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Megatrends and how to survive them – Migration and Urbanisation

October 17, 2018

Megatrends and How to Survive Them is the title of our book that is due to be published on November 1st, by Cambridge Scholars Publishing.

This is one of a series of blogs based on the work we have done for the book. In it, the third Megatrend we explore is Migration and Urbanisation.  We chose this because we now have more people living in urban areas than live in rural areas for the first time in history.

People migrate either because they are fleeing bad situations (the minority of migrants) or because they are aware there is a better life somewhere else and they choose to move to find it.  About one percent of the world’s population is “an asylum seeker, internally displaced or a refugee”. However, as more people become middle class (see our blog on the first Megatrend, Population), they have the ability to make a choice about where they live.  Most of you reading this are probably migrants: if you no longer live near where you were born, you, too, are a migrant.  More than one in ten of us is a migrant, many from rural to urban areas within a country, or to another country.

In the 1950s the world population was around 2 billion and more than two thirds of people lived in rural areas.  Today it is more than three times that and more people (roughly 4 billion of 7.6 billion) live in urban areas than rural.

Migration for blog

As the figure shows, the trends are for Asia and Africa to become as urbanised as Europe and North America.  Urbanisation is expected to continue while rural populations shrink. Many of the fastest growing urban areas are relatively small cities in Africa and Asia.

As jobs migrate to cities, their economies are also moving from being mainly manufacturing based to delivering services.  Migration to cities leads to opportunity: the growing diversity can feed creativity and innovation; it can also help countries with falling population levels care for the young, the ill and the elderly.

Today’s growing cities face many challenges.  Not just the obvious ones such as developing infrastructure to support the growth, but considering health, education, waste management, logistics of food supply and environmental change.  Often little or no long-term planning is done: what planning is done is frequently for today and not considering what will be needed in the future.  Many cities were designed for the times of our grandparents, not for today.  To meet the future, cities will need to become Smart Cities: urban areas that use electronic data collection sensors to supply information to help them manage their resources and infrastructure more effectively and efficiently.  This could improve the quality of life for their residents across buildings, mobility, infrastructure, public space, social and community programmes and civic governance.

Living in urban areas can have problems.  With high accommodation costs, migrants and those with no employment or low wages congregate in poorer areas – which, in many cities means informal settlements, slums, shanty towns and run-down areas.  These areas are usually not part of the urban planning if it exists, so they grow in a haphazard way lacking infrastructure, transport, safety, water and public services.  High youth unemployment (where young males outnumber young females in informal settlements) is correlated to rising levels of crime and violence.  When many people live together in small spaces, mental and physical health can be affected.

And of course, two-thirds of the cities in the world today are on coasts, vulnerable to flooding and sea level rise.

Some relevant articles:

https://www.raconteur.net/technology/the-city-in-2030 with some views of how a smart city will look.

http://www.theafricareport.com/North-Africa/africas-15-richest-cities-in-2030.html which these are likely to be.

And for handling risks that can arise: https://www.ted.com/talks/robert_muggah_how_to_protect_fast_growing_cities_from_failing.

Some questions you might consider:

  • How does urbanisation affect your market, products and services? How might you need to adapt them?
  • How could urbanisation affect the people you work with? Will it make the skills you need easier to find?
  • Where will you locate your business and where will the people you work with live and work?
  • What opportunities might there be for developing new forms of social frameworks and support in both urban and rural areas?

We live in interesting times!

Written by Patricia Lustig, SAMI Associate and MD, LASA Insight, and Gill Ringland, SAMI Emeritus Fellow and Director, Ethical Reading.

The views expressed are those of the authors and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

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Will the 21st Century Be African? Part 2 – Social Changes

October 10, 2018

In the first blog of this series, I set out a quick overview of the factors that might make Africa the most important continent by the end of this century. In this blog I look at the social and demographic change that will underpin the transformation of Africa as a key player in global politics and trade.

adult-business-businessmen-1056561

By the end of the 21st Century, Africa’s population is projected to be over 4.1 billion (as I write it is 1.2 billion).  It will be the most populous continent on earth.  By 2050, the African population will be 2.4 billion, and, more strikingly, one third of the world’s youth population will be African, according to a report prepared for the EU Institute for Security Studies (ISS).  This growth will be greatest in West, Central and East Africa.

