patient. In addition, this new way of treating patients can also lead to more accurate outcomes. On the global front, big players such as Google and IBM are collaborating to roll out cutting edge innovations in healthcare. For example, Google’s DeepMind Health has joined forces with a consortium consisting of patients, researchers and
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clinicians to tackle complex healthcare problems. The company is using technologies such as machine learning and systems neuroscience for the development. These technologies form a powerful general-purpose learning algorithm which can mimic the human brain. In another example, IBM’s Watson for Health is providing its cognitive technology to different healthcare organisations across the world. Doctors and clinicians can unlock information such as health data and power diagnosis through this innovation. The technology which Watson has can evaluate and preserve complex medical information such as treatment case studies, medical journals and response seamlessly — way faster than humans. It is reported that the estimated worth of artificial intelligence in the global healthcare market was $3,120 million in
2018 and is expected to increase by $24,700 million within the next 8 years at a CAGR of 25.9 percent over the forecast period. The use of 22 healthcare artificial intelligence tools will generate annual revenue of $8.6 billion by 2025, based on the current trends. The scope of global revenue will surpass $34 billion.
AI is transforming the UAE healthcare UAE is the first country in the world to have a designated minister for artificial intelligence in 2017. The government assigned Omar Bin Sultan Al Olama as the country’s Minister of State for artificial intelligence. The move by the UAE points to its goals and developments to bring a technological revolution in the country. The development is a big
boost for the healthcare space in the country as it has paved the way for new technology innovations. New technologies have been introduced by the UAE’s Ministry of Health which is currently used in the healthcare space for innovations. For example, pods are the new form of innovations which can monitor health and detect early signs of illness among people. The government plans to roll out AI-enabled 24/7 video consultancy for global patients. That said, the Dubai Healthcare Authority (DHA) plans to deploy artificial intelligence for treating diabetes retinopathy, which is a severe disease that can lead to permanent sight loss. Also, healthcare and Innovative New Technology is a
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TECHNOLOGY
HEALTHCARE UAE HEALTHCARE
new breakthrough which can detect strokes among people.
Unique developments in the UAE healthcare Earlier this year, the UAE’s Ministry of Health rolled out Enayati, an AIbased preventive healthcare platform at the 45th Arab Health. The launch of Enayati platform is part of the country’s National Agenda 2021. The device has the capability to predict any possible health risks and monitor health indicators among people. It is equipped with applications and a set of smart systems that are attached to cardiac patients through sensors. In practice, the sensors will send health indicators and alert the healthcare authorities to take immediate actions in case patients demonstrate cardiorelated issues. Previously, the government of UAE had unveiled 3D printing solutions in healthcare as the country commits to become an important figure in the global 3D printing space. Among the many developments, DHA hospitals will have 3D printing labs. For the proposed project, DHA has partnered with Sinterex, an additive manufacturing healthcare specialist firm. With that, hospitals are anticipated to save more than $3,700 per surgery by using anatomical models.
Virtual hospitals and telemedicine are increasingly popular Du, a Dubai-based telecommunications company has approached the UAE’s Ministry of Health to launch new innovations to transform the healthcare industry. For that reason, DU signed a memorandum of understanding with the UAE’s Ministry of Health at an event in January. According to the agreement, DU will develop and offer smart healthcare services, including a telemedicine app.
