Global middle market organizations, companies with annual revenues of USD 1 million -USD 3 billion, are showing no signs of slowing down in the face of geopolitical uncertainty. Over one-third (34%) of middle market companies plan to grow 6%-10% this year, far outpacing the latest World Bank global GDP growth forecasts of 2.7%, by more than 3%-7%.

The findings released today in the EY Growth Barometer, a first-of-its-kind survey of 2,340 middle market executives across 30 countries, reveal that in spite of geopolitical tensions, including Brexit, increasing populism, the rise of automation and artificial intelligence (AI) and skilled talent shortages, 89% of executives see today's uncertainty as grounds for growth opportunities. What's more, 14% of all companies surveyed have current year growth ambitions of more than 16%.

Annette Kimmitt, EY Global Growth Markets Leader, says: "The global economic backdrop is much stronger than what the prevailing narrative has been telling us. Despite geopolitical risks and uncertainties, businesses being disrupted through new technologies and globalization rewriting the rules of supply and demand, middle market leaders are not only attuned to uncertainty, but are seizing it to grow, disrupt other markets and drive their growth agendas."

Growth ambitions vary across geographies

Despite facing two years of Brexit negotiations, start-ups (companies under five years old) headquartered in the UK are displaying the highest levels of confidence of the countries surveyed. UK start-ups are the most positive on current year growth ambitions with 26% seeking to grow by 11-25% and a further 23% looking at year-on-year growth of more than 26%.

But when looking at the largest markets, there are significant differences between the world's largest economy, the US where slightly more than a third (35%) of all companies plan modest growth increases of under 5%, compared to the world's two tiger economies – China and India – where together 42% of companies are targeting growth rates of 6%-10%. Moreover, a quarter (25%) of companies in tiger economies have current year growth plans of 11%-15%.

Technology and talent top the agenda

Executives identified technology and talent not only as the top two challenges facing the middle market C-suite today, but they are also seen as the tools by which they will overcome challenges and remain agile. Talent (23%) is cited as the top priority ahead of improved operations (21%), cutting red tape (12%) and beneficial agreements (8%) in a ranking of what is critical to meeting current growth ambitions. A staggering 93% of executives see technology as a means of attracting the talent they need. New developments in artificial intelligence (AI) are improving the recruitment and selection process for innovative start-ups to find specialist talent.

To fuel the growth ambitions of their organizations, more than a quarter (27%) of middle market executives plan to increase their permanent headcount and a further 14% plan to increase the number of part-time staff. Reflecting the growing impact of the gig economy on work patterns and a move to a more contingent, skills-based workforce, almost one in five (18%) companies plan to use contractors to help power their high-growth plans and fill specific gaps or needs.

However, under these global results lie significant differences in hiring plans. A majority of US companies (55%) plan to keep current staffing levels flat, compared with 31% of all respondents. These plans are almost reversed among start-ups, 53% of which plan increases in full-time staff. Nearly a quarter (23%) of all start-ups are also the most likely of all organizations to plan to hire more contractors or freelancers.

Kimmitt says: "Middle market leaders are using technology to attract and retain talent, accelerate growth, improve productivity and increase profitability. Uncertainty has become the new normal, and while geopolitical risks and trade barriers are influential factors, middle market companies are moving ahead with hiring plans."

RPA does not spell RIP to talent

While only 6% of middle market organizations are already using robotic process automation (RPA) for some business processes, the dystopian vision of large-scale layoffs is not shared by these business leaders. Fifteen percent of all middle market executive respondents believe that adoption of RPA will result in headcount reductions of less than 10%. This illustrates that middle market leaders are planning on the selective adoption of RPA to bring efficiencies to some routine operations, but as an adjunct to human talent, not a replacement.

Macro risks to growth

Middle market leaders cited increasing competition (20%) as the number one external threat to their growth plans, followed by geopolitical instability (17%) and the cost and availability of credit (12%). These threats were considered far more significant than financial headwinds of rising interest rates (8%), foreign exchange variance (8%) or commodity price volatility (6%). Leaders were twice as likely to cite competition (20%) as a risk than slow global growth (10%).

High-growth entrepreneurs are even more optimistic

As part of the EY Growth Barometer, the survey also measured 220 alumni of EY's widely-acclaimed Entrepreneur Of The Year program. Active for more than 30 years, the network has programs in more than 60 countries and 145 cities worldwide supporting high-growth entrepreneurs.

High-growth entrepreneurs are planning significantly higher growth rates than overall middle market leaders, with one in five planning to grow by 6%-10%, a further 20% by 11%-15% and yet a further one in five by 16%-25%. Nearly one in four (22%) high-growth entrepreneurs are planning current year growth of more than 26%. Additionally, almost two-thirds (61%) of this group plan increases in full-time staff and 9% plan increases in the use of contingent or gig economy workers.

Kimmitt says: "Middle market companies are the engines for global growth, representing nearly 99% of all enterprise and contributing nearly 45% to global GDP. But high-growth entrepreneurs are not only more ambitious in setting growth targets, but prioritize differently from other mid-market leaders and businesses. High-growth entrepreneurs are not fazed by the kinds of seismic shocks that Brexit and other geopolitical upheavals present. They are developing agile and flexible strategies to work with uncertainty as the new normal."

