Venezuela was once South America’s richest country. Here’s what went wrong

By: Callum Brodie August 2017

Source: https://www.weforum.org/agenda/2017/08/venezuela-economic-woes-2017-explained/

Until recently, almost all of Venezuela’s mostly urban and educated population had access to clean drinking water, sanitation facilities and electricity. It was an affluent country, with the largest proven fossil-fuel reserves in the world.

But its economy is shrinking at an alarming rate, while at the same time inflation is spiraling out of control. Poverty and violent unrest have ensued.

What went so wrong? Here’s a closer look at Venezuela’s economic collapse.

The heady days of 2001 – when Venezuela was the richest country on the continent – are long gone. The economy shrank by 18.6% last year. In 2017, it’s 35% smaller than it was in 2013, at least in terms of GDP, and 40% lower in GDP-per-capita terms.

Inflation stood at an eye-watering 800% last year and there have been predictions it could reach 1,600% by the end of 2017. The country’s currency, the bolivar, has been devalued to the extent that is basically worthless. The official rate of exchange between the bolivar and the US dollar is roughly 10 bolivars to the dollar. But in reality it’s closer to 10,000. Analysis has shown that, at the end of July, a dollar was worth approximately 10,389 bolivars – up from 8,000 just a week before.

 

How it happened

Controls on foreign exchange and prices of basic goods have caused significant issues. So too have unrestrained public spending and the state siphoning from private industry.

Another key cause is the mismanagement of the state-owned petroleum company, PDVSA, which provides almost all of Venezuela’s export revenues. In its heyday, the Venezuelan economy was fuelled by oil revenue. Venezuelans look back wistfully to a time when oil was priced at $100 a barrel.

The plummeting price of oil, which sank as low as $21 a barrel last year, has come as a hammer blow. This has been further exacerbated by falling levels of production. Output fell by 10% last year and no rise is likely in 2017. Unfortunately there doesn’t appear to be much light at the end of the tunnel. Some hope that oil prices will begin to increase – but the signs don’t look good.

Hunger and protest

Shortages of basic supplies such as flour and rice and spiraling prices have led to food riots and lootings. Many Venezuelans are going hungry. Anecdotal evidence has emerged of people feeding off scraps, with some forced to dig through garbage left outside shops.

The few who are fortunate enough to be able to afford to eat out are unsure how much to pay for their meals, as confusion over currency fluctuations means certain restaurants no longer use standard pricing. Some shops weigh bank notes rather than take them at face value.

With the cost of consumer goods skyrocketing and the quality of life nosediving, it’s no surprise that many Venezuelans are looking to leave the country. This has resulted in long queues at passport offices. It can then take months before applicants actually receive the documentation they need to start a new life abroad. Elsewhere in South America there is a real worry that the sheer number of people trying to flee Venezuela could spark a full-scale migrant crisis. Months of anti-government protests have left more than 120 dead and hundreds injured. And tensions have ratcheted up further over the recent election of a new assembly that could overhaul the constitution to give President Nicolás Maduro sweeping powers.

 

What happens now?

Venezuela is currently on a knife edge. A strengthening of the economy could yet pull it back from the brink of civil war. President Maduro has previously been optimistic, stating that 2017 will be the “first year of the new history of the Venezuelan economy”.

Time is running out for that prophecy to be fulfilled.

 

3 reasons why CEOs are optimistic about 2018

By: Bob Moritz January 22, 2018

Source: https://www.weforum.org

You don’t have to look far for signs that we live in tumultuous times. Geopolitical uncertainty, cyberattacks, and jobs threatened by artificial intelligence are just a few of the topics that dominated headlines in 2017. But despite these harbingers of gloom, a record-breaking percentage of CEOs told us they are optimistic about the economic environment worldwide, at least in the short term. That’s one of the findings of PwC’s latest Global CEO Survey, launched at the World Economic Forum Annual Meeting in Davos this week. I want to focus on three highlights here:

1. Soaring short-term CEO optimism

This year’s survey showed a record jump in the all-time highest level of CEO confidence regarding global economic growth prospects for the coming year. For the first time since we asked the question in 2012, a majority (57%) of the CEOs surveyed told us they believe global economic growth will “improve”. Strikingly, this unprecedented optimism is about twice as high as last year and it is truly global — from North America to both Western and Central/Eastern Europe, as well as Africa, Latin America, the Middle East and Asia Pacific.

 

This confidence waned, however, when we asked CEOs about their own company’s growth in the next three years. While last year, 51% of respondents told us they were “very confident” about their organization’s longer-term growth prospects, only 45% shared that view this year. CEOs may justifiably feel that the future is simply less predictable than it once was. With technological disruption and geopolitical unpredictability verging on commonplace, longer-term confidence may be increasingly elusive.

2. A focus on the geopolitical positives

In the short-term, CEO optimism appears unimpeded by shake-ups such as Brexit, the Trump administration’s withdrawal from trade agreements and climate accords, and increased anxiety over North Korea. Undeterred, CEOs continue to invest in and grow their businesses.

Simply put, 2017 looks set to be the best year for the global economy since 2010. As we kick off a new year, global commodities prices have recovered from their trough and the world’s major economies are growing. Even Britain’s economy seems to be persevering despite Brexit. This upward trend is set to continue in 2018, with PwC predicting that the global economy will grow by almost 4% in purchasing power parity (PPP) terms this year.