Today 60% of Africa’s population is rural.  This century’s massive population growth will see the rise of African megacities.  According to projections by Canada’s Global Cities Institute, by the end of the century, 13 of the world’s 20 biggest megacities will be African.  The three biggest cities in the world will be – in reverse order – Dar es Salaam (70 million), Kinshasa (83 million) and biggest of all, Lagos (88 million).

To put those populations into perspective, the largest city today is Tokyo (37.5 million).  100 years ago it was London (4.7 million).

Africa will see a century-long surge in its human potential.  The growing population will mean a massive growth in GDP and in Africa’s international importance.  It is reasonable to assume that global youth culture will have an increasingly African flavour, and an African team will finally lift the World Football Cup – which will itself mark Africa’s “arrival” at the global top table.

But whether Africa’s baby boom will prove to be an undiluted boon, a mixed blessing, or a curse will depend on a number of key variables.  Some are – at least at this point in the century – outside the direct control of Africa and its governments.

  • Technological developments will present the challenges and opportunities – the trajectory to modernity, education and skills for Africa’s young and burgeoning population.
  • Climate change will define the challenges to be overcome in terms of food production and access to water to support the population.
  • Global economic developments will mark out the terms of trade as Africa seeks to provide growth and opportunities for its people, and secure access to investment to underpin a path to self-sustaining development.
  • The world’s current major economic powers will all seek to trade with Africa, but the state of relations between those powers will affect the terms of trade – whether there is an attempted reversion to the Cold War, where the power blocs backed African “strong men” in order to seek exclusive influence, or whether there is a more peaceable globalised economic system.

We will look at each of these in the rest of this series.  But in order to make the rising population into as great an opportunity as possible, African nations themselves will need to address a number of issues including:

  • Health and health care: immunisation and vaccination, utilising technology to empower people to manage their own health and easily and quickly to access health advice and diagnostics
  • Nutrition: growing the food and providing access to clean water to support a well-nourished and healthy population
  • Education: allowing the booming young population access to the knowledge and skills they will need to become players in the world that the 4thIndustrial Revolution is bringing into being; and in particular, educating women to allow them to achieve their full economic potential, and control the sizes of their families in the future
  • Governance: tackling corruption and providing the effective governance that the African megacities will need in order to prosper and be habitable, and effective education and health care.

The risks Africa faces are obvious, but none the less real and significant for that.

  • The “baby boom” in Africa – assuming it is followed by a reduction in birth rates, as has happened elsewhere in the world as women become better educated – will lead to the problem of an aging population towards the end of the century
  • Poverty & unemployment will be massive, if the African economies fail to develop in a way that allows them to utilise the huge increase in human capital at their disposal
  • African megacities may experience slum conditions unprecedented, even in the world’s current developing megacities (or in Dickensian London) leading to squalor and the risk of pandemic diseases. It is likely that they will do so at some time, given the rate at which they will grow.  A major test of African governance will be how City and national governments match up to the task of developing an infrastructure to support megacities, their populations and economies and alleviate the slum problems
  • The drift into megacities from a predominantly rural population may destroy important social and familial structures, leading to an inability to provide the social care and multigenerational care necessary in a rapidly changing society
  • Africa could be vulnerable to conflicts – whether tribal, cultural or religious, especially if there is widespread unemployment, meaning large numbers of young men with no means of making a living
  • There may be a “brain drain” both within Africa and beyond, as the brightest and best of Africa’s young people seek to make a better life for themselves and their families. If the other risks listed above come into play, the brain drain effect will be even greater.

Watch This Space

In the next blog in this series I will look at technology, and the risks and challenges it presents for Africa as it grows.

Written by David Lye, SAMI Fellow and Director and Jonathan Blanchard Smith, SAMI Fellow and Director

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Megatrends and how to survive them – Shifting Values

October 4, 2018

“Megatrends and How to Survive Them” is the title of our book that is due to be published on November 1st, by Cambridge Scholars Publishing.

This is one of a series of blogs based on the work we have done for the book. We chose Shifting Values as a megatrend for a number of reasons:

  • Until relatively recently much of the global population was concerned with surviving wars, famine and plague. Wars are still present in some areas of the globe, but affect fewer people than in previous generations. Famine is still a problem in localised areas but more people are obese than are malnourished. And though there are ongoing concerns over pandemics, international responses have improved to head these off (cf response to most recent Ebola outbreak).
  • Until recently much of the global population was poor. Again, the situation varies across the globe and within countries, but the figure shows how different the world is now from even 40 years ago.