(Source: EY)

You wouldn’t drink milk if it was five days past its sell-by date. You wouldn’t buy a computer in 2017 running Windows 98. Would you use data that you know is bad, incomplete or outdated? Rishi Dave, CMO at Dun & Bradstreet talks to Finance Monthly about the impact of using bad data, and what makes it bad.

Clearly, the answer here is a resounding no. Yet it seems this is common practice for many enterprises; in 2016, poor quality data alone cost the Unites States $3.1 trillion. Most companies know how important data is – managers, financial decision makers, data scientists and so many others use it every day at work. Due to the constraints of time, some employees simply have no choice but to accept the data they’re given and use it for financial contracts, supply chain management or prospecting new customers.

But this is risky business. A company can have all the data in the world at its fingertips, but realistically, how much of that data is accurate? And how is it being processed? Only by having the right tools and analytics can the consequences of bad data be avoided.

What’s the worst that could happen?

Bad data can mean many things; the data itself could be outdated, poorly formatted or inconsistent.

For sales and marketing teams, they rely heavily on the most-up-to-date, real-time data to allow them to effectively do their job properly. It’s no use calling up the MD of a company, only to find out they no longer work there or now have a different title. This can be incredibly timewasting and fundamentally limits a salesperson’s ability to sell; the average sales rep spends 64% of his or her time on non-selling activities. Wasted time leads to wasted revenue, which means bad data is directly impacting the company’s bottom line.

A vital ingredient to growth

Bad data isn’t just a timewaster, but a growth-stopper. For companies to grow, they need the right data for the right business function. Marketers need to ensure their contact database is up to date, or face stultified growth opportunities. Nowadays, businesses are demanding more intelligent, data-driven, real-time insights to realise higher return; 80% of marketers see data quality as critical to sales and marketing teams and more than half are investing to address persistent data challenges.

Incorrect names or job roles, outdated phone numbers and inconsistent & badly recycled data will actively prevent a company from reaching desired prospects. The Databerg report in 2015 found that medium sized companies were spending £435,000 on redundant, obsolete or trivial data. For SMEs, growth via data could certainly be the difference between black and red. And therefore making sure they have the right data is paramount. After all, if you water a plant with seawater, it won’t grow. Feed it with normal water and watch it flourish.

Data is an opportunity

Data has the power to transform businesses – but feed bad data in to a machine (or company), and you’ll only get bad results. From losing customers, a damaged reputation and decreased revenue, everything is at stake. Of course, no company is immune to human error. But what a company can control is its flow of data and how it uses it.

Most businesses know that they have to act to improve the quality of their data. But the way they do this is flawed; most batch cleanse, but they do this once a year at most. In the current age where data flow is constant and new information about customers, partners, suppliers and the economy is available all the time, data insight is only ever as accurate as the data feeding it.

What’s the answer?

What businesses really need to do with their data is to integrate, clean, link, and supplement it so they have an accurate database on which to build their algorithms. This starts with foundational master data.

Master data is the foundational information on customers, vendors and prospects that must be shared across all internal systems, applications, and processes in order for your commercial data, transactional reporting and business activity to be cleaned, linked, optimized and made accurate. It’s essentially the foundation of your enterprise and without it not only does your AI infrastructure breakdown, but so does your business.

Whether it’s a hospital, a financial institution or a marketing agency, ensuring you have the right quality data must be top of every agenda. Data is an opportunity; don’t waste it.

Utter the words ‘disruption’ and ‘financial services’ and your thoughts will be drawn to the bevy of technologies that were supposed to transform the sector. Artificial Intelligence (AI) and Blockchain are the most recent additions to the list, but this time around, they probably have the potential to drive real structural change. To explain their potential and differences, Grant Thomas, Head of Practices at BJSS talks to Finance Monthly about the impact of these technology disruptions.

Blockchain, which was originally developed to support Bitcoin and other cryptocurrencies, is being heralded by the Financial Services industry as the next big thing because it supports peer-to-peer mass collaboration which could make many of the traditional organisational forms redundant.

In theory, Blockchain will reduce transaction costs – Santander expects to achieve savings of around $20 billion a year – so while the industry is still largely unclear on how it should be applied, there is a race to productionise it. Heavy Research and Development investments are being made.

The problem with Blockchain in the Financial Services industry is that it is largely pie in the sky. Its development landscape is being driven by a handful of large multinational organisations, mostly working as consortia, because they’re the only players able to handle its scale and apply the multi-jurisdictional experience the project needs. Open Source projects such as Openchain and Hyperledger are not sufficiently developed to offer a credible alternative. There is also a shortage of skilled talent available to build applications, or subject matter experts available to develop and validate business use cases.

AI on the other hand is far more mainstream. Companies such as Facebook, Google, Viv, and Nuance already provide frameworks and turnkey solutions, and AI technology is already being used by many Financial Services providers to handle everything from detecting fraud, to market regulation and customer interaction. The Royal Bank of Scotland, for example, has recently completed a trial of a ‘Luvo’ AI customer service representative to support internal customer-facing staff.

AI is capable of processing data to make decisions far more efficiently and accurately than humans can. It does this through self-learning to solve cognitive tasks. The technology crunches historical data and teaches itself to act based on the decisions that have been previously taken by humans. It also learns from its mistakes - so every time AI completes a transaction, it becomes more accurate.

