Global Business Outlook Issue 01 2020 by Global Business Outlook

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Volume 04 Issue 01 | 2020

| 1

ECONOMY OIL PRICE WAR

2 | April 2020 | Global Business Outlook

EDITOR'S NOTE GBO MAGAZINE JUNE 2020

Will global economy return to normalcy? The coronavirus pandemic has given a sudden shock to the already sluggish global economy coming as a bolt from the blue. It leaves a vast trail of economic destruction in its wake and we do not know when the global economy will recover. The IMF has declared that the global economy is already in recession. Goldman Sachs predicts that the US economy might contract by an astonishing 24 percent in the coming quarter. More than 3.3 million US citizens had applied for unemployment benefits in March, the most in US history. For the Middle East oil producers that are reliant on a vibrant global economy to balance their budgets and drive the much-vaunted diversification programmes the coronavirus induced slowdown comes as a rude shock and wake-up call. The Kingdom of Saudi Arabia had already dragged the Middle East oil producers into an oil price war with rival producer Russia beating down oil prices by more than 10 percent. How will the Middle East oil producers come out of this bruising oil price war while accounting for a global recession that will certainly drive down demand for oil and prices? We look at this in our key story for the June edition. In our cover story for June, we introduce China’s ambition to become the world’s largest hub for AI innovation in a pursuit of global dominance. How does China plan to up its game? What are the new developments in its AI innovation? Will China win the global race in AI? — are some of the significant questions analysed in our cover. We also examine whether Huawei’s domination in 5G is actually under threat given the hard time the US regulators and government is imposing on the company and the US attempts to influence European nations against Huawei. Blockchain has streamlined the cumbersome transactional processes of trade financing through digitalisation. We find out how the Asia Pacific and the Middle East are driving trade finance digitalisation. Continuing with blockchain, we also go into the details of the state of blockchain innovation at UAE’s leading banks considering that Dubai is perhaps the first region in the world to leverage blockchain for verifiable know your customer processes by coordinating with banks. We hope our features and analysis will pique your interest as you go through our current edition.

Kimberly Rivers Editor kimberly@gbomag.com

Global Business Outlook | April 2020 | 3

CONTENTS

GBO APRIL 2020

COVER STORY

Will China become leader in AI by 2030?

6 BANKING

Apac, Middle East lead trade finance digitalisation

BANKING

TECHNOLOGY

2020: A year of big IPO washouts?

Africa’s digital transformation is huge

UAE banks take the lead in blockchain

OIL AND GAS

ECONOMY

Covid-19 and oil price war — an overview

Key sectors to drive Saudi Arabia’s Vision 2030

4 | April 2020 | Global Business Outlook

BANKING

Central bank digital currencies may

12 soon become a reality

Editor Kimberly Rivers

Production & Design Brian Williams David Brenton Ian Hutchinson Shankara Prasad

Editorial Stanley Rogers Rachel Taylor, Lucas Cooper Alice Parker, Tom Hardy

TELECOM

Is Huaweiâ&#x20AC;&#x2122;s global dominance

38 under threat? ENERGY

Thailand drives renewables

54 innovation to beat energy crisis ECONOMY

Director & Publisher Krushikesh Raju

What does a free US-Kenya trade deal mean for Africa?

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 Business Outlook Media Ltd Winston House, 2 Dollis Park, London, England, N3 1HF

ADVERTORIAL

FirstBank supports underbanked

16 and unbanked in Nigeria

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Krungsri Finnovate : Driving fintech

36 startup growth in Thailand

Global Business Outlook | April 2020 | 5

BANKING

FINANCE

TRADE FINANCE DIGITALISATION

Apac, Middle East lead trade finance While the right technology is available, the missing link is the regulations and a clear guidance TOM HARDY

rade finance digitalisation has been long overdue. Finally, we have the right technologies such as blockchain, artifiical intelligence (AI) and the Internet of Things (IoT), to help digitalise trade finance. Many perceive trade finance digitalisation as a gargantuan step toward global economic inclusion. Trade finance has existed since the beginning of cross-border trade, but the process has seen little or no noticeable reforms, even though technological development has disrupted most of the other aspects of trade. Over the years, banks have also invested heavily on digital innovation; however, the investments were limited to conventional banking products. According to the International Chamber of Commerce (ICC) Global Survey 2018, up to 80 percent of all global trade is made possible by some form of credit, guarantee or insurance product. Trade financing still continues to be a long, time-consuming paper-based process. But by integrating technologies such as blockchain, groundbreaking improvements are being made across the globe. So far, many companies across the globe have carried out trade finance transactions online, thus eliminating the obtuse paper-based ledger system and replacing it with a digital one. The online process offers transparency, efficiency, reduces cost and most importantly saves time by around 90 percent. A transaction, which earlier took weeks to be completed, now can be completed in minutes due to trade finance digitalisation.

6 | April 2020 | Global Business Outlook

Bain & Company estimates that blockchain could increase global trade volumes by

$1.1 trillion by 2026 from the current base of

$16 trillion

Global Business Outlook | April 2020 | 7

BANKING

FINANCE

TRADE FINANCE DIGITALISATION

Over 60 percent of banks that took part in ICC’s survey revealed that they are in the process of digitalising their traditional trade finance solutions, and 15 percent of institutions said they see the transformative potential in giving trade finance a technological upgrade. In 2018, HSBC and ING, two of the biggest banks in the world, carried out the first commercial trade finance transaction by integrating blockchain. The transaction was for a Cargill shipment of soybeans which was shipped from Argentina to Malaysia. The conventional paper-based method would take around five to 10 days for the whole transaction to be processed and completed properly, but HSBC and ING managed to complete the whole process within 24 hours. When it comes to trade finance digitalisation, the Middle East And Asia-Pacific have led the way.

Middle East banks pioneer in trade finance digitalisation When it comes to trade finance, the Middle East is embracing the disruptive change. Middle Eastern banks’ visions are aligned with their respective government’s digitalisation target. Middle Eastern banks are leading the way when it comes to trade finance digitalisation. A survey carried out by ICC revealed that 59 percent of respondents in the Middle East believe in the potential of digital channels to impact sales volumes. Also, 44 percent of banks in the region noted that the development and deployment of digital trade and online trade platforms are a strategic priority in the next one to three years. Over 40 percent of banks in the Middle East are planning to integrate technology solutions into their trade finance offerings. The UAE's Abu Dhabi Commercial Bank (ADCB), which is the third-largest bank in the region, digitalised its trade finance platform

8 | April 2020 | Global Business Outlook

by leveraging dltledgers’ blockchain platform. This makes ADCB the first bank in the UAE to run the end-to-end blockchain trade finance transaction with full document automation, offering clients efficiency and greater access to cash. The bank’s private network provides end-to-end trade visibility across the entire life cycle of the transaction with authenticated and consented digitalised documents at every step. In September 2019, ADCB carried out the first transaction in its platform which involved several trade partners such as Bangladesh’s Islami Bank, SGS Surveyor, Richardson International Shipping Canada, Banjo Auto Flour Mill Bangladesh and Agrocorp. In November, Oman also recorded its first blockchain-based trade finance transaction. The transaction involved the sale of polypropylene to Abu Dhabi National Carpet Factory. It was executed by making use of Corda from R3, an open-source blockchain system by HSBC, one of the largest banks

in the world. The transaction was in relation to a letter of credit and other parties such as Oman Observer, Oman Oil and Orpic Group were involved. Businesses in the Middle East, especially small and mediumsized enterprises (SMEs) face many challenges while participating in international trade such as unstable exchange rates, fluctuations in demand and insufficient margins which could substantially affect one’s profit and loss statement. In such scenarios, having a transparent trade financial platform can help those SMEs weather the storm. As stated earlier, digital trade finance also leads to greater access to cash.

Singapore and China take the lead in Asia Trade finance digitalisation is also picking up pace in the Asia-pacificc region. More and more financial institutions are opening their eyes to the advantages of trade finance digitalisation. In 2019, CIMB Bank launched

Singapore’s first blockchain-based trade financing platform. The bank revealed its optimistic ambitions to generate transaction flows of around $100 million each year. CIMB Bank has launched the platform in partnership with Singaporebased blockchain firm iTrust, a joint venture between Ascent Solution and 1Citadel. The bank completed its first trade finance transaction using IoT cargo sensors and blockchain. The transaction involved the financing of dairy products into China. Two local banks in Singapore-DBS Bank and OCBC Bank have taken the lead when it comes to digitalising trade finance in Singapore through blockchain adoption. In March, both DBS Bank and OCBC Bank issued their first electronic banker’s guarantee on the Singapore Customs Electronic Banker’s Guarantee Programme which is designed to shorten the banker’s guarantee issuance and submission process to the Singapore Customs from about four working days to less than 24 hours.

DBS too, completed its first trade financing transaction on the CamelOne Trade Finance Portal (TFP) — which is Singapore’s first digital trade financing platform backed by banks such as United Overseas Bank, OCBC Bank, ANZ, BNP Paribas, HSBC, Industrial and Commercial Bank of China, MUFG and Standard Chartered Bank. The transaction relates to a $4.8 million letter of credit by Super Steel, a Singaporebased steel wholesaler and supplier. During the same period, DBS Bank also completed its first digital trade deal using the Networked Trade Platform (NTP). The deal relates to a $2.5 million letter of credit transaction between Audi and Premium Automobiles. While traditionally, the entire process would take a week to be completed, DBS Bank closed it within 24 hours using NTP. Other banks too are ramping up efforts to improve the trade finance landscape in the region. In February 2020, Deutsche Bank added two senior leaders to its workforce to improve its

position in trade financing landscape in the Asia-Pacific region. The Chinese government allotted around $7.4 million to the People’s Bank of China for blockchain-based trade finance research and development projects. The apex bank launched its own blockchain-based trade financing platform in 2018, which has processed $12.4 billion worth of transactions for 38 banks and 1900 businesses. Some of the big names to use the Chinese central bank’s trade finance platform includes Standard Chartered, Ping An and Bank of China. This was followed by the China Banking Association (CBA) launching the ‘China Trade Finance Inter-bank Trading Blockchain Platform’. Trade finance digitalisation is not just limited to the Middle East and AsiaPacific. Maersk, the largest container ship and supply vessel operator in the world since 1996, announced digital trade finance in South Africa to help boost SMEs in the region. The company highlighted the huge trade finance gap in Africa which stands between $110 billion to $120 billion. By financing SMEs in South Africa, Maersk plans to reduce the trade financing gap in Africa. During the same period, South Africa-based Standard Bank became the first bank to join the Marco Polo Network, which is one of the largest and fastest-growing trade finance networks in the world. In its home market, HSBC launched a new trade finance API in 2019. According to the bank, it will give financial institutions and their clients the ability to build applications with ‘full visibility’ of their bank guarantees. HSBC revealed it is also collaborating with ING Bank and Standard Bank to integrate the Bank Guarantee API into their banking platforms. The network includes big names such as BNP Paribas, Commerzbank, ING, LBBW, Anglo-Gulf Trade Bank, Standard Chartered Bank, Natixis, Bangkok

Global Business Outlook | April 2020 | 9

BANKING

FINANCE

TRADE FINANCE DIGITALISATION

Bank, SMBC, Danske Bank, NatWest, DNB, OP Financial Group, Alfa Bank, Bayern LB, Helaba, S-Servicepartner, RBI and Bradesco.

Challenges that lie ahead Even though trade finance digitalisation is picking up pace across the globe, the biggest challenge that lies ahead is to get all the parties aligned to make the process an effective one. Exporters, banks, logistics partners, shipping lines and importers must digitalise their own individual process for trade finance digitalisation to be successful. Even though we have seen development when it comes to trade finance digitalisation, they mostly have been in parts. The next big step will be to set a global standard for digital trade financing. While the right technology is available, the missing link is the regulations and clear guidance on how to use the technology to achieve an acceptable outcome. What the industry as a whole need to do is to figure out a way to incentivise its players at different levels of the supply chain so that they adopt a global standard. Also, to enable trade finance digitalisation, participating member counties need to amend various trade laws, which stresses on the use of papers and rubber stamp. A product may move through more than two different countries, but if one of the countries sstresses on the use of paper, all the participants will have to follow suit and adopt the paper-based model. Many countries also refuse to digitalise various processes and prefer to deploy labour in order to create employment. So the adaptation of digital documents is important for trade finance. In case of a legal dispute, digital documents will be declared nonadmissible by the court in many countries. Even though some countries have implemented changes and started identifying digital documents as

10 | April 2020 | Global Business Outlook

evidence, there are many courts which still donâ&#x20AC;&#x2122;t. Before a global standard can be set, this aspect must be looked into.

Trade finance digitalisation to disrupt global trade Once a global standard is set, it will have the potential to disrupt the global trade market. Digitalisation of trade finance will result in reduction of transaction time and cost, in addition to mitigating fraud risk. It will streamline the entire process and provide transparency to all parties involved in the supply chain. All these factors will ultimately boost trade volume in general. Reportedly, trade finance accounts for more than $9 trillion worth of transactions per year. The number could significantly increase if trade finance is digitalised. Peter Wong, a founding chairman of the International Group of Treasury Associations (IGTA) said that the trade finance digitalisation can increase the transparency of receipt and payment flow information, which can result in improved cash forecasting, streamlined credit collection efforts and more efficient deployment of

working capital. Digitalisation will also allow businesses, especially SMEs to achieve better control of their credit facilities, reduce fees and speed up the application process. This enables businesses to grow transaction volumes without the requirement for additional credit. Businesses dealing in high transaction volumes will highly benefit from it. The very fact that blockchain can help complete a transaction within minutes, which previously took around a weekâ&#x20AC;&#x2122;s time by following the paper-denominated ledger system is quite significant. The time and money saved by integrating technology with trade finance could accumulate to millions, depending on the business. Bain & Company estimates that blockchain could increase global trade volumes by $1.1 trillion by 2026, from the current base of $16 trillion.

Global Business Outlook | April 2020 | 11

Central bank digital currencies may soon become a reality TOM HARDY

The launch of Facebook Libra has pushed many central banks to fast track the launch of CBDCs 12 | April 2020 | Global Business Outlook

CURRENCIES

BANKING

CENTRAL BANK DIGITAL CURRENCY

Bitcoin was the first ever digital currency introduced in 2009 — and to date,

over 6000 different altcoins have been

created similar to it

he first ever digital currency was launched in 2009, called bitcoin. Since its inception, over 6000 different altcoins have been created similar to bitcoin. Fast forward to 2020, and central banks in various regions are considering issuing their own digital currencies. In 2015, Tunisia became the first country in the world to issue a blockchain-based national currency called eDinar, also known as Digicash or BitDinar. In the recently held World Economic Forum 2020 in Davos, the possibility of having a Central Bank Digital Currency (CBDC) was heavily discussed. Not only that, the world’s first digital banking consortium was also announced in Davos. The initiative called the Global Consortium for Digital Currency Governance was launched with an aim to bring together major financial institutions, top multinational companies, government representatives, academics and members of the World Economic Forum for the possible launch of CBDCs. The World Economic Forum also released CBDC Policy‑Maker Toolkit, a 28-page guide regulatory framework aimed at giving central banks a form of assessment of whether or not they

need to develop a digital currency to benefit their economy. After Facebook launched its stablecoin Libra last year, various central banks have accelerated the process of issuing their own digital currencies. A survey conducted by the Bank of International Settlement revealed that around 1.6 billion people could have access to CBDCs in the next three years. However, cryptocurrencies and CBDCs are not the same thing.

How does CBDC differ from cryptocurrencies? Digital currency is a broader term, under which both cryptocurrencies and CBDCs are classified. CBDCs are the digital form of traditional money, developed and regulated by central banks. Cryptocurrencies, on the other hand, are regulated by online communities and not by a centralised body. However, both operate under similar technologies such as blockchain — a ledger system that tracks all transactions and are linked through a peer-to-peer network. Once launched, CBDCs will be accepted as legal tender throughout the region, but that will not be the case with cryptocurrencies. While businesses will be bound to accept CBDCs as legal

tender, they still have the choice to accept or reject cryptocurrencies as a form of payment. Cryptocurrencies are very volatile in nature. Over the years, the market has witnessed its value dropping or increasing by 10 percent to 20 percent within a short period of time. That will not be the case for CBDCs, since they are just the digital version of the existing currencies. The values of CBDCs are determined by factors such as monetary and fiscal policies and trade surpluses; however, the values of cryptocurrencies are completely determined by the market. It is also important to note that there is a significant difference between CBDCs and ecash as well.

Central banks taking the indicatives ahead The People’s Bank of China started researching digital currency in 2014. The project was called DC/EP: Digital Currency/Electronic Payments. Recent media speculations suggested that China could launch its own digital currency in 2021. Due to the outbreak of the Covid-19, many believe the process of launching the digital renminbi could be fast-tracked to help curb the spread

Global Business Outlook | April 2020 | 13

BANKING

CURRENCIES

CENTRAL BANK DIGITAL CURRENCY

of the virus, which originated in the Chinese city of Wuhan. Last December, China carried out the first real world pilot testing of its digital currency in certain cities. The push for a digital currency was also fast-tracked after Facebook launched its own digital currency called Libra. China seeks to be the first country to launch a CBDC and establish itself as a leader in the digital economy. Once online, the digital renminbi will function as a replacement for the paper version. Since it will not be a whole new currency, it is expected to be stable and less volatile like other cryptocurrencies such as bitcoin. The currency will also be monitored by the central bank, thus it will not have anonymity like bitcoin. Recently, the Chinese government also implemented new laws with regard to online encryption as a part of its plan to launch its digital currency. In order to counter China, Japan too might launch its own digital currency in the next two to three years. The head of the banking and finance systems research commission at Japan’s Liberal Democratic Party Kozo Yamamoto recently revealed Japan’s plan to launch the digital version of yen. Countries such as France and Canada are also mulling issuing a digital currency in the near future. The Bank of England recently issued a discussion paper about the possibility of issuing a digital pound. However, the central bank did acknowledge that an electronic pound could be destabilising for its commercial banking system. The Central Bank of Bahrain too conducted a study on the possibility of issuing a digital currency of the Bahraini dinar. In the future, we may see the GCC countries issue a joint digital currency, however, there are no such plans as of yet. Similarly, the European Union (EU) too could contemplate such a step in the near future. Interestingly,

14 | April 2020 | Global Business Outlook

If Facebook decides to add Libra to all of its products, it will bring billions of people under the cryptocurrency ecosystem, thus establishing global dominance

Venezuela technically has its own cryptocurrency, the Petro.

