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Amlan Roy, PhD Senior Managing Director, Global Chief Retirement Strategist
Middle East Investment Conference Cairo, 17 April 2018
Global Macro-Demographics & Investment Implications (Middle-East Focus)
Research materials used for SSGA Institutional Client use only and is not intended for public dissemination.
Research Materials for Client Discussions Only
For Contact details of team members please see contacts page at the back of the presentation
2068399.1.1.EMEA.INST
Demographics: A Different Perspective
WHAT IT CONNECTS TO & INFLUENCES
D: Discount rates, Debt
E: Economic Growth, Efficiency, Structure
M: Mortality
O: Organisation Behaviour, Structure
G: Geography, Geopolitics, Governance
R: Robotics, Real Estate
A: Asset Prices, Asset Allocation
P: People, Pensions, Politics
H: Heterogeneity, Households
I: Inflation, Inequality, Institutions
C: Consumers, Culture, Cities
S: Sustainability
WHO DOES IT PERTAIN TO?
All the “People” in the world and their characteristics. From an economic perspective, we restrict attention to them as “consumers and workers” in the world.
It affects all Income Statements & Balance sheets in the world for
• Individuals
• Households
• Corporates
• Nations
Unless otherwise stated, all data and all data sourced to "UN" is the most current data attributable to the United Nations Population Division. Data shown beyond 2015 is a UN projection.
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Super-old (80+) Age Group Fastest Growing
Share of 80+ Population
1970 (%)
2015 (%)
UK 2 5
US 2 4
Germany 2 6
Japan 1 8
France 2 6
Italy 2 7
1,385 1,916
2,103
4,825
169
483
1970 2015
0–14 15–64
25
Growth 394%
186%
129%
38%
3682 7349 Total Population
125
World Population: 1970 versus 2015
All
po
pu
lati
on
nu
mb
ers
in m
illio
ns
100%
Source: UN, CS, SSGA Demographics
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The Demographic Manifesto (2000)
• Abolish Mandatory retirement ages. Adopt Flexible retirement.
• Close gender gaps to better utilize female work potential
• Rethink & implement immigration policies
• Outsource and off-shore non-core jobs based on costs and benefits
Radical Policy Actions to mitigate the Ageing Time Bomb
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Core Demographics: Middle East
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Source: UN, SSGA Demographics
2.8
1.8
4.1
1.9 1.9 1.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Iraq Kuwait Oman SaudiArabia
Egypt UAE
% p
.a.
1995-2000 2015-2020 2035-2040
4.3
2.0 2.5 2.5
3.2
1.7
1.01.52.02.53.03.54.04.55.05.5
Iraq Kuwait Oman SaudiArabia
Egypt UAE
Ch
ildre
n p
er
wo
me
n
1995-2000 2015-2020 2035-2040
70.1
74.9 77.4
74.8 71.8
77.5
60.0
65.0
70.0
75.0
80.0
85.0
Iraq Kuwait Oman SaudiArabia
Egypt UAE
Ye
ars
1995-2000 2015-2020 2035-2040
5.5
2.7 3.1 4.3
8.2
1.2
02468
101214
Iraq Kuwait Oman SaudiArabia
Egypt UAENu
mb
er
of
65+
per
10
0
po
pu
lati
on
15-
64
ye
ars
1995 2015 2035
Annual Population Growth Fertility Rate
Life Expectancy at Birth Old Age Dependency Ratio
4
How Increasing Longevity Affects Us All?
Significant change in thinking and mind-set needed
Source: IPE Pension Awards Speech (2013)
Individuals & Families
Governments & Societies
Asset managers, pension funds, insurance cos., banks, SWFs etc.
• Challenge existing asset & time allocation frameworks & intergenerational dynamics
• Policy changes in labour, education, health, pensions & social benefits necessary
• Re-assess frameworks & assumptions. Develop new solutions for clients & new approaches to understanding longevity.
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4.1 2.9
1.5 1.2
-0.2 -0.8
0.1 1.1
0.9
0.0
-0.5 -1.1
4.8
2.2
1.1 1.2
-2.0-1.00.01.02.03.04.05.06.0
1981-1990 1991-2000 2001-2010 2011-2017
Ave
rage
an
nu
al g
row
th r
ate
(%
)
Labour productivity growth Labour utilization growth Working age population growth Real GDP growth
1.7 2.2 2.4 0.6
0.8 0.5
-1.5
1.1
0.9 1.1 1.0 0.5
3.4 3.8 2.0
2.2
-2.0-1.00.01.02.03.04.05.06.0
1981-1990 1991-2000 2001-2010 2011-2017Ave
rage
an
nu
al g
row
th r
ate
(%
)
Demographic Components of GDP Growth
Working-age Population Growth working-age population = population aged 15–64
Labour Productivity Growth labour productivity = real GDP/ hours worked
Labour Utilisation Growth labour utilisation = hours worked/working-age population
G6 GDP growth rate has fallen dramatically. Main cause is declining labour productivity growth.
