SGRF Economic Research

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Six Megatrends Shaping the World

SGRF Economic Research

April 2017

Rising Population and Aging

Rapid Urbanization

Rising middle-class

Sustainability

Diffusion of power

Technological advance

©SGRF-Economic Research Department

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Megatrends

Megatrends are global, sustained and macro economic forces of development that impact business, economy, society, cultures and personal lives thereby defining our future world.

We identify six main megatrends;

Demographic changes (Rising population and ageing)

Rapid urbanization

Rising middle-class

Diffusion of power

Sustainability (claimant change and resources scarcity)

Technological advancement

©SGRF-Economic Research Department

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Why should SGRF adopt these megatrends as part of its investment decisions?

Megatrends would help SGRF identify investment opportunities that are likely to be most profitable over the longer term, therefore enabling successful investments into growing markets.

©SGRF-Economic Research Department

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The current world population is 7.4 billion, by 2050 the population will be over 9.7 billion and by 2100 it could reach a massive 11 billion people.

Demographic Changes

Rising Population

©SGRF-Economic Research Department

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And with the highest rate of population growth, Africa is expected to account for more than half of the world’s population growth over the next 35 years

Source: United Nations

7

9.7

In 2015

by 2050

to

During the 2015-2050 period, half of the world’s population growth is expected to be concentrated in 9 countries: India, Nigeria, Pakistan, DRC, Ethiopia, Tanzania, the US, Indonesia and Uganda.

Tokyo

World’s Most Populated city

37.8people

15,347

births

6,418

deaths

Every hour there are:

9.7b2050

Africa

Is the fastest growing continent

2.5%anualy

500m

1500

With the highest rate of population growth, Africa is expected to account for more than half of the world’s population growth over the next 35 years

Chronological World Population Growth

صندوق الاحتياطي العام للدولة

State General Reserve Fund

Growing demand for food, water, energy, infrastructure and goods and services.

Demographic Changes

Rising Ageing Population

©SGRF-Economic Research Department

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% of the population with 60 years or over

2050

2015

In 2015, one of every 8 people was aged 60 year or older, this figure will rise to one of every 5 by 2050, making up 1.4 billion from 901 million people in 2015, with old people outnumbering children aged 0-9 years.

Growing ageing population will have social, political and economic implications, by increasing the fiscal burden on governments for extra spending on pensions and health care while providing opportunities for businesses.

Source: United Nations

صندوق الاحتياطي العام للدولة

State General Reserve Fund

% of the population with 60 years or over

2000 Japan Italy Korea Spain Portugal Greece Singapore Poland Germany Austria 23.3 24.1 11.2 21.4 21.7 22.8 10.7 16.8 23.1 20.399999999999999 2015 Japan Italy Korea Spain Portugal Greece Singapore Poland Germany Austria 33.1 28.6 18.5 24.4 27.1 27 17.899999999999999 22.7 27.6 24.2 2030 Japan Italy Korea Spain Portugal Greece Singapore Poland Germany Austria 37.299999999999997 36.6 31.4 33.5 34.700000000000003 33.200000000000003 30.7 28.6 36.1 32.4 2050 Japan Italy Korea Spain Portugal Greece Singapore Poland Germany Austria 42.5 40.4 41.5 41.4 41.2 40.799999999999997 40.4 39.299999999999997 39.299999999999997 37.1

Rapid Urbanization

The economic power of cities

©SGRF-Economic Research Department

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Source: United Nations, McKinsey

صندوق الاحتياطي العام للدولة

State General Reserve Fund

According to the United Nations, almost 180,000 people move into cities everyday

66%

Of the world population is projected to be urban by 2050, up from 54% in 2016

1

Tokyo 37.1m

2

Delhi 30.7m

3

Shanghai 36m

4

Mumbai 27.8m

5

Sau Paulo 23.4m

Top 5 Cities by population by 2030

Top 5 Cities by GDP by 2025

1

New York

2

Tokyo

Shanghai

5

4

London

Beijing

By 2030 India will have

68 cities of more than 1m

13 with more than 4m

6 mega cities with

more than 10m

Of Africa’s population will be urban by 2050

1bn

China

590 m

India

Urban population 2030 forecast

By 2030 China will have..