Digital currency and its legality In March, the South Korean National Assembly passed a new legislation that will provide a framework for the regulation and legislation of cryptocurrencies and crypto exchanges in the country. However, cryptocurrencies still remain banned in major emerging markets across the globe. Although China is in the process of bringing its own digital currency online, it has issued a warning to its citizens about the risks of bitcoin as it does not have equal legal status as currencies. Also, Japan has recently enacted the Payment Services Act (PSA) which allows a number of cryptocurrencies and exchanges to be used for payment and trading purposes. In India, the central bank has barred banks and financial institutions from dealing in cryptocurrencies. The country’s

Supreme Court recently intervened and asked the central bank to change its stance on currencies. In England, there are no laws to regulate cryptocurrencies; however, the governor of the Bank of England has stated that regulation of cryptocurrencies is necessary. Countries that have gone ahead and declared cryptocurrencies as illegal include Algeria, Ecuador, Bangladesh, Macedonia, Nepal and Bolivia. However, it is legal in countries such as the Philippines, Indonesia, Malaysia, Thailand, Vietnam, Switzerland, the UK, Australia, Ireland, Spain, Portugal and Denmark. It is evident that even though many countries were not open to the idea of digital currencies, things are changing fast. It has been 11 years since the launch of bitcoin and now many central banks are mulling launching their own digital currencies. New laws are being drafted to bring digital currencies into the financial system, be it cryptocurrencies

Facebook products, it will bring billions of people under the cryptocurrency ecosystem, thus establishing global dominance. Experts also believe Libra will significantly increase the rate and penetration of crypto adoption globally, both for Libra and other currencies like Bitcoin. If regulators approve Libra, sending money would become as easy as sending a text message or a photograph. For a Chinese immigrant working in the US, sending money to his family back home would become as trivial as forwarding a text message to a friend. Some of the central banks' decision to launch a digital currency could be to counter Facebook’s Libra which they see as a threat. However, whether Libra gets approval from the US regulators is a different story, as many US congressmen fear that legalising Libra could end the US dollar’s global dominance.

Edge over paper currency or CBDCs. By the end of this decade, CBDCs could change the global monetary landscape and how we deal with money. In the future, we could see other emerging economies follow South Korea and completely legalise cryptocurrencies and its exchanges. We could also see a scenario where CBDCs are competing with cryptocurrencies in the digital market.

Central banks’ push for digital currencies While cryptocurrencies have existed for more than a decade now, why are central banks pushing for a digital currency? This could be based on Facebook’s decision to launch its stablecoin Libra. Many experts who have studied cryptocurrencies over the years believe Libra to be a game changer. Since it is a stablecoin, it is less volatile because it will be pegged with a basket of fiat currencies and government securities. If Facebook decides to add Libra to all

As emerging nations are pushing for digitalisation, the introduction of CBDCs could give their digitalisation process a significant boost. Cash management, on the other hand, is also an expensive and arduous task for central banks. The introduction of CBDCs could lower the cost associated with providing a national source of income. There are no production or storage costs either. In short, it can prove to be a costless medium of exchange. It will also help economies to become cashless which might inversely boost transparency and contribute to a greater macroeconomic stability. Also, experts believe CBDCs will help developing nations improve their financial inclusion. With the introduction of CBDCs, these economies can bring their underbanked population under financial systems. Since the fintech revolution that changed the very global financial landscape, the payment landscape in many emerging economies has become narrowly concentrated. Many

central banks believe the increasing concentration of the payment system in the hands of few companies is a cause for concern. In such cases, the introduction of a federal regulated digital currency will help keep the market under check. Also, CBDCs are expected to improve the resilience of countries' payment systems. Experts also argue that CBDCs have the potential to increase countries' response to changes in the policy rate. Some believe the central bank could even charge negative interest rates in times of an economic crisis, thus shattering the zero lower ground.

Challenges for CBDCs While many see the introduction of CBDCs as a game changer, it has to overcome various challenges. For example, power outage and internet disruption may hinder the functionality of CBDCs. So central banks must ensure a coherent ecosystem is created where the citizens have access to the internet, even in rural or geographically challenging areas. While CBDCs may not incur production or storage cost compared to paper currencies, they may require additional monitoring and compliance which adds to the cost. Another challenge that CBDCs will face is geographical limitation. While paper currencies might be exchangeable in other countries, they may or may not accept the digital version. So CBDCs could be limited to the country of origin. CBDCs might also affect the banking system. This means, banks could lose deposits adversely affecting the economic growth of their respective countries.

Global Business Outlook | April 2020 | 15

ADVERTORIAL FIRSTBANK NIGERIA

FirstBank supports underbanked and unbanked in Nigeria Firstmonie Wallet and Firstmonie Agent are imperative to the bank’s financial and non-financial services

irstBank’s bespoke channel Firstmonie was established to broaden opportunities and access to financial services for the unbanked and underbanked population in Nigeria and Africa at large. The Firstmonie ecosystem comprises Firstmonie Wallet and Firstmonie Agent, a distribution network for financial and non-financial services. Firstmonie Wallet — an overview The popular belief is that anyone who owns a mobile phone should have access to financial services and drive financial inclusion through Firstmonie. In essence, the Firstmonie Wallet facilitates the entry of the unbanked and underbanked population into the country’s financial system through a simple enrolment process — circumventing complex documentation requirements. In fact, some of these documentation requirements have excluded a majority of the adult population who could have had access to financial services over the years. The enrolment process is quite simple because customers do not need to have a Bank Verification Number (BVN) to open a Firstmonie Wallet. The process can be completed through selfregistration by downloading the Firstmonie app or via Unstructured Supplementary Service Data (USSD) *894*1#. As an alternative, the process can even be carried out through an assisted registration at the bank branch or Firstmonie Agent location. However, the enrolment process necessitates KYC details of customers and they can begin transactions immediately after the wallet account has been opened. The wallet offers flexibility and efficiency in handling payments, collections and disbursements of grants from social intervention programmes or initiatives. 16 | April 2020 | Global Business Outlook

Another highlight of the wallet is that funds can be accessed through cash withdrawals at any Firstmonie Agent locations or direct payments and transfers can be carried out to other mobile wallets or bank accounts. The Firstmonie Wallet even enables customers to purchase airtime, pay bills at cheaper rates, fund their betting wallets, send money and pay merchants for goods and services. The Firstmonie Wallet is currently being repositioned in response to the changing operating environment and increased demand in the target market. The rollout of the wallet will start in Nigeria and further extend to other African markets, including Ghana, Senegal, Sierra Leone, Guinea and Democratic Republic of the Congo. Firstmonie Agent network increases financial inclusion Penetrating remote locations remains a challenge in the financial sector. By definition, the Firstmonie Agent network is described as a distribution channel that brings financial services closer to target communities in a simple and affordable manner through third party agents. These agents are individuals or business owners in their respective communities who partner with the bank to provide financial services using approved platforms or channels provided by the bank. Agent banking is one of the strategic tools being utilised by the federal government through the Central Bank of Nigeria (CBN) to reduce financial exclusion in the country. The strategy has proven to be effective as people from remote areas who previously did not have access to financial services or must travel long distances for access are being served in their local communities today.

Despite cultural and social barriers, the Firstmonie scheme has been able to empower more than 12,100 women nationwide. These women constitute nearly 23 percent of the Firstmonie Agent network Dr. Adesola Adeduntan, CEO, FirstBank

Need for robust network coverage and distribution The Firstmonie Agent network was formally relaunched in January 2018 following the success of a 6-month pilot programme on the agent banking model. Thereafter, Firstmonie has been at the forefront of driving financial inclusion in Nigeria. The agent network extends across 36 states including the Federal Capital Territory and 772 of the 774 Local Government Areas (LGAs) in the country. However, the remaining 2 LGAs are currently inaccessible on the back of security issues. It appears that 11 percent of the network operates from LGAs without a FirstBank branch which further points to the bank’s commitment to increasing financial inclusion in Nigeria. For the uninitiated, FirstBank offers services such as Firstmonie Wallet, enrol for BVN, deposits and withdrawals from any bank account, transfers to any bank account, buy airtime, pay bills, check account balance and customer enquiries about the bank’s products. The Firstmonie Agent network offers a suite of digital financial services that are only available at bank branches. Customers are charged a convenience fee for transactions processed at agent locations. It is worth noting that the agent can serve all FirstBank customers, other bank customers and the unbanked segment. Firstmonie focuses on job and wealth creation The product’s key objective is to improve the lives of people through job and wealth creation. For example, Firstmonie has enabled thousands of customers to tap into Nigeria’s existing financial opportunities. Through its partner network, individuals have been able to see a significant change in their lives and their communities as a whole.

Currently, there are more than 180,000 individuals indirectly employed through the FirstBank Agent network. In 2019, FirstBank celebrated its 125th year anniversary themed Woven into the Fabric of Society. This also reflects the bank's journey over the years and how it has supported Nigerians in doing extraordinary things. FirstBank is a beacon of hope for the nation. Driving women empowerment to reduce poverty Firstmonie’s impact in this area is particularly significant because of a notable trend in women empowerment worldwide. Research shows that women empowerment has positive multiplier effects on nutrition, health and education. For example, the Food and Agriculture Organisation reports that closing the gap in female smallholder farmers’ access to improved agricultural methodologies and resources could reduce the number of undernourished people by a significant 12 percent to 17 percent. This can be attributed to the fact that women are more likely to spend their income on goods and services such as food, healthcare and education to benefit their children. Despite cultural and social barriers, the Firstmonie scheme has been able to empower more than 12,100 women nationwide. These women constitute nearly 23 percent of the Firstmonie Agent network. Firstmonie Agents who are women earn between N20,000 and N50,000 compared to their male counterparts. In fact, Firstmonie services help to reduce their poverty conditions. The bank noted that 5 percent of its top agents nationwide are women. FirstBank supports rural and semi-rural communities FirstBank’s continuous efforts in working with partners will help to design products and solve real problems. It firmly believes that when agents sell multiple products their visibility improves. In turn, customers can access products at agent locations making them an integral part of the process. Today, the bank’s distribution network offers financial services on a broad range. It is working with many state governments to use agents to handle tax payments— making it a convenient process for citizens. In addition, the bank is working with several off-grid power providers and solar power providers to enable rural and semi-rural communities to access power efficiently and recharge their power devices at agent locations on a pay-as-you-go basis. FirstBank’s strategy is focused on leveraging partnerships and collaborations to accelerate customer acquisition and retention while rapidly expanding the agent network and improving the quality of people's lives in Nigeria.

Global Business Outlook | April 2020 | 17

2020: A year of big IPO washouts?

2019 witnessed the biggest share sale ever as Saudi Aramco went public in December â&#x20AC;&#x201D; what will happen to IPOs in 2020? TOM HARDY

18 | April 2020 | Global Business Outlook

BANKING FINANCE IPOs 2020

espite an economic slowdown and an escalating trade war between world superpowers the US and China, 2019 has witnessed some of the world’s biggest share sales ever. Saudi Aramco, the most profitable company in the world, finally listed its shares on the Tadawul and broke Alibaba’s record of the biggest IPO ever. Previously, Alibaba had raised around $12.9 billion by listing on the Hong Kong Stock Exchange. Many expected the trend to continue in 2020 as well, but an unprecedented event, the coronavirus outbreak, has brought the global markets to a standstill. Many companies across the globe had announced their plans to list their shares in IPOs for 2020 last year. However, as things stand, most of them are likely to postpone their IPOs on the back of the pandemic which has pushed the global economy into recession. Big names such as Airbnb and Ant Financial had already announced their IPO plans in 2020. What will happen to these IPOs now? Will these companies still go ahead with their IPO plans despite the market turmoil? What are their other options? Interestingly, IPOs in Q1 2020 performed better than Q1 2019, seeing 11 percent and 89 percent increases in the number of deals and proceeds respectively, according to EY. Around 235 companies were listed globally and $28.5 billion were raised in proceeds through the first three months of 2020. The Asia-Pacific region saw 160 deals during the period raising a total of $16.8 billion in proceeds, which

Around 235 companies were listed globally and $28.5 billion were raised in proceeds through the first three months of 2020. The Asia-Pacific region saw 160 deals during the period raising a total of $16.8 billion in proceeds, which is a 28 percent and 110 percent increase compared to Q1 2019

is a 28 percent and 110 percent increase compared to Q1 2019. Asia was followed by two American continents with 40 IPOs raising $8.2 billion in proceeds. The extent of the economic impact of the pandemic was, however, known only by mid March when most of these IPOs were over.

The IPO market in 2019 and top deals Despite Saudi Aramco’s record-breaking share sale, IPO proceeds were at their lowest level for three years in 2019. According to Chicago-based law firm Baker Mackenzie’s Cross-Border IPO Index 2019, geopolitical tensions combined with over-optimistic valuations on a number of high-profile listings have constrained activity in the global IPO market during 2019. The report revealed that total global IPO activity fell by 20 percent to 1,242 listings, while the value of capital raised fell by 8 percent to $206.1 billion compared to the previous year. Financials was the number one sector for both volume and value in 2019. Despite a decrease of 26 percent to 236 deals, the sector still raised an impressive $45.8 billion, a 3 percent increase in value from last year. Technology saw fewer IPOs but enjoyed an increase in the value of 12 percent to $36.3 billion.

Global Business Outlook | April 2020 | 19

BANKING IPOS 2020

The US, Hong Kong and mainland China IPO bourses remain key drivers of the global IPO market, securing the top positions in terms of total funds raised. Though market sentiment and investor confidence this year have been affected by the US-China trade tensions, Brexit and the economic slowdown in major economies, global IPO markets still ended strong in 2019. The Hong Kong stock market once again ranked first globally in terms of IPO proceeds, at a time of global uncertainties, cementing its position as the world’s leading IPO hub, according to KPMG’s IPO markets 2019 review report. The bourse completed 160 IPOs, raising a total of HKD 307.8 billion, with a historical high of 145 new Main Board listings, a considerable increase from 130 in 2018. The fundraising total in 2019 was largely driven by a strong performance in the second half of the year by Alibaba’s secondary listing and Budweiser. Hong Kong was followed by Nasdaq and the New York Stock Exchange which raised around $27.5 billion and $27.1 billion respectively. Overall, around 250 companies

20 | April 2020 | Global Business Outlook

across the globe filed to go public in 2019. From century-old companies such as Levi Strauss to newcomers Pinterest, the portfolio is diverse. What was the fate of the biggest IPOs in 2019?

Saudi Aramco: The biggest share sale in history The whole world had their eyes fixed on the Kingdom of Saudi Arabia’s stateowned oil giant Aramco as the company finally went public on December 5, 2019. The oil behemoth raised $25.6 billion in its IPO on the Tadawul. Aramco sold its shares on Riyadh Stock Exchange at $8.53 per share and the shares were oversubscribed. The company reached a valuation of $2 trillion, making it the first company in the world to reach the coveted dollar trillion figure. However, the path has not since been an easy one for the most profitable company in the world. The Kingdom of Saudi Arabia’s crown prince Mohammad Bin Salman Al Saud announced Aramco’s decision to go public as early as 2016. However, due to various unprecedented events, Aramco’s mega share sale was

postponed numerous times. This decision saw some of the biggest stock exchanges in the world such as the New York Stock Exchange, the Hong Kong Stock Exchange and the London Stock Exchange competing against each other to list Aramco’s shares. However, Aramco later decided against it and announced that it will list 5 percent of its shares on the Saudi Stock Exchange or the Tadawul. The Saudi crown prince pursued the much-coveted $2 trillion valuation for Aramco from the very beginning, however, many experts thought otherwise. Some even argued that Aramco's actual valuation should be around the $1.5 trillion mark. Aramco’s market cap rose to $2 trillion on its second day of trading on the Tadawul overtaking the likes of Apple and Microsoft.

Alibaba: Hong Kong’s biggest listing since 2010 The Chinese company made its debut on the Hong Kong Stock Exchange and raised $12.9 billion in November 2019. The ecommerce giant issued 500 million new ordinary shares along with a 75

BANKING FINANCE IPOs 2020

million greenshoe option. Around 50 million of these shares were reserved for retail investors. The ecommerce giant priced its shares at a 2.8 percent discount to its last closing price in New York. Alibaba’s listing was also Hong Kong’s largest IPO since insurance giant AIA raised $20.5 billion in 2010. Alibaba’s initial plan was to raise around $13.4 billion by exercising the greenshoe option. The listing was scheduled to take place in the first half of 2019; however, it was postponed due to the anti-government protests on the streets of Hong Kong that pushed its economy to the brink of recession. Its IPO, which also ranks as the world’s biggest cross-border IPO, listed Alibaba’s shares at or $22.5 per share, which is 2.9 percent lower than its last close of $185.25 on the New York Stock Exchange. Alibaba’s global offering comprised 500 million shares, with an over-allotment option of 75 million shares. Each American Depository share (ADS) that Alibaba listed on the Hong Kong Stock Exchange was worth 8 shares and each ADS was priced at $179.92.

