The Elephants in the Room Hidden Risk and Opportunities in

Vol. 2 TABLE OF CONTENTS

1 The Asian Century Could Belong to India 2 John West, Director of Asian Century Institute 2 A Decisive Time for India’s Banking Sector 5 David Bergeron, Partner at Oliver Wyman, India Amit Deshpande, Principal, Oliver Wyman, India 3 Is India Overplaying its Demographic Dividend? 8 Ritesh Kumar Singh, Corporate Economist and former Assistant Director of the Finance Commission for India 4 Evading M&A Risks in Emerging Asia 11 Ashish McLaren, Director of Valuation Advisory Services at Duff & Phelps, Singapore 5 Robo Advisers: Why No Mass Adoption Yet? 14 Subhajit Mandal, Director at LumenLab, Singapore 6 Booming Health Care Industry in India is Not All Good News 17 Anupa Naik, Vice President, Employee Health & Benefits at Marsh India 7 How Can Asian Pension Systems Deal With Aging Populations? 20 David Knox, Senior Partner at Mercer 8 Medical Tourism in Asia-Pacific Growing Rapidly 22 Bart Van den Mooter, Principle & Founder of TforG—an IQVIA company 9 Navigating HR Challenges in India 25 Shanthi Naresh, Senior Principal and Leader, Career Business for Mercer India Ruchika Pal, Principal, Career Business for Mercer India 10 How the IT Sector is Impacting India’s Real Estate 28 Abhinav Joshi, Head of Research at CBRE India Sachi Goel, General Manager of Research at CBRE India 11 South and Southeast Asia’s Infrastructure Steps Up 30 Abhishek Dangra, Director in S&P Global Ratings‘ Asia Pacific Corporate Ratings 12 Can India Become the Next Renewables Powerhouse? 33 Ron Somers, Founder and CEO of India First Group 13 Glaring Insurance Gaps in Asia-Pacific 35 Michael Owen, Head of GC Analytics—Asia-Pacific at Guy Carpenter 14 Infrastructure Activity in India: Shifting Tides 38 Patrick Adefuye, Head of Real Assets Products at Preqin INTRODUCTION

The articles contained in this publication have been selected for the way in which they represent key economic and social issues which organisations in India have to contend with. India recently regained the title of being the fastest growing major economy after a period of uncertainty following major government led policy changes. There is some optimism that the reforms have laid the foundations for double digit growth in the future, but there are many challenges which need to be navigated by businesses along the way. This compendium collates knowledge and expertise from the world’s leading experts to provide practical and timely insights on the various risks and opportunities associated with India’s rapid economic growth and societal development. All articles first appeared on BRINK, the digital news service of Marsh & McLennan Companies’ Global Risk Center, managed by Atlantic Media Strategies, the digital consultancy of The Atlantic. BRINK gathers timely perspectives from experts on risk and resilience around the world to inform business and policy decisions on critical challenges.

BRINK ASIA Compendium 1 ECONOMY THE ASIAN CENTURY COULD BELONG TO INDIA

John West Executive Director of Asian Century Institute

India has never managed to achieve the Indian economy has performed Google (Sundar Pichai) and PepsiCo three decades of 10 percent annual very well these past 25 years, (Indra Nooyi). Indian companies economic growth rates like China and the prospects for continued such as Infosys, Mahindra, Mittal, has. But in all its long history, India development may be very good. Reliance, and Tata have succeeded has never had a centralized regime famously in global markets. The like China has had for over 2,000 India is a country with huge Indian movie industry produces years, which could provide strong potential. For instance, Indians more films than any other country. political leadership. “No single who have migrated to the U.S. and And the person can change India. You speak their descendants, on average, earn is the world’s most lucrative and 320 different languages,” once said $88,000 a year, compared to $66,000 popular cricket tournament. Singapore’s former Prime Minister for all Asian Americans and $50,000 Lee Kuan Yew. This diversity for Americans overall. Indian makes governance in India more success stories in the U.S. include the complex than in China. However, CEOs of Microsoft (Satya Nadella),

2 mmc.com THE COMPLEX INDIAN emerging power, is highly dependent There are strong on its enormous population. STORY reasons to be India has suffered from rising The Indian economy was, for many inequality like most Asian countries. years, a chronic underperformer. optimistic about Economists Jean Drèze and Amartya During India’s first four decades Sen observed that India looks “more of independence, the economy India’s future— and more like islands of California chugged along at the “Hindu rate of in a sea of sub-Saharan Africa.” And growth” of about 3.5 percent (or 1.3 the country could it is true that beyond the glitter of percent in per capita terms) from high-tech , Bollywood the 1950s to the 1980s. Despite a well emerge as and Indian cricket, India remains a vibrant democracy, India’s economic rural country, with two-thirds of its Asia’s leading policies drew more inspiration from population living in the countryside. the socialism of the USSR than the However, it is also undeniable that power. capitalism of East Asia or the West. India has made immense progress. A financial crisis in the early 1990s triggered a wave of economic liberalization and reform. During RECENT DEVELOPMENTS the following 25 years, the Indian In the 2014 national elections, the economy has averaged 6.5 percent —under annual growth and is currently the leadership of Prime Minister the world’s fastest growing large —came to power. economy with a growth of around 7.5 Prime Minister Modi has been percent. India’s GDP per capita more leading the country for over four than tripled over this period, with years. His pro-business leadership the information technology sector and impressive reforms to date playing a leading role. helped India climb 29 positions to Thanks to India’s positive economic 100 out of 190 surveyed countries developments, the share of the in the World Bank’s Ease of Doing population living in extreme poverty Business ranking. The OECD (less than $1.90 a day) has more judges Indian policies to not be than halved over the past decade to “competition friendly;” however, around 20 percent. But this amounts it does note a positive trend for to some 270 million people who barriers to entrepreneurship and are still suffering in “Incredible trade and investment. There has India.” And despite this impressive been another positive trend in the achievement, almost 40 percent World Economic Forum’s Global of the Indian population is caught Competitiveness Report where, between $1.90 and $3.10 a day in after five years of decline, India has a situation of near poverty. The bounced back over the past two years Indian government desperately to 39th place out of 138. needs to raise more taxes to provide However, India’s human capital basic services to its citizens. In fact, development is hampered by one of the OECD reports that less than the worst education systems in Asia. 6 percent of Indians pay personal By some estimates, half of the Indian income taxes. population is functionally illiterate. India’s GDP per capita remains less Even at the elite level, not one Indian than half that of China and about university figures in the world’s top one-tenth of America’s. India’s 200. India spends next to nothing ranking as the world’s third largest on public health. Improving human economy, as well as its status as an capital will be critical for taking advantage of the half a billion young Indians who will enter the labor

BRINK ASIA Compendium 3 force over the next decade. Already East” policy, these efforts are being economy is growing faster than more than 30 percent of Indian concentrated on the eastern side of China’s, a trend that could continue. youths aged 15–29 are not employed, the country, which is close to fast- Further, India’s population will pursuing an education or in training, growing Bangladesh and Southeast overtake China’s in 2022 and could highlighting the immense challenges Asia. Special economic zones be approximately 50 percent higher of reaping the demographic dividend and economic corridors are also by 2100—according to the UN— of its youth bulge. being developed. providing immense demographic dividends if human capital A major element that has been The timing is right for India to development is prioritized. lacking in India as compared with become an industrial power, East Asia has been the development as China is now suffering from In short, India is a slow burner of a strong manufacturing sector. increasing wages and investors such compared with China, but it is India’s manufacturing sector has as Japan are looking for new low- moving decisively ahead. The Asian been stuck at around 15 percent cost locations. This is where Prime Century could well belong to India. of GDP. Today, industrialization Minister Modi’s business-friendly could play an important role in policies are helpful. For example, the This article first appeared on India’s development, since it faces implementation of a national goods BRINK Asia on May 14, 2018. the challenge of creating jobs and services tax will help transform for masses of semi-skilled young a fragmented India into a common people entering the labor market market. The government has also and transforming this demographic liberalized some policies for FDI, bulge into a dividend. The services with the result that flows of FDI sector, especially business process reached $208.99 billion from April outsourcing and tourism, has been a 2014 to the December 2017 period. key driver of the economy. Leading companies such as Foxconn, SoftBank, Microsoft and Huawei are all now investing in India. Korean STEPS IN THE RIGHT companies in particular are very DIRECTION successful in India.

Fortunately, Prime Minister Modi’s Overall, there are strong reasons to government is making efforts to be optimistic about India’s future, develop its manufacturing sector. even though it lags behind the Major investments are being made world’s leading economies in terms in improving the country’s logistics of GDP per capita and economic, in areas such as coastal shipping, business and technological highways and railways, which sophistication. As I argue in my new would help product transportation. book, over the course of the 21st Inspired by the government’s “Look century, India could well emerge as Asia’s leading power. Already, India’s

4 mmc.com ECONOMY A DECISIVE TIME FOR INDIA’S BANKING SECTOR

David Bergeron Partner at Oliver Wyman India

Amit Deshpande Principal at Oliver Wyman India

The latest Financial Stability Report suggests that under the new Indian Accounting Standards, Ind AS, provisioning requirements will be substantially higher, which suggests that banks’ own estimates of the recoverability of their assets are below what is reflected in their current books.

And, at the time of writing, all public sector banks except the State Bank of India and IDBI Bank are trading at (often significantly) less than book value after experiencing aggregate losses of 400 billion rupees over the 2016 and 2017 fiscal years; only SBI has been profitable in this period.

STEPS BEING TAKEN

We read almost daily about the initiatives taken by the Reserve The Indian banking sector appears HOW BAD ARE THINGS Bank of India, the government and at a precipice. One generation after REALLY? the Securities and Exchange Board the sector was liberalized, assets of India to address the problem of and deposits remain dominated by In truth, we don’t know how bad bad corporate loans and to improve government-owned banks, which the situation is. Unlike in Europe, mechanisms for more effective are struggling under the weight of the amount of public data used recovery of these debts. crippling levels of nonperforming to judge asset quality has been More recently, we have seen the assets that have exposed deficiencies rather restricted, and the impact of RBI asking banks to initiate forced in their corporate governance and asset quality could be larger than bankruptcy proceedings against 12 risk management capabilities. estimated so far. large loan defaulters that account Declared gross nonperforming No public, system-wide effort has for 25 percent of the banking assets at public-sector banks been made to assess the adequacy system’s bad loans. It has also have risen to at least 6.2 trillion of provisions against NPAs or of the sent commercial banks the names rupees ($95.8 billion), with an sustainability of the restructured of another 26 defaulters whose additional 1.5 trillion rupees of assets. Most independent observers, accounts it wants resolved before restructured standard assets. In such as ICRA, India Ratings, mid-December, or bankruptcy total, these represent 14.6 percent Moody’s, and Fitch, estimate that proceedings will be initiated against of advances, three times the level for between 1.25 trillion and 1.35 trillion them too. private-sector banks. rupees of capital will be needed We have also seen the government for the banks to meet their capital commit to limited capital infusions requirements for the 2019 fiscal year.