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Abdul Rahman Bin Mohammed Al Owais, UAE’s Minister of Health and Prevention, told the media, “Signing the MoU with Du comes in line with our relentless efforts to keep abreast of and harness the latest international technologies. It is also to support our leadership ambitions to transform itself into a smart government and strengthen the UAE’s leading position as a global hub for smart solutions. We will offer a new generation of sophisticated healthcare services.” USA-based Mercy Virtual Care Centre’s ehospital is regarded as the world’s first facility dedicated to telehealth. In Abu Dhabi, Mubadala Telemedicine Centre provides telehealth facilities such as telephonic 24/7 medical consultations. In 2019,
two companies, Orient Insurance and Allianz Care rolled out the country’s first telemedicine service for international health insurance customers. Aster DM Healthcare and HealthHub, Dubai-based private healthcare units owned by Al-Futtaim rolled out their own video-conference consultation services. Furthermore, UAE’s Telecommunications Regulatory Authority (TRA) said that it has permitted companies to launch telemedicine solutions for use in the country. Even Okadoc, a doctor appointment booking platform, has expressed interest to launch telemedicine solutions in the second half of the year, but due to Covid-19 crisis, the company launched the solution in May. TruDoc 24×7 is also
The government of UAE had unveiled 3D printing solutions in healthcare as the country commits to become an important figure in the global 3D printing space
parents and expectant mothers who are looking for a personalised evidence-based content to effortlessly transition through the process of pregnancy, childbirth and parenthood. Through the app, users can connect different DHA hospitals and doctors to clarify their problems. The application also allows users to monitor and track weight, blood pressure and daily activity such as walking, log meditation and search an experienced doctor. Another striking innovation of DHA is a robot-based smart pharmacy. It was rolled out in 2018 to ease the process of dispensing and prescribing medication. People can purchase their prescribed medications through barcode scanning. The medicine storage capacity of the robots is 35,000 and they can dispense up to nine prescriptions under sixty seconds.
Smart Dubai Initiative — an overview
a telemedicine company in the UAE which allows subscribers to speak directly to a doctor at any time of day or night and from anywhere in the world through video, phone or live chat. It also offers a range of services, including specialist referrals, prescriptions, medicine deliveries and telemonitoring. Wellness services on offer include any-time access to wellness experts, customised nutrition and exercise plans, and weight management, sleep disorder and pregnancy programmes.
Sharjah houses the first ehospital in the UAE Mulk Healthcare, a Sharjah-based healthcare company, has claimed to launch the Middle East’s first
virtual hospital in the form of an app. The ehospital will offer healthcare services such as medication, booking appointments, seeking consultations, securing health insurance approvals, diagnosis and prescription. The app allows users to connect with over 2,000 medical specialists from countries such as India, Pakistan, Thailand, the US and the UK including a few European countries. With a single click, users can use services such as initial doctor-consultations and post-hospital care from the comfort of their homes. In 2014, the global telemedicine technologies market was valued at $17.8 bn and is now expected to exponentially increase. DHA also has its own app Tifli which is exclusively designed for
Smart Dubai, UAE government’s office department which is responsible for transforming the country has launched a new AI-based use case related to the healthcare sector. The AI is designed to help doctors track a patient's pulse, temperature, blood pressure including other vital signs. As a part of the AI Lab initiative, Smart Dubai has partnered with DHA and IBM for the development. In future, the AI is expected to deliver results, and it will be used in sophisticated services to improve healthcare at large. During the proof of concept, the AI was trained to process the patient’s data. The data was collected by various patients from different hospitals such as Hatta hospital, Latifa hospital and Dubai hospital. The proof of concept results were astounding as it indicated that the AI managed to detect the deteriorating health conditions in patients with 90 percent to 98 percent accuracy in one hour to
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TECHNOLOGY
HEALTHCARE UAE HEALTHCARE
20 hours. Furthermore, the AI will record vital information about any emergency situation such as a patient’s deteriorating condition. These are the features of the pilot which will help DHA and participating hospitals to better understand about the development. The results of the pilot programme clearly indicates that the AI as an advanced system has the potential to save people’s lives, with a capacity to draw accurate data and respond to patients’ conditions accordingly. The pilot project has sent a clear indication to hospitals on how resources can be managed effectively including the doctors and nurses. Using such technology will enable the medical crew to boost its performance and
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DHA has launched Tifli, an app exclusively designed for parents and expectant mothers to effortlessly transition through the process
work on areas which need to be reformed. The AI also delivers complex insights to the medical crew.