Japan Real GDP growth: Contributions US Real GDP growth: Contributions
Source: SSGA Demographics, GGDC, UN
Real GDP growth
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GDP Structure: Middle East
National Income Identity (expenditures method): C + G + I + ( X – M) GDP C = Consumption, I = Investment, G = Government, X = Exports, M = Imports
GDP Breakdown (% of GDP)
Kuwait Oman Saudi Arabia
2005 2015 2005 2015 2005 2015
Household Consumption 32.1 41.3 30.6 33.1 26.3 40.3
Government Consumption 15.7 24.6 20.8 27.4 21.3 30.0
Gross Capital Formation 16.4 25.0 21.4 35.9 20.2 35.1
Exports 64.0 54.4 58.3 56.1 57.1 33.3
Imports 28.3 45.3 31.1 52.5 24.9 38.8
United Arab Emirates Iraq Egypt
2005 2015 2005 2015 2005 2015
Household Consumption 56.3 57.1 64.9 59.3 71.6 82.4
Government Consumption 7.9 13.6 20.0 22.3 12.7 11.8
Gross Capital Formation 20.2 24.9 22.2 24.4 18.0 14.3
Exports 67.6 100.4 54.3 35.0 30.3 13.2
Imports 52.0 96.0 61.4 41.0 32.6 21.7
Openness of an economy is measured by the sum of exports + imports as a ratio of GDP:
100% (Kuwait), 109% (Oman), 72% (Saudi Arabia), 196% (UAE), 76% (Iraq), 35% (Egypt)
Source: World Bank, SSGA Demographics
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Middle East: Core Economic Indicators
Source: IMF, WB, SSGA Demographics Data for Saudi Arabia and Egypt is as of 2015. Data for Kuwait and Iraq s as of 2011. Data for UAE is as of 2009.
GDP, current prices GDP per capita, current prices
Average Consumer Prices (Annual Change %) Total Unemployment Rate
3.6
8.0
12.8
5.6 4.2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Kuwait Iraq Egypt SaudiArabia
UAE
% o
f To
tal L
abo
ur
Forc
e
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-10
0
10
20
30
2010 2012 2014 2016 2018 2020 2022
%
Egypt Iraq Kuwait
Oman Saudi Arabia UAE
230 139 115 59
527
290 332 193 118 72
679 379
0200400600800
USD
(B
illio
ns)
2010 2017 or nearest years
3,685 4,958
27,237 17,406 20,957
37,346
010,00020,00030,00040,000
USD
2010 2017 or nearest yearsEgypt data relates to 2016. Others refer to 2017. Egypt data relates to 2016. Others refer to 2017.
8
Unsustainable Fiscal Strains (Ageing Related)
EU28, 2014, % of total benefits
Others 7.6%
Disability 7%
Survivors 5.5%
Family and Children 8.2%
Unemployment 4.9%
Sickness/ Healthcare 28.1%
Old Age 38.7%
• In most EU countries, age related expenditures currently account for 20% + of GDP
• This is unsustainable currently and in future without radical reform
Pension (%) Health
Care (%) Long-term Care (%)
UK 2020 7.4 8.1 1.2
2060 8.4 9.1 1.5
France 2020 14.6 8.0 2.1
2060 12.1 8.6 2.8
Italy 2020 15.3 6.2 1.9
2060 13.8 6.7 2.7
Germany 2020 10.3 7.9 1.7
2060 12.7 8.2 2.9
Denmark 2020 8.7 8.5 2.7
2060 7.2 9.0 4.5
Greece 2020 15.5 6.6 0.5
2060 14.3 7.9 0.9
Netherlands 2020 7.1 7.5 3.8
2060 7.8 8.1 7.1
EU28 2020 11.2 7.2 1.8
2060 11.2 7.8 2.7
Source: EC, SSGA Demographics
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Middle East: Value Added & Oil Rents
Source: World Bank, SSGA Demographics
Value added for different sectors, % GDP
54.2
64.3
51.1
42.4
21.1
3.6
38.5
28.6 22.5 20.5
11.2
2.6 0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Kuwait Iraq SaudiArabia
Oman UAE Bahrain
% G
DP
Oil rents (% GDP)
2005 2015
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0.8 11.9
0.5 2.0 2.7
53.4 32.9 48.4 47.5 43.3
45.8 55.2 51.1 50.5 54.0
0.0
20.0
40.0
60.0
80.0
100.0
UAE Egypt Kuwait Oman SaudiArabia
% G
DP
Agriculture Industry Services
UAE data relates to 2010. Others refer to 2016.