BRINK ASIA Compendium 5 to help shore up public-sector Approaches could include:1 We have banks via its “Indradhanush” recapitalization program. What we • Low-cost government yet to see a have yet to see is a comprehensive recapitalization. For example, a vision of how the sector can return change in the reserve requirement, comprehensive to sustainability. introduction of an asset protection scheme, and injection of vision of how government capital in a limited HOW TO MAKE THE manner. India’s banking BANKING SECTOR • Consolidation of public-sector sector can return SUSTAINABLE banks around a few state-owned national champions. Some of to sustainability. It is our view that a comprehensive the smaller state banks could be vision is critical for the sector—for merged or allowed to fail, while the sustained economic growth it largely maintaining a similar facilitates and for the population structure. Such an option might to have access to quality financial boost economic growth, but there services. The questions that need would be a high likelihood of to be addressed are not easy to the problem recurring. Further, answer and will be best approached this would be a moderate- to through a healthy public dialogue. high-cost option for the Indian This should encompass the government, with no guarantee of industry itself—via bodies such as the problems not recurring. There the Indian Banks’ Association as would also be the possibility of the well as individual institutions— government creating “too-big-to- regulators, policymakers, academia, fail” institutions, enhancing the public advocacy groups and other distortions in the financial sector, industry experts. making private sector banks compete with even larger state- The questions that this discourse owned enterprises. should address include: • A radical restructuring of the • What is the real size of the public-sector banks. Large-scale problem? Will actions aimed privatization with the creation at corporate debt recovery and of specialized banks focusing on balance sheet remediation, such the under-served parts of the as limited capital infusions and economy. Privatization will pay regulatory relief on accounting for the recapitalization, so the norms, be adequate to restore effective cost would be minimal for the sector to a sustainable state the Indian state, and competition without structural reforms? would be encouraged, with a beneficial impact on economic • How could the risk and governance growth. Strong political will would frameworks fail so spectacularly, be needed for such a solution. and what can be done to address this going forward?

• How could the government resolve the current problems structurally?

1. According to recent earnings results, there has been an increase in nonperforming assets in India. This indicates that the problem continues to worsen beyond what our model estimated at the time the report was published, and the solutions proposed in this article may barely be sufficient.

6 mmc.com MEDIUM-TERM VISION than public-sector banks. In terms For a sustainable, long-term of gathering deposits and providing solution, the government and Further, there should be a medium- banking services, new models such supervisory bodies need to term vision for the sector that as business correspondents, small fundamentally review the role of the articulates clear objectives for the finance banks and fintechs appear government in the banking system. government’s continued role (if any) likely to fill any void that might be One outcome could be a banking in the ownership of banks. In our left by retreating public sector banks. structure where public-sector banks view, there are three key questions: become more specialized, with a much clearer strategic focus on First, does government ownership WHAT ROLE FOR THE public goods. They could support lead to systemic stability? The GOVERNMENT? small businesses and strategic government-owned banks have not interests such as defense and proven more stable, but the implicit If the government wants minimal utilities, for example. The largest government support they receive has disruption or to maintain status private-sector players would provide prevented a crisis of confidence. quo, it will need to keep capitalizing mainstream banking services in the corporate, small- and medium-sized Second, does government the banking system, which is enterprises and retail segments. participation in the sector promote not sustainable. We therefore consider the scenario in which the greater innovation, especially with Such a transformation of the banking respect to financial deepening and government only uses taxpayer funds to the extent set out in the sector would be a herculean task inclusion? There is some evidence given the sociopolitical challenges for this, but it is not clear that other current budget commitments. Our analysis indicates that the involved, and it would require tools for the incubation of new ideas, strong political will and a well- such as seed funds and regulatory immediate options—such as the sale of stakes in joint ventures, changes planned transition, but it needs to sandboxes, could not be at least be attempted. as effective. in the revaluation reserve discount factor, partial privatization and This article first appeared on government guarantees—would be Third, are public-sector banks BRINK Asia on October 23, 2017. better positioned to deliver credit minimally sufficient to recapitalize and services in ways that serve the the banks under base case public interest? In recent years, it assumptions of their capital needs. would appear that increased access Any significant deterioration in asset to finance for micro, small and quality from current levels would medium enterprises has come more require new ideas for recapitalizing from non-bank financial companies the banking system.

BRINK ASIA Compendium 7 ECONOMY IS INDIA OVERPLAYING ITS DEMOGRAPHIC DIVIDEND?

Ritesh Kumar Singh Corporate Economist and former Assistant Director of the Finance Commission for India

Much is made of India’s demographic the high rates of unemployment 2 million jobs between August dividend, but this dividend cannot or joblessness coupled with rising 2016 and August 2017, whereas it’s be taken for granted. Given the income inequality will eventually adding 12 million people a year to high rates of youth unemployment, impose limits on consumption, its workforce. More people are underemployment, disguised which has been the top driver of being being added to India’s pool of unemployment, low productivity economic growth in India. unskilled or low skilled and largely due to skill deficits and the low-wage unemployable workforce because trap of the informal sector, there are birth-rates tend to be higher among question marks over this “dividend.” REASONS FOR CONCERN poor families. Mainly concentrated in the states of , , And while India does have a large A recent study by the Centre for Madhya Pradesh, and and growing number of graduates, Monitoring Indian Economy and Jharkhand, these families can’t their quality, skill and employability Bombay Stock Exchange (CMIE- afford nutritious food and quality remain a serious concern. Moreover, BSE) estimates that India added

8 mmc.com education, or provide healthcare to The workforce participation of Jobless growth is their children. women in the country is already one of the lowest in the world, the biggest future Unsurprisingly, more than 90 and instead of improving, it is percent of the country’s workforce deteriorating further. It fell to 22.5 risk to India’s is unskilled or low skilled, and most percent in 2016 from 37 percent in are employed by the informal sector 2005. That shaves off an estimated political and wherein productivity and wages are 2.5 percent from India’s GDP every low. Yet, employment opportunities year. Many of India’s nonworking social stability, are primarily increasing in the women, especially in the cities, informal sector, which was first are highly qualified but either especially since jolted by demonetization and then by never work or leave their jobs a poorly conceived and implemented post-maternity as quality child care financing a basic the Goods & Services Tax. A support is lacking even in large cities CMIE-BSE survey estimates that such as or . income program demonetization could have resulted in job losses of anything between 3 The low labor force participation would be fiscally to 12 million—mostly in the informal rate of women will adversely affect sector. The implementation of the key sectors such as banking, IT, too difficult GST and the government’s sharp medicine/nursing, hospitality and focus on extracting more taxes can retail as these sectors usually have for India. further dent job market prospects. a high proportion of women in their workforce. From the demand side, Many argue that demonetization and the low participation rate of women GST are good for India’s economy in will affect the growth potential terms of facilitating formalization, of the cosmetics, educational and which is needed to boost health services as well as travel productivity and wages. However, and hospitality in the form of forced formalization without lower demand for these products addressing the factors that lead to and services. increased informal sector activity, such as the lack of access to cheaper institutional capital, technological FACTORS CAUSING know-how and marketing support JOBLESSNESS along with an untamed skill deficit, may all aggravate the employment The poor quality of education in situation further. both liberal arts and STEM, with no emphasis on the employability of Jobless growth is the biggest future the graduating students, is a major risk to India’s political and social factor contributing to the problem of stability, especially since financing unemployment. It is also the reason a basic income program would be even the biggest companies are fiscally too difficult for India. facing difficulties in hiring suitably India’s archaic labor laws are an issue skilled employees. as well, with top companies in the Cheaper capital or low interest rates organized sector increasingly relying combined with India’s unfriendly on contractual workers to get around labor laws have induced top them. Roughly half of the workers companies in the organized space to employed in the organized sector are switch to capital-intensive or labor- now contractual, hence they have saving production methods. This no job security or social benefits and imposes limits on the growth of jobs often get lower wages compared to in India. their permanent counterparts.

BRINK ASIA Compendium 9 Many large companies, faced with version of ’s Real Estate THE WAY FORWARD intense competition both in domestic (Regulation and Development) Act, and export markets, are trying to or RERA, by state governments is To improve the employability of cut corners to survive, and one of unlikely to restore home buyers’ graduating students, educational the suggested ways is to reduce the interest in the industry. institutions need to coordinate number of workers. Thus, more with corporates in designing course jobs have to come from smaller The Indian government’s attempt to curriculum. Massive Open Online companies/SMEs, startups and hike minimum wages often delinked Courses and other short-term first-time entrepreneurs. However, with labor productivity is hurting online courses and certifications doing business for companies that the prospects of labor intensive could be equally helpful in skill can’t afford having corporate affairs sectors such as apparel, footwear and upgrade of existing and potential departments to navigate India’s leather goods. employees and should be promoted opaque bureaucracy and government by the government. machinery is a big challenge. It will have adverse implications for job DEMOGRAPHIC As the population growth rate differs creation. The recent investment DIVIDEND OR DISASTER? from state to state, encouragement slump is another short-term factor to interstate migration—such as contributing to jobless growth. In the long term, economic from poorer states to richer states— growth is a function of the total can solve the twin problem of the Exogenous factors such as growing number of workers and their shortage of workers in southern parts protectionism in the developed world average productivity. Although the of the country and relatively excess and rapid technological changes number of workers are growing, supply of workers in northern states present new threats and will make it labor productivity in the country such as Bihar and Uttar Pradesh. difficult for India to benefit from its is near stagnant, as most of them This article first appeared on favorable demography. Disruptive are employed by the informal BRINK Asia on 19, 2018. technological breakthroughs such sector. Moreover, the number of as automation and 3-D printing, unemployed people is increasing although a global phenomenon, will every day. further dilute the importance of labor cost advantage in production and will Jobless growth is the biggest future make it even more difficult for India risk to India’s political and social to provide jobs for its workforce stability, especially since financing going forward. a basic income program,such as the one being tried in Finland, would be Then there are sector-specific issues fiscally too difficult for India. often compounded by poor domestic regulations (pharmaceuticals and And going forward, the failure to textiles, for instance) and short-term address the skill deficit by providing focus (information technology), adequate and relevant education, which have forced top firms to skills and training can greatly impact cut jobs. Real estate, another top India’s economic future, especially job creator, is suffering from a as it poses a big challenge for existing particularly bad slowdown, and and potential investors looking to the implementation of a diluted expand their presence in India.