 

In the US, the Trump Administration’s pro-business policies — with the notable exceptions of trade and immigration — look to be fuelling a stock market boom, corporate confidence and low unemployment. With deep corporate tax cuts, deregulation and infrastructure spending on tap for 2018, it’s no surprise that North American CEOs are our most confident survey respondents: more than half (53%) of CEOs from the region are “very confident” about their company’s growth in the next 12 months..

 

Only time will tell how well-founded CEOs’ short-term confidence is but the economic indicators are on their side, with booming stock markets and strong predicted GDP growth in most major markets. Also, while risks seem to grow and multiply, CEOs are, on the one hand, becoming more used to high levels of multiple risks; while on the other hand finding ways of managing them. There are plenty of potential potholes in the road ahead for business but CEOs have become better at predicting where they are and navigating around them.

3. Taking technology in their stride

Technology is affecting businesses in varied and complex ways. As we continue to hurtle through the digital age, business strategies for technology are in flux, and the numbers show that. On the one hand, technological advances — like cyberthreats and the sheer speed of change — are high on the list of concerns that keep CEOs up at night. Last year, 24% of the CEOs we spoke to told us they were “extremely concerned” about cyberthreats, but that number has jumped to 40% this year. In contrast, business leaders see enabling universal connectivity as the chief benefit of globalization.

 

There is no question that the impact of AI will be enormous, potentially transforming business and society at large. PwC’s recent global AI report predicts AI will contribute an additional $15.7 trillion to global GDP by 2030. But those benefits are unlikely to be shared evenly: the US and China are slated to account for 70% of the boom. There will also be winners and losers in the jobs market when machines can replace cheaper labour. Certain jobs will become redundant and new ones will be created. However, while CEOs are focused on the potential benefits of AI, they are for the time being relaxed about the impact on employment with fewer that one in five CEOs expecting to reduce headcount in the next 12 months.

Five things emerging economies can do to attract the best talent

By: Mauro F. Guillén December  08, 2017

Source: https://www.weforum.org/agenda/2017/12/emerging-market-companies-multinational-talent-china-india-attract

Emerging market companies need talent to be competitive in the global marketplace. They have made much progress in attracting it. Barely a decade ago, most young, bright graduates in China and India preferred to work for Western companies. These companies paid better and offered more opportunities for professional growth and advancement.

That was then. Now emerging market companies can attract some of the best talent, locally and globally. In 2016, Alibaba launched a Global Leadership Academy to offer young, aspiring managers from the US and Europe a 16-month stint at its corporate headquarters. It has already poached executives from well-established technology and financial services companies. Dr. Reddy, an Indian pharmaceutical multinational, consistently wins awards in the US for being a great employer.

Fortune magazine’s latest list of the 25 Best Companies to Work For includes Natura of Brazil, Belcorp of Peru, and Falabella of Chile. These companies have dedicated themselves to attracting and nurturing talent for years. However, challenges remain. The allure of working for a Western company is still deeply ingrained in the hearts and minds of university graduates and mid-career managers in emerging markets. Many still believe that compensation levels, bonuses and promotions are more attractive than at local firms. For aspiring managers with an essentially technical skillset, this assumption is correct.

But circumstances are different for those with so-called softer managerial skills. These include the ability to negotiate or work effectively in multicultural teams, complementing a core financial or marketing knowledge. As the service sector grows throughout Asia, the Middle East and Latin America, demand for talent in healthcare, the creative industries, and professional services will soar.

Consider South Korea, which has already made the transition from being predominantly a manufacturing hub to a more diversified service-driven economy. It has created more than four million highly-qualified service jobs in the past decade. As China undergoes a similar transition, it will require at least 40 million educated professionals in the 25 largest cities alone. In the Indian economy, which is far less dependent on manufacturing for growth, demand for this type of talent is even greater.

China has the advantage of a vibrant university system that churns out the largest number of graduates of any country in the world. But it lacks the dynamism of India’s younger population, which seems to have an almost unlimited supply of technical graduates across a number of critical fields. Brazil and Mexico are also starting to reel from smaller young age cohorts.

Competition for talent in China will be acute. This is likely to lead the country’s emerging, rapidly-growing firms to redouble their efforts at attracting talent, including from abroad. Emerging Chinese multinationals report having less trouble attracting talent for their international operations than for positions in China. To a large extent, this is due to the unpleasant living conditions in the country’s major cities. The air quality and traffic congestion deter many foreigners from considering a move. While Indian companies have more qualified locals available to them as potential hires, they will also face challenges in the future when attracting foreigners to work in India.

Future strategies for talent development in emerging markets must address at least five key areas:

– Allocating resources to education, not just in technical fields but also in soft skills

– Ensuring that employment conditions and career prospects at the largest emerging market multinationals continue to improve, so that working for them is at least as attractive as working for a Western firm

– Attracting talent from other countries to positions both in the home country and around the world

– Making life in the largest cities of the emerging world more pleasant, convenient and affordable

– Ensuring that local firms do not have to pay a premium for talent. In the long-term, this would undermine the competitiveness of both companies and the economy

Companies in emerging markets cannot win the competition for talent by themselves. A country’s physical infrastructure, education and quality of life are key factors. Only collaboration with governments, from the local to national level, will achieve the outcome these companies need.