#Maturing markets to lead global growth, PwC says

Stocks and Financial Services Press Releases Wednesday March 29, 2017 16:59
Bangkok--29 Mar--PwC Thailand
Agriculture, financial services, manufacturing and healthcare & education have the most potential for growth in Thailand.

Companies seeking growth opportunities in emerging markets should look deeper into the real fundamentals that drive growth and capitalise on key sectors that can weather volatility and weak economic growth forecasts, PwC says.

Growth in developing markets such as Brazil, Russia and Southeast Asia has been weakened by a barrage of internal and external headwinds over the past 18 months. These range from falling global commodity prices and rising US interest rates to environmental disasters and policy shifts caused by socio-political developments in developed markets.

These events, coupled with China's recent slowdown, have prompted many critics to question the long-term prospects of markets they once considered darlings. While the era of growth markets isn't over, they will "mature into more stable markets," according to a 2017 annual report Winning in maturing markets by PwC Growth Markets Centre.

Growth markets are projected to account for 65% of global growth by 2021 , the report showed, adding that 'maturing' rather than 'volatile' markets present a wide array of opportunities.

David Wijeratne, PwC's Growth Markets Centre Leader and author of the report, said: "As we enter 2017, it's clear that growth markets are on the verge of a new era of leading global growth in which they are projected to enjoy almost two times the absolute growth in GDP as compared to developed markets by 2021, and account for 65% of global growth within the next five years.

"This will create significant opportunities for private sector players looking to create and deliver value to the billions of people expected to join the middle class in these markets."
The Thai economy in 2017 is expected to grow by 3-4% , improving from 2.9% and 3.2% in 2015 and 2016 respectively, according to National Economic and Social Development Board data.

A key driving force would be improved exports, which would further support the expansion of the manufacturing sector and private investment. Accelerating agriculture production after the drought would also boost household income and spending, as well as still growing government expenditure and public investment, the NESDB data showed.

Chanchai Chaiprasit, Partner and Clients & Markets Leader for PwC Thailand, said investors need to understand regional growth variations to prioritise investments in maturing markets.
"Companies that look beyond GDP at the fundamentals that support growth are best positioned to succeed in these markets in medium to long term."
Citing the PwC report, he highlighted growth opportunities that can be found across multiple sectors, including agriculture, health and education, manufacturing and financial services, among others.

Agriculture: The sector accounts for more than a third of the total labour force in India, Pakistan, Indonesia and Thailand. This compares to just 1-2% of the workforce in the US, the UK and Germany. However, low yields and poor infrastructure in growth markets will provide increasing opportunities for players across the agricultural value chain.

Thailand has long been a 'kitchen of the world' as agriculture is one of the main sectors that generates growth. Still, the gap between productivity and infrastructure is much below average, with only 40% of arable land under irrigation, while its cereal yield (kg per hectare) is about 3,600 (the world's average is 3,886).

These gaps offer opportunities for companies with expertise in facilitating more efficient agriculture to enter these markets, whether it be high quality inputs, farm machinery or tech-driven solutions including mobile value-added services and machine-to-machine applications to address changing consumer preferences.

This trend also supports Thailand's bid to modernise the country's agricultural sector by using automation of farming with robotics, data analytics and sensor technology to increase crop yields.

Health and education: Health expenditure would grow by 10.7% annually in growth markets versus 3.7% in developed economies by 2022. The opportunity size would touch $4 trillion in annual spending in growth markets by that same year thanks to a growing middle class and high out-of-pocket expenses.

Healthcare spending has grown faster than the overall economy in only a few markets, including China, India, Thailand and Indonesia, among others, the report showed.
This will create opportunities for players across the ecosystem, from life sciences companies and medical device manufacturers to pharmaceutical companies and delivery service providers.

Another key opportunity will be digital health, which attracted $13 billion in investments over 2014 and 2015 . The adoption of technology-driven solutions from clinical decision support systems to cloud-based and open source systems, e-prescription, telemedicine, and even private health insurance would increase, with growth markets looking at low cost and less resource-intensive options to bridge existing gaps.

Better education also enables access to more productive and better jobs. Private players are expanding into the sector via e-learning solutions. The global e-learning market is forecast to reach $126 billion by 2020, with Asia's annual growth rate of 26% leading the pack over the next five years fuelled by key markets such as China, India, Myanmar and Thailand.

Manufacturing: Thailand, already one of the world's leading manufacturing hubs and a major automotive producer in ASEAN, needs to move up the value chain by focusing on high-tech segments such as automotive, chemical, electronics and medical devices.

As labour costs become higher, companies need to strengthen core capabilities by improving productivity and efficiency through technology and automation, and re-evaluate their manufacturing footprint.

The introduction of new technologies, such as the Internet of Things, robotics, advanced materials and 3D printing, along with changing cost dynamics, would further influence global manufacturing competitiveness in the coming years.

Financial services: The Thai financial market is likely to keep on growing as many players are increasingly embedding a technology mindset into their strategy to help serve their clients, Chanchai said.

"Alternative payments such as non-cash transactions, as well as the launch of e-commerce companies and mobile operators, are already gaining traction in Thailand, where the gross national savings rate is expected to remain high, or around one-third of GDP," said Chanchai, citing the report.

However, issues concerning financial exclusion remain a challenge, with many people still excluded from the formal banking system. This is due to the inability to provide formal documentation, as well as a lack of awareness, access or applicability of financial products.

"Knowing where and what future opportunities that lie ahead is one thing," Chanchai concluded. "Having flexible business models that are optimised for the local markets – while developing new capabilities based on operational efficiency, innovation and go-to-market excellence – will ultimately help businesses ride out economic storms and operate effectively in these maturing markets."

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