While the megatrends are inherently long-term in nature, they don’t always move in straight lines. In relation to the shift in global economic power to emerging markets, for example, the experience of the last couple of years has highlighted the political and economic volatility that we are always likely to see in these markets as they evolve and mature. And, of course, Brexit and Trump have shown that this political volatility is also increasingly evident in leading advanced economies.
So should we throw away our long-term economic projections? I think not. As we argue in our latest World in 2050 report, the fundamentals of demographics and technology-driven productivity catch-up are still likely to propel China, India and other large emerging markets up the global GDP rankings over the coming decades, even if there are a few bumps in the road along the way.
Of course these bumps can feel pretty nasty at the time, as illustrated by the effects of the sharp fall in oil and other commodity prices between mid-2014 and early 2016 (though they have recovered somewhat since then). This has, together with some political uncertainty, pushed Brazil and Russia – two of the high-flying BRICs during the first decade of this century – into severe recessions in 2015-16 from which they are only just starting to emerge.
Other large emerging economies like Nigeria (oil and gas) and South Africa (coal and metals) were also hit hard by this commodity price downturn. Our World in 2050 analysis suggests that Africa still has great long-term growth potential, but lower commodity prices have highlighted the need for more diversified economies with a greater focus on industry sectors with strong job-creating potential for their relatively fast-growing young populations. The same is true for many other emerging economies in regions like the Middle East and Latin America.
As a net commodity importer, China is in a different category. But its previous breakneck GDP growth rate has also eased from around 9-10% to around 6-7% over the past five years. This has coincided with (and relates to) a rebalancing of its economic growth model from reliance on exports and capital investment towards domestic consumption and services. One consequence of this has been lower demand for imported commodities, which has been one important factor behind the recent problems in commodity-exporting economies.
Longer term, we expect a further slowdown in China’s growth rate as its population ages, although its share of world GDP is still likely to rise for some time, reaching around 20% by 2030 according to our 2050 report. This would put China ahead of the US as the largest economy in the world on any measure of GDP.
India’s economy, in contrast, has actually picked up speed over the last few years. Various factors have contributed to this, including its status as a net importer of cheaper oil and other commodities and, since 2014, a new government that has been introducing more business-friendly policies to stimulate growth. Based on our long-term global model, we think that India could replace the US as the world’s second largest economy by 2050, providing it can sustain momentum on investment in infrastructure and education (particularly for women and in rural areas) and on institutional reform, including cutting red tape.
Implications for business strategy - winning in emerging markets
To succeed in fast-growing but potentially volatile emerging economies, international companies will need dynamic and flexible operating strategies, as discussed in detail in the latest annual report of PwC’s Growth Markets Centre. Businesses should be prepared to adjust their brand positions and product features to suit differing and often highly nuanced local preferences. An in-depth understanding of the local market, consumers and policy regimes will be crucial, as will choosing the right local partners to work with.
Another key message from this research is that international businesses and other investors need to be patient enough to ride out the short term economic and political ups and downs that will inevitably occur from time to time in emerging markets as they move towards maturity. But our long-term global projections make clear that businesses that fail to engage with these markets will miss out on the bulk of the economic growth we expect to see in the world economy over the coming decades.
To find out more about this megatrend of shifting global economic power, please visit our dedicated megatrends website.
The sharing economy is big business across the globe, with services like Uber, Airbnb and Deliveroo taking the UK, and indeed, the world by storm. Our recent study for the European Commission highlights that we expect the current £7bn-a-year industry to be worth £140bn-a-year in the UK alone by 2025.
But in an area of the business world that has driven unprecedented change and re-written the rulebook, just what will 2017 bring? Have we reached a ‘tipping point’ where growth will now subside or are we just getting started?
Here, we take a look at what we think will be the ten major movements within the Sharing Economy in 2017 - hold onto your hats!
1) Revenues set to continue their rise
We think the overall trajectory for the sharing economy is upward and if it evolves in line with our most recent projections, sharing economy transactions in five key sectors in Europe would increase by over 60% in 2017, equivalent to around €27bn. Calculated on the same basis, the UK’s sharing economy would also experience growth, at around 60%, equivalent to an increase of £8bn over the year. This would reflect slower expansion than the last few years, but the sharing economy would still be out-performing most other sectors of the economy. Providers should continue to be the big winners, taking home around 85% of total revenues, with platforms pocketing the remainder.
