February 28 2023 | Agriculture, Economics
Plant-based food takeover

Food production, specifically meat production, is responsible for nearly 60% of the planet-heating gases emitted by humans. In this article, we will explore the significant growth that the plant-based foods market has witnessed in the past few years, as well as its projected expansion over the next decade, highlighting major consumer trends that are driving this growth. How does meat consumption contribute to climate change? Greenhouse gases are gases that affect the earth’s temperature. The most known greenhouse gas is carbon dioxide (CO2). But there are other gases responsible for the greenhouse effect, such as methane, which is up to 34 times more damaging to the environment than CO2 if measured over 100 years; this ratio increases to 86 times more damaging if measured over 20 years.  Livestock produces significant amounts of methane as part of their normal digestive processes, and when there is an overconsumption of cattle, there is a strong increase in gas emissions. According to recent studies, by 2050, global meat consumption is projected to reach between 460 million and 570 million tons, which is twice as high as in 2008. And clearly, the processing and transportation of this livestock generate further emissions. Emissions from livestock account for about 14.5 percent of total greenhouse gas emissions globally, and roughly 2/3 of those emissions come from cattle. Meat production is responsible for 57% of all food production emissions; 1 kilo of beef generates around 70 kg of greenhouse gas emissions. Meat production also contributes to the exhaustion of water resources. According to the UN, one quarter-pound burger requires around 1,500 liters of water.  In addition to the gas emissions, raising meat requires a large quantity of feed, and cattle ranching requires millions of acres of land and monoculture crop fields to feed this livestock. Cattle ranching drives deforestation 5 times more than any other sector and is responsible for a great majority of the Amazon forests; estimates show that about 70% of its deforested land is used for cattle. Converting natural habitats to agricultural fields releases greenhouse gases that contribute to climate change.  As a result of these facts, the plant-based movement has been growing as people understand the relationship between their food choices and the planet's health. From the planet’s perspective, plant-based foods would require 37% less water, and their production would generate significantly lower gas emissions. This is where the race for market share begins.  Plant-based foods: the future?  2021 Bloomberg report: The plant-based food market globally is expected to reach $162 billion by 2030, up from $29.4 billion in 2020. A report published by Bloomberg in 2021 stated that global retail sales of plant-based food alternatives (meaning food that consists of all minimally processed fruits, vegetables, whole grains, legumes, nuts and seeds, herbs, and spices and excludes all animal products) may reach $162 billion by 2030, which is an increase of more than $100 billion compared to 2022. The plant-based market is growing 5 times faster than the overall food industry. In the Middle East and Africa, the plant-based meat and dairy products market is projected to witness a CAGR of ~6% from 2022 to 2027. As more people are moving toward a healthier and cleaner lifestyle, the term “flexitarian” (meaning a casual vegetarian) is growing fast. With 14% vegetarians and vegans worldwide and 15% flexitarians, this means that 29% of consumers globally are now embracing plant-based alternatives The Asia-Pacific region has the largest share of the global plant-based market, and with a growth scenario of around $51 billion from 2020 to 2030, its market could reach $64.8 billion. This growth is driven by cultural and demographic factors, since the region’s population is expected to exceed 5 billion people by 2030, increasing the demand for plant-based alternatives.    Plant-based meat  In 2025, the global meat market share is expected to reach 90% of the global meat supply, and this ratio is expected to decrease by 50% in 2040. While meat alternatives are expected to increase by around 15%, reaching 25% of sales during the same period, cultured meat (genuine meat that is produced by cultivating animal cells directly) is expected to increase by 35%. These predictions demonstrate the market potential of plant-based alternatives, and that plant-based and cell-based meat will account for most of the meat sold by 2040 (with a combined share of 60%). The Asia Pacific plant-based food market was valued at $17.1 billion in 2020 and is forecasted to grow at a CAGR of 15.9 percent between 2018 and 2026. With a market share of 37.9% in 2020, China dominates the Asian plant-based food market. On top of that, the Chinese government is planning to reduce meat consumption in the country by 50% by 2030. According to a study published in 2021 by DuPont Nutrition & Biosciences and IPSOS, demand for plant-based meat substitutes in China and Thailand is expected to increase by 200% by 2025. In the US, the plant-based food market reached $7 billion in sales in 2020, compared to $4.8 billion in 2018, recording a growth of 43%. The growth of plant-based food sales has outpaced the growth of total food sales by 2.5 times during that same period The table below illustrates the top 5 companies in meat alternatives by dollar share:   In the Middle East, meat alternatives are increasing, for instance, UAE-based Halal food brand Al Islami launched its first vegan burger in 2021. In 2019, the global plant-based meat market reached $19 billion, with the Middle East accounting for $176.5 million, and was projected to grow by 4 to 5% annually until 2023. Plant-based milk The plant-based milk and derivatives market has already disrupted the dairy market and still has significant room for growth. Multiple factors are contributing to this growth potential, including lactose intolerance, and rising health concerns. According to the Food Intolerance Network, as much as 75% of the world’s population is lactose intolerant. Dairy products also contain high levels of saturated fats, which increases the risk of high cholesterol. As people are moving toward a healthier lifestyle, plant-based dairy alternatives have the potential to reach $68.8 billion by 2030, compared to their 2021 value of $25.2 billion, growing at a CAGR of 11.8% from 2022 to 2030 In the Asia-Pacific region, alternative dairy products are projected to make up 57% of the plant-based protein market by 2030 In the GCC region, 65% of consumers suffer from lactose intolerance, and 48% of consumers claim to prefer the taste of almond and oat milk to cow’s milk. Lulu hypermarket, a leading supermarket in the UAE, stated that the plant-based milk market has grown by 50% in 2020.  New market access Millennials and Gen Z are more likely to become vegetarians and vegans, as they are more environmentally aware and have a strong sense of social responsibility. Regarding their consumption, 63% of Gen Zers consume a vegetarian or vegan meal at least once per month, and 44% do so once a week or more. According to a 2022 report, 79% of millennials and Gen Zers are already regularly eating plant-based. In the United States, while only 2.5% of Americans over the age of 50 consider themselves vegetarians, 7.5% of Millennials and Gen Z have given up meat. Since future consumers are millennials and Gen Z, companies are focusing on offering products that appeal to them." The plant-based food industry is rapidly expanding and capturing a sizable market share; it also shows promising growth potential over the next 10 years. Therefore, now is the time for companies to innovate and develop plant-based alternatives. Interest in alternative proteins, for instance, is increasing globally, as plants have limited environmental impacts and are a healthy alternative filled with protein. Although alternative proteins accounted for only 2% of the world protein market in 2020, they are expected to reach 12% by 2035. Pea protein, for instance, grew at a 30% CAGR from 2004 to 2019. Animal protein will stay prevalent in the market; this, however, does not eliminate the room for plant-based foods to grow and solidify their place in the market. According to a Bloomberg study, the plant-based food market is estimated to hit $162 billion in the next 10 years.  Author: Dina AlGarf Sources: https://www.theguardian.com/environment/2021/sep/13/meat-greenhouses-gases-food-production-study https://www.myclimate.org/information/faq/faq-detail/what-are-greenhouse-gases/ https://unece.org/challenge https://news.un.org/en/story/2018/11/1025271 https://www.cleanwateraction.org/features/meat-industry-%E2%80%93-environmental-issues-solutions https://www.bbc.com/news/explainers-59232599 https://www.sustain.ucla.edu/food-systems/the-case-for-plant-based/#:~:text=Now%2C%20for%20those%20of%20you%20worried%20about%20protein%20content%3A&text=From%20a%20water%20perspective%2C%20using,to%20eat%20plant-based%20foods. https://www.forbes.com/sites/christophermarquis/2021/03/02/plant-based-foods-are-our-future-and-entrepreneurs-are-helping-us-make-the-shift/?sh=7dbeae5351f5 https://insideclimatenews.org/news/21102019/climate-change-meat-beef-dairy-methane-emissions-california/#:~:text=Emissions%20from%20livestock%20account%20for,for%20grazing%20and%20feed%20crops. https://www.theworldcounts.com/challenges/consumption/foods-and-beverages/world-consumption-of-meat/story https://www.washingtonpost.com/world/interactive/2022/amazon-beef-deforestation-brazil/ https://www.livekindly.co/middle-easts-vegan-food-market-growing-fast/ https://assets.bbhub.io/professional/sites/10/1102795_PlantBasedFoods.pdf https://foodspecialities.com/industry-news/dairy-ingredients-industry-news/high-margin-growth-opportunities-with-plant-based-milks/ https://cultivateinsights.com/2019/07/22/alternative-meats-could-be-60-of-the-market-by-2040/ https://gfi.org/marketresearch/ https://thevou.com/lifestyle/2019-the-world-of-vegan-but-how-many-vegans-are-in-the-world/#:~:text=Right%20now%2C%20the%20total%20number,percent%20of%20the%20world%20population. https://foodinstitute.com/focus/veganuary-2022-coincides-with-growing-flexitarian-trend/#:~:text=Flexitarians%20are%20more%20flexible.&text=It's%20estimated%2015%25%20of%20the%20population%20already%20is%20flexitarian. https://tradeinsights.amys.com/millennial-gen-z-buying-habits-spell-growing-opportunity-for-plant-based/ https://www.visualcapitalist.com/sp/how-does-animal-meat-compare-to-plant-based-meat/ https://www.bloomberg.com/company/press/plant-based-foods-market-to-hit-162-billion-in-next-decade-projects-bloomberg-intelligence/ https://www.mordorintelligence.com/industry-reports/middle-east-and-africa-plant-based-meat-and-dairy-products-industry https://web-assets.bcg.com/a0/28/4295860343c6a2a5b9f4e3436114/bcg-food-for-thought-the-protein-transformation-mar-2021.pdf https://www.plantbasedfoods.org/marketplace/retail-sales-data-2020/ https://www.globenewswire.com/news-release/2022/05/18/2446161/0/en/Plant-Based-Meat-Products-Market-Size-Worth-US-14-527-55Mn-Globally-by-2028-at-15-3-CAGR-Exclusive-Report-by-The-Insight-Partners.html https://www.globenewswire.com/news-release/2019/10/14/1929284/0/en/Plant-based-Meat-Market-To-Reach-USD-30-92-Billion-By-2026-Reports-And-Data.html https://www.globenewswire.com/en/news-release/2022/08/16/2499600/0/en/Dairy-Alternative-Market-Size-to-Hit-USD-68-79-Billion-by-2030.html#:~:text=The%20global%20dairy%20alternatives%20market,11.8%25%20from%202022%20to%202030.