10 mmc.com ECONOMY EVADING M&A RISKS IN EMERGING ASIA

Ashish McLaren Director of Valuation Advisory Services at Duff & Phelps, Singapore

In recent years—and particularly improvement in the regulatory and finding the right balance not only since the global financial crisis— transparency landscape. between risk, growth and liquidity, robust economic growth in emerging but also taking into consideration Asia has led to increased investment It is critical to identify the risk in factors such as cultures, languages, in the region (barring in 2016), an emerging market compared to a regulatory regimes, tax jurisdictions, resulting in a flurry of merger and developed market. The risk-adjusted labor pool, skill levels, governments, acquisition (M&A) activity. return is better in developing political issues, accounting rules, markets and is a critical aspect for etc. Since developed markets are However, foreign investors are any investor; it’s vital to identify generally considered safer than still faced with a considerable such markets. These markets emerging markets, these issues degree of risk, which they show signs of rapid growth and define the basis of any investment in need to be cognizant of when development coupled with low per emerging markets. investing in Asia, despite a general capita income. The most important challenge for a foreign investor is

BRINK ASIA Compendium 11 A FEW CONSIDERATIONS need to spend more time and effort To attract in the process to understand these Markets such as Singapore, much issues and the impact they will have investors, like Western markets, are mature on investment. and the due diligence process is emerging Asia fairly streamlined. Most target The lack of protection and companies know what to expect, and transparency leads to corruption. should focus if the investor wishes to outsource The ASEAN Business Outlook the due diligence process, the right Survey 2016 report on corruption on regulatory, experts are available. Also, the in Southeast Asia shows that less accounting rules are in line with than 15 percent of respondents are transparency and International Financial Reporting satisfied with the lack of corruption Standards (IFRS) for both public in eight of the 10 Southeast Asian infrastructure- and private companies; and legal countries. The two exceptions are requirements are well documented Singapore, which has a very high related reforms. and easily accessible to investors. score of satisfaction, and Brunei.

In emerging markets such as A few of the nations have set up Malaysia and Indonesia, the strong anti-graft commissions, due diligence process could face which are making good progress. challenges on a few aspects. However, this is undermined They include accounting, legal when we look at some high-profile and regulatory, commercial, and scandals worth billions of dollars language and culture, among others. that have happened in the recent Malaysian public companies follow past. This is not just a Southeast accounting standards in line with Asian phenomenon. Most emerging IFRS and private companies follow and growth markets have similar standards in line with IFRS for issues, albeit possibly at a different SMEs. Similarly, Indonesian GAAP scale. An investor needs to weigh (Generally Accepted Accounting the risk of such issues against the Principles) has adopted IFRS but various benefits and opportunities with some time lags for updates. that the deal would offer and make a Indonesia as its own valuation balanced decision. standards and requirements. These are some things to be prepared for Some of the issues around from an investor’s perspective. transparency can be addressed or mitigated somewhat. This can be Frontier markets like Vietnam done through checks and controls in still use their legacy standards for the purchase agreements, which can accounting. It is also a country with make vendors liable for any lack of one of the highest costs of debt disclosures at the time of doing the and one of the highest country risk deal or prior to signing. premiums. Sometimes, Vietnam is also plagued with labor strikes, which can cause significant INDIA AND INDONESIA disruption to business. Elsewhere, REMAIN ATTRACTIVE has recently introduced an older version IFRS for public There are, however, a few emerging companies. However, the economy economies that have made progress is still evolving their business in terms of corporate governance processes, financial systems, requirements and transparency. accounting standards and regulatory India continues to attract requirements, and, these aspects international investors for reasons are rapidly changing for the better. beyond the attractive growth rate An investor doing due diligence will and the affluence of the burgeoning

12 mmc.com middle class. The initiatives the MINIMIZING RISK IN Conducting due diligence in a current government has taken are DEVELOPING ASIA thorough manner also helps to bringing benefits and resulting identify gaps and risks from both in increasing capital inflow to the Over the years, the focus has the legal and commercial fronts. country. The fundamentals of the primarily been on emerging markets This gives investors the chance economy remain compelling; making for higher returns. Investors to seek legal advice and take room for interest rate cuts would are looking for risk mitigation precautions that can protect them help extend India’s position as the strategies, such as investing in from misrepresentation or the go-to place for investing among the developed market companies, but lack of knowledge. In addition, it emerging markets in Asia. are also increasing their presence in is important to carefully examine emerging markets. This adds value the corporate governance of In India most of the capital inflows to them as a tangible advantage the company. over the past couple of decades have because they can avoid paying a been toward services, retail and real Southeast Asia as a region is the 7th higher multiple for investing in estate. However, Indonesia appears largest economy in the world, with a emerging markets. Yet, they can to be emerging as an alternative to market potential of over $2.5 trillion profit from rising valuations of those China in the manufacturing and and a relatively young population of multinational companies investing industrial space. The slowdown of over 640 million. While the market in such emerging markets. global demand and potential change is huge, it is largely untapped, in export-import philosophies of Emerging markets are subject and emerging countries such as leading economies may have an to various kinds of risk such as Myanmar, Indonesia and Vietnam impact on the Chinese economy. political risk, credit risk and market are leading the pack in attracting Indonesia, then, becomes an risk, among others. A company investor interest. attractive alternate investment with issues related to shareholder Given that much of the fund flow area given its reduced reliance on rights, accounting principle and would come from mature/stable external demand. transparency can be volatile to economies, emerging Asia would fluctuations in the above parameters. However, these geographies benefit from focusing on regulatory, still have some way to go toward Investors need to weigh the pros and transparency and infrastructure- increasing investor confidence in cons of an investment proposition related matters, as these have terms of corporate governance and arrive at a balanced decision, traditionally been the areas that have requirements, transparency especially where risks can be lacked focus and kept investors away. and protection. mitigated through checks and The views expressed in this article are controls built into sale and purchase the author’s and not of Duff & Phelps. agreements, such as clauses that set out certain rights and indemnities This article first appeared on that hold vendors liable for the lack BRINK Asia on July 14, 2017. of disclosures prior to signing.

BRINK ASIA Compendium 13 SOCIETY ROBO ADVISERS: WHY NO MASS ADOPTION YET?

Subhajit Mandal Director at LumenLab, Singapore

long-term investment portfolios for savings and who previously didn’t invest anywhere.

Proxy data points on the amounts saved in 401(k) accounts do not point toward a bright inference. In total, the three top robo advisers in U.S.—Betterment, Wealthfront and Charles Schwab—have about $35 billion in total assets under management, and their year-on-year increase is dwarfed by the year- on-year increase in the amount of 401(k) contributions. A possible inference from this data point is that robo advisers have not led to drastic behavior change and have not effectively got consumers to start saving.

There are now several robo advisers EXHIBIT 1: ROBO ADVISORS AROUND THE WORLD AS OF 4/17/17 around the world and particularly in the U.S., where the trend started. Source: CB Insights Increasingly, we are seeing robo advisory firms pop up in Asia (see Exhibit 1, next page) as the region’s startups and financial institutions start jumping on to the fintech bandwagon.

Many see robo advisory as an industry with the promise of bringing about a change not just in terms of how wealth is managed, but also behavioral change in terms of getting erstwhile non-investors to start investing, perceivably at the proverbial click of a button. Yet, collectively, how effective have all these robo advisers been in this regard over the past decade?

The effectiveness of robo advisers should be measured by the number of new consumers who have started

14 mmc.com THE RESEARCH EXHIBIT 2: CONSUMERS’ WILLINGNESS TO INVEST VIS À VIS FINANCIAL SAVVINESS Why haven’t robo advisers gained mass adoption? A series of 40 one- on-one interviews conducted by the author with consumers in India revealed some interesting insights. HIGH 7 8 9 Based on the interviews, a new framework (Exhibit 2) was developed to assess consumers. An average consumer can be placed on a 4 5 6 scale of financial savviness vis-à-vis willingness to invest. Willingness to invest Willingness Those ranked low on the “financial 1 2 3 savviness” spectrum (x-axis in LOW Exhibit 2) have little to no idea about LOW HIGH investment avenues such as stocks/ Financially savvy equities and bonds, for example. Those at the middle of the band may know what equities are, but their understanding of investment At the other end of the spectrum, avenues such as exchange-traded THE FINDINGS those in zone 1 are both not very funds is low to nonexistent. And Consumers in zone 9 just want financially savvy and have a low finally, those who rank high along to maximize returns on their willingness to invest. The research this spectrum (zones 3, 6 and 9) have investments. They either manage found the reasons for this can be a thorough understanding of ETFs, their own finances or work with manifold—bad experiences with fixed income and equity indices. trusted financial advisers. They investments among family members Their understanding of personal tend to be in the early to middle leading to the perception that risky money management—for example, parts of their careers. If they are investments are “bad,” possibly the how much of their savings should young (early 20s), then they come lack of adequate disposable income, be held for emergencies, residential from a family whereby investing the wrong perception of high capital mortgages, and fixed income and is a part of the family’s history, requirements to start investing, or equities, is high. and hence they are comfortable the lack of a willingness to know or Similarly, those at the lower end of with investments and have been find out more to invest. the “willingness to invest” spectrum financially aware since their teenage The inability of robo advisers to (y-axis in Exhibit 2) will only put years. There are a sufficient number move consumers from zone 1 to money in the bank and not into of services within existing banks zone 9 is what is resulting in the lack anything else. Being safe is their and brokerage companies to cater to of mass adoption of robo advisory main mantra. Move upward along their needs. Innovation in this zone in Asia and around the world. One the scale, and there are consumers is centered on helping these people of the key factors that can lead the who are ready to allocate money to make better investment decisions move of people from low financial somewhat riskier assets such as real through comparison websites such savviness to high financial savviness estate and gold. And finally, those as MarketWatch, crowdsourcing is education. who are already investing in riskier research such as ZeroHedge, assets lie further along the spectrum crowdsourcing trades such as eToro, (zones 7, 8 and 9). or through lower costs (ETFs).