2) With growth comes risk and opportunity
A variety of factors have come to the fore that we think have expanded the range of uncertainty within our initial projections. In other words, it has never been a riskier time to be a sharing economy platform. Regulators are increasingly getting to grips with the movement and are tightening up and better enforcing rules. And legal rulings in areas such as employment regulation will continue to challenge existing business models. In the UK, we would not expect the prospect of Brexit to have any significant dampening effect on this rapid growth in 2017, given that activity is being driven by longer-term trends. But we do think Matthew Taylor’s independent review on Modern Employment Practices will be a watershed moment for sharing and gig economy platforms when it reports in the Spring.
3) Trust matters
Trust will remain the hot topic in the sharing economy and we think 2017 could be the year that the sharing economy starts to get ahead of this agenda. This will likely take a range of forms but one of the most important will be platforms proactively implementing self-regulation. In 2016, we saw Airbnb announce it will enforce the 90 day limit on Londoners renting their homes for short periods, and SEUK launch its “TrustSeal” kitemark (a project that PwC is actively involved in), and we expect more initiatives along these lines this year.
4) Tax - a new frontier
In 2017, we expect that the interaction between the sharing economy and the tax system will move increasingly into the spotlight. Firstly, there are potentially big tax consequences from different applications of employment regulations or classifications. And secondly, we are seeing increasingly novel examples for how governments and platforms are attempting to make the tax system work better for sharing economy participants. In 2016, Estonia’s tax authority partnered with taxi-hailing firms including Taxify to trial an innovative form of digital tax accounts. And Airbnb has partnered with a number of city authorities to collect applicable occupancy taxes. As part of our Paying for Tomorrow initiative, our tax team will be closely monitoring developments in 2017 and sharing their perspective.
5) Permeating new sectors
The sharing economy has been made famous with certain key sectors such as automotive, and hospitality, but 2017 will see the innovation ripple across established sectors. Industries where cost pressures are mounting, such as healthcare and retail, have the most to gain from leveraging sharing economy models. Medical equipment sharing platforms such as Cohealo have emerged across the Atlantic and as the UK healthcare system starts to collaborate more closely, we think 2017 will see the first opportunities for some NHS Trusts to share resources, including staff, equipment and estates in a more dynamic way - a trend we will be exploring in future blogs!
High-value add industries where margins are fairly healthy may still be surprised by the sharing economy in 2017. For example, in a recent blog we explored the impact of the sharing economy on the legal sector, where new start-ups such as Lawyers on Demand have emerged.
6) Silvers surfing the sharing economy
In 2017, we think that digital natives, the early-adopters who powered the rise of the sharing economy, will start to take a back seat to the “silver surfers” - who could well drive the next phase of growth. The over 50’s have already become the fastest-growing user group for many platforms, including Airbnb and DogVacay, and a recent Eurobarometer suggests that this age group is most likely to transact more frequently. The platforms that can capture this demographic in 2017 will gain a competitive advantage against their rivals.
7) Corporates becoming sharing economy platforms
In 2017, many corporates will become platforms themselves in order to tap this new source of talent. For example, last year we piloted the “Talent Exchange”, within a subset of our US Advisory business. The Talent Exchange is an online marketplace for professional, independent workers and it has surprised us how much demand there has been, with thousands of independent talent profiles now registered to be matched against relevant work opportunities. As this trend evolves, HR departments will increasingly be asked to manage an increasingly diverse workforce and accommodate increasingly flexible ways of working.
8) Innovation around the core model
We expect sharing economy platforms to continue to innovate around their core model and invest significantly in the new services they introduced last year. For example, Uber expanded into food delivery with UberEats and ridesharing with UberPool, and Airbnb introduced Trips to expand their foothold in the travel market. The success of these new services will be an acid test of whether sharing economy platforms can eventually become the established leaders of their markets, or will forever be known as the “disrupters”.