More collaborations in healthcare AI inHealth, a UK-based health technology company and Saal, an Abu Dhabi-based AI company have collaborated to utilise the power of AI and launch cutting edge AI-based healthcare solutions at a lower cost. The partnership was announced in the second half of 2019 and will see both the companies explore untapped areas to enhance healthcare services for the residents of UAE and the Middle East. UAE’s vision of becoming a global tech hub is supported by the country’s private sector. Both the companies will explore
product in terms of patient satisfaction. The company offers a special solution to hospitals and care centres known as ‘no-show predictor’. The solution has nearly 80 percent accuracy and can predict whether patients would arrive to an appointment on time. Coming to the inHealth portfolio, 17,000 end users use its solutions across 4,500 different pharmacies, hospitals and clinics. The company also develops a wide range of advanced cognitive solutions, products and platforms for businesses, in an effort to solve challenging reallife problems for the public sector, healthcare, education and banking sectors. It is the first unified platform solution to prescribe and dispense medication electronically is the Health Information Exchange platform (HIE).
The UAE launches AI to monitor vital signs
and identify areas of collaboration for joint AI initiatives. Saal is expected to play a significant role because it will provide AI-based healthcare tools for inHealth’s extensive product portfolio. The joint initiatives will aim to improve patient’s lifestyle and enhance the quality of healthcare units. Inside Saal’s portfolio, its innovative AI-based healthcare solutions help patients by providing them symptom diagnosis checker, lifestyle disease checker and medical image recognition. Patients can use the company’s health advisor either in English or Arabic. The health advisor also has some advanced features such as AI Chabot -based interface to recognise medical intent and indirect queries — making it a special
The UAE’s Ministry of Health announced an AI-based smart application Medopad for remotely monitoring the body’s vital signs at Arab Health 2019. The application has the potential to review patient’s information and deliver predictive insights which will be able to detect life threatening medical conditions. The application is powered and designed according to patients’ needs. Patients can use it on both IoS and android devices. The application collects data through devices connected to the platform and supports selfmanagement through dashboard. Hence, the application mostly collects data based on daily activities such as walking and running. In practice, it will inform medical care teams to provide better care that suits every person by remotely analysing, reviewing and documenting patients’ data and information.
The UAE’s Ministry of Health’s recent developments
Ministry of Health has collaborated with Pure Health, a leading Healthcare and Medical Supply Company to launch an AI-based device designed to help with irregular heartbeat and curb heart diseases before they occur. The 8gm weight device measures and monitors the electrical signals of the heart’s electrocardiogram, making it simple for patients with heart problems to use it anytime anywhere. The results can be checked through an associated smart app which can be installed on smartphones, desktops and smartwatches. Also, there is a separate website and a cloud portal for doctors where they can download and analyse patient’s records. In addition, the UAE’s Ministry of Health has introduced a Health Information Exchange system known as Malaffi. The centralised platform is designed to streamline healthcare connectivity for the emirate of Abu Dhabi. It will connect more than 2,000 public and private healthcare providers in Abu Dhabi, catering to the healthcare needs of more than 3 million people in the country. With the introduction of Malaffi, the UAE expects to witness a revolution in the delivery of healthcare as it seamlessly reduces the duplication of healthcare services and also paves the way for physicians to carry out faster and efficient decisions. Therefore, with Malaffi, the healthcare units are expected to receive improved quality of care and patient outcomes. According to reports, the majority of the UAE’s population are happy to see AI systems being deployed in healthcare. This means new doctors will replace the old ones who cannot use AI tools. It is a change that the UAE’s consumers seem ready for — even though the majority of the population may not fully realise the potential of AI in healthcare.
In another partnership, the UAE’s
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TECHNOLOGY
Tech giants see surge in income
The pandemic has pushed the global economy into recession and forced many out of business all over the world. However, tech giants are reporting a surge in profits. US-based tech giants Facebook and Apple have reported increased profits during the period. Even ecommerce giant Amazon that provides cloud services has reported an increase in profit despite the pandemic. Even though the coronavirus epidemic was first reported in the Chinese city of Wuhan last year, the infection was spread globally in the second quarter. During the period, major economies of the world sealed their borders, grounded flights and imposed lockdown measures. That said, it was during the same period that many companies also made their money. Facebook has been a part of some major controversies in the last couple of months, but the company has reported a 11 percent increase in revenue for the second quarter year-on-year. While its revenue for the period stood at $18.7 billion, its profit surged by 98 percent to $5.2 billion. According to Apple, its sales rose 11 percent to $59.7 billion and its profits increased 12 percent to $11.25 billion. Amazon too reported a 40 percent increase in quarterly sales boosted by an increase in ecommerce activities.
