http://www1.mastercard.com/content/intelligence/en/research/reports2019-11-25T00:02:48.519ZReportsAdobe Experience ManagerMasterCard Worldwide Index of Consumer Confidence- H1 2011 Introduction<p>The MasterCard Worldwide Survey on Consumer Confidence (MWICC) for Asia/Pacific, Middle East and Africa is released once a year.&nbsp;</p> <p>The MasterCard Survey on Consumer Confidence is released once a year and provides valuable insights into consumers' confidence for the six months ahead. The latest survey was conducted from March to April 2011 and involved&nbsp; 17,620 consumers from across Asia/Pacific, Middle East and Africa. Data collection was via online, personal, telephone and Computer Aided Telephone interviews, with the questionnaire translated to the local language wherever appropriate and necessary.</p> <p>The survey is designed to gauge the perceptions of people who have the experience and means of engaging in a wide spectrum of economic activities, which dictate the performance of the national economy. Thus, the basic requirement to qualify as a respondent is that he/she owns a bank account and is between 18 to 64 years old..&nbsp; These requirements provide a feasible mechanism to maximize the inclusion of people who belong to the middle and upper income groups who are most likely to have disposable income in excess of spending on necessities and play a significant role in the performance of the consumer market and the economy.</p> <p>The distribution of age and sex of the middle and upper income groups in each market is taken into consideration when designing the sampling frame.&nbsp; A standard minimum income is not used to qualify the respondents across all the markets covered in this survey due to difference in purchasing power parity and differing levels of income required to qualify for a credit card.&nbsp; To ensure consistency and comparability with the sample in previous studies, a quota based on sex and age is applied.</p> <p>Face-to-Face Interviews, Standard Telephone Interviews, and Computer Aided Telephone Interviews (CATI) were used.</p> Market Level Comparison<p><a href="/content/dam/intelligence/content-assets/reports/MasterCardWorldwideIndexofConsumerConfidenceH12011.jpg" target="_blank"><img width="412" height="309" src="/content/dam/intelligence/content-assets/reports/MasterCardWorldwideIndexofConsumerConfidenceH12011.jpg"></a></p> Worldwide Index of Consumer Confidence<p><a href="/content/dam/intelligence/content-assets/reports/MasterCardWorldwideIndexofConsumerConfidenceH120112.jpg" target="_blank"><img width="404" height="2501" src="/content/dam/intelligence/content-assets/reports/MasterCardWorldwideIndexofConsumerConfidenceH120112.jpg"></a></p> The MasterCard Worldwide Index™ of Consumer Confidence survey has a 20-year track record of consumer confidence indices collected from over 200,000 interviews, unequalled both in scope and history across Asia/Pacific, Middle East and Africa.http://www1.mastercard.com/content/intelligence/en/research/reports/2011/mastercard-worldwide-index-of-consumer-confidence-h1-20112010-12-31T16:00:00.000Z2010-12-31T16:00:00.000ZMasterCard Worldwide Index of Consumer Confidence- H2 2011 Introduction<p>&nbsp;<br> </p> About the MasterCard Worldwide Index of Consumer Confidence<p>The MasterCard Worldwide Index of Consumer Confidence survey has a 20-year track record of consumer confidence indices collected from over 200,000 interviews, unequalled both in scope and history across Asia/Pacific, Middle East and Africa.</p> <p>The MasterCard Worldwide Index of Consumer Confidence is the most comprehensive and longest running survey of its kind in the region.&nbsp; In June 1997, the Index revealed a decline in consumer confidence-one month prior to the devaluation of the Thai baht that triggered the regional economic crisis. In June 2003, the Index score for Employment in Hong Kong dropped to a low score of 20.0. This was subsequently reflected in Hong Kong's unemployment rate, which peaked just before September 2003 at eight percent.</p> <p>The survey comprising the Asia/Pacific markets began in the first half of 1993 and has been conducted twice yearly since. Markets from the Middle East and Africa were included in the Index from 2004. Twenty five markets now participate in the survey: Australia, China, Egypt, Hong Kong, India, Indonesia, Japan, Kenya, Kuwait, Lebanon, Malaysia, Morocco, New Zealand, Nigeria, Oman, Philippines, Qatar, Saudi Arabia, South Korea, South Africa, Singapore, Taiwan, Thailand, United Arab Emirates and Vietnam. The latest MasterCard Worldwide Index of Consumer Confidence survey was conducted from 5 December 2011 to 8 February 2012. A total of 12,915 qualified respondents were surveyed in the 25 markets with the sample being representative of the middle and upper income groups in each market.&nbsp;</p> <p>The Index is calculated based with zero as the most pessimistic, 100 as most optimistic and 50 as neutral.&nbsp; Five economic factors are measured: Employment, the Economy, Regular Income, Stock Market and Quality of Life. The responses are consumers' thoughts on the six months ahead. Data collection was via internet surveys and face to face interviews, with the questionnaire translated to the local language wherever appropriate and necessary.&nbsp; The survey has a margin of sampling error of plus or minus four to five percentage points at the 95 percent confidence level.</p> Market Level Comparison<p><a href="/content/dam/intelligence/content-assets/reports/MarketLevelComparison.jpg" target="_blank"><img style="width: 353px; height: 241px;" src="/content/dam/intelligence/content-assets/reports/MarketLevelComparison.jpg"></a></p> Summary<p>The MasterCard Worldwide Index of Consumer Confidence (MWICC) measures consumer confidence /sentiments on prevailing expectation in the market for the next six months. It is the average of the Index Scores of FIVE Economic Factors: Employment; Economy; Regular Income; Stock Market and Quality of Life.</p> <p>This is the thirty-eighth MWICC for MasterCard's Asia/Pacific Region and fifteenth for the Middle East and fourth for the Africa Region.&nbsp; The MWICC continues to assess consumer sentiments over the next six months in each of the twenty five selected markets and provides a benchmark and mechanism to gather data for comparison with and to establish historical trends in the two MasterCard Regions.</p> <p>Overview<br> From Weber Shandwick Press Releases</p> <p><a href="/content/dam/intelligence/content-assets/reports/Summary.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Summary.jpg"></a></p> Australia<p><a href="/content/dam/intelligence/content-assets/reports/Australia.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Australia.jpg"></a></p> China<p><a href="/content/dam/intelligence/content-assets/reports/China.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/China.jpg"></a></p> Hong Kong<p><img src="/content/dam/intelligence/content-assets/reports/HongKong.jpg"></p> india<p><a href="/content/dam/intelligence/content-assets/reports/India.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/India.jpg"></a></p> indonesia<p><a href="/content/dam/intelligence/content-assets/reports/Indonesia.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Indonesia.jpg"></a></p> japan<p><a href="/content/dam/intelligence/content-assets/reports/Japan.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Japan.jpg"></a></p> korea<p><a href="/content/dam/intelligence/content-assets/reports/Korea.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Korea.jpg"></a></p> malaysia<p><a href="/content/dam/intelligence/content-assets/reports/Malaysia.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Malaysia.jpg"></a></p> new zealand<p><a href="/content/dam/intelligence/content-assets/reports/NewZealand.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/NewZealand.jpg"></a></p> philippines<p><a href="/content/dam/intelligence/content-assets/reports/Philippines.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Philippines.jpg"></a></p> singapore<p><a href="/content/dam/intelligence/content-assets/reports/Singapore.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Singapore.jpg"></a></p> taiwan<p><a href="/content/dam/intelligence/content-assets/reports/Taiwan.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Taiwan.jpg"></a></p> thailand<p><a href="/content/dam/intelligence/content-assets/reports/Thailand.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Thailand.jpg"></a></p> vietnam<p><a href="/content/dam/intelligence/content-assets/reports/Vietnam.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Vietnam.jpg"></a></p> The MasterCard Worldwide Index™ of Consumer Confidence survey has a 20-year track record of consumer confidence indices collected from over 200,000 interviews, unequalled both in scope and history across Asia/Pacific, Middle East and Africa.http://www1.mastercard.com/content/intelligence/en/research/reports/2011/mastercard-worldwide-index-of-consumer-confidence-h220112011-06-30T16:00:00.000Z2011-06-30T16:00:00.000ZThe Challenges of Urbanization in Sub-Saharan Africa: A Tale of Three Cities Yuwa Hedrick-Wong, George AngelopuloThe Challenges of Urbanization in Sub-Saharan Africa: A Tale of Three Cities<p>&nbsp;<br> </p> MasterCard Worldwide A Global Knowledge Leader<p>MasterCard&nbsp; Worldwide&nbsp; is widely recognized&nbsp; as&nbsp; a knowledge leader around the world. Over the years, the global payment solutions company has devoted extensive resources&nbsp; to developing a deeper&nbsp; understanding of the payments card markets and the business and economic environment through&nbsp; surveys and independent research studies. Some of these initiatives include the MasterCard Worldwide Index of Consumer Confidence, MasterCard Worldwide Index of Women's Advancement, MasterCard Worldwide Centers of Commerce, MasterCard Worldwide Index of Consumer Purchasing Priorities, MasterCard Worldwide Index of Consumer Resilience and MasterCard Worldwide Index of Consumer Spending Capability. Today, these MasterCard offerings are much sought after by analysts, academics and decisionmakers in financial institutions, government&nbsp; agencies and multi-national organizations.</p> <p>Launched&nbsp; in 1993,&nbsp; the&nbsp; MasterCard&nbsp; Worldwide Index of Consumer Confidence has proven to be an excellent barometer&nbsp; of the general consumer pulse in Asia/Pacific. The twice-annual survey analyzes prevailing consumer perceptions of economic conditions for the next six months.&nbsp; Its insights into the dynamics of consumer sentiment, and the market paradigm deliver value to a variety of audiences, including customers and business partners.</p> <p>In 2003, MasterCard established the MasterIntelligence&nbsp; Knowledge&nbsp; Panel, which comprises&nbsp; leading economists and business strategists from China, Hong Kong, India, Japan,&nbsp; Korea and&nbsp; South&nbsp; East Asia. In 2006, it was expanded to become a global knowledge panel,&nbsp; which now&nbsp; conducts&nbsp; research&nbsp; and&nbsp; provides insights on the economic and business environment globally. The panel is headed&nbsp; by Dr. Yuwa Hedrick- Wong, Economic Advisor, MasterCard Worldwide. In 2009, an African Knowledge Panel was established.<br> Today, MasterCard continues&nbsp; to demonstrate its commitment&nbsp; by not only adding value with cutting edge research but also through&nbsp; sharing knowledge in new areas.&nbsp; Its knowledge&nbsp; leadership is well recognized and unrivaled.</p> Foreword: A Tale of Three Cities<p>Urbanization is one of the most significant trends in Sub-Saharan Africa at present,&nbsp; with rural populations migrating at unprecedented rates to urban hubs in search of employment and economic growth.</p> <p>In this report, the second in the MasterCard series of research reports&nbsp; into Africa entitled: 'The Challenges of Urbanization in Sub-Saharan Africa: A Tale of&nbsp; Three&nbsp; Cities',&nbsp; the&nbsp; research&nbsp; team&nbsp; of&nbsp; Dr. Yuwa Hedrick-Wong and Professor George Angelopulo offer insights into urbanization&nbsp; in three&nbsp; significant African cities-Lagos, Nairobi and Maputo.</p> <p>The report highlights that&nbsp; urbanization&nbsp; is key to boosting productivity and economic activity in developing markets, but unless it is carefully planned&nbsp; and implemented,&nbsp; it can lead to structural weaknesses and even breaking points in cities that&nbsp; are not adequately prepared&nbsp; for the uncontrolled&nbsp; influx of rural populations&nbsp; seeking to improve their lives.</p> <p>Each of the three cities discussed in the report has noteworthy&nbsp; successes in servicing their growing populations, but each has also been challenged in under-estimating the scale of urbanization and the planning and development&nbsp; needed&nbsp; to accommodate it.</p> <p>The consequence of this includes, among&nbsp; others, the mushrooming&nbsp; of slums, pressure on infrastructure and the social problems that&nbsp; accompany&nbsp; unemployment in an urban setting. Failing to prepare for these, or to address them&nbsp; adequately,&nbsp; could see emerging markets fall into the trap of replacing rural underdevelopment with urban underdevelopment-a destructive scenario that betrays the enormous potential that is so apparent&nbsp; on the African continent.</p> <p>So where and how can African markets find the balance between&nbsp; the benefit of increased economic activity of urban dwellers with the costs of accommodating them with appropriate&nbsp; infrastructure&nbsp; and systems?</p> <p>While getting urbanization right is key to positionng for future&nbsp; economic growth,&nbsp; it is important&nbsp; to note&nbsp; that&nbsp; there&nbsp; is no&nbsp; single&nbsp; fast-fix that&nbsp; can&nbsp; be applied&nbsp; to&nbsp; any&nbsp; of&nbsp; the&nbsp; problems&nbsp; afflicting Africa's urbanized&nbsp; populations.&nbsp; There is significant cultural, social and economic diversity from region to region, and indeed&nbsp; city to city?and the key to success in these&nbsp; markets&nbsp; will be&nbsp; careful management of the resource-driven expansion, with local solutions that respond to local situations.</p> <p>Earlier this year, the first in a series of four MasterCard Worldwide Insights reports&nbsp; on Africa was released entitled: 'Taking Stock: The State of Sub-Saharan Africa' by Dr. Azar Jammine and Dr. Martyn Davies and offered an overview of the current status quo on the continent and insights into the opportunities and inhibitors for those seeking to do business on a continent&nbsp; that&nbsp; is variously seen as challenging to invest in or as the world's current greatest&nbsp; opportunity for significant growth.&nbsp; Should you wish to view that report, please visit&nbsp;<a href="http://www.masterintelligence.com/">www.masterintelligence.com</a></p> <p>I&nbsp; trust that&nbsp; you will find this second MasterCard Insights report into African markets a comprehensive and useful tool for your future business planning.</p> <p>Yours sincerely,</p> <p>Michael Miebach<br> Division President, Middle East &amp; Africa<br> MasterCard Worldwide</p> The Challenges of Urbanization in Sub-Saharan Africa: A Tale of Three Cities<p>&nbsp;<br> </p> Introduction: Urbanization and Development<p>Urbanization is today a truly global phenomenon. Even though many of the developed markets had experienced rapid urbanization when they industrialized in the 19th and 20th centuries, their urbanization process has never really stopped, and has been gaining new momentum recently. A dramatic illustration of this is in Germany, where in the last decade the wolves have returned to rural regions as small towns and villages are increasingly becoming depopulated as young people continue to move to live in cities. For the developed markets, a renewed momentum in urbanization is critical for revitalizing their economies. Their large urban regions have become the cradle for nurturing their creative industries, facilitating business innovations, and driving economic growth with ideas and human ingenuity.</p> <p>In emerging markets, urbanization is even more important&nbsp; as a key driver of development&nbsp; and growth. Shifting underemployed rural people to more productive employment in urban areas is fundamental to lifting productivity overall, which in turn constitutes a sustainable platform for future investment and growth. Getting urbanization right, however, has been a major challenge for emerging markets everywhere. Indeed, managing urbanization effectively requires emerging markets to succeed in areas where they are typically the weakest: sufficient investment in physical and human infrastructure, effective policy coordination between central and municipal govern- ments, appropriate and forward planning and enforcement, creating a supportive environment for private businesses to thrive and create jobs, provision of law and order, and assuring effective governance at all levels of administration. It is therefore not surprising that in many emerging markets urbanization has been poorly managed. The results are plain for all to see in many cities in emerging markets: massive slums, lack of basic services for most urban dwellers, high urban unemployment and underemployment, chronic traffic congestion and gridlocks, chaotic zoning and lack of enforcement, and overall poor and deteriorating urban quality of life. Thus, in failing to get urbanization right, many emerging markets risk falling into the trap of creating massive urban sprawl of poverty that merely replaces rural underdevelopment with urban underdevelopment.</p> <p>Among the most important emerging markets today, rapid urbanization has been one of the most salient features&nbsp; of China's development&nbsp; success. China appears to have gotten urbanization right. It is therefore worthwhile examining China's urbanization experience in some detail to identify appropriate lessons learned. The record so far is an impressive one. In the mid-1980s, urban population represented less than a quarter of China's total population. By 2009, urban population had risen to over half of the total population. In the past decade and a half, over 20 million people were urbanized each year on average. Thus, the net addition of urban population each year in China is about equal to the entire population of Australia. This rate of urbanization is historically unprecedented. Urbanization in China is expected to continue to grow at a high rate of about 2.7% per year in the foreseeable future. Rapid growth of urban population in China has not been limited to a few key cities, however. In the last decade and a half, secondary cities away from the coastal region have actually been growing faster than the big three of Beijing, Shanghai&nbsp; and&nbsp; Guangzhou,&nbsp; making urbanization more evenly spread than in many other emerging markets.</p> <p>In spite of this rapid pace of urbanization, there is something distinctive about China's cities; making them unique among cities in the developing world. Many first time visitors notice it the moment they leave the airport in one of the big cities on their drive to downtown; or when they travel within China from one city to the next. Chinese cities do not have the sprawling slums that are the hallmarks of cities in emerging markets such as Philippines, India, Nigeria, or Brazil. The fact that Chinese cities have escaped the curse of urban slums is a result of both its socialist legacy of highly centralized control of people's movement, and an unintended consequence of its rural reform.</p> <p>Under socialist central planning, population movement was strictly controlled in China. For much of the period from 1949 when the Communist Party won the civil war to 1978 when economic reform began; permission was needed from one's govern- ment work unit to buy a simple bus or train ticket to go to a nearby city. For the first three decades after the founding of the People's Republic, there was virtually no rural-urban migration. In order to stay in a city, a person had to have an official permit, the hukou, without which they would not have been able to find a job, rent a flat, enroll their children in school, or receive medical care. In other words, a rural person would have all the basic amenities denied them without a hukou, even if they were enterprising enough to sneak into a city unofficially. Given that the government owned and allocated all urban housing, ran all the healthcare facilities and schools, and assigned all the jobs, it was very easy to enforce migration control: no hukou, no nothing.</p> <p>Today, an urban hukou can be obtained relatively easily once a person can prove that they have a job in the city. In fact, the city governments of many second-and third-tier cities, in order to expand faster, offer an official hukou to anyone from the outside who has purchased a private condo above a certain minimum value. Under these conditions, rural-urban migration could have exploded into uncontrolled torrents of opportunity seeking migrants, following the patterns seen in many other other third-world cities. But it didn't happen in China.<br> The fact that it didn't has a lot to do with land ownership in rural China. There is, strictly speaking, no private land ownership yet. Land reform had given rural households a long-term lease (30 years) for the use of a plot of land; and recent reform measures allow them to use the land as collateral for investment loans, or to lease it to other households to consolidate the plots into a a larger-size farm, etc. But, if the rural household were to obtain an urban hukou, it would automatically lose the right to the land in its home village. So it is an either/or choice; no household can be both urban and rural at the same time. This creates a de facto cost-benefit calculus that the rural household has to consider carefully. Is the urban job secure enough to give up the land in the village? Is the pay sufficiently high to compensate for the higher costs of living in the city? Or is it better to work in the city as a migrant worker (officially defined as working in a host city for more than six months at a time) and then return to the home village to work on the land just before the planting season starts, with extra cash in pocket saved from working in the city? Thus, because of the trade-off between the land in the village and the hukou, in the city, rural-urban migration is self-regulated. A new arrival in the city tends to be someone with a relatively secure job and a pay level good enough to cover the higher costs of urban living with something to spare. Rural-urban migrants with no jobs and poor employment prospects in a city, in other words, potential slum dwellers, are therefore extremely rare; and hence the absence of sprawling urban slums in China's cities.</p> <p>This self-regulated nature of rural-urban migration then responds directly to employment opportunities created in the cities. Between 1995 and 2007, about 150 million new urban jobs were created in China, which were sufficient to lure some 300 million people (workers and their families) to resettle in China's cities. So China's cities are very powerful job creation machines. And an important factor that enables China's cities to function as job creation machines is their rapidly improving infrastructure. Better infrastructure has been critically important in lowering the costs of logistics and enhancing information flow, thereby attracting new investments into urban areas. It also allows cities to expand physically.</p> <p>A more detailed look at the components of the 300-million increase in urban population over the last decade and a half reveals the importance of infrastructure development. Based on official data, about one-third of this increase has come from rural migration and about 15% from organic growth. The majority, about 52%, however, has come from cities expanding into adjacent rural areas--a process where areas previously rural are transformed into urban. Both expanding cities and newly-urbanized rural areas require significant infrastructure improvements, including transportation and telecommunications links, water and electricity supply, housing development, and typical urban facilities such as shopping malls, tertiary health care and higher education services, and financial districts--all of which require massive investment. While investment in infrastructure creates jobs, this is only the beginning of the process. Once the infrastructure is in place, business development then follows, creating even more jobs. Infrastructure development, business investment, and urbanization are therefore three mutually-reinforcing trends that characterize China's economic growth.</p> <p>This quick review of China's urbanization experience shows both lessons learned that could be transferred to other emerging markets, and the limits of this transferability. A high level of investment in infrastructure is clearly crucial to ensure that urbanization is generating&nbsp; the kind of economic efficiency that attracts business investment and job creation, while building a better environment for people to live and work. This is true for urbanization generally, and especially so for emerging markets that lack such infrastructure to begin with. On the other hand, China's political system and its central planning allow the authorities to control rural-urban migration, fast track investment projects, and direct the flow of financial resources to fund the investment, often with draconian means. These conditions are not easily replicable in most emerging markets, especially in places where the democratic process is better established, and where decision-making requires at least some form of consensus at grassroots level. So China's model of urbanization, as successful as it may have been, could not be simply copied, nor should it be. So for better or worse, many emerging markets will have to meet the challenge of urbanization by the means that are at their disposal, inadequate as they frequently are. The Sub-Saharan Africa region is no exception.</p> <p>At present, the urbanization level of Sub-Saharan Africa is estimated at around 36% of its total population. As shown in Table 1, South Africa is the most urbanized, with 60% of its population considered urban. This is followed by Angola at 55%, Ghana at 49%; and Nigeria at 47%. Among the nine key markets in the region listed in Table 1, Kenya is the least urbanized at 21%.</p> <p>In terms of urbanization rates, however, Mozambique's urban population has been growing the fastest among the nine key markets over the 2005 to 2008 period, at an average of 2.2% per year, with Angola and Tanzania tied for second place at 1.7%, as seen in Table 2. The slowest is South Africa 0.8%. This is not surprising as South Africa is already a highly urbanized society with some 60% of its population being urban.</p> <p></p> <p><a href="/content/dam/intelligence/content-assets/reports/IntroductionUrbanizationandDevelopment.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IntroductionUrbanizationandDevelopment.jpg"></a></p> <p></p> <p><a href="/content/dam/intelligence/content-assets/reports/IntroductionUrbanizationandDevelopment2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IntroductionUrbanizationandDevelopment2.jpg"></a></p> <p>Among the nine key markets in Sub-Saharan Africa, there is great variance in their average urban per capita income, from as low as US$191 in Zimbab we to South Africa's US$6,266. Consistent with other emerging markets, the urban economies of Sub-Saha-ran Africa are also more developed with higher incomes than their rural counterparts. As Table 3 shows, however, there are significant differences between the nine key markets in the region in the size of the urban-rural gap. The urban-rural gap is repreented by urban per capita income as a percentage of average per capita income for the country as a whole. When examined in such a way, Kenya has the biggest urban-rural gap, with the urban per capita income being 60% higher than the national average. Angola, on the other hand, has the smallest urban-rural gap; its urban per capita income is only 24% higher than the national average. The higher per capita income in the urban economy is the primary cause of rural-urban migration. The bigger the gap, the more motivated rural people are to move to urban areas to seek a better life. Hence, an important part of getting urbanization right is to ensure that there are enough jobs created in urban areas to absorb the rural inflow; otherwise urban unemployment and underemployment, slums, and endemic poverty will become part of the features of urban life.</p> <p>This brief overview of urbanization in Sub-Saharan Africa suggests that with the exception of South Africa, the region is still in a relatively early phase of urbanization. But the region is urbanizing, as seen in the data shown in Table 2. So the region must get urbanization right in order to ensure its future development success. As suggested above, there is no simple one-size-fits-all solution to the urbanization challenge. The conditions on the ground are a lot more nuanced that the usual generalizations may portray, and, as the saying goes, the devil is in the detail. In order to illustrate the current conditions of the urban environments in Sub-Saharan Africa, three cities are chosen for an indepth review: Lagos, Maputo, and Nairobi.</p> A Tale of Three Cities: Lagos, Nairobi, and Maputo<p>The prognosis for Africa's cities remains mixed. In the past three decades few have predicted a bright future for Africa's urban areas. The overriding sentiment is encapsulated&nbsp; by the assessment that 'Africa boasts many huge,&nbsp; rapidly growing cities, but&nbsp; it's hard to identify many of these places--like Lagos, Luanda or Kinshasa--as bright prospects.'&nbsp;&nbsp;But an alternative view is increasingly being heard. 'Africa has a larger middle-class population than India. It is undergoing rapid&nbsp; urbanization,&nbsp; bringing&nbsp; millions out&nbsp; of&nbsp; rural employment. Growth in Sub-Saharan Africa will be between 4% and 7% this year, a figure at least double anything expected in Europe or America. There will be plenty of traps for the unwary, but just as five years ago everyone said investors should look to China, we may be on the verge of a dash to Africa.' The view of trade and its urban environment is certainly changing.</p> <p>In assessing urbanization in Sub-Saharan Africa, it is worthwhile looking at specific cases, and in this discussion it is three prominent cities in the African landscape that fall under the microscope. Lagos, Maputo and Nairobi are geographically dispersed and they vary in size and importance in their regions and on the continent as a whole. They are unique, but they also share certain&nbsp; characteristics with many of Africa's&nbsp; urban agglomerations,&nbsp; and serve well to reflect the current state of the African city.</p> Lagos<p>Lagos was originally part of the Kingdom of the Yoruba. Following the arrival of the Portuguese in the early<br> 1400s it became a major slave port, continuing with the&nbsp; trade&nbsp; of&nbsp; slaves up&nbsp; to&nbsp; the&nbsp; mid&nbsp; 1800s.&nbsp; It was annexed by Britain in 1861, ostensibly to stop the slave but also as a way of controlling palm and other trade in the region.In 1914 Nigeria became a British colony with Lagos as its capital, and it remained the capital through Nigeria's independence&nbsp; in 1960 up to 1991 when Abuja was made the capital. Despite its loss of political status, Lagos has continued to develop and grow.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Lagos.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Lagos.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/Lagos2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Lagos2.jpg"></a></p> <p>The city abuts&nbsp; the&nbsp; Atlantic Ocean in an area of swamps, islands, rivers and an expanding region of the mainland. Lagos Harbor, the foundation of the modern city, is situated&nbsp; in the main water&nbsp; channel that drains into the Atlantic Ocean. As Lagos has grown it has incorporated smaller towns and settlements.&nbsp; The city grew&nbsp; steadily during&nbsp; the&nbsp; colonial period&nbsp; and expanded&nbsp; markedly after&nbsp; independence.&nbsp; From&nbsp; the 1970s it has experienced a population explosion fuelled by the oil boom, rapid economic growth and rural migration, as Chart 2 shows. Lagos is today the seventh fastest growing city in the world and projections are that its rapid growth will continue.</p> <p>At 18,000 people per square kilometer, Lagos has the fourth highest population&nbsp; density in the world. Based on the Global Livability Report's assessments of stability, health care, culture, environment, education and infrastructure, Lagos is ranked the fourth least appealing to live in of the 140 cities in the survey. It ranks 137th of 183 countries in ease of doing business, down three places since 2010.&nbsp;&nbsp; Even in Nigeria itself, it is not the easiest place to do business--Lagos ranks 25th out of 37 regions in the country. The fact is that urbanization has occurred haphazardly in Lagos. Little coherent urban planning has occurred for decades,&nbsp; and&nbsp; the&nbsp; city's&nbsp; tentacles&nbsp; extend&nbsp; outwards along its roadways. The prime reason for its haphazard development is that the city has no single municipality. Instead it is run by a number&nbsp; of Local Government Areas that share responsibility with the state government. From an administrative point of view, there is a lack of central authority, clearly a serious detriment in terms of governance.</p> <p>A direct consequence&nbsp; is the&nbsp; absence&nbsp; of proper urban zoning, and attempts at introducing and enforcing zoning have been sporadic and inconsistent. Provision of basic infrastructure like sanitation and water is haphazard,&nbsp;&nbsp; land&nbsp; use&nbsp; regulation&nbsp; non-existent,&nbsp; and urban burials are not uncommon. Due to rapid population growth, most of the land of Lagos, including its slums, is relatively valuable because it is scarce and can always be rented.</p> <p>In spite of having the best road infrastructure in West Africa, Lagos' road density per capita is very low. Only a few roads carry most of the traffic, these often flood when it rains, and many roads are in poor condition. No allowance is made for parking, even in the business districts. Road safety is negligible and Lagos has one of the highest accident rates in the world. Water&nbsp; transportation&nbsp; is underutilized,&nbsp; carrying less than 1% of Lagos' traffic, and Nigerian Railways operate only one train per day within the city.</p> <p>The city faces the ongoing problem of supplying sufficient water&nbsp; for an&nbsp; ever-increasing population. Only half of Lagos' population receives potable water, but&nbsp; much of this is intermittent.&nbsp; Many inhabitants build wells and boreholes for their water needs and private water distribution is a thriving business. Lagos' power supply is notoriously inadequate&nbsp; and unpredictable due to intermittent&nbsp; gas supply, faulty infrastructure, lack of maintenance&nbsp; and corruption. In the past four years, the city has experienced a decrease in power supply, and those who can, utilize generators for their own electricity.</p> <p>Lagos has no central sewage&nbsp; system and&nbsp; many dwellings resort to the use of septic tanks. The city has a little over half the treatment&nbsp; plant capacity it needs, and trucks empty surplus sewage&nbsp; into the adjacent lagoon. Life can be difficult even for the middle classes in Lagos. As one&nbsp; commentator&nbsp; observed,&nbsp; they are 'resigned to doing everything for themselves. There's little public transport,&nbsp; so you drive. The state schools aren't&nbsp; good, so you aspire to send your children to a private school. There are few landlines, so you have mobile phones. There is almost no central water supply, so you dig your own well. There are no sewers, so you have a septic tank. Mains electricity works only a few hours a day, so you have your own generator.&nbsp; No money?&nbsp;&nbsp; Work&nbsp;&nbsp; harder,&nbsp;&nbsp; pray&nbsp;&nbsp; harder,&nbsp;&nbsp; get&nbsp;&nbsp; better cronies.'</p> <p>These unavoidable facts certainly dominate&nbsp; any assessment of Lagos. So what is the upside? Much of Nigeria's wealth&nbsp; is concentrated&nbsp; in Lagos. It is the country's most prosperous city and the centre of its economic activity. Its $30bn economy is roughly the size of Kenya's. While there is massive poverty in the city there&nbsp; is also a huge&nbsp; spread of affluence. Lagos attracts the best skills from Nigeria and West Africa. Many professionals who had emigrated&nbsp; returned&nbsp; to Lagos after the global financial crisis in 2008/09 with their international experience and scarce skills. While corruption remains a problem, wholesale looting by politicians is a thing of the past.</p> <p>Quality of life is also relative. In spite of the litany of woes mentioned above, Lagos nevertheless offers a higher standard of living than other cities in the region and the best opportunities&nbsp; for success. A variety of industries are thriving in Lagos' urban economy. Lagos has a thriving commercial music industry and is the home&nbsp; of&nbsp; Nigerian hip-hop,&nbsp; highlife, juju, fuji and Afrobeat. It is the centre of ?Nollywood,' the name given to the Nigerian movie industry, which produces more movies than the USA and fewer only than India. Nollywood is the second-largest employer in Nigeria after the oil industry. Most of its low budget&nbsp; films are shot in Lagos and move directly to market throughout Africa. Lagos has&nbsp; one&nbsp; of&nbsp; the&nbsp; most&nbsp; vibrant media scenes in Africa with multiple print media, state-run and private radio and TV stations. Despite a number of restrictive media regulations, the press is relatively free. Twenty-nine percent of Nigerians use the internet, and within Lagos the&nbsp; percentage&nbsp; is higher.&nbsp; Bandwidth increased fivefold in 2010 with a new undersea fiberoptic cable. While mobile phone&nbsp; usage far outstrips fixed line, the increase in demand for internet services and broadband&nbsp; capabilities support the fixed-line sector, which still has a market penetration&nbsp; of less than 5%.</p> <p>Affluent Nigerians spend&nbsp; $1.2&nbsp; billion on&nbsp; luxury goods in Dubai every year, and Lagos State is intent on creating an alternative retail industry in Lagos. Retail opportunities have increased with more outlets and accessibility to greater numbers of people. Lagos has numerous higher-end retail outlets such as the Palms Shopping Mall with 20,000&nbsp; square&nbsp; meters&nbsp; of retail space, 69 stores, a cinema complex and parking for a thousand&nbsp; cars that&nbsp; was originally developed&nbsp; as an Actis Capital/Tayo Amusan joint venture.<br> Lagos is also the end point of major trans-African roads to Algiers, Benin and further on to Dakar. The Port of Lagos is one of the busiest in Africa, with three sections that include a container terminal and a rail-head. The port is a major point for the export of petroleum products. More than five million airline passengers,&nbsp; half&nbsp; of&nbsp; all&nbsp; Nigeria's,&nbsp; pass&nbsp; through&nbsp;&nbsp; Murtala Mohammed International Airport every year. The airport has recently been expanded with the addition of a terminal, and a new cargo complex is to be added.</p> <p>Lagos' strategic&nbsp; location&nbsp; has&nbsp; attracted&nbsp;&nbsp; foreign investment in recent years. For example, the Leki Free Zone, a multi-billion dollar free trade zone is being developed with Chinese investment on the edge of Lagos in order to develop a local manufacturing base. Complete basic infrastructure including water, power and roads will be provided. A joint Nigerian-Chinese project will see one of three new oil refineries built in the city. Together, these should supply Nigeria's refined oil needs (currently Nigeria is a net importer of refined petrol products).</p> <p>There has been steady progress in infrastructure development in the past five years. A Bus Rapid Transit scheme was launched in 2006 and its first phase completed&nbsp; in 2008.&nbsp; Okada motorbike&nbsp; taxis have been banned&nbsp; from central roads in an attempt&nbsp; to reduce traffic injuries and congestion. Lagos is working with private companies to develop new toll roads in addition to those that already exist. A railway line running through Lagos is being constructed with planned completion in 2012. Ferry transport&nbsp; has been regulated and new waterway routes with regular services are planned.</p> <p>The supply of potable water should reach 70% of the population in the next decade with the improved supply of electricity to pumping stations and projects like the&nbsp; recently commissioned Independent&nbsp; Power Project. Plans are in place to supply a minimum of 16 hours per day of continuous supply 'soon' by restructuring the national grid and increasing power supply with projects such as the construction of an independent power plant in partnership with the Singapore Power Company. Besides the municipal waste authority, there are 211 small and four large private waste disposal operators&nbsp; who&nbsp; in combination&nbsp; dispose of more than two million metric tons of waste per year. The city has just developed the capacity to dispose of medical waste. A high profile and ambitious project is Eko Atlantic City, an&nbsp; urban&nbsp; development&nbsp; on&nbsp; land reclaimed from the Atlantic Ocean. The development will return a section of the Lagos coast to its position in the 1950s and 1960s, reversing the damage of erosion. Most of the land has been reclaimed, and when complete&nbsp; the&nbsp; development&nbsp; will have 400,000&nbsp; residents and 250,000 daily commuters.</p> <p>These developments will not, even if they are successfully implemented as planned, supply the needs of the whole population of Lagos, but they will certainly improve the current situation. It is also encouraging to see that many of these projects are developed by the private sector, including foreign investors, or in public- private partnerships,&nbsp; which is a very positive break from patterns of the past. Compared to Stockholm or Tokyo, conditions in Lagos will certainly be considered dire for the foreseeable future, but if one considers the city's&nbsp; prospects,&nbsp; it is easy to&nbsp; recognize the&nbsp; upside. Lagos is beginning to exhibit the positive characteristics of economies of scale and economies of scope, especially in creative industries and&nbsp; services--hall-marks of a successful city. By most standards Lagos is West Africa's dominant city, and some believe that it will become the continent's dominant city within the next decade. Rem Koolhaas, an architect and urbanist, believes that Lagos' chaos is the reason why it thrives and&nbsp; grows. Its inhabitants&nbsp; have learned&nbsp; to convert some of its disadvantages to advantages.</p> Maputo<p>The region in which Maputo is now situated was originally occupied by the Shangaan people. Vasco da Gama explored the area in 1498, and it was colonized by Portugal in 1505. Louren?o Marques was created by Portugal as a minor fortress settlement, which it remained until 1850. In that year it was developed as a port, primarily as a conduit for the neighboring Transvaal Republic's trade, and in 1898 it was declared the capital of Mozambique. The city was renamed Maputo following Mozambique's independence in 1975. Two years after independence, Mozambique suffered a civil war that lasted until 1992, resulting in economic collapse. Between 1987 and 1990 Mozambique changed from a command economy to a free market with one of the fastest growing economies in the world, albeit off a very low base. Maputo is a cultural melting pot. Indigenous African culture dominates with strong Portuguese and South African influences, and Chinese, Arab and Indian cultural influences are also evident. It is a diverse metropolis, a tourist destination, and is independently administered as a province. Maputo is a short distance from Swaziland and South Africa, and is an important harbor that serves both countries.</p> <p>Modern day Maputo has been clearly molded by its recent history. Following independence in 1975, large-scale emigration drained the city of its professionals, businesspeople and administrators. The colonial structure of its society, the 1977-92 civil war and the economic policies that followed independence&nbsp; made Maputo one of the world's poorest cities. In the early 1990s for example, it was impossible for a family to survive on the income of a single formal sector job and it was common that middle-income households produced their own food to supplement what they could buy. Mozambique is still classified by the United Nations as a 'least developed' country.</p> <p>Social, economic and political conditions in Mozambique have resulted in high rates of urbanization. As mentioned&nbsp; in the&nbsp; introductory section, Mozambique has the highest urbanization growth rate among the nine key Sub-Saharan African markets reviewed--estimated at 2.2% a year. Maputo's population, which is currently estimated at over 1.6 million as seen in Chart 4, continues to grow rapidly.</p> <p>With market reform and liberalization, the economy has been improving. In 2010, Mozambique's GDP grew by 8.3%, the 11th highest growth rate internationally, and industrial production growth was around<br> 8%, the 36th highest in the world (CIA 2011). Growth over the past decade has been over 8%, and current growth projections remain higher than the 4-5% forecast by the World Bank for southern Africa as a whole.</p> <p>For the city of Maputo, the harbor, industry production, and tourism are its economic foundations. Existing industries in the city include food, beverages, chemicals, petroleum products, textiles, cement, glass, asbestos and tobacco. But Maputo also benefits significantly from activity in the rest of the Mozambican economy. Foreign investment in Mozambique has had a profound impact on the city, directly and indirectly. BHP Billiton operates the Mozal aluminum smelter 17km from Maputo. Further afield there is significant foreign interest in titanium extraction, processing, and coal mining. Brazilian miner Vale opened a $1.7 billion coal mine in May 2011, the largest investment in Mozambique to date, with the expectation that it will double its investment over the next four years. Australia's Riverside and India's Tata Steel and Kindal Steel and Power are also developing coal mines in the country.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Maputo.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Maputo.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/Maputo2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Maputo2.jpg"></a></p> <p>With some delays, inland railways are being rehabilitated and port infrastructure is being developed to get the coal to market. Other significant investment projects by foreign investors include the reconstruction of an inland international airport, establishment of an HIV drug factory and exploration into the viability of fuel production. Although not all these projects are in Maputo, their economic effects on the economy have important spinoffs for the city as it remains the major business, political and transit hub of the country.</p> <p>In sharp contrast to Lagos, Maputo's electricity supply is secure, but not evenly distributed among its inhabitants. Mozambique produces far more electricity than it needs at the Cahora Bassa hydroelectric facility, but this is largely exported to South Africa. The demand for more power exists for new projects in garment manufacturing, titanium extraction and processing, and Chinese, Australian and Brazilian interests are planning to develop new power plants downstream from Cahora Bassa.</p> <p>Maputo's infrastructure has undergone development and rehabilitation in a number of areas including public transport and water supply, which has increased the number of inhabitants with access to fresh water from 700,000 to 1.5 million. Media are relatively free and internet usage is growing. From 350,000 internet users in 2008 the number grew to 612,000 by 2010, and most of these were in Maputo (Internet World Stats<br> 2011). While there has been stagnation in fixed line telephony, there has been rapid growth in the mobile phone industry--36% of Mozambicans use cell phones and there are 6.5 million subscribers.</p> <p>Maputo has a high incidence of disease. Malaria affects 11% of the city's population. HIV/AIDS is a major problem, with a higher prevalence in the city than the rest of the country. HIV/AIDS accounts for a shocking<br> 39% of deaths in Maputo, even though UNAIDS has noted a drop off in new HIV infections throughout the region in 2010. Maputo reflects the country's situation overall in incidence of infectious diseases. Tuberculosis is a national emergency, as is cholera, with Mozambique accounting for a third of notified cholera cases in Africa over the past decade. Life expectancy is 48 years and the death rate per 1000 is the 5th highest in the world. In Mozambique, Maputo is most at risk for the rapid spread of disease because of its population density.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Maputo3.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Maputo3.jpg"></a></p> <p>Unemployment in Maputo is high at around 20%, and more than half the city's population lives below the poverty line. Unfortunately, extreme income inequality exists and is growing, and patronage, corruption, organized and violent crime are on the increase in Maputo. Car hijackings, rape and armed robbery occur, and mugging, bag snatching and pick-pocketing are increasingly common.</p> <p>The city is also highly susceptible to extreme weather and climactic conditions, including rising sea levels, storms and cyclones. A rise in sea level will have a significant impact on the harbor and eastern residential areas. The government has undertaken a number of steps to protect the city from the sea following the devastating floods of 2000. It has built embankments and water channels, but more extensive measures are required to adequately protect the city from sustained, extreme weather events.</p> <p>With its extreme poverty and increasing income disparity, the threat of social instability in Maputo remains<br> relatively high. In 2008 and 2010 soaring food, transport, water and electricity costs sparked riots. Maputo's<br> 2010 riots coincided with the government's announcement that it was ending it unsustainable subsidy of fuel, bread and rice, but these were reintroduced in the face of the violence. The subsidies were phased out in mid-<br> 2011 and replaced by a more targeted system that is aimed specifically at the urban poor, and includes subsidies for transport and a wider range of food than before.</p> <p>The harsh economic conditions evident in Maputo are a reflection of the situation of the country as a whole. In spite of increasing GDP growth rates, the country, and Maputo in particular, are still struggling with the creation of enough jobs to meet the rapidly expanding labor force. And for Maputo, the challenge is to create enough new urban jobs to meet the demand of the increasing number of rural-urban migrants each year. The situation is made more difficult due to the economy's over-dependence on aluminum production and exports. As Chart 5 shows, the world price of aluminum tends to be very volatile even in good times, and remains suppressed in the post-2008/09 crisis period. This has in turn made the challenge of job creation more difficult.</p> <p>Maputo's development has clearly been handicapped by the massive social and economic dislocation as a result of the civil war and its aftermath. The challenge today is that it is experiencing one of the fastest urbanization rates in Sub-Saharan Africa, with its employment growth clearly lagging behind its population growth (organic growth plus rural-urban in-migration). While high urban unemployment poses the risk of political instability, there is as yet no real evidence of the kind of innovative energy that is seen in Lagos that results from the agglomeration effects of concentrated human interactions and exchanges in large urban areas. In spite of its fast growth, Maputo's population, at around 1.6 million, is after all much smaller than Lagos' over 10 million. Recent increases in foreign investment in the resource sector offers only a partial solution at best, as production in this sector is typically very capital intensive but weak in job creation. For the time being, there appears less reason for optimism for Maputo there is for Lagos.</p> Nairobi<p>Of the three cities, Nairobi is the youngest, not having had a settled population for most of the 1800s. The area was sparsely populated by the Kikuyu and occasionally traversed by the Maasai until the British chose it as a railway camp when building the Uganda Railroad in the 1890's. It was the midpoint between Mombasa and Lake Victoria, and was selected because of its highland location, temperate weather, good access to water and productive farmland. By 1907 Nairobi had become a commercial centre, and it replaced Mombasa as the capital of what was then known as British East Africa. The city expanded, supported by the growth of its administrative functions and tourism, which initially began in the form of big game hunting. A significant Indian community, originally brought to Kenya to work on the railways, settled in Nairobi. The ability of the indigenous population to live off the surrounding land was curtailed with the development of farms owned by white settlers, and a rural exodus to Nairobi ensued.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Nairobi.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Nairobi.jpg"></a></p> <p>Nairobi developed as a racially segregated colonial town with specific areas allocated to Europeans, Indians and Africans. The European areas enjoyed good infrastructure, but for the other groups infrastructure varied from fair to non-existent. What is now the Kibera informal settlement, for example, was allocated to demobilized African soldiers returning from the Second World War who expected, but never received, land tenure. People streaming in from the surrounding countryside rapidly occupied the informal settlement. The legacy of this is that segregated infrastructure remains. Parts of Nairobi today are affluent with good infrastructure while the less affluent areas have poor infrastructure.</p> <p>By many standards Nairobi is the most important city in East Africa. It is the capital of the largest economy in the region, Kenya, and a centre of industry, education, tourism and diplomacy. It is the world head- quarters of two UN agencies and the regional headquarters of others. It is the primary communication and financial hub in East and Central Africa. Leading domestic and international banks such as Kenya Commercial Bank, Barclays, Standard&nbsp; Chartered&nbsp; and Citibank operate out of Nairobi. International companies such as Goodyear, GE, Siemens, Coca-Cola, Citibank, Toyota and Google have regional headquarters and manufacturing plants in the city, and it is seen as an alternative to cities such as Johannesburg or Lagos for entry into the African market. Ease of doing business compares very favorably to Lagos and Maputo, ranking substantially better than the other two at 98th of 183 countries.</p> <p>Manufacturing accounts for only 14% of Kenya's GDP, but it is mostly concentrated around Nairobi. Other industries with a strong presence in the city include cement production, consumer goods and food processing, and small-scale manufacturing in the informal sector. Although inadequate for the demand, Nairobi has the best human resources and communications infrastructure in the region. The Nairobi Stock Exchange, established in 1920, has around 50 companies listed, and ranks 4th in Africa in terms of market capitalization.</p> <p>The areas around Nairobi are prime agricultural lands with food and cash crops such as maize, sorghum, cassava, beans, fruit and coffee. Horticulture is a developing agricultural sector and flower exports are an important source of foreign exchange. Tourism, and particularly wildlife tourism, has replaced coffee as the primary source of foreign exchange, and it contributes significantly to the local and national economies with well-developed infrastructure and resources. Jomo Kenyatta International Airport is a major point of entry into East Africa.</p> <p>Nairobi has crowded markets and trading areas, with ample evidence of affluence in its middle-class suburbs, cinemas and restaurants. It also has vast, overcrowded tenements and slums, and high unemployment. Most of the land in Nairobi is public land, of which half is privately leased for 99-year periods. The city experienced a boom in top and middle level housing that peaked in 2007, and in this sector substantial gentrification is evident. Housing investment has a primarily local base, but is supported by the Kenyan diaspora and Somalis, Southern Sudanese, Rwandan and Congo nationals who see Nairobi as a safe investment.</p> <p>Low-income housing has also grown but the financial burden for this has fallen on government. There is a massive shortfall of low income and informal housing upwards of 120,000 units per year, with the problem exacerbated by the inflow of refugees from Kenya's neighboring countries, particularly Somalia and Sudan. In the early 2000s Kenya was absorbing 400,000 Sudanese refugees per year, with many moving to Nairobi and avoiding the refugee camps. Half of Nairobi's population live in informal settlements, and Kibera, the largest of these, has over a million inhabitants. Despite government attempts to involve the private sector, and a number of innovative private sector projects such as Bora Capital's establishment of a low-cost property fund, the extent of public-private partnerships in the sector has not met expectations. In large part this is because of government's delay in introducing adequate regulation for real estate investment. Roughly 80% of Nairobi's population rent, and 20% own their dwellings.</p> <p>The population density of the city is 3,080 people per sq km, but density is unevenly spread, ranging from 22,000 per square kilometer in Central to 2,100 per square kilometer in the Westlands suburb. Nairobi was characterized from the beginning by a severe skew in gender because migrants to the city were primarily men. In 1962, for example, there were 2.5 males to every female. This anomaly is no longer evident among the youth but is still evident among residents 35 years of age and older. Like Lagos and Maputo, Nairobi has experienced massive growth, which is expected to continue in the coming decades.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Nairobi2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Nairobi2.jpg"></a></p> <p>Administratively, Nairobi is a province made up entirely of its urban area, with the municipal district the responsibility of the Nairobi City Council, which provides the city's services. For decades these have been acknowledged to be inadequate. While the number of private cars has quadrupled over the past decade, the city's roads have until recently remained undeveloped, with more than half in poor or very poor condition. Water supply is adequate in meeting demand, but distribution is problematic. Less than half of Nairobi's households have satisfactory water connections and as much water is legally consumed as that lost through leakages and illegal connections. Sanitation in some form is accessible to most of the population, but water-borne sewage disposal suffers from poor maintenance, illegal use for irrigation and garbage disposal, and very low access in the city's informal settlements.<br> </p> <p>Nairobi is a major contributor to Kenya's economy. By 2006 it was generating 45% of GDP and employing 25% of working Kenyans, but the anomaly is that the city has been unable to meet the economic, social or service requirements of its population. Nairobi's facilities were developed for far fewer than the ever increasing numbers residing in the municipal area, and the city's technical and management capacity have rarely met the city's requirements, with its resource base low and revenue collection weak. A contributing factor is that regional authority lies with the national Minister for Local Government, and the council lacks the executive and financial authority to undertake many of the projects necessary for the city's development.</p> <p>Poor infrastructure is therefore one of the greatest impediments to growth. Without significant improvement in infrastructure, by 2025, it is expected that Nairobi could face water stress, increased violence, and some forms of social, economic and environmental collapse. In the face of these pressures government has responded. In 2008 the Nairobi Metropolitan Development Plan was produced with ambitious plans to expand the city limits, develop integrated mass transport, replace informal settlements with affordable low cost housing, enforce urban regulations, improve water and waste management, develop public utilities, and boost the infrastructure required to make Nairobi a regional capital for finance, information and communications technologies, health, education, business and tourism. A number of these plans have passed the talk stage, have budgets allocated, and the city is visibly undergoing physical change. Government investment has increased 20% compounded per year for a number of years on these and similar programs, at a rate that outstrips economic growth, even though the longer-term sustainability of this program is by no means assured.</p> <p>Today, Nairobi's immediate future appears more promising than its recent past. Following government deregulation, the middle class has grown swiftly and continues to grow. Upward of 17% of Nairobi's population can be considered middle class, and they are a driving economic force in the city. Literacy in Nairobi is the highest in Kenya at roughly 93%. Free primary school education has been accessible to all since 2003, even though education is inadequately funded, and its quality relatively low.</p> <p>There has also been a significant reduction in the level of absolute poverty in the city. The absolute poor--those who live below the threshold of being able to afford minimal standards of food, clothing, health and shelter--has decreased from 51% of the population in 1997 to 44% in 2006. It is estimated that the percentage has fallen further since then. The figure in slum areas is higher, at about 73%, but even these areas hold some promise as a significant number of households in the slums operate an enterprise or have at least one member with some education--two conditions that show a negative correlation with continuing poverty in Nairobi. Interestingly, the group called 'jua kali,' Swahili for ?hot sun,' describes those that subsist as outdoor vendors and entrepreneurs in the informal sector but are officially listed as unemployed. Their numbers increased from 27% in the early 1990s to 38% in the latter 2000s--three and a half times the growth rate of employed wage-earners during the same time period.</p> <p>But the city still faces enormous challenges. It is an integral part of Kenya's low-income economy with annual per capita income averaging about $360, ranking 148th of the 177 countries in the UNDP's Human Development Index and 106th of the 139 countries in the WEF's 2010 Global Competitiveness Index. Although ameliorated by the growth of the middle class, Nairobi is one of the world's most economically unequal cities. The gap between the urban affluent and the rural poor is smaller than that between the urban affluent and the urban poor. If the current trend continues, in a decade Kenya's starkest poverty will be found in cities like Nairobi, and not in the remote rural areas.</p> <p>The greatest differences in health status are also to be found between urban affluent and urban poor and no longer between urban affluent and the rural poor. Philippa Crosland Taylor of Oxfam GB observes that, 'An increasingly disenfranchised and poverty-stricken urban underclass is set to be the country's defining crisis over the next decade. [Nairobi] is a city of a small minority of 'haves' and millions of 'have nothings'..Nairobi is one of the biggest and most prestigious cities in East Africa, yet it is crumbling before our eyes.'</p> <p>Among this 'urban underclass' there is resentment over patronage, inequality, poor economic prospects and harsh living conditions. From its earliest days Nairobi has been at the centre of Kenyan politics. During the Mau Mau insurrection in the 1950s the city was practically in a state of siege. More recently, events like the 1988 American embassy bombing and&nbsp;the riots of the 2007 presidential elections emphasize the symbolic importance of the city and its central position in Kenyan society and politics.</p> <p>With a population size midway between Lagos and Maputo, Nairobi is distinctive in its better and improving infrastructure, and, more importantly, an apparently more responsive and capable administrative structure, with more effective project implementation. The economic, social and environmental challenges facing Nairobi are certainly no less intense than those facing Lagos and Maputo, but its record of policy response so far seems to be more successful.</p> Conclusion<p>Lagos, Maputo and Nairobi vividly illustrate the reality of many Sub-Saharan cities. While most of Africa's cities are defined by their large and rapidly growing populations, resource limitations and inability to meet the health, security, education, governance and skills requirements of all their inhabitants, this tale of three cities shows&nbsp; that&nbsp; important&nbsp; differences&nbsp; also&nbsp; exist between&nbsp; them. Africa's cities are in fact very different societies, and in many ways better societies, than they were a decade ago. How they perform in the coming years and decades will influence the future of the continent in many important ways. At present, Africa is benefiting from the resource-driven expansion of its economies and this is having a significant impact on its urban and rural communities. How to leverage this resource-based boom to benefit other sectors of the economy as well as the general population, including its urban development, will be the defining challenge of the region.</p> <p>As this tale of three cities shows, there is unlikely to be a magic pill that can solve all the development difficulties of the region's cities, even though&nbsp; there is a great deal in common in terms of the challenges that they face. More specifically, there is not going to be some&nbsp; kind of&nbsp; a&nbsp; 'China&nbsp; model'&nbsp; that&nbsp; Sub-Saharan Africa can copy to repeat China's urbanization experience. Successful solutions to the region's urbanization challenges will have to be crafted locally, one&nbsp; at a time,&nbsp; taking&nbsp; full account&nbsp; of&nbsp; local conditions&nbsp; that include location-specific constraints and capabilities. The origins of Africa's prosperity may well reside in its mines and oil wells, but its extent and sustainability will largely depend on the resourcefulness of its people and the dynamism of the enterprise that exists in its cities.</p> <p>&nbsp;</p> The report highlights that urbanization is key to boosting productivity and economic activity in developing markets, but unless it is carefully planned and implemented, it can lead to structural weaknesses and even breaking points in cities that are not adequately prepared.http://www1.mastercard.com/content/intelligence/en/research/reports/2011/the-challenges-of-urbanization-in-sub-saharan-africa-a-tale-of-three-cities2011-09-30T16:00:00.000Z2011-09-30T16:00:00.000ZTaking Stock: The State of Sub-Saharan Africa Taking Stock: The State of Sub-Saharan Africa<p>&nbsp;</p> <p></p> 1. Taking Stock<p>In years gone by, Africa was seen as the dark continent, characterized by poverty, low economic growth, political instability, fiscal and monetary indiscipline, dictatorships, low levels of human development, with seemingly little prospect of improvement. In particular, Sub-Saharan Africa was seen as one of the least interesting regions of the world for economic development notwithstanding the recognition that the continent was probably very rich in natural resources. In May 2000, The Economist magazine published a piece on Africa with the front-page cover caption of The Hopeless Continent. Ironically, this publication appears to have marked the turning point in perceptions of economic opportunities on the continent. Ever since then, driven in large measure by the insatiable demand for natural resources on the part of the world economy, global investor interest in Africa has resurfaced with a vengeance. Rapidly growing and urbanising emerging markets, led first and foremost by China, have resulted in a demand for raw materials which has pushed up commodity prices strongly, raising the benefits of investments in new resource ventures on the continent. Furthermore, a relative reduction in political instability, coupled with significant improvements in macroeconomic management have seen investment into the continent increasing at an unprecedented rate. The result has been a liftoff in economic growth in Africa to the extent that in recent years the continent has emerged as the third fastest economic growth region of the world, behind China and India. This is the first of a series of four reports on Sub-Saharan Africa that aims to construct a fresh perspective on how this vast continent may perform economically in the coming decades. In this first report of the series, we seek to take stock of the state of Sub-Saharan Africa in terms of both opportunities and challenges in its physical, economic, and social environments.</p> Topography<p>When taking stock of the economic environment presented by the African continent, it is important at the outset to recognize the physical magnitude of the continent. This can serve to highlight the potential richness of access to resources and also the opportunities to develop the continents infrastructure, while at the same time bringing to the fore the enormity of the infrastructural development challenge posed. Africas size is 11.7 million square miles or 30.3 million square kilometers, which is more than three times the size of either the United States or China. Alternatively, one can conceive of fitting China, the USA, Western Europe, India and Argentina all into the continent, as shown in Chart 1.</p> <p></p> <p>(Source:Maps of the world)</p> <p>Sub-Saharan Africa accounts for roughly two thirds of the African continent, is characterized by relatively rich vegetation, either of a grassland or savannah nature, or by tropical rainforests and jungles. In turn, this region provides enormous potential as a breadbasket for the rest of the world in the longer term. The pockets of desert or semi-desert in Sub-Saharan Africa are essentially relatively small in relation to the remaining surface area.</p> <p></p> Population<p>From an economic viewpoint, one of the potentially biggest attractions of Sub-Saharan Africa is its population growth rate, which is the highest of any region in the world. While population growth has been falling in recent years globally and is projected to continue declining over the coming decade, the actual rate of population growth predicted for Sub-Saharan Africa is higher than any other region, as Chart 2 shows. This growth trend has important economic implications. Firstly, this implies that the potential growth in market size, other things equal, is set to outpace that of the rest of the world. Within about six years, Africa ought to have more than one billion people, accounting for close to 15% of the world?s population of which Sub-Saharan Africa would account for about two thirds. More importantly, the potential growth of the continent's workforce is set to outpace that of any other region.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population.jpg"></a><br> (Source: World Bank)<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/Population2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population2.jpg"></a><br> (Source: World Bank)</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population3.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population3.jpg"></a></p> <p></p> <p>(Source: World Bank)</p> <p>Rising life expectancy around the world due to improvements in medical care, nutrition and related factors, is resulting in a situation where a growing section of the population is becoming ever more dependent upon income from pensions and welfare payments generated by the younger working-age population.Chart 3 shows that in high-income markets almost 20% of populations are over the age of 65 and so the strain exacted of governments in using a diminishing pool of productive income-generating taxpayers to finance the welfare and healthcare of the elderly, is increasing. The resultant increase in taxation and/or public debt could prove to be a constraint on economic growth in many advanced economies. By contrast, in Sub-Saharan Africa, more than 40% of the population is under the age of 14 while less than 5% have reached retirement age. It follows that the potential increase in the available workforce is set to outpace that of other regions. For example, whereas the working-age population over the next 40 years is set to grow by 125% in Africa, the corresponding growth rates are 26% for Latin America, 22% for Asia, 16% for North America and -23% for Europe. By 2040, it is estimated that there will be no fewer than 1.1 billion Africans of working age, accounting for almost a quarter of the worlds working-age population.</p> <p></p> Urbanization<p>In addition to the regions high rates of population growth, Sub-Saharan Africas rate of urbanization is also likely to be among the fastest in the world. Global population over the past two decades has been characterized by rising urbanization, with saturation in urbanization at levels close to 80% as in the case of high-income markets, as well as some in Latin America and the Caribbean, as seen in Chart 4. Sub-Saharan Africa has been part and parcel of this trend, but what differentiates the region from many of the other regions is that the level of urbanization is still relatively low, at 36%, providing far more scope for further urbanization than is the case with most other regions. It is estimated that more than 50% of Africans will be living in cities by 2030. If one combines the rapid rate of population growth with the growth in urbanization, one concludes that the potential increase in the urban population of Sub-Saharan Africa is likely to surpass that of every other region in years to come. In turn, this generates a huge requirement for infrastructural development, but also offers enormous opportunities for the expansion of services and consumer markets to accommodate the rapid growth in urban populations. There are already 52 cities in Africa with populations of more than one million, which is more than double the number in 1990 and is already the same number as in Western Europe.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population4.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population4.jpg"></a></p> Commodities <p>Africas legendary richness in commodities lies at the heart of the potential economic progress of the continent. Historically, Sub-Saharan Africa was known for its wealth of minerals, being the worlds richest source of gold, platinum group metals and diamonds. However, in recent years the importance of its coal, copper, iron ore, manganese, uranium and other mineral reserves have also assumed increasing importance. Over and above this, discoveries of crude oil and natural gas have seen the continent accounting for 12% of the worlds reserves in this source of energy. Nonetheless, probably the most important potential resource waiting to be exploited in the region is for Sub-Saharan Africa to provide the worlds food resources in a global population which has quadrupled over the past century and is set to rise by a further 25% or so over the next 40 years. As Chart 5 shows, Sub-Saharan Africa comprises more than 60% of the potentially available cropland in the world, far in excess of the potential contribution of any other region. Hitherto, the regions contribution to the provision of the worlds nutrition has been minimal.</p> <p>This exemplified in a comparison of the fertilizer consumption in the Sub-Saharan region compared with most other regions of the world as illustrated in Chart 6. The potential of increased output is clearly immense, with more intensive fertilizer use, coupled with advanced technologies and knowhow. Such a scenario is still a long way off, but the potential for Sub-Saharan Africa to provide the solution to the worlds future demands for food is enormous.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population5.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population5.jpg"></a></p> <p></p> Economic Growth and Structure <p>Currently, Africa’s collective GDP, at around $1.8 trillion, is roughly equal to that of Brazil or Russia. Sub-Saharan Africa accounts for approximately half of the continental economy and accounted for only 1.5% of world GDP in 2009. When one compares this with the approximate 10% share that Sub-Saharan Africa has of the worlds population, one recognizes the enormous scope for economic development in the region if living standards are appropriately raised. Encouragingly, there are many signs to suggest that the start to this process has begun. Consumer spending on the continent already exceeds that of India and is approaching the $1.0 trillion mark. Estimates are that the figure will be $1.5 trillion by 2020. After languishing with growth of no more than 2% to 3% per annum in the last three decades of the 20th century, GDP growth in Sub-Saharan Africa has averaged more than 5% over the past decade. As seen in Table 1, the share of global GDP taken up by Sub-Saharan Africa has risen from 1.1% in 1995, to 1.5% in 2009.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population6.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population6.jpg"></a><br> (Source: International Monetary Fund)</p> <p>Africa was only one of two regions in the world, stripping that of advanced economies by a fairly wide Asia being the other, where growth in the collective margin, as illustrated in Chart 7. economy rose through the global recession of 2009. Whereas in the last two decades of the 20th century.Sub-Saharan African growth had frequently fallen behind that of much larger and advanced economies the situation has been conclusively reversed since the start of the 21st century with the region's growth outstripping that of advanced economies by a fairly wide margin, as illustrated in Chart 7.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population7.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population7.jpg"></a><br> (Source: IMF World Economic Database, October 2010)</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population8.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population8.jpg"></a><br> (Source: McKinsey &amp; Company)</p> <p>It is no coincidence that this development has coincided with the strong growth of the Chinese economto a magnitude where it has started exerting a major influence on the overall international economic environment. The demand for resources from Africa by China has been at the forefront of the continents improvement in growth over the past decade.1 The knock-on benefits are reflected in the fact that sectoral growth has by no means been dominated by mining and resources. In general terms, the breakdown of imports and exports classified into manufacturing, ores and metals, fuel, agricultural raw materials and food, is not all that different from that in other regions. Furthermore, over the period 2002 to 2007, the fastest-growing sectors of the African economy were, in order of importance, hotels and restaurants (8.7% annual growth), financial services (8.0%), transport and communications (7.8%), construction (7.5%) and utilities (7.3%). The contribution to growth of mineral resources came in at only sixth position, with average growth of 7.1%. Sadly, reflecting the shortfalls in infrastructure, technology and human resource capacity, the slowest growth was recorded in real estate and business services (5.9%), agriculture (5.5%) and manufacturing (4.6%).</p> <p>On the negative side, one of the biggest draw-backs in Africas economic picture is the fact that, relative to other regions in the world, intraregional trade remains extremely low as shown in Chart 8. Whereas over 60% of trade between European markets is among themselves and the figure in the Asia/Pacific region is around 40%, no more than 12% of trade with African markets is between each other. The figure is slightly higher in the case of southern Africa, at around 15%, but even here the plethora of rules and regulations and tariff barriers covering trade relations between markets, coupled with logistical constraints, limits the potential benefits to be derived from increased intraregional trade.</p> <p></p> Foreign Direct Investment <p>The improvement recorded in the continent's economic growth has gone hand-in-hand with a general improvement in political stability, general governance and macroeconomic management over the past decade. Although there are still several wars going on throughout the continent, the number of conflicts has diminished, with an increasing number of African societies embracing democracy as opposed to dictatorship. From a macroeconomic perspective, more responsible monetary policy has resulted in a decline in the average inflation rate on the continent from 22% in the 1990s, to 8% over the past decade as Chart 9 shows. Simultaneously, debt forgiveness, together with more conservative fiscal policies, have resulted in the ratio of government debt to GDP declining from around 82% in the 1990s, to less than 60% over the past decade. The average size of budget deficits, which was close to 5% of GDP in the 1990s, has narrowed to less than 2% of GDP during the first decade of the 21st century. Ironically, given the prototype image of African dictatorships spending their market's fortunes extravagantly, the level of indebtedness of African governments has assumed a magnitude that could be the envy of many advanced economies.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population9.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population9.jpg"></a></p> <p></p> <p>Impressive growth opportunities, coupled with gradually-increasing recognition of improved governance and macroeconomic policy among African markets, in turn has resulted in a significant increase of foreign direct investment inflows into Sub-Saharan Africa; so much so that through the global recession in 2008 and 2009, Sub-Saharan Africa was the sole region to experience an increase in foreign direct investment inflows, as Charts 10 and 11 demonstrate.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population10.jpg"></a><br> (Source: World Bank)</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population11.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population11.jpg"></a><br> (Source: World Bank Development Indicators 2010)</p> <p>This has provided fresh impetus in improving the region's infrastructural capacity. Indeed, the ratio of gross fixed capital formation as a percentage of GDP in Sub-Saharan Africa has risen significantly, from a meager 16% at the start of the millennium, to over 20% in recent years. The latter figure is still not particularly high, but the direction in which the ratio is going is the right one. Similarly, one has seen a deepening in regional financial markets, with the ratio of market capitalization of listed companies rising strongly from around 90% of GDP in 2000, to around 150% of GDP more recently.</p> <p></p> Risk Profile<p>The accelerating pace of foreign investment and capital inflows into Sub-Saharan Africa is also linked to a growing recognition that the return on capital and profitability of investment on the continent is among the highest of any region, outpacing both Africa overall and Asia, as shown in Charts 12 and 13.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population12.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population12.jpg"></a><br> (Source: Centre for Studies of African Economies, University of Oxford)</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population13.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population13.jpg"></a><br> (Source: Centre for Studies of African Economies, University of Oxford)</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population14.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population14.jpg"></a><br> (Source: Centre for Studies of African Economies, University of Oxford)</p> <p>Over many decades there has been a reluctance to invest into the African continent on account of the fact that risks of all sorts have been perceived to be too high. Such risks have included fears of nationalization, expropriation, bureaucratic hurdles, political upheaval and instability, and uncertainty surrounding the ability to export earnings. However, as seen in Chart 14, in recent years it has become increasingly recognized that even if one does take into account the risks involved, the risk-adjusted level of returns from investment in the region exceeds that of most other regions.</p> <p></p> Infrastructure <p>Nevertheless, one cannot overlook three important shortfalls currently affecting the African continent, viz. the poor level of infrastructure, the extremely low level of human resource capacity and the appalling state of health facilities in most of the continent. On the infra'structural side, Sub-Saharan Africa falls behind virtually every other region of the world. Furthermore, even the official figures are highly skewed by relatively high levels of infrastructural investment by South Africa specifically. Excluding South Africa, the picture looks much worse. The average road density is 137 km per square kilometer compared with 211 km per squarekilometer in the rest of the world. Only a fraction of these roads are paved, so that the paved road density shortfall is even greater, at 31 km per square kilometer compared with 134 km per square kilometer in the rest of the world. No more than a third of rural Africans have access to roads of any kind. The continent has seen very little expansion of its rail network over the past decade, with the proportion of passengerscarried on rail networks a tiny fraction of that in other regions. The shortfall in power generation is even greater, at 37 MW per million inhabitants, compared with 326 MW worldwide. Chart 15 shows what Africa looks like at night where only a minute fraction of the vast continent is illuminated by electricity, with only 16% of the Sub-Saharan African population having access to electricity, compared with 41% worldwide.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population15.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population15.jpg"></a><br> (Source: World Bank)</p> <p>Even in regard to access to reliable water, only 60% of the Sub-Saharan population enjoys such access, compared with 72% worldwide. Worse still, only 5% of Africa's farmland is irrigated. Similarly, only 34% of the Sub-Saharan Africans have access to decent sanitation compared with 51% in the rest of the world. Official sources estimate that poor infra-structure cuts Africa's GDP by 2% every year and reduces business productivity by 40%. Almost $100 billion is needed to address Africa's infrastructural deficit every year, two thirds for investment and one third for maintenance. This compares with current expenditure of just $45 billion per year on infrastructure. There is obviously an enormous funding gap to accommodate such infrastructural projects, even if one recognizes that substantial gains could be achieved by improving the efficiency of existing infrastructure.</p> <p>Another important consideration with regard to Africa's infrastructure is its cost. In respect of power tariffs, water tariffs, road freight tariffs, mobile telephony and internet access costs, infrastructure in Sub-Saharan Africa is roughly twice as expensive as in other developing regions. The one area in which significant progress has been made with regard to infra'structure in recent years has been information technology and mobile telephony. For example, over the past decade Nigeria has seen the addition of 11 million Internet users and has overtaken South Africa as the African market with the highest number of mobile cellular users. In recent years, investment in telecommunications has accounted for more than half of overall fixed capital formation in Sub-Saharan Africa. In contrast, investment in energy generation has been less than 10% and in water and sanitation a mere fraction of total investment. However, even in the information technology and communications arena, much more progress could be achieved if the cost of usage of this form of infrastructure were reduced.</p> <p></p> Health<p>Apart from infrastructure, the low level of human development compared with the rest of the world is another serious impediment in Sub-Saharan Africa. The poor level of healthcare in the region is reflected in the fact that the level of life expectancy is the lowest in the world, at just 52 years in 2008, as Chart 16 shows. While one can point to a marginal increase in life expectancy in Sub-Saharan Africa over the course of the last decade, the improvement has been significantly less pronounced than in most other regions. Conversely, the incidence of infant mortality remains by far the highest in the world. The burgeoning HIV/AIDS epidemic in Sub-Saharan Africa has much to do with the lower level of life expectancy in the region. South Africa alone accounts for almost 6 million of the 24 million people worldwide infected with the virus. Unlike the 18.1% prevalence of HIV within the population aged 15 to 49 in South Africa and the 5.0% preva-lence in Sub-Saharan Africa, the figure in most other regions of the world is less than 0.5%. Whereas in Sub-Saharan Africa the incidence of tuberculosis is 352 per 100,000 people, the figures in developing markets elsewhere are less than 200 and in high-income markets no more than 14. In most African markets the number of physicians per 1000 people is substantially less than 1.0 compared with figures of 1.5 or more in other developing regions and 2.5 or more in developed economies. Likewise, the number of nurses and midwives per 1000 people in Sub-Saharan Africa is between a third and a fifth of the number in most other regions. These poor figures emerge notwith-standing a relatively high level of expenditure on health as a percentage of GDP. The problem is that in absolute terms health expenditure per capita in Sub-Saharan Africa is less than $100 compared to more than $4000 in high-income markets.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population16.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population16.jpg"></a><br> (Source: World Bank)</p> <p></p> Education<p>A similar picture emerges when comparing the educational standards of Sub-Saharan Africa with the rest of the world. Although enrolment at primary schools in Sub-Saharan Africa is quite high, at 97% of the relevant age group, the figure falls dramatically for secondary school, to just 33%, with only 6% of the relevant age group enrolling at tertiary institutions. As Chart 17 shows, in high-income markets there is a 100% enrollment ratio even at secondary schools and a 69% enrollment figure for tertiary education, i.e. 10 times as high as in Sub-Saharan Africa. It is therefore not surprising to see that the number of graduates emerging from the formal educational institutions in Sub-Saharan Africa is a pittance compared with most other regions. Irrespective of the enrollment ratio, there is an additional problem in schooling in Sub-Saharan Africa in that the pupil-per-teacher ratio averages 49 compared with figures between 16 and 25 in most other regions. Youth literacy in Sub-SaharanAfrica averages no more than 75% compared with almost 100% in most other regions.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population17.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population17.jpg"></a><br> (Source: World Bank)</p> <p>Furthermore, in many instances, the quality of that literacy is also open to question. Yet, expenditure on education as the portion of GDP in Sub-Saharan Africa is among the highest in the world. There is therefore a problem with the effectiveness of that expenditure; the money has not been well spent in terms of results. As with infrastructure, another important constraint on the rollout of education lies with the cost of the process. Whereas in the US, for example, the cost of a university education per year is between 20% to 65% of per capita income on average; in Sub-Saharan Africa the comparable figure is 170%, unaffordable except for a privileged few. Sub-Saharan Africa is also losing out heavily in terms of a high level of emigration of educated and skilled persons, with a relatively small proportion of such immigrants returning to their homeland. Although this may have resulted in an increase in the quantum of remittances to the continent from abroad, the benefit is small relative to the loss for the continent caused by the emigration of professionals.</p> <p>Linked to the low level of secondary education is a relative shortage of artisanal skills. Vocational training programs in such skills and trades are few and far between and in many instances very inefficient. These skills are almost as critical to the process of economic development as professional skills. The result is that the region has become ever more dependent upon importing skills from other regions of the world, which comes at a relatively high cost to say the least. It is also in respect of public administration and management that the region is in short supply and it in turn con'strains its ability to implement policy programs effectively.</p> <p></p> Conclusion <p>There is no question that the emerging market growth story is becoming more important as we enter the second decade of the 21st century; and Africa is becoming an important part of this story. As the Taking Stock section of this report shows, the relatively rapid growth of the continent's population and working-age workforce stands to put it at the forefront of longer-term growth in market size and production worldwide. Improvements in governance and macroeconomic stability have also encouraged a recognition that the risk-reward tradeoff for Africa has improved significantly over the past decade. Nonetheless, the region faces significant challenges, as outlined earlier, if its potential is to be realized. However, addressing some of these challenges in itself offers significant opportunities for businesses prepared to venture into providing solutions. Thus, from the Taking Stock perspective, it is clear that the African economic story looks a lot more promising at present than at any stage during most people's lifetimes.</p> 2. State of the Nations <p>In the second part of this report the current state of the major Sub-Saharan African economies and the factors driving the phenomenal growth that have recently been witnessed in these markets are evaluated; with the role that traditional players as well as emerging economies are playing in the region highlighted and assessed.</p> Traditional Sources of Capital <p>The markets of Sub-Saharan Africa have received enormous amounts of capital from various sources over the centuries. Chart 18 highlights the various traditional sources of financing that the region has engaged with. These relationships often date back centuries to the initial investments made by European states that established colonies in Africa and administered them until the mid-20th century. The influence of the colonial presence and capital input is still entrenched in most African states today, dictating their political alignment, economic relations and even linguistic traits.</p> <p>Following on obtaining of independence, international financial institutions such as the World Bank and the International Monetary Fund have continually provided much-needed financial support to African states. The Soviet Union was also a key financier for certain states during the Cold War period. Additionally, one cannot discount the role that multinationals from developed markets, and more recently from South Africa, have played in providing capital to Sub-Saharan Africa. The resultant effects of the decades of investments by traditional partners on Sub-Saharan Africa is arguable but the poor developmental state of many states is reflected in the relatively low GDP per capita ($1,225 in 2008 for Sub-Saharan African markets according to the World Bank), high poverty ratios, relatively low life expectancy and high infant mortality rates among other poor statistics.</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population18.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population18.jpg"></a><br> (Source: Frontier Advisory Research, 2010)</p> <p><a href="/content/dam/intelligence/content-assets/reports/Population19.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/Population19.jpg"></a><br> (Source: Frontier Advisory Research, 2010)</p> <p></p> Emerging Sources of Capital <p>Recently new forms of financing have emerged to complement the traditional sources from new emerging markets and challenge the existing status quo in the region leading to a fresh geopolitical context. The new forms of financing are increasingly coming from China, India, Brazil and the Middle East. The upsurge of China's activity in Africa has led to the rise in the trade, investment and financing figures between the two and is underscored by deepening political engage-ment with Beijings involvement in Africa at the highest level.</p> <p>Indias emerging multinationals are beginning to establish a presence in Sub-Saharan Africa beyond these traditional regions. Other emerging forms of capital witnessed in the region include sovereign wealth from Middle Eastern markets and the investment of South African corporations which have constituted a significant source of capital since 1994.</p> <p></p> Economic Growth <p>The growth in the GDP of Sub-Saharan Africa as a whole since 2000 has been very robust, exceeding that of the industrialized nations and the global average. Even in the wake of the recent economic crisis, the GDP growth rates for the region proved to be very resilient. Table 2 highlights Africa's growth decade between 2001-2010 during which time six of the ten top growth economies (according to The Economist) were Sub-Saharan African markets, notably Angola which was the top global performer with a GDP growth rate of 11.1% and Nigeria which had an average GDP growth rate of 8.9%.&nbsp;<br> </p> <p></p> <p><a href="/content/dam/intelligence/content-assets/reports/EconomicGrowth.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/EconomicGrowth.jpg"></a></p> <p>(Source:Economist and IMF Forecast)&nbsp;&nbsp;&nbsp;</p> <p><a href="/content/dam/intelligence/content-assets/reports/EconomicGrowth2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/EconomicGrowth2.jpg"></a></p> <p>(Source:Economist and IMF Forecast)</p> <p><a href="/content/dam/intelligence/content-assets/reports/DriversofGrowthinSub-SaharanAfrica.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/DriversofGrowthinSub-SaharanAfrica.jpg"></a><br> (Source: Economist and IMF Forecast)</p> <p>The Economist has also provided GDP growth forecasts for the period of 2011 to 2015, which includes seven Sub-Saharan African markets among its top ten fastest growing economies with the GDP of Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia and Nigeria all forecast to grow at rates in excess of 6%. These are summarized in Table 3.</p> <p></p> Drivers of Growth in Sub-Saharan Africa <p>Africas economic growth over the past decade has been driven largely by strong commodity prices that reached unprecedented levels in the run-up to the 2008 financial crisis. Since the price collapse in late 2008, prices have largely recovered to pre-crisis levels for the bulk of commodities.</p> <p>Increasing trade and investment from emerging market economies have also been a critical source of capital for Sub-Saharan Africa, with the BRIC economies playing a particularly important role in this. Additional factors driving the strong growth in the region, as summarized in Table 4, are increasing private equity flows and growing investments from sovereign wealth funds into the region, coupled with increasing remittances from Africa's migrant workforce. Providing additional impetus to the growth being experienced is improving governance and macroeconomic frameworks which have ensured that the economic gains won can be reinvested and better managed. While improvements can still undoubtedly be made in terms of governance in general in the region, the signs of improvement are encouraging. The rehabilitation and development of infrastructural networks that continue to be undertaken in several markets serve to increase the region's competitiveness. Sub-Saharan African capital markets&nbsp; while still tiny by global standards&nbsp; are growing, as is the trade between markets in the region (estimated though at only between 8-10% of total trade) and the growing stratum of middle-class consumers which provide an increasingly sizeable and important market.</p> <p><a href="/content/dam/intelligence/content-assets/reports/DriversofGrowthinSub-SaharanAfrica.jpg" target="_blank"><img width="370" height="191" src="/content/dam/intelligence/content-assets/reports/DriversofGrowthinSub-SaharanAfrica.jpg"></a><br> (Source: World Economic Forum)</p> <p></p> The Competitiveness of Sub-Saharan African Economies <p>The ability of Sub-Saharan African states to improve the competitiveness of their economies will ultimately determine their ability to entrench their development and compete at a global level. Despite robust growth, Sub-Saharan African markets have by and large been unable to enhance their competitive positions.</p> <p>Table 5 shows rankings of global competitiveness as compiled by the World Economic Forum. During the period 2005 to 2010, the top performing African economies have been South Africa, Mauritius, Botswana and Namibia. However, it must be noted that the top performing African economy (South Africa) placed 54th in the world. There clearly still remains a lot of scope for improvement in the competitiveness of these economies and this is particularly so for most of the Sub-Saharan African economies which have consistently been lowly placed in the global competitiveness rankings.</p> <p><a href="/content/dam/intelligence/content-assets/reports/TheCompetitivenessofSub-SaharanAfricanEconomies.jpg" target="_blank"><img width="423" height="219" src="/content/dam/intelligence/content-assets/reports/TheCompetitivenessofSub-SaharanAfricanEconomies.jpg"></a><br> (Source: UNICTAD, 2010)</p> <p><a href="/content/dam/intelligence/content-assets/reports/TheCompetitivenessofSub-SaharanAfricanEconomies2.jpg" target="_blank"><img width="409" height="125" src="/content/dam/intelligence/content-assets/reports/TheCompetitivenessofSub-SaharanAfricanEconomies2.jpg"></a><br> (Source: EMPEA 2010)</p> <p></p> Increasing Levels of Foreign Direct Investment <p>An encouraging sign for many Sub-Saharan African markets is the increasing flows of Foreign Direct Investment (FDI), both from traditional players as well as from emerging market economies. As highlighted in Chart 20, the major recipients of FDI on the African continent have been South Africa, Nigeria, Angola and Egypt. UNCTAD reports that FDI flows into Africa as a whole increased from $9.8 billion in 2000 to a record $72 billion in 2008. Total 2009 FDI inflow into African economies was $58.5 billion lower than 2008, largely on account of tightened global economic conditions. A substantial portion of the FDI flows has gone into the resources sector such as oil and gas, and precious and base metals, but other sectors such as ICT and finance have also received relatively large investments.</p> <p></p> Growing Private Equity Investment <p>The growth in private equity investments has been strong. Chart 21 highlights private equity fundraising figures for three regions over the period 2001 to 2010.A clear upward trend is discernible for Latin Ameri-ca, Middle East and North Africa (MENA) and Sub-Saharan Africa. Coming off a low base, private equity figures in Sub-Saharan Africa increased from $92 million in 2001 to a high of $2.2 billion in 2008, repre'senting a very rapid CAGR of 57.8%. While private equity figures across the globe took a sharp dip in 2009, there are growing indications of recovering an upward trend going forward.</p> <p><a href="/content/dam/intelligence/content-assets/reports/GrowingPrivateEquityInvestment.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/GrowingPrivateEquityInvestment.jpg"></a><br> (Source: World Bank)</p> <p><a href="/content/dam/intelligence/content-assets/reports/GrowingPrivateEquityInvestment2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/GrowingPrivateEquityInvestment2.jpg"></a><br> (Source: World Bank)</p> <p>Chart 22 shows the cumulative growth of market capitalization of listed companies as a percentage of GDP in all key regions of the world between 2000 and 2008, and Sub-Saharan Africa has clearly performed well. Between 2000 and 2008, for instance, the market capitalization of the region's listed companies increased from 89.9% of GDP to 147.5% of GDP. This represents a CAGR of approximately 8.6% which is one of the largest increments over the period for the regions selected and displayed on Chart 22, only exceeded by that of South Asia.</p> <p>Chart23 shows clearly that market capitalizatin in Sub-Saharan Afarica(Not inculding south Afarica) started to take off in 2011,and has outperformed other regions since as a percentage of GDP.</p> <p><a href="/content/dam/intelligence/content-assets/reports/GrowingPrivateEquityInvestment3.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/GrowingPrivateEquityInvestment3.jpg"></a><br> (Source: World Bank, 2010; World Federation of Exchanges)</p> <p>The performance of Africa's leading stock markets is highlighted in Chart 24. These include South Africa, Egypt, Nigeria, Morocco and Kenya. The market capitalization of all the bourses selected increased during the period 2003 to 2008. The largest stock exchange is South Africa, whose market capitalization increased from approximately $268 billion in 2003 to $483 billion in 2008 representing a CAGR of 12.5%. Also the region's largest economy, South Africa's ratio of market capitalization to nominal GDP was 1.74 in 2008 indicating the great extent of capitalization in the market. The growth in the market capitalization of the other exchanges has also been significant as is shown by their CAGR for the period 2003 to 2008, ranging from 21% for Kenya to 38.3% for Nigeria. The ratios of the market capitalization to nominal GDP for the rest of the markets, compared to South Africa's, are markedly lower with most of them ranging from 0.23 in the case of Nigeria to 0.76 in the case of Morocco. This provides an indication of the lower capitalization of these markets relative to the size of their economies.</p> 3. Conclusions <p>The overview of the state of development of Sub-Saharan Africa provided in this report shows three key striking features: (i) the state of socio-economic underdevelopment in all aspects of Sub-Saharan Africa has been the worst in the world in the past 50 years; (ii) growth acceleration in the last decade has been very impressive, with emerging markets from Asia and Latin America playing a new role in the region; and (iii) the region has immense potential for growth and development in Sub-Saharan Africa going forward if the region can begin to effectively tackle many of the crippling constraints that have held the region back in the past. Subsequent reports in this series will systematically address these issues.</p> When taking stock of the economic environment presented by the African continent, it is important at the outset to recognize the physical magnitude of the continent. This can serve to highlight the potential richness of access to resources and also the opportunities to develop the continents infrastructure.http://www1.mastercard.com/content/intelligence/en/research/reports/2011/taking-stock-the-state-of-sub-saharan-africa2011-03-31T16:00:00.000Z2011-03-31T16:00:00.000ZIt's Time for Banks to Profitably Enter the Remittances Market Ben IsaacsonIt's Time for Banks to Profitably Enter the Remittances Market<p>In the booming global remittances market, banks can capitalise on their strengths in global payments and harness new banking products and technology. This is true whether they decide to compete against money transfer organisations (MTOs) and exchange houses in banked-to-banked transactions or partner with them on the sending side. By leveraging Internet service and distribution capabilities, the low-cost infrastructure afforded by reloadable prepaid cards and mobile technologies, as well as their access to superior foreign exchange (F/X) rates, banks can gain share.</p> <p><b>*</b>&nbsp;After achieving $443 billion in global gross dollar volume (GDV), remittances are projected to grow by 9.2 percent in 2010 to 2011.1</p> <p><b>*</b>&nbsp;While banks handle 70 percent of receiving volume globally, MTOs have the largest share of sending volume.2</p> EXECUTIVE SUMMARY<p>As remittance pioneers, MTOs built significant infrastructure on both the sending and&nbsp;receiving sides of key remittance routes (called corridors) in response to consumer needs.</p> <p>On the sending side, MTOs provide convenience, payment assurance, and multiple language&nbsp;capabilities; on the receiving side, they made it possible for clients to receive money in places&nbsp;where banks simply didn't exist. The increase in banked consumers reduces the importance&nbsp;of MTOs' distribution network, formerly their great advantage on the receiving side. On the&nbsp;sending side, the advent of the Internet and innovative bank-sponsored products, such as&nbsp;general purpose reloadable prepaid cards, mitigate MTOs' advantages, or at least make banks&nbsp;attractive partners for MTOs. These technology advances will not only allow banks to solidify&nbsp;their advantage with white-collar workers, who are mostly banked, but to capture share with&nbsp;blue-collar workers, who (even if banked) tend to remit through MTOs/exchange houses.</p> A LARGE AND GROWING OPPORTUNITY<p>The remittances market is large and growing, representing an attractive&nbsp;opportunity for banks in both sending and receiving markets. In 2008, globalremittances stood at $443 billion, with $315 billion, or 71 percent, flowing from the developed world to developing economies.&nbsp;3&nbsp;&nbsp;After a slight decline in 2009, MasterCard expects remittances to achieve positive growth in 2010 (see&nbsp;Figure 1). New payment providers and facilitators are also entering the market,&nbsp;contending for customers across all segments. As the competition increases,&nbsp;the providers that best meet evolving consumer needs will win.</p> <p>This paper will show that banks are now in an excellent position to meet these&nbsp;consumer needs, whether the banks go it alone with an end-to-end solution&nbsp;for banked senders and receivers, or partner with MTOs for a hybrid solution.&nbsp;Indeed, the challenges facing the remittance world parallel those in more&nbsp;traditional consumer banking environments: It all comes down to moving share&nbsp;from paper to electronic payments. This is one of the reasons banks are so well&nbsp;suited to be the long-term providers of remittance payments.</p> <p><a href="/content/dam/intelligence/content-assets/reports/alargeandgrowingopportunity.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/alargeandgrowingopportunity.jpg"></a></p> <p>&nbsp;Currently, the main drivers of global remittance growth are:</p> <p><b>*</b>&nbsp;The shift from informal to formal electronic channels of payment</p> <p><b>*</b>&nbsp;An increasing reliance on the part of developed economies for labor from the&nbsp;developing world</p> <p>The first of these drivers reflects efforts on the part of banks and governments&nbsp;globally to expand access to banking. Their changing policies are catalyzing&nbsp;bank access and making remittances easier.</p> <p>Meanwhile, rising demand for low-cost labor from developing economies enables&nbsp;those workers to find work and send their wages back to their home countries.</p> TWO TOP REMITTANCE CORRIDORS<p>In order to better understand the dynamics of the remittance opportunity, this&nbsp;paper focuses on two of the world's largest corridors: the United Arab Emirates&nbsp;(UAE) to India and Singapore to the Philippines.</p> <p><b>United Arab Emirates to India:&nbsp;</b>India is the largest recipient of remittances&nbsp;in the world, receiving $49 billion in 2008;4&nbsp;$6.2 billion or 12 percent of this&nbsp;amount comes from the UAE. The flow of funds from the UAE to India is the&nbsp;most important corridor for the home country, representing 27 percent of the&nbsp;UAE's remittances.5</p> <p><b>Singapore to Philippines:&nbsp;</b>Despite the global downturn, remittances in the&nbsp;Singapore-Philippines corridor totaled $6.98 billion in the first five months of&nbsp;2009, growing 2.8 percent over the same period in 2008.6&nbsp;Successful initiatives&nbsp;on the part of the Philippine government to increase the banked population&nbsp;have mitigated the need to build receiving infrastructure to serve remittance customers. Seventy percent of total remittances to the Philippines is destined to&nbsp;banked recipients, compared to 50 percent in 2005.7</p> <p>The size and favorable market dynamics in these two corridors make them ideal&nbsp;focal points for banks looking to increase their remittance business. While there&nbsp;is still significant work to be done to unseat incumbent providers, banks can&nbsp;capture share by capitalising on existing strengths to meet consumer needs.</p> KEY CONSUMER DYNAMICS<p>Consumers in the two remittance corridors share many remittance needs.&nbsp;They need to transfer money quickly and inexpensively and want a system that&nbsp;makes obtaining the funds easy for recipients. These needs can be divided&nbsp;into three categories: the end-to-end payments process, service reliability, and&nbsp;customer service (see Figure 2).</p> <p>The&nbsp;<b>end-to-end payments process -&nbsp;</b>including accessing the bank or&nbsp;exchange house, wait time, and documentation needs- should be as painless&nbsp;as possible. The reality, however, is quite different. Senders find it difficult&nbsp;to gain access to banks or exchange houses, encounter long wait times at&nbsp;the physical location (sometimes in excess of half a day), and face complex&nbsp;documentation demands.</p> <p>MasterCard research shows that&nbsp;<b>service reliability-</b>the ability to guarantee&nbsp;that money will be received safely and without incident-is a major driver of&nbsp;consumer choice, as fraud and robbery are well-founded concerns.9&nbsp;When&nbsp;dealing with trusted remittance providers, consumers are more likely to believe&nbsp;a real-time alert (such as an SMS) telling them that the money has been&nbsp;transferred. In this regard, banks' and their technology partners' reputations for&nbsp;reliability give them a big advantage. Many MTOs are not able to send real-time&nbsp;authentication messages, so consumers require nothing less than cash in hand&nbsp;to believe the remittance has gone through.10</p> <p><b>Customer service&nbsp;</b>is also essential, including a system for tracking funds in&nbsp;the event of disputes, convenient hours of operation, representatives who&nbsp;speak the customers' language, and a method for properly collecting essential&nbsp;customer details.</p> <p><a href="/content/dam/intelligence/content-assets/reports/keyconsumerdynamics.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/keyconsumerdynamics.jpg"></a></p> THE COMPETITIVE LANDSCAPE<p><b>United Arab Emirates to India</b></p> <p>In the UAE-India corridor, two major types of remittance providers compete&nbsp;with banks for consumers' business: MTOs or exchange houses (which partner&nbsp;with a variety of MTOs) and hawala (see Figure 3). There are over 100 MTOs&nbsp;operating in the UAE,11&nbsp;with vast differences in size, service, and pricing. The&nbsp;largest players, such as Western Union, tend to be the most reliable but also&nbsp;the most costly. Other providers compete on price, but with lower reliability&nbsp;and more limited options.</p> <p>While banks in India receive fully 75 percent of remittances, on the UAE sender&nbsp;side, MTOs are the dominant provider. Blue-collar workers, who make up&nbsp;between 65 and 70 percent of Indians in the UAE, mainly remit from MTOs to&nbsp;bank accounts in India. MasterCard estimates that hawala makes up 20 to 25&nbsp;percent of the market.12&nbsp;The dominance of MTOs on the sending side becomes&nbsp;clearer in light of the competitive landscape. In terms of consumer needs-the&nbsp;end-to-end payments process, service reliability, and customer service-MTOs&nbsp;outperform their competitors and are uniquely positioned to serve blue-collar&nbsp;workers, especially with regard to customer service and local language support.&nbsp;As a result, banked senders remitting to banked receivers represent the most&nbsp;promising prospects for banks seeking to take market share in remittances.&nbsp;However, even banked customers will send remittances through MTOs due to&nbsp;better infrastructure on the sending side.</p> <p><a href="/content/dam/intelligence/content-assets/reports/thecompetitivelandscape.