Megatrends 4.1

  • With this increase in wealth has come increased education. Literacy rates among women still lag behind that of men in some parts of the world, but overall, we can say that by 2025 there are expected to be more graduates than the total population in 1945, 2.5 billion. The second figure is from “Beyond Crisis: Achieving Renewal in a Turbulent World”:

Megatrends 4.2

“For the first time, the number of people in the middle class surpasses those living in poverty,” says World Bank President Jim Yong Kim. Putting these factors together, more people than ever before now have choices.They also now have a basis for making decisions about what is important to them.

Once basic needs are met, Maslow’s hierarchy suggests that people are motivated to look for ways of belonging, for esteem and self-actualisation. The emergence of a global middle class means that more people in all regions seek ways of realising these. This sometimes results in migration or may lead to new attitudes to their work/life balance or their role in society. It is this change in attitudes to work/life balance and role in society that we capture in the book under the heading of Shifting Values.

Generational differences are making themselves visible globally. Some differences between generations in different geographies are the result of history in that region, other differences result from the ubiquitous reach of ICT via TV, smart phones and the internet. There are already many similarities among globally. This is likely to be because there are more similarities between people who are middle class (regardless of which country they live in), than there are differences.

The key generational discontinuity seems to be that Millennials – born between 1980 and 2000 – think more globally and are more techno-savvy than previous generations. They worry about government policies and social inequality, lack of opportunity, and are willing to move countries and regions to better themselves. The number one reason Millennials leave organisations is due to lack of personal career opportunity within their parameters of work/life balance and job satisfaction. Millennials are exhibiting a shift from consumerism to shared experience: tourism, leisure and sport. There is also an increasing acceptance, in many regions, of aspects of sexual diversity e.g. trans, non-binary, and gender-fluidity.

Statistically, Millennials account for a quarter of the world’s population. They will make up three quarters of the global workforce by 2025. Generation X and Millennials outnumber traditionalists, those born before 1945, but they do not vote as consistently. This is sometimes because they have less of a sense of belonging, or less respect for the results of the democratic process.

The other shift in values, visible across generations is a wider interest in spiritual aspects – of self or others – sometimes expressed as religion, sometimes as mindfulness or wellbeing. Religion has, of course, been a source of divisiveness over the millennia, whereas mindfulness is inwardly focused.  While in the global north, the influence of religion is in decline, this is not so in much of the global south.

Some questions you might like to consider, looking towards 2032:

  • Thinking about shifting values in your country, how might your strategy and business model need to change in order to continue to be successful?
  • Who do you think you will be selling to, and what are their values?
  • How might your product/service offering need to change?

We live in interesting times!

Written by Patricia Lustig, SAMI Associate and MD, LASA Insight, and Gill Ringland, SAMI Emeritus Fellow and Director, Ethical Reading.

The views expressed are those of the authors and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

 

Not all about risk…

September 28, 2018

blackboard-business-chalkboard-355988

When we try to understand, interpret and plan for whatever the future holds then using scenarios and similar future thinking techniques are a great help. So why is so much of this about managing risk – and so little about searching for opportunity?

I have been struck over the past month, when working with clients in classroom settings and in their offices, by quite how focussed their thinking is on risk, risk management and risk mitigation. I suspect there are a couple of reasons – firstly, the general environment is distinctly uncertain. From the more global background issues of nuclear proliferation and climate change; to unpredictable presidents and Brexit, the rise of populism on the right and left of the political spectrum; to individual issues – in the UK at least – of a cost of living which barely keeps place with inflation to the increasing recognition among the young that houseowning may forever be beyond them. This is an environment of constant neurosis, so an increased sensitivity to risk is perhaps to be expected.

The second issue is more of our own making. Companies have Chief Risk Officers. They do not seem to have Chief Opportunity Officers. Companies have to make explicit provision for risk management; annual reports and public offering documents have to have overt risk sections. Compliance and health and safety functions are explicitly about the management of and mitigation of risk – largely regulatory risk, but risk nonetheless (and this is a separate issue – legislation introduces risk into a business, it rarely introduces opportunity).

It seems that the corporate world has become focussed on keeping what we have; managing risk to an obsessive degree; and in doing so in creating a mental model where opportunity comes second place.