European battery makers capitalise on green stimulus Battery makers in the Eurozone are gearing to take advantage of a green stimulus package which will be unveiled soon in light of the coronavirus pandemic. Even though the market is dominated by Chinese battery makers, the green stimulus package will give European battery makers a major boost. According to Reuters, Sweden-based battery manufacturer Northvolt and France’s Verkor are making plans for large-scale production. Even though they may not be ready to take on their Chinese or Korean counterparts directly, it will definitely help them to develop a stronghold in the market. Many companies are also shifting their focus to niche markets and are investing heavily on technologies. According to a report by Mordor Intelligence, the market for battery in Europe is expected to grow approximately at a CAGR of 15.52 percent between 2020 and 2025. The battery market in Europe will be driven by declining lithium-ion battery prices, the report said. Other sectors contributing to the growth of the sector include rapid adoption of electric vehicles, growing renewable sector and increased sale of consumer electronics. Currently, China develops 80 percent of the world’s lithium-ion cell production which is expected to power the fast-growing electronic vehicle industry.
Asia adopts blockchain to deal with cyber crimes The pandemic has pushed the global economy into recession and forced many out of business all over the world. However, tech giants are reporting a surge in profits. US-based tech giants Facebook and Apple have reported increased profits during the period. Even ecommerce giant Amazon that provides cloud services has reported an increase in profit despite the pandemic. Even though the coronavirus
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epidemic was first reported in the Chinese city of Wuhan last year, the infection was spread globally in the second quarter. During the period, major economies of the world sealed their borders, grounded flights and imposed lockdown measures. That said, it was during the same period that many companies also made their money. Facebook has been a part of some major controversies in the last couple of
months, but the company has reported a 11 percent increase in revenue for the second quarter year-on-year. While its revenue for the period stood at $18.7 billion, its profit surged by 98 percent to $5.2 billion. According to Apple, its sales rose 11 percent to $59.7 billion and its profits increased 12 percent to $11.25 billion. Amazon too reported a 40 percent increase in quarterly sales, boosted by an increase in ecommerce.
TECHNOLOGY NEWS BITS
Bahrain's esystem to track medicine supply chain Bahrain is set to launch a new electronic system next year to track the end-to-end journey of all medicines in the country right from the production unit to the final consumer. The system is being launched to counter the menace of pirated or duplicate drugs that are being sold in the market. According to a statement by the National Health Regulatory Authority (NHRA), the Supreme Council for Health has selected MVC company to implement the project. The launch of this new electronic system is in line with directives to follow the supply chain of medication in accordance with the Global Trade Item Number (GTIN).
NHRA chief executive Dr Mariam Al Jalahma said that implementing this system is a pioneering move and it will place Bahrain on the global map for preventing the sale of fake medication. Earlier this year, the first drug manufacturing unit set up in Bahrain started production. In the first two months, it produced 600 million gelatin coated multivitamin capsules and 20 million soluble syrup bottles. The unit was set up on a 10,000sqm area in Bahrain International Investment Park (BIIP). It has facilities dedicated for production, storage, support and external and internal control.
JD.com to capitalise on gaming smartphone At the Joy gaming expo that opened in Shanghai, ecommerce giant JD.com announced the formation of a new industry alliance to tap into the growing gaming smartphone market. The demand for gaming smartphones has skyrocketed since the introduction of 5G technology. The alliance announced by JD.com includes gaming giant Tencent as well as smartphone brands Black Shark, RedMagic, ROG and Lenovo. According to market research firm AskCI Consulting, China is home to 630 million mobile gamers and 350 million esports gamers. Gaming consultancy firm Niko Partners said in a report that mobile and PC games revenue in China was $33.1 billion in 2019 and it is projected to exceed $46.7 billion by 2024. This highlights a huge potential in the market which JD.com has identified. The company said that it wants to play a bigger role in the market and the alliance will allow it to do so. It wants to accelerate the sale of gaming smartphones through the new alliance. For that reason, it will create new distribution channels, promotion activities and gaming tournaments.