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/thecompetitivelandscape.jpg"></a></p> <p>Regarding the features that matter most to receivers-reliability and ease of&nbsp;receiving funds-banks and hawala operators have different strengths. While&nbsp;hawala boasts a superior delivery network and no taxes, they are also illegal&nbsp;and do not comply with foreign exchange requirements. Therefore, consumers&nbsp;view banks as more reliable and secure. White-collar workers who wish to</p> <p>transfer large amounts of money also prefer banks, as remittances to India via&nbsp;MTOs are currently capped at $2,500. For banked senders who have access to&nbsp;e-banking, bank-to-bank transfers are the most robust option.</p> <p>An analysis of various pricing schemas shows that current bank pricing clearly&nbsp;favors white-collar workers with high-value remittance needs, as shown in&nbsp;Figure 4. By moving consumers who do not require high-value services to online&nbsp;channels or alternative products, banks can reduce these pricing discrepancies&nbsp;while maintaining the exclusivity of the branch. Leveraging online channels-&nbsp;without the costly service infrastructure that MTOs have put in place-can give&nbsp;banks a cost advantage that should allow them to offer lower prices than MTOs.</p> <p><a href="/content/dam/intelligence/content-assets/reports/thecompetitivelandscape2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/thecompetitivelandscape2.jpg"></a></p> <p><b>Singapore to Philippines</b></p> <p>In Singapore, the three major remittance providers are MTOs/exchange houses,&nbsp;mobile phone companies/telcos, and banks (see Figure 5).</p> <p><a href="/content/dam/intelligence/content-assets/reports/thecompetitivelandscape3.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/thecompetitivelandscape3.jpg"></a></p> <p>Initiatives by the Philippine government have brought the banked population&nbsp;to 70 percent, making blue-collar workers-who typically have preferred using&nbsp;MTOs because of their speed and foreign exchange capability-attractive&nbsp;prospects for banks. While many banks have partnered with MTOs to capture&nbsp;pieces of this opportunity, these partnerships require banks to share revenues&nbsp;and often rely on MTOs to set pricing. However, banks offer MTOs many&nbsp;attractive reasons to join forces, including security and F/X cushions unavailable&nbsp;to non-banks. Just as important, partnerships allow receiving-side banks to&nbsp;get their brand and service story in front of a large portion of the remittance sending&nbsp;population.</p> <p>For these reasons, in this corridor as in others, e-banking is the optimal choice&nbsp;for the banked-to-banked segment, which values reliability and security as well&nbsp;as convenience and price.</p> STRATEGIES FOR BANKS<p>Using the banked receiver population as a revenue base, banks can leverage&nbsp;technology to grow their business on the sending side and take share away&nbsp;from both MTOs and hawala, while keeping the option open to partner with&nbsp;the former for the business of the unbanked. In competing against MTOs, banks&nbsp;should promote price, speed, and convenience. To unseat hawala, banks should&nbsp;emphasise security and legality of transfers, which should outweigh the tax&nbsp;advantages hawala offers. In making the decision whether or not to partner&nbsp;with MTOs and exchange houses, banks must keep in mind that while the&nbsp;increase in the size of the banked population neutralises the investment MTOs&nbsp;have made over the years in a receiving infrastructure, their investments on the&nbsp;sending side are more difficult to overcome.</p> <p>Counteracting specific MTO advantages may require banks to offer some new&nbsp;services, while others will draw on core bank competencies. Banks need to identify&nbsp;the areas in which they have a cost advantage over MTOs-and can afford to&nbsp;reduce margins-versus the areas where they need to enhance capabilities.&nbsp;A range of potential solutions that address key needs is provided in Figure 6;&nbsp;naturally, it is up to each bank to build the solution that makes sense for them.</p> <p><a href="/content/dam/intelligence/content-assets/reports/strategiesforbanks.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/strategiesforbanks.jpg"></a></p> <p><b>Capitalising on Banks' Core Competencies</b></p> <p><b>Global payment capabilities.&nbsp;</b>Through direct payment or bilateral agreements,&nbsp;moving money globally is a core bank competency-and something they ought&nbsp;to be able to do more cost-effectively than other businesses. The largest global&nbsp;banks have an edge here, which manifests itself in three areas:</p> <p><b>*</b>&nbsp;Direct access to payment systems</p> <p><b>*</b>&nbsp;F/X rates</p> <p><b>*</b>&nbsp;Multicurrency reserves</p> <p>For banks that rely on correspondent relationships for access to the networks&nbsp;of the Society for Worldwide Interbank Financial Telecommunication (SWIFT),&nbsp;assurance and reporting of payments aren't always seamless.</p> <p>Additionally, for larger banks, access to F/X trading desks and spot rates should&nbsp;give them lower-cost F/X transactions than any but the largest MTOs can provide.&nbsp;Banks that don't have significant global banking infrastructure won't be quite as&nbsp;well positioned relative to their competitors.</p> <p>That said, in order to mitigate daily F/X volatility, global banks must have&nbsp;sufficient currency reserves in each remittance denomination to equal out thedaily gains/losses in individual markets. Establishing the global infrastructure and&nbsp;keeping currency reserves big enough to manage this volatility are both expensive&nbsp;and complicated. On a practical level, banks that haven't already undertaken&nbsp;this initiative as part of a separate global treasury services business are in no&nbsp;position to start now. This makes it difficult for all but the largest global banks&nbsp;to capitalise on the inherent advantages that banks have over MTOs. However,&nbsp;as alternative payments systems build remittance capabilities, national banks can&nbsp;benefit from direct access to a truly global clearing and settlement system. For&nbsp;example, by December 2010, all Maestro cardholders in the Philippines will be&nbsp;able to have remittances deposited directly into their bank accounts.</p> <p>Alternative networks also have a distribution advantage over the current&nbsp;infrastructure. Western Union, the largest MTO in the world, has 410,000locations worldwide.13&nbsp;However, with over 1.7 million ATM locations around the&nbsp;world as of December, 2009,14&nbsp;MasterCard provides more than four times as&nbsp;many outlets for consumers to withdraw cash.&nbsp;Domestic banks may feel the need to price their remittances higher in order to&nbsp;provide a large enough spread to cover F/X risk. Nonetheless, when compared&nbsp;with MTOs, even domestic banks enjoy cost advantages. What is often different&nbsp;is risk tolerance. While banks may need to charge a premium for higher-risk&nbsp;services, their lower cost structure relative to MTOs puts them in a good position&nbsp;to conduct a profitable remittance business.</p> <p><b>Secure money transfers.&nbsp;</b>The stringent regulatory environment for banks&nbsp;is designed to ensure that the banking system is secure from fraud, money&nbsp;laundering, and financial loss. Banks can leverage their trusted brands and&nbsp;superior technology to provide consumers with the comfort of reliable&nbsp;transactions through real-time communications indicating when a remittance&nbsp;has been received. If banks and other parties in the transaction (including the&nbsp;technology providers) are perceived as trusted brands, consumers are more&nbsp;likely to utilize banks than most MTOs or hawala.</p> Maximising Bank Opportunities<p><b>Through Sending-Side Innovations</b></p> <p>Banked senders remitting to banked receivers is currently the target for most&nbsp;banks competing in this market. However, as mentioned earlier, even banked&nbsp;customers will send remittances through MTOs due to better infrastructure on&nbsp;the sending side. Banks looking to break through this barrier can capitalise on&nbsp;the following opportunities:</p> <p><b>Enhance self-service and electronic capabilities to provide extended&nbsp;hours and better service.&nbsp;</b>Online and mobile capabilities provide an&nbsp;elegant solution to this challenge by helping banks solve service issues&nbsp;without necessitating costly branch infrastructure investments. Additionally,&nbsp;online solutions can store key documentation information, providing a faster&nbsp;and more efficient user experience than consumers encounter offline, where&nbsp;they must complete extensive forms for every remittance.</p> <p><b>Extend bank reach on the sending side through new products such&nbsp;as prepaid cards.&nbsp;</b>As prepaid card functionality continues to improve and&nbsp;channels extend to online and mobile, reloadable prepaid solutions can meet&nbsp;the needs of unbanked remittance senders and receivers.</p> <p><b>Reduce the need for multi-currency account maintenance and&nbsp;investment through partnering.&nbsp;</b>For banks that have not been able to</p> <p>justify the investment required to maintain sufficient currency reserves to&nbsp;manage F/X volatility in all remittance markets, finding a partner that isalready doing so is critical. Whether it is another bank or a non-bank financial&nbsp;institution, the critical success factor is the ability to transfer F/X settlement&nbsp;risk while minimising the impact of the partnership on the consumer.</p> <p><b>The Optimal Solution</b></p> <p>A comprehensive, sender-based solution that would allow banks to serve the&nbsp;largest share of this market without significant investment would have the&nbsp;following components:</p> <p><b>*</b>&nbsp;For both banked and unbanked senders,&nbsp;<b>online and/or mobile&nbsp;capabilities&nbsp;</b>can achieve critical service goals, such as providingextended bank hours and language support without requiring costly&nbsp;branch infrastructure changes. An electronic option can also address keydocumentation needs by storing all necessary information after initial&nbsp;instance. This can allay consumer fear of fraud, an important outcome, as&nbsp;some of the desire for speedy remittance is actually fear of theft.</p> <p><b>*</b>&nbsp;For unbanked senders, in addition to online and mobile capabilities,&nbsp;<b>''lite''&nbsp;banking platforms based on reloadable prepaid accounts&nbsp;</b>offer banks&nbsp;the ability to compete for this segment without establishing significant incountry&nbsp;physical infrastructure.</p> <p><b>*</b>&nbsp;Partnering with employers to provide&nbsp;<b>payroll cards with payment&nbsp;functionality&nbsp;</b>will allow otherwise unbanked consumers the ability to&nbsp;use banks for remittances and will provide a built-in distribution channel.&nbsp;Developing an attractive pricing structure with partner MTOs and exchange&nbsp;houses can make this advantage even more compelling for the unbanked and&nbsp;pry them from hawala.</p> CONCLUSION<p>The changing banking dynamics of countries on the receiving end of&nbsp;remittances, in combination with new technology, make the future of theremittance business very attractive for banks. While there will still be segments&nbsp;of the population that banks won't be able to serve profitably on their own,&nbsp;partnerships offer them the opportunity to gain a portion of the revenue they&nbsp;would have otherwise missed altogether. Innovations in electronic and mobile&nbsp;channels as well as prepaid functionality give banks a path forward that doesn't&nbsp;require heavy branch infrastructure investments. The ongoing migration to&nbsp;electronic payments will make this opportunity even more appealing, and as&nbsp;banks formalise the remittance market, all parties-consumers, businesses, and&nbsp;governments-will benefit.</p> <p><a href="http://www.masterintelligence.com/asset/upload/263/186/APMEA_Remittances_FINAL.pdf"><b>Click here to download this report in PDF format.</b></a></p> <p><i>1 World Bank, 2010.</i></p> <p><i>2 World Bank, December 2006 and 2009; MasterCard and Synovate analysis.</i></p> <p><i>3 World Bank staff estimates based on the International Monetary Fund's Balance of Payments Statistics</i></p> <p><i>Yearbook 2008.</i></p> <p><i>4 World Bank staff estimates based on the International Monetary Fund's Balance of Payments Statistics</i></p> <p><i>Yearbook 2008.</i></p> <p><i>5 World Bank, December 2006 and 2009; MasterCard and Synovate analysis.</i></p> <p><i>6 World Bank, 2009.</i></p> <p><i>7 World Bank, December 2006 and 2009; MasterCard and Synovate analysis.</i></p> <p><i>8 MasterCard research conducted by Synovate, 2009.</i></p> <p><i>9 MasterCard research conducted by Synovate, 2009.</i></p> <p><i>10 Ibid.</i></p> <p><i>11 Ibid.</i></p> <p><i>12 MasterCard estimates based on research conducted by Synovate, 2009.</i></p> <p><i>13 Western Union Company website, as of May 2010.</i></p> <p><i>14 MasterCard 2009 Annual Report.</i></p> By leveraging Internet service and distribution capabilities, the low-cost infrastructure afforded by reloadable prepaid cards and mobile technologies, as well as their access to superior foreign exchange (F/X) rates, banks can gain share.http://www1.mastercard.com/content/intelligence/en/research/reports/2011/its-time-for-banks-to-profitably-enter-the-remittances-market2010-12-31T16:00:00.000Z2010-12-31T16:00:00.000ZConsumer Spending Outlook and Value Creation in the New Global Economy Carlos Fonseca, Yuwa Hedrick-Wong, Theodore IacobuzioConsumer Spending Outlook and Value Creation in the New Global Economy<p style="text-align: center;">&nbsp;<a href="/content/dam/intelligence/content-assets/reports/Insights_Report_MasterCard-in-Red-HiRes.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/consumerspendingoutlookandvaluecreationinthenewglobaleconomy.jpg"></a></p> Consumer Spending Outlook<p>There are three key drivers that raise private household consumption. The first is growth of employment, the second, wage increases, and the third, expanding consumer credit. These key drivers work either independently, or, more potently, in combination. For example, wage increases leading to rising household income and consumer demand will trigger in turn more business investment that creates more jobs--a phenomenon typically seen in a robust recovery phase of the business cycle. And, when household debts are generally low and wages are rising, household consumption can be boosted&nbsp; by more credit being made available to consumers without the increase in consumer debt becoming a concern. Indeed, under such circumstances, consumer credit acts as a healthy multiplier that allows the consumer to monetize some of tomorrow's income for today's use.</p> <p>Since the 2008/09 global financial crisis, however, it is quite clear that none of these key drivers of private household&nbsp; consumption&nbsp; is working properly. For instance, in the US, the largest consumer market in the world, unemployment&nbsp; has remained stubbornly high, and households are trying to pay down their debts with any spare cash that they have. From a peak of 135% of average annual disposable income in 2008, household debts in the US have steadily declined to around 123% in early 20111. While this is a move in the right direction, the amount&nbsp; of household income that is used to pay down debt also automatically reduces households' consumption demand. So the growth of the consumer market in the US is unlikely to return to the pre-crisis level for quite some time to come.</p> <p>What is true for the US is equally true for other developed markets. In the Euro Zone, the volume index of retail sales has been flat since 3Q 2010. Any data showing increases in retail sales only reflect price increases, in other words, inflation. Data coming out of the strongest and best-performing economy in Europe, Germany, are indicative. Since the beginning of the year, German consumer-durable orders from the Euro Zone have been contracting.&nbsp; It is exports outside the Euro Zone that have kept the German economy humming, while domestic durable-goods orders are up a modest 5% year- on-year.&nbsp; This is&nbsp; in&nbsp; spite&nbsp; of&nbsp; Germany's&nbsp; record-low unemployment and strongest GDP growth in 20 years.</p> <p>In fact, the challenge of the situation today can be summarized&nbsp; in terms&nbsp; of&nbsp; a&nbsp; contrast&nbsp; between&nbsp;&nbsp; three groups of markets: developed, emerging, and transitional; and their respective shares of growth&nbsp; in consumer demand&nbsp; before&nbsp; and&nbsp; after the&nbsp; 2008/09&nbsp; crisis. Collectively, these three groups account for the lion's share of the growth of global household consumption. Transitional markets, the key drivers of Eastern Europe--are&nbsp; included because&nbsp; of&nbsp; their&nbsp; superfast&nbsp; growth&nbsp; in household consumption in the decade prior to the crisis. As Table 1 shows, the average annual growth rates over the 2000 to 2008 period ranged from 7% for developed markets to an amazing 35%&nbsp; for transitional markets, with the most significant emerging markets averaging over 19% per year.</p> <p><b>Table 1. Average Annual Growth Rates in Household Consumption, 2000 - 2008</b><br> Source: CEIC, Eurostat</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/table1averageannualgrowthratesinhouseholdconsumption20002008.jpg"><img src="/content/dam/intelligence/content-assets/reports/table1averageannualgrowthratesinhouseholdconsumption20002008.jpg"></a></p> <p>Due to the massive difference in the size of their consumer markets, the picture looks completely different&nbsp; when&nbsp; comparing&nbsp; the&nbsp; share&nbsp; for&nbsp; each&nbsp; group&nbsp; in overall consumption growth. For example, in 2008, the size of the consumer market of the group of developed markets is estimated at US$22.2 trillion. In comparison, the size of the consumer markets for the emerging and transitional markets are estimated at US$5.6 trillion and US$0.9 trillion respectively.<br> <br> <b>Chart 1. Global Shares of Household Consumption Growth</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart1globalsharesofhouseholdconsumptiongrowth.jpg"><img src="/content/dam/intelligence/content-assets/reports/chart1globalsharesofhouseholdconsumptiongrowth.jpg"></a></p> <p>Source: CEIC, Eurostat, IFS</p> <p>Consequently, as seen in Chart 1, developed markets accounted&nbsp; for 65.5%&nbsp; of the&nbsp; increases in household&nbsp; consumption&nbsp; during the 2000 to 2008 period; whereas the emerging markets accounted for only 28.7% of the total. The transitional markets trailed even further behind with a 5.7% share of total growth.</p> <p>It is this preponderancy of household consumption in the developed markets that is of concern in the post-crisis global economy. Even though&nbsp; emerging markets have appeared&nbsp; to be able to keep powering ahead in spite of the crisis and the anemic recovery, the question is whether the growth of consumer spending in emerging markets (in combination with transitional markets) is enough&nbsp; to compensate&nbsp; for the stagnation&nbsp; in developed&nbsp; markets.&nbsp; This concern is illustrated in Table&nbsp; 2, which shows the growth rates in household consumption for the three groups from 2009 to 2010. As expected,&nbsp; growth in the developed markets averaged a miniscule 0.13% a year, in sharp contrast with 8.8% in the emerging markets. The transitional markets actually went into contraction, shrinking by 8.5%&nbsp; a year over this period. Thus, in spite of an otherwise respectable performance of 8.8% growth in consumer spending in the emerging markets, the overall growth for the three groups of markets came to only 1.6% in this period.</p> <p>It is therefore&nbsp; an important question to ask today where growth in the consumer market will come from in the global economy in the next five years, given the poor prospects in the developed markets and the uncertain outlook in the transitional markets. This is not just an academic exercise in number crunching. There are far-reaching implications for global businesses when the dynamics of demand change in the consumer markets. This is because consumption lies in the heart of value creation in a market economy. It's consumer demand that ultimately determines whether&nbsp; businesses, after the investments required to develop their products and&nbsp; services, have succeeded&nbsp; in creating&nbsp; value.</p> <p><b>Table 2. Average Annual Growth Rates in Household Consumption, 2009 - 2010</b><br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/table2averageannualgrowthratesinhouseholdconsumption20092010.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/table2averageannualgrowthratesinhouseholdconsumption20092010.jpg"></a><br> Source: CEIC, Eurostat</p> <p>For global businesses, an understanding of how and where growth will originate in the consumer marketplace will be crucial to their success.</p> <p>The role that consumption plays in economic growth and value creation is often misunderstood&nbsp; as well as underappreciated. In many societies, frugality is praised, and by implication this means saving and investing are good, and consumption is at best to be kept modest. In the aftermath of the 2008/09 financial crisis, such sentiments&nbsp; are&nbsp; further&nbsp; boosted&nbsp; by a&nbsp; backlash against the&nbsp; debt-fueled&nbsp; consumption&nbsp; of the&nbsp; US and much of Western Europe in the past decade. And, yet, investment and production, without the guiding hand of consumer choices and demand,&nbsp; inevitably lead to capital misallocation and&nbsp; business failure. It is consumption, and consumption alone, that ultimately creates value. History abounds with such examples, if we know where to look.<br> </p> Value Creation and Consumer Choices<p>An American clipper sailed up the Hooghly River to deliver a most peculiar cargo in Calcutta in the late 1870s. It carried in its hull large blocks of ice chipped from lakes in Massachusetts, in northeast US. Shippers found that when properly insulated with sawdust and stored in the hull of ships, about&nbsp; two-thirds of the ice blocks could survive the six-month long journey to India.</p> <p>In the 19th century, the hot weather was probably one of the most daunting challenges to the British colonialists in India. Perspiring British colonial officials first discovered the hills--places at higher elevation where the temperature&nbsp; was cooler, especially during the summer. Hill stations were established all over India, and the most famous was Simla, nestled in the foothills of the Himalayas, to which the viceroy and his army of clerks and officials escaped for the summer. The hill stations were a partial solution to the British yearning for cooler weather. Another solution was to import it. In 19th-century India, this meant importing ice from New England. It is estimated that in the 1870s New England exported 12,000 tons of ice a year to India.</p> <p>One can only imagine what went through the minds of Indians unloading the 'ice ships' and the New Englanders who&nbsp; were&nbsp; paid to&nbsp; saw and&nbsp; pack ice to&nbsp; be shipped to India. As long as the British in India wanted ice and were prepared to pay for it; that consumption choice set into motion a complicated supply chain made possible with ingenious innovations.</p> <p>This example of shipping ice to India highlights a profound truth about value creation that is often misunderstood. There is a natural bias to focus on the pro- duction process as the source of value creation. Superficially it seems to make sense that value is created when something is being produced. After all, if we paid X dollars for a gadget, then surely the producer of that gadget produced X dollars' worth of value. In this instance,&nbsp; common&nbsp; sense&nbsp; is utterly&nbsp; and&nbsp; completely wrong.</p> <p>Take for example, a car being displayed in a show-room. Regardless of how costly the manufacturing, how brilliant its design, or how lavishly it is upholstered,&nbsp; it has exactly zero value before it's sold, whatever its price tag states. The economic value of this car comes into existence the moment a consumer makes the decision to buy it. The price willingly paid by the buyer is the value of the car. The creation of economic value, therefore, is intimately intertwined with the act of conducting a&nbsp; transaction,&nbsp; and&nbsp; value is created&nbsp; at&nbsp; the&nbsp; very moment that the exchange is made between the buyer and the seller. Thus, while value creation lies at the heart of the economic process, consumption lies at the heart of value creation.</p> <p>Consumption choices are driven by consumer tastes, which can vary greatly from place to place, and from time to time. Consumer taste&nbsp; ultimately determines how consumption choices are made. Taste is, by definition, subjective. But, consumer taste, however arbitrary and fanciful, has been one of the most powerful driving forces in history in mobilizing societies to venture at great risk into the unknown, and, as a consequence, affect how people and societies interact, propelling advances in technology, and stimulating innovations in business and commerce.</p> <p>Some may think that we are grossly exaggerating our case, and dismiss as trivial, the example of shipping ice to India in order for well paid servants of the British Empire to indulge in their iced gin tonic in the sweltering heat. Let's look at two other examples of how consumer taste and choice which stand out as having had powerful impact in shaping world history in the past two millennia--silk and spices. The appreciation for silk is easier to relate to, even by today's standard of affluence and abundance.&nbsp; The taste for spices, on the other hand,&nbsp; may seem more quixotic, and the prices they fetched, outright bizarre. Yet, both have been immensely important in changing history in virtually every corner of the planet.</p> <p>In ancient Rome, silk from China was an item of rare luxury and much sought after by the patricians, the elite of Roman society. Traditional local materials for clothing were predominantly scratchy wool or crinkly linen; supplemented by heavy animal skins. In sharp contrast, silk was soft, light and came in a variety of luxuriant colors; outclassing the dull monotone of wool and linens. So it is not surprising that silk became an instant hit when it arrived in Rome around the first century AD.</p> <p>Silk arrived in Rome before&nbsp; the&nbsp; fabled Silk Road came into existence. Traders in southern China loaded their ships with silk and sailed along the coasts of Indochina, then around the Malay Peninsula into the Bay of Bengal. They exchanged&nbsp; goods&nbsp; with Indian merchants there, who in turn sailed across the Arabian Sea to trade with Greek and Arab middlemen. Then the cargo of silk was transported up the Red Sea by barges. At the northern tip of the Red Sea, it was loaded onto camels that carried it across the desert to reach the Nile. From the Nile it was transferred to ships and ferried to Alexandria, where&nbsp; Greek and&nbsp; Roman ships awaited. These vessels then carried the silk across the Mediterranean to its final destination, Rome.</p> <p>This long supply chain linked the Roman and the Chinese Empires in the first century AD. Neither the Romans nor the Chinese had firsthand knowledge of each other. All the Chinese knew was that there were people living in a land far to the west who wanted&nbsp; their silk. The Romans, on the other hand, had heard all sorts of stories about&nbsp; China; mostly fanciful exaggerations or sheer fabrications. They had no idea whether&nbsp; silk was fauna or flora, or how it was produced.</p> <p>Silk in China was expensive but in Rome, it was easily a hundredfold higher. The fact that wealthy patrician Romans were prepared&nbsp; to pay the high prices for silk justified this long and arduous supply chain, rendering the immense amount of logistics engaged profitable. It also brought&nbsp; about&nbsp; sustained&nbsp; cultural exchange&nbsp; between the different communities involved in the trade. For example, some Christian communities in South India today trace their roots to this period, at least 1,500 years before the arrival of European missionaries in the 17th and 18th century.</p> <p>An equally long and difficult supply route started to operate in the second century AD from Western China during the Han Dynasty across Central Asia to reach Rome. This is the famous Silk Road. The Silk Road was never&nbsp; actually a&nbsp; single road,&nbsp; but&nbsp; rather,&nbsp; two&nbsp; main routes, the northern and the southern routes, each with many branches. It was the trade along the Silk Road that bought fortunes to the fabled cities of Samarkand, Isfahan, and Herat; populated by multi-ethnic communities of Jewish, Armenian, and Syrian middlemen. Buddhism eventually found&nbsp; its way to China from India along the Silk Road. The traffic along the Silk Road fostered the development of the practice and protocols of diplomacy between&nbsp; the Chinese Empire and rulers of Central Asia; encouraged&nbsp; the invention of travel accommodations, the caravanserai; and stimulated innovations of&nbsp; rudimentary&nbsp; forms of&nbsp; trade&nbsp; finance&nbsp; and credit. All these came about because of the Roman patricians'taste for silk.</p> <p>If the Roman taste for silk is understandable; the European craze for spices in the Middle Ages would seem bizarre to the&nbsp; modern&nbsp; eye. The spices that&nbsp; were so sought after in Europe came from a few islands in tropical Asia. Cloves, for instance, originally grew only on five tiny specks of land in north Moluccas, an island group in today's eastern Indonesia. Nutmeg and mace came from the Bandas, a group of nine small isles; in the southern Moluccas. These were the fabled Spice Islands and they are very far away from Europe indeed, even with today's transcontinental flights. To reach the Spice Islands from Western Europe in the Middle Ages would be the equivalent of a space flight today. For one thousand&nbsp; years after the appearance&nbsp; of spices in Europe, no Europeans, not until the 16th century, had any clue as to where these Spice Islands were.</p> <p>Spices were exotica personified for medieval Europeans. They were associated with myths of one kind or another.&nbsp; Some spices were believed to be endowed with potent&nbsp; medicinal effects, and were used to treat all sorts of ailments, including as a prophylactic against the&nbsp; plague.&nbsp; Spices were&nbsp; popular&nbsp; as an&nbsp; aphrodisiac; wealthy households used them to flavor their food and drink to and fumigate their clothes and closets. Wealthy Europeans were prepared&nbsp; to pay a small fortune&nbsp; for such spices.</p> <p>For centuries, Europeans lived without spices, and there is no evidence that the use of these spices significantly improved the quality of life for the Europeans. Yet, once these tropical spices arrived, Europeans became enamored with them. And they were very expensive. The splendor and power of Venice, at the height of its glory, embodied the wealth generated&nbsp; by the spice trade, with its grand and magnificent architecture, artwork, public squares, and canals; all built on the profits generated by Venetian dominance in the Mediterranean trade in cinnamon, nutmeg, mace and cloves. Venetian galleys transported&nbsp; three and a half million pounds of spices each year, prior to the Portuguese penetration of the&nbsp; Indian Ocean&nbsp; at&nbsp; the&nbsp; turn&nbsp; of&nbsp; the&nbsp; 16th&nbsp; century. Clearly, the Europeans loved their spices.</p> <p>The tropical spices reached Europe from the Spice Islands via a supply chain that rivaled the complexity and difficulty of that&nbsp; of silk from China. Islanders of the Spice Islands did not&nbsp; have much&nbsp; use for the&nbsp; spices themselves, and since the spice trees were found in nature and not cultivated, they had practically no economic value for the islanders. So the islanders happily traded with the legendary Bugis, the seafarers from Sulawesi, the territory situated halfway between the Spice Islands and the island of Java. The Bugis transported the spices north across the South China Sea; and traded with Chinese and India merchants; who in turn took the goods westward; following roughly the same trade pattern of silk.</p> <p>The strong demand and the exorbitant profit of the spice trade led inevitably to business and technological innovations in attempting&nbsp; to cut out the middlemen that dominated the trade. In today's marketing speak, it would be characterized as the disintermediation of the incumbents. This was what the Portuguese tried to do.</p> <p>In the 16th century, the Portuguese made major advances in their ship design, navigation skills, and map-making. This time period became known in history as the age of exploration; but, as it turned out, it was also the age of business disintermediation. In the 16th century, conquistadors like Bartholomew Diaz and Vasco da Gama, hugging&nbsp; the coast of Africa, rounded&nbsp; the Cape of Good Hope and sailed into the Indian Ocean. From there they started to cut out the Indian and Arab middlemen; and fought&nbsp; to control the shipping and trading of spices to Europe themselves. In fact, it was the Portuguese who first recognized the strategic value of the deep harbor sheltered among several closely clustered islands in the west coast of India and established a toehold there, calling it Bom Bahia, the 'good&nbsp; bay.' It was anglicized into Bombay when&nbsp; it passed&nbsp; into British hands later.</p> <p>In 1512, Ferdinand Magellan, a veteran Portuguese conquistador&nbsp; who&nbsp; had&nbsp; sailed, fought,&nbsp; and&nbsp; survived many skirmishes in the Indian Ocean; conceived the idea of circumnavigating the globe by sailing round the extreme&nbsp; end&nbsp; of&nbsp; South&nbsp; America; which he&nbsp; believed would lead him to the Indies from the opposite direction of the route that rounded the Cape of Good Hope in Africa. He argued that in so doing it would also allow him to pin down the exact whereabouts of the Spice Islands; and take control of them while he was at it. By 1517, he secured the backing of the Spanish court for his enterprise, and two years later he led a multinational crew in five vessels to sail into the Atlantic in one of the most astonishing voyages of discovery.</p> <p>After crossing the&nbsp; Atlantic and&nbsp; sailing across the South Pacific, Magellan himself was killed in an altercation with natives on an island in today's Philippines (that did not prevent the expedition naming the islands after the Spain's King Philip). Finally, two surviving vessels, leaky and manned by emaciated crews, guided by a captured local pilot, found one of the Spice Islands; Tidore. The crew traded with the local sultan, and loaded their hulls full with cloves and set sail for Spain. Only one vessel managed to complete the voyage. And yet the value of the cargo, based on the willingness of wealthy Europeans to pay for the spices, was so high that the profit margin of the lone surviving vessel, Victoria, which arrived in Spain with 26 tons of cloves, paid for the entire expedition with some change to spare. The King of Spain awarded Juan Sebastian de Elcano, who guided the ship back to Spain, a handsome pension and a coat of arms of two cinnamon sticks, three nutmegs, and a dozen cloves.</p> <p>What followed was four centuries of the rise of European colonial expansion, technological progress, and last but not least, spread of evangelical Christian missionaries to all corners of the world. It would be simplistic to say that all these were the result of the Europeans' taste for spices and their willingness to pay for them. Counterfactual historical hypotheses may suggest that if it were not for the spices, it would have been something else that would have driven the Europeans overseas to conquer, loot, pillage, preach, and convert; and on the positive side of the ledger, to trade, invest, educate, and enlighten. Counterfactual history or otherwise, however, it could not be denied that it was a consumption choice that ignited much of what came after during this age of exploration. This is because consumption choices create value, and it is this value creation process that mobilized not only businesses, but adventurers, royal courts, and whole societies in pursuit of such values, and, in the case of the trade in silk and spices, molded world history.</p> <p>The common thread in all three examples, ice, silk and spices, is the disparity in value between the place of their origination and production, and the place of their consumption. This is a direct reflection of the difference in the value placed on these products by the consumers; ice in the winter had practically no value for New England farmers but huge value for the British in India; silk always commanded good value for the Chinese but even greater value for the Roman patricians; spices were literally indistinguishable from weeds for the islanders on Bandas and Tidore but meant fantastic value for Europeans. In all instances, the physical nature of the products remained unchanged;&nbsp; the only difference lay in how they were consumed. In other words, it is the act of consumption that created fantastic values for ice in India, silk in Rome and spices in Europe.</p> <p>The value creation process described by these three examples remains fundamentally unchanged&nbsp; today. Of course, things move much faster now. Many more goods are also being moved from one end of the earth to the other; and not just luxury items. It is not an exaggeration to say that our planet today resembles more and more a gigantic bazaar. Yet, now as in the past, at the very center of this global bazaar is the consumer. It is the consumer's choice, ability, and willingness to pay that creates value for all the goods and services that are on display in the global bazaar.</p> Global Consumer Spending Outlook and Business Implications<p>In the post-crisis global economy, the dynamics of consumer markets are undergoing a profound transformation&nbsp; that&nbsp; is both&nbsp; quantitative&nbsp; and&nbsp; qualitative.&nbsp; The quantitative aspect is a result of the diverging growth rates between&nbsp; the developed and the emerging markets in their economies and consumer markets, resulting in what has sometimes been referred to as the 'two speed' global economy. The qualitative side, however, is far more important in terms of business implications, and it comes about because of the role of consumption in value creation. In the coming years, choices by consumers in emerging markets will begin to dominate in determining how value is being created in the consumer markets. On this critical point, it is not just the difference in overall growth that matters, but it is the rising share in the growth of discretionary consumption in the emerging markets that will be decisive.</p> <p>A scenario of consumer market growth for the next five years was developed to illustrate the changing dynamics of global consumer markets. Conservative assumptions are used for projecting the average annual real GDP growth over the 2011 to 2016 period. It is 2% for developed markets, 6% for emerging markets, and 4% for transitional markets; all significantly below their respective average in the previous decade. The ratio between household consumption and real GDP growth is also assumed to be lower for the all markets.&nbsp;&nbsp; As Table 3 shows, in developed markets where every 1% growth in real GDP in the 2000 to 2008 period induced 2.55% growth in household consumption, the forecast is that every 1% growth in real GDP will induce only an equivalent 1% growth in household consumption in the next five years. Similarly, the ratio is reduced from 3.24 to 2.5 for emerging markets, and from 6.18 to 2.0 for transitional markets.</p> <p>The shares&nbsp; of total&nbsp; household&nbsp; consumption&nbsp; between the three groups of markets between 2008 and 2016 are shown in Chart 2. The developed markets'share will drop from 77.4% in 2008 to 58.3% in 2016. The share of the emerging markets, on the other hand, will increase from 19.5%&nbsp; in 2008 to 38.7%&nbsp; in 2016. The share of the transitional markets will remain basically unchanged.&nbsp; From a simply quantitative point of view, this means that the size of household consumption in emerging markets will be around two-thirds of that of the developed markets by 2016, up from being one-quarter in 2008.<br> </p> <p><b>Table 3.Ratios of Household Consumption to Real GDP Growth</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/table3ratiosofhouseholdconsumptiontorealgdpgrowth.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/table3ratiosofhouseholdconsumptiontorealgdpgrowth.jpg"></a></p> <p>Estimated with data from CEIC, Eurostat</p> <p>In annual&nbsp; consumer&nbsp; spending&nbsp; growth,&nbsp; emerging markets will pull ahead of developed markets. As Chart 3 shows, over the 2012 to 2016 period, emerging markets will add an average of US$1.2 trillion of consumer spending to the global economy per year, whereas developed markets will add only around US$700 billion annually. Transitional markets will add another&nbsp; US$95 billion. It is this difference in the incremental increases in consumer demand that will firmly put emerging markets in the driver's seat.</p> <p>A great deal of increased household consumption in emerging markets is undoubtedly for basic necessities. From a business perspective, if the change in incremental growth&nbsp; is driven by consumption&nbsp; of basic necessities and nothing else, then the impact may not be that significant. It is change in discretionary consumption that the business impact will be strongly felt. As it turns out, the change&nbsp; in shares of growth&nbsp; in discretionary consumption&nbsp; will be no less dramatic in the coming years in the global economy.</p> <p>Chart 2. Global Shares of Total Household Consumption<br> Estimated with data from CEIC, Eurostat, IFS</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2globalsharesoftotalhouseholdconsumption.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart2globalsharesoftotalhouseholdconsumption.jpg"></a><br> Chart 3. Increase in Global Household Consumption</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart3increaseinglobalhouseholdconsumption.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart3increaseinglobalhouseholdconsumption.jpg"></a></p> <p>Table 4 summarizes estimates made on such changes for the developed, emerging and transitional markets, contrasting the 2000 to 2008 period with the 2012 to 2016 period. Between 2000 and 2008, developed markets accounted for 88.2% of the global growth in discretionary spending, while emerging markets accounted&nbsp; for only 9.2%,&nbsp; followed by transitional markets&nbsp; with 2.6%. Under these conditions, it would not be an exaggeration to say that consumers in developed markets, due to the dominance of their demand, single-handedly drove the value creation process through their choices, tastes and preferences. In the coming five years, however, the shares of growth in discretionary spending will be about equal between&nbsp; the developed and emerging markets (49.0% versus 47.8%).&nbsp; This is a significant milestone, very possibly the first time in the last 200 years when consumers in emerging markets (the Third World, the under-developed,&nbsp; or the colonies as they were previously known) drive value creation in equal measure with consumers in the developed markets.</p> <p>That being the case, consumer choices, tastes and preferences&nbsp; in emerging markets will also become a much important consideration for global businesses regarding where and how investment is to be made, and what products and services to create.</p> <p>Table 4. Shares of Growth&nbsp; in Discretionary Consumption<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/table4sharesofgrowthindiscretionaryconsumption.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/table4sharesofgrowthindiscretionaryconsumption.jpg"></a><br> Estimated with data from CEIC, Eurostat, IFS</p> <p>In many important aspects consumers are different between&nbsp; the developed, emerging markets and transitional markets. Chart 4 highlights one such aspect, the age of the consumer. The size of 'active consumers,' defined as those aged 15 to 65, as expected, is much larger in emerging markets than&nbsp; the developed or transitional markets. More importantly, however, the numbers of active consumers are expected to continue to rise in the coming years in the emerging markets, whereas they are projected to be basically unchanged in the developed markets, and declining in transitional markets. This implies that consumers are much younger in the emerging markets than in either developed or transitional markets.</p> <p>The younger consumers in emerging markets will have far-reaching business implications in terms of how to leverage technology trends, engage information and marketing channels, and prepare for the pace and direction of consumer lifestyle trends.&nbsp; The youth consumer segment&nbsp; is also all about&nbsp; the future, and consequently, businesses must become much more forward&nbsp; looking than&nbsp; before.&nbsp; Younger consumers&nbsp; also tend to be more optimistic. Thus, the rise of the youth consumer market will inject much needed&nbsp; optimism into the global economy as well.</p> Resilience of the Global Consumer Market<p>There is a recurring theme in popular media that blames the emerging markets (and China in particular) for producing cheap consumer goods that fed bargain-hungry American consumers; that led to a global imbalance, which in turn contributed to the 2008/09 global financial crisis. It also blames the 'greedy'&nbsp; American consumers who overextended themselves, then pulled in their horns when things turned sour, precipitating a collapse of demand when the crisis hit. There is an element of truth here. US consumers, at the time of the Lehman Brothers' collapse, were heavily overleveraged. The ratio of debt payments in relation to household income rose from 11.7% in 1995 to 13.9% in 2007.9 And the majority of the debt was real estate borrowing, which was the source of the US economy's woes from 2007 to the present.</p> <p>But there&nbsp; is no doubt&nbsp; that&nbsp; American consumers have started&nbsp; to&nbsp; save and&nbsp; pay down&nbsp; their debts.&nbsp; As stated in the opening section of this report, American households' debt to annual disposable income ratio has dropped from a peak of 135%&nbsp; of average annual disposable income in 2008 to around 123% in early 2011. As American consumers cut back on their spending in the context of high unemployment,&nbsp; it would appear that the US consumer markets, the largest in the world, could be down for the count for the foreseeable future.</p> <p>Chart 4. Active Consumers (Aged 15 - 65)</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart4activeconsumersaged1565.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart4activeconsumersaged1565.jpg"></a></p> <p>Source: United Nations</p> <p>This is certainly what some are saying, and there is no shortage of new prophets who herald the end of consumerism as a result of the crisis. Their argument is that a wholesale collapse of the consumer market in the US would lead to the collapse of demand for exports in the emerging markets, thereby undermining growth of income and employment there, thus nipping in the bud the growth of consumer spending in the emerging markets as well. The result is a collapse of consumer demand in both the developed and the emerging markets, and the end of consumerism worldwide.</p> <p>This doom and gloom scenario is, however, widely off the mark. For example, while the deleveraging of US consumers is impressive thus far, their appetite&nbsp; for revolving credit at the point of sale has by no means collapsed. The revolve rate, as opposed to absolute volume, went from 44% in 2008 to 41% in 2010--a decrease, and a considerable one, but it is far from being a&nbsp; catastrophic&nbsp; implosion of&nbsp; demand&nbsp; for&nbsp; consumer goods paid on revolving instruments at the point of sale. This resilience is even reflected at the more macro level numbers: the U.S. trade deficits went from a low of $25 billion in June 2009 (the height of the crisis), only to exceed $50 billion in July 20111,0&nbsp; as seen in Chart 5. While the total balance of trade is not simply a matter of low-cost Asian-manufactured consumer goods, such merchandise represents a significant part of it, and the appetite of U S consumers, chastened though they are, would still appear&nbsp; robust. So the demise of U S consumers as a force in global growth has been greatly exaggerated.&nbsp; The fact of the&nbsp; matter&nbsp; is that&nbsp; American consumers are still spending, albeit much more carefully than before. The real risk to businesses today is to unthinkingly buy into this fallacy and underestimate&nbsp; the resilience of American consumers.</p> <p>For emerging&nbsp; markets,&nbsp; their resilience has&nbsp; been amply demonstrated by their ability to rebound from a collapse of exports in the range of 30% to 45% year- on-year in 2009. By 2010, for example, virtually all the emerging markets in Asia had returned to pre-crisis levels of growth and more. And in the past two years, domestic demand&nbsp; in many emerging markets has risen sufficiently to compensate&nbsp; for the decline in their exports. In the case of China, the change has been very impressive; whereas in 2007 net exports accounted for 7.3% of GDP, it has dropped to 3.1% in 2010.&nbsp; Apart from their ability to mobilize domestic demand to sustain growth, there is also an additional factor at work that&nbsp; is providing extra&nbsp; growth&nbsp; momentum&nbsp;&nbsp; to&nbsp; the emerging markets--rapidly rising trade between them.</p> <p>Take the example of intra-Asia trade, which is now acting as an effective counterforce to the weakened demand from developed markets.</p> <p>Chart 5. No Let-Up in US Trade Deficits</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart5noletupinustradedeficits.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart5noletupinustradedeficits.jpg"></a></p> <p>Source: U.S. Census&nbsp; Bureau</p> <p>According to the Asian Development Bank, intra-regional (non-oil) trade between&nbsp; emerging markets in Asia is now much higher compared&nbsp; to that of intraregional trade in the North American Free Trade Agreement zone, which rose from 20% in 1985 to over 52% by 2008.1 This is in spite of the fact there is no pan-regional free trade agreement in Asia. Such trade flows is significant for two reasons: first it represents a well-trodden path in terms of infrastructure, finance, imports and regulation that can be used for goods consumed domestically at some future time, and not simply as components used as assembly work for manufacturing within the region; and that as the workforce engaged in the production of such components&nbsp;&nbsp;&nbsp; increases,&nbsp;&nbsp; whether&nbsp;&nbsp;&nbsp; by&nbsp;&nbsp; organic&nbsp;&nbsp; growth, or through&nbsp; the stimulus of such moves as the easing of internal migration on the part of China in its latest five-year plan1,&nbsp; that&nbsp; workforce represents&nbsp; a cadre of consumers, potential or actual, to populate as it were, the path first beaten by the wholesale trade flows.</p> <p>Consumers in both&nbsp; the developed and emerging markets are showing greater resilience than what the prophets of doom are saying. As illustrated in the five-year projections&nbsp; shown&nbsp; earlier, the&nbsp; really profound change in the coming years will be a shift in the weight of the spending power of consumers in emerging markets, which will open a whole new chapter of how values are being created in the global market. Part of this shift will also have far reaching implications on how technology and innovations in technology are to be applied in the consumer markets.</p> Implications for Technology: Coming of the Age of Mobile Payments<p>Technology and consumers are interacting today more dynamically than ever before, exerting powerful influences on each other. Technology can channel and magnify&nbsp; specific&nbsp; aspects&nbsp;&nbsp; of&nbsp; consumer&nbsp;&nbsp; behavior&nbsp; with far-reaching impact on demand. At the same time, consumers are more directly involved in driving technological innovations, and increasingly in the very early stages of the innovation and development process. Nowhere are these trends more pronounced&nbsp; than in the emerging markets. And the&nbsp;fast evolving technology and applications of mobile telephony stand out as a powerful example of how emerging markets are changing the way technology and consumers interact.</p> <p>To achieve widespread adoption, technology needs to respond to people's day-to-day needs.One such example can be found at the Fitzwilliam Museum in Cambridge,&nbsp; England.&nbsp; It's&nbsp; a&nbsp; folding&nbsp; implement&nbsp; with&nbsp; a three-pronged&nbsp; fork, spatula, pick, spike and knife that was used in the Roman Empire between&nbsp; AD 201 to 300. The functions of this instrument reflect the primary day-to-day needs of a person living close to two thousand years ago.&nbsp; Fifteen centuries later, in 1886,&nbsp; the Swiss Army decided to equip every soldier with a regulation multi-tool instrument. Since then, tens of millions of Swiss Army Knives have been sold worldwide. Today, the most advanced Swiss Army Knife includes a laser pointer and a 32 GB detachable flash drive, which has a capacity a thousand times larger than the one used in the computer onboard Apollo 11!</p> <p>Mobile phones are arguably the essential survival tool today, serving an ever-expanding range of human needs from communication, information access, payments and to even status symbols. According to estimates by the International Telecom Union, there were&nbsp; 5.3 billion mobile subscriptions worldwide at the end of 2010, including 940 million subscriptions to 3G services. Access to mobile network signal is now available to 90% of the world population (80% of the population living in rural areas), and users are moving rapidly from 2G to 3G platforms, in both developed and emerging markets. It is projected that by 2015, the mobile phone will surpass the PC as the device of choice for accessing the internet.</p> <p>However, the&nbsp; global average&nbsp; cited here&nbsp; masks a yawning gap that is opening up between the developed markets and the group of most significant emerging markets analyzed in this report. Using the same grouping of the developed and emerging markets, in 2005 there were some 690 million mobile subscriptions in the developed&nbsp; markets&nbsp; versus about&nbsp; 570&nbsp; million in the emerging markets. Five years on, in 2010, it is estimated that while the number of mobile subscriptions in the developed markets reached 940 million, it is dwarfed by the emerging markets at over 1.6 billion. More importantly, the growth momentum&nbsp; is much stronger in emerging&nbsp; markets.&nbsp; While mobile subscriptions have been growing on average at around 7% a year in the developed markets, it has been growing at an astonishing 37% a year in the emerging markets.<br> <br> It is this divergence in subscription numbers and growth rates that will see consumers in the emerging markets driving the way mobile telephony will be used, with direct implications for technology and business innovations.</p> <p>Take the consumer purchase cycle as a relatively simple example. Typically, the purchase cycle involves four distinct stages: choosing what to purchase, the location where the purchase takes place, paying for the purchase, and post-purchase services. Mobile connectivity is revolutionizing the entire consumer purchase cycle today. And because of their much higher mobile subscriptions and dramatically faster growth rates, emerging markets will also lead in this revolution.</p> <p>In terms of making a decision of what to buy, consumers have at their fingertips the power to access information that was unimaginable a mere ten years ago. Cloud computing can conduct some 40,000 searches per second using Google and 7,000 tweets per second.In Facebook, some 1.2 million pictures are viewed per second. From the&nbsp; consumer's perspective, these&nbsp; impressive numbers all point to one thing: a massive increase&nbsp; in the&nbsp; choices available, and&nbsp; the&nbsp; ability for consumers to communicate&nbsp; with one another&nbsp; about such choices.</p> <p>In the second stage of the purchase cycle, mobile connectivity is also expanding the range of available purchase locations, both physical and virtual, all done with the explicit objective of making everything more convenient for the consumer. The purchase experience is now hugely enriched with customization of products, and of delivery services for the consumer. Technology is also enabling the retailer to capture more information about&nbsp; the&nbsp; consumer and&nbsp; his/her spending&nbsp; behavior, taste and preferences.</p> <p>When it comes to paying for the purchase, mobile payment is also leading the charge in providing greater convenience and flexibility for consumers, while accelerating&nbsp; transaction&nbsp; flows and&nbsp; reducing&nbsp; transaction costs. An important implication of mobile payment is that it can effectively connect the unbanked population in many emerging markets and for that matter, the unbanked in the developed markets as well, in ways that could not be done before. It is estimated that there are some 2.7 billion people worldwide (45% of the world's population) that&nbsp; have no access to financial services simply because they do not have a bank account. By 2012, however, 1.7 billion of these unbanked will have a mobile phone in spite of their inability to open a bank account.16&nbsp; The potential of mobile payment for the un- banked population is therefore immense, and it is going to be a hot bed of payment innovations in the years to come, and, again, with emerging markets leading the way.</p> <p>Finally, in terms of post-purchase services and activities, such as the design and functions of loyalty programs, the extraordinary prevalence of mobile connectivity in emerging markets will also usher in new innovations. Evidence is mounting that consumers in emerging markets are more enthusiastic about&nbsp; loyalty programs. Not only are they keen to take advantage of such programs, they are more discerning as well, and they communicate constantly with one another to share tips and their experiences of how loyalty programs have served or not served them. Take the Chinese consumer for instance&nbsp;--China now has the highest number of internet users and mobile subscriptions among the BRIC countries. Through mobile connectivity, Chinese consumers are able to share their buying and post-purchase experiences instantly, and more openly, without having to worry too much about the issue of 'face.'&nbsp; When it comes to a face-to-face conversation, many Chinese consumers are less forthcoming and direct, especially about bad experiences that they have had. As a consequence, mobile connectivity&nbsp; is a powerful enabler in the empowerment&nbsp; of the consumer; and for businesses that are able to understand&nbsp; and use this development&nbsp; to their advantage,&nbsp; they could reap great benefits in unlocking unmet consumer needs and desires.<br> </p> <p>To sum up, there is a virtuous cycle of consumer and technology interacting to drive innovations faster and deeper. Consumer feedback is now incorporated in real time to guide innovations. In this process, knowledge of the consumer is paramount.&nbsp; And the share of consumer power in the global economy is changing, as argued&nbsp; in this report.&nbsp; Emerging markets are poised to take the lead in the coming years. This puts the emerging market consumer in the driver's seat in technology innovations as well. In so doing, they are also driving value creation.</p> Conclusion<p>The current backlash against big business and unbridled consumption is intertwined with a deepening pessimism about the future. The fact is that there is an abiding tendency in the human psyche of seeing the future in bleak terms. Consider the&nbsp; opening&nbsp; words of Agenda 21 of the United Nations Conference convened in Rio de Janeiro in 1992, signed by world leaders unanimously, 'Humanity stands at a defining moment in history. We are confronted with a perpetuation&nbsp; of disparities within and between nations, a worsening of poverty, hunger, ill health and illiteracy, and the continued deterioration of the ecosystems on which we depend for our well-being.' And yet, according the United Nations' own data, the following decade saw the fastest decline in poverty, hunger, ill health and illiteracy in human history.</p> <p>The same kind of pessimism about the future is once again rearing its ugly head today. An alliance of traditional anti-business lobby and new fangled anti-growth activists is becoming more assertive, usurping the moral high ground in the aftermath&nbsp; of the 2008/09 crisis to proclaim the&nbsp; end&nbsp; of&nbsp; progress&nbsp; and&nbsp; demise&nbsp; of&nbsp; consumerism. Listening to them, the world is stumbling toward&nbsp; either&nbsp; an&nbsp; ecological apocalypse,&nbsp; or&nbsp; financial anarchy, or political chaos; or all of the above. Rising household consumption in the emerging markets, and the vigor of their consumers, will powerfully mitigate the prevailing tide of pessimism. It also presents a strategic window of opportunity for global businesses to create new value for the future.</p> Appendix: Estimation of Discretionary Consumption<p>The estimation of discretionary consumption as a percentage of total household consumption (HHC) is done with the following steps:</p> <p>1.&nbsp; Converting HHC per capita in PPP$</p> <p>2.&nbsp; Establish the range of minimum and maximum HHC in PPP$ per capita for the 34 countries across 2000 to 2016 (PPP$561 from Nigeria 2000 to max of PPP$45,224 of USA in 2016).</p> <p>3.&nbsp; Within this range a sliding scale is approximated and applied to the range, with the lower cutoff point set at US$6,000 (in PPP$). The sliding scale is shown graphically below.</p> <p><b>Methodology for Estimating Discretionary Household Consumption<br> </b></p> <p><br> <a href="/content/dam/intelligence/content-assets/reports/methodologyforestimatingdiscretionaryhouseholdconsumption.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/methodologyforestimatingdiscretionaryhouseholdconsumption.jpg"></a></p> <p>4.&nbsp; Once the discretionary HHC in PPP$ is estimated for all 34 countries, then the PPP$ is converted back to actual dollars for calculating the discretionary HHC as a percentage&nbsp; of the total HHC in each of the 34 countries. These percentages are shown in the chart below.<br> </p> Methodology for Estimating Discretionary Household Consumption<p><a href="/content/dam/intelligence/content-assets/reports/methodologyforestimatingdiscretionaryhouseholdconsumption2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/methodologyforestimatingdiscretionaryhouseholdconsumption2.jpg"></a></p> <p>1. US Federal Reserve.<br> 2. These three groups of markets are: (i) developed:&nbsp; US, Japan, Australia, South Korea, Hong Kong, Singapore, UK, Austria, Denmark, Finland, France, Germany, Italy,<br> Netherlands, Norway, Sweden; (ii) emerging:&nbsp; China, India, Brazil Russia, South Africa, Turkey, Mexico, Nigeria, Egypt; (iii) transitional: Belarus, Bulgaria, Czech Republic, Georgia, Hungary, Poland, Romania, Slovakia, Ukraine.<br> 3. Beattie, A. 2009.&nbsp; False Economy - A Surprising Economic History of the World. New York: Riverhead Books.<br> 4. Warmington, E.H. 1995.&nbsp; The Commerce&nbsp; between the Roman Empire and India New Delhi: Munshiram Manoharlal.<br> 5. See Lane, F.C. 1973.&nbsp; Venice: A Maritime Republic. Baltimore: Johns Hopkins University Press.<br> 6. Bernstein, W.J. 2008.&nbsp; A Splendid Exchange: How Trade<br> Shaped the World. New York: Atlantic Monthly Press.<br> 7. The exception is China, where the next five years is likely to see a structural&nbsp; shift in its domestic economic rebalancing,&nbsp; which will see household consumption's share in GDP rise steadily. See GEMS Close-Up Report, Keeping Steps with the Dragon's Dance: China's Rebalancing and Global Implications. April 2011.<br> 8. Discretionary consumption refers to consumer&nbsp; expenditures that&nbsp; are not of a routine&nbsp; nature&nbsp; such as basic food items, daily transport needs,&nbsp; and basic housing.&nbsp; In emerging markets,&nbsp; a household with an annual income below US$6,000 is likely to spend most of the disposable income on basic necessities, with little left for discretionary spending. Hence the rise in discretionary spending&nbsp; in emerging&nbsp; markets is highly correlated&nbsp; with rising numbers of households with annual income exceeding US$6,000.<br> 9. US Federal Reserve.<br> 10.The United States Balance of Trade,' Trading Economics,&nbsp;<a href="http://www.tradingeconomics.com/united-states/bal">http://www.tradingeconomics.com/united-states/bal</a>- ance-of-trade'<br> 11. Estimated with CEIC data.<br> 12. 'Asian Trade Flows: Trends, Patterns and Projections,' by Prema-chandra Athukorala,&nbsp; Asian Development&nbsp; Bank, January 2011.<br> 13. See 'China's Economic Rebalancing and Global Impli cations,'&nbsp; Yuwa Hedrick-Wong, MasterCard&nbsp; Worldwide Insights 3Q2011.<br> 14. Source: ITU World Telecommunication/ICT Indicators database<br> 15. Source: ITU World Telecommunication/ICT Indicators database<br> 16. Estimates by the Department of International&nbsp; Development, Government of the UK.<br> 17. Colloquy Cross-Cultural Loyalty Study, 2011.&nbsp; This study shows two distinct patterns in terms of loyalty: 3 E's in emerging&nbsp; markets: Energy, Engagement and Enthusiasm while developed&nbsp; countries demonstrate 3 T's: Tired, Turned Off and Tuned Out.</p> There are three key drivers that raise private household consumption. The first is growth of employment, the second, wage increases, and the third, expanding consumer credit. These key drivers work either independently, or, more potently, in combination. http://www1.mastercard.com/content/intelligence/en/research/reports/2011/consumer-spending-outlook-and-value-creation-in-the-new-global-economy2011-09-30T16:00:00.000Z2011-09-30T16:00:00.000ZChina's Economic Rebalancing and Global Implications China's Economic Rebalancing and Global Implications<p>Rarely is a comment made on the global economy without referencing the global imbalance,and China's part in perpetuating it.At its simplest, the global imbalance is seen&nbsp; as a case of China producing/exporting&nbsp; too much and not consuming enough; and the US consuming too much and not saving enough.The typical narrative in this context is that China has become an export machine&nbsp; in order&nbsp; to&nbsp; support&nbsp; its breakneck&nbsp; pace&nbsp; of growth; with its competitiveness based on cheap labor, increasingly efficient infrastructure, and an under-valued currency. The label of 'currency manipulator' is thrown in occasionally as the debate heats up. In fact, an export machine is not an inaccurate description. Twenty years ago, China accounted for a mere 2% of total world exports, and it rose to 11%&nbsp; in 2010. In that&nbsp; narrative, China's growth in exports puts the current accounts of the US and other big importers of Chinese goods in chronic deficits (and worse,&nbsp; destroying local jobs in these countries), while weak domestc consumption in China means growth&nbsp; has to continue to depend&nbsp; on more exports.</p> <p>Regardless of how China is portrayed in the global imbalance debate, the fact of the matter is that in thepast decade China has been reshaping the pattern&nbsp; of global trade, not just as an 'export machine, but as a trading partner in terms of imports/exports of goods and services, investment and capital flows. Today, China is a key trading partner, sometimes the single most important&nbsp; one, for many of the world's most important economies. Table 1 shows China's rising importance as a trading partner (imports plus exports) between&nbsp; 2000 and 2009 in the global economy. The list in the table includes the richest economies in the world, the largest emerging markets, and the most important commodity producers,&nbsp; spanning across five continents.&nbsp; So what happens&nbsp; to China now matters a great deal more to practically everyone in the global economy.</p> <p>This Global Insights report explains China's role in the global imbalance in terms of its domestic imbalance. While not&nbsp; denying&nbsp; the&nbsp; importance&nbsp; of&nbsp; currency exchange rates, I&nbsp; believe that neither China's success in exports nor its rise as a trading partner can be explained in terms of its under-valued currency. The 'currency- centric view' &nbsp;would mean that the global imbalance cannot be resolved without the Chinese currency appreciating to a much higher market driven level.1 Given the apparently snail's pace of the appreciation of the Chinese currency in recent years,&nbsp; it would appear that the global imbalance is here to stay.</p> <p>Table 1. China's Rank as a Trading Partner<br> &nbsp;<a href="/content/dam/intelligence/content-assets/reports/table1chinasrankasatradingpartner.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/table1chinasrankasatradingpartner.jpg"></a></p> <p>Source: Estimated with IMF Direction of Trade Data</p> <p>In contrast,I hold the view that China's role in the global imbalance is due primarily to its internal economic imbalance,mostly as a result of a series of developments in the&nbsp; past&nbsp; decade. From this perspective,China's under-valued currency has at best played a tangential role. The media hype on China as an export machine&nbsp; and&nbsp; being&nbsp; the&nbsp; factory of&nbsp; the&nbsp; world&nbsp; has&nbsp; the unintended&nbsp; consequence&nbsp; of focusing attention&nbsp; on the export side of the current account. Chinese exports are on track to continue to grow in the coming decade, and I have estimated that it could reach 18% of the world total by 2020, thereby matching the previous record set by the US in the 1950s during the height of America's global economic dominance. What will make all the difference is how fast China's imports will grow in relation to its exports. And this in turn is strongly affected by how China will rebalance itself domestically.</p> <p>For example, China's current account surplus dropped&nbsp; from its peak of 11.3% of GDP in 2007 to 4.6% in 2010,while the Chinese yuan's trade-weighted exchange rate rose by an average of only 2.2% a year over the same period.What has brought about the reduction in China's surplus is a much faster growth of imports over exports. In 2010, for instance, China's imports grew by 39%,outpacing&nbsp; growth of exports of 31%.</p> <p>This trend has apparently accelerated in the first two months of this year, with imports growing by 36% versus growth of exports of 21%,&nbsp; year-on-year. When China's internal rebalance gains traction, imports will rise much faster in relation to exports, and consequently the global (external) imbalance will adjust as well. So the key is how China will deal with its internal imbalance. I believe China is now at the cusp of a profound structural shift in its economy, and in the coming years, coinciding with the 12th Five Year Plan, domestic private consumption will likely rise much faster than before. This will fundamentally change&nbsp; China's imports/exports dynamics, as well as domestic conditions such as where the majority of the Chinese people will live, and how they will work. But let's begin by taking a closer look of China's domestic economic imbalance.</p> China's Domestic Economic Imbalance<p>It is ironic that in a country run by a communist party,the share of national output&nbsp; accruing to the workers has shrunk over a period of super fast growth. But that is exactly what has been happening in China. As shown in Chart 1 (right side of the chart), the share of wages as a percentage of GDP in China fell from over 50% in 2001 to 42% in 2009.Over the same time period, however, corporate profit as a percentage of GDP rose from 23% to 29%. As a result, private consumption as a percentage of GDP in China has also declined, and was estimated at 36% in 2010.</p> <p>Chart1. China's Domestic Imabalance</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1chinasdomesticimabalance.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart1chinasdomesticimabalance.jpg"></a></p> <p></p> <p>Source: CEIC;Estimates with Data from China&nbsp; Statistics Yearbook, Various Years</p> <p>This compares unfavorably with 55% in Thailand and 56% in India (left side of the chart).Weak wage and consumption growth are at the heart of China's domestic imbalance. How is it that in a country run by a communist party with socialism as its guiding ideology (albeit with 'Chinese characteristics') the corporate sector is apparently outpacing the success of the working class?</p> <p>Several key developments in the last decade converged to create China's internal imbalance.The first is the state-owned&nbsp; enterprise (SOE) reform that created a new breed of corporate players that were in a position to maximize monopoly profit, while benefiting from declining real labor costs (labor productivity rising faster than wages). The second is China's rapid pace of urban- ization which has been luring migrant workers to urban areas, swelling the&nbsp; supply of the&nbsp; urban&nbsp; labor force. These two key developments then interacted with some of the unintended consequences of the One Child Policy to keep household savings high, thereby suppressing private consumption.</p> <p>In 2009, three Chinese companies, all SOEs, were listed in the top ten of the Fortune Global 500.They were: Sinopec in seventh place,State Grid in eighth, and China National Petroleum in tenth. In fact, there were 44 Chinese companies, the vast majority of them SOEs,in the Fortune Global 500 that year6.A decade earlier,the&nbsp; notion&nbsp; of any companies from mainland China being ranked in the top 500 of the world could not be imagined. The fact is that&nbsp; by the end of the 1990s, the state-owned&nbsp; industrial sector in China was basically bankrupt.The non-performing loans of the banking sector in China were over 3.5 trillion yuan in 1999,about 18% of all loans outstanding.Virtually all of the bad loans were lent to SOEs.In the beginning of the 1990s, SOEs were the beneficiaries of a lending binge by the banks that was made in the wake of the famous ?southern&nbsp; tour? of Deng Xiaoping. By the end of that decade all that SOEs had to show were mountains of bad loans.<br> By then, Zhu Rongji, the prime minister, was preparing China for WTO membership. To do so, he launched a wide-ranging economic reform program, part of which was SOE reform. Different options were mooted. Just prior to the 1997 Asian financial crisis, the Korean chaebols were intensely studied, and at one time it was thought a suitable model for China's SOEs to emulate. Post-1997, with many chaebols going bust, that option was quickly dismissed. A more hard-nosed&nbsp; alternative argued for wholesale privatization of the SOEs, but it was&nbsp; quickly recognized&nbsp; that&nbsp;&nbsp; genuine&nbsp; privatization would mean letting the market decide the fate of the SOEs, and giving up state control of the massive industrial sector, hence government's leverage over a significant&nbsp; portion&nbsp; of employment&nbsp; and&nbsp; investment&nbsp; in the economy. Instead, Zhu opted to shut down a portion of the SOEs that&nbsp; were clearly beyond salvage, and consoli-dated the rest to make them viable.And an important step in the process was to order the banks to forgive all the SOE bad loans. This meant,&nbsp; of course, leaving the banks on the spot. To save the banks, Asset Manage- ment Companies (AMCs) were created to take over the bad loans, allowing the banks to be recapitalized. The AMCs were then tasked with recovering as much of the loans as they could from the defaulters, the SOEs.</p> <p>The cleaned up and consolidated SOEs then started to perform extraordinarily well after China's entrance to WTO.Foreign direct investment continued to rise (it ac- tually started accelerating prior to China's WTO membership), exports boomed, and the economy expanded; consequently SOEs rose like ships being lifted in a rising tide. Many SOEs also operated&nbsp; in either strictly protected or in quasi monopolistic sectors such as telecom, transportation,&nbsp; energy, and assorted heavy industries, thereby enjoying monopoly rent; which was then made even more lucrative by the commodity upswing cycle that started mid-decade.Meantime, they were not required to pay dividends to their shareholders, the government. For SOEs involved in resource extraction, they did not pay royalties to the owner of the resource either, which once again, was the government. The SOEs continued&nbsp; to&nbsp; enjoy preferential&nbsp; access to&nbsp; bank&nbsp; lending whenever they needed new funds, and at exceptionally low interest rates. The net result was, not surprisingly, extraordinary SOE profits.</p> <p>One of the factors driving up corporate profits overall, not just for SOEs,has been the labor market dynamics in that decade.Urbanization accelerated, averaging some 20 million people in urban areas a year. Rapid growth was evident across the entire spectrum of urban areas, from megacities like Shanghai, Beijing and Shenzhen, and second tier cities like Wuhan, Xian, Nanjing, all the way down to small third-tier cities (more on urbanization later). To put things in perspective, in 1981 it is estimated that only 18% of China's population lived in urban areas. By 2010, it was close to 50%8. Urban expansion of such a scale drew in an army of migrant workers from the farms. Migrant workers are not the same as rural-urban migrants, at least not in the beginning (though many ended up becoming residents of the cities in which they have been working, only after they managed&nbsp; to&nbsp; acquire the&nbsp; residency permit,&nbsp; the hukou). Many migrant workers work only part of the year in cities, and spend the rest of the time, back on the&nbsp; farm to help with planting and&nbsp; harvest. Like all farmers, planting and harvesting are the busy times, and it is the in-between period that they are underemployed, hence their migratory pattern to seek paid work in cities. Many migrant workers are recruited into the construction sector, powering the massive infrastructure rollout&nbsp; across&nbsp; the&nbsp; country.&nbsp; Many others,&nbsp; especially young&nbsp; women,&nbsp; work in light manufacturing&nbsp; in the southern and the eastern coastal region, producing exports that give China the reputation of being the factory of the world.</p> <p>It is this army of migrant workers, variously estimated to be between 100 to 120 million, tht has had the net effect of keeping&nbsp; wages low in relation to growth&nbsp; of productivity and&nbsp; corporate&nbsp; profit. Due to their part-time status, their wages proximate the equilibrium price of labor, determined solely by demand and supply at any given time and, until very recently, not protected by any minimum wage regulation and which did not obligate the employers to cover their healthcare, pension, and other related social benefits. In any sectors where migrant workers can be employed on a regular basis, which include construction and light manufacturing, migrant workers have made a huge contribution, while receiving the absolute minimum in return. High corporate profits and low wages mean, however, low private consumption&nbsp; by households. Consumption is kept even lower due to the relatively high household savings rate. Chinese urban households tend to save around 20% of their disposable income9, compared with the 10 to 12% average seen in many other Asian markets. This higher household savings is due to several unique factors in China. The first is the One Child policy, which motivates parents to save as much as they can to make sure that&nbsp; they can afford the best healthcare money can buy should their single child get sick and the best private education that money can buy to ensure the child's future success. For the young singles being able to afford a private condominium is now a prerequisite for being able to marry, hence the presure to save for a down payment. All these contribute to China's higher household savings and subdued consumption.</p> <p>It is common to hear in media commentaries that Chinese households save too much and do not spend enough. It follows that the remedy for rebalancing the global economy is to encourage&nbsp; the Chinese to spend more. The reality is that given what they earn, and what they have to put aside for the proverbial rainy days, Chinese consumers are actually very enthusiastic spenders. They more or less spend as much as they can, and cannot be accused of causing the global imbalance because of their supposedly extraordinary frugality. They certainly play a role in the internal imbalance of the Chinese economy, but it is more the role of victims of the internal imbalance than its cause. To rebalance the Chinese economy, wages will have to grow much faster in relation to productivity and corporate profit, and households will have to feel that they need to save less even as their income is rising faster than before. These may well happen in the coming years.</p> The Dragon's Dance: The 12th Five Year Plan<p>It would be naive to suggest that the leadership in Beijing is not aware of China's domestic imbalance and the challenges associated with it. The question is what are they going to do about it? The answer, at least in part, can be gleaned from the broad outline of the 12th Five Year Plan, which was approved by the People's Congress on March 14, and is due to take effect this year. While many of the specifics are yet to be spelled out,11 the Plan does aim to create a new economic model that could rebalance the Chinese economy. It recognizes that in spite of having survived the 2008/09 global financial<br> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br> crisis, the economy today suffers from problems of unbalanced, uncoordinated, and unsustainable developments. The key solution,which is seen as the prime driver of change, is to continue and accelerate the pace of urbanization. Getting people to move into towns and cities at a pace even faster than that of the past decade would, at one stroke, deal with the challenges of rural underemployment,&nbsp; over-investment in the industrial sector, weak household consumption, income disparity, and chronic current account surpluses. It is no surprise that Vice Premier Li Keqiang, has consistently focused on how to get urbanization right as his theme&nbsp; whenever he spoke to the press and in public forums in the past year.</p> <p>Getting urbanization right in China could indeed address many of the country's major problems of economic development overall, and the internal imbalance in specific. A proper discussion of urbanization in China will, however, require a great deal more space than a section of a single report of this kind. Instead, the focus here is on how urbanization could address the internal economic imbalance that has been built up in the past decade as described earlier. First and foremost is the difference in propensity to consume, especially in discretionary spending, between rural and urban households. Adjusted for income, an urban household tends to spend more on consumption than a rural household12 .Clearly in urban areas the consumer lifestyle is able to spread faster and wider, with the proverbial 'word of mouth' and 'peer persuasion' being more powerful in propagating&nbsp; new consumer market trends. On the supply side, the high concentration of consumers in urban centers facilitates the development&nbsp; of shopping malls and markets, offering consumers choices that are simply not available in rural markets. Shopping, socializing, dining out, and entertainment&nbsp;&nbsp; tend&nbsp; to&nbsp; blend&nbsp; seamlessly into&nbsp; an&nbsp; urban lifestyle, driving up consumer spending. Incomes are also higher in urban areas. Even for migrant workers, what they earn in cities is still higher than what they would have earned had they stayed on the farm. Their pay looks low only when compared with regular urban incomes. And there is no mystery as to why urban wages are higher. Better urban infrastructure means workers have better&nbsp; tools to work with, and hence, more productive1.3&nbsp; Urban economies also benefit from more powerful economies of scale and economies of scope, which offer more opportunities for specialization, thereby boosting urban productivity. As a result, urban wages tend&nbsp; to increase a lot faster than&nbsp; rural ones; and that is exactly what has been happening&nbsp; in China in the last decade. With higher urban wages, the stronger&nbsp; propensity&nbsp; to&nbsp; consume&nbsp; observed&nbsp; in urban households is then amplified by their larger household wallet.</p> <p>The urban&nbsp; economy&nbsp; is also more&nbsp; conducive for faster growth in the service sector in China, which has been&nbsp; a laggard compared&nbsp; with the&nbsp; industrial sector. With rising incomes, urban households' marginal spending shifts quickly from goods to services, creating more potential for the service sector to expand and create more jobs. It has been estimated that with the same increase in demand,&nbsp; the domestic service sector tends to create up to 45% more jobs than the export sector. 14 Again, there is no mystery as to why this is so. The multiplier effect is simply higher in the urban service sector compared with exports. An increase in service demand quickly ripples across the urban service economy to generate new demand for other services, which has a positive ?knock-on' effect on yet other services and so on. Think of the opening of an upscale restaurant in Shanghai. Architects and designers are likely involved in creating the ambience commensurate&nbsp; with the prices on the menu. Advertising agencies are needed to promote it to targeted&nbsp; customers. For branding purposes, the restaurant&nbsp; may decide to sponsor a show in a gallery with a gala reception,&nbsp; engaging&nbsp; event management and public relations specialists.&nbsp; All these generate&nbsp; new activities in a wide range of professional services, apart from jobs created in the actual operations of the restau- rant itself. In contrast, an increase in demand in exports is more likely to generate a one-off increase in production activities, especially if the production is in assembling manufacturing&nbsp; with&nbsp; a&nbsp; high&nbsp; level of&nbsp; imported components.Urbanization and the service sector are therefore mutually reinforcing, with the net effects of raising household incomes and boosting consumption.</p> <p>As suggested earlier, an important factor in raising household consumption lies in reducing their savings. Chinese households'precautionary savings are high because of poor public provisions of health care and&nbsp; education services as well as patchy coverage of retirement pensions. It happens that it is more cost-effective to upgrade&nbsp; health and education&nbsp; services in urban&nbsp; rather than in rural areas, due to urban population density and associated economies of scale. Therefore for every extra yuan spent&nbsp; on health and education&nbsp; by the government, it has a greater impact in urban areas when it comes to reducing households' precautionary savings and raising their consumption. And increasing investment in public health and education is what the government&nbsp; intends&nbsp; to&nbsp; do&nbsp; in the&nbsp; context&nbsp; of&nbsp; accelerating urbanization in the 12th Five Year Plan.</p> <p>Finally, faster urbanization also has the added benefit of reducing income disparity. Assuming the average income levels of urban&nbsp; and&nbsp; rural China remain unchanged&nbsp; for the foreseeable future, the fact that the urban population will expand while the rural population will shrink at a faster rate in the next five years would improve income distribution overall. Shifting workers from rural to urban areas simply means more workers are earning higher urban wages. Chart 2 illustrates the projection of China's urbanization to 2020.It is expected&nbsp; that&nbsp; by the&nbsp; end&nbsp; of this decade, some 70% of China's population will be living in urban areas, up from 48% in 2005. This implies an addition of 320 million to China's urban population.Some 100 million of this increase will come from 'organic growth,' consisting of population growth from today's urban population, and conversion of rural areas (and the population) into urban areas in the coming years. Another 220 million will come from rural-urban migration. In addition to the positive multifaceted impacts of urbanization, a number of regulatory changes in the governance of the SOEs will also help China's internal rebalancing. SOEs are now required to pay dividends, and SOEs in resource extraction are also required to pay royalties. These measures will reduce SOE profit while boosting government revenues. The new revenues generated will in turn allow the government to invest more in expanding the coverage of the social safety nets and in improving service delivery. It is expected that government spending on health and education services will go up significantly during the 12th Five Year Plan, with coverage expanding to include migrant workers as well. A national pension plan that is universal and portable is also being planned for implementation. It remains to be seen, however, the extent to which the intended objectives of the Plan will be implemented, and once implemented,&nbsp; the extent to which they are effectively enforced.&nbsp; Even if the&nbsp; measures&nbsp; outlined above are only partially successful, they could still go along way in rebalancing China's domestic economy.</p> <p>Chart 2. China's Urban Future</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2chinasurbanfuture.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart2chinasurbanfuture.jpg"></a></p> <p>Source: MasterCard Asia/Pacific</p> <p>Chart3. Faster Comsumption Growth Needed in the Future</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart3fastercomsumptiongrowthneededinthefuture.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart3fastercomsumptiongrowthneededinthefuture.jpg"></a></p> <p>Chart 3 summarizes a simple simulation of the kind of progress that can be achieved with a modest level of success in policy implementation. Assuming that real GDP growth rate will average 8% a year between 2010 and 2020, the GDP share of private consumption could rise from the current 36% to 50% if private consumption can grow in real terms by 12% a year. Given the average real growth rate of private consumption in the past decade is around 8%, this means private consumption will have to grow by about one-third faster in the future. Can this be achieved? If household income growth begins to match overall real GDP growth in the coming years, this means an average growth rate of 8% a year. Using a conservative assumption of household consumption growing at the same pace as household income, then income-induced growth of household consumption will be 8% a year as well. If a household's precautionary savings rate is reduced due to better public health and education services and pension coverage, to around 12%&nbsp; from the current 20%, then it would add another 3% growth to household consumption. So the 12% increase per year in private household consumption is possible under the right circumstances.</p> China's Demographic Shift<p>Apart from the potential impacts arising from policy measures related to the 12th Five Year Plan, China's demographic dynamics are giving the rebalancing a powerful push. In the past three decades, the One Child policy has slowed population growth significantly, and, in the process, accelerated population aging. The average age of a population rises when there are more older people, as a result of rising life expectancy, and fewer young people. The result is a powerful demographic shift. China's school enrollment rate is very high, with primary school enrollment approaching 100% so changes in student enrollment numbers in primary and secondary schools, which are good indicators of the overall number of young children and teenagers. According to data from the Ministry of Education, primary school enrollment peaked&nbsp; in 1998,&nbsp; and&nbsp; by 2008&nbsp; it was 25% lower than the peak level. Secondary school enrollment peaked in 2003, and has since been declining, albeit at a&nbsp; much&nbsp; slower rate.&nbsp; The fact&nbsp; that&nbsp; peak&nbsp; secondary school enrollment lags peak primary school enrollment by some five years also makes sense. At their respective peak&nbsp; years,&nbsp; these&nbsp; primary and&nbsp; secondary&nbsp; students would have been born in the second half of the 1980s, when the One Child policy, though&nbsp; introduced earlier,began to be more rigorously enforced, and started to take full effect.</p> <p>Chart 4. China's Demographic Tectonic Shift</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart4chinasdemographictectonicshift.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart4chinasdemographictectonicshift.jpg"></a></p> <p>Source:Estimated with Data from the US Census Bureau and Chinese Academy of Social Science</p> <p>These declining enrollment trends are the&nbsp; telling leading indicators of how&nbsp; the&nbsp; supply of young workers will shrink as a result of China's demographic shift.Expanded opportunities&nbsp; for higher education further aggravate the trend of a shrinking supply of young workers. More young people attending&nbsp; tertiary education means a lower labor force participation rate in their age groups. Chart 4 shows a projection of changes in the numbers of 15 - 24 year olds in China that will be available for the labor force in the next few years, assuming a participation rate of 50%, down from the 65-70%&nbsp; level in previous decades. The projection shows unmistakably a shrinking supply of young workers in the labor force. A 50%&nbsp; participation rate means that half of the 20 -24 year olds will be studying instead of working in the&nbsp; future,&nbsp; up&nbsp; from around&nbsp; 25 - 30%&nbsp; a decade ago, thus squeezing the dwindling supply further. This demographic&nbsp; shift, in combination&nbsp; with the wide ranging impacts of faster urbanization, will push wages to rise faster than&nbsp; before, thus systematically changing the industrial structure of China itself. A good indicator is migrant workers' wages which, as argued earlier, proximate the equilibrium price of labor as dictated by the raw supply and demand conditions. Chart5 shows growth of migrant worker wages in real terms from 2002 to 2008 as estimated by the Chinese Academy of Social Sciences. It basically rose continuously since 2002, and it spiked in 2008 to 18.5%. In 2009, in spite of the near collapse of China's exports due to the global financial crisis, migrant workers' wages nevertheless grew in real terms by 3%, followed by a strong rebound of an estimated 12% growth in 2010. These growth rates clearly reflect a gradual tightening of labor supply, puncturing the myth of the 'inexhaustible supply of Chinese labor.' As new policy measures associated with the 12th Five Year Plan begin to kick in this year, wages in general not just for migrant workers, will begin to rise faster than&nbsp; in the past. This makes the prospects of wage growth keeping pace with real GDP growth, a&nbsp;pre-condition for domestic rebalancing as argued above, much more likely.</p> Keeping Step with the Dragon's Dance: Global Implications<p>China's domestic&nbsp; rebalancing&nbsp; will have far-reaching global implications. The most obvious is that China's current account surplus will shrink over time. Make no mistake, China will continue to be a strong exporter in&nbsp;the&nbsp; foreseeable&nbsp; future, and&nbsp; its current&nbsp; account&nbsp; will likely continue to chalk up annual surpluses.the&nbsp; foreseeable&nbsp; future, and&nbsp; its current&nbsp; account&nbsp; will likely continue to chalk upannual&nbsp;&nbsp;&nbsp;surplus.</p> <p>Chart 5. Higher Wage Growth in the Future</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart5higherwagegrowthinthefuture.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart5higherwagegrowthinthefuture.jpg"></a></p> <p>However, domestic rebalancing could reduce the surplus to around 1%-2% of GDP from its previous peak of over10%, thereby&nbsp; reducing&nbsp; the&nbsp; global imbalance. With faster urbanization, rising consumption, and more jobs being created in the service sector; China's import composition will also change. While infrastructure investment&nbsp; will continue&nbsp; to&nbsp; be a key driver of growth&nbsp; in China, thus necessitating continuing imports of commodities like iron ore and copper, a more service-intensive economy simply means a less resource-intensive one.</p> <p>Chart 6. Monthly Manufacturing Wages Compared<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/chart6monthlymanufacturingwagescompared.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart6monthlymanufacturingwagescompared.jpg"></a><br> Source: MasterCard Asia/Pacific</p> <p>China will gradually import more to meet household consumption&nbsp; needs, and less industrial components&nbsp; and&nbsp; raw materials to feed&nbsp; the&nbsp; manufacturing sector. As a 'swing' buyer of many key commodities in the world market, China's reduced appetite&nbsp; for resources, however marginal, could have significant impacts on their global demand/supply dynamics.<br> Part of the change in China's industrial structure is that low value-added assembly manufacturing will become less viable as wages rise. It is my estimate that monthly manufacturing&nbsp; wages in China today are already higher than many neighboring countries. Chart 6 compares&nbsp; monthly manufacturing&nbsp; in 2009&nbsp; between China and Thailand, Philippines, Vietnam and Indonesia. The wage gap between China and these Southeast Asian countries are set to widen even further in the future.<br> China today has the world's largest manufacturing labor force, which has been estimated to be around 165 million. If 1% of China's manufacturing&nbsp; capacity is to relocate to the four countries of Thailand, Philippines, Vietnam and Indonesia, adjusted for productivity, this would entail an increase in manufacturing employment of these four countries by up to 15%. So quite apart from shrinking the current account surpluses and altering global demand/supply dynamics in commodities, China's domestic rebalancing would also be a source of new growth in many countries in Asia and beyond.</p> <p>1. How exactly is a market driven exchange&nbsp; rate determined is itself fiercely debated, however. There are three key methodological approaches: a fundamental equilibrium exchange&nbsp; rate (the so called FEER), a purchasing&nbsp; power parity based exchange&nbsp; rate, and a unit labor cost productivity-based exchange&nbsp; rate (the so called REER). While all three approaches agree that&nbsp; the Chinese currency is undervalued, they differ hugely on the degrees&nbsp; of under-valuation, ranging from 12%&nbsp; to 50%.<br> 2. The Chinese yuan has been appreciating against&nbsp; the US dollar in nominal terms in the past five years at around&nbsp; 5% a year.<br> 3. It is worth pointing out even if the Chinese yuan were to appreciate at an improbable&nbsp; pace of, say, 50%,&nbsp; in the next year or so; there is still no guarantee that&nbsp; the US current account&nbsp; deficits will be eliminated.&nbsp; In the two years following the 1985 Plaza Accords, the exchange&nbsp; rate of Japanese yen doubled&nbsp; against&nbsp; the US dollar, and yet the US current account&nbsp; deficits against&nbsp; Japan persisted.<br> 4. PBoC data.<br> 5. Bank of International&nbsp; Settlement&nbsp; data.<br> 6. Fortune, July 26, 2010.<br> 7. PBoC data.<br> 8. China Statistical Yearbooks, various years.<br> 9. The regularly reported figures of 40 to 50%&nbsp; of GDP saved in China refer to total national&nbsp; savings, the bulk of which is actually savings by the corporate sector.<br> 10. See the MasterCard&nbsp; MasterIndex of Consumer&nbsp; Confidence,&nbsp; Spending and Savings Priorities.&nbsp;<a href="http://www.masterintelligence.com/">www.masterintelligence.com</a><br> 11. A great deal of policy details will be developed&nbsp; by the two dozen or so ministries and local governments.<br> 12. Recent survey evidence of Chinese urban households' higher propensity to consume&nbsp; is observed in MasterCard's Insights Report Government Stimulus and Consumer&nbsp; Response in China --Implications for Future Growth, 3Q, 2009.<br> 13. In economic terms, this means a less skewed labor-capital ratio, and in the context of a developing economy with low capital stock per capita, marginal returns on capital tend to be higher than&nbsp; marginal returns on labor.<br> 14. Derived from estimates&nbsp; by Feenstra, R.C. and Shang-Jin Wei, 2009,&nbsp; China's Growing Role in World Trade, National Bureau of Economic Research Working Paper.<br> 15. In the coming decade, China's export composition&nbsp; will shift increasingly to capital and knowledge intensive goods as opposed to labor intensive light manufacturing.</p> At its simplest, the global imbalance is seen as a case of China producing/exporting too much and not consuming enough; and the US consuming too much and not saving enough.http://www1.mastercard.com/content/intelligence/en/research/reports/2011/chinas-economic-rebalancing-and-global-implications2011-06-30T16:00:00.000Z2011-06-30T16:00:00.000ZHow Well Do Women Know Their Money: Financial Literacy Across Asia/Pacific, Middle East and Africa How Well Do Women Know Their Money: Financial Literacy Across Asia/Pacific, Middle East and Africa<p>As financial products become increasingly complex and readily available, it is imperative that financial literacy keeps pace. This is especially important for women as they generally outlive men, have shorter working years (mainly due to taking time off to raise children during their peak earning years), and are still earning less than men. This also means that there is a need for women to be financially independent and able to manage their finances.</p> <p>Being financially literate calls for the ability to make well-informed financial decisions and to manage risks not just for themselves as individuals, but for their family (e.g. ability to participate or lead family decisions on home and car purchases/ mortgages, children education funds, retirement planning, etc.), their businesses (e.g. investments, costing and forecasting, etc.), and investments (e.g. assets, financial products, avoidance of bad debts, etc.).</p> <p>This report discusses the results from the MasterCard Worldwide Index of Financial Literacy and demonstrates the importance of work-life experience in acquiring ''financial literacy'' for women. It also highlights the need for targeted financial literacy education to close the gap between the current level of financial literacy and the level it 'should' be at.</p> <p>The Index is based on a survey of 10,502 consumers from 24 markets across Asia/Pacific, Middle East and Africa (APMEA) conducted between 13 September and 11 November 2010, and comprises questions covering three major components:</p> <p>1. Basic Money Management (weighted 50%): To determine the level of basic money management skills in terms of budgeting, savings, and responsibility of credit usage.</p> <p>2. Financial Planning (weighted 30%): To assess the level of knowledge of financial products, services, and concepts, and ability to plan for long-term financial needs.</p> <p>3. Investment (weighted 20%): To determine basic understanding of the various risks associated with investment, different investment products and skills required.</p> <p>A Financial Literacy Index Score for each market was calculated out of the weighted sum of the three components.</p> <p>The following sections summarize the findings, with a brief snapshot of specific markets where women stood out as financially savvy, or were lacking financial literacy skills.</p> <p>Chart 1. Financial Literacy Index&nbsp;- Asia/Pacific</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1financialliteracyindexasiapacific.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart1financialliteracyindexasiapacific.jpg"></a><a href="/content/dam/intelligence/content-assets/reports/chart1financialliteracyindexasiapacific2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart1financialliteracyindexasiapacific2.jpg"></a></p> Asia/Pacific Developed Markets Not Necessarily More Financial Literate than Developing Markets<p>The 2010 survey showed that the level of financial literacy varied across the markets in Asia/Pacific, with scores ranging from a low of 55.9 (Korea) to a high of 73.9 (Thailand). Another result of interest is how women in developed markets do not necessarily demonstrate higher financial literacy over their counterparts in developing markets. Women in Thailand, a developing market, topped the Financial Literacy Index with an index score of 73.9. They also had the highest scores in financial planning (87.0) and investment (69.3), outshining all their peers in Asia/Pacific.</p> <p>Chart 2. Financial Literacy Index&nbsp;- Asia/Pacific: Gender Gap (Female/Male)</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2financialliteracyindexasiapacificgendergap.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart2financialliteracyindexasiapacificgendergap.jpg"></a><a href="/content/dam/intelligence/content-assets/reports/chart2financialliteracyindexasiapacificgendergap2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart2financialliteracyindexasiapacificgendergap2.jpg"></a></p> <p>Meanwhile, women in Korea, a developed country, had the lowest financial literacy score of 55.9 and ranked the lowest in two of the major components: basic money management (51.1) and financial planning (65.7). Korean women had the lowest financial literacy score of 55.9 and ranked the lowest in two of the major components: basic money management (51.1) and financial planning (65.7), while Japan had the lowest investment score (38.4). Only 40% of Korean women polled said they understood the concept of compound interest rates; 36% did not understand the concept; and the remaining 24% were not sure or did not know. This is a cause of concern as most of them would have likely made numerous decisions involving interest rates in their lifetimes such as credit card rates, car and mortgage financing rates, etc.</p> <p>Korean women also had weak financial planning skills, with only 52% realizing the importance of having emergency funds. Only 43% of them had started saving for their retirement. Less than half (45%) of them understood most of the information contained in financial statements. When it came to investments, only 27% understood that diversification of a portfolio of stocks helped to mitigate risk, and just 58% of them regularly monitored their investments. A more startling finding was that only one in five Korean women (22%) had a basic understanding of inflation and its impact on the future value of money. Of concern was the fact that although the majority of Korean women polled were the household financial decisionmakers, most of them had very low financial literacy scores. This suggests that making financial decisions for the household alone does not contribute significantly towards the acquisition of financial literacy skills.</p> Financial Literacy Inculcates Better Financial Planning Habits<p>There is a close correlation between financial knowledge and planning: women who exhibited higher levels of financial literacy were more likely to be proactive in planning for their future. This may be especially true for women in Thailand and Vietnam where they are generally ambitious and self-driven, credit-worthy, and increasingly mobile in terms of migrating to the city areas (e.g. Bangkok in Thailand) to seek employment. For those who remained in the rural areas where informal credit is quite readily accessible, it is not uncommon for them to operate their own small-to-medium (SME) businesses or home-based subcontracting work to supplement family income. Through this, many of them had the opportunity to acquire vital and valuable first-hand entrepreneurial experience and exposure to financial planning and money management concepts.</p> Older and Working Women: Having A Better Grasp of Finance Matters<p>On average, women aged 30 and above who are married and working were more knowledgeable and skilled in terms of long-term financial planning and investment, compared to those who are unmarried and not in the workforce (this was evident for all regions as seen in Chart 2). This was most apparent in Thailand, New Zealand, Australia, Taiwan, Singapore and Vietnam. One explanation for this is that women who have been in the workforce or running their own businesses for a longer time, and who are older, and perhaps had their own families and households to manage would have had made many more financial decisions and acquired more work-life experience over their lifetimes. These could have included familiarity with credit card rates, children's education funds, mortgage financing, household expenditure, regular savings, etc.</p> Asia/Pacific's Financial Literacy Index: Gender Gap (Female/Male)<p>The gender gap scores for the Financial Literacy Index shows how women's financial literacy skills fared against men and is derived by dividing the female financial literacy scores over men's. Chart&nbsp;2 shows that the level of financial literacy among women in Singapore, Taiwan and New Zealand were slightly lower than their male counterparts. In the other markets, the financial literacy of women and men were fairly equal, given that the scores did not deviate from the Gender Parity Line (of 100) too much.</p> Middle East<p>Within the Middle East region, Egyptian women had the highest Financial Literacy Index score (70.2) while women in UAE had the lowest index score of 56.2 (see Chart 3).</p> Good Money Management Habits Among Egyptian Women<p>Chart 4 shows women in Egypt scored the highest in terms of basic money management (72.4) compared to Qatar (71.7) and Saudi&nbsp;Arabia (70.3). A substantial proportion of the Egyptian women respondents (93%) have good budgeting habits for their daily finances, while 89% are able to keep up with their bills and credit commitments. Most of them (76%) are able to set aside money for big item purchases (compared to only 51% for Kuwaiti women), while another 86% keep track of their weekly/monthly spending (compared to just 58% for UAE women). Egyptian women's understanding of compounded interest rates was also the highest&nbsp;- 57% understood the concept compared to 13% in Lebanon.</p> <p>Women in Qatar did fairly well for basic money management (score of 71.7 vs. regional average of 64.7), and financial planning (score of 82.4 vs. regional average of 71.0).</p> Knowledge of Investing: An Area for Improvement among Middle Eastern Women<p>In terms of investment, women in Saudi Arabia had the highest score (54.9), compared to Egypt (54.1) and UAE (48.3). See Chart 5, in particular, their understanding of inflation, future value of money, and risk diversification of investment portfolio were higher than their peers in the Middle East region. Nearly half (43%) answered the question on future value of money correctly compared to only 5% for women in Qatar. More than half (55%) of them answered the question on inflation correctly compared with 5% and 18% for women in Qatar and Egypt respectively.</p> <p>Chart 3. Women's Financial Literacy Index&nbsp;- Middle East&nbsp;</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart3womensfinancialliteracyindexmiddleeast.jpg"><img src="/content/dam/intelligence/content-assets/reports/chart3womensfinancialliteracyindexmiddleeast.jpg"></a></p> <p>Chart 4. Women's Basic Money Management Component&nbsp;- Middle East</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart4womensbasicmoneymanagementcomponentmiddleeast.jpg"><img src="/content/dam/intelligence/content-assets/reports/chart4womensbasicmoneymanagementcomponentmiddleeast.jpg"></a></p> <p>However, in comparison with markets in Asia/Pacific and Africa, the women in Middle East had the lowest investment score (48.3 compared to 56.7 for Asia/Pacific and 49.4 for Africa). In fact, for each of the three APMEA regions, the average regional score for investment was the lowest among the three financial literacy components.</p> <p>With the exception of Saudi Arabia, the gap in financial literacy between men and women in all the Middle East markets was small, suggesting that both men and women had fairly equal financial literacy. See Chart 7.</p> <p>Chart 5. Women's Financial Plannning Component - Middle East</p> <p><b><a href="/content/dam/intelligence/content-assets/reports/chart5womensfinancialplannningcomponentmiddleeast.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart5womensfinancialplannningcomponentmiddleeast.jpg"></a></b></p> <p>Chart 6. Women's Investment Component&nbsp;- Middle East</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart6womensinvestmentcomponentmiddleeast.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart6womensinvestmentcomponentmiddleeast.jpg"></a></p> <p>Although women in Saudi Arabia ranked third overall with a Financial Literacy Index of 68.5 (trailing Egypt and Qatar), when compared to their male counterparts, their level of financial literacy was markedly higher, as indicated by the gender gap score of 120.</p> <p>Chart 8 shows Saudi Arabia, women scored much higher than their male counterparts, especially in basic money management and financial planning, where the gender gap score was 128.0 and 115.8, respectively.</p> <p>Chart 7. Financial Literacy Index&nbsp;- Middle East: Gender Gap (Female/Male)</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart7financialliteracyindexmiddleeastgendergap.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart7financialliteracyindexmiddleeastgendergap.jpg"></a></p> <p>Chart 8. Financial Literacy Index&nbsp;- Saudi Arabia: Gender Gap (Female/Male)</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart8financialliteracyindexsaudiarabiagendergap.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart8financialliteracyindexsaudiarabiagendergap.jpg"></a></p> <p>&nbsp;</p> Africa<p>Within Africa, Nigerian women had the highest overall Financial Literacy Index score of 65.5 (Chart 9). In terms of basic money management and investment, Nigerian women scored the highest among their peers. They had the second highest score for financial planning among African markets and actually performed better than most of the Asia/Pacific markets (New Zealand, Malaysia, Korea, Japan, India, Hong Kong, China and Australia), and Middle East markets (Egypt, Kuwait, Lebanon, Saudi Arabia and United Arab Emirates) as well.</p> <p>Women in Kenya fared most poorly, with an overall Financial Literacy Index of just 50.3, the lowest among all the three regions. This was mainly due to their lack of knowledge and skills in basic money management (score of only 40.6). In particular, they had little understanding of interest rates and the use of unsecured loan facilities, which typically carry very high interest rates.</p> <p>Women in Morocco also had a poor financial literacy score (index score of 56.2). This lack of knowledge was most pronounced in their basic investment skills and understanding. The index score of 38.0 was the lowest among all the three regions. Only 4 in every 10 women weighed out financial products prior to a purchase, and less than 2 in 10 monitored their investment on a regular basis. Only 2 in every 10 women had a proper basic understanding of inflation.</p> Nigerian Women Learning by Necessity<p>For many years, women in Nigeria have been the most vulnerable cohort bearing the brunt of the nation's underdevelopment. Frequently denied access to micro credit, they were forced to find their means of living in the informal economy where interest rates charged were usually much higher. Today, the majority of Nigerian women work as micro agro-entrepreneurs, and although they do not earn much, they are relatively literate financially due to their business and work; this is profoundly evident in the survey results.</p> <p>In terms of basic money management, 86% of them had good budgeting skills, more than half (53%) were able to set aside money for bigitem purchases, and 77% were prudent in tracking their weekly/monthly spending. Majority (91%) of the respondents understood that financial planning was not only for the rich; 93% realized it was important to start financial planning early; and 97% believed in saving on a regular basis. With regards to investment, Nigerian women had a fairly good understanding of financial statements (68%), the importance of product comparison (77%), and good investment monitoring habits (81%). However, they had a weaker understanding of portfolio diversification (42%) and inflation (41%).</p> <p>Chart 9. Financial Literacy Index&nbsp;- Africa</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart9financialliteracyindexafrica.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart9financialliteracyindexafrica.jpg"></a></p> Africa Financial Literacy Index: Gender Gap (Female/Male)<p>African women generally had lower financial literacy than men in the region. However, given that the gender gap scores were close to the Gender Parity Line, it suggests that women and men were more or less equal in terms of financial literacy.</p> <p>Chart 10.&nbsp;Financial Literacy Index&nbsp;- Africa: Gender Gap (Female/Male)</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart10financialliteracyindexafricagendergap.