221

Cities with 1m or more

23

Cities with 5m or more

380m

People will be added to the global population from China’s cities – more than the enter population of the US today

56%

Middle-Income

Rising in middle income class continues

©SGRF-Economic Research Department

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Source: United Nations, statista, McKinsey

3,492m

733m

689

212

1,380m

724m

620

285

114

Asia Pacific

Europe

America

192

Middle East & N.Africa

Sub-Saharan Africa

World biggest consumers

صندوق الاحتياطي العام للدولة

State General Reserve Fund

1.8b

4.9b

50m

2015

2030

China

India

150m

850m

1billion

425m

475m

China and India’s contributions to the

global middle class will be substantial

The size of the global middle class will almost triple from 2009 to 2030

2016

2030

of the global middle class will

live in the Asia-Pacific region

in 2030 up from 1/3 in 2009.

The emergence of a wealthy middle class will open up new markets not just in consumer goods, but also for financial services or the health sector, for instance. meaning, there is still plenty of room for businesses to expand in these sectors in the emerging world before parity with the developed world is reached.

Middle-Income

Rising in middle income class continues

©SGRF-Economic Research Department

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صندوق الاحتياطي العام للدولة

State General Reserve Fund

United States

$1.32 trillion

China

$1.3 trillion

United Kingdome

$0.2 trillion

Japan

$0.17 trillion

Germany

$0.09 trillion

$18.7

trillion

$4.3

trillion

$11.25

trillion

$0.55

trillion

Today

2025

Online sales

Non-Online sales

Global retail industry

Global retail industry is forecasted to sharply increase due to the rise of the middle income class

Column10.1 0.9

Column1

0.15 0.85

Column1

0.24 0.76

Column1

0.18 0.82

Column1

0.26 0.74

Diffusion of power

Rise of those who can play the game

©SGRF-Economic Research Department

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Source: IMF, PWC analysis

1

2

1

2

3

3

4

4

5

5

6

6

7

7

8

8

9

9

10

10

China

China

US

India

India

US

Japan

Indonesia

German

Brazil

Russia

Russia

Brazil

Mexico

Indonesia

Japan

UK

German

Franca

UK

2016

2050

E7

G7

Emerging markets will dominate the world’s top 10 economies (GDP at PPP)

Vietnam, the Philippines and Nigeria could make the greatest move up the GDP by PPP ranking by 2050

Vietnam

Philippines

Nigeria

Up 12 places

Up 9 places

Up 8 places

32nd

20th

28th

19th

22nd

14th

2016

2050

The US and Europe will steady lose ground to China and India

Share of world GDP (PPP) from 2016 to 2050

China

18%

US

16%

EU27

15%

India

7%

20%

12%

9%

15%

2016

EM will continue to be the growth engine of the global economy. By 2050, the E7 economies would rise their share of world GDP from 35% to almost 50%, with China being the largest economy in the world, accounting for around 20% of world GDP.

Although, advanced economies will continue to have higher average incomes, but EM will make good progress as well, which will open up great opportunities for long-term investments in these markets. However, governments need to implement structural reforms to improve macroeconomic stability, diversify their economies away from natural resources, and develop political and legal institutions.

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Projected change in share of world GDP (PPP) from 2016 to 2050

2016

2050

صندوق الاحتياطي العام للدولة

State General Reserve Fund

Advanced countries

Emerging countries

The rest of the world

2050

10

Diffusion of power

Rise of those who can play the game

©SGRF-Economic Research Department

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Source: IMF

صندوق الاحتياطي العام للدولة

State General Reserve Fund

$400

bn

$1,563.5

bn

$875.9

bn

$526

bn

$681.7

bn

$526

bn

$579

bn

$1,445.4

bn

$364

bn

Next game changer

The trillion dollar economies

Note: the figures are GDP at current prices from IMF 2022 forecasts.