The UK launches Covid-19 contact tracing app The UK has launched a Covid-19 contact tracing app in partnership with Google and Apple. The app also provides local infection data and QR code check-ins at venues. The app was a part of Covid-19 test-and-trace system, and was anticipated to be an integral part of Prime Minister Boris Johnson’s plan to curb the spread of the infection. In August, the UK reported around
321,000 positive cases of Covid-19 and with casualties of around 41,000. The first case of Covid-19 was reported in the country in late January, and since then the country entered a state of lockdown to help curb the spread of the virus. In late April, Prime Minister Boris Johnson said that the UK had passed the peak of its outbreak and that economic activities will be allowed to happen.
The app will be tested on the Isle of Wight off southern England, where a previous version was also tested. Government sources claim that the new app will notify a user when he is in close proximity with an individual who has tested Covid positive. In response to all security and privacy concerns, the government further stressed that all users remain anonymous. Global Business Outlook | September 2020 | 55
FEATURE ECONOMY
GDP CONTRACTION AFRICAN ECONOMY
Africa is on a path to slow economic recovery TOM HARDY
Economists predict the continent's per capita GDP to contract by 5.4 percent this year
A
frica is a vast continent and to estimate the impact of the coronavirus pandemic on the continent is a difficult task. This is because the African economy is very complex. Currently, there are 54 sovereign African countries and two disputed areas in the African continent and they are a mix of emerging and poor economies. Another
factor is that a large portion of the economies are in the informal sector and to acquire data of such magnitude is often close to impossible. That said, the impact of the pandemic is not marginal. Earlier this year, the International Monetary Fund (IMF) declared that the global economy has entered recession as a result of the pandemic. With that,the IMF has been forced to revise its estimates from time to time. The IMF now estimates sub-Saharan economy to shrink by 3.2 percent this year as a result of the coronavirus crisis. The recent forecast by the fund is 1.6 percentage points more compared to its forecasts in April. It expects sectors such as tourism, resources, oil and mineral export businesses to be the most affected. With
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regard to the updated forecasts, IMF Africa director Abebe Aemro Selassie said that it better captures the realities of the fast-changing events on the ground in Africa and the rest of the world. Another pressing concern for African economists is that the continent’s per capita GDP is expected to contract by 5.4
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percent this year. To further understand its significance, we can assume that the contraction could possibly wipe out nearly ten years of progress made in eliminating poverty on the continent. The fact that the pandemic is slowing down economic growth in sub-Saharan Africa is expected to gradually recover during the second half of this year. The IMF has predicted an economic rebound to 3.4 percent growth next year, compared to an estimated 4 percent growth earlier. Since many subSaharan African economies have fewer and smaller policy options than more advanced economies, major economies in the region will not see real GDP growth return to pre-crisis levels till 2023 or 2024. Also, the bigger problem is that it is not possible to fully predict when the pandemic will meet its end as a lot of factors largely depend on the creation of a vaccine. IMF’s Abebe Selassie said that as long as the infection is not under control, we cannot expect an economic recovery which might be long-lasting.
South Africa to witness worst recession in 90 years Among all African countries, South Africa has reported the highest number of positive coronavirus cases. Since South Africa is the continent’s most industrialised economy, its manufacturing purchasing managers’ index fell from 53.9 in June to 51.2 in July. This is as a result of the lockdown measures introduced by the government to curb the spread of the infection in the country. At present, South Africa ranks fifth on the list of all countries with the highest number of coronavirus cases. Finance Minister Tito Mboweni told the country’s parliament during the presentation of a special budget that as a result of the ongoing coronavirus crisis, the South African economy is expected to contract by 7.2 percent this year — the worst in over nine decades.