Uber: The IPO that wasn’t San Francisco-based multinational ridehailing giant Uber also made its debut on the New York Stock Exchange in 2019. Uber’s share sale was the biggest in the US and also the most controversial. Uber expected to price its shares somewhere between $44 and $50 per share. However, Uber listed its shares at $45 per share and raised around $8.1 billion on the stock exchange. Uber’s shares plunged almost 8 percent on its first day of trading. While Uber was targeting a valuation of $100 billion, the company was valued at about $75.46 billion, which still makes it one of the most valuable companies ever to go public. But that is a 38 percent drop in its estimated valuation from October 2018. Uber’s premier on the New York Stock Exchange was closely watched

by the cavalcade of IPO hopefuls lining up to list in 2019. That crop includes Peloton Interactive, Postmates, Slack Technologies and WeWork, all of which were preparing to go public last year.

Budweiser: Succeeding on Asian investor appetite American brewing company AnheuserBusch-owned Budweiser also went public last year. The St Louis headquartered brewing company listed Budweiser’s Asia-Pacific business on the Hong Kong Stock Exchange last September. The company priced 1.45 billion shares at HK$27 each and raised $5 billion, giving the company a market value of about $45.6 billion. Its shares opened at HK$27.40 per share, above its IPO pricing of HK$27 per share. It was priced at the bottom of its expected range of between HK$27 and HK$30. Anheuser-Busch attempted to raise close to $10 billion in July through a public offering of its Asia-Pacific business, however, its attempts were not fruitful. Budweiser APAC Chief Executive Jan Craps told the media during the launch, “We are focused on growth,

growth is what we set out to do ... Asia of course is the largest beer market in the world. We think we can do a lot of partnerships in Asia here, even if we’re the largest brewer in Asia today, this is still a market where we have a lot of opportunities, in many markets where we’re not leading ... as well.” Budweiser shares rose about 4 percent on the first day of trading which highlighted the Asian investors appetite that was widely expected to be subdued by the ongoing protests in Hong Kong.

Postal Savings Bank of China: Globalising mainland lenders The Postal Savings Bank of China, the country's largest banking institution, was listed on the Shanghai Stock Exchange in 2019 and saw a rise of nearly 2 percent from its IPO price. The bank raised $4 billion on its first trading day. Also, the bank sold up to 5.95 billion A shares at 5.5 yuan a share. The share sale by the Postal Savings of China was recognised as the biggest IPO in the country since 2015. The deal also marks the sixth H-share and A-share dual listing of China’s leading state-

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BANKING FINANCE IPOs 2020

owned lenders under a year-long push to globalise large mainland lenders.

2020’s big IPOs and what will happen to them Despite the pandemic, Shanghai overtook Hong Kong as the world’s top IPO destination in the first three months of this year. This is due to the $4.5 billion IPO launched by Beijing-Shanghai High Speed Railway, the operator of the rail link between China’s two biggest cities. China seems to have recovered from the novel coronavirus crisis which originated in the Chinese city of Wuhan. Hong Kong, which was the top IPO market last year despite the anti-government protest bringing its economy to the brink of recession dropped to sixth place in the first quarter. Companies that are rumoured to get listed on the Hong Kong Stock Exchange this year include Tencent Holdings-backed WeDoctor. The online health care provider has picked Credit Suisse, JP Morgan and China Merchants Bank to handle its IPO. It is reported that WeDoctor will push ahead with a Hong Kong listing which will value the Chinese healthcare platform around

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$10 billion. According to Chinese media, other companies which might go public in 2020 include JD Logistics, Tianjinbased China Bohai Bank and Hillhouse Capital-backed liquid detergent maker Blue Moon. US-based home booking platform Airbnb announced its decision to go public last year. Established in 2008, Airbnb has raised a total of $4.4 billion across 15 venture capital funding rounds so far. Currently, the company is valued at around $35 billion, making it the fourth largest unicorn in the US. Even Morgan Stanley and Goldman Sachs are poised to become lead advisors for Airbnb’s probable direct listing. However, Airbnb has not announced a date so far and a postponement in its IPO is speculated owing to the pandemic. Alibaba owned Ant Financial, which had an implied valuation of $150 billion during a 2018 fundraising, is preparing to go public in Hong Kong and mainland China. Ant Financial is the highest valued fintech company in the world and is also the world’s most valuable unicorn company. Ant Financial operates Alipay, the world’s largest mobile and online payments

platform. Additionally, it provides online investments and other related services to hundreds of millions of consumers. More recently, the company plans to sell in-house expertise to the same banks and help them digitalise their operations with tools such as cloud computing and data analytics. Both Credit Suisse and China International Capital are reportedly in talks with Ant Financial with regard to the listing. Even though it is highly speculated that Ant Financial will go public this year, the company is yet to make a formal announcement. Other companies include telecom giant O2, Chinese ride-hailing giant Didi Chuxing and US-based mobile trading app Robinhood. It will be interesting to see how many of them will go ahead with their IPO plans given the current economic conditions. In case companies are forced to cancel their planned IPOs, they could adopt alternative sources of finance such as debt financing, joint ventures, strategic alliance, acquisition, additional funding, crowdfunding or even asset sales.

NEWS

BUSINESS & FINANCE

Indonesia’s forex reserves rose to $130.5 bn in May Foreign exchange reserves held by the Central Bank of Indonesia increased to $130.5 billion in May this year, media reports said. In April, the country’s foreign exchange reserves stood at $127.9 billion. According to Bank Indonesia's spokesman Onny Widjanarko, its foreign reserves in March stood at $121 billion, recording a steady growth each year since the start of the coronavirus pandemic. He further stated that the hike in foreign exchange reserves in May is attributed to the withdrawals of the government's foreign debts and the placement of foreign currencies in the central bank. The central bank’s data shows that the net buy amount increased to Rp 6.15 trillion in the third week of May before reducing to Rp 2.54 trillion in

the last week. He said that Indonesia’s foreign exchange reserves are equivalent to 8.3 months of imports or eight months of imports, plus payment of the government's foreign debts. They are above the international adequacy standard of around three months of imports. According to data released

by Bank Indonesia, additional inflow of foreign capital into Indonesia's bond market started in the second week of May. Josua Pardede, economist at Bank Permata, said that foreign investors in May brought in capital of $546 million into the stock market and $466 million into the bond market in the country.

Deutsche Bank to establish International Private Bank

Germany-based Deutsche Bank has announced its plan to merge all international units of its wealth management arm with its private and commercial banking units to create a new International Private Bank. The new entity will serve 3.4 million private wealth and commercial clients.

The International Private Bank will bring together Deutsche Bank’s clients from Germany, Europe, the Middle East, Africa, the Americas and Asia. In addition, it will handle clients such as small and mediumsized enterprises (SMEs) in countries including Italy, Spain, Belgium

and India. Claudio de Sanctis, who currently serves as the global head of wealth management will oversee Deutsche Bank’s new International Private Bank. Deutsche Bank has been working on its restructuring well before the start of the coronavirus pandemic. The pandemic has pushed the global economy into recession. In fact, the restructuring has forced the bank to declare a net loss of €5.4 billion to shareholders in 2019 on the back of €23.2 billion revenue. As a part of its restructuring, Deutsche Bank revealed last year that it would cut around 18,000 jobs across the globe. It has already sold $50 billion in assets to Goldman Sachs as part of its restructuring process.

Global Business Outlook | April 2020 | 23

BUSINESS & FINANCE NEWS BITS

Kenya rules out possibility of financial crisis The Kenyan banking industry has ruled out the possibility of financial crisis in the country as a result of the coronavirus pandemic. Chief Executive Officer of Kenya Bankers Association Habil Olaka said that a financial crisis is unlikely because the majority of banks have demonstrated high levels of liquidity during the rate cap period which was effectively lifted at the end of 2019, with banks increasing their lending activity just two months before the pandemic. According to Olaka, the banking industry is well equipped and continues to function even under extreme stress. The capital adequacy will remain well above the regulatory requirements, he said. This implies that banks in Kenya are in a strong position to support businesses navigate the adversities associated with the coronavirus crisis without risking their systemic stability. That said, banks in Kenya are expecting the pandemic to affect their balance sheets. Banks anticipate a decline in the banking business this year as a result of the lockdown measures which have stalled economic activity across all sectors. According to a new survey carried out by Kenya Bankers Association, around 94 percent of banks said that they expect a significantly slow economic growth which might negatively affect customers at both household and commercial levels.

UK fintech investments surge 500% in the last three years Fintech startup investments in the UK increased by around 500 percent in the last three years, media reports said. During the same period, fintech investments in Europe rose by 133 percent and the US had recorded a 170 percent increase. The UK has been leading the race when it comes to fintech investments in the last two years in terms of deals closed. During the same period, the UK saw the completion of nine deals, compared to four in Europe and six in the US, according to a report titled Fintech: Challenger to competitor. The report was jointly published by recruitment firm Roger Walters and market analysis firm Vacancysoft. Interestingly, most of the fintech activities were reported in London. in 2018, around 45 of the top 50 fintech deals in the UK fell in the bracket of over ÂŁ1 million â&#x20AC;&#x201D; and these deals largely involve London-based firms. In the following year, the UK completed nearly 96 deals, bringing in $48 billion worth of investments. In the first quarter of 2020, London-based fintechs recorded as much as $114 million in investments.

Londonbased fintechs record

$114 million in investments in Q1 2020

24 | April 2020 | Global Business Outlook

BUSINESS & FINANCE NEWS BITS

Totvs, SAP lead Brazilian enterprise software market Software companies Totvs and SAP are leading the enterprise software market in Brazil, observed a new study published by Brazilian business school Fundação Getúlio Vargas. The study interviewed more than 2600 businesses in Brazil and found that Totvs leads the market with a 33 percent share of the enterprise software market. While Germany-based SAP comes second to Totvs with a 32 percent market share, US-based Oracle comes third with a 12 percent share of the overall ERP market. While comparing the recent report with the one in 2018, it is obvious that the Sao Paulo headquartered Totvs has lost around 2

percent of its market share, while SAP has gained a percentage of the market share. Oracle had around 15 percent of the market share in 2018. It is reported that Totvs dominates the Brazilian market, especially in terms of small and mediumsized enterprises (SMEs). Systems provided by Totvs are currently present in nearly half of businesses in Brazil with less than 800 workstations. That said, SAP dominates the market when it comes to larger companies. Interestingly, SAP's market share has reached 50 percent in this segment, compared to Totvs at 19 percent.

AXIS appoints Cyril Caillo as head of A&H Reinsurance

AXIS Reinsurance has appointed Cyril Caillo as head of A&H Reinsurance’s units in EMEA and Latin America. His responsibilities include overseeing the expansion of AXIS Reinsurance’s accident and health business in Europe, the Middle East, Africa and Latin America. Cyril has considerable underwriting expertise in accident and health reinsurance markets, particularly in EMEA and Latin American countries, according to Andy Hottinger, president of EMEA and Latam for AXIS Reinsurance. Mr. Hottinger is positive that Mr. Caillo will excel in his new role and he is looking forward to the company’s progress under the new leadership. Mr. Caillo has been with AXIS since 2011. Prior to his promotion, he served as a senior underwriter at A&H Reinsurance. He joined the company as part of the former AXIS Accident and Health Reinsurance business segment prior to its absorption into AXIS Reinsurance in 2018. Mr. Caillo oversaw the AXIS Life and Accident business for Spain, Portugal, Benelux, Scandinavia and Latin America during the period between 2011 and 2018. Mr. Caillo previously worked in various senior underwriting roles across divisions such as life, accident and health markets at PartnerRe and XL Re Europe.

Global Business Outlook | April 2020 | 25

Will China become leader in AI by 2030?

The New Generation Artificial Intelligence Development Plan is pivotal to deliver on China’s potential in predictive technology

ALICE PARKER

26 | April 2020 | Global Business Outlook

Artificial intelligence (AI) is the superpower of this era—and the main answer to China’s pursuit of world dominance. By 2030, the country wants to become the world’s largest hub for AI innovation, with the AI industry projected to hit a valuation of $202.57 billion by 2026. The biggest impact of this ambition is that it would shift the China-US domination game on to the technology front, with the US being the centre of AI research for decades— tracing back to the 1950s.

COVER STORY TECHNOLOGY CHINA AI

How does China plan to up its game? In 2017, Beijing announced that the future of AI will be made in China, following which the State Council laid out the New Generation Artificial Intelligence Development Plan, which testified the country’s preparation for various policies and multibillion-dollar investment initiatives to fund moonshot projects, startups and academic research. This plan was developed in response to China’s trade war with the US and to build a domestic industry worth $150 billion. In the same year, the Semantic Scholar project which was developed by the Allen Institute for AI had analysed more than 2 million academic AI papers published through the end of 2018 — and it seems that China has already beaten the US in published AI papers. Arguably, research papers are a proxy to a country’s developments — but nevertheless it shows that China is predicted to take over the US based on citations in more than 50 percent of AI research papers in 2019, in 10 percent of the most-cited papers this year and in 1 percent of most-cited papers by 2025. For the uninitiated, China’s AI development plan can be broken down into three stages. The first stage aims to match China to the world's leading AI powers by 2020. The second stage is focused on making the country the leader in some aspects of the technology by 2025 and the final stage will see China become the ‘world’s premier artificial intelligence innovation centre’ by 2030.

Preparing initiatives to build a robust AI ecosystem In fact, the New Generation Artificial Intelligence Development Plan and another state-sponsored agenda Made in China 2025 are the driving forces behind China’s steady progress in AI technology. This is especially true because in 2017 both documents caught the attention of China’s leadership,

including President Xi Jinping, who then led the Communist Party’s Politburo to conduct an in-depth study session about AI in the following year. The session was focused on how to develop, control and use this technology to shape the country’s future directions in its quest to become the world leader in AI. The outcomes of such sessions are strategically reserved for high-priority policy issues which will enable Chinese leaders to make meaningful decisions with the help of industry expertise. Xi in his speech during the study session said “AI is a vital driving force for a new round of technological revolution and industrial transformation, and accelerating AI development is a strategic issue to decide whether we can grasp opportunities.” In this context, the New Generation Artificial Intelligence Development Plan reinstates that China should ‘achieve world-leading levels’ in AI technology, while the Made in China 2025 agenda points out that the country should aim to significantly reduce ‘external [foreign] dependence for key technologies and advanced equipment'.

New developments in China’s AI innovation Positively, China is on its way to making significant progress on the AI front. Last year, the country hosted the 2019 World Artificial Intelligence Conference (WAIC) for the first time in Shanghai to promote AI innovation globally. More than 150 global leading figures from the AI industry and academic circles participated in the conference, along with 300 domestic and overseas enterprises. But that was not the only reason why the WAIC was of great significance to China’s AI ambition. The conference saw IBM China sign a three-year agreement

China is predicted to take over the U based on citations in more than 50 percent o AI researc papers in 2019, in 10 percent o the mostcited pap this year Global Business Outlook | April 2020 | 27

COVER STORY TECHNOLOGY CHINA AI

with Shanghai Zhangjiang Group to build the first Watson Build Artificial Intelligence Innovation Centre in the country. The idea to establish a holistic AI centre comes from Shanghai’s threeyear action plan to build itself as a national and global AI highland by 2021. The main highlight of the proposed Watson Build Artificial Intelligence Innovation Centre is that it will be strategically situated in the AI island of Shanghai’s Zhangjiang Science City — a hub for the AI industry — to promote talent and speed up applications.

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The centre is anticipated to be hugely beneficial to technology companies as it will potentially serve 500 domestic and foreign companies. Also, the centre will take a holistic approach to AI development by incubating between 30 to 60 intellectual property and patents and training 500 employees annually within the stipulated time. Now data shows that there are more than 1,000 core AI enterprises and more than 3,000 pan-AI enterprises established in Shanghai. The worth of AIrelated industries is more than 70 billion

yuan — pointing to the city’s genuine breakthroughs in this technology. Contributing to these developments, China’s AI platform company AI ERA published a white paper last year on the country’s AI unicorns. According to the white paper, China had a total of 50 AI unicorns as of March 2019, with a total value of 3.5 trillion RMB. It appears that these unicorns are dominant in automotive transport and enterprise services. Statistically, 30 percent of those AI unicorns are dominant in automotive transport, while 26 percent of the total

Another factor that is equally important to building China’s robust AI ecosystem — which seems to be of more value — is the Tsinghua University considered to be the main incubator of China’s AI unicorns. The earlier mentioned paper notes that 26 percent of the founding teams and partners have graduated from this university. Last May, the MOST New Generation AI Development Research Centre and the Chinese Academy of Science and Technology for Development published the China New Generation Artificial Intelligence Development Report which found the country to have 3,341 AI companies, second in number to the US. The report noted that China, the US and the UK are the three strongest contenders in AI innovation.

How China is capitalising on AI

China hosted the 2019 World Artificial Intelligence Conference (WAIC) for the first time in Shanghai to promote AI innovation globally Photo: sohu.com

cover enterprise services. That said, 28 out of 50 AI unicorns are located in Beijing in Haidian district, seven in Zhejiang, six in Shanghai and five in Guangdong.