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart10financialliteracyindexafricagendergap.jpg"></a></p> <p>If being older, being married or being employed are reasonable proxies for having more work-life experience than being younger, being unmarried and not being employed, then judging from the higher financial literacy scores of married, older or working women in most of the 24 markets, it is reasonable to suggest that women with more work-life experience tend to be more financially literate.</p> <p>Chart 11. Women's Financial Literacy Index: By Age&nbsp;</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart11womensfinancialliteracyindexbyage.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart11womensfinancialliteracyindexbyage.jpg"></a></p> <p>Chart 12. Women's Financial Literacy Index: By Age</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart12womensfinancialliteracyindexbyage.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart12womensfinancialliteracyindexbyage.jpg"></a></p> <p>Chart 13. Women's Financial Literacy Index: By Age</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart13womensfinancialliteracyindexbyage.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart13womensfinancialliteracyindexbyage.jpg"></a></p> <p>In comparing the Financial Literacy scores of working versus non-working women, in general, working women did better. Hong Kong, Kuwait and UAE were the only exceptions.</p> <p>Chart 14. Women's Financial Literacy Index: By Work Status</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart14womensfinancialliteracyindexbyworkstatus.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart14womensfinancialliteracyindexbyworkstatus.jpg"></a></p> <p>Chart 15. Women's Financial Literacy Index: By Work Status</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart15womensfinancialliteracyindexbyworkstatus.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart15womensfinancialliteracyindexbyworkstatus.jpg"></a></p> <p>Chart 16. Women's Financial Literacy Index: By Work Status</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart16womensfinancialliteracyindexbyworkstatus.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart16womensfinancialliteracyindexbyworkstatus.jpg"></a></p> <p>In comparing the Financial Literacy scores of married versus unmarried women, in general, working women did better. China, Japan, Kuwait, Lebanon and Kenya were the only exceptions.</p> <p>Chart 17. Women's Financial Literacy Index: Married/Unmarried</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart17womensfinancialliteracyindexmarriedunmarried.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart17womensfinancialliteracyindexmarriedunmarried.jpg"></a></p> <p>Chart 18. Women's Financial Literacy Index: Married/Unmarried</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart18womensfinancialliteracyindexmarriedunmarried.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart18womensfinancialliteracyindexmarriedunmarried.jpg"></a></p> <p>Chart 19. Women's Financial Literacy Index: Married/Unmarried&nbsp;</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart19womensfinancialliteracyindexmarriedunmarried.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/chart19womensfinancialliteracyindexmarriedunmarried.jpg"></a></p> The Roadmap Ahead<p>The need to improve financial literacy among women should not be underestimated. The survey has shown how varied the level of financial literacy is across the markets in Asia/Pacific. In the same region, it is also evident how the level of development in each market does not necessarily reflect the level of financial literacy as shown by the highest (Thailand) and lowest (Japan, Korea) scoring markets on the index. Although the Middle East markets scored well in general, the lower scores of Lebanon (61.8), UAE (56.2) and Kuwait (58.0) indicate that there is room for improvement. The situation is similar among the African markets (with the exception of Nigeria (65.5)); Kenya (50.3), Morocco (56.2) and South Africa (61.1).</p> <p>One possible way to improve financial literacy among women is through targeted financial literacy education, as opposed to general education in schools. If general education has been improving over time, then clearly general education is insufficient, else we would have expected the scores of women under 30 to be better those of women over 30. The higher scores of women over 30 (and married versus unmarried women; and working versus non-working women) suggest that financial literacy is generally acquired more through work-life experience in terms of running a business, getting a mortgage, working, and even just acquiring these skills with age and experiences. If this is so, then there is a clear gap for targeted financial literacy education to fill.</p> As financial products become increasingly complex and readily available, it is imperative that financial literacy keeps pace. This is especially important for women as they generally outlive men, have shorter working years (mainly due to taking time off to raise children during their peak earning years), and are still earning less than men.http://www1.mastercard.com/content/intelligence/en/research/reports/2011/how-well-do-women-know-their-money-financial-literacy-across-asiapacific-middle-east-and-africa2010-12-31T16:00:00.000Z2010-12-31T16:00:00.000ZSingapore Inflation Expectations: Expecting the Unexpected Aurobindo Ghosh, Jun YuForeword from Singapore Management University<p>The study of inflation expectations of Singapore house-holds is a multi-disciplinary industry-relevant research that &nbsp;comes out of a partnership &nbsp;between &nbsp;Singapore Management University (SMU), which prides itself to be a University for the world of business and management, and a truly iconic corporate institution –– MasterCard. The research team for this MasterCard-SKBI Singapore Index of Inflation Expectations (SInDEx) project applied rigorous methods &nbsp;using current internet-based marketing survey tools for data-collection and advanced econometric techniques to analyse the data. The updates &nbsp;from the quarterly waves are keenly followed by policymakers, market watchers and the media because of the enormous importance of cost of living to individuals and businesses alike.</p> <p>The inflation expectations &nbsp;measured &nbsp;are perceptions of future average rise in prices over a medium term of one year or a long term of five years. Policy-makers in central banks around the world, while formulating their monetary policies, keep a keen eye on the inflation expectations, among other things. Even then, &nbsp;their projections are mostly based &nbsp;on the &nbsp;expected &nbsp;rise in prices of a fixed basket of goods and services at current &nbsp;or prevailing prices, popularly termed as ‘Consumer Price Index Inflation’ or ‘CP I Inflation.’ This usually proxies for the future rise in overall prices to enable policymakers to decide on their monetary policy to keep prices stable while at the same time encouraging growth and generating employment.</p> <p>One of the biggest challenges for policymakers &nbsp;is to ascertain the inflation expectations of households before and after any policy statement is made. While the experts have access to vast levels of macroeconomic data to formulate informed opinions about inflation expectations, for the common man who has to make&nbsp;purchasing decisions as unprecedented levels of global economic uncertainty unfolds, the reality can be quite different. Our research at SMU-SKBI brings out the nature and influences of such individuals’ inflation expectations from cross sections of Singaporean households.</p> <p>The early results are indeed fascinating in terms of both response and predictability which lay testament to how informed the &nbsp;Singaporean &nbsp;households &nbsp;are and how grounded &nbsp;they are in forming their inflation expectations. It also brings out the effectiveness of our methodology that is founded upon rigorous multi-disciplinary research expertise by SKBI researchers. Lastly, this would not have been possible without the generous support from MasterCard, and the constant efforts of MasterCard and SMU teams in disseminating the research results to the public-at-large through quarterly updates to the media.</p> <p>I would like to take this opportunity to extend my sincere thanks &nbsp;and &nbsp;offer a toast &nbsp;to &nbsp;President Vicky Bindra and his team from MasterCard for their strong support &nbsp;towards &nbsp;this unique partnership &nbsp;that &nbsp;brings about &nbsp;the true spirit of a community in this cycle of knowledge creation.</p> <p>Professor Arnoud De Meyer<br> President<br> Singapore Management University</p> <p></p> Foreword from MasterCard<p>It has been &nbsp;a year since MasterCard &nbsp;and the Singapore Management University (SMU) jointly launched the Singapore Index of Inflation Expectations. The objective of establishing the Index was to provide valuable insight into the behaviour and sentiments of household decision makers in Singapore. This collaboration affirms MasterCard's commitment to researching, &nbsp;understanding and forecasting &nbsp;consumer behaviour that &nbsp;will in turn contribute to more effective and successful monetary &nbsp;policy management in Singapore, with far-reaching &nbsp;benefits to the business and household sectors in the years to come.</p> <p>This past year, MasterCard &nbsp;has developed a strong and collaborative partnership with the team &nbsp;at SMU as we worked &nbsp;closely to release this important piece of research &nbsp;on a quarterly basis. Owing to the relevance of this analysis to both businesses and individuals alike, we have been approached and referenced by multiple media, research analysts and other industry experts –– a sure sign of the growing influence of this Index.</p> <p>Looking back, 2012 &nbsp;presented a number &nbsp;of economic challenges and milestones, including the Euro-zone crisis, rising inflationary conditions in China and persistent &nbsp;unemployment in western &nbsp;markets. All this and more led to a year characterised by global economic uncertainty.&nbsp;Amidst such changes in the economic environment, the Singapore Index of Inflation Expectations remained an accurate barometer forecasting inflation expectation amongst consumers in Singapore. Notably, the Index provided a snapshot of how Singapore consumers are affected by both the domestic economy as well as changing global economic conditions. The Index showed us that Singaporean consumers were at times troubled by uncertainty in the&nbsp;global economic environment, however, for the most part &nbsp;they remained &nbsp;cautiously optimistic in light of the resilience of Singapore's &nbsp;economy.</p> <p>Over the years, MasterCard &nbsp;has dedicated significant resources to developing a deeper &nbsp;understanding of the business and economic &nbsp;dynamics that &nbsp;shape the &nbsp;region, &nbsp;as well as the &nbsp;fast-evolving Asian consumer market, &nbsp;through surveys and independent research studies. In the process, we have built a robust knowledge and insights platform, adding value through the &nbsp;continuation of cutting &nbsp;edge &nbsp;research but also through the &nbsp;sharing of knowledge in new areas.</p> <p>As we enter 2013, &nbsp;we are excited to continue &nbsp;our fruitful relationship with Singapore Management University.</p> <p>Vicky Bindra<br> President<br> Asia/Pacific, Middle East &amp; Africa<br> MasterCard &nbsp;Worldwide</p> <p></p> Singapore Inflation Expectations: Expecting the Unexpected<p>Aurobindo Ghosh and Jun Yu<br> Sim Kee Boon Institute for Financial Economics<br> Singapore Management University<br> 27 December 2012</p> Abstract<p>The slowdown in the post Global Financial Crisis (GFC) has meant soaring unemployment in the US and Euro-zone periphery economies compared to historical standards. &nbsp; This in &nbsp;turn &nbsp; has &nbsp;sent &nbsp; warning &nbsp; signals &nbsp;to policymakers around the world. Having learnt hard lessons from prolonged periods of slump after the Great Depression, some central banks in the developed world adopted &nbsp; expansionary &nbsp;monetary &nbsp;policy and &nbsp;implemented several rounds of stimulus spending termed as Quantitative Easing to spur productive activities in a period of declining demand. While it had mixed successes in generating demand and lowering unemployment in the US and Eurozone, small open economies like Singapore &nbsp;became &nbsp;susceptible to inflationary pressures from different fronts.</p> <p>First, with sound monetary and fiscal policy and a strong balance sheet, Singapore has become an investment for discerning investors and employment destination for talented &nbsp;and qualified professionals. Second, being a city-state with only urban population and limited space both &nbsp;real estate &nbsp;sector and private transportation cost have elevated. Finally, imported inflation and “hot money” have flown to Singapore with an ensuing upward pressure on prices. Consequently, policymakers have an unenviable task of balancing the dual mandate &nbsp;to maintain low unemployment and price stability.</p> <p>Since September 2011, we have interviewed 400 randomly selected individuals quarterly across the cross section of the Singapore society to ascertain their expectations of inflation in both medium and long term. This is intended to help policymakers &nbsp;(a) to anchor inflation expectations in line with their adopted monetary policy through exchange rates, (b) to fathom the effectiveness of communications and (c) to influence informed decision making by Singaporean households.&nbsp;We found that using an innovative internet based survey we can identify the inflation expectations of the individuals in the short duration. It turns out the one-year-ahead predicted quarterly Headline Inflation rate of 4.68% &nbsp;is closer to the realised CPI-All Items inflation rate of 4.2% than even the Survey of Professional Fore-casters who predicted 2.8%. &nbsp;Currently, the one-year- ahead Headline Inflation rate of 4.37% &nbsp;(CPI All Items) is slightly lower than &nbsp;the &nbsp;composite &nbsp;weighted &nbsp;SKBI- MasterCard Singapore Index of Inflation Expectations (SInDEx1) of 4.4% collected in December 2012.</p> <p></p> Inflation and the World<p>Post Global Financial Crisis (GFC) the world economy has been going through a prolonged economic slump reminiscent of the phase of slow or no growth &nbsp;after the Great Depression in the 1930s. Western economies had to wait for the Second World War reconstruction in 1940s to get back on the fast track to recovery. The lessons learned from the past crises in Asia and the West prompted &nbsp;policymakers, particularly in the &nbsp;US Federal Reserve Board, the European Central Bank and the &nbsp;Bank of Japan, &nbsp;to &nbsp;be &nbsp;proactive. &nbsp;They have &nbsp;responded &nbsp;to an impending crisis in the best way they knew through prolonged periods of expansionary monetary &nbsp;policies. However, Federal Reserve Board Chairman Ben Bernanke (at the Monetary Economics Workshop of the &nbsp;National Bureau of Economic Research Summer Institute, Cambridge, Massachusetts, July 10, &nbsp;2007) &nbsp;had &nbsp;reemphasised &nbsp;that &nbsp;most &nbsp;central banks work under the dual mandate &nbsp;of price stability and employment &nbsp;generation. &nbsp;So while expansionary monetary policy might be good for growth and lowering unemployment, &nbsp;the adverse impact on inflation is often a cause of concern.</p> <p>With an ongoing slowdown in the Western economies or the &nbsp;so called G3 (US, Eurozone and Japan) and consequently, plummeting world demand, inflation is currently not rampant throughout the world but only some pockets, particularly in some sectors in the emerging world including China and India. In fact, inflation was at a very ebb in the US, Europe, China and India as recently as August 2012, recording the lowest levels in the post GFC period. Naturally, the policymakers had to shift their attention to other more serious part &nbsp;of &nbsp;their &nbsp;mandate &nbsp;vis-à-vis &nbsp;employment generation. In the same period, the embattled Euro-zone periphery economies like Spain and Greece were looking down with nearly one out of every four of their employable population &nbsp;out of jobs and a staggering 50% youth unemployment. In the US, the country was facing unprecedented 8% unemployment nearly into their fourth &nbsp;year with a historic average &nbsp;of around 5.8% &nbsp;since 1948. &nbsp;The US unemployment &nbsp;number turned out to be pretty persistent despite near zero interest rate along with strong communication from the US Federal Reserve Boards’ Federal Open Market Committee (FOMC) about their stance of holding the rates low in the foreseeable future until around &nbsp;middle of 2015.</p> <p>With traditional monetary policy doing little to assuage the persistent unemployment rate, the US Federal Reserve Chairman Ben Bernanke decided for the most recent round of stimulus package termed as QE3 or quantitative easing to buy back Mortgage &nbsp;Backed Securities in the order of US$40 billion per month. This would shore up the banks’ balance sheets to enable them to lend more aggressively until unemployment reduces significantly below current &nbsp;rates. &nbsp;In the &nbsp;same note the European Central Bank (ECB) president Mario Draghi had previously announced &nbsp;the so called OMT (Outright Monetary Transactions) to enable the ECB to buy back unlimited quantities &nbsp;of troubled &nbsp;Eurozone Government bonds in the secondary market. This would reduce the cost of borrowing money for these governments which in turn is aimed at spurring growth to facilitate Eurozone’s struggling economies to get out of the current economic quagmire. In the world’s third largest economy, Bank of Japan facing an imminent slowdown &nbsp;in production &nbsp;and &nbsp;growth &nbsp;also contemplated further stimulus plans through aggressive easing of their monetary policy. Inflation was of little less concern than &nbsp;a possible cycle of deflation that &nbsp;plagued Japan, and the spectre of a lost decade of no growth might continue was definitely in the mind of the policymakers.</p> <p>The effectiveness of such expansionary policies together with other macro-prudential measures is often mixed. On the positive side we have observed that current unemployment rate in the US has unexpectedly climbed down to around 7.7% &nbsp;in November 2012 while countries like Spain now face a lower interest rate in borrowing for the financial market. While on</p> <p>the other hand, US was looking at a possible “fiscal cliff” (or a “fiscal slope”with 11th hour legislation) of US$600 billion from government &nbsp;coffers in spending cuts and expiry of tax reductions which can drive the US economy from a fledging growth to recession. This is compounded by Eurozone economies already tottering near the brink of double or triple-dip recession with no &nbsp;end &nbsp;in sight to &nbsp;persistently high unemployment rates.</p> <p>Such expansionary &nbsp;policies popularly termed &nbsp;as “printing money” meant for encouraging growth and hence reducing unemployment could have an adverse consequence &nbsp;on inflation. The inflation that such availability of the &nbsp;freshly minted &nbsp;so called “hot &nbsp;money” generates could have an unintended consequence across the globe, in particular, in small open economies like Singapore. Loose monetary policy would tend to reduce the value of that currency and make its exports more competitive to the outside world. At the same time such policies will also make the &nbsp;foreign goods more expensive hence spur the demand &nbsp;for domestically produced and sourced goods, giving the right fillip to the local economy. However, countries that are export-oriented &nbsp;and have to import a lot of their consumables have to face imported &nbsp;inflation in a world of “easy money” or excess liquidity. With capital mobility the &nbsp;world over and &nbsp;exceptionally low interest rates, policymakers have an arduous task to control inflation when &nbsp;the &nbsp;priority of &nbsp;unemployment &nbsp;has &nbsp;been &nbsp;addressed.</p> <p></p> Impact of the Region<p>Inflation has been a thorny issue until very recently in several economies in the region including the regional block ASEAN. Inflation rates in Vietnam are hovering around a historical average of about 7%. However, it has gone up slightly from a recent low of 5% but definitely much lower than near 20% inflation just around a year back. The fluctuation has been quite high over the last couple of years of turmoil in the banking sector. Australia has been quite resilient in terms of inflation and has hovered around 2%, of their two year high of 3.6% but definitely higher than near 1% in July this year. Indonesia has a stable 4.6 % latest in October 2012, off from its two year high of about 7%. China was at their historic low at 1.7% in October off from near 6.5% about 2 years back. Further with a&nbsp;Flash PMI in China going over 50 in a recent survey by HSBC, they seem to show a positive outlook. US Inflation has also been a low of about 1.7% before a slight spike after the announcement of latest stimulus. The CPI-All Items Inflation Singapore has dropped to 3.6% in November 2012 from around 4% a month before.</p> Inflation in Singapore<p>Singapore is unique in several different ways. In an increasingly globalised world, Singaporean policymakers also face an uphill task on one hand to ensure full employment and on the other hand to provide price stability. Singapore headline inflation could be attributed to both increase in real estate and private transportation, and &nbsp;structurally due &nbsp;to increase in rentals and wages affecting the cost of doing business. Such costs more often than not get passed through &nbsp;to the consumers. Since the inception of the Singapore Index of Inflation Expectations (SInDEx) &nbsp;launched &nbsp;in January&nbsp;2012, there have been several quarterly updates &nbsp;that were &nbsp;released &nbsp;to the &nbsp;media and &nbsp;public that &nbsp;gave a unique insight to the psyche of the Singaporean household. It also helped the researchers to fine tune the questions to identify the source of uncertainties and expectations among the responding public.</p> <p>The main challenge in a small open economy like Singapore with sound policy and economic base is imported inflation. Furthermore, a tight monetary policy to accommodate &nbsp;for the &nbsp;imported &nbsp;inflation coupled with &nbsp;worsening &nbsp;investment &nbsp;climate &nbsp;elsewhere &nbsp;has made Singapore a coveted investment destination with an appreciating currency. The policymakers have an unenviable job to maintain price stability given that they have already addressed unemployment issues remarkably well through a downturn &nbsp;in the global economy. In the short run, besides imported inflation increasing wages and rental costs and consequent increase cost of doing business will probably maintain an upward pressure on inflation. On a brighter side, this might ease somewhat with an improving consumer confidence and sentiment in the emerging markets, in particular China in &nbsp;2013, &nbsp;and &nbsp;recovering conditions though nascent in developed markets like the US.</p> <p>Investors are becoming savvier by the day with increasing access to information, financial services and advice. They are also wary of the unlimited horizon&nbsp;easy monetary policy in the Western economies including comments and action by Ben Bernanke and Mario Draghi, to do whatever &nbsp;it takes to improve business conditions and growth. &nbsp;In fact, more recently Nobel laureate Paul Krugman, among others, termed it “QE Infinity” because of the unlimited horizon of the Fed’s action (for excerpts of Paul Krugman delivering his SKBI Public &nbsp;Lecture &nbsp; visit &nbsp;http://skbi.smu.edu.sg/events/&nbsp;2012/11/07/skbi-public-lecture-nobel-laureate- paulkrugman). However, there could be two direct unintended consequences of the low interest rate regime into foreseeable future for open Asian economies like Singapore.</p> <p>First, there could be flight to quality investment in Asia including Singapore. We would like to call this attracting “smart money” and not just “hot money” into the region. This will probably cause run up in real estate prices in the short run when housing supply cannot go up. Second, a more subtle but more damaging consequence &nbsp;is the decrease in purchasing power or to be precise, the real interest rate. The genesis of such a problem lies with the possibility of unhinged long term inflation expectations. A low nominal interest rate together &nbsp;with a moderate &nbsp;to high actual inflation rate might cause a decrease in purchasing power, and affect retirees or other &nbsp;investors particularly ones &nbsp;depending only on fixed income securities like long term bonds.</p> <p></p> Cost of Living<p>As a city state, &nbsp;Singapore is at a privileged position both geographically and historically. In fact, a recent forward looking if not a perfectly rigorous academic survey by the Economist Intelligence Unit (part of The Economist team) puts Singapore at no. 6 globally on its where-to-be-born in 2013 index. It highlights a comment made by world’s &nbsp;best known investor Warren Buffet’s claiming that he was born in the right country (US) and at the right time (1930s) when asked about why good things happened to him (The lottery of life: Where to be born in 2013, The Economist, Nov 21,</p> <p>2012). Incidentally, Switzerland &nbsp;is ranked first while US&nbsp;and Germany are tied at 16th position in the same index (after being first and third respectively in the inaugural Where-to-be-born survey in The World in 1988) that takes into account not just wealth but life expectancy, civil society, safety and security as well. The liveability coupled with investment and work destination of talented &nbsp;professionals possibly did come at a slight cost… the cost of living increase. It probably is likely to be in the eye of a perfect storm with a floundering global growth, unemployment spikes in the US and the Eurozone, and consequent &nbsp;regulations in the banking and financial sector. This might have led to a significant exodus from the Eurozone and the US. Furthermore, &nbsp;a growing and outward &nbsp;looking educated middle class in India and China and an attractive business and living environment in Singapore.</p> <p></p> Singapore Inflation Expectations<p>MasterCard-SKBI survey of Singapore Index of Inflation Expectations &nbsp;(SInDEx) &nbsp; started &nbsp; in &nbsp;September &nbsp; 2011 where approximately 400 participants were interviewed online with questions on their demographic details, household activities and perceptions on current and &nbsp;future &nbsp;economic and &nbsp;investment environments. The first two quarterly waves of the SInDEx Survey was analysed and presented &nbsp;at the official launch of the Singapore Index of Inflation Expectations (SInDEx) on January 10, 2012. The quarterly surveys reflected the adaptive expectations of various individuals in Singapore vis-à'vis their role as informed decision makers of the household. &nbsp;In particular, the initial surveys highlighted the nature of the characteristics that seem to influence the composite inflation expectations of individuals including economic awareness, long term horizon and exposure to media (cf. Singapore Consumers’ Inflation Expectations and Creation of Singapore Index of Inflation Expectations by A. Ghosh and J. Yu, 2011).</p> <p>We proposed two new index measures of inflation expectations, namely, the one-year-ahead &nbsp;SInDEx1 and the &nbsp;five-year-ahead &nbsp;SInDEx5. &nbsp;SInDEx1 &nbsp;is an &nbsp;equally weighted average of Headline (CPI-All Items) Inflation, Core Inflation (without Food and Energy related expenses) and finally, the Singapore Core (without the Accommodation and private transportation related costs). While the preliminary results were encouraging, the subsequent waves of the survey provided nothing short of a revelation. In particular, the Headline (closely related to the CPI-All Items, Figure 1 blue solid line with diamonds) Inflation and the composite one-year-ahead Sin- gapore Index of Inflation Expectations (SInDEx1, Figure&nbsp;1 purple dotted line with crosses) seem to closely track the movements of the prevailing 2012 Inflation forecast (Figure 1 Orange broken line) better &nbsp;than &nbsp;the earlier consensus forecast of the MAS Survey of Professional Forecasters (Figure 1, red line with rectangles). In fact, the first release of one-year-ahead headline inflation expectations of September 2011 of 4.68 is almost oracle- like with an ultimate realisation of 4.7% year on year. However, upon closer scrutiny, the just released third quarter value of CPI-All Items inflation is at 4.2% which is indeed fairly close to the projected inflation expectations of 4.68%. &nbsp;In the same period, the consensus median forecast for 2012 by the MAS Survey Professional Forecasters in September &nbsp;2011 &nbsp;was at &nbsp;2.8% &nbsp;nearly 50% lower than the realised outcome.</p> <p>To the best of our knowledge, the MasterCard-SKBI SInDEx survey &nbsp;is the first of its kind in the region. Hence, unfortunately we do not have a good comparison benchmark. In order to compare, we cite the example of the Consumer Confidence Inflation Rate Expectations&nbsp;12 Month Hence surveys conducted by The Conference Board in the US. The survey reported that the 12-month ahead rate dipped from a high of 6% in end August to 5.6% in end November 2012. These inflation expectations are consistently too high compared to the actual CPI inflation rate of 2.16% in October 2012 or for that matter, the actual CPI inflation of 1.7% recorded in August 2012. The Survey of Professional Forecasters published by the &nbsp;Federal Reserve Bank of &nbsp;Philadelphia calculated a consensus CPI Inflation &nbsp;forecast of 2.2% in the last quarter of 2012 which is substantially less than the 5.6% &nbsp;projected by current The Conference Board survey. It is a conventional wisdom that inflation expectations based on surveys reflect sentiment in the market and possibly overestimate the actual inflation rates unlike the inflation expectations backed out from the yield of Treasury Inflation Protected Securities (TIPS). (Source: 2012 Fourth Quarterly Survey of Professional Forecasters, Federal Reserve Board of Philadelphia, Aug 10, 2012, &nbsp; http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional- forecasters/2012/survq412.cfm &nbsp;and &nbsp;The Conference Board Consumer Confidence Inflation Rate Expectations 12 Month Hence, Bloomberg, http://www.bloomberg. com/quote/CONCINFL:IND).</p> <p>One-year-ahead SInDEx1 inflation expectations indices suggest that while it is quite responsive to communications by the &nbsp;policymakers, &nbsp;we find that &nbsp;the&nbsp;inflation expectations did not react excessively to short term fluctuations in the external market including food and oil price supply shocks due to turmoil in the Middle East or short term food inflation. It did, however, react with a slight dip in response &nbsp;to a tightening &nbsp;of the monetary policy through a steeper slope of the band of trade &nbsp;weighted &nbsp;exchange &nbsp;rate &nbsp;announced &nbsp;by MAS. This implies that at least in the medium term the infla- tion expectations measured by the composite inflation index &nbsp;(SInDEx1, &nbsp;Figure 1: &nbsp;Purple &nbsp;dotted &nbsp; line &nbsp;with crosses) seem to be fairly well “anchored” around the&nbsp;4.5% mark, the upper end of the projected band communicated &nbsp;by MAS. It did, however, increase slightly with supply shortages &nbsp;of Certificates of Entitlements (COE) affecting private car prices and increase in demand &nbsp;for &nbsp;private &nbsp;accommodation. &nbsp; Consistent &nbsp;with such expectations in the current December 2012 issue of recent developments of the economy, MAS economists expect that for the year 2012 the inflation rate will come out to a little higher than 4.5%. In the latest wave of the survey in December 2012, the one-year- ahead inflation expectations of the headline (or CPI-In- flation) &nbsp;rate &nbsp; is &nbsp;at &nbsp; 4.37% &nbsp; &nbsp;while &nbsp; the &nbsp; composite one-year-ahead &nbsp; inflation &nbsp;expectations &nbsp;index &nbsp;fell to 4.4%, &nbsp; down &nbsp;from &nbsp;the &nbsp;previous &nbsp;quarter’s &nbsp;high &nbsp;of 4.57%.</p> <p><a href="/content/dam/intelligence/content-assets/reports/SingaporeInflationExpectations.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/SingaporeInflationExpectations.jpg"></a></p> <p>While the one-year-ahead &nbsp;headline inflation expectations seem to be more or less anchored, &nbsp;the &nbsp;five- year-ahead &nbsp;one &nbsp;is still suffering from excessive uncertainty emanating &nbsp;from the bleak global macro- economic outlook where the risks of a global economic slowdown are described as “alarmingly high”(World Economic Outlook, IMF Publications, October 2012).&nbsp;Although the five-year-ahead headline inflation rate elevated from 5.37 to 5.56% &nbsp;(Figure 2, in solid blue and blue diamonds) from the second to the third quarter of 2012, the weighted composite five-year-ahead Singapore Index of Inflation Expectations (SInDEx5, Figure 2, in dotted &nbsp;purple with crosses) only inched up from 5.08% &nbsp;to 5.24% &nbsp;indicating there is some level of stabilisation in the expectations even under severe global economic uncertainty. This is furthered bolstered by a substantial easing of the five-year-ahead headline inflation expectations &nbsp;of 5.21%, &nbsp;and &nbsp;a lowering of the composite five-year-ahead inflation expectations (SIn- DEx5) of 4.97% &nbsp;in the latest wave of the SInDEx Survey in December 2012.</p> <p><a href="/content/dam/intelligence/content-assets/reports/SingaporeInflationExpectations2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/SingaporeInflationExpectations2.jpg"></a></p> <p>However, the level five-year-ahead inflation expectations might still be an object of concern for policy-makers and needs &nbsp;some level of communication including a strong stance at putting controlling inflation in the forefront of the policy framework so as to anchor the long term inflation expectations along with the medium term one. In the absence of a benchmark we focus on the MAS Survey of Professional Forecasters projection for 2013, and observe that the five-year-ahead inflation expectations are indeed dominating the 2013 &nbsp;economic forecasts even though &nbsp;SPF inflation projects have an upward trajectory (Figure 2, red solid line with small boxes). Such future expectations of inflation in a period of record low fixed interest inevitably moves to the negative real rate of return on investment in such assets or in other &nbsp;words a steady erosion of purchasing power.</p> <p>The one-year-ahead Singapore core inflation rate (Figure 1, green solid line with triangles) is, without accommodation and private transportation &nbsp;in the SInDEx survey 4.67% &nbsp;in September 2011. This is significantly higher than 2.4%, the actual figure published by MAS. While there is no obvious reason for such an overestimation, we can conjecture some contributing factors. First, it is possible that respondents &nbsp;might be biased by the price changes of frequently purchased items that they have made in the recent past and ignoring less frequent purchases like the big ticket items (sometimes termed as the “frequency bias”). This would mean that individuals might &nbsp;expect &nbsp;higher &nbsp;inflation rate &nbsp;even though general price levels (excluding accommodation and private transportation) have not increased as much but food items, which form a small portion of their budget, &nbsp;has &nbsp;increased &nbsp;substantially. Second, &nbsp;media might have had a role to play in highlighting price increases in real estate and private transportation, &nbsp;which in turn might have had a knock on effect on inflation perception. Finally, there might have been some expectations of imported inflation that in reality was dampened &nbsp;by an &nbsp;appreciating Singapore dollar. Similar effects might have also transpired in the five-year- ahead Singapore core inflation expectations (Figure 2, green line with triangles) that the survey indicates &nbsp;is at&nbsp;5% annual rate. Having said that, a recalibration might be needed to compare the actual numbers but any systematic bias would potentially be attenuated &nbsp;for a composite index obtained through weighting different indices, for example, the SInDEx1 and SInDEx5.</p> <p></p> Conclusion<p>There are three &nbsp;major challenges or pitfalls facing a central banker. First, one of the biggest challenges facing a policymaker is the possibility of “unhinged” inflation &nbsp;expectations &nbsp; that &nbsp; might &nbsp;be &nbsp;fuelled &nbsp;by &nbsp;mass hysteria or irrational exuberance. &nbsp;Second, the &nbsp;other policy challenge is the possibility of a deflationary cycle that &nbsp;engulfed &nbsp;a G3 country like Japan and meant &nbsp;a long period of recession or no growth as seen in the&nbsp;1990s. Finally, the third one is a period of stagflation seen in the US in late ‘70s early ‘80s where the period is marked by both stagnation &nbsp;and inflation. Many of the western economies are suffering from prolonged period of high unemployment owing mainly to lack of demand &nbsp;or very low new job creation. This has put a downward &nbsp;pressure in inflation and the second scenario has become a real possibility. Hence policymakers have chosen the path of stimulating the economy at the expense of some level of inflation which might be beneficial to the growth of the economy.</p> <p>Having gone &nbsp;through &nbsp;a significant period &nbsp;of restructuring themselves post the Asian Financial Crisis, the export driven Asian Economies outside Japan were less affected by rampant unemployment like the West but had a dip in the demand &nbsp;from the west and imported (or some pockets in domestic markets in India and China) inflation due to record low interest rates. Hence, many of the central banks could not adopt &nbsp;a very expansionary policy but a measured tightening to shore up consumer confidence and control inflation. This approach might also address the issue on stagflation in the absence &nbsp;of high inflation rates. The right balance in stimulus spending to reduce unemployment, monetary &nbsp;policy tightening &nbsp;and &nbsp;macro-prudential processes like changing reserve requirements by central bankers and the economic policy community might help the &nbsp;global economy to &nbsp;get &nbsp;back on track of growth.</p> <p></p> The study of inflation expectations of Singapore households is a multi-disciplinary industry-relevant research that comes out of a partnership between Singapore Management University (SMU), and MasterCard.http://www1.mastercard.com/content/intelligence/en/research/reports/2012/singapore-inflation-expectations-expecting-the-unexpected2012-12-26T16:00:00.000Z2012-12-26T16:00:00.000ZMasterCard Worldwide Index of Consumer Confidence Introduction: About the MasterCard Worldwide Index™ of Consumer Confidence<p>The MasterCard Worldwide Index™ of Consumer Confidence survey has a 20-year track record of consumer confidence indices collected from over 200,000 interviews, unequalled both in scope and history across Asia/Pacific, Middle East and Africa.</p> <p>The MasterCard Worldwide Index of Consumer Confidence is the most comprehensive and longest running survey of its kind in the region.&nbsp; In June 1997, the Index revealed a decline in consumer confidence – one month prior to the devaluation of the Thai baht that triggered the regional economic crisis. In June 2003, the Index score for Employment in Hong Kong dropped to a low score of 20.0. This was subsequently reflected in Hong Kong’s unemployment rate, which peaked just before September 2003 at eight percent.</p> <p>The survey comprising the Asia/Pacific markets began in the first half of 1993 and has been conducted twice yearly since. Markets from the Middle East and Africa were included in the Index from 2004. Twenty five markets now participate in the survey: Australia, China, Egypt, Hong Kong, India, Indonesia, Japan, Kenya, Kuwait, Lebanon, Malaysia, Morocco, New Zealand, Nigeria, Oman, Philippines, Qatar, Saudi Arabia, South Korea, South Africa, Singapore, Taiwan, Thailand, United Arab Emirates and Vietnam. The latest MasterCard Worldwide Index of Consumer Confidence survey was conducted from 7 November to 23 December 2012. A total of 11,339 respondents aged 18 – 64 were surveyed in the 25 markets.</p> <p>The Index is calculated based with zero as the most pessimistic, 100 as most optimistic and 50 as neutral.&nbsp; Five economic factors are measured: Employment, the Economy, Regular Income, Stock Market and Quality of Life. The responses are consumers' thoughts on the six months ahead. Data collection was via internet surveys and face to face interviews, with the questionnaire translated to the local language wherever appropriate and necessary.&nbsp; The survey has a margin of sampling error of plus or minus four to five percentage points at the 95 percent confidence level.</p> <p><a href="/content/dam/intelligence/content-assets/MARKETS-H1H2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/MARKETS-H1H2.jpg"></a></p> <p></p> Summary<p>The MasterCard Worldwide Index of Consumer Confidence (MWICC) measures consumer confidence /sentiments on prevailing expectation in the market for the next six months. It is the average of the Index Scores of FIVE Economic Factors: Employment; Economy; Regular Income; Stock Market and Quality of Life.</p> <p>This is the 40th MWICC for MasterCard's Asia/Pacific Region.&nbsp; The MWICC continues to assess consumer sentiments over the next six months in each of the twenty five selected markets in Asia/Pacific, Middle East and Africa, and provides a benchmark and mechanism to gather data for comparison with and to establish historical trends in the two MasterCard Regions.</p> <p>Overview</p> <p>From Weber Shandwick Press Releases</p> <p></p> Australia<p><a href="/content/dam/intelligence/content-assets/MWICC-AUST.jpg" target="_blank"><img width="516" height="387" src="/content/dam/intelligence/content-assets/MWICC-AUST.jpg"></a></p> <p></p> China<p><a target="_blank" href="/content/dam/intelligence/content-assets/MWICC-CHINA.jpg"><img width="506" height="378" src="/content/dam/intelligence/content-assets/MWICC-CHINA.jpg"></a></p> Hong Kong<p><a href="/content/dam/intelligence/content-assets/MWICC-HK.jpg" target="_blank"><img width="465" height="349" src="/content/dam/intelligence/content-assets/MWICC-HK.jpg"></a></p> India<p><a href="/content/dam/intelligence/content-assets/MWICC-INDIA.jpg" target="_blank"><img width="495" height="371" src="/content/dam/intelligence/content-assets/MWICC-INDIA.jpg"></a></p> Indonesia<p><a href="/content/dam/intelligence/content-assets/MWICC-INDO.jpg" target="_blank"><img width="507" height="379" src="/content/dam/intelligence/content-assets/MWICC-INDO.jpg"></a></p> Japan<p><a href="/content/dam/intelligence/content-assets/MWICC-JAPAN.jpg" target="_blank"><img width="546" height="409" src="/content/dam/intelligence/content-assets/MWICC-JAPAN.jpg"></a></p> Korea<p><a href="/content/dam/intelligence/content-assets/MWICC-KOREA.jpg" target="_blank"><img width="525" height="395" src="/content/dam/intelligence/content-assets/MWICC-KOREA.jpg"></a></p> Malaysia<p><a href="/content/dam/intelligence/content-assets/MWICC-MALAYSIA.jpg" target="_blank"><img width="473" height="355" src="/content/dam/intelligence/content-assets/MWICC-MALAYSIA.jpg"></a></p> New Zealand<p><a href="/content/dam/intelligence/content-assets/MWICC-NZ.jpg" target="_blank"><img width="527" height="396" src="/content/dam/intelligence/content-assets/MWICC-NZ.jpg"></a></p> Philippines<p><a target="_blank" href="/content/dam/intelligence/content-assets/MWICC-PHYLIPPINES.jpg"><img width="520" height="391" src="/content/dam/intelligence/content-assets/MWICC-PHYLIPPINES.jpg"></a></p> Singapore<p><a href="/content/dam/intelligence/content-assets/MWICC-SINGAPORE.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/MWICC-SINGAPORE.jpg"></a></p> Taiwan<p><a target="_blank" href="/content/dam/intelligence/content-assets/MWICC-TAIWAN.jpg"><img width="554" height="417" src="/content/dam/intelligence/content-assets/MWICC-TAIWAN.jpg"></a></p> Thailand<p><a href="/content/dam/intelligence/content-assets/MWICC-THAILAND.jpg" target="_blank"><img width="545" height="406" src="/content/dam/intelligence/content-assets/MWICC-THAILAND.jpg"></a></p> Vietnam<p><a href="/content/dam/intelligence/content-assets/MWICC-VIETNAM.jpg" target="_blank"><img width="540" height="405" src="/content/dam/intelligence/content-assets/MWICC-VIETNAM.jpg"></a></p> Bangladesh<p><a href="/content/dam/intelligence/content-assets/MWICC-BANGLADESH.jpg" target="_blank"><img width="527" height="397" src="/content/dam/intelligence/content-assets/MWICC-BANGLADESH.jpg"></a></p> Myanmar<p><a target="_blank" href="/content/dam/intelligence/content-assets/MWICC-MYANMAR.jpg"><img width="499" height="376" src="/content/dam/intelligence/content-assets/MWICC-MYANMAR.jpg"></a></p> The MasterCard Worldwide Index™ of Consumer Confidence survey has a 20-year track record of consumer confidence indices collected from over 200,000 interviews, unequalled both in scope and history across Asia/Pacific, Middle East and Africa.http://www1.mastercard.com/content/intelligence/en/research/reports/2012/mastercard-worldwide-index-of-consumer-confidence2011-12-31T16:00:00.000Z2011-12-31T16:00:00.000ZMasterCard Worldwide Index of Consumer Confidence H2 2012 Introduction: About the MasterCard Worldwide Index™ of Consumer Confidence<p>The MasterCard Worldwide Index™ of Consumer Confidence survey has a 20-year track record of consumer confidence indices collected from over 200,000 interviews, unequalled both in scope and history across Asia/Pacific, Middle East and Africa.</p> <p>The MasterCard Worldwide Index of Consumer Confidence is the most comprehensive and longest running survey of its kind in the region.&nbsp; In June 1997, the Index revealed a decline in consumer confidence – one month prior to the devaluation of the Thai baht that triggered the regional economic crisis. In June 2003, the Index score for Employment in Hong Kong dropped to a low score of 20.0. This was subsequently reflected in Hong Kong’s unemployment rate, which peaked just before September 2003 at eight percent.</p> <p>The survey comprising the Asia/Pacific markets began in the first half of 1993 and has been conducted twice yearly since. Markets from the Middle East and Africa were included in the Index from 2004. Twenty five markets now participate in the survey: Australia, China, Egypt, Hong Kong, India, Indonesia, Japan, Kenya, Kuwait, Lebanon, Malaysia, Morocco, New Zealand, Nigeria, Oman, Philippines, Qatar, Saudi Arabia, South Korea, South Africa, Singapore, Taiwan, Thailand, United Arab Emirates and Vietnam. The latest MasterCard Worldwide Index of Consumer Confidence survey was conducted from 7 November to 23 December 2012. A total of 11,339 respondents aged 18 – 64 were surveyed in the 25 markets.</p> <p>The Index is calculated based with zero as the most pessimistic, 100 as most optimistic and 50 as neutral.&nbsp; Five economic factors are measured: Employment, the Economy, Regular Income, Stock Market and Quality of Life. The responses are consumers' thoughts on the six months ahead. Data collection was via internet surveys and face to face interviews, with the questionnaire translated to the local language wherever appropriate and necessary.&nbsp; The survey has a margin of sampling error of plus or minus four to five percentage points at the 95 percent confidence level.</p> <p><a href="/content/dam/intelligence/content-assets/MARKETLEVELH1H22013.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/MARKETLEVELH1H22013.jpg"></a></p> <p></p> Summary<p>The MasterCard Worldwide Index of Consumer Confidence (MWICC) measures consumer confidence /sentiments on prevailing expectation in the market for the next six months. It is the average of the Index Scores of FIVE Economic Factors: Employment; Economy; Regular Income; Stock Market and Quality of Life.</p> <p>This is the 40th MWICC for MasterCard's Asia/Pacific Region.&nbsp; The MWICC continues to assess consumer sentiments over the next six months in each of the twenty five selected markets in Asia/Pacific, Middle East and Africa, and provides a benchmark and mechanism to gather data for comparison with and to establish historical trends in the two MasterCard Regions.</p> <p>Overview</p> <p>From Weber Shandwick Press Releases</p> <p></p> Australia<p><a href="/content/dam/intelligence/content-assets/MWICC-AUST2.jpg" target="_blank"><img width="502" height="377" src="/content/dam/intelligence/content-assets/MWICC-AUST2.jpg"></a></p> China<p><a href="/content/dam/intelligence/content-assets/MWICC-CHINA2.jpg" target="_blank"><img width="511" height="382" src="/content/dam/intelligence/content-assets/MWICC-CHINA2.jpg"></a></p> Hong Kong<p><a href="/content/dam/intelligence/content-assets/MWICC-HK2.jpg" target="_blank"><img width="507" height="380" src="/content/dam/intelligence/content-assets/MWICC-HK2.jpg"></a></p> India<p><a href="/content/dam/intelligence/content-assets/MWICC-INDIA2.jpg" target="_blank"><img width="506" height="379" src="/content/dam/intelligence/content-assets/MWICC-INDIA2.jpg"></a></p> Indonesia <p><a href="/content/dam/intelligence/content-assets/MWICC-INDO2.jpg" target="_blank"><img width="505" height="378" src="/content/dam/intelligence/content-assets/MWICC-INDO2.jpg"></a></p> Japan<p><a href="/content/dam/intelligence/content-assets/MWICC-JAPAN2.jpg" target="_blank"><img width="502" height="376" src="/content/dam/intelligence/content-assets/MWICC-JAPAN2.jpg"></a></p> Korea <p><a href="/content/dam/intelligence/content-assets/MWICC-KOREA2.jpg" target="_blank"><img width="503" height="378" src="/content/dam/intelligence/content-assets/MWICC-KOREA2.jpg"></a></p> Malaysia<p><a href="/content/dam/intelligence/content-assets/MWICC-MALAY2.jpg" target="_blank"><img width="504" height="379" src="/content/dam/intelligence/content-assets/MWICC-MALAY2.jpg"></a></p> New Zealand<p><a href="/content/dam/intelligence/content-assets/MWICC-NZ2.jpg" target="_blank"><img width="503" height="378" src="/content/dam/intelligence/content-assets/MWICC-NZ2.jpg"></a></p> Philippines<p><a href="/content/dam/intelligence/content-assets/MWICC-NZ2.jpg" target="_blank"><img width="504" height="379" src="/content/dam/intelligence/content-assets/MWICC-NZ2.jpg"></a></p> Singapore<p><a href="/content/dam/intelligence/content-assets/MWICC-SPORE2.jpg" target="_blank"><img width="486" height="294" src="/content/dam/intelligence/content-assets/MWICC-SPORE2.jpg"></a></p> Taiwan<p><a href="/content/dam/intelligence/content-assets/MWICC-TAIWAN2.jpg" target="_blank"><img width="503" height="379" src="/content/dam/intelligence/content-assets/MWICC-TAIWAN2.jpg"></a></p> Thailand<p><a href="/content/dam/intelligence/content-assets/MWICC-THAI2.jpg" target="_blank"><img width="504" height="376" src="/content/dam/intelligence/content-assets/MWICC-THAI2.jpg"></a></p> Vietnam<p><a href="/content/dam/intelligence/content-assets/MWICC-VIET2.jpg" target="_blank"><img width="507" height="380" src="/content/dam/intelligence/content-assets/MWICC-VIET2.jpg"></a></p> Bangladesh<p><a href="/content/dam/intelligence/content-assets/MWICC-BANGLA2.jpg" target="_blank"><img width="505" height="380" src="/content/dam/intelligence/content-assets/MWICC-BANGLA2.jpg"></a></p> Myanmar<p><a href="/content/dam/intelligence/content-assets/MWICC-MYANMAR2.jpg" target="_blank"><img width="507" height="383" src="/content/dam/intelligence/content-assets/MWICC-MYANMAR2.jpg"></a></p> The MasterCard Worldwide Index™ of Consumer Confidence survey has a 20-year track record of consumer confidence indices collected from over 200,000 interviews, unequalled both in scope and history across Asia/Pacific, Middle East and Africa.http://www1.mastercard.com/content/intelligence/en/research/reports/2012/mastercard-worldwide-index-of-consumer-confidence-h2-20122012-06-30T16:00:00.000Z2012-06-30T16:00:00.000ZA New Perspective On Bill Payment--A Demand-Based Path To Financial Inclusion Amit Jain, Gidget Hall A New Perspective On Bill Payment--A Demand-Based Path To Financial Inclusion<p>If asked to name a consumer&nbsp; payment&nbsp; category with billions of transactions globally, one that&nbsp; touches&nbsp; nearly every household and is still primarily cash-based, not many would come to mind. If then&nbsp; asked which of those listed could transform&nbsp; the financial and payments&nbsp; market,&nbsp; probably a very small number&nbsp; would remain on your list, and bill payment&nbsp; would not likely be one of them.&nbsp; This is not surprising. Very few people think of transformation when they think of bill payment.&nbsp; This study tries to change&nbsp; that mindset by illustrating how bill payment&nbsp; can be a potential&nbsp; path&nbsp; to financial inclusion, thus transforming the payments&nbsp; and financial industry.<br> <a href="/content/dam/intelligence/content-assets/50FINANCIALINCLUSION.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/50FINANCIALINCLUSION.jpg"></a> </p> EXECUTIVE SUMMARY<p>Financial inclusion is seen as a key path to poverty alleviation and therefore is widely embraced by both developed&nbsp; and developing countries across the globe. The threshold&nbsp; to financial inclusion is typically understood to be the ownership&nbsp; of a payment&nbsp; transaction account, but achieving active usage of non-cash&nbsp; payment&nbsp; methods represents a major challenge worldwide. This paper shows that to address this challenge,&nbsp; financial inclusion should start with promoting non-cash&nbsp; methods of bill payment.&nbsp; This is a new way of thinking about&nbsp; both bill payment&nbsp; and financial inclusion that has not been explored before.&nbsp; A key distinction is defining financial inclusion as a hierarchy of financial needs starting with the most basic needs versus a binary state encompassing all financial needs. Bill payment&nbsp; is one of the most basic financial needs because&nbsp; it generally represents the essential living expenses of consumers,&nbsp; payments&nbsp; that every household has to make to survive. Therefore, financial inclusion should start by addressing&nbsp; the consumer's need for better&nbsp; alternatives to cash for bill payment.</p> <p>There are four reasons discussed in this paper (the large scale of bill payment,&nbsp; the potential&nbsp; for electronic bill payment&nbsp; to create value for all stakeholders, the ability to drive electronification&nbsp; of other payment&nbsp; categories&nbsp; and the potential&nbsp; to achieve greater&nbsp; financial inclusion by accelerating lending) as to why bill payment&nbsp; is well positioned&nbsp; to initiate financial inclusion and drive it forward. This is a new way of looking at bill payment&nbsp; and one of the many ways in which bill payment could transform&nbsp; the payments&nbsp; and financial industry. It also approaches financial inclusion from the demand side by addressing&nbsp; consumers' financial needs,&nbsp; which, when joined with the product/ supply-side view (e.g., prepaid cards, mobile phones),&nbsp; could be a powerful combination.</p> Alternative Definition of Financial Inclusion<p>A common&nbsp; definition of financial inclusion is having access to and leveraging financial products&nbsp; and services to serve one's payments&nbsp; (beyond cash), investments /savings, borrowing&nbsp; and insurance needs1.&nbsp; However, there are two challenges to this definition. The first is that&nbsp; it seems to imply that&nbsp; financial inclusion is a binary state that&nbsp; is achieved when all financial needs are met. While it is important to address all needs,&nbsp; this definition does not offer any flexibility in recognizing progress in financial inclusion as partial needs are met. The second challenge&nbsp; is that&nbsp; this definition does not provide any guidance&nbsp; as to the right path to financial inclusion.</p> <p>Therefore, this study thinks of financial inclusion as a progression&nbsp; and defines a hierarchy of needs,&nbsp; with higher levels of financial inclusion achieved as more needs are fulfilled. Figure 1 below depicts this hierarchy, beginning&nbsp; with the most basic/foundational needs,&nbsp; such as a secure account&nbsp; for holding payment transaction funds and bill payment,&nbsp; and moving to more complex needs like borrowing&nbsp; and insurance. this study&nbsp; defines financial inclusion as a hierarchy of financial&nbsp; needs that should start by promoting non-cash methods of bill payment.<br> </p> <p><a href="/content/dam/intelligence/content-assets/FIGURE1-HIERARCHY-OF-FINANCIAL-NEEDS.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/FIGURE1-HIERARCHY-OF-FINANCIAL-NEEDS.jpg"></a></p> <p>This study&nbsp; defines financial inclusion as a hierarchy of financial&nbsp; needs that should start by promoting non-cash methods of bill payment.</p> <p>There are two important reasons to define the hierarchy of needs in this manner: (1) people are likely to be more concerned about&nbsp; addressing&nbsp; their foundational needs first and more receptive to solutions that&nbsp; address these needs; and (2) more importantly, by serving people's needs in the order defined by the hierarchy, more of these&nbsp; needs can be met. For example, if consumers' payments&nbsp; can be tracked, that&nbsp; information&nbsp; can be used to assess their risk and extend loans to them.&nbsp; If people get credit, they will have greater&nbsp; opportunity<br> to create&nbsp; wealth and invest /save, which in turn will create&nbsp; a need for insurance products.&nbsp; The following example illustrates this consumer&nbsp; progression.</p> <p>Bill payment is one&nbsp; of the most foundational/basic financial needs because it generally represents the essential living expenses of consumers, payments that every&nbsp; household has to make to survive.</p> <p><a href="/content/dam/intelligence/content-assets/PROGRESSION-OF-CONSUMER-FINANCIAL-INCLUSION.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/PROGRESSION-OF-CONSUMER-FINANCIAL-INCLUSION.jpg"></a></p> <p>Bill payment&nbsp; is one of the most foundational/basic financial needs because it generally represents the essential living expenses of consumers,&nbsp; payments that&nbsp; every household has to make to survive. Therefore, financial inclusion should start by addressing&nbsp; the consumer's need for better&nbsp; alternatives to cash for bill payment.</p> BILL PAYMENT: AN EFFECTIVE DEMAND-BASED APPROACH TO FINANCIAL INCLUSION<p>Financial inclusion is seen as a key path to poverty alleviation and therefore is widely embraced by both developed&nbsp; and developing countries across the globe. Based on research conducted by Financial Access Initiative, a consortium&nbsp; of researchers&nbsp; from institutions including Yale, Harvard, and New York University, around&nbsp; 50 percent&nbsp; of the adult population&nbsp; of the world is financially unserved. Even in high-income&nbsp; Organization&nbsp; for Economic Cooperation and Development (OECD) countries,&nbsp; 8 percent&nbsp; or 60 million adults are financially unserved.&nbsp; The U.S., which is the world's largest and most developed&nbsp; economy,&nbsp; has 15 to 20 million such adults. One key reason for this high percentage is that,&nbsp; historically, access to financial services and products&nbsp; has been closely tied to people having bank accounts.&nbsp; At the same time, the infrastructure&nbsp; costs and regulatory requirements of offering bank accounts&nbsp; have made it economically unviable for banks to offer accounts&nbsp; to the large segment of the population&nbsp; that&nbsp; is below a certain income threshold</p> <p><a href="/content/dam/intelligence/content-assets/FIGURE2-ADULTS-WHO-DO-NOT-USE-FORMAL-FINANCIAL-SERVICES.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/FIGURE2-ADULTS-WHO-DO-NOT-USE-FORMAL-FINANCIAL-SERVICES.jpg"></a></p> <p>Clearly, using bank accounts as an enabler for financial inclusion has shown its limitations. New emerging solutions such as mobile payments and prepaid cards are trying to provide alternatives to bank accounts to drive financial inclusion. Like bank accounts, most of these solutions take a product/supply-focused view to address the problem although they are more viable given the lower cost and regulatory hurdle. To some extent, this approach makes sense. For example, over half the population of the world has mobile phones. Attaching a payment account to the phone or leveraging the phone account as the payment account could quickly drive penetration of payment solutions, especially for P2P payments, as evidenced by M-Pesa in Kenya.</p> <p>The other potential approach to driving financial inclusion is to take a demandside view. Based on the financial inclusion needs hierarchy shown above, this would mean starting with bill payment. There are four concrete reasons why bill payment is well positioned to initiate financial inclusion and drive it forward:<br> 1.&nbsp;The large scale/size of bill payment.<br> 2.&nbsp;The large potential for making bill payment electronic by creating a value proposition for all stakeholders.<br> 3.&nbsp;The potential to drive electronification of other payment categories by creating stickiness for an electronic payment method.<br> 4.&nbsp;The potential to achieve greater financial inclusion beyond payments; for example, giving individuals access to non-cash methods for bill payment could lead to companies ability to track those payments, and over time this could provide insights for analyzing credit risk and driving lending such as microlending in developing/emerging countries.</p> <p>These four reasons are likely to be relevant in any country in the world, making bill payment a universal phenomenon that could accelerate financial inclusion in any market. The solutions based on this demand-side approach may still use mobile phones or prepaid cards as the underlying technology, suggesting that the right answer would likely combine the supply/product view with the demand-side view. This study looks in depth at the four reasons why bill payment could accelerate financial inclusion and why combining the product view with the demand-side view is the right approach.</p> <p><b>1. Bill Payment Represents A Large Scale Consumer Payment Type</b></p> <p>Three aspects of the scale of bill payment make it particularly well suited for driving financial inclusion.<br> &nbsp;<b>1.&nbsp;High Penetration:</b>&nbsp;Bill payment touches nearly every household in the world. As mentioned earlier, bill payment generally represents payment of consumers' essential living expenses, often the most basic survival requirements such as electricity, water and cell phone. Nearly every household has to make these<br> payments; if they do not, they lose critical services.<br> <b>2. Recurrence:</b>&nbsp;Bill payment is not a one-and-done phenomenon; each person has to regularly pay bills. This has two important implications: a) finding the right solution becomes a key priority for consumers, and once they determine what works for them, they are likely to adopt that solution; and b) this creates stickiness for the bill payment solution and could lead to other levels of financial inclusion along the hierarchy.<br> <b>3.&nbsp;Size:</b>&nbsp;Bill payment is a large enough segment for stakeholders to focus on. Globally, there are billions of consumer bill payment transactions. All three aspects of the scale of bill payment apply to every country in varying degrees. For example, in a developing economy like India, every household pays four or five bills per month or 10 to 12 billion bills per year2. In a developed market like the U.S., every household pays around 15 bills per month or over 20 billion bills per year3.</p> <p><b>2. Electronic Bill Payment Can Create a Value Proposition for All Stakeholders</b></p> <p>A key reason that&nbsp; payment&nbsp; solutions fail is that&nbsp; they do not create&nbsp; a value proposition&nbsp; for all stakeholders&nbsp; in the value chain but rather focus on just one or two stakeholders. Making bill payment&nbsp; electronic has the potential&nbsp; to create&nbsp; a value proposition&nbsp; for all stakeholders&nbsp; and drive financial inclusion, an important first step for initiating financial inclusion on a large scale.</p> <p>The following three examples demonstrate this ability:<br> <b>Mexico:</b>&nbsp;Mexico has a large unbanked population (~70%)4, making financial inclusion a key priority. In Mexico, 65 percent of consumer bills are paid with cash at the biller's office, and 27 percent are paid with cash at a bank branch or retail outlet5. Only 8 percent of bills are paid online at the biller website or through online banking6. Banks and retailers in Mexico have each built their own direct connections to the billers to settle bills. Biller aggregators like Checkfree that provide a single point of connection to several billers are a recent phenomenon primarily serving smaller mom-and-pop retailers.</p> <p><a href="/content/dam/intelligence/content-assets/FIGURE3-BILL-PAYMENT-CHANNELS-IN-MEXICO.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/FIGURE3-BILL-PAYMENT-CHANNELS-IN-MEXICO.jpg"></a></p> <p>Interestingly, most of the unbanked consumers&nbsp; in Mexico receive their salary on salary cards (a type of prepaid card) but choose to withdraw&nbsp; the entire amount on payday and use the cash for payments,&nbsp; including bill payment.&nbsp; Taking a closer look at the needs and pain points of all stakeholders&nbsp; shows that&nbsp; making bill payments&nbsp; electronic may create&nbsp; value at all levels and at the same time accelerate&nbsp; financial inclusion.</p> <p><b>Consumers:</b>&nbsp;The key pain point for consumers&nbsp; is that&nbsp; they have to travel to a physical location like a biller's office or bank branch to pay a bill. As a result, they not only have to wait in long queues&nbsp; but also have limited flexibility in terms of the time of day they can pay a bill. Internet penetration in Mexico is also very low (~30%)7 and primarily among&nbsp; the banked&nbsp; population, leaving paying at a physical site as the primary method of bill payment&nbsp; for the unbanked. Alternate remote&nbsp; payment&nbsp; methods that&nbsp; are cost-efficient are a key need for the unbanked in Mexico.</p> <p><b>Billers:</b>&nbsp;The biggest pain point for billers is the high cost associated&nbsp; with accepting&nbsp; bills at their offices (e.g., staff, office space). Billers have been moving bill payment&nbsp; to alternate low-cost channels like banks and retailer locations for a fee, but most of the bills are still paid at their offices. Billers would be open to an electronic payment&nbsp; solution that&nbsp; materially moves payment&nbsp; volume to other channels,&nbsp; and would be willing to pay for it as long as it lowers their total cost.</p> <p><b>Banks:</b>&nbsp;On the one hand,&nbsp; banks in Mexico see bill payment&nbsp; as an important source of revenue&nbsp; (charging the biller a fee for each bill) and a way of engaging and acquiring customers, but on the other hand they are facing the high cost of serving bill payment&nbsp; customers&nbsp; at bank branches. Another concern is low usage of the salary cards they issue. As mentioned, most of the unbanked withdraw all the money from their salary card on payday and subsequently use cash for making payments.&nbsp; A key need for banks is to be able to offer bill payment using lower-cost channels and salary cards issued by them.</p> <p><b>Government and Telcos:</b>&nbsp;A key priority for the Mexican government is to reduce the black economy and make transactions easier to track, which they hoped&nbsp; to accomplish by introducing&nbsp; a tax on certain cash deposits.&nbsp; Telcos are looking for new sources of revenue,&nbsp; and major players like Telmex and Telefonica have already launched&nbsp; mobile payment&nbsp; initiatives.</p> <p>Current cash-based bill payment&nbsp; clearly has significant pain points for all stakeholders. But there is a common&nbsp; theme:&nbsp; the need for an alternate low-cost channel.&nbsp; This could be the key for developing a solution that&nbsp; creates value for all stakeholders. Given a nearly 75 percent&nbsp; penetration of mobile phones, one answer could be a mobile bill payment&nbsp; solution that&nbsp; uses the salary card as the funding source. This would enable consumers&nbsp; to pay their bills from their mobile phones, the billers to use a more cost-efficient channel for accepting payments,&nbsp; the banks to engage with consumers&nbsp; and drive usage of salary cards, the government to drive electronification&nbsp; of payments,&nbsp; and mobile phone&nbsp; companies&nbsp; to engage in payments.&nbsp; By creating value for all stakeholders, financial inclusion would accelerate&nbsp; as consumers&nbsp; start using salary cards instead&nbsp; of cash for payments.</p> <p><b>India:</b>&nbsp;In India, probably only half the population has bank accounts, making financial inclusion an important priority. Eighty percent of bills in India are paid at the biller's office, 90 percent of these with cash10. Roughly 15 percent of bills are paid online either through online banking or biller website11--options primarily available for the banked population. For the unbanked population, the primary alternative to the biller's office is walk-in payment at a retail outlet using cash, but currently this accounts for less than 5 percent of the bill payment volume12.</p> <p><a href="/content/dam/intelligence/content-assets/FIGURE4-INDIA-BILL-PAYMENT-CHANNELS.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/FIGURE4-INDIA-BILL-PAYMENT-CHANNELS.jpg"></a></p> <p>A key trend over the last 10 years in bill payment&nbsp; in India has been the emergence of bill payment&nbsp; aggregators. There are two types: biller aggregators like BillDesk, who build connections to billers and offer a common&nbsp; point for accessing a large network&nbsp; of billers for bill payment,&nbsp; and front-end aggregators like Suvidha, who connect&nbsp; retail outlets to biller aggregators to enable acceptance of payments&nbsp; from consumers.&nbsp; Despite the emergence of these aggregators, 80 percent&nbsp; of bills in India are still paid at the biller's office13. This is interesting&nbsp; because&nbsp; mobile operators have been able to leverage the same retail network&nbsp; in India to accept payments--90 percent&nbsp; of mobile top-ups&nbsp; in India are at retail outlets14.</p> <p>The pain points and needs for billers, consumers&nbsp; and government in India are similar to those in Mexico. Banks do not seem to have significant pain points as they appear&nbsp; content to focus on the banked&nbsp; population&nbsp; using currently offered low-cost channels like online banking.&nbsp; Mobile penetration in India is over 50 percent15, rapidly growing and significantly higher than Internet penetration (15%-25%)16, making mobile bill payment&nbsp; a potential&nbsp; longer-term solution. Right now, the retail network&nbsp; appears&nbsp; to be the most likely candidate for creating an alternate network&nbsp; for bill payment&nbsp; based on the success of mobile top-ups.<br> The pain points and needs for billers, consumers and government in india are similar to those in mexico. Banks do not seem to have&nbsp; significant pain points as they&nbsp; appear&nbsp; content to focus&nbsp; on the banked population using&nbsp; currently offered low-cost channels like online banking.</p> <p><b>Retailers:</b>&nbsp;Retailers consider bill payment&nbsp; an important source of revenue and foot traffic. Any solution that provides higher bill payment&nbsp; volume without&nbsp; disrupting their core retail business would appeal to them. In the current setup, two key issues that retailers face limit bill payment volume through this network.&nbsp; The first is that the current experience of accepting bill payment is fairly complicated, especially compared to mobile top-ups.&nbsp; This makes it very difficult for retailers to offer bill payment&nbsp; as an ancillary service. The second pain point is the cost of handling cash, which is significant. To accept bill payment,&nbsp; the retailer is required to prepay the amount to the front-end aggregator so that every time the retailer receives the cash payment,&nbsp; the aggregator can debit the prepaid account. This is a significant burden&nbsp; on retailers in terms of working capital requirements and is unsustainable to support large volumes.</p> <p><b>Aggregators:</b>&nbsp;The primary challenge for front-end aggregators is to efficiently solve the two retailer pain points. Biller aggregators have already invested in building connections to the billers and would like to see higher volume.</p> <p>As in Mexico, current cash-based bill payment&nbsp; is creating significant pain points for all stakeholders&nbsp; in India. And also like Mexico, the common&nbsp; theme&nbsp; across all stakeholders&nbsp; is the need for a low-cost network&nbsp; for accepting&nbsp; bill payment. Two issues must be addressed to enable this large-scale network.&nbsp; The first is<br> to simplify both the technical requirements and the process for accepting&nbsp; bill payments&nbsp; for retailers. Mobile operators have done a great job at simplifying this so only a consumer's mobile number&nbsp; and a retailer's phone&nbsp; are required for accepting&nbsp; payments.&nbsp; Therefore, there is no reason that&nbsp; something cannot&nbsp; be done for other types of bill payments.</p> <p>The second issue is the cost of handling cash in the system. The mobile top- up value chain faces a similar challenge, but because of its narrow focus, it is still manageable. For broader bill payment,&nbsp; one solution could be prepaid bill-pay cards that consumers could use to pay bills at retail outlets with retailers using their phones as acceptance devices. There are several ways in which the underlying mechanics could work, but the key is that it creates a value proposition&nbsp; for all stakeholders. Retailers do not have to lock in their working capital for accepting bills, consumers&nbsp; have more bill payment&nbsp; channels, billers can move more traffic away from their office locations, aggregators get more volume through their network,&nbsp; and more volume moves to electronic payments' a key priority for the government. Just as in Mexico, the process of creating value for all stakeholders would also accelerate financial inclusion as consumers&nbsp; start using prepaid bill-pay cards instead of cash for payments.</p> <p><b>The United States:</b>&nbsp;As mentioned earlier, financial exclusion is not limited to developing/emerging economies;&nbsp; the U.S., the world's largest and most developed&nbsp; world economy,&nbsp; also has a fairly large unbanked population. And these people need to pay their bills. The most popular ways for this population to pay bills are with cash at the biller's office and at small check-cashing&nbsp; shops where consumers&nbsp; pay very high fees. The pain points for stakeholders, including billers and consumers,&nbsp; are similar to those in India and Mexico with equally significant potential&nbsp; to offer an alternate low-cost channel for paying bills.</p> <p>One solution in the U.S. could be to partner&nbsp; with the U.S. Postal Service (USPS) to offer a prepaid bill-pay card. Consumers&nbsp; would be able to pay with this card at any post office location, a huge acceptance network&nbsp; that they are already familiar these three&nbsp; examples show that bill payment could accelerate financial&nbsp; inclusion not only in developing markets&nbsp; like india and mexico, but also in developed markets&nbsp; like the U.S.with. The Postal Service would benefit from a new source of revenue at a time when they are looking for alternatives. In addition,&nbsp; billers would get a new, huge alternate bill acceptance network.&nbsp; And, as in India, use of the prepaid card versus cash would simplify the flow of money through the value chain, making the economics even more attractive.</p> <p>These three examples show that bill payment&nbsp; could accelerate&nbsp; financial inclusion not only in developing markets like India and Mexico, but also in developed markets like the U.S. The key would be to take a holistic look at the ecosystem in the three countries and develop solutions that create value for all stakeholders, something that clearly seems possible. The three examples also emphasize the point made earlier, which is that the right approach to accelerating&nbsp; financial inclusion is to marry the supply-side/product view (e.g., mobile, prepaid) with the demand- side view of bill payments.&nbsp; In all cases, payment&nbsp; efficiency is essential to bill payment&nbsp; for all stakeholders, and is something that is applicable in any market.</p> <p><b>3. Bill Payment Has the Potential to Drive Electronification of Other Payment Categories</b></p> <p>As mentioned earlier, bill payment&nbsp; is not a one-and-done phenomenon; rather, people have to regularly pay their bills. Therefore, it is logical that using an electronic payment&nbsp; method like a prepaid card for paying bills would be so habit forming that people would start using it for other types of payments&nbsp; like retail purchases. For example, in Mexico and India it is probable&nbsp; that consumers will start using their salary or bill payment&nbsp; cards for other types of retail purchases.&nbsp; This phenomenon of creating stickiness to the payment&nbsp; method by its regular use is also supported by research. Based on a study done by MasterCard,&nbsp; consumers in the U.S. who make recurring payments on their credit cards tend to use their cards more for other spend versus consumers&nbsp; who do not make recurring payments&nbsp; (see Figure 5).</p> <p><a href="/content/dam/intelligence/content-assets/FIGURE5-OVERALL-SPEND-LIFE-IN-CONSUMER-CREDIT.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/FIGURE5-OVERALL-SPEND-LIFE-IN-CONSUMER-CREDIT.jpg"></a></p> <p><b>4. Bill Payment Has the Potential to Achieve Greater Financial Inclusion by Driving&nbsp; lending</b></p> <p>The potential&nbsp; for bill payment&nbsp; to drive financial inclusion is not limited to providing alternatives to cash for payments.&nbsp; Bill payment&nbsp; could lead to greater financial inclusion beyond payments&nbsp; by driving other financial activity, such as lending. This is because&nbsp; when consumers&nbsp; have access to electronic payment methods to pay their bills, their payments&nbsp; can be tracked by companies. Companies&nbsp; could then analyze these&nbsp; payments&nbsp; to get useful insights into the creditworthiness of consumers&nbsp; and assess their risk for loans. This is true not only in emerging/developing countries,&nbsp; but also in developed&nbsp; countries.</p> <p>For example, a growing trend over the last several years in India has been microfinance loans, small loans typically made to the lower-income&nbsp; segment of society. Based on a study by ACCESS Development&nbsp; Services, a not-for-profit company that&nbsp; specializes in microfinance, the total outstanding microfinance loan amount in India at the end of 2010 was around&nbsp; $8 to $10 billion with approximately 85 million people leveraging these&nbsp; loans. While this has more than doubled&nbsp; since 2007,&nbsp; the penetration of microfinance loans still remains small, given that&nbsp; 37 percent--or around&nbsp; 400 million Indians--are below the country's national&nbsp; poverty line, based on data from the United Nations Development&nbsp; Programme.</p> <p>A key reason for this low penetration is the lack of data needed by lenders to assess the credit risk of borrowers.&nbsp; However, if these&nbsp; borrowers&nbsp; start paying their bills electronically, the information&nbsp; on their payment&nbsp; behavior could be tracked by companies&nbsp; and used as an indicator of their creditworthiness and could drive higher lending. In fact, vegetable&nbsp; traders in Bhubaneswar, India, are already using their bill payment&nbsp; receipts as proof of payment&nbsp; to secure loans. But because&nbsp; this process is paper based,&nbsp; it has significant pain points such as lost receipts; making bill payment&nbsp; electronic could make it much more efficient.</p> <p>Similarly, in the U.S., the recent financial crisis has irreversibly damaged the credit worthiness&nbsp; of millions of Americans. For these&nbsp; people,&nbsp; the traditional approach of building creditworthiness by taking loans won't work since they are unlikely to get any new loans. An alternative for them could be leveraging their bill payment&nbsp; behavior as a means of building credit when all other avenues may have closed.</p> <p><a href="/content/dam/intelligence/content-assets/FIGURE6-GROWTH-OF-MICROFINANCE-LOANS-IN-INDIA.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/FIGURE6-GROWTH-OF-MICROFINANCE-LOANS-IN-INDIA.jpg"></a></p> CONCLUSION<p>It is time to look at bill payment in a totally different light that focuses on its ability to transform the global payments and financial markets. Enabling financial inclusion is one approach, and bill payment needs to be a key consideration for those hoping to benefit from it--from governments that want to develop a more efficient society to businesses looking for new sources of revenue. Additionally, given the scale of bill payment and the inefficiencies that exist in bill payment methods today, there could be several other ways in which bill payment can play a role in shaping global financial markets.</p> Financial inclusion is seen as a key path to poverty alleviation and therefore is widely embraced by both developed and developing countries across the globe.http://www1.mastercard.com/content/intelligence/en/research/reports/2012/a-new-perspective-on-bill-payment-a-demand-based-path-to-financial-inclusion2012-09-30T16:00:00.000Z2012-09-30T16:00:00.000ZRejuvenating Japan: Back to the Future Yuwa Hedrick-WongRejuvenating Japan: Back to the Future by Yuwa Hedrick-Wong<p>Introduction:</p> <p>In the midst of the ongoing global economic turmoil involving the world's richest economies, the most dynamic emerging markets, and a revolving cast of countries in crisis, Japan has featured&nbsp; in neither the causes of the crisis, nor its solutions. This is indicative of the degree to which Japan has been sidelined in the global economy, two decades after the burst of the bubble economy.</p> <p>In spite of an initial wave of enthusiasm and high hopes when the Democratic Party of Japan (DPJ) gained power three years ago, unseating the long ruling Liberal Democratic Party of&nbsp; Japan (LDP), the outlook for economic and political reform today has certainly dimmed. Once again, huge&nbsp; spending increases are being directed at farmers and households, with the share of tax revenue to total spending in this fiscal year expected to slip below 50%.&nbsp; This is something that&nbsp; has never been seen before in Japan's entire post-war history. The fact is that all political parties,to varying degrees&nbsp; are&nbsp; dependent on&nbsp; an&nbsp; aging constituency. This effectively neuters their urge to call for radical change, even when they are tempted to do so.</p> <p>Throughout Japanese history, seismic disasters have seemed to mark the dramatic end of an era. For example, shortly after Commodore Matthew Perry's conclusion of a trade&nbsp; treaty in 1854&nbsp; to open up Japan to foreign trade,&nbsp; (signed by the Japanese literally under&nbsp; the&nbsp; guns&nbsp; of American warships) came the Ansei Great Earthquakes of 1854&nbsp; and&nbsp; 1855.&nbsp; The&nbsp; advent&nbsp; of&nbsp; Japan's&nbsp; lost decades coincided with the Great Hanshin Earthquake in 1995. Today, speculations are rife of what momentous changes the March 2011 triple disasters may bring.</p> <p>This Insights report argues that in spite of its turbulent political leadership and change-resistant government, there is a viable and sustainable path to social and economic rejuvenation in Japan. This process of rejuvenation, however, will not come from radical reforms as advocated&nbsp; by many, the March 2011&nbsp; earthquake&nbsp; and tsunami anotwithstanding. Instead, the way forward to a more sustained, stable, and broad-based&nbsp; economic rejuvenation in Japan is ironically in its past. Recasting Japan's traditional strength in the context of a high tech future is one of the keys to unlocking the potential of the domestic consumer market, boosting business activities and sustaining employment at the grassroots level. In the aftermath of the March 2011 triple disasters, the behavior of ordinary Japanese people highlighted some of Japan's most abiding strengths that provide the most promising grounds for charting a course for future rejuvenation. In their behavior we could see a pattern&nbsp; of self-reliance, resolve, and creativity at the grassroots level that suggest a way forward.</p> <p>The patience, courtesy, and the fortitude of the Japanese who lost homes and loved ones in the earthquakes&nbsp; and tsunami is truly impressive. Their ability to maintain social order even as the whole world seemed&nbsp; to crumble about&nbsp; them is nothing short&nbsp; of inspirational; and&nbsp; the&nbsp; rest of Japan also seems to have gained a newfound sense of unity and solidarity. In the aftermath&nbsp; of disasters in many other countries military forces are mobilized because&nbsp; of the&nbsp; need&nbsp; to prevent looting and other opportunistic crimes. On the contrary, in Japan, soldiers were mobilized for rescue and relief operations, not to patrol the streets and impose curfews.</p> <p>The stories, appeared&nbsp; one by one, but gradually coalesced into a general pattern showing how the people coped with the devastating aftermath of the disasters. In many affected towns in the days immediately after the earthquake, people queued patiently to buy limited supplies of essentials, knowing that the supplies could not possibly meet everyone's needs. Yet no one tried to jump the queue or hoard the supplies. Many store owners sold goods to customers who had lost everything, accepting their IOUs on scraps of paper as payment.&nbsp; Operators in stores where the power supply had been cut off moved their perishable goods that required refrigeration to other stores where the power supply was uninterrupted for safekeeping, even though&nbsp; some of these stores are technically competitors. This pattern of spontaneous mutual assistance and generosity speaks volumes about&nbsp; the resilience and social trust at the community level.</p> <p>This powerful sense of mutual assistance and social trust has also led to many instances of creative solutions and business innovations in addressing the needs of the community, a kind of self-reliant 'can do'&nbsp; spirit that&nbsp; is completely at odds with the stereotypes of conformity, inertia, and herd behavior. In many small rural communities in affected prefectures,&nbsp; suppliers that delivered food and other necessities to the elderly in their homes (often with only a single elderly woman living alone), abandoned their regular delivery schedules, to find ways to stay in contact with these&nbsp; elderly households on a daily basis, sending them supplies of fresh food and other essentials as soon&nbsp; as they&nbsp; were&nbsp; available. Rural households in remote areas or in places isolated by destruction of transport&nbsp; links; self-organized into relay networks that sent food orders to the nearest supermarket on a daily basis for delivery. Delivery workers improvised to reach more remote households by motorbikes or even bicycles when&nbsp; road&nbsp; access was blocked. Many delivery workers&nbsp; doubled up&nbsp; to&nbsp; operate&nbsp; as healthcare providers when they visit elderly households, quickly learning enough for them to collect basic information on their customers' health situation which they in turn reported to the nearest hospitals&nbsp; or clinics.&nbsp; No one&nbsp; from the&nbsp; government ordered these improvisations. These are spontaneous acts by businesses and workers in seeking solutions to their customers? problems in order to care for them. These are spontaneous innovations at the grassroots.</p> <p>We believe that the rejuvenation of the Japanese economy could be made successful by tapping into this deep source of resilience and traditional strength embedded&nbsp; in local communities. Such an approach differs and contrasts sharply with the standard&nbsp; diagnoses of Japan's stagnation. It is an alternative narrative that suggests a very different future for Japan. However, to understand&nbsp; why such an alternative approach is&nbsp; necessary, we&nbsp; need&nbsp; to&nbsp; make&nbsp; clear why the remedies offered by the standard diagnoses won't work.</p> Problems with the Standard Diagnoses<p>Since the&nbsp; burst&nbsp; of Japan's bubble&nbsp; economy,&nbsp; a growth industry has sprung up that addresses the causes of and remedies for Japan's economic stagnation. While there are competing interpretations of the causes of Japan's stagnation, there is surprisingly little disagreement&nbsp; on what&nbsp; has to be done to turn Japan around. It is clear that Japan has&nbsp; a&nbsp; leadership&nbsp; challenge&nbsp; today.&nbsp; In order&nbsp; to change, Japan needs new and bold leadership, infusing it with younger leaders with bright ideas who are ready to challenge the status quo. Japan's domestic economy has been made feeble as a result of too much protection from competition, thus competitive pressure has to be ratched up sufficiently to get the gale of creative destruction blowing. The Japanese corporate sector is coddled by the government--an unhealthy link that has to be severed. Japan's aging population means that Japanese families will have to have more children. The shrinking workforce on the other hand will have to be supplemented with more immigrants. The rigid education system that emphasizes rote learning has to be reformed to empower students who can think independently and creatively. Japan's public sector debts are also too high, and may soon reach the threshold where further government borrowing would become problematic--the government must curb spending and start paying down its debts. If Japan can implement even parts of this assortment of remedies, it would be making headway in terms of economic growth,</p> <p>These remedies are not wrong. In fact, from a purely diagnostic point of view, they are all spot on. They are marred by just one small detail, no one has been able to come up with the idea of how to implement them.&nbsp; Take for example the problem of leadership shortfall. In the next few years, the first wave of baby boomers, born in a burst of procreative enthusiasm between&nbsp; 1947 and 1952, will hit sixty-five. Leaders of the two key political parties, the ruling DPJ and opposition LDP, are elected and supported&nbsp; by this boomer generation, who arrived at the peak of their careers just as Japan's economic bubble burst in the early 1990s. This boomer generation is therefore a traumatized one, worn down by two decades of rising insecurity and anxiety. Their political leaders merely reflect their inward-looking orientation and risk-averse approach&nbsp; to life. There may well be younger aspiring leaders waiting in the wing who think differently and are prepared&nbsp; to introduce radical reforms, but with Japan's aging population, they are probably not going to get the necessary electoral support to take over Japan's political leadership.&nbsp;</p> <p>A more open&nbsp; immigration policy could certainly mitigate Japan's labor shortage. But obstacles to implementing such a policy are likely to be insurmountable. The first is language barrier. Very few of the prospective immigrants are fluent in Japanese, a language not widely taught&nbsp; outside of Japan. Lacking fluency in Japanese, immigrants are unlikely to perform well in Japanese society, regardless how&nbsp; skilled and&nbsp; well educated&nbsp; they may be. Then the Japanese society itself is not well positioned to deal with strangers, especially when&nbsp; they are&nbsp; there&nbsp; to&nbsp; work and&nbsp; live among them; a situation not to be confused with foreigners visiting Japan for short duration, who are invariably treated with gracious courtesy and hospitality. Elderly Japanese, particularly in rural areas and small town Japan, find it even harder to assimilate with foreigners. So an open immigration policy is simply a non-starter for Japan.</p> <p>Recognizing Japan's continued dependency on exports to drive economic growth, which shackles Japan to overseas demand,&nbsp; many policy analysts and&nbsp; economists have long advocated wholesale deregulation&nbsp; and liberalization of the domestic economy. They think promoting competition to streamline Japan's notoriously cumbersome and rigid supply chains would also be beneficial. Making the domestic economy more competitive would raise productivity, which would in turn support higher incomes for workers in the domestic sector. This accounts for more than 80% of total employment. Again, a sound remedy for a serious problem that is a primary contributor to Japan's stagnation. But implementing such a policy means pitting domestic businesses against one another in head-to-head competition, and driving out those that are less inefficient. This means asking Japanese domestic businesses, (most of them are small and medium-size enterprises and often family-owned) to possibly ditch their longtime suppliers with whom they may have dealt with for generations, or to undercut businesses owned by people in their own communities, and perhaps even by their neighbors. Thus, such a policy would amount to upending Japan's social order, unraveling long established social and communal bonds in Japanese lives which are the very fabric that holds them together.&nbsp; For most Japanese, the social costs of such a policy are simply too high, regardless of its obvious economic benefits.</p> <p>The bottom line is that while the standard diagnoses of Japan's economic ills are not wrong, they are just impractical given Japan's social, cultural, and&nbsp; demographic realities. Last but&nbsp; not least, it has often been pointed out Japan is not good at dealing with gradual, long-term challenges, especially when the origin of the problems are home grown. The analogy of boiling a frog in a pot of water with the temperature being raised slowly, with the result that the frog stays in the pot barely aware of the rising temperature only to die later, has frequently been used to describe the apparent inertia that has gripped Japan. As severe a shock the March 2011 triple disasters has been,&nbsp; many observers do not&nbsp; think it was big enough&nbsp; to&nbsp; move Japan from its inertia. Thus, there is the fear that in Japan the collective choice is not to make a choice, but to opt for the devil that it thinks it knows--gradual decline instead of radical changes that come with great uncertainty and no guarantee&nbsp; of success.</p> <p></p> Misleading Diagnoses<p>Compounding the difficulty of implementing the various remedies based&nbsp; on&nbsp; the&nbsp; standard&nbsp; diagnoses are misleading diagnoses. Take for example the fact that Japan's past is repeatedly referred to as the&nbsp; 'lost decades.'&nbsp; This implies that &nbsp;Japan wasted the decades after the burst of the bubble economy when it lost its way, the way in which it boomed&nbsp; in the 1980s. This characterization obscures a reality that is however, much more complex and nuanced.</p> <p>The fact of the matter is that in the late 1980s Japan had become seriously inflated, in reputation and self-perception as much as in asset values. Japanese popular books and the media often asserted Japan would displace the United States as the world's leading economy by the turn of the century, and it became fashionable for Japanese bureaucrats&nbsp; and&nbsp; business leaders to crow that Japan had nothing left to learn from the West. Reinforcing such views are serious works by leading scholars, such as Ezra Vogel's well known and best selling Japan as Number One, Lessons for America.</p> <p>In retrospect, it was a classic case of hubris before nemesis and by the time the bubble economy burst in the early 1990s, the moment&nbsp; of hubris proved to be relatively short-lived. The system that enabled Japan to achieve what some outside observers&nbsp; saw as&nbsp; superior&nbsp; performance actually worked for only a brief period in the 1980s, which also sowed the seeds of its demise. With hindsight, the kind of bureaucratic capitalism practiced in Japan at that time, often referred to as 'Japan Inc.,' and much admired by its cheerleaders as superior to the classical Anglo-Saxon market capitalism, is very much part and parcel of the bubble economy itself. It is not an exaggeration to say that&nbsp; without Japan Inc., there&nbsp; would have been no bubble economy, hence no stagnation. By the late 1980s, this system had led to egregious misallocation of capital on a gigantic scale, rendering its collapse all but inevitable.</p> <p>However, the &quot;lost decades&quot; characterization has&nbsp; the&nbsp; unfortunate&nbsp; connotation&nbsp; that&nbsp;&nbsp; Japan needs to find its way back to the boom years of the 1980s. The solution to stagnation is therefore to recreate and reapply the formula that seemed to&nbsp; have worked&nbsp; so well before.&nbsp; In the&nbsp; 1980s, there was ample financing by the banks to the corporate sector, so in the 1990s politicians working with the banks sought to provide even more liquidity to businesses. But there was a critical difference&nbsp; between&nbsp;&nbsp; the&nbsp; corporate&nbsp; sector&nbsp; in&nbsp; the1980s and the 1990s; in the 1980s the Japanese corporate&nbsp; sector was expanding and investing, whereas in the 1990s the Japanese corporate sector was heavily in debt, and was either shrinking, relocating overseas in order to survive global competition in their exports, or both. So while cheap loans in the&nbsp; 1980s&nbsp; led to job creation and&nbsp; increases in household income, cheap loans on a much bigger scale in the&nbsp; 1990s&nbsp; merely led to bankrupt&nbsp; companies being kept on life support. This had disastrous consequences for the banking sector and the fiscal position of the government.</p> <p>Apart from the misguided attempt&nbsp; to &quot;re-create&quot; the Japan of the 1980s, there is yet another aspect of the misdiagnosis that is no less damaging. This has to do with how certain glib and superficial generalizations of Japan that have over time become self-evident truths. Journalists and pundits are forever quoting the Japanese aphorism: &quot;the nail that sticks up will be hammered down,&quot; with the implication that Japan is irrevocably shackled by herd behavior. The Japanese media is quick to hurl charges against intransigent bureaucrats and change-resistant institutions. Its business culture is believed to be hidebound and governed&nbsp; by groupthink. A society itself, that prizes harmony and homogeneity above all else, is believed to lack the DNA for change. Repeated characterization of the Japanese society and its institutions in such ways quickly leads to the conclusion that Japan is neither willing nor capable of change&nbsp; regardless of what&nbsp; happens.&nbsp; These are grossly superficial stereotypes. They are no more accurate&nbsp; for Japan than&nbsp; for other&nbsp; countries. In fact, similar stereotypes are found in all societies; take for instance popular sayings in English like &quot;don't stick your neck out,&quot; and &quot;don't rock the boat.&quot;&nbsp; Nevertheless, they are repeated&nbsp; so often in Japan that the perceptions of a conservative, change-resistant Japanese culture and its change-resistant society are by now deeply entrenched. This in turn leads to a sense of futility and hopelessness. In order to move forward to rejuvenate its economy and society, Japan needs to find the middle path&nbsp; between&nbsp; the two extremes of impracticality of radical reforms and fatalistic inertia.</p> <p></p> Back to the Future: The New Rise of Old Japan<p>We believe Japan can change,&nbsp; and the time for change is now. The stability of Japan's public finance,&nbsp; in spite of the inexorably rising government debts, has been due to the deep resource provided by household savings. Japan's total public sector debt&nbsp; now approaches&nbsp; 200%&nbsp; of GDP; but household savings are still higher, hence the lack of panic. However that&nbsp; bedrock of private savings is becoming more shaky, being gradually undermined&nbsp; by endless government&nbsp; borrowing.Depending on assumptions on tax revenues and fiscal outlays, it is projected that in as short a time as five years, but&nbsp; no more than&nbsp; ten&nbsp; years, the amount of Japanese government debt could exceed the total net assets of Japanese households. At that point, government debt will no longer be backed up by taxpayers' assets, and confidence in the Japan Government Bond market would decline dramatically.</p> <p>Japan's aging population will add to the stress on government's fiscal position. Japan's elderly,who have the longest lifespans in the world, will draw down their savings to fund their retirement, as a consequence the household savings rate will decrease in the coming years. This will make it more difficult for the domestic private sector to finance the budget&nbsp; deficit of the government&nbsp; in the coming decade. Japan's aging population will in turn create new demands&nbsp; for more fiscal expenditures in areas of pension and healthcare, compounding the government's fiscal difficulties.</p> <p>The most urgent reason that Japan must change now, however, is the young. Persistently slow economic growth has produced millions of young Japanese who feel left out, unwanted, and alienated. Although overall unemployment rate remains low in Japan, youth unemployment has been rising. In recent years, it is estimated that 10%&nbsp; of the 15-to 24-year-olds and 6%&nbsp; of the 25-to 34-year olds are unemployed, much higher than the national average. Furthermore, these unemployment rates&nbsp; do not&nbsp; take&nbsp; account&nbsp; of the many young women dropping out of the workforce or the huge number of young workers who are employed as part-time workers, with lower and less stable incomes. In 2009,&nbsp; for instance, part-time workers&nbsp; accounted&nbsp; for 34%&nbsp; of&nbsp; the labor force, up from 20% in 1990. So the burden of economic stagnation has been disproportionately heavy for the young people of Japan, a situation that bodes ill for the long term if allowed to continue.</p> <p>So the water temperature in the pot may well be rising faster than&nbsp; before,&nbsp; and the&nbsp; frog may begin to feel the heat, and be stirred to try to do something to get out of the pot. The question is what to do and how to do it. As argued earlier, instead of coming up with solutions that are at odds with Japan's traditional values, the way forward is for Japan to tap into some of the abiding strengths embedded in its traditions and local community, and to make them serve the cause of Japan's rejuvenation.</p> <p>Ordinary Japanese are entirely capable to act decisively and creatively in responding to challenges to their communities, precisely because of their deep sense of communal solidarity and trust. As described earlier, within their communal context, the rank and file of Japanese people has the wherewithal for self-directed spontaneous actions. This 'can&nbsp; do'&nbsp; spirit is entirely consistent with their traditional strengths embedded in communal solidarity, trust, and mutual assistance. It is therefore a powerful platform upon which efforts to rejuvenate the Japanese economy and its society must be based.</p> <p>From a business perspective, small and medium-size enterprises (SMEs) are in the best position to leverage this source of strength by refocusing energies and&nbsp; deepening relationships with local communities. It has long been observed that Japanese consumers value quality and simplicity of services, more&nbsp; than&nbsp; consumers&nbsp; elsewhere. SMEs, in getting close and personal with local communities, can provide exactly such services based on deeper understanding of their customers.&nbsp; With a strong community focus, SMEs themselves can in turn tap into another&nbsp; one of Japan's traditional strengths&nbsp; to create and innovate in serving local communities--their ability to excel in process. The Japanese are masters of continuous improvement, and no one executes like them. They embody focus, discipline, relentless effort, and uncompromising quality control. To the extent that SMEs can embed themselves in local communities, a synergistic relationship can evolve: local communities are being better served, and their demand in turn stimulates SMEs to improve and adapt to the needs of local communities through relentless process innovations.</p> <p>Japan has a long cultural history of devotion to mastery in whatever they do. This single-minded focus on excellence transpires through in all sorts of products and endeavors; ranging from crafts to theater to food to factories. Even an ordinary bowl of noodles displays their attention to detail. There is a strong sense of pride in both doing something well and doing something uniquely different to distinguish their local community. Consumers in turn value such excellence in products and services. Businesses, SMEs especially, when strongly connected to their customers in local communities, can exploit this appreciation of, and devotion to, mastery to excel. When this happens,&nbsp; there is then business rejuvenation at the grassroots level.</p> <p>This is not a pipe dream. It has already happened in the luxury goods sector. Many industry analysts have noticed that&nbsp; Japanese consumers have become more frugal and are spending less on foreign designer brands and premium products, after two decades of stagnation. The reality is far more nuanced.&nbsp; Many former luxury goods consumers--the ones who transformed Japan in the early 1990s into the world's second-largest luxury goods&nbsp; market,&nbsp; behind only the&nbsp; United States--have already&nbsp; migrated&nbsp; to a new consumption space. They have rediscovered the skills and traditions of Japan's best craftsmen&nbsp; and a new&nbsp; generation of homegrown&nbsp; designers and producers. They are launching handmade&nbsp; brands that&nbsp; employ ancient manufacturing techniques and traditional materials. This has in turn led to the revitalization of many small and highly specialized craft workshops.</p> <p>This is a phenomenon of return to authenticity. This almost obsessive search for the lesser-known, and often hard-to-get,&nbsp; yet exquisitely crafted local product&nbsp; has become&nbsp; a new&nbsp; trend&nbsp; in Japanese spending patterns. One direct consequence is that it is revitalizing the fashion scene in Japan, with home grown designers, often utilizing local materials and rediscovering traditional methods, taking center stage. These products and services are typically no less costly than foreign designer brands. It has the potential of bolstering a whole new generation of entrepreneurs, designers, craftsmen, and even chefs, all operating as SMEs, to turbocharge Japan's creative industries. This is business innovation based on deep traditions.</p> <p>Counter-intuitively, this process of business rejuvenation by leveraging traditional values and strengths can be even stronger if SMEs embrace the&nbsp; internet.&nbsp; Recent&nbsp; research&nbsp; has&nbsp; shown&nbsp; that e-commerce&nbsp; has immense growth&nbsp; potential in Japan.3&nbsp; The 'Internet-GDP,' defined as the industry's direct contribution to GDP through consumption, investment, government purchases, and trade via online activities, and 'Indirect internet consumption,' defined as purchases researched online prior to buying them physically, is currently estimated&nbsp; at 7.7%&nbsp; of GDP, or 41.6 trillion&nbsp; yen (US$547 billion). It has been expanding at around 8% a year in the past five years, outperforming all other industries which averaged only 5% growth per year.</p> <p>As impressive as these&nbsp; figures are,&nbsp; Japan's highly developed internet infrastructure is grossly underutilized by SMEs. Virtually every single household has an internet account,&nbsp; and survey data have consistently shown that elderly Japanese, both urban and rural, are no less avid internet users than the young. But businesses are still very slow to exploit the new opportunities offered, especially the SMEs. For instance, at present, it is estimated that only one in four SMEs hosts its own website. Websites can help give a face to small businesses, especially those in rural areas and in small communities, and open new sales channels cost-effectively. An online presence can deepen SME's connections with their customers, allowing local customers, especially the elderly, to get in touch instantly and as frequently as they wish, thereby further strengthening their sense of solidarity with the local community. For some of the SMEs with the right products and capacity, building an online presence could also lead to new export opportunities.</p> <p>Available data provides a glimpse of a tantalizing potential. For example, in prefectures where 40%&nbsp; of SMEs have&nbsp; developed their own web sites, their annual sales are estimated to be 20-30% higher than SMEs in prefectures where less than 20% have their own web sites. SMEs with web sites tend to have more employees and pay them more. Thus&nbsp; the e-commerce potential&nbsp; in Japan provides a contemporary context for recasting traditional strength&nbsp; with new technology in business rejuvenation. Combining the old with the new in this fashion could prove to be a practical and sustainable way forward--back to the future.</p> <p>This back to the future strategy, fusing the traditional with the latest communications technology, is not confined to SMEs in rural and small town Japan. It can be applied just as effectively in large cities, including Tokyo. In urban Japan, most neighborhoods are effectively a local community. With appropriate modifications, SMEs offering local community-focused products and services can thrive. A powerful illustration of this trend is perhaps the 7-Eleven stores, which in Japan have evolved into something completely different from their&nbsp; foreign&nbsp; counterparts.&nbsp; In&nbsp; urban&nbsp; Japan, 7-Eleven stores function as the local neighborhood's kitchen, post office, courier, ATM, in addition to being a convenience store. They are more like a neighborhood concierge.</p> <p>Tokyo, by virtue of its size, complexity and cosmopolitan orientation, provides unique opportunities that aren't available elsewhere in Japan. It is arguably easier to have selective immigration in Tokyo, targeting highly-skilled foreign professionals for well-paid positions, which are accepted with minimal social friction. Some recent trends may well be a harbinger of things to come, leading to a different kind of future for Tokyo, if not for all of urban Japan. Today, increasing numbers of foreigners dominate the&nbsp; top&nbsp; ranks of sumo wrestling, which is&nbsp; the&nbsp; most&nbsp; traditional of all Japanese sports, considered at one time to be a sacred combat with divine origin. The increasing numbers of swaggering Mongolian and European sumo grand champions have had no difficulty in being accepted in Tokyo. Less exotic is the growing presence of foreign staff in the service sector (mostly Chinese, Korean and Southeast Asian)--a novelty&nbsp; some two decades ago--is now so commonplace in Japan's large cities that people barely notice it. In urban Japan, then, there is the possibility for a moderate&nbsp; influx of foreign talent to inject new vigor to its pool of human resource, generating new&nbsp; energy, fresh ideas, and&nbsp; more risk-taking appetite.</p> <p>The best model for Tokyo is London. Once the imperial capital of an insular island nation, it is now one of the most dynamic and creative capitals of the world. The rapid internationalization of London was not the result of the government and the British people suddenly deciding to open up their culture and society to foreigners. London merely offers more opportunities and freedom for talented people from other&nbsp; countries to follow their own interests and passions, and build their dreams there.&nbsp; It is much easier for enterprising and gifted young people to start a business, sell art, open a studio, or launch creative enterprises in London than it is in other, more bureaucratic, more tightly-regulated cities in Europe. To be realistic, Tokyo is unlikely to become the London of Asia. However, even a very partial opening of Tokyo to an influx of foreign talent with new skills and ideas could make a huge difference.</p> <p>The rejuvenation of Japan, based on a back to the future strategy, could therefore ride on a two-tiered transformation: Tokyo and rest of Japan. In both cases, traditional values and practices are to be honored&nbsp; and leveraged, not&nbsp; discarded. It is worth noting that in the Meiji Restoration, the so called 'westernizers' of Japanese society were in fact no less nationalistic and traditional than the 'traditionalists' who opposed changes modeled on the West. The 'westernizers' believed that Japan's traditions can adapt&nbsp; to changing conditions without losing their core value, whereas the 'traditionalists' refused any modifications. History proved that the 'westernizers' were right. Once&nbsp; again, in a&nbsp; new&nbsp; transformation, a &nbsp;new Japan can thrive in today's economic and business environment by tapping into its traditional values and strong communal bonds. At the end of the day, all successful economies are built on thrift, hard work, and individual initiative. Japan's traditions and values can be made to support and nurture these essential elements for success.</p> <p>1. Japan has very little exposure to foreign debts.&nbsp; It is estimated that only some 7% of total public sector debts in Japan are held by foreigners,&nbsp; which is the fundamental difference between Japan and the Euro Zone crisis countries.</p> <p>2. The potential&nbsp; impact of such business rejuvenation is huge:&nbsp; some 99.7% of businesses are SMBs, employing around&nbsp; 70%&nbsp; of company employees.</p> <p>3. Value of the Japanese&nbsp; Internet Economy. 2011. Joint report by Google Japan and the Nomura Research Institute.</p> <p></p> About the Author<p>Yuwa Hedrick-Wong, Ph.D.</p> <p>Yuwa Hedrick-Wong is currently HSBC Visiting Professor of International Business at the University of British Columbia, Canada.</p> <p>Yuwa is an economist and business strategist with 25 years of experience gained in over thirty countries. He is a Canadian who grew up in Vancouver, British Columbia, and spent the last 20 years working in Europe, Sub-Sahara Africa, the Indian Sub-continent, and Asia/ Pacific. He has served as strategy advisor to over thirty leading multinational companies in the Asia/Pacific region.</p> <p>In 2010, Yuwa was appointed as Global Economic Advisor to MasterCard Worldwide. Prior to this role, he was Economic Advisor to MasterCard in Asia/Pacific, a position he held since 2001. His other appointments are: Advisor at Southern Capital Group, a private equity fund (since 2007); member of the Investment Council of ICICI, India's largest private bank (since 2008); and Adjunct Professor at the School of Management, Fudan University, Shanghai, China (since 2006).</p> <p>Yuwa is a frequent speaker at international conferences and a regular commentator&nbsp; in the broadcast and print media on economic, policy and business issues. He is a published author&nbsp; on consumer markets, economic development, trade, and international relations. He was voted 'Communicator of the Year' in Asia in 2006 by the Asia/Pacific Association of Public Relations Professionals. He wrote a regular column in Forbes Asia called 'Asian Angles' in 2005 and 2006.and guest lecturer at the Graduate School of Business, University of Chicago from 2004-06. As a student&nbsp; of philosophy, political science, and economics, Yuwa studied at Trent University and pursued post-graduate training at the University of British Columbia and Simon Fraser University in Canada, where he received his Ph.D. He also received training, at the post-doctoral level, in health economics, energy and environmental economics, and scenario forecast and planning.</p> <p>He lives with his wife and two cats on Salt Spring Island, off the west coast of Canada, and is an eager apprentice in the fine art of gardening.</p> <p></p> In the midst of the ongoing global economic turmoil involving the world's richest economies, the most dynamic emerging markets, and a revolving cast of countries in crisis, Japan has featured in neither the causes of the crisis, nor its solutions. http://www1.mastercard.com/content/intelligence/en/research/reports/2012/rejuvenating-japan-back-to-the-future2011-12-31T16:00:00.000Z2011-12-31T16:00:00.000ZMasterCard Global Destination Cities Index Yuwa Hedrick-WongMasterCard Global Destination Cities Index<p><b>Introduction</b></p> <p>This is the&nbsp; second&nbsp; edition&nbsp; of&nbsp; the&nbsp; MasterCard Global Destination Cities Index. During the period since the publication of the first edition of this index (launched in 2Q, 2011), growth&nbsp; of world&nbsp; economic&nbsp; output&nbsp;&nbsp; has&nbsp; slowed,&nbsp; declining&nbsp; from 5.2% in 2010 to 3.8% in 2011, with the growth rate of 2012 projected to drop further to 3.3%1.However, cross-border travel by air between&nbsp; 132 of the most important cities in the world covered by this index (see Appendix A for the list of the cities and their regional distribution) is still growing both in terms of numbers of visitors and their cross-border spending. The total visitor numbers and cross-border spending for the world's top 20 destination&nbsp; cities are&nbsp; summarized&nbsp; in Table&nbsp; 1.