The ‘disruption’ from AI comes from the efficiency savings that Financial Services providers will achieve by automating the highly-transactional jobs that are usually handled by humans. This will improve customer service quality and consistency and will improve both regulatory compliance and risk management. When they deploy AI tools such as IBM Watson, Financial Services organisations have both cost-cutting and customer satisfaction in mind.

The barrier to entry for AI is far lower than it is for Blockchain. There is ready access to experience, talent, and a burgeoning ecosystem to sustain innovation. That said, Financial Services providers should consider these five steps to ensure that their AI deployments succeed:

1. It’s mostly about the data

Banks have large IT estates which generate a great deal of data – everything from customer demographics, to product adoption and market trends. There isn’t necessarily a requirement to collate data into a centralised data lake, but integration is important. Access to a self-service data model will allow, with minimum viable process, easy access to this data. Bear this in mind because providing as much data as possible is integral to the success of an AI deployment.

2. Begin at the end

Look at the ideal scenario. Consider the outcomes that are to be achieved and reflect on the experience the user should have. Develop personas to keep users in mind, build models to ensure that business outcomes are being achieved. And only then, start to build the AI.

3. It’s an elephant. Eat it slowly.

AI is huge. With an array of use cases as diverse as risk and fraud detection, customer relationship management, business development and cost reduction, AI is becoming increasingly important for financial services firms to remain competitive.

Don’t be tempted to tackle everything at the same time. When deciding which use case to start with, choose the lowest hanging fruit, build the AI, deploy and learn from it, and then finally, tweak it. Once this cycle is complete, move on to the next use case, applying the lessons learnt.

4. Experiment in the Lab before moving to the outside world

Some organisations embrace the concept of Innovation Labs to generate new ideas for products and services. Others routinely use Labs as part of their project delivery objectives. Whichever way innovation is achieved, it is important to have a process, the right behaviours and lean thinking.

For AI, a lab provides a safe space for expose data, to apply simulations, to learn and to experiment with configuration tweaks.

5. It’s not a project, it’s a journey

The project doesn’t end when the AI is commissioned – it continues.

A key part of disruption is the feedback loop. With the technology evolving quickly, this feedback mechanism should result in minor corrections being deployed quickly, while improvements are continuously implemented.

Movinga recently completed a study which investigates the possible benefits of foreign human capital in Germany. In order to do this, research was conducted into each of the 16 federal states. The number of firms receiving venture capital, the number of patent applications, the unemployment rate, and the percentage of the state that were born in another country were all examined. The findings show that German states with a higher percentage of foreign-born citizens see higher levels of innovation. They also illustrate that attracting more people from other countries does not mean higher unemployment.

In order to analyse the possible benefits of foreign human capital, the diagrams compare the key indicators on innovation and economic prosperity (firms accepting venture capital, patent applications, unemployment) with the percentage of the population that are born in another country. All data used for this report was provided by The Organisation for Economic Co-operation and Development (OECD) and the German Federal Statistical Office (Destatis).

With 81.4 million citizens, Germany is Europe’s largest country by population. It is also the nation with the largest foreign-born population in Europe, with more than 7.8 million (9.6%) originating from another country. However, this diversity is not evenly spread across Germany’s 16 federal states: five states have more than 10% of citizens who are foreign-born compared, whereas five states have a foreign-born population of less than 3%. This disparity is illustrated in Figure 1.

Figure 2 shows that the city states such as Berlin and Hamburg that have a higher percentage of foreign-born citizens are also home to a higher number of firms receiving venture capital. Similarly, Figure 3 displays that the two federal states with the most patent applications (Bayern and Baden-Württemberg) are also diverse demographically, with around 10% of their populations being foreign-born. In contrast, Figures 1, 2 and 3 also convey that the federal states with fewer firms receiving venture capital and lower numbers of patent applications like Sachsen-Anhalt and Mecklenburg-Vorpommern have smaller foreign-born populations.

Figure 1- Distribution of foreign-born workers in Germany

Figure 2 - Number of firms receiving venture capital

These findings convey that people born in other countries are of great economic value, and that an attitude of openness to foreign-born citizens is important in order for support innovation, research, development and growth. The relative weakness of the federal states with fewer numbers of people born in other countries suggests that they could boost innovation and their general economic performance through attracting more talent born outside Germany.

Figure 3 shows Bayern and Baden-Württemberg also have some of Germany’s lowest unemployment rates, whereas Sachsen-Anhalt and Mecklenburg-Vorpommern have some of the highest unemployment rates. This shows that having a higher number of foreign-born citizens does not mean that fewer people will be able to find jobs. Unemployment is higher in the diverse states of Berlin and Hamburg compared to the national average, but this is more indicative of their unusual positions as city states rather than their economic weakness.

‘The impressive amount of firms accepting venture capital and the number of patent applications in the diverse regions of Berlin, Bayern and Baden-Württemberg suggests that foreign human capital helps support innovation and growth’ said Movinga's MD Finn Age Hänsel.

Figure 3

The European economy has entered its fifth year of recovery, which is now reaching all EU Member States. This is expected to continue at a largely steady pace this year and next.

In its Spring Forecast released today, the European Commission expects euro area GDP growth of 1.7% in 2017 and 1.8% in 2018 (1.6% and 1.8% in the Winter Forecast). GDP growth in the EU as a whole is expected to remain constant at 1.9% in both years (1.8% in both years in the Winter Forecast).