BRINK ASIA Compendium 15 That said, there are sufficient Converting people in category 2 is not really come to fruition. Rather, means—including friends, families, difficult, given that subconscious behavioral change is required for colleagues, financial advisers, the biases can only be addressed through this category of consumers, and Internet—to help people increase data. There is a possibility of change bringing that about is challenging. awareness of investment options when they see friends or families But robo advisory firms need to find and to understand personal money getting good returns from their triggers that can get individuals to management. Yet, the move toward investments, and that can trigger a start investing. Owing to the lack of a becoming more financially savvy is change in view. sense of urgency and consumer bias slow. This could simply be a matter for instant gratification, it is hard to of intent. It must be borne in mind, People in category 1 and category 2 find such triggers. however, that a move along the x-axis usually do not move along the axes is also dependent on a consumer’s of financial savviness because they The robo adviser who finds a trigger position on the y-axis. don’t feel the need to do so unless to change behavior will unearth they overcome their misconceptions the holy grail of robo advisory and/or biases. business models. CHALLENGES IN MOVING To cater to people in category 3, This article first appeared on UP THE ‘WILLINGNESS there are a lot of mock trading/ BRINK Asia on December 20, 2017. TO INVEST’ AXIS investing apps that can help people feel comfortable trading with mock There are a variety of reasons money and live market data, with consumers are not willing to invest: the hope of getting them to move up the axes. Category 1. They feel they don’t have enough capital to start investing. Sometimes this is correct, but often THE OPPORTUNITY this is a misplaced notion. In my view, the big area where Category 2. Individuals have a innovation is lacking and where negative emotional bias owing to we could see a real change is in the poor experiences of family and category 4. friends who may have lost significant savings in the stock market, Here, firms need to help potential for example. customers shake off their ambivalence and get them to take Category 3. They feel that they are the first step toward investing. Doing not ready yet. so can help robo advisers become more effective, where effectiveness Category 4. A lack of interest or is measured not in terms of returns desire to know more. or the amount of capital managed, There are many solutions to but in terms of actually growing help people in category 1. For the universe of individuals who example, among the consumers are investing. we interviewed, some thought that The expectation that making one needs a minimum balance of investing possible with the capital to begin with, but that is not proverbial “click of a button” will true anymore. result in more people investing has

16 mmc.com SOCIETY BOOMING HEALTH CARE INDUSTRY IN INDIA IS NOT ALL GOOD NEWS

Anupa Naik Vice President, Employee Health & Benefits at Marsh India

The growth of India’s health care water, inadequate and inefficient such as hypertension, cancer and sector is being driven by a rise in sewage and waste management diabetes. More so, due to demanding both infectious and chronic diseases. systems, a crumbling public health schedules, high stress levels and Chronic diseases have overtaken infrastructure, increased air travel performance-linked perquisites in infectious diseases in terms of and movement of populations the private sector, nearly 85 percent morbidity and mortality data. across borders. of employees in the private sector are afflicted with lifestyle-related, Some communicable diseases once chronic diseases. For example, thought to be under control, such THE NUMBERS India is the world’s second-largest as dengue fever, viral hepatitis, consumer of tobacco, resulting in tuberculosis, chikungunya, and An increasing number of Indians high rates of cancer, including the pneumonia, have resurfaced and are now adopting unhealthy largest numbers of oral cancer in developed a resistance to more lifestyle habits and consuming the world. potent drugs. This troubling diets that are high in fat and sugar. trend can be attributed in part to The country is experiencing a According to a survey of 1,250 substandard housing, inadequate rise in lifestyle-related diseases corporate employees across

BRINK ASIA Compendium 17 150 companies, 42.5 percent of HR professionals are also not making Increasingly, respondents suffer from depression a concerted effort to collect and or general anxiety. Obesity is the integrate data points from multiple employers are second hard hitting disease that sources that can help measure was observed in 23 percent of the baselines and thereby outcomes. recognizing that respondents. Obesity alone can adversely impact occupational A few targeted programs, such as chronic diseases morbidity, mortality and injury cancer care, diabetes prevention risks that can further affect programs and pregnancy care are a growing workplace absence, disability, programs, have been successful. productivity and health care costs. Concepts such as having live threat to their High blood pressure and diabetes interactions with celebrity fitness are the third- and fourth-largest icons/life coaches have helped to employees. prevailing diseases with shares of 10 increase engagement, for instance. percent and 8 percent respectively. Certain programs, when delivered Spondylosis, heart disease, cervical, at home and when they involve asthma, slip disk and arthritis are spouses and partners, have shown other common diseases among positive outcomes. corporate employees. Two percent Some of the program formats of the capital spent on workforce is may be offered earlier, but just by lost to disability, absenteeism and enhancing the delivery model by poorer attendance arising from means of a web portal or mobile app chronic diseases. can make the engagement far deeper and, in the process, ensure a higher HOW ARE uptake because of the ease of use ORGANIZATIONS and navigation. RESPONDING? For example, a nutrition management program offered Increasingly, employers are through a team exercise of a cooking recognizing that chronic diseases are competition, where a farmer’s a growing threat to their employees. market is created for employees to As a result, employers are looking at purchase their own ingredients and ways to reduce health care costs of score on criteria like caloric count, employees while creating a culture presentation, nutrition value and of health. Chronic health problems the like, can make such exercises far have something in common apart more enjoyable and engaging. from their devastating effects: Many of them are preventable. Another important touchpoint is the on-site clinic/medical center, Surveys show that human resources usually implemented to comply (HR) managers are now offering with occupational health and labor preventive health care services to regulations. Due to the focus on employees. However, most of these occupational health, on-site clinics are offered on an ad hoc basis—for are not connected with other health example, gym memberships, annual and wellness strategies offered health checkups, healthy eating at to employees. Currently this is workplaces, weight loss programs being underutilized, offering only and health talks. Such programs have primary care, and corporates are not little or no impact on health risk analyzing any data that is recorded mitigation and hence do not provide here. Clinics could become a hub of corporates with a sustainable all health and wellness needs and strategy toward cost containment. deliver far more value to employees.

18 mmc.com STEPS TO TAKE industry benchmarking. An effective The need for employee wellness health and wellness program must programs is further highlighted when Creating an impact on outcomes be targeted and relevant to an viewed against the backdrop of the and risk reduction requires more organization’s workforce. rising burden of noncommunicable behavior modification programs that diseases in India, which now account can be sustained over the long term. Health and wellness frameworks for 53 percent of total deaths. These programs need to be visualized should be planned and customized as an investment to cap costs and in an integrated way that delivers on Employee wellness programs are an not as an increase in the health care specific objectives. When programs economic imperative for companies spend for companies. are fragmented, their effectiveness and a strategic priority for India, diminishes or vanishes. given the heavy contributions of the HR professionals should commit private sector to the economy. to pursuing and investigating the Additionally, leveraging data for wealth of health and behavioral data better decision-making, maximizing This article first appeared on available to help them determine spend for ongoing health care BRINK Asia on June 26, 2017. whether to eliminate or refocus programs and creating a sustained existing programs. They should also health and wellness strategy will be look beyond market studies and the key focus for Indian companies in the years to come.

BRINK ASIA Compendium 19 ECONOMY HOW CAN ASIAN PENSION SYSTEMS DEAL WITH AGING POPULATIONS?

David Knox Senior Partner at Mercer Australia

Several Asian countries received the lowest ranking in a report on the sustainability of their pension systems.

Countries in Asia with unsustainable unchanged, these systems could pension systems need to take create societal pressures where action now to avoid having to take pension benefits are not distributed drastic measures in the future. equally between generations. This is the stark warning from the latest Melbourne Mercer Global Pension Index. LEARNING FROM OTHER PENSION SYSTEMS There are two major challenges that retirement income systems While comparing pension across the world face: increasing life systems around the world isn’t expectancies and low investment straightforward due to economic, returns. These pressures have social, cultural and political alerted policymakers to the growing differences, this doesn’t stop importance of intergenerational countries reviewing the best equity issues. models and using some of the desirable features in reforming their Japan, Austria, Italy and France are own systems. examples of developed countries where pension systems don’t The Melbourne Mercer Global represent a sustainable model that Pension Index uses three sub- will support current and future indices—adequacy, sustainability generations in their old age. If left and integrity—to measure each

20 mmc.com country’s retirement income system NOT JUST AN ASIAN for 2035 range from 11 percent in against more than 40 different PROBLEM South Africa to 57 percent in Japan, indicators. This study of retirement revealing a very wide divergence. income systems in 30 countries Longer life expectancy and declining Fertility rates are also important reveals that there is great diversity birth rates lead to rapidly aging as they indicate the number of between the highest ranking populations. As a result, this trend young people joining the workforce (Denmark at 78.9) and the lowest is having a significant impact on in future years. The lowest total (Argentina at 38.8). the resources of pension schemes. fertility rates in the survey belong to Aging populations are proving Asian countries—South Korea and The index reveals that for 2017, to be a major challenge for most Singapore both have a rate 1.23. The Denmark retains its top position countries, with Asia among the worst highest fertility rates are Indonesia for the sixth year in a row, just regions affected. at 2.45 and South Africa at 2.55. A beating the Netherlands (78.8) and TFR of less than 1.5 raises serious Australia (77.1). As people live longer, the greater issues for the future age structure of the financial pressure on pension these countries. While immigration The highest rating band in the index schemes to provide benefits for can be a short-term solution, it is not is A, although no country achieved them. To highlight these pressures, sustainable in the long term. this status. The next ranking is B+ we have looked at the gap between (a value of 75-80), which was given life expectancy at birth and the state to Denmark, the Netherlands and pension age. The state pension age is REFORMS NEEDED Australia. The highest-ranking Asian a useful benchmark as it guides many country is Singapore, which earned SOONER RATHER THAN retirement decisions. We also look a B rating with an index value of at the projected gap, fast-forwarding LATER 69.4. This band covers a scheme that two decades ahead. This prediction has a sound structure, with many When it comes to improving each is useful as it highlights the impact good features, but has some areas country’s retirement income of aging populations between now for improvement, which is what systems, there are some common and 2035 and the likely effects on differentiates it from an A-grade recommendations as many funding requirements for pensions. system, according to the index. economies face similar problems The current average gap ranges in the decades ahead; namely, aging Malaysia has the second-highest- from 3.7 years (South Africa) and populations. There are a range of ranking retirement income scheme 9.9 years (India) at the lower end to reforms that can be implemented to among Asian nations with a value of 21.4 years (South Korea) and 23.5 improve the long-term outcomes of 57.7, falling into grade C along with years (Japan). Looking at future weaker systems. France, the U.S., Italy and Brazil. projections for 2035, the gap ranges However, Asian countries dominate They include increasing the state from 7.3 years (South Africa) and the lowest-ranked grade D, with pension/retirement age to reflect 9.6 years (Indonesia) at the lowest Indonesia (49.9), South Korea (47.1), increasing life expectancy and points to 22.6 years (China) and 22.8 China (46.5), India (44.9) and Japan promoting higher labor force years (France) at the highest. Every (43.5) all included in this category, participation at older ages, which country has a current difference which covers a scheme that has will increase the savings available between life expectancy and state some desirable features but also has for retirement. Additionally, higher pension age of less than 23 years, major weaknesses and/or omissions levels of private savings within with one notable exception—Japan. that need to be addressed. Without and beyond the pension system A number of improvements have these improvements, its efficacy should be encouraged. Increasing been recommended for Japan’s and sustainability are in doubt. the coverage of employees/self- system such as further increasing the The average index value across all employed in the private pension state pension age as life expectancy countries is 59.9. Only Singapore system is an important pillar too. continues to rise. scores an above-average value Finally, leakages from the retirement among Asian countries. By looking at the old-age savings system prior to retirement dependency ratio for 2035, we can also need to be reduced. see the effects of aging populations This article first appeared on and low fertility rates on the BRINK Asia on December 5, 2017. working population in the future. The projected dependency ratios