10
Education Indicators
3.8 3.8
5.0 5.1 5.1
2.9
0.01.02.03.04.05.06.0
Egypt Kuwait Oman SaudiArabia
Republicof Korea
Singapore
% G
DP
Source: UN, World Bank, SSGA Demographics
Data last updated: Egypt (2008), Kuwait (2006), Oman (2013), Saudi Arabia (2008), Republic of Korea (2015), Singapore (2013)
Government expenditure on education, Total (% of GDP) Population with at least some secondary education (% ages 25 and older)
Expected years of schooling (years)
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44.5 34.7
42.7 29.7
61.5 57.4 66.5 67.7
78.6 91.4
0
20
40
60
80
100
Kuwait Saudi Arabia UAE Singapore South Korea% a
ges
25
an
d o
lde
r
1990 2015
10.6 10.8 10.7
13.7
10.6
13.3
16.1
13.3
16.6 15.4
10
12
14
16
18
Kuwait Saudi Arabia UAE South Korea Singapore
year
s
1990 2015
11
Middle East: Gender Differences
Source: UN, SSGA Demographics
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47.5
57
32.5
21.4 23
89.8 87.4
80.5 77.6
69.6
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
UAE Kuwait Oman SaudiArabia
Egypt
%
FLFP MLFP
All data is as at 2016 except Saudi Arabia (2015).
3.0 3.3
2.7
4.9
5.5
3.9
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
UAE Oman Kuwait SaudiArabia
Iraq Egypt
Gender Labour Participation Differences Ratio of Male GNI per capita to female GNI per capita 2013 in 2011 PPP
12
Middle East: Population Change Decomposed
Source: UN, SSGA Demographics
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
Kuwait Oman SaudiArabia
UAE Iraq Egypt Kuwait Oman SaudiArabia
UAE Iraq Egypt
2000-2005 2010-2015
in t
ho
usa
nd
s
Natural Population Change Net Migration
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Demographics & Monetary Policy
My view since 2005
Effects of Interest Rates:
Credit Restrictions
The young: Long on human capital & short on assets The old: Long on assets & short on human capital
Monetary policy impact is different based on relative fractions of young & old
The more people in the latter parts of their working lives and in retirement and the fewer the young workers — the less important are credit constraints
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Rising Youth Unemployment
Source: ILO, World Bank, SSGA Demographics
0
5
10
15
20
25
30
35
40
France Germany Italy Japan UK US Brazil Mexico Russia Turkey China India
G6 EMG6
%
General unemployment Youth unemployment (15-24 yrs old)
1991 2000 2016
Global youth unemployment rate (%) 12.2 13.9 13.6
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Sectors Demographically Advantaged
Changing consumers and workers in a global and technologically advancing world. Not just people numbers, but groups and behaviours impact these sectors.
FINANCIAL SERVICES
INFRASTRUCTURE NATURAL RESOURCES LEISURE & LUXURY
EMERGING MARKETS PHARMA & BIOTECH
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Demographics & Asset Pricing Fundamentals
Research has shown demographics to affect the following which are fundamentals of asset prices.
• GDP growth
• Inflation
• Sovereign Spreads
• Sovereign Ratings
• Long-term interest rates
• Equity premia
• Credit spreads
• Real Estate
Therefore it is essential to understand the dynamics of both behaviour and fundamentals in asset allocation.