Egypt

Mexico

Nigeria

Philippines

South Africa

Thailand

Turkey

Vietnam

Poland

Next emerging economies game changers aside of BRICSs

High GDP growth, improved FDIs and rapid industrialization to give rise to new lot of emerging countries, beyond BRICS that contend to become next economic leaders

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©SGRF-Economic Research Department

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As the world becomes more populous, urbanized and prosperous, demand for energy, food and water will rise. But the Earth has a finite amount of natural resources that can be used to satisfy this demand.

Sustainability

Claimant change and resource scarcity

©SGRF-Economic Research Department

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Source: National Ocean Service, World Meteorological Organization, NASA GISS Surface Temperature Analysis

صندوق الاحتياطي العام للدولة

State General Reserve Fund

“we can state with 99% confidence that current temperatures represent a real warming trends.

–Dr. James Hansen

Director of NASA Goddard Institute for Space Studies

Sea level continues to rise at a rate of about one-eighth of an inch per year. The two major causes are thermal expansion caused by warming of the ocean and increased melting of land-based ice.

Globally, 2015 was the hottest year on record, 2016 overturn it and 2017 is expected to be the hottest according to the World Meteorological Organization

Climate change is already changing seasons and weather patterns, and more extreme weather events such as el-nino, posing substantial risks for agriculture, water supplies, food, ecosystems, energy security, and infrastructure.

Global Warming is happening

This is due to:

81%

Of global energy comes from fossil foil

Vehicles produce about 2.3 kilograms of carbon dioxide for every liter of gasoline they burn, and about 2.7 kilograms of carbon dioxide for every liter of diesel they consume.

Sustainability

Resources scarcity

©SGRF-Economic Research Department

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Source: National Intelligence Council, PWC

50%

more energy

40%

more water

35%

more food

With climate change and rising population, by 2030, we will need…

صندوق الاحتياطي العام للدولة

State General Reserve Fund

Technological Advance

©SGRF-Economic Research Department

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Source: PWC 19th Annual Global CEO Survey

The Top megatrends, which CEO believes will transform their business over the next five years, based on PWC survey

صندوق الاحتياطي العام للدولة

State General Reserve Fund

Increased comfort with technology

Competition advantage using technology

Multiplier effect of technology

Globalization effect of technology

Cheaper access to technology

This changes will come in a form of…

Series 1Urbanization Sastanability diffusion of power demographics technological advances 0.36 0.43 0.57999999999999996 0.61 0.77 Series 2 Urbanization Sastanability diffusion of power demographics technological advances 0.64 0.56999999999999995 0.42 0.39 0.23

Technological Advance

©SGRF-Economic Research Department

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Source: McKinsey, PWC, Forbes, HBR

صندوق الاحتياطي العام للدولة

State General Reserve Fund

Software that are capable of performing tasks that normally require human intelligence, such as visual perception, decision-making, and language translation.

Information or visuals to the physical world, via a graphics and/or audio overlay, to improve the user experience for a task or a product.

Distributed electronic ledger that uses software algorithms to record and confirm transactions with reliability and anonymity.

Helps reshape finance, healthcare, government and manufacturing

Air or water-based devices and vehicles, that fly or move without an on-board human pilot.

Devices, vehicles, etc. that are embedded with sensors, software, network connectivity, and compute capability, that can collect and exchange data over the Internet.

Expected to accede $7b this year, from $2.2b in 2014.

Manufacturing techniques used to create three-dimensional objects based on digital models by layering or “printing” successive layers of materials

Printing

Virtual reality

Robots

Internet of Things

Drones

Blockchain

Augmented reality

Artificial intelligence

Change business model and Enable smarter business operation.

Electro-mechanical machines that automate, augment or assist human activities.

Computer-generated simulation of a three-dimensional image or a complete environment, within a defined and contained space, that viewers can interact with in realistic ways.

Will impact businesses over the next 5 years

85%

Of customer interactions will be handled without human by 2020.

Analyst expect AR revenue to reach $48.7B by 2021

Drones Market=$7 billion

By 2020, while provide competitive advantage

Will replace of business operations by 2030.

©SGRF-Economic Research Department

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Now the question is;

What is the potential positive or negative impact these megatrends have on SGRF strategy, and what we should do (or not) with this knowledge.