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: "Today's economic forecast shows that growth in the EU is gaining strength and unemployment is continuing to decline. Yet the picture is very different from Member State to Member State, with better performance recorded in the economies that have implemented more ambitious structural reforms. To redress the balance, we need decisive reforms across Europe from opening up our products and services markets to modernising labour market and welfare systems. In an era of demographic and technological change, our economies have to evolve too, offering more opportunities and a better standard of living for our population."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Europe is entering its fifth consecutive year of growth, supported by accommodative monetary policies, robust business and consumer confidence and improving world trade. It is good news too that the high uncertainty that has characterised the past twelve months may be starting to ease. But the euro area recovery in jobs and investment remains uneven. Tackling the causes of this divergence is the key challenge we must address in the months and years to come.”

Global growth to increase

The global economy gathered momentum late last year and early this year as growth in many advanced and emerging economies picked up simultaneously. Global growth (excluding the EU) is expected to strengthen to 3.7% this year and 3.9% in 2018 from 3.2% in 2016 (unchanged from the Winter Forecast) as the Chinese economy remains resilient in the near term and as recovering commodity prices help other emerging economies. The outlook for the US economy is largely unchanged compared to the winter. Overall, net exports are expected to be neutral for the euro area's GDP growth in 2017 and 2018.

A temporary rise in headline inflation

Inflation has risen significantly in recent months, mainly due to oil price increases. However, core inflation, which excludes volatile energy and unprocessed food prices, has remained relatively stable and substantially below its long-term average. Inflation in the euro area is forecast to rise from 0.2% in 2016 to 1.6% in 2017 before returning to 1.3% in 2018 as the effect of rising oil prices fades away.

Private consumption to slow with inflation, investment remaining steady

Private consumption, the main growth driver in recent years, expanded at its fastest pace in 10 years in 2016 but is set to moderate this year as inflation partly erodes gains in the purchasing power of households. As inflation is expected to ease next year, private consumption should pick up again slightly. Investment is expected to expand fairly steadily but remains hampered by the modest growth outlook and the need to continue deleveraging in some sectors. A number of factors support a gradual pick-up, such as rising capacity utilisation rates, corporate profitability and attractive financing conditions, also through the Investment Plan for Europe.

Unemployment continues to fall

Unemployment continues its downward trend, but it remains high in many countries. In the euro area, it is expected to fall to 9.4% in 2017 and 8.9% in 2018, its lowest level since the start of 2009. This is thanks to rising domestic demand, structural reforms and other government policies in certain countries which encourage robust job creation. The trend in the EU as a whole is expected to be similar, with unemployment forecast to fall to 8.0% in 2017 and 7.7% in 2018, the lowest since late 2008.

The state of public finances is improving

Both the general government deficit-to-GDP ratio and the gross debt-to-GDP ratio are expected to fall in 2017 and 2018, in both the euro area and the EU. Lower interest payments and public sector wage moderation should ensure that deficits continue to decline, albeit at a slower pace than in recent years. In the euro area, the government deficit to-GDP ratio is forecast to decline from 1.5% of GDP in 2016 to 1.4% in 2017 and 1.3% in 2018, while in the EU the ratio is expected to fall from 1.7% in 2016 to 1.6% in 2017 and 1.5% in 2018. The debt-to-GDP ratio of the euro area is forecast to fall from 91.3% in 2016 to 90.3% in 2017 and 89.0% in 2018, while the ratio in the EU as a whole is forecast to fall from 85.1% in 2016 to 84.8% in 2017 and 83.6% in 2018.

Risks to the forecast are more balanced but still to the downside

The uncertainty surrounding the economic outlook remains elevated. Overall, risks have become more balanced than in the winter but they remain tilted to the downside. External risks are linked, for instance, to future US economic and trade policy and broader geopolitical tensions. China's economic adjustment, the health of the banking sector in Europe and the upcoming negotiations with the UK on the country's exit from the EU are also considered as possible downside risks in the forecast.

Background

This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 25^th April 2017. Interest rate and commodity price assumptions reflect market expectations derived from derivatives markets at the time of the forecast. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 25^th April 2017. Unless policies are credibly announced and specified in adequate detail, the projections assume no policy changes.

(Source: EU Commission)

From the bitcoin to regulatory functions, here Alexander Dunaev, COO at ID Finance, discusses the need for cooperation in the fintech segment and touches on five vital steps for the sustainable growth of one of the largest emerging sectors in the financial sphere.

Ronald Reagan once succinctly summarized the US government’s view on regulation the following way: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it”. Taking the UK as an example, financial technology is worth c.GBP7billion and employs around 60,000 people - safe to say, the sector is on a roll. On top of the direct economic effect, one has to consider fintech’s wider broader economic impact from lowering the lower cost of credit or insurance, improving the level of financial inclusion and reducing financial transaction costs across remittances, payments and investments.

Of course any industry is prone to missteps along the way. The few examples for fintech globally include the proliferation of Ponzi schemes in China together with the growth of P2P lending, the use of bitcoin for illegal purchases and investor misleading at Lending Club that brought the demise of the company’s founder. Nonetheless, since the industrial benefits are beyond reproach, the ball is in the regulator’s corner to curb the excesses, streamline the judicial framework and establish the rules of the road for the multi-faceted and rapidly ascending Fintech industry.