China has taken its efforts a major step further. Now it has identified 17 chief areas for AI development. These include smart vehicles, intelligent service robots, intelligent drones, neural network chips and intelligent manufacturing among others. In November 2017, the China’s Ministry of Science and Technology chose Baidu, Alibaba, Tencent and iFlytek to take the lead in AI innovation development for self-driving cars, smart cities, computer optics for medical diagnosis and voice intelligence. Essentially, this shows the country’s readiness to deploy AI technology applications in all walks of life from healthcare to manufacturing in a clear attempt to outpace efforts made by the US in the recent years. In line with this, AI unicorns such as Megvii moved into warehouse and logistics, Yitu focused on medical imaging and document analysis, SenseTime developed autonomous driving and iFlytek conducted demos for legal document analysis. In particular, the work of Megvii reflects China’s AI capabilities in great

length. Experts genuinely believe that it has impressive AI expertise after developing core algorithms and software. Interestingly, its technology is being used in Japan, South Korea, Southeast Asia, Europe and the US prior to the company being blacklisted. The unicorn is now experimenting with warehouse and manufacturing AI technology. In another example, take healthcare in China. AI holds a prominent position in enabling automated diagnosis, medical imaging, robotic surgery and treatment — even if it is still in the early stages of development. The huge amounts of data that AI doctors will be potentially extracting could be used to help the field evolve in the future. In fact, AI medical applications in China are predicted to grow at more than 40 percent and reach $2.5 billion by 2024. Industry experts forecast AI medical imaging to become the first commercialised market in AI healthcare in China, especially because misdiagnosis and missed diagnosis are high in number, and the speed of manual diagnosis is limited. On a closer look, this ties back into a part of the country’s ambition to become the leader in certain aspects of AI technology by 2025.

The rise of AI unicorns China’s big plans to house globally leading AI companies have birthed more than a dozen unicorns and private companies valued at over $1 billion, according to the research company CB Insights. These include SenseTime valued at $7.5 billion, Yitu and CloudWalk valued over $2 billion and iFlytek with a market capitalisation of $10 billion on the Shenzhen Stock Exchange. The rise of these unicorns is a sign that the situation is transformative. Of course, the transformation in part can also be attributed to the Chinese

Global Business Outlook | April 2020 | 29

COVER STORY TECHNOLOGY CHINA AI

government’s more than $1 billion investment in domestic startups between 2016 and 2018, with a deep focus on healthcare and AI, according to a report published by Oxford University in March 2018. Also, China’s Ministry of Science and Technology provided funding of over $430 million for nearly eight AI-related research projects last year over a span of six months. Broadly speaking, these projects cover big data, high performance computing and human organs on chips.

The US hinders China’s AI developments Although China’s AI companies built early success, their greatest roadblocks come from the US. Ideally, the US should not try to stop China from building on its AI potential. The first challenge is that the US has blacklisted some of the most critical Chinese AI companies like Megvii because its technology was allegedly being used by the Xinjiang police in a surveillance app. For security reasons, the Department of Homeland Security has warned American businesses to be careful when using drones made in China. This is hard hitting for Chinese AI companies as the repercussions to follow will curb their influence globally. Second, a report published by the analyst companies IDC and Qbitai found that 60 percent of executives in China pointed to poor-quality data and scarce AI talent as prominent challenges in deploying AI. Third, the big AI players in the US like Google, Facebook, Amazon and Microsoft have a myriad of businesses to finance and support their AI efforts — quite opposite to the scenario in China. Alibaba, Tencent and Baidu, on the other hand, are deeply invested in AI which has now become a popular domestic market with companies perceiving AI as a business itself in the country.

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China has access to vast amounts of data but scarce AI talent is slowing its efforts in innovation and research Will China still win the global race in AI? Although both world superpowers are dominating global research and development in AI — China lags the US in core AI areas, including hardware, research, algorithm and industry commercialisation — with an exception to big data, observed Oxford University report. Interestingly, Oxford’s Future of Humanity Institute published a report titled Deciphering China’s AI Dream which noted that extracting data is no problem for China where more than a billion smartphones are in use and had 840 million internet users last year. To second that, Dong Tao, vice chairman for Greater China at Credit Suisse Private Banking Asia Pacific, said in a report two years ago, that China will become the leader in AI because it lacks serious laws related to data protection. Its technology giants collect large amounts of data and the concept of sharing data between government agencies and companies is common — unlike the case in the US.

The Chinese are tech-savvy and broad access to data will help them to generate new ideas in the field of AI. In fact, China’s top search engine has pointed out that government support and population size is key to the global AI race. In this context, China has easy access to data despite being second in the world for hardware, research and algorithms — and the Chinese government’s efforts in pushing AI applications forward is highly competitive. But will that be enough to support China’s AI ambition? The report found that data alone is not powerful enough for the country to achieve its target. A more important factor which is lack of experienced AI researchers is anticipated to slow down its efforts in AI innovation. And its biggest disadvantage is complexities in production of chips and microprocessors which might hold the country back from winning the global AI race.

Africaâ&#x20AC;&#x2122;s digital Transformation potential is vast The continent is trying to overcome structural inequalities to help its economies, governments and companies achieve digitisation targets ALICE PARKER

frica has experienced rapid urbanisation and social transformation in recent years but has been slow in demonstrating digital progress. One reason why digitisation on the continent has been sluggish is because of the digital divide between African countries pointing to the fact that they lack fair and equal access to advanced technologies.

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TECHNOLOGY AFRICA DIGITAL TRANSFORMATION

Africa’s internet penetration is quite low compared to the rest of the world. For example, the continent’s internet penetration averaged 39.6 percent last year compared to 62.7 percent globally. This ties back into its existing digital divide which is pronounced with Kenya having 89.8 percent internet access while Burundi remains at 5.3 percent. Three years ago, Africa was reported to have consumed only 1 percent of the total international internet bandwidth globally. But on the bright side, the digital economy of some African countries has already accounted for more than 5 percent of their GDP. Certainly, the numbers could more than double to between 12 percent and 20 percent for those countries if they continue to make the most of digital technologies. However, their ability to do so depends on the rate of economic growth in the coming years and the possibility to raise up to $400 billion to bridge a digital transformation financing gap.

International bodies support Africa’s digital ambition International bodies have realised that the continent’s capabilities to deliver on its transformative digital potential simply lack sustained support. Last year, the IMF Spring Meeting which is annually held by the World Bank Group and the International Monetary Fund took place in Washington to demonstrate strong interest in supporting Africa’s initiatives like the new Digital Transformation Strategy for Africa and the Digital Moonshot — specially designed to create a sophisticated digital phenomena. The meeting indicated that Africa as a whole needs dynamic cooperation and partnerships from around the world to achieve its ambition to become fully digitallyenabled by 2030.

Africa’s concentrated efforts to push digitisation By the end of 2030, Africa seeks to digitally empower its nationals and increase internet accessibility to at least 6 mb/s at an affordable price of 1 cost to company used per mb through a smart device. Establishing digital networks and services is crucial because it will strengthen intra-Africa trade, intra-investment and capital flows for national, regional and continental expansion at large. And this would require African

The total estimated cost of investing in digital infrastructure is between $80 billion and

$100 billion over the next decade

governments and national bodies to create initiatives and policies to stimulate and speed up digital transformation. As it turns out, the Digital Moonshot initiative — a strategy proposition developed in Africa will play a key role in assisting developing economies to draw maximum benefits from digital solutions. Not to mention, the initiative will also help them to achieve the UN Sustainable Development Goals which is essentially a blueprint to create a more sustainable and better future for all economies globally. The initiative comprises five key elements which are particularly important to the continent’s digital ambition. The total estimated cost of the initiative is between $80 billion and $100 billion over the next decade — and more than half the investment is expected to come from the private sector. Its first element is directed toward investing in digital infrastructure to improve accessibility and quality of connectivity, Internet of Things and data repositories on the continent. These investments are mainly anticipated to come from the private sector, with a small portion of it sourced from public investments. The second element is focused on investing in a highly digital workforce to build digital economies and competitive marketplaces. The third element plans to invest in digital platforms that are largely developed by the private sector. These platforms will offer products and services through digital channels. The fourth element is aimed at driving financial inclusion on the continent by

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TECHNOLOGY AFRICA DIGITAL TRANSFORMATION

developing digital financial services like the M-Pesa. The fifth element seeks to create an ecosystem to foster entrepreneurship and innovation on the digital front — establishing itself to become the startup hub of the future. Another initiative, the Digital Transformation Strategy for Africa which is co-led by the African Union Commission and the Economic Commission for Africa was developed to guide and support African countries’ efforts to capitalise on the socioeconomic benefits of digitisation and advanced technologies. Currently, it is estimated that African countries invest nearly 1.1 percent of their GDP on digitisation, while developed economies spend 3.2 percent on an average. Soon enough this initiative will further develop based on the current frameworks such as the Policy and

34 | April 2020 | Global Business Outlook

Regulatory Initiative for Digital Africa, the African Continental Free Trade Area, the African Union Financial Institutions, the Programme for Infrastructure Development in Africa, the Single African Air Transport Market and the Free Movement of Persons — which are an integral part of the African Union’s long-term vision to support the continent’s digital transformation. For Africa, it is not only essential to prepare initiatives targeting digital transformation but create awareness and wrestle cybercrime. The idea is to sharpen security and privacy skills for 100 million Africans annually by 2021 and 300 million annually by 2025 through an online digital skilling programme. In fact, a legislative framework known as the African Union Convention on Cyber Security and Personal Data Protection was established for member

states to develop a national cyber security policy and responsive actions against cybercrime.

Internet potential is key to unlock digitisation A report published by McKinsey predicted Africa’s iGDP to grow between 5 percent and 6 percent by 2025. Widespread urbanised thinking coupled with disposable income has encouraged a majority of Africans to become more tech-savvy, own internet-enabled devices and visit online regularly. Data-based evidence shows that if the continent’s internet penetration becomes explosive as is the case with mobile phones, its iGDP could reach as much as 10 percent — potentially contributing $300 billion annually to its total GDP. Senegal and Kenya have the highest iGDPs on the continent

despite not being its largest economies and governments of both countries are responsible for stimulating their internet penetration. Both factors are true but those developments will significantly scale up if Africa’s infrastructure investment continues.

The race for internet infrastructure build The normal activities that African governments are involved with — preparing legislative drafts, initiatives and strategies, policies and so on have been linked to the continuous digital infrastructure spend. Within Africa’s telecom and investment ecosystem, digital and broadband infrastructure is the most ambitious development, as it creates an increasing demand for 5G and fibre networks. Last year, bankers, investors, advisers and key leadership from TMT companies and Africa’s telecom giants gathered at the TMT Finance Africa to discuss the continent’s current state of infrastructure development. In particular, fibre was perceived to be a game-changer in Africa’s digital infrastructure as it is still in limited use in most African countries. For that reason, a leading submarine and terrestrial broadband operator Seacom pointed out the untapped opportunities in fibre penetration and now global cloud services companies are expected to invest in many low-fibre network African markets.

Public and private sectors: the pulse of Africa’s digital spend African governments alone cannot drive digital transformation. In particular, active participation is required from the private sector for two reasons. First, public investments are challenged to an extent due to different financial conditions of African countries. The second reason points to the fact that private firms

If the continent’s internet penetration becomes explosive as is the case with mobile phones, its iGDP could reach as much as

10 percent —

potentially contributing

$300 billion

annually to its total GDP feed expertise and knowledge while backing the African ecosystem. Now firms in Africa and the Middle East are expected to spend $30 billion on digital transformation in 2020. In fact, private sector investment is likely to grow as telecom operators are showing significant interest in building out networks and digitising operations. The McKinsey report also predicted that the continent’s public sector spending on internet-related projects and initiatives will rise exponentially by 2025. Although African countries have developed strategies in place, it is of utmost importance for both public and private sectors to cooperate and work together

Sectors capitalising on digitisation Africa is appealing due to rigorous efforts in building a digital economy. But what’s more interesting is the less

pronounced outcome — the impact on six sectors which in turn could hugely benefit the African economy. As it appears, financial services, education, health, retail, agriculture and government will stand to long benefit — and technology-driven productivity gains in those sectors could potentially reach between $148 billion to $318 billion by 2025. The manner in which digitisation could benefit financial services is extraordinary given the continent’s current circumstances. It is reported that 60 percent of Africans are estimated will have access to banking by 2025 and more than 90 percent of them will use mobile wallets for online transactions and remittances. On the healthcare front, the combined power of internet and technology could lead to improved health outcomes contributing between $84 billion and $188 billion to the sector by 2025.

Current issues in Africa’s digital development An inclusive approach is critical to Africa beyond its efforts in policymaking and advanced technology deployment. This means that there should be high participation from all stakeholders, including investment companies, fintechs, telecoms, government bodies, nationals and banks to effectively lead to cross-border coordination and global cooperation. Digital transformation is attested to be a game-change for Africa. But the one aspect challenging its digital development is inadequate regulation and banks’ lack of expertise. The benefits of digitisation can be fully harnessed only when African countries step up actions to further invest in digital infrastructure and human resources. Arguably, public and private sectors are required to work closely with governments to help them realise their digital potential in the coming years.

Global Business Outlook | April 2020 | 35

ADVERTORIAL KRUNGSRI FINNOVATE

Krungsri Finnovate

Driving fintech startup growth in Thailand

Krungsri’s accelerator is playing a key role in promoting and supporting fintech startup growth in Thailand and the rest of Southeast Asia

rungsri Finnovate is a strategic investor with a focus to help fintech startups in Thailand and Southeast Asia grow and thrive through Krungsri RISE Accelerator programme. An affiliate of Thailand’s Bank of Ayudhya, its long-term vision is to promote fintech startups in Thailand and Southeast Asia in the form of accelerator collaboration, startup project management and corporate venture capital. According to the company, Krungsri’s goal in launching Krungsri Finnovate was to build unicorns and integrate fintech innovations into Krungsri’s products and services to deliver superior user experiences to its customers. At the founding the company had set aside investment capital of $30 million to be invested over a period of three years. To create financial services that deliver maximum efficiency in the digital era, Krungsri had set up nine ‘boxes’ for technological innovation and investment. In an interview with Global Business Outlook, Sam Tanskul, Managing Director of Krungsri Finnovate, gives an overview of Thailand’s fintech ecosystem and Krungsri Finnovate’s efforts in 36 | April 2020 | Global Business Outlook

promoting fintech startup growth in the country and in the region at large. What is the state of fintech innovation in Thailand? How does the Thai fintech innovation ecosystem compare with its regional peers? The country’s fintech innovation is led by the Commercial Bank of Thailand and the Bank of Thailand has been very active in finding better solutions for customers. Both banks have invested equal efforts in pushing these solutions through National Payment, PromptPay and blockchain-based Project Inathon — allowing banks to fully engage ecommerce platforms. As a result, the Bank of Thailand has established itself as a technology company. Several leading banks in the country have their own venture capital arms, including Krungsri Finnovate, Bualuang Ventures, Beacon Ventures and SCB Digital Ventures, in addition to technology subsidiaries such as Kasikorn Business-Technology Group, Krungsri Nimble and SCB 10X. Also, banks are quite active in partnering with fintech startups to

promote the industry’s growth both locally and internationally. Such activities in turn have led Thailand to outperform its regional peers. One of the redeeming features of fintech innovation in the region is that it brings financial services to underserved segments of the banking market like SMEs. How successful are Thai fintech startups in serving these kinds of segments? In essence, targeting the underserved banking segment is always associated with providing eKYC, financial literacy and online penetration. We have a number of Thai startups serving this segment through the above services. However, the biggest trend in Thailand is that those startups having data of underserved banks are collaborating with the Commercial Bank of Thailand to offer new products and services like personalisation, information-driven lending and alternative credit scoring. Krungsri Finnovate has invested in quite a few fintech startups over the past two years. Could you please tell us more about Krungsri Finnovate’s criteria for investing in a fintech startup? Our investment philosophy has always been synergy investment besides other criterion such as timing, founder quality, and market. We add synergy into our services while actively working with the founder to achieve the goal. That said, we have a dedicated strategic partnership team for the typical investment activity. The team will help to create synergy, carry out workshops and find opportunities to cooperate with startups. Does Krungsri Finnovate plan to invest in further future growth financing rounds of fintech startups it has invested in? We plan to do that as long as the fintech startups have the potential to grow. We would invest in them until the time they go public. From the record, for all of startups we have announced consecutive rounds of funding thus far, we also do follow-on funding.

Krungsri Rise Accelerator programme is a nine to 16-week boot camp packed with useful advice from tech business experts and CEOs. In essence, insightful content and relevant activities are provided during the programme programme by providing exclusive one-on-one consulting to help all 10 Krungsri RISE teams to ‘rise’ beyond their goals. Many startups participating in the project also gain a valuable opportunity to jointly run pilot projects with Krungsri. This in turn helped them to significantly improve their products and capabilities. Is Krungsri Finnovate’s primary motivation for investing in startups to acquire niche fintech innovations or are you targeting exits? It depends on whether the startup investment can enable our services or not. However, due to the Bank of Thailand regulations, we as an investor will have to exit within 10 years. What is the scope and purpose of Krungsri Uni Startup? Krungsri Uni Startup is a hackathon that has been hosted to encourage undergraduate students to practice their entrepreneurial skills. This is done by presenting them with product ideas, especially in various aspects of financial technology such as financial planning, credit card management, software for SMEs and in the ecommerce sector.

What is the scope and purpose of the Krungsri Rise Accelerator? Krungsri RISE is Thailand’s first fintech synergy-driven accelerator working in collaboration with Krungsri Finnovate and RISE Accelerator. It aims to increase the capacity and development of fintech startups to reach regional level growth.