Agency Model and E-commerce: Growing Trends in Automotive Retailing

As with most industries, digitization and increasing automation have revolutionized the automotive industry, giving rise to four major disruptive technological trends: electrification, autonomous driving, shared mobility, and connectivity. These trends, combined with demand and supply challenges such as declining purchasing power, increasing inflation, rising fuel prices, and reliance on Chinese supply, are putting pressure on automotive players to reconsider their current business models. Since the invention of the automobile, the sales model has remained mostly the same. In the early 1900s, multiple distribution models were attempted in the auto industry; however, by the 1950s, the dealership model had proven to be the most effective for distributing automobiles. In this model, the manufacturer builds the vehicles and then sells them to dealers, which act as retailers and service providers. Traditional sales models, however, have undergone fundamental changes in recent years as e-commerce and industry leaders revolutionized the purchasing process. Currently, new automotive players, such as EV startups, have started to adjust their sales model to adapt to evolving buying behaviors. Since 2016, EV pioneers like Tesla have been combining their city showrooms with their online stores, providing their customers with a simple interface and a brand-new purchasing experience when compared to traditional sales models.   The agency sales model: transforming the automobile purchase journey The agency sales model can be considered the evolution of the traditional three-tiered sales model towards an integrated online/offline sales model. In that sense, the vehicle manufacturers interact directly with the customers and assume all sales responsibilities. The dealers still play a decisive role in this model, but they act only as agents and only retain activities that require physical interaction, such as the execution of test drives and handling of service appointments. The traditional sales model players, which include dealerships and national sales companies (NSCs), remain present in the agency model but are there to provide a superior omnichannel customer experience, allowing OEMs to establish a 360° customer view, resulting in increased cross-selling and market transparency. Likewise, certain roles and responsibilities are transferred from the dealer to the manufacturer. The dealer’s financial risk can be reduced while gaining full access to the national car inventory and shortening delivery times. [caption id="attachment_8493" align="aligncenter" width="608"] Figure 1 - Traditional sales model (three-tiered, mainly offline) vs agency sales model[/caption]   Automotive retailing: a shift toward e-commerce The online car buying market refers to the end-to-end purchase of vehicles through online platforms. This offers customers accessibility and ease of shopping from home, more visibility on pricing, and digital and secure payment processes. Online vehicle sales have increased significantly in recent years. The global online car buying market was valued at $237.93 billion in 2020 and is projected to reach $722.79 billion by 2030. This market was not triggered by the pandemic in 2020, but rather is the result of the accelerated digitalization of car manufacturers and a shift in mindset and consumption behavior. According to BCG projections, it is expected that online billing & payment transactions will account for 5-7% of new vehicle sales in 2025 and up to 33% in 2035. In terms of market share, Tesla continues to be the leader in direct sales, along with “Polestar”, which provides a mature online interface that challenges Tesla. [caption id="attachment_8494" align="aligncenter" width="621"] Figure 2 - Projected Growth in Online Sales of News Cars Around the World[/caption]   Online aftermarket sales: the rise of a new sales channel The online automotive aftermarket is a secondary market accessed through e-commerce databases that sell almost all automotive spare parts, marketing services, and auto-related services. Since the pandemic, the automotive aftermarket has registered an important evolution led by multiple trends, which can be perceived through the continuous global demand for used vehicles, auto parts becoming more sophisticated, and consumers holding onto their cars because of the financial downturn caused by the pandemic. The whole automotive aftermarket sector (online & offline) is expected to grow from about $380 billion in 2021 to $449 billion in 2023. Moreover, the COVID-19 pandemic, along with the global disruption of the automotive supply chains, is acting as the main factors affecting buying behavior and leading a growing number of consumers toward the online aftermarket. In that sense, according to Hedges & Company, online sales totaled $16 billion in 2020, a 40% increase from $7.4 billion in 2019 (figure 3). Similarly, business-to-consumer mobile sales also saw a significant increase in recent years, accounting for approximately 50% of all online auto part sales in 2020, an increase of 35% compared to the previous year. Currently, the online aftermarket channels are being led by new players such as Car Parts and Mister Auto, whose business models are 100% online. Likewise, automotive manufacturers are also starting to respond to the current industry disruption by cooperating with online players to sell their parts and accessories. [caption id="attachment_8495" align="aligncenter" width="552"] Figure 3 - Business to consumer online Sales in USD Billions[/caption]   Growth of e-commerce automotive aftermarket The trend of consumers looking for aftermarket products online has been accelerated by pandemic restrictions and the accelerated drive toward digitization in 2020 and 2021, which helped online sales channels increase their penetration rates (figure 4). The trend was most noticeable in the parts and accessories segment, which includes enthusiast and general maintenance DIY brands that experienced a sustained increase in sales in 2021.   [caption id="attachment_8496" align="aligncenter" width="567"] Figure 4- e-commerce Penetration in the Automotive Aftermarket[/caption]   Ultimately, a growing number of customers sought alternative channels for a variety of products, despite the fact that retailers were deemed essential service providers and operated during multiple shutdowns. As a result, retailers have been accelerating their digital solutions projects by improving e-commerce functionality and adding new shopping options, such as curbside pickup and faster home delivery. The automotive industry is experiencing major changes in its landscape with digitization, electrification, and the complexity of the global market. Leading global players, including suppliers, OEMs, and new entrants, are already innovating their business models to adapt to the extremely competitive ecosystem. Even though the industry's online penetration has increased in recent years, there are still plenty of opportunities for leaders to seize. Success in 2030 will require automotive players to prepare for uncertainty, leverage partnerships (e.g., around infrastructure for autonomous and electrified vehicles), and reshape their value propositions. Concurrently, aftermarket players must improve their e-commerce strategies due to a greater emphasis on digital presence, as shoppers are becoming more accustomed to online channels due to the increased breadth, convenience, and ability to find exact specifications over traditional ones. Finally, as suppliers and retailers focus more intently on digital strategies to address consumer purchasing behavior, the e-commerce channel will continue to grow at an exponential rate in the automotive aftermarket. Author: Yassine Falk Sources: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/disruptive-trends-that-will-transform-the-auto-industry https://europe.autonews.com/guest-columnist/how-auto-industry-revolutionizing-its-sales-model https://home.kpmg/xx/en/home/insights/2022/08/changing-times-new-business-models-pose-challenges.html https://www.capgemini.com/wp-content/uploads/2021/09/Automotive-Agency-Sales-Model_POV_Capgemini-Invent.pdf https://www.alliedmarketresearch.com/online-car-buying-market-A10067 https://www.jefferies.com/CMSFiles/Jefferies.com/Files/IBBlast/Industrials/IB-Autocare-2021-Review-and-Outlook.pdf https://f.hubspotusercontent20.net/hubfs/6890475/PDF-Premium-Downloads/Automotive-Aftermarket-2022-Report-Valtech-Absolunet-V2.pdf https://www.statista.com/statistics/1199431/online-car-sales-share-in-selected-markets-worldwide/ https://www.simon-kucher.com/sites/default/files/2022-02/Brochure_Automotive-Study-2022.pdf https://www.precedenceresearch.com/aftermarket-automotive-parts-market https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Consumer-Business/us-2022-global-automotive-consumer-study-global-focus-final.pdf https://www.globenewswire.com/en/news-release/2021/11/03/2326186/0/en/Global-E-Commerce-Automotive-Aftermarket-is-Anticipated-to-Reach-USD-132-75-billion-by-2028-Fior-Markets.html#:~:text=E%2Dcommerce%20automotive%20aftermarket%20provides,served%20by%20the%20market%20players. https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/disruptive-trends-that-will-transform-the-auto-industry/de-DE  

November 24 2022 | Business Strategy, Economics
Female entrepreneurship as a sign of women’s empowerment

Female entrepreneurship in developing vs. developed countries Studies have shown that empowering women to participate equally in the global economy could add up to $28 trillion in GDP growth by 2025. Many global indicators can be used to assess the level of women’s empowerment across developed and developing economies. Observing the growth in the number of female entrepreneurs is a great sign of women’s empowerment. The more women have access to equal opportunities, the more developed a country can be, and the easier it is to reduce any existing inequalities that can slow down the economic growth of a nation. To determine disparities in female entrepreneurship, 2020 data from the World Bank was used to compare the number and characteristics of firms among benchmark countries using the share of female entrepreneurship among the firms surveyed. The countries chosen for this observation are Egypt, Tunisia, Morocco, the Netherlands, Belgium, and Finland to show where developing countries stand in comparison to more developed countries. As shown in the pie chart below, Finland and Belgium, both developed economies, appear to have the highest number of firms with female participation in ownership. On the contrary, Egypt has the lowest number of firms with female participation in ownership. The World Bank Enterprise survey shows that 44.2% of firms surveyed in Finland are owned by women, compared to 5.2% of firms surveyed in Egypt. These results show the disparities in the progress made toward the empowerment of active females in the labor market. Another important point to note is the fact that Egypt, Tunisia, and Morocco all have lower shares of female entrepreneurship compared to Finland, the Netherlands, and Belgium. In other words, it can be pointed out that economic and social development play a vital role in increasing the number of female entrepreneurs and encouraging more women to start their own business ventures.   Figure 1: Percentage of firms surveyed with female owners [caption id="attachment_8472" align="aligncenter" width="542"] Source: World Bank Enterprise Survey 2020[/caption] In many areas, women lack access to an entrepreneurial environment, social and institutional support, equal educational opportunities, and financial support programmes. Digging deeper, the literacy rates in the selected countries can show the knowledge and human capital gap between developed and developing countries.   Figure 2: % of females who can both read and write [caption id="attachment_8473" align="aligncenter" width="490"] Source: Global Gender Gap Report 2020 - The World Economic Forum[/caption] Based on that, education levels and enrollment rates directly impact women’s economic participation rates. This can be seen in the graph below:   Figure 3: Female Labor Force Participation Rates [caption id="attachment_8474" align="aligncenter" width="492"] Source: World Bank[/caption] The idea here is to show the correlation between female entrepreneurship, education levels, and labor force participation rates. The two chosen indicators prove the positive relationship between education, female labor force participation rates, and female entrepreneurship. This highlights the importance of policies aimed at increasing literacy rates and female economic participation, which can eventually help reduce the gender gap in entrepreneurship rates in both developed and developing countries. Lessons to learn from policies implemented in developed countries As a result of more women joining the workforce, public policy has focused on supporting women’s entrepreneurship since the 1970s. Since then, both developed and developing nations have adopted common policies and programmes aimed at promoting women's entrepreneurship. Despite substantial improvements in aiding women to overcome barriers to starting their own enterprises and working for themselves, women continue to face challenges, demanding further and more inclusive public policy action. Developing countries can observe and track effective policies implemented in developed countries that would enable the increase of female economic participation and, more importantly, female entrepreneurship. The gender gap in entrepreneurship can be reduced with the presence of profound measures and support programmes targeted at encouraging women’s economic participation. Examples of successful policies include: Finland: The Equality Programme includes providing loans to small companies, counseling, training, and establishing an entrepreneurs' mutual assistance network. This draws attention to the importance of access to finance for women entrepreneurs. European Union: The European Union's structural funds support numerous initiatives promoting women's employment. For instance, the Structural Funds' programmes aim to encourage female entrepreneurs, keep unemployed people engaged in the workforce, make it easier for people to re-enter the workforce, and enhance skills. European Union: The Entrepreneurship 2020 Action Plan calls for awareness-raising, entrepreneurship training, improved access to financing, stronger networks, and support in reconciling business and family life. The Programme revolves around 3 pillars: investing in entrepreneurial education, reducing financial burdens by improving access to finance, and recognizing and providing awards to role models. Sweden: The ‘Women Ambassadors’ scheme was set up to (i) increase the visibility of female entrepreneurship; (ii) inspire female entrepreneurship through personal stories and role models;(iii) make it easier for women to identify with entrepreneurial role models; (iv) encourage more women to view entrepreneurship as a potential career; and (v) help women address their entrepreneurial challenges by sharing their experiences. The programme ambassadors have reached more than 170,000 women in approximately 11,000 activities. The survey of the programme’s participants and ambassadors has shown that the participants had more interest in entrepreneurship after meeting an ambassador. Belgium: Young Company initiative aims to give students experience that closely resembles managing a business in the real world. The concept is built on the foundation of a joint-stock firm. This gives young people the chance to work in a variety of firm positions, including those of director and HR manager, among others. Young Company aims to reach children in secondary schools. Currently, policies related to women’s empowerment are not sufficient to overcome the low levels of female entrepreneurship in developing countries. It is also worth noting that allowing women to engage in growth possibilities will help developing nations speed up their economic and social development. Around the world, female business owners significantly contribute to economic growth and the eradication of poverty. Women-owned businesses, for instance, are growing more than twice as quickly as all other businesses in the United States, contributing close to $3 trillion to the national economy and directly supporting 23 million job opportunities. Progress is also taking place in developing countries, where there are between 8 million and 10 million formal small and medium enterprises (SMEs) with at least one female owner, and this number is rising. Studies have also shown that eliminating gender disparities in the workforce could increase the global GDP by 26%, benefiting both developed and developing nations. Globally, women continue to face significant obstacles that hinder the growth of their businesses, such as a lack of capital, strict social constraints, and limited time and skill. Despite the increase in education and school enrollment among women, they tend to lack the combination of education, vocational training, and skills required to promote the growth of highly productive firms. Regarding access to finance, the World Bank showed that 190 million fewer women than men own bank accounts. Therefore, achieving women’s empowerment is a vital step toward reducing gender inequalities and ensuring equal access to opportunities for all. Both the private and public sectors should create incentives to encourage investments in women-owned businesses to help accelerate women’s entrepreneurship. Reforms and policies that promote and encourage women’s entrepreneurship and economic participation should also be more common to achieve economic growth and reduce the global gender gap. More training programmes should be available for women who wish to start their own business ventures, allowing them to accumulate the managerial, financial, and technical skills needed to adapt to a business environment driven by technological advances. Author: Hebatallah Mohamed References: World Economic Forum: https://www.weforum.org/agenda/2018/01/this-is-why-women-must-play-a-greater-role-in-the-global-economy/ World Bank Enterprise Survey: https://www.enterprisesurveys.org/en/enterprisesurveys Labor Force Participation Rates: https://data.worldbank.org/indicator/SL.TLF.TOTL.FE.ZS?locations=EG Global Gender Gap Report 2020 - The World Economic Forum: https://www3.weforum.org/docs/WEF_GGGR_2020.pdf Equality Programme of The Finnish Government: https://www.un.org/womenwatch/confer/beijing/national/finisnap.htm European Commission Entrepreneurship2020 Action Plan : https://www.eesc.europa.eu/sites/default/files/resources/docs/entrepreneurship2020---action-plan.pdf Women Ambassadors, Sweden: https://betterentrepreneurship.eu/en/content/women-ambassadors-sweden?q=/printpdf/919 Entrepreneurship education in Belgium: https://www.schooleducationgateway.eu/downloads/entrepreneurship/Belgium_151022.pdf Female Entrepreneurship Resource Point - Introduction and Module 1: Why Gender Matters: https://www.worldbank.org/en/topic/gender/publication/female-entrepreneurship-resource-point-introduction-and-module-1-why-gender-matters Council on Foreign Relations: https://www.cfr.org/womens-participation-in-global-economy/