9) Statisticians catch up with sharing
This year the Office for National Statistics (ONS) will be surveying individuals, households and businesses to develop a more accurate view of sharing economy activity. With the first data on individual’s use of accommodation and transportation services set to be released in August, this will be a landmark moment - when statisticians finally catch up with sharing.
10) A new type of hospitality
Peer-to-peer rental and home-swapping platforms have re-defined how people travel and 2017 will see continued growth in this sector with leading platforms expanding their offerings into corporate event spaces, food sharing, and experiences. We think growth in the peer-to-peer rental stock could well continue to outpace hotel room supply in 2017, and we expect more consolidation in the hospitality market in general as hoteliers respond and seek greater scale themselves.
2017 is set to be another year of extraordinary change within the sharing economy. At PwC we are committed to helping our clients both navigate and respond to the challenges and opportunities brought about by the onset of this new way of doing business. If you would like further information or advice please do get in touch with robert.p.vaughan@pwc.com or jack.x.ryan@pwc.com
The world is currently facing two key demographic and social challenges that may pose significant challenges for governments and businesses. Firstly, the global population is growing fast, primarily in developing regions. Africa will add 850 million new workers to its workforce by 20501. Yet in many advanced countries, working age population growth is slowing down and, in many cases, is projected to be negative over the next few decades. By 2050, there will be 1.5 working age people for every one elderly person in Japan – in Nigeria there will be 15.
The second trend is rapidly rising inequality. The world’s 8 richest people now own as much wealth as the poorest half of the world’s population2. In this blog, we expand on our new ‘Empowering a new generation’ report and discuss why maximising the economic potential of today’s youth has never been more important to confronting these two key social challenges.
Old-age dependency ratio: the ratio of those aged over 65 to the working-age population aged 15-64
Larger working age populations could boost growth in developing countries, but only if enough jobs can be created for young people...
Emerging markets will only benefit from greater consumer markets and a larger potential workforce if people are engaged in valuable employment. Governments need to take a long-term view, ensuring all young people have access to quality education and training, enabling them to make productive contributions to the workplace in the long-run. They need to invest in infrastructure and technology and develop stable institutions - for example, a fair and efficient tax system and protection for property rights - which attract businesses and investment to support job creation for young people. In this way, developing countries can better nurture and, crucially, retain, the talent of young workers by providing them with more opportunities to prosper.
...While a shrinking workforce could be a drag on growth in advanced economies
The opposite challenge confronts governments of advanced countries. As people are living longer and having fewer children, populations are ageing at a rapid rate. Our Golden Age Index explores many of the ways in which governments and businesses can makes the most of an ageing workforce through initiatives like lifelong learning, but part of the answer may also lie with the young. A falling working-age population is heightening the need to maximise the economic potential of our young people to maintain a productive and innovative workforce.
Our Young Workers Index discusses how governments and businesses can empower young people and highlights the successful dual education systems of countries like Germany and Austria. By engaging students in vocational training alongside formal classroom learning, young people will gain valuable work experience, early employer interaction and widen their career options when transitioning into the working world. This will boost their engagement with work and hence their productivity, mitigating the impact of an ageing population.
Looking forward, empowering young workers with information around alternative career options and the flexibility to adapt to changing industries will also ensure ageing workforces are able to contribute productively to the economy in the long-run. Businesses should be encouraged to provide lifetime training for workers, ensuring they continue to have relevant skills to match evolving economies - technological developments and climate change, for example, are increasing the need to create diversified and dynamic economies.
Expanding educational and employment opportunities will also foster social mobility
Many of the policies discussed above will also confront growing social inequalities. A focus on vocational training will help alter cultural perceptions of apprenticeships and widen career pathways for young people as an alternative to higher education. In developing countries, universal access to education will help create a level playing field which offers all young people the opportunity to unlock their potential. Governments across the world should look ahead and act now, working with businesses to offer training, employment opportunities, and encourage innovation.