Could you please explain the terms, conditions and purpose of your startup project management programme? Startups will be eligible for Krungsri RISE Accelerator programme if they have the following qualifications: 1. They are fintech startups within 11 areas of interest (fintech plus) — and have their products already launched in the market, or at least have a minimum viable product 2. A team of up to three founders who can participate in a nine to 16-week bootcamp 3. Participants can belong to any gender, nationality and religion

What is the support that startups in Krungsri Rise Accelerator receive and what is the targeted end-stage of the accelerator programme? During the programme, intensive training is provided to participants. The nine to 16-week boot camp is packed with useful advice from tech business experts and CEOs. In essence, insightful content and relevant activities are provided during the programme. In fact, leading regional coaches further enhanced the

As a partner for startups in their growth journey, what is the value proposition that a partnership with Krungsri Finnovate provide fintech startups in Thailand and the region? We are open to working with startups that are passionate about what they do, and not too big or small. At the same time, we don’t seek to create everything by ourselves but have a sizable customer base to help startup growth. Global Business Outlook | April 2020 | 37

Is Huaweiâ&#x20AC;&#x2122;s global dominance under threat? Huawei wants to lead the global 5G revolution, however, the US is on a diplomatic mission to stop its dominance

TOM HARDY

38 | April 2020 | Global Business Outlook

INDUSTRY TELECOM HUAWEI 5G

Since its breakout contract in 2009 to build a 4G network in Norway, Huawei has expanded operations into more than 170 countries, generating $107 billion in revenue in 2018. Currently, it is the world's biggest telecommunications network equipment supplier. In the third quarter of this year, the company reported a revenue increase of nearly 25 percent year-on-year, partially attributing its growth to smartphone sales. The telecom giant has signed more than 60 contracts for 5G with international carriers. However, the US sees Huawei as a threat and believes the Chinese telecom and technology giant uses its technologies for espionage. The US claims Huawei is heavily backed by the Chinese government which is using it as a tool for its own agenda. Over the years, both China and the US have been fighting a diplomatic battle

The 5G era and Huawei’s pursuit of dominance 5G has become one of the most important technologies and China’s Huawei has emerged as a dominant player. According to a study by Dell’Oro Group, Huawei supplied around 28 percent of global telecoms equipment in 2019. Over the years, Huawei has established itself as a global leader due to its increasing technical prowess and its ability to provide quality products at a competitive price. The China-based multinational technology company achieved global scale in part through Chinese state support, including cheap finance. In fact, 5G is set to connect a vast global network of sensors, robots and autonomous vehicles through sophisticated artificial intelligence (AI) and machine learning. Next-generation 5G networks will introduce vastly improved data speeds in the making of a global digital nervous system. To put this in perspective, 5G could eventually operate at greater speeds compared to 4G, which is equivalent to streaming hundreds of films in 8000 resolution at the same time. Leveraging ultra-fast, low latency, high-throughput comm-

unications, 5G networks will become the nerve centre for autonomous vehicles, factory robotics, machine learning networks, clean energy technologies, advanced medical equipment and smart cities. The telecom giant so far has joined the race to develop 5G infrastructure in countries such as Brazil, Argentina, UK, France and Germany. It has already developed 5G infrastructure in many Southeast Asian countries. It is believed that the global economy will run on 5G technology in the coming years. Huawei’s ability to provide its products at a cheaper rate is a value

Revenue increased

25%

year-on-year Signed more than

60 contracts

for 5G with international carriers

proposition that will allow the company to take its products to developing nations. Both Huawei and the Chinese government are aggressively working to integrate the company's proprietary technology into emerging 5G networks throughout the world. According to IPlytics, a German-based company that tracks intellectual property development, Huawei has more 5G-related patents than any other firm. When it comes to 5G technology, Huawei has achieved breakthroughs unlike its industry peers. So far, it has tested its 5G technology in lower as well as higher frequencies. The company recently launched its own in-house-designed chipset and devices that are a part of the 5G infrastructure. Huawei revealed that it has acquired 30 contracts to develop 5G infrastructure globally. Also, it is in the process of acquiring a dozen or more contracts.

The US drops the hammer on Huawei However, Huawei’s dominance has been challenged by the US for a long period of time. As things stand, much of Europe, Africa, the Middle East and the Americas will continue to set up 5G using at least partial Huawei equipment. The US President Donald Trump has alleged numerous times that Huawei's global deals could open back doors for the Chinese government to gather intelligence in other countries. However, the Trump administration has failed to back their allegations with substantial proof to corner the Chinese telecom giant. Huawei has denied Trump’s allegations that it spies on behalf of the Chinese government. Last year, the Trump administration issued an executive order which barred US companies from using information and communications technology from

Global Business Outlook | April 2020 | 39

INDUSTRY TELECOM HUAWEI 5G

anyone who is considered a potential threat to national security. While the Trump administration did not pick out Huawei exclusively, it was quite evident at whom the executive order was directed at. During the same day, the Commerce Department placed Huawei and 70 of its affiliates on its Entity List, a trade blacklist that restricts select members from buying parts and components from US companies without the government’s approval. This has encouraged a number of US companies to back off from their business engagements with Huawei, thus serving the purpose of the executive order. Over the years, various congressional committees, the Federal Bureau of Investigation and the National Security Agency have pointed out the close ties between Huawei and the Chinese government.

Effect of US actions on Huawei and its efforts to overcome challenges At a Senate Intelligence Committee hearing in February 2018, top US intelligence chiefs said Huawei and other Chinese technology companies such as ZTE posed potential national security risks to the US and warned about the potential risks involved in US companies deciding to do business with them. Many are worried that China will surpass the US when it comes to technological superiority and Huawei is a tool that will allow China to achieve it. Over the years, Huawei has invested a lot in research and development. In 2018, the company revealed that it would increase annual spending on R&D from $15 billion to $20 billion annually. The US fears that if it loses the battle to Huawei, its software and cloud companies will find themselves playing catch-up to Huawei. Chinese companies will own the patents necessary for building the future 5G networks,

40 | April 2020 | Global Business Outlook

and we will be reliant on a Chinese government-owned and operated global communications network.

The US’ diplomacy against Huawei To tackle Huawei’s rise to prominence, the US has leveraged its position as a superpower. Through diplomacy the US has attempted to prompt other governments to declare the Chinese giant as hostile. As of December 2019, Australia, New Zealand, Japan and Taiwan have decided to ban and phase out the company's products within their mobile networks. Similarly, governments in countries such as Argentina, Italy and Russia have declared they will not attempt

to limit Huawei’s role in developing 5G infrastructure in their respective countries. So far, countries such as South Korea, the Philippines and Thailand have already implemented Huawei technology to launch 5G networks. While many countries are yet to decide whether they would allow Huawei to function in their domestic markets, the telecom giant is already winning its battle against the US. The US was also banking on the UK to either blacklist or exclude Huawei, but the latter's decision to allow Huawei, even though in a limited role, is a blow to the Trump administration, given that the UK is a close ally of the US when it comes to security and military cooperation.

Overall equipment market Samsung - 6.6% Huawei - 31%

coronavirus pandemic. The decision on the security risks of using Chinese technology such as Huawei will be ultimately taken by President Jair’s security adviser.

Huawei has a strong industry presence

Germany, France and other European nations are too mulling offering a role to develop 5G infrastructure in their respective countries. That said, Brazil is set to allow Huawei to develop 5G infrastructure in the country despite continuous pressure from the US. However, it is worth reinstating the fact that Brazilian President Jair Bolsonaro is an admirer of the US President Donald Trump, and Huawei would expect their personal admiration to not influence the country's ambition to develop 5G infrastructure. According to reports, the Brazilian telecom regulator was preparing to go ahead with the auction bandwidth for 5G mobile data, however, the auction may have been postponed due to the

While the US’ relentless attempts to browbeat allies and partners into shunning Huawei's equipment have proved ineffective. So far, the companies that have come close to compete with Huawei are Ericsson and Nokia. Both European companies develop back-end equipment that enables 5G networks, known as the radio access networks (RAN), which is critical to transmitting data among the core network and user equipment. However, another Southeast Asian company has been taking significant steps to enter the 5G device market and could prove to be a worthy competitor for Huawei. Last year, Samsung held only a 6.6 percent share of the overall equipment market compared to Huawei’s 31 percent. However, Samsung recently announced that it would invest $22 billion across 5G and artificial intelligence, and wanted to achieve 20 percent market share by 2020. It currently ranks fifth behind Huawei, ZTE, Ericsson and Nokia in network equipment sales. So far, Samsung has supplied 5G equipment to two of the world’s foremost 5G service providers, SK Telecom and KT. Samsung also

provided 5G gear to Verizon and Sprint in the US. Test supplies of Samsung 5G equipment have been provided to Germany's Telefonica as well as AT&T and T-Mobile of the US. Last year, Samsung also won a contract to supply 5G mobile network equipment to KDDI — Japan’s second-largest telecommunications company.

Can the US create its own Huawei? Tobias Ellwood, chair of the House of Commons Defence Select Committee, said the Five Eyes — an intelligence alliance between Australia, Canada, New Zealand, and the US — should develop its own Huawei rival. Many lawmakers have called for the government to back an open-source 5G architecture. They believe it will allow new players in the US to enter the networking equipment game for specific components compared to Huawei which produces almost all 5G gear. The US Attorney General William Barr even claimed that the US should acquire a controlling stake in European telecom giants such as Nokia and Ericsson to counter Huawei. While creating a behemoth like Huawei may not be feasible for the US, what it can do is create an ecosystem that allows new players to enter and test its market. The US also needs to form policies to support such players at different levels and ensure competition —vital for the development of its telecom sector which has shunned new entrants so far. Instead of backing one of the existing companies to take on Huawei, creating a competitive ecosystem is likely to be more favourable to the US.

Global Business Outlook | April 2020 | 41

TECHNOLOGY BLOCKCHAIN IN UAE BANKS

UAE banks take the lead in blockchain The banks are using blockchain to improve trade finance, strengthen KYC and streamline transactions ALICE PARKER

he UAE has a significant lead over other nations in the region in successfully deploying blockchain use cases, especially in banking. For example, when the government of Dubai established the Global Blockchain Council which focuses on research and development in distributed ledger technology â&#x20AC;&#x201D; it reflects the countryâ&#x20AC;&#x2122;s openness to adopt blockchain innovation practices at a global level. The council comprises 46 members including international companies, leading UAE banks, free zones and other international blockchain technology firms to build a robust blockchain innovation ecosystem.

42 | April 2020 | Global Business Outlook

The working mechanism of blockchain in banking is simple yet effective. The technology is a real-time open ledger upon which other technologies and applications can be built to securely transmit data and value, minimise human error, build efficiency, reduce payment processing cost and create new products and services that can open up new revenue streams. These unique characteristics of blockchain are all important to the UAE’s vision of futuristic banking and to support global payments at large.

The first step toward blockchain development In 2017, the Central Bank of the UAE announced a blockchain-backed Project Aber with the Saudi Arabian Monetary Authority. The project introduced as a proof of concept aimed to issue a digital currency that can be accepted in cross-border transactions between the two countries. It will connect a limited number of banks to a distributed ledger framework which then forms the core of a new central financial transfer system between the UAE and the Kingdom of Saudi Arabia. It was the first time that both countries worked together on the distributed ledger technology. The main aim of this interbank transaction project was to closely understand the feasibility of blockchain through practical application on remitancess and assess the potential technical risks. A joint official statement issued by both countries stated that the project might also lead to the possibility of using the system as an additional reserve system for domestic central payments when it comes to fruition.

Banks streamline transactions on blockchain Last year, the Dubai Chamber of Commerce and Industry signed a Memorandum of Agreement with Emirates NBD to digitise trade finance

solutions using blockchain for the Digital Silk Road initiative. Another bank which committed to improving trade finance using blockchain is the Abu Dhabi Commercial Bank. The bank is using Singapore’s dltledgers blockchain platform to run an end-to-end blockchain trade finance transaction. In practice, the network allows the bank to serve corporate customers in real-time with increased transparency and robust cross-border interconnectivity. The dltledgers blockchain platform combines both supply chain traceability and key

Interestingly, the National Bank of Fujairah as a member of the Marco Polo network, has access to the Universal Trade Network, to create blockchain trade finance standards and improve interoperability between blockchain networks globally.

Blockchain ups the authentication game Emirates NBD, in fact, has become the first bank in the UAE to use blockchain in prevention of checque-related frauds. The bank’s Cheque Chain project

The collaborative nature of projects led by UAE banks and government bodies testify to the country's readiness and openness in blockchain adoption aspects of trade finance. It appears that more than 30 banks and 400 traders are on this platform. Last September, the National Bank of Fujairah joined forces with Marco Polo, the international blockchain-based trade finance, to build a network which brings together some of the world’s leading financial institutions and corporations, including Mastercard, Natwest, Microsoft, Oracle and Bank of America among others. The Marco Polo network is of great significance because of its swift trade and capital finance capabilities. In terms of mechanism, the network is built on R3 Corda enterprise blockchain targeting corporate clients and small and medium enterprises. The network’s core application software, Marco Polo Platform, is licenced and developed through TradeIX's open framework for easy access and customisation.

enables a QR code which is laid out on every leaf of newly issued checkbooks. The blockchain power then allows the code to register each of the cheques on the technology platform. This process also involves the bank’s staff to validate the authenticity of the cheque and have full access to its source at any point in time. The project was so unique that the bank saw more than one million customers register in the first month. Such innovations can have an outsize effect on not only the banks but the security standards across the UAE banking sector. Because each blockchain innovation gives more power to the sector, the National Bank of Abu Dhabi has concentrated on introducing real-time, cross border payments on the blockchain to significantly reduce transaction time and costs. This move has made the bank the first in the Middle East and North

Global Business Outlook | April 2020 | 43

TECHNOLOGY BLOCKCHAIN IN UAE BANKS

The UAE government can eliminate

398 million paper documents and 77 million work hours annually using blockchain in routine transactions

Africa to do so. These cost cuts are vital to the UAE which accounts for more than $19 billion of remittances annually, according to World Bank data.

Dubai pioneers in KYC blockchain The Dubai International Financial Centre has played an important role in building the KYC blockchain platform with the help of its incubated financial firm Norbloc. Against this background, a consortium was formed comprising Emirates NBD, Emirates Islamic, HSBC Bank Middle East, National Bank of Ras Al Khaimah, Abu Dhabi Commercial Bank and Commercial Bank of Dubai among others. In the big picture, the consortium will support the asset quality, franchises and profitability of the banks in the country by reducing operational risk and improving compliance with local and international KYC regulations. The solution is credit positive for UAE banks as it simplifies the process of on boarding and exchanging customer data. It is so efficient that people in Dubai will only have to enter their personal data or business credentials on to the platform for the creation of immutable records. The government can eliminate 398 million paper documents and 77 million work hours annually using blockchain

44 | April 2020 | Global Business Outlook

and in turn save $3 billion in document processing and transactions. For that reason, the government is planning to achieve annual savings of more than Dh 10 million.

UAE’s oldest private bank taps KYC Blockchain Dubai International Financial Centre and Mashreq Bank launched a new blockchain data-sharing platform — a milestone in the history of blockchain in the UAE. The platform not only allows licenced businesses and corporations to open digital bank accounts instantly, but it makes the technology more versatile in its use. Essentially, those establishments can seamlessly verify their identities through an internal blockchain platform. Mashreq Bank, on its part, has eliminated the existing paper-based KYC procedure and has replaced it with a blockchain-powered solution. In the next step, the information is shared electronically with the bank through the blockchain platform after receiving consumer consent — and evidently, new companies seeking to set up base in the emirate will not face any delay.

Regulatory policies are becoming favourable The UAE banks’ more recent efforts in using blockchain have been strengthened on the back of positive

regulations. In fact, the country is more conducive to crypto asset-based innovation compared to the West where they are still mulling on the regulations. For example, in 2018, the UAE financial watchdog Securities and Commodities Authority approved a plan for regulating initial coin offerings in the country and transforming these issued tokens into securities. Last year, the Securities and Commodities Authority also drafted a cryptocurrency regulation policy while seeking advice from industry experts. The main focus of the regulation is customer protection and anti-money laundering — and in addition is hoped to provide greater clarity for blockchainrelated projects in the Middle East. Because of these reasons, leading regional and global fintech companies are considering the Dubai International Financial Centre as their preferred jurisdiction to scale up their business. Blockchain has greater performance capabilities and compounded with the UAE’s positive outlook it is anticipated to have huge inflows of institutional investors.

NEWS

TECHNOLOGY

Abu Dhabi Airports deploys new touchless technology Abu Dhabi Airports has teamed up with Meta Touch to deploy new touchless technology across 53 elevators at Abu Dhabi International Airport (AUH). The technology is developed by Meta Touch, a local startup based at the UAE University Science and Innovation Park (UAEU SIP). The startup designs innovative solutions to support health and safety. The technology, called Tchk (Touch-less Keypad Technology), is a touchless control panel that allows users to simply wave their hands in front of the panel to indicate the desired floor or direction, thus eliminating the need to physically press the elevator buttons. The introduction of Tchk is one of

the measures undertaken by the authorities to help curb the spread of coronavirus as airlines prepare to resume operations after being in a state of lockdown for nearly three months. Shareef Hashim Al Hashmi, chief executive at Abu Dhabi Airports, revealed that his establishment is constantly introducing new solutions at Abu Dhabi International Airport to contain the coronavirus spread and deliver a safe, smooth and seamless travel experience for all customers. Recently, Abu Dhabi Airports introduced the CoDi BOT UGV robots that assist in sterilisation of staff areas, cargo facilities and passenger aircraft cabins.

Singapore sees 300% jump in cryptojacking in Q1 2020 During the first quarter of 2020, Singapore has witnessed a 300 percent jump in cryptojacking, according to Russia-based cybersecurity firm Kaspersky. It estimates that around 11,700 attacks were attempted on devices located in Singapore from January until March, whereas around 2,900 similar attacks were reported during the same period in the previous year. Kasperskyâ&#x20AC;&#x2122;s general manager for Southeast Asia, Yeo Siang Tiong, told the media that Singaporeâ&#x20AC;&#x2122;s highperformance internet infrastructure could be the reason for attracting the operations of malicious cyber actors. Interestingly, the spike in attacks was witnessed at a time when the world was in a state of lockdown as it fought the spread of novel coronavirus. Cybercrimes have increased not only in Singapore, but across the continent during the period. However, the spike is the highest in Singapore, compared to other countries in the region. It is believed that cyber criminals prefer cryptojacking to other forms of attacks such as ransomware, as it is often more profitable and presents a lower risk of being caught.