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if the restrictions are not lifted, it could result in a loss of around 800,000 jobs, especially in public sector workers and over about half a million employees of the winemaking industry. Its impact on the country’s tourism sector would be far more disastrous, according to experts
South Africa not only entered a complete state of lockdown from March 27, but also sealed its borders and restricted air travel. Even now there is a ban on the sale of tobacco and alcoholic drinks, including wine which are a major source of the country’s revenues. The lockdown measures introduced to curb the spread of coronavirus are having disastrous effects on the restaurant business and farming sector in South Africa. According to their union leaders, if the restrictions are not lifted, it could result in a loss of around 800,000 jobs, especially in public sector workers and over about half a million employees of the winemaking industry. Its impact on the country’s tourism sector would be far more disastrous, according to experts. Around 3 million people have
lost their jobs during the 4-month lockdown period and experts predict a growth in unemployment from 30 percent to 50 percent. Many South Africans believe the government is failing when it comes to coping with the crisis. Also, the country’s healthcare system has come under scrutiny with many predicting that the sector is ill equipped to deal with a pandemic. Over the last couple of months, South Africa has witnessed protests and resistance groups vandalising the streets showing their displeasure with the way authorities are handling the situation. All these factors are expected to severely impact the economy.
Coronavirus and depleting oil prices to impact Nigeria According to the latest World Bank Nigeria Development Update (NDU),
Nigeria is going through the worst economic recession since 1980. While the economy is being impacted by the coronavirus crisis, Nigeria is also feeling the heat of the global oil crisis, which saw oil prices depleting to an all time low. The report titled Nigeria In Times of coronavirus: Laying Foundations for a Strong Recovery forecasts that Nigeria’s economy would likely contract by 3.2 percent this year equaling a loss of $20 billion to GDP, taking into consideration that the spread of the infection in the country will be contained by the third quarter of 2020. However, if the infection is not contained in the third quarter, the economy could contract further. During the pre-pandemic period, the Nigerian economy was expected to grow by 2.1 percent in 2020. Nigeria is one of the prominent African oil exporting countries and oil represents more than 80 percent of Nigeria’s exports. During the oil crisis, which also saw a global price war between Russia and the Saudi Arabia-led OPEC, it was forecasted that the Nigerian government’s revenues will fall from an already low GDP of 8 percent in 2019 to a projected 5 percent in 2020. Meanwhile, the pandemic has also impacted the level of private investments in the country, which means investors are not willing to shell out their money amid the pandemic. Against this background, remittances to Nigerian households are expected to reduce. It is important to note that in recent years, remittances coming into Nigeria have been larger than the combined amount of foreign direct investment and overseas development assistance. The report further forecasts that as a result of the pandemic, around 5 million Nigerians could be forced into poverty in 2020. Prior to the pandemic, which originated in the Chinese city of Wuhan last year, the number of poor Nigerians was expected to increase by about
2 million largely due to population growth. However, the recent numbers would now increase significantly by 7 million. This means the poverty rate in Nigeria is projected to rise from 40.1 percent in 2019 to 42.5 percent in 2020. Unemployment in Nigeria is also expected to reach 40 million by the end of 2020 as many jobs are expected to be gone in the large and complex informal sector of not only in the country, but the whole of Africa.
Kenya’s economy on a path to recovery The latest World Bank Kenya Economic Update (KEU) forecasts a growth of 1.5 percent in 2020. If we consider that the pandemic would not end anytime soon, the World Bank forecasts a contraction to 1.0 percent. Kenya’s gross domestic product (GDP) is projected to decelerate substantially as a result of the countermeasures introduced to fight the virus. Much of it would also depend on external factors such as how the coronavirus crisis impacts the global economy and the policies undertaken by the government to weather the storm. “We recognise that Kenya must balance between reducing the spread of the virus and cushioning Kenyans particularly informal workers and youth who make up 70 percent of the population from the adverse economic effects posed by coronavirus,” said Felipe Jaramillo, World Bank Country Director for Kenya. “In partnership with other development partners, we are supporting the Government of Kenya through financing and technical advice to strengthen its health systems capacity to contain the spread coronavirus.” In rural Kenya, a majority of the citizens earn their livelihood from activities directly or indirectly related to farming. In urban areas, people are often self-employed or are informal wage earners. Protecting their livelihood and
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earnings should be the government’s top priority in the country. Therefore, it is critical for the country to scale up available social assistance programmes to provide poor households with food, water and other basic supplies to cope with the crisis. Peter W Chacha, World Bank Senior Economist and Lead Author of the report, said that supporting small businesses and protecting jobs to cope with the negative effects of the coronavirus crisis is particularly critical at this time. Kenya’s medium-term growth is projected to rebound fast to about 5.6 percent over the medium term on assumption that investor confidence will be restored soon after the pandemic is contained. The greatest uncertainty to this outlook, however, is the extent of the impact of the global pandemic on Kenya. A more recent report by the central bank also stated that Kenya’s economy is on a recovery path due to the good performance of the agriculture sector and resuming international flight operations. There is also a cause for optimism in certain other African countries. West African countries with diversified economies such as Ghana, Senegal and Benin have had more success in containing the virus and sustaining economic activity, despite the deep recession in nearby Nigeria. Recentlyreleased figures suggest that economic activity in Ghana has started to recover from a sharp downturn that hammered the external sector.