1 UN population projections
2 Oxfam
An overall global rise in population – set to expand by more than a billion people by 2030 – will manifest itself very differently across the world’s regions. The population of Africa, for example, will double by 2050, while Europe’s will shrink over the same period of time. The average age profile across different parts of the world will also show significant variation. In Japan, for example, the average age by 2050 will be 53. In Nigeria it will be 23. But while a youthful population is a potential source of advantage for Africa, it requires economic development to create jobs if the region is going to capitalise on this demographic dividend.
Conversely, the ageing populations of developed economies mean fewer younger people to support the old. Not only will there be a growing imbalance between young and old, but other economic strains will develop including a substantial rise in healthcare spending and a major challenge to traditional forms of retirement planning and saving.
To counter this imbalance, it’s going to be essential to encourage two key groups to participate more in the workforce: women and older people (of both genders). Two studies by PwC demonstrate the economic value that each of these groups could add through their greater participation in the workforce. Our Golden Age Index compares how well countries are doing in harnessing the power of workers aged 55 and over. For example, if Greece, a relatively low performer on the index, could achieve the same levels of participation in the workforce by the over-55s as the best performer, Sweden, it could see a long-term increase in GDP of 19%.
Our Women in Work index highlights that a more diverse workforce with greater gender balance is a source of strength for both economies and companies. For example, a study by Credit Suisse1 showed that large companies with women on their boards outperformed those who had none by 26% over a six-year period.
In addition, and political tensions notwithstanding, a rise in migration is likely to be an important source of population growth in G7 economies, although boosting the skills and employment prospects of young people will also be critical.
Adapting to these sweeping demographic changes will require governments and businesses to design and implement new policies. Greater flexibility and new forms of incentives that encourage workers to stay in employment are likely to be required. A more open approach from employers to an older workforce and, with support from government, a willingness to retrain them and support their life-long career development along more flexible lines will also be important. Some businesses are already showing a new way forward. In Germany, for example, BMW has redesigned a factory to take the needs of older workers into account.
The interaction of government policies and employer actions will also be critical to encouraging more women to enter and/or remain in the workforce. Greater flexibility of working patterns, for both men and women, will be one measure. Access to affordable childcare – a key barrier in many countries but a particular strength of the Nordic countries – will also have to be addressed, possibly through fiscal measures so that returning to work makes economic sense for parents who wish to do so.
Overall, the changes that we will see over the next few decades will mean that the working population will look very different from today. Businesses that are prepared for the changes ahead could seize considerable advantage by making sure they are adaptable and ready for the future. To find out more, visit our new megatrends website
1 Credit Suisse Research Institute
Over the last two years since we launched the megatrends, increasingly accurate scientific predictions indicate that, without significant global action, average temperatures will increase by over two degrees Celsius. That’s the threshold at which potentially irreversible environmental changes are expected to occur. There are some increasingly ominous projections.
For example, warming the planet by 1.5 degrees suggests a six to seven-metre increase in sea levels by 2500. Two years ago, a one-metre rise was expected by 2100. Now, double that estimate looks increasingly possible this century and with that we’re likely to see between 150 million and 200 million people one the move from land today that will be underwater. At the same time, a growing global population is expected to need 35% more food by 2030. The demand for water will rise by 40% on a planet in which only 3% is fresh water and only 25% of that is accessible. Demand for energy around the world is expected to grow by 50%.
But more encouragingly, the advances that have been made in scientific understanding are driving much more political agreement about the actions that are required to mitigate the impact of climate change and resource scarcity on a global basis. The Paris Agreement signed in December 2015 saw governments agree to take the steps needed to limit increased warming to an average of two-degrees. Significantly, they also recognised that this target was inadequate, with the aim of 1.5 degrees suggested to reduce the impact.
Also in 2015, UN member states adopted the Sustainable Development Goals (SGDs), framing 17 goals for sustainable economic development. Progress towards the SDGs will shape legislative and regulatory frameworks as well as investment and aid flows from now on. And these goals are not simply top-down aspirations created by governments. The private sector has been heavily involved in establishing these goals. Businesses increasingly recognise the need to operate with a clear social purpose that underpins their licence to operate, while at the same time supporting the thriving societies and economies in which they are a major stakeholder.