Global Business Outlook | April 2020 | 45

TECHNOLOGY NEWS BITS

DP World to digitalise global supply chain

Global port operator DP World has entered into a partnership with TradeLens to digitalise the global supply chain. TradeLens is a blockchain enabled solution developed by Maersk and IBM. The aim is to connect DP Worldâ&#x20AC;&#x2122;s 82 marine and inland container terminals as well as its feeder companies and logistics

divisions with TradeLens. What TradeLens does is it brings the entire global supply chain ecosystem and its players such as shippers, port operators and shipping lines under one platform. It also eliminates the traditional paper-based system which was often used to carry out global trade. TradeLens replaces it with its blockchain-based digital solutions, leading to increased efficiency and visibility of container flows throughout the supply chain. The company also provides visibility across the entire supply chain, from booking to clearance to payments and connects all parties involved in trade on a single platform. DP World has already connected Cochin Port in India with the TradeLens platform through API technology. It has even launched a digital global trade supply chain platform that enables freight forwarders and other businesses to book shipments of cargo from and to anywhere in the world by sea, land and air.

VRV and Ancun announce world's first Blockchain Box China-based technology companies Beijing Beixinyuan (VRV) and Hangzhou's Ancun Technology (Ancun) have announced the development of the world's first plug and play blockchain solution called the Blockchain Box. The newly developed sophisticated hardware enables physical or cloud servers to upload or save information directly to the Blockchain Box. The new technology will help organisations to unlock the power and authenticating properties of blockchain without the extensive technical setup that was previously required. The new technology is also expected to help in the protection of intellectual property rights, creating

46 | April 2020 | Global Business Outlook

transparent and indestructible electronic evidence. With regard to the Blockchain Box developed by VRV and Ancun, Jiang Renshuang, vice president of North-East China Qingdao's Internet Court, said that the deployment and use of Blockchain Box can further improve the performance of court cases. Over the years, China has invested extensively in blockchain which means it clearly understands the immense potential it possesses. In April, the country approved around

221 new blockchain related projects. The approved projects include some of the big names such as Baidu, JD, Alibaba, Suning, China Mobile and China Merchants Bank among others. It is reported that Walmart Chinaâ&#x20AC;&#x2122;s blockchain project for tracing food safety has been approved by Chinese officials. Image: prnewswire.com

TECHNOLOGY NEWS BITS

Tencent to invest $70 bn in AI, cloud computing

Blockchain-enabled renewables firm Sun Exchange raises funding South Africa-based blockchain firm Sun Exchange has raised around $3 million in its Series A funding. The funding was led by London-based private equity firm ARCH Emerging Markets Partners, thus taking the firmâ&#x20AC;&#x2122;s Series A funding to $4 million. Sun Exchange is a peer-to-peer solar leasing platform which enables individuals from across the globe to invest in South Africaâ&#x20AC;&#x2122;s solar energy market. Its members are registered in almost 163 countries around the world. Even though Sun Exchange is not a solar equipment manufacturer, the firm closely works with local suppliers to source supplies from them. What Sun Exchange does is it provides a platform for potential investors, solar panel manufacturers and consumers to connect digitally. The funds raised will help the firm to upgrade its solution and launch its operations in new markets across sub-Saharan Africa. It will also enable users of the platform to power schools, clinics, farms, cell towers, water treatment plants, businesses and other organisations across the continent with solar energy. So far, the firm has already carried out research on the Nigerian market, and soon plans to establish itself in other emerging markets in Latin America and Southeast Asia.

China-based technology and gaming giant Tencent has announced that it will invest around $70 billion over the next five years in AI, cloud computing and cybersecurity. Dowson Tong, senior executive vice president of Tencent, revealed that the investment will also spread across other key sectors which include blockchain, servers, big data centres, supercomputer centres, Internet of Things, operating systems, 5G networks and quantum computing. Tencent plans to raise funds by issuing bonds. In fact, the company has already raised $12 billion through bond issuance and the investment is expected to help compete with local rivals such as Alibaba.

Recently, Alibaba too announced that it will invest $28 billion over the next three years in cloud technologies, AI and semiconductors. Alibaba is currently leading the cloud market with a 46 percent market share, while Tencent holds a market share of 18 percent. The investments are in line with the Chinese governmentâ&#x20AC;&#x2122;s push to dominate the digital economy. Tencent launched its blockchain accelerator programme called Tencent Industrial Accelerator. The company revealed that as a part of its blockchain accelerator programme, it will mentor 30 companies in three major areas of distributed ledger technology (DLT), including finance, logistics and supply chain.

Global Business Outlook | April 2020 | 47

INDUSTRY OIL AND GAS PRICE WAR

48 | April 2020 | Global Business Outlook

GLOBAL BUSINESS OUTLOOK

COVID-19 and oil price war: Double whammy for Gulf nations As global demand for crude remains low due to Covid-19 — the oil price war only adds to the Gulf nations’ distress TOM HARDY

s the world goes into a state of lockdown as a measure to curb the Covid-19 spread, a failed negotiation between Russia and OPEC+ has led to an oil price war. The pandemic has already

lowered oil demand by a tenth, an equivalent of about 10 million barrels a day. As the Covid-19 spreads, oil consumption is expected to further drop. Against this background, how prepared are the Gulf nations and other OPEC allies for an oil price war amid a global slowdown? As negotiations between the Kingdom of Saudi Arabia, who is the undeclared leader of OPEC and Russia collapsed, oil stocks across various exchanges in Asia-Pacific, Tokyo, Australia, Hong Kong and the US plunged heavily. This has resulted in global crude oil prices dropping by 30 percent — lowest in the last two decades. Global Business Outlook | April 2020 | 49

INDUSTRY OIL AND GAS PRICE WAR

Earlier this year, both parties met at Vienna, Austria to discuss a possible cut in production to deal with the plunge in demand owing to the pandemic, however, the meeting resulted in the Kingdom declaring it would reverse course and raise output by 2 million barrels per day. The Kingdomâ&#x20AC;&#x2122;s decision was soon followed by other OPEC members such as the UAE. State-owned Abu Dhabi National Oil Company (Adnoc) also announced its decision to increase its supply to the market to over 4 million barrels of oil per day from April. It is reported that Adnoc is also speeding up its original plan to produce 5 million barrels of oil per day by 2030. This is not the first time that both parties engaged in an oil price war. Previously, during the period between 2014 and 2016, oil producers including the Kingdom and Russia engaged in a market share war to squeeze out shale production from the US by reducing prices and offering more supplies to Asia. The market share war, however, ended in 2016 when Russia and the Kingdom called a truce and decided to cut production. While oil producing countries such as the UAE and the Kingdom are well positioned to sustain an oil price war, it is not the case with other OPEC allies from Africa. Recently, the Republic of Congoâ&#x20AC;&#x2122;s oil minister wrote to the OPEC Secretary General Mohammad Barkindo for an emergency meeting to find a way to keep member nations in Africa from sinking amid the pandemic. African nations are finding it very difficult to sell their oil in the global market in the midst of the pandemic and lowered oil demand.

Covid-19 and the expected drop in oil demand Gulf nations such as the Kingdom and the UAE are spending billions to support their economies which

50 | April 2020 | Global Business Outlook

have been adversely affected by the pandemic and the drop in global crude prices. Even though the Gulf nations have taken steps recently to diversify their economy and reduce their dependence on oil â&#x20AC;&#x201D; it is still their major source of revenue. Tourism, retail, hospitality and logistics were the first sectors to get battered as international and domestic travels were cancelled, states faced lockdown and borders were sealed. In almost all Gulf countries, shops were closed, hotels were shut or either turned into quarantine centres and flights were grounded. Abu Dhabibased Etihad Airways has already

announced that its employees have taken a 50 percent cut in salary during these extraordinary circumstances. With global demand down by more than 90 percent, other airlines in the Middle East may be forced to either furlough their employees or completely cut their jobs to help the carriers survive the pandemic. With cash reserves running low, it is only a matter of time before the carriers are forced to take decisions with serious implications for their workforces. Similarly, the tourism sector is not expected to pick up pace anytime soon. Many in the tourism or hospitality industries are also expected to lose

If oil prices stay low for a longer period, climate action will take a back seat — and cheap oil will disrupt the energy market because deriving energy from renewables is an expensive process

their jobs and even businesses are expected to shut down completely. The retail sector in the Middle East has also taken a serious hit. To help curb the spread of the Covid-19, governments in the Middle East have started promoting ecommerce. Even though the retail sector is taking a hit due to the pandemic, the ecommerce sector is picking up pace. This even applies to fintechs. With cash transactions discouraged, payment apps and ewallet service providers are seeing a spike in online transactions amid the crisis. According to the Institute of International Finance (IIF), non-oil

sector growth is projected to fall to 1.4 percent in 2020, from 3 percent in the previous year. The Saudi entertainment sector also witnessed an upward trajectory in recent period, however, it is very unlikely that the trajectory will continue to move upward during this time. In the long run, the pandemic and the oil price war is definitely going to affect Saudi Vision 2030, which aims to reduce the Kingdom’s oil dependence. Such diversification requires big oil profits to bankroll the incubation of non-oil businesses — and those profits won’t be available if the price war drags on for long. If oil prices stay low for a longer period, climate action will take a back seat. Cheap oil will disrupt the energy market because deriving energy from renewable energy is an expensive process. Fewer people are willing to pay extra for clean technologies when an alternative is available at a reasonable and cheap rate.

Oman’s response to the pandemic According to a report, the Sultanate of Oman will review its budget every three months amid the pandemic after cutting the budget allocated to government agencies for 2020 by 5

percent. The Omani government has decided to allot around $20 billion in extra liquidity for the banking sector to survive the pandemic. The impact of the pandemic and the oil price war is also felt on the banking sector in the Middle East. Credit rating agencies are more likely to put the Middle Eastern banking sector under review for downgrade. New York-based financial services company Standard and Poor’s (S&P) revised the outlooks of a few banks in the UAE such as First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Mashreqbank, Sharjah Islamic Bank and National Bank of Fujairah to negative, while affirming long and short term issuer credit ratings on these entities. Last month, credit rating agency Moody’s downgraded the long-term local and foreign currency deposit ratings of five Omani banks. These banks include Bank Muscat, Bank Dhofar, National Bank of Oman, Sohar International Bank and Oman Arab Bank. At the same time, Moody’s affirmed the long-term local currency deposit ratings and downgraded the long-term foreign currency deposit rating of HSBC Bank Oman SAOG and Bank Nizwa.

Global Business Outlook | April 2020 | 51

INDUSTRY OIL AND GAS PRICE WAR

Is the oil price war sustainable for the Gulf? Even though OPEC does not have an official leader, the Kingdom is leading the way being the largest oil producer in the region. With Covid-19 cases on the rise in the Gulf region and across the world, the Kingdom has decided to reduce price by 10 percent and simultaneously increase production. Even though the oil price war has come to an end, the question raised is how long will the Kingdom be able to sustain its impact? Despite the fact of having huge reserves to sustain the oil price war, it would be impossible for the Kingdom to sustain it for a longer period. The Kingdom’s Deputy Economic Minister Mohamed Al Tuwaijri said that if it kept overproducing to push oil prices down — as it is doing right now then it would be bankrupt within three to four years. After the Kingdom slashed oil prices, global crude oil prices dropped as much as 30 percent. The UAE, an ally of the Kingdom, has also jumped on the

52 | April 2020 | Global Business Outlook

same boat and announced an increase in supply to the market to support the latter’s decision. Abu Dhabi, the UAE’s capital and the wealthiest of the sevenmember federation, unveiled a $2.4 billion stimulus package to help the emirate fight the economic impact of the pandemic. The fact that the UAE is responding to the pandemic similar to the Kingdom would make it difficult for the former to sustain the oil price war for too long. Many would argue that Gulf nations have very high foreign reserves which would help them to sustain the oil price war for a longer period, however, with the global economy slipping into recession, spending foreign exchange reserves to sustain a oil price war would not be logical.

An unlikely winner of the oil price war It is known that the pandemic has brought the whole world to a state of lockdown. Though the virus has spread to other continents since then, China seems to have recovered and things are getting back to normalcy in

the country. China is anticipated to be the beneficiary of the drop in oil prices. During the oil price war in 2014, China saved an average of $2.1 billion annually with every $1 fall in the oil price. So this time around, with global oil prices dropping to as much as 30 percent — highest in the last two decades — China might have saved a substantial amount of funds which can be injected into its economy for revival. The US companies have been severely affected by the collapse of global oil prices. This, in fact, could be a diplomatic victory for Russia. Having less Saudi oil competing in the same space as Russia and its allies, such as Iran and Iraq, could be a win for the Russian Federation. With that, there are additional benefits in this context. For example, the strained relationship between the US and the Kingdom might help Russia to an extent and minimise the US dollar dominance.

Global Business Outlook | April 2020 | 53

INDUSTRY ENERGY

THAILAND RENEWABLES

54 | April 2020 | Global Business Outlook

GLOBAL BUSINESS OUTLOOK

Thailand drives renewables innovation to fend off energy crisis The country aims to generate 30 percent of its total power capacity from renewable energy by 2036. How will it do this? ALICE PARKER

ccording to the Asean Centre for Energy, Thailandâ&#x20AC;&#x2122;s energy demand is predicted to increase by 80 percent in the next two decades while the country is steadily exhausting its

traditional energy sources. Two years ago, the Ministry of Energy released a revised Power Development Plan with an intent to generate a significant proportion

the

countryâ&#x20AC;&#x2122;s

energy

from

renewable projects. Global Business Outlook | April 2020 | 55

INDUSTRY ENERGY

THAILAND RENEWABLES

Under the revised plan, the country will generate 30 percent of Thailand’s total power capacity from renewable energy by 2036. In 2018, the country’s renewable power capacity stood at 14.5 percent of the total 20,000 megawatts. Market Research.com in its recent forecast estimated the country’s nonhydro renewables capacity to reach 14.2 gigawatts, accounting for 21 percent of the total power mix in 2028, compared to 8.3 gigawatts equivalent of 13 percent in 2019. The International Renewable Energy Agency published a report on renewable energy outlook for Thailand which noted that the country’s oil and gas resources will deplete over the next decade on the back of increasing demand. It appears that Thailand has a few years left before oil or natural gas is fully exhausted. So, the potential risks from the persistent fossil fuel crisis have forced the country to diversify its national energy mix. Thailand’s energy import and consumption has been quite high over the years. The country imports 60 percent of energy for commercial use, which also includes 80 percent of total domestic oil each year. Against this background, the Department of Alternative Energy Development and Efficiency (DEDE) and the Ministry of Energy prepared the Alternative Energy Development Plan (AEDP). The AEDP 2012-2021 is focused on increasing the country’s power consumption from alternative energy to 25 percent and decreasing the dependence on energy import. Also, the DEDE has been implementing the AEDP 2015-2036 which promotes the use of domestic fuel to lower crude oil imports. In a nutshell, the AEDP will help to make the country’s energy security robust and increase power generation from renewable sources. The power generated from the country’s renewable energy projects are

56 | April 2020 | Global Business Outlook

sold under power purchase agreements established between companies and offtakers. However, there have been exceptions where the power has been sold to industry users. In fact, there are three types of power producers in the country — independent power producers, small power producers and very small power producers — in addition to the Electricity Generating Authority of Thailand (EGAT).

2018

renewable power capacity stood at

14.5%

of the total 20,000 megawatts

2019

8.3 gigawatts equivalent of

13%

By 2028

non-hydro renewables capacity to reach 14.2 gigawatts, accounting for

21 %

of the total power mix

Chinese involvement in solar market Solar and biomass are expected to become more popular as Thailand seeks to diversify its energy mix. In particular, solar is important to the country because its power capacity increased tenfold from 2012 to 2017, according to the International Renewable Energy Agency. It is reported that Thailand will have solar power in abundance, in fact more than all of the Southeast Asian countries combined. One reason is because the solar power sector is receiving significant amounts of investment to make further advancements in Thailand’s energy sector. Last year, Fitch Solutions found that Chinese solar manufacturers have been increasing in number in Thailand and they are introducing sophisticated solar equipments across the Thai market. This can be attributed to the fact that Thailand’s climatic conditions are capable of producing high solar radiation levels. Fitch forecasted solar capacity to become twice as much during the period between 2018 and 2028, from 3 gigawatts to more than 6.7 gigawatts.

World’s largest floating solar project is underway The Thai government plans to build the world’s biggest floating solar project to deliver on the potential of renewable energy in the region. Staterun EGAT, which is managed by the Ministry of Energy responsible for energy power generation will build 16 solar farms with a total capacity of more than 2.7 gigawatts. That is because the country has a lot of solar potential sitting around waiting to be capitalised. The proposed solar farms will be built across nine of EGAT’s hydroelectric dam reservoirs by 2037 and cut the allure of the 1.3 gigawatts of generation installed globally as of October 2018. It is reported that other proposed

projects are much bigger than the existing world's largest floating system. EGAT’s hydro-floating solar project will push Thailand to the forefront of Southeast Asia’s solar energy infrastructure. The project is quite versatile in its mechanism and can generate power continuously to support the system’s peak demand. It will combine hydropower from the dams to generate power to meet high demand. However, in case the dams are carrying limited water, the solar cells will facilitate power generation from sunlight during the day and use hydropower to support power demand during the night. In actuality, if EGAT builds all of its proposed projects, then the country’s floating solar capacity will account for one-tenth of its clean energy. China, India, South Korea and Japan account for 450 megawatts of floating solar capacity of the world’s 1.1 gigawatts. Although the project is found to be more expensive than the groundmounted panels, it will support Thailand’s vision of energy stability, prosperity and sustainability. An important highlight of the project is that there will be no impact on the

society, community and environment. The company will install High Density Polyethylene (HDPE) floating devices which are not hazardous to the environment or aquatic animals. The company will continue to implement similar projects in other EGAT dams.