Accelerating digitisation could help the African economy To tackle the negative impact of the coronavirus crisis, governments across the continent have introduced different counter measures. Besides sealing borders, restricting travel and asking its citizens to stay home, governments have also introduced fiscal measures to help economies deal with the crisis. Various relief packages have also been
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Africa’s healthcare department will need an estimated $44 billion increase in spending to deal with the crisis which represents a 32 percent increase As most of the African economies are poor or developing
released by various governments to the businesses, especially in the informal sector to cope with the shadow effects of the pandemic. However, as a result of the crisis, acceleration of digitalisation in various sectors across the world and in Africa seems to be inevitable. Smart investments made in technology could help Africa fight the pandemic to some extent. In fact, mobile money in Africa has played a crucial role in recent years. More importantly, the use
of mobile money has surged significantly in the last couple of months as the African government has introduced measures to boost social distancing. The widespread use of mobile money has reduced the use of cash in Africa, which the World Health Organisation (WHO) flagged as a conduit for the spread of the coronavirus. Besides mobile money, digitalisation is accelerated in other sectors such as healthcare. Many healthtech startups in Africa are joining the battle against coronavirus and are using their technological prowess to help their respective economies. Health departments across all African countries are suffering from fewer resources compared to other parts of the world. According to reports, Africa’s healthcare department will need an estimated $44 billion increase in spending to deal with the crisis which represents a 32 percent increase As most of the African economies are poor or developing, it is difficult to source such a huge amount in a short period of time. This is where the healthtech startups in countries such as Nigeria, Kenya and Egypt are coming into play.
NEWS
ECONOMY
German experts seek to revive South African economy A group of German experts including engineers and technicians have arrived in South Africa to help the country revive its economy by upgrading the production capacity of German-owned factories and service companies based in the country. In addition, they also seek to revive the embattled state power utility Eskom. According to the German embassy, the experts have been called in from the home country because people with similar capabilities are hard to find in South Africa. Indeed the process of upgradation of factories or utility companies require a particular skill set which is not easily found. It is reported that the first set of experts arrived from Germany in July this year. Subsequently, another two batch of experts arrived in South Africa in the following period of 30 days. So far, around 100 German experts have arrived in South Africa to help the country rebound its economy and build up exports of hightech products that are ‘Made in South Africa’. German Ambassador told South Africa Martin Schäfer that some of those experts are part of companies with service contracts for state-owned entities such as Eskom which was established in 1923 by the South African government.
Hong Kong to contract 8% due to Covid-19 Hong Kong has changed its economic outlook for the year again in light of the coronavirus pandemic. Hong Kong has forecasted that its economy will contract by 6 percent to 8 percent this year. Previously, the economy was forecasted to contract by 4 percent to 7 percent, but now analysts predict the impact of Covid-19 to be more severe. It is reported that the economy contracted by 9 percent in the second quarter. The second quarter contraction was in line with the official forecast as the economy was expected to contract by 9.1 percent during the period. The damage done by the pandemic is going to be more severe with the spread of the infection and delayed vaccine. The recent surge of Covid-19 cases, stringent social distancing measures, and austere labour market conditions will weigh heavily on private consumption in the coming weeks, according to government economist Andrew Au. The Hong Kong economy was already in the brink of recession even before the pandemic started. Hong Kong has also been troubled by anti-government protests carried out on the streets which lasted for months. The protests were triggered by the Fugitive Offenders amendment bill introduced by the government.