There is clear recognition worldwide that regulation is needed to ensure long-term and sustainable growth. At the end of last year, the Office of Comptroller of the Currency (OCC), a division of the U.S. Department of the Treasury, proposed to create a federal charter for non-deposit banking products and services – a major change for a country with state-by-state financial regulation which could lower barriers to entry for companies looking to innovate the financial services industry. While the Governor of the Bank of England Mark Carney has recently stressed the need to create holistic infrastructure to support the flourishing sector.

Having had first-hand experience in a regulated financial services industry from Brazil to EU and Central Asia, I believe there are a number of clear steps that can drive the growth of fintech globally.

1. Clear communication with the industry

Although it may appear obvious, it is critical for the regulator to engage with the fintech industry in gaining an optimal understanding of the needs of the industry. Obviously the industry is only one of the voices, but in the environment of rapid technological and economic change, it makes sense to get first-hand information. This may help the regulator to prioritize and focus on solving strategic issues.

2. Share regulatory functions

As much as is possible, regulatory functions have to be shared. The fintech umbrella covers multiple industries: consumer and corporate lending, insurance, payments to name a few. In our experience it makes sense to functionally compartmentalize the regulation. For instance, the central bank or consumer protection bureau division regulating consumer lending by the banks should be regulating the similar area of fintech activity. This makes sense from the perspective of synchronized standards for consumer protection. It’s in everyone’s interests to have a unified set of standards on anti-money laundering (AML) and know-your-client (KYC) information disclosure as well as collection practices. Furthermore, incorporating fintech regulation together with mainstream financial services firmly places the former into the center of regulatory attention.

3. Focus on creation of new infrastructure

Any government should be actively seeding, sponsoring and promoting what Mark Carney calls “hard infrastructure” for the new breed of financial services companies. This type of infrastructure is more often too much of a burden even for shared corporate investment, yet its potential benefits are clear for any country. The area of focus should be within payments, settlement, identification and data access. One of the best global examples of the sovereign strategic thinking on the subject is undoubtedly Aadhaar in India – a biometric ID system with over one billion enrollees or most of the country’s adult population. This gargantuan project coupled together with the country’s recent clamp down on hard cash in the economy can really change the lives of hundreds of millions of its citizens by actively encouraging financial inclusion.

4. Share the use of existing infrastructure

While creation of the infrastructure is clearly needed, there is lower hanging fruit for driving industrial competitiveness available to regulators globally. First and foremost it is key to empower the citizens to take ownership of their data held by large incumbents including mainstream financial services (banks, insurance companies) and telecom companies. The way to do this is through the mandatory sharing of this information to third parties, obviously with the explicit consent of the ultimate data owner. While on the one hand it enables the latter to monetize the data and get access to more competitive offerings, this also enables the fintech firms to focus on what they do best: deploy cutting edge technologies and data analysis in targeting market inefficiencies. The prime example of data sharing is the PSD2 directive in the EU that is forcing banks to open up the trove of transactional data to third-parties via API. This initiative is clearly laudable and should be mirrored by regulators globally.

5. Introduce 5-year road maps

Regulatory uncertainty acts as a major overhang, preventing the industry from developing. First and foremost this uncertainty stops the flow of capital into the industry creating a massive earning multiple compression. This further prevents the reinvestment of capital due to the increase in uncertainty. It’s important to emphasize that in the fintech world global players with technological know-how have optionality over geographical expansion. All else being equal, these companies will always invest in the countries with the most transparent rules of the road. This implies that the countries that take an ambivalent position are in a precarious position of losing out.

The future of the fintech industry will not be shaped by market adoption and technological advances alone. The role of the government in fostering fintech and steering it in the direction of sustainable growth is key.

Looking at data form the past few months, Tim Kellet, Director at Paydata here explains to Finance Monthly the ins and outs of pay rises, wages and bonuses, as well as growth across the nation and the increasing lack of skilled labour supply across several sectors.

Once a quarter we run an extended version of our monthly PAYstats pay and labour market statistics publication.

We began running these quarterly updates six years ago, to summarise and add commentary to key statistics that are relevant to HR and Reward. The data was already in the public domain across different sources, but by producing a document containing everything it made it more accessible, and easier for our customers to digest. The information provided within the report is extremely valuable, providing a comprehensive overview of the current economy, in relation pay and reward decisions.

This spring, and the months leading up to it, has been somewhat of an uncertain time; the Chancellor of the Exchequer has delivered his first, and last, spring budget statement and Article 50 has been triggered. With Brexit looming, it doesn’t appear as if the UK will be experiencing true stability for some time – there is also an avalanche of changes in HR and Employment law that businesses must contend with.

April has brought with it the introduction of the Apprenticeship Levy, increases in minimum wage, the immigration skills charge, the formal beginning of gender pay reporting as well as changes in taxation and increases in redundancy, sick and family-related pay.

When these changes are coupled with the macro-economic issues and the protracted negotiations that will determine our ongoing relationship with the EU, not to mention the rest of the world, uncertainty prevails.

Already, we are witnessing above target inflation; the Office for Budget Responsibility has forecasted that CPI inflation will rise to 2.4% this year. The rising cost of food, alcohol and clothing along with miscellaneous good and services are a big contributor to the changes. Overall growth is likely to slow as households adjust their spending to a lower income growth due to the 18% fall in sterling.

Despite the turbulent background, little out of the ordinary appears to be happening in terms of pay awards. The extended period of pay movement continues, annual regular pay growth within the private sector had declined to 2.6% by January of this year. Steadily, this is starting to be overtaken by higher levels of inflation, eroding the true value of pay rises. Meanwhile, the productivity problem persists and uncertainties with regards to the markets are doing little to appease an underlying sense that there may yet be darker times ahead.