This may be cultural. National models of risk tolerance vary substantially – it is a commonplace that no-one takes you seriously on Wall Street without at least one bankruptcy behind you, because it shows you are a risk-taker, whereas a bankruptcy in Britain is still seen as a disgrace – but in Europe risk is certainly seen as a pre-eminent factor.

Of course, one could argue that some of the global risks – electing a president whose public pronouncements seem occasionally odd, leaving a trading bloc for the insecurity of the wider world, and so on – are in fact the search for opportunity. This is a political judgement, though, created by unsatisfied, unlistened-to electorates by narrow margins, motivated by anger and a search for different routes forwards, and by themselves introducing risk into the system.

But back to the clients. Looking at their risk-focussed models, I was struck by how much opportunity there was in them. A burgeoning new technology is either a risk to your business or an opportunity to develop. The fall of one social class and the rise of another means a loss of existing customers and the appearance of others. Even futures which look at the outset to be almost dystopian contain within them seeds of prospects and openings where it is possible to create new markets, develop new products, take advantage of change in a positive way. Seeing furrowed brows round a scenario model turn to an understanding of an impending “aha moment” is very satisfying – but it requires an ability to see, or to be guided to see, the hidden opportunities.

With colleagues in SAMI, we have been thinking about what we are currently calling “positive futures” – lenses through which one can view scenario spaces as opportunity generation, as methods of thinking about the world and the business in ways which actively promote a clear-eyed view of success. Risk management in such situations become matters of risk acceptance – less of avoiding risk but mitigating it in a way which promotes what a former colleague of mine described as “rightwards and up”.

After all, if we are to make “robust decisions for uncertain times”, those robust decisions should be about succeeding, within and despite the times. An understanding of risk is important; an understanding of the opportunities hidden within those risks is key. We’re getting to grips with that at SAMI, and look forward to working with clients to grasp it as well.

Written by Jonathan Blanchard Smith, SAMI Fellow and Director.

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter here and/or browse our website

Will the 21st Century Be African?

September 21, 2018

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By the end of this century the world will be transformed.  Technological changes will have reshaped the way we live, work and communicate.  We will (we hope) have access to abundant and cheap clean, renewable energy.

But humanity will look different as well.  It will be a lot more African.  Current UN demographic projections suggest that Africa’s population will double from just under 1 Billion at the start of the present century, to over 2.4 Billion at its mid-point, and possibly 4.1 Billion at its end, which would make Africa the most populous of all the continents.  If current trends continue, by 2050 there will be more people in Nigeria than in the USA. What started as an Asian Century may end as an African one.

It has been easy for western analysts to overlook Africa – or at least to see it as a continent to which things are done, rather than one which could be a world leader in itself, or could contain countries which will become world leaders. We wanted to examine this in more detail from a futures and strategy perspective. It seems to us that there is a “tipping point” coming, and that any global scenario planning needs to take Africa much more seriously, and consider its potential and its possible impact on the course of global social and economic progress.

This blog series therefore examines Africa’s future. We hope it provides a useful guide, and perhaps sparks thoughts about opportunities and risks which may help all those concerned with the continent’s future.

A STEEP Ascent

We intend to approach the question using the STEEP methodology. Initially, we can see the following trends, each of which we will look at more closely in turn in future articles:

Social – the very fact of such a fast-growing population will catapult Africa to the top of the agenda as a potential economic powerhouse, as a market and a producer of goods and services, and a source of young minds and bodies in an ageing global population.  At its best Africa could become the most dynamic and creative of the continents.  In a worst-case scenario, the teeming population will be impoverished, discontented and prey to disease, malnourishment and exploitation.

Technological – there are emerging signals already of Africans using technology as a springboard for economic progress, access to finance and primary and preventive medical care. In a positive scenario, Africa is ready to grasp the opportunities of new technologies, unencumbered by an infrastructure reliant on old ones.  In a worst case, the traditional route out of poverty will no longer be available as automation destroys the market for unskilled and semi-skilled workers to progress up the social and economic ladder.

Environmental – rapid and massive population growth will mean many more mouths to feed, increasing demand for water, productive agriculture etc, and potentially placing new pressures on Africa’s unique natural environments.  Climate change will have a significant impact. In a positive scenario, Africa will emerge as a leader in innovation, using new technologies to promote flexibility and sustainability.  In a worst case, there will be an environmental calamity, leading to conflict, mass-migrations and impoverishment.