August 01 2022 | Industrial Goods, Economics
Impact of Russia-Ukraine War on Aluminum Industry

Aluminum industry in the global economy The Russian military operations in Ukraine had a significant impact on many industries, including the aluminum industry. At the beginning of the year, global aluminum prices were already soaring, but the conflict surely exacerbated the situation in February. Notably, the war has not only impacted the aluminum market but also various products in which aluminum is a vital component, from beverage and food cans to aerospace applications. These various applications are expanding and driving up aluminum demand year after year. As a result, the global aluminum market size has grown from 150 billion USD in 2020 to 152.3 billion USD in 2021 and is expected to reach 160.7 billion USD in 2022. Due to the anticipated growing demand, by 2027, the global aluminum market value is projected to reach 210 billion USD. Global Aluminum Market Size (2020 – 2027), in billion USD   [caption id="attachment_8323" align="aligncenter" width="441"] Source: Statista.[/caption] Note: the value from 2023 to 2026 are estimated based on Infomineo analysis (CAGR 4.9%). The high demand for aluminum comes from its essential contribution to multiple industries, including packaging, automotive, and construction. -In packaging, for example, the aluminum content represents 73% of the beverage cans by weight -In the automotive industry, the aluminum share of vehicle weight is expected to grow from 9.1% in 2017 to 16% by 2028. - In construction, the consumption of extruded aluminum (extruded aluminum is the major product used in construction) has grown from 30.7 million tons in 2020 to 33.4 million tons in 2021. It is forecasted to continue to grow to reach 3 million tons by 2025.   Major drivers of aluminum prices Aluminum production involves multiple stages until the finished product can be used directly in different industries, including mining the bauxite ore, shipping to smelters, refining, casting, etc. Besides the demand-supply balance, there are many factors in these operations that affect the aluminum price, the most important of which are: Raw material prices: The price of bauxite, as the aluminum-source ore, along with the raw materials used in aluminum production like alumina (refined bauxite), coke, pitch, silicon, magnesium, and caustic soda, all affect the price of the ready-for-shipping aluminum. Shipping costs: Freight costs, particularly sea freight (containers), have a direct impact on raw material prices as well as primary aluminum prices. Energy cost: the cost of power is deeply involved in aluminum production costs as one of the most energy-sensitive industries, accounting for 12% of the global industrial sector’s energy use. National policies and market dynamics: To regulate the market and adjust to national policy, producing countries use instruments such as tax cuts and rebates to respond to importing countries that apply anti-dumping taxes on imported aluminum products.   The war’s impact on aluminum price drivers The war pushed the price of aluminum to unprecedented levels. For example, the aluminum price on the LME (London Metals Exchange) with the three-month contract peaked at a record $4,000 a ton in early March 2022, compared to the $3,224 February monthly average of the same year. Market prices have recently declined as price hikes discourage demand, but even in May2022, aluminum trades at the $3,300 level, which is 40% higher than the previous year. There are multiple factors that have impacted aluminum prices. Firstly, and most importantly, oil price spikes had a detrimental effect not only on aluminum, but on all commodities. The Brent oil price was marked at around $80 per barrel at the beginning of 2022, but the price jumped from around $96 per barrel on February 14th, 2022, to around $123 per barrel on March 7th, 2022. More than four months after the start of military operations, the Brent price remains around $120 (June 2022). Secondly, supply chain disruptions due to the Russian invasion increased the cost of shipping operations. The ClarkSea Index (all shipping markets) shows a dramatic increase in the shipping rate from around $30,000 per 40-foot container by the end of January 2022 to over $40,000 in March. ClarkSea Index in Thousands USD/day – all shipping markets [caption id="attachment_8324" align="aligncenter" width="539"] Source: UNCTAD Secretariat[/caption] Finally, the impact of changing national policies on market dynamics should not be overlooked. Since aluminum is one of the biggest emitting industries, China's aim to achieve net-zero carbon emissions by 2060 has resulted in a reduction in China's aluminum output (the world's top producer). To compensate for the decreasing domestic output, China's aluminum imports surged dramatically. The war has reversed the equation. As natural gas and other energy prices skyrocketed, European aluminum companies reduced production, creating a metal shortage and a price gap of roughly $300 per ton between China and Europe. Also, since China has not imposed sanctions on Russia, the country has had access to cheaper energy and lower production costs compared to Europe. This created a profit opportunity when a trader buys Asian aluminum and resells it in Europe or the United States.   Secondary aluminum as a solution As a solution to the difficult circumstances ranging from COVID-19 to the Russia-Ukraine war, the top aluminum producing companies focused their efforts on secondary (recycled) aluminum as a less expensive option during the difficult period. Several of the top 10 aluminum producers recently invested in secondary aluminum: Rio Tinto (UK/Australia) – March 2022: Rio Tinto has commissioned a new remelt furnace at its Laterrière Plant, adding 22,000 metric tons of recycling capacity to its aluminum operations in the Saguenay – Lac-Saint-Jean region of Quebec. The $8.4-million project has been completed over two years to offer rolled product customers in the North American automotive and packaging industries a new sustainable supply solution combining low-carbon and recycled aluminum. Alcoa (US) – April 2022: Alcoa has completed the installation of a new furnace in Norway that uses renewable energy to recycle scrap aluminum, saving energy and unlocking the infinite recyclability of our metal. The project stems from a collaboration between Alcoa and MMG Aluminum, a German-based metals trading company that supplies Mosjøen (Norway) with clean aluminum chips and shavings that have been compressed into briquettes. The induction furnace efficiently melts those briquettes and then pours out the recycled aluminum for blending with the smelter’s low-carbon aluminum and other alloying materials, depending on the end-use applications. Norsk Hydro (Norway) – May 2022: Norsk Hydro has announced a tender offer to acquire 100 percent of the shares of Alumetal S.A., based in Poland. Hydro describes that company as the second-largest producer of aluminum casting alloys in Europe. Alumetal has an annual production capacity of 275,000 metric tons at its three plants in Poland and one in Hungary. Hydro describes the company as experienced in the sorting of post-consumer scrap and says Alumetal is currently “constructing a new, state-of-the-art sorting line” for the scrap it melts. The secondary aluminum market aids in reducing demand for primary aluminum. However, much more effort is required to reduce the recent metal price surge. This will eventually allow the global aluminum market to recover and restore normal conditions while mitigating the effects of COVID-19 and the war. Author: Mohammad Sayed Sources : https://www.statista.com/statistics/1113683/global-aluminum-market-size/ https://www.aluminum.org/canadvantage https://www.statista.com/statistics/892783/japan-aluminum-share-in-medium-sized-passenger-cars/ https://aluminiuminsider.com/aluminium-content-automobiles-account-16-curb-weight-2028-aluminum-association/ https://www.statista.com/statistics/1113623/global-aluminum-exports-by-country/ https://www.iea.org/reports/aluminium https://www.eia.gov/todayinenergy/detail.php?id=38392#:~:text=Within%20the%20industrial%20sector%2C%20the,and%20other%20intermediate%20metal%20goods. https://www.reuters.com/article/aluminium-rebate-idAFL3E7FC0WI20110412 https://asia.nikkei.com/Business/Markets/Commodities/Ukraine-war-turns-China-into-net-exporter-of-aluminum https://www.westmetall.com/en/markdaten.php?action=averages&field=LME_Al_cash https://www.statista.com/statistics/326017/weekly-crude-oil-prices/ https://markets.ft.com/data/commodities/tearsheet/summary?c=Brent+Crude+Oil https://unctad.org/news/war-ukraine-raises-global-shipping-costs-stifles-trade https://www.statista.com/statistics/280920/largest-aluminum-companies-worldwide/ https://www.riotinto.com/news/releases/2022/Rio-Tinto-commissions-new-aluminium-remelt-furnace-at-Laterrire-Plant- https://www.alcoa.com/global/en/stories/releases?id=2022/04/alcoa-advances-sustainably-with-recycled-aluminum-produced-using-renewable-energy https://www.recyclingtoday.com/article/hydro-alumetal-aluminum-recycling-norway-poland-acquisition/  

The impact of the Russian war in Ukraine on the financial sector

Economic shockwaves have been felt across all industries as penalties from the European Union, the US, and many other countries ramp up on the Russian Federation. Energy prices are rising, stock prices are falling, supply chains are collapsing, and inflation has reached record levels. These recent events have demonstrated that countries can be completely cut off from the global financial system or have their assets become worthless overnight. However, how strong will the Russian war affect the financial sector, and most importantly, how long will this effect last? In order to assess the consequences of the war in Ukraine, it’s vital to list the main restrictions imposed on Russia recently: Restrictions on the Russian financial sector According to statistics from S&P Global Market Intelligence, the vast majority of Russia's commercial banking industry has been subject to international sanctions as a result of the country's invasion of Ukraine. Foreign governments have imposed a set of restrictions against Russian banks, including capital market bans, asset freezes, and withdrawal from the Swift messaging system that facilitates financial transactions globally. The value of assets held by Russian commercial banks that are subject to the new sanctions exceeds 91 trillion rubles, or approximately over 80% of the 114.55 trillion rubles in total assets held by the country's banking industry as of September 30, 2021. The majority of the lenders that have been impacted are Russia's systemically large financial institutions.   Swift withdrawal Several banks have been removed from Swift: PJSC Bank Otkritie Financial Corp., Joint-Stock Commercial Bank NOVIKOMBANK, PJSC Promsvyazbank, Bank Rossiya, PJSC Sovcombank, State Development Corp. VEB.RF, and VTB Bank PJSC. Sberbank of Russia and Gazprombank JSC, two of the country's biggest lenders, were exempted from the Swift cut-off so that energy payments to Russia could continue. The US, on the other hand, placed correspondent and payable-through account sanctions on Sberbank and its subsidiaries, effectively cutting them off from the US financial system and limiting their access to dollar transactions. Similar restrictions were also imposed in the United Kingdom.   Frozen assets Most of the banks that were withdrawn from Swift had their assets frozen by the EU and the UK, while the US imposed full blocking sanctions on them, shutting them off from the US financial system, freezing their assets, and forbidding US individuals and businesses from doing business with them. Individual sanctions have also been imposed on a number of bank executives and major shareholders. Some of the banks were already operating under restrictions imposed after Russia's 2014 annexation of Crimea. The US, EU, UK, and Canada also decided to freeze foreign assets of the Central Bank of Russia, reducing its ability to mitigate the impact of the sanctions and support the country's banks with their foreign exchange needs. As a result of the sanctions, Russia lost access to over half of its $640 billion in reserves, according to Reuters, citing Russian Finance Minister Anton Siluanov. It is important to note that the Russian subsidiaries of international lenders such as France's Société Générale Société anonyme, Italy's UniCredit SpA, Austria's Raiffeisen Bank International AG, and Hungary's OTP Bank Nyrt are not subject to these sanctions. Many international banks, however, have warned that the conflict may cause them to lose their investments in Russia, especially after the USA decided to prohibit all investments in the Russian Federation by U.S. citizens.   OFAC Blocking of Sberbank and Alfa-Bank The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) imposed blocking sanctions on two major Russian banks – Sberbank and Alfa-Bank – and added them and 48 of their subsidiaries to OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”). Prior to this, both entities had been subjected to considerable but less severe restrictions. By implementing the blocking sanction, OFAC has effectively banned all transactions involving these two banks by U.S. individuals or in (or through) the United States. Furthermore, all entities directly or indirectly owned (50% or more) by one or more of these institutions, whether individually or collectively, and any other blocked Russian individual or organization, whether or not named on the SDN List, are subject to the same penalties.   Impact of the war and restrictions SWIFT alternative With the United States, the UK, Europe, and Canada suspending some Russian banks from SWIFT on February 26th – essentially attempting to deny Russia access to the financial markets – many have speculated on the impact this will have on the payments ecosystem. Concerns have been raised about how payments for Russian energy imports would be handled, whether international creditors would be reimbursed, and how much nesting would be encouraged. In reaction to its withdrawal, the Russian Central Bank has claimed its SWIFT alternative – the Financial Message Transfer System (FMTS), established in the wake of the 2014 invasion of Crimea – is primed. FMTS delivered two million messages in 2020, according to Reuters, which accounts for almost a fifth of Russia’s internal traffic. Institutional participation in the system, on the other hand, is nowhere near what it has to be to keep Russia afloat in the international money transfer sector. Currently, the majority of members are Russian and Belarusian banks. Regardless of FMTS’ short-term success, the bottom line here is that the west’s use of the SWIFT “financial nuclear weapon” – as French Finance Minister Bruno Le Maire called it – will, at the very least, be fragmenting the global payments landscape. Currency The Russian ruble has suffered a severe depreciation as a result of geopolitical tensions and the international response to the situation in Ukraine. The central bank boosted the benchmark interest rate to 20% from 9.5% in an effort to support the currency and urged exporters to convert 80% of their revenue into rubles. Bans on foreign-currency loans and transfers to non-residents have also been implemented by the government, among other restrictions. US dollar to Russian ruble exchange rate: Number of rubles against the dollar from Feb 1, 2022, to March 16, 2022. [caption id="attachment_8243" align="aligncenter" width="451"] Data compiled March 17,2022Source: S&P Global Market Intelligence[/caption]   Rise of Cryptocurrencies However, it should be noted that not all areas of the financial services industry are at a disadvantage during this crisis. "Cryptocurrency and related services will benefit," said Michael Clouser, co-founder of The Startup Race. “People are losing trust in central currencies due to political instability, and actors are seeking to circumvent sanctions and SWIFT shutdowns.” Rising oil prices might lead to even more inflation, according to Clouser, and central bank-controlled currencies will lose value as people lose confidence in them. “Alternative currencies – those besides Bitcoin – will rise in price, such as Monero and other cryptos with privacy by design.” Additionally, cryptocurrency is also operating as a safe haven for many ordinary Russian residents who are trying to keep their savings secure from a banking system that has several restrictions and vulnerabilities as the ruble's value falls.   Threat to global banks With over US$100 billion of Russian debt held by foreign banks, concerns have been raised about the risks to banks outside Russia and the potential for a default to trigger a liquidity crisis similar to the one that occurred in 2008. European banks, particularly those in Austria, France, and Italy, are the most vulnerable to Russia's latest sanctions. According to data from the Bank for International Settlements (BIS), French and Italian banks each have roughly US$25 billion in outstanding claims on Russian debt, while Austrian banks have US$17.5 billion. Banks will certainly be impacted in other ways as well. Switzerland, Cyprus, and the UK, for example, are the most popular locations for Russian billionaires looking to deposit their money abroad. Cyprus also attracts Russian wealth with golden passports and visas. Because of the sanctions, all of these nations' financial institutions are expected to lose business. For example, the stock values of UK banks, Lloyds and NatWest, have both fallen by more than 10% since the invasion started.   To sum up, the war's effects might be vast, and many more will almost certainly emerge in the coming weeks and months. The financial sector has responded to the Russia-Ukraine war in a way that has never been seen before. With the increasing speed with which banks and financial corporations announce their own embargoes against Russia, the country is becoming increasingly isolated from the rest of the world. Internationally, the markets have been highly unstable as the global economy continues to recover from the pandemic while also dealing with high inflation. Yet, the invasion of Ukraine has exacerbated the situation, and financial markets will be on high alert to observe how things unfold.   Author: Mariam ElMaghraby Sources: https://www.finextra.com/the-long-read/358/how-is-the-russia-ukraine-war-impacting-the-financial-and-tech-sectors https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/more-than-80-of-russia-s-banking-sector-subject-to-sanctions-over-ukraine-war-69434351 https://www.natlawreview.com/article/biden-administration-rolls-out-new-tranche-sanctions-russia-blocking-major-russian https://www.business-standard.com/article/international/could-the-russian-invasion-of-ukraine-spark-a-global-financial-crisis-122030600191_1.html https://www.worldbank.org/en/news/press-release/2022/04/10/russian-invasion-to-shrink-ukraine-economy-by-45-percent-this-year https://theconversation.com/how-the-russia-ukraine-conflict-has-put-cryptocurrencies-in-the-spotlight-180527

The Continuing Impact of COVID-19 on the Global Supply Chain

Over the past two years, just about anything that could go wrong with global supply chains has done just that. The COVID-19 pandemic has led to volatile swings in demand, widespread factory shutdowns, and every type of supply chain disruption in between. But which industries were most affected by these stresses to their supply chains? How were companies able to adapt their supply chain management?  And what are countries doing to make sure that future shutdowns don't affect their supply chains so drastically?   [caption id="attachment_7875" align="aligncenter" width="621"] Click the image to access the report![/caption]   Which industries experienced significant stress on their supply chains? The COVID-19 pandemic brought to light long-standing vulnerabilities in global supply chains. Lockdowns slowed or stopped the flow of raw materials and disrupted manufacturing in several industries, putting supply chains under significant stress. Factory shutdowns caused a shortage of semiconductors, already in short supply amid sustained demand from a growing EV market, and the increased demand for electronic goods from consumers confined to homes by lockdowns.  Major automakers bore the brunt of this shortage, made worse by the concentration of the world’s semiconductors manufacturing among just a handful of producers—Taiwan’s Semiconductor Manufacturing Co.(TSMC), for instance, along with South Korea’s Samsung, manufacture a combined 70% of the world’s semiconductor supply. The automotive industry was also hit hard by the supply chain issues affecting both battery manufacturers, and the mining industry that extracts the rare-earth elements needed for those batteries. Automakers’ over-reliance on the Asia-Pacific region for these critical components was made clear when major battery manufacturers such as BYD and CATL announced extended production delays, forcing automakers to slash production.  The textile and fashion industries are two more to have been extremely hard hit by the global supply chain crisis. With China being a critical global supplier of textile inputs, pandemic-related production disruptions there reverberated throughout the rest of the textile and fashion industries. These industries were further affected when the global transportation system came to a halt, preventing or delaying the transport of components to manufacturers, and finished products to consumers.     How were companies able to adapt their supply chain management?  With COVID-19 related shortages exposing vulnerabilities in the global supply chain, companies across different industries have taken action to determine how best to deal with the disruption and mitigate the effects of future supply chain shocks.   China plus one strategy One way to address the risks associated with over-reliance on a single supply source, is to use sources in locations not vulnerable to the same risks. This is the core idea behind the ‘China plus one’ strategy currently in use by several major companies. It emphasizes diversification by establishing a factory in one other developing Southeast Asian country – such as Thailand or Vietnam – in addition to existing facilities in China, to minimize the risks of geographic concentration.   Strengthening local supply networks Some companies are strengthening their supply networks by investing in local suppliers. Samsung, for instance, has invested a combined $238 million in nine midsize companies since the summer of 2020, to develop a network of chip equipment and materials suppliers inside South Korea and reduce its reliance on overseas suppliers. Similarly, Tesla is creating a domestic US lithium supply chain by sourcing the lithium ore necessary for lithium-battery fabrication within the US, thereby reducing its reliance on traditional lithium-producing countries.   Innovative workarounds Major companies have been forced to find innovative solutions to their supply chain problems. Tesla, for instance, has dealt with the chip shortage by rewriting vehicles’ software to support alternative chips.  Cardinal Health, a leading US healthcare services company, has turned to the use of tracking software to track shipments of their products between manufacturing plants and Cardinal's distribution centers. This allows for the making of predictive decisions to adjust supply plans and production schedules.   How are countries making sure that future shutdowns don't affect their supply chain? Global supply chain problems have made clear to governments the need to take action to strengthen and support their domestic supply chains, and many have taken important first steps towards doing just that, in preparation for future crises.   USA President Biden signed an executive order in February 2021, for a comprehensive review of critical US supply chains, with the associated White House report being released in June. Among other recommendations, the review determined that a solid supply chain must include a small and medium-sized business manufacturing base and highlighted the US’s need to diversify its international suppliers to reduce the risks associated with geographic concentration.    Japan The Japanese government has focused its efforts on subsidizing local businesses to strengthen domestic supply chains. It has distributed 146 subsidies totaling 247.8 billion yen ($2.4 billion) with the goal of encouraging an increase in domestic manufacturing, to reduce the country’s dependence on Chinese supply. Japan is also investing in overseas rare earth minerals projects, particularly in Australia and India to reduce its reliance on China’s supply from 58% registered in 2019, down to 50% by 2025.    Outlook: The Global Supply Chain Looking Forward As lockdowns have lifted and a global economic recovery has gathered pace, consumer demand has increased sharply. Supply chains that were disrupted during the crisis continue to face significant challenges and are struggling to bounce back, much less meet increased demand. While companies and governments alike have taken substantial action in response to the supply chain crises, these will not be sufficient to solve supply chain woes in the near term. Months of shipping backlogs and continuing labor shortages have caused bottlenecks that are proving difficult to resolve, and most analysts agree that supply chain problems will only get worse before they get better, with some estimates warning that the crisis could last another two years.   Author: Mohamed SAIDI Sources https://www.ey.com/en_gl/supply-chain/how-covid-19-impacted-supply-chains-and-what-comes-next https://www.pwc.com/ng/en/assets/pdf/impact-of-covid19-the-supply-chain-industry.pdf https://hbr.org/2020/09/global-supply-chains-in-a-post-pandemic-world https://www.nytimes.com/2021/10/02/business/tesla-electric-q3-sales.html https://www.cambridge.org/core/journals/mrs-bulletin/article/covid19-disrupts-battery-materials-and-manufacture-supply-chains-but-outlook-remains-strong/158FE30E4868EE8D2952216B6CCB8B4F https://asia.nikkei.com/Business/Tech/Semiconductors/US-China-tension-brings-both-a-risk-of-chip-dependency-on-Taiwan https://asia.nikkei.com/Business/Electronics/Samsung-builds-chip-supply-chain-on-home-turf-to-cut-overseas-risk https://www.nsenergybusiness.com/news/piedmont-lithium-agrees-to-supply-spodumene-concentrate-to-tesla/ https://www.theverge.com/2021/7/26/22595060/tesla-chip-shortage-software-rewriting-ev-processor https://www.theguardian.com/environment/2021/apr/17/the-race-for-rare-earth-minerals-can-australia-fuel-the-electric-vehicle-revolution https://asia.nikkei.com/Politics/International-relations/Japan-to-pour-investment-into-non-China-rare-earth-projects https://techwireasia.com/2021/10/heres-what-the-2021-global-semiconductor-shortage-is-all-about/ https://www.semiconductors.org/semiconductors-101/what-is-a-semiconductor/ https://www.metalbulletin.com/Article/4002802/OUTLOOK-Securing-lithium-biggest-challenge-to-battery-supply-chain-in-H2-2021.html https://www.argusmedia.com/en/news/2191594-qa-chip-shortage-shows-need-to-diversify-supply-chain https://www.bloomberg.com/news/articles/2021-07-22/tight-battery-market-is-next-test-for-evs-caught-in-chip-crisis https://www.bloombergquint.com/global-economics/japan-allocates-2-4-billion-for-better-supply-chain-resilience https://www.japantimes.co.jp/news/2020/03/06/business/japan-aims-break-supply-chain-dependence-china/ https://www.eenewsanalog.com/news/reports-tsmc-lost-market-share-2q20 https://www.e3s-conferences.org/articles/e3sconf/pdf/2021/21/e3sconf_aeecs2021_03044.pdf https://www.financialexpress.com/investing-abroad/stockal-specials/semiconductor-industry-key-growth-drivers-and-the-changing-trends-an-overview/2287214/ https://www.ifc.org/wps/wcm/connect/1d32e536-76cc-4023-9430-1333d6b92cc6/210402_FCDO_GlobalPPE_Final+report_v14updated_gja.pdf?MOD=AJPERES&CVID=nyiUnTU https://www.theguardian.com/business/2021/dec/18/global-supply-chain-crisis-could-last-another-two-years-warn-experts

November 24 2021 | Economics
Global E-Commerce and the Impact of COVID-19

The global e-commerce market has, over the last two years, undergone revolutionary change. Consumers have grown accustomed to buying items from the comfort of their own home – a change spurred largely by strict lockdowns and restrictions on movement – and many analysts agree that this shift in consumer behavior has propelled the e-commerce industry forward by at least five years. This shift in shopping behavior, moreover, looks likely to be permanent and not transitory.      Global E-Commerce Market Overview  The global e-commerce market is expected to reach $4.92 Trillion in sales by the end of 2021, representing 17% year-on-year growth. This growth is, however, down from the stellar 26% increase experienced by the market in 2020. Sustained double-digit growth is forecast for the coming three years, representing a tremendous opportunity for businesses that have not yet provided their customers with an online sales channel.  Global Retail E-commerce Sales (USD Trillions, % Change YOY) Businesses that had not yet invested in establishing an online presence were the ones most affected by the pandemic. According to data from Yelp, 163,735 businesses had closed due to the pandemic as of August 2020, with 60% of these closures being permanent (97,966). Businesses that moved online, on the other hand, have largely been able to survive or even thrive.  Global Retail Sales (%) (2019 – 2025) *  *eMarketer, May 2021 The pandemic has also significantly impacted the growth of certain product categories. Hardware-based products, for instance, such as laptops, TVs, phones & video game consoles have seen a 134% increase in order volume since the start of the pandemic.  This is largely due to lockdown and confinement-induced changes in consumer needs. As more workers moved to remote work, the need for suitable computer and office equipment drove up sales. Similarly, house-bound consumers have looked to update their home entertainment systems, driving up sales of TVs, gaming consoles, and other such products.  The sporting goods category also benefitted from confinement measures as people looked to replace their gym memberships with home exercise equipment and the sporting goods necessary for outdoor recreation. E-Commerce Market Breakdown by Region  Looking at e-commerce sales figures by region, Asia-Pacific leads the pack with $2.4 trillion in sales in 2020. The region — home to e-commerce juggernauts Alibaba, JD, and Pinduoduo among others — saw a 26% growth in e-commerce sales.  Within the region, China is a frontrunner by some margin, and according to eMarketer is well on its path to becoming the first country in history in which e-commerce sales will amount to more than half of retail sales, with 52.1% of retail sales forecast to take place through online channels in 2021.  The top spot in terms of growth, however, is held by Latin America, which saw a 37% increase in e-commerce sales compared to 2019. Many countries contributed to this outstanding growth with Argentina leading the way; the country’s online retail sector grew by 79% in 2020, helped in large part by the presence of homegrown e-commerce giant Mercado Libre, often dubbed the “Amazon of Latin America”. Mercado Libre’s sales saw a surge of 46.5% in Latin America in 2020. Its stock has also outperformed Amazon's over the last year, increasing by just under 65% during 2020 compared to Amazon's 33% increase during that period. The Impact of COVID-19 on the Top Players in E-Commerce  Gross merchandise volume, or GMV, is often used to assess the health of e-commerce businesses. It indicates the total sales of merchandise over a given period and is calculated prior to the deduction of any fees or expenses. Considered alongside data from the financial statements of the top global e-commerce, a clear picture of the impact of COVID-19 on e-commerce can be gleaned. Services e-commerce companies, such as those involved in ride-hailing and travel, suffered a sharp decline in GMV pushing them below their peers in the rankings of top B2C e-commerce companies by that measure. Expedia, for instance, fell from 5th place in 2019 to 11th in 2020, while Booking Holdings fell from 6th to 12th, and Airbnb fell from 11th to 13th. Despite the reduction in services companies’ GMV, the total GMV for the top 13 companies rose by 20.5% in 2020, surpassing the 17.9% in growth registered in 2019. Demand Side E-Commerce Trends The COVID-19 pandemic has brought about a plethora of changes in consumer shopping behavior. Some of these have proved positive for e-commerce retailers, while others have forced sellers to make substantial changes. Post-Pandemic Transition from “Need Buying” to Indulgence Spending  Throughout the pandemic, consumers were limited as to where and when they could spend their money. According to McKinsey, 51% of US consumers reported a desire to splurge and indulge in "revenge spending" once the pandemic subsides.  Another figure, reported in the Deloitte consumer behavior tracker, shows that 47% of consumers surveyed reported delaying large purchases in 2020. This figure dropped to 37% in June 2021, indicating that consumers are beginning to spend more as they move away from necessity-based buying. Ethical Shopping and Ethical Brands During the pandemic interest in ethical shopping and ethical brands rose by 450% according to Google, while a survey done by Accenture revealed that 45% of consumers are making more sustainable choices when shopping and report that they will likely continue to do so.  Brand Loyalty Disruption According to a McKinsey study, 75% of consumers tried new shopping behaviors during the pandemic while 39%, mainly millennials and Gen Z, deserted trusted brands for new ones.  Permanent Consumer shopping Behavior Change Just under 49% of people who tried shopping online during the outbreak said they would do it more frequently once the pandemic subsides. This varies by geographical location, however; while 60% of Italians shopped online during the pandemic, less than 10% reported being satisfied with the experience. In contrast, 73% of Finnish consumers who shopped online during the COVID-19 pandemic said they would continue doing so after the crisis. Supply Side E-Commerce Trends Increasing consumer tech adoption, alongside changes imposed by the outbreak of COVID-19, has brought about significant changes that might well alter the e-commerce space permanently.  Click & Collect  Also known as curbside pickup, click & collect services have seen growing popularity during the pandemic due to consumers’ safety concerns. Orders placed online or by phone are packaged and then either put in the trunk of customers’ cars or set outside for pick up. Among stores ranked in the Digital Commerce 360 Top 500, just under 44% of the 245 retailers surveyed offered Click & Collect in 2020, a sharp increase from the 6.9% figure registered at the end of 2019.  Direct to Consumer Direct to consumer brands are increasing in popularity and the COVID-19 pandemic has given these brands an extra boost. Consumer goods companies saw 70% growth coming from DTC sales online, and according to eMarketer, web traffic on DTC shops has doubled in the last two years. Omnichannel Strategy Omnichannel marketing strategies have become one of the most dominant trends in the e-commerce space. According to Google, omnichannel strategies drive an 80% higher rate of incremental store visits, while another study done on EU consumers found that 67% of consumers use multiple channels to conduct a single transaction.  Buy Now Pay Later The BNPL model allows consumers to make an upfront payment toward a purchase, then pay the remainder off in a predetermined number of installments. E-commerce retailers get the full price paid, making this transaction one between the BNPL service provider - such as PayPal and Klarna - and the customer. BNPL market share worldwide is expected to double from 2.1% in 2020 to 4.2% by 2024.  Global e-commerce’s post-pandemic future Looking forward, changes that were either ushered in or accelerated by the pandemic, look likely to prove permanent. Consumers who were introduced to the convenience of online shopping are unlikely to revert completely to old shopping behaviors, though the growth in e-commerce is expected to slow as more physical stores reopen and shoppers return to the high streets. The Asia-Pacific region’s position as the largest regional e-commerce market is unlikely to change soon despite the continued rapid growth forecast for both Latin America and North America. E-commerce market leaders have mostly cemented their positions, benefiting greatly from lockdowns and the associated changes in consumer behavior. Services e-commerce companies such as Expedia, Airbnb, and Uber, however, are an exception to this trend and may struggle to recover the positions they enjoyed before the outbreak of COVID-19. Demand-side trends such as brand loyalty disruption and the increased interest in ethical shopping, promise to continue to play an important role, as do supply-side trends such as click & collect m-commerce, and BNPL. The exact degree to which this will be the case, however, remains to be seen and retailers will have to remain flexible to respond appropriately to these changes.   Author: Othmane Zidane Sources https://www.shopify.com/enterprise/global-ecommerce-statistics#2 https://www.statista.com/statistics/534123/e-commerce-share-of-retail-sales-worldwide/ https://www.yelpeconomicaverage.com/business-closures-update-sep-2020 https://internetretailing.net/covid-19/covid-19/85000-businesses-launch-online-shops-as-b2c-and-b2b-ecommerce-surge-in-lockdown-21639 https://www.bazaarvoice.com/blog/the-impact-of-covid-19-on-e-commerce-by-category/ https://www.statista.com/statistics/311357/sales-of-e-commerce-worldwide-by-region/ https://www.emarketer.com/content/global-historic-first-ecommerce-china-will-account-more-than-50-of-retail-sales https://www.emarketer.com/content/mercado-libre-will-surpass-20-billion-ecommerce-sales-2020 https://www.emarketer.com/content/global-ecommerce-forecast-2021 https://www.fool.com/investing/2021/05/25/better-buy-mercadolibre-vs-amazon/ https://unctad.org/system/files/official-document/tn_unctad_ict4d18_en.pdf https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/emerging-consumer-trends-in-a-post-covid-19-world https://www.thinkwithgoogle.com/consumer-insights/consumer-trends/pandemic-shopping-behavior/ https://www.investopedia.com/how-shopping-habits-changed-due-to-covid-5186278 https://www.digitalcommerce360.com/2021/02/19/ecommerce-during-coronavirus-pandemic-in-charts/ https://www.bigcommerce.com/blog/mobile-commerce/#common-benefits-of-mobile-commerce https://www.businessinsider.com/mobile-commerce-shopping-trends-stats https://www.groovecommerce.com/ecommerce-blog/mobile-ecommerce-examples/ https://www.imrg.org/blog/direct-to-consumer-booms-during-covid-19/ https://www.retaildive.com/news/how-nike-is-using-dtc-and-data-to-expand-its-empire/596602/ https://www.thinkwithgoogle.com/consumer-insights/consumer-trends/meeting-shoppers-needs-omnichannel-drives-instore/ https://inviqa.com/blog/magic-disneys-omnichannel-experience https://www.statista.com/topics/8107/buy-now-pay-later-bnpl/#dossierKeyfigures https://www.retaildive.com/news/target-adds-buy-now-pay-later-options-with-affirm-sezzle/607842/ https://www.emarketer.com/content/voice-commerce-holds-promise-yet-shoppers-are-skeptical https://medium.com/@Rubingh/the-year-of-voice-50aa2c6d3f5b https://voicefront.ai/blog/how-starbucks-increased-their-mrpu-by-16-using-voice-commerce/