While the unemployment rate has fallen below 5%, and the employment rate reaching 74.6%, wage growth has remained weak. It is now thought that the unemployment rate can decrease further before wage pressures build to a point where they are sufficient to keep inflation at the 2% target over the medium term.

Bonus payments have also been weaker than expected, and the reports that are being issued from the financial sector on the size of the bonus payments, are likely to make little contribution to overall pay growth in 2017.

There are also significant concerns regarding the supply of suitable people for the labour-market and the availability of EU nationals currently working in the UK. Alongside this, the supply of permanent candidates fell severely in March, although the rate of reduction had weakened since February’s 13-month peak. Similarly, the availability of interim and short-term staff fell at a rate that was the quickest recorded since the beginning of 2016.

This quarter’s CIPD net employment balance (which measures the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels) has increased by one point to 23%.

Employers in the UK report fair hiring prospects between now and June; 87% forecast no change, while 8% expect to increase staffing levels and 3% expect to decrease – the Net Employment Outlook is 5%.

Data from Manpower’s Employment Outlook Survey, shows that in seven of the nine industry sectors, staffing levels are expected to increase throughout the second quarter of 2017. Employers within the construction sector report decent hiring plans with a Net Employment Outlook of 12%. Similar gains are also expected in the manufacturing, utilities and finance and business sectors, while employers in the agriculture sector are reporting uncertain hiring prospects.

The Chief Executive of the Recruitment & Employment, Kevin Green explains further: “Finding people to do the jobs on offer is rapidly becoming employers’ biggest headache and many are reporting an increasing number of white-collar jobs as hard to fill, including the IT and financial sectors. Shortages of appropriately skilled, willing and able candidates was a problem before the referendum. Our concern is that Brexit will make the problem worse, particularly if onerous restrictions are imposed on people coming from the EU to work. Also, economic uncertainty about future prospects is having a detrimental effect on employees’ willingness to risk a career move at this time, which seems to be driving down candidate availability. This shrinking pool of available candidates means that businesses are boosting the starting salaries and hourly rates they are prepared to offer to the right candidate.”

A new UN study reveals that Alipay and WeChat Pay enabled US$2.9 trillion in Chinese digital payments in 2016, representing a 20-fold increase in the past four years. The data shows that digital payments, using existing platforms and networks, provide access to a wider range of digital financial services, expanding financial inclusion and economic opportunity throughout China and neighboring countries.

The new report by the UN-based Better Than Cash Alliance, Social Networks, E-Commerce Platforms and the Growth of Digital Payment Ecosystems in China – What It Means for Other Countries, contains key lessons to help other countries include more people in the economy by transitioning from cash to digital payments. This shift could increase GDP across developing economies by 6 percent by 2025, adding US$3.7 trillion and 95 million jobs, according to a McKinsey Global Institute report.

"Social networks and e-commerce platforms are growing in every economy, whether large or small," says Ruth Goodwin-Groen, Managing Director at the Better Than Cash Alliance. "In China digital payments are thriving from these channels, bringing millions of people into the economy. This matters because we know that when people – especially women – gain access to financial services, they are able to save, build assets, weather financial shocks, and have a better chance to improve their lives."

"Widening access to financial services has always been at the heart of Ant Financial's mission and we are proud to have empowered more people to save, invest and gain access to capital. There is a quiet revolution underway and we know, firsthand, that our services are making a real difference to hundreds of millions of consumers. But, as this ground-breaking UN report highlights, this revolution is only just beginning. We see tremendous potential to bring many more people into the financial system, in China and markets around the world," says Eric Jing, CEO of Ant Financial Services Group, which operates Alipay.

Key findings from the report:

• More people have opportunities to save and invest. Platforms such as Alibaba's Yu'e bao make investing money into diverse sets of financial products more accessible for low-income populations. This product allows them to invest the money left on digital accounts, leading incrementally to long-term savings. From 2013 to 2016, Yu'e bao has grown to manage US$117 billion and is now serving over 152 million customers.
• Digital finance helps dramatically increase access to capital for small merchants. As of September 2016, a total of RMB 740 billion (US$107.3 billion) had been lent on the Alipay platform to over 4.11 million small and micro enterprises and entrepreneurs.
• Big data generated through these platforms helps to build credit-scoring history and boosted access to credit, particularly for low-income financially-excluded populations. For example, Sesame Credit offers an alternative creditworthiness assessment by examining the credit history, financial behavior, contractual capacity, identity, and social networks of users.

The study also found both Alipay and WeChat are expanding beyond China and investing in major fintech and payments providers. They are joined by other major communication platforms, utilizing existing social networks and e-commerce platforms to drive digital payments and financial inclusion. The report found opportunities especially strong in countries with a high smartphone uptake and collaboration between the private and public sectors:

• In South Africa, 78 percent of all internet traffic takes place over mobile channels – one of the highest rates in the world. However, despite the continued growth of adoption rates, only 15 percent of South Africans reported making a purchase on a mobile phone in the preceding month when surveyed in 2016.
• In India, both Ant Financial and Tencent have bought into the Indian mobile payments market, which is enjoying rapid growth under new regulation. Ant Financial and Alibaba invested up to $900 million in PayTM, as well as sharing staff and technical expertise. The result: PayTM has grown from 5 million to around 200 million users in just the last few years.
• Indonesia was the fastest-growing m-commerce market in the world in 2016, expanding 155 percent from January 2016 to January 2017. Some of this growth may be due to the release in 2015 of BBM Pay's Instant Mobile Payments. The popular BBM chat app has over 55 million users in Indonesia and continues to develop.
• In South America, markets have the infrastructure necessary to build payment ecosystems similar to those seen in China. Fifty-nine percent of the South American population uses social media, and 52 percent connect with social media over their mobile phone. Yet the digital payments space remains fractured, and no payments provider has linked their service to these platforms in a significant way, or vice versa.