Consequently, we’re seeing the business world and investors responding with activities that support a more sustainable agenda for economic development. For example, as jobs in the fossil fuels sector are declining, we’re seeing rapid employment growth in the renewables industry. Major oil companies are talking actively about transition to a low-carbon economy. Others outside the energy sector are also taking an interest in alternative energy, creating opportunities for others to enter this fast-growing market (Google, for example, is now the largest global investor in alternative energy, behind China and Saudi Arabia).
Companies understand that they need to measure their impacts beyond a sole focus on shareholder returns. There’s a growing body of evidence that shows those that are following this path reap the rewards from doing so. Businesses with strong environmental, social and governance (ESG) attributes consistently outperform the market. While corporate social responsibility used to be seen as expensive and distracting, it’s now increasingly the lens through which society and, critically, investors judge a business.
To find out more about how the climate change and resource scarcity megatrend is shaping the business environment, take a look at the new website.
All five of the megatrends – shift in economic power; demographic and social change; rapid urbanisation; climate change and technological breakthroughs; are impacting defence and security leaders and policymakers worldwide.
How do defence and security leaders respond to the ever-changing geopolitical context and what are the implications of the five megatrends on the national security eco-system? In our Public Sector Matters blog by Tom Modly we take a closer look at the defence and security industry and the role of the megatrends in setting a new strategic context for security leaders to operate within. Read on to find out more...
The ‘sharing economy’ describes a broad, macro trend that is reshaping how many services – and critically the outcomes they’re designed to provide – are offered and delivered. We estimate in our recent study with the European Commission that the sharing economy could be worth £140 billion in the UK alone by 2025. The most obvious manifestations of this new economic paradigm are the, by now, very familiar examples of Uber and Airbnb. But what’s less obvious is that the approach and technology developments underpinning the success of these familiar names is also creating disruptive propositions across sectors and services a long way from car sharing or accommodation. Legal services are a case in point.
The last decade or so has seen clients demanding lower fees and showing a willingness to investigate alternative providers for different types of work. This has prompted many large legal services providers to think more innovatively about how to deliver legal services to their clients, in order to reduce operational costs and maintain profit margins. There has been a shift away from the traditional ‘billable by the hour’ approach towards more value based client propositions.
But this re-evaluation is also leading to some novel propositions that take advantage of a sharing economy model and opening possibilities for legal services providers s to play in new and different markets. Just like Uber or Handy, new digital platforms are making it possible for clients and consumers to connect with lawyers and contractors on-demand. In some cases this is through directly submitting requests for work online, in other cases the platform provides a portal to a larger pool of lawyers or contractors.. There are examples of legal service providers now making use of these emerging models and offering clients a new way to access some of the services they need. Berwin Leighton Paisner’s Lawyers on Demand (LOD)1, for example, provides flexible, on-demand access to experienced professional resources who can work on an interim basis, or on one-off transactions. These new models also offer lawyers seeking more flexibility in their working life the chance to deal with high-quality clients without the commitment of a full-time career along a traditional path, such as Allen & Overy’s Peerpoint2.
At the other end of the legal services spectrum, the market for individual consumers and smaller businesses has been characterised by its relative opacity, with most consumers and SMEs instructing lawyers based largely on personal recommendations, sometimes with little insight into the quality of work they are likely to receive or the cost they should expect. The inherent transparency of a platform-based approach can empower consumers, enabling them to make more informed selections. Accordingly, platforms like Lexoo3 in the UK are creating new, more open, ways for consumers and small businesses to access quality legal advice and services.
Certain areas of work will lend themselves more obviously to a platform approach. These will, at least to begin with, tend to be the more commoditised, non-contentious and routine areas of practice. But a technology-driven model making use of flexible resources that can be ramped up and down in line with demand means that larger firms may be able to offer these services to a broader range of clients beyond their traditional market.
Leveraging their trusted brands, larger firms can make use of platform business models to capture new revenue streams while retaining their grip on the larger corporate market. What’s more, the ability to use a platform approach for internal resourcing of projects also offers larger firms a considerable cost advantage. On the other hand, if independent digital platforms are able to attract a sufficient volume of clients and contractors, they could significantly disrupt a substantial proportion of the traditional legal market.