Economic – a young and growing population, allied with Africa’s great wealth of natural resources, offers the opportunity for Africa to become a global powerhouse, better able to harness its own resources for its own benefit, and able to mobilise, educate and reward its billions of young working-age people.  Cities like Kinshasa and Lagos will compete with Shanghai and Tokyo as the great megacities of the late 21st century.  At worst, the population growth will become too much, too rapidly. There will not be enough opportunities to go round, and the great cities of Africa will become giant slums.

Political – a growing and confident Africa will become less dependent on the rest of the world.  It will trade with other countries on an equal basis, and its young, increasingly educated and tech-savvy population will be envied. A rising middle-class will demand, and get, better governance.  Demands from civic society will continue exert downward pressure on the endemic corruption which plagues modern African government. Working together, African nations will collaborate closely to take advantage of the opportunities and deal with the challenges ahead.  They will articulate an Afrocentric world view to challenge those of the West and East.  In a worst case, corrupt governments and large numbers of disaffected young people will spell trouble – with rising crime, and no shortage of recruits for armed forces and insurgencies.  Other countries will exploit these weaknesses to their own benefit.

Watch This Space

In this series of articles, we will look in turn at the prospects for Africa through each of the five STEEP lenses.  After that, we will bring them together to identify a set of scenarios for Africa as it reaches the middle of this century.  In doing so, we will give food for thought for people in government, in finance and trade, who will need to take increasing account of the rise and the sheer growth in human terms, of the African continent.

Written by David Lye, SAMI Fellow and Director and Jonathan Blanchard Smith, SAMI Fellow and Director

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Megatrends and how to survive them – Population

September 14, 2018

Megatrends and How to Survive Them is the title of our book that is due to be published in October this year, by Cambridge Scholars Publishing. The book launch is on November 8th from 5 to 7 at the Reform Club in Pall Mall, London. Numbers are restricted but if you would like an invitation please let Tricia know.

This is one of a series of blogs based on the work we have done for the book. In discussing the megatrends, we start with Population. This is because this trend drives most – if not all – of the others.  The world population is still growing, although the rate of growth has slowed with some countries experiencing negative growth. Today’s growth is mainly in Asia and Africa.

When we explored this megatrend,  we were helped by using the UN terminology popularised by Hans Rosling as Levels 1, 2, 3 and 4, for people’s living standards.  A quick aide memoire for the living standards of each Level is:

Level Billions Dental hygiene
1 1 A person brushes their teeth with a finger or a stick
2 3 There will be one toothbrush for the whole family
3 2 Each family member will have their own toothbrush and they can probably afford a dentist
4 1 Each family member will have their own electric toothbrush, they will go to the dentist at least once a year

Levels 3 and 4 are often referred to as “middle class”. Today there are 3 billion “middle class” globally. It is this growth in the middle classes that drives all the other trends.  When people get to level 3 or 4, they have the ability to exercise choice.  Choice in what they buy, where they live, what work they do and how they do it, what they do for recreation and where.

Population growth peaked (2%) between 1965 and 1970 and has declined to just over 1% between 2010-2015.  It should decline yet further by 2032, despite rising longevity as the size of the age group of 65+ grows.  A key risk to note is that the IMF projects that in Europe, the dependency ratio will go from four workers per retiree to two workers per retiree by 2050, while the median age in Europe will increase from 37.7 (2003) to 52.3 by 2050.  What might your organisation need to do about this?

What surprises us is that up until quite recently, demographics has been mostly forecastable.  But looking at the graph above, it becomes clear that today, we really have no idea what the population will be in 2100.  That doesn’t take into account the deflections we could see, caused by war, catastrophic events and pandemics.

The opportunity that arises from improving health and the fact that more than half of us live in urban environments is that the education level of all is rising.  This is especially important for women, because educating women leads to improved health and well-being, as well as a rise in life expectancy across the board.

TL Blog 3 picture

We continue our horizon scanning: some recent headlines that might be of interest are:

Some questions you might like to consider, looking towards 2032:

  • Thinking about population change in your country, how might your strategy and business model need to change in order to continue to be successful?
  • Who do you think you will be selling to, and where will they be located?
  • How might your product/service offering need to change.

We live in interesting times!

Written by Patricia Lustig, SAMI Associate and MD, LASA Insight, and Gill Ringland, SAMI Emeritus Fellow and Director, Ethical Reading.