(Source: Better Than Cash Alliance)

An independent study commissioned by Dun & Bradstreet has shone a light on the complexities of the modern Financial Leader role – highlighting a community under intense pressure to balance traditional accounting tasks with more strategic revenue-generating activities.

Of the 200 UK Financial Leaders surveyed, almost three-quarters (71%) believe finance teams are under too much pressure to be business protector and growth driver and 56% believe their board has unrealistic expectations.

Exploring the evolving nature of their role, almost all (97%) financial leaders surveyed say their responsibilities have changed over the last three years. Most pointed to a growing emphasis on strategic responsibility, with 59% revealing their job now includes more risk and compliance responsibilities.

Dun & Bradstreet’s Tim Vine, head of Trade Credit for UK & Ireland, explains, “The role of the financial decision maker has transformed over the last few years and, while many (74%) financial leaders feel this has been a positive shift overall, it’s still a major challenge. Suddenly, teams who have reduced in size now have to manage a complex dual role – business gatekeeper and revenue creator.”

Yet despite their expanding role, 60% of respondents say their team has decreased in size over the last three years. As a result, 53% admit reduced resources increase the risk of serious mistakes being made. Almost two-thirds of respondents (59%) suggest their organisation sometimes rushes through the compliance process to support revenue-generating activity and 55% reveal they feel uncomfortable with the extent to which their business sometimes gambles on risk management.

To meet the expectations of their businesses and fulfil their roles effectively, the majority of respondents (45%) believe data is “extremely important” to make smart decisions and forecasts. The biggest data benefit cited by 43%: helping collate customer intelligence. However, 57% of financial leaders admit their business lacks the ability to access accurate and current data. The biggest barriers respondents see are: a lack of skills (23%), lack of investment in technology (21%) and inaccurate data (20%). As a result, almost two-thirds (65%) admit it’s difficult to find and capitalise on strategic opportunities.

“The UK’s financial leaders know how powerful data analysis and smart use of technology can be in helping them meet business expectations in their new joint role as business guardian and revenue driver,” continues Vine. “Despite the challenges they clearly face, these two roles are not opposites. Protection and growth can go hand-in-hand, but only when they are underpinned and supported by the resource, tools and data to allow for smarter decisions that will grow the business. If financial leaders are to fulfil this duel objective, they must gain support for the data and analytical capabilities needed to empower their insight.”

(Source: Dun & Bradstreet)

While self-employment has risen noticeably slower than paid-employment since the beginning of the decade, Canadian small- and medium-sized enterprises (SMEs) have been creating a more significant share of jobs since 2010, finds a new report by CIBC Capital Markets.

Between 2010 and 2016, 42% of new jobs were created by businesses with less than 100 employees, up from 30% between 2000 and 2010.

"Beyond the threshold of five employees, there is a clear positive correlation between size and growth, with larger firms within the SME spectrum seeing progressively stronger growth recently," says Benjamin Tal, Deputy Chief Economist, CIBC, who co-authored the report, Canadian SMEs: Strength Beneath the Surface, with Senior Economist Royce Mendes.

"What's more, the share of larger SMEs has risen to a level not seen in almost a decade," Mr. Tal says, noting the trend is particularly strong west of Quebec. "Each province from Ontario to B.C. has exhibited a growth rate of more than nine% in the number of companies with employees."

In 2016, more than 350,000 businesses were created and just under 300,000 exited, with the entry rate (the ratio of business creation to total businesses) on the decline since 2004 while the exit rate has been more stable, despite the impact of the fall in oil prices a couple of years ago.

"Small business optimism has been grinding higher since bottoming out early last year and appears headed back to levels seen prior to the oil price shock," Mr. Tal says. "With the Canadian economy in recovery mode, the environment for small businesses remains constructive."

And while the World Bank ranks Canada as one of the best places to start a new business due to access to capital and a favourable tax regime, the report highlights several gaps, including access to financing for certain business.

"From companies with high growth rates to those with young owners, some SMEs do face more acute issues finding financing," Mr. Tal says.

The report also highlights that women remain an untapped resource in the SME space.

"Female participation in the workforce has made significant progress over the past few decades, but entrepreneurship remains an area that could see improvement," Mr. Tal says. "Female majority ownership in the SME space represents less than 20% of all businesses, and recent progress has been slow in coming."

Another gap is youth entrepreneurship. Canadians between the ages of 25 and 39 comprise more than 25% of the population, yet represent less than 15% of small business owners and less than 10% of medium-sized business owners.

Canadians aged 50 to 64 years, by comparison, also represent about 25% of the population but this group represents 47% of small business owners and 51% of medium business owners.