Overall, the impact of the sharing economy on legal services is only starting to play out. But it looks certain to drive significant change in a profession that has seen little fundamental change to business models for many years. It’s a development that no firm can afford to ignore.
1 http://www.blplaw.com/lawyers-on-demand
2 http://www.allenovery.com/peerpoint/Pages/default.aspx
3 https://www.lexoo.co.uk
The UK has emerged as a sharing economy hub. Our recent study with the European Commission shows that sharing economy activity across Europe has accelerated over the past two years, with its five key sectors generating revenues of €3.6bn and facilitating €28bn of transactions in 2015.The UK’s sharing economy has grown the fastest in Europe, with transactions almost doubling to £7.4bn in 2015, and platforms taking home £850m of this total. It’s also become the home to a number of sharing economy success stories who are rapidly expanding outside UK shores, such as Lovehomeswap, Justpark and Hassle.
Here, real estate director Gareth Lewis explores the impact of the sharing economy on one area of society; city infrastructure.
The sharing economy is manifesting itself in all areas of real estate. In its essence real estate is based on the concept of ownership, whether that be ownership of a building or entering into a long lease on a building. So it is not surprising that the sharing economy is turning the real estate industry on its head – a point that was referenced frequently by the industry’s leaders in our ‘Emerging Trends in Real Estate (Europe)’ report.
In their very essence successful cities are the embodiment of the sharing economy. Successful cities help the largest, most diverse number of people to collaborate effectively and that involves the sharing of resources, whether that is infrastructure, technology, culture and ideas. And the very best ones embrace this concept: they have the best public transport networks with multi-modal transport options, advanced ticketing systems and car and taxi sharing. There is already evidence that the latter is changing attitudes to car ownership among young people who no longer see owning their first car as the rite of passage that it used to be.
When it comes to infrastructure the focus tends to be on the big schemes, but take bike sharing – a hugely undervalued and largely unremarked service that is actually changing the way people use cities in small ways that add up to something much bigger. I now jump on a ‘Boris Bike’ and cycle to a tube station that I used to avoid because it was too far to walk. Now it is just a four-minute cycle and that’s opened up a whole new network of transport options for me. Across London and other cities this is leading to changes in people's travel patterns, how we view the city in general and changes in the way people access and value certain areas of the city – including its real estate.
With the rise and rise of internet and online retailing, the most successful cities will soon be judged on how they solve logistical problems like last mile of delivery in an effective and sustainable way. Currently there is a growing list of different operators, such as Amazon, Waitrose, InPost and Argos, with their own click-and-collect locker services, and vans from different retailers criss-crossing all over the city, occupying space on the congested roads. But soon cities may move to an open-shared platforms used by all retailers (sounds a bit like the old post office concept?). This could be driven by the market forces or more likely by a combination of market forces and regulation as a response to congestion, air pollution and the challenge of climate change and resource scarcity.
This small-scale ‘soft’ infrastructure is often overlooked but can have a huge impact. So while the focus may be on Crossrail, for example, currently less attention is paid to the impact of a quadrupling of footfall in the area around Tottenham Court Road when the first of the new fast trains start pulling in. What does that mean for the local area? Where can you go and have a nice quiet sandwich at lunchtime? Does the whole experience of living and working in London change? We will need soft infrastructure solutions to resolve these issues which impact how a city functions, how desirable an area is, and the real estate values in those areas.
Solving many of the most important challenges facing society today will hinge on the success of cities and the sharing or collaborative economy, and these forces are undoubtedly entwined with the future of real estate.
Gareth Lewis was interviewed on this topic for Property Week Perspectives (Vol 4 - the winter issue) – ‘Success in the cities: the secret is all in the sharing’ (p14-15) published on 25 November 2016.
Cities can be a powerful force for economic development, inclusion and sustainability, but we need to get better at unlocking their potential. Two years on from the launch of PwC’s Megatrends analysis, we have arrived at an important window of opportunity. Since 2014 the world has put pen to paper on three international agreements that will define our common future. Importantly, the success of each will be largely determined by how we plan, build and run our cities:
Cities are economic powerhouses accounting for some 85% of global GDP in 2015, and they continue to drive productivity gains, job creation and innovation the world over. But how can we go about unlocking the power of cities that will have significant consequences at both local and global levels? Cities today consume 75% of global resources and account for 80% of greenhouse gas emissions. So ensuring that their development is sustainable is essential if the very economic dynamism that makes cities so successful is not also going to imperil the planet’s future.
PwC estimates that an additional $78 trillion of investment in infrastructure will be needed around the world over the next 10 years. Ensuring that this investment contributes to cleaner, resilient and more environmentally efficient urban development is clearly critical. Governments and business will need to work together to achieve this and nowhere is more important to get this right than in the fastest growing cities of all in the developing world.
Today, for example, 60% of Africa’s urban dwellers live in informal and unplanned developments and 41% have no access to electricity. But, with relatively little infrastructure yet built, governments in the region have an opportunity to learn from others’ successes and mistakes and develop urban strategies that can capture the potential dividend of fast-growing, youthful populations.
To achieve that, new approaches will be important and technology could be a key enabler of driving sustainable growth. For example, look at the way that mobile technologies have leapfrogged the need for fixed telecoms infrastructure in sub-Saharan Africa. As a result, innovative business models – such as mobile payments – are more widely used in the region than in many other countries. Similarly, innovative approaches that involved communities and individuals could drive new thinking about how to deliver infrastructure and services.
Governments will not be able to achieve all that they need to do to make cities’ development sustainable alone. Consequently, there is a major role and opportunity for businesses. We’re already seeing distinct approaches emerging. For example, citizen-focused smart cities are being planned or retrofitted around the world, with the market expected to reach more than $750 trillion by 2021. On the other hand, smart cities can also mean ‘bottom up’ approaches, emphasizing robust planning and community-led initiatives such as self-build, community infrastructure management, co-operatives and micro industries. These approaches are helping to harness the potential of society and digital empowerment in equal measure.
So since PwC launched the Megatrends in 2014, the challenges and opportunities presented by rapid urbanisation are probably more widely acknowledged and are being treated with increasing urgency, particularly in economic development and climate change domains. But the skills and capabilities that got us to the precipice of change are not the same as those that will implement it. With the potential of cities attracting 1.5 million people each week, the choices and policies that determine urban development really will have a critical impact on the quality of life that billions of people are able to hope for. The platform is set and there is much to do.
To find out more about the issues that will inform those choices, take a look at the Rapid Urbanisation pages on the PwC Megatrends website.
Is there light at the end of the carbon tunnel? The bad news, lost in the celebrations of the UN’s 21st Conference of Parties (COP21), is that even with the record breaking levels of decarbonisation in 2015, we remain on course for levels of global warming that will have profound and systemic impacts.
The 2016 PwC Low Carbon Economy Index shows that although the global economy decarbonised by a record 2.8% in 2015, this represents less than half the 6.5% annual reductions in carbon intensity required to avoid more than two degrees of warming. Our current growth trajectory takes us towards a world more than 3 degrees warmer.
This failure to decarbonise, set in the context of the global megatrends already confronting society, presents multiple risks. In terms of physical risk, rising sea levels will make uninhabitable a number of densely populated mega-cities that are low-lying or below sea level. This will increase levels of distressed migration, with climate change expected to create up to 200 million additional refugees by 2050.[1]
For business, there are mounting risks from climate impacts and climate policies. Part of this is physical risk to assets, including the risk of extreme weather events and water scarcity. For fossil fuel based sectors, there is also the risk of technological obsolescence, as renewables approach cost parity with fossil fuels.
But there are rays of hope. China's 6.4% decarbonisation in 2015, topping the index, and the 70% growth in China's solar sector (even if is from a very low absolute base), represent a remarkable success story and evidence of the increasing economic viability of the low carbon economy in both developed and emerging markets.
The pressure is now on for a regulatory framework to accelerate the decoupling of growth from emissions.
For more information, please see the 2016 Low Carbon Economy Index or please get in touch with me directly.
[1] How many migrants will there be? BBC News, 2 September 2013 : http://www.bbc.co.uk/news/magazine-23899195