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Pension Fund Asset Allocation Trends
2001 2016
Equities (%)
Bonds (%)
Cash (%)
Other (%)
Equities (%)
Bonds (%)
Cash (%)
Other (%)
Australia 62 19 5 14 49 14 16 21
Canada 62 26 2 10 46 33 1 20
Japan 52 46 0 2 28 59 4 10
Netherlands 44 44 11 1 32 54 0 14
Switzerland 36 35 20 9 30 37 5 28
UK 67 18 5 10 47 36 1 16
US 65 28 2 5 49 22 2 27
Source: Willis Towers Watson (2017)
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Development, Governance, Corruption & Gender Balance Indicators
Source: WB, WEF, UN, TI, SSGA Demographics
Countries Human Development
Index Score (%) Human Development
Index Rank Gender Gap Index
Score (%) Gender Gap Index
Rank Corruption Perception
Index Score Corruption Perception
Index Rank Sustainability Percentile
Rank
Norway 94.9 1 83.0 2 85 6 1.17 91.4 Switzerland 93.9 2 75.5 21 86 5 1.32 95.7 Germany 92.6 4 77.8 12 81 10 0.76 71.0 Netherlands 92.4 7 73.7 32 83 8 0.89 77.6 Iceland 92.1 9 87.8 1 78 14 1.33 96.2 US 92.0 10 71.8 49 74 18 0.35 58.6 Canada 92.0 10 76.9 16 82 9 1.24 93.3 Sweden 91.3 14 81.6 5 88 4 0.98 82.4 UK 91.0 16 77.0 15 81 10 0.38 59.0 Japan 90.3 17 65.7 114 72 20 1.01 86.2 Israel 89.9 19 72.1 44 64 28 -0.83 18.6 France 89.7 21 77.8 11 69 23 -0.06 44.3 Finland 89.5 23 82.3 3 89 3 0.96 81.0 Italy 88.7 26 69.2 82 47 60 0.35 58.1 Saudi Arabia 84.7 38 58.4 138 46 62 -0.50 28.6 UAE 84.0 42 64.9 120 66 24 0.44 61.0 Russia 80.4 49 69.6 71 29 131 -0.89 16.7 Kuwait 80.0 51 62.8 129 41 75 -0.15 41.4 Oman 79.6 52 N/A N/A 45 64 0.80 71.9 Iran 77.4 69 58.3 140 29 131 -0.74 20.5 Turkey 76.7 71 62.5 131 41 75 -2.00 5.7 Mexico 76.2 77 69.2 81 30 123 -0.77 20.0 Brazil 75.4 79 68.4 90 40 79 -0.45 30.0 China 73.8 90 67.4 100 40 79 -0.52 27.1 India 62.4 131 66.9 108 40 79 -0.95 14.3
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Conclusions
Understanding of demographics, behaviour, market and institutional evolution will be key.
Strategic asset allocation & ALM must holistically consider the drivers of inflation risk, interest rate
risk, longevity risk and market risk.
Demographics affects investment fundamentals and therefore must be factored into investment
analysis. Changing behaviour of consumers and workers is rendering many old models invalid
In Middle East countries, structural policy changes towards education, labour, health and pensions
need to be coordinated to generate higher sustainable and equitable growth.
Open balanced economy with better developed financial markets will enhance their
global position.
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Biography
Amlan Roy, PhD
Dr. Amlan Roy is the Global Chief Retirement Strategist and Senior Managing Director at SSGA since April 2017. He is an experienced Global Macro Researcher specializing in Demographics & Pensions
related to Economics, Investments and Public Policy. He highlights structural issues related to gender disparity, youth unemployment, system risks due to policy interactions with ALM & SAA. He is a
Senior Research Associate at LSE and Guest Finance Professor at LBS.
Prior to joining SSGA, he was Head of Global Demographics & Pensions Research and Managing Director at Credit Suisse having joined there in 1998. At Credit Suisse, Amlan was a client facing Researcher
presenting to clients in 25+ countries and speaking at 60+ global conferences/events. In a prior role he developed global risk and asset allocation models serving as an international expert on Financial
System Architecture.
His big-picture macro strategic research in Global Demographics & Pensions is used by policy makers and investors and draws on the fields of Macroeconomics, Portfolio Theory, Behavioral Economics,
Statistics, Derivatives and Econometrics.
Prior to joining Credit Suisse, he spent over a decade in academia with a distinguished teaching career in the US and the UK. He was UK ESRC Research Fellow, Ponders Fellow, a Boston University Doctoral
Scholar and a Government of India National Scholar. Amlan has a PhD and an MA in Financial Economics from the University of Iowa, an MBA from Indian Institute of Management Ahmedabad and a BA
Honours in Economics from St. Stephen’s College, University of Delhi.
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Contacts. Global Demographics & Retirement Research
Amlan Roy, PhD
Senior Managing Director
Global Chief Retirement Strategist
+44 203 395 6719
Amy Le
Investment Strategist
+44 203 395 6590
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