"One reason for this discrepancy could be related to their access to financing. Remember that companies with younger owners face much more difficulty when trying to externally fund their business," Mr. Tal says. "It will be important to watch this segment of the population as Canada tries to compete with other countries in the tech landscape, which is more tilted toward younger business owners than other industries."

Canadian SMEs have also been slow to expand revenue sources outside of Canada and North America.

"SME revenue continues to be geographically concentrated in North America, creating risk," Mr. Tal says. "Currently only 10% of SMEs are involved in any sort of exporting at all, and roughly 90% of those companies are sending their wares to the U.S. In the current political environment, it has become a risky proposition to focus solely on the U.S. market."

The report notes that there is room to increase the ratio of Canadian goods and services being exported to Asia and Latin America.

"The age of digital connection has made it much easier to send Canada's high-end service exports all over the world, something many SMEs could benefit from," Mr. Tal says.

(Source: CIBC)

Albania's official Institute of Statistics (INSTAT) has released figures showing GDP growth for 2016 of 3.46%, fuelled in part by a fourth-quarter export surge of 16%. Growth exceeded forecasts by both the International Monetary Fund and the World Bank.

INSTAT reported that the growth was led by commercial trade, tourism, construction and energy production, all of which generated robust figures. Overall, the year's performance was the best since 2010 when growth was 3.7%.

In welcoming the encouraging data, Prime Minister Edi Rama said: "This is good news, but it's only the start of what we hope to achieve on the economy. My government's first term has focused primarily on institutional reform and improved governance. Now we are starting see the results -- in investment, business expansion and in job creation. Now we must pour all our efforts into economic expansion and generating rewarding jobs for our fellow citizens."

The Prime Minister highlighted major reforms to the power generation system which, in 2013, needed an infusion of US$ 135 million from the state budget merely to remain operational. The revamped grid, now almost fully replaced with new technologies, has reduced power losses to 28% from 45%. As a consequence of the reforms, electrical energy sector production rose 62% in the final quarter of 2016 alone, and 30% for the full year, Mr Rama said.

Restored confidence in the Albanian economy meant that foreign direct investment for 2016 reached a record EUR 983 million, a 10.5% rise over the previous year, according to the Bank of Albania. In the last quarter, FDI reached EUR 276 million, a full 70% rise year-on-year.

Commenting on the INSTAT announcement, Finance Minister Arben Ahmetaj said it confirmed an overall improvement in the Albanian fiscal situation. "Stable government debt, as one of the most vital indicators of the macroeconomic health in the country, is now in a much more favorable position than it was a few years ago," Mr. Ahmetaj said.

"After more than two decades during which, with a brief exception in 2010, the State Budget was operating at a deficit, now in 2016 the budget has been able to record a surplus. In the 2017 budget as well as in the medium term framework for the years to follow, a primary positive balance has been established as a target and will be adhered to, meaning another surplus, and a growing one. As a consequence, fiscal policy followed in the last few years has made it possible to halt and reverse the unhealthy trend of government debt since 2008."

A new fiscal rule, backed by legislation, mandates the government to decrease government debt every year until it reaches a stable maximum of 45% of GDP.

(Source: Belgrave Strategic)

JLT Specialty, the specialist insurance broker and risk consultant, saw a 60% increase in the number of insured deals during 2016 compared to 2015 globally. This type of Mergers and Acquisitions (M&A) insurance, also known as Warranty and Indemnity (W&I) insurance - of which the real estate and private equity sector remain the key beneficiaries of - is designed to pay out if a buyer discovers the business bought is not what the seller advised it would be.

In its annual M&A Insurance Index report, JLT found that the average limit of insurance (as a percentage of the enterprise value) increased by 16% in 2016 compared to the previous year. This equates to an average insured amount of 29% of the total deal value for global transactions outside of the US.

This may be a reaction to perceived heightened investment risk driven by economic uncertainty around the Brexit negotiations, but equally it may reflect the ever-falling premium rates, as today it is possible to get more protection for less premium. Levels of cover in the US were lower at 23% of deal value, but Japan and Singapore saw the highest levels of protection at 30% and 34% respectively.

Overall market capacity has increased, largely due to new insurer entrants. Existing insurers and managing general agents are also significantly increasing their individual line sizes with a number now able to deploy $US100m+ per deal, allowing high limits of insurance to be met by a single or small number, of insurers. This has advantages from an execution risk perspective, as well as potential benefits in the event of a claim.

The real estate sector continues to be one of the main users of M&A insurance. Alongside this, private equity deals still represent a majority of insured transactions, with industrial and retail markets becoming increasingly frequent users. In what is becoming common practice across numerous business sectors, the seller often facilitates the use of insurance very early on in the deal process to optimise its exit from the transaction.

Furthermore, JLT found that whilst the seller commences the insurance process 40% of the time, it is the buyer that is the insured party on 93% of deals. This reflects a strong seller marketplace where selling parties have been able to negotiate reduced liability under the sale agreement and offer a W&I insurance policy to the buyer instead.

Ben Crabtree, Partner, Mergers and Acquisitions, JLT Specialty, said: “The events of 2016 in the UK and Europe have served as a test of maturity for the M&A insurance market, which perhaps surprisingly, has continued to soften further, both in terms of premium rates and policy retention levels, compared to 2015. This underlines the fact that competition between insurers remains at unprecedented levels. However, the market may harden a little if the current increase in claims activity we’re seeing continues.”

(Source: JLT Specialty)