BRINK ASIA Compendium 21 SOCIETY MEDICAL TOURISM IN ASIA-PACIFIC GROWING RAPIDLY

Bart Van den Mooter Principle & Founder of TforG—an IQVIA company

Asia-Pacific is the fastest-growing every country looking to extract years. Worldwide medical tourism region in the global medtech market. a piece of this pie, competition generated 150 billion euros ($177 This growth is fueled by public between countries and hospitals billion) in 2016 and is expected to health care reforms, but even more is intensifying. grow to 200 billion euros by 2020. so by the rapidly expanding private sector and with medical tourism, a The Southeast Asian health care connection not often made when HOW BIG IS MEDICAL market is expanding faster than the booming medtech market is TOURISM? in other regions, especially driven talked about. by the private sector and, notably, In 2016, between 105 and 120 million medical tourism. Foreign patients In most Association of Southeast medical tourists traveled abroad are a major revenue generator for Asian Nations countries, medical to seek health care services. This private hospitals in the region. Their tourism represents a third or more number is expected to grow by 10-14 share represents 40-55 percent of private hospital revenues. With percent annually in the coming three of the private hospitals’ revenue

22 mmc.com SOUTHEAST ASIA MEDICAL TOURISM 2016

Source: TforG

Medical tourists (millions) Revenue 2016 (billions, euros)

THAILAND 3.5 € 4.0

MALAYSIA 1.2 € 1.4

SINGAPORE 0.9 € 1.6

INDIA 4.0 € 4.0

in countries such as Singapore, IMPACT OF MEDICAL more than 50 billion euros, or Malaysia and especially Thailand. TOURISM ON MEDTECH more than 10 percent of the global In India, medical tourism accounts medtech market, and are growing for 25 percent of revenue, and in Due to fierce competition, private faster (7.5 percent) than any other the Philippines, South Korea and hospitals in the region regularly region in the world. Taiwan, it accounts for 10-15 percent upgrade facilities and increase Market dynamics in the health of revenue. capacity. Recently, the sector care tourism segment impact the has started attracting more In 2016, the medical tourism sector providers of medical equipment and international hospital groups and in Asia-Pacific accounted for 10 devices in terms of product offerings investors seeking to enter this million patients and 15-17 billion and customer services. It also creates lucrative market. euros in revenues. For instance, new opportunities for global as well India attracted more than 4 million Countries seeking to develop as local medtech companies. With medical tourists in 2016, generating medical tourism are teaming up recent trends, there has been a shift around 4 billion euros in health care with large multinational players to more day-care and ambulatory revenues. Similarly, in Thailand, (for example, Mayo Clinic with procedures in order to deal with staff which has perhaps the most Raffles Medical Group in Singapore, shortages and cost-effectiveness. advanced medical tourism sector, 3.5 Cleveland Clinic , John There is also an increased need million foreign patients spent more Hopkins Singapore and Anadolo for telemedicine and e-health to than 4 billion euros on health care in Medical Center in Turkey). While improve the continuum of care. In 2016. In Singapore, medical tourism increasing competition between recent times, medtech companies accounted for almost 1.6 billion the care providers is leading have increased group purchasing euros with close to 900,000 patients to differentiating investments and central warehousing and are also in 2016. and services, it is also leading to offering innovative IT-based and increased cost pressure and dilution The sector will continue to grow 15- value-chain solutions to improve or in quality of health care. 17 percent annually for the coming defend their competitive advantage. three years. The growth of medical tourism in They are also shifting from product- Southeast Asia obviously impacts the focused offerings to customized medtech market segment. Southeast value-based solutions. Asia and India together represent

BRINK ASIA Compendium 23 WHAT FUELS MEDICAL facilities using foreign and domestic collaborate with western hospitals to TOURISM IN SOUTHEAST capital. They are hiring physicians, deal with the shortage. At the same technicians and nurses trained time, they review their operational ASIA? to international standards, and processes and invest in equipment where qualified personnel are not and solutions that impact the There are a variety of reasons why available locally, they are recruiting productivity of the hospital. the medical tourism market has expatriates. Additionally, new taken off in the region and continues service providers in these markets Competitiveness and cost pressure. to grow. are also offering state-of-the-art The increasing number of hospitals health care technology for patients. and investors offering global health care services creates in competition PUSH FACTORS The increasing affordability between countries, often resulting in of international air fares for price wars that can potentially dilute Wealthy patients in emerging intercontinental travel has also the quality of health care provided. countries seek high-quality care played a role in supporting the in high-standard settings, which growth of the regional medical The medical tourism market in medical tourism destinations can tourism market. ASEAN is in the midst of a boom, offer. Middle-class and underinsured and this is impacting the medtech patients in developed countries feel Finally, many nations in the region market, among others. For disenfranchised by their national regard medical tourism as a resource stakeholders that can mitigate these health care systems, which are often for economic development; for and other operational challenges, plagued by long waiting times for instance, the ministries of Tourism the opportunity is abundant. Much treatments. They shop outside the in Thailand, Malaysia and India of their success, however, will organized medical system to find have been aggressively and fiercely depend on how governments and services that are affordable, timely or promoting medical tourism in the private sector can work together simply available. their countries. In the same to create a conducive medical vein, private hospital chains and tourism ecosystem. Healthcare insurers motivate investors perceive medical tourism patients to seek more cost-effective in Asia-Pacific as an attractive This article first appeared on medical provisions outside their business opportunity and invest BRINK Asia on November 3, 2017. home countries, and the usually in infrastructure, equipment, staff lower cost of medical treatment in and services. medical tourism destinations is an obvious attraction.

Moreover, national health insurance PRIMARY CHALLENGES in developed countries does not The market is not without its typically cover some types of care, challenges. Chief among them are: such as cosmetic surgery and dental care. Political stability. Political stability is a requisite to draw any international PULL FACTORS tourists, irrespective of whether they are traveling for leisure or medical Triggered by the opportunities treatment. For instance, political of medical tourism, governments unrest in Thailand and in some actively promote their countries Malaysian provinces had an impact, and hospitals for patients shopping albeit temporary, on medical tourism for health care services. Health care in these countries. providers deploy referral systems Staff shortage. The volume of to attract patients, and service adequately trained clinical staff companies offer innovative products (doctors and nurses) can hardly to guide patients in their choice keep up with the growing numbers of country and hospital. To meet of medical tourists and the level this demand, entrepreneurs are and quality of care they expect. building technologically advanced Hospitals hire physicians abroad or

24 mmc.com SOCIETY NAVIGATING HR CHALLENGES IN INDIA

Shanthi Naresh Senior Principal and Leader, Career Business for Mercer India

Ruchika Pal Principal, Career Business for Mercer India

control. As India Inc. welcomes five generations in the workplace and embraces the shifting nature of jobs, it will be critical how HR professionals manage to attract and retain today’s talent, while striking the right balance and finding a sustainable way to build capability for the future.

SHIFT IN WHAT INDIAN EMPLOYEES VALUE

Mercer Talent Trends 2016 showed that an Indian employee valued “focus on learning” as the most important aspect of the employee value proposition. However, in 2017, the focus has shifted to “pay and promotion,” signaling a shift to what a younger workforce demographic typically values. India is one of the world’s fastest graduates entering the workforce Ninety-three percent of Indian growing major economies, each year. The situation has been employees want to be recognized recent concerns of a slowdown exacerbated by the rapidly evolving and rewarded for contributions notwithstanding. India is also home skills requirements that come with beyond their role definitions. to a young population, and it is the advent of new technologies. They also seek greater clarity on expected that by 2020, the average Additionally, the curricula in most performance ratings and periodic age in India will be 29. Should the higher-educational institutions constructive feedback. current rate of population growth have not kept up with this evolution. continue, India would overtake We hope that the government will With the wide adoption of China to become the most populous proactively take steps to address the technology, 54 percent of workers nation by 2050. The millennials burgeoning gap through broad-based want their organizations to offer and Generation X demographics reforms in education and focus on more flexible work options. Health dominate the Indian workforce, better partnerships between the and wellness are also accorded high with 98 percent of working academia and the corporate sector. priority—54 percent of employees individuals belonging to these want their employers to focus on this According to Mercer Talent Trends generation segments. aspect by way of offering compelling 2017, in India, jobs in the next three benefits. While the baby boomers While it is popularly called out as years will focus more on design and and traditionalists sought the a “demographic dividend,” it also innovation, and as more jobs will be comfort of long-term careers, the implies that economic growth and done virtually, salaried workforce younger workforce in India would resulting job creation need to serve will primarily be in management the needs of the millions of new roles, with much broader spans of

BRINK ASIA Compendium 25 EMPLOYEE SAY “WHAT WOULD MAKE A POSITIVE IMPACT ON YOUR WORK SITUATION?”

