Strategic Treasury

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How a Macroeconomic Watershed is Leading to Microeconomic Opportunities The world economy is arguably at a historical watershed. Think of an accelerated industrial revolution, rapidly developing new technology and a big shift in economic power from West to East. Naturally, governments and corporates are redirecting their policies and strategies accordingly – and, in the case of corporates, the treasurer is set to play an important enabling role.

How a macroeconomic watershed is leading to microeconomic opportunities

The world economy is arguably at a historical watershed. Think of an accelerated industrial revolution, rapidly developing new technology and a big shift in economic power from West to East. These trends are widely accepted, although their magnitude and speed may not be. Naturally, governments and corporates are redirecting their policies and strategies accordingly – and, in the case of corporates, the treasurer is set to play an important enabling role.

By 2030, China will be the world’s largest economy and India the third largest, according to HSBC research1. The paper forecasts that between now and then, emerging markets will make up about 70% of global economic growth, compared to its 50/50 split with developed markets over the past decade. Demographically, Africa will have a larger working-age population than China.

This major shift is entwined with the fast development of new technologies that are set to speed the growth of emerging markets. Governments are actively positioning their countries to gain, in a kind of economic nationalism. Those in emerging markets scent opportunity. Those in the developed world are acting both opportunistically and defensively. They want to be at the forefront of new technology and to export high-value technologies – but they’re acting to protect their citizens from being victims of globalisation.

Some governments are looking to diversify; others to pivot into other sectors. The highest profile example of a national economic initiative is ‘Made in China 2025’, which is designed to foster an evolution from being the world’s factory to being a high-value manufacturer, leading in industries of the future such as energy saving, information technology, biotech and new materials2. Also in Asia, India is seeking to pivot into manufacturing through its ‘Make in India’ strategy, which aims to encourage international companies to manufacture there3.

Meanwhile, the developed world is acting more defensively. The United States has imposed tariffs of more than USD 250bn on China4, complaining of unfair trade practices as it seeks to bring lower-wage manufacturing jobs back home.

In Europe, the UK is seeking to replace trade likely to be lost in Europe after Brexit, as even a favourable trade agreement with the European Union is likely to result in more barriers to commerce than was previously the case. The country is now seeking to diversify its trading relationships by building those with partners in Asia and other emerging markets.

The global economy’s tectonic plates are shifting. This will have profound implications for businesses, opening new opportunities just as old ones close. Manufacturers in China’s low-carbon economy may thrive, for example, while those in low-tech manufacturing might find themselves shut off from the US market and have to migrate to countries such as Vietnam and India or further afield in Africa. The shapes of supply chains may shift, with more being sourced from these lower-wage countries, as well as some repatriation of manufacturing in the US and post-Brexit Europe.

While the eventual consequences of these policy initiatives are not yet predictable, clearly they will result in new business models, revenue streams and ways of working. This will have major implications for cash management – treasurers will need versatility, the ability to adopt local practices in new markets and the digital technology to adapt payment methods to get close to the consumer.

This paper will examine three things:

  1. How economies are being diversified or pivoted.
  2. The resulting commercial opportunities.
  3. Implications for treasury management.

In this time of accelerating economic change, the treasurer has an active role to play in facilitating entry into new markets.

Diversifying and Pivoting

As much as at any other time in history, governments across the globe are seeking competitive advantage by reorienting their economies, as well as their trading relationships. The highest-profile examples of this trend are the world’s two largest economies – the United States and China. Both are seeking to improve their citizens’ prosperity, the former through a pivot to protectionist policies and the latter through diversifying into higher-value sectors, including those associated with a low carbon economy.

In Asia, economic pivoting and diversification is most evident.

India’s reformist government is improving infrastructure while introducing reforms to land, labour and financial markets laws, seeking to reduce bureaucracy and compliance burdens 5. Meanwhile, Hong Kong aims to be the financing hub for China’s green energy ambitions 6, and Singapore wants to be the smartest of nations 7, with its smart city initiatives.

Turning to Europe, there is less evidence of government intervention, although the UK is seeking to diversify trading relationships by boosting trade with countries with younger populations. Germany and France among others are gaining some of the services business that will leave the UK after Brexit, including banks, brokers and insurers 8. Goldman Sachs, Citi, JPMorgan and Barclays have all reportedly chosen to move staff to Frankfurt 9.

Below follows a fuller description of the economic changes taking place:


Unveiled in 2015, China’s ‘Made in China 2025’ strategic plan aims to transform the country from low-cost manufacturer to high-tech powerhouse. It sets out ten sectors – including robotics, semiconductors, aerospace and clean-energy cars – where companies are expected to dominate in China and compete globally10. In each sector, the plan sets out specific targets to be met by 2020 and 2025. For example, China wants its home-grown firms to control 90% of the global market for electric cars and hybrid vehicles by 2025. The manufacturing centres of the Pearl River Delta – with a GDP of USD 1.2 tr 11, making it one of the world’s largest economies in its own right – lie at the centre of China’s transition. Once dubbed the factory floor” of the world, it is fast becoming a hi-tech and innovation hub. Fostering this from an infrastructure perspective, a new 36km bridge will link Hong Kong and Macau with the city of Zhuhai in mainland China. A new rail link will plug them into neighbouring urban areas, including the megacities of Shenzhen and Guangzhou, to fashion a Greater Bay Area to rival San Francisco, New York, London and Tokyo as a dynamo of innovation.

Several of the sectors prioritised by the 2025 plan are in the clean energy sector, underlining China’s ambitions for clean- energy technologies – especially batteries and electric vehicles. The International Energy Agency reports that China overtook the United States to become the world leader for non-hydro renewables-based electricity generation in 2017. 
The new solar photovoltaic (PV) capacity added in China in 2017 alone is equivalent to the total solar PV capacity of France and Germany combined12. Already the scale of China’s solar panel industry is helping to drive down prices 13. Should it establish a leadership position in the world’s transition to a low carbon economy, this would provide a new motor for the country’s economic growth.

As the United Kingdom prepares to leave the EU in March 2019, it is looking to boost ties with fast-growing trading partners from further afield in Asia and Africa, as well as the United States, to replace trade that could be lost in Europe. Prime Minister Theresa May’s whirlwind tour of Africa in August 2018 makes clear that the UK government sees this young continent as an export destination. The UK Secretary for International Trade, Liam Fox, has also been globe-trotting to priority destinations for future UK trade. Among the many countries he has visited are Southeast Asia’s Indonesia, Malaysia and the Philippines, as well as China and Brazil. Fox has high hopes for new trading relationships with these high-growth economies – he is targeting exports reaching 35% of UK GDP, up from 30% today 14.

Middle East
Across the Middle East, governments have been seeking to diversify their economies away from hydrocarbons to make their growth more sustainable. None more so than Saudi Arabia, the largest of the Gulf states. Adopted in 2016, its ‘Vision 2030’ plan has ambitious plans for the country’s economy 15. Vision 2030 announced plans to cut the size of Saudi Arabia’s public sector while investing in industries of the future such as electric vehicles and ride-sharing, ahead of a time when global demand for oil may peak as consumers turn to cleaner sources of energy. Although some aspects of the strategy have encountered headwinds, the Public Investment Fund (PIF) sovereign wealth fund is being deployed as an agent of change and has made investments in Softbank’s Vision Fund, Tesla and Uber, which it hopes will sow the seeds of a Saudi knowledge economy.

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