What to expect in 2017? Trends that will affect business next year

[2016-12-19]

A European Union (EU) that resembles Schrödinger’s cat, a prosperous middle class angry at globalisation, growth of “silver” economics – these are a few of the factors that will have an impact on business in 2017, as it was recognised at the conference “Business Strategy 2017”.

Experts of the conference – Andris Strazds, Adviser at the Bank of Latvia, Elmārs Prikšāns, Head of the Latvian branch of “OP Corporate Bank Plc”, Armine Movsisjana, Senior Partner at “KPMG Baltics SIA”, Zlata Elksniņa-Zaščirinska, Senior Partner at “PwC” – explain the trends that should be taken into account by owners and heads of every company when planning their activities for the upcoming years.

“We believe that general global changes could be even more rapid than they currently seem. Therefore, entrepreneurs have to be ready and they have to know how to react to them,” E. Prikšāns acknowledges.

# The middle class is blaming globalisation for the stagnation of income, support for protectionism is growing   The middle class of wealthy Western countries is clearly unhappy with the fact that the material well-being has not improved over the past decades, and they are looking for the “bad guys”. Since blame is also put on globalisation, a desire to “switch” on reverse and slow down the liberalisation of international trade can be seen among people. The ones to benefit the most from globalisation were the poorest population of the world, as well as new market economies.

“The growing trend of protectionism could pose serious negative consequences. We also transformed from a poor country to an average income country by trading with the richest countries of the world. Therefore, it is important for Latvia to do everything possible within the EU to avoid a “heavy” Brexit and facilitate good bilateral economic relations with China. We should also start building “Rail Baltica” without any delay in order to provide Riga with an effective transport connection with the other largest cities of the region,” Strazds acknowledged at the “Business Strategy 2017” conference.

# Geopolitical earthquakes continue, the EU is starting to resemble Schrödinger’s cat   Currently, at the end of 2016, it is already obvious that the world order that came into being after the Cold War has been destroyed. However, there is no answer to the question what will come in its place. According to the advisors of the Bank of Latvia, the situation within the EU is starting to resemble that of Schrödinger’s cat (en.wikipedia.org/wiki/Schrödinger's_cat). Namely, the EU continues to exist, however, the fundamental freedoms of the EU are and are not provided at the same time; one and the same country is and is not operating within the common market; free movement within the Schengen area simultaneously exists and does not exist; the energy and digital unions are simultaneously formed and not formed.

“We cannot influence the geopolitical situation of the world, however, we may make the business environment of Latvia more attractive to investments by improving the predictability of the tax policy, the legal framework, as well as the quality of education,” Prikšāns underlines.

# The role of active seniors or the “grey economy” will increase   Developed countries, especially Western Europe, are not yet ready for the life expectancy of the population to increase up to 90 years. In order to restore the balance between generations, very rapid changes will be required. For example, less than 10 % of the world’s population resides in Europe, it forms approximately one fourth of the global economy, however, it’s residents receive more than a half of the total amount of social benefits in the world.

New opportunities are presented by the economically active seniors – the so called silver or grey economy. “In 2022, the number of economically active population aged 25-34 will be one fifth smaller than currently. The number of workers aged 55-64 will increase by almost the same number. It is obvious that we will not be able to rely as much on the “younger generation” in the future, therefore, in order to avoid excessively high costs of external recruitment, we must think on how to retain the current and established talented workers”, Senior Partner of “KPMG Baltics” explained at the “Business Strategy 2017” conference.

Investments in training, especially in the field of modern technologies, communication of clear career plans, more flexible working conditions (including the time and place of work), appropriate remuneration – what can we expect from older colleagues in such conditions? A more loyal attitude and wisdom of life that may be acquired only with experience, Movsisjana highlights.

# We must start adapting to the subversive changes in the “rules of the game” of the business world   Technological changes, including automation, as well as modern power engineering is forming historic changes in the industry sector. Digital and sharing economy – “Uber”, “Airbnb” and other similar services – is only the beginning of the changes that we may expect in the future. A study carried out by “PwC” shows that five sharing economy sectors formed income in the amount of 15 billion US dollars in 2014.

Since the new “rules of the game” are currently only being formed, entrepreneurs and politicians need to have a vision and a mission that inspires not only themselves but also the entire society, Senior Partner of “PwC” underlines.

“According to the “PwC” Baltic CEO Survey, entrepreneurs in Latvia have difficulties with trust, however, mutual cooperation is of vital importance when adapting to the trends that are changing the world. Politicians must stick to their priorities no matter how difficult it could be. It is also of utmost importance for business to be able to deal with challenges that are formed by the increasing number of regulations and the impact of modern technologies. Solutions are certainly individual, but it is important to believe that we are able to deal with all of the challenges,” Elksniņa-Zaščiriniska explains.

# Welfare on debt   The debt burden of governments of developed countries is forming an unceasing headache. In Europe, it forms 86 % of GDP on average, thus creating welfare “on debt”, which is not a sustainable solution. It is also difficult to forecast what will be the long-term side-effects of the unconventional monetary policy implemented by the leading central banks of the world.

According to Strazda, “economic growth cannot be created with non-traditional monetary policy, it can only be shifted forward in time. If the monetary policy will not be supported by reforms that improve competitiveness and productivity, thus forming the basis for long-term growth, it will only be a matter of time when we will enter a larger or smaller crisis once again.”

The conference “Business Strategy 2017” is organised by “BIG event”. Supported by: “OP Corporate Bank Plc”, “KPMG”, “SAP”. Partners: magazine “Kapitāls”.