Source: 2017 Mercer Talent Trends – India

1 Opportunity to get promoted

2 Working with the best and brightest

3 Leaders who set clear direction 4 Compensation that is fair and market-competitive 5 Career path information

6 Access to better internal learning content HO I HR RIORITII 7 More feedback on performance from managers

prefer to have the liberty to navigate not feel empowered to create their and talent interventions have to be their own careers. own success at work. Furthermore, a evidence-based, using workforce staggering 60 percent of employees analytics and closely linking to Seventy percent of workers would are likely to change jobs within the business outcomes. As organizations rather work on a contractual basis, next 12 months. prepare to be more customer- resonating with the global rise of centric and agile, HR as custodians the gig economy. Per the employees Thirty-three percent of companies of culture have to drive a shift in surveyed, a few key areas that would have instituted a retention bonus employee mindset so that employees make a positive impact on their work policy. This policy is aimed at feel more empowered and energized are represented above. specifically retaining special skills about their work. and retaining employees with flight risk. More can be done by Transform the organization. HR EMPLOYEE FLIGHT IS companies in India with respect to teams must partner with business A REALITY creating compelling career paths for strategically. In doing so, they must employees. For example, providing nurture and develop leaders for In the two decades that followed employees with a skills development the future, grooming them into India’s economic liberalization since and learning roadmap, which future leaders with the skills to the early 90s, robust job expansion would enable them to fulfill their take on ever-changing business and greater-than-inflation career aspirations. environments. Strategies that wage growth has meant that the could be implemented include: employees in general were more cross-functional or cross-geography engaged at the workplace. However, ADDRESSING HUMAN experience; global exposure; with increasing automation and RESOURCE CHALLENGES customized career plans; rotational the shifting nature of jobs, there stints; mentoring and coaching; and may be an increasing sense of Evidently, India’s enormous high-impact action learning projects. disenchantment with the traditional labor force presents diverse HR full-time model. challenges, and for HR teams to be Associated costs must also be closely future-ready, organizations must monitored to maintain adequate In 2016 there was a 16.4 percent adapt to changing trends. checks and to bolster growth. average annual attrition rate. The Buying talent by paying above the turnover rate is higher in roles in Facilitate a culture shift. market is no longer sustainable, and high demand, such as sales and Organizations must recognize the therefore HR professionals have to data science. This can perhaps be need for a fundamental cultural focus on a combination of build and attributed to those 20 percent of shift in order to prepare for digital buy strategies to bring in the skills employees reporting that they do disruption. The people strategy needed to make their organizations

26 mmc.com AND WE ARE LOSING PEOPLE

Source: Mercer TRS 2016

PERCENTAGE 40%

30%

20%

10% 2014

2015

0% 2016 All industries Chemical Auto Consumer MLS High Tech SSO 2014 12.6 8.2 10.1 17.6 15.8 11.2 17.8 2015 13.3 9.2 9.3 11.9 15.9 14.4 26.2 20161 16.4 10.2 11.0 16.6 20.0 19.0 35.8

1. Annualized Based on average figures 2016 numbers are annualized

future-ready. In this regard, 54 HR may also like to start tracking With profitable growth as the percent of Indian CEOs are likely to employee development, manager new “mantra,” double-digit transform their organizations into efficiency and succession planning. salary growth may not always be significantly different entities over feasible. And therefore building a the next three years. more compelling employee value GEARING UP FOR proposition, based on the rewards Know your talent. Each generation THE FUTURE philosophy and the business model has a different requirement, and will be crucial. To drive engagement a deeper look at generational In view of the multiple challenges, and productivity among the young preferences outlines varying human resource departments millennial workforce will require total rewards priorities for each. in India face a daunting task. innovative talent practices, based on Organizations must ascertain what Navigating through these challenges a deeper data-led understanding of motivates this multigenerational requires organizations to be what different employee populations talent. They must also design and responsive, agile and innovative. seek and what drives them. maintain an engaging rewards There may be significant philosophy and leverage on data opportunity for the HR function This article first appeared on analytics to attract and retain to focus on its own capability BRINK Asia on October 19, 2017. talent. To this effect, 85 percent development, by way of becoming of Indian CEOs are planning large more comfortable with the use of investments on data analytics tools. data analytics and new technologies. Companies are currently tracking a) HR professionals will need to have workforce metrics such as turnover, a much deeper understanding of demographics, attraction and the evolving business models and retention; and b) organizational implications of digital disruption on efficiency metrics such as financial people strategy. impact and cost efficiencies.

BRINK ASIA Compendium 27 TECHNOLOGY HOW THE IT SECTOR IS IMPACTING INDIA’S REAL ESTATE

Abhinav Joshi Head of Research at CBRE India

Sachi Goel General Manager of Research at CBRE India

The Indian IT sector is going through a structural transformation— and the causes and impacts of this shift are multifold.

India’s commercial real estate of reverse migration to India. Given market is increasingly driven by their skill set, this could contribute the information technology sector, significantly to the startup culture in which is currently undergoing a India, which would boost demand for number of major disruptions. office space from this segment in the medium to long term. H-1B VISA ISSUE ADVENT OF NEW, Proposed U.S. legislation restricting H-1B visas is likely to impact global INNOVATIVE corporations, causing them to hire TECHNOLOGIES Americans over Indians in the U.S. and downsize their expansion plans The onset of the Fourth Industrial in India. Revolution is becoming apparent in India, thanks to the strength of For those impacted by the proposed the IT industry. With innovative changes, we expect a certain degree technologies such as artificial

28 mmc.com intelligence, big data, cybersecurity NEW SECTORS, NEW • As occupiers strive to achieve and cloud computing being adopted OPPORTUNITIES FOR cost and space efficiencies, by corporations, back-end and more consolidation-led deals regular business processes are INDIA are expected. As corporates becoming increasingly automated. consolidate, the release of Given the scaling up of talent, India secondary space in quality, The rate of growth in IT is is moving toward a cost advantage investment-grade developments increasingly dependent on the not only in back-end processes but in core locations is likely to result adoption of new technologies, as well also in high-end processes that in increased space options for as finding the right talent to operate require a certain degree of talent. occupiers. There could also be a such technologies. Data analytics Consequently, various corporates rising inclination from select IT is also emerging as a key factor in sectors such as manufacturing, corporates to pre-commit space in determining how technology engineering, financial services, in order to save costs and address can be leveraged to improve investment banking and consulting the short-term issue of limited business operations. are looking at ramping up their availability of ready-to-move-in India operations. options. Employee displacement caused in the short term could be covered by CBRE expects that demand from • Given the impact of technology on the creation of new jobs due to the corporates in these sectors will all sectors, occupiers will continue adoption of innovative technologies. continue to rise in the medium to to future-proof their portfolios. This is likely to boost office space long term, especially for those based They are also likely to have a leasing in the medium to long term, out of Europe, the Middle East and growing preference for flexible particularly from the knowledge- Africa and the Asia-Pacific region, space solutions and lease terms, based, software and research and as they continue to favor India as an opting for shared office options development segments. outsourcing destination. such as co-working spaces.

This article first appeared on GROWTH SLOWDOWN IMPLICATIONS FOR BRINK Asia on March 7, 2018. IN TRADITIONAL IT OFFICE SPACE DEMAND SECTOR IN INDIA

India’s traditional IT sector is going While it is certain that the Indian IT through a phase of evolution, with sector is going through a structural corporates becoming cautious about transformation, the aligned future expansion. The slowdown causes and impacts are multifold. in this sector is temporary, but it is Potential impacts on the office real likely to result in select corporates estate market in India include the deferring their real estate decisions. following situations: Stringent evaluation processes have also resulted in a marginal • Leasing activity from select contraction of their future corporates in the IT sector is hiring needs. anticipated to be marginally lower going forward. However, Most IT companies hire on a “bench- it is expected to be compensated strength” basis, with potential by augmented demand from employees only coming on board as corporates of other industry required by projects. Therefore, we segments such as banking, expect them to be innovative about financial services, engineering and their office space requirements, with manufacturing, and consulting rising demand for shared/flexible and research. office spaces expected going forward.

BRINK ASIA Compendium 29 ECONOMY SOUTH AND SOUTHEAST ASIA’S INFRASTRUCTURE STEPS UP

Abhishek Dangra Director in S&P Global Ratings‘ Asia Pacific Corporate Ratings

The South and Southeast Asia region BIG AMBITION feature among the most robust (SSEA) is embarking on many of the market participants. world’s most intensive infrastructure So, as the region enters a critical projects. To address power deficits period in its infrastructure The Asian infrastructure market and improve electrification, development, what is the credit remains characterized by elevated utilities are scaling up—with outlook for SSEA’s infrastructure spending and ambitious plans. In developing countries in the region players? While the regulatory this respect, India and Indonesia expanding their airports, ports and landscape differs between are leading the field. India’s capital highway networks. jurisdictions and sectors, the region’s expenditure (capex) remains high as regulatory stability provides a stable the country addresses its across-the- The Asian Development Bank outlook for most of the 24 S&P- board infrastructure deficits, while estimates that the South and rated infrastructure companies in Indonesia’s infrastructure spending Southeast Asia region will spend a the region. And, in this respect, we is expected to increase by 47 percent total of $9.5 trillion on infrastructure believe infrastructure companies for our rated companies between between 2016 and 2030. based in Singapore, Malaysia, 2018 and 2020, against the previous Thailand and the Philippines could three-year period.

30 mmc.com INDIA AND INDONESIA facilities, including the metro rail, There are and expanding the island state’s Driving capital investment airport and ports, thereby easing unprecedented in Indonesia are state-owned domestic and global trade. Among enterprises (SOEs), particularly the marquee projects is the inter- incentives for for electricity, toll roads and ports. country, high-speed rail network The likes of electricity generator connecting Singapore and Malaysia, South and PT Perusahaan Listrik Negara and which remains in a planning phase. toll road operator PT Jasa Marga Meanwhile, we see moderate Southeast Asian are scaling up operations to meet increases in capital spending, the government’s development notably in the power sector. governments and gross domestic product growth However, that may be where the targets. Yet, given that these are similarities end: Both have divergent to significantly highly ambitious targets, our ratings regulatory and competitive trends. already factor in the potential support the execution—namely delayed cash flows, higher capex or negative MALAYSIA AND THE burgeoning regulatory interventions—and PHILIPPINES financing challenges that projects infrastructure may encounter. Malaysia recently retained its tariff sector. schedule for utilities, which provides Similarly, SOEs are the main players visibility over cash flows for the next overseeing India’s infrastructure two years. upgrades. In particular, there is strong demand in transportation By contrast, regulatory uncertainty infrastructure. Disputes and continues in the Philippines—with payment delays in recent years tariff review delays lasting nearly have dissuaded the private sector three years. In turn, public- from projects such as toll road private partnerships, which were construction. So, to compensate for previously encouraged, have fallen muted private sector participation, by the wayside and have since the Indian government has been replaced by government- significantly scaled up its roads and led infrastructure spending. The railway expenditure. Elsewhere, high country thereby remains the region’s investment in renewable generation wild card: Capex could increase also continues—helping the sector drastically should the government to become poised for strong growth, succeed in implementing its $180 albeit from a low base. billion “Build, Build, Build” agenda, a spending plan equivalent to 7 SINGAPORE percent of national GDP. Enjoying a proven and, in some WIDENING CREDIT respects, unique regulatory framework that allows returns on PROFILES? projects still under construction, Singapore’s power spending will Comprising highly ambitious and upgrade existing infrastructure capital-intensive projects, SSEA’s while also addressing the grid’s infrastructure pipeline is brimming. future requirements. We expect average revenue growth for rated SSEA infrastructure and Singapore’s government is expected utilities to sit between 4 and 6 to increase spending to upgrade percent between 2018 and 2020. the country’s transportation infrastructure, too. Expenditure will Of course, with ambition comes be focused on modernizing ageing some risk: For the region’s biggest