The views expressed are those of the authors and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at http://www.samiconsulting.co.uk

Red Lights on the Dashboard – What if The World Suffers Another Crash?

September 6, 2018

Since the crash of 2008 and the Eurozone crisis of 2011-12, forecasting what will happen even the near future has become a lot harder.  The rise of populist parties on the left and right; the UK vote to leave the EU; the election of Donald Trump as US President all marked a climate of “no-one knows anything” in World Affairs: a climate where political, economic and generational uncertainties are supplemented by the great unknowns of the 4thIndustrial Revolution and its impact on jobs, wealth distribution and society.

NOKA

Those in search of a quiet life might have hoped that this period would play out over time, and things return to “normal” – if such a state exists.  They are likely to be disappointed, and it may be that things are about to get a lot more unpredictable.  There is a lot of “noise” on discussion groups and social media about the possibility of another economic crash, following on from 2008.

In its Global Risks Report for 2018, the World Economic Forum identified its own economic risks which highlighted as warning factors:

  • unsustainable asset prices, eg US stocks, which have only reached higher levels in 1929 and 2000, or the global house price bubble;
  • indebtedness, where we have seen significant increases in the amount of public debt in the major economies, and where non-financial sector debt has risen from $80 trillion in 2007 to $135 trillion in 2016; and
  • structural weaknesses in the global financial system, with doubts about the robustness of banks’ risk-weighting mechanisms, and further concentration of assets in the hands of the 30 biggest banks.

WEF identified three new and emerging challenges:

  • Limited Firepower to combat a downturn – for example the lack of further scope to reduce interest rates;
  • Technological disruption through the impact of the 4th Industrial Revolution, affecting employment in developed economies and destroying the conventional pathway to growth for developing economies; and
  • Politics and protectionism – whether disputes within blocs (Brexit, NAFTA), between blocs or between nations (US, EU, China).

While the WEF noted that 2017 had been a year of recovery, the Economic Risks report concluded,

The risk is that we will hit a tipping point at which point everyone prices in these tensions, with a rush to the exits that hits asset prices, strains the resilience of the global financial system and tests whether policy-makers retain the firepower to prevent deep and long-lasting impacts on the real economy.”

Beyond Davos

Looking beyond the WEF’s warnings, we see risky behaviour in the major economies, for example the growth of covenant-lite loans in the US, which looks uncomfortably similar to the derivatives boom that led to the 2008 crash.  In Italy the new coalition Government is threatening a confrontation with the ECB and the creditor nations in the Eurozone over the size and terms of Italy’s sovereign debt, which could precipitate a crisis in Europe bigger than the one of 2011-12.

Meanwhile many of the most important developing economies: such as China, Turkey, Russia face financial, fiscal and monetary problems of their own.

The Importance of Scenario Planning

In the long period of almost uninterrupted growth from the late 80s until the 2008 crash, it was possible for strategists to assume relatively stable and benign economic circumstances.  This is no longer the case, and Governments and businesses – in formulating their medium-term strategies – need to consider the impact of adverse economic weather on their aims and objectives.

The WEF’s new and emerging challenges, combined with a further downturn, would create an extremely difficult environment, both economically and politically.  2008 has seen the loss of confidence in political and economic institutions, and the concomitant rise of populist politics, both on the right and the left.  Countries that are dealing with increased levels of debt and citizens, many of whose standards of living have stagnated or fallen since 2008, may struggle to survive another serious downturn.  Last October I blogged about the possibility of a new “Year of Revolutions”.

An economic crisis would make this considerably more likely.  And it would raise further uncertainties that only a scenario planning approach can truly factor into strategic planning.  Here are just three:

  1. Would a second financial crisis further undermine confidence in “established” institutions and political parties, or would it lead to a shift in opinion against populism (if the blame for the new crisis were attached to populist politicians)?
  2. Would the major economies have the firepower to respond to a second crisis; if not, what would be the social and political consequences? How to avoid a year of revolutions?  And what sort of societies and systems would emerge from the upheaval?
  3. How would emerging technologies play in such an unstable and volatile world economy – for example with increasing inequality leading to political polarisation?

Here at SAMI we’ll be keeping our eye on these trends and possible scenarios that might arise. Can anyone afford not to?

Written by David Lye, SAMI Fellow.

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

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