Kenya's agriculture shows strong performance Kenya’s economy is on a path to recovery despite the implications of the coronavirus pandemic. The strong performance of its agricultural sector and the opening of international air travel has contributed toward Kenya’s economic recovery, according to Patrick Njoroge, governor of the Central Bank of Kenya (CBK). He said that the expected economic recovery would start in August and peak in the last three
months of the year. Earlier this month, Kenya announced that it will reopen its airspace to international travel. According to the governor, this decision has encouraged 60 percent of major hotels to restart their businesses. The latest World Bank Kenya Economic Update (KEU) forecasts a growth of 1.5 percent in 2020. Also, the World Bank forecasts a contraction of 1 percent. Kenya’s gross
domestic product (GDP) is projected to decelerate substantially as a result of the countermeasures introduced to fight the coronavirus. Kenya’s mediumterm growth is projected to rebound fast to about 5.6 percent over the medium-term on the basis that investor confidence will be restored soon after the pandemic is controlled. The country’s agricultural sector has also demonstrated good performance.
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ECONOMY NEWS BITS
Qatar expects economic contraction in 2020
Drop in expat numbers is expected to impact Kuwait A sudden drop in the number of expats living in the country will severely impact Kuwait’s economy, according to the National Assembly’s human resource committee. The Kuwait Times reported that if many expats exit the country, it will impact the real estate, labour market and private education market, as they are heavily dependent on expats. Kuwait has been debating about the idea of limiting the number of expats living in the country. Various proposals have been submitted by the parliament and the committee is studying all of them. Kuwait plans to reduce its dependence on expats and instead use local manpower
to replace the vacancy created by the exit of expats in the country. It is reported that Kuwait plans to replace around 160,000 expats working in its public sector. Reports further suggest that those expats who do not economically contribute, or are living illegally in the country could be deported. In July, the World Bank said that the Covid-19 crisis would result in a contraction of 5.4 percent of the Kuwaiti economy. However, the economy would recover by 1 percent the following year. The pandemic’s adverse effects on the Kuwait economy is its worst since the 1990 Iraq invasion.
The central bank of Qatar expects its economy to contract as a result of the depleting oil prices and the coronavirus pandemic, it said in a statement. Qatar’s economy contracted by 0.3 percent in 2019, which was mainly due to the slowdown in the hydrocarbon sector, according to the apex bank. Recently, a World Bank top official said that Qatar’s dominant position in the natural gas export markets protects it from future fluctuations. The World Bank’s regional director for the Gulf Cooperation Council (GCC), Issam Abu Sulaiman said that Qatar has the best performance among all GCC nations in the average rate of growth in 2020. According to a report published by the French multinational investment bank Societe Generale, Qatar’s gross domestic product is estimated to reach $200 billion in 2021 despite the negative impact of the coronavirus pandemic. The report estimates Qatar’s gross domestic product per capita to increase from $70,737 this year to $72,554 in 2021. More importantly, Societe Generale estimates an inflation of 2.4 percent in 2021 and -1.2 percent this year in Qatar. It is reported that if the pandemic’s distress continues, the GDP growth will remain negative in 2020.
Thailand sees biggest second quarter contraction Thailand has witnessed the biggest second quarter contraction since 1998, as a result of the coronavirus pandemic. The major damage to the economy came from the 100 percent fall in foreign tourism as the country sealed its borders and grounded all flights to help curb the spread of the virus. Thailand’s economy is heavily reliant on tourism and exports. The second largest economy in Southeast 62 | September 2020 | Global Business Outlook
Asia shrank 12.2 percent in the second quarter from a year earlier after a revised 2 percent fall in the first quarter. According to Reuters, Thailand’s economy would shrink 13.3 percent year-on-year and fall 11.4 percent quarter-on-quarter. Amonthep Chawla, Head of the Research Office at CIMB THAI Bank said that Thailand’s economy was still far from showing signs of recovery
even though the country was heading towards the fourth phase of lockdown easing. However, a report by CIMB said that Thailand’s economy will contract by 8.9 percent this year even though the country has lifted the restrictions introduced earlier to curb the spread of the novel coronavirus. Even the National Economic and Social Development Council (NESDC) had forecasted an economic contraction.
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