BRINK ASIA Compendium 31 spenders, India and Indonesia, As infrastructure gaps narrow, there VERDICT cumulative capex for rated is also a risk that credit profiles companies will exceed $25 billion by could widen. Divergent regulations That said, the region’s substantial the end of 2020. Capex, therefore, by jurisdiction and by sector may infrastructure investments should is among the key determinants leave highly leveraged companies support the SSEA region’s growth for credit ratings of the region’s vulnerable to regulatory surprises— and development. The emergence infrastructure companies. not to mention other stresses, of a more supportive and consistent such as rising interest rates and regulatory environment in the As such, those companies boasting lower-than-expected revenues. future can result in stronger balance sheets able to withstand infrastructure majors. higher spending—or those operating Across the region, we believe in sectors with stronger regulatory infrastructure majors with ratios of Given the increasing involvement of controls—should see their credit debt to EBITDA (earnings before SOEs in developing infrastructure profiles fare better. We would interest, tax, depreciation and in these economies, there is an therefore expect companies in amortization) in excess of 5.5 times unprecedented incentive for Singapore, Malaysia, Thailand could face financial pressure. This governments to ensure the strength and the Philippines to maintain could place some of Indonesia’s of both the infrastructure sector’s stronger credit profiles and lower infrastructure majors in troubling supporting regulatory frameworks leverage than their Indonesian waters: The average ratio of debt to and the financial health of market and Indian peers. Nevertheless, we EBITDA could rise above 6.0 times participants. It follows, then, that expect Indian majors to deleverage by the end of 2020. And, during strong regional infrastructure due to rising cash flows; while the medium to long term, majors majors could emerge in the future. sharp increases in capex could could also see risks from industry weigh on the balance sheets of disruption and technological This article first appeared on Indonesian players. advancements, although these could BRINK Asia on February 26, 2018. result in opportunities too.

32 mmc.com ENVIRONMENT CAN INDIA BECOME THE NEXT RENEWABLES POWERHOUSE?

Ron Somers Founder and CEO of India First Group

The bottom line is that India needs to scale-up energy production urgently if it is to meet its energy demands.

I am a bit old-fashioned in my All sources of non-carbon-emitting belief that you cannot power a great energy, including civil nuclear power, economy on renewable energy must be pursued on a war-footing alone. That said, developing energy basis. Global climate change and from every conceivable source is an India’s own future depend on this. absolute imperative. India’s efforts to shape its wind ENERGY CONSUMPTION power policy such that India now ranks fourth globally in wind It is important to emphasize a power installation is nothing short sense of urgency—India’s energy of commendable. consumption habits are not shrinking. Just the opposite. Likewise, India’s ambition under the India’s appetite for energy is previous administration and carried exponentially growing. forward by Prime Minister Narendra Modi’s government to make India A country registering 10 million a global player in solar energy is cell phones every month must also paying terrific dividends. India has provide reliable sources of power to quadrupled its solar-generation recharge those cell phone batteries. capacity from 2,650 MW in 2014 to 13,000 MW today. But here’s a troubling fact: India’s per capita consumption of electricity

BRINK ASIA Compendium 33 still hovers at a dismal 1,100 kWh So far, China is far ahead of most domestically—for use in India and of energy per person per year—the countries in developing effective for export and sale overseas. This is lowest of all the BRIC nations. In energy storage. India needs to take an initiative to bolster self-reliance the U.S., most homes consume the strategic lead on this front as in manufacturing and to upgrade this amount of energy nearly well. India can only become the next technology domestically, creating an every month. renewables powerhouse if it becomes ecosystem of domestic suppliers in a leader in energy storage. This is not the defense sector. If those at the bottom of the pyramid easy, but it is achievable. Here’s how. in India are ever to be given real There is no reason why helping opportunity and a chance to achieve India is already one of the largest India become the dominant prosperity, then India must strive producers of batteries in the world. global innovator in the strategic/ to double its energy generation and Every Indian home has a bank of technological field of energy/battery deliver per capita levels of reliable inverters and batteries attached for storage could not make for a good power at least equivalent to what’s backup power. defense offset. This could truly be available in China—at more than a “win-win” for both sides. The 3,927 kWh per person per year. India could go that extra mile defense contractor/vendor will in research and double down on discharge their offset, satisfying The bottom line is that India needs to innovation in lithium technologies their obligation, while transferring scale-up energy production urgently and other highly efficient and to India best-in-class technologies in if it is to meet its energy demands, proven energy storage technologies. the field of energy/battery storage. and if its healthy economic growth is Dominance in the field of energy to be sustained. storage will set India apart, If the Ministry of Defence could be placing it at the top of the value convinced to approve such a concept chain for advancing renewable as an acceptable defense offset, RENEWABLES energy technology. then India would not only have international defense contractors Renewable energy is not a panacea, This endeavor to become the global lining up to set up R&D centers and but it can augment India’s installed leader in energy storage will require high-end manufacturing facilities to capacity. And the good news is that massive capital investment in advance this technology, but India if the central and state governments both soft infrastructure (research could soon become a dominant global tweak their policies correctly to universities) as well as intense player in battery/energy storage, too. make the investment environment research and development (R&D). more conducive, then much of this The total costs involved will be high. This potentiality is no fantasy. renewable energy can be added at But India could have the kind of Such a capability in battery/energy little capital cost to the government. money required. storage, funded by India’s own This is because private investors— defense offset program and courtesy both foreign and domestic—have, of international defense contractors for a long time, expressed a desire to DEFENSE OFFSETS that are cash- and technology-rich, invest in the sector. A SOLUTION? could propel India to become the next renewables powerhouse. Large-scale wind farms and solar The magnitude of investment farms are being installed around required is already available to India This article first appeared on the country without financing from in the form of “defense offsets” under BRINK Asia on September 22, 2017. the government. Unleashing the the Ministry of Defense’s Defense entrepreneurial private sector will Procurement Procedure (DPP). potentially result in a wave of new financing for renewable projects. The Indian government’s policy Once again, to do this, India will need states that if an international vendor a few initiatives to address concerns sells India defense or homeland investors have about investing in the security equipment, at least 30 country’s infrastructure sector. percent valuation of that sale is obligated to be discharged via the But here’s the hitch. Renewable “Make in India” effort by the vendor/ energy only works when water is seller. This is part of India’s effort falling or wind is blowing or the sun is to bolster indigenous capability shining. Storing energy is crucial. to make strategic equipment

34 mmc.com ENVIRONMENT GLARING INSURANCE GAPS IN ASIA-PACIFIC

Michael Owen Head of GC Analytics—Asia-Pacific at Guy Carpenter

Just 10 percent of the economic loss from last year’s major typhoons in China is likely to be recovered from the insurance market.

Many countries in Asia-Pacific have typhoons in China shows a wide a significant insurance gap. This is discrepancy between economic and particularly the case with developing insured losses (exhibit 2, page 37). countries in the region, such as India, Indonesia, the Philippines and On average, just 10 percent of the Vietnam, where the average amount total economic loss is likely to of nonlife insurance can be as little be recovered from the insurance as $15 per person. market. Contrast that with insurance market penetration in three of last This stands in sharp contrast to year’s headline grabbing storms in developed Asian economies such as the U.S. (exhibit 3, page 37). Japan, South Korea and Australia, which have similar insurance The table shows that insurance penetration to Europe and North penetration in the U.S. is much America in terms of the average higher—close to 40 percent. This amount of nonlife insurance being clearly indicates room for growth in purchased (in the range of $1,000 to the Asia-Pacific insurance markets $4,000)—(exhibit 1, page 36). and, more importantly, the need for greater insurance penetration. Unsurprisingly, the portion of losses uninsured in the Asia-Pacific Both the supply and demand for region remains high. For example, insurance that covers natural perils an examination of last year’s major are impacted by large events. This is the first of a two-part series that

BRINK ASIA Compendium 35 EXHIBIT 1: 2016 NONLIFE INSURANCE PREMIUM AND PREMIUM PER CAPITA IN EUROPE AND ASIA PACIFIC

Source: Guy Carpenter

NONLIFE PREMIUM IN BN USD PREMIUM PER CAPITA LEFT AXIS, BAR CHART RIGHT AXIS, POINT CHART 250 8,000

200 2,000

150 500

100 125

50 31

0 8 Italy India Japan Spain Malta China Russia Turkey France Taiwan Austria Ukraine Sweden Belgium Vietnam Thailand Australia Malaysia Germany Denmark Indonesia Singapore Philippines Hong Kong Switzerland South Korea Netherlands Luxembourg New Zealand United Kingdom EUROPE ASIA-PACIFIC Premiums in Europe Premiums in Asia-Pacific European premium per capita Asia-Pacific premium per capita European average premium per capita Asia-Pacific average premium per capita

reviews recent catastrophe losses Kumamoto earthquake. The which the insured loss was only $0.4 in Asia-Pacific and the impact these Kumamoto earthquake was a series billion, or roughly 2 percent of the events have had on the insurance and of earthquakes in April 2016 near economic losses. reinsurance market. Kumamoto city on the island of Kyushu in Japan. A total of 137 Kaikoura earthquake. A magnitude people died and close to 2,000 were 7.8 earthquake struck Kaikoura on ECONOMIC VS. INSURED injured. More than 8,500 homes the east coast of the South Island of CATASTROPHE LOSSES were destroyed, and the economic New Zealand in November, 2016. The loss is estimated to be between damage from this event is estimated IN ASIA-PACIFIC, 2016 $25 billion and $30 billion. The to be $3.9 billion, with the insured AND 2017 insured loss is estimated to be $4.9 loss at around $1.7 billion to $2.4 billion or roughly 20 percent of the billion. One reason for the relatively The largest losses in the Asia- economic losses. large insurance loss for this event Pacific in 2016 were caused by the is because in New Zealand it is Kumamoto earthquake in Kyushu China floods. In June 2016, there mandatory to include earthquake Japan, floods in China, the Kaikoura was heavy rainfall in the south and coverage on every residential earthquake southeast of Wellington, southwest of China, with many fire policy. New Zealand, and droughts in inner provinces receiving between 350 Mongolia. In 2017, cyclone Debbie, mm and 500 mm of rain. The main Inner Mongolia drought. The which hit Australia and New Zealand, damage was caused by flooding and drought in inner Mongolia began in resulted in the largest loss for landslides. The economic losses June 2016 and was well established the region. from the floods in southern China by August, when the government were estimated to be $22 billion, of issued a level four emergency

36 mmc.com EXHIBIT 2: 2017 TYPHOON LOSSES IN CHINA

Source: China national commission for disaster reduction and China Insurance Regulatory Commission (CIRC)

NAME LANDING LOCATION ECONOMIC LOSS INSURED LOSS PERCENT INSURED (MM $US) (MM $US) Merbok Guangdong 260 8 3% Nesat Fujian 11% 760 84 Haitang Fujian 11% Hato Guandong 12,180 1,210 10% Pakhar Guandong 310 17 5%

EXHIBIT 3: 2017 TYPHOON LOSSES IN THE U.S.