Energy majors set eyes on Thailand’s floating solar market In fact, the country’s efforts to build large floating solar projects do not end with EGAT. Southeast Asia’s famed Siam Cement Group has also developed floating solar modules to build projects in the future. The company is seeking to win contracts to build at least some of EGAT's floating solar projects over the next two decades. French oil giant Total plans to develop solar rooftops with 25 megawatt capacity in Thailand. Its affiliate Total Solar Distributed Generation has signed a binding agreement with one of the country’s largest food companies Betagro to build solar rooftops for its 24 facilities. The project will be equipped with more than 62,000 solar panels with

a capacity to generate approximately 38 gigawatt per hour of renewable electricity each year.

Bioenergy rises as a substitute for oil Currently, biomass, biowaste and biogas represent a significant portion of the country’s energy mix. Thailand has the largest share of bioenergy compared to all Asean states for industrial and transportation purposes. The Alternative Energy Development and Efficiency Department predicts Thailand to generate 8,800 megawatt from bioenergy by 2021. In particular, biomass has always been important to rural Thailand for many years. Five years ago, biomass accounted for 5,990 kilotonne of oil equivalent to heat for an industry producing more than 60 percent of the country’s renewable energy consumption. Thailand’s abundant biomass resources and the Thai government’s past efforts in developing bioenergy have made it significantly important to the region. Biofuels in Thailand are anticipated to take over 44 percent of oil consumption by 2021. Essentially, the Thai

Global Business Outlook | April 2020 | 57

INDUSTRY ENERGY

THAILAND RENEWABLES

government is seeking to quadruple biofuel production to 253 million litres of biodiesel and bioethanol per day by 2036, accounting for 25 percent of renewable fuel demand in the future. According to a Fitch forecast, the country’s biomass capacity will grow from 4 gigawatts to 5.8 gigawatts between the period 2018 and 2028. During the period between 2012 and 2017, the country’s biogas and biomass market grew 19.7 percent, observed a study published by Ken Research. Also, the market is expected to grow tremendously during the period between 2017 and 2022. The study found that tapioca starch plants were largely used for electricity generation from biogas. Each year, 80 million tonnes of agricultural waste is produced from sugarcane, corn, cassava, rubber and rice among others. Mainly, small and medium scale industries are major consumers of bioenergy in the country. For transportation, Thailand has the biggest share of liquid biofuels in the Asean region. Therefore, its potential to generate bioenergy to substitute oil consumption and promote power generation from renewable energy cannot be overlooked.

Government steps up waste-toenergy conversion efforts Waste-to-energy management has become an integral part of the national agenda to push renewable energy and reduce waste pollution in the country. The Thai government’s national power development plan (PDP) for the period between 2018 and 2037 is focused on promoting investor interest to drive waste-to-energy power projects. The PDP has set a goal to generate 500 megawatts from bioenergy, contributing to the country’s long-term target of 30 percent of total energy consumption from renewable resources by 2037. The PDP aims to increase the country’s renewable energy to

58 | April 2020 | Global Business Outlook

Thai government conducted a pilot project on 100 megawatts of household solar rooftops — installing panels on 70 households on the first day — generating a power capacity of 393.11 under Thailand's AEDP 2018

18 percent, equivalent of 20,757 megawatts by 2037. That said, solar energy generated by the private sector is expected to reach 10,000 megawatts. The country’s Pollution Control Department predicts average solid waste to reach 42,900 in 2023 from 40,662 tonnes per day in 2008. It seems that more than 50 percent of the waste goes to landfills for over four decades now. These landfills are found to be in highly-populated areas such as Bangkok. The Thai government is seeking to reduce landfill waste by using waste-to-energy for power generation.

Tech and new business models critical to renewables drive Thailand is preparing to deploy sophisticated technologies to transform its electric grid on the back of rising renewable energy. Its power generation capacity from renewable sources will be fed into the national grid. This includes

solar power generating 15, 574 megawatt and biomass producing 5,786 megawatt among other renewable sources. Technology innovation is key to Thailand achieving its renewable energy targets . For example, machine learning can be deployed to observe and predict the process from supply of renewable energy to feeding it into the grid. Blockchain technology is also considered for peer-to-peer trading of energy. Last year, the Thai government conducted a pilot project on 100 megawatts of household solar rooftops. On the first day, the pilot project installed solar rooftops on 70 households generating a power capacity of 393.11 under Thailand’s AEDP 2018. Another approach the country is taking is to liberalise businesses in renewable energy. In terms of developing new business models for energy usage, the country plans to allow businesses to compete with the two state-owned suppliers. In fact, EGAT in collaboration with Metropolitan Electricity Authority (MEA) and Provincial Electricity Authority (PEA) is investing $19.65 million annually to research new business avenues. Thailand is heading in the right direction to achieve its renewable energy target with market incentives, plans and structures in place. However, it is of utmost importance that the Thai government seeks active involvement of all stakeholders in formation of renewable energy policies, frameworks and pilot programmes.

NEWS

INDUSTRY

Jeff Bezos invests in UK-based logistics startup Amazon founder Jeff Bezos has invested in UK-based digital freight forwarding and supply chain finance firm Beacon. The startup raised around $15 million in its Series A funding round. Besides Jeff Bezos, other participants in the funding include leading US venture capital firm 8VC. Beacon uses best-in-class AI, search optimisation, data science, cloud and automation technologies to unlock significant operational efficiencies. It is reported that Beacon will use the money raised in Series A funding to expand workforce, increase technology investment and drive market expansion. Beacon co-founder and CEO Fraser Robinson told the media that his startup has attracted investment from some of the best minds in business and technology. The traditional freight forwarder model uses systems and processes that are slow and inefficient, with opaque pricing and limited use of technology. He further said that Beacon plans to disrupt the trilliondollar freight forwarding market by vastly improving

the experience for importers and exporters with a more transparent and smarter shipping product. Beacon has developed a team with deep expertise in technology, logistics and finance in a short period of time. The new funds will only enable the startup to continue strengthening its team and upgrade to advanced technologies.

Cathay Pacific receives $5 bn to wrestle Covid-19 crisis

Hong Kongâ&#x20AC;&#x2122;s flag carrier Cathay Pacific has received a $5 billion bailout package from the government to survive the coronavirus crisis. According to the deal, the Hong Kong government will acquire a 6 percent stake in the airline and two observatory seats in its board of members. Currently, Air China owns 30 percent stake in Cathay Pacific, while Swire Pacific holds a 24 percent stake. That said, Qatar Airways holds a 9.99 percent stake in the carrier. The bailout package comes at a time when the global aviation industry is

struggling to deal with the pandemic, bringing it to a standstill. Like all global carriers, Cathay Pacific too has grounded most of its flights to help the nation curb the coronavirus spread. However, it has been flying cargo and a cut-back passenger schedule to destinations such as Beijing, Los Angeles, Singapore, Sydney, Tokyo and Vancouver. Cathay Pacific revealed that its May 2020 passenger traffic fell 99.4 percent compared to May 2019 as a result of travel restrictions imposed by the government.

Surge in Dubai's real estate Dubai Land Department (DLD) has recorded $5.44 billion worth of real estate transactions during the first three months of 2020. The department recorded around 100,000 electronic transactions during the same period. The real estate sector in Dubai has recorded the best first-quarter performance in the last six years, despite the coronavirus pandemic, according to ValuStratâ&#x20AC;&#x2122;s May 2020 report. The first quarter of this year saw cash sales of ready homes up 30.4 percent annually with no change quarterly. The ValuStrat report also noted that April cash sales transaction volume performance was just half of what was reported in March. Ready homes sales volume witnessed a steep monthly fall of 75 percent, while off-plan homes sales declined 32 percent compared to March. Developers such as Emaar, Dubai Properties, Dubai Holding and Danube were among the best sellers during the first quarter. The top locations where the real estate deals were completed include Dubai Creek Harbour, Jumeirah Village, Umm Suqeim Third and Jumeirah Beach Residence.

Global Business Outlook | April 2020 | 59

INDUSTRY NEWS BITS

Seven-Eleven is set to sell life insurance in Japan US-based convenience store Seven-Eleven is partnering with insurance company MS&AD Insurance Group Holdings to sell life insurance in Japan. According to reports, customer registration will be carried out through digital multi-function devices available across its 20,000 stores in Japan. Once the registration is completed, customers can pay the processing fee to the cashier at the store. This will allow MS&AD Insurance to avoid face-toface sales as a safe measure to deal with coronavirus. Since the pandemic first broke out in the Chinese city of Wuhan last year, insurance companies are searching for new sales approaches to help them function properly without violating the new rules and regulations introduced to curb the spread of the virus. With the new partnership, Seven-Eleven has become the first convenience store in Japan to sell life insurance. Both parties are planning to set up call centres to assist customers and to ensure the same quality of services are offered by insurance shops. Seven-Eleven and MS&AD Insurance's affiliate Mitsui Sumitomo Aioi Life Insurance will also start selling cancer insurance starting from June, according to reports. The monthly insurance fee will be set at several thousand yen.

With the new partnership, Seven-Eleven has become the first convenience store in Japan to sell life insurance

60 | April 2020 | Global Business Outlook

Oil and gas industry to lose $1.8 trillion The global oil and gas industry has endured a tough period over the last couple of months leading to depleting oil prices and an oil price war as a result of the coronavirus pandemic. Since the beginning of 2020, oil demand has decreased significantly on the back of the ongoing pandemic. A report by Fitch Ratings recently revealed that the global oil and gas industry could lose around $1.8 trillion in revenue this year. The credit rating agency also said the pandemic is set to destroy as much as $5 trillion in revenue for corporates. In a statement, Fitch said that while the oil price has recovered from historic lows, pricing is still well inside our price-deck estimates and it expects economic sentiment to remain subdued after the initial postlockdown euphoria dissipates. In April, another analysis by Rystad Energy found that oil and gas exploration and production companies across the globe are set to see their total annual revenues plunge by at least $1trillion in 2020. The projected loss sees a drop of 40 percent compared to revenues generated from the previous year.

INDUSTRY NEWS BITS

Aviation industry faces major struggle in 2020 Losses suffered by the global aviation industry is going to be its biggest in history, according to the International Air Transport Association (IATA). In its latest reports, the association revealed that airlines globally will lose over $84 billion during financial year 2020 due to the coronavirus pandemic. The association also predicts the industry could lose around $314 billion in revenue this year

The industry could lose around

$314 billion in revenue this year and the figure could increase

and the figure could increase as the pandemic continues. In its earlier reports, IATA said that debt accumulated by the global aviation industry could increase by 28 percent this year, reaching $550 billion. This marks a $120 million increase in debt since the beginning of 2020. Of the new debt, around $67 million comes from government loans and $5 billion from deferred loans. With the ongoing pandemic, the association has stressed on the importance of government support and stimulus packages to help the industry weather the crisis. The aviation industry is among the worst hit by the pandemic as carriers globally have grounded most of their flights since early March to help curb the spread of the virus.

Adnoc’s mobile app hits 9 million contactless transactions

Abu Dhabi-based oil company Adnoc’s mobile app sees nine million contactless transactions take place since the start of this year. The app provides four secure contactless payment options through the company’s smart application, including Mobile Pay, RFID, ADNOC Plus top-up cards and Emirates ID. The app was launched to allow customers make secure payments at gas stations and this requires them to register for Adnoc Wallet. Users can recharge their accounts and pay directly by choosing the station location, fuel pump number, type of fuel and amount from their devices. Adnoc's Panorama Digital Command Centre has generated more than $1 billion in business value. The Panorama Digital Command Centre is a key part of Adnoc’s ongoing strategic investment in digitalisation and artificial intelligence. In fact, the project is expected to help Adnoc increase efficiency, optimise performance and swiftly respond to complex market dynamics. Panorama Digital Command Centre was developed in 2018 by Schneider Electric. The Panorama Digital Command Centre enables Adnoc to collect data in real-time across the company’s 14 specialist subsidiary and joint venture companies. Adnoc said that Panorama has proved to be useful in dealing with the current coronavirus pandemic. Global Business Outlook | April 2020 | 61

ECONOMY TRADE RELATIONS

What does a free US-Kenya trade deal mean for Africa? TOM HARDY

The US-Kenya trade deal might lead to regional tension as it is anticipated to affect intra-Africa trade

62 | April 2020 | Global Business Outlook

ECONOMY US KENYA TRADE AGREEMENT

alks between the US and Kenya with regard to a free trade deal is underway. On March 17, the Trump-led administration notified the congress that it would begin trade agreement negotiations with the subSaharan country. The administration announced its intent to start bilateral trade agre-ement negotiations with Kenya in the month of February, when Kenyan President Uhuru Kenyatta visited the white house. According to the US President Donald Trump, the new bilateral free trade agreement with Kenya would replace the 20-year-old African Growth and Opportunity Act (AGOA) which expires in 2025. However, the news of the trade deal was not well received among other African nations. Members of the African Continental Free Trade Agreement (AfCFTA) and the East African Community (EAC) criticised the agreement as well as Kenya for negotiating alone with the US. So far Kenya has decided to overlook the regional tension that the new trade agreement with the US will create for a much greater prize — access to the US market. Even though Kenya already gains access to the US market through AGOA, the benefits are limited to tariffs which can be unilaterally revoked. Lack of reciprocal liberalisation commitments in these programmes reduce their potential to drive domestic reforms that promote more efficient use of resources in the beneficiary country, limiting the expansion of its

Two-way trade in goods between the US and Kenya amounted to over $1 billion in 2019, putting Kenya in the former's top one hundred trading partners exports and misses the opportunity to signal commitment to an open, business-friendly environment. These are benefits Kenya does not get from a preferential programme. Two-way trade in goods between the US and Kenya amounted to over $1 billion in 2019, putting Kenya in the US’ top one hundred trading partners. The US is Kenya’s third-largest export market and its seventh-largest source of imports. With Kenya’s economy growing at an average 5.6 percent for the past five years and its leadership position as the trade heart of East Africa widely recognised, there is significant potential to expand the relationship.

Recent developments in Kenya’s free trade agreement Trade talks with Kenya was announced during the Kenyatta's visit to the White House in early February. It would be the US' first free trade agreement (FTA) with a sub-Saharan African country and its second on the continent, after the 2006 FTA with Morocco. After formally notifying the congress that the two countries have begun negotiations on the proposed trade deal in March,

the US government has asked American and Kenyan firms to share their views on the proposed free trade agreement as it lays grounds for the pact. The deadline for the submission of written comments was April 28, after which the US Trade Policy Staff Committee (TPSC) was expected to hold a public hearing in Washington DC. While Kenyan firms have particularly been supportive of the trade deal despite the possibility of stiff competition, two Kenyan lawyers have moved to court seeking to have Kenya’s FTA with the US revoked. They have accused Kenyatta’s administration of violating the EAC Treaty and its protocols. Even though negotiations between the nations have started, it could be years before the agreement is put into paper and officially signed. Even though negotiators reach an agreement, the proposal has to be approved by the US congress.

What does the free trade agreement mean for Kenya? The planned agreement with Kenya, meanwhile, is a first for the US trade relations in sub-Saharan Africa and

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ECONOMY US KENYA TRADE AGREEMENT

signifies a shift from multilateral trade deals. Even though it is unclear what are the benefits that Kenya will receive from the free trade agreement, it is expected to include those benefits that the subSaharan country might receive from the AGOA. Kenya is one of AGOA’s top five exporters to the US, primarily sending apparel, cocoa, tree nuts, coffee and tea. It imports American aircraft, machinery, agricultural products and plastics. While the AGOA gives about 40 African states tariff-free access to the US for 6,500 products, the new free trade agreement could potentially let Kenya send more goods to the US market and also bring exclusivity for some products which the AGOA doesn’t provide. While the existing AGOA provides the African countries preferential treatment selling into the US, it does not offer any reciprocity. With the new free trade agreement, Kenya will definitely aim to change that. Agriculture is also part of Kenyatta's major agenda for the country's economic development growth. Through the new trade agreement, Kenyatta will look to attract huge US investments in Kenya’s agricultural sector including Kenyabased agritech startups. Furthermore, the US agricultural companies are poised to increase various investments in Kenyan agriculture. According to Scott Eisner, president of the US-Africa Business Centre at the US Chamber of Commerce, the free trade agreement would see the US bringing its precisionagriculture technology to the country. He told the media, "There's a huge potential here for American companies to have a big impact and big inputs into the agricultural sector throughout the Kenyan market. I do see this as a big upside and a big win down the road for US agricultural inputs into the Kenyan supply chain." It is reported that the US exported $37 million in agricultural products

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to Kenya in 2018. That consisted of corn, wheat, pulses, vegetable oils and planting seeds. Kenya, on the other hand, exported $154 million worth of agricultural products to the US, of which, tree nuts accounted for roughly 50 percent of total sales. Coffee, tea, essential oils and vegetable oils were also among the top products that Kenya sent to the US. As Kenya maintains high tariffs on agricultural exports, the new trade agreement would also look to bring in a change to the tariffs maintained by Kenya. For Kenya, the free trade agreement will also mean greater openness to US investments, intellectual property protections and domestic pro-market reforms. For the US, the free trade agreement will open doors for further similar trade deals in the future which will allow the nation to counter China's growing investments in the region.