The legalization of Cannabis in Morocco

On the 2nd of December 2020, the Commission on Narcotic Drugs (CND), the UN's main decision-making body on drug control, removed cannabis from its list of most dangerous drugs, which includes heroin and synthetic opioids. Cannabis is subject to the 1961 Single Convention on Narcotic Drugs and was, until December 2020, included in a category allowing it to be banned because of its "particularly dangerous properties". This amendment was based on a recommendation by the World Health Organization (WHO). In fact, in January 2019, the WHO unveiled six recommendations for the inclusion of cannabis in the UN drug control treaties. Among the many points made by the Organization, it has been clarified that cannabidiol (CBD), a non-toxic compound, is not subject to international controls and it has, in fact, become a prominent part of wellness therapies in recent years, sparking a billion-dollar industry. The decision made by the WHO was supported by 27 countries against 25. The decision is not in favor of a legalization of cannabis worldwide, which remains among the "highly addictive and liable to abuse substances”. However, it implies that its production and marketing remain reserved for scientific and medical use under international law. According to this decision, Morocco has raised the issue at the Government Council level. In fact, the Ministry of Interior has drafted a law on the legalization of Cannabis for medical use, in order to regulate the activities related to the cultivation of cannabis, its production, manufacture, transport, marketing, export, and import for medical and therapeutic purposes, subject to authorizations issued exclusively by a specialized agency. What is the composition of the Cannabis Plant? Cannabis is a type of hemp, which is a plant used in the yarn industry. As for its composition, the most important part of the plant is its “flower”, it is responsible for producing the so-called “Resin”, this material contains 2 molecules, “THC” and “CBD”. THC contributes to altering the consumer's state of consciousness making them “high”. It is also used for anesthesia purposes as in the case of cancer patients undergoing chemotherapy. Meanwhile, CBD does not have the same purpose. In addition to its sedative effect, it works against THC to limit its properties, particularly by calming the nervous system. CBD has major therapeutic virtues, according to the U.S. National Centre for Biotechnology Information (NCBI), such as anti-inflammatory properties, it alleviates anxiety and depression, it can calm the symptoms of epilepsy, and it can even contrast certain psychotic disorders (such as schizophrenia), etc.…. Studies conducted by NCBI even suggest that at high concentrations, CBD inhibits the proliferation of tumor cells from certain cancers and that it could reduce the risk of necrosis of the arteries after a heart attack. That’s why the debate about the advantages and disadvantages of Cannabis has risen again, and some countries have realized that maybe they are missing out on the benefits of this plant and its potential for both healthcare and the economy. Cannabis, what is the potential for the Moroccan economy? Globally, according to the report released in 2019 by New Frontier Data on the global cannabis industry, the global total addressable cannabis market (regulated and illicit) is estimated at USD 344 billion in the top five regional markets: Asia ($132.9 billion), North America ($85.6 billion), Europe ($68.5 billion), Africa ($37.3 billion) and Latin America ($9.8 billion). On the other hand, the global legal marijuana market size according to a recent research study by Precedence Research was valued at USD 17.5 billion in 2019 and predicted to reach a market value around USD 65.1 billion by 2027 expanding at a compound annual growth rate (CAGR) of around 17.8% during the period 2020 to 2027. A report has been published as a result of a study conducted in Morocco in 2003 -2004 by the United Nations. According to this report, the area dedicated to the cultivation of cannabis in Morocco was estimated at 134,000 ha in 2003 with a turnover of USD 15 billion in 2003 and 13 billion in 2004. At that time, the total Moroccan production was estimated at 98,000 tons and its conversion into resin (hashish) at about 2,760 tons, with almost half of it originating from the region surrounding Chefchaouen. However, these numbers have been reduced drastically thanks to the "cannabis-free provinces" campaign that Morocco conducted in 2007. As a matter of fact, the area cultivated for cannabis resin in Morocco amounted to 47,000 ha in 2017 for only 1,147 ha destroyed (2.4%), according to the United Nations Office on Drugs and Crime (UNODC). With this area, the Kingdom would have an estimated open air production around 38,000 tons, and 760 tons from indoor production. Morocco thus, retains its position as the world's largest producer of cannabis resin with a market value of USD 9 Billion in 2017. The illegal market takes the lead over the legal one, of course. As stated above, the total global market is valued at USD 344 billion in 2019, of which only USD 17.5 billion is legal. Therefore, the illegal market is valued at USD 326.5 billion. Even if the legal market is very limited, the study by Precedence Research predicts an expansion at 17.8% CAGR and a total value of USD 65.1 Billion in 2027. Morocco will be in a prime position to exploit this legal market if more widespread legalization occurs. What would be the legal frame of Cannabis legalization? The country acknowledges that legalization should have clear rules to regulate the cultivation and production of Cannabis. In fact, last February the Ministry of Interior presented a draft law on the legalization of Cannabis for medical use which was adopted by the House of Representatives in May. The proposed law contains 56 articles, a third of which establishes clear rules to regulate this activity which will be conditioned by an authorization granted by a national agency that will be created for this specific purpose. The law covers cultivation, production, exploitation, export/import of seeds and plants,  processing, transportation, marketing, and the export of final products. The authorizations would be granted only in areas indicated in a dedicated decree. They will be issued within the limits of the quantities necessary to meet the needs of medical, pharmaceutical, and industrial production. Similarly, authorization will not be granted to produce THC (tetrahydrocannabinol) which is the main molecule of cannabis whose content must not exceed a level set by a regulatory text. On top of that, it is to be specified that the applicant for authorization must be of Moroccan nationality, has the legal majority, domiciled in one of the douars (villages) of the identified provinces. He also must be a member of a cooperative that will be created for this purpose and must own the land or have permission to grow cannabis on it. Additionally, authorized producers must comply with the provisions of the specifications to be prepared by the National Agency, in coordination with the relevant government authorities. In conclusion, the legalization of Cannabis will unlock great potential for the Moroccan economy, especially since the market is estimated to reach USD 69 billion by 2027. Not to mention that many countries are currently conducting massive research regarding the uses of Cannabis in the medical field. However, the country must not rely on local market’s demand only, efforts should be oriented to exploit global markets and partner with global pharmaceutical firms to build strong exporting business models.   ***Numbers are not completely reliable since the scope is illegal Sources: https://www.leconomiste.com/flash-infos/cannabis-47-000-ha-cultives-au-maroc https://www.globenewswire.com/news-release/2019/04/18/1806583/0/en/New-Study-Estimates-the-Global-Cannabis-Market-at-Over-340-Billion-USD.html https://encadrementcannabis.gouv.qc.ca/le-cannabis/ https://www.cbdcorner.fr/difference-cbd-thc/ https://www.leconomiste.com/session/limit//article/1075528-legalisation-du-cannabis-les-details-du-projet-de-loi%3Fdestination%3Dnode/1075528 https://www.globenewswire.com/news-release/2020/12/01/2137727/0/en/Legal-Marijuana-Market-Growth-is-Expanding-over-17-8-by-2027.html http://www.apdn.ma/apdn/images/stories/file/etudes_enquettes/Morocco_survey_2004_reference.pdf https://www.youtube.com/watch?v=eAP5N2gPHhM&t=746s https://www.leconomiste.com/flash-infos/legalisation-du-cannabis-le-projet-de-loi-adopte-chez-les-representants https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7023045/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7693730/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6387667/

May 03 2021 | Technology, Economics
Bitcoin: Modern-Day Gold

Bitcoin has become the biggest trending topic for quite some time now, and rightfully so. The cryptocurrency keeps making headlines due to what seems like an everyday market all-time high, countless success stories of early investors becoming wealthy overnight, and its day-by-day adoption by large institutions. But is this new technology worth the hype or is it a bubble waiting to burst and most importantly is it here to stay?   What is Bitcoin? To understand this new concept, it is important to start from the beginning. Bitcoin is considered as the first widely adopted Cryptocurrency, created in 2009 by an unknown person or persons whose pseudonym is Satoshi Nakamoto. One of the main characteristics of Bitcoin is the ability to directly send money and receive money without the involvement of a third party such as a bank or a payment processor like PayPal using a system called “peer-to-peer”.  In simple terms, the peer-to-peer system works as a web of users that simultaneously validates each bitcoin transaction. This system is also referred to as “the blockchain” which functions as a ledger of all transactions in the bitcoin network. The blockchain is made up of nodes. These nodes are physical computers ran by individuals that make up the Bitcoin system. When these nodes process a transaction, which requires a great deal of computer processing power, they are rewarded with a small fee. The processing of these transactions is called “Bitcoin mining” and is the very process that generates new Bitcoin.   Why does Bitcoin hold value? The reason Bitcoin holds value is the same reason regular currencies hold value: it maintains relative value over time and it is able to capture the faith and belief of the people using it. Historically, commodities and precious materials such as cocoa beans and gold were used as payment methods because society viewed those materials as holding stable value. However, because of the unpracticality of these materials in terms of storage and transportation, many societies turned to minting coins made from metals (Gold, Silver, Copper…) that are inherently valuable and are very durable. After some time, these coins were replaced by notes that do not hold the intrinsic value of coins but were still tied to commodities such as gold in such a way that they were exchangeable for a set amount of said commodities. Today, countries moved away from the gold standard and started using Fiat currency. Fiat currency is issued by the government and not tied to any commodity, though the only value they hold is the faith that they will be accepted by individuals and governments. Most societies have determined that fiat currencies are the most durable and the least likely to deteriorate or depreciate. The chart below shows the different traits of money across Gold, Fiat (USD), and Bitcoin: As seen in Fig. 1, Bitcoin does a great job compared to fiat currencies and even holds an upper hand when it comes to decentralization because of the nature of the blockchain system. It is also Smart, in other words, the whole Bitcoin transaction system can be modified or updated in real-time, although this is very hard to do because all the nodes in the blockchain must simultaneously validate the change. Ray Dalio, founder of the world’s largest hedge fund Bridgewater and esteemed economist pointed out the utility of Bitcoin in terms of wealth storage in times of uncertainty within the equity market. In the current economic climate, where governments are looking to depreciate their currencies as the equity markets are booming and bond yields are converging towards  0%, Bitcoin is a reasonable asset to store wealth into, the same as gold or real-estate, as it is not controlled by a government entity and cannot be affected by any incoming government monetary policy. Another valuable characteristic of Bitcoin, which gold lacks, lies in its exchangeability ie. the ability to make purchases with the currency. For example, if any given person wants to start using Bitcoin, all they need to do is download a Bitcoin wallet which is an app that allows you to send and receive Bitcoin. They can then purchase Bitcoins using that same wallet. Then in order to send Bitcoin all they would need to do is scan a QR code of the receiver which will then take them to the wallet, they can then enter the amount of money they want to send to complete the transactions. However, this very quality poses a risk as excess freedom and privacy in value exchange can lead to increased malicious activity such as hacks, fraud, and theft.    The current state of Bitcoin In the current market, top investment bank leaders have shown resistance towards Bitcoin saying that it is a bubble waiting to burst and that it would eventually become irrelevant. One of these is Jamie Damion, CEO of JPMorgan Chase,  who stated that Bitcoin will be ultimately be shut down by the government when the currency starts being used for malicious intent. He added that, at its core, Bitcoin is not an actual currency and holds no value. This view has been shared by the most successful investor, Warren Buffett, CEO of Berkshire Hathaway, who also referred to the asset as ‘a rat poisoned square’.  However, despite the attacks of highly esteemed personalities within the financial industry, cryptocurrency was crowned the top-performing asset class of 2020-21 with an 800% return. Bitcoin saw a surge at the beginning of 2021 and is currently valued at 59,000 USD per coin with over $1 trillion in circulation. This surge was due to the adoption of digital currency by very large companies. One of such companies is MicroStrategy (MSTR: NASDAQ), a publicly-traded business intelligence firm, which made headlines by buying $2.19 Billion worth of Bitcoin, equivalent to 90,895 BTC. In recent news, Elon Musk CEO of Tesla announced that it is now possible to buy a Tesla using Bitcoin. The electric vehicle manufacturer also reported to the SEC that it purchased $1.5 billion of Bitcoin and that the bitcoins it will receive from clients buying its vehicles will not be converted to any other asset and will instead be kept in its original form. Additionally, Morgan Stanley, one of the biggest investment banks in the world, started offering its rich clients exclusive access to three funds that will allow them to own Bitcoin. However, the bank made it clear that this move is solely for clients with a ‘high-risk tolerance’ and who own $2 Million USD minimum in assets with the firm.  These moves will encourage other businesses in adopting the digital currency as a form of payment and push it into the mainstream.    Overall, it is apparent that Bitcoin has the main characteristics of a viable and reasonable asset to store wealth in. However, it is important to acknowledge that it is a relatively new concept that can and most likely will be subject to government regulations, cyber-attacks, fraud, quantum computing, and other threats that are not yet on the horizon.  Citibank stated that Bitcoin could become the form of payment of choice for international trade. Citibank also noted that the future of Bitcoin is still blurred, however, there are many signs leading towards the acceptance of the digital currency by the public.   Nigeria, the global leader in Bitcoin Trade Nigeria presents a particular case. Currently, Nigeria holds the position of the largest Bitcoin market by trading volume in Africa, and the second-largest global Bitcoin market behind the USA according to the New York-based cryptocurrency trading platform Paxful, with more than 33% of Nigerians either using or owning Cryptocurrency. This is due to the reliance on the peer-to-peer phone payments method, lack of formal payment processing infrastructure, as well as the severe devaluation of the Naira bringing about tight restrictions on offshore transactions and limited cash withdrawals.  Bitcoin has made it possible for Nigerians to bypass the $100 dollars withdrawal limit on the naira debit card.  However, in February 2021 Nigeria’s Central Bank issued a letter stating that banks are no longer allowed to facilitate any transactions with companies that deal with cryptocurrency. The reason behind this immediate ban is to prevent the underlying fraud and money laundering that the country has been struggling with which is facilitated by the privacy and lack of regulatory policy on Bitcoin.  As it is widely known, Bitcoin transactions are private, do not involve any third party entity, and do not follow a regulatory policy which is one of the pitfalls of the currency that will ultimately need to be addressed if the currency wants to stay relevant and become more mainstream as a currency. Othman Zidane Sources:  https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp\ https://www.cnbc.com/2021/03/17/bitcoin-morgan-stanley-is-the-first-big-us-bank-to-offer-wealthy-clients-access-to-bitcoin-funds.html https://www.bridgewater.com/research-and-insights/our-thoughts-on-bitcoin https://edition.cnn.com/2021/03/24/tech/tesla-bitcoin-elon-musk/index.html https://www.investopedia.com/tech/what-will-happen-bitcoin-next-decade/#:~:text=Citi%20noted%20that%20Bitcoin's%20future,the%20digital%20asset%2C%20noted%20Citi. https://www.aljazeera.com/economy/2021/3/25/nigerias-crackdown-on-bitcoin-echoes-global-crypto-conundrum https://www.bbc.com/news/world-africa-56169917 https://www.statista.com/chart/18345/crypto-currency-adoption/ https://bitcoin.org/en/how-it-works#:~:text=The%20block%20chain%20is%20a,actually%20owned%20by%20the%20spender. https://www.dummies.com/personal-finance/brief-history-bitcoin-blockchain/#:~:text=In%20very%20simple%20terms%2C%20the,mining%20for%20the%20cryptocurrency%20Bitcoin. https://www.freshbooks.com/hub/accounting/what-is-a-ledger\ https://www.npr.org/sections/money/2011/04/27/135604828/why-we-left-the-gold-standard