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE1-GLOBALTOP20.jpg" target="_blank"><img width="375" height="260" src="/content/dam/intelligence/content-assets/TABLE1-GLOBALTOP20.jpg"></a></p> <p><b>Chart 1. Global Top 20 destination Cities by International Visitors(2012)</b></p> <p><a href="/content/dam/intelligence/content-assets/GLOBALTOP20INTERNATIONAL.jpg" target="_blank"><img width="423" height="368" src="/content/dam/intelligence/content-assets/GLOBALTOP20INTERNATIONAL.jpg"></a></p> <p>While the number of visitors in 2012 is growing at 5.7%, the cross-border spending by these visitors is far more impressive at 10.6%. A similar picture is seen at the regional level.The overall pattern is clear; cross-border travel by air is a resilient trend that is embraced by growing numbers of people worldwide, underpinned &nbsp;by visitors' robust willingness and capacity to spend. Both the cost of airfare as well as household incomes have fluctuated from time to time; and no doubt &nbsp;they will continue to do so in the future. But the growing need and desire to travel, especially by air, are set to expand in spite of the ups and downs &nbsp;of the business cycles. &nbsp;The leading global cities, which are also some of the &nbsp;most sought after destinations by visitors from different parts of the world, will continue to thrive. </p> <p></p> Global Top 20 Destination Cities<p>Chart 1 presents the world's top 20 destination cities by numbers of visitors in 2012 (Appendix A provides a detailed explanation of the methodology used). As in 2011, London ranks first in the world, with close to 17 million visitors in 2012, which is about &nbsp;1.1% &nbsp;higher than in 2011. Paris has also retained its place in the second rank, with&nbsp;16 million visitors, but this represents &nbsp;a drop of 0.6% compared with 2011. The two Asian cities of Bangkok and Singapore also retain their 2011 rankings of third and fourth place respectively. Their &nbsp;2012 &nbsp; visitor numbers, &nbsp; 12.2 &nbsp; million in Bangkok and 11.8 million in Singapore, however, represent very robust growth of 6.5% and 9.9% respectively.</p> <p><a href="/content/dam/intelligence/content-assets/GLOBALTOP20.jpg" target="_blank"><img width="466" height="396" src="/content/dam/intelligence/content-assets/GLOBALTOP20.jpg"></a></p> <p>While the first to fourth ranks in the top 20 in 2012 are the same as in 2011, &nbsp;there &nbsp;are some changes &nbsp;in the &nbsp;other &nbsp;ranks. Table 2 shows the changes by comparing the 2011 and 2012 rankings. Istanbul (fifth in 2012) displaces Hong Kong (fifth) and moves up by one rank. Dubai (eighth), Frankfurt (ninth), Kuala Lumpur (tenth) and Seoul (11) all move up one by rank as Rome falls by four ranks to 12. Shanghai (14) displaces Barcelona (15) and moves up by one rank. Other cities that are unchanged at their 2011 position: Madrid (7), New York (13), Milan (16), Amsterdam (17), Vienna (18), Beijing (19), and Taipei (20).</p> <p>The world's top 20 destination &nbsp;cities by visitors' cross-border spending are shown in Table 3, which are somewhat &nbsp;different from the rankings by &nbsp;visitor numbers &nbsp;(see &nbsp;Appendix &nbsp;B &nbsp;for &nbsp;the methodology for estimating cross-border spending by visitors in the destination cities). London is again the world top ranked destination &nbsp;city and New York still ranks second by visitor spending, although &nbsp;it ranks only 13 &nbsp;by visitor numbers.</p> <p><b>Table 2. Comparison of 2011 and 2012 Rankings by Visitor Numbers</b></p> <p><a href="/content/dam/intelligence/content-assets/TABLE2-COMPARISONOF20112012.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE2-COMPARISONOF20112012.jpg"></a></p> <p>Bangkok moves up by one rank, displacing Paris as the third-ranking city by visitor spending. Four cities from high-income &nbsp;countries &nbsp;move up &nbsp;in ranks: Singapore (fifth, up by two ranks), Seoul (tenth, up by one rank) and Dubai (18, up by one rank), reflecting their higher costs of living and hence visitors tend to spend more in these cities. Tokyo (14) moves up by four ranks by virtue of its recovery in 2012 from the triple disasters of 2011. Istanbul also moves up by one rank to 11. It is worth noting that &nbsp;all these 'upwardly mobile' destination cities are in either Asia or the Middle East, reflecting stronger &nbsp;growth &nbsp;in both &nbsp;visitor numbers and cross-border spending in these regions. For a destination like Sydney (in the eighth rank), which is a long way from anywhere else with the exception of New Zealand, visitors also tend to stay longer once they get there, and they spend more there as a result. Five cities in high-income countries move down by one or two ranks: Paris (fourth, by one rank), Los Angeles (sixth, by one rank), Madrid (seventh, by one rank), Zurich (twelfth, by two ranks) and &nbsp;Rome (19, by two ranks).</p> <p><b>Table 3. Global Top 20 Destination Cities by International Visitor Spend &nbsp;(2012)</b></p> <p><a href="/content/dam/intelligence/content-assets/TABLE3-GLOBALTOP20.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE3-GLOBALTOP20.jpg"></a></p> <p>The changes in the rankings by visitor spending are summarized in Table 4. Bangkok (third rank) moves up one rank, displacing Paris, and Singapore (fifth rank) moves up two ranks displacing Los Angeles and Madrid. Seoul (tenth rank) and Istanbul (eleventh rank) both move up one rank displacing Zurich. Tokyo (fourteenth rank), recovering from the triple disasters in 2011, moves up three &nbsp;ranks to displace Hong Kong, Barcelona, and Miami. Finally, Dubai (eighteenth rank) moves up one rank to displace Rome.</p> <p><b>Table 4. Comparison of 2011 and 2012 Rankings by Visitor Spending</b></p> <p><b><a href="/content/dam/intelligence/content-assets/TABLE4.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE4.jpg"></a></b></p> Asia/Pacific Top 10 Destination Cities<p>Asia/Pacific exhibits the strongest growth in visitor numbers and their cross-border spending among all the regions of the world. As summarized in Table 5, visitor numbers grow by 9.5% in 2012 to reach 77.6 million in the top 10 destination cities in Asia/Pacific; and their cross-border spending increases to US$104.7 billion in 2012 from US$90.8 billion in 2011, representing an impressive 15.3% growth.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE5-ASIAPACIFICTOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE5-ASIAPACIFICTOP10.jpg"></a></p> <p>The top 10 destination &nbsp;cities by visitor numbers in Asia/Pacific are shown in Chart 2. Bangkok is again the number one destination &nbsp;city in Asia (third in the world), a reflection of its strong and abiding appeal &nbsp;to tourists from the &nbsp;rest of the world. Tokyo is expected to recover from the 2011 disasters &nbsp;with &nbsp;21.5% &nbsp; growth &nbsp;rate &nbsp;over 2011&nbsp;while Taipei registers the second-strongest growth rate at 15.1%, &nbsp;reflecting the strong interest of Chinese tourists from the mainland in visiting Taiwan. This is followed by Beijing, which shows a growth rate of 14.7%.</p> <p><a href="/content/dam/intelligence/content-assets/CHART2-ASIAPACIFICTOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART2-ASIAPACIFICTOP10.jpg"></a></p> <p>In terms of visitor cross-border spending, the top 10 in the region are summarized in Table 6. Bangkok, in first rank, commands &nbsp;visitor cross-border spending of US$19.3 billion in 2012. This is followed by Singapore with US$12.7 billion and Sydney with US$11.0 billion. Tokyo's (seventh) recovery rate &nbsp;of &nbsp;24.2% &nbsp;in 2012 &nbsp;puts &nbsp;it as &nbsp;the fastest-growing market for visitor spending, while Taipei (sixth) has the second-highest &nbsp;growth rate at 20.5%, &nbsp;reflecting the impact of rising tourist visits from the mainland of China. This is followed by Beijing at &nbsp;19.2%, &nbsp;and &nbsp;Bangkok at &nbsp;16.6%. Growth rates of visitors' cross-border spending are generally very high in Asia/Pacific. Sydney and Hong Kong, at 9.7% and 9.5% respectively, have the 'lowest' &nbsp;growth rates among the top 10.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE6-ASIAPACIFICTOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE6-ASIAPACIFICTOP10.jpg"></a></p> Europe Top 10 Destination Cities<p>While Asia/Pacific has the highest growth rates in visitor numbers and cross-border spending, Europe has the highest visitor numbers and cross-border spending. As Table 5 shows, collectively Europe's top 10 destination cities command a total number of visitors of 98.2 million in 2012, an increase of 2.8% &nbsp;from 95.5 million in 2011. The increase in visitor cross-border spending is higher at 8.1%, for the total to reach US$115 billion in 2012.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE7-EUROPETOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE7-EUROPETOP10.jpg"></a></p> <p>Chart 3 presents Europe's top 10 destination cities by visitor numbers. &nbsp;London, the &nbsp;world's number one ranked destination city, is naturally also in the first rank in Europe. Similarly, Paris, which ranks second in the world, is also in second rank in Europe. The third rank, is occupied by Istanbul, which moves up by one rank in its world position to fifth with an impressive growth of visitor numbers of 14.7%. &nbsp;In comparison, London's growth rate in 2012 is very low at 1.1%, and Paris is actually seeing a decline of 0.6% &nbsp;in its visitor numbers. Frankfurt (fifth in Europe) moves up one rank to displace Rome (sixth) which falls by one rank.</p> <p><a href="/content/dam/intelligence/content-assets/CHART3-EUROPETOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART3-EUROPETOP10.jpg"></a></p> Latin America Top 10 Destination Cities<p>The top 10 destination cities in Europe by visitor cross-border spending are shown in Table 8. London and Paris are again in first and second ranks respectively. Istanbul is in fifth rank behind Madrid and Frankfurt, and exhibits the highest growth rate at a very impressive 20.7%, &nbsp;which is way ahead of Vienna (in ninth rank) with the second-fastest &nbsp;growth &nbsp;rate &nbsp;of visitor cross-border spending of 16.3%. &nbsp;This is followed by Zurich (in sixth rank) at 13.9%, &nbsp;then &nbsp;London at 10.3%. Madrid, &nbsp;alone &nbsp;among &nbsp;the &nbsp;top &nbsp;10 &nbsp;in Europe, shows a slight decline in its visitor cross-border spending at -0.8%. Cross-border spending by visitors is typically high in Europe. For instance, in London, visitor cross-border spending in 2012 is estimated &nbsp;at &nbsp;US$21.1 &nbsp;billion, and &nbsp;in Paris at US$17.8 billion.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE8-EUROPETOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE8-EUROPETOP10.jpg"></a></p> <p>The top &nbsp;10 &nbsp;destination &nbsp;cities in Latin America command a total number of visitors of 16.6 million in 2012, up 7.3% &nbsp;from 2011. Cross-border spending in these top 10 cities in 2012 is also up by 7.9%, reaching 16.3 billion. Spending per visit in 2012, however, is barely growing; just 0.6% at US$982 per visit, compared with US$977 in 2011.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE9-LATINAMERICATOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE9-LATINAMERICATOP10.jpg"></a></p> <p>The top 10 destination cities in Latin America are presented &nbsp;in Chart 4. Eight cities occupy the same top 10 positions in 2012 as in 2011, while Rio de Janeiro(eighth in Latin American) moves up by one rank displacing Caracas(ninth). The strongest growth is in Rio de Janeiro with an impressive 28.6%. Quito, in tenth rank, has the second-highest growth rate at 18.8%. If these growth rates persist, Rio de Janeiro and Quito could move up the ranks very quickly in the next few years</p> <p><img src="/content/dam/intelligence/content-assets/CHART4-LATINAMERICATOP10.jpg"><a href="/content/dam/intelligence/content-assets/CHART4-LATINAMERICATOP10.jpg" target="_blank"></a></p> <p>Table 10 shows visitors' cross-border spending in the top 10 destination cities in Latin America. Buenos Aires is in first rank with US$3 billion of visitor cross-border spending in 2012, an increase of 6.7% from 2011, and moving it from the second to the top rank in the region. In contrast, Sao Paulo drops to the second rank after being top ranked in 2011, with visitor cross-border spending there declining by 5%. Quito, in the tenth &nbsp;rank, shows the strongest growth rate at an astonishing 26.3%, &nbsp; consistent &nbsp;with &nbsp;its &nbsp;strong &nbsp;growth &nbsp;of 18.8% &nbsp;in visitor numbers. This is followed by Bogota at an impressive 24.8%, &nbsp;Rio de Janeiro at 16.1%, &nbsp;and San Jose at 15%. Buenos Aires is not the only city that sees visitor cross-spending declining this year, however. &nbsp;Visitor &nbsp;cross-border spending in Caracas in 2012 is in a sharp decline of 9.3% compared with the 2011 level.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE10-LATINAMERICATOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE10-LATINAMERICATOP10.jpg"></a></p> <p></p> Middle East & Africa Top 10 Destination Cities<p>The number of visitors to the top 10 destination cities in the Middle East and Africa in 2012 is an increase of 7.2% from 2011, bringing the total to just below 29 million. Total cross-border spending by visitors in these cities shows a more impressive growth of 10.4%, reaching US$34.1 billion.&nbsp;</p> <p><a href="/content/dam/intelligence/content-assets/TABLE11-MIDDLEEASTTOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE11-MIDDLEEASTTOP10.jpg"></a></p> <p>The top 10 destination cities of the region are presented in Chart 5. Dubai maintains its number one position, while showing a strong 15.3% growth in the number of visitors in 2012. Cairo also retains its second-place position with 8.3% growth in 2012, suggesting that tourism there is recovering well after the &nbsp;turmoil last year. Abu Dhabi is in the third rank, up from sixth rank in 2011, propelled by an impressive 17.9% &nbsp;growth. Casablanca (sixth) dropped one rank in 2012 from its 2011 ranking while Tel Aviv (fifth) and Amman (ninth) dropped two ranks each. All three cities are also registering a decline in visitor numbers. Riyadh (seventh) and Nairobi (eighth) both increase by one rank with robust growth of 10.4% and 10.0% respectively in visitor numbers. Tunis retains its tenth rank position, unchanged from 2011, but is showing a strong growth of 17.7% in 2012, a clear sign of its return to normality after the upheaval of the Arab Spring last year.</p> <p><a href="/content/dam/intelligence/content-assets/CHART5-MIDDLEEASTTOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART5-MIDDLEEASTTOP10.jpg"></a></p> <p>Table 12 summarizes the visitor cross-border spending in the top 10 destination &nbsp;cities in the Middle East and Africa. Not only is Dubai in the number one position as in 2011, its visitor cross-border &nbsp;spending &nbsp;growth &nbsp;is a &nbsp;very impressive 18.5% in 2012. Beirut also retains its second rank position, with a 6.2% &nbsp;growth &nbsp;in 2012, &nbsp;despite not making the top 10 by visitor numbers. This is because the average cross-border spending per visit in Beirut is very high, estimated at US$4,522. In comparison, the average cross-border spending per visit is US$1,004 in Dubai and US$1,387 in Tel Aviv.</p> <p>Abu Dhabi, in sixth rank, &nbsp;has &nbsp;the &nbsp;highest growth at 20.7%, consistent with its performance in moving up from sixth rank to third rank in visitor numbers. Tunis, at tenth rank, is only slightly&nbsp;behind Abu Dhabi with a growth rate of 19.8%. The only one among &nbsp;the top 10 with a decline in visitor cross-border spending &nbsp;(-7.2%) is Casablanca (seventh).</p> <p><br> <a href="/content/dam/intelligence/content-assets/TABLE12-MIDDLEEASTTOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE12-MIDDLEEASTTOP10.jpg"></a></p> North America Top 10 Destination Cities<p>Collectively the top 10 destination cities in North America command a total of 30.2 million visitors in 2012, up 4.1% from 2011, and US$73.8 billion of visitor cross-border spending, up 5.8% &nbsp;from 2011. &nbsp;The North American region also has the highest average visitor cross-border spending per visit among &nbsp;all the &nbsp;regions &nbsp;in &nbsp;the &nbsp;world. &nbsp;At US$2,442 per &nbsp;visit in 2012, &nbsp;it is far ahead &nbsp;of US$1,379 in Asia/Pacific, US$1,181 in Middle East and Africa, US$1,172 in Europe, and US$982 in Latin America.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE13-NORTHAMERICATOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE13-NORTHAMERICATOP10.jpg"></a></p> <p>The top 10 destination cities in visitor numbers in North America are presented &nbsp;in Chart 6. Seven of these 10 cities are in the same position as in 2011. New York is in number one position, followed by Los Angeles in second rank, and the Canadian city of Toronto in the third rank. Toronto, however, has the highest growth at 7.6%, followed by Washington, DC at 7.2%, &nbsp;Houston at 6.2%, &nbsp;Miami at 5.5%, &nbsp;and New York at 5.2%. &nbsp;Washington, DC (seventh) moves up two ranks and displaces both Atlanta (eighth) and Vancouver (ninth) which both fall by one rank. Across the board, these top North American cities are seeing healthy growth rates in their visitor numbers in 2012.</p> <p><a href="/content/dam/intelligence/content-assets/CHART6-NORTHAMERICATOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART6-NORTHAMERICATOP10.jpg"></a></p> <p>Table 14 summarizes the visitor cross-border spending of the top 10 destination cities in the region. All 10 cities in 2012 are in the same position as 2011. New York and Los Angeles are again in first and second positions in their rankings by visitor numbers while Miami is in the third rank. The Canadian cities of Toronto and Vancouver are in sixth and tenth &nbsp;rank respectively. Toronto, however, has the highest growth at 10.2%, &nbsp;followed by Miami at 8.4% and Washington at 7.7%.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE14-NORTHAMERICATOP10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE14-NORTHAMERICATOP10.jpg"></a></p> <p>&nbsp;</p> Origin Cities: Where the Arrivals Come From<p>Apart from estimating visitors numbers and visitor cross-border spending, the data analytics embedded in the Global Destination Cities Index is also capable of indentifying where visitors are coming from (their 'origin' cities) for each of the 132 cities covered in the Index, and estimating how much these visitors spend.</p> <p>For example, the top five origin cities for London are Dublin, New York, Stockholm, Amsterdam and Frankfurt, as shown in Chart 7. In 2012, it is estimated that there are 850,000 visitors from Dublin, spending US$482 million in London. New York is the second largest origin city for London,sending 756,000 visitors to London in 2012, with a total cross-border spending of US$1,088 million. Thus, New York is the largest origin city for London for cross-border spending. On a per-visit basis, visitors from New York are also big spenders in London, with an average of US$1,439 per visit, much higher than &nbsp;the &nbsp;average of visitors from Stockholm at US$808 and from Dublin at US$567 per visit. In terms of growth, however, Frankfurt has the highest growth rate of visitors to London at 20.8%, &nbsp;followed by Dublin at 8.6% and New York at 5.5%. &nbsp;Stockholm's visitor number is, in contrast, down by 2.7% in 2012.</p> <p><a href="/content/dam/intelligence/content-assets/CHART7-TOPORIGINCITIES-LONDON.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART7-TOPORIGINCITIES-LONDON.jpg"></a></p> <p>Bangkok is the number one destination city in Asia/Pacific by both &nbsp;visitor numbers &nbsp;and visitor cross-border spending. The top five origin cities for Bangkok are shown in Chart 8, and they are Tokyo, Singapore, Hong Kong, Seoul and Kuala Lumpur, all from within the Asia/Pacific region. On a per-visit basis, visitors from Hong Kong and Tokyo have the &nbsp;highest &nbsp;spending &nbsp;at US$2,401 and US$2,265 per visit respectively. In comparison, &nbsp;visitors from Singapore, &nbsp;Seoul and &nbsp;Kuala Lumpur spend US$1,039, US$1,404 and US$773 per visit respectively. &nbsp;Growth rates of visitors from these origin cities are uniformly high, with visitor growth &nbsp;rates from Singapore, Seoul and Kuala Lumpur exceeding 20%.</p> <p><a href="/content/dam/intelligence/content-assets/CHART8-BANGKOK-TOPORIGINCITIES.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART8-BANGKOK-TOPORIGINCITIES.jpg"></a></p> <p>Dubai is the &nbsp;top ranked destination &nbsp;city in the Middle East and Africa region. Its top five origin cities are presented &nbsp;in Chart &nbsp;9. London is the number one origin city for Dubai, with 803,000 visitors. While the growth rate of London visitors is relatively modest &nbsp;at 5.1%, &nbsp;London visitors, at US$1,495, have the highest spending &nbsp;in Dubai per visit among the top five origin cities. In comparison, the average spending per visit by visitors from the other four top origin cities is just below US$900. But the growth rates of visitors from Munich, Frankfurt and Paris are astonishingly high at 29.5%, &nbsp;22.1% &nbsp;and 20.2% &nbsp;respectively.</p> <p><a href="/content/dam/intelligence/content-assets/CHART9-DUBAI-TOPORIGINCITIES.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART9-DUBAI-TOPORIGINCITIES.jpg"></a></p> <p>In the Latin American region, the top ranking destination city is Mexico City. The top five origin cities for Mexico City are all in the &nbsp;US: Miami, Houston, New York, Los Angeles, and Atlanta, as shown in Chart 10. Their average spending per visit is estimated at around US$600. But there are significant differences between &nbsp;them in terms of growth. &nbsp;Visitors from Miami and &nbsp;New York to Mexico City are growing at 17.1% and 12.5% respectively, whereas visitor numbers from Los Angeles and Houston are declining by 20.7% &nbsp;and 0.8% respectively.</p> <p><a href="/content/dam/intelligence/content-assets/CHART10-MEXICIOCITYTOPORIGINCITIES.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART10-MEXICIOCITYTOPORIGINCITIES.jpg"></a></p> <p>New York is the top destination city in North America, and its top five origin cities are London, Toronto, Tokyo, Paris and Frankfurt. Growth rates of visitors from these &nbsp;origin cities vary a great deal. London and Frankfurt visitors are growing only modestly at 3.9% &nbsp;and &nbsp;2.8% &nbsp;respectively. Toronto visitors, however, are growing at an astonishing rate of 28.4%. &nbsp;In contrast, visitor numbers from Tokyo and Paris are shrinking by 3.5%&nbsp;and 6.1% respectively. The decline in visitors from Tokyo has the biggest impact on spending, as the average spending by Tokyo visitors is estimated at an impressive US$3,878, much higher than visitors from Toronto (US$945), London (US$1,663), and Paris (US$1,361). Frankfurt visitors spend, on average, a relatively high US$2,505 per visit.</p> <p><a href="/content/dam/intelligence/content-assets/CHART11-NEWYORK-TOPORIGINCITIES.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/CHART11-NEWYORK-TOPORIGINCITIES.jpg"></a></p> <p>In estimating these visitor numbers, the situation becomes complicated when the cities involved are 'hub' cities, such as London, Dubai, and Frankfurt. While London itself is a major hub city, three of its top five origin cities are also considered &nbsp;important &nbsp;hub &nbsp;cities: New York, Frankfurt and Amsterdam. The methodology of estimating the 'true' &nbsp;visitors from origin cities to destination cities is detailed in Appendix A. But it is useful to illustrate how it is done with a real example. Box A applies the methodology to London and its top five origin cities to illustrate how the distortion caused by the 'hub effect' is eliminated in order to arrive at more accurate estimates of visitor numbers.</p> <p></p> <p></p> Box A. Eliminating the Distortions Caused by 'The Hub Effect'<p>A number of destination cities are important 'hubs' &nbsp;for air travel connectivity, and they typically have very large numbers of transit passengers arriving and departing. &nbsp;In some hub cities, transit passengers account for up to two-thirds of the total arrivals. So it is inaccurate to just count the arrival numbers as 'visitors' to these cities. Appendix A provides a detailed explanation of how the 'hub effect' is being dealt with in order to estimate more accurately the visitor numbers in these cities.</p> <p>The process &nbsp;for &nbsp;eliminating &nbsp;the &nbsp;distortion caused by the hub effect can be illustrated with London and its top five origin cities. London is itself a major hub, with many passengers arriving only to take another departure flight for their onward journey. Among its top origin cities, New York, Frankfurt, and Amsterdam are also important &nbsp;hub &nbsp;cities. Many arrivals in London from these cities are not residents of these cities; instead, they had traveled to these cities from elsewhere &nbsp;in order &nbsp;to take &nbsp;a flight to London. So these non-resident arrivals cannot be counted as visitors to London from these cities.</p> <p>Table 15 outlines the process of how the distortion caused by the hub effect is being systematically eliminated.</p> <p>1.&nbsp;The arrivals in London can be broken down into two key categories: visitors (column 1) and non-visitors. Non-visitors are in turn broken &nbsp;down &nbsp;into two &nbsp;sub-categories: &nbsp;transit passengers &nbsp;arriving in London to transfer to another outbound flight (column 4), and London residents returning home after traveling abroad (column 5).</p> <p>2.&nbsp;The visitor numbers shown in column 1 also consist of two subcategories: visitors who are residents of the &nbsp;origin city (column 2) and who are not residents of the origin city (column 3).</p> <p>Following this process, we have estimated that there are only 838,426 &nbsp;'true' &nbsp;visitors arriving in London from Dublin (column 2). The total number of 850,047 (column 1) of visitors to London from Dublin includes 11,621 (column 3) who are non-residents of Dublin who travel to Dublin to board a flight to London. Thus, only 838,426 &nbsp;of them are residents of Dublin (column 2). Apart from the 850,047 &nbsp;visitors from Dublin, it is estimated that there are 673,259 arrivals from Dublin who are transit passengers (column 4), who stop in London in order to board another outbound flight to go elsewhere. Then there are also 598,804 residents of London returning after visiting Dublin (column 5). So the numbers shown in columns 4 and 5, while they are counted as arrivals in London, are not counted as visitors to London.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE15-BREAKDOWNOFLONDON.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE15-BREAKDOWNOFLONDON.jpg"></a></p> <p>So the Dublin -London example illustrates that with the total arrival number of 2,122,109 in London &nbsp;from &nbsp;Dublin (columns 1 &nbsp;+ &nbsp;4 &nbsp;+ &nbsp;5), &nbsp;only 850,047 (40%) are counted as 'visitors to London,' and of which only 838,426 (39.5%) are 'visitors from Dublin to London.'</p> <p>Similarly, 'visitors to London' from the New York-London connection account for only 31.6% of total arrivals in London from New York, and of which only 28.5% are 'visitors from New York to&nbsp;London.' For Frankfurt, only 38.9% &nbsp;of arrivals in London from Frankfurt can be counted &nbsp;as 'visitors to London,' and only 34.4% can be counted as 'visitors from Frankfurt to London.'</p> <p></p> The Fastest Growing Destination Cities<p>The rankings of the destination cities look very different from the perspective of growth. &nbsp;Table 16 presents the rankings of the world top 20 destination cities in terms of growth rates of visitor numbers.* Rio de Janeiro ranks at the &nbsp;top with an eye-popping growth rate of 28.6%. &nbsp;Tokyo's recovery puts it in second place at 21.5% &nbsp;followed by Quito at 18.8%, &nbsp;Abu Dhabi at 17.9%, &nbsp;Tunis at 17.7% &nbsp;and Dubai at 15.3%. &nbsp;Tunis, in fifth position, provides strong evidence that Tunisia is rapidly returning to normality (as is Cairo at sixteenth rank) after a tumultuous &nbsp;period in 2011. Taipei's growth rate at seventh rank is driven by tourists arriving from mainland China, who can visit Taiwan &nbsp;today &nbsp;through &nbsp;direct transport &nbsp;links after being barred from going there for more than five decades. &nbsp;Istanbul and &nbsp;Beijing share the &nbsp;eighth rank position at 14.7% &nbsp;growth.</p> <p>Ranks one to 11 are all occupied by destination cities located &nbsp;in emerging &nbsp;markets. &nbsp;Apart from Tokyo, Singapore is the highest-ranking destination city in a developed market, in the thirteenth rank, followed by Seoul in the fourteenth. In fact, six of these top 20 fastest growing destination cities are in Middle East and Africa, another six in Asia/Pacific, and five in Latin America. Thus, in the growth of visitor numbers, emerging markets dominate.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE16-WORLDSTOPFASTESTGROWING.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE16-WORLDSTOPFASTESTGROWING.jpg"></a></p> <p>From the perspective of growth of cross-border spending, the rankings are quite different, as presented &nbsp;in Table 17.* Quito is in the top rank with a very impressive growth rate of 26.3%, &nbsp;followed by Bogota in the second rank with 24.8%. Both cities are in the Latin America region. Tokyo is in the third rank with a growth rate of visitor cross-border spending of 24.2%, &nbsp;suggesting that tourists &nbsp;are &nbsp;returning &nbsp;to &nbsp;Japan &nbsp;generally, and Tokyo in particular, after the triple disasters in early 2011 Abu Dhabi and &nbsp;Istanbul are tied at &nbsp;the fourth rank with a growth rate of 20.7%. &nbsp;Taipei is in fifth rank at 20.5%. The growth rate of cross- border spending by visitors in Tunis is 19.8%, putting the city in sixth rank. Beijing follows in the seventh rank with a growth rate of 19.2%.</p> <p>The regional &nbsp;distribution &nbsp;of &nbsp;these &nbsp;top &nbsp;20 fastest growing destination cities is more diverse. Seven of the &nbsp;20 are in Asia/Pacific, from both emerging and developed &nbsp;markets. Four are located in Middle East and Africa, and six are located in Latin America. However, three European cities also make their appearance &nbsp;among the top&nbsp;20. &nbsp;Istanbul &nbsp;is ranked &nbsp;fourth &nbsp;with &nbsp;a &nbsp;20.7% growth rate. Vienna is in eleventh rank, with a robust growth rate of 16.3%. &nbsp;Zurich is in sixteenth rank at 13.9%.</p> <p><a href="/content/dam/intelligence/content-assets/TABLE17-WORDLS-TOP-FASTEST-GROWING-CITIES.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/TABLE17-WORDLS-TOP-FASTEST-GROWING-CITIES.jpg"></a></p> <p></p> Conclusions<p>This 2012 edition of the MasterCard Global Destination Cities Index presents a picture of resilient growth in cross-border visitor numbers and their cross-border spending in 132 of the world's most important &nbsp;cities. In all the &nbsp;key regions &nbsp;of the world, visitor numbers &nbsp;and &nbsp;their spending are growing, in spite of the persistent Euro Zone crisis, worries over rising political risks in the &nbsp;Middle East, and lingering concern over the weak recovery in the US. The established leading destination cities like London, Paris, Bangkok, New York, and Singapore &nbsp;continue &nbsp;to &nbsp;occupy top &nbsp;rankings in terms of both visitor numbers and their cross-border spending. But new and dynamic destination cities like Istanbul, Dubai, Abu Dhabi and Shanghai are clearly moving forward with great momentum. From the perspective of growth rates in both visitor numbers and their cross-border spending, destination &nbsp;cities from emerging markets clearly dominate, even though many of them are starting from a very low base. This diversity in geographic distribution and mix of growth drivers behind the rise of destination cities are also creating the best conditions for sustaining their dynamism and success.</p> Appendix A. Methodology for Estimating Air Passenger Arrivals in Destination Cities<p>A total of 132 of the world's most important cities are covered in this index. 42 of them &nbsp;are located in the Asia/Pacific region, 36 in Europe, 19 in Latin America,&nbsp;21 in Middle East and Africa, and 14 in North America.&nbsp;The methodology for estimating air passenger &nbsp;arrivals in each of the destination &nbsp;cities is comprised of the following steps.</p> <p>1. The Total Pipeline of passenger flows is based on overall passenger capacity between international cities: Every month the OAG collects the airline flight schedules for the next 12 months on a global basis. Where previously we only used the data from key months (and the associated 12 month schedule forecasts arising for those months) as the basis of our one-year projections, we now &nbsp;use the &nbsp;full 12 months of flight schedule</p> <p>data to construct our forecasts. Using only non-stop flights we extract for each city to city pair the number of weekly flight frequencies and passenger Capacity.</p> <p>2. Load Factors for each city pair are used to determine the percentage of seats that are actually filled with revenue paying passengers: On any airline flight route, the average percentage of seats filled (i.e. the 'load factor') varies. This information is extremely sensitive for competitive reasons and airlines will only release this data with a one-year lag. Nevertheless, by using the historical load factor on most city-to-city flight routes, we can estimate a proxy for the current and forecasted load factor. We used a weighted &nbsp;average of the historical load factors with heavier emphasis on the most recent years, but airlines will try to maintain a load factor of between 70 to 80% by changing the number of weekly flights or by changing the aircraft type to increase or decrease passenger capacity. As such, for determining the years for which we do not have load factor numbers we apply an increasing improvement of 5% per year on the historical average, starting at 70% and improving to</p> <p>85% over time.<br> </p> <p><a href="/content/dam/intelligence/content-assets/COVERAGE-OF-DESTINATION-CITIES.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/COVERAGE-OF-DESTINATION-CITIES.jpg"></a></p> <p>3. We can now estimate the total passengers between any given city pair: Using the data above we can now gain a first estimate of the number of passengers departing from one city to another using the equation of Estimated Travelers = Load Factor * Passenger Capacity.</p> <p>4. From total passengers we need to net out passengers who are on the return leg of their travels i.e. on their way home: On any flight there will also be passengers who are returning home after having visited the departure city. For example, in the case of a Caracas to Miami flight there will be US passengers returning back to Miami (after having visited Caracas). We want to net out those passengers. As airlines do not reveal the residency of their passengers there is no way to know at a city to city level what portion of passengers &nbsp;on each flight is returning home. We need to go to the country-country &nbsp;level for this and &nbsp;for that &nbsp;we &nbsp;use &nbsp;UNWTO (United Nations World Tourism Organization) data. They collect the number of annual residents travelling between &nbsp;country pairs. We use this number to create a ratio of Departure Country A to Arrival Country B Ratio = Annual Number of Residents from Country A going &nbsp;to Country B /{Annual Number of Residents &nbsp;from Country A going &nbsp;to Country B + Annual Number of Residents &nbsp;from Country B going to Country A}</p> <p>5. An example using Caracas - Miami: In the case of the Caracas - Miami route, in 2009 there were 507,185&nbsp;Venezuelans &nbsp;in total travelling to the &nbsp;US by air, and&nbsp;76,059 US residents in total travelling to Venezuela by air, implying a ratio of 87% which is the estimated ratio of Venezuelans on any given flight from Venezuela to the US. We use this ratio to net out returning US residents and to obtain the number of Venezuelans travelling from Caracas to Miami as follows: Estimated Venezuelan &nbsp;Resident Travelers &nbsp;from Caracas to Miami = Estimated Travelers * Ratio of Venezuelan Resident Travelers to &nbsp;Total Travelers {US &amp; Venezuela}</p> <p>6. Improving the basic data: Where UNWTO data was not available for a country pair (data available for</p> <p>76% of the country pairs), data was sourced at the national level where available (2% of city pairs) or we used the ratio of the IMF Balance &nbsp;of Payments travel debit&nbsp;accounts to construct a secondary proxy ratio. In this release we have focused on key border regions around the world where the UNWTO cross-country visitor data may give less accurate ratios. In all cases, the general idea was to use overnight visitors (where data was available) instead of overall visitors to construct more accurate departure-arrival ratios of air travelers. This has resulted in some shifts to the flow of travel between these areas (and therefore overall expenditure as well). The border regions include the Mexican-US border, EU countries which share a border, the Singapore-Malaysia border, and the Ukraine-Russia-Belarus-Moldova border areas. Furthermore, in similar fashion, the ratios for the Hong Kong-China-Macau borders have been adjusted using overnight and/or air travel only visits which now allows us to add China resident air arrivals into Hong Kong and Macau via air and vice versa (both were pre- viously excluded).</p> <p>7. For 'hub' cities like Frankfurt, Dubai, Singapore, there are additional complexities in netting out transit passengers: As explained previously, on any given flight there are departing residents from the departure country, returning visitors, and a third group of residuals. The residuals group can be a low proportion of the passengers for typically non-hub cities, and very high for hub cities. To estimate the proportion of this group, we use: Residuals = Total Estimated Passengers ? Number of Departing Residents ? Number of Returning Visitors. Residuals constitute &nbsp;two main groups: (A) Non-residents (of either the origin or destination &nbsp;country) who from the origin city are visiting the destination city; and (B) residents of the origin country AND non-residents (of either the origin or destination country) who will be transiting through &nbsp;the destination city without visiting it. We are interested &nbsp;in Type A but in order to separate the residuals into its two components &nbsp;we use a relative connectivity ratio 'RCR' that is based on the International &nbsp;Air Connectivity Index (IACI) scores previously created, which is RCRod= &nbsp;( IACIo &nbsp;/ (IACIo+IACId) )2</p> <p>Where</p> <p>RCRo-d: Is the Relative Connectivity Ratio of the</p> <p>Origin City relative to the Destination City</p> <p>IACIo: Is the International Air Connectivity Index of the Origin City</p> <p>IACId: Is the International &nbsp;Air Connectivity &nbsp;Index of the Destination City</p> <p>We separate out Type A by using: A = Residual x RCR &amp; B</p> <p>We then add A {Non-residents &nbsp;(of either the departing or arrival country) who from the departure &nbsp;city are&nbsp;visiting the arrival city} to the number of residents visiting the arrival country {calculated earlier} to obtain the estimated number of travelers who will visit the destination city: Visitors = Origin Country Residents + Non-Residents from other Countries.</p> <p></p> Appendix B. Methodology for Estimating Cross-Border Spending by Arrivals in Destination Cities<p>To estimate the average expenditure of outbound travelers, we again have to look at country to country data. City to city expenditure data is difficult to obtain (partial figures do exist but these are not publicly available). For this we use the United Nations' Trade in Services database (travel component) which does not include transport, i.e. airfares at the paired country level. For country pairs where this data is not available we default to using the &nbsp;average &nbsp;expenditure &nbsp;per &nbsp;traveler in destination countries using IMF's Balance of Payments Travel Credit data and the total number of visitors to the country. In some cases the average expenditure of city pairs can go extremely low when the UNWTO resident departure include large levels of overland cross border travel between &nbsp;neighboring &nbsp;countries &nbsp;and &nbsp;typically involves returning on the same-day. We therefore adjust our ratios for key border regions by using overnight visitors instead of total visits to eliminate the same-day visits issue. In these cases, we have also used expenditures by overnight visitors (instead of total visitor spends) to calculate average inbound expenditures. While we have attempted to 'clean' the data of these same day trips, we have also put in place a default system to 'catch' city pairs with border issues and for which there is inadequate data.&nbsp;As we are dealing with air travel, we assume that a visit involves predominantly &nbsp;&gt;1 night stays and we adjust for this by setting minimum lower range for the average expenditure per traveler at US$500 for bordering arrival countries &nbsp;and &nbsp;US$700 for non-border &nbsp;arrival countries. This lower spending floor was triggered in about 30% of the city-pairs.</p> <p>The formula is as follows: average &nbsp;expenditure of visitors = total amount &nbsp;spent on travel in the destination country by residents &nbsp;of the origin country (ex air tickets) /total &nbsp;number of origin country residents traveling to the destination country.&nbsp;Based on the latest year available for average expenditure per traveler we then project the average expenditure per traveler to 2012 using the nominal growth rate of GDP per Capita provided by the IMF WEO forecast database. Using the estimated number of residents flying from each origin city to each destination city, we can then calculate the estimated expenditure by multiplying in the average expenditure to obtain city to city expenditure &nbsp;estimates. &nbsp;Thus, for each city pair: estimated &nbsp;visitor spend &nbsp;= number of visitors x average expenditure in the destination country</p> <p></p> Glossary<p><b>Visitor:</b>&nbsp;Person who is traveling on a non-stop direct flight to her destination and is not a resident of the destination country. A visitor may make more than one trip, and each trip counts as a new visit. That is, a person who makes two trips to a destination as described above counts as two visitors to that destination. A person on the return leg home does not count as a visitor.</p> <p><b>Visitor Spend:</b>&nbsp;The estimated total amount that visitors spend in the destination city/country. It excludes&nbsp;air ticket expenditure required to get the visitor to the destination city.</p> <p><b>Origin City:</b>&nbsp;The city from which passengers embark on their flight to the destination city. Passengers who count as visitors may be residents of the origin city/country or may be non-residents from other countries (but not the destination city/country)</p> <p><b>Destination City:</b></p> <p>The city where passengers disembark (leave the airport) and are counted &nbsp;as visitors (which only includes non- residents of the destination city/country)</p> <p><a href="/content/dam/intelligence/content-assets/APPENDIXBTABLE1.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/APPENDIXBTABLE1.jpg"></a></p> <p></p> About the Author<p>Yuwa Hedrick-Wong, Ph.D.</p> <p>Yuwa Hedrick-Wong &nbsp;is currently HSBC Visiting Professor of International Business at the University of British Columbia, Canada.</p> <p>Yuwa is an economist and business strategist with</p> <p>25 years of experience gained in over thirty countries. He is a Canadian who grew up in Vancouver, British Columbia, and spent the last 20 years working in Europe, Sub-Sahara Africa, the Indian Sub-continent, and Asia/ Pacific. He has served as strategy advisor to over thirty leading multinational companies in the Asia/Pacific region.</p> <p>In 2010, Yuwa was appointed &nbsp;as Global Economic Advisor to MasterCard Worldwide. Prior to this role, he was Economic Advisor to MasterCard in Asia/Pacific, a position he held since 2001. His other appointments are: Advisor at Southern Capital Group, a private equity fund (since 2007); member of the Investment Council of ICICI, India's &nbsp;largest private bank (since 2008); and Adjunct Professor at the School of Management, Fudan University, Shanghai, China (since 2006).</p> <p>Yuwa is a frequent speaker at international conferences and a regular commentator in the broadcast and print media on economic, policy and business issues. He is a published author &nbsp;on consumer markets, economic development, trade, and international relations. He was voted 'Communicator &nbsp;of the Year' in Asia in&nbsp;2006 by the Asia/Pacific Association of Public Relations Professionals. He wrote a regular column in Forbes Asia called 'Asian Angles' in 2005 and 2006.and guest lecturer at the Graduate School of Business, University of Chicago from 2004 -06.&nbsp;As a student of philosophy, political science, and economics, Yuwa studied at Trent University and pursued post-graduate training at the University of British&nbsp;Columbia &nbsp;and &nbsp;Simon &nbsp;Fraser University in &nbsp;Canada, where he received his Ph.D. He also received training, at the post-doctoral level, in health economics, energy and environmental economics, and scenario forecast and planning.</p> <p>He lives with his wife and two cats on Salt Spring Island, off the west coast of Canada, and is an eager apprentice in the fine art of gardening.</p> <p></p> Cross-border travel by air between 132 of the most important cities in the world covered by this index is still growing both in terms of numbers of visitors and their cross-border spending. http://www1.mastercard.com/content/intelligence/en/research/reports/2012/mastercard-global-destination-cities-index2011-12-31T16:00:00.000Z2011-12-31T16:00:00.000ZConsumer Confidence in a Weak Global Economy: An Index of Resilience Desmond Choong, Yuwa Hedrick-WongConsumer Confidence in a Weak Global Economy: An Index of Resilience<p><b>&nbsp; &nbsp;</b></p> 1. Slowing Global Growth and Emerging Markets<p>The global economy &nbsp;has &nbsp;been &nbsp;recovering from the 2008/09 financial crisis, albeit slow and in a haltingly manner. The longer term outlook is likely to be more of the same, with a slower growing global economy being the norm. In the decade of 2000 to 2010, the global economy expanded on average by 6% per year in real terms. Breaking down this 6% annual growth by source shows that over a fifth came from China, about a tenth from the Euro Zone, and the remaining from the rest of the world.1 In the coming decade, should China’s growth slow by one-third, the Euro Zone’s growth by fourth-fifths, and the rest of the world by two-thirds; then the global economy would expand by only 2.3% a year. If such a scenario comes about, &nbsp;it would be a dramatically different global economy compared with the past.</p> <p>Such a scenario cannot be easily dismissed because the booming global economy in the 2000 to 2010 period was driven by unprecedented liquidity, which provided a powerful lift to growth everywhere, especially in emerging &nbsp;markets. &nbsp;In 2000, &nbsp;private capital flow to emerging markets was estimated at US$200 billion. &nbsp;By 2010, it had jumped to US$1 trillion. Between 2005 and 2010, the rate of growth of private capital flow to emerging markets grew by an astonishing 478%. &nbsp;Indeed, in 2007 just before the global financial crisis un-folded, all but three of the 182 countries monitored by the IMF registered positive economic growth, and 114 of them grew by 5% or more, a phenomenon never seen before. In the two decades prior to 2007, only 50 countries had managed &nbsp;to grow by 5% or more, and most of them for only a few years at a time. So the decade of 2000 to 2010 is in many ways unique and a repeat performance is highly unlikely.</p> <p><a href="/content/dam/intelligence/content-assets/reports/SlowingGlobalGrowthandEmergingMarkets.jpg" target="_blank"><img width="392" height="293" src="/content/dam/intelligence/content-assets/reports/SlowingGlobalGrowthandEmergingMarkets.jpg"></a></p> 2. Consumer Confidence, Exports, and Domestic Demand<p>For many markets in Asia/Pacific and the Middle East, especially the export-oriented &nbsp;ones, the outlook of a slower growing global economy will mean weaker demand for exports. As summarized in Table 1, among these markets total merchandise exports as a percent- age of GDP in 2011 ranges from as high as 176% and 159% &nbsp;in Hong Kong and &nbsp;Singapore respectively, to 14% in Japan. Trade within the Asia/Pacific accounted for the lion’s share of their total exports, followed by exports to North America and Europe. Weaker global demand &nbsp;in the future will mean slower growth in ex- ports at best for many of these markets.</p> <p>How would &nbsp;a &nbsp;weaker &nbsp;global economy, &nbsp;hence &nbsp;a slowdown in exports affect the level of consumer confidence in Asia/Pacific and the Middle East? This is not an academic question, but one with far-reaching practical consequences. With external demand weakening, domestic demand becomes an important factor in sustaining economic growth; and private domestic consumption is an integral part of domestic demand. To the extent that private domestic consumption is affected by consumer confidence (lower consumer confidence leading to less private consumption), then the resilience of the latter in the face of weak exports will be very beneficial in sustaining growth. Chart 1 illustrates that there is indeed a prima facie correlation between levels of ex ports and consumer confidence as measured &nbsp;by the MasterCard Worldwide Index of Consumer Confidence (MWICC).</p> <p><a href="/content/dam/intelligence/content-assets/reports/ConsumerConfidenceExportsandDomesticDemand.jpg" target="_blank"><img width="520" height="365" src="/content/dam/intelligence/content-assets/reports/ConsumerConfidenceExportsandDomesticDemand.jpg"></a></p> <p></p> 3. Index of Resilience of Consumer Confidence<p>In this report, an Index of Resilience is constructed &nbsp;to assess the extent to which consumer confidence is correlated with merchandise export growth –– the higher the correlation, the more vulnerable consumer confi- dence is to a slowdown in merchandise exports. On the other hand, if the correlation is shown to be low, then consumer confidence is less affected by a slowdown in exports, and therefore it can be considered to be more resilient. Launched in 1993, the MWICC has the advantage of being the longest running regional consumer confidence survey in Asia/Pacific; thus there are long data series that can be used for sufficiently rigorous correlation analysis. Currently, there are 25 markets covered by the bi-annual MWICC survey. However, only 17 of these 25 markets are included in the Index of Resilience. The markets that are excluded from the analysis are those whose coverage by MWICC is of relatively recent vintage.</p> <p>The correlation analysis is conducted between merchandise export growth &nbsp;and overall consumer confidence level, as well as separately with the five dimensions of consumer confidence: economy, employment, regular income, stock market, and quality of life. The additional analysis at the level of the five dimensions, which collectively constitute the overall consumer confidence, &nbsp;provides more &nbsp;specific insights &nbsp;on &nbsp;how &nbsp;a change in merchandise exports may affect consumer confidence in the market in question. For example, two markets, A and B, may have similar level of merchandise exports as a percentage &nbsp;of GDP, but differ significantly in the diversity of their exports. In market A, for instance, most of exports may come from a single sector (oil for instance), &nbsp;whereas &nbsp;in market &nbsp;B &nbsp;exports &nbsp;are broadly based on many sectors (a mix of manufacturing, commodities and capital goods). Consequently, with a similar drop in demand for their exports, the effects may be very different between A and B. In market A, the impact on the economy and the stock market could be more severe than the impact on employment and regular income, if the sole export sector is very capital intensive and dominates the valuation in the stock market. In contrast, a similar drop in demand for exports in market B may create more stress in employment, regular income and thereby the quality of life, if the many sectors that participate in exports are labor intensive, but are not very dominant in the valuation of the stock market.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence.jpg"><img width="422" height="323" src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence.jpg"></a></p> <p>Such differences between &nbsp;markets A and &nbsp;B would be reflected in differences in the correlation coefficients between merchandise export growth and the five dimensions of consumer confidence. Thus, the secondary correlation analysis at the level of the five dimensions &nbsp;of &nbsp;consumer &nbsp;confidence &nbsp;yields a &nbsp;more nuanced and market-specific picture on how changing global demand for exports would affect consumer con fidence in different markets in spite of similar dependence on exports. Details of analysis are described in Section 4.</p> <p>Chart 2 presents &nbsp;the &nbsp;outcome &nbsp;of the &nbsp;correlation analysis at &nbsp;the &nbsp;overall &nbsp;consumer &nbsp;confidence &nbsp;level through &nbsp;color-coding the markets. Markets shown in red are those with a correlation coefficient larger than 0.5, suggesting that their consumer confidence is very vulnerable to a slowdown in demand for its exports. At the other end of the spectrum, markets shown in blue are those with correlation coefficient less than 0.2, suggesting that their consumer confidence is very resilient to any weakening demand for exports. In between &nbsp;are the color codes of orange (relatively vulnerable), yellow (neutral – neither vulnerable nor resilient), and green (relatively resilient), representing correlation coefficients of 0.4-0.5, 0.3-0.4, and 0.2-0.3 respectively.</p> <p><a href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence2.jpg"></a></p> <p>China and India are found to be at roughly the mid-point (neutral) between &nbsp;very vulnerable and very re- silient in their consumer confidence, with the correlation coefficients estimated to be 0.37 and 0.34 respectively, as shown in Chart 3. At first glance, the results may seem counterintuitive as China is so much more export oriented than India. However, both China and India have very large domestic markets, and their merchandise exports as a percentage &nbsp;of GDP are not that &nbsp;different: 26.1% &nbsp;in China and &nbsp;18.7% &nbsp;in India (though China’s GDP is more than four times larger). Thus, consumer confidence in both markets is affected by export performance only to a limited degree. Their large domestic markets suggest that there are other important domestic determinants of consumer confidence, and it is not easily eroded by a decline in their exports.</p> <p><a href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence3.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence3.jpg"></a></p> <p>Compared with China and India, the correlation between merchandise export growth and consumer con fidence is higher in both Australia and New Zealand, as shown in Chart 4. Their correlation coefficients are estimated to be 0.41 and 0.45 respectively, putting them in the relatively vulnerable category. It is well known that Australia’s exports of resource and commodities to China have become the single most important driver of its economy in recent years, so it is not that surprising that consumer confidence in Australia is well correlated with its merchandise exports. Consumer confidence in New Zealand, however, turns out to be more vulnerable than Australia to a slowdown in export growth.</p> <p><a href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence4.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence4.jpg"></a></p> <p></p> <p>Consumer confidence in Japan, South Korea, and Taiwan exhibit very different correlations with their respective merchandise exports. As seen in Chart 5, Japan’s correlation coefficient is 0.24, putting it in the relatively resilient category. South Korea, at 0.47, is in the relatively vulnerable category. Taiwan, on the other hand, is in the neutral category. In spite of having a higher export to GDP ratio of 66.6% than South Korea’s 50.4%, Taiwan’s consumer confidence is less vulnerable to a slowdown in exports than South Korea.</p> <p><a href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence5.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence5.jpg"></a></p> <p>Chart 6 shows a sharp contrast between Singapore and Hong Kong, in spite of their similar, and very high, export to &nbsp;GDP ratios (158.6% &nbsp;and &nbsp;176.4% &nbsp;respectively). While both are small, open, and trade-oriented economies, Singapore is in the very vulnerable category whereas Hong Kong is in the relatively resilient category. This contrast illustrates that consumer confidence in dif ferent markets can be sustained by very different market specific factors, resulting in significant differences in the resilience of their consumer confidence in re sponse to a slowdown in exports.</p> <p><a href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence6.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence6.jpg"></a></p> <p>The correlations between consumer confidence and merchandise exports in the five key Southeast Asian markets are summarized in Chart 7, which show very different results. Malaysia and Vietnam are in the relatively vulnerable category with correlation coefficients of 0.47 and 0.49 respectively. And they both have high merchandise export to GDP ratios; 81.5% in Malaysia and 75.2% in Vietnam. Indonesia and Thailand are in the neutral category, with identical correlation coefficient of 0.32, even though they differ significantly in their export to GDP ratios: 24.1% in Indonesia and 65.5% in Thailand. Philippines stands out in the relatively resilient category with a correlation coefficient of 0.29. And its export to GDP ratio is also relatively low at 22.6%.</p> <p><a href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence7.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence7.jpg"></a></p> <p>The correlations between consumer confidence and merchandise exports in the three Middle East markets of &nbsp;Saudi Arabia, United &nbsp;Arab Emirates (UAE), &nbsp;and Kuwait are shown in Chart 8. All three are in the very vulnerable category with coefficients higher than 0.5. At 0.87, the correlation coefficient of UAE is the highest among all 17 markets covered. In spite of concerted efforts to diversify its exports away from resource and commodities, notably in Dubai’s investment in becoming a tourism and convention hub, UAE’s merchandise export to GDP ratio, at 66.8%, remains higher than 57.3% in Saudi Arabia and 44.2% in Kuwait.</p> <p><a href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence9.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence8.jpg"></a></p> <p>Table 2 summarizes the ranking of the 17 markets in terms of the Index of Resilience of Consumer Confidence. Japan and Hong Kong are in the first rank with the lowest correlation coefficient of 0.24, whereas UAE is in the last rank with the highest correlation coefficient of 0.87. &nbsp;Philippines ranks second behind Japan and Hong Kong. Indonesia and Thailand tie for the third rank, while Taiwan and India come in fourth and China ranks fifth; all five are in the neutral category. The next five markets are Australia in sixth rank, New Zealand in seventh, South Korea and Malaysia in eighth, and Vietnam in ninth; and they are in the relatively vulnerable category. Finally, four markets are in the very vulnerable category: Singapore in tenth rank, Saudi Arabia in 11th, Kuwait in 12th, and UAE in 13th.</p> <p><a href="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence8.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/IndexofResilienceofConsumerConfidence9.jpg"></a></p> 4. Correlations with the Five Dimensions of Consumer Confidence<p>Chart 9 shows graphically the color codes of the corre lation coefficients of the 17 markets in terms of how merchandise export growth would affect consumer confidence in the state of the economy (the economy dimension of the overall consumer confidence index). All color codes are present with the exception of blue (very resilient). For most of the 17 markets, the correlation coefficients between &nbsp;(i) export growth and overall consumer confidence, and (ii) export growth and confidence in the state of the economy, are similar. Singapore, however, shows that its confidence in the state of the economy is more vulnerable to a slowdown in merchandise exports than its overall consumer confidence; the coefficient of the latter being slightly higher at 0.54 than the former at 0.50. Hong Kong, Taiwan, Thailand, and Vietnam, on the other hand, show an opposite tendency of their confidence in the state of the economy with this being more resilient to a slowdown in merchandise &nbsp;exports than &nbsp;their overall consumer confidence.</p> <p><a href="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence.jpg" target="_blank"><img width="375" height="367" src="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence.jpg"></a></p> <p></p> <p>Chart 10 illustrates the color codes of the coefficients between &nbsp;merchandise &nbsp;export growth &nbsp;and &nbsp;the employment dimension. All color codes are present, ranging from very vulnerable to very resilient. Nine of the 17 markets exhibit more resilient consumer confidence in their employment situation than the overall consumer confidence. In fact, in Japan consumer confidence in employment is in the very resilient category, a reflection of the sense of security in employment in Japan. Japan is followed by Hong Kong, China, India, Philippines, Taiwan, and Thailand; all with consumer confidence &nbsp;in the &nbsp;employment &nbsp;dimension &nbsp;showingstronger resilience than their overall consumer confidence, securely in the relatively resilient category. UAE’s consumer confidence in the employment dimension, though slightly more resilient than its overall consumer confidence, is also in the very vulnerable category. In contrast, consumer confidence in the employment dimension is less resilient in Australia (relatively vulnera ble), Malaysia (relatively vulnerable), Singapore (very vulnerable) and Vietnam &nbsp;(very vulnerable) compared with overall consumer confidence.</p> <p><a href="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence2.jpg" target="_blank"><img width="379" height="371" src="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence2.jpg"></a></p> <p>The correlations between &nbsp;merchandise export growth and the regular income dimension of consumer confidence are shown in color codes in Chart 11. The entire range of color codes is present, from as low as 0.10 (very resilient) in India to as high as 0.72 (very vulnerable) in Saudi Arabia. Consumer confidence about their regular income is more vulnerable than &nbsp;overall consumer &nbsp;confidence &nbsp;in China, Kuwait, Philippines, Saudi Arabia, and Vietnam. In contrast, it is more resilient than overall consumer confidence in Australia, India, Indonesia, Japan, South Korea, New Zealand, and Singapore.</p> <p><a href="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence3.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence3.jpg"></a></p> <p>The correlations between &nbsp;merchandise export growth and consumer confidence in the stock market are shown in Chart 12. China has the lowest correlation at 0.20 (very resilient), suggesting that changes in merchandise export do not much affect its stock markets. Kuwait, on the other hand, shows the highest correlation at 0.74 (very vulnerable), indicating that its stock market is very sensitive to changes in Kuwait’s merchandise exports (primarily oil). Consumer confidence in the stock market in China, South Korea, and Saudi Arabia is more &nbsp;resilient than &nbsp;overall consumer &nbsp;confidence; whereas the reverse is the case for Hong Kong, Japan, Kuwait, New Zealand, Singapore, and Thailand.</p> <p><a href="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence4.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence4.jpg"></a></p> <p>Chart 13 presents the correlations between &nbsp;merchandise export growth and consumer confidence regarding quality of life. The lowest correlation coefficient is found in Japan at 0.13 (very resilient), suggesting that Japanese consumers do not see much impact from a change in merchandise exports in their quality of life. At the other end of the spectrum is Kuwait with the highest correlation coefficient at 0.56 (very vulnerable), implying that Kuwaitis believe that their quality of life is closely intertwined with oil export. Along with Japan, consumer confidence with respect to their quality of life in Malaysia, New Zealand, Saudi Arabia, Singapore, Taiwan, Thailand, and Vietnam is more resilient than overall consumer confidence; whereas the opposite is true in Kuwait and Philippines.</p> <p><a href="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence5.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/CorrelationswiththeFiveDimensionsofConsumerConfidence5.jpg"></a></p> 5. Internal Analysis by Markets<p>As summarized in Table 3, while the overall consumer confidence in Australia is relatively vulnerable to a slowdown of its merchandise exports, consumer confidence is more resilient with respect to regular income and the stock market, suggesting that these two dimensions are less affected by changes in exports. Consumer confidence regarding the economy and employment, however, mirror the overall consumer confidence, and both are relatively vulnerable to a decline in&nbsp;exports.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets.jpg"></a></p> <p>Hong Kong’s situation is summarized in Table 4. In spite of a small, open, and trade-oriented &nbsp;urban economy, Hong Kong’s overall consumer confidence is relatively resilient to a slowdown in merchandise exports. Its consumer confidence regarding the economy is actually very resilient, suggesting that consumers in Hong Kong do not see exports as the most important determinant of their economy, employment, regular income; nor does it unduly affect its stock market and the general sense of quality of life.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets2.jpg"></a></p> <p></p> <p>The five dimensions of &nbsp;consumer &nbsp;confidence &nbsp;in China behave very differently with respect to merchandise exports as seen in Table 5. Consumer confidence about the economy and quality of life closely track their overall confidence (neutral). But Chinese consumers see their regular income being highly affected by changes in exports, and less so for employment; and they see their stock markets being relatively unrelated to export performance.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets3.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets3.jpg"></a></p> <p></p> <p>While India’s overall consumer confidence is in the neutral position with respect to merchandise &nbsp;export growth, consumer confidence regarding employment and regular income are stronger in the relatively resilient and very resilient categories as Table 6 shows. It can be concluded that consumer confidence in India is either unaffected by or relatively resilient to changes in its merchandise exports. This is consistent with India’s less export-oriented economy.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets4.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets4.jpg"></a></p> <p></p> <p>Table 7 shows the situation in Indonesia, like India, where consumer confidence is relatively unaffected by or relatively resilient to changes in its merchandise exports. This is in spite of Indonesia being a strong ex- porter of resources and commodities. Indonesia’s very strong private consumption growth in the last decade,which became a key driver of overall economic growth as well as employment and income generation, may be the explanation. In other words, Indonesia has well-balanced support from both exports and domestic consumption in its economic growth.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets5.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets5.jpg"></a></p> <p>Japan exhibits a generally resilient profile in its consumer confidence in regard to merchandise exports as seen in Table 8. This should not come as too much of a surprise as Japan’s domestic consumer market is second only to the US, and in the past two decades leading exporters have been investing and building production capacities overseas instead of in Japan. The one dimension that shows a stronger connection to exports is Japan’s consumer confidence regarding the stock market. This reflects the dominance of large Japanese corporations with strong exports in the stock market. It should also be noted &nbsp;that Japan’s consumer confidence has been chronically weak, stuck in the pessimistic range for over a decade; which in turn suggests that its exports performance, weak or strong, is largely irrelevant to Japan’s consumer confidence; which is clearly more affected by domestic factors.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets6.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets6.jpg"></a></p> <p></p> <p>Table 9 shows South Korea’s consumer confidence being relatively vulnerable to changes in its merchandise exports. &nbsp;While consumer &nbsp;confidence &nbsp;regarding &nbsp;the economy, employment and quality of life track the overall consumer confidence; consumer confidence regarding regular income and the stock market appears to be less affected by changes in merchandise exports.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets7.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets7.jpg"></a></p> <p></p> <p>Kuwait’s consumer confidence profile, as seen in Table 10, is one of vulnerability to its merchandise ex port (oil). The least vulnerable is consumers’ perception of their quality of life, which is in the relatively vulnera ble instead of the very vulnerable category.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets8.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets8.jpg"></a></p> <p></p> <p>Malaysia’s consumer confidence profile is similar to Kuwait’s, albeit showing slightly less vulnerability to a slowdown &nbsp;in its merchandise &nbsp;exports, &nbsp;as &nbsp;Table &nbsp;11 shows.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets9.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets9.jpg"></a></p> <p></p> <p>New Zealand’s consumer confidence profile exhibits relative vulnerability in all but the regular income dimension, as summarized in Table 12. Apart from this one exception, it is very similar to that &nbsp;of Malaysia. New Zealand’s consumer confidence regarding regular income being more resilient is likely due to its more generous social welfare support, which acts as a buffer that cushions the impact from any slowdown in merchandise exports.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets10.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets10.jpg"></a></p> <p>Table 13 shows that the Philippines has a relatively resilient profile in its consumer confidence in relation to merchandise exports. The weakest are with respect to the regular income and quality of life dimensions (both are in the neutral category).</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets11.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets11.jpg"></a></p> <p></p> <p>Consumer confidence in Saudi Arabia is very vulner able to any slowdown in its merchandise export (oil), as shown in Table 14. The least vulnerable is Saudi Arabians’ confidence in their quality of life, which is the least affected by exports.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets12.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets12.jpg"></a></p> <p></p> <p>Singapore’s consumer confidence is generally vulnerable to its merchandise exports, with the sole exception of confidence in quality of life, which is relatively resilient to potentially negative impacts from a slowdown in exports. As seen in Table 15, consumer confidence regarding regular income is also less affected by exports, being in the neutral category.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets13.jpg" target="_blank"><img width="445" height="110" src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets13.jpg"></a></p> <p></p> <p>Taiwan has a more resilient profile in its consumer confidence in relation to merchandise exports, as Table16 shows. The most vulnerable is in the stock market dimension, which reflects the dominance of large and export-oriented Taiwanese companies in its stock market.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets14.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets14.jpg"></a></p> <p>Thailand also exhibits a relatively resilient profile of its consumer confidence in relation to its merchandise exports. The resilience of Thai consumer confidence is weakest in the two dimensions of regular income and stock market as Table 17 shows; both are in the neutral category. None of the five dimensions of consumer confidence are in the vulnerable category with respect to merchandise exports, however.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets15.jpg" target="_blank"><img width="486" height="141" src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets15.jpg"></a></p> <p></p> <p>Consumer confidence in the UAE is very vulnerable to a slowdown in its merchandise exports, as Table 18 shows. In fact, the correlation coefficients in the UAE are the highest seen in the 18 markets, suggesting that even a minor slowdown &nbsp;in its merchandise &nbsp;exports could quickly erode consumer confidence.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets16.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets16.jpg"></a></p> <p></p> <p>Vietnam’s consumer confidence is relatively vulnerable to a slowdown in its merchandise exports as seen in Table 19. It is most vulnerable in the employment and regular &nbsp;income &nbsp;dimensions, &nbsp;and &nbsp;less so in when &nbsp;it comes to consumer confidence regarding the economy and their quality of life.</p> <p><a href="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets17.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/InternalAnalysisbyMarkets17.jpg"></a></p> <p></p> 6. Resilience of Consumer Confidence and Growth Potential of Domestic Consumption<p>Resilience of consumer confidence is one of the factors that determine the potential of domestic consumption as a growth engine in a slower growing global economy. The other important factor is the strength of consumer confidence to begin with. Combining these two factors then positions each of the markets in a two dimensional matrix indicating their potential in leveraging private domestic consumption. Markets with the strongest potential are those with the highest level of consumer confidence, &nbsp;as well as most resilient to a slowdown in merchandise exports. At the opposite end of the spectrum are markets with least potential, which are those with very low consumer confidence, and are also most vulnerable to a slowdown in merchandise ex- ports. Chart 14 positions each of the markets in such a two dimensional matrix. Markets with the greatest potential are in the upper left corner, and those with least potential are in the lower right corner. Hong Kong, Indonesia, Thailand, Philippines, India and China are well positioned with the strongest potential to leverage private domestic consumption to support economic growth. &nbsp;While Malaysia, Singapore, &nbsp;Vietnam, Saudi Arabia and Kuwait all have relatively strong consumer confidence; their consumer confidence is also more vulnerable to a slowdown in merchandise exports. Japan’s consumer confidence is very resilient to external shocks, but it is also very low, being stuck in pessimism for over a decade and a half, which is a persistent damper on private consumption. The UAE occupies a position all on its own, &nbsp;with historically strong &nbsp;consumer confidence while being very vulnerable to a slowdown of its exports.</p> <p><a href="/content/dam/intelligence/content-assets/reports/ResilienceofConsumerConfidenceandGrowthPotentialofDomesticConsumption.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/ResilienceofConsumerConfidenceandGrowthPotentialofDomesticConsumption.jpg"></a></p> Appendix A: Methodology for Calibrating Consumer Confidence Resilience<p>The objective of this project was to investigate the degree to which consumer confidence in key markets in Asia/Pacific and the Middle East is correlated with their exports. Lower correlations indicate higher resilience as the market in question is less affected by weakening external demand. To that end, a correlation analysis of the MasterCard Worldwide Index of Consumer Confidence (MWICC) and &nbsp;its 5 sub-components &nbsp;was conducted against merchandise export growth &nbsp;for 17 countries across Asia/Pacific and the Middle East.</p> <p></p> Data Sources<p>Domestic consumer confidence data was sourced from The MasterCard Worldwide Index of Consumer Confidence survey. It is the most comprehensive and longest running (20 years) survey of its kind in the region. The survey comprising the Asia/Pacific markets began in the first half of 1993 and has been conducted twice yearly since. Markets from the Middle East and Africa were included in the Index from 2004. &nbsp;Twenty five markets now participate in the survey: Australia, China, Egypt, Hong Kong, India, Indonesia, Japan, Kenya, Kuwait, Lebanon, Malaysia, Morocco, New Zealand, Nigeria, Oman, Philippines, Qatar, Saudi Arabia, South Korea, South Africa, Singapore, Taiwan, Thailand, United Arab Emirates and Vietnam.</p> <p>The Index is calculated based with zero as the most pessimistic, 100 as most optioptimistic and 50 as neutral. Five dimensions associated with consumer confidence are measured: employment, the economy, regular income, stock market and quality of life. The responses are consumers' outlook for the six months ahead. Data collection was via internet surveys and face to face interviews, with the questionnaire translated to the local language wherever appropriate and necessary. The survey has a margin of sampling error of plus or minus four to five percentage points at the 95% confidence level.</p> <p></p> Data Period Used<p>The time period of the correlations was constrained by the MWICC time series and varies by country. The cor relations for Australia, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Singapore and Taiwan used the period 1993 to 2012; India, Philippines and Thailand used the period 1995 to 2012; China used the period 1996 to 2012; Vietnam used the period 2003 to 2012; and Kuwait, UAE and Saudi Arabia used the period 2004 to 2012. Although 25 countries are covered by the MWICC, 5 of the countries were excluded from the correlation analysis due to insufficient data points as these &nbsp;countries joined the survey much later (Kenya (2009), Nigeria (2009), Morocco (2009), Qatar (2008), Oman (2011).</p> Data Transformations<p>As the MWICC is surveyed on a biannual basis, exports were aggregated &nbsp;at 6 month intervals to produce cor- responding biannual points in 3 versions: 6 month leading, coincident and 6 month lagging. Finally, in addition to &nbsp;total &nbsp;merchandise &nbsp;exports, regional export series were also created. &nbsp;Correlation analysis of the overall MWICC Index score and its 5 components &nbsp;were conducted separately against the 6 month leading, coinci dent and 6 month lagging biannual export growth of total &nbsp;merchandise &nbsp;exports and &nbsp;on a regional export basis to ascertain which of the three versions would give the best correlations. At this point, three countries were excluded from the analysis as correlations were negative for all three versions (Lebanon, Egypt and South Africa). The table below shows the export version selected (coincident, 6 month leading, or 6 month lagging) based on the best correlations produced.</p> <p><a href="/content/dam/intelligence/content-assets/reports/ResilienceofConsumerConfidenceandGrowthPotentialofDomesticConsumption2.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/ResilienceofConsumerConfidenceandGrowthPotentialofDomesticConsumption2.jpg"></a></p> Exports as a percentage of GDP<p>This indicator was used as a guide to the overall impor tance of exports to the economy. Merchandise exports at the total and at the regional level were calculated for each country for the 2011 period and the average of the 1993 to 2011 period. The ratios vary widely across the countries with Japan, Australia and India in the sub 20% range at one end of the spectrum and Singapore and Hong Kong at the other.</p> <p>When mapped against the correlations of total merchandise exports to the MWICC index over 1993 &nbsp;to 2011, the relationship of a higher ratio of exports to GDP giving higher correlations of exports and domestic consumer confidence is not always maintained. Some countries like Hong Kong, Taiwan and Thailand have a very high ratio of merchandise exports to GDP but a relatively low correlation of merchandise export growth to domestic &nbsp;consumer &nbsp;confidence, &nbsp;while countries like Australia and New Zealand have a lower ratio of merchandise exports to GDP but a relatively higher correlation of merchandise export growth to domestic consumer confidence. Details of the correlation analysis are summarized in the following table.</p> <p></p> Index of Resilience of Consumer Confidence and Growth Potential of Domestic Consumptionhttp://www1.mastercard.com/content/intelligence/en/research/reports/2013/consumer-confidence-in-a-weak-global-economy-an-ndex-of-resilience2013-01-22T16:00:00.000Z2013-01-22T16:00:00.000ZMasterCard Global Destination Cities Index Report 2013 Dr. Yuwa Hedrick-WongMasterCard Global Destination Cities Index Report 2013<p>Top 20 Global Destination Cities in 2013<sup>1</sup></p> <p></p> <p>The top destination city by international visitor arrivals in 2013 is Bangkok, which managed to surpass London by a very slim margin. This is the first time an Asian city is in the top rank since the Index was launched in 2010. London is now followed by Paris, Singapore, New York, Istanbul, Dubai and others as shown in Chart 1. Paris remains third, but is the only destination city among the top 20 that shows a decline in the estimated number of international visitor arrivals, by -0.7 percent in 2013. In contrast, Istanbul and Dubai show the strongest growth (along with Bangkok) in increasing their arrival numbers by 9.5 percent and 10.9, percent respectively. With the exception of Bangkok overtaking London to be in the top rank in the world, the lineup of the global top 20 in 2013 is the same as in 2012.</p> <p></p> <p>CHART 1 Global Top 20 Top Destination Cities by International Overnight Visitors</p> <p><a href="/content/dam/intelligence/content-assets/reports/CHART1GlobalTop20.jpg" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/CHART1GlobalTop20.jpg"></a></p> <p></p> <p></p> <p></p> <p></p> Global Travel Trending Up Despite Economic Challenges<p>It has been more than four years since the global financial crisis erupted in 2008. The recovery has been slow to say the least, and the global economic outlook continues to be clouded by uncertainty. Against this background, international travel and cross-border spending have shown to be very resilient as evidenced by data from the 132 cities covered by MasterCard’s Global Destination Cities Index.<sup>2</sup> Chart 2 compares the growth between world real GDP, international visitor arrivals in the 132 cities and their cross-border spending over the 2009 and 2013 period. International visitor arrivals grew almost twice as fast as world real GDP, and their cross-border spending grew over 2.3 times faster. So despite the persistent weakness of constrained demand in the global economy, international travel is growing strongly, and the 132 of the world’s most important destination cities are benefiting from this powerful trend.</p> <p><a href="/content/dam/intelligence/content-assets/reports/CHART2worldgdp.jpg" target="_blank"><img width="471" height="413" src="/content/dam/intelligence/content-assets/reports/CHART2worldgdp.jpg"></a></p> <p></p> <p></p> <p></p> <p>Not all 132 destination cities perform equally well, however. Indeed, a closer look at the change in air travel connectivity of the 132 destination cities over the 2009 and 2013 period shows a decidedly geographic pattern in growth. The level of air travel connectivity for a destination city can be measured in terms of both the scope of the city’s connections with other cities by air travel, as well as the frequency within each connection.<sup>3</sup> Estimates of how air travel connectivity has changed from 2009 to 2013 are summarized in Table 1. Of the 12 destination cities showing the fastest increase in air travel connectivity, all are located east and south of Istanbul with the exception of Moscow. The city with the fastest-growing air travel connectivity in North America is Toronto, which ranks 13. The fastest-growing city in Western Europe in air travel connectivity is Berlin, which ranks 17. The African city with the fastest-growing air connectivity is Cairo, which ranks 19, and in Latin America it is Bogotá, which ranks 22.</p> <p><a href="/content/dam/intelligence/content-assets/reports/table1airtravelconnectivity.jpg" target="_blank"><img width="447" height="523" src="/content/dam/intelligence/content-assets/reports/table1airtravelconnectivity.jpg"></a></p> <p></p> <p></p> <p>This geographical pattern clearly suggests that destination cities in emerging markets in the Middle East and Asia are expanding the fastest in being connected to the rest of the world through having more flights to more cities, and more frequent flights to cities where they are already connected. This will strongly drive the growth of their visitor arrivals and cross-border spending in the coming years.</p> <p></p> <p>Chart 3 shows more detail on the growth rates of the global top five destination cities from 2010 to 2013. Bangkok enjoyed growth rates of over 18 percent in 2011 and 2012, and it follows with a further 9.8 percent growth in 2013, which clearly helped propel it to the world’s number-one rank. In contrast, the growth rates for Singapore dropped significantly over this time period; and, as mentioned above, the growth rate of Paris dips into the negative in 2013.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart3globaltop5.jpg" target="_blank"><img width="480" height="324" src="/content/dam/intelligence/content-assets/reports/chart3globaltop5.jpg"></a></p> <p></p> <p></p> <p></p> <p>In terms of cross-border spending, New York has retained its top rank in the world in 2013 with an estimated US$18.59 billion, followed by London with US$16.32 billion. They are followed by Paris, Bangkok, Singapore, Tokyo, and others as shown in Chart 4. Though ranked first in the world by arrival numbers, Bangkok is ranked fourth in terms of visitor cross-border spending estimated at US$14.28 billion.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart4globaltop20.jpg" target="_blank"><img width="492" height="523" src="/content/dam/intelligence/content-assets/reports/chart4globaltop20.jpg"></a></p> <p></p> <p></p> <p></p> <p>The cross-border spending growth rates from 2010 to 2013 of the global top five are illustrated in Chart 5. Bangkok shows highest growth rates overall, rising from close to 20 percent in 2011 to 36 percent in 2012, before settling down to 11.4 percent in 2013. Growth rates in Paris had been very volatile, recovered somewhat in 2013 to -0.7% from a severe decline of -9.2% in 2012. Growth rates in Singapore were in continuous decline in this period, while they were relatively stable for New York and London.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart5globaltop5.jpg" target="_blank"><img width="455" height="340" src="/content/dam/intelligence/content-assets/reports/chart5globaltop5.jpg"></a></p> <p></p> <p></p> Asia/Pacific Top 10 Destination Cities<p>The top 10 in Asia/Pacific are shown in Chart 6. Bangkok, being top ranked in the world, is also the top ranked in Asia. It is followed by Singapore, Kuala Lumpur, Hong Kong, Seoul, Shanghai, Tokyo, Taipei, Beijing, and Guangzhou. Significantly, five of the top 10 in 2013 are in the Greater China region.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart67asiapacifictop5.jpg" target="_blank"><img width="426" height="548" src="/content/dam/intelligence/content-assets/reports/chart67asiapacifictop5.jpg"></a></p> <p></p> <p></p> <p>Chart 8 lists the top 10 in Asia/Pacific in international visitors’ cross-border spending. Bangkok and Singapore are again in the first and second rank. Tokyo, however, moves up from the seventh rank in arrivals to the third rank in spending, reflecting the higher costs of living in Tokyo. Two Australian cities, Sydney and Melbourne, appear in the top 10 in spending­—ranking fifth and 10th, respectively—­even though they are not in the top 10 in arrivals (Sydney ranks 15th and Melbourne 25th in Asia/Pacific in arrivals). Like Tokyo, this is a reflection of the higher costs of living in these two cities as well as the tendency to stay longer when foreigners visit these two cities. In contrast, three cities have ranks in spending that are lower than their ranks in arrivals, Kuala Lumpur (seventh versus third rank), Shanghai (eighth versus sixth rank), and Hong Kong (ninth versus fourth rank), suggesting that their arrivals either stay for a shorter period or spend less, or both.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart8asiapacifictop10.jpg" target="_blank"><img width="454" height="245" src="/content/dam/intelligence/content-assets/reports/chart8asiapacifictop10.jpg"></a></p> <p></p> <p></p> <p></p> <p>The growth rates of the Asia/Pacific top five destination cities in spending from 2010 to 2013 are detailed in Chart 9. The curves representing Bangkok and Singapore have been shown in Chart 5 in the global top five. Tokyo shows a strong recovery in 2012, bouncing back to 20 percent from a severe contraction of 20 percent in 2011 as a result of the earthquake, tsunami and Fukushima nuclear disasters. In 2013, its growth is lower than 2012, at around 6.5%. Sydney and Seoul converge similarly to 5.9% and 6.7%, respectively, in 2013.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart9asiapacifictop5.jpg" target="_blank"><img width="464" height="356" src="/content/dam/intelligence/content-assets/reports/chart9asiapacifictop5.jpg"></a></p> <p></p> <p></p> Europe Top 10 Destination Cities<p>London ranks first in Europe in international visitor arrivals, followed by Paris, Istanbul, Barcelona, and Milan. In fact, the lineup of the top 10 in Europe, shown in Chart 10, is unchanged this year from 2012.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1011europetop5.jpg" target="_blank"><img width="427" height="612" src="/content/dam/intelligence/content-assets/reports/chart1011europetop5.jpg"></a></p> <p></p> <p></p> <p></p> <p>Chart 12 shows the top 10 in Europe in terms of cross-border spending by international visitors. London ranks first, as in previous years. Three out of the top 10, however, are showing negative growth in visitor spending: Paris, Milan and Rome. In contrast, the destination cities showing the strongest growth rates among the top 10 are London at 6.1 percent, Vienna at 6.6 percent and Istanbul at 5.5.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1213europetop10.jpg" target="_blank"><img width="444" height="619" src="/content/dam/intelligence/content-assets/reports/chart1213europetop10.jpg"></a></p> <p></p> <p></p> <p></p> <p></p> Latin America Top 10 Destination Cities<p>Mexico City is the top ranked destination city in Latin America, with 3.1 million international visitor arrivals estimated for 2013. It is followed by Buenos Aires, Sao Paulo, Lima, San Jose, and others, as shown in Chart 14. The lineup of top 10 in Latin America in 2013 is unchanged from 2012. This apparent stability, however, masks rapidly changing growth dynamics.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart14latinamericatop10.jpg" target="_blank"><img width="477" height="281" src="/content/dam/intelligence/content-assets/reports/chart14latinamericatop10.jpg"></a></p> <p></p> <p></p> <p>The very different growth dynamics in international visitor arrivals among the top five destination cities in Latin America are illustrated in Chart 15. In 2011 and 2012, Lima grew strongly, while Mexico City suffered a contraction in 2011 and Buenos Aries in 2012. Meantime, San Jose’s growth rates basically mirrors those of Mexico City, while Sao Paulo’s growth rates managed a steady increase from 2011 to 2013. Even though their growth rates seem to converge in 2013, Lima remains the fastest-growing at 12.7 percent, followed by Sao Paulo at 10.7 percent. If these growth rates are maintained, then Sao Paulo could surpass Mexico City and Buenos Aires in 2017, and Lima overtaking Buenos Aires in 2018.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart15latinamericatop5.jpg" target="_blank"><img width="487" height="394" src="/content/dam/intelligence/content-assets/reports/chart15latinamericatop5.jpg"></a></p> <p></p> <p></p> <p></p> <p>Chart 16 lists the top 10 destination cities in visitor cross-border spending in Latin America. Sao Paulo is in the first rank (third rank in arrivals), followed by Buenos Aires, then Mexico City, Rio de Janeiro and Lima in the top third. While the list of the top 10 in 2013 is the same as in 2012, Bogotá climbed from eighth rank in 2012 to seventh rank in 2013; while Caracas fell from seventh to eighth rank.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart16latinamericatop10.jpg" target="_blank"><img width="507" height="252" src="/content/dam/intelligence/content-assets/reports/chart16latinamericatop10.jpg"></a></p> <p></p> <p></p> <p></p> <p>Chart 17 shows that the growth rates of visitor spending diverged widely over the 2010 to 2012 period, before converging in 2013. Lima is the fastest-growing in 2013 with 13.2 percent, followed by Rio de Janeiro at 12.1 percent, Mexico City at 11.6 percent, Sao Paulo at 11.0 percent, and Buenos Aires at 6.0 percent. But the fastest-growing among the top 10 is Bogotá, in the seventh rank at 14.2 percent (not shown in the chart). In contrast, Caracas which is in the eighth rank (also not shown in the chart), is estimated to contract by 13.3 percent this year.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart17latinamericatop5.jpg" target="_blank"><img width="512" height="341" src="/content/dam/intelligence/content-assets/reports/chart17latinamericatop5.jpg"></a></p> <p></p> <p></p> <p></p> <p></p> Middle East and Africa Top 10 Destination Cities<p>The top 10 destination cities in international visitor arrivals in the Middle East and Africa region are listed in Chart 18. Dubai has retained the number one rank in the region. The lineup of the top in 2013 is exactly the same as in 2012. One striking feature in the top 10 is how far ahead Dubai is from the rest. Its international arrival number is almost twice that of Riyadh in second rank, and about four times as high as the third-ranked Johannesburg.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart18meatop10.jpg" target="_blank"><img width="461" height="248" src="/content/dam/intelligence/content-assets/reports/chart18meatop10.jpg"></a></p> <p></p> <p></p> <p></p> <p>The growth rates of international visitor arrivals of the top five destination cities in the region are shown in Chart 19. Apart from Riyadh, which pulled away from the rest and grew strongly in 2011, all top five converged in growth rates in 2012 and 2013. During 2010 and 2011, however, Lagos suffered a severe contraction, with visitor numbers declining by about 20 percent each year, before recovering to around 6.9 percent growth in 2012. Growth rates of Amman and Johannesburg in 2011 also stalled before returning to positive growth in 2012 and 2013.</p> <p></p> <p>But the destination city with the strongest growth rate among the top 10 is Abu Dhabi (not shown in the chart), in seventh rank, with its growth in arrivals in 2013 estimated at 16.1 percent. If the same growth rates are maintained in the coming years, Abu Dhabi will overtake Lagos in 2016 and match Johannesburg in 2017.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart19meatop5.jpg" target="_blank"><img width="501" height="364" src="/content/dam/intelligence/content-assets/reports/chart19meatop5.jpg"></a></p> <p></p> <p></p> <p></p> <p></p> <p>Chart 20 shows the top 10 destination cities in the Middle East and Africa region in terms of visitor cross-border spending. Beirut is in the third rank even though it is not among the top 10 in visitor arrivals, a testimony to its ability to attract visitors that are big spenders. Dubai is in first rank, and just as in the numbers of visitor arrivals, it is striking to see how far ahead of the rest Dubai is. Cross-border spending by international visitors in Dubai is estimated to be over three times higher than the second-ranked Riyadh, 3.7 times higher than the third-ranked Beirut, almost four times higher than the fourth-ranked Johannesburg, and is over six times higher than the sixth-ranked Abu Dhabi.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart20meatop10.jpg" target="_blank"><img width="436" height="174" src="/content/dam/intelligence/content-assets/reports/chart20meatop10.jpg"></a></p> <p></p> <p></p> <p></p> <p>The growth rates of visitor cross-border spending over the 2011 and 2013 period for the top five in Middle East and Africa are seen in Chart 21. Widely divergent patterns can be observed between the top five destination cities. Beirut suffered from a severe contraction in 2011 and 2012, with visitor spending declining by 14.5 and 8.4 percent, respectively, before recovering to 3.4 percent growth in 2013. 2011 was also a year of contraction for Johannesburg and Amman. In contrast, visitor spending in Riyadh grew astonishingly at over 90 percent in 2011, before dropping back to around 20 percent in 2012 and 12 percent in 2013.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart21meatop5.jpg" target="_blank"><img width="478" height="255" src="/content/dam/intelligence/content-assets/reports/chart21meatop5.jpg"></a></p> <p></p> <p></p> <p></p> <p></p> North America Top 10 Destination Cities<p>Chart 22 shows the top 10 destination cities in North America by international visitor arrivals. New York is the top ranked destination city in the region, followed by Los Angeles and Miami. The Canadian city Toronto is in the 4th rank, ahead of another Canadian city, Vancouver, which is in 5th rank. They are then followed by San Francisco, Washington D.C., Chicago, Montreal, and Boston. The lineup of these top 10 in North America in 2013 is unchanged from 2012.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart22natop10.jpg" target="_blank"><img width="422" height="239" src="/content/dam/intelligence/content-assets/reports/chart22natop10.jpg"></a></p> <p></p> <p></p> <p>Chart 23 provides the growth rates of the North American top five in international visitor arrivals from 2010 to 2013. New York and Vancouver both show moderate growth over this period. Los Angeles, however, declined from close to 30 percent growth in 2010 to less than five percent in 2013. Miami suffered a contraction of five percent in 2011, but has rebounded vigorously to an eight percent gain in 2012, and then close to 11 percent in 2013. Vancouver also contracted slightly in 2011, recovering in 2012, but slid back to a very anemic 0.2 percent growth in 2013.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart23natop5.jpg" target="_blank"><img width="468" height="380" src="/content/dam/intelligence/content-assets/reports/chart23natop5.jpg"></a></p> <p></p> <p></p> <p></p> <p>Chart 24 shows the top 10 destination cities in North America by international visitor cross-border spending in 2013. New York is again the top ranked destination city in the region in 2013, followed by Los Angeles in second rank. Vancouver, however, is in third rank despite being in fifth rank in arrivals, beating Toronto and Miami.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2425natop10.jpg" target="_blank"><img width="474" height="643" src="/content/dam/intelligence/content-assets/reports/chart2425natop10.jpg"></a></p> <p></p> <p></p> <p></p> Origin/Feeder Cities<p>The rise and fall of the divergent growth patterns of destination cities has a lot to do with their respective origin/feeder cities. These are cities where their international visitors come from. Destination cities that are strongly connected to origin/feeder cities with growing economies, rising household disposable incomes, and residents with a healthy appetite for international travel. Destination cities whose traditional origin/feeder cities are suffering from poor economies and stagnant household incomes will decline unless they can tap into new and fast-growing origin/feeder cities—especially those with an expanding and increasingly prosperous middle class—to attract new visitors. This is an ever-changing dynamic picture. To illustrate this dimension of the global destination cities, the five most important origin/feeder cities for each of the global top 10 destination cities are shown in this section.</p> <p>Chart 26 shows the top five origin/feeder cities for the global top ranked destination city, Bangkok. All five origin/feeder cities of Bangkok are in Asia: Singapore, Tokyo, Hong Kong, Kuala Lumpur, and Seoul. Singapore is the biggest origin/feeder city for Bangkok, but the number of visitors from Singapore to Bangkok is estimated to decline by three percent in 2013, whereas visitors to Bangkok from Kuala Lumpur is expected to growth strongly by 15 percent, followed by Hong Kong at 9.5 percent, Tokyo at 7.5 percent and Seoul at 4.4 percent.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart26bangkoktop5.jpg" target="_blank"><img width="441" height="274" src="/content/dam/intelligence/content-assets/reports/chart26bangkoktop5.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2728londontop5.jpg" target="_blank"><img width="437" height="629" src="/content/dam/intelligence/content-assets/reports/chart2728londontop5.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2930singaporetop5.jpg" target="_blank"><img width="435" height="618" src="/content/dam/intelligence/content-assets/reports/chart2930singaporetop5.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart3132istanbultop5.jpg" target="_blank"><img width="438" height="595" src="/content/dam/intelligence/content-assets/reports/chart3132istanbultop5.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart3334kltop5.jpg" target="_blank"><img width="438" height="599" src="/content/dam/intelligence/content-assets/reports/chart3334kltop5.jpg"></a></p> <p></p> <p></p> <p></p> <p></p> <p></p> <p></p> <p></p> <p></p> <p></p> <p></p> <p>Barcelona, the destination city in the 10th rank in the world, has London, Paris, Amsterdam, Frankfurt, and Munich as its five most important origin/feeder cities. The outlooks for these five are very different, however. Visitors from Frankfurt are expected to increase strongly by 27 percent in 2013. At the other end of the spectrum, visitors from Amsterdam are expected to decline by 6.7 percent, followed by Paris with a decline of 3.8 percent. In between are visitors from Munich, that are set to increase by 7.7 percent, and from London by 6 percent.</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart35barcelonatop5.jpg" target="_blank"><img width="438" height="267" src="/content/dam/intelligence/content-assets/reports/chart35barcelonatop5.jpg"></a></p> <p></p> <p></p> <p></p> Conclusions<p>International tourism is becoming a vital and resilient export for the leading destination cities in the world and its economic and social benefits are far-reaching. It is well established that the hospitality industry, the transport industry and food and beverage catering industry, among others, are the primary and direct beneficiaries of the demand created by international visitors. Employment in these industries also tends to be labor intensive, which makes tourist spending a potent driver of employment creation in a destination city.</p> <p></p> <p>International visitors to a destination city also seek new and rewarding experiences, especially in the arts, popular culture and entertainment, as well as historical and heritage sites unique to the city. These visitors and their spending are therefore powerful catalysts for nurturing and driving the growth of creative industries and urban cultures, while preserving the past in ways that uniquely contribute to the attractiveness of the city in question. So the benefits of international tourism frequently exceed what can be computed in dollar and cents, but affect the very quality and dynamism of urban culture itself.</p> <p></p> <p>To the extent that the destination cities succeed in attracting more international visitors, there is the inevitable pressure on improving public infrastructure and facilities. With the right policy responses, a virtuous circle can be set in motion; more international visitors leading to more and better investment to improve the cityscape and the overall urban environment, which in turn makes the destination city more attractive to more international visitors. Businesses are then encouraged to invest in the city, further improving employment and income. Thus, in a slower-growing global economy, destination cities could play a much larger role in sustaining global service trade while supporting their respective national economies through stronger growth in employment and income in their urban economies. Destination cities have always been important, but they are set to become even more so in the future.</p> <p>Apart from the global top 20 and the regional top 10 destination cities described above, we also need to pay attention to some of the smaller destination cities which are also the fastest-growing in the world. Table 2 presents the global top 20 in terms of their growth rates in international visitor arrivals from 2009 to 2013, ranked from the set of destination cities that have a minimum of one million international visitor arrivals in 2013.4 Bangkok and Singapore, from the global top 20 are among them. But many are neither in the global top 20 nor in the regional top 10. However, they are the destination cities to watch for the future.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/table2.jpg"><img width="393" height="446" src="/content/dam/intelligence/content-assets/reports/table2.jpg"></a></p> <p></p> <p></p> <p></p> <p><sup>4</sup> This is to exclude the really small destination cities with only a few hundreds of thousands of visitors each year, which despite their fast rates of growth, would not be able to realistically challenge the position of the current leading destination cities with annual arrivals in the tens of millions.</p> <p></p> Appendix A: Assessing Air Travel Connectivity<p>This is a measure that seeks to gauge the breadth of a city’s international connectivity in air travel in terms of established flights linking the city with others in the rest of the world, as well as the strength of each connection in terms of flight frequencies.</p> <p>Using Amsterdam as an example, and each city paired with Amsterdam as the departure node, we calculate the connectivity score for the city pair as:</p> <p><img src="/content/dam/intelligence/content-assets/reports/pic1.jpg"></p> <p></p> <p>where Weekly Flight Frequency is the number of flights per week departing from Amsterdam to a particular city. This is the main driver of the connectivity score and it is sourced from OAG Flight Schedules Data. Airlines will also provide their flight schedules for one year ahead, which is how we obtained the weekly flight frequencies for 2013. While the number of cities that Amsterdam is connected to determines Amsterdam’s raw connectivity, the strength of each connection is measured by the weekly flight frequency and weighted by whether or not the connection is inter-regional or intra-regional.</p> <p></p> <p>Inter/Intra-Regional Multiplier: International Destinations from Amsterdam that are Inter-regional (i.e. outside of Western Europe, in the case of Amsterdam) are weighted at twice (i.e. x 2) that of International Destinations within the same region as Amsterdam (i.e. intra-regional, within Western Europe). City Pair with Max Weekly Flight Frequencies: This number is used to normalize the raw connectivity scores. It has absolutely no effect on the relative scores between cities and is used only for ease of presentation when viewing the data.</p> <p></p> <p>Every Amsterdam ABC city pair is thus given its own connectivity value. We add them up to get a connectivity value for Amsterdam itself. We now do this for every one of the 132 cities. Once we have the connectivity scores for all 132 cities, we perform a final normalization so that the scores can be presented out of a maximum of 100 (Index format). The divisor for this is the highest raw 2009 score (in this case London’s connectivity score).</p> Appendix B: Methodology for Estimating Arrivals and Cross-border Spending<p>&nbsp;</p> <p></p> Estimates of Overnight Visitors to a Destination City<p>“Arrivals” in each of the destination cities is defined as international arrivals that actually stayed in the destination city for at least one night. The sources for city-level overnight arrivals by foreign visitors are typically the National Statistics Boards of the relevant countries or their Tourism Boards. The indicators for 117 out of the 132 cities were directly sourced for or estimated from official data. The other 15 cities where such data are not available were estimated using the Airflow model, and we sourced for the following official data in order of preference:</p> <p></p> <ul> <li>Foreign overnight arrivals by air at the city level or foreign overnight arrivals at paid accommodations at the city level</li> </ul> <p></p> <ul> <li>Foreign number of nights stayed at paid accommodations at the city level</li> </ul> <p></p> <p>In cases where official data or estimates derived from official data do not cover 2012 but do cover some earlier year (2009,2010 or 2011), we have projected from the years where data was available using the growth rates from the Airflow model. For all cases, forecasts for 2013 are projected using growth rates from the Airflow model.</p> <p></p> The Airflow Model<p>Every month the OAG collects the airline flight schedules for the next 12 months on a global basis. Where previously we only used the data from key months (and the associated 12 month schedule forecasts arising for those months) as the basis of our one-year projections, we now use the full 12 months of flight schedule data to construct our forecasts. Using only non-stop flights we extract for each city to city pair the number of:</p> <p>Weekly flight frequencies</p> <p>Passenger capacity</p> <p>On any airline flight route, the average percentage of seats filled (called the “load factor”) varies. This information is extremely sensitive for competitive reasons and airlines will only release this data with a one-year lag. Nevertheless, by using the historical load factors on most city-to-city flight routes, we can estimate a proxy for the current and forecasted load factor. We used a weighted average</p> <p>of the historical load factors with heavier emphasis on the most recent years and it ranges between 30 to 100 percent, but airlines will try to maintain a load factor of between 70 to 80 percent by changing the number of weekly flights or by changing the aircraft type to increase or decrease passenger capacity. As such, for determining the years for which we do not have load factor numbers, we apply an increasing improvement of 5 percent per year on the historical average, starting at 70 percent and improving to 85 percent over time. Using the data above we can now gain a first estimate of the number of passengers departing from one city to another using:</p> <p><img src="/content/dam/intelligence/content-assets/reports/pic2.jpg"></p> <p></p> <p>On any flight, there will also be passengers who are returning home after having visited the departure city. For example, in the case of a Caracas to Miami flight, there will be US passengers returning back to Miami after having visited Caracas. We want to net out those passengers. As airlines do not reveal the residency of their passengers, there is no way to know at a city-to-city level what portion of passengers on each flight is returning home. We need to go to the country-country level for this, and for that we use UNWTO (United Nations World Tourism Organization) data. They collect the number of annual residents traveling between country pairs and we use these numbers to create a ratio of:</p> <p><img src="/content/dam/intelligence/content-assets/reports/pic3.jpg"></p> <p></p> <p>For example, in the case of the Caracas-Miami route, in 2009 there were 340,403 Venezuelans traveling to the US and 43,752 US residents in total traveling to Venezuela via the Miami–Caracas route, implying a ratio of 88.6 percent, which is the estimated ratio of Venezuelans on any given flight from Venezuela to the US. We use this ratio to net out returning US residents and to obtain the number of Venezuelans traveling from Caracas to Miami as follows:</p> <p><img src="/content/dam/intelligence/content-assets/reports/pic4.jpg"></p> <p></p> <p>Where UNWTO data was not available for a country pair (data was available for 76 percent of the country pairs), data was sourced at the national level where available (2 percent of city pairs), or we used the ratio of the International Monetary Fund Balance of Payments travel debit accounts to construct a secondary proxy ratio. In this release, we have focused on key border regions around the world where the UNWTO cross-country visitor data may give less accurate ratios. In all cases, the general idea was to use overnight visitors (where data was available) instead of overall visitors to construct more accurate departure-arrival ratios of air travelers. This has resulted in some shifts to the flow of travel between these areas (and therefore overall expenditure as well). The border regions include the Mexican-US border, EU countries which share a border, the Singapore-Malaysia border, and the Ukraine-Russia border.</p> <p></p> <p>In this release, out of the 132 cities, 15 of them were estimated using the airflow model, as we were unable to source for official statistics. They are:<b></b></p> <p><b>Eastern Europe: </b>The 5 Russian cities (Moscow, St. Petersburg, Vladivostok,<b> </b>Novosibirsk, and Yekaterinburg: Kiev, Minsk, Almaty)</p> <p></p> <p><b>Asia: </b>Dhaka, Osaka, Tehran</p> <p></p> <p><b>Africa: </b>Dakar, Lagos, Accra</p> <p></p> <p><b>Latin America: </b>San Jose (Costa Rica)</p> <p>For all 132 cities, the Airflow Model was used to make projections for 2013.</p> <p>As explained previously, on any given flight there are departing residents from the departure country, returning visitors and a third group of residuals. The residuals group can be a low proportion of the passengers for typically non-hub cities, and very high for hub cities. To estimate the proportion of this group, we use two main groups:</p> <p><b>Non-residents</b> (of either the origin or destination country) who from the origin city are visiting the destination city</p> <p><b>Residents of the origin country AND non-residents</b> (of either the origin or destination country) who will be <i>transiting</i> through the destination city without visiting it.</p> <p>We are interested in Type A but in order to separate the residuals into its 2 components we use a relative connectivity ratio “RCR” that is based on the International Air Connectivity Index (IACI) scores previously created where:</p> <p><img src="/content/dam/intelligence/content-assets/reports/pic5.jpg"></p> <p></p> <p></p> <p>We then separate out Type A adding:</p> <p>A {Non-residents (of either the departing or arrival country) who from the departure city are visiting the arrival city} to the number of residents visiting the arrival country {calculated earlier} to obtain the estimated number of travelers who will visit the destination city.</p> <p><img src="/content/dam/intelligence/content-assets/reports/pic6.jpg"></p> <p></p> <p>Estimating Visitor Spend in Destination Countries</p> <p>In a few cases the estimated visitor spend was directly sourced from official statistics as in the case of London, Bangkok, Hanoi, and Ho Chi Minh.</p> <p>For the rest of the cities we looked at country-to-country data to estimate the average expenditure of outbound travelers. City-to-city expenditure data is difficult to obtain, as partial figures do exist but these are not publicly available. For this we use the United Nations’ Trade in Services database (travel component), which does not include transport, i.e. airfares at the paired country level. For country pairs where this data is not available, we default to using the average expenditure per traveler in destination countries using IMF Balance of Payments Travel Credit data and the total number of visitors to the country.</p> <p>The formula is as follows:</p> <p><img src="/content/dam/intelligence/content-assets/reports/pic7.jpg"></p> <p></p> <p></p> <p>Based on the latest year available for average expenditure per traveler, we then project the average expenditure per traveler using the nominal growth rate of GDP per Capita provided by the IMF WEO forecast database. Using the estimated number of residents flying from each departure city to each destination city, we can then calculate the estimated expenditure by multiplying in the average expenditure to obtain city-to-city expenditure estimates.</p> <p></p> <p>Based on the latest year available for average expenditure per traveler we then project the average expenditure per traveler using the nominal growth rate of GDP per Capita provided by the IMF WEO forecast database. Using the estimated number of residents flying from each departure city to each destination city, we can then calculate the estimated expenditure by multiplying in the average expenditure to obtain city-to-city expenditure estimates. That is for each city pair:</p> <p><img src="/content/dam/intelligence/content-assets/reports/pic8.jpg"></p> <p></p> <p></p> Glossary<p>Visitor: A person who is traveling on a non-stop direct flight to their destination and is not a resident of the destination country. A visitor may make more than one trip, and each trip counts as a new visit. That is, a person who makes two trips to a destination, as described above, counts as two visitors to that destination. A person on the return leg home does not count as a visitor.</p> <p>Visitor Spend: The estimated total amount that visitors spend in the destination city/country. It excludes air ticket expenditure required to get the visitor to the destination city.</p> <p></p> <p>Origin City: The city from which passengers embark on their flight to the destination city. Passengers who count as visitors may be residents of the origin city/country or may be non-residents from other countries (but not the destination city/country).</p> <p></p> <p>Destination City: The city where passengers disembark (leave the airport) and are counted as visitors (which only includes non-residents of the destination city/country).</p> <p></p> <p>City/Country: Sometimes visitors and visitor spend is described at the country or city level interchangeably. For example, visitors from Frankfurt to London are described as non-residents and residents of the origin country visiting the destination country via London. By residents of the origin country, we mean German residents inclusive of residents of Frankfurt. This is because residents from other parts of Germany may have domestically flown or driven to Frankfurt to take their flight to London together with residents of the Frankfurt urban area. Non-residents of the origin country include, for example, Singaporeans on their way to London who have either visited Frankfurt before going to London or who are simply transiting through Frankfurt on their way to London. The point is, the origin city is the most recent place from which travelers embarked before arriving at their destination, which is a constraint of using only non-stop flights. Finally, visiting the destination country via London implies that visitors may disembark in London to visit the city, but they could also from there visit other parts of the country via a domestic flight.</p> <p></p> Appendix C: Coverage of the Global Destination Cities Index<p>132 cities are covered by the Global Destination Cities Index.</p> <p><b>Asia/Pacific (42 cities):</b></p> <p>Ahmedabad, Almaty, Bangkok, Beijing, Bengaluru, Chengdu, Chennai, Coimbatore, Colombo, Dalian, Delhi, Dhaka, Guangzhou, Hangzhou, Hanoi, Harbin, Ho Chi Minh City, Hong Kong, Hyderabad, Islamabad, Jakarta, Karachi, Kolkata, Kuala Lumpur, Lahore, Manila, Melbourne, Mumbai, Nanjing, Osaka, Pune, Qingdao, Seoul, Shanghai, Shenzhen, Singapore, Sydney, Taipei, Tianjin, Tokyo, Xi an, Xiamen</p> <p><b>Europe (36 cities):</b></p> <p>Amsterdam, Ankara Athens Barcelona Berlin Brussels, Bucharest, Budapest, Copenhagen, Dublin, Dusseldorf, Edinburgh, Frankfurt, Geneva, Hamburg, Istanbul, Kiev, Lisbon, London, Madrid, Milan, Minsk, Moscow, Munich, Novosibirsk, Paris, Prague, Rome, Sofia, St Petersburg, Stockholm, Vienna, Vladivostok, Warsaw, Yekaterinburg, Zurich</p> <p><b>Latin America (19 cities)</b></p> <p>Belo Horizonte, Bogotá, Brasilia, Buenos Aires, Caracas, Cordoba, Curitiba, Lima, Medellin, Mexico City, Monterrey, Montevideo, Quito, Recife, Rio de Janeiro, San Jose, Santiago, Santo Domingo, Sao Paulo</p> <p><b>Middle East and Africa (21 cities)</b></p> <p>Abu Dhabi, Accra, Amman, Beira, Beirut, Cairo, Cape Town, Casablanca, Dakar, Damascus, Dubai, Durban, kampala, Johannesburg, Lagos, Maputo, Nairobi, Riyadh, Tehran, Tel Aviv, Tunis</p> <p><b>North America (14 cities)</b></p> <p>Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, Montreal, New York, Philadelphia, San Francisco, Toronto, Vancouver, Washington</p> <p></p> About the Author<p>Yuwa Hedrick-Wong</p> <p></p> <p>Yuwa Hedrick-Wong is currently HSBC Distinguished Professor of International Business at the University of British Columbia, Canada; and Global Economic Advisor at MasterCard Worldwide.</p> <p></p> <p>Yuwa is an economist and business strategist with 25 years of experience gained in over thirty countries. He is a Canadian who grew up in Vancouver, British Columbia, and spent the last 20 years working in Europe, Sub-Sahara Africa, the Indian Sub-continent, and Asia/ Pacific. He has served as strategy advisor to over thirty leading multinational companies.</p> <p></p> <p>In 2010, Yuwa was appointed as Global Economic Advisor to MasterCard Worldwide. Prior to this role, he was Economic Advisor to MasterCard in Asia/ Pacific, a position he held since 2001. His other appointments are: Advisor at Southern Capital Group, a private equity fund (since 2007); member of the Investment Council of ICICI, India’s largest private bank (since 2008); and Advisor at New Harbor Capital Partners, a hedge fund (Since 2011).</p> <p></p> <p>Yuwa is a frequent speaker at international conferences and a regular commentator in the broadcast and print media on economic, policy and business issues. He is a published author on consumer markets, economic development, trade, and international relations. He was voted “Communicator of the Year” in Asia by the Asia/Pacific Association of Public Relations Professionals. He wrote a regular column in Forbes Asia called “Asian Angles” in 2005 and 2006.and guest lecturer at the Graduate School of Business, University of Chicago from 2004 - 06.</p> <p></p> <p>As a student of philosophy, political science, and economics, Yuwa studied at Trent University and pursued post-graduate training at the University of British Columbia and Simon Fraser University in Canada. He also received post-doctoral training in energy and resource economics and scenario forecast and planning.</p> <p></p> <p>He lives with his wife and their cat on Salt Spring Island, off the west coast of Canada, and is an eager apprentice in the fine art of gardening.</p> <p></p> This is the third instalment of the MasterCard Global Destination Cities Index, which is used as a barometer for understanding the global economy and the dynamic flow of commerce across the world.http://www1.mastercard.com/content/intelligence/en/research/reports/2013/mastercard-global-destination-cities-index-report-20132013-05-31T16:00:00.000Z2013-05-31T16:00:00.000ZMasterCard Index of Financial Literacy Report (2013H1) Desmond Choong1. INTRODUCTION<p>At the March 2013 Organisation for Economic Co-operation and Development (OECD)/World Bank/Reserve Bank of India Conference on Financial Education, it was acknowledged that empowering financial consumers has become a “necessity in an evolving societal and financial context”<sup><sup>[<a href="#1">1</a>]</sup></sup><sup> </sup>given the low level of financial literacy among consumers in an increasingly risky, broader and complex financial landscape.&nbsp; In their proposition for national financial education strategies, the OECD and its International Network on Financial Education&nbsp;(INFE) accentuated the need to promote financial literacy as a life skill for financial wellbeing, and stressed that due to the different needs that exist in each country such as the development of the financial systems, degree of financial penetration, demographic profile and cultures, a tailored approach that is adapted to the specific needs of each country is necessary.</p> <p>MasterCard recognizes the vital role that financial education and inclusion play towards achieving financial wellbeing, combating poverty and sustaining long-term economic growth. As part of its proactive effort towards promoting knowledge enhancement, the latest MasterCard Financial Literacy Index (2013H1) has been created based on a survey conducted between April 2013 and May 2013 on 12,205 respondents aged 18 – 64 in 27 countries across 3 key regions: Asia/Pacific, Middle East and Africa (APMEA). This is the 3<sup>rd</sup> survey of Financial Literacy conducted since 2010. Bangladesh and Myanmar are new additions in this latest survey.&nbsp;</p> <p>The purpose of the survey is to gather more insight of each country’s current financial literacy, the progress each country has made since the previous survey, and how each country fares relative to its peers across all regions.</p> <p>The Index comprises questions covering three major components: <b>Basic Money Management (50% weight)</b> which examines respondents’ skills with regards to budgeting, savings, and responsibility of credit usage; <b>Financial Planning (30% weight)</b> which assesses their knowledge about financial products, services, and concepts, and ability to plan for long-term financial needs; and <b>Investment (20% weight)</b> which determines respondents’ basic understanding of the various risks associated with investment, different investment products and skills required.</p> <p>A <b>Financial Literacy Index Score</b> for each market was calculated out of the weighted sum of the 3 components.</p> <p></p> <p></p> <p></p> <p><a name="1"></a>[1] <i>“Developing National Strategies for Financial Education: OECD/INFE High Level Principles” at the OECD/WB/RBI Conference on Financial Education, 4-5 Mar 2013, New Delhi, Online <a href="http://www.finlitedu.org/news/23/" target="_blank"><b>http://www.finlitedu.org/news/23/</b></a></i></p> <p></p> <p></p> <p></p> 2. ASIA PACIFIC <p><i>There are 16 countries included in the Asia/Pacific region: Australia, New Zealand, China, Hong Kong, Taiwan, Japan, Korea, Bangladesh, Malaysia, Philippines, Thailand, Indonesia, Singapore, Vietnam, India and Myanmar. Bangladesh and Myanmar are new additions to the list of countries. As coverage of these two countries only began in 2012 H2, all references to 2012 H1 data for these two countries are actually 2012 H2.<br type="_moz"> </i></p> <p><b>Thailand showed most significant improvement, New Zealand 1<sup>st</sup> in overall ranking</b></p> <p><i>The Top 3</i></p> <p>New Zealand’s overall financial literacy index increased from 73 points in the previous 2012H1 survey to 74 points, placing it at the top spot at both the Asia/Pacific and APMEA levels. Singapore’s index increased by 1 point to 72 points, advancing its ranking from 5<sup>th</sup> spot at both levels during the previous survey to 2<sup>nd</sup> place within Asia/Pacific and 3<sup>rd</sup> place across APMEA. Taiwan lost its top ranking at both levels but still retained an overall high ranking of 3<sup>rd</sup> place with an index score of 71 points within Asia/Pacific and 4<sup>th</sup> place across APMEA.&nbsp; The overall financial literacy scores for Australia and Hong Kong remained at 71 points, unchanged from the previous survey.</p> <p><i>The Best &amp; Worst Performers</i></p> <p>It is interesting to note that the most significant progress in overall financial literacy was demonstrated among<b> </b>respondents in the developing markets of Thailand, the Philippines, and China, and less prominent in developed countries such as Australia and Hong Kong where the index score remained unchanged from the previous survey. There are two possible reasons for these differences. First, the acquisition and search for greater financial knowledge and skills have become more of a necessity in developing countries as compared to developed countries, effectively resulting in people being more prudent and responsible in their financial planning, money management and investment decisions. Second, in developed countries such as Australia and Hong Kong where the index scores have remained unchanged at 71 points, it is possible that there is a natural ‘cap’ to how financially literate a population can be.</p> <p>The survey also showed that Indonesia declined the most from the previous survey with the overall index dropping from 67 points to 60 points, bringing its ranking from 7<sup>th</sup> to 14<sup>th</sup> spot within Asia/Pacific, and 8<sup>th</sup> to 21<sup>st</sup> spot across APMEA.&nbsp; Japan’s financial literacy worsened, shedding 3 points to 57 points, bringing it to the last place in the region, and retreating to 25<sup>th</sup> spot across APMEA.</p> <p><u>Chart 1a: Asia/Pacific - Financial Literacy Index:&nbsp; Ranking 2012H1 vs. 2013H1</u></p> <p></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1aasiapacificfinancialliteracyindexranking2012h1vs2013h1.jpg" target="_blank"><img width="502" height="251" src="/content/dam/intelligence/content-assets/reports/chart1aasiapacificfinancialliteracyindexranking2012h1vs2013h1.jpg"></a></p> <p>In <b>Thailand</b>, the index improved 3 points from 65 points to 68 points, resulting in an increase in ranking from 12<sup>th</sup> to 7<sup>th</sup> spot within Asia/Pacific, and from 14<sup>th</sup> to 8<sup>th</sup> place across APMEA. Financial literacy improvement was also evident among respondents in the <b>Philippines</b>: the index advanced 3 points from 65 points to 68 points, lifting the country’s overall ranking from 11<sup>th</sup> to 8<sup>th</sup> place within Asia/Pacific, and from 13<sup>th</sup> to 9<sup>th</sup> spot across APMEA.&nbsp; In <b>China</b>, the overall index rose from 64 points to 66 points, boosting the country’s ranking upwards from 13<sup>th</sup> to 10<sup>th</sup> spot within Asia/Pacific, and 17<sup>th</sup> to 11<sup>th</sup> spot across APMEA.</p> <p></p> 2.1. BASIC MONEY MANAGEMENT<p>In terms of <i>Basic Money Management</i> skills for budgeting, credit card management, big item purchases, and tracking of expenditure, Asia/Pacific’s performance declined slightly with the index score dropping 2 points from the previous survey to 63 points.&nbsp;</p> <p>New Zealand retained its top ranking from the previous survey at both the Asia/Pacific and APMEA levels with the index unchanged at 77 points, while Australia secured its 2<sup>nd</sup> and 3<sup>rd</sup> rankings at the Asia/Pacific and APMEA levels with the index score unchanged at 75 points.&nbsp; Singaporeans were also quite savvy when it came to money management, with the index increasing by 4 points from 69 points to 73 points, raising the country’s ranking from 5<sup>th</sup> to 3<sup>rd</sup> place within Asia/Pacific, and 6<sup>th</sup> to 4<sup>th</sup> place across APMEA.</p> <p><u>Chart 1b: Asia/Pacific - Basic Money Management: Ranking 2012H1 vs. 2013H1</u></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1basiapacificbasicmoneymanagementranking2012h1vs2013h1.jpg" target="_blank"><img width="553" height="276" src="/content/dam/intelligence/content-assets/reports/chart1basiapacificbasicmoneymanagementranking2012h1vs2013h1.jpg"></a></p> <p></p> <p>Respondents from Thailand and China also showed improvement in their basic money management skills, with the index score increasing from 60 points to 63 points, and 55 points to 58 points, respectively.&nbsp; In contrast, respondents from Myanmar and India were the least literate in this category, with Myanmar scoring 54 points (down from 55 points in the 2012H2 survey) and India scoring 50 points (down from 55 points in the 2012H1 survey).&nbsp; Indonesia showed the biggest deterioration, with the index score shedding 9 points from 65 points to 56 points, the biggest drop from the previous survey.</p> <p><b><i>India: Reason for Poor Literacy in Basic Money Management</i></b></p> <p>In terms of money management, the survey found the Indians to have performed poorly, particularly in terms of: (i) keeping up with bills and credit commitments – low score of 31 points vs. regional average of 62 points; (ii) having problems with setting money aside for big purchases – low score of 29 points vs. regional average of 52 points; and (iii) making the minimum payment each month for credit cards – very low score of 17 points vs. regional average of 44 points.&nbsp; The lack of ability to keep up with bills, set money aside for big item purchases and to pay off credit cards fully could be due to a lack of surplus cash, resulting from the fact that income levels are not high enough to cover expenses.&nbsp; According to the World Bank’s Global Financial Inclusion Index (Findex) 2012, only 22% of adult Indians saved in the past year (2011). This low propensity to save may be due to the fact that they were simply not earning enough to set aside money for savings, big purchases, and credit commitments.</p> <p></p> 2.2. FINANCIAL PLANNING <p>In terms of savings and planning for the unexpected and retirement, Myanmar ranked top at both the Asia/Pacific and APMEA levels with the highest index score of 88 points, up 2 points from 2012H2<sup>[<a href="#2">1</a>]</sup>.&nbsp; Taiwan upheld its 2<sup>nd</sup> place ranking at both regional levels with the index score unchanged at 83 points, while Malaysia advanced from 7<sup>th</sup> place to 3<sup>rd</sup> place at both regional levels with the index score jumping from 79 points to 82 points. Respondents in Thailand, China and India also showed notable improvements.&nbsp;</p> <p><u>Chart 1c: Asia/Pacific – Financial Planning: Ranking 2012H1 vs. 2013H1</u></p> <p><a href="/content/dam/intelligence/content-assets/reports/Chart1cAsiaPacificFinancialPlanningRanking2012H1vs2013H1.jpg" target="_blank"><img width="477" height="238" src="/content/dam/intelligence/content-assets/reports/Chart1cAsiaPacificFinancialPlanningRanking2012H1vs2013H1.jpg"></a></p> <p></p> <p>In contrast, Japan’s score was the lowest at 68 points, down 1 point from the previous survey, and with the ranking unchanged and lowest at 16<sup>th</sup> place within Asia/Pacific, and moving 2 spots down from 20<sup>th</sup> to 22<sup>nd</sup> at the APMEA level. The lower proficiency of the Japanese in terms of financial planning was evident regardless of age, working and marital status, income levels, or job positions (managerial or non-managerial). They also ranked the lowest (7<sup>th</sup>) among their Asia/Pacific peers during the survey’s first run in 2011H1<sup>[<a href="#3">2</a>]</sup>. It is interesting to draw upon findings from Aegon’s recent “<i>Retirement Readiness Index</i>”<sup>[<a href="#4">3</a>]</sup> which highlighted that Japanese employees were lacking in terms of their confidence in retirement, with 43% noting that they associated retirement with “insecurity”.&nbsp; In contrast, Aegon’s study showed that the Chinese were the most confident about their future and their ability to retire early at age 55, with 66% showing optimism about their retirement, compared with just 18% of Japanese.</p> <p>Respondents from Indonesia and Korea showed the largest deterioration from the previous survey: Indonesia’s index score fell 6 points (from 81 points to 75 points), while Korea’s index score shed 5 points (from 83 points to 78 points).&nbsp;</p> <p><b><i>Japan: Much more could be done to boost financial knowledge</i></b></p> <p>In recognition of the need to improve financial literacy of the Japanese, the Bank of Japan and the Central Council for Financial Services information collaborated in a joint effort in 2011-2012 to launch a Financial Literacy Survey in Japan, the purpose of which was twofold: (i) to know the level of financial literacy of Japanese individuals age 18 years and above; and (ii) to improve the efficiency of financial education activities<sup>[<a href="#5">4</a>]</sup>.</p> <p>The survey focused on several aspects including: (i) financial preparations for the future, (ii) self-assessment of financial knowledge and ability to make appropriate judgments; (iii) fundamental knowledge of financial issues such as interest rates, inflation, etc.; (iv) basis for decision making on financial products and transactions; and (v) way to obtain financial information.</p> <p>The findings of the survey revealed that in terms of way of thinking and behaviors on money, respondents’ way of thinking and behaviors on money were long-term oriented, sound, and cautious; and they tend not to shop around to make a financial product choice and showed tendency to be not well prepared for the future. This was consistent with Aegon’s study which suggested that the Japanese were insecure and lacked confidence about their retirement. The Council’s findings also revealed weakness in terms of financial knowledge (interest rates, inflation, risks, financial returns, etc.), and this was especially pronounced among the older and female cohorts.</p> <p>These findings were consistent with and amplify the concern reflected in MasterCard’s most recent survey whereby the financial planning skills of the Japanese were not only the lowest in the region, but had shown no improvement from the previous survey.</p> <p></p> <p></p> <p></p> <p><a name="2"></a>[1]<i> Coverage of Myanmar only began in 2012 H2, all references to 2012 H1 data are actually 2012 H2.</i></p> <p></p> <p></p> <p><a name="3"></a>[2] <i>The Asia/Pacific countries included in the survey’s first run in 2011H1 included: Australia, China, Hong Kong, Japan, New Zealand, Taiwan and Vietnam.</i></p> <p></p> <p></p> <p><a name="4"></a>[3]<b><i> <a target="_blank" href="http://www.guardian.co.uk/money/2013/may/17/retirement-worse-off-than-parents">http://www.guardian.co.uk/money/2013/may/17/retirement-worse-off-than-parents</a></i></b><i>Aegon is a multinational life insurance, pensions and asset management company with major operations in the U.S., the Netherlands and the United Kingdom. The “Retirement Readiness Index” is based on an interview with 12,000 employees in 12 countries on a wide range of financial planning issues. Extracted from article “Most people expect to be worse off than parents in retirement – except Chinese”, The Guardian, 17 May 2013, Online</i></p> <p><i></i><a name="5"></a>[4]<b> <a target="_blank" href="http://www.finlitedu.org/news/23/ "><i>http://www.finlitedu.org/news/23/</i></a></b><a target="_blank" href="http://www.finlitedu.org/news/23/ "><i>&nbsp;</i></a><i>The Financial Literacy Survey in Japan was based on interviews with 8,000 core samples and postal mails and internet for 2,000 over samples, of which 3,531 samples were used for analysis. The survey was conducted from 11 Nov 2011 until 8 Dec 2011 by the Central Council for Financial Services Information and published on 21 Sep 2012.&nbsp; Online:</i></p> <p></p> <p></p> <p></p> 2.3. INVESTMENT<p>As a region, Asia/Pacific’s overall index score for investment dropped marginally from 59 points in the previous survey to 58 points. Respondents from China topped the ranking at both the Asia/Pacific and APMEA levels with an index score of 68 points, up 3 points from the previous survey; while Hong Kong slipped from 1<sup>st</sup> to 2<sup>nd</sup> place with a score of 67 points, down from 68 points in the previous survey. Taiwan moved down one place from 2<sup>nd</sup> to 3<sup>rd</sup> place in both regions, with the index score declining from 67 to 63 points.</p> <p>Within Asia/Pacific, respondents from Malaysia, the Philippines, Thailand and New Zealand showed some improvements in their investment acumen; while Australians, Vietnamese, Bangladeshis and Singaporeans fared worse as compared to the previous survey.</p> <p>Japan’s score of 39 points was the lowest in the region and 2<sup>nd</sup> lowest across APMEA, moving down 2 points from the previous survey; while Indonesia remained in 14<sup>th</sup> place with a drop in score of 4 points to 47 points.</p> <p>The investment questions were not asked of Myanmar survey participants as Myanmar does not have a functioning stock market. Myanmar will set up a security exchange by 2015 with the help of the Tokyo Stock Exchange and Daiwa Securities Group.</p> <p><u>Chart 1d: Asia/Pacific – Investment: Ranking 2012H1 vs. 2013H1</u></p> <p></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1dasiapacificinvestmentranking2012h1vs2013h1.jpg" target="_blank"><img width="464" height="232" src="/content/dam/intelligence/content-assets/reports/chart1dasiapacificinvestmentranking2012h1vs2013h1.jpg"></a></p> <p><b><i>Indonesia: A closer look</i></b></p> <p>Various other studies have been conducted in recent years to uncover why financial literacy among Indonesians has remained poor, as was reflected in MasterCard’s surveys.&nbsp; In 2013, the Department of Banking Research and Regulation, Bank Indonesia launched a ‘Financial Inclusion (FI) Program’ to raise the financial literacy of Indonesians through enhanced methods of disseminating financial education, information and tools, a strategy which may help lead to more widespread financial inclusion – a key ingredient for sustainable economic growth and financial stability.&nbsp; According to statistics from the World Bank and the Global Financial Inclusion Index 2011, only 19.6% of adults in Indonesia had an account in the formal financial sector, compared to 66.7% in Malaysia, 77.7% in Thailand, 63.8% in China, and 35.2% in India<sup>[<a href="#6">1</a>]</sup>.&nbsp; World Bank’s 2012 study also highlighted that one of the dominant factors why Indonesians are not connected to formal financial services was due to the lack of financial knowledge such as lack of understanding about banks, lack of credit worthiness and collaterals, lack of funds, etc.<sup>[<a href="#7">2</a>]</sup></p> <p>The 2012 study “Improving Access to Financial Services in Indonesia” conducted by the World Bank showed that in terms of savings, of the total 237 million people in Indonesia, 68% have some form of savings, of which only 50% have a savings account at formal institutions. 41% use their own bank accounts, while 6% use someone else’s accounts<sup>[<a href="#8">3</a>]</sup>.&nbsp; A separate study conducted by Cole, Sampson and Zia (2010)<sup>[<a href="#9">4</a>]</sup> showed an increase in demand for savings accounts among those with low initial levels of financial literacy.</p> <p>These findings demonstrate that there is a clear need to educate Indonesians who are lacking in financial literacy so that they are better equipped to manage, plan and invest their finances.</p> <p><b><i>Thailand: Commendable progress evident</i></b></p> <p>The progress made by the Thais in financial literacy (overall score increased by 3 points to 68 points, ranking advanced from 12<sup>th</sup> to 7<sup>th</sup> place in Asia/Pacific and from 14<sup>th</sup> to 8<sup>th</sup> place across APMEA) is notable, and may be attributed to the increasing role played by various authorities and institutions such as the Bank of Thailand (BOT), Thailand Securities Institute (TSI), Ministry of Education, Ministry of Finance, and other specialized financial institutions such as the Government Savings Bank and Bank for Agriculture and Agricultural Co-operatives in actively promoting the importance of financial skills and competencies – especially among the youths in schools and universities – through various training programs and projects.&nbsp; According to the Ministry of Finance (Fiscal Policy Office), the need to empower youths in financial literacy is vital given the aging population in the country, a trend which will impose greater burden on the next generation.&nbsp; Based on their ‘burden ratio’ estimates, while there were 6 workers for every elderly, by 2027, the ratio of workers to elderly will shrink to 3<sup>[<a href="#10">5</a>]</sup>.</p> <p></p> <p></p> <p></p> <p>[<a name="6"></a>1] <i>“Financial Education for Financial Inclusion: Indonesia Perspective”, Department of Banking Research and Regulation, Bank Indonesia, 2013, Online <a target="_blank" href="http://www.finlitedu.org/news/23/"><b>http://www.finlitedu.org/news/23/</b></a></i></p> <p></p> <p></p> <p>[<a name="7"></a>2] <i>Referenced in “Financial Education for Financial Inclusion: Indonesia Perspective”, Department of Banking Research and Regulation, Bank Indonesia, 2013, Online <a target="_blank" href="http://www.finlitedu.org/news/23/"><b>http://www.finlitedu.org/news/23/</b></a></i></p> <p></p> <p></p> <p>[<a name="8"></a>3]<i> Referenced in “Financial Education for Financial Inclusion: Indonesia Perspective”, Department of Banking Research and Regulation, Bank Indonesia, 2013, Online <a target="_blank" href="http://www.finlitedu.org/news/23/"><b>http://www.finlitedu.org/news/23/</b></a></i></p> <p></p> <p></p> <p>[<a name="9"></a>4] <i>Cole, S., T. Sampson, and B. Zia (2010). ‘Prices or knowledge? What drives demand for financial services in emerging markets?’ The Journal of Finance. Online <a target="_blank" href="http://www.povertyactionlab.org/publication/unpacking-causal-chain-financial-literacy"><b>http://www.povertyactionlab.org/publication/unpacking-causal-chain-financial-literacy</b></a></i></p> <p></p> <p></p> <p>[<a name="10"></a>5] <i>“Youth: Developing financial skills and competencies – Thailand’s Experience”, India/OECD/World Bank Regional Dissemination Conference on Financial Inclusion, March 2013, Bank of Thailand, Online <a target="_blank" href="http://www.finlitedu.org/news/23/ "><b>http://www.finlitedu.org/news/23/&nbsp;</b></a></i></p> <p></p> <p></p> <p></p> 2.4. FINANCIAL LITERACY INDEX: DEMOGRAPHIC ANALYSIS<p><b>2.4.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>BY AGE</b></p> <p>New Zealanders aged 30+ topped the region with a score of 76 points, surpassing the younger cohort (&lt;30 years old) by 8 points, and notably higher than the regional average of 68 points and 63 points for those aged 30+ and &lt;30, respectively. Singaporeans, Australians and Taiwanese aged 30+ also demonstrated more superior financial literacy than their younger cohorts.</p> <p><u>Chart 2a: Asia/Pacific – Financial Literacy Index: Comparison <b><i>by Age</i></b></u></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2aasiapacificfinancialliteracyindexcomparisonbyage.jpg" target="_blank"><img width="487" height="243" src="/content/dam/intelligence/content-assets/reports/chart2aasiapacificfinancialliteracyindexcomparisonbyage.jpg"></a></p> <p><b>2.4.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>BY WORK STATUS</b></p> <p>The findings also indicated that respondents who were in the workforce possessed higher levels of financial literacy (except Indonesians), with Kiwis topping the region with a score of 76 points, higher than the regional average of 67 points. This finding suggests that those who are working tend to be more savvy in their financial proficiency and this may have arisen due to two reasons: (i) the natural ‘habit’ of having to budget, manage expenses, and save, and (ii) people who are out in the workforce tend to be more exposed to various investment instruments/products and financial markets, and hence acquire more awareness and understanding of investment concepts.</p> <p><u>Chart 2b: Asia/Pacific – Financial Literacy Index: Comparison by <b><i>Work Status</i></b></u></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2basiapacificfinancialliteracyindexcomparisonbyworkstatus.jpg" target="_blank"><img width="483" height="241" src="/content/dam/intelligence/content-assets/reports/chart2basiapacificfinancialliteracyindexcomparisonbyworkstatus.jpg"></a></p> <p><u></u></p> <p><b>2.4.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b><b>BY MARITAL STATUS</b></p> <p>A positive correlation was also apparent between those who are married and 30+ years old, and higher levels of financial proficiency in most countries (except the Philippines), suggesting that the need to be financially savvy becomes more pronounced as one gets married and the responsibilities of managing the household expenses, paying for a home, funding the children’s education, planning for retirement, among others, increase and become more complex.&nbsp; This observation is most apparent among New Zealanders who are married (30+ years old) with the highest index score of 79 points, followed by Australians (77 points), and Taiwanese (76 points).</p> <p><u>Chart 2c: Asia/Pacific – Financial Literacy Index: Comparison by <b><i>Marital Status</i></b></u></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart2casiapacificfinancialliteracyindexcomparisonbymaritalstatus.jpg" target="_blank"><img width="478" height="239" src="/content/dam/intelligence/content-assets/reports/chart2casiapacificfinancialliteracyindexcomparisonbymaritalstatus.jpg"></a></p> <p></p> About the Author<p>Desmond Choong</p> <p>Desmond Choong is a business and market economist who specializes in providing research and business advisory services to clients in the areas of economic and market modeling with a key focus on Asia/Pacific and the African &amp; Middle East regions. In the past twelve years, he has served as consultant to companies in financial services, manufacturing, logistics, energy, and the tourism industry. As a researcher, Desmond served as Fellow at the American Institute of Economic Research and taught International Trade at Boston University. Desmond holds a B.A. in English/Economics from Boston College and a M.A. in Political Economics from Boston University, MA, USA.</p> <p></p> The MasterCard Index of Financial Literacy is based on a survey conducted between April 2013 and May 2013 with 7756 respondents aged 18 – 64 in 16 Asia/Pacific markets. This is the 4th survey of Financial Literacy conducted since 2010.http://www1.mastercard.com/content/intelligence/en/research/reports/2013/mastercard-index-of-financial-literacy-report-2013h12012-12-31T16:00:00.000Z2012-12-31T16:00:00.000ZMasterCard Index of Consumer Confidence (2013 H1) Asia/Pacific Desmond Choong Report on MasterCard Index of Consumer Confidence<p>(Based on 2013 H1 Survey Findings)</p> <p>The MasterCard Index of Consumer Confidence is based on a survey conducted between April 2013 and May 2013 on 12,205 respondents aged 18 – 64 in 27 countries. This is the 41<sup>st</sup> survey of Consumer Confidence conducted since 1993, and covers 3 key regions: Asia/Pacific, Middle East and Africa.</p> <p>Chart 1a: Summary of Index, Status &amp; Change from Last Half – Asia/Pacific</p> <p></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1aMICC.jpg" target="_blank"><img width="567" height="349" src="/content/dam/intelligence/content-assets/reports/chart1aMICC.jpg"></a></p> <p>Chart 1b:&nbsp; ASIA/PACIFIC - Index Scores for 2010 H2 - 2013 H1 &amp; Breakdown by Gender &amp; Age Group</p> <p><a href="/content/dam/intelligence/content-assets/reports/chart1bMICC.jpg" target="_blank"><img width="565" height="340" src="/content/dam/intelligence/content-assets/reports/chart1bMICC.jpg"></a></p> <p></p> <p><b>ASIA/PACIFIC</b></p> <p></p> <p></p> <p></p> Overall sentiment improved slightly; Japanese sentiment surged<p>Stable economic growth in Asia/Pacific estimated at 5.75% in the course of 2013 on the back of receding risks emanating from advanced economies, resilient domestic demand, and improved labor markets<sup>[<a href="#1">1</a>]</sup> helped set the stage for improved consumer sentiment across the region. <b>The Index of Consumer Confidence for Asia/Pacific<b><sup>[<a href="#2">2</a>]</sup></b> (2013H1) gained 1.2 index points from the last survey (2012 H2) to 63.3 index points</b>, with the indicator of Employment showing the largest increase of 3.2 index points, followed by Stock Market (+2.3 index points), Economy (+1.6 index points), and Regular Income (+0.4 index points). Quality of life was the only indicator that shed 1.5 index points. Comparison across gender and age showed that confidence levels among males and those aged 30 or less were higher at 64.9 index points and 65.3 index points, respectively, compared to females (62.0 index points) and those aged 30 or more (62.4 index points).</p> <p>Across the region, sentiment among consumers in India, Indonesia, China, the Philippines and Myanmar were very optimistic, while those in Australia, Hong Kong, Korea, New Zealand, Singapore, Taiwan and Vietnam remained neutral<b>. Japan emerged as the star in the survey</b> with the most substantial improvement in sentiment – the overall index surged 37.0 index points from the previous survey to 60.7 index points. Sentiment among Taiwanese and Korean consumers also showed significant improvement, with the index gaining 19.2 index points and 14.8 index points to 52.4 index points and 53.5 index points, respectively. The survey found sentiment among consumers in Bangladesh showing the steepest decline, with the index shedding 39.5 index points to 22.2 index points, underpinned by political uncertainty, a series of strikes, and crisis in the key garment sector.<b></b></p> <p></p> <p></p> <p>[<a name="1"></a>1]<i> “Regional Economic Outlook: Asia and Pacific: Shifting risks, New Foundations for Growth”, International Monetary Fund, April 2013, Online http://www.imf.org/external/pubs/ft/reo/2013/apd/eng/areo0413.htm</i></p> <p></p> <p></p> <p>[<a name="2"></a>2] <i>Countries covered in Asia/Pacific include Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand, Vietnam, Bangladesh and Myanmar.</i></p> <p></p> <p></p> <p></p> JAPAN: Sentiment surged to levels not seen since 2005<p>Higher-than-expected 1Q 2013 economic growth of 3.5%, a pickup in consumer spending and exports<sup>[<a href="#3">1</a>]</sup>, rising stock prices and anticipation of positive spill-over effects stemming from Prime Minister Shinzo Abe’s “Abenomics<sup>[<a href="#4">2</a>]</sup>” economic strategy have helped spur consumer sentiment levels across Japan.&nbsp;</p> <p>The overall index advanced 37.0 index points to 60.7 index points, the highest it has been since the 2005 H2 survey when the index reached 63.0 index points<sup>[<a href="#5">3</a>]</sup> – in 2005, the Japanese economy grew by 2.8% on the back of robust consumer spending<sup>[<a href="#6">4</a>]</sup>, increasing capital investment and export growth<sup>[<a href="#7">5</a>]</sup>.</p> <p>Confidence levels for the economy gained the most (+49.5 index points to 73.1 index points), followed by employment (+46.2 index points to 63.9 index points), and stock market (+41.3 index points to 79.8 index points). The indicators of regular income and quality of life also showed considerable improvements, gaining 23.9 index points and 24.1 index points, respectively, effectively pushing the indicators closer to the neutral point.</p> <p>It is interesting to note that across all major indicators, males were found to be more optimistic, especially for employment (male: 67.9 index points; female: 60.4 index points); economy (male: 76.2 index points; female: 70.2 index points); and stock market (male: 82.4 index points; female: 76.6 index points). The survey also found consumers aged &lt;30 to be significantly more optimistic towards quality of life (52.4 index points), as compared to those aged 30 and above (34.8 index points).&nbsp;</p> <p>Chart 2:&nbsp; JAPAN - Index Scores for 2010 H2 - 2013 H1 &amp; Breakdown by Gender &amp; Age</p> <p></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart2MICCjapan.jpg"><img width="586" height="353" src="/content/dam/intelligence/content-assets/reports/chart2MICCjapan.jpg"></a></p> <p></p> <p></p> <p>[<a name="3"></a>1]<i> “Japan’s economy growing at 3.5% annualized rate”, The New York Times, 16 May 2013, Online, http://www.nytimes.com/2013/05/17/business/global/japans-economy-growing-at-3-5-annualized-rate.html</i></p> <p></p> <p></p> <p>[<a name="4"></a>2] <i>Prime Minister Abe’s 3-policy pillars include: (i) ramping up government spending, (ii) injecting money into the economy on a massive scale; and (iii) structural reforms as quoted in the article “Japan: Is Abenomics working?”, CNN Money, 15 May 2013, Online http://money.cnn.com/2013/05/15/news/economy/japan-abenomics/index.html</i></p> <p></p> <p></p> <p>[<a name="5"></a>3] <i>The index of Consumer Confidence for Japan was on an uptrend from 2004 H2 (37.7 index points) to 2007 H1 (66.8 index points), before it started to tumble in 2007 H2 (48.6 index points) due to the global financial crisis.</i></p> <p></p> <p></p> <p>[<a name="6"></a>4] <i>“Japan’s economy takes off in fourth quarter of 2005”, Industry Week, 17 Feb 2006, Online http://www.industryweek.com/global-economy/japans-economy-takes-fourth-quarter-2005</i></p> <p></p> <p></p> <p>[<a name="7"></a>5] <i>“Japanese economy in 2005 and beyond: Beginning of a sustained growth cycle”, Japan Economic Monthly, Vol. 22, January 2006, Online http://www.jetro.go.jp/en/reports/survey/pdf/2006_09_other.pdf</i></p> <p></p> <p></p> <p></p> TAIWAN: Significant improvement in consumer sentiment<p>Bolstered by a pickup in external demand (especially from China), a stronger tourism sector and private investment growth as well as improved labor market conditions<sup>[<a href="#8">1</a>]</sup>, sentiment among Taiwanese consumers gained substantively. The overall index for Taiwan increased by 19.2 index points to 52.4 index points, more than doubling that seen in 2012 H1 (25.7 index points). This effectively positions sentiment back above the neutral point<sup>[<a href="#9">2</a>]</sup>. The gain in the index was buoyed by significant improvements in sentiment across all major indicators: employment (+27.4 index points to 54.5 index points; more than double), economy (+22.0 index points to 50.9 index points), regular income (+20.0 index points to 60.2 index points), stock market (+14.3 index points to 60.1 index points) and quality of life (+12.7 index points to 36.1 index points).&nbsp;</p> <p>The survey found sentiment among males to be more upbeat across all indicators, especially on the economy (+16.7 index points) and stock market (+16.4 index points). With the exception of the economy, consumers aged &lt;30 were generally more optimistic than those aged 30 and above, in particular on their regular income.&nbsp;</p> <p>Chart 3:&nbsp; TAIWAN - Index Scores for 2010 H2 - 2013 H1 &amp; Breakdown by Gender &amp; Age<b></b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart3MICCtaiwan.jpg"><img width="564" height="341" src="/content/dam/intelligence/content-assets/reports/chart3MICCtaiwan.jpg"></a></p> <p></p> <p></p> <p>[<a name="8"></a>1] <i>“Taiwan’s 2013 economic growth forecast at 3.5 percent”, &nbsp;Asian Development Bank quoted in Taiwan News, 9 Apr 2013, Online http://www.taiwannews.com.tw/etn/news_content.php?id=2192013</i></p> <p></p> <p></p> <p>[<a name="9"></a>2] <i>The Index of Consumer Confidence for Taiwan was below the neutral point for 3 consecutive cycles previously (2011 H2: 30.1 index points; 2012 H1: 25.7 index points; and 2012 H2: 33.1 index points).</i></p> <p></p> <p></p> <p></p> KOREA: Consumers positive about job and economy<p>The acceleration of economic growth in Korea to a 2-year high during Q1 2013 (up 0.9% compared to 0.3% in Q4 2012) against a backdrop of lower inflationary pressure and stronger growth in exports, investments and the construction sector<sup>[<a href="#10">1</a>]</sup> helped set the stage for a generally more upbeat sentiment among Korean consumers in the latest survey. The overall index gained 14.8 index points to 53.5 index points, with all 5 major indicators gaining traction, driven primarily by improved sentiment on employment (+18.9 index points), the economy (+16.6 index points) and quality of life (+13.5 index points).</p> <p>Chart 4:&nbsp; KOREA - Index Scores for 2010 H2 – 2013 H1 &amp; Breakdown by Gender, Age &amp; Major Cities</p> <p><b></b><b></b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart4MICCkorea.jpg"><img width="582" height="352" src="/content/dam/intelligence/content-assets/reports/chart4MICCkorea.jpg"></a></p> <p></p> <p></p> <p>[<a name="10"></a>1]&nbsp;<i>“South Korea’s economic growth accelerates”, Bank of Korea, http://eng.bok.or.kr/eng/engMain.action</i></p> <p></p> <p></p> <p></p> CHINA: Overall sentiment retreated against slower economic growth momentum<p>The overall index of consumer confidence in China shed 4.9 index points from the last survey to 76.9 index points, with the indicator on Quality of Life (74.4 index points) exhibiting significant deterioration of -10.9 index points. However, consumers remained extremely optimistic about their regular income (92.8 index points), and highly positive on their employment and economic prospects (76.5 index points and 82.0 index points, respectively).</p> <p>Chart 5:&nbsp; CHINA - Index Scores for 2010 H2 – 2013 H1 &amp; Breakdown by Gender, Age &amp; Major Cities</p> <p></p> <p><a href="/content/dam/intelligence/content-assets/reports/chart5MICCchina.jpg" target="_blank"><img width="540" height="327" src="/content/dam/intelligence/content-assets/reports/chart5MICCchina.jpg"></a></p> <p></p> INDIA: Slight dip in overall sentiment; Lower inflationary pressure lending support<p>Compared to the last half-yearly survey, the overall index for India shed 3.5 index points to 82.0 index points. Softening inflationary pressure (the wholesale price index dropped to 4.89% YoY in March this year, the lowest since November 2009)<sup>[<a href="#11">1</a>]</sup> amid loose monetary policies geared towards reviving economic growth helped keep the sub-indexes for the major indicators at buoyant levels.&nbsp;</p> <p>With the exception of stock market and quality of life which shed 11.7 index points and 5.1 index points respectively, all other indicators remained relatively stable. The survey also found the male cohort to be the most optimistic about their regular income (92.6 index points), compared to the other indicators and also their female counterparts (87.2 index points).</p> <p>Chart 6:&nbsp; INDIA - Index Scores for 2010 H2 – 2013 H1 &amp; Breakdown by Gender, Age &amp; Major Cities</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart6MICCindia.jpg"><img width="551" height="331" src="/content/dam/intelligence/content-assets/reports/chart6MICCindia.jpg"></a></p> <p></p> <p></p> <p>[<a name="11"></a>1]&nbsp;<i>“Subbarao’s RBI to “Take Note” as inflation eases to 41-month low”, Bloomberg Businessweek, 14 May 2013, Online http://www.businessweek.com/news/2013-05-14/india-inflation-eases-to-41-month-low-adding-to-rate-cut-scope&nbsp;</i></p> <p></p> <p></p> <p></p> VIETNAM: Economic slowdown a damper on sentiment<p>The interplay of a weaker property market and a credit slump which dampened corporate expansion and consumer spending<sup>[<a href="#12">1</a>]</sup> took a toll on consumer sentiment in Vietnam. The overall index declined by 16.1 index points from the previous survey to 58.4 index points with the sub-indexes for all major indicators taking a hit: stock market and regular income shed the most by 21.5 index points and 20.6 index points, respectively.&nbsp;</p> <p>Chart 7:&nbsp; VIETNAM - Index Scores for 2010 H2 – 2013 H1 &amp; Breakdown by Gender, Age &amp; Major Cities<b></b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart7MICCvietnam.jpg"><img width="528" height="363" src="/content/dam/intelligence/content-assets/reports/chart7MICCvietnam.jpg"></a></p> <p></p> <p></p> <p>[<a name="12"></a>1]&nbsp;<i>“Vietnam GDP growth slows in first quarter as banks struggle”, General Statistics Office quoted in Bloomberg News, 27 Mar 2013, Online</i></p> <p></p> <p></p> <p></p> BANGLADESH: Sentiment stifled by slowdown in economy & political uncertainty <p>Compared to its regional peers, the index for Bangladesh declined the most, down 39.5 index points from the last survey to 22.2 index points, with sentiment on the economy and regular income both shedding 43.4 index points, followed by quality of life (-39.0 index points), employment (-38.7 index points), and stock market (-33.1 index points). The slowdown in economic growth dipped to a 4-year low of 6%, compounded by a series of strikes, the disaster-strewn garment sector and expected sluggish growth in the farming sector<sup>[<a href="#13">1</a>]</sup> which had imparted a major detrimental effect on overall consumer sentiment.</p> <p>Chart 8:&nbsp; BANGLADESH - Index Scores for 2010 H2 – 2013 H1 &amp; Breakdown by Gender, Age &amp; Major Cities</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/chart8MICCbangladash.jpg"><img width="575" height="348" src="/content/dam/intelligence/content-assets/reports/chart8MICCbangladash.jpg"></a></p> <p></p> <p></p> <p>[<a name="13"></a>1]&nbsp;<i>“Bangladesh economic growth slows to four-year low”, AFP.com, 17 May 2013, Online http://uk.news.yahoo.com/bangladesh-economic-growth-slows-four-063806436.html#sKuetXu&nbsp;</i></p> <p></p> <p></p> <p></p> About the Author<p>Desmond Choong</p> <p>Desmond Choong is a business and market economist who specializes in providing research and business advisory services to clients in the areas of economic and market modeling with a key focus on Asia/Pacific and the African &amp; Middle East regions. In the past twelve years, he has served as consultant to companies in financial services, manufacturing, logistics, energy, and the tourism industry. As a researcher, Desmond served as Fellow at the American Institute of Economic Research and taught International Trade at Boston University. Desmond holds a B.A. in English/Economics from Boston College and a M.A. in Political Economics from Boston University, MA, USA.</p> <p></p> The MasterCard Index of Consumer Confidence is based on a survey conducted between April 2013 and May 2013 on 12,205 respondents aged 18 – 64 in 27 countries. This is the 41st survey of Consumer Confidence conducted since 1993, and covers 3 key regions: Asia/Pacific, Middle East and Africa.http://www1.mastercard.com/content/intelligence/en/research/reports/2013/mastercard-index-of-consumer-confidence-report-2013h1-asiapacific2012-12-31T16:00:00.000Z2012-12-31T16:00:00.000ZMasterCard Index of Women's Advancement 2013 Findings on Women's Progress towards Gender Parity in Employment, Capability & Leadership Alexis ChongMASTERCARD INDEX OF WOMEN’S ADVANCEMENT (MIWA) 2013<p style="text-align: center;"><i>Top 3 overall rankings held by Asia/Pacific countries;<br> Cultural norms and beliefs the largest bottlenecks to women's advancement and are most pronounced in South Asian countries;<br> More systemic changes required to enhance pathways for women's advancement&nbsp;</i></p> <p>The 2013 MasterCard Index of Women's Advancement revealed that women in the majority of the 26 markets covered (excluding Kenya and Nigeria owing to insufficient data) across Asia/Pacific, Middle East and Africa had progressed in gender parity in terms of Employment (Workforce Participation and Regular Employment), Capability (Secondary and Tertiary Education), and Leadership (Business Owners, Business Leaders and Political Leaders) as compared to their male counterparts. The top 3 overall MIWA scores across all markets were secured by those within Asia/Pacific. Women in New Zealand took first spot with an overall score of 77.8 (2012: 77.7), while those in Australia and the Philippines came second and third with 76.0 (2012: 75.9) and 70.5 (2012: 70.3), respectively.</p> A. ASIA/PACIFIC<p style="text-align: center;"><i>Korean women advanced the most in gender parity since 2007 in terms of capability;<br> Highest progress in workforce participation and regular employment reflected among women in New Zealand from a year ago;<br> Indonesian women making encouraging headway in terms of leadership and employment.</i></p> <p>The Asia/Pacific region includes Australia, New Zealand, China, Hong Kong, Taiwan, Japan, Korea, Malaysia, the Philippines, Thailand, Indonesia, Singapore and Vietnam.<br> </p> <p><b><u>MIWA 2013: Asia/Pacific Region</u></b><i><b></b></i></p> <p><a href="/content/dam/intelligence/content-assets/reports/MIWA2013-AP.jpg" target="_blank"><img width="531" height="236" src="/content/dam/intelligence/content-assets/reports/MIWA2013-AP.jpg"></a></p> <p>Within Asia/Pacific, Japan and China were the only markets whose overall scores decreased from the previous year: Japan (48.1, down by -1.1 index points) and China (61.5, down by -0.1 index points). Hong Kong, Thailand and Vietnam remained unchanged from 2012.</p> <p>In terms of employment, women in New Zealand and Australia were found to be the most economically active relative to their male counterparts within the region, scoring 91.2 and 90.5, respectively.&nbsp;</p> <p><a href="/content/dam/intelligence/content-assets/reports/MIWA2013-NZ.jpg" target="_blank"><img width="525" height="263" src="/content/dam/intelligence/content-assets/reports/MIWA2013-NZ.jpg"></a></p> <p>Since 2007, Indonesian women advanced the most compared to their regional peers in terms of contribution towards the workforce, with an increase in score of 2.9 index points from 71.5 to 74.4 in 2013.&nbsp;</p> <p><a href="/content/dam/intelligence/content-assets/reports/MIWA2013-ID.jpg" target="_blank"><img width="525" height="263" src="/content/dam/intelligence/content-assets/reports/MIWA2013-ID.jpg"></a></p> <p>In contrast, workforce participation and employment opportunities for women in Thailand compared to their male counterparts decreased the most, with the index shedding 2.0 index points from 87.6 in 2007 to 85.6 in 2013.</p> <p>In terms of capability, women in Hong Kong, Malaysia, the Philippines, Thailand, New Zealand, China and Vietnam were found to be on par with their male counterparts (score of 100.0) in basic and advanced knowledge assets. Although Korean women had the lowest score in 2013 (84.5), between 2007 and 2013, they showed the most progress toward gender parity (up 3.0 index points from 2007). In contrast, Indonesia had the biggest drop in index points since 2007 (down 7.9 index points from 99.6 to 91.7), followed by Australia (down 1.6 index points from 99.1 to 97.5).</p> <p>In terms of leadership, New Zealand led the group with a score of 51.6, followed by Australia (49.7) and the Philippines (45.6); while Japan had the weakest score of 14.2.</p> <p><b>Australia: New Workplace Gender Equality Act 2012 should help promote women's leadership and advancement</b></p> <p>According to the 2012 Australian Census of Women in Leadership[<a href="#_ftn1">1</a>], women assumed 12.3% of ASX 200 directorships, up from 8.4% in 2010.&nbsp; However, in terms of executive key management personnel positions, women held only 9.7%, an increase of only 18 more women since 2010.&nbsp; The Census report suggested that in order to help women advance in their careers (ie. assume demanding executive positions), a shift in workplace culture needs to occur that allows women (and men) to achieve work-life balance.&nbsp; The new Workplace Gender Equality Act 2012 was formulated to consolidate Australia's effort to accelerate gender equality in workplaces.&nbsp; Specifically, starting from the 2013-2014 reporting period, the government will set gender equality indicators such as gender composition of the workforce, conditions and practices relating to flexible and supportive working arrangements for employees with family or caring responsibilities, equal remuneration between women and men, among others.</p> <p>[1] Rodgers-Healey, Diann (2012) &quot;<i>2012 Australian Census of Women in Leadership (ACLW)&quot;</i>, November 2012, Online, <a href="http://www.leadershipforwomen.com.au/transform/item/2012-australian-census-of-women-in-leadership" target="_blank">http://www.leadershipforwomen.com.au/transform/item/2012-australian-census-of-women-in-leadership</a></p> <p><img width="524" height="262" src="/content/dam/intelligence/content-assets/reports/MIWA2013-AU.jpg"></p> <p>Between 2007 and 2013, the largest advancement toward gender parity in terms of leadership was achieved by women in Taiwan (an increase of 7.7 index points from 23.0 to 30.7) and the Philippines (an increase of 7.7 index points from 37.9 to 45.6).</p> <p><b>Malaysia: Government's quota for women's representation at decision-making level effective</b></p> <p>In terms of leadership, Malaysian women have made some progress in gender parity, with an increase of 1.6 index points from 19.5 in 2007 to 21.1 in 2013.&nbsp; According to McKinsey &amp; Company[<a href="#_ftn2">2</a>], the government's setting of a 30% target for the proportion of women at decision-making level in the public sector in 2004 had produced positive results. By 2010, that target had been exceeded with further plans being announced in 2011 to extend the quota to the private sector by 2016.</p> <p><a name="_ftnref2"></a>[2] McKinsey &amp; Company (2013) &quot;Women Matter: An Asian Perspective – Harnessing female talent to raise corporate performance&quot;, April 2013, <a target="_blank" href="http://www.leadershipforwomen.com.au/globalize/women-s-advancement-in-asia-pacific/item/women-matter-an-asian-perspective-harnessing-female-talent-to-raise-corporate-performance">http://www.leadershipforwomen.com.au/globalize/women-s-advancement-in-asia-pacific/item/women-matter-an-asian-perspective-harnessing-female-talent-to-raise-corporate-performance</a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/MIWA2013-MY.jpg"><img width="524" height="262" src="/content/dam/intelligence/content-assets/reports/MIWA2013-MY.jpg"></a></p> <p>Looking ahead, the <i>Equal Futures Partnership[<a href="#_ftn3">3</a>]</i> launched on behalf of the United States along with 12 other founding members (of which Australia, Bangladesh, Morocco, New Zealand, Thailand and Indonesia are included) is expected to expand support for women entrepreneurs and break down barriers to women's political and economic participation.&nbsp; In Australia, increased efforts will be channeled towards improving women's representation and leadership in male-dominated industries, as well as committing to meeting the gender balance of 40% women on Government boards by 2015. In New Zealand, a &quot;commitment to action&quot; is expected to be launched through which private and public sector partners agree to increase gender diversity in leadership, and in 2013, will focus on effective measures for female leadership talent within the workplace.&nbsp; In Thailand, ongoing and increased efforts will be made to promote gender equality, while in Indonesia, a memorandum of understanding to advance women's participation in national and local elections has been implemented in conjunction with a strategy to advance women in decision-making positions and formalizing the definition of women-owned business.</p> <p><a name="_ftn3"></a>[3] The White House, &quot;<i>Equal Futures Partnership</i>&quot;, Office of the Press Secretary, April 19, 2013, Online: <a href="http://www.whitehouse.gov/the-press-office/2013/04/19/fact-sheet-equal-futures-partnership-promise-progress" target="_blank">http://www.whitehouse.gov/the-press-office/2013/04/19/fact-sheet-equal-futures-partnership-promise-progress</a></p> <p>&nbsp;</p> B. SOUTH ASIA<p style="text-align: center;"><i>All countries in South Asia advanced from the year prior;<br> Nepalese women took the reins with an overall score of 55.0 in 2013;<br> Much more needs to be done to empower women in South Asia towards greater gender parity in leadership.</i></p> <p>The South Asian region includes India, Bangladesh, Nepal, Pakistan and Sri Lanka.</p> <p><b><u>MIWA 2013: South Asia Region</u></b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/MIWA2013-SA.jpg"><img width="524" height="224" src="/content/dam/intelligence/content-assets/reports/MIWA2013-SA.jpg"></a></p> <p>Overall, Nepalese women advanced the most in gender parity within the South Asia region with a score of 55.0 in 2013 (2012: 54.6). Since 2007, they have made the most pronounced progress with an increase in overall score of 12.7 index points from 42.3 in 2007. They also ranked the highest in leadership in the region with a score of 38.4, up 18.2 index points from 20.2 in 2007. However, in terms of access to secondary and tertiary education, they exhibited the highest degree of disparity relative to males with a score of 73.4, the lowest among all 26 countries covered.</p> <p><a href="/content/dam/intelligence/content-assets/reports/MIWA2013-NP.jpg" target="_blank"><img width="526" height="265" src="/content/dam/intelligence/content-assets/reports/MIWA2013-NP.jpg"></a></p> <p><b>Pakistan: Lowest in ranking, progress stagnant</b></p> <p>Women in Pakistan came in last with the lowest overall MIWA score of 23.0 among their regional peers in 2013. They also ranked the lowest relative to their male counterparts in leadership with a mere score of 3.5, a decrease of 3.1 index points from 6.6 in 2007.&nbsp; These observations of women’s slow advancement in Pakistan are echoed in the article “Women’s progress is a Mirage in Pakistan” by Nosheen Abbas (2010)[<a href="#_ftn4">4</a>]. HR Manager of Safe World for Women (SAWERA), a non-profit, non-governmental and non-political organization attributed this to several factors: (i) high unemployment, (ii) low financial status, and (iii) lack of contribution in most activities and decision making by women in the country[<a href="#_ftn5">5</a>].&nbsp; Although they comprise half of the total population, in terms of employment Pakistani women’s MIWA score was only 39.7 – the lowest progress achieved among women across all 26 markets.</p> <p><a name="_ftn4"></a>[4] Abbas, Nosheen (2010). “<i>Women’s progress is a Mirage in Pakistan</i>”, Online: <a target="_blank" href="http://www.huffingtonpost.com/nosheen-abbas/womens-progress-is-a-mira_b_409423">http://www.huffingtonpost.com/nosheen-abbas/womens-progress-is-a-mira_b_409423</a>.</p> <p></p> <p><a name="_ftn5"></a>[5] Safe World for Women (SAWERA), <a target="_blank" href="http://www.asafeworldforwomen.org/">http://www.asafeworldforwomen.org/</a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/MIWA2013-PK.jpg"><img width="526" height="265" src="/content/dam/intelligence/content-assets/reports/MIWA2013-PK.jpg"></a></p> <p>Sri Lanka was the only South Asian market with a score of 100.0 in terms of capability.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/MIWA2013-SL.jpg"><img width="526" height="265" src="/content/dam/intelligence/content-assets/reports/MIWA2013-SL.jpg"></a></p> C. MIDDLE EAST & AFRICA<p style="text-align: center;"><i>South African women outshine regional peers in leadership and employment;<br> Pro-women initiatives in Bahrain encouraging;<br> Barriers to achieving gender equality most apparent in Saudi Arabia</i></p> <p>Middle East and Africa includes Egypt, Kuwait, Lebanon, Qatar, Saudi Arabia, UAE, Morocco, South Africa, Bahrain, and Oman.&nbsp; Kenya and Nigeria are not covered by MWiWA due to insufficient data for too many of the component variables.</p> <p><b><u>MIWA 2013: Middle East and Africa Region</u></b></p> <p><a href="/content/dam/intelligence/content-assets/reports/MIWA2013-MEA.jpg" target="_blank"><img width="525" height="230" src="/content/dam/intelligence/content-assets/reports/MIWA2013-MEA.jpg"></a></p> <p>With an overall score of 71.9, South Africa came in first, followed by Bahrain (58.7) and Oman (41.6) for 2013.&nbsp; In particular, women in South Africa have done well in terms of business and political leadership advancement relative to their male counterparts, scoring a commendable 43.8 (and better than most women in Asia/Pacific countries). This may be attributed to the huge role that they played in campaigning against the exploitation of African people, as well as their struggle for gender equality[<a href="#_ftn6">6</a>]. &nbsp;In 2010, South African women held 44% of parliamentary seats (the 3<sup>rd</sup> highest in the world) and 41% of cabinet posts, including those typically assigned to men: defense, science and technology, foreign affairs, home affairs, mining and agriculture[<a href="#_ftn7">7</a>].</p> <p>In terms of employment, women in South Africa again topped the ranking among its regional peers with a score of 85.0, nearly as high as that of Singapore.&nbsp; It is apparent that complex gender-related issues are still significantly inherent in the cultural structure in South Africa. Despite the passage of the Employment Equity Act (1998), which requires companies with over 50 employees to hire and promote women in proportion to their representation in the population as a whole (52%), South African men still dominate senior management and company boards in both public and private sectors.&nbsp; The Women’s Business Association also noted that 20% of the country’s private sector boards have no women and only 10% of Chief executives and board chairmen are women[<a href="#_ftn7">7</a>].</p> <p><a name="_ftn6"></a>[6] Azikiwe, Abayomi (2010). “<i>Women at forefront of Africa’s Liberation Struggles</i>”, Pan-African News Wire, August 13, 2010, Online: <a target="_blank" href="http://www.workers.org/2010/world/women_africa_0819/">http://www.workers.org/2010/world/women_africa_0819/</a></p> <p><a name="_ftn7"></a>[7] The Economist, “<i>Women in South Africa: Walking several paces behind</i>”, 7<sup>th</sup> Oct 2010, Online: <a target="_blank" href="http://www.economist.com/node/17204625">http://www.economist.com/node/17204625</a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/MIWA2013-SAF.jpg"><img width="528" height="266" src="/content/dam/intelligence/content-assets/reports/MIWA2013-SAF.jpg"></a></p> <p>Women in Saudi Arabia achieved the least progress in gender parity relative to their regional peers with an overall MIWA score of 18.2 (2007: 18.4).&nbsp; The number of female business owners, business leaders and political leaders was also lowest in Saudi Arabia: the leadership sub-index was only 1.3, unchanged from that in 2007, and the lowest across all 26 markets.</p> <p><a href="/content/dam/intelligence/content-assets/reports/MIWA2013-Saudi.jpg" target="_blank"><img width="528" height="266" src="/content/dam/intelligence/content-assets/reports/MIWA2013-Saudi.jpg"></a></p> <p><b>Bahrain: Notable improvement in gender parity</b></p> <p>During the period 2007 to 2013, women in Bahrain advanced the most in gender parity with the overall score increasing by 16.1 index points from 42.6 to 58.7 (second in ranking trailing South Africa in 2013). They also progressed most markedly in leadership with the score increasing by 18.5 points from 11.7 to 30.1 throughout the period.&nbsp; The Bahrain Institute for Political Development (BIPD), in conjunction with the Supreme Council for Women signed an agreement in October 2012 that is geared towards engaging Bahraini women in the political decision-making process, as well as encouraging women to participate in the elections both as voters and candidates. This was in recognition of Bahraini women’s accumulation of expertise, influence and confidence overtime which has allowed them to rise to the position of minister, parliamentarian, and other high-ranking posts both locally and globally[<a href="#_ftnref8">8</a>]</p> <p><a name="_ftnref8"></a>[8] Al-Jayousi, Mohammed (2012), &quot;<i>New Bahrain programme aims to increase women political participation</i>&quot;, Manama, November 2012, Online: <a target="_blank" href="http://al-shorfa.com/en_GB/articles/meii/features/2012/11/16/feature-01">http://al-shorfa.com/en_GB/articles/meii/features/2012/11/16/feature-01</a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/MIWA2013-Bah.jpg"><img width="524" height="264" src="/content/dam/intelligence/content-assets/reports/MIWA2013-Bah.jpg"></a></p> CONCLUSION<p>The 2013 MasterCard Index of Women’s Advancement indicated that although women in most countries have made incremental progress in gender parity in terms of employment, capability and leadership relative to their male counterparts, more systemic changes are required to enhance the pathways supporting women’s advancement.&nbsp; The index showed that women in New Zealand, Australia and the Philippines achieved the most substantial progress with overall scores of 77.8, 76.0 and 70.5, respectively.</p> <p>Within Asia/Pacific, Korean women advanced the most in gender parity since 2007 in terms of capability. The highest progress in workforce participation and regular employment was reflected among women in New Zealand from a year ago. Japan and China were the only markets whose overall score decreased from the previous year: Japan (48.1, down by -1.1 index points) and China (61.5, down by -0.1 index points). Hong Kong, Thailand and Vietnam remained unchanged from 2012. In terms of employment, women in New Zealand and Australia were found to be the most economically active relative to their male counterparts in the region, scoring 91.2 and 90.5, respectively. </p> <p>In South Asia, all countries advanced from the year prior, with Nepalese women leading the way with an overall score of 55.0.&nbsp; They also made the largest progress with an increase in overall score of 12.7 index points from 42.3 in 2007, and ranked the highest in leadership in the region with a score of 38.4, up 18.2 index points from 20.2 in 2007.&nbsp; In contrast, women in Pakistan showed the weakest progress, with a lowest overall MIWA score of 23.0 among their regional peers in 2013.&nbsp; They also ranked the lowest relative to their male counterparts in leadership with a mere score of 3.5, a decrease of 3.1 index points from 6.6 in 2007.</p> <p>In the Middle East and Africa region, South African women outshone their regional peers in leadership and employment with an overall score of 71.9, followed by Bahrain (58.7) and Oman (41.6). Women in South Africa also fared particularly well in terms of business and political leadership advancement relative to their male counterparts, scoring a commendable 43.8 (and better than most women in Asia/Pacific countries). In terms of employment, women in South Africa again topped the ranking among its regional peers with a score of 85.0, nearly as high as that in Singapore. In contrast, women in Saudi Arabia achieved the least progress in gender parity relative to their regional peers with an overall MIWA score of 18.2 (2007: 18.4). The number of female business owners, business leaders and political leaders was also lowest in Saudi Arabia: the leadership sub-index was only 1.3, unchanged from that in 2007, and the lowest across all 26 markets.</p> About the Author<p>Alexis Chong is a consultant who specializes in providing business and research reporting and analytical services to clients in Asia/Pacific. Her main focus is on assisting clients in analyzing, preparing and documenting research proposals, business and investment recommendations, project tendering, and feasibility studies spanning various sectors including financial services, information technology and communication, software testing, and logistics.&nbsp; Alexis holds a B.A. in Electronic Commerce &amp; Marketing and a M.A. in Electronic Commerce from Curtin University, Western Australia.</p> The 2013 MasterCard Index of Women’s Advancement revealed that women in the majority of the 26 markets covered (excluding Kenya and Nigeria owing to insufficient data) across Asia/Pacific, Middle East and Africa had progressed in gender parity in terms of Employment (Workforce Participation and Regular Employment), Capability (Secondary and Tertiary Education), and Leadership (Business Owners, Business Leaders and Political Leaders) as compared to their male counterparts. The top 3 overall MIWA scores across all markets were secured by those within Asia/Pacific. http://www1.mastercard.com/content/intelligence/en/research/reports/2013/mastercard-index-of-womens-advancement-2013-findings-on-womens-p2013-03-05T16:00:00.000Z2013-03-05T16:00:00.000ZSupplementary Findings: Mastercard Survey On Advancing Women's Role In Society Alexis Chong1. More Seats For Women In Parliament Will Have The Most Effect<p>&nbsp;</p> <p></p> Asia/Pacific<p>Among Asia/Pacific respondents, the opinion that greater female representation in Parliament will have the greatest impact was most prominent in 3 countries: Philippines, Vietnam and China, and highly reflected among both women and men. More than one-fifth (20.9%) of women in the Philippines ranked more women parliamentarians as having the most impact in promoting women’s advancement in society. A significant percentage of Filipino men (24.1%) also shared the same opinion.</p> <p>A similar pattern was observed in Vietnam and China among both women and men: Vietnam (women: 19.6%; men: 14.7%) and China (women: 18.5%; men: 25.2%). It is interesting to note that the actual percentages of female parliamentarians in these countries are quite high: Philippines (22.1%), Vietnam (24.4%), and China (21.3%). It is possible that people have seen the benefits of having women serving in the parliament, and they actually want to see even more of them continue making this contribution.</p> <p><b><i>Significant Challenges Ahead for Women Seeking Equal Participation in Politics</i></b><b><i></i></b></p> <p>The belief that women’s representation in Parliament will aid women’s advancement in society as revealed in the MasterCard survey is certainly not new. Various studies have underscored that the slow progress is worldwide. For example, the 2012 Global Map on Women in Politics launched by UN Women and the Inter-Parliamentary Union during the UN Commission on the Status of Women revealed the following statistics as of 2012[<a href="#_ftn1">1</a>]:</p> <p><u>Table 1: Breakdown of Respondents' Opinion - Asia/Pacific</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">More seats for women in Parliament</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> <th class="table-description"><b>Actual % of Females<br> in Parliament </b>[<a href="#_ftn2">2</a>]</th> </tr><tr><td><b>Philippines</b></td> <td>20.9</td> <td>24.1</td> <td>22.1</td> </tr><tr><td><b>Vietnam</b></td> <td>19.6</td> <td>14.7</td> <td>24.4</td> </tr><tr><td><b>China</b></td> <td>18.5</td> <td>25.2</td> <td>21.3</td> </tr><tr><td><b>Myanmar</b></td> <td>14.5</td> <td>16.4</td> <td>4.6</td> </tr><tr><td><b>Hong Kong</b></td> <td>14.0</td> <td>15.2</td> <td>18.5</td> </tr><tr><td><b>Malaysia</b></td> <td>13.7</td> <td>15.5</td> <td>13.2</td> </tr><tr><td><b>Australia</b></td> <td>13.4</td> <td>13.7</td> <td>29.2</td> </tr><tr><td><b>Singapore</b></td> <td>13.1</td> <td>16.4</td> <td>24.2</td> </tr><tr><td><b>Thailand</b></td> <td>11.9</td> <td>21.5</td> <td>15.7</td> </tr><tr><td><b>Indonesia</b></td> <td>11.5</td> <td>14.2</td> <td>18.6</td> </tr><tr><td><b>New Zealand</b></td> <td>10.0</td> <td>9.5</td> <td>32.2</td> </tr><tr><td><b>South Korea</b></td> <td>8.8</td> <td>9.5</td> <td>15.7</td> </tr><tr><td><b>Taiwan</b></td> <td>8.7</td> <td>13.5</td> <td>30.3</td> </tr><tr><td><b>Japan</b></td> <td>8.0</td> <td>11.2</td> <td>11.3</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women’s Role in Society (2012H2)</i></p> <ul> <li>Out of 193 countries, only 17 have women as Heads of State or in the Government (up from 2005 when only 8 countries had women leaders),</li> <li>Only 19.5% of legislators are women, a mere half-point increase from two years ago,</li> <li>In Australia and New Zealand, the percentage of women ministers is 11%, followed by Asia at 10%, and the Arab states the lowest at only 7%.</li> </ul> <p>In Vietnam, despite efforts by the <i>Vietnam Women’s Union Central Committee’s </i>proposal in 2011 to raise the proportion of women to 30% in the National Assembly, this target was not reached[<a href="#_ftn1">1</a>].&nbsp; As shown in Table 1 above, the percentage of female parliamentarians in 2013 was only 24.4%.</p> <p></p> <p><a name="_ftn1"></a><sup>1</sup>&quot;Women in Parliament in 2011: The Year in Perspective&quot;, Inter-Parliamentary Union 2011, Online &nbsp;<a href="http://www.ipu.org/pdf/publications/wmnpersp11-e.pdf" target="_blank">http://www.ipu.org/pdf/publications/wmnpersp11-e.pdf</a><br> <a name="_ftn2"></a><sup>2</sup>Actual percentage of female parliamentarians in 2013, Source: Inter-Parliamentary Union</p> <p></p> South Asia<p>The proportion of South Asian respondents sharing the opinion that having more seats in parliament for women will have the most effect in advancing women’s role in society was generally less pronounced. In Bangladesh, the parliament continues to be substantially male-dominated (more than 80% of parliamentarians are male in 2013, compared to 85% in 2007)[<a href="#_ftn3">3</a>]. &nbsp;</p> <p>As noted by Mohiudddin Ahmed Chowdhury, author of &quot;Bangladesh towards 21st century&quot;, women in Bangladesh have remained outside the political arena and their struggle for democracy in election campaigns and community work had imparted little influence in society[<a href="#_ftn4">4</a>].&nbsp;</p> <p><u>Table 2: Breakdown of Respondents' Opinion – South Asia</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">More seats for women in Parliament</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> <th class="table-description"><b>Actual % of Females<br> in Parliament </b>[<a href="#_ftn5">5</a>]</th> </tr><tr><td><b>Bangladesh</b></td> <td>12.6</td> <td>9.1</td> <td>19.7</td> </tr><tr><td><b>India</b></td> <td>19.5</td> <td>18.8</td> <td>10.9</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> <p>Author Kamal Uddin Ahmed of the article “Women and Politics in Bangladesh” made some notable comments:</p> <ul> <li>After 30 years of independence, notwithstanding the recent rise in general consensus among women’s organizations and groups over the need to increase the number of seats in parliament for women, and the fact that the top leaders of the two major political parties (BNP and AL) are women leaders, politics in Bangladesh continues to be male-dominated.&nbsp;</li> <li>Although women in Bangladesh have made some advancement in many fields that were previously dominated by men, a career in politics is not one of them due to various underlying factors such as social biases, enormous campaign costs that most women cannot afford, financial dependency, barriers arising from cultural and religious beliefs, and attitudes based on gender roles and stereotypes that persist even now[<a href="#_ftn6">6</a>].</li> </ul> <p><a name="_ftn3"></a><sup>3</sup>Actual percentage of female parliamentarians in 2013, Source: Inter-Parliamentary Union<br> <a name="_ftn4"></a><sup>4</sup>Choudhury, Mohiudddin Ahmed. &quot;Bangladesh towards 21st century&quot;, page 178, Quoted in article “Women and Politics in Bangladesh” by Kamal Uddin Ahmed, Online <a href="http://www.asiaticsociety.org.bd/journals/Golden_jubilee_vol/articles/H_446%20%28Kamal%20Uddin%29.htm#_ftn18" target="_blank">http://www.asiaticsociety.org.bd/journals/Golden_jubilee_vol/articles/H_446 (Kamal Uddin).htm#_ftn18</a><br> <a name="_ftn5"></a><sup>5</sup>Actual percentage of female parliamentarians in 2013, Source: Inter-Parliamentary Union<br> <a name="_ftn6"></a><sup>6</sup>&quot;Women in the Arab World Get Organized: In Kuwait, women are breaking down barriers&quot;, The World of Parliaments, Quarterly Review, October 2006, Online: <a href="http://www.ipu.org/news-e/23-4.htm" target="_blank">http://www.ipu.org/news-e/23-4.htm</a></p> Middle East & Africa<p>One of the most noteworthy findings of the MasterCard Survey is that <i>both</i> women and men in most Middle East and African countries[<a href="#_ftn7">7</a>] feel quite strongly that having more women in the political arena will help advance women's role in society. This single voice was echoed in 6 countries (Oman, Lebanon, Nigeria, Kenya, Kuwait, and South Africa), with Oman taking the rein (women: 29.9%; men: 27.2%).&nbsp;</p> <p><u>Table 3: Breakdown of Respondents' Opinion - Middle East &amp; Africa&nbsp;</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">More seats for women in Parliament</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> <th class="table-description">Actual % of Females<br> in Parliament [<a href="#_ftn8">8</a>]</th> </tr><tr><td><b>Oman</b></td> <td>29.9</td> <td>27.2</td> <td>9.6</td> </tr><tr><td><b>Lebanon</b></td> <td>28.0</td> <td>28.2</td> <td>3.1</td> </tr><tr><td><b>Nigeria</b></td> <td>27.4</td> <td>26.5</td> <td>6.6</td> </tr><tr><td><b>Kenya</b></td> <td>23.8</td> <td>21.7</td> <td>9.8</td> </tr><tr><td><b>Kuwait</b></td> <td>22.7</td> <td>20.2</td> <td>6.2</td> </tr><tr><td><b>South Africa</b></td> <td>19.7</td> <td>17.8</td> <td>41.1</td> </tr><tr><td><b>Egypt</b></td> <td>15.9</td> <td>7.8</td> <td>2.2</td> </tr><tr><td><b>Qatar</b></td> <td>13.9</td> <td>16.7</td> <td>0.0</td> </tr><tr><td><b>United Arab Emirates</b></td> <td>14.1</td> <td>11.7</td> <td>17.5</td> </tr><tr><td><b>Saudi Arabia</b></td> <td>10.1</td> <td>10.2</td> <td>0.0</td> </tr><tr><td><b>Morocco</b></td> <td>7.8</td> <td>8.3</td> <td>11.0</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women’s Role in Society (2012H2)</i></p> <p>This finding has significant implications:</p> <ul> <li>Most Middle Eastern women and men believe that women in their respective countries have the required competence, capability and confidence to be in politics. The underlying belief here is that having more women as parliamentarians will bring positive contribution to the economy and nation.</li> <li>Most Middle Eastern women and men want women to be granted the opportunity to be in politics, but the opportunity is not always realized due to long-held traditional practices, religious beliefs and assumption that the restrictions placed upon women by their societies would keep them from succeeding.</li> </ul> <p>In contrast, the opinion is shared less widely among men and women in Egypt, Qatar, UAE, Saudi Arabia and Morocco (the lowest in the region with 7.8% women and 8.3% men).</p> <p><b>Kuwait: Negative Cultural Attitudes Deeply Embedded</b><br> According to the Inter-Parliamentary Union (2013), the percentage of female parliamentarians was only 6.2% in Kuwait.&nbsp; MasterCard’s survey showed that more than one-fifth of respondents noted that having more women in parliament will help advance their roles in society. As acknowledged by Dr Rola Dashti (PhD in Population Economics, John Hopkins University, USA and first female candidate in Kuwait’s 2006 parliamentary elections), the need to encourage women who are capable to come forward and be engaged in the political process is both crucial and pressing due to “the negative cultural and media attitude towards women in politics”. Dashti also pointed out that ideological differences between conservatives and extremist Islamists have led to the opposition of female participation in politics and discouragement of women from voting for a woman[<a href="#_ftn9">9</a>].</p> <p><b>Egypt: Women’s Presence in Parliament a Scarcity</b><br> Findings from the survey indicate that more female respondents (15.9%) in Egypt believe that more seats in Parliament for women will aid in their advancement, although the belief is shared less widely among their male counterparts (7.8% - the lowest in the region).&nbsp; Although the national assembly had passed a new law mandating the creation of 64 new seats in the parliament house specifically for women in 2009, the outcome of the November 2011 to January 2012 parliamentary election to the People’s Assembly of Egypt was an immense disappointment to women with only a handful of women making up about 1% of the new assembly[<a href="#_ftn10">10</a>]. Data from the Inter-Parliamentary Union indicated that the actual make up of female parliamentarians in 2013 was a startling 2.2%.</p> <p><b>Saudi Arabia: More Women Parliamentarians Going Forward</b><br> Although the survey found that only one in ten respondents in Saudi Arabia viewed having more women parliamentarians as most effective in advancing women’s role in society, King Abdullah’s historical move in January 2013 should bring some changes going forward. In addition to naming 30 women to the kingdom’s Shura Council – an appointed advisory body that cannot enact legislation but is still the closest institution to a parliament in the country, he also amended the Shura Council's law to ensure that women would make up 20% or more of the 150-person council in future[<a href="#_ftn11">11</a>].</p> <p><a name="_ftn7"></a><sup>7</sup>Oman, Lebanon, Nigeria, Kenya, Kuwait and South Africa<br> <a name="_ftn8"></a><sup>8</sup>Actual percentage of female parliamentarians in 2013, Source: Inter-Parliamentary Union<br> <a name="_ftn9"></a><sup>9</sup>“Women in the Arab World Get Organized: In Kuwait, women are breaking down barriers”, The World of Parliaments, Quarterly Review, October 2006, Online: <a href="http://www.ipu.org/news-e/23-4.htm" target="_blank">http://www.ipu.org/news-e/23-4.htm</a><br> <a name="_ftn10"></a><sup>10</sup>&quot;In Egypt’s New Parliament, Women will be Scare&quot;, NPR, Jan 2012, Online: <a href="http://www.npr.org/2012/01/19/145468365/in-egypts-new-parliament-women-will-be-scarce" target="_blank">http://www.npr.org/2012/01/19/145468365/in-egypts-new-parliament-women-will-be-scarce</a><br> <a name="_ftn11"></a><sup>11</sup>&quot;Saudi Arabia's timid flirtation with women's right&quot;, The Atlantic, 16 Jan 2013, Online <a href="http://www.theatlantic.com/international/archive/2013/01/saudi-arabias-timid-flirtation-with-womens-rights/267245/" target="_blank">http://www.theatlantic.com/international/archive/2013/01/saudi-arabias-timid-flirtation-with-womens-rights/267245/</a></p> 2. Women's Affirmative Action Will Have The Most Effect<p>&nbsp;</p> <p></p> Asia Pacific<p>The opinion that actions that promote opportunities for women will be most effective in advancing women's role in society is shared most strongly among both female and male respondents in Indonesia, Thailand and Myanmar.</p> <p>In Indonesia, the proportion of female respondents was 32.4%, the highest in the survey across all countries. There are 2 possible explanations for this. First, according to the MasterCard Index of Women's Advancement (2013), the gender parity gap between Indonesian men and women in terms of employment, capability and leadership was significant – index points were 74.4, 91.7 and 26.4, respectively.</p> <p>Second, in Indonesia, affirmative action programs that exist typically offer natives preference over Han Chinese immigrants – there is a notable lack of women-specific affirmative actions[<a href="#_ftn12">12</a>]. For those action programs that have been introduced, the outcome has not been as effective as initially envisaged.&nbsp; As noted in the article &quot;<i>Can affirmative action increase women's ability to get elected in Indonesia</i>&quot; by Asia Foundation, despite efforts made prior to the 2009 General Elections to increase the proportion of female candidates in political parties to 30%, the 2009 parliament only had 18% women parliamentarians. This has prompted more women's groups to step up their effort to push for more &quot;<i>affirmative action in election laws to ensure a fully effective and representative parliament</i>&quot;[<a href="#_ftn13">13</a>].</p> <p>In contrast, in New Zealand where individuals of Maori or other Polynesian descent are often afforded preferential access to university courses and scholarships, the response from female and male respondents was more subtle. This could be due to the fact that the problem of gender inequality is not as acute in New Zealand, as reflected in the MasterCard Index of Women's Advancement where the index points for employment, capability and leadership were 91.2, 100.0 and 51.6, respectively in 2013.</p> <p><u>Table 4: Breakdown of Respondents' Opinion – Asia/Pacific</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">Women's affirmative action</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td><b>Indonesia</b></td> <td>32.4</td> <td>28.2</td> </tr><tr><td><b>Thailand</b></td> <td>29.0</td> <td>29.6</td> </tr><tr><td><b>Myanmar</b></td> <td>25.6</td> <td>26.6</td> </tr><tr><td><b>Hong Kong</b></td> <td>19.6</td> <td>19.8</td> </tr><tr><td><b>Vietnam</b></td> <td>18.5</td> <td>17.1</td> </tr><tr><td><b>Taiwan</b></td> <td>18.0</td> <td>23.3</td> </tr><tr><td><b>China</b></td> <td>17.7</td> <td>20.5</td> </tr><tr><td><b>Japan</b></td> <td>16.7</td> <td>7.6</td> </tr><tr><td><b>Philippines</b></td> <td>14.3</td> <td>12.3</td> </tr><tr><td><b>South Korea</b></td> <td>13.2</td> <td>13.2</td> </tr><tr><td><b>Malaysia</b></td> <td>11.3</td> <td>13.0</td> </tr><tr><td><b>Singapore</b></td> <td>10.6</td> <td>10.4</td> </tr><tr><td><b>Australia</b></td> <td>7.1</td> <td>7.6</td> </tr><tr><td><b>New Zealand</b></td> <td>6.8</td> <td>5.8</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women’s Role in Society (2012H2)</i></p> <p><a name="_ftn12"></a><sup>12</sup>WordiQ.com, Definition of Affirmative Action<br> <a name="_ftn13"></a><sup>13</sup>&quot;Can affirmative action increase women's ability to get elected in Indonesia&quot;, Asia Foundation, 1 Jun 2011, Online <a href="http://asiafoundation.org/in-asia/2011/06/01/can-affirmative-action-increase-womens-ability-to-get-elected-in-indonesia/" target="_blank">http://asiafoundation.org/in-asia/2011/06/01/can-affirmative-action-increase-womens-ability-to-get-elected-in-indonesia/</a></p> Middle East & Africa<p>Within the region, Saudi Arabia and Oman stood out with the highest proportion of respondents agreeing that women’s affirmative action will be most effective in advancing women’s role in society.</p> <p>The high response from respondents in Saudi Arabia may have been triggered by 2 recent</p> <ul> <li>King Abdullah’s move in 2013 to include more women in the Shura Council, and</li> <li>Women from Saudi Arabia were allowed to participate in the Olympic Games for the first time in 2012.</li> </ul> <p><u>Table 5: Breakdown of Respondents’ Opinion – Middle East &amp; Africa</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">Women’s affirmative action</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Saudi Arabia</td> <td>30.3</td> <td>26.8</td> </tr><tr><td>Oman</td> <td>28.5</td> <td>29.0</td> </tr><tr><td>Egypt</td> <td>20.4</td> <td>22.7</td> </tr><tr><td>Morocco</td> <td>20.1</td> <td>21.6</td> </tr><tr><td>Kuwait</td> <td>18.3</td> <td>15.2</td> </tr><tr><td>United Arab Emirates</td> <td>17.4</td> <td>16.6</td> </tr><tr><td>Qatar</td> <td>16.0</td> <td>19.8</td> </tr><tr><td>Nigeria</td> <td>14.8</td> <td>15.2</td> </tr><tr><td>South Africa</td> <td>12.4</td> <td>13.9</td> </tr><tr><td>Lebanon</td> <td>11.1</td> <td>6.8</td> </tr><tr><td>Kenya</td> <td>10.9</td> <td>12.7</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women’s Role in Society (2012H2)</i></p> <p>It is interesting to note that a significant proportion of female respondents from these 2 countries also chose having more women parliamentarians (29.9%) and SME opportunities (22.3%) as effective ways to advance women in society.</p> 3. More Women On Company Boards Will Have The Most Effect<p>&nbsp;</p> <p></p> Asia/Pacific<p>The opinion that having more women on company boards will have the most impact was most apparent in 3 countries in Asia/Pacific: Thailand, Australia, and New Zealand. In Thailand, more than one-fifth (20.9%) of women and 17.6% of men felt that having a greater representation of women on company boards will help advance women's role in society; followed by Australia (women: 16.1%; men: 15.1%), and New Zealand (women: 14.2%; men: 12.7%).&nbsp;</p> <p><u>Table 6: Breakdown of Respondents' Opinion – Asia/Pacific</u></p> <table border="1" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">More Women on Company Boards</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Thailand</td> <td>20.9</td> <td>17.6</td> </tr><tr><td>Australia</td> <td>16.1</td> <td>15.1</td> </tr><tr><td>New Zealand</td> <td>14.2</td> <td>12.7</td> </tr><tr><td>Vietnam</td> <td>12.5</td> <td>14.5</td> </tr><tr><td>Malaysia</td> <td>11.4</td> <td>9.4</td> </tr><tr><td>Philippines</td> <td>11.1</td> <td>12.9</td> </tr><tr><td>South Korea</td> <td>11.1</td> <td>8.0</td> </tr><tr><td>China</td> <td>10.7</td> <td>10.3</td> </tr><tr><td>Singapore</td> <td>9.5</td> <td>10.8</td> </tr><tr><td>Japan</td> <td>9.3</td> <td>9.0</td> </tr><tr><td>Taiwan</td> <td>8.9</td> <td>6.5</td> </tr><tr><td>Hong Kong</td> <td>7.7</td> <td>9.3</td> </tr><tr><td>Myanmar</td> <td>7.6</td> <td>7.8</td> </tr><tr><td>Indonesia</td> <td>6.5</td> <td>6.9</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> <p>This viewpoint was shared less strongly among respondents of both genders in Singapore, Japan, Taiwan, Hong Kong, Myanmar and Indonesia.&nbsp; MasterCard's survey findings also revealed that this was the case among both developed countries such as Japan and Hong Kong, and less developed countries such as Myanmar and Indonesia.</p> <p><b>Japan: Gender Stereotyping Common; Women Less Ambitious</b><br> According to McKinsey &amp; Company[<a href="#_ftn14">14</a>], deep-rooted traditional thinking that women should remain at home after marriage is relatively deeply rooted in the Japanese society, with around 60% of married women quitting or changing their jobs. Women themselves were found to express lower levels of ambition to attain executive positions. Not surprisingly, Japan has one of the lowest levels of female representation on boards and executive committees in Asia.&nbsp; Similar findings were prevalent among Korean women</p> <p><a name="_ftn14"></a><sup>14</sup>McKinsey &amp; Company, &quot;Women Matter: An Asian Perspective&quot;, 2012, p.10, Online <a href="http://www.leadershipforwomen.com.au/images/docs/2012-McKInsey-Women-Matter-An-Asian-Perspective.pdf" target="_blank">http://www.leadershipforwomen.com.au/images/docs/2012-McKInsey-Women-Matter-An-Asian-Perspective.pdf</a></p> Middle East & Africa<p>Within the Middle Eastern and African region, Egypt and Lebanon were the top two countries with the highest percentage of female and male respondents sharing the view that having more women on company boards will contribute towards advancing women’s role in society.&nbsp; In Lebanon, nearly one-fifth (19.7%) of male respondents supported having more women on board, the highest percentage among both genders across all countries in the region. In the UAE, a notably higher percentage of male respondents (17.9%) shared this viewpoint, compared to only 12.4% of women respondents.&nbsp;&nbsp;</p> <p><u>Table 7: Breakdown of Respondents’ Opinion – Middle East &amp; Africa</u></p> <table border="1" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">More Women on Company Boards</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Egypt</td> <td>18.4</td> <td>15.9</td> </tr><tr><td>Lebanon</td> <td>18.2</td> <td>19.7</td> </tr><tr><td>Morocco</td> <td>15.8</td> <td>13.8</td> </tr><tr><td>Kuwait</td> <td>15.4</td> <td>13.9</td> </tr><tr><td>Qatar</td> <td>15.0</td> <td>13.2</td> </tr><tr><td>South Africa</td> <td>14.5</td> <td>14.2</td> </tr><tr><td>Saudi Arabia</td> <td>12.7</td> <td>9.2</td> </tr><tr><td>United Arab Emirates</td> <td>12.4</td> <td>17.9</td> </tr><tr><td>Oman</td> <td>11.6</td> <td>14.2</td> </tr><tr><td>Kenya</td> <td>9.4</td> <td>8.0</td> </tr><tr><td>Nigeria</td> <td>9.1</td> <td>9.9</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> <p></p> <p>According to research conducted by the Pearl Initiative, a body established to promote transparency and accountability to companies in the Gulf, female representation on the board of listed companies was only 1.5%[<a href="#_ftn15">15</a>]. This is consistent with the MasterCard Index of Women’s Advancement whereby it was found that the proportion of women in business leadership positions within the Gulf and African region is generally low.</p> <p><a name="_ftn15"></a><sup>15</sup>Gulf leads way with women on boards&quot;, Research by The Pearl Initiative, 2012, Online <a href="http://www.telegraph.co.uk/news/worldnews/middleeast/dubai/9748971/Gulf-leads-way-with-women-on-boards.html" target="_blank">http://www.telegraph.co.uk/news/worldnews/middleeast/dubai/9748971/Gulf-leads-way-with-women-on-boards.html</a></p> 4. More Women SME Business Opportunities Will Have The Most Effect <p>&nbsp;</p> <p></p> Asia/Pacific<p><b>Survey Finds Female Taiwanese Respondents Most Fervent in their Belief</b><br> Within the region, a significant percentage of Taiwanese women (22.1%) felt that more women SME business opportunities will help advance women’s role in society, compared to Taiwanese men at (16.5%). This observation may be attributed to the emergence of a more open society and the development of a knowledge economy in Taiwan, whereby women are accounting for an increasingly large percentage of entrepreneurs and actively pursuing economic autonomy. A decade ago, around 38% of all new enterprises established had a woman as the “responsible person” (chairperson or business owner), surpassing all countries in the world[<a href="#_ftn16">16</a>].&nbsp; Today, the figure is still high at 35% (444,805 out of the total of 1,255,619 enterprises), of which 86% of women are in the service sector. According to statistics released in 2009 by the Entrepreneurial Consulting Service Center, women who are seeking to start their own businesses are getting younger, with around 40% aged between 25 and 34 years <a href="#_ftn17">17</a>].&nbsp;</p> <p><u>Table 8: Breakdown of Respondents' Opinion – Asia/Pacific</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">More Women SME Business Opportunities</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Taiwan</td> <td>22.1</td> <td>16.5</td> </tr><tr><td>Malaysia</td> <td>19.7</td> <td>19.3</td> </tr><tr><td>Indonesia</td> <td>19.5</td> <td>18.5</td> </tr><tr><td>China</td> <td>19.4</td> <td>15.3</td> </tr><tr><td>Vietnam</td> <td>16.2</td> <td>17.2</td> </tr><tr><td>Philippines</td> <td>15.9</td> <td>13.7</td> </tr><tr><td>Hong Kong</td> <td>14.8</td> <td>12.9</td> </tr><tr><td>Japan</td> <td>10.2</td> <td>8.5</td> </tr><tr><td>Singapore</td> <td>10.0</td> <td>6.7</td> </tr><tr><td>Thailand</td> <td>9.2</td> <td>6.1</td> </tr><tr><td>Myanmar</td> <td>9.0</td> <td>10.3</td> </tr><tr><td>New Zealand</td> <td>8.3</td> <td>10.1</td> </tr><tr><td>South Korea</td> <td>6.9</td> <td>9.4</td> </tr><tr><td>Australia</td> <td>6.5</td> <td>8.0</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> <p>The survey also found that female respondents in developing countries such Indonesia, China, Vietnam and Philippines agreed that granting more SME business opportunities to women will help advance their progress. This may be due to their desire to create more wealth and to be more financially independent. In contrast, this viewpoint is not shared as widely among male and female respondents in some of the developed countries: New Zealand, South Korea and Australia.</p> <p><a name="_ftn16"></a><sup>16</sup>&quot;Women’s Entrepreneurial Activity&quot;, White paper on SMEs in Taiwan, 2004, Online <a href="http://www.moeasmea.gov.tw/public/Attachment/651614564071.pdf" target="_blank">http://www.moeasmea.gov.tw/public/Attachment/651614564071.pdf</a><br> <a name="_ftn17"></a><sup>17</sup>2009 White Paper on Chinese Taipei, Quoted in article by APEC &quot;Chinese Taipei: Policies and Achievements of Women Entrepreneurship&quot;, Online <a href="http://www.women.apec.org/chinese_taipei.php" target="_blank">http://www.women.apec.org/chinese_taipei.php</a></p> Middle East & Africa<p>The survey findings revealed that a relatively large percentage of both female and male respondents in the Middle East and Africa felt that increasing SME business opportunities for women will be most effective in advancing their role in society. This was particularly apparent in Saudi Arabia, Morocco, UAE, Nigeria, Kenya, Lebanon, and Kuwait, and less pronounced in Egypt, South Africa, Oman and Qatar. In Saudi Arabia and Morocco, more than one-fifth of female respondents (Saudi Arabia: 22.3%; Morocco: 20.7%) agreed that granting more women SME business opportunities will be most effective. Their male counterparts (Saudi Arabia: 19.3%; Morocco: 19.6%) also shared the same viewpoint quite enthusiastically.</p> <p><u>Table 9: Breakdown of Respondents' Opinion – Middle East &amp; Africa</u></p> <table border="1" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">More Women SME Business Opportunities</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Saudi Arabia</td> <td>22.3</td> <td>19.3</td> </tr><tr><td>Morocco</td> <td>20.7</td> <td>19.6</td> </tr><tr><td>United Arab Emirates</td> <td>18.6</td> <td>17.8</td> </tr><tr><td>Nigeria</td> <td>18.4</td> <td>19.6</td> </tr><tr><td>Kenya</td> <td>17.9</td> <td>16.5</td> </tr><tr><td>Lebanon</td> <td>17.7</td> <td>18.4</td> </tr><tr><td>Kuwait</td> <td>16.7</td> <td>20.1</td> </tr><tr><td>Egypt</td> <td>12.7</td> <td>6.6</td> </tr><tr><td>South Africa</td> <td>12.1</td> <td>13.2</td> </tr><tr><td>Oman</td> <td>10.2</td> <td>10.4</td> </tr><tr><td>Qatar</td> <td>9.9</td> <td>12.8</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> <p><b>UAE Women as SME Owners: Some Progress Made<br> </b>Spurred by pro-women legislation in business startup and management, women in the UAE are making commendable progress as owners of SMEs and heavy-weight companies in the economy and market[<a href="#_ftn18">18</a>]. According to the World Bank’s annual Ease of Doing Business survey, the UAE's ranking improved significantly from 46th in 2012 to 22nd in 2013, and 1st within the Arab world[<a href="#_ftn19">19</a>]. The latest report published by the Global Entrepreneurship Monitor (GEM) found 80% of Emirati women to be ‘nascent entrepreneurs' and given the right intervention and support such as education, mentorship and capital access, they are natural entrepreneurs[<a href="#_ftn18">18</a>].</p> <p><a name="_ftn18"></a><sup>18</sup>&quot;UAE woman is making substantial strides in business sector&quot;, The Khaleej Times, 25 Feb 2013, Online <a href="http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/uaebusiness/2013/February/uaebusiness_February458.xml&amp;section=uaebusiness" target="_blank">http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/uaebusiness/2013/February/uaebusiness_February458.xml§ion=uaebusiness</a><br> <a name="_ftn19"></a><sup>19</sup>&quot;More women starting businesses in the UAE&quot;, Small Business Opportunities, 22 Mar 2013, Online <a href="http://www.sbomag.com/2013/03/more-women-starting-businesses-in-the-uae/" target="_blank">http://www.sbomag.com/2013/03/more-women-starting-businesses-in-the-uae/</a></p> 5. Domestic Care Help Will Be Most Effective<p>&nbsp;</p> <p></p> Asia/Pacific<p>MasterCard’s survey found that respondents from developed countries in Asia/Pacific such as Japan, South Korea, Singapore and Hong Kong felt most strongly about having domestic care assistance, as compared to those in emerging countries such as Myanmar and Vietnam. In fact, the survey found that the responses from male respondents are higher (e.g. 18.0% male vs. 13.4% female). This may be due to the fact that the supply of local domestic helpers is low in developed countries, and families who need a helper often have to resort to hiring one from overseas, despite the high costs involved. For instance, in Japan, working mothers with young infants/toddlers who cannot afford to lose their jobs are often left with 2 alternatives: (i) find a nanny/caretaker for their child - a very costly option, or (ii) leave their child in child care facilities – which is much more affordable<a href="#_ftn20">20</a>].</p> <p>Conversely, in countries such as China, Philippines and Indonesia where the supply of local helpers/maids is much higher and the cost of hiring is significantly more affordable, the responses were much lower.</p> <p><u>Table 10: Breakdown of Respondents’ Opinion – Asia/Pacific</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">Domestic Care Help</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Japan</td> <td>15.7</td> <td>20.5</td> </tr><tr><td>South Korea</td> <td>13.4</td> <td>18.0</td> </tr><tr><td>Myanmar</td> <td>13.0</td> <td>15.8</td> </tr><tr><td>Vietnam</td> <td>12.0</td> <td>11.6</td> </tr><tr><td>Singapore</td> <td>11.8</td> <td>14.2</td> </tr><tr><td>Hong Kong</td> <td>11.2</td> <td>8.4</td> </tr><tr><td>Australia</td> <td>10.0</td> <td>10.7</td> </tr><tr><td>Taiwan</td> <td>9.2</td> <td>8.7</td> </tr><tr><td>New Zealand</td> <td>8.7</td> <td>11.3</td> </tr><tr><td>Thailand</td> <td>8.7</td> <td>7.7</td> </tr><tr><td>Malaysia</td> <td>8.1</td> <td>11.8</td> </tr><tr><td>China</td> <td>6.1</td> <td>7.3</td> </tr><tr><td>Philippines</td> <td>5.0</td> <td>6.5</td> </tr><tr><td>Indonesia</td> <td>4.0</td> <td>3.7</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> <p><a name="_ftn20"></a><sup>20</sup>Working women in Japan face day care deficit&quot;, Business 360, 28 Apr 2010, Online <a href="http://business.blogs.cnn.com/2010/04/28/working-women-in-japan-face-day-care-deficit/" target="_blank">http://business.blogs.cnn.com/2010/04/28/working-women-in-japan-face-day-care-deficit/</a></p> Middle East & Africa<p>MasterCard's survey found that respondents in the oil-rich economy of Qatar felt most strongly towards domestic care assistance (female: 15.9%; male: 10.8%). This may be due to the fact that getting a domestic helper/maid locally in Qatar is difficult, and most have to resort to sponsoring and hiring one from overseas, typically from India, Indonesia or the Philippines and through an agency.&nbsp;</p> <p><u>Table 11: Breakdown of Respondents’ Opinion – Middle East &amp; Africa</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">Domestic Care Help</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Qatar</td> <td>15.9</td> <td>10.8</td> </tr><tr><td>Kenya</td> <td>13.4</td> <td>13.7</td> </tr><tr><td>Morocco</td> <td>11.2</td> <td>13.9</td> </tr><tr><td>South Africa</td> <td>10.0</td> <td>8.6</td> </tr><tr><td>United Arab Emirates</td> <td>9.9</td> <td>11.7</td> </tr><tr><td>Saudi Arabia</td> <td>8.0</td> <td>14.3</td> </tr><tr><td>Nigeria</td> <td>7.9</td> <td>7.4</td> </tr><tr><td>Oman</td> <td>7.9</td> <td>6.6</td> </tr><tr><td>Kuwait</td> <td>7.0</td> <td>8.6</td> </tr><tr><td>Lebanon</td> <td>6.2</td> <td>6.8</td> </tr><tr><td>Egypt</td> <td>6.1</td> <td>10.2</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> 6. Better Maternal/Paternal Leave Entitlement<p>&nbsp; &nbsp; &nbsp;&nbsp;</p> <p></p> Asia/Pacific<p>MasterCard’s survey findings found that a significant proportion of female and male respondents in Japan, South Korea and New Zealand felt that better maternal/paternal leave entitlement will be the most effective towards advancing women’s role in society.&nbsp;</p> <p>This may be due to 4 factors:</p> <ul> <li>the workforce participation among women in developed countries is generally high[<a href="#_ftn21">21</a>] – Japan (49%), South Korea (49%), New Zealand (62%), Australia (59%)[<a href="#_ftn22">22</a>], Singapore (57%) and Hong Kong (51%), and therefore there is a need to hire someone to assist with housework or take care of infants/young children/elderly in the house;</li> <li>it is not uncommon for both parents to be working and thus the need/desire to have domestic help is more pronounced;</li> <li>hiring nannies/caretakers is difficult due to the lack of supply locally; and</li> <li>the time available to spend with a newborn is limited due to the company’s&nbsp; maternity/paternity leave allowances, and therefore both parents desire more time and benefits.</li> </ul> <p><u>Table 12: Breakdown of Respondents’ Opinion – Asia/Pacific</u></p> <table border="0" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">Better Maternal/Paternal Leave Entitlement</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Japan</td> <td>24.7</td> <td>23.8</td> </tr><tr><td>South Korea</td> <td>23.3</td> <td>22.6</td> </tr><tr><td>New Zealand</td> <td>22.4</td> <td>16.4</td> </tr><tr><td>Australia</td> <td>16.7</td> <td>16.6</td> </tr><tr><td>Singapore</td> <td>13.7</td> <td>15.9</td> </tr><tr><td>Hong Kong</td> <td>13.2</td> <td>15.0</td> </tr><tr><td>Taiwan</td> <td>11.5</td> <td>12.5</td> </tr><tr><td>Malaysia</td> <td>10.9</td> <td>10.7</td> </tr><tr><td>Vietnam</td> <td>10.6</td> <td>9.4</td> </tr><tr><td>China</td> <td>9.0</td> <td>6.8</td> </tr><tr><td>Indonesia</td> <td>7.5</td> <td>7.2</td> </tr><tr><td>Philippines</td> <td>6.5</td> <td>5.5</td> </tr><tr><td>Thailand</td> <td>5.9</td> <td>6.9</td> </tr><tr><td>Myanmar</td> <td>4.3</td> <td>4.4</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women’'s Role in Society (2012H2)</i></p> <p><a name="_ftn21"></a><sup>21</sup>Labour Participation rate, female (% of female population ages 15+), World Bank, Online <a href="http://data.worldbank.org/indicator/SL.TLF.CACT.FE.ZS/countries" target="_blank">http://data.worldbank.org/indicator/SL.TLF.CACT.FE.ZS/countries</a><br> <a name="_ftn22"></a><sup>22</sup>Women Participation in Labour Force August 2011, Australia Bureau of Statistics, <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/1301.0Main+Features452012" target="_blank">http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/1301.0Main+Features452012</a></p> Middle East & Africa<p>The survey found that the percentage of respondents in this region who felt that better maternal/paternal leave benefits will contribute towards promoting women’s role in society is much less compared to that in Asia/Pacific and to a lesser extent, South Asia.&nbsp;</p> <p>This may be due to the fact that most women in this region do not work, as is reflected in the strikingly low female labor force participation rates: Saudi Arabia (18%), Morocco (26%), Oman (28%), Lebanon (23%), Kuwait (43%), Egypt (24%), UAE (44%), and South Africa (44%)[<a href="#_ftn23">23</a>].</p> <p><u>Table 13: Breakdown of Respondents’ Opinion – Middle East &amp; Africa</u></p> <table border="1" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">Better Maternal/Paternal Leave Entitlement</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>Qatar</td> <td>11.2</td> <td>9.0</td> </tr><tr><td>Kenya</td> <td>8.7</td> <td>8.3</td> </tr><tr><td>South Africa</td> <td>7.6</td> <td>8.0</td> </tr><tr><td>United Arab Emirates</td> <td>7.5</td> <td>7.3</td> </tr><tr><td>Nigeria</td> <td>6.7</td> <td>6.9</td> </tr><tr><td>Egypt</td> <td>6.6</td> <td>9.4</td> </tr><tr><td>Kuwait</td> <td>5.0</td> <td>6.2</td> </tr><tr><td>Lebanon</td> <td>4.5</td> <td>4.8</td> </tr><tr><td>Oman</td> <td>4.1</td> <td>4.1</td> </tr><tr><td>Morocco</td> <td>4.0</td> <td>4.7</td> </tr><tr><td>Saudi Arabia</td> <td>3.8</td> <td>6.8</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> <p><a name="_ftn23"></a><sup>23</sup> Findings from the Mastercard Worldwide Index of Women’s Advancement 2013</p> 7. More Companies Stepping Up With Women's Improvement Programs<p>&nbsp; &nbsp;</p> <p></p> Asia/Pacific<p>Within the region, South Korea, Singapore and Malaysia had the highest percentage of respondents who felt that having more companies increase women’s improvement programs will be most effective towards advancing women’s role in society.&nbsp; In contrast, Indonesia, Myanmar, Thailand and Vietnam ranked the lowest. According to McKinsey &amp; Company’s study, gender diversity is not yet a widely recognized issue in Indonesia, with 77% of companies saying that it is not on their strategic agendas, compared to Asia’s average of 70%.&nbsp;</p> <p>In Australia where companies are more pro-active in their effort to promote women such as by raising their ambitions and profiles, the responses were also higher: female (12.4%) and male (9.7%). Over the past few years, the Australian government and business sector have initiated measures to increase the level of female representation on boards and executive committees[<a href="#_ftn24">24</a>].</p> <p><u>Table 14: Breakdown of Respondents’ Opinion – Asia/Pacific</u></p> <table border="1" cellspacing="0" cellpadding="0"> <tbody><tr><th class="table-description">More Companies Stepping Up with Women's<br> Improvement Programs</th> <th class="table-description">Female (%)</th> <th class="table-description">Male (%)</th> </tr><tr><td>South Korea</td> <td>17.3</td> <td>12.7</td> </tr><tr><td>Singapore</td> <td>16.0</td> <td>11.7</td> </tr><tr><td>Malaysia</td> <td>14.2</td> <td>11.4</td> </tr><tr><td>Taiwan</td> <td>13.0</td> <td>9.3</td> </tr><tr><td>Australia</td> <td>12.4</td> <td>9.7</td> </tr><tr><td>China</td> <td>11.9</td> <td>8.0</td> </tr><tr><td>Philippines</td> <td>10.2</td> <td>9.9</td> </tr><tr><td>New Zealand</td> <td>9.8</td> <td>9.1</td> </tr><tr><td>Japan</td> <td>8.6</td> <td>9.5</td> </tr><tr><td>Hong Kong</td> <td>8.0</td> <td>8.3</td> </tr><tr><td>Indonesia</td> <td>7.1</td> <td>10.2</td> </tr><tr><td>Myanmar</td> <td>6.2</td> <td>10.7</td> </tr><tr><td>Thailand</td> <td>6.2</td> <td>3.0</td> </tr><tr><td>Vietnam</td> <td>4.7</td> <td>7.1</td> </tr></tbody></table> <p><i>Source: MasterCard Survey on Advancing Women's Role in Society (2012H2)</i></p> <p><a name="_ftn24"></a><sup>24</sup> McKinsey &amp; Company, “Women Matter: An Asian Perspective”, 2012, p.11, Online <a href="http://www.leadershipforwomen.com.au/images/docs/2012-McKInsey-Women-Matter-An-Asian-Perspective.pdf" target="_blank">http://www.leadershipforwomen.com.au/images/docs/2012-McKInsey-Women-Matter-An-Asian-Perspective.pdf</a></p> Conclusion<p>The 2012H2 MasterCard Survey on Advancing Women’s Role in Society has revealed some interesting findings and trends that are worthy of note. One key observation is that it is increasingly being acknowledged by both women and men (and in some instances, more men than women) that women’s role in society can be promoted, and this may be best achieved through specific methods – the most effective being having more women in parliament, instigating more women’s affirmative actions, granting more SME opportunities for women, and extending maternal/paternal childcare entitlements.</p> <p>The survey brought to light that although it is widely conceded that women’s advancement may be accelerated by extending more opportunities and benefits to women in politics, at work, or at home, the barriers that limit this progress remain largely pervasive in all countries. In most instances, these barriers are attributed to: (i) negative cultural attitudes and widely-held religious beliefs that are deeply embedded; (ii) restrictive traditions and work practices; and (iii) lack of resources such as finances or manpower. For instance, in Japan and Korea, studies have shown that women themselves expressed lower levels of ambition and drive to attain executive positions, and given society’s acceptance that this attitude is ubiquitous, it is not surprising that the survey found only a small cohort of respondents in these countries expressing that having more women on company boards will bear any positive influence in advancing women’s role in society.</p> <p>In contrast, an open society such as that in Taiwan where women are accounting for an increasingly large percentage of entrepreneurs and actively pursuing economic autonomy, the survey found a significant percentage of female respondents (22.1%) concurring that granting more women SME business opportunities will help promote their role in society. In the UAE, the rising trend of pro-women legislation in business startup and management has helped women make commendable progress as SME owners, and this is acknowledged in the survey findings with 18.6% females and 17.8% males agreeing that women SME opportunities will help them advance in society.</p> <p>The survey also suggested that society’s acknowledgement of women’s contribution and progress (past or present) may have some bearing on what society wants for women in the future. For instance, in the Philippines where the female constitution in parliament is high (22%), a significant proportion of respondents (21% females and 24% males) noted that having even more seats in parliament for women will help to advance their role in society.&nbsp; This could be due to the society’s acknowledgement that women parliamentarians have done or are doing a good job, and society wants women to continue progressing on this pathway.&nbsp;</p> <p></p> About the Author<p>Alexis Chong is a consultant who specializes in providing business and research reporting and analytical services to clients in Asia/Pacific. Her main focus is on assisting clients in analyzing, preparing and documenting research proposals, business and investment recommendations, project tendering, and feasibility studies spanning various sectors including financial services, information technology and communication, software testing, and logistics. Alexis holds a B.A. in Electronic Commerce &amp; Marketing and a M.A. in Electronic Commerce from Curtin University, Western Australia.</p> The latest MasterCard Survey on Advancing Women's Role in Society (2012H2) was conducted across 27 markets in the Asia/Pacific, Middle East and Africa region. The main objective of the survey was to seek respondents' opinion on what would have the most impact on advancing women's role in society.http://www1.mastercard.com/content/intelligence/en/research/reports/2013/supplementary-findings--mastercard-survey-on-advancing-women-s-r2013-09-01T16:00:00.000Z2013-09-01T16:00:00.000ZWomen Power and Economic Growth in Asia by Simon Ogus with introduction by Yuwa Hedrick-Wong Introduction by Yuwa Hedrick-Wong<p>This report examines women’s contribution to economic growth in the context of Asia through a detailed analysis of women’s labor force participation in the key economies of East, Southeast and South Asia. While there is a general consensus on the importance of women’s contributions to economic growth, the questions of how such contributions are made, how efficiently they are made, and how much they amount to are not easy to answer as they tend to be context dependent. Working with country-specific data and focusing on women’s labor force participation in this report, Simon Ogus is able to shed new light on this important subject, while generating business relevant insights that are important for a better understanding of today’s growth prospects in Asia.</p> <p>There is a well observed pattern of how the level of women’s labor force participation tends to change in relation to economic development. In stylized fashion, women’s labor force participation is extremely high in an agricultural economy at very low income levels. Paradoxically, it drops as surplus labor is moved from agriculture to manufacturing and industries while the economy climbs steadily to middle income level. Finally, women’s labor force participation rises again when the economy becomes “developed”at higher GDP per capita with much better quality of life, and where agricultural employment accounts for only a small percentage of the total, and services become the biggest source of employment.</p> <p>In a subsistence economy based on agriculture, the vast majority of adults are capable of working. This is necessary in order to stay alive, and care for the very young and the very old in the household. Children typically start work as soon as they are physically capable. Women particularly work very hard as they have the twin duties of raising children and taking care of daily household chores while working alongside men in the fields. In many traditional rural communities, women are responsible for collecting firewood and water, chores that could consume a few hours each day. Even in an urban setting, women’s options for paid work are typically limited in a low income economy. Very often they become home-based workers remunerated on the basis of piece-rate, while taking care of the household chores. From this perspective, women’s labor force participation is extremely high, even though it may not be always recognized as “formal employment” since much of women’s work is unpaid.</p> <p>As income rises and new employment opportunities open up in industries and services that come with development and urbanization, women’s labor force participation drops due to what is sometimes known as the “substitution effect.” With higher household income, women now have a choice: stay home to care for the children and the household, or to go out and seek paid employment in addition to taking on all the child care and household work. To the extent that there is a choice, it is not surprising that most women would not “substitute”child care and household work for paid employment plus child care and household work. In any event, the kind of paid employment available for unskilled and semi-skilled women usually does not pay well, so there is not much of an incentive to entice women to enter the labor force.</p> <p>As the economy develops and per capita GDP rises, women’s employment prospects change, especially when women become better educated, marry later, and have fewer children. Qualified women now can earn higher income in a wide array of opportunities in the urban service sector, pursuing meaningful careers that commensurate with their education levels and aspirations. Household chores become less of a burden with more and better consumer durables and labor saving devices, while affordable social services mean child care can be increasingly “outsourced.” So at some point the benefits of entering the labor market outweigh the benefits of staying home, especially for the better educated women. Thus, women’s labor force participation rises as a result of the “income effect”overwhelming the “substitution effect.”</p> <p>This stylized presentation of the pattern of changing women’s labor force participation is, of course, a simplified model of the reality. The facts on the ground are rarely this neat and tidy. When we examine actual situations closely, it quickly becomes clear that many local conditions impact the model. For instance, women’s education varies greatly between countries at similar levels of income and development due to country-specific socio-cultural factors, traditional beliefs, and government policies. This in turn affects women’s labor force participation since the costs and benefits of keeping women out of formal employment change when women are better educated. For example, under communism, China actually achieved a relatively high level of education for women in spite of the fact that it was a low income and predominately agricultural economy. This arguably gave China a head start in the early 1980s with economic opening and reform.</p> <p>Then there is the issue of the wage gap between men and women. The wage gap can exist at all levels of economic development and income, and is affected by traditional practices as well as institutional and policy factors. The wider the wage gap, the greater is the disincentive for women to participate in the labor force. But the issues surrounding the wage gap and how it can be closed are complex. Very often similar economic development schemes could lead to dramatically different outcomes. For example, a successful introduction of export-oriented labor intensive manufacturing could narrow the wage gap under certain conditions, but widen it under different conditions. It all has to do with whether employers favor female workers over male workers as a consequence of technology, scale, valueadd, the amount of on-the-job training required, and the size and ownership of the firm, etc. There is a lively debate in the research literature on this subject and there are no simple and straight forward answers. Careful country-specific analysis is needed.</p> <p>Complexity notwithstanding, there is an urgency to better understand how women’s labor force participation can be raised. There are a number of Asian markets that are aging surprisingly fast. Japan is best known for its aging and indeed shrinking population. But so are South Korea, China, Taiwan, Hong Kong, and Thailand. In all these markets, raising the women’s labor force participation rate offers the obvious solution to an aging workforce.</p> <p>More intriguingly, however, the benefit of raisingwomen’s labor force participation may go beyond thesimple compensation of more women working to offset the aging and/or shrinking labor force. Drawing on evidence from Western Europe, a Goldman Sachs study found that, paradoxically, the socio-economic conditions that are conducive for more women to enter the labor force are also the same ones that encourage women to have more children. These are conditions of affordable and readily available child care services, generous maternity leave and benefits, and little or no wage gap. These conditions encourage women to both work and have children, as opposed to choosing between work or having children. So setting the right policies to raise women’s labor force participation may also address the more basic demographic issue of women’s declining fertility observed in aging societies.</p> <p>One thing is absolutely certain–– women make a great contribution to economic growth and development. What is often unclear is how much of women’s potential contribution is being utilized, and how much is being wasted. A rigorous analysis of the track record of women’s labor force participation in Asian economies and how it is affected by country-specific conditions will assist in developing a better understanding of how to more effectively utilize women’s potential economic contribution in the region.</p> <p></p> Female Labor Force Participation and Economic Growth in Asia<p>Mao Zedong claimed that “Women hold up half the sky.” But are they afforded the same education and employment prospects as men, and are higher levels of female education and labor market participation commensurate with enhanced economic performance? Economic theory would argue strongly for the latter since an increase in the supply of productive workers should <i>ceteris paribus </i>be associated with higher levels of per capita GDP.</p> <p>East Asia’s post World War II rise was indeed accompanied by moves to almost uniform primary and secondary education for both sexes and in more recent decades, massive expansions of tertiary education participation rates. The ASEAN-Tiger economies, and more recently Vietnam, have been treading similar paths and positive trends are now also emerging from other lessdeveloped ASEAN economies. By contrast, South Asia’s record is not good, with Pakistan a significant laggard.&nbsp;</p> <p>Furthermore, higher levels of female education have not always translated into enhanced participation rates in the labor force, implying that some countries are passing up significant potential productivity and growth opportunities. In this report we explore trends in East and South Asia’s female education and labor market data series over the past forty years and offer our assessment of who stands to gain the most from improvements in female participation rates.</p> <p></p> Education, Productivity, and Women’s Contribution to Economic Growth<p>Economic growth is a function of both the supply of input factors –– land, labor and capital–– and the productivity of these factors. It is relatively simple, at least in theory, to produce a growth spurt in a poor economy with a rapidly growing population and a low stock of starting capital. In comparison, maintaining a growth spurt beyond middle income status has been historically harder and requires institutional changes conducive to sustainably boosting factor productivity.</p> <p>In this paper we restrict our focus to the role of education in boosting labor productivity and, specifically, trends in female education enrollment and labor force participation rates. Our principal findings can be summarized as follows.</p> <p>First, the evidence seems compelling that increased rates of enrollment in secondary education are strongly related to higher rates of labor productivity. Second, although higher rates of tertiary education enrollment are again positively related to higher productivity outcomes, returns would appear to diminish beyond a certain threshold. Finally, given the demographic challenges that many East Asian economies will face, or are already facing, there seems to be a disappointingly weak relationship between an increasing supply of highly educated females and generally moribund female labor participation rates.</p> <p>Why should this be so? We could argue that this is likely attributable to economic as much as cultural/chauvinistic explanations, for throughout the world the burden of care for both children and the aged continues to fall primarily on working age women. We would therefore posit that if countries wish to endogenously boost their labor supplies in the face of slowing (or even shrinking) overall working population growth, there is a requirement to promote policies that alleviate the burdens of the principal carers’ cohort.</p> <p>If rapid birth rates alone were the secret to economic prosperity, then Mali, Niger, and Somalia would all be economic powerhouses. Unfortunately, it matters not only how fecund a country is, but how it educates and employs the additional populace. As East Asia has amply demonstrated over the past half century, one of the fastest routes to sustainable income growth is to move surplus labor from the countryside to the factory. However, to achieve this requires stable and predictable macroeconomic and social management, the provision of a modicum of reliable infrastructure, and at least a moderately educated labor force. As Chart 1 shows, there is a clear and positive relationship between rates of secondary education enrollment and output per employee.</p> <p><b>Chart 1. Productivity versus Secondary Education Enrollment Rates, Latest Year</b></p> <p>As Chart 2 suggests, the relationship continues to hold for tertiary enrollment but it appears that beyond a</p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart1.JPG" target="_blank"><img height="490" width="559" src="/content/dam/intelligence/content-assets/reports/womens-chart1.JPG"></a></p> <p>certain level, the returns to a college degree or equivalent may start to diminish. It is beyond the scope of this paper to speculate in any detail as to why this might be the case. One might want to consider that although there has been a massive expansion in tertiary education opportunities in the developed world, this has not always been accompanied by an expansion in the number of high quality educators or educated. Myriad surveys of employers seem to suggest that there is a growing mismatch between the skills and expectations of those graduating from many tertiary institutions, and the employability requirements of their employers.</p> <p><b>Chart 2. Productivity versus Tertiary Enrollment Rates, Latest Year</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart2.JPG" target="_blank"><img height="490" width="558" src="/content/dam/intelligence/content-assets/reports/womens-chart2.JPG"></a></p> <p>Finally, despite the very real gains achieved in boosting female education enrollment rates, average participation rates of women in the labor force remain stuck at around half, and lag significantly in many cases, their male equivalents (Charts 3 and 4). In an aging world, many countries would seem to be underutilizing a major potential source of growth by failing to adequately leverage their rising cohorts of increasingly educated women.</p> <p><b>Chart 3. All Country Sample Female Education Enrollment and Labor Participation Rate</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart3.JPG" target="_blank"><img src="/content/dam/intelligence/content-assets/reports/womens-chart3.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart3.1.JPG"><img src="/content/dam/intelligence/content-assets/reports/womens-chart3.1.JPG"></a></p> <p><b>Chart 4. Labor Participation Rates, Latest Year</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart4.JPG" target="_blank"><img height="298" width="579" src="/content/dam/intelligence/content-assets/reports/womens-chart4.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart4.1.JPG"><img height="299" width="580" src="/content/dam/intelligence/content-assets/reports/womens-chart4.1.JPG"></a></p> <p></p> The Case Study of Japan<p>Japan provides us with a salient case study. Not only does it report excellent data going back almost a century, but it has also been inordinately successful in raising female education levels and creating very high levels of societal wealth. Yet at the same time, the economy has struggled to grow since the bubble burst in 1990 and the role of women in the workforce remains, some might argue, truncated.</p> <p>Returning Prime Minister Shinzo Abe has promised to reinvigorate Japan under his “Three Arrows” Agenda for Economic Revival and his deployment of Arrows One and Two, aggressive monetary and fiscal stimulus, have at least succeeded in jolting the stock market higher and the Yen lower. Nevertheless, it is his Third Arrow of structural reform that will arguably make or break Japan, and it is this arrow that has hitherto been barely unsheathed. Prior to July’s Upper House elections, Abe had been (from electoral reasons understandably) reluctant to reveal too many difficult reforms.</p> <p>Nevertheless, the administration has claimed that it understands the need to boost female labor force participation. It remains to be seen though whether statements of intent will translate into true policy priorities, or whether mere lip-service is being paid to a longstanding yet hitherto barely addressed weakness.</p> <p>As Chart 5 shows, Japan achieved universal primary education by the 1930s and in the following decades, secondary education enrollment rates also surged in tandem with labor productivity. Moreover, as Chart 6 below shows, women were by no means disadvantaged in their access to education especially in the post-War decades.</p> <p><b>Chart 6. Japan Gross Secondary and Tertiary Education Enrollment Rates</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart6.JPG"><img height="335" width="501" src="/content/dam/intelligence/content-assets/reports/womens-chart6.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart6.1.JPG"><img height="333" width="502" src="/content/dam/intelligence/content-assets/reports/womens-chart6.1.JPG"></a></p> <p><b>Chart 5. Japan Education Enrollment Rates and Output Per Employee</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart5.JPG"><img height="284" width="505" src="/content/dam/intelligence/content-assets/reports/womens-chart5.JPG"></a></p> <p>Yet over the same period, as Chart 7 illustrates, the female labor participation rate rarely exceeded 50% even as the male participation rate steadily fell. So why should low female participation rates persist in Japan despite the very real gains achieved in female education? Although state support for the principal carer cohorts is generally perceived as being underdeveloped, it is difficult to escape the conclusion that ingrained, misogynist employer attitudes might also have played a role. For example, according to a November 2011 study by the Centre for Work-Life Policy: “Career minded and ambitious Japanese women prefer to work at multinational companies which they feel are more sensitive to the needs of women than private sector Japanese companies.... Sixty-eight percent believe that U.S.- or EU-headquartered companies are more woman-friendly than Japanese firms.” One might also fairly assume that non-Japanese employers are also more willing to offer more similar rates of pay to men and women alike based on Japan’s (and Korea’s) stark outlier status on Chart 8 below. The good news is that there is a lot of low hanging fruit to be plucked potentially. Potential and realization may not however always be the same.</p> <p><b>Chart 7. Japan Labor Participation Rates</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart7.JPG"><img height="249" width="546" src="/content/dam/intelligence/content-assets/reports/womens-chart7.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart7.1.JPG"><img height="247" width="546" src="/content/dam/intelligence/content-assets/reports/womens-chart7.1.JPG"></a></p> <p><b>Chart 8. OECD Countries Gender-Wage Gap*</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart8.JPG"><img height="251" width="548" src="/content/dam/intelligence/content-assets/reports/womens-chart8.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart8.1.JPG"><img height="253" width="548" src="/content/dam/intelligence/content-assets/reports/womens-chart8.1.JPG"></a></p> <p>Japan (and Korea’s) poor female participation rates and ostensive labor force gender inequalities also need to be put in the context of their very weak rates of overall labor force growth (or in Japan’s case shrinkage) shown on Chart 9. Weak labor force growth rates are principally associated with low levels of fertility. The replacement rate for a population, i.e. the number of births per mother required to maintain a constant population, is generally estimated to be around 2.1 (in countries with low rates of child mortality). Replacement rates in developed North Asia are clustered around 0.9-1.2 though. Japan’s population shrunk at an annualized rate of 0.1% over 2008-12 while Taiwan, Korea and Hong Kong struggled to eke out meager average per annum gains of 0.3%, 0.6% and 0.7% respectively. Furthermore, even if North Asian women start producing babies at a massively enhanced rate today, their offspring will not be entering the workforce for a couple of decades.</p> <p>Only Singapore, despite having a local population fertility rate of only 1.2 in 2011, has managed to buck the trend in aggregate thanks to massive immigration. (Singapore has also managed successfully to boost its female labor participation, as the earlier chart on Page 7 illustrates.) This influx of foreign workers has driven population growth up by an average of 3% per annum over the past five years but the authorities are now contending with the social consequences. Hong Kong too, with a much lower overall immigration rate, has also seen rising social tensions over the supposed flood of Mainlanders entering the SAR. And these are probably the two most cosmopolitan places in Asia. We would submit that it is highly unlikely that we will see the other developed North Asian countries deciding to throw open their doors to masses of overseas workers. An additional factor to consider is a country’s capital stock. A rule of thumb is that the higher the capital stock per capita installed, the harder it is to develop increasing returns on the capital stock employed. Chart 10 shows Japan is by far the world leader in this area. This all leads one to the conclusion that if a country has a low indigenous birth rate and minimal labor force expansion, and it already possesses a well-endowed domestic capital stock, then higher economic growth has to be largely a function of increased returns on factors employed (implying the embrace of often politically-difficult-to-implement supply side reforms) or an exogenous or endogenous boost to the labor force. And in turn this latter boost can either come from immigration, or if participation rates are low, by getting increased numbers of, one hopes, highly-educated females to enter the labor force.</p> <p><b>Chart 9. Average Annual Labor Force Growth 2008 – 2012</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart9.JPG"><img height="218" width="547" src="/content/dam/intelligence/content-assets/reports/womens-chart9.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart9.1.JPG"><img height="215" width="545" src="/content/dam/intelligence/content-assets/reports/womens-chart9.1.JPG"></a></p> <p><b>Chart 10. 2011 Capital Stock Per Capita, US Dollars</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart10.JPG"><img height="215" width="544" src="/content/dam/intelligence/content-assets/reports/womens-chart10.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart10.1.JPG"><img height="214" width="544" src="/content/dam/intelligence/content-assets/reports/womens-chart10.1.JPG"></a></p> Where Japan goes do others follow?<p>Having set out this admittedly stylized roadmap, let us now consider how Japan compares to its OECD peers, and how the remaining Asian countries in our sample compare to Japan at its earlier stages of development. In 1980, Japanese females were as well-educated as most of their peers in the developed world (Americans aside), and had similar rates of labor force participation (Chart 11). Education levels have risen further since, yet Japanese female labor force participation rates have barely budged in contrast to the significant increases seen elsewhere (Chart 12).<br> </p> <p><b>Chart 11. Current Female Education Enrollment and Labor Force Participation Rates</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart11.JPG" target="_blank"><img height="257" width="478" src="/content/dam/intelligence/content-assets/reports/womens-chart11.JPG"></a></p> <p><b>Chart 12. Female Education Enrollment and Labor Force Participation Rates, 1980</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart12.JPG" target="_blank"><img height="257" width="479" src="/content/dam/intelligence/content-assets/reports/womens-chart12.JPG"></a></p> <p>Charts 13 and 14 suggest that Japanese women have also stepped back relative to females in the Newly Industrialized Countries of Asia or NICs. In 1980 Japanese ladies were significantly better educated than their neighbors and also participated in greater proportions in the workforce. A quarter of a century on, Japan has fallen to the back of the pack on pretty much every measure. Unfortunately, Singapore aside, this group of countries seems overall not to make the best use of their large cohort of educated females.</p> <p><b>Chart 13. Current Female Education Enrollment and Labor Force Participation Rates</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart13.JPG" target="_blank"><img height="271" width="480" src="/content/dam/intelligence/content-assets/reports/womens-chart13.JPG"></a></p> <p><b>Chart 14. Female Education Enrollment and Labor Force Participation Rates, 1980</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart14.JPG" target="_blank"><img height="265" width="490" src="/content/dam/intelligence/content-assets/reports/womens-chart14.JPG"></a></p> <p>The successful development path of the NICs set the stage for other developing countries to follow (we have grouped the ASEAN-4 plus China as the “Tigers”here). The patterns shown on Charts 15 and 16 are somewhat less uniform however. Malaysia, the richest of this group of countries, and with one of highest proportions of females in tertiary education, has a female labor force participation rate barely above 40%. Filipina education levels were significantly ahead of their peers (and indeed those in the NICs) in 1980 and remain pretty creditable today. Yet there has been little sign of a productivity or female labor force participation rate surge in the intervening quarter century. Indonesian female education endowments have improved significantly since 1980 but participation rates have been rather static. And Thailand and China, although seeing their very high female participation rates fall in line with their reliance on agriculture, have succeeded in continuing to find ample employment opportunities for their increasingly educated ladies.</p> <p><b>Chart 15. Current Female Education Enrollment and Labor Force Participation Rates</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/womens-chart15.JPG" target="_blank"><img height="237" width="494" src="/content/dam/intelligence/content-assets/reports/womens-chart15.JPG"></a></p> <p><b>Chart 16. Female Education Enrollment and Labor Force Participation Rates, 1980</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart16.JPG"><img height="236" width="495" src="/content/dam/intelligence/content-assets/reports/womens-chart16.JPG"></a></p> <p>For South Asia (Charts 17 and 18), we have restricted ourselves to looking at primary and secondary education enrollment rates since tertiary penetration remains rather low. We have also chosen to employ Indonesia ten years earlier as our comparator country for a couple of reasons. First, economic reform processes on the Subcontinent generally began in earnest only in the 1990s whereas the Tigers for the most part embarked on theirs at least a decade earlier. Second, it is useful to have a developing Islamic-majority country as a control although as we have already seen Malaysia does not have a good record on female employment while Indonesia’s record is roughly in line with regional averages. Indeed, the very visible contrast between Bangladesh and Pakistan suggests that religious-based explanations are rather weak. What is clear is that Bangladesh is a standout on a Subcontinent with a generally poor record of female empowerment. To be fair, Sri Lankan education indicators have tended to be both good and gender-equal over the decades and there may&nbsp;be conflict-related factors at work in suppressing female labor force participation rates.&nbsp;</p> <p><b>Chart 17. Current Female Education Enrollment and Labor Force Participation Rates</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart17.JPG"><img height="241" width="504" src="/content/dam/intelligence/content-assets/reports/womens-chart17.JPG"></a></p> <p><b>Chart 18. Female Education Enrollment and Labor Force Participation Rates, 1990</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart18.JPG"><img height="242" width="503" src="/content/dam/intelligence/content-assets/reports/womens-chart18.JPG"></a></p> <p>We shall have to see if increased female employment is one of the peace dividends garnered. By contrast, the records of both India and Pakistan are not good. We would submit that irrespective of education opportunities for females (where India at least fares better), it is the conditions for overall job creation, especially in labor-intensive manufacturing that will determine whether female, and indeed overall participation rates will rise. Recall from the earlier page that Bangladesh aside, formal labor force participation rates across the Subcontinent are the worst in our sample. Finally we turn to the ASEAN nations more recently embarking on programs of economic reform and opening up up to the outside world. On measures of female education and employment, the portents seem good (Charts 19 and 20). Universal primary education has been achieved while secondary enrollment rates for&nbsp;women ex-Cambodia are comparable with or better than those achieved by Indonesia a decade earlier.</p> <p><b>Chart 19. Current Female Education Enrollment and Labor Force Participation Rates</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart19.JPG"><img height="242" width="505" src="/content/dam/intelligence/content-assets/reports/womens-chart19.JPG"></a></p> <p><b>Chart 20. Female Education Enrollment and Labor Force Participation Rates, 1990</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/womens-chart20.JPG"><img height="242" width="509" src="/content/dam/intelligence/content-assets/reports/womens-chart20.JPG"></a></p> <p>This bodes well for future productivity growth, especially if labor laws remain employer and investor friendly, and infrastructure is successfully upgraded. It should be noted that Indochina’s still heavy dependence on agriculture almost certainly boosts its female labor force participation rates. Nevertheless, it would appear that Vietnam, the most industrialized of the three is following the path trodden by China and Thailand by maintaining high female employment shares. Can Cambodia and ultimately Myanmar achieve the same?</p> Conclusion<p>The good news from this brief survey is that a couple laggards aside, East and South Asia have successfully boosted the education levels of both men and women over the past four decades, and have hence seen labor productivity levels rise in tandem. The rather less positive news is that many within these increasingly large cohorts of educated women have struggled to find suitable employment opportunities. Perhaps they just do not want to work. Perhaps support mechanisms for child and elderly care are inadequate. And perhaps traditional, chauvinistic cultural attitudes have yet to be fully diluted. Whatever the explanation, in a region where many societies are rapidly aging and overall labor force growth is slowing or even contracting, passing up on the opportunity to employ large numbers of highly educated females feels like a self-inflicted wound. Governments might do well to consider adopting female labor force participation-friendly policies.</p> The MasterCard report titled ‘Women Power and Economic Growth in Asia’ examines the contribution to economic growth made by women through a detailed analysis of women’s labor force participation in the key economies of East, Southeast and South Asia. Specifically, the study which looks at 17 markets in Asia aims to identify the role of education in boosting labor productivity.http://www1.mastercard.com/content/intelligence/en/research/reports/2013/women-power-and-economic-growth-in-asia-by-simon-ogus-with-intro2013-09-22T16:00:00.000Z2013-09-22T16:00:00.000ZMasterCard Advisor's Cashless Journey: The Global Journey from Cash to Cashless MasterCard Advisors’ Cashless Journey<p>The Global Journey From Cash to Cashless</p> <p>Today, around&nbsp; <b>85% of all retail payment transactions are done with cash</b>, which equates to 60% &nbsp;of retail transaction value<b>. </b>Even though much of the world’s population has access to many different options for making payments other than cash, cash still persists. Cash takes time to get at, is riskier to carry, and by most estimates, cash costs society as much as 1.5% of GDP. Electronic payments, &nbsp;on the other hand, have been proven to boost economic growth, &nbsp;while advancing financial inclusion. It is for these reasons that countries around&nbsp; the world are working to make their payment systems less dependent on cash.</p> <p><img width="615" height="93" src="/content/dam/intelligence/content-assets/reports/cashless1.JPG"></p> <p>The Cashless Journey Study was developed to track nations’ progress towards &nbsp;more cashless economies. It offers insights into how some nations have made the journey from cash to cashless, and how other nations can continue their journeys.</p> <p>The study helps to shape the conversation about &nbsp;consumer &nbsp;payment &nbsp;patterns across countries around &nbsp;the globe. The information it provides was designed &nbsp;to assess the impact of different factors, such as regulatory measures &nbsp;or financial inclusion initiatives, on changes &nbsp;to these patterns. The study explores the evolution of consumer &nbsp;payment patterns in 33 countries from five regions, representing more than 85% &nbsp;of global GDP, taking into account &nbsp;both developed and developing nations, using a single methodology.</p> <p><img width="623" height="330" src="/content/dam/intelligence/content-assets/reports/cashless2.JPG"></p> A FOCUS ON THE VALUE OF CONSUMER PAYMENTS<p>Government, banks and payment &nbsp;networks &nbsp;all look at cash usage and broader payment habits through different lenses. MasterCard &nbsp;looks at payments through different lenses, depending on the audience, product or region.</p> <p>The Cashless Journey Study chose a consistent global methodology focusing on consumer &nbsp;payments, or payments initiated by individuals. Consumer payments for goods and services account for about 11% of the value of payments around &nbsp;the globe, but more than 90% of volume of payments (or number&nbsp;of transactions).</p> <p>The study focuses on the value of consumer payments ($63 trillion in total spend), rather than the volume of payments (total transactions), as estimates of payments value are more readily available, and have also been found to be more representative of broader trends in payments preference.</p> <p>Finally, it should be noted that this study looks at all consumer payments, including those that happen beyond retail point of sale. This is an important consideration to underscore, as by including non-retail categories like housing and bill payment, the total figure for consumer payments is far larger than the value of retail point of sale payments. So, while cash accounts for 60% of the value of total retail payments in shops or online, when these other large consumer payments (e.g. wire transfer to buy a car, direct debit to pay mortgage) are included, the value of payments represented by cash falls to 34%.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless3.JPG"><img width="610" height="430" src="/content/dam/intelligence/content-assets/reports/cashless3.JPG"></a></p> <p><img width="614" height="74" src="/content/dam/intelligence/content-assets/reports/cashless4.JPG"></p> <p>The Cashless Journey Study measures nations’ progress towards more modern, efficient payment processes by looking at the current share of cash versus non-cash payments for consumers (Share), how this Share has shifted in the past five years (Trajectory), and whether conditions exist for cash payments to move to electronic (Readiness).</p> <p>The study measures <b>three indicators </b>of progress:</p> <p>1. <b>Share: </b>the percentage of the value of all consumer payments that are presently done by a means other than cash</p> <p>2. <b>Trajectory: </b>a measure of the shift in cash share of consumer payments’ value between 2006 and 2011</p> <p>3. <b>Readiness: </b>a measure of the future potential for conversion of cash payments to electronic payments based on macro-economic preconditions observed in highly cashless markets</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless5.JPG"><img width="611" height="139" src="/content/dam/intelligence/content-assets/reports/cashless5.JPG"></a></p> HOW THE SCORE FOR SHARE WAS CALCULATED<p>The first indicator, Share, was estimated using consumer &nbsp;expenditure data developed by the World Bank, combined with data on other payment values taken from central bank sources. Consumer cash payments were estimated by comparing data on total consumer expenditures at the category and income quintile level (via the World Bank International Comparison Program) with MasterCard’s own research into consumer payment patterns for these same categories and income quintiles. Finally, the figures for expenditures were adjusted to reflect typical ratios between expenditures and payments, resulting <b>in an estimate of the value of consumer payments done using cash.</b></p> <p>To estimate non-cash &nbsp;consumer &nbsp;payments, central bank figures for total payments &nbsp;for credit transfers, direct debits, credit cards, debit cards, checks and other non-cash payment &nbsp;methods were used as the starting point. These figures were adjusted to get consumer payments &nbsp;based on benchmarks/secondary research estimating ratios of consumer to total payments.</p> <p>The score for Share reflects the percentage of all consumer payments, by value, conducted by a means other than cash. The results for Share are presented as a number from 1-100.</p> SHARE INDICATORS REFLECT FOUR DISTINCT STAGES OF EVOLUTION<p>The figures below reflect the findings for the Share indicator. They show the rank order of non-cash payments’ share of the total value of consumer payments &nbsp;in the nations considered. The major break points in Share scores suggest that the countries examined fall into four categories based on their score for Share. These categories will return as other indicators of the study are discussed:</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless6.JPG"><img width="592" height="550" src="/content/dam/intelligence/content-assets/reports/cashless6.JPG"></a></p> CALCULATING THE SCORE FOR TRAJECTORY<p>The second indicator, Trajectory, uses historic data from the same sources used to create the score for Share to <b>estimate how cash share has shifted in the five most recent years for which data is available. </b>The score for Share reflects Advisors’ estimates of the change &nbsp;in share of consumer payment for cash. The results for Trajectory are indexed across all countries to a scale of 1-100.</p> TRAJECTORY SCORES SUGGEST THAT SEVERAL NATIONS WITH LOWER SHARE SCORES ARE SHIFTING SHARE QUICKLY<p>The chart below shows the Trajectory indicator score for the 33 nations evaluated. The Trajectory indicator score reflects the estimated change in share for cashless payment products between 2006 and 2011.</p> <p><a href="/content/dam/intelligence/content-assets/reports/cashless7.JPG" target="_blank"><img width="613" height="584" src="/content/dam/intelligence/content-assets/reports/cashless7.JPG"></a></p> CALCULATING THE SCORE FOR READINESS<p>The third indicator, Readiness, looks at factors found to be correlated to consumer cash usage, to provide a measure of the degree to which conditions exist for a move away from cash. The factors comprising the score for Readiness fall into four broad categories of nearly equal weighting:</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless8.JPG"><img width="565" height="427" src="/content/dam/intelligence/content-assets/reports/cashless8.JPG"></a></p> READINESS SCORES TYPICALLY CORRELATE POSITIVELY WITH SHARE SCORES WHILE EXCEPTIONS MERIT FURTHER INVESTIGATION<p>The chart below shows the Readiness score for the 33 nations evaluated. The Readiness score is an estimate of the degree to which the conditions are present for a move away from cash, based on experience in other markets.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless9.JPG"><img width="616" height="619" src="/content/dam/intelligence/content-assets/reports/cashless9.JPG"></a></p> THERE IS A TYPICAL JOURNEY TOWARD A MORE CASHLESS ECONOMY<p>Improvements to the score for the Readiness indicator should cause a move away from cash, and growth in use of cashless solutions. This, in turn, should drive higher scores for the Trajectory indicator, as improvement to the factors that drive Readiness (i.e. infrastructure, financial inclusion, ease of doing business) should be creating a shift in payment behaviour.</p> <p>As the Trajectory score rises, it’s expected the share of cash would diminish and, in the case of this plot, the bubble representing share of cash to get smaller.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless10.JPG"><img width="601" height="546" src="/content/dam/intelligence/content-assets/reports/cashless10.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless11.JPG"><img width="624" height="624" src="/content/dam/intelligence/content-assets/reports/cashless11.JPG"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless12.JPG"><img width="628" height="628" src="/content/dam/intelligence/content-assets/reports/cashless12.JPG"></a></p> INNOVATION CAN CREATE SHORTCUTS ON THE JOURNEY<p>Kenya provides a unique example of where an innovative payments solution available to Kenyans of all income levels has accelerated the cashless journey.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/cashless13.JPG"><img width="575" height="379" src="/content/dam/intelligence/content-assets/reports/cashless13.JPG"></a></p> <p>M-Pesa, a remittance and payment scheme using mobile phones, has found broad uptake among Kenyans of all income levels. By enabling anyone with a mobile phone to pay, or send money electronically, M-Pesa has essentially removed many of the traditional barriers to going cashless, such as a buyer having a bank account and a seller having a land line connection to inter-bank networks. The Kenyan government explicitly allowed market forces to drive innovation and uptake of M-Pesa, and the results speak for themselves, with Kenya’s Trajectory score among the five highest of all countries examined, despite its Readiness score being well towards the lower end of the scale.</p> CONSUMERS PREFERENCES AND OTHER FACTORS CAN SLOW THE JOURNEY<p>Many of the developed nations in the study use more cash than expected. &nbsp;Given their scores for the Readiness indicator, it’s expected to see less cash being used (higher cash share being indicated by smaller sized bubbles on the plot). With all the macro-economic prerequisites in place, why does so much cash persist?</p> <p><a href="/content/dam/intelligence/content-assets/reports/cashless14.JPG" target="_blank"><img width="575" height="478" src="/content/dam/intelligence/content-assets/reports/cashless14.JPG"></a></p> <p>Consumer needs appear to play a role in Germany, Japan and Taiwan, where low rates of street crime mean little risk in carrying large amounts of cash. Extensive and inexpensive ATM networks, and slow growth of POS acceptance, particularly for debit, have likely also kept cash share high in these markets.</p> <p>Spain has been among the countries hardest hit by the financial crisis, and this has likely spurred growth in use of cash, as larger numbers of Spanish citizens work outside the formal economy.</p> CONCLUSIONS<p>The burden of cash usage on society is substantial, as much as 1.5% of GDP, and heavy cash usage is also often an indicator of other economic problems. Electronic payments have made substantial inroads with consumers in numerous markets, but in most countries the cashless journey has only just begun.</p> <p>This Cashless Journey Study offers insights into the paths that 33 countries have followed on their journeys. The study highlights some of most important requirements for success, factors that can accelerate the cashless journey and some constraints.</p> <p>Many markets have made real progress on their journeys by establishing basic infrastructure over long periods of time. Affordable and broadly available financial products, a vibrant and competitive merchant market place, a transparent and productive business environment — all of these basics are strongly correlated with progress in the cashless journey. Australia has followed this path and is now nearly cashless. Brazil is another country putting the basics in place and reaping the benefits but they are less far along in their journey.</p> <p>Five years of rapid progress in Kenya and China have shown us that encouraging payment product innovation and strong government cash reduction leadership can dramatically accelerate the cashless journey.</p> <p>Some Tipping Point markets like Germany and Japan show us that, despite having the necessary infrastructure in place for decades, markets can plateau on their journey before consumers &nbsp;become &nbsp;nearly cashless. If specific consumer attitudes and behaviors towards cash usage are not well understood or accommodated, consumers may prevent the cashless journey’s completion.</p> AUTHORS<p><img src="/content/dam/intelligence/content-assets/reports/author1.JPG"></p> <p>Hugh Thomas has worked as a consultant to the payments industry for more than 15 years, providing expertise in areas such as product and concept assessments, acquisition assessments and long term strategy development and planning.<br> </p> <p>Prior to joining Advisors, Hugh led projects for other payment networks, and numerous issuing banks in North America and Europe. Hugh has also consulted extensively on technologies such as EIPP, SRM and supply chain finance. Hugh is a graduate of the University of Manitoba and resides in Toronto, Canada.</p> <p><img width="226" height="262" src="/content/dam/intelligence/content-assets/reports/author2.JPG"></p> <p>Amit Jain is part of the Global Payments Strategy Knowledge Center in MasterCard Advisors. The Payments Strategy team works with MasterCard clients around the world to develop and implement successful strategies across their payments businesses.<br> </p> <p>Amit is a seasoned professional with nearly 15 years experience in the industry including financial services, management consulting, venture capital and technology. A key focus of Mr. Jain’s career has been to work with senior executives on key strategic issues affecting their business.<br> </p> <p>In his current role at MasterCard, Mr. Jain is responsible for coordinating the creation and distribution of thought leadership globally across the company. Mr. Jain has also led large global payment strategy projects including Global expansion strategy for MasterCard Bill Pay, Impact of Durbin and E-Commerce trends in Europe. Prior to MasterCard, Mr. Jain worked in a senior strategy role at Citi where he played a key part in the creation of the Enterprise Payments Business and driving relationships with emerging payment players like Apple and Google. Mr. Jain joined Citi from Booz Allen where he was an engagement manager in the strategy practice.<br> </p> <p>Amit received an MBA from the Ross School of Business at University of Michigan, Ann Arbor and a BS (eng) from Indian Institute of Technology, Delhi.</p> <p><img src="/content/dam/intelligence/content-assets/reports/author3.JPG"></p> <p>Michael Angus is Group Head, Payments Strategy. In this role, he leads the Global Payments Strategy Knowledge Center in MasterCard Advisors. His team works with MasterCard clients around the world to develop and implement successful strategies across their payments businesses.<br> </p> <p>Michael has been a management consultant for over two decades and for the last 15 years he has focused on the financial services sector and the business of payments. He led regional strategy practices at Gemini Consulting and The Capital Markets Company and co-led the Global Payments Practice at Capgemini.<br> </p> <p>Michael has spent half his consulting career based in Europe and half based in the U.S. He has helped senior bank executives improve their payments businesses at many of the top banks in the U.S., Europe, Asia and Latin America. He has worked with banks on every facet of the business of payments from helping a multi-national bank create, build and run its global wholesale payments line of business to establishing strategies and governance for new payments opportunities, including healthcare.<br> </p> <p>Michael received an M.B.A. from the Amos Tuck School of Business.</p> CONTRIBUTORS<p>Garry MacKinlay<br> Martin Schmidt<br> Fabrizio Burlando<br> Pierre Burret<br> Joerg Ruehle<br> Ted Iacobuzio<br> Eric Schneider<br> Andre Pimenta<br> Raul Escribano<br> Bin Chen<br> Pradeep Shekhawat<br> Steven Cheon<br> Mato Hoshino<br> Andrea Zannier<br> Ignacio Quian<br> Marcos Peralta<br> Thomas Kuncheria<br> John MacKinnon<br> Fiona Anderson<br> Raul Padron<br> Anastasia Teologlou<br> Giorgio Manoni<br> Vincenzo Bofise<br> Dirk Ettlinger<br> Onur Kursun<br> Bolade Atitebi<br> Anna Yip</p> EXECUTIVE EDITORS<p>Kevin Stanton<br> Mark Barnett</p> “The Cashless Journey” tracks how 33 major economies are progressing from cash-based to cashless societies. The report, produced by MasterCard Advisors, identifies new technologies, government programs and consumer preferences as key factors that are driving this shift, creating more productive and inclusive economies.http://www1.mastercard.com/content/intelligence/en/research/reports/2013/mastercard-advisors-cashless-journey--the-global-journey-from-ca2013-09-29T16:00:00.000Z2013-09-29T16:00:00.000ZAround The World In 5 Personas: How Global Consumers Think About Their Data Online The MasterCard Global Insights GroupEXECUTIVE SUMMARY<p>Using state-of-the-art techniques, MasterCard has designed a methodology to gauge global consumer attitudes regarding the use of personal data in social and commercial settings. Consumers are by and large fully aware of how their data is harvested and leveraged by the sites they visit. Globally, they separate into five quite clearly defined segments, which MasterCard calls personas, determined by their online behaviors. These behaviors are indicative of their attitudes toward their own data, its value, and, most important, what they go online to accomplish.</p> BACKGROUND<p>The subject of information sharing, active or passive, on the part of consumers online has recently been prominent in the news.i Newspapers, blogs, and trade publications around the world have disseminated stories about how personal data is a new type of currency, how companies use consumers’ data for marketing and offers, and how a person’s web experience is becoming more personalized and customized through the use of observed behavior as a guide.</p> <p></p> <p>While these stories cast light on how data is used and what companies do with it, they often don’t ask other important questions: Why do consumers want to share their data online? What do they expect to get out of such sharing? How do they manage the sharing of information? </p> <p>MasterCard’s Digital Sharing and Trust Project seeks to add the actual experience of consumers online to the materials of debate. By asking the online public in nine global markets what they know about how merchants, search engines, social media sites, browser providers, and marketers use their information, and ascertaining why those consumers share—or don’t share—such information online, MasterCard has centered the conversation about the new framework of personal information on the individual, and how what the consumer wants will drive the future of data.</p> <p></p> KEY FINDINGS<p>The research reveals five global personas of equal size that exhaustively segment the global online consumer market. These personas are determined by behaviors, attitudes, and awareness regarding sharing personal information. Along with this finding, there are several high-level themes that emerged across the nine markets:</p> <p><b>Social Citizenship</b></p> <p>Around the world, consumers venturing online in large measure shed their national characteristics and assume what MasterCard is calling social citizenship. Online, their attitudes and behaviors are determined not by their country of origin, but by their needs and goals regarding commerce, communication, and information. Behavior Is Ingrained and Semiconscious Consumers’ behavior online is largely ingrained and semiconscious. When confronting the question of what to share, web users globally have a set of principles that are pretty effectively hardwired into their online DNA and are answered not explicitly, but by behavior: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</p> <ul> <li>Am I aware of what I am being asked to share?</li> <li>Do I trust the site with which I am sharing information?</li> <li>Is it relevant to the benefit I am looking for?</li> </ul> <p><b>Age Is Not a Determinant of Willingness to Share Online</b></p> <p>Young people are not more likely than their elders to be open to sharing personal information online. Attitudes regarding sharing are in actuality driven by personality, rather than demographics.</p> <p><b>The Value of Digital Identity</b></p> <p>Many consumers understand the value of their digital identity and decide how to share their personal information accordingly. Fully 64 percent believe their personal data has value to merchants and advertisers.</p> <p><b>Data Hierarchy&nbsp;</b></p> <p><b></b>Consumers are willing to share certain types of data more than others. The ranking of these types holds across all countries.</p> <p><b>Data Collection</b></p> <p>Data collection methods strongly influence how consumers feel about sharing online. They are less comfortable when they feel they are passively “tracked,” as opposed to actively “sharing” their information. As many as 55 percent appreciate when companies tailor their offers to them based on the information they share, e.g., suggestions that online commerce sites such as Amazon offer based on their order history. At the same time, a significantly smaller portion, 33 percent, approves of companies tracking online activity if there is some benefit perceived in the exchange.</p> <p><b>Transparency</b></p> <p>Those consumers with higher awareness of targeted marketing are also those who understand the benefits and prefer shopping online. Thirty-two percent of those aware that marketers place ads targeted at consumers with specific interests also said that when it comes to shopping, they do as much online as they can.</p> <p><b>Savvy Consumers</b></p> <p>Consumers are increasingly knowledgeable about the way they leverage technology to shop and surf online. They are generally informed about the online world, with more than half of consumers venturing online between five and 10 times per day. They use technology to research, interact, and bargain with retailers, both in-store and online.</p> <ul> <li>&nbsp;57 percent of consumers love getting discounts just for “checking in”</li> </ul> <ul> <li>Nearly half of consumers (49 percent) check prices on their mobile devices when in-store to make sure they are getting the best offers</li> <li>60 percent of consumers know how to change the privacy settings on their browser</li> </ul> METHODOLOGY<p>The Digital Sharing and Trust Project is a proprietary MasterCard asset that is the result of both qualitative and quantitative research conducted in nine markets: the United States, Canada, Germany, United Kingdom, India, South Africa, United Arab Emirates, Brazil and Colombia.&nbsp;</p> <p>The qualitative portion was executed on an innovative online platform consisting of 128 in-depth interviews over a three-day period where consumers reported on their online behavior and answered questions about their attitudes toward online sharing.</p> <p> The quantitative portion of the research sought to test, and if, possible substantiate findings derived from the qualitative hypotheses. MasterCard surveyed a representative sample of digital consumers aged 16 to 65, all of whom engage in some type of online activity at least once a week. The survey captured 9,029 global responses to more than 50 questions, including demographic, psychographic, attitudinal, and behavioral information.</p> <p>The five unique personas emerged out of a vigorous statistical examination, which included exploratory factor and cluster analysis. The factor analysis grouped like variables together, creating six distinct dimensions which define and describe online behavior and attitudes. The five unique personas then emerged from subsequent cluster analysis, which grouped respondents together based on the similarity of their answers to the questions in each of the six dimensions. All analysis leveraged globally standardized data to aid the comparison of responses across the nine markets surveyed.</p> THE SIX DIMENSIONS<p>The six distinct dimensions are comprised of 50 quantitative data variables, with no variable used twice. Interplay between and scoring of each of the dimensions is fundamentally the metric delimiting the five personas.</p> <p style="text-align: center;"><a href="/content/dam/intelligence/content-assets/reports/digital-sharing2.JPG" target="_blank"><img height="454" width="284" src="/content/dam/intelligence/content-assets/reports/digital-sharing2.JPG"></a></p> <p style="text-align: center;"><img height="223" width="456" src="/content/dam/intelligence/content-assets/reports/digital-sharing3.JPG"></p> <p>Open Sharers are highly digital consumers. They are progressive in their mobile and social attitudes, exemplifying open behavior in both. These consumers tend to lead a less risk-averse lifestyle in general, including travel and clothing, but especially regarding online activities. Open Sharers are online consumers and creators—half are online more than 10 times per day, using the web to help organize and share their lives. Along with daily social networking, Open Sharers strongly believe online shopping saves a lot of time and hassle: they store their shipping information on sites they purchase from regularly. Eight in 10 Open Sharers love getting special offers and discounts just for “checking in” via a mobile device, emphasizing not only their willingness to trade location data for deals, but also the sophisticated use of their mobile phone. They are particularly aware of targeted marketing, with nearly full understanding of the value of their data and how merchants, marketers, and consumers interact online. Nearly all of them know that social media sites, search engines, and marketers use their personal information to tailor specific search results and advertising. When they share their personal information, they expect deals, access, and offers in return. At the same time, Open Sharers also know how to manage the privacy settings on their browsers, ensuring that they only share when they know how their information will be used.</p> <p style="text-align: center;"><img src="/content/dam/intelligence/content-assets/reports/digital-sharing4.JPG"></p> <p style="text-align: center;"><a target="_blank" href="/content/dam/intelligence/content-assets/reports/digital-sharing5.JPG"><img src="/content/dam/intelligence/content-assets/reports/digital-sharing5.JPG"></a></p> <p>&nbsp;</p> <p style="text-align: center;"><img height="267" width="536" src="/content/dam/intelligence/content-assets/reports/digital-sharing6.JPG"></p> <p>&nbsp;</p> <p>Simply Interactors are the ultimate social networkers, with nine in 10 accessing Facebook daily. They view social networks as an easy way to stay connected, and feel themselves “missing out” when they are unable to connect with others online. While Simply Interactors are dedicated social networkers, they are not particularly tech-savvy consumers: their usage of smartphones and tablets is basic. When it comes to online shopping, while 80 percent research products online, 63 percent prefer to do their shopping in person. When looking to shop online, seven in 10 Simply Interactors will look for reviews about unknown companies before making a purchase. Simply Interactors are aware of targeted marketing, but don’t see their data as that valuable, and so do not express significant concern about it.</p> <p style="text-align: center;"><img height="327" width="312" src="/content/dam/intelligence/content-assets/reports/digital-sharing7.JPG"></p> <p style="text-align: center;"><a target="_blank" href="/content/dam/intelligence/content-assets/reports/digital-sharing8.JPG"><img src="/content/dam/intelligence/content-assets/reports/digital-sharing8.JPG"></a></p> <p style="text-align: center;">&nbsp;</p> <p style="text-align: center;"><img height="261" width="553" src="/content/dam/intelligence/content-assets/reports/digital-sharing9.JPG"></p> <p>Solely Shoppers are characterized by their reliance on the Internet for their shopping needs, both in product research and actual purchase. Indeed, it’s shopping that drives this persona online, as 73 percent believe online shopping saves a lot of time and hassle. Ninety percent research products before buying, and half of Solely Shoppers use their mobile phone to price check in-store to get the best deals: their primary use of personal technologies is for enacting savvy shopping strategies. Though they view the Internet as a convenient and safe way to shop, they are much less involved in other online activities, such as social networking and entertainment (streaming music or videos). They have very little awareness of targeted marketing, as only 37 percent of this segment are aware that social media sites use their personal data to inform targeted ads. They generally do not see their personal information as valuable to merchants and advertisers, though they appreciate getting special offers and discounts for checking into a store.</p> <p style="text-align: center;"><img height="315" width="289" src="/content/dam/intelligence/content-assets/reports/digital-sharing10.JPG"></p> <p style="text-align: center;"><a target="_blank" href="/content/dam/intelligence/content-assets/reports/digital-sharing11.JPG"><img src="/content/dam/intelligence/content-assets/reports/digital-sharing11.JPG"></a></p> <p style="text-align: center;">&nbsp;</p> <p style="text-align: center;"><img height="240" width="487" src="/content/dam/intelligence/content-assets/reports/digital-sharing12.JPG"></p> <p>Passive Users are not fully convinced of the value of the Internet, and they use the web less than other segments. Broadly speaking, they’re risk-averse, not just with the Internet but with their career, travel, clothing styles, and financial management. Passive Users have a low awareness of targeted marketing and low levels of privacy management. Only 41 percent see their personal data as having value to merchants and advertisers, likely a result of their more offline lifestyle. They are less frequent social networkers than the average— 48 percent find social networks an easy way to stay connected, and 41 percent feel they’re missing out when they don’t check their social networks daily. Passive Users are not heavy online shoppers, but they are more likely than other personas to shop via a mobile device—this follows from their preference for practical mobile applications that have a clear benefit like mobile banking and location-based recommendation services. Passive Users are more willing than other personas to trade their data for something in return, which explains their preference for the practical. This also explains why 42 percent use mobile banking apps and 18 percent use location-based recommendations apps.</p> <p style="text-align: center;"><img height="333" width="329" src="/content/dam/intelligence/content-assets/reports/digital-sharing13.JPG"></p> <p style="text-align: center;"><a target="_blank" href="/content/dam/intelligence/content-assets/reports/digital-sharing14.JPG"><img src="/content/dam/intelligence/content-assets/reports/digital-sharing14.JPG"></a></p> <p style="text-align: center;">&nbsp;</p> <p style="text-align: center;"><img height="241" width="503" src="/content/dam/intelligence/content-assets/reports/digital-sharing15.JPG"></p> <p>Proactive Protectors are guarded when it comes to sharing online. They are highly aware of targeted marketing and the ways their data is used to tailor marketing to them, and as a result are very active in privacy management. Fully 82 percent know marketers can target them based on their search and browsing history, but only 26 percent are willing to be tracked online in exchange for a benefit. As many as 79 percent know their data has value to merchants and advertisers, but they don’t trade or reveal that data lightly, and they take steps to control their digital footprint. Fully 90 percent say they only share information about themselves online when they know how it will be used, and 76 percent clear the cookies stored on their browser. Proactive Protectors are unlikely to use social networking sites, seeing them as not having much value. While they shop online because it saves them time, they are not willing to trade information about themselves to access deals.</p> <p style="text-align: center;"><img height="326" width="330" src="/content/dam/intelligence/content-assets/reports/digital-sharing16.JPG"></p> <p style="text-align: center;"><a target="_blank" href="/content/dam/intelligence/content-assets/reports/digital-sharing17.JPG"><img src="/content/dam/intelligence/content-assets/reports/digital-sharing17.JPG"></a></p> IMPLICATIONS<p><img src="/content/dam/intelligence/content-assets/reports/digital-sharing18.JPG"></p> <p>The five personas comprising the top-level learnings of the MasterCard Digital Sharing and Trust Project present a challenge for merchants.While the personas represent five discrete, identifiable, and globally applicable segments for marketing, merchandising, and risk management, they do not differentiate from each other based on the traditional demographic markers of age, income, and geography. Rather, they are delimited solely in terms of online behavior, essentially a new paradigm for merchants on the Internet.</p> <p>This in itself could be good news for merchants. Rather than seek to infer demographic delineations by correlating behaviors to other factors or try to obtain that information from other databases, merchants have the opportunity to profile consumers based solely on their behaviors online. Careful observation of buying patterns, triangulated with other data sources, allows merchants to gain greater efficiency by tailoring offers to specific segments. Merchants need to develop knowledge of what they must to do to gain the trust of the different segments and cater to their needs.</p> <p>At the same time, merchants collecting data need to understand the clear hierarchy of sensitivity that exists and drives those consumers who are prospects. They must understand that the merchant community is not generally the most trusted link in the cyber buying chain and that financial services institutions retain the highest level of consumer trust. Partnerships with financial services institutions, along with a strict regard for the data sensitivity hierarchy that exists alongside the trust hierarchy, represents a way forward for retailers globally.</p> <p><b>Governments</b></p> <p><img src="/content/dam/intelligence/content-assets/reports/digital-sharing19.JPG"></p> <p>While local nuances abound, in general it is evident that there are two data-usage models in place globally: bottom-up, putting the consumer in charge of his own data usage preferences based on need and behavior (as exemplified by the U.S.), and top-down, with data usage determined by existing regulation (as exemplified by the E.U.). Most other countries take the lead from one or the other of these paradigmatic regulatory frameworks. That is to say, in the U.S. and those countries following the bottom-up line, regulators set looser guidelines,and it is up to consumers themselves, using the tools at their disposal, to create their own digital profiles regarding sharing information about themselves and receiving offers and discounts in turn. In the top-down world, regulation limits the amount of consumer data merchants and others are able to use freely. Merchants have a greater burden to adjust their goals to the regulator’s vision of what is and is not appropriate to share.</p> <p>But the Digital Sharing and Trust Project reveals that attitudes relating to data sharing are global, not local or even regional. The concept of Social Citizenship means that consumers globally shed their national characteristics when entering cyberspace. Consumers make decisions regarding what to share based on how much value they get from sharing. To the extent that governments can design clear standards for what information merchants should have access to, how consumers can exercise some control over how their data is applied, and how clearly those standards are explained, they can safeguard consumer protections in the smartest possible way—by providing consumers the means to make that value judgment in an educated way.<br> <br> </p> <p><b>Financial Service Institutions</b></p> <p><img src="/content/dam/intelligence/content-assets/reports/digital-sharing20.JPG"></p> <p>A dual hierarchy emerges from MasterCard’s 5 Personas work. On the one hand consumers have a clear rank-ordered preference of the kinds of information they are comfortable sharing at the variety of sites with which they interact online. But there is also another hierarchy, comprised of the sites themselves by type, that determines which category of website generates what levels of trust.</p> <p>Consumers have a higher level of trust in financial services institutions—banks—than they have in any other kind of site with a widespread presence on the World Wide Web. What’s interesting is that banks are at the very pinnacle of the information hierarchy— custodians of the kind of information consumers are most sensitive about, such as Social Security or tax identification number, financial information, and payment information by type of purchase. Banks have earned this trust by their reputation. The scope of the data in their care is limited, but of the highest importance to the consumer. For financial services institutions to retain that trust, they need to be very clear: What are they collecting, and how do they plan to use it?</p> <p>From the standpoint then of marketing and product design, financial services institutions, especially those enabling consumer payments, are in the position of honest brokers.</p> <p>The card relationship—including, potentially, the mobile payment device—then becomes the housing for the consumer’s own data-sharing preferences and guidelines, largely because the relationship is managed by the highest level of the trust hierarchy.</p> <p><b>Consumers</b></p> <p><img src="/content/dam/intelligence/content-assets/reports/digital-sharing21.JPG"></p> <p>Consumers are aware of the level of trust they have in different components of the value chain. But “awareness” is different from knowledge, and education could be the key to responsible online behavior moving forward. Consumers act from habit, that is to say semiconsciously, online, and unless that behavior is founded on knowledge, there could be trouble ahead for them.</p> <p>Merchants, financial services institutions, and the regulator alike must understand that rather than a timid and fear-driven population, consumers online are in search of value as well as utility and are capable, by and large of judging for themselves their own risk tolerance based on the reward they’re looking to receive.</p> <p>What the 5 personas work does not suggest, however, is how a greater level of trust among those not already shopping online could boost overall ecommerce online. In the U.S., for example, a reasonable proxy for the developed world, ecommerce is still just 10 percent of total salesii (seven percent is a likely figure for the EUiii), which belies the Internet’s promise.</p> IMPLICATIONS<p>The development of targeted advertising, personalized offers, and sophisticated tracking and profiling techniques has been around for a long time—but not as long as the Internet itself. The industry is fast approaching the 20th anniversary of the widespread availability of web browsers and the concomitant birth and growth of Internet retailing and payments. Indeed, many of the “innovative” solutions to data security and privacy issues currently roiling the industry (e.g., digital wallets) date back to the late ’90s, if not earlier.</p> <p>This means that the majority of consumers are both used to and comfortable with the Internet. Consumers are largely aware but not able to quantify the value of their data—they know that it has some value, but need help understanding the nature and amount of that value.</p> <p>The emergence in the Digital Sharing and Trust Project of financial services institutions as the most trusted members of the online value chain suggests that these institutions have a key role to play. As custodians of consumers’ most sensitive information, especially data relating to payments and the liquidity that lies behind payments, they have only to leverage this trust into their product design and implementation to become the honest broker in the world of online payments.</p> <p><a href="http://www.usatoday.com/story/tech/2013/04/22/microsoft-launches-free-consumer-privacy-toolx/2104571/" target="_blank">http://www.usatoday.com/story/tech/2013/04/22/microsoft-launches-free-consumer-privacy-toolx/2104571/</a></p> <p><a href="http://www.informationweek.com/security/privacy/consumers-concerned-about-online-data-pr/240153296" target="_blank">http://www.informationweek.com/security/privacy/consumers-concerned-about-online-data-pr/240153296</a></p> <p><a href="http://www.washingtonpost.com/business/technology/germany-fines-google-as-facebook-microsoft-launch-privacy-campaigns/2013/04/22/c350bf92-ab5f-11e2-b6fd-ba6f5f26d70e_story.html" target="_blank">http://www.washingtonpost.com/business/technology/germany-fines-google-as-facebook-microsoft-launch-privacy-campaigns/2013/04/22/c350bf92-ab5f-11e2-b6fd-ba6f5f26d70e_story.html</a></p> <p><a href="http://techcrunch.com/2013/04/23/boomerang-rewards-lets-web-mobile-publishers-give-out-free-gift-cards-earn-extra-money/" target="_blank">http://techcrunch.com/2013/04/23/boomerang-rewards-lets-web-mobile-publishers-give-out-free-gift-cards-earn-extra-money/</a></p> <p>Fourth Quarter U.S. Marketshare Survey Highlights, ComScore Forrester Research</p> <p><a href="http://www.usatoday.com/story/tech/2013/04/22/microsoft-launches-free-consumer-privacy-toolx/2104571/" target="_blank">www.usatoday.com/story/tech/2013/04/22/microsoft-launches-free-consumer-privacy-toolx/2104571/</a></p> <p><br type="_moz"> </p> The Digital Sharing and Trust Project is a new global study from MasterCard that shows how consumers actually shed their “real-world” identities when they go online to assume “digital personas” that better reflect how they feel, what actions they take around their personal information and how much value they place on their own data. These five personas –Open Sharers, Simply Interactors, Solely Shoppers, Passive Users and Proactive Protectors—are spread evenly throughout the global population and ignore any regional or demographic boundaries.http://www1.mastercard.com/content/intelligence/en/research/reports/2013/around-the-world-in-5-personas--how-global-consumers-think-about2013-10-02T16:00:00.000Z2013-10-02T16:00:00.000ZWomen Still Missing from Top Jobs in Business, Government in Asia/Pacific Georgette Tan, Robert O’BrienMasterCard and its Suite of Research Properties<p>The MasterCard Worldwide Index suite in Asia/Pacific, Middle East and Africa includes the long-running MasterCard Worldwide Index of Consumer Confidence, as well as the&nbsp;MasterCard Worldwide Index of Women’s Advancement, Online Shopping,&nbsp;Index of Financial Literacy, and the&nbsp;<a href="http://newsroom.mastercard.com/digital-press-kits/mastercard-global-destination-cities-index-2013/" target="_blank"><b>Index of Global Destination Cities</b></a>. In addition to the Indices, MasterCard’s research properties also include a range of consumer surveys including Ethical Spending&nbsp;and a series on&nbsp;Consumer Purchasing Priorities&nbsp;(covering&nbsp;Travel,&nbsp;Dining &amp; Entertainment, Education,&nbsp;Money Management,&nbsp;Luxury&nbsp;and General Shopping).</p> <p>MasterCard also regularly releases Insights reports providing analysis of business dynamics, financial policies and regulatory activities in the Asia/Pacific, Middle East and Africa region. Over 80 Insights reports have been produced since 2004.</p> <p>MasterCard has also released a series of four books on Asian consumer insights, authored by&nbsp;<a href="http://newsroom.mastercard.com/people/dyuwa/" target="_blank"><b>Dr. Yuwa Hedrick-Wong</b></a>, Global Economic Advisor for MasterCard Worldwide and published by John Wiley &amp; Sons.</p> About MasterCard<p><a href="http://www.mastercard.com/index.html" target="_blank"><b>MasterCard</b></a>&nbsp;(NYSE: MA),&nbsp;<a href="http://www.mastercard.com/" target="_blank"><b>www.mastercard.com</b></a>,<b>&nbsp;</b>is a technology company in the global payments industry. We operate&nbsp;the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard’s products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone. Follow us on Twitter&nbsp;<a href="https://twitter.com/#%21/MasterCardNews" target="_blank"><b>@MasterCardNews</b></a><b>,&nbsp;</b>join the discussion on the&nbsp;<a href="http://newsroom.mastercard.com/blog/" target="_blank"><b>Cashless Conversations Blog</b></a>&nbsp;and&nbsp;<b><a href="http://newsroom.mastercard.com/subscribe/" target="_blank">subscribe</a>&nbsp;</b>for the latest&nbsp;<a href="http://newsroom.mastercard.com/" target="_blank"><b>news</b></a>.</p> Contacts:<p>Georgette Tan,<br> MasterCard Worldwide,&nbsp;<br> <a href="mailto:georgette_tan@mastercard.com">georgette_tan@mastercard.com</a>,<br> +65 6390 5971</p> <p>Robert O’Brien,<br> Weber Shandwick,&nbsp;<br> <a href="mailto:robrien@webershandwick.com">robrien@webershandwick.com</a>,<br> +65 6825 8064</p> The MasterCard Worldwide Index of Women’s Advancement measures the socioeconomic standing of women across Asia/Pacific, Middle East and Africa. http://www1.mastercard.com/content/intelligence/en/research/reports/2013/women-still-missing-from-top-jobs-in-business--government-in-asi2013-03-05T16:00:00.000Z2013-03-05T16:00:00.000ZFew Women in South Asia Have a Seat at the Table in Business and Parliament: MasterCard Index Georgette Tan, Robert O’BrienMasterCard and its Suite of Research Properties<p>The MasterCard Worldwide Index suite in Asia/Pacific, Middle East and Africa includes the long-running MasterCard Worldwide Index of Consumer Confidence, as well as the&nbsp;MasterCard Worldwide Index of Women’s Advancement, Online Shopping,&nbsp;Index of Financial Literacy, and the&nbsp;<a href="http://newsroom.mastercard.com/digital-press-kits/mastercard-global-destination-cities-index-2013/" target="_blank"><b>Index of Global Destination Cities</b></a>. In addition to the Indices, MasterCard’s research properties also include a range of consumer surveys including Ethical Spending&nbsp;and a series on&nbsp;Consumer Purchasing Priorities&nbsp;(covering&nbsp;Travel,&nbsp;Dining &amp; Entertainment, Education,&nbsp;Money Management,&nbsp;Luxury&nbsp;and General Shopping).</p> <p>MasterCard also regularly releases Insights reports providing analysis of business dynamics, financial policies and regulatory activities in the Asia/Pacific, Middle East and Africa region. Over 80 Insights reports have been produced since 2004.</p> <p>MasterCard has also released a series of four books on Asian consumer insights, authored by&nbsp;<a href="http://newsroom.mastercard.com/people/dyuwa/" target="_blank"><b>Dr. Yuwa Hedrick-Wong</b></a>, Global Economic Advisor for MasterCard Worldwide and published by John Wiley &amp; Sons.</p> About MasterCard<p><a href="http://www.mastercard.com/index.html" target="_blank"><b>MasterCard</b></a>&nbsp;(NYSE: MA),&nbsp;<a href="http://www.mastercard.com/" target="_blank"><b>www.mastercard.com</b></a>,<b>&nbsp;</b>is a technology company in the global payments industry. We operate&nbsp;the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard’s products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone. Follow us on Twitter&nbsp;<a href="https://twitter.com/#!/MasterCardNews" target="_blank"><b>@MasterCardNews</b></a><b>,&nbsp;</b>join the discussion on the&nbsp;<a href="http://newsroom.mastercard.com/blog/" target="_blank"><b>Cashless Conversations Blog</b></a>&nbsp;and&nbsp;<b><a href="http://newsroom.mastercard.com/subscribe/" target="_blank">subscribe</a>&nbsp;</b>for the latest&nbsp;<a href="http://newsroom.mastercard.com/" target="_blank"><b>news</b></a>.</p> Contacts:<p>Georgette Tan,<br> MasterCard Worldwide,&nbsp;<br> <a href="mailto:georgette_tan@mastercard.com">georgette_tan@mastercard.com</a>,<br> +65 6390 5971</p> <p>Vasundhara Subrahmanian,<br> Weber Shandwick,&nbsp;<br> <a href="mailto:vsubrahmanian@webershandwick.com">vsubrahmanian@webershandwick.com</a>,<br> +65 6825 8054</p> The South Asia edition of the MasterCard Index of Women’s Advancement measures the socioeconomic standing of women across India, Sri Lanka, Bangladesh, Nepal and Pakistan. http://www1.mastercard.com/content/intelligence/en/research/reports/2013/few-women-in-south-asia-have-a-seat-at-the-table-in-business-and2013-04-18T16:00:00.000Z2013-04-18T16:00:00.000ZMasterCard Index of Well-Being for Women 2014 Introduction<p>The MasterCard Index of Well-Being for Women is a new index based on a survey comprising 16 Asia/Pacific markets that will be conducted bi-annually. Launched in January 2014, the Index aims to provide an in-depth measure of the level of well-being among nations in Asia/Pacific by examining the impact of wide-ranging factors such as work-life balance, cybercrime and disease outbreak on female respondents. Overall, the research reflects their attitudes toward five categories: &quot;Work and Finances,&quot; &quot;Safety from Threats,&quot; &quot;Personal and Work Satisfaction,&quot; &quot;Personal Well-Being&quot; and &quot;Sense of Empowerment.&quot;</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart1-MR.jpg"><img width="461" height="321" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart1-MR.jpg"></a></p> Regional Overview<p>The spread of the overall Women's Well-Being Index values across the 16 Asia/Pacific markets shows all of them above the neutral (50 point) mark with Myanmar (70.9) and Indonesia (70.0) taking the leading positions and Japan (53.6) and South Korea (54.9) at the lowest spectrum, against the regional average of 62.7. There is marked inter-market divergence between the seven Developed Markets (average of 58.8) and the nine Emerging Markets (average of 65.7), as well as intra-market divergences within the Emerging-Developed Markets brackets. The charts below illustrate this difference.</p> <p>The Developed Markets chart below reveal that with the exception of Japan, South Korea and Taiwan, Hong Kong, Singapore, New Zealand and Australia are above the Developed Market average of 58.8. With an overall Well-Being Index score of 66.5, Hong Kong has a clear lead compared to the other six countries in the Developed Market region, while Japan (53.6) has the lowest score.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart2-MR.jpg" target="_blank"><img width="458" height="319" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart2-MR.jpg"></a></p> <p>Among the Emerging Markets illustrated below, Malaysia (58.0) and Bangladesh (55.3) are the only two markets with scores below the Emerging Market average of 65.7. Myanmar (70.9) and Indonesia (70.0) have the highest and healthiest overall Well-Being Index scores; followed by the Philippines and India at 69.2 and 69.1, respectively.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart3-MR.jpg" target="_blank"><img width="454" height="316" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart3-MR.jpg"></a></p> <p>Prima facie, the Developed-Emerging Market dichotomy seems to suggest that a higher standard of living may not necessarily translate to a higher sense of well-being due the interplay of other factors and influences such as cultural and psychological. In the following sections, we will examine the component breakdown to discover key elements of divergence between the Developed and Emerging Markets.</p> Regional Component Breakdown<p>At the component level, Developed Asia/Pacific has a higher score in only one component, and it is barely higher at that (Safety from Threats, 57.0 versus 55.1 for Emerging Markets). The components of &quot;Work and Finances,&quot; &quot;Satisfaction&quot; and &quot;Personal Well-Being&quot; stand out the most in terms of differential between the Developed and Emerging Markets of Asia/Pacific.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart4-MR.jpg" target="_blank"><img width="416" height="289" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart4-MR.jpg"></a></p> "Works and Finances"<p>At the &quot;Work and Finances&quot; component level, Emerging Markets are clearly more optimistic about the six months looking ahead and prospective sub-components of &quot;Regular Income&quot; and &quot;Employment&quot; than the Developed Markets which are evidently dismal at least for this survey wave (scores of 82.9 for Emerging versus 56.5 for developed). With a score of 42.3, it is evident that the majority of women in Developed Markets do not expect their income levels to increase over the next six months. In comparison, the score for women in the Emerging Markets is much stronger at 74.3, reflecting a high level of optimism with regards to income levels. This is scarcely balanced out by the &quot;Keeping up with Bills&quot; and &quot;Saving for Big Purchases&quot; sub-components which the Developed Markets are more in control of -- most likely due to greater affordability offered through higher income levels for dealing with big ticket consumption and day to day budgeting.</p> <p>Another reason for the large variance between the Developed-Emerging Markets may be due to &quot;Regular Income&quot; and &quot;Employment&quot; being more aligned to economic growth prospects -- an aspect over which Emerging Markets have a clear advantage (using the October 2013 IMF WEO forecasts of GDP per Capita between 2014 and 2018, the seven Developed Markets have an average compound annual average real growth rate of 3.2% while that of the nine Emerging Markets is much higher at 5.1%).</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart5-MR.jpg" target="_blank"><img width="416" height="282" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart5-MR.jpg"></a></p> <p><b>Work and Finances: Gender Comparison</b></p> <p>The results for male respondents in relation to &quot;Work and Finances&quot; are quite similar to the scores for the female cohort with men in Developed Markets expressing more control over bill payments (77.3) and saving for big purchases (62.8). The outlook on employment prospects among men in developed countries is poor (50.6), but still less pessimistic than their female counterparts (42.3). In terms of &quot;Saving for Big Purchases,&quot; women in both Developed and Emerging Markets show slightly higher control than men.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart6-MR.jpg" target="_blank"><img width="415" height="289" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart6-MR.jpg"></a></p> "Safety from Threats"<p>With the exception of &quot;Cyber Crime&quot; and &quot;Natural Disaster/Pollution,&quot; it is surprising that the Developed Markets do not have a markedly higher overall score (57.0) relative to Emerging Markets (55.1). In fact, the survey revealed that the score for Developed Markets in &quot;Disease Outbreak&quot; was only marginally higher than that for Emerging Markets (61.6 versus 60.1). For the sub-components of &quot;Violent Crime&quot; and &quot;Financial Crime,&quot; the scores were noticeably higher in the Developed Markets (59.2 and 57.4) than in the Emerging Markets (52.2 and 50.0). It is also apparent that the perception of safety from threats of violent and financial crimes by female respondents in Emerging Markets is a major concern.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart7-MR.jpg"><img width="415" height="290" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart7-MR.jpg"></a></p> <p>Table 1 shows the World Bank's Governance 2012 Indicator &quot;Rule of Law&quot;<sup><a href="#ft1">1</a></sup> for each of the countries with their regional averages at the bottom. The original scores have been indexed to 100 with 100 indicating the best possible rule of law and 0, total anarchy. The prevalence and enforcement of the rule of law should directly impact upon all the four sub-indicators (even natural disasters in terms of amelioration of their effects via effective preparation and responsiveness).</p> <p>Given the wide gap between the market averages for &quot;Rule of Law&quot; (92.4 for Developed Markets versus 56.5 for Emerging Markets), one would expect this gap to be evident in the &quot;Safety from Threats&quot; component which is not apparent. One can only hypothesize that the interplay of a degree of human adaptive expectation may be prevalent here. For example, a historically low crime rate in a Developed Market breeds a baseline mindset of low crime expectations or that crime rates should be low. As such, exposure to crime through the media or by word of mouth may instigate a negativity bias perceiving crime rates to be on the rise or getting much worse than they really are, in turn generating a feeling of being more vulnerable to crime than is warranted.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table1-MR.jpg"><img width="415" height="273" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table1-MR.jpg"></a></p> <p>In an Emerging Market however, where crime rates are actually higher than that in a Developed Market on average, expectation of crime is already high and socially internalized such that the same negative reports via the media or word of mouth do not impart as much negative bias towards vulnerability to threat as they would in a Developed Market. In other words if one accepts that crime rates are high and there is nothing to be done about it (owing to weak &quot;Rule of Law&quot;), then one would take whatever precautions necessary to avoid becoming a victim of crime and move on with life. What would impact such a person’s sense of vulnerability to crime upwards or downwards is a relative change in crime rates (and its reporting); that is, if crime rates are to spike or decrease outside the bounds of normalcy.</p> <p>In a Developed Market where the expectation of crime rates is less, vulnerability to crime is more likely to increase as perception of it via reports increases. However, this is less likely to decrease from reports of the reverse (a decrease in crime rates) as one expects that crimes should have been low in the first place. Another way to see this is that a reported decrease in crime is interpreted as an improvement from the norm in Emerging Markets but only a return to normalcy in a Developed Market. This may go some way to explaining why the &quot;Safety from Threats&quot; gap between the Developed and Emerging Markets is much narrower than that revealed in the World Bank's &quot;Rule of Law&quot; gap.</p> <p><b>Safety from Threats: Gender Comparison</b></p> <p>A gender comparison of the perception of safety from threats between male and female respondents in the Developed and Emerging Markets reveals an interesting observation. While one would expect the male cohort in either markets to score higher given that females both young and old, will generally have greater fear of crimes and threats than men due to various factors such as vulnerability to aggressions and concern for their children (which fuels their fear); however, this is not the case. The results show that in both markets, the perception of safety from threats among male and female respondents is remarkably similar, effectively dispelling any misconception that males have a higher perception of safety from threats (and thus a higher score) than their female counterparts in either Developed or Emerging Markets.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart8-MR.jpg"><img width="419" height="179" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart8-MR.jpg"></a></p> <p>For the male counterpart, the sub-components of &quot;Violent Crime&quot; (62.3) and &quot;Financial Crime&quot; (60.8) as illustrated in the chart below are notably higher than the female respondents in the Developed Markets as compared to that in the Emerging Markets (54.7 and 53.2, respectively), while the gaps for the other sub-components of &quot;Cyber Crime,&quot; &quot;Disease Outbreak&quot; and &quot;Natural Disaster/Pollution&quot; are less pronounced.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart9-MR.jpg" target="_blank"><img width="421" height="202" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart9-MR.jpg"></a></p> <p><i><a name="ft1"></a>1. Reflects perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.</i></p> "Satisfaction"<p>The &quot;Satisfaction&quot; component shows a wide gap between the Developed and Emerging Markets in favor of the latter (59.0 versus 69.9 respectively), implying that women in developed countries are not necessarily more satisfied with their lives as compared to women living in less-developed countries. The results also show that each of the sub-components exhibits an apparent gap between the two regional markets but it is widest at the &quot;Present Life Situation&quot; and &quot;5 year Life Situation&quot; sub-components. The analysis of the &quot;5 year Life Situation&quot; sub-component is one of future optimism and may be related to the economic growth prospects of which the Emerging Markets have the clear advantage (refer to earlier discussion on &quot;Work and Finance&quot;). The gap between the markets for &quot;Present Life Situation&quot; shows that a higher standard of living (higher GDP per capita and all that that entails) may not necessarily translate to a higher regard of one's present circumstance as has been suggested earlier.</p> <p>Female respondents in the Emerging Markets are highly optimistic about their life situation prospects in the next five years (76.1), even more so than their regard of present life situation (66.5). However, women in Developed Markets perceive their &quot;Present Life Situation&quot; to be barely adequate (55.1). The results also show that females in Emerging Markets have higher satisfaction levels in terms of their &quot;Work/Role in Life Situation&quot; and &quot;Work-Life Balance&quot; (68.8 and 68.0) than those in the Developed Markets (57.6 for work and life and 60.2 for satisfaction in work/role).<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart10-MR.jpg" target="_blank"><img width="420" height="293" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart10-MR.jpg"></a></p> <p><b>Satisfaction in Life: Gender Comparison</b></p> <p>The chart below shows the results of &quot;Satisfaction&quot; in life for the male respondents. The overall score for men is slightly higher than their female counterparts in Emerging Markets (71.4 male versus 69.9 for females) while in the Developed Markets, females scored marginally higher (59.0 versus 58.5 for males). In terms of the outlook for life in the next five years, male respondents were very optimistic (76.8 compared to 76.1 for females). Men in Developed Markets also exhibit low levels of satisfaction in terms of their perception of &quot;Present Life Situation&quot; (54.1)</p> <p>Men in Emerging Markets have higher satisfaction levels in terms of their Work/Role in Life Situation and Work-Life Balance (71.0 and 69.8) than females. Similar to their female counterparts in the Developed Markets, men are also significantly challenged in striking a balance between work and life (58.1) and in their Work/Role in Life Satisfaction (59.8).<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart11-MR.jpg" target="_blank"><img width="421" height="332" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart11-MR.jpg"></a></p> <p>Richard Easterlin, a professor of economics at the University of Southern California, has posited that aspirations move up together with incomes and overtime, higher aspirations negate the effect of higher incomes.<sup><a href="#ft2">2</a></sup> Plotting &quot;Present Life Situation&quot; scores for women against 2013 GDP per Capita in PPP$ (IMF WEO) as shown in the chart below highlights that there is some consistency with Easterlin's hypothesis. If satisfaction (i.e. happiness) increased with income, then the path of the dots should be largely aligned with the slope of the red line; but they do not. On a regional basis, the Emerging Markets are clearly sloping downwards which seems to suggest that as income levels rise, Present Life Satisfaction as perceived by women decreases. At the Developed Market level however, countries (with the exception of Japan) display a weakly positive relationship between Present Life Satisfaction and average income. Both of these observations are interesting and we would be keen to see if these patterns remain the same over future surveys.</p> <p>&quot;Work Life Balance&quot; and &quot;Work Satisfaction&quot; sub-components also exhibit the Developed-Emerging Market gap but they are narrower than the other sub-components of &quot;Present Life Situation&quot; and &quot;5 Year Life Situation Expectation&quot;. Continuing along the same line of reasoning, it is possible that as a market's development level increases (i.e. with concomitantly more laws and protection that are beneficial to labor), so does the expectations and aspirations of the market's labor force for more as well (i.e. more money, more opportunities, more parental leave and workplace benefits such as maternity leave, flexible work arrangements, etc.) which impinge negatively on work satisfaction.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart12-MR.jpg" target="_blank"><img width="421" height="332" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart12-MR.jpg"></a></p> <p><a name="#ft2"></a><i>2. Easterlin RA, McVey LA, Switek M, Sawangfa O, Zweig JS (2010) &quot;The happiness-“income paradox revisited,&quot; Proceedings of the National Academy of Sciences of the United States of America, Vol. 107 No. 52.</i><br> </p> "Personal Well-Being"<p>The &quot;Personal Well-Being&quot; component has three components exhibiting substantial gaps between Developed-Emerging markets. Of these, Family-related stress is largest with a 16.5 point difference, followed by Health-related Stress (14.7) and Work-related Stress (13.7). The scores for women in Emerging Markets in terms of work and financial stress are high (72.7 and 71.0, respectively), while that for Family- and Health-related Stress are moderately healthy (63.5 and 62.4, respectively). In contrast, women in Developed Markets scored much worse: 47.0 for Stress at Home, 47.7 for Health-related Stress, and 59.0 for Stress in the Workplace. In terms of Financial-related stress, the scores in both Developed and Emerging Markets are comparatively low than Work, Family and Health-related Stress; this is reflected in the healthy scores of 66.2 (Developed) and 71.0 (Emerging).</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart13-MR.jpg"><img width="421" height="294" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart13-MR.jpg"></a></p> <p><b>Personal Well-Being: Gender Comparison</b></p> <p>The results for male respondents are relatively similar to that of females with significant gaps between the Developed and Emerging markets pertaining to stress at home (14.1), in the Workplace (15.4), Health (12.4), and Financial (4.2). The scores for all sub-components in both key market regions for males are slightly higher than that for their female counterparts.</p> <p>The alarmingly poor score among women in terms of Family Stress (47.0 compared to 51.4 for male) in Developed Markets may be accrued to the challenges of having to juggle multiple tasks, especially for women who are working. According to 2013 OECD Better Life Index, women -- working or not working -- spend longer hours in unpaid domestic work: 279 minutes per day cooking, cleaning or caring compared to men who spend 131 minutes per day doing unpaid work, translating to a difference of around 2.5 hours per day. While one would then expect men to perceive stress at home to be less, this is not the case as reflected in the low score of 51.4.</p> <p>OECD's Better Life Index also highlighted that men undertake more hours of paid work compared to women but still scored better than their female counterparts in terms of &quot;Work Stress&quot; (59.3 male versus 59.0 female in Developed Markets, and 74.7 male versus 72.7 female in Emerging Markets).<br> </p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart14-MR.jpg"><img width="420" height="293" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart14-MR.jpg"></a></p> "Voice"<p>The component of &quot;Voice&quot; is primarily aimed at gauging women's sense of self-esteem. In general, women's opinion is more highly regarded in Emerging Markets than in Developed Markets. In assessing the degree of influence/sense of empowerment in the workplace/school in terms of opportunities for career enhancement, career/educational path and how daily work is organized, women in Developed Markets scored poorly (56.5), while the score in Emerging Markets is much more robust at 69.1.</p> <p>Given the big role women have played in the household, it is not surprising that the scores for women's opinion on non-financial decisions in the household in both Developed (68.4) and Emerging Markets (72.0) are the highest among all four sub-components.</p> <p>The voice of women within the household in Emerging Markets for both financial (71.0) and non-financial decisions (72.0) carry more weight as compared to that in the Developed Markets (66.2 for financial decisions and 68.4 for non-financial decisions). The relatively healthy scores for financial decisions in both major markets underscore that women have started to come ahead in terms of making the call on money matters in the household, and are increasingly taking charge of traditional male household decisions.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart15-MR.jpg"><img width="431" height="300" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart15-MR.jpg"></a></p> <p><b>Voice: Gender Comparison</b></p> <p>The results show that the opinions of men and women in the household pertaining to financial and non-financial decisions in both Developed and Emerging Markets are quite similar: average scores of 64.3 for male versus 63.5 for female in Developed Markets, and 71.6 for men versus 70.6 for female in Emerging Markets. In terms of financial decisions, the score for male respondents in Developed Markets is only two points higher than their female counterparts (68.2 versus 66.2 for women), suggesting that women's influence on household financial matters is increasingly trending towards parity with men.</p> <p>In terms of having a say on non-financial matters, women scored higher in Developed Markets (68.4 versus 66.5 for men) than in Emerging Markets.</p> <p>It is noteworthy that neither men nor women in Developed Markets feel that they are empowered in the workplace, as reflected in the weak scores of 59.4 and 56.5 in favor of men. This observation is quite different from that made in the Emerging Markets where the scores for both men and women are quite healthy: 71.1 and 69.1 in favor of men. This could be due to the fact that the nature and pace of work in Developed Markets are much more competitive than in the Emerging Markets. Another possible explanation is that the drive and desire for empowerment is not as strong in the less Developed Markets.<br> </p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart16-MR.jpg"><img width="420" height="292" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart16-MR.jpg"></a></p> Insights on Women's Well-Being by Country<p>&nbsp;<br> </p> Myanmar & Indonesia<p>The Well-Being Index scores for women in Myanmar (70.9, ranked first) and Indonesia (70.0, ranked second) are similar, with the former taking first spot among the 16 countries surveyed, followed by latter at second place.&nbsp; At the component level, women in Myanmar outperformed all their regional peers in terms of &quot;Satisfaction in Life&quot; (78.5), &quot;Personal Well-Being&quot; (79.4), and &quot;Voice&quot; (80.9, the highest component score in the survey and only component scoring over 80). Indonesian women outshined all their peers in terms of &quot;Work &amp; Finances&quot; (72.8) and &quot;Safety from Threats&quot; (68.1), and did well in terms of &quot;Personal Well-Being&quot; (70.7, second highest).</p> <p><b>Work &amp; Finances<br> </b>In terms of &quot;Work &amp; Finances,&quot; women in Myanmar and Indonesia show very positive outlook for their &quot;Regular Income&quot; and &quot;Employment&quot; prospects in the upcoming six months. In fact, nearly all female respondents from Myanmar expect their employment situation to be better (99.4, highest sub-component score in the survey). Given the OECD's medium-term economic growth forecast for Myanmar to be an average of 6.3% over 2013-17<sup><a href="#ft3">3</a></sup>, the survey result affirms the positive correlation between economic and employment growth.</p> <p>The high score (80.9, highest component score in the survey) among Burmese women in terms of &quot;Voice&quot; warrants deeper insight. As acknowledged by Melanne Verveer, Ambassador-at-Large for Global Women's Issues (Embassy of Czech Republic) at a presentation in 2012 &quot;The Role of Women in Burma,&quot;<sup><a href="#ft4">4</a></sup> younger Burmese women are highly optimistic and energized about their country's future, with the majority of them having started or are participating in NGOs advocating civic activism and social entrepreneurship. This younger cohort also demonstrate independence in their way of thinking and have become increasingly empowered in embracing their rights at home, the workplace, in community and political activities, or at the university. This high level of empowerment is also reflected in the survey result where the score for &quot;Empowered at Work&quot; is 85.2-- the only country scoring higher than 80, surpassing all other markets, and a clear lead ahead of India's second highest score of 75.0.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart17-MR.jpg"><img width="580" height="161" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart17-MR.jpg"></a></p> <p><b>Personal Well-Being</b><br> In terms of &quot;Personal Well-Being,&quot; although most Burmese women note little to no financial strain, their ability to keep up with bills is very poor (23.6, lowest among the 16 markets surveyed). This is most likely attributed to their low levels of income (GDP per capita of $1,700, the lowest in the survey, IMF 2013).</p> <p>The results demonstrate that women in Myanmar to be highly satisfied with their lives (78.5), especially in terms of their 5-year life situation (91.9, ahead of Philippines's second highest score of 83.1, and Indonesia at 70.7).</p> <p>The weakest Well-Being component for Burmese women is &quot;Safety from Threats&quot; at 49.1, with &quot;Violent Crime,&quot; &quot;Cyber Crime&quot; and &quot;Financial Crime&quot; being major concerns at 38.1, 46.3 and 39.1, respectively. The only sub-component that was acceptable was that for &quot;Disease Outbreak&quot; at 63.1, while that for &quot;Natural Disaster/Pollution&quot; was barely acceptable at 58.8.</p> <p><a name="ft3"></a><i>3. &quot;Getting rich before Growing Old: Jump-starting development in Myanmar ahead of population ageing,&quot; OECD Report, <a href="http://www.oecd.org/countries/myanmar/pressreleasemyanmar.htm" target="_blank">http://www.oecd.org/countries/myanmar/pressreleasemyanmar.htm</a><br> <a name="ft4"></a>4. &quot;The Role of Women in Burma,&quot; speech by Melanne Verveer, Ambassador-at-Large for Global Women's Issues, Washington, DC, May 25 2012, <a href="http://www.state.gov/s/gwi/rls/rem/2012/191300.htm" target="_blank">http://www.state.gov/s/gwi/rls/rem/2012/191300.htm</a></i></p> Indonesia<p>Drawing on the World Bank's Rule of Law Governance Indicators where Indonesia's score of 54.0 was below the Emerging Asia/Pacific Average of 56.5, it is surprising that women in Indonesia perceive their safety from threats and crimes so highly in the survey (score of 68.1, top in survey). We posit the underlying reason for this to be the same as that outlined earlier: that is, in an Emerging Market like Indonesia where crime rates are higher than a Developed Market on average, expectation of crime is already high and socially internalized such that negative reports through the media or word of mouth do not impart as much negative impact on vulnerability as they would in a Developed Market.</p> <p>Indonesia also came in first place among the 16 markets for the component of &quot;Work &amp; Finances&quot; (72.8), driven mostly by the very high scores of 91.4 and 80.6 for the forward-looking sub-components of &quot;Regular Income&quot; and &quot;Employment,&quot; respectively. Indonesian women demonstrate much higher control over bill payments (65.4) compared with those in Myanmar (23.6), as well as their ability to save for big item purchases (54.0 versus 43.7 for Myanmar).</p> <p>In general, the scores for the other four main components are quite similar and relatively healthy, ranging from the lowest score of 65.6 (&quot;Financial Crime&quot;) to the highest score of 74.6 for &quot;Work Stress.&quot; Indonesian women's ability to keep up with bills payment (65.4) is also reflected in their relatively low levels of financial stress experienced (69.0).<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart18-MR.jpg" target="_blank"><img width="595" height="168" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart18-MR.jpg"></a></p> Philippines & India<p>The Well-Being Index scores for women in the Philippines (69.2, ranked third) and India (69.1, ranked fourth) are both healthy, and are the closest among the 16 countries.<br> </p> <p><b>Work &amp; Finances</b></p> <p>With the exception of the &quot;Work &amp; Finances&quot; component, the scores for the other four components are quite similar. Women in the Philippines show greater capability in keeping up with their bills payment (as reflected in their low levels of financial stress -- score of 73.3) but still struggled to save for big item purchases. In comparison, fewer women in India indicate experiencing financial stress (74.2) but are at a peril in saving for big purchases (29.3, the lowest among all markets) and can barely keep up with bills (55.4)</p> <p>This could be partly attributed to the difference in income between the two markets: the GDP per capita in the Philippines is $5,900, nearly one-third higher than that for India ($4,000).<sup><a href="#ft5">5</a></sup> In the article &quot;Big boost for retail as people spend on small items&quot; (Aug 14, 2013), it was noted that the slowdown in economic growth momentum is driving Indian consumers to continue postponing or cancelling big discretionary spends such as house, car and holiday, and treating themselves to smaller luxuries such as apparel, footwear, and make-up, instead. This is not surprising, given that the economic GDP growth rates had remained flat at 5.0% throughout 2012 and 2013, and inflationary pressures had remained very high (10.6 for 2013).<sup><a href="#ft6">6</a></sup> In contrast, inflation in the Philippines has been trending downwards from 3.2% in 2012 to 3.0 for 2013.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart19-MR.jpg"><img width="601" height="168" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart19-MR.jpg"></a></p> <p><b>Personal Well-Being &amp; Voice</b></p> <p>In terms of &quot;Personal Well-Being&quot; and &quot;Voice,&quot; the scores for India are slightly healthier than in the Philippines: 75.2 and 73.3 for &quot;Voice&quot; and 73.9 versus 68.2 for &quot;Personal Well-Being&quot;-- both in favor of India. The biggest gaps are for the sub-components &quot;Family Stress&quot; (71.9 against 63.3 in favor of India) and &quot;Health&quot; (72.8 versus 61.0 in favor of India). The scores for &quot;Voice&quot; in both markets are very healthy and generally similar across the four sub-components, although the opinion of women in India pertaining to household non-financial decisions is more highly regarded (75.4 versus 71.9 for Philippines).<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart20-MR.jpg" target="_blank"><img width="603" height="168" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart20-MR.jpg"></a></p> <p><a name="ft5"></a><i>5. Figures for GDP per capita are based on the 2013 estimate by IMF<br> <a name="ft6"></a>6. MasterCard Asia/Pacific Quarterly Commentary Q4 2013, Estimates sourced from the OECD, World Bank, IMF and individual country statistical board</i></p> China, Hong Kong, Thailand & Vietnam<p>The Well-Being Index scores for China (67.4, ranked fifth), Hong Kong (66.5, ranked sixth), Thailand (66.0, ranked seventh) and Vietnam (65.8, ranked eighth) are similar and quite healthy. Among the four markets, China has the highest score for &quot;Voice&quot; at 73.5 (third highest in the survey); in particular, the opinions of Chinese women within the household for both financial and non-financial decisions are highly valued at 76.3 and 76.7, respectively. With an overall Well-Being Index score of 66.5, Hong Kong is the highest among the Developed Markets.</p> <p><b>Work &amp; Finances</b></p> <p>The overall scores for the &quot;Work &amp; Finances&quot; component are very close (three points apart for all four markets), but differ vastly at the sub-component level. This is most evident when it comes to &quot;Employment&quot; and &quot;Saving for Big Purchases&quot;. While the outlook for Employment prospects is very high among women in China (74.7) and Thailand (77.4) and quite healthy for those in Vietnam (64.9), the same is not observed among women in Hong Kong (50.5). Similarly, the outlook for &quot;Regular Income&quot; for China (88.5), Thailand (90.0) and Vietnam (81.5) is very healthy, but much less optimistic in Hong Kong (72.0). We propose several underlying factors underpinning this observation:</p> <ul> <li>The working environment in Hong Kong is extremely competitive, which invariably translates into higher expectations among employees with regards to salary and employment opportunities.</li> <li>Hong Kong is the only Developed Market among the four in comparison here where the economic growth rates for 2013 and 2014 are the least robust, which may explain why the outlook on employment is not as high as the other three markets with higher economic growth estimates.</li> </ul> <p>We also observe that women in Hong Kong are capable of keeping up with bills (78.8) and saving for big purchases (78.7), while women in the other three countries are barely able to do so. This may be due to vast difference in earning power (as reflected in the GDP per Capita $PPP, IMF 2013), which is shown in the following table where income levels are significantly higher in Hong Kong -- hence greater ability to keep up with bills and save for big purchases.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart21-MR.jpg"><img width="606" height="169" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart21-MR.jpg"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table2-MR.jpg"><img width="422" height="212" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table2-MR.jpg"></a></p> <p><b>Satisfaction in Life</b></p> <p>Women in these four markets are generally quite satisfied with their current life situation and in five yearsÕ time, as well as their ability to strike a desired balance between work and life. Women in Vietnam (71.2) and China (71.0) expressed slightly higher satisfaction levels than women in Thailand (67.9) and Hong Kong (66.3). Specifically, women in Hong Kong (65.0) and Thailand (65.1) are just adequately able to achieve a balance between work/school and other aspects of their lives.<br> </p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table2-MR.jpg"><img width="599" height="167" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart22-MR.jpg"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart23-MR.jpg"><img width="595" height="166" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart23-MR.jpg"></a></p> <p><b>Personal Well-Being</b></p> <p>Women in Vietnam demonstrate higher resilience than the other three markets when it came to coping with stress at home (65.5) and in the workplace (76.5, third highest among the 16 markets), keeping their health in check (61.5) and coping with financial stress (69.3).</p> <p><b>Voice<br> </b></p> <p>In terms of &quot;Voice,&quot; the survey revealed the scores for Hong Kong (67.5), Thailand (67.7) and Vietnam (67.8) to be very close, while China is ahead at 73.5. In particular, the opinion of Chinese women in the household on both financial (76.3) and non-financial (76.7) decisions is very highly valued, as is among their peers and friends (73.0).</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart24-MR.jpg"><img width="599" height="168" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart24-MR.jpg"></a></p> <p>&nbsp;</p> Singapore, New Zealand, Australia & Malaysia<p>The Well-Being Index scores for Singapore (61.4), New Zealand (61.0), Australia (59.5) and Malaysia (58.0) are acceptable and quite similar although marked differences can be noted at the component and sub-component levels.</p> <p><b>Work &amp; Finances<br> </b></p> <p>In terms of &quot;Keeping up with Bills,&quot; women across all four markets demonstrated the ability to keep up with bills with New Zealand taking the lead at 84.0 (highest in the whole survey), followed by Australia (79.3), Singapore (76.5) and Malaysia (69.2). Using GDP per capita as a gauge of income levels, it can be inferred that as income rises, so does the ability to keep up with bills payment. It is interesting to note that higher income does not necessary convey greater capacity to save for big purchases, as is reflected in the higher scores for Australia (71.7), New Zealand (69.7) and Singapore (64.2) in the table below. In contrast, although women in Malaysia earn less, their ability to keep up with bills and save for big item purchases (63.2) is relatively commendable.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table3-MR.jpg"><img width="420" height="253" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table3-MR.jpg"></a></p> <p>The forward looking sub-components of &quot;Regular Income&quot; and &quot;Employment&quot; also show significantly different results with women in Australia scoring the lowest for both categories: Regular Income (54.6, third lowest in the survey) and Employment (27.8, second lowest in survey trailing Taiwan). In contrast, despite their lower income levels, Malaysian women are the most optimistic about salary and employment prospects. This may be due to the higher economic growth momentum and relatively strong labor market conditions in the country compared to the other three markets. By the same token, the slower pace of economic expansion and lackluster labor market in Australia may have contributed to the higher levels of pessimism with regards to income and employment.<br> </p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table4-MR.jpg"><img width="419" height="210" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table4-MR.jpg"></a></p> <p><b>Safety from Threats</b></p> <p>In terms of &quot;Safety from Threats,&quot; the scores for Australia (58.6) and New Zealand (59.0) are just adequate in the range of 50s, while the score for Singapore is healthier at 64.8. Malaysia's score of 44.7 is the lowest among all 16 countries, with &quot;Violent Crime&quot; and &quot;Financial Crime&quot; scoring extremely poorly at 38.3 and 33.4, underscoring the concern among Malaysian women with regards to safety. In fact, one would expect the scores for Australia, New Zealand and Singapore to be much higher as is reflected in the World Bank's Governance Indicator &quot;Rule of Law&quot; (2012), however, this is not the case as shown in the table below:</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table5-MR.jpg"><img width="420" height="196" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table5-MR.jpg"></a></p> <p><b>Malaysia Crime Rate: Safety for Women</b></p> <p>According to data released by Numbeo (January 2014),<sup><a href="#ft7">7</a></sup> crime rates in Malaysia are extremely high and safety levels are poor. With an overall Crime Index score of 66.41 (100 being very high and 50 being reasonable), and an overall Safety Index score of 33.59 (low score meaning safety level is poor), it is not surprising that Malaysia ranked the lowest in terms of &quot;Safety from Threats.&quot;</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table6-MR.jpg" target="_blank"><img width="457" height="271" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table6-MR.jpg"></a></p> <p><b>Satisfaction in Life, Personal Well-Being &amp; Voice</b></p> <p>The scores for the other three components &quot;Satisfaction,&quot; &quot;Personal Well-Being&quot; and &quot;Voice&quot; are broadly similar across the four markets but are barely acceptable within the range of mid-to-high 50s and low 60s. In general, the women in these markets are not satisfied with their present life situation (53.8 for Malaysia and 55.2 for New Zealand), and are concerned about their health conditions (43.8 for both Australia and New Zealand) and stress levels in the family (48.7 in Australia, 42.7 for New Zealand and 48.6 for Singapore).<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart25-MR.jpg" target="_blank"><img width="602" height="168" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart25-MR.jpg"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart26-MR.jpg"><img width="598" height="167" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart26-MR.jpg"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart27-MR.jpg"><img width="600" height="167" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart27-MR.jpg"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart28-MR.jpg"><img width="601" height="169" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart28-MR.jpg"></a></p> <p><i><a name="ft7"></a>7. Crime Rates in Dhaka, Bangladesh by Numbeo, last updated January 2014</i></p> Taiwan, Bangladesh, South Korea & Japan<p>The Well-Being Index scores for Taiwan (55.0), Bangladesh (55.3), South Korea (54.9) and Japan (53.6, lowest among all markets) are very similar, but different radically at the sub-component level. In terms of &quot;Work &amp; Finances,&quot; most women in all four markets are extremely pessimistic over their regular income (bonuses and fringe benefits) and employment situation prospects over the next six months. Specifically, the employment outlook for women in Taiwan is the least sanguine and lowest in the survey at 22.9, more than four times lower than that in Myanmar (99.4). This could be due to the weak economic growth prospects of Taiwan: real GDP growth rates of 1.7% and 1.9% for 2013 and 2014, respectively.</p> <p><b>Work &amp; Finances</b></p> <p>In terms of &quot;Regular Income,&quot; the outlook among Japanese women is the most negative (32.3, lowest in the survey, about three times more pessimistic than Burmese women). We posit the underlying reasons to be the expected slowdown in the economy from 1.9% in 2013 to 1.5% in 2014 and the erosion in income levels as the hike in sales tax from 8% to 10% kicks in in April this year; which would probably impact on the outlook for income.</p> <p>The results revealed that although South Korean women are moderately able to keep up with bills (74.1), &quot;Saving for Big Purchases&quot; (35.0, third lowest in the survey, and lowest among Developed Markets) is a huge challenge for them. This is most likely due to the very low household savings rate in the country (4.8% for 2013 and expected to decline to 4.3% for 2014, OECD<sup><a href="#ft8">8</a></sup>) as they borrow heavily to spend on private education and real estate investment-- a trend which is manifested in the rising household debt rate (US$940 billion as at the end of 2013; amounting to 164% of available income). Hyundai Research InstituteÕs latest Economic Happiness Index published in December 2013 revealed that nearly one in every five South Koreans saw household debt as their biggest economic worry. This is also consistent with what is observed in MasterCard's Well-Being survey results: family stress in the country is the second lowest in the survey at 43.5.</p> <p>In comparison, women in Japan and Taiwan express less difficulty in paying off their bills and saving for big item purchases.</p> <p>Bangladesh -- being the only Emerging Market among the four markets compared here -- scored poorly across all four sub-components. In particular, &quot;Saving for Big Purchases&quot; (31.7) and &quot;Keeping up with Bills&quot; (44.1) are the second lowest scores in the survey. This could be due to the significantly lower earning power of women in the country (GDP per capita, PPP, $2,100) as compared to the other markets such as Japan where a GDP per capita of $37,100 extends substantially greater ability to keep up with bills (78.6) and save for big purchases (68.5).</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table7-MR.jpg" target="_blank"><img width="492" height="235" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table7-MR.jpg"></a></p> <p><b>Safety from Threats</b></p> <p>In terms of &quot;Safety from Threats,&quot; the scores for all four markets are poor, with Bangladesh (47.2) ranked the second lowest overall in the survey. Specifically, &quot;Violent Crime&quot; (39.5) and &quot;Financial Crime&quot; (43.1) are both very low scores, underscoring the high degree of concern among Bangladeshi women. According to a study &quot;Types, causes and measures of violent crimes in Bangladesh&quot; published in 2011, violent crime in Bangladesh is present in many forms including murder, rape, assault, domestic violence, and many others. A recent survey of crime trends conducted by the United Nations, states that the murder rate in the country is the most violent crime which was 2.3 per 100,000 people and continues to be on an upward trend. The research also highlighted the following points:</p> <ul> <li>Rape rates in Bangladesh are very high (ranked just after murder)</li> <li>Two girls out of 100,00 are raped per year</li> <li>Other crimes against women include domestic violence, acid-attacks and eve-teasing (a form of public sexual harassment)</li> <li>Violence against women is one of the highest in the world<br> </li> </ul> <p>The indices released by Numbeo indicate alarmingly high crime rates in Dhaka, Bangladesh (even higher than for Malaysia). With a Crime Index of 66.57 (100 being very high and 50 being reasonable), and a Safety Index of 33.43 (low score meaning safety level is poor), it is reflective of the concerns expressed by the female respondents in the MasterCard survey.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table8-MR.jpg" target="_blank"><img width="500" height="282" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table8-MR.jpg"></a></p> <p><b>Cyber Crime in South Korea</b><br> </p> <p>The results reveal that &quot;Cyber Crimes&quot; are of grave concern among South Korean women, as is reflected in the score of 39.1 for the country (lowest in survey). Data from the Ministry of Science, ICT and Future Planning highlight that South Korea has seen over 100,000 cyber crime cases annually since 2010, including hacking and distributed denial-of-service attacks. Between 2008 and 2011, cyber attacks rose by 37% (Korea Internet Security Agency). On average, 296 cyber-attacks by unidentified hackers were reported daily in 2012, and the situation has not improved in 2013.<sup><a href="#ft9">9</a></sup> The following is a list of some of the most severe and wide-scale attacks reported in the country:<br> </p> <ul> <li>2009: A number of government websites including the presidential Blue House and National Assembly crashed for days after being targeted with malicious code. The estimated loss of cyber attacks in 2009 alone was between US$33.7 million and US$50.5 million (Hyundai Research Institute).</li> <li>2011: A bank's entire computer system was hacked and shut down, leaving tens of thousands of computers infected and some permanently damaged (The Korea Information Technology Research Institute)</li> <li>June 2013: High-profile attacks that led to the shutdown of websites of the presidential office, government offices, news outlets and banks.</li> </ul> <p><b>Personal Well-Being</b></p> <p>The results indicate that the majority of women in Japan, South Korea, and Taiwan experience stress at home and in the workplace, and do not feel that their health is at the optimal condition. Across the 16 markets, the score for &quot;Family Stress&quot; is the lowest in Japan (42.5), followed closely by South Korea (43.5) and Taiwan (43.8); with Bangladesh scoring slightly higher at 52.5. Emotional and mental stress in the workplace are also a serious concern and are most pronounced among South Korean women (55.4, lowest in the survey) and Taiwanese women (56.5, third lowest). The high level of stress experienced in these markets is reflected in the poor scores for &quot;Health&quot; as well, with women in South Korea scoring the lowest in the survey at 42.0, followed by Japan (44.8), Taiwan (48.5) and Bangladesh (53.4).<b></b></p> <p><b>Stress in Japan</b></p> <p>The survey revealed that dealing with family stress is one of the most acute problems facing Japanese women today. Numerous studies that have been conducted to evaluate this issue indicate that some of the sources of family stress include demographical changes, marital instability, family care, educational issues and child rearing stress. In his research paper &quot;Families and their children in Japan&quot; (2008),<sup><a href="#ft10">10</a></sup> Masahito Sasaki highlighted that family burdens in Japan are related to not only socio-economic pressures, but internal changes such as physiological and psychological stress and external changes such as industrialization and urbanization as well. A more current journal article &quot;Japanese Society under Stress: Diagnosis and Prescription&quot; (Asian Survey, 2012<sup><a href="#ft11">11</a></sup>) authored by psychotherapist Suzanne Hall Vogel, noted that Japan has transformed from a homogeneous society emphasizing a commonly shared ethic, family structure and social cohesion into a more diversified and international society with more variation in family patterns and work conditions -- a shift that has increased stress within families. In the study titled &quot;Multigenerational family structure in Japanese society: impacts on stress and health behaviors among women and men&quot; (Takeda, et.al., 2004) noted that the multigenerational family structure in the Japanese society (due in part to rapid population aging in the country), coupled with rising labor force participation by Japanese women, declining marriage and fertility rates and women's changing expectations have combined to produce higher strains within the households. The study revealed women in multigenerational households reported more worries around care-giving.<sup><a href="#ft12">12</a></sup><br> </p> <p><b>Stress in South Korea</b></p> <p>Being overworked, overstressed and highly anxious is widespread among South Koreans, including students, professionals, entertainers, politicians, athletes and business leaders, and this is evident in the rising divorce rate, low fertility rate (fourth lowest in the world), a suicide rate that is among the highest in the world (doubling in the decade between 1999 and 2009 with more than 30 South Koreans killing themselves daily) and a 'macho corporate culture that still encourages blackout drinking sessions after work' (The New York Times, 2011).<sup><a href="#ft13">13</a></sup></p> <p>According to a study conducted by the McKinsey Global Institute in 2010,<sup><a href="#ft14">14</a> </sup>other factors that directly impact women and their families and that are contributing to the intensely stressful environment in South Korea include: (i) high cost of living and of educating children which adversely leads to declining fertility, (ii) hugely expensive mortgages -- home prices in the country are 7.7 times the median income, with banks commonly requiring a 50% down payment on home loans with payment terms of 10 years or less; (iii) low household savings rate of around 4% (2011) which makes it highly stressful to keep up with loan payments; and (iv) although 71% of secondary school graduates are sent to college, the employment rate is low for new college graduates (around 60%).</p> <p><b>Satisfaction in Life</b></p> <p>We observe a strong, positive correlation between &quot;Personal Well-Being&quot; and &quot;Satisfaction&quot; in life. The results indicate that the strain of having to deal with stress is reflected in low satisfaction levels among the women in these markets, with Japan scoring the lowest overall (50.5), followed by Taiwan (55.3) and South Korea (57.6). It is interesting to note that women in Bangladesh are quite satisfied with their lives (score of 63.6 is higher than other Developed Markets such as Australia (62.1), New Zealand (61.8), and Singapore (59.7).<br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart29-MR.jpg" target="_blank"><img width="599" height="167" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart29-MR.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart30-MR.jpg" target="_blank"><img width="599" height="168" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart30-MR.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart31-MR.jpg" target="_blank"><img width="602" height="168" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart31-MR.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart32-MR.jpg" target="_blank"><img width="601" height="168" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Chart32-MR.jpg"></a></p> <p><i><a name="ft8"></a>8. OECD's forecast of Household Savings Rate<br> <a name="ft9"></a>9. &quot;South Korea's 'Best of the Best' tackle cyber crime.&quot; CNN News, 14 Jan 2013, quoting data from the Korea Information Technology Research Institute<br> <a name="ft10"></a>10, Sasaki, Masahito (2008) 'Families and their children in Japan'<br> <a name="ft11"></a>11. Hall Vogel, Suzanne (2012) &quot;Japanese Society under Stress: Diagnosis and Prescription,&quot; Asian Survey, University of California Press, 2012<br> <a name="ft12"></a>12. Takeda, Yasuhisa et.al. (2004) &quot;Multigenerational family structure in Japanese society: impacts on stress and health behaviors among women and men,&quot; Social Science &amp; Medicine, Vol.59, Issue 1, July 2004, pp. 69-81<br> <a name="ft13"></a>13. &quot;Stressed and depressed, Koreans avoid therapyâ&quot; The New York Times, 6 July 2011<br> <a name="ft14"></a>14. &quot;Why South Korea is under stress and college graduates there earn less than if they didn't have a degree,&quot; quoting McKinsey study (2010)</i></p> Conclusion<p>The spread of the overall Women's Well-Being Index values across the 16 Asia/Pacific markets shows all of them above the neutral (50 point) mark with Myanmar (70.9) and Indonesia (70.0) taking the leading positions and Japan (53.6) and South Korea (54.9) being the two lowest, against the regional average of 62.7. There is marked inter-market divergence between the seven Developed Markets (average of 58.8) and the nine Emerging Markets (average of 65.7), as well as intra-market divergences within the Emerging/Developed Markets brackets.</p> <p>In the Developed Markets -- with the exception of Japan, South Korea and Taiwan -- Hong Kong, Singapore, New Zealand and Australia are above the Developed Market average of 58.8. With an overall Well-Being Index score of 66.5, Hong Kong has a clear lead compared to the other six countries in the Developed Market region, while Japan (53.6) has the lowest score. Among the Emerging Markets, Malaysia (58.0) and Bangladesh (55.3) are the only two markets with scores below the Emerging Market average of 65.7. Myanmar (70.9) and Indonesia (70.0) have the highest and healthiest overall Well-Being Index scores; followed by the Philippines and India at 69.2 and 69.1, respectively.</p> <p>The survey showed that a higher standard of living among countries in the Developed Markets such as Japan does not necessarily translate to a higher sense of well-being than in the Emerging Markets such as Myanmar and Indonesia. For instance, the score for Personal Well-Being among women is generally poor, except for Myanmar (79.4), India (73.9) and Indonesia (70.7). High stress levels in the home and workplace and less-than-optimal health conditions are serious concerns among women in Japan, South Korea and Taiwan where a strong positive correlation between &quot;Personal Well-Being&quot; and &quot;Satisfaction&quot; in life is observed.</p> <p>At the component level, Developed Asia/Pacific has a higher score in only one component (Safety from threats 57.0 versus 55.1 for Emerging Markets). For all the other components of &quot;Work and Finances,&quot; &quot;Satisfaction,&quot; &quot;Personal Well-Being,&quot; and &quot;Voice,&quot; the scores for Emerging Markets are markedly ahead of that in the developed countries. With the exception of &quot;Cyber Crime&quot; and &quot;Natural Disaster/Pollution,&quot; it is also observed that the Developed Markets do not have a markedly higher overall score (57.0) relative to Emerging Markets (55.1). In fact, the survey revealed that the score for Developed Markets in &quot;Disease Outbreak&quot; was only marginally higher than that for Emerging Markets (61.6 versus 60.1).<br> </p> Source and Notes<p>The MasterCard Index of Well-Being is based on a survey conducted between October 2013 and November 2013 on 7,532 respondents aged 18-64 in 16 markets.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table9-MR.jpg" target="_blank"><img width="429" height="182" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table9-MR.jpg"></a></p> <p>Respondents were asked 21 questions pertaining to five categories. The results of their responses were converted in five category sub-indexes, which were subsequently averaged to form the MasterCard Index of Well-Being (MCIWB) score. The MCIWB score and the five component index scores range from 0-100 where 0 represents the maximum negative response, 100 represents maximum positive response and 50 represents neutrality.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table10-MR.jpg" target="_blank"><img width="470" height="640" src="/content/dam/intelligence/content-assets/reports/2014/WomensWellBeing/Table10-MR.jpg"></a></p> The MasterCard Index of Well-Being for Women is a new index based on a survey comprising 16 Asia/Pacific markets that will be conducted bi-annually. Launched in January 2014, the Index aims to provide an in-depth measure of the level of well-being among nations in Asia/Pacific by examining the impact of wide-ranging factors such as work-life balance, cybercrime and disease outbreak on female respondents. Overall, the research reflects their attitudes toward five categories: "Work and Finances," "Safety from Threats," "Personal and Work Satisfaction," "Personal Well-Being" and "Sense of Empowerment."http://www1.mastercard.com/content/intelligence/en/research/reports/2014/mastercard-index-of-well-being-for-women-20142014-03-05T16:00:00.000Z2014-03-05T16:00:00.000ZThe Future of Outbound Travel in Asia/Pacific Desmond Choong, Dr Yuwa Hedrick-WongIntroduction<p>Outbound travel has been growing strongly in recentyears.<sup><a href="#ft1">1</a></sup> Asia/Pacific, which has been traditionally a region known for its attractive destinations for international visitors, is also fast becoming a leading source of outbound travel. This report presents the Asia/Pacific regional outlook of outbound travel to 2020. Fourteen markets in Asia/Pacific are covered in the report, an even split between developing markets and developed economies. The emerging markets are China, India, Malaysia, Thailand, Indonesia, Philippines, and Vietnam. The developed economies are Japan, South Korea, Taiwan, Hong Kong, Singapore, Australia and New Zealand.</p> <p>Combining real GDP growth projections, household distribution by income brackets, and survey data on “propensity for outbound travel” by household incomes; a proprietary model has been constructed to project outbound travel trips per household by income brackets in each of the fourteen markets to 2020<sup><a href="#ft2">2</a></sup>.</p> <p>These projections in turn made possible estimations of household income threshold above which outbound travel begins to take off. In addition, the top aspirational destinations for outbound travelers from these markets are also identified. Together, they form a regional picture of how much outbound travel originating from Asia/Pacific will grow, distribution of outbound travelers by household incomes, and where they aspire to visit, both within the region as well as outside of the region.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table1.jpg"><img width="554" height="208" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table1.jpg"></a></p> <p><i>Note: Due to rounding, numbers presented throughout this document may not add precisely to the totals provided and percentages may not precisely reflect the absolute figures.</i></p> Regional Overview<p>Collectively, the 14 Asia/Pacific markets are expected to grow by an annual growth rate of 7.9% over the forecast period of 2014-2020. The largest outbound markets in 2020 will be China, followed by South Korea and Japan. Even if one excludes all trips to Hong Kong and Macau (which are technically domestic trips as they are both parts of China), Mainland China outbound remains the largest in Asia/Pacific in 2020, more than four times of that of South Korea which is the second largest market.</p> <p>Currently Japan outbound is the second largest in the region but South Korea is projected to overtake it sometime in 2019. Similarly, if the forecasted growth rates persist past 2020, then India will in turn overtake South Korea to be the second largest outbound market by 2022.</p> <p>Emerging Asia/Pacific currently has about one and a half times more outbound trips than developed Asia/Pacific (mostly due to China). And it will also grow by more than twice as fast as developed Asia (10.1% versus 3.9%) over the forecast period. Table 1 summarizes the actual growth rates from 2010 to 2013, and the growth projections to 2020 for the 14 Asia/Pacific markets.</p> <p>Chart 1 locates the positions of each of the 14 Asia/Pacific markets in the two-dimensional space combining real GDP growth rates (the vertical axis) and the growth rates of outbound travel (the horizontal axis). India is the fastest growing outbound market at 13% over the forecast period, followed by China at 11.1% excluding trips to Hong Kong and Macau, (but China would have a faster growth rate than India at 13.3% if trips to Hong Kong and Macau are excluded). In the third place is Philippines at 8.7% and in fourth place Indonesia at 7.6%. The fastest growing developed markets are Singapore (5.3%), Taiwan (5.1%) and Hong Kong (4.9%). It is interesting to note that these three markets are also the smallest in geographic size among the 14 markets covered, suggesting that limited competition from domestic tourism destinations adds to the overall size of international outbound demand.</p> <p>Chart 1 also shows that outbound travel is generally growing faster than real GDP except in the case of Japan and South Korea where outbound travel is growing at almost the same pace as real GDP. A quick glance at Chart 1 also reveals that in general the difference between outbound travel growth and real GDP growth tends to be higher (below the diagonal line) for developing markets (except for Malaysia) and tends to be lower (hugging or close to the diagonal line) for developed markets.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart1.jpg"><img width="482" height="397" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart1.jpg"></a></p> <p>In addition to estimating the overall growth rates of outbound travel trips, it is also important to understand the growth of outbound travel in relation to the dynamics of changing numbers of households as well as household incomes in these markets. Table 2 summarizes the changing ratios of outbound trips to numbers of households in recent years. Apart from Japan, all the developed markets have a ratio of 100% or above in 2020. While a ratio of 100% means on average that each household has one person who makes a trip abroad each year, in practice it is more likely that a certain percentage of households make multiple trips overseas each year, and the remaining households do not go abroad at all. The ratios for Singapore, Hong Kong and Taiwan are much larger than 100% and not coincidentally are also the fastest growing developed markets for outbound trips.</p> <p>Among the emerging markets, India’s ratio of 3% of outbound leisure trips to total households in 2014 is startlingly low, even with a forecasted improvement of almost double to 5.8% in 2020. The ratio is the lowest in Asia/Pacific and about three times smaller than the next lowest (Indonesia at 10.7% in 2014 improving to 15.6% in 2020). If India had exactly the same ratio as Indonesia, then Indian outbound leisure travel would be 28.2 million trips in 2014 (instead of 7.9 million trips) and 44.4 million trips in 2020 (instead of 16.5 million trips). It suggests the enormous potential for Indian outbound leisure travel over the next 10-20 years as the ratio starts to approach those of the other developing markets.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table2.jpg"><img width="489" height="410" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table2.jpg"></a></p> <p>Japan is an anomaly among the developed markets with an outbound trip to household ratio of only 37.7% in 2020. Japan’s ratio has never breached 40% from the statistics we have seen since 1970 which is only six years after outbound travel in Japan was deregulated in 1964. In comparison, the ratio for South Korea is estimated at almost 100% in 2020. Some reasons given by the Japan Tourism Marketing Co. for lacklustre Japanese outbound travel is that the structural change in Japanese society owing to a declining population, a stagnant economy, natural disasters within Japan, and a series of negative external events since 2001 (SARs, Indian Ocean Tsunami, Twin towers bombing, Global Financial Crisis) has sapped the motivation for outbound travel. Japanese consumer confidence levels since the 1990s seems to concur with this view as shown in Chart 2: Japanese consumer confidence has been consistently pessimistic and below the other Asia/Pacific developed market average except for the period between 2005 and 2007, and more recently in the first half of 2013.</p> <p>Another supporting statistic of this trend is that the number of valid Japanese passports issued has been declining since 2005 from about 35 million to about 31 million in 2010. Finally, it is worthwhile noting that Japan has an excellent domestic tourism product (ranked 14th in the world by the World Economic Forum) which competes with outbound international travel (domestic tourism in Japan accounting for 90 to 95% of total travel).</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart2.jpg"><img width="499" height="435" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart2.jpg"></a></p> <p>Table 3 shows how outbound trips are dispersed across households by using a concentration ratio which is simply the percentage of outbound trips taken by a specific household income range divided by the percentage of total households in that income range. For example, if 10% of all outbound trips are accounted for by 10% of households in a particular income range, then the concentration ratio is “1”, suggesting an even distribution of outbound trips among households within the income range. Thus, as seen in Table 3, households with incomes over US$15,000 in Taiwan have a propensity for travel similar to the population at large; whereas Indian households with incomes over US$10,000 have a propensity for outbound travel ten times higher than the population at large.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table3.jpg" target="_blank"><img width="492" height="428" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table3.jpg"></a></p> <p>A concentration ratio of &quot;1&quot; therefore denotes that outbound trips are perfectly distributed across the household income brackets. As the ratio increases, the more concentrated outbound trips are among the higher income households. As illustrated in Chart 3, the developed markets have a ratio between 1.0 (Taiwan) and 1.4 (South Korea) implying that outbound travel is quite evenly spread across the household income brackets. Among emerging markets, however, it ranges from outbound travel being quite evenly spread (Malaysia at 1.4) to being extremely concentrated among the higher income households as in the case of India at 10.8.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart3.jpg" target="_blank"><img width="492" height="445" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart3.jpg"></a></p> <p>The household propensity for outbound international leisure travel can also be analyzed in terms of changing household incomes. As shown in Chart 4, at household income of US$30,000 and above, the average propensity curves for developing and developed markets follow a similar trajectory although the peaks of the curves are different (i.e. higher for developed markets). What is interesting is the shape of the curves below US$30,000. In the range of household income between US$10,000 and US$30,000, the gap in the propensity for outbound travel steadily narrows, suggesting that in this income bracket, households in developing markets are rapidly catching up in their propensity for outbound travel with their counterparts in developed markets. But the gap opens up again beyond the US$30,000 income level. For the developing market households the inflection point is around the US$10,000 mark after which the propensity for international leisure travel rises rapidly till the US$30,000 level. This inflection point suggests that US$10,000 household income is the threshold level of international outbound leisure travel for the developing Asia/Pacific markets.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart4.jpg" target="_blank"><img width="499" height="452" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart4.jpg"></a></p> <p>Over 2012 and 2013, MasterCard surveyed over 22,000 people across 14 markets in Asia/Pacific to gauge their aspirational destinations for their outbound travel around the world. Without being prompted, they were asked which destinations they would visit if cost were not an issue. Table 4 summarizes the results of the top 20 aspirational destinations of the 14 Asia/Pacific markets.</p> <p>The destinations were identified in terms of both cities and countries. For example, some respondents chose London as their top aspirational travel destination, whereas others chose UK. And others even chose Europe as their aspirational destination. So the list is a mix of cities, countries and regions. But these destinations can also be grouped into city-country combinations (e.g. London-UK and Paris-France) to re-calculate their attractiveness to travelers from Asia/Pacific. For developed Asia/Pacific travelers, the Paris (#1) – France (#14) combination, ties with the New York (#2) – USA (#5) combination at 10.1% each of the aspirational mindshare. Together with London (#3) - UK (#9) combination at 8.5%, Tokyo (#7) - Japan (#4) combination at 7.0%, and Rome (#6) - Italy (#16) combination at 4.5%, these top five city-country combinations account for 56.3%of the total mindshare. Asia/Pacific destinations represented in the top 20 make up 14.1% of mindshare which the fourth ranked Tokyo-Japan combination accounts for half at 7.0%. The next highest Asia/Pacific destination is Australia (#8) with less than half (2.4%) of the Tokyo-Japan combination aspirational mindshare. This bodes well for Japan which just hit 10 million foreign arrivals for 2013 (a record) on the back of a weakened yen and relaxing of travel visa restrictions for inbound visitors. The government plans to double the number of visitors to 20 million by 2020 (which coincidentally is also the year that Tokyo hosts the Olympic Games).</p> <p>The developing Asia/Pacific traveler list of top 20 aspirational destinations also features Paris, London and New York in the top ranks but what is interesting is that Asia/Pacific destinations have a much stronger representation with 28.5% of aspirational destinations within the top 20 list. Singapore which did not even appear in the top 20 developed Asia/Pacific list ranks number two in the developing market list. The Tokyo (#5) - Japan (#7) combination is unique in that it ranks very highly in both lists (7.2% in the developing markets top 20 and 7.0% developed markets top 20) with almost the same percentage. One reason for the stronger showing of Asia/Pacific destinations within the developing markets top 20 aspirational list is the relative immaturity of outbound travel in these developing markets. Two cases in point are the top 20 list of Indonesian residents which features Singapore and Kuala Lumpur (both short haul destinations) in the top five, and the top 20 list of Vietnam residents which have Singapore and Bangkok (both also short haul destinations) in the top six. The appearance of highly ranked aspirational yet short haul destinations illustrates the relative immaturity of the Indonesian and Vietnamese outbound travel market, as a mature market would have realized the short haul aspirational destinations earlier in the development cycle (i.e. short haul destinations would not be aspirational in a mature market as they are the first to be realized after which they stop being aspirational).</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table4.jpg" target="_blank"><img width="604" height="186" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table4.jpg"></a></p> <p>The appearance of domestic destinations in the individual top 20 lists of India (Mumbai, Delhi, Goa and Srinagar) and Japan (Okinawa, Kyoto and Hokkaido) may go some length to explain why Japan and India have the lowest propensity to travel internationally among the developed and developing Asia/Pacific markets respectively (none of the other 12 markets feature any domestic locations within their top 20 aspirational list). In fact of the top 50 aspirational destinations for India, 21 of them are domestic and account for 17% of aspirational destination mindshare. It suggests that there is still a pent up demand for domestic travel which competes with international travel for the overall household travel budget. In the case of Japan, it may explain in part why the propensity for international travel has a lower trajectory rate as one moves higher along the income brackets compared to South Korea which has no domestic locations within its list of aspirational destinations. Similarly it may explain why India's propensity for international outbound leisure travel rises much more slowly after the US$10,000 inflection point compared to China (which shares the same inflection point).</p> Market Details<p><b>Philippines</b></p> <p>International outbound leisure travel trips by residents of the Philippines are estimated at 3.8 million in 2014 and are forecasted to grow by an average of 8.7% per year to reach 6.2 million trips by 2020. Total outbound trips will grow about five times faster than total household growth (8.7% versus 1.7%) over the forecast period resulting in a ratio of outbound trips to households that is projected to reach 28.3% in 2020 from 19% in 2014.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table5.jpg"><img width="502" height="190" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Table5.jpg"></a></p> <p>Breaking down outbound trips by household income, households earning above US$10,000 per annum (which make up 34% of all households) will generate about 73% of all outbound international leisure trips in 2014. Projecting forward to 2020, the higher levels of outbound travel growth will come from the households earning above US$10,000 (34% of households are in this category and they account for 73% of all outbound travel). The primary driver for this is that the number of households earning above US$10,000 are also growing much faster than the number of households earning below US$10,000.</p> <p>The propensity to travel by household income exhibits a point of inflection at the US$15,000 household income threshold, where households earning above US$15,000 per year exhibit a propensity for outbound leisure travel that is more than twice that of households earning below US$15,000.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart5.jpg"><img width="498" height="416" src="/content/dam/intelligence/content-assets/reports/2014/OutboundTravel/AP_outboundTravel-Chart5.jpg"></a></p> <p>In terms of aspirational destinations, Paris takes top position, followed by the medium and short haul destinations of Singapore and Hong Kong. The percentage of Philippine residents who have selected Hong Kong as an aspirational destination (5.8%) is the highest among the 14 Asia/Pacific economies; similarly the selection of Singapore (6.3%) is the second highest (after Vietnam at 9.9%) among the 14 Asia/Pacific markets.</p> Appendix: Research Methodology and Data Sources<p><b>Forecasting Methodology</b></p> <p>The forecast of outbound travel in Asia/Pacific begins<b> </b>with real GDP growth from 2014 to 2020. The IMF<b> </b>WEO series of GDP forecasts released in October 2013<b> </b>(for the 2014 to 2018 period) is adopted. It is then extended<b> </b>to 2020 extrapolating the growth trends of<b> </b>2014 to 2018.</p> <p>The next step is to apply the &quot;propensity to travel&quot; for each household income brackets obtained from MasterCard surveys from 2012 to 2013 (see data source below). This is then in turn applied to the estimated numbers of households in each income bracket using estimates from Canback-Danglar, thereby generating estimates of average trips per household by their annual incomes.</p> <p>For each household income bracket the total number of outbound trips = average number of trips of the bracket X propensity to travel of the bracket X number of households in the bracket. Initially the distribution of average number of trips per household across the annual household income brackets follows the propensity to travel distribution curve and then was iteratively adjusted until the sum of total outbound trips across all brackets equalizes with the total number of outbound trips at the national level for each year. This process was done for 2011, 2012 and 2013 to obtain the average number of trips per household bracket for the three years. The result is a model that can be applied to estimate the average number of trips per household bracket for the 2014 to 2020 period.<b></b></p> <p><b>Data Source</b></p> <p>The main source of data for this project is the 2012 and 2013 editions of MasterCard Worldwide Survey of Purchasing Priorities. These surveys have been conducted bi-annually since 1993 on 400 to 800 respondents per market aged 18 - 64. Coverage extends to 27 countries across Asia/Pacific, Middle East and Africa. The survey is extensive and feature sections on consumer confidence, travel, dining, luxury shopping, financial behavior and well-being.</p> <p>To calculate the number of households within the stated income brackets, data from Canback-Danglar was used.</p> <p>Data for outbound travel itself was taken from the national statistics boards of the relevant markets. In general we have tried to eliminate same-day excursionist travel for all markets (e.g. China to Hong Kong) as these numbers can be so large that they are several times the tourist (i.e. overnight) travel size. Furthermore, a sizable portion of these same-day trips are overland for reasons of day to day shopping or for day employment (i.e. cross over for work during the day and cross back home at night). In cases where same day excursionist travel are not available to net out from overall outbound travel we have used proxies like overland or non-air travel (e.g. Singapore-Malaysia both ways and Hong Kong to China) This report is focused on leisure travel and where possible we have tried to use only leisure purpose outbound travel numbers (i.e. extracting business and employment travel where possible). Note that there are some reports that forecast India outbound at 50 million by 2020, but these invariably use all-purpose trips as their forecast base (including trips for employment purposes). This report focuses on leisure travel only where possible. Official surveys on outbound travel for India indicate that close to 60% of all outbound travel is for business or employment purposes and we have adjusted our outbound numbers accordingly.</p> About the Authors<p><b>Desmond Choong</b></p> <p>Desmond Choong is a Research Economist with the MasterCard Center for Inclusive Growth. In this capacity, he sources, reviews and develops research aimed at advancing the Center's goals. Based in Singapore, he is an economist and business analyst with extensive experience in the Asia/Pacific region and a focus on index modeling, market sizing and macroeconomic analysis. He has spent thirteen years consulting for multinational companies across a wide range of industries, including finance, resources, and travel and hospitality. Desmond has taught International Trade at Boston University and holds a B.A. in English/Economics from Boston College and a M.A. in Political Economics from Boston University.<b> <br> </b></p> <p><b>Yuwa Hedrick-Wong</b></p> <p>Yuwa is currently Chief Economist, MasterCard Center for Inclusive Growth, and Global Economic Advisor, MasterCard. He is also HSBC Professor of International Business at the University of British Columbia, Canada.</p> <p>He is an economist with 25 years of experience gained in over thirty countries. He is a Canadian who grew up in Vancouver and has spent the last 20 years working in Europe, Sub-Sahara Africa, and Asia/Pacific. He has served as advisor to over fifty leading multinational companies.</p> <p>He is a published author on consumer markets, economic development, trade and international relations. Yuwa studied philosophy, political science, and economics at Trent University, and pursued post-graduate training at the University of British Columbia and Simon Fraser University in Canada, where he received his Ph.D.</p> <p>He lives on Salt Spring Island, off the west coast of Canada, with his wife and their cat; and is an enthusiastic apprentice in the fine art of gardening.</p> Outbound travel has been growing strongly in recent years. Asia/Pacific, which has been traditionally a region known for its attractive destinations for international visitors, is also fast becoming a leading source of outbound travel. This report presents the Asia/Pacific regional outlook of outbound travel to 2020. Fourteen markets in Asia/Pacific are covered in the report, an even split between developing markets and developed economies. The emerging markets are China, India, Malaysia, Thailand, Indonesia, Philippines, and Vietnam. The developed economies are Japan, South Korea, Taiwan, Hong Kong, Singapore, Australia and New Zealand.http://www1.mastercard.com/content/intelligence/en/research/reports/2014/the-future-of-outbound-travel-in-asia-pacific2014-02-16T16:00:00.000Z2014-02-16T16:00:00.000ZThe Road to Inclusion: A Look at the Financially Excluded and Underserved About This Paper<p>There has been a growing need to understand what financial inclusion means and gain insight into the way in which people are included financially across emerging markets. Specifically, insights are needed on what the impact of being financially ‘excluded’ or ‘underserved’ is on people’s everyday lives. Those who are financially excluded have little access to many of the services that others may take for granted. While these target groups may have access to a basic bank account, this still does not automatically provide access to electronic payments.</p> <p>There is a growing need to look at how organizations can mobilize around these groups towards financial inclusion.</p> <p>A key part of this seeking of knowledge relates to profiling and gaining insights on those target groups across various markets that are not currently part of financial inclusion; instead deemed as financially excluded or financially underserved.</p> <p>Definitions of these two key groups are:</p> <ul> <li>Financially excluded – target groups without any access to formal banking services or any traditional relationship with a financial institution</li> <li>Financially underserved – target groups who are likely to have some sort of traditional account, but no access to any form of electronic transactions such as debit, credit or prepaid cards</li> </ul> <p>In general, those who are financially excluded have little access to many of the financial services that others take for granted, including the everyday bank account. Those who are financially underserved may have access to more basic financial services, but remain excluded from the technologically advanced, mostly electronic offerings.</p> <p>Focusing our research on these two key groups provides untapped insights into the everyday lives and perceptions of those who are currently ‘hidden’ from most financial institutions. It uncovers their reasons for not generally being part of their market’s financial inclusion, and provides a better understanding of how they could become involved in the future.</p> <p>Wanting to better understand and address the needs of these two key target groups from a cross country perspective, MasterCard commissioned Ipsos to conduct a research study which consists of ethnographic and quantitative approaches across six culturally diverse markets–– namely, India (Mumbai), Indonesia (Jakarta), Vietnam (Ho Chi Minh City), Philippines (Metro Manila), Egypt (Cairo), and Nigeria (Lagos).</p> <p>An in-depth understanding of thirty six (36) households was conducted across markets (n=6 per market), looking qualitatively at how these target groups live day-to-day. In each market, we targeted five segments: young persons, migrants, small business owners, retirees and Opt Outs (used to be financially included – six months ago or less, but no longer either by choice or due to circumstances).</p> <p>The quantitative phase of this study consists of a total of n=604 people of the two target groups across six markets. These were face-to-face interviews, conducted on a door-to-door and/or street intercept basis. Each survey took, on average, 20 minutes to complete.</p> <p>For the quantitative element, no quotas set to be nationally representative among these target respondents. This is because there are no reliable official estimates of people belonging to the two target groups. This survey may, therefore, not be truly representative of the actual profile of financially excluded or underserved in the market surveyed.</p> <p>In summary, the two broad research objectives of this study were to:</p> <ul> <li>Generate a detailed understanding of the financially excluded and underserved target groups across different markets</li> <li>Understand the entry points to financial inclusion, including the target group’s potential/propensity to adopt electronic payments/prepaid accounts</li> </ul> <p><b>More similarities than expected</b></p> <p>Even though the markets that were researched are culturally diverse and geographically dispersed, some similar outcomes and trends have evolved across the study. This has enabled the emergence of some common themes which we have focused on in this paper, to deliver combined insights that can be applied to a wide variety of markets.</p> <p>In addition to providing a combined profile of the average financially excluded and underserved target groups, the common themes are that money management mostly remains via traditional means, financial institutions like banks are currently not playing a larger role in their lives, prepaid cards could be an entry point into financial inclusion, and access to technology is limited.</p> <p><b>In conclusion</b></p> <p>These themes, which are generated from the research data, form the narrative of this paper.</p> <p>This research was conducted by Ipsos on behalf of MasterCard from Quarter 4 2013 to Quarter 1 2014.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebTable-1.jpg" target="_blank"><img width="526" height="259" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebTable-1.jpg"></a></p> Who are the Financially Excluded/Underserved groups?<p><b>A comprehensive study of the financially excluded and underserved</b></p> <p>These research results provide some thought-provoking, perhaps even stereotype-challenging insights into who are the financially excluded and underserved target groups.</p> <p>The average age ranges from 28 years in Nigeria to 41 years in Philippines. Thus, a typical member of the target groups could be said to fall in the economically active age group. Most do, in fact, claim to be currently working. More than 50% in Indonesia, Vietnam, Egypt and Nigeria say that they are currently working. The proportion of working people was relatively lower in India (just 26%) and Philippines (at 42%).</p> <p>Given the current levels of employment, the lack of financial inclusion among these target groups seems significant.</p> <p>What is even more revealing is that most of them have achieved secondary education or above. The education levels are very high in Philippines, Vietnam, Egypt and Nigeria (ranging from 79% to 91% for secondary level and above education).</p> <p>These education levels indicate a stronger potential than may have been expected to reach out and educate these target groups about the benefits of financial inclusion.</p> <p>However, with the average monthly household income ranging from US$ 200 to US$500, there could be a common issue of low disposable income, translating into a lower likelihood of wanting to take on what they could perceive as extra financial expenses and commitments.</p> <p>As will be seen in a later section on savings and expense habits, this lack of disposable income may be one of the primary reasons for being financially excluded/ underserved.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-1.jpg" target="_blank"><img width="499" height="289" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-1.jpg"></a></p> <p>Vietnam has relatively higher household income compared with the rest–– potentially providing greater opportunities to target for financial inclusion.</p> <p>Over half of the target groups interviewed have lived in their current city all their life. This could indicate a level of familiarity and comfort with the economic and financial workings of their country.</p> <p><b>Stronger role of neighborhood/friends/family</b></p> <p>Based on the ethnographic research it is evident that political unrest in some countries leads to a sense of insecurity which in turn may exacerbate the need to control finances in a way that is familiar and trusted. This unrest causes anxiety over job security and general future prospects–– a bigger problem than how to transact money you potentially may not ever earn!</p> <p style="text-align: center;">“I’m worried about not being able to graduate and find my dream job due to the current political situation which is affecting living standards in Egypt.”<br> ~ (Egypt, 19 years old, Excluded)</p> <p style="text-align: center;">“Our government is not stable and it’s affecting everything. Our education quality is deteriorating and there are no employment opportunities even after graduating with a university degree.”<br> ~ (Nigeria, 24 years old, Excluded)</p> <p>The ethnographic research also revealed issues with current infrastructure especially in Nigeria. Frequent power outages which occur at irregular times is a way of life for the target group in Nigeria. As will be seen later, this has implications in their adoption levels of technology.<b></b></p> <p><b>Does financial exclusion lead to social dependency?</b></p> <p>This research has shown, for various reasons that conventional forms of banking and financial inclusion are not working for these groups. Financial exclusion and social dependency seem to be inextricably linked, and being financially excluded/underserved clearly leads to a strong reliance on their social network in times of need.</p> <p>Vinod in India, because of unforeseen circumstances like sickness, turns to his trusted community to borrow money. At the age of 51, Vinod had a heart attack. With limited income, he had no extra money to pay for unbudgeted and big-ticket expenses like hospitalization. As his community’s way to support him and his family and on their own initiative, his neighbors pooled money together and paid for all his bills. Though repayment was expected, there was no pressure to pay back within a certain period and there was no interest charged. He explained that this was not an unusual situation in his local area: at times of dire need, sympathy and good will of close friends drive community spirit. Many people come to such agreements, and it is preferred to borrowing from an institution.</p> <p>Another example is Dele, a 57 years old man in Nigeria, who owns a small packaging business. Due to the slowing down of the economy, sales have also slowed down and cash flow has been a problem. This is a big issue for businesses as there are operating expenses, such as purchase of materials that need to be procured before the customer makes full payment. To solve this, Dele comes to an agreement with some of his loyal customers for a payment scheme that requires full payment when the project is commissioned. This way, he has cash on hand to not only buy the necessary things for the project but also help fund the operating expenses of other projects. Again, an agreement like this is preferred compared to an institution, as there is no interest charged on the loan.</p> Money Management<p>In most markets, salary is the most common payment type received; ranging from a high of 59% in Vietnam to a low of 15% in Philippines.</p> <p>An encouraging feature is that there is a small section of the target group who use banks for receiving these payments. Of those receiving a salary, the proportion of those using a bank in some form (direct debit, receive cash but deposit in bank) ranges from 20% in the Philippines to a high of 75% in Nigeria.</p> <p>Both the financially excluded and financially underserved still live within a cash economy. This is unsurprising given their current perceptions about banks (mentioned in detail later in this document).</p> <p>Besides salary, relying on friends and family for money is also prevalent across markets, especially in Vietnam (63%), Philippines (51%) and Indonesia (40%).</p> <p>When it comes to expenses, the majority of their expenses are for items such as clothes, transportation, food and telecom.</p> <p>Given their current lack of access/familiarity with payment cards or electronic payment methods such as direct debit, these expenses are paid predominantly in cash.</p> <p>Most also claim that they do not pay rent for their current accommodation either because they are living with others (friends/family/funded home) or someone else pays their rent. The proportion of those claiming to not pay rent ranges from a high of 71% in Philippines to 21% in Egypt. Of those who pay their own rent, they still use cash to do so.<b></b></p> <p><b>Savings regimen/controlling expenses</b></p> <p>The ethnographic research shows interesting savings habits across markets. Most tend to not save with financial institutions.</p> <p>Money is saved either in the form of cash at home or through some social saving schemes.</p> <p>For those with families, the savings were primarily for their children. Putting aside money for education is a priority we see across markets. A significant portion of Vinod from India’s income goes to support his son who is pursuing his MBA. In a highly competitive workforce market, having a post graduate degree is an advantage. He believes that this is key in getting a good job thus securing his son’s future. This led him to being prudent about other expenses especially when it comes to himself and his wife, such as not replacing their very old box-type TV at home.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-2.jpg" target="_blank"><img width="598" height="343" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-2.jpg"></a></p> <p>In Egypt and Nigeria, instead of saving money for the future, having money to spend now was perceived as important. In these markets, having money to spend among friends or buy goods was seen as necessary to maintain one’s status among their peer group.</p> <p>Nora of Egypt, 17 years old, depends on her parents to pay for everything. She feels there isn’t a pressing need to save for the future, as she has her parents’ financial backing. She spends without thinking and splurges on branded clothes and bags. In her peer group, there is pressure to maintain a certain image through material things, so as to not stand out as someone who is not ‘cool.’</p> <p><b>Keeping cash in closets</b></p> <p>The ethnographic research allowed us to observe where excess cash is kept. A common safekeeping area is in their cupboards, where it is often not noticeable to others. There are many reasons for such behavior, other than the prevention of getting their money stolen in situations of house theft; it also reduces the temptation of spending their money if they constantly see it. Saving in coin jars is still prevalent for some markets such as Vietnam, Philippines, and Egypt. It is also common for housewives in India to accumulate a little from their daily household budget to use as an emergency fund for unexpected spending.</p> <p style="text-align: center;">“I save my money in my cupboard, where I can’t see it. So I don’t have the temptation to spend.” ~(India, Retiree, 63 years old, Underserved)</p> <p>In India, savings were also done by buying some gold items whenever they could afford it. This was also seen as preparing for their children’s wedding as buying gold jewelry is perceived as customary on such occasions.</p> <p style="text-align: center;">“Once every two years, I would buy gold with my savings. It is good because when my children get married, we have to give gold, so it’s a sort of an investment.”<br> ~(India, Migrant, 39 years old, Excluded)</p> <p><b>Saving with a group of people</b></p> <p>Specific to markets like Egypt and Indonesia, saving is often with a group of people. For example, Indonesians save through ‘Arisan’ (a form of rotating savings, through social gathering), and savings for Egypt through Gam’eya (social money pooling).</p> <p style="text-align: center;">“I save my money with a guy in the village that I know. He is a prominent figure who everyone recognizes and I feel that my money is safe with him...”<br> ~(Indonesia, Migrant, 31 years old, Excluded)</p> <p>There is perhaps an opportunity to use such respected “neighborhood opinion leaders” to educate the target groups on the benefits of financial inclusion.</p> <p><b>Borrowing is the last resort</b></p> <p>Findings from the ethnographic research indicate that across the markets, borrowing is seen as a last resort. In Egypt, it is seen as negative and demeaning. In many cultures the preference would be to borrow from relatives or close associations than financial institutions. This appears to be tied in with the need for control over one’s financial situation and is linked with lack of familiarity/perceived transparency with both bank cards and credit cards in general.</p> <p style="text-align: center;">“I can control my daily expenses because I know how much money I spend every day rather than through a bank card. A bank card balance won’t be easily visible, to feel and control my purchasing as well.” ~(Vietnam, Opt Out, 47 years old, Excluded)<b></b></p> <p><b>Keeping track of expenses</b></p> <p>Tracking expenses is a daily task for the underserved and excluded. A habit of meticulous planning has been put in place to ensure that their hard earned money is well spent. With these groups of people, they find joy knowing their expenses are kept within their budget, with a little more to spare. The most common way of tracking expenses is usually through mental accounting where people have a very clear idea of where their money goes without much formal accounting. This is critical in order to ensure that there is enough money to tide them over until the next inflow of income. There are also people like Jennylyn, 27 years old, in the Philippines that prefer to keep a record of the expenses. She regularly keeps receipts and lists of expenditure in a notebook dedicated for this purpose. Though it is cumbersome to keep a paper trail, she finds this critical to keep account of her own spending. Another way to ensure that she spends within her means is to create a list of items to buy before going to the store. This helps her stay focused on the task on hand and avoids the temptation of picking up unnecessary items. By doing this, she feels rewarded at the end of the day.</p> Banking<p><b>Easing safety concerns</b></p> <p>A point of entry into financial inclusion is by addressing safety concerns with cash. Across markets, there are concerns in carrying cash. These concerns are of three types</p> <ul> <li>Perceived safety in keeping cash at home</li> <li>Fear of losing cash/being robbed</li> <li>Fear of overspending if carrying cash</li> </ul> <p style="text-align: center;">“I like the idea of a card because I don't have to carry cash in my pocket. When I travel, I won’t be afraid of the armed robber. Since there is nothing on me, they will not expect me to have anything.”<br> ~(Nigeria, 63 years old, Underserved)</p> <p style="text-align: center;">“I feel that our house is safe so I don't feel the need to deposit my money in the bank.”<br> ~ (Vietnam, Opt out, 47 years old, Excluded)</p> <p>Security is perceived as the main benefit a bank can offer. Almost half the target group cited banks as a safer place to keep money than as cash at home.</p> <p>Another benefit of banks is the interest that they offer on the money kept in bank.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-3.jpg"><img width="602" height="320" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-3.jpg"></a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-4.jpg"><img width="599" height="314" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-4.jpg"></a></p> <p>Current household incomes are generally low (around USD 200 per month). This results in lower disposable income and thus leading to the perception that they do not have enough money for using a full bank account i.e. an account that enables them to take out loans, overdrafts, credit/debit cards or cheque accounts.</p> <p>Not having sufficient money is cited as one of the main reasons for not having a full bank account (as high as 41% in Nigeria and 34% in India).</p> <p>Many simply say that they do not need a bank account.</p> <p>For Ayinde in Nigeria, 50 years old, the inconveniences that come with owning a bank account outweigh any perceived benefit. Standing in line to be served takes up most of her day, something that she cannot afford as a small business owner. Most telling also is that many of the excluded and underserved in Nigeria are not literate. Processes such as registration and ordinary bank transactions are perceived to be complex and intimidating.</p> <p>There is also the issue of perceived transparency of banks when it comes to bank fees. Susi Indah of Indonesia, a 37 year old, used to have a bank account where she kept her savings. Three years ago, she had IDR 35 million in the bank. She withdrew most of it when she was building her home and left IDR 1-2 million in the account. Not being aware of bank fees, she claims that ‘her money started disappearing’ without explanation. This incident made her distrustful of banks in general and pushed her to end her relationship with the institution.</p> <p>Across all markets, there is reluctance to adopt the usage of ATM cards. From a financial standpoint, this is considered a risk–– there is high possibility of forgetting the pin code and in turn “money is stuck.” There is a perception especially among older people that there is a possibility of never regaining access to the money anymore. Other reasons of potential loss of money to the ATM are technology failure; offline ATMs that “eat your card.”</p> <p>The ethnography also revealed the lack of knowledge on how to use an ATM, especially when it comes to withdrawing money. In India Harishchandra, 63 years old, owns an ATM card but almost never uses it. He felt that the process of withdrawing money from the ATM machine is complicated and one mistake on his part would cause him to lose his money. Hence, as a precaution, he avoids using the ATM card at all.</p> <p style="text-align: center;">“There is so much tension especially when I am going to the ATM machine. If I can’t remember my pin number, my money will get eaten up...”<br> ~ (India, 63 years old, Underserved)</p> <p><b>Trust with Banks and Other Financial Institutions</b></p> <p>Trust levels are generally high for local banks. This ranges from as high as 80% and above in Egypt and Nigeria, above 70% in Indonesia and Philippines and above 60% in India and Vietnam.</p> <p>Trust levels for multinational banks and global payment card brands, perhaps due to low familiarity, are generally lower than that of the local banks.</p> <p>Bank officers are also seen as credible sources of information on financial products and services.</p> <p>Communicating safety and interest on money could potentially encourage the financially excluded to start using banks and would also encourage the financially underserved to use banks more often than cash. This could also, perhaps, make the banks more relevant to their current life and could result in fewer people saying ‘they do not need a bank account.’</p> <p>Global financial institutions could tie-up with trusted local banks could leverage on the perceived credibility of the bank officers towards financial inclusion of this target group.</p> Prepaid Cards <p><b>Awareness, Perceived Advantages and Disadvantages</b></p> <p>In the ethnographic research, the first association to the term ‘prepaid card’ was a prepaid card for mobile phones. The association with mobile phones and the term ‘prepaid cards’ is very strong.</p> <p style="text-align: center;">“Prepaid card? This is where the amount you put in is balance amount you can only spend. Yes I have heard about this and I know it is only used for the mobile phone.”<br> ~ (India, Opt out, 29 years old, Excluded)</p> <p>In the quantitative survey, prepaid cards were explained as bank cards where you top up the balance on your card to then buy goods and services.</p> <p>Most claimed to be aware of prepaid cards, ranging from a high of over 80% in India, Indonesia and Vietnam to 59% in Philippines.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-5.jpg"><img width="599" height="347" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-5.jpg"></a></p> <p>Encouragingly, most mentioned control over spending and not having to carry cash around as the key advantages of a prepaid card.</p> <p>Managing day to day expenses, as seen in the ethnographic research, is very important to the financially underserved/excluded groups. In the survey, as high as 40% of the target group across markets mentioned ‘control on my spending’ as a key benefit to owning a prepaid card.</p> <p>As mentioned earlier in this document, there are strong safety concerns with carrying cash among the target group. Across markets, as many as 30% and more mentioned ‘not having to carry cash around’ as an advantage of owning a prepaid card.</p> <p>These two perceived advantages</p> <ul> <li>Ability to control spending, and</li> <li>Not having to carry cash</li> </ul> <p>could be used as entry points towards financial inclusion for the financially underserved/excluded.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-6.jpg"><img width="599" height="346" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-6.jpg"></a></p> <p>The main concern across markets with prepaid cards is that they might lose the card. In the ethnographic research, it was clear that many were unsure of the process of replacing a lost card and generally assumed that it would be a difficult process. A related concern is that somebody may pick up their lost card and use it.</p> <p>Education about the ability to block a card that has either been lost or stolen, in order to protect their money, as well as the ability to receive/obtain a replacement card, should be promoted in order to increase the uptake of prepaid cards amongst this group.</p> <p>The ethnographic research revealed instances in India of the target group keeping their ATM card in the inner pocket of their wallet and, in some instances, into a pocket inside their shirt.</p> <p style="text-align: center;">“I am scared about losing my card, so I don’t use it.”<br> ~(India, Retiree, 63 years old, Underserved)</p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-7.jpg"><img width="602" height="348" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-7.jpg"></a></b></p> <p><b>Transparency of fees and limits</b></p> <p>Another concern in most markets is the perception that they would have to pay money to own a prepaid card. This is around 10% in most markets and is relatively higher in Indonesia (22%). Vietnam, especially, also has concerns that there would be regular fees charged for using a prepaid card (13%).</p> <p>These perceptions probably stem from lack of familiarity with prepaid cards and transparency of fees involved could help address these concerns.</p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-8.jpg"><img width="599" height="361" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-8.jpg"></a></b></p> <p><b>General Interest in Prepaid cards</b></p> <p>A prepaid card concept<sup>[<a href="#_ftn1">1</a>]</sup> was introduced in the quantitative research across these three measures of in-market success – ‘Relevance,’ ‘Unique and Different’ and ‘Likely to Apply.’</p> <p>The results are positive.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-9.jpg" target="_blank"><img width="596" height="370" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-9.jpg"></a></p> <p>Many found prepaid cards to be relevant; this was as high as 60% in Nigeria and India. The relevance level was generally in the 30%-40% range for other markets.</p> <p>Prepaid cards were also seen as unique and different across markets.</p> <p>When asked how likely were they to apply for a prepaid card, markets generally fall into three distinct groups.</p> <ul> <li>Highly receptive markets: Three markets were highly receptive to prepaid cards after the concept was explained. They are India, Egypt and Nigeria. More than 50% of the financially excluded/underserved in these markets state that they are likely to apply for a prepaid card.</li> <li>Moderately receptive market: Philippines is a moderately receptive market with around 30% stating that they would apply for a prepaid card.</li> <li>Less receptive markets: Vietnam (23%) and Indonesia (17%), compared to other markets, showed less enthusiasm to apply for a prepaid cards.</li> </ul> <p>It is worth mentioning again that the target group is largely educated (as mentioned earlier in the document). Communicating the prepaid card in detail is likely to encourage uptake of these cards and shift the financially excluded/underserved into the financially included group.</p> <p style="text-align: center;">“After being explained what a pre-paid card is, I like it now because I don’t have to carry any money. I don’t have to be afraid of getting robbed when I take the bus. I can relax a bit now.” ~(Nigeria, Opt out, 55 years old, Excluded)</p> <p><a name="_ftnref1"></a><i>[1] Prepaid card concept was explained in detail as below:</i></p> <p><i>A prepaid card is a card that allows you to:</i></p> <ul> <li><i>Buy goods and services electronically at the point of sale –– wherever it is accepted at home or abroad</i></li> <li><i>Purchase goods and services securely, online over the internet</i></li> <li><i>Pay money to other people, family or friends</i></li> <li><i>Withdraw cash from ATMs</i></li> </ul> <p><i>Using this card is safer, faster and more convenient than cash. You can keep track of your spending with the added peace of mind that you can only spend up to the limit of the money that’s been loaded on to the card–– there’s no risk of going overdrawn or being charged any over limit fees. The card is also easy to obtain from a wide range of locations like post offices and supermarkets even if you don’t have full identification documents and, there is no credit check involved. The card can either be topped up by you with cash or, in some cases, by your employer or local social welfare benefits office.</i></p> Access to Technology<p><b>Mobile phones are dominant</b></p> <p>While the majority of people in these groups have access to some form of technology, for the largest proportion, this is to a standard mobile phone only, and access to more advanced technology is much more limited. Mobile phones are easily accessible across the markets (70% and higher)–– and is far ahead of all other forms of technology.</p> <p>The next most accessible technical device is a smartphone, particularly in Indonesia and Vietnam. Vietnam, especially, tends to have higher access to various technological devices than other markets. As seen earlier, among all the markets in this study, monthly household income in Vietnam is the highest–– almost twice of India, Egypt and Nigeria.</p> <p>Across markets, usage of mobile phone banking is low.</p> <p>Ethnographic findings indicated younger target groups are more inclined to owning a smartphone. Thus, it is not surprising that there is high familiarity of social media (i.e. Facebook, Twitter) among the younger target groups. Especially for Trinh, in Vietnam, who is very keen on online shopping through her phone after watching how her friend does it. However, some concerns holding her back would be the security of online transactions as fraud is prevalent. Older target groups on the other hand own a cell phone mainly for its basic communication functions–– Call and Texting. For them, there is no pressing need to be on social media, as long as they are in contact with their friends and families which they are able to do through more traditional channels.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-10.jpg" target="_blank"><img width="600" height="491" src="/content/dam/intelligence/content-assets/reports/2014/FinancialInclusion/WebCharts-10.jpg"></a></p> <p>Though Abiodun in Nigeria owns a smartphone and is open to explore more advanced functions such as online shopping, the current power infrastructure does not allow him to do so. Without a constant source to electricity, there is a challenge to plan around charging electronics to fuel technology.</p> <p>It is also observed in the ethnography that these target groups are still very much inclined to using mobile top up cards where they are not prone to over usage.</p> <p>Managing day to day expenses was seen as very important across markets in the ethnographic research. Currently this is being done either by keeping paper bills or some form of mental accounting.</p> <p>A hypothesis here is that a simple ‘app’ that served to educate, as well as facilitate easy budgeting, could be one of the ways to help the target group. As smartphones increase their market share, the potential for these groups to make use of technology in relation to their finances grows. A simple budget app on a mobile phone would be helpful for everyday budgeting and work as a simple extension of the mental accounting that already takes place.</p> How are women different?<p>Among the financially excluded/underserved group, findings among women generally are similar to that of men. In some markets, on some measures mentioned below, we do see some differences by gender.<b></b></p> <p><b>Regular source of income an issue</b></p> <p>In some markets, a much lower proportion of women than men claim to have received income by salary. In India, only 8% of women received a salary payment in the past three months as compared to 38% of men. Similar differences observed in Indonesia (19% women vs. 63% for men), Philippines (7% women vs. 32% men), Nigeria (6% women vs. 32% men).</p> <p>In these markets, not having a regular source of income in the form of a salary could make it more challenging towards financial inclusion of women.<b></b></p> <p><b>Banking perceptions</b></p> <p>Perceived benefits of a full bank account did not show any major differences by gender. Similar to men, women too feel that keeping money in bank accounts is safer. Communicating safety of money in banks vs. cash is likely to resonate as strongly with women as with men.<b></b></p> <p><b>Prepaid cards</b></p> <p>Awareness of prepaid cards is as high among women as among men. Similar to men, women too feel that prepaid cards allow for better control over money and are as concerned about losing the card. After the prepaid card was explained, women are equally likely as men to show interest in applying for a prepaid card. The only exception observed was in Vietnam where only 11% women said they would apply for a prepaid card as against 43% of men.<b></b></p> <p><b>Technology</b></p> <p>Access to a standard mobile phone among women is as high as men. Smartphone access, in some markets, showed some differences by gender. In Nigeria, only 13% women said they have access to a smartphone as against 49% of men. Likewise, in Vietnam, 52% of women have smartphone access as against a high of 84% of men. In these markets, targeting women through financial services that require smartphones would be challenging.</p> Call to action<p>This paper highlighted the impact of being financially excluded/underserved, including what this means for inclusion in wider society, how electronic payments could benefit these groups of people and the way in which they could be positioned in order to have the most far-reaching impact with regard to increasing financial, and thus social, inclusion across the emerging markets. As a way forward, these are some of the implications from this research towards financial inclusion of those currently financially excluded/underserved:</p> <p>A large proportion of the people interviewed are employed and also most have completed secondary school and above. Given their current employment and education levels, the lack of financial inclusion among these target groups seems significant. These education levels indicate a stronger potential than may have been expected to reach out and educate these target groups about the benefits of financial inclusion.</p> <p>Neighborhood social network including friends and family play a dominant role in the lives of the target group. There is perhaps an opportunity to use such respected “neighborhood opinion leaders” to educate the target groups on the benefits of financial inclusion.</p> <p>Though cash as a payment method is widely prevalent, there are strong concerns related to safety in carrying cash. Banks on the other hand are seen as safe as well as providing interest on money. Communicating bank safety and interest on money could potentially encourage the financially excluded to start using banks and would also encourage the financially underserved to use banks more often than cash. This could also, perhaps, make the banks more relevant to their current life and could result in fewer people saying ‘they do not need a bank account.’</p> <p>Local banks are seen as trustworthy and bank officers are seen as credible sources of information on financial products/services. Global financial institutions along with trusted local banks could jointly promote relevant financial products/services to the target group.</p> <p>The paper highlights that prepaid cards could be used as an entry point for financial inclusion. The two main perceived advantages of prepaid cards are:</p> <ul> <li>Ability to control spending, and</li> <li>Not having to carry cash</li> </ul> <p>These advantages are likely to strike a chord with the target group as managing and tracking expenses and safety concerns in carrying cash are uppermost in their minds.</p> <p>Also, a hypothesis here is that a simple ‘app’ that served to educate, as well as facilitate easy budgeting, could be one of the ways to help the target group. As smartphone uptake increases, the potential for these groups to make use of technology in relation to their finances grows. A simple budget app that could be used on a mobile phone would be helpful for everyday budgeting and work as a simple extension of the mental accounting that already takes place.</p> <p>There are some concerns around prepaid cards which would need to be addressed. These concerns are primarily about losing the card and someone else using their lost/stolen card. Education about the ability to block a card that has either been lost or stolen, in order to protect their money, as well as the ability to receive/ obtain a replacement card, should be promoted in order to increase the uptake of prepaid cards amongst this group.</p> <p>Communicating the benefits of the prepaid card in detail is likely to encourage uptake of these cards and shift the financially excluded/underserved into the financially included group.</p> <p>When we look to the future, it is important to bring the financially excluded and underserved on this transformational payments journey and, as part of this, prepaid cards and other types of basic payment accounts have a real role to play in the drive for greater financial inclusion.</p> <p>All people, irrespective of their own personal circumstances, should have an opportunity to participate in the global economy. However, millions of people around the emerging markets lack access to the most basic financial tools, and this limits their personal options. They don't have secure places to save money, reliable ways to transfer it, or safe ways to transport it.</p> <p>Financial exclusion can perpetuate poverty. It slows the economy down. Bringing basic financial services to the financially excluded/underserved is, clearly, an obvious commercial opportunity, but more importantly, it’s a meaningful opportunity for society as well.</p> The report looks at the financially excluded and underserved in six culturally diverse markets across APMEA – India, Indonesia, Vietnam, Philippines, Egypt, and Nigeria. It was commissioned by MasterCard to better understand what financial exclusion or underservice means to the millions of people within this group, and what has triggered their choices. This is in order to better provide services that engage this marginalized audience and help them to reap the benefits of financial inclusion.http://www1.mastercard.com/content/intelligence/en/research/reports/2014/the-road-to-inclusion2014-05-18T16:00:00.000Z2014-05-18T16:00:00.000ZMasterCard Affluent Report EXECUTIVE SUMMARY<p>Based on an estimated growth rate of 7% from 2012 to 2017, more than 70%, one billion of the total affluent population will be located in APMEA by 2017<sup><a href="#_ftn1">[1]</a></sup>. In terms of wealth growth, given a projected increase of 8% per annum, APMEA is well-placed to be the wealthiest region in the world as early as 20157<sup><a href="#_ftn2">[2]</a></sup>.</p> <p>MasterCard’s proprietary research of over 1,000 affluent individuals in selected key markets in APMEA (China, Hong Kong, Japan, Singapore, South Africa, South Korea, and UAE) throughout 2013 revealed that they are young, well-traveled, curious, pragmatic and discerning with a multi-dimensional view of wealth and success. At an average age of 37, the affluent in APMEA tend to be married with one child (aged 4) and have investible assets of at least USD200, 000.</p> <p>Increasingly assuming the identity of global citizens, they have a worldwide mindset, traveling for business or leisure at least six times a year, with a preferred airline and hotel chain, pre-registered seat and room requirements.</p> <p>Our studies also revealed a shifting tendency among the affluent to seek and discover authentic experiences as opposed to purchasing and owning physical luxury items. While they aspire to be financially independent through hard work, they also place high value in spending quality time with their families and loved ones. Wealth is perceived to be a means to experience the world and to truly live life, with travel being the best medium to explore the world.</p> <p>Increasingly discerning and savvy, we find them to be highly specific in what they want and what is considered to be important. In terms of banking, fee waivers, rewards, cashback, shopping and local dining are features that are the most appealing. Among their many passions and interests, Dining, Travel and Golf are the most highly desired. They also show a distinct preference for curated Experiences relevant to their lifestyle as opposed to just discounts and promotions.</p> <p></p> <p><i><a name="_ftn1"></a>[1] 2012 World Wealth Report<br> <a name="_ftn2"></a>[2] 2012 World Wealth report, Capgemini and RBC Wealth Management</i></p> INTRODUCTION<p>From a financial perspective, these affluent–– the majority of which are in their 40s–– are at a stage in their lives where they can afford to reassess their values, objectives and outlook in life. They are rapidly evolving and increasingly passionate about things that are valued and important in life.</p> <p>With these insights, MasterCard wanted to design a portfolio of products and services that is aligned with these traits and concepts of the affluent–– solutions that connect them with the world and other like-minded individuals, supports them in living their lives the way they want to, and enables them to share experiences and travel with passion. We wanted to bring to the affluent experiences that make them feel unique, differentiated and inspired.</p> <p>It was with this inspiration that led MasterCard to commission a series of studies and surveys in 2013 that were focused on the affluent in APMEA, where the growth of the affluent has not only been remarkable, but is earmarked to be among the fastest growing markets globally in the coming years. The results and key findings from these studies will be presented in the ensuing sections of this Affluent Report.</p> PSYCHOGRAPHIC ANALYSIS: VALUES & ATTITUDES<p>Across the markets, MasterCard’s surveys revealed various traits and trends to be evident among the affluent. There is a desire to look at the core pillars of happiness such as family, health/fitness, material wealth, and spiritual wealth (self-enrichment and self-fulfillment). While they aspire to strike a harmonious balance between work and life, there is also a greater sense of satisfaction in terms of what they have - this is reflected in them being more averse to risk-taking with their financial decisions</p> <p>Our findings indicated that there is an inclination among the affluent to associate ‘globality’ and ‘world’ with travel and experiences outside of their home country. More than ever, they are placing greater emphasis on seeking experiences (e.g. travel, fine dining), creating stories, mastering a new skill, or making unique journeys- all things that drive personal growth and happiness - as opposed to the ownership of opulent material possessions (e.g. home and personal luxuries, automobiles), status symbols, or reaching a destination.</p> <p>To the majority of the affluent, new experiences (especially cross border) are important in defining a sense of self, implying an inherent desire within the affluent to be unique and differentiated individuals.</p> VIEW ON SUCCESS<p>There is an underlying belief among the affluent that their global mindsets and experiences are key to their current success. Specifically, financial success is perceived as the foundation that allows them to be the best person they can be. In addition, their strive towards financial independence (freedom) is motivated by their belief that such status will grant them the choices, resources and time they need in life.</p> <p>The findings also revealed the affluents’ view on success and wealth to be multi-dimensional. In addition to achieving financial freedom, being successful also means being able to strike a balance between creating a successful family environment and making time to enjoy worthwhile experiences. For the majority, success is internally recognized but externally expressed through rewarding oneself to enjoy higher quality brands and services.</p> <p>Across the markets, success is generally determined by how life is lived and includes both financial and spiritual wealth. However, some variations across the markets are observed:</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table1.jpg" target="_blank"><img width="601" height="311" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table1.jpg"></a></p> ‘GLOBALIZED’ MARKETS VS. ‘GLOBALIZED’ MINDS <p>The findings from MasterCard’s surveys revealed two distinct dimensions to be relevant to and evident among the affluent in the region: ‘Globalized’ Markets and ‘Globalized’ Minds.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart1.jpg" target="_blank"><img width="409" height="473" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart1.jpg"></a></p> FINDING ON EXPERIENCES<p>In order to find out which types of experiences and benefits are desired, affluent consumers were asked to rate among five different types of experiences:</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart2.jpg"><img width="462" height="534" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart2.jpg"></a><br> </p> ‘GLOBALIZED’ MARKETS VS. ‘GLOBALIZED’ MINDS<p>Of the five major experience categories, those that were travel-related were consistently rated to be the most motivating and unique, followed by dining and golf.</p> <p>Chart 3 below summarizes the share of experiences liked at both the regional and individual market levels:</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart3.jpg" target="_blank"><img width="595" height="189" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart3.jpg"></a></p> <p>In terms of Travel, UAE topped the region with one in three (33%) affluent considering travel to be their top passion, followed by Singapore and Japan (32%), China (31%) and Hong Kong (25% and the only market lower than the regional average of 30%).</p> <p>In terms of Dining, China had the highest proportion of affluent (25%) choosing dining to be one of their top passions, followed by UAE and Hong Kong (24%), and Japan and Singapore at 22% and 20%, respectively, both being lower than the regional average of 23%.</p> <p>In terms of Golfing, the survey found it to be popular among the affluent in the region, with an average of two in every five (40%) having played golf in the past 12 months.</p> TRAVEL & EXPERIENCE<p>The desire to travel, gain unique experiences and discover authentic tastes around the world are evident across all markets; however subtle nuances that differentiated each market from one another were observed. For instance, the Chinese perceived travel as a way to expand worldview and gain knowledge that can be used for networking and establishing connections, while in Hong Kong, travelling was more to relieve stress, unwind, share time with family. In UAE, world travel was about fun, enjoyment, adventure, and spending time with family but at same time being tuned in to opportunities, new experiences and establishing connections with people. These similarities and differences are summarized below.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table2.jpg" target="_blank"><img width="491" height="287" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table2.jpg"></a></p> INSIGHTS TO THE AFFLUENT GOLFER<p>The popularity of golf continues to grow. Driven by the rising number of affluent enthusiasts and a robust golf tourism industry, fans and aficionados are spending more on the sport. MasterCard’s research revealed the following insights on the popularity of golf:</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table3.jpg" target="_blank"><img width="595" height="468" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table3.jpg"></a></p> GOLF AS A LIFESTYLE<p>Golf is perceived as the intersection of social time and personal time which provides an avenue for one to recharge and to connect with others. As a part of lifestyle, golf fulfills both social and emotional needs.</p> <p><b>Golf &amp; Travel</b><br> Golfers travel often for both business and leisure. However, golf is seldom an ‘add-on’ activity but a dedicated trip. Golf-specific trips tend to be short weekend trips. Longer male-dominated golf trips are seen as a time for making memories and bonding with friends.<b></b></p> <p><b>Golf Experiences</b><br> The affluent golfer survey revealed that the shared experience on the golf course is not only vested in the game itself, but also encompasses the conversations which took place such as: (i) discussions of current sporting and golf events; (ii) home, work and life ambitions and pressures; and (iii) exchange of tips and advice.</p> <p>There are also elements of challenge and moments of truth in the game: the belief that the true character of the person will be revealed on the course, and the notion that playing with someone provides insight into their character.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table4.jpg"><img width="590" height="344" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table4.jpg"></a></p> <p>The study on the affluent golfers revealed that golf transcends differences and emotional drivers are universal, but market nuances do exist. In general, female affluent golfers have the same emotional drivers and functional needs as male affluent golfers. However, while the all-male golf tour is perceived as a male bonding experience, the equivalent is not mentioned by the female counterpart. The study also showed that female affluent golfers are more likely to play with their spouses.<b></b></p> <p><b>Golf &amp; Sign Up Intent</b><br> Similar to dining, golf is also one of the three most motivating passions for card sign-up intent. Specifically, the findings revealed that affluent golfers aged under 40 share the following traits:</p> <ul> <li>Typically aged 30-39 years (45% vs. 41% of general affluent consumers)</li> <li>Tend to be interested in team sports (20% vs. 16% general), bars/clubs (31% vs. 26% general), or technology (43% vs. 38% general)</li> <li>Have played golf in the last 12 months (49% vs. 40% general)</li> <li>Among their many passions, travel, dining and golfing are considered to be the most important</li> </ul> <p>Among the markets, China had the largest proportion affluent golfers (63%), followed by Japan (52%). Hong Kong and Singapore, both at 41%, were closest to the regional average of 40%. UAE had the lowest proportion at only 7%.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart4.jpg"><img width="598" height="314" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart4.jpg"></a></p> SUMMARY OF THE AFFLUENT GOLFERS<p>The table below is a summary of the values, lifestyles, leisure activities, golf-consumption habits, and travel habits/preferences of affluent golfers.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table5.jpg" target="_blank"><img width="537" height="323" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table5.jpg"></a></p> TOP EXPERIENCE PILLARS<p>The overall findings of the surveys revealed the top three experience pillars to be Traveling, Dining and Golf. In order to find out which experiences are best suited to our affluent consumers’ perspective and needs, we went one step further to find out how they would like different experiences to be presented and offered. Based on the five main categories of experiences, we segregated them further into 4 sub-categories of ‘Motivating Reasons to Believe’: (1) Curation, (2) Branded Curation, (3) Privileged Access, and (4) Complimentary.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table6.jpg" target="_blank"><img width="474" height="458" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table6.jpg"></a></p> TOP MOTIVATING REASONS TO BELIEVE (RTBS)<p>The survey revealed a clear preference among the affluent for Curated Experiences rather than the generic offerings of discounted goods and services. Specifically, Curation Reasons to Believe (RTB) are the most appealing to the affluent and are considered to be the most important in all markets: China (32%), Hong Kong, Japan &amp; UAE (31%, same as the Regional Average), and Singapore (30%).</p> <p>The findings also showed that over three-quarters of affluent consumers (80%) are interested in a choice of Travel, Lifestyle or Dining RTBs.</p> <p>Privileged Access also has a fairly strong appeal, although this is more pronounced in the Singaporean (25%), Chinese (24%), and Japanese (23%) markets for Travel and Dining RTBs.</p> <p>In Hong Kong, Branded Curation related to Dining and Retail RTBs is the second most appealing to the affluent, while in UAE, Branded Curation RTBs related to Dining is the second most appealing.</p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart5.jpg" target="_blank"><img width="603" height="191" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart5.jpg"></a></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart6.jpg" target="_blank"><img width="592" height="290" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Chart6.jpg"></a></p> TRAVEL<p>MasterCard’s research indicated that Travel benefits drive up to 60% of card sign-up rates. This led = to the design of a focused experience program that creates optimal value to the affluent consumers–– one that is geared towards providing meaningful cross-border experiences and bringing new discoveries of the world closer to the affluent global citizens. At the heart of this refocused program is a deep appreciation of our affluent consumers’ global outlook and the desire to include passion to travel experiences.</p> DINING<p>Our studies revealed that culinary experiences involving the exploration and discovery of different tastes and flavors around the world, the privilege of enjoying priority bookings at the world’s most sought after restaurants, participating in private cooking classes, or a personal meeting with top chefs from Michelin-starred restaurants are considered to be some of the most appealing and important motivating passions among the affluent consumers across all markets that would drive card sign-up intent.</p> PAYMENT CARDS<p>The attitude towards payment cards in general is different across the seven markets. In UAE, China, South Africa and Japan where access to premium cards are more limited, a greater sense of status and specialness is attached to the cards. In other markets such as Hong Kong and Singapore where premium cards are more readily accessible and privilege programs such as frequent flyer points are common, there is less sense of status and specialness attached.</p> <p>Privileged Access also has a fairly strong appeal, although this is more pronounced in the Singaporean (25%), Chinese (24%), and Japanese (23%) markets for Travel and Dining RTBs.</p> <p>In Hong Kong, Branded Curation related to Dining and Retail RTBs is the second most appealing to the affluent, while in UAE, Branded Curation RTBs related to Dining is the second most appealing.</p> KEY DRIVERS OF CARD USAGE<p>In general, the survey found the affluent to be in search of a card that would not only allow them to travel around the world with ease and simplicity, but provide all the emotional and functional benefits they desire. They want a card that is relevant to their lifestyle and helps them create the time to enjoy worthwhile experiences.</p> <p>Their ideal card will fulfill and balance the following priorities:</p> <p><b>Emotional</b></p> <ul> <li>Feels premium, aspirational</li> <li>A bit special, unique, new &amp; fresh</li> <li>Like belonging to a World-club</li> </ul> <p><b>Functional</b></p> <ul> <li>Assume better currency rates</li> <li>No handling charges</li> <li>Making for easier global travel/transactions</li> </ul> <p>When choosing a card, the affluent consumers consider travel, dining and golfing features to be the most appealing and attractive, while rewards and benefits such as fee waivers, rich rewards and cashback, and shopping &amp; local dining are considered to be the most important and also the top key drivers of card usage in the region.</p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table7.jpg"><img width="566" height="203" src="/content/dam/intelligence/content-assets/reports/2014/AffluentReport/Table7.jpg"></a></p> <p>MasterCard’s studies have revealed the affluent consumers of today to be believers of work-life balance, charming, sociable, and well-traveled with good tastes in wining and dining. Our in-depth analysis of the findings validated that World MasterCard is a card that is truly aligned with our affluent consumers’ concept of wealth and living well through meaningful experiences–– a card that connects them with the world and other like-minded individuals, supports them in living their lives the way they want to, enables experiences to be shared, and connects passion with travel.</p> <p>Our identification of the top motivating passions has allowed us to focus on curating those experiences that are considered to be worthy experiences by the affluent consumers.</p> <p>Our search for the top drivers of card usage means that our customers will be able to get the optimal value and benefits from the card they have chosen.</p> <p>In essence, the insights from the surveys and research work have allowed MasterCard to craft for the affluent consumers a Passport to the World that makes them feel unique, differentiated and inspired–– a card that can be used by our consumers with prestige and confidence that it will guide them and their families to places they never knew existed.</p> <p><a name="_ftn3"></a><i>[3] MasterCard’s proprietary research was based on online methodology, face-to-face interviews and fieldwork with over 1,000 affluent individuals aged 30 to 55 in 7 key markets in APMEA.</i></p> The Affluent Report presents the results and key findings from a series of studies and surveys commissioned by MasterCard. These findings will help MasterCard understand the mindset of affluent consumers, and how we can develop the most relevant and innovative payment solutions, and to curate meaningful and unique experiences for them. http://www1.mastercard.com/content/intelligence/en/research/reports/2014/mastercard-affluent-report2014-05-26T16:00:00.000Z2014-05-26T16:00:00.000ZMasterCard 2014 Global Destination Cities Index Dr. Yuwa Hedrick-Wong and Desmond ChoongIntroduction<p>A hundred years ago, in January 1914, the first commercial flight flew from Tampa to St. Petersburg in Florida, USA. The distance between these two cities is about 23 miles, and it took 20 minutes for the flimsy wooden and propeller-driven aircraft to do it flying at a top speed of 60 miles an hour. At US$400, the airfare was very expensive for the two paid passengers (roughly equivalent to US$9,300 today). But this 20-minute flight ushered in the era of commercial air travel.<sup><a href="#1">1</a></sup> Over the course of the last one hundred years, aircrafts got bigger, faster, safer, and more comfortable; but even more importantly, it also got steadily cheaper to fly. The Tampa to St. Petersburg airfare of US$9,300 could easily pay for a round-the-world plane ticket today with change to spare. Cheaper and faster air travel turned it into a mass phenomenon instead of a passtime for the privileged. The expansion of air travel has been dramatic; in 2013, some three billion air passengers flew on commercial airlines crisscrossing the globe.<sup><a href="#2">2</a></sup></p> <p>Today, air travel is woven into the fabric of our everyday lives. Business travel is a given for many working men and women everywhere. Single-purpose leisure trips such as going somewhere special for a weekend just to shop, or to sample cuisine by a famous chef are routine among the cognoscenti. And as air travel becomes increasingly affordable, it has become a “must do” item in recent years for the mass middle class in emerging markets: many of them going overseas for the first time. As Chart 1 shows, the growth rates of international visitor arrivals and their cross-border spending in the 132 destination cities covered by the MasterCard Global Destination Cities Index exceeded world real GDP growth over the 2009 to 2014 period (2014 based on forecast estimates). And this is a period when the global economy is still struggling with a fragile and uncertain recovery. There is no better illustration of the momentum of growth of air travel today.</p> <p><b>Chart 1</b> <b>World</b> <b>GDP Growth Versus the Growth of International Visitor Arrivals and Spend by the 132 Destinations</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart1.jpg"></b></p> <p>The impacts of travel on destination cities<sup><a href="#4">3</a></sup> that receive visitors are very significant from the business, social, and cultural perspectives. International visitors’ spending constitute an increasingly important source of business revenue in a destination city, encompassing the hospitality, retail, transport, sports, and cultural industries, among many others. In many instances, it is a major economic engine for employment and income generation for the city in question. Along with the flow of visitors comes the flow of new ideas and experiences that benefits both the visitors and the destination cities, which are just as important as the flow of spending. As a result, the more connected a destination city is to other cities, the more vibrant and dynamic it becomes.</p> <p>MasterCard’s Global Destination Cities Index, now in its fourth year, provides an annual ranking of 132 of the most important destination cities in the world.<sup><a href="#4">4</a></sup> It generates estimates of the total number of international visitors to each of these cities each year, their cross-border spending in these cities, and breakdown of their numbers by feeder cities. The index is therefore a global map of how these 132 cities are connected and the business potential generated in each of them by the inflows of visitor spending.</p> Top 20 Global Destination Cities in 2014<p>The top 20 destination cities in 2014 are shown in Chart 2 and Table 1. London is the world’s top ranked destination city with an estimated 18.69 million international visitors in 2014. It has been a tight race between London and Bangkok for the number one position in the last few years. Bangkok overtook London in 2013 to become the top ranked destination city in the world, but London regained the top rank this year with an 8% growth in visitors, versus an 11% decline in Bangkok due to the Thai political situation.</p> <p><b>CHART 2 Global Top 20 Top Destination Cities by International Overnight Visitors (2014)</b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart2.jpg"><img width="523" height="505" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart2.jpg"></a></b></p> <p><b>TABLE 1 Global Top 20 Top Destination Cities by International Overnight Visitors (2014)</b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table1.jpg"><img width="509" height="368" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table1.jpg"></a></b></p> <p>Paris, Singapore, and Dubai followed in third, fourth and fifth ranks respectively. Their respective growth rates, however, diverge significantly. At 1.8%, Paris’ growth is very low, and Singapore’s growth rate is slightly higher at 3.1%. But they are both eclipsed by Dubai’s 7.5%. If their current growth rates are to continue, then Dubai would overtake both Paris and Singapore within five years. Other major changes in the ranking are: Amsterdam overtook Milan to move up from 13th to 12th rank, and Shanghai overtook Vienna.</p> <p>Chart 3 and Table 2 below show the rankings for the top 20 global destinations in terms of international visitor spending. London is the top ranked city in terms of visitor spending, which is estimated to be US$19.27 billion in 2014. London retained its top ranked position in visitor spending in 2013 despite losing the top ranked position to Bangkok in visitor numbers last year. New York and Paris followed in second and third respectively. Singapore moves above Bangkok to claim fourth. Madrid moved up from 16th, displacing Sydney, while San Francisco moved up to 19th, displacing Munich.</p> Top 10 Destination Cities in Asia/Pacific<p>The top 10 destination cities in Asia/Pacific are shown in Chart 6 and Table 3. Bangkok, ranked second in the world, is in the top position in the region with 16.42 million international visitors. The top five cities of Bangkok, Singapore, Kuala Lumpur, Hong Kong, and Seoul remain unchanged from 2013. Tokyo, Mumbai and Beijing round-off the top ten list.</p> <p><b>CHART 6 Asia/Pacific Top 10 Destination Cities by International Overnight Visitors</b></p> <p><b><img width="559" height="256" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart6.jpg"></b></p> <p><b>TABLE 3 Asia Pacific Top 10 Destination Cities by International Overnight Visitors (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table3.jpg" target="_blank"><img width="507" height="218" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table3.jpg"></a></b></p> <p>The top 10 destination cities in Asia/Pacific by international visitor spending are presented in Chart 7 and Table 4. Singapore with US$14.3 billion displaces Bangkok at US$13.0 billion to rank first. The placements of the other eight Asia Pacific cities in the top ten destinations are unchanged from last year.</p> <p><b>CHART 7 Asia/Pacific Top 10 Destination Cities by International Overnight Visitor Spend (2014)</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart7.jpg"></b></p> <p><b>TABLE 4 Asia/Pacific Top 10 Destination Cities by International Overnight Visitor Spend (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table4.jpg" target="_blank"><img width="505" height="208" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table4.jpg"></a></b></p> <p>The dynamism of a destination city is closely affected by its feeder cities – the cities where its international visitors come from or via which they are transiting through.<sup><a href="#7">7</a></sup> If a destination city is connected with a network of fast growing feeder cities where outbound travel is taking off, then it is well positioned to benefit from such growth. On the other hand, if certain feeder cities are slowing down in economic growth with household income stagnating, then the associated destination cities will likely suffer unless they are able to tap into other growing feeder cities. Mapping a destination city’s key feeder cities therefore generates valuable insights on a destination city’s growth potential as well as challenges ahead. The top 5 feeder cities for each of the three top ranked destination cities in each region are provided here to illustrate the interconnected of these cities.</p> <p>The top 5 feeder cities for Bangkok are shown in Chart 8. Singapore is the biggest feeder city for Bangkok. While also serving as an origin city for visitors to Bangkok, Singapore is also a major gateway hub for other countries to reach Bangkok. This is followed by Tokyo, Hong Kong, Kuala Lumpur, and Shanghai. Despite all five feeder cities being from Asia/Pacific, 42% of visitors to Bangkok are from outside of the region. In fact, Bangkok has a very diversified network of feeder cities and origin countries, which explains Bangkok’s well known resilience as a tourism hotspot. However, in 2014 four of the top five feeder cities show a drop in visitor numbers to Bangkok due to its ongoing political turmoil, a key reason why Bangkok lost the world’s top rank position to London in 2014.</p> <p><b>CHART 8 Bangkok: Top 5 Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart8.jpg" target="_blank"><img width="506" height="349" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart8.jpg"></a></b></p> <p>The top five feeder cities for Singapore, ranked second as a destination city in Asia/Pacific and fourth in the world, are shown in Chart 9. They are Jakarta, Tokyo, Shanghai, Hong Kong, and Manila, and all are in Asia/Pacific. This is consistent with the fact that 82% of visitors to Singapore are from the region.</p> <p><b>CHART 9 Singapore: Top 5 Feeder Cities by International Overnight Visitors</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart9.jpg" target="_blank"><img width="504" height="354" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart9.jpg"></a></p> <p>The top 5 feeder cities for Kuala Lumpur, the third ranked destination city in Asia/Pacific, are shown in Chart 10. They are Singapore, Jakarta, Bangkok, Manila and Melbourne. With the exception of Singapore, they show very strong growth in visitor numbers to Kuala Lumpur, with Melbourne being the highest with an impressive growth rate of 34.7%. About 60% of visitors to Kuala Lumpur are from the Asia/Pacific region.</p> <p><b>CHART 10 Kuala Lumpur: Top 5 Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart10.jpg" target="_blank"><img width="504" height="360" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart10.jpg"></a></b></p> Top 10 Destination Cities in Europe<p>Europe’s top ten destination cities by international visitors are presented in Chart 11 and Table 5. London, being top ranked in the world, is naturally also leads the European list. Paris, Istanbul and Barcelona are in second, third and fourth position respectively, unchanged from last year. Amsterdam moves to fifth, displacing Milan.</p> <p><b>CHART 11 Europe Top 10 Destination Cities by International Overnight Visitors</b></p> <p><b><img width="561" height="255" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart11.jpg"></b></p> <p><b>TABLE 5 Europe Top 10 Destination Cities by International Overnight Visitors (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table5.jpg" target="_blank"><img width="506" height="209" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table5.jpg"></a></b></p> <p>Chart 12 and Table 6 show the top 10 destination cities by international visitor spending in Europe. The top four positions—held by London, Paris, Barcelona and Istanbul—are unchanged from last year. Vienna moves up two places to eighth, displacing Milan and Berlin which both move down to ninth and tenth respectively.</p> <p><b>CHART 12 Europe Top 10 Destination Cities by International Overnight Visitor Spend</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart12.jpg"></b></p> <p><b>TABLE 6 Europe Top 10 Destination Cities by International Overnight Visitor Spend (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table6.jpg" target="_blank"><img width="505" height="209" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table6.jpg"></a></b></p> <p>Details of London’s top five feeder cities, New York, Amsterdam, Frankfurt, Stockholm, and Dublin, are summarized in Chart 13. Visitor numbers from New York are growing strongly, contrasting the dropping numbers from Stockholm and Dublin. The majority of international visitors to London are from Europe accounting for 67 percent of the total. The strong growth of London international visitor arrivals allowed it to quickly reclaim the number one position from Bangkok which suffers from a drop in visitor numbers due to unstable political conditions.</p> <p><b>CHART 13 London: Top 5 Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><img width="502" height="331" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart13.jpg"></b></p> <p>Paris, in the second rank in Europe and third in the world, also has New York as its biggest feeder city, followed by London, Amsterdam, Rome, and Tokyo. Unlike London, however, a majority of its visitors, 53 percent, are from outside of Europe.</p> <p><b>CHART 14 Paris: Top 5 Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart14.jpg" target="_blank"><img width="505" height="336" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart14.jpg"></a></b></p> <p>Istanbul, one of the most dynamic and fast growing destination cities, is ranked third in Europe and seventh in the world. Its top five feeder cities are all in Europe, as shown in Chart 15, and they are all showing double digit growth in visitor numbers to Istanbul. Overall, 55 percent of visitors to Istanbul come from outside of the European region. </p> <p><b>CHART 15 Istanbul: Top 5 Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart15.jpg" target="_blank"><img width="502" height="332" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart15.jpg"></a></b></p> Top 10 Destination Cities in Latin America<p>Latin America’s top ten destination cities are shown in Chart 16 and Table 7. Lima is the top ranked destination city in Latin America with 5.11 million international visitors in 2014. Mexico City is ranked second, while Sao Paulo is ranked third. Punta Cana, which replaces Santiago in this edition, is in fourth, followed by Buenos Aires. Caracas falls out of the top ten to 11th place with the entry of Punta Cana.</p> <p><b>CHART 16 Latin America Top 10 Destination Cities by International Overnight Visitors</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart16.jpg"></b></p> <p><b>TABLE 7 Latin America Top 10 Destination Cities by International Overnight Visitors (2014)<br> </b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table7.jpg" target="_blank"><img width="503" height="218" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table7.jpg"></a></b></p> <p>As shown in Chart 17 and Table 8 below, Punta Cana is the regional top rank in international visitor spending at US$2.4 billion, followed by Sao Paulo and Buenos Aires. Bogota moves ahead of Rio de Janeiro to claim sixth rank. With the addition of Punta Cana, Caracas is displaced out of the top ten and holds the 11th rank.</p> <p><b>CHART 17 Latin America Top 10 Destination Cities by International Overnight Visitor Spend</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart17.jpg"><br> </b></p> <p><b>TABLE 8 Latin America Top 10 Destination Cities by International Overnight Visitor Spend (2014)<br> </b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table8.jpg" target="_blank"><img width="504" height="219" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table8.jpg"></a></b></p> <p>Details of the top five feeder cities for Lima are summarized in Chart 18. Four of the five feeder cities are within the Latin American region: Santiago, Buenos Aires, Bogota, and Mexico City. Miami in the US is Lima’s second biggest feeder city. Overall, 56 percent of Lima’s visitors come from outside of the region.<br> </p> <p><b>CHART 18 Lima: Top Five Feeder Cities by International Overnight Visitors (2014)</b><br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart18.jpg" target="_blank"><img width="504" height="340" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart18.jpg"></a><br> </p> <p>The top five feeder cities for Mexico City are all in the US: New York, Los Angeles, Miami, Houston, and Chicago. Visitors from New York and Chicago are growing strongly, in sharp contrast with declining numbers from Los Angeles, Miami, and Houston. Overall, 54 percent of visitors come from outside of the region.<br> </p> <p><b>CHART 19 Mexico City: Top 5 Feeder Cities by International Overnight Visitors (2014)</b><br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart19.jpg" target="_blank"><img width="504" height="342" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart19.jpg"></a><br> </p> <p>Sao Paulo’s top five feeder cities represent four countries: Argentina, USA, Chile, and Germany. These feeder cities are Buenos Aires, Miami, New York, Santiago, and Frankfurt. This diversity is reflected in the fact that two-thirds of international visitors to Sao Paulo come from outside the Latin American region.<br> </p> <p><b>CHART 20 Sao Paolo: Top Five Feeder Cities by International Overnight Visitors (2014)</b><br> </p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart20.jpg" target="_blank"><img width="504" height="338" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart20.jpg"></a><br> </p> Top 10 Destination Cities in Middle East and Africa<p>Middle East and Africa’s top 10 destination cities are shown in Chart 21 and Table 9. Dubai is in the top rank in the region with 11.95 million international overnight visitors, followed by Riyadh and Johannesburg. In fourth place is Abu Dhabi, another city from the United Arab Emirates followed by Cape Town in fifth place.</p> <p><b>CHART 21 Middle East and Africa Top 10 Destination Cities by International Overnight Visitors</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart21.jpg"></b></p> <p><b>TABLE 9 Middle East &amp; Africa Top 10 Destination Cities by International Overnight Visitors (2014)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table9.jpg" target="_blank"><img width="509" height="210" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table9.jpg"></a></b></p> <p>The regional top 10 ranking by international visitor spending are presented in Chart 22 and Table 10. While Dubai and Riyadh are in the first and second ranks respectively, Dubai is in a league of its own with US$10.9 billion of visitor spending, more than double Riyadh’s US$4.1 billion. Due to the political unrest, Cairo is the only city with negative growth in the top 10 (of both international visitors and spending) in 2014.</p> <p><b>CHART 22 Middle East and Africa Top 10 Destination Cities by International Overnight Visitor Spend</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart22.jpg"></b></p> <p><b>TABLE 10 Middle East &amp; Africa Top 10 Destination Cities by International Overnight Visitor Spend (2014)</b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table10.jpg"><img width="505" height="208" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table10.jpg"></a></b></p> <p>Details of Dubai’s top five feeder cities are summarized in Chart 23, and they are London, Riyadh, Kuwait, Jeddah, and Paris. While growth rates of visitors from Saudi Arabia and Kuwait are either dropping or barely growing, growth rates of visitors from London and Paris are growing strongly in double digits. This is consistent with the trend that international visitors from outside of the region is becoming more important for Dubai, currently accounting for 66 percent of the total.</p> <p><b>CHART 23 Dubai: Top Five Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart23.jpg"><img width="502" height="335" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart23.jpg"></a></b></p> <p>Riyadh’s top five feeder cities are Cairo, Dubai, Doha, Amman, and Mumbai; and 64 percent of its visitors came from within the region.</p> <p><b>CHART 24 Riyadh: Top Five Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart24.jpg"><img width="518" height="347" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart24.jpg"></a></b></p> <p>Johannesburg’s top five feeder cities are London, Frankfurt, Harare, Maputo, and Paris, as shown in Chart 25. While visitor numbers from London and Frankfurt are growing, the others are dropping. An overwhelming majority (77 percent) of international visitors to Johannesburg came from inside of the region.</p> <p><b>CHART 25 Johannesburg: Top 5 Feeder Cities by International Overnight Visitors (2014)<a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart25.jpg"><img width="509" height="341" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart25.jpg"></a></b></p> Top 10 Destination Cities in North America<p>The top 10 destination cities in North America are presented in Chart 26 and Table 11. New York is the top ranked in the region and ranked sixth in the world, with 11.81 million international visitors. It is followed by Los Angeles, Miami, Toronto and San Francisco, which are unchanged from their last year’s ranking.</p> <p><b>CHART 26 North America Top 10 Destination Cities by International Overnight Visitors</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart26.jpg"></b></p> <p><b>TABLE 11 North America Top 10 Destination Cities by International Overnight Visitors (2014)<br> </b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table11.jpg"><img width="504" height="208" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table11.jpg"></a></b></p> <p>As shown by Chart 27 and Table 12 below, New York is also top ranked in the region in international visitor spending at US$18.6 billion (and ranked second in the world). This is followed by Los Angeles, Miami, Toronto and San Francisco.<br> </p> <p><b>CHART 27 North America Top 10 Destination Cities by International Overnight Visitor Spend</b></p> <p><b><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart27.jpg"></b></p> <p><b>TABLE 12 North America Top 10 Destination Cities by International Overnight Visitors Spend (2014)<br> </b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table12.jpg"><img width="502" height="205" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/table12.jpg"></a></b></p> <p>The top five feeder cities of New York are shown in Chart 28. They are London, Sao Paulo, Toronto, Paris, and Beijing, a very diverse mix. Visitors from Beijing are growing especially strongly at 17.3 percent. The fact that 90 percent of visitors to New York came from outside of North America underscores its prowess as a global city.<br> </p> <p><b>CHART 28 New York: Top Five Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart28.jpg"><img width="496" height="328" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart28.jpg"></a></b></p> <p>Los Angeles’ top five feeder cities are Vancouver, London, Seoul, Paris and Taipei, also a very diverse mix, as seen in Chart 29. Similar to New York, 83 percent of visitors to Los Angeles came from outside of the region.</p> <p><b>CHART 29 Los Angeles: Top Five Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart29.jpg"><img width="509" height="338" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart29.jpg"></a></b></p> <p>Chart 30 shows the top five feeder cities of Miami. Four out of the five are in Latin America, illustrating the strong connection between Miami and cities in Latin America. In fact, 94 percent of visitors to Miami came from outside of North America, and most are from Latin America.</p> <p><b>CHART 30 Miami: Top Five Feeder Cities by International Overnight Visitors (2014)</b></p> <p><b><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart30.jpg"><img width="511" height="343" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart30.jpg"></a></b></p> The Air Hub Index: Power of Connectivity<p>The flows of visitors and their spending from feeder cities to destination cities are in essence a form of service trade. Unlike trade in goods, however, the buyers (visitors) physically move from where they live to where the sellers live, the destination cities. Thus, in cross-border air travel, the connection between demand (buyers) and supply (sellers) is mediated by the logistics of air connectivity. Very often when a new airport is opened or an old one upgraded and when new flight connections are inaugurated; the volume of air travel increases correspondingly. So expanding or shrinking air connectivity will have very material impacts on the growth and decline of destination cities, and can be construed as a key leading indicator.</p> <p>The “air hub index” is designed to measure the breadth of a destination city’s connectivity by air with the rest of world, as well as the strength of each of the connections. The index then assigns a value to each destination city on the basis of the number of international flight connections that it has (weighed differently between inter-region versus intra-region flights) and the frequencies of these flights.<sup><a href="#8">8</a></sup> Chart 31 presents the ranking and index scores of the top 50 destination cities. It is obvious that there is a lot of overlap between the ranking in destination cities by international visitors and by air hub scores; but there are also significant differences suggesting a dynamic and changing future. Of the global top 10 destination cities, only seven are in the top 10 by the air hub index scores. Indeed, the world’s second ranked destination city, Bangkok, is ranked 11th in the air hub index, whereas Moscow which ranks 48th globally as a destination city is ranked tenth in the air hub index.</p> <p><b>CHART 31 Global Leading Air Hubs Index Top 50 Destinations by Index Score</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart31.jpg" target="_blank"><img width="504" height="336" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart31.jpg"></a></b></p> <p>The air hub index offers yet another perspective on change when the growth rates in index scores are compared between the destination cities. Chart 32 summarizes details of the top 10 fastest growing destination cities by air hub index scores. Some of them, like Bangkok, Dubai, Singapore, Istanbul, and Hong Kong, are already among the top ranked destination cities, but others like Moscow, Shanghai, and Abu Dhabi, are not yet there, but they could be on their way as they are actively growing their flight connectivity as suggested by the rapid increase in their air hub scores.</p> <p><b>CHART 32 Top 10 Fastest Growing Destination Cities by Air Hubs Index (by 2010-2014 change in index points score)</b></p> <p><b><a href="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart32.jpg" target="_blank"><img width="503" height="203" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/chart32.jpg"></a></b></p> Conclusions<p>The continuing and robust growth of air travel and cross-border spending as reported by MasterCard’s Global Destination Cities Index, which consistently exceeded world GDP growth over the 2009 and 2014 period, suggest a very powerful trend in the making. It appears to be a multidimensional phenomenon driven by a combination of rapid growth of mass tourism due to the expanding middle class in many emerging markets, rising needs for business travel in spite of the internet and the digital world, and proliferating innovations in luxury travel. It is a trend that is likely to persist in the foreseeable future.</p> <p>The picture is an equally dynamic one when it comes to the comparative performance of the destination cities as reflected by the ranking in the Index. At the very top is the close race between London and Bangkok, with London reclaiming the top rank this year after losing it to Bangkok last year. The fact of the matter is that many destination cities moved up in the ranks in the last five years, overtaking others, regardless whether they rank high or low in the Global Destination Cities Index. Not surprisingly many of the “upwardly mobile” destination cities are in emerging markets because of their growing air connectivity and fast improving infrastructure. In fact, using the growth rates in the Air Hub Index as the leading indicator, it would appear that seven out of the ten fastest growing “air hubs” are in emerging markets.</p> <p>While destination cities in emerging markets may be growing faster in relative terms, the absolute size of the pie of air travel is also expanding fast. So it is not a zero sum game where destination cities in emerging markets are gaining at the expanse of those in the developed markets. A more accurate characterization is that they seem to grow synergistically, which explains why this is such a robust and resilient trend.</p> Appendix A: Methodology<p>The 132 Destination Cities of the index.</p> <p><b>Asia/Pacific (42 cities):</b><br> Ahmedabad, Almaty, Bangkok, Beijing Bengaluru, Chengdu, Chennai, Coimbatore, Colombo, Dalian, Delhi, Dhaka , Guangzhou , Hangzhou, Hanoi, Harbin, Ho Chi Minh City, Hong Kong, Hyderabad, Islamabad, Jakarta, Karachi, Kolkata, Kuala Lumpur, Lahore, Manila, Melbourne, Mumbai, Nanjing, Osaka, Pune, Qingdao, Seoul, Shanghai, Shenzhen, Singapore, Sydney, Taipei, Tianjin, Tokyo, Xi an, Xiamen<b></b></p> <p><b>Europe (36 cities):</b><br> Amsterdam, Ankara, Athens, Barcelona, Berlin, Brussels, Bucharest, Budapest, Copenhagen, Dublin, Dusseldorf, Edinburgh, Frankfurt, Geneva, Hamburg, Istanbul, Kiev, Lisbon, London, Madrid, Milan, Minsk, Moscow, Munich, Novosibirsk, Paris, Prague, Rome, Sofia, St Petersburg, Stockholm, Vienna, Vladivostok, Warsaw, Yekaterinburg, Zurich</p> <p><b>Latin America (19 cities)</b><br> Belo Horizonte, Bogota, Brasilia, Buenos Aires, Caracas, Cordoba, Curitiba, Lima, Medellin, Mexico City, Monterrey, Montevideo, Quito, Recife, Rio de Janeiro, San Jose, Punta Cana*, Santo Domingo, Sao Paulo</p> <p>*Punta Cana replaces Santiago</p> <p><b>Middle East and Africa (21 cities)</b><br> Abu Dhabi, Accra, Amman, Beira, Beirut, Cairo, Cape Town, Casablanca, Dakar, Damascus, Dubai, Durban, Kampala, Johannesburg, Lagos, Maputo, Nairobi, Riyadh, Tehran, Tel Aviv, Tunis</p> <p><b>North America (14 cities)</b><br> Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, Montreal, New York, Philadelphia, San Francisco, Toronto, Vancouver, Washington</p> Global Air Hub Index<p>It is an index that seeks to measure the breadth of a city’s international connectivity as well as the strength of each connection. Using Amsterdam as an example, for each city pair with Amsterdam as the departure node, we calculate the connectivity score for the city pair as:</p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/globalairhub.jpg"></p> <p>where <b>Weekly Flight Frequency: </b>is the number of flights per week departing from Amsterdam to a particular city. This is the main driver of the connectivity score and it is sourced from OAG Flight Schedules Data. Airlines will also provide their flight schedules for one year ahead, which is how we obtained the weekly flight frequencies for 2014. While the number of cities that Amsterdam is connected to determines Amsterdam’s raw connectivity, the strength of each connection is measured by the weekly flight frequency and weighted by whether or not the connection is Inter-regional or Intra-regional.<b></b></p> <p><b>Inter/Intra-Regional Multiplier: </b>International Destinations from Amsterdam that are Inter-regional (i.e. outside of Western Europe in the case of Amsterdam) are weighted at twice (i.e. x 2) that of International Destinations within the same region as Amsterdam (i.e. intra-regional, within Western Europe).<b></b></p> <p><b>City Pair with Max Weekly Flight Frequencies: </b>This number is used to normalize the raw connectivity scores. It has absolutely no effect on the relative scores between cities and is used only for ease of presentation when viewing the data.</p> <p>Every Amsterdam – XXX city pair is thus given its own connectivity value. We add them up to get a connectivity value for Amsterdam itself. We now do this for every one of the 132 cities. Once we have the connectivity scores for all 132 cities, we perform a final normalization so that the scores can be presented out of a maximum of 100 (Index format). The divisor for this is the highest raw 2009 score (in this case London’s raw connectivity score in 2009).<b><u></u></b></p> <p><b><u>Estimation of Overnight Visitors</u></b></p> <p>City level international overnight arrivals are those who actually stay in the destination city, at least for one night. In order words we only count cases where the disembarkation city is also an overnight destination city. This is opposed to cases where the disembarkation city is merely a transit point while the destination city which maybe some other city in the same country.</p> <p>The sources for city level overnight arrivals by foreign visitors are typically the National Statistics Boards of the relevant countries or their Tourism Boards. The indicators for 122 out of the 132 cities were directly sourced for or estimated from official data. The other 10 cities were estimated using the Airflow Model (see below).</p> <p>Total overnight foreign visitor official data was available directly for estimation for 70 cities. Where this was not available, we sourced for:</p> <ul> <li>Foreign overnight arrivals by air at the city level (12 cities)</li> <li>Foreign overnight arrivals at paid accommodations at the city level (40 cities)</li> </ul> <p>In previous editions of this report Dubai international overnight visitors were at the paid accommodation level only; in this edition however, Dubai Tourism and Commerce Marketing has kindly provided us with estimates of international overnight visitors who stay with friends and family and as such we have revised our data to include this.</p> <p>In cases where official data or estimates derived from official data do not cover the most recent year but do cover earlier years, we have projected from the years where data was available using the growth rates from the Airflow model. For all cases forecasts for 2014 are projected using growth rates from the Airflow model.</p> <p><b><u>The Airflow Model</u></b></p> <p>Every month the OAG collects the airline flight schedules for the next 12 months on a global basis. Using only non-stop flights we extract for each city to city pair the number of:</p> <ul> <li>Weekly flight frequencies</li> <li>Passenger capacity</li> </ul> <p>On any airline flight route, the average % of seats filled (i.e. called the “load factor”) varies. This information is extremely sensitive for competitive reasons and airlines will only release this data with a 1 year lag. Nevertheless, by using the historical load factor on most city to city flight routes, we can estimate a proxy for the current and forecasted load factor. We used a weighted average of the historical load factors with heavier emphasis on the most recent years which ranges from 30% to 100%, but airlines will try to maintain a load factor of between 70 to 80% by changing the number of weekly flights or by changing the aircraft type to increase or decrease passenger capacity. As such, for determining the years for which we do not have load factor numbers we apply an increasing improvement of 5% per year on the historical average, starting at 70% and improving to 85% over time.</p> <p>Using the data above a first estimate of the number of passengers departing from one city to another can be made using:</p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/airflowmodel.jpg"></p> <p>Now on any flight there will also be passengers who are returning home after having visited the departure city. For example, in the case of a Caracas to Miami flight there will be US passengers returning back to Miami (after having visited Caracas). We want to net out those passengers. As airlines do not reveal the residency of their passengers there is no way to know at a city to city level what portion of passengers on each flight is returning home. We need to go to the country-country level for this and for that we use UNWTO (United Nations World Tourism Organization) data. They collect the number of annual residents traveling between country pairs and we use these numbers to create a ratio of:</p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/airflowmodel2.jpg"></p> <p>For example, in the case of the Caracas – Miami route, in 2009 there were 340,403 Venezuelans in total traveling to the US, and 43,752 US residents in total traveling to Venezuela via the Miami – Caracas route implying a ratio of 88.6% which is the estimated ratio of Venezuelans on any given flight from Venezuela to the US. We use this ratio to net out returning US residents and to obtain the number of Venezuelans traveling from Caracas to Miami as follows:</p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/airflowmodel3.jpg"></p> <p>Where UNWTO data was not available for a country pair (data available for 76% of the country pairs), data was sourced at the National level where available (2% of city pairs) or we used the ratio of the IMF Balance of Payments travel debit accounts to construct a secondary proxy ratio. In this release we have focused on key border regions around the world where the UNWTO cross-country visitor data may give less accurate ratios. In all cases, the general idea was to use overnight visitors (where data was available) instead of overall visitors to construct more accurate departure-arrival ratios of air travelers. This has resulted in some shifts to the flow of travel between these areas (and therefore overall expenditure as well). The border regions include the Mexican-US border, EU countries which share a border, the Singapore-Malaysia border, and the Ukraine-Russia-Belarus-Moldova border areas.</p> <p>In this release, out of the 132 cities, 10 were estimated using the airflow model as we were unable source for official statistics. They are:<b></b></p> <ul> <li><b>Eastern Europe: </b>Novosibirsk, Yekaterinburg, Kiev, Minsk, Almaty </li> <li><b>Asia: </b>Dhaka, Tehran </li> <li><b>Africa: </b>Dakar, Lagos, Accra</li> </ul> <p>To estimate the number of visitors to each of the destination cities, the following steps are followed.</p> <p>(i)&nbsp; As explained previously, on any given flight there are departing residents from the departure country, returning visitors, and a third group of residuals. The residuals group can be a low proportion of the passengers for typically non-hub cities, and very high for hub cities. To estimate the proportion of this group, we use: Residuals = Total Estimated Passengers – Number of Depart­ing Residents – Number of Returning Visitors</p> <p>(ii) Residuals constitute 2 main groups: (A) non-residents (of either the origin or destination country) who from the origin city are visiting the destination city, and residents of the origin country, and (B) non-residents (of either the origin or destination country) who will be transiting through the destination city without visiting it. We are interested in (a) but in order to separate the residuals into its 2 components we use a relative connectivity ratio “RCR” that is based on the International Air Connectivity Index (IACI) scores previously created.</p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/airflowmodel4.jpg"></p> <p>We then separate out (A) using <br> A = Residual x RCR &amp; B = Residual - A<br> We then add A {Non-residents (of either the departing or arrival country) who from the departure city are visiting the arrival city} to the number of residents visiting the arrival country {calculated earlier} to obtain the estimated number of travelers who will visit the destination city, which is equal to:<b><u></u></b></p> <p><b><u><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/airflowmodel5.jpg"></u></b></p> <p><b><u>Estimation of Visitors’ Cross-Border Expenditure</u></b></p> <p>In most cases the estimated visitor spend at the city level was directly sourced from official statistics, or estimated using data from national international visitor surveys (49 cities). Where survey level data at the city level was unavailable but available at the national level, we used the later in terms of the national average expenditure per overnight tourist which we multiplied with city level overnight visitors to obtain total expenditure (44 cities). Where survey data was not available at either the city or country level, we calculated and used the average expenditure in destination countries using IMF Balance of Payments Travel Credit data (adjusted down to include only overnight visitors as the Balance of Payments data includes both excursionist and overnight visitors) and the total number of overnight visitors to the country (36 cities). For Kiev, Singapore and Paris we looked at country to country data to estimate the average expenditure of outbound travelers. City to city expenditure data is difficult to obtain (partial figures do exist but these are not publicly available). For this we use the United Nations’ Trade in Services database (travel component) which does not include transport, i.e. Airfares at the paired country level. For country pairs where this data is not available we default to using.</p> <p>The formula is as follows:</p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/expenditure.jpg"></p> <p>Based on the latest year available for average expenditure per traveler we then project the average expenditure per traveler using the nominal growth rate of GDP per Capita provided by the IMF WEO forecast database. Using the estimated number of residents flying from each departure city to each destination city, we can then calculate the estimated expenditure by multiplying in the average expenditure to obtain city to city expenditure estimates. That is for each city pair:</p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/spend.jpg"></p> Data Sources<p><img width="510" height="356" src="/content/dam/intelligence/content-assets/reports/2014/GlobalDestinationIndex/datasources.jpg"></p> Glossary<p><b>Visitor: </b>Person who is traveling on a non-stop direct flight to her destination and is not a resident of the destination country. A visitor may make more than one trip, and each trip counts as a new visit. That is, a person who makes 2 trips to a destination as described above counts as 2 visitors to that destination. A person on the return leg home does not count as a visitor.</p> <p><b>Visitor Spend: </b>The estimated total amount that visitors spend in the destination city/ country. It excludes air ticket expenditure required to get the visitor to the destination city.<b></b></p> <p><b>Origin City: </b><b></b>The city from which visitors embark on their flight to the destination city. Passengers who count as visitors may be residents of the origin city/country or may be non-residents from other countries (but not the destination city/country).</p> <p><b>Destination City: </b>The city where passengers disembark (leave the airport) and are counted as visitors (which only includes non-residents of the destination city/country).</p> <p><b>Feeder City/Country: </b><b></b>Sometimes visitors &amp; visitor spend is described at the country or city level interchangeably. For example, visitors from Frankfurt to London are described as non-residents &amp; residents of the origin country visiting the destination country via London. By residents of the feeder country we mean German residents inclusive of residents of Frankfurt. This is because residents from other parts of Germany may have domestically flown or driven to Frankfurt to take their flight to London together with residents of the Frankfurt urban area. Non-residents of the feeder country include for example Singaporeans who are on their way to London who have either visited Frankfurt before going to London or who are simply transiting through Frankfurt on their way to London. The point is that the feeder city is the most recent place from which travelers embarked before arriving at their destination which is a constraint of using only non-stop flights. Finally, visiting the destination country via London, implies that visitors may disembark in London to visit the city but they could also go from London to visit other parts of the country via a domestic flight.</p> About the Authors<p><b>Dr. Yuwa Hedrick-Wong</b></p> <p>Yuwa Hedrick-Wong is currently Chief Economist, MasterCard Center for Inclusive Growth, and Global Economic Advisor, MasterCard. He is also HSBC Professor of International Business at the University of British Columbia, Canada.</p> <p>He is an economist with 25 years of experience gained in over thirty countries. He is a Canadian who grew up in Vancouver and has spent the last 20 years working in Europe, Sub-Sahara Africa, and Asia Pacific. He has served as advisor to over fifty leading multinational companies.</p> <p>He is a published author on consumer markets, economic development, trade and international relations. Yuwa studied philosophy, political science, and economics at Trent University, and pursued post-graduate training at the University of British Columbia and Simon Fraser University in Canada, where he received his Ph.D.</p> <p>He lives on Salt Spring Island, off the west coast of Canada, with his wife and their cat; and is an enthusiastic apprentice in the fine art of gardening.</p> <p><b>Desmond Choong</b></p> <p>Desmond Choong is a Research Economist with the MasterCard Center for Inclusive Growth. In this capacity, he sources, reviews and develops research aimed at advancing the Center’s goals.</p> <p>Based in Singapore, he is an economist and business analyst with extensive experience in the Asia/Pacific region and a focus on index modeling, market sizing and macroeconomic analysis. He has spent thirteen years consulting for multinational companies across a wide range of industries, including finance, resources, and travel and hospitality.</p> <p>Desmond has taught International Trade at Boston University and holds a B.A. in English/Economics from Boston College and a M.A. in Political Economics from Boston University.</p> The MasterCard Index of Global Destination Cities ranks cities in terms of the number of their total international visitor arrivals and the cross-border spending by these same visitors in the destination cities, and gives visitor and passenger growth forecasts for 2013. Public data are used in deriving the international visitor arrivals and their cross-border spending in each of the 132 destination cities, using custom-made algorithms; paying special attention to eliminate the hub effects for destination cities such as Singapore, Amsterdam and Frankfurt. This Index and the accompanying reports are not based on MasterCard volumes or transactional data.http://www1.mastercard.com/content/intelligence/en/research/reports/2014/mastercard-2014-global-destination-cities-index2014-07-08T16:00:00.000Z2014-07-08T16:00:00.000ZDigital Planet: Readying for the rise of the e-consumer Bhaskar Chakravorti, Christopher (Rusty) Tunnard, Ravi Shankar ChaturvediAcknowledgements<p>The authors are grateful for the support and counsel of their colleagues and sponsors. Without the advice and critiques of many distinguished experts, this work would not have been possible. The views expressed in this report and any remaining errors are the authors’ alone. A special thanks to Yuwa Hedrick-Wong, Ajay Bhalla, Kevin Stanton, Elisa Romm, Elena Carroll, Ted Iacobuzio, John Gaffney, Alissa Saoutina and Nitin Sumangali of MasterCard Worldwide, Andrea Scerch and Carly Smith of DataCash, Desmond Choong of The MasterCard Center for Inclusive Growth, Jennifer Choi of Institutional Limited Partners Association, Dr. Harshavardhana Singh of The World Trade Organization and Senior Fellow at The Fletcher School’s Council on Emerging Market Enterprises, Maryam Haque of EMPEA, Brendan Hughes of Dow Jones VentureSource, Brett Hammond and Brandon Nott of VML, Jen Heady of Stern Associates and from The Fletcher School, Benjamin Mazzotta, Daniel Popko, Dorothy Orszulak, Jessica Smith and Taraneh Pettinato.</p> Authors<table cellspacing="0" cellpadding="0" border="0"> <tbody><tr><td><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/authors-bhaskar.jpg"></td> <td><p><b>Bhaskar Chakravorti<br> </b><i>Senior Associate Dean for International Business and Finance</i></p> <p>The Senior Associate Dean of International Business and Finance at The Fletcher School, Bhaskar Chakravorti is also the Executive Director of Fletcher’s Institute for Business in the Global Context (IBGC) and a Professor of Practice in International Business. Dean Chakravorti has extensive experience in academia, strategy consulting and high-tech R&amp;D. Prior to Fletcher, Dean Chakravorti was a Partner at McKinsey &amp; Company and a Distinguished Scholar at MIT’s Legatum Center for Development and Entrepreneurship. He has also served on the faculty of the Harvard Business School and the Harvard University Center for the Environment. Chakravorti’s book, The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World, Harvard Business School Press; 2003, was rated one of the best business books of the year by multiple publications and was an Amazon.com best seller on innovation.</p> </td> </tr><tr><td><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/authors-rusty.jpg"></td> <td><p><b>Christopher (Rusty) Tunnard&nbsp;<br> </b><i>Professor of the Practice of International Business Christopher</i></p> <p>(Rusty) Tunnard is Professor of the Practice of International Business at The Fletcher School and a Senior Fellow at the Center for Emerging Market Enterprises. A recognized expert on technology-led change in the international communications, travel and financial service industries, he was for many years a Principal at Arthur D. Little (ADL) in its Travel and Technology practice in Brussels and London. Prior to joining ADL, he directed worldwide strategy and technology partnerships for the Travel Division of American Express. At Fletcher, he teaches courses in global consulting and in social network analysis. His research interests include the impact of social networks and social media on institutions, organizations and civil society. Dr. Tunnard holds MA, MALD and Ph.D. degrees from Fletcher and he received an AB from Harvard.</p> </td> </tr><tr><td><img width="99" height="105" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/authors-ravi.jpg"></td> <td><p><b>Ravi Shankar Chaturvedi;</b><br> <i>Research Fellow for Innovation and Change</i></p> <i></i><p>Ravi Shankar Chaturvedi is a Research Fellow for Innovation and Change at IBGC where he leads the Planet eBiz study, which analyzes the forces that drive digital evolution and the future of global commerce. He has extensive experience in emerging markets, strategy and business management and the payments industry. Prior to Fletcher, Chaturvedi was the Head of Portfolio and Products for the Middle East and North Africa region at American Express. He also worked in various capacities in parts of Asia for a decade with organizations such as Standard Chartered, HSBC and Hewlett Packard. Chaturvedi holds the MIB degree from The Fletcher School, where he was&nbsp;an Emerging Markets Enterprise Scholar. He also has an MBA from the Asian Institute of Management, Philippines.</p> </td> </tr><tr><td>&nbsp;</td> <td><p><b>Editor</b><br> Elke Jahns-Harms</p> <p><b>Research Team</b><br> <b></b>Caroline Troein<br> Cassandra Pagan<br> Christina Filipovic<br> Panagiota Kaltsa<br> Ruiruo Wu<br> Sarah Ryan<br> Shruti Viswanathan<br> Trisha Taneja<br> </p> </td> </tr></tbody></table> About<table cellspacing="0" cellpadding="1" border="1"> <tbody><tr><td><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/institute-business-global.jpg"></td> <td><p><b>Institute for Business in the Global Context</b><br> </p> <p>The Institute for Business in the Global Context (IBGC) connects the world of business to the world. It is the hub for international business at The Fletcher School, the oldest graduate school of international affairs in the United States. The Institute takes an interdisciplinary approach, preparing global leaders who can cross borders of many kinds and integrate business skills with an understanding of the geopolitical, legal, financial, security, macroeconomic, humanitarian and environmental impacts on business. The Institute is organized around four core activity areas: education, research, dialogue and a lab. The Master of International Business degree and leadership development programs are at the heart of the education mission. These offerings, coupled with original research in multiple areas — inclusive growth, innovation and economic development at scale, sovereign wealth and global capital flows, among others — facilitate a vibrant dialogue on contemporary global issues through conferences, symposia and speaker events. The lab creates opportunities for student teams to take knowledge into the “field” to effect change through entrepreneurial startups and consulting projects. The Institute also houses the Council on Emerging Market Enterprises, a think tank comprising distinguished practitioner-scholar experts, who collaborate with the Institute and The Fletcher School on a variety of initiatives, such as research&nbsp;programs, symposia and conferences.</p> </td> </tr><tr><td><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/fletcher-school-tufts-university.jpg"></td> <td><p><b>The Fletcher School at Tufts University&nbsp;</b><br> </p> <p>The Fletcher School of Law and Diplomacy at Tufts University is the oldest exclusively graduate school of international affairs in the U.S., working to solve the world’s most pressing problems through a collaborative, cross-disciplinary approach to research and education. Since 1933, The Fletcher School has prepared the world’s leaders to become innovative problem-solvers in government, business and non-governmental organizations with strategic cross-sector networks. Through our ongoing commitment and rigorous approach to advancing world knowledge through research and scholarship, The Fletcher School continues to inform and build bridges to meaningful&nbsp;global solutions.</p> </td> </tr><tr><td><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/anabel-gonzalez.jpg"></td> <td><p><b>A Message From Anabel González</b><br> <i>Senior Director of the Trade and Global Competitiveness Practice, The World Bank<br> </i><br> I congratulate The Fletcher School at Tufts University for taking the lead in measuring the digital evolution of nations in a dynamic and integrative manner and it is with great pleasure that I am introducing the Digital Evolution Index (DEI) to the wide set of users who would find it of interest and use. The DEI and this Digital Planet Report are the culmination of six years of data that illuminate the unique trajectories of 50 countries as they usher their citizens and economies into the digital future. The six years following the great global economic decline in 2008 and the ongoing developments make for an interesting study. The report has many rich insights on the regenerative capacities of countries, governments, consumers and businesses as they dust themselves off and prepare to meet the challenges and opportunities of a rapidly digitizing world. &nbsp;</p> <p>For policymakers and governments, this Index provides the insights necessary to design policies that can boost digital competitiveness. For businesses, investors and entrepreneurs in the digital economy, the DEI uncovers patterns that can inform their strategies as they seek to expand globally. While there is a great deal of optimism around the potential economic and social gains from improved information and communication technologies, countries would need to improve policies and businesses would have to formulate cogent strategies based on a strong grasp of the quality and depth of digital ecosystem. They need also a means to compare the quality of digital ecosystems across markets. The old adage “we can’t improve what we don’t measure” rings true as we consider the economic impact of digital technologies on humankind. To measure and offer pointers for improvement requires knowledge and the DEI distinguishes itself as a knowledge asset in this regard.&nbsp;</p> <p>The Fletcher School’s dynamic classification of evolution zones captures the journey of individual countries and adds a refreshing element of nuance to understanding complex digital ecosystems. Rather than use a static ranking system, the DEI illustrates how countries evolve over time through the interplay between innovation, institutional policies, demand and supply conditions. This approach allows countries not only to benchmark against the best, but also to track their own progress and identify where policy improvements may be made.</p> <p>While the countries represented in this maiden initiative cover 73 percent of the world’s population, the remaining countries — many of which are developing — would also benefit from knowledge shared through this Index. I am sure that the Fletcher School will continue to consolidate this Index and even expand the scope of this important study in the coming years.</p> <p>I welcome you to discover the insights, patterns and surprises in this report.<br> <br> <img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/anabel-gonzalez-signature.jpg"></p> </td> </tr></tbody></table> Overview<p>This report introduces the Digital Evolution Index (DEI) as a way to gauge the transformation of economies in the advanced and developing world from traditional brick-and-mortar to digitally enabled. The DEI measures the digital trajectories of 50 countries to provide actionable, data-informed insights for businesses, investors and policymakers. Created by The Fletcher School, in collaboration with MasterCard Worldwide and DataCash, the DEI analyzes the key underlying drivers and barriers that govern a country’s evolution into a digital economy: Demand, Supply, Institutional Environment and Innovation. A longitudinal analysis of these four drivers during the years 2008 to 2013 reveals both the current state of a country’s digital economy, as well as changes over time. Combining these two measures allows us to assign each country to one of four Trajectory Zones:</p> <ul> <li>Stand Out countries have shown high levels of digital development in the past and continue to remain on an upward trajectory.&nbsp;<br> <br> </li> <li>Stall Out countries have achieved a high level of evolution in the past but are losing momentum and risk falling behind.<br> <br> </li> <li>Break Out countries have the potential to develop strong digital economies. Though their overall score is still low, they are moving upward and are poised to become Stand Out countries in the future.<br> <br> </li> <li>Watch Out countries face significant opportunities and challenges, with low scores on both current level and upward motion of their DEI. Some may be able to overcome limitations with clever innovations and stopgap measures, while others seem to be stuck.<br> </li> </ul> <p><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure1.jpg" target="_blank"><img width="300" height="251" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure1.jpg"></a></p> <div><b>&nbsp;</b></div> <div>The DEI reveals actionable insights for governments, businesses and investors:<br> <br> </div> <ul> <li>Break Out countries such as India, China, Brazil, Vietnam and the Philippines are evolving rapidly. If their evolution rates sustain, these countries will emerge as strong digital economies. However, the next phase of growth is harder to achieve and requires a concerted effort across drivers by all actors concerned. The greatest challenges to growth and opportunities for improvement in the medium term in these markets lie in improving supply infrastructure and in nurturing sophisticated domestic consumers.<br> <br> </li> <li>Stand Out countries such as Singapore, Hong Kong, the United States and New Zealand have highly evolved digital ecosystems, with very competitive e-commerce markets supported by cutting edge infrastructure and sophisticated domestic consumers. Sustaining upward trajectories at this level is difficult. To remain Stand Out markets, these countries need to continue to fast-track innovation and seek markets beyond their borders.</li> </ul> <ul> <li>Stall Out countries (most of Western and Northern Europe, Australia and Japan) can only jumpstart their economies by following what Stand Out countries do best: redoubling on innovation and continuing to seek markets beyond domestic borders. Stall Out countries are also older and aging: Attracting highly talented young immigrants could help revive innovation.<br> <br> </li> <li>Watch Out countries are home to 2.5 billion people. The biggest among them — Indonesia, Russia, Nigeria, Egypt and Kenya — have institutional uncertainty and a low commitment to reform. The other distinguishing aspect of Watch Out countries is that they possess one or two outstanding qualities — predominantly demographics — that make them attractive to businesses and investors. These countries expend a lot of energy innovating around institutional and infrastructural constraints. Unclogging these bottlenecks would enable these countries to direct their innovations where they matter most.</li> </ul> <p>The report begins with an explanation of how the DEI is constructed and then presents country scores and rankings. This is followed by a discussion of the Trajectory Zones at the end of Section 2. In Section 3, we present key patterns, insights and surprises gleaned from DEI data. We conclude with emerging implications for businesses, investors and policymakers.</p> <p></p> 1. Introduction<p><b>The Internet has come of age.</b> Twenty-one years since the marketplace first took notice, the World Wide Web today is the heart of the global economy, channeling interactions for nearly 40 percent of the world’s population.<sup>1 </sup>It took the internet 12 years to gather its first billion users and a third of that time to amass its third billion.<sup>2</sup> Meanwhile, the emerging world is leapfrogging toward mobile phones at an astonishing pace, opening more avenues to internet adoption. Broadband subscriptions on mobile phones, now 34 percent of global mobile phone subscriptions, have tripled since 2008.<sup>3</sup> The next billion Internet users, logging on in an era of near-universal mobile connectivity, offer promise of greater economic growth and increased business opportunities.</p> <p><b>The next billion will be different.</b> The current 3 billion started off primarily as Internet users, surfing and emailing, before they became consumers of digital marketplaces. The next billion, already mobile customers used to interacting and transacting in a mobile ecosystem, will start off not as mere users, but rather as e-consumers: it’s a small step from downloading a ringtone to downloading a book. This has profound implications for the future of global commerce. Where the future e-consumers will come from, who they are, what they are like and how they will shape the digital marketplaces of the future are questions of great importance to businesses and investors globally. The answers depend on how governments, businesses and consumers co-evolve to face the challenges and opportunities of the digital future.</p> <p><b>Investor interest is driving competitive activity and innovation in digital marketplaces.</b> In anticipation of universal mobile Internet access, institutional investors and sovereign wealth funds are pouring money into e-commerce ecosystems and digital marketplaces in the emerging world. In just one week in July 2014, India saw investments of $3 billion flow into competing digital marketplaces Amazon and Flipkart.<sup>4</sup> The Chinese e-commerce giant Alibaba’s IPO in September 2014 ranks among the largest public offerings on record and Rocket Internet, the German startup conglomerate aiming to be the Amazon of the developing world, has been valued at $4.3 billion following a stake sale to the biggest telecom operator from the Philippines.<sup>5&nbsp;</sup></p> <p><b>Understanding the many forces that drive digital evolution will help in designing regulatorypolicies, steering innovation and allocating resources.</b> To measure the digital trajectories of countries and to provide actionable, data-informed insights for businesses, investors and policymakers, The Fletcher School, in collaboration with MasterCard Worldwide and DataCash, created the <b>Digital Evolution Index</b> (DEI). The DEI analyzes the key underlying drivers and barriers that govern a country’s evolution into a digital economy: Demand, Supply, Institutional Environment and Innovation. A longitudinal analysis of these four drivers during the years 2008 to 2013 enables us to make sense of the evolving global digital landscape, reveal patterns and provide insights into both current consumers and those to come.</p> 2. The Digital Evolution Index<p>&nbsp; &nbsp; &nbsp; &nbsp;&nbsp;</p> 2.1 The Drivers of Digital Evolution<p>The Digital Evolution Index analyzes the key underlying drivers that govern a country’s evolution into a digital economy:&nbsp;<b>Demand Conditions, Supply Conditions, Institutional Environment and&nbsp;</b><b>Innovation and Change.&nbsp;</b>To gain a comprehensive view of digital readiness across countries, we further divided these drivers into 12 components, measured using a total of 83 indicators. (The four drivers, 12 components and sample indicators are laid out in Figure 2.)</p> <p>Very early in our research, we recognized that digital evolution isn’t governed by just one, two or a few silver bullets such as technology, government regulation, consumer behavior or fulfillment networks. It is these factors and many others, often in different combinations in different countries. An insight into the drivers of the digital economy helps us move beyond a static snapshot and appreciate the systemic nature of forces at play. It enables us to explain why some countries are transitioning more quickly than others from brick and mortar to digital systems and outline the contributions that specific actors in the private and public space can make to unclog bottlenecks and to get innovation moving. Finding these key leverage points could propagate changes through the entire system. This systemic approach also helps explain why change may be slower than expected: The interlocking nature of these indicators could keep the status quo frozen until certain essential barriers are overcome.</p> <p><b>Figure 2: The Drivers of Digital Evolution</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure2.jpg"><img width="399" height="224" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure2.jpg"></a></p> <p><b>Supply Conditions</b></p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/supplyconditions.jpg"></p> <p><i>How developed is digital and business infrastructure?<br> </i>The Index looks at both digital supply conditions, such as available bandwidth and security of transactions, as well as physical infrastructure like quality of roads. Developing countries with fledgling infrastructure comprise the low end of the scores on the Supply driver.</p> <p><b>Demand Conditions</b></p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/demandconditions.jpg"></p> <p><i>Are consumers willing and able to transact in the digital environment?<br> </i>While high demand is always a welcome sign, low demand scores can be interpreted as an indication of untapped market potential that investors and businesses can take advantage of in an enabling institutional environment. Income, Internet usage and use of financial services all play a role in determining demand.</p> <p>Demand fell in many of the developed countries most affected by the Great Recession. As the majority of these countries already have high levels of Internet usage, strong social media participation and a robust electronic payments culture, consumption will be a key factor in improving this driver over time. By contrast, emerging markets are seeing steady growth across all three components. As a result, these countries have headroom for demand growth over a longer period of time before leveling out.</p> <p><b>Institutional Environment</b></p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/institutional-environment.jpg"></p> <p><i>Are government policies and regulations facilitating the creation of digital ecosystems?<br> </i>Political stability and rule of law are basic starting points. Beyond those, the institutional environment is measured on more than simply tax rates and openness of government policies. It takes into account how governments enact business-friendly regulations while also helping to build common infrastructure to facilitate trade. Internet and communications regulation plays a role: The network neutrality debate in the United States and instances of Internet censorship in many parts of the world highlight the ability of governments to fundamentally alter and control the nature of the Internet. On the other hand, enabling governments are creating new opportunities for businesses by bringing their citizens online.</p> <p>Changes in government policies and practice tend to be slow and gradual. From 2008-2013, emerging markets showed a slight decline in the Institutional Environment driver, while developed countries displayed gradual improvement.</p> <p><b>Innovation and Change</b></p> <p><img src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/innovation-change.jpg"></p> <p><i>What is the extent of innovation happening in the digital commerce realm?<br> </i>The Index considers investments into digital ecosystems (with private equity inflows as a proxy) and ease of creating startups. While many of the elements that are important to startups have deep connections to the other three drivers, this driver uses proxies to help measure the quality of innovation in our 50-country sample. Though developed countries do dominate the top rankings for the first three drivers, emerging and frontier markets, buoyed by investor interest, make a strong showing in the Innovation and Change driver.</p> <p></p> 2.2 Country Scores and Rankings<p>The 50 countries we chose for our analysis span a wide range between developed and emerging economies and together represent almost three quarters of the global population (5.2 billion). These are where most of the world’s current Internet users live and where the next billion users are likely to come from.</p> <p><b>Figure 3: Digital Evolution Index 2013 Map</b></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure3.jpg"><img width="345" height="275" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure3.jpg"></a></p> <p><b>Figure 4: Composite DEI Score and Rankings (2013)</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure4.jpg" target="_blank"><img width="355" height="307" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure4.jpg"></a></p> <p>The 2013 DEI score tells us the current state of a country’s digital landscape. However, digital development is not static: DEI score alone in any year does not tell us how a country has progressed over time or where it is likely to go in the future. One way to measure this change is simply to look at how scores have increased or decreased in the recent past. We chose 2008 as a starting point to look at how countries have been faring after the Great Recession. Figure 5 lists changes in DEI score (in absolute terms) between 2008 and 2013 and ranks countries from rapidly advancing to rapidly receding. China has seen the largest increase in score, while the Netherlands shows the largest decrease.</p> <p><b>Figure 5: Change in Scores Since 2008</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure5.jpg" target="_blank"><img width="386" height="287" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure5.jpg"></a></p> <p></p> 2.3 Mapping Digital Trajectories<p>Whether and how consumers engage in e-commerce will depend on the evolving ecosystems around them: both where they are today and where they might go tomorrow. We created the<b>&nbsp;DEI&nbsp;</b><b>Trajectory Chart&nbsp;</b>to address precisely these questions. We arrayed countries’ current (2013) status on the vertical axis against the five-year change in each country (positive or negative, in absolute points) on the horizontal axis. To classify the performance of countries, we divided the trajectory chart into four distinct Trajectory Zones:&nbsp;<b>Watch Out, Break Out, Stall Out and Stand Out.&nbsp;</b>Each of these is described in Figure 6. Countries move between zones as their digital ecosystems evolve and change and can embody qualities of two zones at the same time during these transition periods.</p> <p><i>The Four Trajectory Zones Defined</i></p> <p><b>Stand Out</b>&nbsp;countries do not merely have highly developed digital ecosystems, they are also continuing their upward trajectories. It is difficult for countries to sustain high improvement rates at this level; it requires continual innovation and market expansion. Those unable to maintain their momentum risk becoming&nbsp;<b>Stall Out</b>countries.</p> <p>In spite of their high scores in 2013, most parts of Northern and Western Europe are losing momentum. They straddle the Stall Out and Stand Out zones, reflecting the challenges Europe has faced since the start of the credit crisis and particularly the loss of focus on innovation. The United States, despite its role in the global financial crisis, has managed to keep its head above water, while Singapore, South Korea and Hong Kong have been consistently pushing the frontiers of digital readiness.</p> <p><b>Break Out</b>&nbsp;countries have low current scores but are evolving rapidly. If their evolution continues at this rate, these developing countries will grow into strong digital economies. Though highly attractive to investors, their development is being held back by limitations in infrastructure, the absence of government policies and initiatives and a lack of adequate sophistication in consumer demand. Of great interest are the trajectories of Malaysia, China, Chile, South Africa and other leading Break Out nations: They are prime candidates for becoming the Stand Out nations of the future.</p> <p><b>Watch Out</b>&nbsp;countries face both significant challenges and opportunities, with low scores on both current level and upward motion of their DEI. Some of these countries are showing remarkable innovation in the face of serious infrastructural gaps and institutional constraints, creating clever stopgaps to overcome and work around these limitations. The rest seem to be stuck or receding&nbsp;and risk being left behind as others embrace digital opportunities.</p> <p><b>Figure 6: Trajectory Chart</b></p> <p><b></b><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure6.jpg" target="_blank"><img width="339" height="353" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure6.jpg"></a></p> <p></p> 3. Patterns, Insights and Surprises<p><b>&nbsp; &nbsp; &nbsp; &nbsp;</b></p> 3.1 The Rest evolve differently from the West<p>It is tempting to conclude that countries progress in a defined pattern — moving from Break Out to Stand Out and then to Stall Out — given that many developed markets, formerly Stand Out countries, are Stalling Out today. However, our research shows that countries, particularly emerging economies, are following unique paths and that&nbsp;<i>there is very little about the digital past and&nbsp;</i><i>present of the West that instructs us about the digital present and future of the Rest.</i></p> <p>The momentum and direction of countries over time result from the interplay of the many systemic elements (in at least 83 categories spanning four drivers) that govern their digital transition. While there isn’t one grand pattern, to the extent that the four drivers are correlated, the evolution follows a linear path. When drivers are not correlated — as is often the case in emerging markets — the trajectory is nonlinear and more often a random walk. Demographics and innovation factors may push these countries ahead, while institutional and contextual factors often slow them down.</p> <p></p> 3.2 Neighborhoods matter<p>While the DEI reveals no predetermined path of digital evolution, geography clearly matters: countries are more likely to grow and change with their neighbors. Shared cultural norms; similar social, political and economic environments; and demonstration effects could all play a role.</p> <p><b>Figure 7: Trajectory Chart Regional View – Europe<br> Figure 8: Trajectory Chart Regional View - Asia</b></p> <p><img width="429" height="187" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure7-8.jpg"><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure7-8.jpg"></a></p> <p>Though Europe as a whole is spread over three evolution zones, Northern (especially the Nordics), Central, Eastern and Southern Europe display comparable rates and states of digital development within their subgroups (see Figure 7).</p> <p>Elsewhere in the world, a similar pattern emerges (see Figure 8). Countries within East Asia have moved forward together, as have members of the ASEAN. The African countries in the Index are clustered, as are those in South America, the Middle East, North America and Australasia.</p> <p>Thus, we can reasonably infer that a country’s position on the Trajectory Chart is partly affected by its regional location, which presents both opportunities and challenges: A country can be pushed forward or held back by its neighbors. Regional economic groupings and related harmonization of institutions and supply chains have had a positive impact on some individual country scores over time, as seen in Poland, Estonia and Malaysia. The countries that are likely to evolve differently from their neighbors are those in the Break Out zone, gearing up to leave many of their neighbors behind.</p> <p></p> 3.3 Innovative Hybrids: Combining cash and e-commerce<p>In some innovative emerging economies, hybrids combining two or more elements of the digital commerce value chain — access, marketplaces, transaction and delivery — are springing up to bridge infrastructure gaps. Cash on delivery where electronic payments are thin; tablet-toting vendors where access is patchy; and delivery personnel doubling up as sales persons to cross-sell or upsell are but some of the strategies showing great success in these markets.</p> <p><i>The Rest pay differently than the West</i></p> <p>Conventional wisdom suggests that the digital economy requires a population able and willing to conduct financial transactions online. After all, developed economies have created efficient e-commerce models by relying on strong electronic payment networks: Amazon’s success in the West was built on consumers’ willingness to transact online and on its ability to make payments with credit, debit or prepaid cards to purchase goods and services.</p> <p>The Western experience would suggest that countries with a heavier reliance on cash over electronic transactions in retail purchases would have a longer path to travel before achieving high levels of digital commerce activity. However, data from the Index points to the contrary. A combination of fledgling infrastructure, cultural preferences and distrust of electronic payments have entrenched cash into emerging digital ecosystems without necessarily slowing their evolution. Figure 9 shows countries’ speed of digital evolution plotted against their level of cash reliance (which takes into account savings and credit profiles, digital money footprints, interactions with formal financial systems, prevalence of debit and credit cards, and the amount of Internet retailing). Countries on the upper left of the graph such as India, Indonesia and Colombia all have high cash dependence and indeed preference, yet digital marketplaces in these countries have been innovating at a remarkable pace. E-commerce players are simply working with and around the persistence of cash.</p> <p><b>Figure 9: Cash in the Digital Economy</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure9.jpg" target="_blank"><img width="277" height="224" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure9.jpg"></a></p> <p><b><i>Innovative companies in these countries have been crafting solutions that accommodate society’s predilection for cash.</i></b></p> <p>Indian businesses lead this trend: They have found that allowing consumers to touch and feel the product before paying up helps build consumer trust in e-commerce.<sup>6</sup>&nbsp;Gaining this trust at an early stage becomes particularly important in a country with a young population that has yet to reach the height of its purchasing power. Indian companies such as Flipkart and Snapdeal offer cash on delivery (COD) options. In fact, 50 percent of Snapdeal’s transactions use this payment method.<sup>7&nbsp;</sup>Amazon also localized its approach in India to offer COD as a service. Startups such as Delhivery that offer fulfillment and last mile services across India, including COD reconciliation and remittances<sup>8</sup>, have been garnering investor interest.<sup>9</sup></p> <p>Other companies outside India offer similar services. Kaymu, an online marketplace in more than 20 countries in Africa and Asia and Lazada, an online retail giant in Philippines, both offer COD as a mode of payment.<sup>11</sup>&nbsp;Indeed, consumers have a high preference for the COD mode in many of the fastest-moving economies in our index.</p> <p><b></b></p> <p>Cash on delivery is not the only alternative payment model. The Indian Internet and technology company Sify allows customers to pay cash offline for e-commerce transactions at its browsing centers; 90 percent of the center’s transactions are paid for in this way.<sup>12</sup>&nbsp;In Indonesia, bank transfer via ATM is emerging as the preferred payment method. To accommodate this, a majority of online portals allow a 24-48 hour payment window, after which the transaction is automatically cancelled.<sup>13</sup></p> <p>Cash is here to stay for the short to medium term in many emerging economies and digital marketplaces that make room for cash in their models will gain market share and consumer trust. Investors are funding startups that are innovating around cash in e-commerce, to shorten the cash cycle for merchants and to make cash transactions faster and safer.<sup>14</sup>&nbsp;Such innovations will reinforce consumer preference for dealing in cash, entrenching cash further in the digital economy of the emerging world.</p> <p><b><i>By contrast, fast-moving China is embracing digital money.</i></b></p> <p>Third-party payments are becoming increasingly competitive, partly thanks to the proliferation of phone apps. Alibaba, Baidu and Tencent, China’s three tech giants, are continuing to add features to their online payment systems that link finance, e-commerce and social media.<sup>15</sup>&nbsp;As a result, China’s total m-commerce revenue was estimated at $3.7 billion in the second quarter of 2014 alone.<sup>16&nbsp;</sup>Thus, while India, Indonesia, Vietnam and other fast-moving markets are entrenching cash in their digtal economies, China is moving firmly in the other direction.</p> <p></p> 3.4 Untapped potential: attractive demographics and underinvestment<p><b><i>Young, large and growing</i></b></p> <p>Some of the countries that appear in the Break Out zone and on the cusp are also some of the world’s most populous nations, including China, India, Mexico, Indonesia, Brazil and the Philippines. Figure 10 shows the relative population size of these countries. Since all our components that measure demand are calculated on a per capita basis to allow for comparability, the growing per capita demand score multiplied by the size of populations reveals immense demand potential. The existence of this potential begs a key question: Are investment dollars chasing these attractive demographic segments?</p> <p><b>Figure 10: Trajectory Chart and Populations</b></p> <p><b></b><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure10.jpg" target="_blank"><img width="271" height="228" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure10.jpg"></a></p> <p><b><i>Under-invested high momentum markets</i></b></p> <p>The analysis of private equity investments in digital ecosystems, our proxy for the overall state of investment in a country’s digital economy, reveals that the most populous nations such as India, China and Brazil are attracting the highest share of investment dollars. At the same time, mid-sized and smaller countries that are evolving quickly and have a young, growing population are left underinvested. As shown in Figure 11, countries such as the Philippines, Chile, Colombia, Thailand and Malaysia are evolving quickly despite much lower investor interest. The ASEAN nations should be particularly attractive to investors due to growing opportunities associated with their increasingly integrating common market and its high momentum.</p> <p></p> <p><b>Figure 11: Private Equity Investment in Digital Ecosystems</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure11.jpg" target="_blank"><img width="283" height="253" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure11.jpg"></a></p> <p><b><i>Growing demand sophistication driving digital growth in South America</i></b></p> <p>South American countries in the Index have witnessed remarkable growth in digital services and usage. With 85 percent of the population expected to have a mobile connection by 2015, Brazil is a Break Out country ranked as the 11th fastest-moving economy in our Index. Today, Brazil is the center of e-commerce in the region, representing 59 percent of Latin American e-commerce revenues.<sup>18</sup>&nbsp;Further, Brazilian consumers are more likely than those in other countries to join social media and to use it for making online purchasing decisions.</p> <p></p> <p>While Brazil has attracted investor interest largely by its population size, other Latin American countries are not drawing their fair share of investments. In spite of low private equity investment, Chile (another Break Out market) is ranked as the eigth fastest evolving country in the Index, due to strong growth in the Innovation and Demand drivers. Chileans, like Brazilians, are e-commerce veterans. More than 70 percent of Chileans have used a laptop or personal computer to buy online. 17 percent of online shoppers have been doing it for more than six years and 77 percent have been using it for more than two years. There is no need to acquaint these users with online markets; they already transact there.<sup>19</sup></p> <p><b><i>Sparks of innovation amid political unrest in Africa</i></b></p> <p>The four African countries in the DEI are among the most attractive consumer markets in the region. However, they represent some of the lowest scores in the Index, making the future prospects for e-commerce growth uncertain. Nonetheless, there are reasons for hope as well. Egypt, having gone through a tumultuous political period since the Arab Spring, has fallen 7 percent in its DEI score since 2008. However, it has strong growth in its Demand driver, backed by a young population. With businesses and consumers eager to exploit online opportunities, Egypt may have a bright digital future both in its domestic market and as a regional hub for the wider Arabic speaking Levant and North African region — if it is able to improve government policies, encourage innovation among its entrepreneurs and attract investors to improve its supply infrastructure. Businesses that are keen to take advantage of Egypt’s pent up demand must be poised to act as the country stabilizes and find ways to operate with resilience and redundancy as the political situation changes. Egyptians themselves are becoming more digitally savvy, as displayed by the extensive use of social media during the Arab Spring.</p> <p>Kenya, another Watch Out country, has also had economic and political challenges. It shows slow digital evolution despite important innovations, such as its M-Pesa mobile payment system that has become a benchmark for the rest of the world. M-Pesa, whose customer base accounts for more than two-thirds of Kenya’s population,20 lets people without links to formal banking systems conduct financial transactions via mobile phones.21 Mobile is clearly a part of Kenya’s digital future: in 2013, more than 31 percent of Kenya’s GDP was spent through mobile phones. For businesses, this growth in mobile usage is an immense opportunity. With local businesses and consumers already comfortable with transacting on mobile phones and given its strong mobile payments network, Kenya’s digital commerce prospects look bright.</p> <p></p> 3.6 Institutions: Boosters or bottlenecks?<p>Policy and regulatory environments can have a disproportionate effect on e-commerce growth. Environments that promote rather than restrict the digital economy are a competitive advantage: Chile, Malaysia and Estonia are reaping the benefits of their forward-looking governments. By contrast, the lack of effective institutions can stymie the growth potential of e-commerce in some of the biggest emerging economies, including China, India and Brazil.</p> <p>Figure 12 illustrates the impact of the “Government and the Digital Ecosystem” component, which measures government interaction with and regulation of the e-commerce and ICT sectors. This component correlates strongly with composite 2013 DEI score, though it is only one of three components in the Institution Driver (and each Driver is weighted 25 percent of the composite score). Countries such as Singapore, Sweden, the United States, the Netherlands, Germany and Japan have all promoted competition and innovation and made many government services available online. All of them perform well on the “Government and Digital Ecosystem” component and score well overall. On the other end of the spectrum, countries such as Nigeria, Kenya and Egypt all perform poorly on this component and have a corresponding low composite score.</p> <p><b>Figure 12: Governments and the Digital Ecosystem</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure12.jpg" target="_blank"><img width="309" height="257" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure12.jpg"></a></p> <p>Estonia’s careful government stewardship showcases the positive role that institutions can play in digital advancement. Since regaining independence in 1991, Estonia’s government has promoted the latest technology, choosing to integrate IP telephony instead of cheaper switchboards, adding chip identification to national ID cards and expanding WiFi and mobile Internet to cover the entire country. It has managed to develop an integrated and seamless digital health record system that surpasses that of the UK. As a result, Estonia now ranks 11th in Institutional Environment score and 24th overall.</p> <p><b><i>Outliers</i></b></p> <p>Even though the Institutional Environment driver as a whole is relatively stable or improving in many countries, there are notable exceptions. While Egypt has declined the most — unsurprising given its recent political challenges — some developed Stall Out countries have also experienced worsening institutional environments. For example, Denmark’s and Austria’s scores decreased slightly in both the “Government’s Digital Ecosystem” and “Government Policy Toward Businesses” components.</p> <p></p> <p>Interestingly, some countries remain in a Break Out trajectory, with strong increases in digital evolution, despite restrictive institutions. China is particularly notable; it is the most rapidly evolving country in the Index, yet has a highly limiting digital content regime, ranking 37th on the Institutions driver. China has seen profound growth of domestic Internet companies, while proving a hostile environment for foreign companies such as Google that want to follow Western digital content conventions. So far, China has succeeded in remaining attractive to foreign companies because of its significant demand growth, making some companies willing to deal with its restrictive regulations. Still, China typifies the challenge that countries with restrictive governments must face: By making themselves less attractive to foreign companies and investments, they must carefully grow their own domestic companies to meet and nourish the appetites of their citizens.</p> <p>To date, it does not appear that the world is converging on a particular model of digital governance. Ongoing global e-governance discussions reveal that governments are generally pursuing three different approaches: the Chinese model of “orderly flow of information,” the Russian model of “network control” or the Western model of “free flow of information” — or some combination of the three. It remains to be seen which, if any, of these models becomes dominant.</p> <p></p> <p><b><i>Regional institutions matter as well</i></b></p> <p>Institutions are not just important within a country’s borders: Regional cooperation can allow countries to pool resources and expand both their digital capacity and reach. This goes beyond the “neighborhood effect” discussed earlier, in which some neighbors appear to have comparable evolution trajectories due to demonstration effects and shared cultural norms. The formation of the European Union has allowed the continent to move ahead on contentious issues where wider international agreement remains lacking. The EU has been a world leader in digital policy in the realm of cybercrime and consumer privacy, partly because of the strength of its coalition. Further, the European common market has provided smaller local markets with access to a wider consumer base and increased investment. While European states are evolving at varying speeds, there remains an important role for collaboration.</p> <p></p> <p>Similar patterns of collaboration are taking root in Asia. ASEAN’s steps toward a liberalized economic zone within its 10-member bloc would create the world’s seventh largest economy — ahead of India — with a combined GDP of $2.4 trillion and a combined population of more than 620 million. 22 This promise of freer flow of goods, services, skilled labor and capital opens up opportunities for businesses and investors seeking an investment counterweight to India and China.</p> <p></p> 4. Emerging Implications<p>The Digital Evolution Index is a comparative framework that reveals how Supply, Demand, Institutions and Innovation Drivers are shaping the digital economy. Governments, entrepreneurs, businesses and investors would all benefit by considering the entire ecosystem rather than focusing on a single silver bullet. Businesses of all stripes — the players directly involved in the digital commerce ecosystem and the intermediaries and technology firms that cater to these players — tend to seek out opportunities to fill gaps between supply and demand: here they have the greatest leverage and payoffs in the short run. It is their ability to innovate and navigate institutional constraints — where their leverage is lower and the payoffs more distant — that will determine their economic success in the long run. For their part, governments and policymakers would do well to look to the best performers on the Index as models for improving their own institutional and infrastructural environments. Below are some of the observations for each of the evolution zones and actionable implications for actors — public and private — that emerge from our research.</p> 4.1 Break Out Countries<p><b>Break Out</b>&nbsp;countries such as India, China, Brazil, Vietnam and the Philippines are evolving rapidly. If their evolution rates sustain, these countries will emerge as strong digital economies. However, the next phase of growth is harder to achieve and requires a concerted effort across drivers by all actors concerned. The greatest challenges to growth and opportunities for improvement in the medium term in these markets lie in improving supply infrastructure and in nurturing sophisticated domestic consumers.</p> <p></p> <ul> <li><b>National Governments</b>: Easing bottlenecks in supply conditions ought to be a top priority. Policymakers and regulators would do well to create conditions favorable for private and foreign investors to step in and compete to improve the quality of digital and physical infrastructure. Upgrading ICT infrastructure and reach, deepening access to financial services and building transportation facilities that can cater to the needs of a growing population will help sustain high evolution rates.</li> </ul> <p></p> <ul> <li><b>Businesses</b>: Significant opportunities exist for businesses engaged with components of the supply driver, especially for telecom and ICT enterprises, financial services organizations and infrastructure firms. At the same time, entrepreneurs and businesses involved in consumerfacing digital commerce need to create, nurture and improve the quality of demand. Businesses in China and India offer an interesting contrast in demand sophistication and approaches to payment methods. In China, digital commerce players such as Alibaba and WeChat have made great strides in integrating mobile payment systems into their businesses, whereas in India, Snapdeal and Flipkart cater to the consumer’s predilection for cash.</li> </ul> <p></p> <ul> <li><b>Investors</b>: Break Out markets are home to 3.35 billion people in some of the fastest moving countries on the DEI and provide a wide range of opportunities for institutional investors to improve supply conditions. The vibrant digital commerce space in these markets is ripe for private equity and venture capital investments. Owing to their large size, China, India and Brazil have garnered the highest interest from private equity players, while the increasingly integrating ASEAN economies, most of which are Break Out markets, have received relatively little private equity investment. ASEAN’s integration and tariff harmonization will generate opportunities for the creation of regional marketplaces and delivery networks.</li> </ul> <p></p> <ul> <li><b>Regional and International Organizations</b>: With the exception of Singapore, most of the ASEAN members are in the Break Out zone. The ASEAN Economic Community, due in December 2015, will facilitate the free flow of goods, skilled labor and capital and is crucial to the overall development of the region. Rising protectionism in Indonesia could derail progress, however. The most populous nation in the region, it is lagging behind its neighbors on the DEI and has implemented measures in the recent past to restrict the free flow of labor and skilled workers. Collaboration at a regional level and a commitment to shared regional prosperity are paramount.</li> </ul> <p></p> <ul> <li><b>Areas for Public–Private Collaboration</b>: Financial inclusion remains a challenge in most of the Break Out markets. This is an area ripe for public-private partnerships. PPPs can also help plug the gaps in inadequate infrastructure, freeing up government budgets to attend to other pressing priorities.</li> </ul> <p></p> 4.2 Stand Out Countries<p><b>Stand Out</b>&nbsp;countries have highly evolved digital ecosystems, with very competitive e-commerce markets supported by cutting-edge infrastructure and sophisticated domestic consumers. Sustaining upward trajectories at this level is difficult. To remain Stand Out markets, these countries need to continue to fast-track innovation and seek markets beyond their borders.</p> <ul> <li><b>National Governments</b>: To remain on the cutting edge of digital innovation requires a highly skilled talent pool. Thus, governments of Stand Out countries would do well to invest in education and open their doors to highly skilled immigrants. Estonia leads on both counts. First graders learn coding skills in public schools and well before it joined the EU, talent from neighboring Denmark and Sweden collaborated with locals to set up Skype in the country. The United States, though a Stand Out nation, risks losing its edge given its lack of commitment to immigration reforms.</li> </ul> <p></p> <ul> <li><b>Businesses</b>: Digital commerce companies based in Stand Out nations operate in highly sophisticated and competitive home markets, but their domestic consumers number only 500 million. Hence, these businesses must seek out new markets to export their digital innovations. Israel, a nation famous for startups, leads the way on this. Israel’s Waze Mobile, a geographical navigation app that can be used anywhere in the world, was bought by Google in 2013 for $1.3 billion.<sup>23<br> <br> </sup></li> <li><b>Investors</b>: Given their sophisticated domestic markets, these countries are also home to investment funds that can and do invest in regional and global digital ecosystems, giving a boost to e-commerce globally. GIC and Temasek, Singapore’s two investment funds, lead on this front, investing a combined $3 billion into digital ecosystems and e-commerce firms during 2013–2014 in India, China and other markets.<sup>24</sup></li> </ul> <p></p> <ul> <li><b>Regional and International Organizations</b>: It is in the best interest of these economies and their businesses to seek deeper regional economic integration with their neighbors, particularly in the case of businesses based in city-states and entrepôts such as Singapore, Hong Kong and Dubai. Stand Out countries would do well to take the lead in strengthening regional institutions and promoting the free flow of goods, services, labor and capital.</li> </ul> <p></p> <ul> <li><b>Areas for Public–Private Collaboration</b>: Staying in the Stand Out zone requires a tremendous amount of stamina. Private enterprise cannot do this alone, nor can governments — it requires collaboration between these groups. Businesses, governments and academics can and must create thought-leading initiatives on sustaining digital commerce ecosystems to avoid Stalling Out.</li> </ul> 4.3 Stall Out Countries<p>As of 2013, most Western and Northern European countries, Australia and Japan have Stalled Out. The only way they can jump-start their recovery is to follow what Stand Out countries do best: redouble on innovation and continue to seek markets beyond domestic borders. Stall Out countries are also older and aging: attracting highly talented young immigrants could help revive innovation.</p> <p></p> <ul> <li><b>National Governments</b>: There is a tendency for Stall Out countries to lean toward protectionism. This is a mistake. Governments must renew their commitments to investing in the education of domestic talent and attracting highly skilled immigrants who can take advantage of the high quality ecosystems to restart the innovation engines. Reforming immigration laws and enabling businesses to hire foreign talent would help; it could also attract investors back into these countries.</li> </ul> <p></p> <ul> <li><b>Businesses and Investors</b>: Stall Out nations are home to an aging population of under 500 million. While language divides many of these countries, businesses could take advantage of increased regional integration and shared cultural norms to expand their markets beyond domestic borders. Common language and shared history could make it easier for businesses and investors in these economies to expand into former colonies that are emerging and frontier markets today.</li> </ul> <p></p> <ul> <li><b>Regional and International Organizations</b>: Stall Out countries generally score highly on institutional quality. These countries would do well to lend their institutional expertise to Watch Out and Break Out markets on creating and sustaining enduring institutions.</li> </ul> <p></p> <ul> <li><b>Areas for Public – Private Collaboration</b>: Jump-starting these Stalling Out economies cannot be the job of private enterprise or governments alone. These countries, more than any others, would do well to draw on the best minds from the fields of policy, academia and business to develop strategies to regain their Stand Out status.</li> </ul> <p></p> 4.4 Watch Out Countries<p><b>Watch Out</b>&nbsp;countries are home to 2.5 billion people. The biggest among them — Indonesia, Russia, Nigeria, Egypt and Kenya — have in common institutional uncertainty and a low commitment to reform. The other distinguishing aspect of Watch Out countries is that they possess one or two outstanding qualities — predominantly demographics — that make them attractive to businesses and investors. These countries expend a lot of energy innovating around institutional and infrastructural constraints. Unclogging these bottlenecks would enable these countries to direct their innovations where they matter most.</p> <p></p> <ul> <li><b>National Governments</b>: A commitment to political stability and reform and to easing bottlenecks in supply conditions ought to be top priorities for these markets. Policymakers and regulators would do well to create conditions favorable for private and foreign investors to step in and improve the quality of digital and physical infrastructure. Upgrading ICT infrastructure and reach, deepening access to financial services and building transportation facilities that can cater to the needs of a growing population will help these economies move into the Break Out zone.</li> </ul> <p></p> <ul> <li><b>Businesses</b>: Significant opportunities exist for businesses that are involved with the components of the supply driver, especially for telecom and ICT enterprises, financial services organizations and infrastructure firms. Entrepreneurs and businesses will want to create, nurture and improve the quality of demand. Transparency of local businesses is a big concern for investors. Businesses in these markets would do well to learn from successful enterprises in Break Out markets on how to make themselves attractive to investors.</li> </ul> <p></p> <ul> <li><b>Investors</b>: The wide range of opportunities for improvement in supply conditions offer a great play for institutional investors. The nascent digital commerce space in these markets is ripe for private equity and venture capital investments. However, transparency and rule of law are major concerns that need to be addressed by governments before investors can step in.</li> </ul> <p></p> <ul> <li><b>Regional and International Organizations</b>: Despite their own institutional gaps, countries based in volatile neighborhoods, such as Egypt, Nigeria, Kenya, Russia and Saudi Arabia, are relatively better off than their neighbors. Each of them has the potential to be the anchor for a regional organization — some already are, albeit more implicitly than some others. Given the neighborhood effect, taking a leadership role in regional cooperation would benefit them and their neighbors. Some of these countries are already active in their regions in different ways. Nigeria is in ECOWAS and member of a West African monetary union. Saudi Arabia is a power broker in the Arab world and a member of the GCC. Egypt is the leading international player in its region — even brokering peace talks between Israel and Hamas. Kenya is the hub of all things digital in East Africa. Russia ... enough said.</li> </ul> <p></p> <ul> <li><b>Areas for Public–Private Collaboration</b>: Access to financial services remains a challenge in most of the Watch Out markets. This is an area ripe for public-private partnerships. PPPs can also help plug the gaps in the inadequate infrastructure, freeing up government resources to attend to other developmental priorities.</li> </ul> <p></p> <p>The Digital Evolution Index provides a deeper understanding of how the shifting digital landscape affects e-commerce growth and reveals surprising patterns and actionable insights. As we consolidate this initiative, we will continue to incorporate new countries and additional data points that capture the complexity of digital ecosystems, in order to share with stakeholders the patterns and insights we glean from digital evolution as it happens.</p> <p></p> Appendix<p><b>Methodology</b></p> <p><b>1. Structure of the Index</b></p> <p>The Index uses 83 indicators to measure the state and quality of the digital ecosystem in a country. It is structured at four levels: indicators, clusters, components and drivers. Indicators are data points that answer a specific question. Clusters are a statistical grouping of indicators; they combine and capture information from several indicators to illuminate a particular aspect that impacts the digital economy. Combinations of clusters roll up to form components, which are the building blocks for the drivers. Components are built to provide a comprehensive understanding of factors that shape and define the drivers. Lastly, the four drivers encompass forces that influence a country’s digital economy: Supply Conditions, Demand Conditions, Institutional Environment and Innovation and Change. The table below explains the structure of the Index with specific examples from the Demand driver and Financial Savviness component.</p> <p></p> <p><b>Figure 13 Sample of Index Structure</b></p> <p><a href="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure13.jpg" target="_blank"><img width="353" height="201" src="/content/dam/intelligence/content-assets/reports/2014/DigitalEvolutionIndex/figure13.jpg"></a></p> <p><b>2. Indicator Selection</b></p> <p>We chose each indicator based on two major criteria:</p> <p>a) Relevance: How vital is this data point in understanding the drivers of a country’s digital economy?</p> <p>b) Data validity:</p> <ul> <li>We chose variables from well-established data banks such as The World Bank and Euromonitor.<br> <br> </li> <li>It was also essential that the data was available for all 50 countries across the six years in order to maintain a high level of data integrity.<br> <br> </li> <li>We prioritized original data, instead of using data that had already been processed, analysed and cited by other individuals and organizations.</li> </ul> <p></p> <p>Despite our best efforts, it was impossible to collect original, raw data for all 50 countries across all variables. In such rare cases, missing data points were statistically estimated.</p> <p><b>3. Data Collection and Standardization</b></p> <p>After collecting the raw data, we transformed these variables into a 0.1-to-5 scale in order to allow for the comparability of each indicator under the same cluster. For every country, each indicator was assigned a value between 0.1 and 5, based on the relative performance of that country as compared to the others on the Index.</p> <p></p> <p>Higher scaled scores (i.e., toward “5”) indicate positive contributions to the digital performance of a country, but do not necessarily correspond to a higher raw data score. Example: For the indicator “Number of ATMS/100,000 people,” a higher number of ATMs would indicate a better supply infrastructure and better digital performance for a country (thus a higher scaled score), whereas for the indicator “Time required to enforce a contract (days),” a higher number of days required to enforce a contract would reduce a country’s ease of doing business and would thus impede digital performance, translating to a lower scaled score.</p> <p></p> <p>For certain variables, categorical 1-2-3-4-5 scaling was used instead of 0.1-5 scaling for two reasons. First, this reduced the bias from vast differences in raw data among countries by assigning countries with similar performance to the same category. Hence, countries with a range of scores that resulted in a similar performance for the indicator in question could be assigned the same categorical score. Second, a categorical scale allowed us to scale variables with qualitative answers. For example, for the Internet censorship variable, the values 3, 4 and 5 were applied to quantify survey responses that indicated “not free,” “partly free” and “free” for the Internet transparency of a country.</p> <p></p> <p>All missing data was estimated prior to being scaled.</p> <p></p> <p><b>4. Score Computation and Variable Weighting&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</b></p> <p>After scaling and standardizing the indicators, we aggregated the scaled scores to the next level — a cluster score. Cluster scores were further cumulated to provide scores for components, which were again cumulated to provide the final driver scores. The four driver scores were then aggregated to provide the final score for each country. The countries were ranked relative to each other according to their final scores.</p> <p></p> <p>We used weighted arithmetic aggregation for each level of score computation. This procedure weights each of the variables that are being aggregated (indicator, cluster, component) and then combines the scores according to the weights. This had two primary benefits.</p> <p></p> <p>First, it reduces the possibility that any shortcoming in the value of one variable could affect the score at the next level or the final score of the Index; because multiple variables are aggregated to calculate the next level score, values of other variables compensate for any possible shortcomings in one variable. This allows us to track the behavior of countries according to a broad trend rather than according to the value of a single indicator. For example, to test how evolved a country is in spending money digitally, we track the behavior of that country through several indicators (percentage of electronic payments made, ratio of Internet retailing to total retailing and purchases made via smartphone) that contribute to a broader trend, in this case the cluster named “Digital Money Savviness.”</p> <p></p> <p>Second, a weighted arithmetic aggregation reduces the redundancy of the weighting process. All variables at each level (except for driver) were assigned a weight of either 0.5 or 1 through Pearson Correlation. Variables with a correlation coefficient over 0.5 (i.e., variables that were highly correlated with each other) were assigned a half weight instead of a full weight of 1. Hence, variables that were theoretically similar and demonstrated statistical correlation were assumed to be capturing similar information and were each assigned a half weight of 0.5 so that the score at the next level would not be inflated due to double counting the same information. For certain variables where a larger amount of missing data had to be estimated, a 0.5 weight was assigned to minimize concerns of data reliability. For some specific variables that were estimated, we assigned a quarter weight of 0.25.</p> <p></p> <p>Drivers were each weighted equally to determine the final score, because conceptually, all four drivers of Demand, Supply, Institutional Environment, and Innovation and Change represented different (but equally important) aspects that contributed to the evolution of a country’s digital economy.</p> <p></p> <p><b>5. Robustness Check</b></p> <p>We validated the robustness of the model by running a Monte Carlo simulation. We verified the accuracy of the weighting process and determined how the weighting process affected the final index scores and rankings.</p> <p></p> <p>The Monte Carlo simulation comprised 10,000 runs, each corresponding to an assigned set of weights to variables at all levels (indicator, cluster, component). The weights were randomly generated from uniform continuous distributions centered in 0.5 and the range for the weights’ variation was (0.1, 1) because the weighting systems used had a scale “0.5-1.”</p> <p></p> <p>In general, the ranking of all the four drivers showed robustness while running the Monte Carlo simulation. Specifically, for the demand driver, the correlations between the ranks generated by using the assigned weights and the Monte Carlo simulated weights were around 95 percent (2008 to 2013). However, the behavior of Korea in the demand is greatly affected by the weights. The range of rankings calculated using the assigned weights and the simulated weights is as wide as 16. For the supply driver, the correlation coefficient is as high as 98 percent; the rankings of this driver were robust at the application of different weights. Similarly, we also found the other two drivers, Institutional Environment and Innovation and Change, to be robust during calculations using assigned and simulated weights.</p> <p></p> <p><b>6. Model Limitations</b></p> <p>The model we created captures data from secondary sources only. The lack of primary data is balanced by second-hand sources that are of high credibility and ones that have publicly established their data collection methodology.</p> <p></p> <p>The Index showcases the progress of whole countries, rather than cities or urban agglomerations. While the availability of country-level data makes measuring digital evolution at a national level possible, cities are known to evolve faster than other rural areas in the country and tend to offer higher growth opportunities for businesses and investors. Unfortunately, owing to paucity of data at a city-level, this dynamic of urban progress is not captured in our index.</p> <p></p> <p>As with any model and despite our best efforts, the Index is not all encompassing. We chose indicators that addressed certain questions we asked ourselves about the digital economy of a country; however, as this is a developing landscape, there is always scope for additional questions. For example, under the Supply Driver and the Fulfillment component, the indicators we chose only address questions of product delivery, not of product storage and packaging.</p> <p></p> <p>Despite our best attempts to find data for indicators across all 50 countries and six years, there were instances where data was incomplete or unavailable. In such cases, we had to estimate data for the missing years and countries. In general, indicators that had missing data were weighted less (0.5 or less) to mitigate the effect of estimation on our final results and to reduce inaccuracies. This limitation is particularly relevant for the Innovation and Change driver of the Index, as described below.</p> <p></p> <p>The Innovation and Change driver (and specifically the Extent of Disruption component) comprises data from Google that was largely incomplete. Data was only available for the years 2012-2013. Because much of the data was missing and estimating data for 4 years would have diluted our data integrity and accuracy, these indicators with missing data were left out in score estimations of earlier years. The theoretical rationale behind this is that by definition the Innovation and Change driver should capture improvements in ways of capturing information and that adding new indicators and data as they become available is a true representation of the changing digital landscape of a country. However, this addition of indicators from the year 2012 is reflected clearly in the Innovation and Change driver score; from 2012 onward there is a slight dip in the score of the Innovation and Change driver across all 50 countries. This dip in the driver score is also mirrored in overall scores since the Innovation and Change driver is the most volatile of all drivers and the final index score is sensitive to volatility (i.e., movement in scores across time).</p> <p></p> <p>Therefore, although users of the Index will notice a slight dip in Innovation and Change driver scores and overall scores from 2012, this is due to the addition of a new indicator (and a better way of measuring extent of disruption) rather than any worldwide external factor causing a deterioration of the digital economy globally. Furthermore, the reflection of this dip in driver scores in the overall score is due to the sensitivity of the Index score to the most volatile driver (i.e. the driver that changes its score most across the 6 years). We expect that as we continue to collect data for future years, the scores will level out and look smoother.</p> <p></p> This report introduces the Digital Evolution Index (DEI) as a way to gauge the transformation of economies in the advanced and developing world from traditional brick-and-mortar to digitally enabled. The DEI measures the digital trajectories of 50 countries to provide actionable, data-informed insights for businesses, investors and policymakers.http://www1.mastercard.com/content/intelligence/en/research/reports/2014/digital-planet--readying-for-the-rise-of-the-e-consumer2014-10-08T16:00:00.000Z2014-10-08T16:00:00.000ZMastercard Index Of Women’s Advancement (Miwa) 2015 1. Introduction<p>The 2015 Index of Women’s Advancement marks the 9<sup>th</sup> series of MasterCard’s effort in tracking the progress of women towards gender parity based on <i>Employment</i> (Workforce Participation and Regular Employment), <i>Capability</i> (Secondary and Tertiary Education), and <i>Leadership</i> (Business Owners, Business Leaders and Political Leaders). The results reveal that the progress made by women towards gender parity in the majority of the 16 markets<sup><a href="#1">1</a></sup> in Asia Pacific is sluggish with the large gaps in Leadership and to a lesser extent, Employment, remaining prevalent and an ongoing area of concern.<br> <br> Although opportunities exist for women to pursue higher levels of education (reflected through the high scores for Capability), labor market conditions are not always conducive for them in seeking employment. Very few women are making inroads into the business/corporate world, a situation that was highlighted in the Global Entrepreneurship Monitor (GEM) 2012 Women’s Report<sup><a href="#2">2</a></sup> whereby factors such as poor self-assessment of capabilities and fear of failures have been cited to be the key deterrents of women progressing in the business and political world. In Japan, despite good progress being achieved by women in terms of attainment of education, the further pursuit of career and participation in business, leadership and politics is often foregone due to the deep-rooted tradition and cultural expectation for married women to stay at home as the primary caretakers and household decision makers. In South Asia, women in Nepal outshone their regional peers in political representation, with the score for Leadership surging from 5.5 (zero female politicians in 2014) to 41.2 in 2015 (4.3 female politicians out of every 10 male politicians).<br> <br> Drawing on the results of MasterCard’s latest Women’s Well Being Index Survey for 2014H2<sup><a href="#3">3</a></sup>, we note that despite the slow progress made by women, the perception of their overall wellbeing in life remains optimistic. This is especially evident in India where women’s regard for personal wellness increased from 69.6 in 2014H1 to 73.3, placing them in 2<sup>nd</sup> place among the 16 Asia Pacific markets surveyed.&nbsp; This could be attributed to their particularly high resilience in life from threats such as violent and financial crime, natural disasters and pollution, as well as their ability to cope with stress both at home and at the workplace. </p> 2. ASIA PACIFIC<sup>4</sup><p style="text-align: center;"><i>Solid traction towards gender parity in Capability in New Zealand, Thailand, Philippines &amp; Vietnam; Progress in Leadership lacking in most markets</i></p> <p>Women in New Zealand, Australia and the Philippines continue to outshine their regional peers with New Zealand scoring highest at 77.3 (2014: 78.2), followed by Australia at 76.0 (2014: 76.4) and the Philippines at 72.6 (2014: 72.3). The biggest declines in overall score are observed in Thailand (59.4 points, down 7.2) while the largest improvement is achieved in Singapore (up 0.4 points to 70.5). The results indicate that with the exception of 6 markets (Hong Kong, Korea, Taiwan, Singapore, Malaysia and the Philippines), the scores for the remaining markets declined or remained unchanged (Japan and Vietnam).<br> <br> <i><a href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_1.png" target="_blank"><img width="555" height="276" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_1.png"></a></i></p> <p></p> <p></p> Capability<p>As an indicator of Female to Male Secondary and Tertiary School Gross Enrolment Rate (GER) ratio, the Capability sub-index reflects the degree of women’s access to education and acquisition of knowledge assets as compared to their male counterparts.&nbsp; Of the three sub-indexes, Capability remains the strongest indicator of Asia Pacific women’s advancement towards gender parity for the 9<sup>th</sup> consecutive year. With the exception of Korea (85.9 points), the Capability index scores for all Asia Pacific countries are above 90.0.<br> <br> In New Zealand, Thailand and the Philippines, gender parity scores of 100.0 in Capability have been achieved and maintained consistently for 9 consecutive years; suggesting women in these countries are a on par with their male counterparts in terms of basic and advanced knowledge assets. Strength in Capability is also evident in emerging Vietnam (score of 100.0 achieved for the 6<sup>th</sup> years since 2010).&nbsp; The index scores for Capability remain high in Malaysia and China with both markets scoring above 98.0 points. Marginal declines were observed in Indonesia (91.1, down 0.3 points), Taiwan (97.6, down 0.6 points) and China (98.4, down 0.5 points).<br> <br> <a target="_blank" href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_2.png"><img width="556" height="278" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_2.png"><br> </a></p> <p><a target="_blank" href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_2.png"></a></p> <p>The steady progress achieved by women in the acquisition of knowledge assets through the pursuit of secondary and tertiary-level education is reflected in the increasing proportion of female-to-male education enrolment rate. The results show that out of the 16 Asia Pacific markets, the number of women in 10 markets outnumbers that of men in terms of tertiary gross enrolment rate. This is most prominent in New Zealand where the female-to-male tertiary GER ratio is the highest at 146.3 in 2015 (2007: 144.8), followed by Australia at 135.3 (2007: 129.1), the Philippines at 130.8 (2007: 124.5) and Malaysia at 128.7 (2007: 120.5). In fact, in the Philippines, Thailand, New Zealand and Vietnam, women outnumber men in GER for both secondary and tertiary education. This suggests that across the region, women are becoming increasingly more educated than their male counterparts, a progress that was echoed during the recent World Entrepreneurship Forum where it was noted that women entrepreneurs have progressed to become ‘more educated’ than men<sup><a href="#5">5</a></sup>, although the opportunities for women to attain their full potential is still lacking in terms of having the chance to utilize their knowledge assets to advance further in life through the pursuit of career or participation in business ventures.</p> Employment<p>As an indicator of Workforce Participation and Regular Employment, the Employment sub-index measures the female to male ratio of participation in economic activity and access to regular employment.&nbsp; The results show Employment remaining as the second strongest sub-index over the 9-year period from 2007 to 2015 with 4 markets scoring higher than 90.0 points: New Zealand (91.3), China (91.2), Australia (90.8) and Taiwan (90.2).&nbsp; With the exception of Indonesia (78.4), the Philippines (76.5) and Malaysia (75.9), women across most of Asia Pacific are making some progress towards being as economically active as their male counterparts, scoring above the 80-point mark.&nbsp; Specifically, Taiwanese women advanced the most from the previous year, gaining 0.4 points to 90.2, surpassing the 90-point mark for the first time since 2007.<br> <a href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_3.png" target="_blank"><img width="552" height="276" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_3.png"></a><br> <b><i><br> Women in New Zealand: Economically Active but Poor Work Life Balance </i></b><br> With an Employment gender parity score of 91.3, women in New Zealand are the most active in terms of workforce participation and regular employment. However, MasterCard’s latest <i>Well Being Index Results</i> (2014H2) suggest that despite making progress in employment, women in New Zealand are generally pessimistic over their ‘Present Life Situation’ (56.8 points) due to various work-related factors such as poor ‘Work-life Balance’ (61.3) and poor outlook of employment (50.0) and income prospects (67.4) in the next 6 months.&nbsp; The survey also highlights women facing high levels of stress both at work (55.2) and in the family (45.3), leading to a low “Personal Well Being” index score of 54.8 points.<br> <br> <a href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_4.png" target="_blank"><img width="559" height="279" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_4.png"></a><br> <br> <a href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_5.png" target="_blank"><img width="551" height="341" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_5.png"></a> </p> Leadership<p><b><i>Leadership continues to be the weakest link in women’s advancement</i></b></p> <p>As a measurement of the female-to-male ratio in business ownership, business leadership and political participation, the Leadership sub-index reflects women’s progress in the business, economic and political sectors as compared to their male counterparts.&nbsp; Of the 3 main sub-indexes, Leadership remained the weakest from the previous year (and also over the 9-year period) with New Zealand (50.6) and the Philippines (50.1) being the only two countries having more than 50 women business/government leaders for every 100 male business/government leaders.&nbsp; The latest results also indicate that the ratio of female-to-male Thai business/government leaders has declined markedly from 33.5 to 23.7, while that in Singapore picked up slightly from 40.9 to 41.5. <br> <br> <a href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_6.png" target="_blank"><img width="555" height="278" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_6.png"></a><br> <br> <b><i>Filipino women: Advancement in Leadership &amp; Sense of Empowerment</i></b></p> <p>Philippines, Singapore and Indonesia show the most marked advancement in women’s leadership since 2007, gaining 12.2, 8.7 and 7.5 index points, respectively.&nbsp; Specifically, the results show that Filipino women have exceled the most in politics with the number of female-to-male politician ratio doubling from 18.2 in 2007 to 37.3 in 2015.<br> <br> This advancement made by Filipino women in business and political leadership is mirrored in MasterCard’s latest Women’s Well Being Index results (2014H2) whereby the score for the “Voice” component is among the highest in Asia Pacific – voice being an indication of how much women perceive their opinion are valued at home, at work and among their social network and how empowered they feel in general.&nbsp; In fact, the survey shows the overall Well Being Index score for women in the Philippines to have improved markedly from 57.3 points in 2014H1 to 68.6 in 2014H2. This has been buttressed by an increase in the assessment of their life situation in the next 5 years (76.6 points compared to 73.3 in the previous 2014H1 survey).<br> <br> <a href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_7.png" target="_blank"><img width="556" height="349" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_7.png"></a><br> <br> <b><i>Singaporean women advancing in Business Ownership</i></b></p> <p><b><i></i></b>Singaporean women have also made commendable progress in Business ownership over the last 9 years, with the proportion of female-to-male business owners increasing from 29.9 in 2007 to 42.1.&nbsp; <br> </p> <p><b><i></i></b>&nbsp;<a href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_8.png" target="_blank"><img width="555" height="278" src="http://livemcm.mastercard.com/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_8.png"></a><br> In Thailand, a significant drop in the proportion of female-to-male political leaders is observed with the score dropping from 18.6 in 2014 to only 6.5 in 2015. &nbsp;In contrast, the ratio of Thai women-to-men business leaders has increased from 42.3 in 2007 to 62.7 in 2015.<br> <br> <img width="555" height="409" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_9.png"><br> <br> For most of the markets across the region, the score in Leadership remain largely unchanged: Hong Kong (29.7), Japan (14.7), Korea (19.2), Taiwan (28.4, down 0.3), Malaysia (20.5, up 0.2), China (28.7, down 0.1) and Vietnam (35.2). <br> </p> 2.1 Insight to Women's Advancement in Japan<p>With an overall index score of 48.8, Japan is the lowest ranked market in Asia Pacific in terms of women’s advancement towards gender parity, lagging behind their regional peers across all 3 sub-indexes: Employment score of 83.3 compared to regional average of 84.9, Capability score of 94.8 versus regional average of 96.9, and Leadership score of 14.7 versus regional average of 32.2.&nbsp; In terms of participation as business owners, business leaders or political leaders, Japanese women advanced the least in the region with the score of 14.7 (the lowest), picking up only 0.7 points over the 9-year period since 2007.<br> <br> <a href="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_10.png" target="_blank"><img width="550" height="405" src="/content/dam/intelligence/content-assets/reports/2015/WomensAdvancement/miwa_10.png"></a></p> <p>There are various factors that have contributed to the lower than regional average Employment score of 83.3 for Japan. Despite Japanese women being fairly highly educated (capability score of 94.8), entrenched cultural bias has inculcated a deep-rooted expectation that after marriage and birth of their children, Japanese women usually give up their career and remain in the house