The US identifies Kenya’s geostrategic significance With more than 50 countries on the African continent, the question is: did the US choose to sign the free trade agreement with Kenya and not Nigeria or South Africa? The decision to sign a free trade agreement with Kenya by the US seems to have been based on a combination of geostrategic significance and Kenya’s ability to strike a deal in the first place exceeds its economic capabilities. In January 2018, the US Trade Representative Robert Lighthizer told the media, “I think that before very long we're going to pick out an African country, properly selected, and enter into a free trade agreement with that country, and then that, if done properly, will become a model for these other countries.” Also, under the Generalised System of Preferences (GSP), a separate trade preference programme, UN-listed Least Developed Countries (LDC) will receive

For Kenya, the free trade agreement will also mean greater openness to US investments, intellectual property protections and domestic pro-market reforms. For the US, the free trade agreement will open doors for further similar trade deals in the future, which will allow the nation to counter China's growing investments in the region additional access to export goods on duty-free to the US. Though GSP excludes some of Kenya’s top exports such as textiles and apparel, in addition to products covered by AGOA, many of Kenya’s agricultural exports would be duty-free if it were an LDC country. However, since Kenya isn’t included on that list, the expiry of the AGOA would put Kenya at a greater risk than its neighbouring countries, should AGOA expire without a replacement. According to experts, the US officials see a trade agreement with Kenya primarily through a geopolitical lens and as a means to combat China’s strong influence in Africa. Over the years, China has significantly increased its investment in different sectors throughout Africa. Given the US is in a trade war with China, it makes sense for the US to have the African continent and its emerging economies as its allies. Another reason for the US to enter into a free trade agreement with Kenya is security. Kenya

is a key ally in the campaign against the Somalia militant group AI Shabaab.

Implications of the US-Kenya free trade agreement In March 2018, after years of negotiations, 54 African countries united to sign the AfCFTA agreement. The agreement entered into force for 29 of those countries, which includes Kenya. Also, African heads of state agreed in 2018 that no country should negotiate a bilateral free-trade agreement with a third party once the continental bloc comes into force. The free trade agreement with the US is a violation of the agreement. Also, with the announcement of the US-Kenya free trade agreement, AfCFTA members are concerned that the US' attempt to use Kenya as a 'model' will not reflect the needs of other members and could upset regional integration, intraAfrica trade and peace and unity in the region. With regard to the US-Kenya free trade agreement, former deputy chairperson of the African Union Commission and the first secretarygeneral of the Common Market for Eastern and Southern Africa Erastus Mwencha remarked, “Under the AU, the African heads of state have discouraged member States from entering into bilateral free trade negotiations with third parties because they jeopardise the AfCFTA.” He argued that the deal would put Kenya in a far better position to negotiate a better deal compared to other African nations. Negotiations for AfCFTA has lasted for years. Finally in 2019, all members nations were on the same page as they emphasised on the necessity to open up their economy to each other and boost intra-African trade. However, the USKenya free trade agreement will make it difficult to make the full implementation of the AfCFTA a reality. If Kenya lowers barriers for US exporters while other countries in Africa do not, those

partners will amend regulations to determine the origin of imports and it will prevent transshipment of American goods through Kenya. Even the US will similarly insist on rules of origin that prevent exports from such countries passing through Kenya on their way to the US. That will mean border checks have to remain in place to enforce the rules of origin which is against the very idea of the AfCFTA. It will in fact raise the costs of intra-trade in Africa.

Takeaways from the US-Morocco bilateral trade agreement Both the US and Morocco signed a bilateral trade agreement on June 15, 2004, following the signing of the USMFTA Implementation Act on August 17, 2004 by former US President George Bush. The agreement is aimed at increasing trade and creating new investment opportunities between the two countries. For Morocco, the trade agreement was an opportunity to access the US market and increase inflow of investments. But initially, Morocco faced various challenges. When it comes to textiles, the Morocco-US rules of origin were similar to the North American Free Trade Agreement (NAFTA) which required Mexican textile firms to use inputs from the US next door. But due to geographical constraints, it was not feasible to establish a supply chain by keeping costs in check. It will be interesting to see if Kenya learns from the US-Morocco deal and how Kenya deals with the violations it is creating being a member of the AfCFTA and the economical benefits it gets from the free trade agreement with the US.

Global Business Outlook | April 2020 | 65

Key sectors to drive Saudi Arabiaâ&#x20AC;&#x2122;s Vision 2030

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ECONOMY SAUDI ARABIA NON-OIL ECONOMY

Public and private investments in a few critical sectors will drive Saudi Arabia’s diversification plan to fulfill the Vision 2030 ALICE PARKER

he Kingdom of Saudi Arabia has recognised economic diversification as an important contributor for building sustainable economic growth. Its decision to lead economic diversification is largely attributed to the high dependence on oil which has demonstrated volatility risks on the back of macroeconomic factors in global markets. Last year, the Kingdom’s GDP growth slowed as a result of tumbling oil production and below average oil prices. In the third quarter, its economy contracted 0.46 percent from the previous year. Although crude is still important to the Kingdom, its economic diversification is led by the Vision 2030 programme, a reform responsible for massive developments in select non-oil sectors to create a post-oil future.

What does the Kingdom's post-oil future look like? The government is expecting real GDP growth in 2020. In fact, the Institute of International Finance (IIF) in its report noted that the Kingdom’s non-oil economy will remain at 2.7 percent in 2020, largely supported by recovery in private sector economic activity. In January, the International Monetary Authority predicted that the economy would expand 1.9 percent this year, with an increase from an estimated 0.4 percent in 2019. However, the slowdown in oil output has forced the authority to revise the forecast for the Kingdom’s growth to 2.2 percent. The Kingdom’s non-oil sector is anticipated to grow this year despite global macroeconomic challenges and mixed forecasts. The good news is that its monetary, fiscal and structural policies are directed toward economic expansion of the private non-oil sector in the medium term. Interestingly, the IFF report highlights that the Kingdom is in a good position to balance its fiscal budget by 2023 and is now

more secure than a few months ago. This is mainly due to the government’s restrained spending amid low oil prices The credit for the breakthrough goes to the Crown Prince Mohammad Bin Salman Al Saud, who is responsible for the foundation of the Kingdom's diversification plan. Recently, the Saudi government even introduced a 5 percent value added tax, as part of the diversification plan, to increase revenue and reduce fiscal deficits driven by low oil prices. This is a landmark move marking the end of a tax-free living for residents and most businesses in the Kingdom, with exceptions to health, education and public transport.

Tourism is a lynch pin of the Kingdom's diversification plan The Kingdom is heavily investing in the tourism industry which seeks to contribute from 3 percent to 10 percent GDP by 2030. In essence, its tourism strategy is a major part of the Vision 2030 — and it has set ambitious targets to become a global tourist destination with grand infrastructure developments and easing of visa restrictions. The Kingdom's way of enhancing the tourism industry is through development of posh projects which will allow tourists to experience worldclass luxury. An example of that is the landmark Red Sea Project which is a land and property development planned along the Kingdom’s Red Sea coast. Led by the Red Sea Development Company, the mega project is expected to increase the domestic GDP by $5.86 billion annually after completion. The first phase of the project is slated for completion by 2022, with 3,000 suites constructed in addition to an airport, marina and recreation centres.

Global Business Outlook | April 2020 | 67

ECONOMY SAUDI ARABIA NON-OIL ECONOMY

Every year, the Red Sea Project will attract one million tourists and create 70,000 new jobs. The project’s value addition to job creation is extremely significant as unemployment among Saudi nationals is quite high. In 2018, Saudi youth saw a 25 percent unemployment rate, observed the Federal Reserve Bank of St. Louis. Another highlight of the project that will lure tourists is its ecological contributions like achieving 100 percent carbon neutrality and no discharges to the sea. Such benefits accrue to both the tourists and the Kingdom, which is seeking to generate revenues that can replace income previously generated from oil production, creating a sustainable form of economic development. It is no surprise that the Kingdom wants to become a top five global tourism destination over the next decade. The outlook is quite positive for the industry and it is expected to generate substantial income for the Kingdom.

Real estate projects to contribute 10% of non-oil economy The Kingdom is planning to create an inflow of hundreds of billions of dollars in public and private investment for infrastructure development which in turn is anticipated to create pronounced opportunities for real estate development. The current focus of the sector’s authorities is to increase home ownership and create a conducive environment for foreign and domestic investors. One of the critical projects is by Raza, a subsidiary of Al Ra’idah Investment Company and a part of the Saudi Public Pension Agency’s real estate management arm, which is focusing on massive commercial developments in Riyadh, Jeddah and Dammam. Last May, it established a sophisticated real estate management platform offering property management services. It has

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even launched a five-year strategy for multi-faceted developments integrating both commercial and residential properties in the Kingdom. The fact is that the government is planning to increase Saudi nationals’ homeownership to 60 percent by 2020 and 70 percent by 2030, with a plan to build 19,500 residential units under the Sakani housing development programme. This in turn will increase the transaction volumes in the industry contributing 10 percent to the national non-oil economy by the end of 2020. In line with Vision 2030, the Kingdom’s real estate industry is undergoing a transformational change.

Entertainment sector has the potential to bloom The entertainment industry is also anticipated to generate $20 billion for the national economy over the next 15 years. With that, it could create approximately 30,000 jobs directly and more than 100,000 indirectly in the Kingdom. In an attempt to reform the industry, Saudi authorities lifted a decades-old ban on cinemas and nearly 300 are expected to open by 2030. But that’s not all. Other forms of entertainment like Comic Con and mixed-gender national day celebrations are allowed — in a way,

economic zone. In another example, several new companies focused in mortgage refinancing, entertainment, ecommerce, waste management, private aviation and fund of funds have been established with the help of Public Investment Fund. According to a Mckinsey report, the Kingdom has potential to double its non-oil economic growth and create as many as six million new jobs by 2030. For that to happen, the report said that it is important to have nearly $4 trillion in investment. It appears that funds have already been raised for the Kingdom’s investment programme, which is powering economic diversity.

Impact of weak oil market to turbo charge diversification

enabling tourists to enjoy their time spent in the Kingdom. Recently, a Global Economic Conditions Survey published by the Association of Chartered Certified Accountants and the Institute of Management Accountants showed a growth rebound from non-oil sectors in the Middle Eastern economies. The survey notes that reforms in the Kingdom's tourism and entertainment sectors are expected to boost the national economy.

Public Investment Fund has a key role to play in diversification Economists anticipate the Kingdom’s

investments into non-oil projects directed by the Public Investment Fund to further accelerate the rate of economic activity in 2020. The sovereign fund’s investments are strategically placed in six key areas, such as Saudi equity holdings, real estate and infrastructure, mega projects and international investments. In fact, its efforts have paid off with international investments accounting for 15 percent of its assets under management last year from 2 percent in 2015. It provides great support for mega projects by being an anchor investor; for example, in the $500 billion NEOM

The pressure of declining oil prices has had an impact on the Kingdom. In 2015, its fiscal deficit had nearly reached $100 billion or 15 percent of GDP. More recently, the Kingdom is set to increase oil production and sell the crude at significantly discounted prices on the back of declining oil demand. This decision has affected not only its domestic oil market but hurt its neighbouring oil producers who are now forced to sell their crude at the price fixed by the Kingdom. Another significant impact on the Kingdom is that its oil dependence has resulted in economic inefficiencies such as increasing unemployment among Saudi nationals. The Economist Intelligence Unit, a research division of the Economist Group, had expected the deficit to average 10 percent of GDP between 2016 and 2020 as slash in economic spending failed to offset declining oil prices. The International Monetary Fund (IFM) had also predicted the general government gross debt to increase from 5.8 percent of GDP in 2015 to 51 percent of GDP by 2021.

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ECONOMY SAUDI ARABIA NON-OIL ECONOMY

The question now is whether the Saudi government’s efforts to build a non-oil economy will see growth as anticipated. Last year, the ICAEW and Oxford Economics' joint report Economic Insight: Middle East Q1 2019 recorded data on government initiatives and budget spending which is aimed at accelerating non-oil economic expansion. The report noted that the Kingdom is on the right path of transition under the Vision 2030. Higher state spending requires economic growth to increase by 7 percent to drive its future diversification. According to the General Authority of Statistics, a government agency responsible for the implementation of statistical works in the Kingdom, the oil sector output fell by 6.43 percent, but the non-oil output rose 4.33 percent because of private sector activity last year. The Kingdom’s growth in the third quarter last year was attributed to wholesale and retail trade, which rose 8 percent, while finance, insurance, real estate and business services rose 6.28 percent. Despite contraction in the energy sector, the Kingdom’s non-oil economy recorded growth by 3.3 percent last year, marking its fastest growth rate since 2014.

Shift to a market-based approach is necessary According to the Mckinsey report, the Kingdom will have to make a dynamic shift in its approach from the current government-led economic initiatives to a more market-based approach. All stakeholders including the private sector, foreign investors and households should participate in the government’s diversification efforts. For example, greater participation of men and women is equally important in the labour market to achieve higher household income. It is also imperative

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for the Kingdom to improve the current business regulations and open up domestic markets to competition, trade and investment. Increasing efficiency of government spending and new revenue streams, such as taxes and increase in domestic oil prices can also contribute to fiscal sustainability in the Kingdom. The private sector is especially critical in contributing to the national economy because it will improve the market conditions and create more ownership, employment, trade and competition in the Kingdom. Currently, twice as many Saudi nationals are working in the public sector compared to the private sector. So the major challenge for the Kingdom is to overcome the existing unemployment trend. This transformation requires a change in mindset among nationals to be able to

adapt to working in the private sector which sees higher working hours and lower paying jobs comparatively. The government should further develop policies to impose stricter measures such as reduction in energy subsidies, increase in taxes and promote SME culture in the Kingdom. In the long term, the effects of these policies will help the government maintain economic stability. More importantly, investing in renewable energy to counter the challenge of weak oil prices is ideal, especially given the Kingdom’s climatic conditions.

NEWS

ECONOMY

Global economy to shrink by 5.2%: World Bank

The World Bank expects the global economy to shrink by 5.2 percent this year. Economic activities in advanced economies are forecasted to contract by 7 percent this year as domestic demand, supply, trade and finance have been severely disrupted due to the lockdown measures imposed by their respective governments.

According to the World Bank, the US economy is projected to shrink by 6.1 percent this year, while the eurozone could see a 9.1 percent contraction. The economic activity in Latin America and the Caribbean, in particular, could plunge by 7.2 percent in 2020. The Global Economic Prospects 2020 report by the World Bank projected a 4.2 percent contraction for the wider Middle East and North Africa (MENA) region and 2.3 percent growth in the following year. Emerging economies, on the other hand, are expected to contract by 2.5 percent this year. Earlier this year, the International Monetary Fund (IMF) said that the global economy has entered into recession, with economic implications severe than the financial crisis of 2008. IMF chief Kristalina Georgieva has warned that the pandemic brings daunting challenges for policymakers in many emerging markets and developing economies.

Kenyaâ&#x20AC;&#x2122;s new stimulus package to support businesses The Kenyan government has set aside a $503 million economic stimulus package to help businesses wrestle the coronavirus crisis, according to the National Treasury. Treasury Secretary Ukur Yatani said that the economic stimulus package will provide credit guarantees and loans to small businesses. The stimulus package has also been approved by Kenyan President Uhuru Kenyatta. Kenyaâ&#x20AC;&#x2122;s economy has been adversely affected by the lockdown measures to curb the coronavirus spread. Kenya expects its economic growth for the year to be around 2.5 percent, while its previous estimate was around 6.2 percent.

Ukur Yatani said that the National Treasury does not expect the stimulus programme to affect the budget deficit, which is projected to decline to 7.3 percent of GDP during the period between 2020 and 2021 from an estimated 8.2 percent in the year through June. Besides announcing an economic stimulus package, the Kenyan government is also planning to clear all pending bills and issue tax refunds to companies to provide them with extra liquidity amid these difficult times.

Kenya has also introduced a temporary employment programme for young people and farm-inputs subsidies.

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ECONOMY NEWS BITS

Factory output in China increases in May China’s industrial output in May saw a steady growth for the second month in a row, with the country resuming its economic activities after being in a state of lockdown due to coronavirus. Data has revealed that retail sales and investment has continued to contract — and many sectors in China are still struggling to fight the coronavirus crisis. Industrial output growth accelerated to 4.4 percent in May from a year earlier, the highest reading since December, according to official data released by Chinese authorities. Retail sales in the country also contracted for the fourth

consecutive month. However, the drop was smaller in May at 2.8 percent compared to April at 7.5 percent. China’s situation is being closely monitored by leaders across the globe. It will be interesting to see how long China takes to get back on its feet as the government begins to relax restriction measures. It is reported that improvement can be seen in China ranging from steel production to car sales. However, it may take several months for economic activities in the country to return to its pre-Covid-19 levels.

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Islamic economy in Dubai contributes Dh41.8 bn to GDP Islamic economy contributed Dh41.8 billion to Dubai’s GDP in 2018, with a 2.2 percent increase from the previous year. Recently, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai, Chairman of the Executive Council of Dubai and General Supervisor of the Dubai: Capital of Islamic Economy Initiative, said that Dubai being the global hub of Islamic economy is well placed to lead the sector’s contributions for economic revival in the post-Covid-19 period. He further said that the increased contribution of Islamic economy to Dubai’s GDP is an organic outcome of the city’s expertise, advanced infrastructure, strategic geographical location and its commitment to becoming the preferred investment destination for various Islamic economy sectors. Highlighting the importance of the Dubai: Capital of Islamic Economy, the crown prince said it will help to further boost activities in the Islamic economy — and in turn push the region to recover from the crisis. In this context, Sultan bin Saeed Al Mansouri, Minister of Economy and Chairman of the Dubai Islamic Economy Development Centre, told the media that Dubai is positioning itself as the global capital of Islamic economy.

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