Isolated Storms and Winds of Change Posted at: December 17, 2020 Posted in: All A year like 2020 can be seen as the perfect storm, a ‘blip’ and an inflection point. What we’ve lived through during the COVID crisis is thankfully a unique experience in most people’s lifetimes. But smaller scale crises are more frequent than we realise. A recent study shows that companies can expect to lose 42% of one year’s EBITDA every decade due to disruption. The root causes that create global disruptions are huge. They are being driven by a multitude of forces – ‘mega-trends’. Their impact is being felt more frequently, so even whilst the immediate future may be uncertain – it pays to take their long-term effects into account. Understanding mega-trends will help you see the risks and opportunities where others don’t. Whilst predicting a crisis is almost impossible, knowing that they will come and their likely root causes can help us prepare ourselves and our business for dealing with them. Here are 5 mega-trends that we think everyone should consider. Shifting Economic Power Shifts in the balance of economic power are already creating ripples. Those waves are increasing in magnitude. Emerging economies are now the growth markets and this creates powerful changes in demography and societies world-wide: The emerging E7 economies (China, India, Brazil, Mexico and Russia, Indonesia and Turkey) are forecast to be double the size of the G7 economies by 204080% of the global middle class will be in emerging economies75% faster growth in emerging economies compared to developed economiesEmerging economies will account for 50% of the global economy by 2025 For the UK, the impact of Brexit is yet to be seen. Will it be better to be on our own with the freedom to take advantage of the trading opportunities in the wider world or would it have been advantageous to have been part of a larger trading block? Climate Change and Resource Scarcity There will be a 59% increase in food demand by 2050Water crisis is #1 global risk, says World Economic Forum48% think business should be force for good$22tn social responsibility investments todayGlobal temperature to rise by 2.9 degrees (assuming current policies for reducing emissions are kept. The Number of major floods has more than doubled over the last 20 years – what’s a shift of this magnitude going to do to the frequency of weather related crises? Sustainability and Corporate Social Responsibility have been on the agenda for some time – but pressures on this scale are forcing governments to intervene. Technological Breakthroughs 90% of data currently in existence was created in the last 2 years1 trillion objects will be connected by 202290% of stock trading now done by algorithm66% of the world is connected at any one time The rapid advancement of technology, particularly that of artificial intelligence and machine learning, is arguably at the centre of all ‘megatrends’. With this reliance on technology, cyber-security becomes a huge issue. There’s also the question that “does building machines that think create a generation of humans that don’t?”. What about governance and ethics? How do you value businesses whose assets are intangible – bound up purely in the intellectual property of the algorithms they develop? What will this mean for capital funding? Demographics and Social Change Global Population will grow towards 10bn by 205013% of the world’s population will be over 65 by 2030 – up from 8% today90% of under 25s live in emerging economies The question of who is going to pay for us in our old age has been a conundrum for economists and governments for some considerable time. Will a global economy adapt to the challenge or exacerbate it? Rapid Urbanisation 1.5 million people move to cities every week66% of world population will live in cities by 2050, from 54% today61% of global GDP created by 750 cities In the UK there has long been a debate about ‘London-centric’ policies. Will the lack of a dominant second city create problems that nations with two or more strong commercial and political hubs are better placed to address?