< Previous10 Vol. 21/06, March 2020 In October last year, UAE telecoms giant Etisalat successfully completed the fi rst end-to-end 5G stand-alone mobile phone call in the Middle East and North Africa, becoming the fi rst operator in the region to achieve the milestone. Experts believe there will be 30 million 5G mobile subscriptions in the Middle East by 2024, with operators promising that download speeds will be 10 to 20 times faster than we have now. But what does 5G really mean for users or doe sit just mean faster Wifi and even more smart devices? “The roll out of 5G means a whole new experience for the user,” Guy Diedrich, Global Innovation Offi cer at American multinational technology conglomerate Cisco, told Arabian Business in a new video. “4G was just an increase in speed, 5G means that for the fi rst time people in rural regions are going to have access to fi rst [world] quality healthcare… they are going to have access to education. “Mobile users will have all of the capabilities of PCs on their phone. In terms of where you can work, and what you can accomplish in FASTER INNOVATION: How will 5G help change the world? In the latest episode of the Arabian Business Enterprise Innovators Series, in association with UPS, we look at what the key technological challenges and opportunities are for the UAE as it aims to lead the region in 5G connectivity. terms of productivity, it is going to fundamentally change that landscape,” Diedrich believes. No.1 in MENA The UAE’s Telecommunications Regulatory Authority (TRA) has put in place a fi ve-year strategy for the roll-out of 5G and the emirates is already the number country in the Arab world, and fourth globally, when it comes to the launch and use of 5G networks, according to the Global Connectivity Index issued by Carphone Warehouse. “For the UAE, 5G will mean the benefi ts of increased speed and improved latency. It will mean the UAE, particularly in Dubai, where they are talking about being one of the early adopters of autonomous vehicles, where they want to be the most connected city in the world, 5G is going to allow for that.” With more connectivity comes more security challenges, and the real innovation will be making sure we don’t compromise on security in order to keep everyone online and connected to each other.arabianbusiness.com 11 AR ABIAN B U SINE S S ENTERPRISE INNOVAT O R S SERIE S Security is paramount “The key there is to make sure that security is paramount and, as they connect all of the things in the city and become the most connected city in the world, that they have the right security built into the 5G network,” Diedrich says. “The next big technical innovation is going to have to be in response to the fact that we are going from 27 billion connected things to 500 billion connected things by 2030.” Diedrich believes that all these new connections are “individual opportunities” for new technological innovations, but he warns that if adequate levels of security to support these connections are not put in place then they will simply become “new vulnerabilities”. “And so the new innovations that are going to have to take place in the near term are going to be around security, so that we can secure each and every individual transaction and security is built into the network, rather than just relying on a fi rewall,” he says. Fundamental human right Diedrich goes even further by the saying that he believes that being connected, just like privvacy, is a fundamental human right and the short-term and long-term implications of the roll out of 5G for mankind should not be underestimated. “Only 60 percent of the world is connected to the internet and I believe that in the next ten years we are going to connect that other 40 percent and, in doing so, in connecting the entire world, we could see as much as $6.7 trillion of global GDP added and could bring as many as 500 million people out of poverty. So I think there is much to be excited about moving forward.” Ahead of the launch of Expo 2020 Dubai, the Arabian Business Enterprise Innovators Series aims to give a platform to these kind of discussions and the implications, challenges and benefi ts new technological innovations will have for all of mankind. “Cisco is proud to be a partner of Expo 2020 here in Dubai,” Diedrich points out. “We are the networking partner and also the security partner. It is going to be the most connected Expo in the 167 year history of expos. We aim to provide a whole new experience for visitors…. Have them see what the future holds, what is possible with 5G, with artifi cial intelligence and all the other technologies that 5G will enable.” Expo logistics partner The Arabian Business Enterprise Innovators Series is being developed in association with another key Expo 2020 player, global logistics company UPS, the offi cial logistics partner for the event. While UPS is a company that is more than a century old, has a global remit and has nearly half a billion employees, it has always been a catalyst for change and innovation. “Innovation and technology have always been part of UPS’ focus” states Jean Francois Condamine, UPS President High Growth and Emerging Markets. “Our experience around the world has taught us that winning ideas come from working with others.” “As part of the Enterprise Innovators Series we are looking for companies who have seen the rewards from taking risks, who are rethinking and disrupting traditional models and who are developing new ways of operating,” says Shane McGinley, Editorial Director of Arabian Business. Check out the latest episodes in the Enterprise Innovators series at https://www.arabianbusiness.com/enterprise-innovators Get involved: What are you and your company doing to innovate? The Arabian Business Enterprise Innovators Series, in association with UPS, is looking for local companies to get involved in the initiative. Our coverage will run across print, online, social media and video and we are looking for organisations to tell us about the programmes, ideas and practices they are working on and the impact and improvements they have witnessed across some of the sectors below: Facial recognition: Speed and security are two key considerations for many companies. Technological advances such as facial recognition are providing answers to these challenges. Artifi cial Intelligence: More than just robots replacing jobs, many companies are using AI to reduce mundane work practices. Electric vehicles: While the region has a high percentage of car usage, it has been slow to embrace electric models. What are doing to be more sustainable in their transport strategies? Sustainability: How can the homes we live in and the buildings we work in become more effi cient in terms of energy, waste and the materials we use to build them? ENTERPRISE INNOVATORS 12 Vol. 21/06, March 2020 WHAT’S HAPPENING TODAY is surreal; it feels like the makings of a Hollywood movie. But it isn’t. We’re all finding ourselves in uncharted territory, especially when it comes to work. It’s not “business as usual”, but we’ve taken steps to keep our employees safe and mitigate the risks surrounding this remarkable situation. Why do I say that? It’s for two reasons. The first is a decision we made a number of years back. Given the effect that the digital transformation is having on business, and how it’s impacting our lives, we wanted to make a change. Our employees wanted the freedom to be able to work away from office and work flexibly. It’d allow them the freedom to do the right thing for their families as well as for the company. As a result, we introduced Flexibility@Work almost two years back, in the summer of 2018, to meet this change in our work habits. Employees can work anywhere they wish, as long as they’ve agreed this with their manager. It was a bold decision, and we’re still a trendsetter when it comes to promoting remote working in the region. However, what has also made me feel more confident in what we’re facing today was the reaction from our employees when we had introduced Flexibility@ Work. Their response was overwhelmingly positive, and they appreciated the gesture. It made them feel Q GIVEN THE [CORONAVIRUS] SITUATION... ORGANISATIONS ARE GOING TO HAVE TO THINK DIFFERENTLY ABOUT FLEXIBLE WORKING CONCEPTS.” Q PIONEERS IN THE FLEXIBLE WORKING SPACE ARE GOING TO BE BEST PLACED TO HIRE AND RETAIN TALENT” The rise of the remote worker It’s better late than never for organisations to adopt remote working C OMMENT / by Marc Pelletier, Middle East & Africa HR Vice President at Schneider Electric u Co-working spaces are rising in popularity around the world $26bn The estimated global market value of coworking in 2019, according to analystsC OMMENT arabianbusiness.com 13 Q WE’RE ALL FINDING OURSELVES IN UNCHARTED TERRITORY, ESPECIALLY WHEN IT COMES TO WORK” u The French multinational corporation is considered an industry leader 96% The rate at which an effi ciently managed co-working space can reduce start-up costs the opportunity to work out of eyesight can only happen if there’s trust between management and employees. And everyone has to be mindful of their responsibilities. What I care about is ensuring that results are achieved, not where they’re achieved from. For organizations that insist on people clocking in, and clocking out, this transition will be hard. No one would have chosen what we find ourselves dealing with today. And yet, there’s an opportunity to speed up a change which I believe is necessary. We have the tools to remote work from anywhere. What needs to change is us as people and organisations. Those who do make the shift to flexible working will benefit for years to come. And for those who don’t, well I wish you’d have changed earlier. more engaged at work, and also better able to meet family commitments. While I certainly don’t feel that the region is unique in terms of retaining the traditional working practice of having employees come to an office and work set hours (44 percent of companies globally still don’t allow for remote work), there needs to be a rapid change. Companies who don’t adopt and adapt are going to find themselves increasingly outpaced by those who do institute forward-thinking HR practices. Pioneers in the flexible working space are going to be best placed to hire and retain talent. Steps in the right direction Given the situation we’re now in, and with governments and businesses advising people and employees to avoid travel and congested spaces, organisations are going to have to think differently about flexible working concepts. Here’s what they need to do: Technology adoption: IT is the enabler. Employees will need both the tools – think laptops and smartphones – as well as the software to be able to remote work. This isn’t always as easy as it sounds, given the restrictions found in a number of countries on VoIP technology. A number of tech firms have already seen the opportunity to provide web-based connectivity services at a discounted cost. Take up their offer, and start connecting your staff online. A shift in mindset: Changing the technology is one thing, changing how people think is something else entirely. Giving people u Schneider was among the fi rst to adapt co-working spaces14 Vol. 21/06, March 2020 C OMMENT / By David Stubbs, executive director at JP Morgan Private Bank 3.3% The global economic growth in 2020, according to IMF projections and strong labour markets has defined the recent years of the post-crisis expansion. As durable as this combination has proved, there are some signs we will eventually transition into a different economic environment. A different pivot, the economic one, is coming. The key lies in margins. Corporate profits as a share of GDP, a proxy for economy- wide profit margins, rose as THE FEDERAL RESERVE’S “pivot” – transitioning from hiking rates nine times between 2015 and 2018, to cutting rates three times in 2019 – was the defining driver of markets last year. Along with the European Central Bank’s commitment to maintain its policy settings until its goals are achieved, 2019 represented a final acceptance of a “new normal” for the economy. As central banks shifted we remerged from the crisis, but have been contracting since 2012 in the United States and are following a similar trend in the Eurozone. Pressure has come amid high unit labour cost growth, as compensation expenses have exceeded tepid productivity growth year after year. Despite being weakened by the forces of globalisation and declining unionisation, it seems labour markets are now tight enough for workers The real pivot is coming Determining the mix of productivity, pricing, and pain across economies and sectors will defi ne the absolute and relative returns across fi nancial markets for investors u Cautionary move Companies have stayed away from raising prices due to concerns of losing market share their focus from normalising monetary policy towards easing policy, risk assets rallied accordingly. This world of low inflation, sluggish productivity growth C OMMENT arabianbusiness.com 15 to secure wage increases. In our competitive world rampant with disruption and price discovery, firms have resisted raising prices for fear of losing market share. Instead, they’ve been forced to take a hit on margins. But margins can’t go down forever. They will eventually decline to the point where one of three outcomes will likely unfold and the cycle will move into a new phase, where companies either: defend their margins by raising their productivity; look to achieve the same result by finding a way to raise prices (sparking faster inflation); or they will be forced to fold and industries will undergo significant restructuring. Productivity, prices or pain: which route will we take and what does it mean for investors? First, a look at the scenario of better pricing. A rise in inflation in most of the such deflationary forces, it would likely be a slow, gradual process that would struggle to take hold. Doing more with less The second route is through faster productivity growth – firms would protect margins by doing more with less. Productivity growth started slowing before the crisis as key technologies like personal computers reached a saturation point, and the crisis itself made matters worse. There are signs this is on the cusp of changing. Business investment has actually been very strong in areas that matter most for services-led economies: software and IT. Since 2012, that category of private sector capex (capital expenditure) has risen 58 percent in the US and 46 percent in the Eurozone – much faster than other capex categories which have risen 39 percent and 26 percent, respectively. As new technologies infiltrate the mainstream economy, we could see a boost in productivity, which could help drive corporate earnings and keep Q BUSINESS INVESTMENT HAS ACTUALLY BEEN VERY STRONG IN AREAS THAT MATTER MOST FOR SERVICES-LED ECONOMIES” Q THE POWERFUL STRUCTURAL DEFLATIONARY FORCES DOMINATING OUR WORLD WILL REQUIRE MUCH TO BE OVERCOME” developed world would, initially, be a good thing. Most central banks have consistently undershot their inflation targets in recent years. Equity valuations tend to be highest when inflation is close to 2 percent. In this sense, an initial rise in inflation would be a signal of healthy economic demand, likely positive for equities and only modestly damaging to fixed income. However, a more dramatic breakout in which core inflation exceeds 3 percent would likely be a messy outcome for markets. However, most analysts view that outcome as highly unlikely, for now. The powerful structural deflationary forces dominating our world, such as high debt levels, aging demographics, technological disruption will require much to be overcome. Even if cyclical economic tightness was to overwhelm u Good economics An initial rise in inflation would be a signal of healthy economic demand inflation contained. Equities, particularly technology suppliers, stand to benefit from this build out. Last, if prices can’t be raised, some firms will likely succumb to falling margins and go out of business. Whilst some creative destruction is a consistent feature of a capitalist system, this would be an undesirable outcome in the short-term. Unemployment would increase, bond and loan defaults would rise, and sentiment be hurt. In an extreme scenario, a recession could unfold. Yet, if such restructuring unfolded at a manageable pace, it could actually restore economic vigour as “superstar” firms leave unproductive companies behind. A similar result could be achieved through enlarged waves of merger activity. In this type of environment, long-short active equity and debt asset managers could help identify winners and losers in this new world order. Expectations of the future In reality, we’ll likely walk down some combination of all three paths at the same time. As referenced above, wage inflation is creeping higher and unit labour costs are rising. Productivity growth is beginning to stir in some economies with tight labour markets. And, a glance at any high street will tell you that those sectors seeing the greatest margin and pricing pressure are seeing significant disruption. The Fed’s pivot defined last year, and the “economic pivot” looks set to define the 2020s. 2.8% The economic growth in the Middle East and Central Asia region in 2020, the IMF announcedABEABE 40x240x26565 inddindd 11ABE 400x26 5 indd 13/103/10/20/20 3:3:37 P37 PMM3/10/2/20 3:37 PM18 Vol. 21/06, March 2020 The Dubai-based carrier has been voted the best regional airline in 2019, according to the Service Hero report. The index is considered the Arab world’s only 100 percent consumer powered customer satisfaction platform. Upfront Budget balance Twelve-month forward contracts on Saudi Arabia’s riyal climbed fourfold to 180 points in the offshore market last Monday as the slide in crude following the collapse of the OPEC+ production agreement sent global markets into turmoil. There was a more worrying jump for Oman’s forwards – they almost tripled to an all-time high of 2,000 points. The increase shows how the prospect of declining dollar earnings for the energy-exporting nations of the Gulf makes it more diffi cult for governments to balance their budgets. Currency pressure While the balance sheets of the six members of the oil-rich Gulf Cooperation Council (GCC) is weaker than in recent years, public debt is higher and foreign reserves are lower, oil prices will need to remain depressed for longer for currency pegs to come under sustained pressure, according to Ziad Daoud, the Dubai-based chief Middle East economist for Bloomberg Economics. “Many countries can sustain their exchange-rate regimes for a number of years,” he said. Rial’s strength Oman’s peg may be the most vulnerable because it has less fi repower to protect the rial, according to analysts. The sultanate’s weakening fi nances prompted Moody’s Investors Service to downgrade its debt rating deeper into junk to Ba2. Central banks in the region usually tend to move in lockstep with the US Federal Reserve to protect their currencies’ peg to the dollar. Kuwait controls the value of its dinar against a basket of currencies, and it has more fl exibility in setting rates. The top news and business headlines from the region M A R C H 1 5 – 2 8 , 2020 Dramatic drop in oil prices has placed Gulf currency peg back in spotlight The prospect of declining dollar earnings for the GCC makes it more diffi cult for governments to balance their budgets Kuwait has closed all cinemas, theatres and wedding halls, while permission to set up tents for wedding receptions has been suspended, in an attempt to contain the spread of the COVID-19 virus. Funeral ceremonies may also be restricted under new rules. GOOD WEEK BAD WEEK Venues in Kuwait Emirates Airline u Saudi Arabia has a larger fi scal and currency reserves compared to other Gulf states THREE REAS ONS WHYarabianbusiness.com 19 PER S ON OF THE WEEK DIARY SPOR T BUSINESS EVENTS ACROSS THE REGION RIYADH Saudi Water Forum Saudi Water Forum is a platform to exchange and localise experiences to achieve the sustainability of water resources, enhance water security and sustainability, attracting investments to the sector and achieve integrated water resources management for the kingdom’s growing water needs. Date: March 17 – 19, 2020 Venue: Hilton Riyadh Hotel and Residences RIYADH World Luxury Expo American Express World Luxury Expo’s mission is to bring together the world’s most prized collection of luxury goods and experiences for the most discerning clientele. The event also acts as a meeting point of notable industry experts, who keep on improvising their strategies to keep up with the times. Date: March 18 – 20, 2020 Venue: Ritz-Carlton Riyadh CORRECTION Editor's Note: In a comment piece titled ‘2020 will see a shift away from the culture of personality at start-ups’, published on Sunday, February 23, it was stated that the rescue team of Fetchr was led by the fi rm Gulf Capital. This should have stated Gate Capital and not Gulf Capital. We sincerely apologise for this error and would like to highlight the correction. ARAMCO NAMED AS NEW GLOBAL SPONSOR OF F1 Formula 1 has announced a new long-term global sponsorship deal with energy giant Saudi Aramco. Aramco will become Formula 1’s sixth global partner alongside DHL, Emirates, Heineken, Pirelli and Rolex, a statement said. The deal will include trackside branding for Aramco at most races and title rights to the US, Spanish and Hungarian Grand Prix in 2020. 13 million tonnes The estimated amount of plastic that enter the world’s oceans each year AB LIVE UAE Cabinet approves 100 percent foreign ownership Dubai Ruler Sheikh Mohammed Bin Rashid Al Maktoum approved the list of sectors eligible for 100 percent foreign ownership. The decision provides investors with an opportunity to acquire various shares in a number of economic activities including the production of solar panels, power transformers and green technology. STORY Can Saudi Arabia afford the oil price war with Russia? Oil markets crashed more than 30 percent after the disintegration of the OPEC+ alliance pitted Saudi Arabia against Russia, which refused another round of production cuts to prop up crude prices COMMENT “THE PANEL HAS A VERY INSIGHTFUL DISCUSSION ON HALAL PHARMACEUTICAL. KEEP UP THE EXCELLENT WORK” Arabian Business subscriber MJ Silva’s opinion on the video AB Live: Opportunities and challenges of the UAE’s pharmaceutical industry AB ONLINE THE WEEK IN S OCIAL AND DIGITAL DOMAIN Abu Dhabi is to ban single-use plastic bags by 2021. The Environment Agency – Abu Dhabi announced the policy which it said will be achieved by encouraging more sustainable practices, such as recycling. Secretary general Dr. Shaikha Salem Al Dhaheri said that the launch of the single-use plastics policy refl ects Abu Dhabi’s steadfast commitment towards transitioning to a more sustainable economy. Dr. Shaikha Salem Al Dhaheri Q THERE WILL BE MORE PLASTIC THAN FISH IN THE OCEANS AND SEAS BY 2050” arabianbusiness#arabian businessarabianbusinessArabianBusinessFollow us on Subscribe to our YouTube channel for regular NEWS UPDATES Watchevery TUESDAY at 1PM Next >