March 12 2021 | Technology, Economics
The Gig-Work platforms’ market sheds its skin to face COVID’s impact

Over the past year, we all noticed more family members, friends, and colleagues adopting gig-work as a lifebuoy to cope with the pandemic’s consequences. The market landscape expanded to reach different professions and sectors, offering both workers and businesses, help to absorb shocks. It is totally reasonable to expect that, since the pandemic impacted all economies, it also had a considerable impact on the supply and demand of Gig Platform’s market. However, the nature of this impact remains subject to debate. A study conducted by Mastercard in 2019 sized the gig economy market at $248.3 billion with a projected annual rate of 17.4%. The market is forecasted to reach $455 billion by the end of 2023. With 40.7 million freelancers on digital platforms across the globe that generate $193 billion in gross volume and $127 billion in disbursements to freelancers. From a demand point of view, analysts expected the COVID-19 pandemic to have two opposing effects on demand for online gigs, depending on the companies’ behavior towards emergency strategies. It can cause a reduction in demand if companies are cutting their use of Gig Work platforms to protect and show more loyalty towards coworkers. And on the other hand, companies might now favor online workers hired through platforms to cut costs. The iLabour project (the first online gig economic indicator, from Oxford internet institute) shows a fluctuation between both hypotheses. In fact, the pandemic affects gigs’ categories differently. But all faced a serious decrease last year (compared to 2019 & 2018, charts bellow), before recovering to previous optimistic levels. These findings indicate that while the demand clearly soared due to a distancing effect, it also strongly disturbed the market’s seasonal pattern. In fact, in the previous years, demand used to slightly drop during the year-end holiday season, and then rises again from February up to May. Since the pandemic, the market experienced stronger volatility, suggesting that many online gig-workers will need urgent financial support to get through these crises.   The Online Labour Index (OLI) [caption id="attachment_5581" align="aligncenter" width="553"] The index is tracking all projects posted on the five largest English-language online labour platforms (70% of the market by traffic)[/caption]   The demand of online labour 2018-2020 [caption id="attachment_5582" align="aligncenter" width="522"] Source: Online Labour Index.[/caption]   Software development and tech gigs are taking the lead: The market’s rebound is mainly due to software development and tech jobs that are currently most in-demand on Gig Work platforms, such as:  Blockchain developers, AI engineers … As the US represents the top player in Gig Economy, OLI’s project presented the evolution of its supply and demand during the first months of 2020, to track the pandemic’s impact. The charts below are showcasing the considerable and fast increase of the software segment, especially during the period where all remaining professions were affected. This category’s wages are also making the difference as they ranged during 2019, in Upwork for example, from $31 USD to more than $115 USD per hour.   US contribution to the online labor supply and demand by category   According to the Online Labour Index, US is leading by far the category with 37.3% of vacancies posted, followed by the UK and Canada (9% and 7%). While Africa is only representing 3.2%, even though digital skills count for 44% of its demand, which highlights the overall small contribution of the continent. The supply of software development and tech gigs is led by Asian countries (75%) with India and Pakistan at the top. Followed by Europe (17%), North America (3%) and Africa (3%). This category only represents 26% of the African offering. Even if Egypt and Kenya are both in the top 15 suppliers of the online platform market, the technology segment account for only 39% and 8% of their offering, compared to 79% in Russia. The findings above suggest that complete opposed outcomes are possible for each country since the future of business is still unstable. In the best-case scenario, the demand would increase and lead to higher revenue and more job security. However, the number of online workers is also increasing, which might lead to critical competition for jobs, employment uncertainty, and lower earnings. One thing for sure, the coronavirus pandemic aggravates the risky nature of online gig work. Besides the income stability issue, COVID-19 is now highlighting the importance of the overall financial health and unemployment protection.   Platforms are conducting positive changes to assure workers’ financial health: It goes without saying that the main services required by gig workers are access to loans and insurance, to manage their income and face future unforeseen situations. For this matter, all stakeholders should partner and work together to increase the penetration of financial products and services. Financial institutions, governments, and gig work platforms all have an important role to play in strengthening this market. Some players, mainly in the shared-driving and food delivery market, have been working on this issue, targeting 2 major solutions:   Platforms partnering with financial solutions providers: Income protection insurance and access to loans are 2 pillars for gig workers’ financial health. Unfortunately, financial institutions rarely consider lending to this category. The lack of earning traceability is a serious obstacle. Thereby, some platforms are stepping forward to help track the worker’s employment history: Uber signed a partnership with AXA in 2018 for a Partner protection insurance to protect workers from lost earnings. In Southeast Asia, Grab is partnering with insurance company Chubb that offers medical and accident insurance to drivers. Mobymoney, a fintech start-up, is teaming up with FastJobs to provide an interest-free credit line. Careem has partnered with MicroEnsure to facilitate Careem captains’ health insurance in Pakistan IOTalent collaborates with GigaCover that brings income protection insurance solutions designed for freelancers.   Platforms offering new integrated financial solutions: GoGet Malaysia is offering savings, insurance and financial management tools on its platform. Grab offers a package of financial services, including micro-credit, personal accident insurance and insurance against critical illness. Uber launched Uber Care in 2018 to provide easy access to micro-loans, life insurance, and family health insurance to drivers.   In addition to platforms and financial institutions’ initiatives, many governments are taking the lead to harmonize and regulate the Gig-Work Platform market landscape. The International Labour Organization’s Global Commission on the Future of Work is discussing the implementation of an international governance system for digital labor platforms. And many countries are currently studying the implementation of an online gig worker’s digital ID, to enhance safety and security, and regulate taxation. If all stakeholders put effort into developing this market, will the online gig work become the next norm? References: The iLabour Project – Oxford Internet Institute 2021 Mastercard, “The Global Gig Economy: Capitalizing on a ~$500B Opportunity”, May 2019 Sources: MasterCard, “THE GIG ECONOMY IN EAST AFRICA A gateway to the financial mainstream”, September 2020 Fabian Stephany, Michael Dunn, Steven Sawyer, Vili Lehdonvirta (2020), “Distancing Bonus or Downscaling Loss? The Changing Livelihood of US Online Workers in Times of COVID-19”, Oxford Internet Institute. Cutean, A., Herron, C., Quan, T. (July 2020). Loading: The Future of Work: Worldwide Remote Work Experimentation and the Evolution of the Platform Economy. Information and Communications Technology Council (ICTC). Ottawa, Canada The UN Capital Development Fund, “The Gig Economy and Financial Health A snapshot of Malaysia and China”, December 2020. Techwire Asia, “Grab upgrades its finance stack with micro-loans for consumers, and more”, August 2020 https://iotalents.com/blog/income-protection-for-freelancers/ Uber, Partner Protection Insurance with AXA XL Technologytimes, “Careem Announces Captain Support Initiatives In COVID-19 Pandemic”, April 2020 The Hindu Businesses line “Uber helps driver partners with Rs 35.6 crore micro-loans”, February 2020 SAS, “Top Trends: Why Tax Administrators Are Adopting New Data and Analytics Strategies”, 2020 ILO, G20 Employment Working Group, “Policy responses to new forms of work: International governance of digital labour platforms”, April 2019

Fast Fashion in Africa

The second-largest sector after agriculture in Africa is the fashion and textile industry with an estimated market value of $31 billion in 2020 and growing every year (1). Fast fashion is a marketing and manufacturing model where clothing moves instantly from the runway to retail stores. Fast fashion captures the latest fashion trends and styles and manufactures clothing immediately to satisfy demand, season after season. It is able to do this by optimizing certain aspects of the supply chain to produce designs quickly and inexpensively. Marketing teams then target mainstream consumers, persuading them to buy the latest collections. These items are often set at a low price, making them attractive to a wide base of consumers encouraging them to replace one season’s garments with the next (2). Fast fashion produces around 52 micro seasons instead of the traditional 2 per year, increasing demand at an exponential rate. (12). Examples of fast fashion retailers include H&M, Zara, Uniqlo, Primark, Topshop, and Next that produce massive amounts of clothing very efficiently (3). But what is the fast fashion industry doing in Africa? What opportunities does it bring to the table and what risks does it present to this continent? Fast fashion can contribute positively to the African economy. Within Africa, the entire textile/clothing sector is already the second-largest employer after agriculture (4).   In Kenya, data shows that every job in the garment sector generates 5 other auxiliary jobs (4). With shorter shipping routes to European and USA markets, Africa also has an important strategic advantage over Asian manufacturers. In fact, it takes just three weeks for a shipping container to travel from West Africa to Western Europe and a month to travel to the East coast of the United States. Africa also benefits from lower (or comparable) labor costs to Asia and apparel manufacturers in many African countries offer duty-free deals (or reduced tariffs as much as 30% compared to Asia) when entering European, American, and Australian markets (4) giving Africa a competitive edge over its Asian counterparts. Clothing and textiles represent about 7% of world exports, and apparel production is. For instance, Ethiopia is already a destination for apparel manufacturing such as Guess, Levi’s, H&M, which have shifted their production therefrom China (13). According to the Oxford Committee for Famine Relief (OXFAM), if Africa, East Asia, South Asia, and Latin America were each to increase their share of world exports by 1% the resulting growth could lift 128 million people out of poverty (4). The torch of the “world’s low-cost manufacturer”, long-held by China, is set to pass to Africa in the very near future (5). China has its sights set on shifting the focus of its economic system towards creating a significant domestic market with greater consumption capacity. For this reason, it is trying to go beyond a model that hinges on cheap labor. The African economy instead is still growing by 10% annually, an exception in the last decade, making it an attractive destination for foreign investors (5). In this context, Chinese firms are now looking to delocalize their production, without surrendering control of the supply chain, by seeking out, as European and American firms have done before them, low wages and suitable infrastructure (5). In Africa, the potential for attracting these investments is considerable, owing in part to wages being as low as 60-70 dollars per month in countries like Ethiopia (5).  The fast fashion industry moves very quickly, and African countries are also interested in attracting this industry as it provides an opportunity for much-needed economic diversification. Countries like Ethiopia are a good example of the possible synergies to be had. There is a great deal of investment flowing into the country because of its lower wages and proper infrastructure, with good access to ports, a young and motivated workforce, and labor market governance that is favorable to investors. The country is also in the same time zone as Europe and is conveniently situated geographically with respect to target markets. Other countries with high potential include Nigeria, Ghana, and Kenya. Nigeria, Africa’s largest oil producer, recently scrapped its textile import ban, driving renewed interest from international fashion and apparel retailers. The country is currently home to leading brands such as Levi’s, Mango, Nike, and Swatch, which have set up stores in the Palms Shopping Mall in Lagos (7). These are all countries where increased macroeconomic stability has been conducive to the influx of capital (5).  “Western companies were ignoring the prospects of the continent of Africa, especially with fashion retailers. Some not shipping there at all, others taking 21 to 30 days […]” (6).  Yet, that will quickly change as they begin to grasp the opportunity that Africa offers (6). On the other side of this coin is the deleterious environmental impact of this production model. According to statistics published by the United Nations Environment Program and the Ellen MacArthur Foundation, the fashion industry is responsible for 10% of annual global carbon emissions, more than the aviation and shipping sectors combined (8). The industry’s use of water and energy has marked it as one of the planet’s biggest polluters. Climate change is already having a negative impact on food security and public health (9). In addition, Africa faces the unique problem of being the last link of this industry’s value chain: 45% of all donated clothing globally ends up in the hands of for-profit brokers, with 70% of that ending up in Africa (10). Kenya alone, for instance, imported a whopping $133 million worth of worn clothing from Canada, Europe, and China in 2017, practically wiping out their homegrown textile industry (10). As purchasers attempt to resell their items, they are often unaware of what products they are receiving, or even their quality. If the quality is sub-par, the materials get tossed in landfills losing traders lots of money and creating huge piles of trash. This means that developing countries are importing more waste textiles than the cotton they export and are therefore losing major profits– suffocating both their economies and their environments (10). Farmers in Burkina Faso, the largest cotton producer in sub-Saharan Africa, have identified that the cotton they produce seems to only gain real value once it is exported to outside countries, like China, and turned into fabrics, threads, and garments. Those garments are then sold globally (in stores like H&M, Topshop, or Zara) used, donated, and end up back in Africa, only to get thrown away. As calls for corporate consciousness begin to rise, initiatives for change are emerging. Consumers have a greater awareness of issues like sustainability. This has resulted in organizations, like the United Nations, considering negotiations to reform fast fashion’s destructive manufacturing process (10). Indeed, Africa looks like a promising market for fast fashion; however, a new improved system is needed. A version that is better than the current one where the production model is more sustainable and that supports a circular economy rather than a linear one. Reform is needed to save not only the environment, but also the people. Sara Yamama - Research Analyst Sources: https://intpolicydigest.org/2020/11/28/fashioning-with-waste-turning-fast-fashion-into-an-opportunity-in-africa/ https://www.thechicselection.com/fast-fashion-its-environmental-impact https://kitengestore.com/positive-impact-made-measure-fast-fashion/ https://www.fashionafricasourcingtrips.com/about/emerging-market-facts/ https://www.aspeninstitute.it/en/national-interest/article/africa-set-be-new-fast-fashion-factory-interview-maurizio-bussi https://wwd.com/fashion-news/fashion-features/bringing-affordable-fast-fashion-to-africa-1202775707/ https://www.businessoffashion.com/articles/global-markets/global-briefing-could-africa-be-the-next-frontier-for-fashion-retail https://ecowarriorprincess.net/2020/02/second-hand-clothing-threat-africa-textile-industry-not-all-bad/ https://www.fashionatingworld.com/new1-2/african-fast-fashion-may-swamp-ethical-fashion https://un-ruly.com/how-that-zara-top-you-bought-is-hurting-africas-economy/ https://www.unisa.ac.za/sites/corporate/default/Colleges/Agriculture-&-Environmental-Sciences/News-&-events/Articles/Fast-fashion-is-the-new-plastic

Special Economic Zones in Africa (SEZs): Impact, efforts, and recommendations

A brief history of SEZ development in the world Special economic zones (SEZs) have been gradually gaining traction in the developing world over the last two decades. While modern SEZ development started decades ago in Europe and Asia, an increasing number of African countries have been developing SEZ policies and building SEZs in collaboration with internal and external players. Special economic zones (SEZs) are generally defined as demarcated geographic areas within a country where the rules of business are different from those used elsewhere in the country. The main differences are usually related to investment conditions, trade and customs, and the regulatory environment. The history of SEZs can be traced to the island of Delos in the Cyclades archipelago. Around 167 BC, Rome gave it “free harbor status” thereby turning it into a toll-free harbor which turned it into a center for Romans operating in Asia Minor. At the beginning of the 20th century, free trade zones were generally established near ports and by 1900, there were 7 free trade zones in Europe and 4 in Asia. In this period, SEZs started incorporating manufacturing plants such as the Cadiz SEZ in Spain which accommodated one of the first Ford Motors plants in Europe. China has been a leading country in terms of SEZ development and has leveraged its comprehensive SEZ policies to promote development. SEZ development in Africa SEZs were first introduced in Africa in 1970 in Mauritius and enacted its EPZ Act in the same year. Other countries including Ghana and Senegal started developing SEZ later in the 1970s. Accelerated development however started in the 1990s as more African governments sought to mimic the development of East Asian countries. [UNCTAD] There are currently over 230 SEZs in Africa and 200 single-enterprise zones. SEZs are present in 38 of the 54 countries in Africa with Kenya having the highest number at 61. Other notable countries are Nigeria with 38 SEZs and Ethiopia with 18 zones.  [UNCTAD] [caption id="attachment_5536" align="aligncenter" width="440"] Figure 1: Number of SEZs in African countries, UNCTAD[/caption] African countries mostly focus on manufacturing and exports of low-skill, labor-intensive industries such as garments and textile. Nonetheless, certain countries are focusing on the inclusion of diverse sectors with higher value addition. Morocco for instance aims to integrate high-tech activities and the automotive industry within its SEZs, notably in Tangier’s Automotive City and Kenitra’s Atlantic Free Zone. [caption id="attachment_5537" align="aligncenter" width="696"] Figure 2: Number of SEZs by type in the world, UNCTAD[/caption] In 2013, Rwanda opened its Kigali Special Economic Zone to host several domestic and foreign firms in various sectors. Within three years, the zone was employing 2% of the entire country’s workforce. Unlike most SEZs, the Kigali SEZ does not provide tax incentives for firms operating in the zone. Instead, companies benefit from a strong and streamlined regulatory environment as well as improved infrastructure and trade facilitation. African SEZs have consistently ranked among the top SEZs in the Financial Times’ FDI Intelligence. In 2020, SEZs from Morocco, Mauritius, and Nigeria were included in the list of Global Free Zones of the Year Lessons from China’s experience: What can African countries learn China started developing SEZs in 1978 and currently has over 2,500 zones. Early development was focused on coastal cities (e.g. Shenzhen, Zhuhai, etc.) while later development was focused on the west of the country to promote regional development. China developed a wide range of SEZs including industrial development zones, free trade zones, and export processing zones. The development of SEZs played a significant role in China’s economic rise and are estimated to have accounted for 22% of national GDP, 46% of FDI, 60% of exports, and created over 30 million jobs With its focus set on improving livelihoods and providing job opportunities, China developed tailored SEZ programs for different regions depending on its specificities. For instance, one of China’s key success factors was its early focus on manufacturing and retail industries which absorbed a large unskilled labor force. African countries can benefit from China’s success story. First, by setting SEZ models adjusted to local circumstances instead of replicating existing models. For instance, China developed tailored SEZs that fully benefit from the local workforce, proximity to other manufacturing centers, and access to local markets. Another lesson from China is the long-term planning of SEZs based on quantified data and objectives and ensuring its fit within the country’s long-term development goals. China leveraged SEZs to grow local industries in a constraining environment thus overcoming local constraints such as its labor force’s qualification level, market demand, and other hurdles in its development model. As such, Africa countries need to ensure that SEZs fit within their respective development plans using careful and skilled planning. Throughout the development of its SEZs, China invested immense efforts in building sound infrastructure. The role of adequate and stable power, transportation links, and other infrastructural elements cannot be understated. In a study conducted by the World Bank of six African countries with another four non-African countries, it was found that downtime due to power outages was significantly higher in Africa. While financial hurdles can significantly impede infrastructure development, African nations can benefit from a PPP model to attract more private investors and thus over its hurdles. [caption id="attachment_5538" align="aligncenter" width="705"] Figure 3: Power outages in hours, World Bank[/caption] SEZs need access to a local labor force that is sufficiently skilled for its focus activities. By integrating “smart” incentives linked to the employment and training of its local labor force, Africa can benefit from SEZs to improve livelihoods and provide better outcomes for its working-age population. Another key element is the linkages to local universities and research centers. Through the successful partnership of the local research workforce with foreign investors, African researchers and scientists can benefit from the shared experience and the technology transfer that consequently occurs through the partnership. Morocco’s SEZ experience and lessons learned Morocco’s SEZs have consistently ranked in the top zones in Africa and the World. In 2020, the Tangier Med Zone ranked 2nd world economic zone after Dubai’s Multi Commodities Center in the Financial Times’ “FDI Global Free Zones of the Year 2020”. In order to understand Morocco’s success, we need to look at the history behind the developments of SEZs in the North African country. Morocco first enacted its SEZ law in 1995 which provided various incentives to foreign investors and started and established Tangier Med Special Agency (TMSA), its first dedicated SEZ authority in 2002. The zone was primarily focused on the automotive industry and engage the Moroccan Industry Association for Automotive Producers (AMICA) to focus on training and vocational development. By 2018, the six SEZs in the Tangiers area (which are all managed by TMSA) were hosting over 470 firms, having created 70,000 jobs with a total private industrial investment of USD 3.5bn.  In addition, Morocco and China are currently planning a USD 10bn new industry-focused zone called Mohammed VI Tangiers Tech City which is set to create 100,000 jobs. Morocco has shown unwavering commitment towards the creation of high-quality zones instead of a high number of zones. By focusing its efforts on a limited number of SEZs, the Kingdom sought to create a suitable environment to attract full industry ecosystems by targeting large players in key sectors such as PSA and Renault in the automotive sector and Boeing and Bombardier in the aerospace industry. In 2016, Morocco amended the previous 1995 legislation and committed to creating new SEZs in all 12 regions. This new legislation aimed to create sector-oriented zones that interconnectedness between different firms operating the same zone. The new law is part of Morocco’s strategy to strengthen its manufacturing capabilities and is part of the Industrial Acceleration Plan launched in 2014. The impact of SEZs on Morocco’s industrial sector is noticeable as the sector has contributed 25% of its GDP by 2017, compared to an average of 19% between 1985 and 2016. Morocco further aims to increase the share of industry to 30% by 2022 and create an additional 500,000 jobs by 2020. However, SEZ development in Morocco is still in need of further improvement to ensure backward linkages with the local economy which suffers from similar issues found in other African nations. A lack of qualified workforce, limited provisions for local partner companies operating outside the SEZs, and limited options for local imports of finished goods. Another key aspect that needs to be examined is the tax system which may limit interactions between different companies within Morocco’s SEZs. Conclusion SEZs have shown considerable potential in African nations, and while many challenges lay ahead, these zones can play a tremendous role in the development of the African continent. Countries in Africa need to overcome many hurdles for their SEZ development and need strong and long-term strategies to unlock the potential of SEZs in their respective economies. It has already been demonstrated that SEZs can be a key part of industrial development in many nations, and Africa needs to harness the full potential of its SEZs as part of a successful transition to an industrialized and self-reliant continent. Anass Rifaoui - Research Analyst Sources: http://documents1.worldbank.org/curated/en/343901468330977533/pdf/458690WP0Box331s0April200801PUBLIC1.pdf http://www.cn.undp.org/content/dam/china/docs/Publications/UNDP-CH-Comparative%20Study%20on%20SEZs%20in%20Africa%20and%20China%20-%20ENG.pdf https://unctad.org/en/PublicationsLibrary/wir2019_en.pdf https://www.worldbank.org/content/dam/Worldbank/Event/Africa/Investing%20in%20Africa%20Forum/2015/investing-in-africa-forum-special-economic-zones.pdf https://www.econstor.eu/bitstream/10419/206420/1/1681095483.pdf https://www.policycenter.ma/sites/default/files/SEZ%20WEB%20FINAL.PDF https://oxfordbusinessgroup.com/overview/accelerating-growth-focus-clusters-special-economic-zones-and-investment-aeronautics-continue https://www.worldbank.org/content/dam/Worldbank/Event/Africa/Investing%20in%20Africa%20Forum/2015/investing-in-africa-forum-global-experiences-with-special-economic-zones-with-a-focus-on-china-and-africa.pdf https://www.fdiintelligence.com/article/78955

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