Source: FEMA, RMS, CoreLogic, AIR, PCS, Moody’s Analytics and Karen Clark and Company

NAME LANDING LOCATION ECONOMIC LOSS INSURED LOSS PERCENT INSURED (BN $US) (BN $US) Harvey Texas 97 34 35% Irma Florida 71 31 44% Maria Puerto Rico 95 30 32%

response. There were shortages of The storm tracked through Australia small compared to the $100 billion drinking water in some areas, as well and passed into New Zealand. The of insured losses in North America as inadequate water for livestock. market loss in Australia from Debbie from hurricanes Harvey, Irma and Temperatures reached as high as 44 was estimated at AU$1.5 billion ($1.2 Maria. That said, if the scale of degrees Celsius. The loss estimates billion). Insured loss in New Zealand losses increases it could start having for this event was $3 billion economic was estimated at NZ$66.4 million a bearing on the insurance and loss, of which the insured loss was ($48.89 million). reinsurance markets in Asia. It is $1.1 billion. something for Asian governments These events had limited impact on and businesses to be mindful of. Cyclone Debbie. The largest the supply and demand of insurance catastrophe event to affect Australia in Asia-Pacific as the losses were This article first appeared on in the past 12 months was the relatively small. The Kumamoto BRINK Asia on January 30, 2018. Category 4 severe tropical cyclone earthquake was the largest insurance Debbie, which made landfall in loss in Asia-Pacific during 2016 and March 2017 in northern Queensland. 2017, but even that was relatively

BRINK ASIA Compendium 37 ECONOMY INFRASTRUCTURE ACTIVITY IN INDIA: SHIFTING TIDES

Patrick Adefuye Head of Real Assets Products at Preqin

India’s infrastructure need is FUNDRAISING TRENDS This small scale is perhaps a massive. As one of the world’s most reflection of the rapid speed of populous and rapidly growing large Currently, there is not a great deal development so far. Infrastructure economies, the Indian government of private capital being raised funds operate on long-term has recognized that boosting the for infrastructure in India. The horizons of 10 years or more, country’s public infrastructure is assets held by India-based unlisted meaning that many India-based key to maintaining the momentum infrastructure funds totaled just infrastructure funds will have its economy has achieved in $2.8 billion as of end-September been incepted in recent years recent years. A failure to invest 2017, including less than $1 billion in order to take advantage of significantly in improving its existing of capital available for investment burgeoning opportunities. infrastructure and building new in upcoming projects. That’s a very infrastructure can scupper the small sum for a country of India’s This is reflected in fundraising country’s economic prospects. size. By contrast, the equivalent trends for unlisted infrastructure figure for China-based infrastructure funds with a mandate for India. One is $22 billion, while for the United fund closed in 2000 that included States, it is $158 billion. India in its scope, and then no funds were raised with any exposure to the

38 mmc.com country until 2005. However, there If these funds manage to achieve It also indicates that private capital was a rapid boom from that point, their fundraising targets, they will in this case represents a small with fundraising activity peaking surpass the total number of funds proportion of capital sources: in 2009 as nine funds secured closed in the decade 2008-2017, as Corporate and sovereign investors, as $2.5 billion from investors. After well as exceed their capital totals. It well as listed funds, have all deployed declining again in the wake of the reflects the new attention being paid capital toward acquiring projects in Global Financial Crisis, fundraising to Indian infrastructure in the wake the country. accelerated between 2013 and 2015, of renewed government focus on and in 2014, four funds that include the sector. However, this rate has slowed rapidly India in their scope secured a record since the start of 2017, with that year $3.2 billion. In a sign of gathering recording just 86 deals announced pace, though, this record has already DEAL MAKING TRENDS for a total of $24 billion. This has been broken in 2018 year-to-date slowed further in the first four (YTD), as the Macquarie Asia Although fundraising levels over the months of 2018, which have seen Infrastructure Fund 2 closed on $3.3 past decade have not always been 18 deals announced for a combined billion, part of which is likely to be strong, there has been significant $4.1 billion, just 6 percent of the invested in projects in India. acquisition activity for infrastructure number of deals recorded in 2016. assets in India. While there were just This will be of some concern to the What is more promising is that 26 deals worth a total of $1.5 billion in sector and may be due in part to the the amount of capital available 2000, this surged to 138 deals worth introduction of the Insolvency and for investment in India is likely to $15 billion in 2009 and reached a Bankruptcy Code regulation, which accelerate further in the coming record high of $35 billion for 281 may have impacted the way in which months. There are currently 11 deals in 2016. This is extremely many acquisitions were financed. unlisted infrastructure funds encouraging and illustrates that However, with a robust pipeline of in market (still raising capital) investors are finding abundant new funds looking to raise capital that include India as part of their attractive investment opportunities for the country, as well as increased geographic focus, and collectively, in India. incentives from the government, the these vehicles are targeting $15 prospect is good for deal activity to billion in investor commitments. rebound in the coming months.

ANNUAL INFRASTRUCTURE DEALS ANNOUNCED IN INDIA, 2000 2018 YTD

Source: Preqin

AGGREGATE DEAL VALUE NUMBER OF DEALS $BN LEFT AXIS, BAR CHART RIGHT AXIS, LINE CHART 400 40

300 30

200 20

Aggregate 100 10 Deal Value ($BN)

Number 0 0 of Deals 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD

BRINK ASIA Compendium 39 INFRASTRUCTURE DEALS COMPLETED BY INDUSTRY, 2008 2017

Source: Preqin

41% 38%

27% 22% 21%

16% 15%

5% 5% Deal Value 4% 3% 2% 1% 1% Number of Deals Transport Renewable Energy Utilities Energy Social Other Telecoms

When looking at the deals that worried about competition in more PUBLIC OVERSIGHT have been announced over the established markets as well as rising past decade, it is transportation asset valuations, investors could very This shift points to the key that has accounted for the largest well choose to weather the difficult contention between India’s proportion of investment activity business environment in India to infrastructure needs and its in India, representing 41 percent push their capital into the region. sources of private capital. The of the number of deals and 38 huge governmental drive to percent of deal value since 2008. It is also encouraging that a develop new infrastructure Within transportation, the largest significant proportion of deal activity assets in roads, railways, utilities proportion of investments in India since 2008 has been for new-build and public buildings will surely primarily targeted roads, which greenfield projects. These have provide significant opportunities make up 31 percent of the number accounted for close to half (49 for infrastructure investment, of deals and 27 percent of deal percent) of the number of deals and private infrastructure funds value. By comparison, on a global announced and 45 percent of total are among those lining up to take scale, transportation projects have deal value recorded in the period. advantage of these opportunities. accounted for just 14 percent of the This reflects that infrastructure number of deals announced in the needs in the country revolve around However, the regulatory and same period. developing new assets rather financing framework is currently than refurbishing or expanding challenging. Tightening rules on The focus on roads is unsurprising preexisting ones. However, in 2017 bank solvency and lending are when looking at the infrastructure and 2018, year-to-date investors have making finding sources of leverage needs of India. The government overwhelmingly put their capital more difficult, while abrupt shifts in announced in October 2017 that in into assets in the secondary stage, monetary policy may lead investors the next five years, it would build which accounted for the majority of to question the long-term viability of more than 83,000 kilometers of deal announcements in both years. their investments. If these challenges highways and spend about $106 This switch towards preexisting can be eased in conjunction with billion doing so, an indicator of the assets may also be an offshoot of the the government, there is every need for more road infrastructure in Insolvency and Bankruptcy Code, as indication that infrastructure the region. In the past decade or so, firms look to lower-risk and income- investment in India could surge in the largest 20 deals looking to invest generating assets over new builds the coming years. in roads in India were all made before due to financing concerns. In fact, 2016. Due to a difficult business the largest Indian infrastructure This article first appeared on environment, one concern is further deal ever announced was the 2017 BRINK Asia on May 18, 2018. slowdown in private investments acquisition of Essar Oil in a financing in roads. However, with investors worth $12.9 billion, a transaction and fund managers worldwide involving a secondary stage asset.

40 mmc.com About Oliver Wyman Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has about 4,500 professionals around the world who help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC], a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. Marsh is a leader in insurance broking and risk management; Guy Carpenter is a leader in providing risk and reinsurance intermediary services; Mercer is a leader in talent, health, retirement and investment consulting; and Oliver Wyman is a leader in management consulting. With annual revenue of more than $13 billion and approximately 60,000 colleagues worldwide, Marsh & McLennan Companies provides analysis, advice and transactional capabilities to clients in more than 130 countries. The Company is committed to being a responsible corporate citizen and making a positive impact in the communities in which it operates. Visit www.mmc. com for more information and follow us on LinkedIn and Twitter @MMC_Global.

About Asia Pacific Risk Center Marsh & McLennan Companies’ Asia Pacific Risk Center addresses the major threats facing industries, governments, and societies in the Asia Pacific Region and serves as the regional hub for our Global Risk Center. Our research staff in Singapore draws on the resources of Marsh, Guy Carpenter, Mercer, Oliver Wyman, and leading independent research partners around the world. We gather leaders from different sectors around critical challenges to stimulate new thinking and solutions vital to Asian markets. Our digital news service, BRINK Asia, keeps decision makers current on developing risk issues in the region. Copyright © 2018 Oliver Wyman All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman.