Global Trend 2050

April 2020
Towar
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2020 Edition
W elcome to the 2020 edition of our special report, Towards 2050: Megatrends In Industry, Politics And The Global
Economy.
As we begin the 2020s, the world is in the grip of the Covid-19 pandemic, which has brought
about unprecedented levels of disruptions to societies and economies in peacetime.
While it is too soon to say with any degree of conviction what the world will look like after this
pandemic, a review of the industry, political and economic megatrends we have identified
in this edition, and which remain broadly similar to those of previous editions, indicates that
some may be amplified and others accelerated in the post-Covid 19 world. The shift to the
digitally connected economy, for instance, is playing out on a global scale, suggesting that
a review of the industry, the pace of roll out of technologies like the Internet of Things (IoT), Automation & Robotics
political and economic and AI may accelerate as new economic and industry norms take shape.
megatrends we have
identified in this edition Looking ahead to 2050, we are anticipating a pause and partial reversal of globalisation,
indicates that some may although we also see the possibility of a revival after 2030, led by China and propagated
be amplified and others along the ‘Belt and Road’. We also anticipate the world becoming considerably more
accelerated in the post- multi-polar, as other powers gain geopolitical and economic clout. The entire world order
Covid 19 world. will become much more unstable, as a greater number of powerful actors with greater
geographic interests come into dispute with one another, and alliances become more
‘tactical’ in nature. The increasing complexity of the world means that there will not be
an overarching paradigm. At the same time, the world will increasingly need to adjust to
demographic ageing and climate change, which will test governments to their limits. New
challenges mean that political ideologies and societies will have to adjust accordingly.
We hope that this special report will provide insight and context as we head towards a
nebulous post-Covid-19 world order and will help our readers identify patterns of change
in economies and industries that may become especially pertinent and impactful in the
coming years.
Towards 2050 Megatrends In Industry, Politics And The Global Economy | April 2020
Contents
Global Industry Megatrends To 2050 ...................................................................................................................................... 5
Industry Megatrends In A Post-Covid-19 World: Shifts Accelerated And Megatrends Amplified ............................................................... 5
Megatrends Survey 2020 : IoT And Shift To The Low Carbon Economy Seen As Biggest Industry Disruptors....................................10
Technology, Media, Telecommunications (TMT) ...............................................................................................................22

Technology: Making Sense Of Data.....................................................................................................................................................................................22
TMT: Move To Digital-First Business Models Driven By Tech Innovation..............................................................................................................29
Pharmaceuticals, Healthcare & Medical Devices..............................................................................................................37

Pharmaceuticals & Healthcare: Treatment Personalisation To Transform Healthcare Sector ..................................................................37
Medical Devices: 3D Printing To Revolutionise The MedDev Industry..................................................................................................................44
Healthcare - Megatrends Survey 2020: IoT And Personalised Care At The Forefront Of Industry Outlook ..........................................51
Agribusiness, Food & Drink, Consumer & Retail ...............................................................................................................53

Agribusiness: Disruption Ahead On Multiple Fronts For One Of World's Oldest Industries ..........................................................................53
Agribusiness - Megatrends Survey 2020: Climate Change, Health, Technology Key Issues For The Agribusiness Sector ............68
Food & Drink: Convenience And Healthification For An Ageing, Urban Population........................................................................................70
Consumer & Retail - Megatrends Survey 2020: Technology, Sustainability And Personalisation To Drive Change...........................81
Automotives..................................................................................................................................................................................84
Autos: Autonomy, Sustainability & Digital Tech Revolutionising Mobility ...........................................................................................................84
Autos – Megatrends Survey 2020 : People Still Important In High-Tech Future..............................................................................................94
Power & Renewables, Infrastructure.....................................................................................................................................98

Power & Renewables: Decentralisation, Digitalisation And Decarbonisation To Transform The Utilities Sector ................................98
Power & Renewables – Megatrends Survey 2020: Technological Advancements Shaping Utilities’ Businesses............................ 107
Infrastructure: Adapting To Urbanisation And New Technology ......................................................................................................................... 109
Construction & Engineering - Megatrends Survey 2020 : Advance Technologies To Disrupt Status Quo ......................................... 117
Oil & Gas, Mining (Extractive Industries) .......................................................................................................................... 119

Metals And Mining: Sustainability, Technology And Shifting Product Portfolios Main Trends To 2050 ............................................... 119
Oil & Gas: Digitalisation & The Energy Transition........................................................................................................................................................ 125
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Extractive Industries - Megatrends Survey 2020: The Future Lies In The Low Carbon Economy And Technology ........................ 134
Political & Macroeconomic Megatrends To 2050 ........................................................................................................... 138

Global: Multi-Polar World To Portend Greater Instability And Complexity ........................................................................................................ 138
Global Economy: Far-Reaching Changes To Take Hold By 2050 .......................................................................................................................... 149
North America: Maintaining Cutting Edge Amid Ageing Population In Multi-Polar World......................................................................... 168
Latin America: Climate Change And Population Growth At Core Of Challenges........................................................................................... 175
Europe: Demographic Shifts And Decentralisation To Dominate Policy Agendas........................................................................................ 181
Eurasia: Rising Risks Of Instability On Multiple Fronts .............................................................................................................................................. 187
MENA: Economic Diversification, Demographic Youth Bulge, Water To Destabilise Region..................................................................... 192
Sub-Saharan Africa: Demographics, Diversification, And Climate Change The Main Challenges .......................................................... 201
Asia: Sino-US Competition And Ageing Demographics Pose Main Challenges............................................................................................. 209
Global Industry Megatrends To 2050

Industry Megatrends In A Post-Covid-19 World: Shifts Accelerated And
Megatrends Amplified
We are publishing the third edition of our Megatrends to 2050 Special Report during an unprecedented disruption to global society
and economy due to the Covid-19 pandemic. This pandemic is a ‘black swan’ event of the kind that we warned in our previous
editions (2016, 2018) that could disrupt the business-as-usual assumptions that define industries and their outlooks.
While we conducted our research and analysis of Industry Megatrends to 2050 over late 2019 and early 2020, prior to the rapid
spread of the virus worldwide, we have adjusted this introduction to highlight industry megatrends we identified that may prove to
be especially relevant in the years and decades ahead, in the long-term aftermath of the Covid-19 pandemic.
The objective of our research and analysis of Megatrends to 2050 has been to consider how macro megatrends, such as
Globalisation, Urbanisation, Technological Transformation and Demographic Shifts will manifest themselves at an industry level over
a long-term horizon. In particular, we have contemplated how they will affect and shape the future of sectors such as
pharmaceuticals, energy, automotives and agribusiness over the coming three decades and provide a long-term, strategic trajectory
on how different industries will develop.
While it may be too early to give a view on what the future holds with conviction, reflecting on the industry
megatrends we have identified, the vast majority not only remain as relevant as prior to the pandemic, but we see
scope for some to be amplified and accelerated, possibly playing out at a faster pace than we may have expected
before. Where we had anticipated slow development and intransigence with regards to the roll out of new technologies or shifts to
new ways of working or consumption for instance, we now expect the pace to potentially quicken. This is especially so for the
broader digital transformation and deployment of new technologies across industries, shifting consumer habits online and even
changing dietary preferences, and likely accelerating the focus on low carbon issues.
It is important, though, to make the distinction between short-, medium- and long-term trends, particularly in the context of this
report, where our horizon is 30 years ahead. Undoubtedly there will be challenges and difficulties in the months and years
immediately after the pandemic subsides. In the context of this report’s time horizon we would consider this to be the short-term
time frame. In addition to the human life toll this pandemic is claiming, the spike in unemployment, loss of opportunity and deep
economic recession will necessitate difficult choices for policy makers, governments and companies to return to a degree of
growth. It remains to be seen what effect the stimulus plans announced by several governments will have and to what extent they
will be successful in buttressing the collapse of industries and overall economic activity. Shifts in timelines for investments and
spending will be inevitable in several industries, particularly those with heavy capex plans like Autos, Mining, Construction/
Infrastructure, Power and Oil and Gas (O&G). Therefore, especially for these industries, we see a reduction and loss of momentum in
overall diversification and investment efforts in the months and possibly years immediately following the Covid-19 pandemic. The
megatrends we have identified for these sectors remain relevant for the long term however and this is the context we urge in which
to consider them.
In the aftermath of this pandemic we may see new behaviours around working life, travel, corporate and government practices
become the norm, which will create a break in the business-as-usual trajectory for economies, societies and politics around the
world for years, if not decades to come, and set up a new trendline around growth and outlook.
We believe the industry megatrends identified in this report will remain relevant in the coming decades and some will be
accelerated. Therefore, their analysis becomes even more pertinent in this new context.
Towards 2050: Megatrends In Industry, Politics And The Global Economy 2020 Edition
From Macro Megatrends To Industry Megatrends

Industry Megatrends To 2050
MACRO INDUSTRY MEGATRENDS

CATALYSTS
MEGATRENDS
TMT MEDICAL DEVICES PHARMACEUTICALS
Low Carbon Economy

Urbanisation § Service-Led Business Models § Value-Based Care & HEALTHCARE
Sustainability &
§ Data Management § 3D Printing § Personalised Diagnosis
§ Remote Computing § IoT and Big Data § Telecare
§ Digital-First Regulations § Surgical Robotics § Value-Based Care
§ Low Carbon Policies § Cybersecurity Priorities
Globalisation
FOOD & DRINK AGRIBUSINESS
§ Ageing Consumer § Climate Change & Sustainability
§ Food, Health and Technology § Increased Farming Capital Intensity
§ Instant Delivery § Food Security Divergences
§ Alternative Protein & Manufactured Food § Consumer Awareness Drives Regulations
Industry 4.0
§ Transforming Food & Drink Majors § Legalisation of Organic Narcotics

Demographic
Shifts
AUTOS OIL & GAS MINING

§ Zero-Emissions Vehicles § Building Out Industry 4.0 § Technological Integration
§ Autonomous Vehicles § Low Carbon Focus § Environmental Regulation
§ Shared Mobility § Peak Oil Demand – Peak Coal
Climate § Internet of Things § Metal Consumption Shift
§ Mining Final Frontiers
Change § Sustainable Manufacturing
Consumer Priorities
§ Sustainability
Shifts
POWER INFRASTRUCTURE
§ Decentralisation and Digitalisation § Climate-Change Related Projects
§ Low Carbon Policies § Green Construction
Technology
§ Natural Gas Prominence § Alternative Transport Projects
§ Shifting Power Consumption Patterns § Smart Systems
§ Energy Storage § New Building Methods/Technologies
FitchSolutions.com Page 6
As attention turns to the reliability of supply chains and the ‘just-in-time’ model is challenged, the term ‘near-shoring’ has gained
prominence. A global re-alignment of supply chains had gained some traction during the trade war between the US and China,
which prompted tariffs and disruption to some sectors, with manufacturers that relied heavily on China for primary supplies looking
to diversify to other markets such as Vietnam and other emerging markets. This pandemic has amplified the calls to examine these
vulnerabilities and it may result in higher-value added components or materials being procured in future closer to the final
consumer markets, while stockpiling and supply chain risk management also become areas of greater attention. Pharmaceuticals
and Medical Devices are currently in sharp focus, but that may also extend to sectors like Autos and Consumer Electronics,
among others. But there will be challenges to this:
• Cost containment, especially in the years following the pandemic as industries and economies rebuild, will also remain a crucial
consideration. We cautiously anticipate renewed calls for roll out and investment in automation, digitalisation and a move to a
connected economy in an effort to mitigate future risks to labour forces, supply chains and operations, notwithstanding the
immense difficulties in securing financing and investment many companies and sectors will face in the immediate aftermath of
the pandemic. It is within a context of higher automation roll outs across industries that near-shoring could likely take place. This
will not be about a reversal of globalisation and repatriating jobs lost to offshoring in decades past. Most likely it will be the
opposite; it will be about reducing reliance on human capital as well as reducing costs and supply chain risks. Our Megatrends
Survey 2020 shows that when it comes to Automation, Robotics and Internet of Things (IoT) roll out in industries, executives first
and foremost consider the reduction in the overall cost base and operational efficiencies as having the more immediate impact,
before the more downstream impact on revenues.
• The rise of digitalisation, connectivity and especially the IoT has been a theme that runs across industries in this special report,
just as it was in our previous editions. The interoperability of different assets and 'things' in industry, and to some extent in the
home, that the IoT allows as well as remote monitoring and controlling via sensors will enable greater remote operation of
facilities. A shift to a higher number of people working remotely with more agility and very low latency may become part of the
norm to a larger extent and propel a shift away from traditional norms of working life and operations, therefore adding even
more momentum to IoT applications than we have envisaged in our industries megatrends analysis.
• We also expect to see an impact on the shift to the low carbon economy, as one of the unintended consequences of this
pandemic has been a steep reduction in global NO2 and CO2 emissions, offering a glimpse of what a reversal in environmental
damage resembles. Fully recognising the current restrictions in budgets and bandwidth, both on a government and corporate
level - which will be diverted away from low carbon and decarbonisation policies – looking further ahead, in the medium-term
aftermath of the pandemic, we expect to see the climate agenda and policies on the whole continue to progress. The shift to the
low carbon economy, alongside the rise of digitalisation and the IoT, is a key megatrend that manifests in multiple industries in
this report, from O&G, Mining and Autos, to Agribusiness, Infrastructure and Technology. For an industry like O&G, faced with a
catastrophic destruction in demand, which may recover, but not wholly, from this pandemic, the re-alignment of its business
model towards the low carbon economy, where that shift is possible, will remain critical for its long-term future.
• The shift to e-commerce was already a widely established trend and this pandemic has cemented its prominence in the future
shopping habits of consumers around the world as consumers who were e-commerce shy previously have also come to rely on
this on a much greater scale to meet daily essential needs during lockdowns.
• Cybersecurity will become even more crucial, underpinning all the areas where connected devices are deployed, and we
anticipate investments in cybersecurity to continue increasing. Our Survey shows that across the industries surveyed,
cybersecurity is a priority area of investments, though most respondents said that more investment is necessary. The
effectiveness of cybersecurity is the common denominator for industry megatrends that rest on ubiquitous connectivity. We see
cybersecurity, on an enterprise, national and consumer level, as ultimately the key determinant on the pace of deployment and
proliferation of these connected technologies.
• Globalisation, one of the main macro megatrends over the previous decades, will come under greater scrutiny, something we
had anticipated prior to the pandemic, but which may be amplified in the post-Covid-19 world order. In our scenarios on
globalisation we examine three possible trajectories (stagnation, reversal and resurgence) and this pandemic may accentuate
the stagnation scenario, having already seen it play out in the greater trade protectionism that has dominated the previous two
years (for our analysis on Globalisation and its trajectory to 2050, see ‘Global Economy To See Far-Reaching Changes’).
Key assumptions:
• While the Covid-19 pandemic upends business-as-usual norms, for the purposes of this report we have assumed that current
technological availability and know-how will evolve in the coming decades in a predictable trajectory and we do not factor in any
unforeseen and unknown advances in technology. The scope of this analysis is contained within trends whose seeds have
already been sown in some of the major industries we cover, and we anticipate that the commercial and/or cultural conditions
are present for their large-scale adoption within the next generation.
• Our clients' demand for a longer-term outlook, beyond the scope of our typical 10-year forecast period, prompted us to compile
this series of analyses. We have chosen 2050 because: (i) as the mid-point of our century it provides a good framework to assess
some of megatrends that will dominate the 21st century; (ii) the Millennials and Generation Z will be the key decision makers in
the next generation, creating different sets of priorities and driven by different consumer demands; (iii) equally, a 30+ year
outlook is far enough in the future to enable a more radical re-think of existing trends, but not too far to make any attempt to
sketch a future outlook impossible. Instead, we are seeking to make our insights actionable in an effort to provide a longer term
strategic steer.
• We have attempted to quantify some of these forces where possible, but the vast scope of industry megatrends and the long-
term nature of this analysis make any forecast, at best, cursory. Many of the trends we discuss therefore are qualitative and
should be treated as indicative, rather than precise.
This is not to say that we are not thinking 'outside the box'. On the contrary, these narrower parameters help us identify and isolate
industry megatrends, some already in motion, which we believe will alter and shape the future commercial and economic
landscape of our world. The vast majority of entities already in existence will have to operate, adapt and co-exist with new players
and norms that will be coming to the fore.
Our Industry Megatrends checklist:
There are three criteria which for us define an industry megatrend:
• It will be, or have the potential to be, global in scope;

• It will be sustained and once in motion, it will seemingly be irreversible (although the pace can be very slow or very rapid);
• It will have a major impact on the status quo of the competitive and commercial landscape.
Our analysis has enabled us to identify three overarching catalysts behind the megatrends across the spectrum of industries:
• Sustainability and Low Carbon Economy

• Industry 4.0
• Consumer Priorities Shifts
These catalysts are born out of the macro megatrends and will in turn drive the industry megatrends that are the focus on this
analysis.
We see the shift to a low carbon economy prevalent in our megatrends analysis for Power, Oil and Gas, Mining, Autos and
Agribusiness as government policies and consumer choices will accelerate the move towards more sustainable operating models
and manufacturing processes.
In addition to our insights and analysis, for this edition, we also conducted a global survey of 1,000 industry leaders and senior
decision makers from 12 industries, in five countries to get the view from the market. We asked respondents to identify which
technologies and forces are expected to have the greatest disruption to their industries and which forces they identify as being the
most pertinent megatrends for their industries over the short-, medium- and long-term.
Our Megatrends Survey 2020 was conducted over the first fortnight of January 2020 and therefore we can assume that answers
were not influenced by the spread of Covid-19. We have analysed the results in that context. We reiterate that the high impact and
disruption the majority of our respondents indicated they expect for new technologies, from the IoT to Automation and Robotics
may likely be amplified and accelerated across industries as future risk mitigation strategies, in addition to cost reduction and
efficiency gains - which is the typical way these were viewed prior to the Covid-19 pandemic - takes hold.
This is a pandemic of unprecedented proportions in living memory in the scale of its disruption and ensuing shock that will weigh
on societies and economies, and it is one that generations of people will carry with them for the long term. Some behaviours and
actions will change permanently and these will impact what used to be considered business-as-usual in several facets of industries
and economies. It is too soon to be able to discern most of them, but as these unfold and evolve, so will our assessments and
understanding of the post-Covid-19 world will take shape.
Definitions:
IoT: At Fitch Solutions we define IoT as a generic label for the trend of connecting 'things' - usually electronic devices - that can
passively or actively monitor, collect and exchange data over a wired or wireless communications network. Two-way connectivity
means that these 'things' can interact or intervene with their environments either directly or remotely. Timely interventions,
diminished need for manpower and greater accuracy mean that the cost benefits will appeal to almost every business and social
sector. So much so, that perhaps the 'Internet of EveryThing' would be a more appropriate label.
Megatrends Survey 2020 : IoT And Shift To The Low Carbon Economy
Seen As Biggest Industry Disruptors
Editor’s note: Our survey was conducted in early January 2020, prior to the outbreak of the Covid-19 pandemic. Therefore our
survey questions and results do not take into account the pandemic and its impact on industries' outlooks. As we noted in our
Introduction, the majority of our industry megatrends will not be impacted as a result of the pandemic and where we may see
impact it will likely be that some industry megatrends will likely be amplified or even accelerated.
About Our Megatrends Survey 2020
Over January 2020 we conducted a survey of 1000 senior executives from 12 industries across five countries asking for their views
on which forces will most disrupt their industries in the coming decades. Our objective with this survey is to get the ‘voice of the
market’ across industries from all around the world, in terms of what senior executives are predicting as the largest disruptive forces
in their industries, from Internet of Things (IoT) and Artificial Intelligence (AI), to climate change and diet shifts, how they are
investing for their future and how will the competitive landscape and day to day operations will be shaped fro this.
This follows on from our 2018 Megatrends Survey, where we polled a smaller sample of executives, but from the same industry
groupings and largely on the same questions, thus enabling a top line comparison between now and then, to compare the extent to
which attitudes and views have shifted in the past two years.
While we have to treat a survey which broad based with caution when drawing specific conclusions, the robustness of the sample
size allows us to get a firm sense, by industry, on which forces are appearing to be most dominant in the minds of senior executives,
at the moment, for the medium and long term. For us, this enables a sense-check to our own analysis of which megatrends will be
most pertinent for each industry and how they will manifest themselves and what impact they may have.
This chapter analyses our survey results from the entire sample, therefore primarily taking an industry-neutral vantage point.
Industry specific analysis of respondents from each sector can be found in the relevant chapters of the special report.
Section 1 – Identifying Megatrends
The transition to a low carbon economy and the wide scale adoption of the IoT are the two areas that the largest majority of our
respondents said will have the biggest disruption to industries over the next five and 30 years. This resonates with our 2018 survey
where IoT was also ranked as the most impactful or disruptive category on both a five year and 30-year horizon, followed by
Automation and Robotics (A&R) and Climate Change.
55% of respondents said that the IoT will have a High Impact on their respective sectors in five years, followed by 50% for Climate
Change and the Environment. On the same question, but over a 30 year horizon, 59% of respondents indicated IoT will have a High
Impact on their sectors, followed by A&R at 57% (in the five-year horizon question A&R came in third at 47%) and then followed by
Climate Change and the Environment at 56%.
The impact of Artificial Intelligence and Social Media is in the middle of the response range, with 43% of respondents rating AI as
High Impact over a five-year horizon and 45% for Social Media. This rises to 54% for AI over a 30-year horizon and to 47% for Social
Media over a 30-year horizon.
On the other side of the scale, 3D Printing and the Sharing Economy are not garnering as many responses of High Impact as other
disruptors. Over a five-year period, only 36% and 35% of our respondents said they expected a High Impact from the Sharing
Economy and 3D printing respectively. Over a 30-year horizon this rises to 40% for the sharing economy, and 41% for 3D Printing.
We also asked our respondents about the impact of Shifts in Diet and Health over the coming years. As this is relevant for a handful
of the industries surveyed, the percentages of respondents saying this will be a High Impact trend was naturally lower at 33% over
five years, but rising to 40% over 30 years.
Question: Looking Five Years And 30 Years Ahead, Please Rate The Potential Disruption To Your Industry’s Current Business Model
From The Following Technologies And Trends. No Impact/Low Impact/High Impact
% of respondents who answered 'High Impact' of disruption on their sector in five and 30 years, by category
Source: Fitch Solutions - Megatrends Survey 2020
We note two clear patterns that are emerging from these results.
• First, there is a notable future-disruption bias from all of these forces/technologies in the 30-year horizon compared to the five-
year horizon. When considering the long term the majority of our respondents expect impacts to be more pronounced across all
categories.
• Second, A&R and AI are the ones where there is the most notable increase in number of respondents designating them as High
Impact over the 30-year horizon. According to the results, the number of respondents who identify AI as a High Impact disruptor
for their industry jumps by 11.5% in the 30-year horizon compared to the five-year horizon, although lands in fourth place,
placing behind IoT and Smart Devices, A&R and Climate Change in the 30-year horizon. A&R is in third place in the medium term
(five years) with 47% of respondents but jumps by 10% to second place in the 30-year horizon. IoT only increases by 3%
between the five-year and 30-year horizon, though in both time frames it retains its spot among all our respondents as the
force/technology that the largest number of respondents say it will be the most impactful for their respective industries.
AI And A&R Gain Most As 30 Year Disruptors

% difference in 'High Impact' responses, 30 years - five years
Note: These results show the percent change in number of respondents indicating each category as 'High Impact' over 30 years, compared to the answers given for the five
year horizon. Source: Fitch Solutions - Megatrends Survey 2020
Diving down into the results by industry, we observe a high concentration of responses in some sectors around specific categories,
whereas for other sectors, the distribution of responses is more widespread across the categories and across the three levels of
impact: Low, Moderate, High.
Technology, Manufacturing, Utilities and Construction are the industries where the responses around which category will prove to
be the most disruptive to the sector are the most highly concentrated around a specific category, especially in the five-year horizon.
This is in contrast to the more distributed responses, across different categories for Autos, Financial Services, Agribusiness,
Pharmaceuticals, Consumer & Retail and Extractive Industries.
TOP RATED CATEGORY/DISRUPTOR, BY RESPONDENTS INDUSTRY

Industry Five Years 30 Years
Construction and Engineering IoT (68%) Automation & Robotics (65%)
Extractive Industries* Climate Change (59%) IoT (66%)
Manufacturing IoT (69%) IoT (79%)
Utilities AI (68%); IoT (68%) AI (76%)
Autos Social Media (49%) IoT (61%)
Technology and Communications IoT (72%) AI (76%)
Pharmaceuticals IoT (61%) Climate Change (69%)
Consumer/Retail Social Media (61%) Social Media (68%)
Financial Services IoT (57%) Automation & Robotics (68%)
Agribusiness Climate Change (59%) Climate Change (70%)
Note: *Extractive Industries = Mining, Oil & Gas and Chemicals. Source: Fitch Solutions - Megatrends Survey 2020
This reflects two underlying trends from the industry-specific responses.
For the industries where we see a high concentration of responses around a category, we interpret this as a reflection of higher
conviction about the impact of that category on the industry. For instance, nearly 70% of respondents from the Manufacturing
industry signal that the IoT will be the most disruptive technology for their sector and this rises to nearly 80% over the 30 year
horizon, the highest percentage in the survey. Smart manufacturing, underpinned by the IoT, is a future that several companies
across the manufacturing space are looking towards with progress in the industrial IoT making this more likely to see wide scale
application in the coming years and decades.
For industries with a more distributed range of results in terms of which category will be most impactful in disrupting the sector in
the coming years, these results are a reflection of either a more nebulous outlook in terms of forces or technologies that will show
to have an impact, or, as is the case for Autos and Agribusiness a generally lower overall conviction of any category having a highly
disruptive impact on the sector. This is mainly so for the five-year horizon, as several of these categories are just beginning to
emerge and be applicable on a wide enough scale making it more difficult to discern with conviction high levels of disruption. Over
the 30-year horizon, percentages rise across the board, reflecting higher conviction among our respondents on which categories
will show high potential for disruption. The outlier is the Autos sector, which is the only industry where results both in the short and
long term are more muted compared to other sectors.
Higher Concentration Of 'High Impact' Response Reflects Industry Expectations On Future Disruption
Average number of respondents rating 'High Impact' across all categories/disruptors
It is difficult to point to one specific reason why the responses from the Autos industry to disruptors are below the rest of the
industries. One reason could be that Autos has already integrated and has already been disrupted by several of these technologies
including Automation, Climate Change and Environmental Consideration and IoT, therefore the respondents did not view these as
future disruptors.
Social Media had the highest percentage of Autos respondents (49%) seeing this as a High Impact disruptor over the next five years.
We believe this is because it is already accessible and there are no financial or infrastructure barriers to its usage as long as
consumers have internet connection. YouTube channels now provide much more dynamic car reviews than a written review ever
could and carmakers themselves can use Facebook and Twitter to reach consumers at less cost than traditional advertising.
Social Media also ranks as the category that had the most High Impact responses in the Consumer & Retail space. 61% of
respondents from the Consumer & Retail space rated Social Media as a High Impact disruptor over five years, followed by IoT at
53%, and 68% said so over the 30-year horizon, followed by 59% rating AI as High Impact over 30 years. The response to Social
Media reflects a trend that is well underway across the world of the industry utilising all platforms across social media for advertising,
promotion and sales channels, further entrenching the route away from bricks and mortar stores.
Emerging Markets And Developed Markets
Recalibrating the responses between respondents from Developed Markets (DM) and Emerging Markets (EM) we also see some
response trends emerging to the same questions about short and long term disruption to business models.
Question: Looking Five Years Ahead, Please Rate The Potential Disruption To Your Industry’s Current Business Model From The
Following Technologies And Trends. No Impact/Low Impact/High Impact
% of respondents who answered 'High Impact' of disruption on their sector in five years, Emerging Markets and Developed Markets,
Industry Neutral
Question: Looking 30 Years Ahead, Please Rate The Potential Disruption To Your Industry’s Current Business Model From The
Following Technologies And Trends. No Impact/Low Impact/High Impact
% of respondents who answered 'High Impact' of disruption on their sector in 30 years, Emerging Markets and Developed Markets,
Industry Neutral
In both the five and 30-year outlooks, respondents from EMs have shown a higher level of conviction or expectation around the
disruption different categories will make to industries. Broadly, from both groups of respondents, we see the same technologies and
forces identified as those that will lead to the greatest disruption. Therefore, while both groups identify IoT and Climate Change,
alongside Automation & Robotics and AI as dominant future disruptive forces for their industries, more respondents from EMs have
in each case rated each category higher than their peers from DMs. This may be a reflection that these technologies and forces (bar
Climate Change) have been more widely applied to developed market already and therefore the pending disruption is considered
higher for EM industries. It could also reflect a more intransigent or circumspect response from respondents from DMs compared to
their peers from EMs in terms of what is most likely to disrupt industries in the coming years.
Section 2 – Capex, M&A and Competitive Landscapes
In the second section of our survey our aim was to get a sense of where capex is being directed at currently and see to what extent
it aligns with the areas that our respondents said they expect the greatest level of disruption to come from. We also asked about
what is driving changes to their industries competitive landscape, as well as how well prepared they believed their industry to be to
deal with cybersecurity threats.
Reality versus Aspiration
61% of our respondents indicated that the focus for capex currently is on Energy Efficiency and climate related preparedness. While
this is in line with, and being driven by, government regulation, consumer expectations and corporate policy, the results also point to
a disconnect between where money is being invested currently and the level of disruption that is expected from technologies like
IoT and Automation. While the former show the reality of investment priorities, currently skewing more heavily towards energy
efficiency, the expected disruption (as seen in the questions above) from technologies like IoT and Automation points to an
aspiration or expectation without however that coming through strongly in terms of planned investments. If such a trend were to
persist, industries may ultimately not be as well-positioned as seems to be expected to reap the benefits of IoT and other
technologies in the future, given that investments are concentrated on other areas, notably Energy Efficiency.
HIGH INVESTMENT AREAS FOR RESPONDENTS' COMPANIES PRESENTLY, BY INDUSTRY GROUPING

Big data and
Automation and IoT and smart Cyber security Personalisation Energy
Machine
sensors devices defense of services efficiency
Learning
Construction &
59% 55% 60% 63% 61% 67%
Engineering
Extractive 47% 45% 50% 51% 47% 62%
Manufacturing 59% 52% 62% 64% 58% 72%
Utilities 61% 50% 64% 80% 58% 73%
Autos 52% 40% 41% 51% 49% 54%
Technology &
62% 65% 67% 64% 64% 63%
Communications
Pharmaceuticals 55% 57% 49% 56% 59% 59%
Consumer/Retail 31% 32% 45% 47% 59% 46%
Financial Services 44% 49% 50% 65% 58% 50%
Agribusiness 35% 29% 40% 43% 43% 66%
Average 50% 48% 53% 58% 55% 61%
This is the same trend we noticed in our 2018 survey and as we did then, we also add the provision now that this may be reflective
of a lack of organic investment, but does not rule out companies looking at this space via M&A, bolt-ons and strategic partnerships.
It could also signify a higher degree of urgency by companies to address concerns around their environmental footprint before
considering bigger outlays in fledgling technologies like IoT.
One industry where this trend is prominently reflected in is Agribusiness. Plotting on a radar chart, the divergence between the
areas that respondents said their company is investing most heavily in now and the forces or drivers that will cause the highest level
of disruption (based on previous answers from the same group) reflects that while there is strong alignment on investments around
energy and environmental considerations and expected future disruption, there is divergence in terms of other technologies
expected impact and investments diverted to them.
Agribusiness - Divergence In Current Capex And Expectations Of Future Disruption

% of respondents from Agribusiness sector on the areas of ‘High Investment’ in their company & ‘High Impact’ of disruption in five
years & 30 years by technologies/category
In contrast, the responses from the Construction and Engineering industry show stronger alignment of areas of high investments
currently and the forces that the same group of respondents identified as highly disruptive over five and 30 years.
Construction And Engineering - Aligning Capex With Future Disruptive Forces

% of respondents from Agribusiness sector on the areas of ‘High Investment’ in their company & ‘High Impact’ of disruption in five
years & 30 years by technologies/category
Second only to capex diverted towards energy efficiency enhancements is investments in cybersecurity, which is higher up in the
capex priorities in our 2020 survey compared to 2018, when it was third. This resonates with the importance that a shift to a more
digitally connected economy is also ensuring adequate protection is put in place and the more companies embark on this path, the
higher the need for investments in cybersecurity become. Our assumption is that the pace of adoption of new technologies that
rely on connectivity and big data will be underpinned and determined by the robustness of cybersecurity defenses.
80% of respondents from the Utilities industry said that Cybersecurity was an area of high investment for their respective
companies, by far the highest concentration of responses in this category amongst industries. This may be a reflection that with the
future norm for Utilities in smart meters, smart grids and demand side management, among others, defense against cyberthreats is
paramount. This was followed by 65% of respondents from the Financial Services industry citing cybersecurity as a high investment
area and at 64% from Manufacturing and Technology respectively.
Staying with the cybersecurity theme, we asked our survey participants, irrespective of capex priorities, how well they believed their
industry was prepared to deal with cybersecurity threats. Here the concentration of responses was in the 'Somewhat Prepared'
range, with on average 55% of respondents from all industries indicating some preparedness and 36% indicating that their industry
was highly prepared. This is a shift from our 2018 survey response, when the average response for highly prepared was 65%. Most
likely, the bigger sample we have in this survey provides an answer that better captures the consensus sentiment in the industries,
as well as the fact that over the past two years as connectivity and big data have proliferated the cybersecurity defenses of
industries have struggled to keep up.
Among the respondents in the 2020 survey who said that their industry was highly prepared, 46% from the Technology industry
said they believed their industry was highly prepared, the highest percentage among all industries surveyed, followed by
Construction and Engineering at 43%. 37% of respondents from the Utilities industry said that their industry was well prepared to
deal with cybersecurity concerns.
Question: How Well Is Your Sector Prepared To Deal With Cybersecurity Concerns
% of respondents answering Not Prepared/Somewhat Prepared/ Highly Prepared, By Industry
One of the most surprising results of our survey was how few responses 'Change in Regulations' received as an important factor
driving changes in competitive landscape. Only 1.8% of Tech industry respondents in our survey chose Changing Regulations as the
most impactful factor that will drive change in the Tech sector competitive landscape. In another highly regulated industry, Utilities,
just 4% of respondents selected changing regulations as a driving force behind changes in the competitive landscape. This is
certainly outside our expectations and the sensitivity we typically see across industries on the impact changes in regulations may
have. One way to interpret this result is to consider that a change in regulations will underpin either the need for new technology
and/or force changes to climate related activities, which will ultimately be the ones driving changes in the competitive landscape
through M&A or new entrants to the market.
Question: In Your Opinion, What Is Driving Change In Your Sector's Competitive Landscape?
Percent of respondents who ranked each selection as top choice
Section 3 – Operations
For our final set of questions in the survey we wanted to ascertain what impact three main technologies - IoT, Automation and AI -
will have on an operational level in industries. We asked what the impact would be on six areas: Operational Efficiencies, Cost
Reductions, Communications Improvement, Labour Force Restructuring, Customer Engagement and Additional Revenue Streams.
For this question, there was no clear consensus emerging in industries on which technology will have a greater impact on different
areas of operations, as indicated by no answer in the matrix having an overwhelming response as we saw in other questions. This is
similar to the results we observed in this question in the 2018 survey and which still in our view indicate that will there is a high level
acceptance that these technologies can have a highly disruptive effect on industries, their actual implementation in the day to day
operation of industries remains more nebulous.
The results from all respondents indicate that Automation will be most impactful on: Operational Efficiencies, Cost Reduction and
Labour Force Restructuring, while IoT deployment will have the greatest impact on Communications Improvement, Customer
Engagement and Additional Revenue Streams.
It is noteworthy that AI did not receive the highest concentration of results for any of these selections, which may suggest that while
a technology of growing popularity, overall, on average, the impact it may have on different areas of day to day operations of
companies may still need to be determined considering that the technology is still in its infancy and applications remain limited in
respect to its potential.
The industries where AI had the highest percentage compared to the other two in terms of impact on these areas were Technology,
where for all six areas AI was the highest ranked; Financial Services for Communications, Labour and Revenues; Consumer & Retail
for Efficiencies; Pharmaceuticals for Labour and Revenues; and Construction and Engineering for Customer Engagement and
Revenues.
QUESTION: IN YOUR INDUSTRY, RANK THE IMPACT EACH TECHNOLOGY WILL HAVE ON THE FOLLOWING. PERCENT OF
RESPONDENTS RANKING EACH SELECTION AS 'HIGH IMPACT'*
IoT Automation AI
Operational Efficiencies 57% 64% 52%
Cost Reduction 59% 62% 53%
Communications Improvement 68% 57% 54%
Labour Force Restructuring 57% 65% 56%
Customer Engagement
66% 57% 57%
Enhancement
Additional Revenue Streams 62% 61% 60%
Note: *There were no restrictions on our respondents ranking impact levels, They could rank each section as High Impact for all technologies if they wanted, or any other
combination. Source: Fitch Solutions - Megatrends Survey 2020
Section 4 – Demographics and Methodology
We surveyed 1031 senior decision makers from 12 industries across five countries.
We aimed for as equal a distribution as possible between the respondents from the 12 industries. In the case of Chemicals and
Mining, because our sample was not as extensive as other industries, once again we opted to combine their answers with O&G
under the umbrella ‘Extractive Industries’ after we found a high degree of correlation between the responses from respondents
from the three industries. Where there is a notable differentiation, we note it in our relevant chapter survey analysis.
Respondents By Industry Share

Total = 1031
Respondents By Country
For the groupings: Emerging Markets: India, South Africa; Developed Markets: US, UK, Australia
Technology, Media, Telecommunications (TMT)

Technology: Making Sense Of Data
Key View: By 2050, every major company will be a tech company, and will have undertaken a process of digital transformation.
Combing different technologies - including AI, the IoT and automation - will be crucial, with the goal being to understand and make
sense of the amount of data being created. Securing that data will also be paramount as without it, there will be a lack of trust to
adopt these new technologies. Despite the advances in technology, the human will still have an important role to play in the future,
and we see quantum computing as having the greatest disruption potential of all technologies so far. We have shifted our view on
the viability of quantum computing since our last edition of Industry Megatrends in 2018 due to the recent developments in the
segment, which makes us think that it could be deployed within the next three decades.
TECHNOLOGY MEGRATRENDS TO 2050: WINNERS AND LOSERS

Megatrends Winners Losers
Interdependence Of Industry 4.0 Companies with a long-term strategy about the Smaller companies without the means to tackle
benefits of technology advantage of digitalisation
Cybersecurity Underpinning Security companies, and organisations willing to Organisations unable or unwilling to protect
Trust spend on security their networks
Artificial General Intelligence Not Humans, who will still have an important role to play; Backers of singularity, companies looking for full
Happening Just Yet companies investing in human skills and talent and complete automation of all processes
Quantum Computing With The Companies and governments investing now in the Companies and governments unable to invest
Greatest Disruption Potential technology in the technology
Source: Fitch Solutions
Interdependence Of Industry 4.0
Technology On Top
In Your Opinion, What Is Driving Change In Your Industry’s Competitive Landscape?

Our Megatrends 2020 survey highlights that respondents believe that technology and innovation are going to be the most
important drivers for change to their industries’ competitive landscape over the next few years, ahead of the shift to a low carbon
economy. We believe that to survive, every major national and international company will need to undertake a
process of digital transformation. We have discussed in previous editions the importance of the Internet of Things (IoT) and big
data, and while data is still the crucial element driving that transformation, we want to highlight the entire ecosystem, which will
include technologies such as the IoT, artificial intelligence (AI), blockchain, automation, quantum computing, cloud computing and
edge computing; the need for those to be combined, convergent and interdependent in order to take full advantage of that
transformation; and the move towards an industrial internet. The graphic below highlights the relationship.
Data At The Centre Of Digital Transformation

Industry 4.0 Infographic
• Data is the central element because it will drive all others. The amount of data created will continue to grow exponentially, as
more and more devices (in the billions) are connected, and how to take advantage of that data will be the most important thing
for any company to master;
• Devices are where the data will originate because, despite the importance of software, the economy will not be fully
dematerialised. Whether it is a sensor in a factory, a robot or a connected car, a physical product will still retain a crucial role in
being that first phase;
• Connectivity is also crucial, even as it becomes commoditised. Without connectivity, there are no connected objects, and it can
be fixed or mobile, licensed or unlicensed, dependent on the use case. Speed and latency will be important in deciding which
form to choose;
• Storage has moved from on-premise to cloud (in the future, to the edge) and companies are likely to be using a combination of
the three. Cloud will still be very important, and we expect most of the non-sensitive data to be stored there and analysed when
required, but the edge will continue to grow in importance, with decisions required immediately (autonomous vehicles’ ability to
interact with and respond to their environment is the most obvious example);
• Analytics are where the most value can be extracted, and where companies will look to gain a competitive advantage.
Collecting data is only relevant if it can be processed the right way, and analytics, whether through AI or quantum computing in
the future, will enable the most pertinent insights for any business;
• Security is a separate megatrend, but the risks of an attack increases with more devices connected. Authentication is an
important trend, especially for data shared between different companies, and this is where blockchain can have the most
influence;
• Service is the range of applications the different technologies will enable, as the use of data enables companies to move from
selling a one-off product to selling a service, where they can cater and personalise their offer to the end-user, or be able to
continually track their supply chain from conception to production.
Because the industrial internet will be so complex, we do not believe there will be one single winner, as Google has been with
search, for instance. The ecosystem will require partnerships and collaboration between the different elements we have
highlighted above, with the need for interoperability and global standards another key driver to convince businesses to invest. Our
survey highlights that all industries expect AI, IoT and Automation to have major impacts across their different business streams, and
this is further confirmation that technology will go through three main stages of adoption going forward:
1. The technology is too new, too difficult and too expensive;

2. We can save money and cut costs with the technology;
3. We can make money and develop a new business model with the technology.
Companies Understand The Need For Technology, Less So What It Can Do

In Your Industry, Rank Whether The Following Technologies Will Have A Significant Impact On The Following
Cybersecurity Underpinning Trust
Cybersecurity, and the risks associated with it, will only increase in importance as more and more devices are connected.
Our survey highlights this is a clear area of focus across all industries.
Companies are investing into cybersecurity, more than they do with any other technologies. This is partly because cybersecurity has
the most tangible benefit, and the level of technology adoption is still very low across the board (we are still very much in stage 1, as
highlighted above). Moreover, there is greater regulatory scrutiny and requirements when it comes to securing the network.
Shareholders and customers will also want reassurance that cybersecurity is being properly addressed, and this will only become
more important.
Investing In Cybersecurity
In Which Of These Areas Is Your Company Investing In Most Heavily Now?
Businesses have also become more realistic about cybersecurity risks. Whereas, in our 2018 Megatrends Survey, most respondents
believed their industries were well prepared to deal with cybersecurity risks, 55% now think they are only somewhat prepared for
the same risks, compared to 36% who still think they are well prepared. This is because businesses have realised hackers only need
to get it right only once, whereas businesses need to get it right all the time.
Attitudes Have Changed Since 2018

Is Your Industry Well Prepared To Deal With Cybersecurity Concerns?, % of respondents answering 'Well Prepared'
Quantum computing will have an influence on the development of cybersecurity, because it can both break the current level of
cryptography, but it can also create an ultra-secure future. The rise of edge computing will also have an impact, as the intelligence
on the actual device means less need for it to transferred somewhere else. It is important for companies to have trust in their
systems, even if the most complete readiness does not render any system full proof. Companies have to be aware of the risks, and
take the necessary steps to mitigate them, as:
• Anything connected can be hacked

• Nothing is ever fully secure
• A system is only as strong as its weakest link
Artificial General Intelligence Not Happening Just Yet
We want to focus on AI because it is going to be the most widely used technology of the century, but it is often the most
misunderstood. Our survey shows this, as cybersecurity, automation or IoT are seen as the most important trends of the coming
years, even in 2050, but AI sees the biggest jump between 2025 and 2050. We specifically want to discuss Artificial General
Intelligence (AGI), which is where the technology takes over and the humans play a very limited role, if any. We do not subscribe
to that view and we do not think humans will be left with nothing to do.
AI With The Biggest Jump Between 2025 And 2050

Please Rate The Potential Disruption To Your Industry’s Current Business Model From The Following
AI is still not very intelligent in many aspects, and it will not reach human-level capabilities anytime soon. There needs to be a
distinction between consciousness and competence. While AI is very competent at doing very specific set of tasks, usually better
than humans, it remains a very narrow specialisation compared to human-like intelligence. This is why we prefer the term
Augmented Intelligence rather than AI, as we believe humans will work with machines instead of a binary choice between humans
and machines. However, we are aware of the disruption that change towards more technology might bring, especially with regards
to job creation and destruction. We are optimistic than more jobs will be created than destroyed, as with other industrial revolutions,
but the pace of that transition will have an impact. Ongoing education and lifelong training will be crucial, as we move from pure
knowledge to being capable of learning.
AI will be a geopolitical battle, with the US and China at the forefront, and Europe attempting to catch up, but we expect a key trend
going forward will be about sustainability, one of our other key megatrends. Data consumes a lot of energy, and we expect the
debate will be on how much data is required to run algorithms. There are two schools of thought, with one arguing that only a
certain amount of data is required to determine the necessary outcomes, as the law of diminishing returns apply. The other argues
that having more data is crucial, as it leads to better results, which would give China an edge in the global battle as it has access to
the most data. DeepMind, a subsidiary of Alphabet, has developed AlphaGo Zero, which was programmed to create its own data
and learn from it, instead of requiring a large data set at the onset, whereas there have been developments in what is known as
small data, and zero-shot learning. We expect future applications will use all possible models, depending on the required outcomes,
but with the need to use energy efficiently as a key component.
Quantum Computing With The Greatest Disruption Potential
Quantum computing remains at a very early stage of development, even if considerable investment has been made into developing
the technology recently. Google has said it has achieved quantum supremacy, even if IBM objected, and many other companies
have also put a greater focus on the technology. It has also received government backing, with the US, China, the UK, France, India,
Russia and Israel all announcing strategies in the last few years. This means that quantum computing is closer to reality than it
has ever been, with some expectations it might happen within the next ten years. Quantum computing is a difficult technology to
grasp, but we believe it can have the most impact if it happens because of the greatly increased number of calculations it could do.
Our definition is as follows:
• It differs from normal computing because it uses qubits instead of bits, meaning it can be both 0 and 1 (or on and off) at the
same time;
• Entanglement is known to be the exchange of quantum information between two particles at a distance;
• Superposition is known to be the uncertainty of a particle (or particles) being in several states at once;
• It gives a range of answers, rather than a unique one, which can be applied to other technologies, such as AI or the cloud.
The best analogy would be to say than moving from current computing models to quantum will be similar from moving from the
horse to the car in terms of transportation and mobility, and while we do not know exactly what exactly it will - and can - do, there
are some use cases we can already highlight:
• Autos giants are investing to improve battery chemistry, and the components within it;
• Improving chemistry also has an impact for pharma, such as drug synthesis;
• As smart cities because more sophisticated, with multiple issues arising at the same time, quantum can help provide solutions to
these problems in real-time (traffic management).
Quantum computing will have an impact on security, which we have highlighted above, but it can also become an important
technology when it comes to sustainability, and for two reasons. The first is that a quantum computer uses less power than a
supercomputer, and it will allow for the same outcomes using less energy. The second is that quantum computing will drive and
impact major research on a range of materials, such as their chemical make-up, which can lead to physical things requiring less
energy than currently. This could give the technology a major advantage in terms of adoption.
TMT: Move To Digital-First Business Models Driven By Tech Innovation

Key View
• Digital transformation will be enabled by the leading technology and communications companies over the next 30 years, but not
all of them will still exist by 2050.
• Business models will become more service-first in nature, meaning that supporting automation, smart devices, AI and the
sharing economy will force industry stakeholders to reinvent themselves.
• New business paradigms will also require new regulations, and this brings new risks as technology often evolves faster than rules
can be made to govern its use.
• The tech industry will also have to move to a more sustainable footing; maintaining client and shareholder favour will be crucial.
TMT MEGATRENDS TO 2050: WINNERS AND LOSERS

Megatrend Winners Losers
Smaller or state-owned telcos unable to

Service-Led Business Models (‘Operator-as-a- Large content and service-centric media
abandon infrastructure-heavy business
Service’) and telecoms companies.
models.
Organisations unable or unwilling to invest

Data Management & Security Large Internet-centric companies.
in protection.
Companies willing to trust third-party

Companies unwilling to outsource control of
Remote Computing compute providers or those who are
data management.
providers themselves.
Service providers unable to comply with

Consumers (inc. enterprises and
new rules; organisations operating in
Digital-First Regulation governments) who will benefit from
markets where new regulations are too rigid
increased security and privacy.
or onerous.
Organisations unable to invest in new low-

Organisations with scale, time and resources
carbon technology or active in markets
Low Carbon Policies to invest in energy efficient solutions and
where environmental impact reduction
new emission-curbing technologies.
targets are unrealistic.
As technology drives or at least underpins most of the megatrends that will become apparent across the key industries we survey,
the Telecoms, Media and Technology (TMT) sector has a considerable head-start in terms of preparedness. Certainly, tech sector
respondents to our Megatrends Survey 2020 were notably more aware than their peers in other industries of the extent to which
new technology can impact existing business models.
Even so, we believe that transformation will not be easily achieved as the most influential industry stakeholders are likely to remain
wedded to business models that are already less relevant and not easily re-defined. New players will most likely enter the field,
augmenting and widening the competitive landscape, diluting market power currently held by just a few multi-disciplined
companies.
Tech Respondents Grappling With Multiple Challenges

Percentage Of Tech Industry Respondents Identifying ‘High Impact’ To Business Models By Factor
Few tech industry respondents believe there will be a ‘low’ or ‘moderate’ impact from new technology on existing business models
over five- and 30-year periods. Most assigned high-impact scores, with the IoT and smart devices considered to be the most
impactful in the short term, and artificial intelligence (AI) attracting greater scrutiny in the longer-term scenarios. In both instances,
the advent of greater automation and robotics is seen as having a high impact, too.
Increasingly, AI and robotics are expected to have a more tangible and therefore profound impact on human relations with
technology, with considerable advances likely to be made over the next 30 years. While we believe that AI will remain not much
smarter than it is at present, overly-rapid moves to apply it to autonomous devices, such as vehicles and medical robots, will require
more complex legislation to govern its use and misuse.
The prospect of, or need for, changing regulations and/or public policy shifts secured notably high-impact scores amongst tech
sector respondents, well ahead of participants from almost all other industries who are maybe inured to or dependent upon slow
developments in regulation to insulate themselves from disruption to the competitive landscape. Tech companies firmly believe
that they are only somewhat prepared to adapt to changing regulations and more so in the case of changing consumer
preferences, again highlighting the issue of companies being wedded to outdated business models.
Tech Sector Switches To Low-Carbon Footing, But Tech Innovation Will Lead
Percentage of Tech Respondents Identifying Impact Of External Issues On Competitive Landscape
A Data-Driven Economy: Some Context
The ‘always-on’ internet economy is generating massive amounts of data as more devices become connected and those devices
become more sophisticated and multi-functional. Computing, communicating and entertainment are the main generators of data
at present, but as more autonomous devices - including humans, to a certain extent - are connected to the internet, there will be
cycles of exponential growth in data creation.
Globally, devices and connections to the internet are growing faster than both the population and the number of human internet
users, at a compound annual growth rate (CAGR) of 10% over the 2019-2023 period according to Cisco Systems. According to
Fitch Solutions forecasts, there will be 65.5bn connected devices in use by 2050, up from 20.2bn at the end of 2020.
Driving that growth will be machine-based connections such as smart home systems, robots, connected cars and smart city grids,
as well as IoT devices such as remote livestock and crop monitors. We believe that such connections will soon outnumber
smartphones and mobile computers and become the principal form of internet device. Globally, machine connections will number
44.8bn by 2050.
IoT Devices To Proliferate

Connected Devices By Type, mn
f = forecast. Source: Fitch Solutions
Traditionally, the volume of traffic generated by machine-based connections has been many times smaller than that created by
human-operated devices (smartphones, PCs, TVs); however, it is growing faster than the number of connections due to the
increasing sophistication of machines and their widening use in an ever-expanding ecosystem of applications that require greater
bandwidth and lower latency.
Telecoms operators are rapidly losing what little ability they have to both effectively monetise use of services via these connections.
The concept of the telco as a ‘dumb pipe’ - a conduit for third parties’ content and services - is not a new one and has been
vigorously resisted as telcos have sought to become more diversified through acquiring specialised companies and deploying new
technologies. Such strategies have rarely worked as telcos use very rigid, heavily-regulated business models that do not allow for
innovation and agility. This becomes an inhibitor of growth in an increasingly service-led industry.
Service-Led Business Models
In our view, the Telecoms sector is in urgent need of a paradigm-shift away from an infrastructure-led approach to serving end
users, towards a highly service-orientated business model. We have long referred to the end-result as ‘Operator-as-a-Service’:
today’s public telecommunications operators will gradually reinvent themselves as pure service providers, fully separate from
physical carriage and delivery networks.
The process has been underway for some time: in order to manage spiralling costs of building out successive new generations of
mobile and wireline broadband infrastructure, operators initially collaborated and subsequently created financially independent
businesses to handle network build-out. Selling off passive infrastructure networks (most often towers and supporting connectivity,
such as fibre links) represents the latest stage in this process - as just two examples, Vodafone and Orange will be moving very
rapidly down this path in 2020 - while others, such as Spain’s Telefonica, are going further by offloading entire operators in
challenging markets that they may yet return to as ‘virtual’ digital-only service brands.
Two traditional operators have so far fully embraced this new paradigm: O2 in the Czech Republic and Spark in New Zealand. We
believe more will follow, but there needs to be greater financial and regulatory incentive for them to commit as companies’ debt
portfolios and workers’ jobs are inextricably linked to infrastructure assets, for which there are relatively few buyers and cannot
simply be turned off.
Operators such as VEON (Russia) and Turkcell (Turkey) have sought to stave off the inevitable by reinventing themselves as digital
service-first players, unveiling a raft of productivity, utility, workflow and infotainment services to deepen their relationship with, and
extract more income from, end-users. There is, however, a limit to these deepening strategies, as competition from network-
agnostic third parties is driving prices down and undermining operators' investments in services.
Therefore, we believe that a full separation of digital infrastructure and digital service will become, by commercial
necessity, the new industry paradigm and will have remodelled the TMT competitive landscape by 2050.
Data Management & Security
Ubiquitous connectivity also poses a heightened security risk to the connected planet. As more mass-market devices are
connected to the internet - and, therefore, to the IoT - vendors will increasingly compete on cost. The temptation to skimp on
security as a means of cutting costs and raising profit margins means that many devices going online over the forthcoming decades
may have inadequate security. At the same time, as older devices remain connected to the IoT, so their original security systems will
increasingly become ineffective, exposing users and their entire value/production chains to exploitation.
More Machines, More Security Needed

Percentage of Tech Respondents Identifying Near-Term Areas Of Investment Focus
Advances in device technology must be accompanied by advances in digital security, and considerable investment in improved
biometrics and data storage will be needed on an ongoing basis. Telecoms companies have progressively moved to add IT services
and solutions to their internal skillsets, and some of the more progressive players - such as Deutsche Telekom via T-Systems -
have been able to commercialise these businesses. Similarly, IT companies - particularly those in the data centres market - are
evolving in tandem with their counterparts in the telco space. This trend will also continue through to 2050 and beyond.
We expect most of the new technologies mentioned above to be fully ready by 2050, and to have attained critical mass in terms of
usage. However, this will only be the case if consumers and users can trust the technology, and therefore must want to use it. High-
profile hacks, the growing prevalence of ransomware, and even critical flaws in hardware represent just a few of the vulnerabilities, as
more and more data is tracked, collected and analysed. Issues of privacy and regulatory will necessarily mean the involvement of
regulation, with a balance required to ensure technology is safe and trustworthy, while giving enough room for entrepreneurs to
innovate.
Remote Computing
Our over-arching view of technology as a driver/disrupter of business models through to 2050 dwells on the impact of key discrete
technologies such as cybersecurity, AI and quantum computing. All three will certainly have an impact on the tech sector as all
industry stakeholders will need to make use of them to support their end-users’ digital transformation strategies.
However, for the TMT sector specifically, we want to highlight the importance of remote computing because user data, analysis of
that data and using insights from that analysis to create more bespoke (and therefore more valuable) services will be crucial to the
industry players of the future.
Cloud computing is often viewed as the core application powered by the IoT. Basic cloud services such as Gmail and iTunes have
been available for more than a decade, enabling end-users to access digital content from anywhere in the world, regardless of their
physical 'home'. The proliferation of connected devices means that consumers are creating and acquiring digital content across
multiple platforms and the way in which they use and share that content itself creates an extensive data footprint. 'Big Data'
applications - quantifying, interpreting and responding to individuals', groups', companies' and governments' activities on a real-time
basis - will depend heavily on the proliferation of cloud computing services and infrastructure.
Increasingly, the ability to analyse the most time-sensitive pieces of data, where speed and latency become key issues, will drive the
development of remote computing. An example can be cars, where an autonomous vehicle must know it needs to stop before it
hits an unexpected object or person in its path. As such, there have been developments in moving the analytics to the 'edge', which
would allow for the analysis to take place in real-time, within the device itself. Analytics at the edge will be applied within individual
devices, but the cloud allows for far greater scale, and will therefore have a role in disseminating all the analysis and knowledge
collected.
North America And Asia Vie For Cloud Dominance

Cloud Traffic Growth By Region, EB (2015-2035)
Note: EB = exabyte; 1EB = equivalent content of 250mn DVDs. f = forecast. Source: Fitch Solutions
Telcos that engage in IoT service provision will become heavily dependent on third parties’ cloud solutions, because they lack the
scale and agility to profitably perform these tasks themselves. A clear trend in recent years has been for telcos to sell off their data
centres to specialised providers which, in turn, turn to global cloud solutions vendors such as Amazon Web Services (AWS) and
Google to provide the computing part of the equation.
Telcos possibly have a greater role to play in edge computing, however, particularly those that either choose to become
infrastructure-focused players (thus, building and operating micro data centres serving street furniture in the case of smart city
grids, to use the connected cars scenario) or where they act as service providers on large campuses run by major enterprises. In the
telecoms space, we believe tower companies have the most to benefit from the emergence of edge computing, as the majority of
edge compute instances will involve wirelessly-connected devices that will continuously switch from one tower to another as they
change location. Micro data centres built alongside towers can share power supplies, as well as onward communication to larger
cloud facilities via the towers’ fibre backhaul cables.
Digital-First Regulation
Globally, development of smarter infrastructures using disruptive technology will be driven by corporates, in turn driven by their own
agendas. This will not always mean that such activities will be undertaken with wider societal and economic considerations in mind.
Over the next three decades, we expect to see greater government focus on developing regulatory frameworks which will govern
smart infrastructures. Key issues, which will increasingly be brought to the fore, will centre on data collection and management as
well as privacy.
New and emerging technologies continue to advance at a faster pace than regulation. On one hand, this relative freedom has
provided a supportive environment for players to innovate and develop. However, looking forward this will increasingly become a
hindrance for global tech players. We expect the challenges of the lack of uniformity in regulation of key technologies - with
regulation largely playing out at national level - will weigh heavily on players that are becoming increasingly internationally focused,
necessitating compliance across a number of jurisdictions. Regulators will also continue to seek ways to rein-in Big Tech, as well as
ensuring that the rules have global application, as evidenced by Google’s efforts to limit the European Court of Justice’s ruling
around the deletion of illegal content to the EU only.
Digital services taxation will also remain a focus in 2020 as authorities will continue to grapple with methods to ensure a fair taxation
system, which includes the growing number of digital players. As global regulators move towards a more harmonious approach,
they will look to expand on the G7’s consensus on taxing digital companies, notwithstanding their physical presence being in
another member country, to achieve the approval of the G20 and work towards developing a roadmap for taxation.
In terms of digital financial services, we believe fintech players will face better opportunities to scale and innovate in markets which
have prioritised the establishment of supportive regulatory environments, while markets characterised by relatively inflexible
regulation will see weaker growth. We also expect Facebook’s plans to launch its cryptocurrency Libra to face heavy opposition.
Key concerns will be around risks Libra poses to traditional currencies, the risk of abuse of its systems, as well as Facebook’s
trustworthiness following a number of highly publicised controversies.
Low-Carbon Policies
In our survey, climate change and environmental consideration issues were linked to questions considering the 30-year outlook. For
64% of respondents in the technology and communications field, climate change is seen as having a high impact on future
business model; just 7% considered the issue to have no long-term impact. Respondents from most other industry groups also
considered climate change to be highly disruptive, ahead of technological innovations such as AI, automation and the IoT.
The proportion of tech respondents citing climate change as their main concern was lower than in most other sectors, and we
believe that these respondents were taking into account the tech sector’s robust progress in climate change mitigation strategies in
recent years; other industries are notably late in taking action.
Tech Sector Taking Action On Climate Change, But Other Industries Also Forward-Looking
Percentage Of Respondents Identifying Low Carbon Economic Policies As Driving Competitive Landscape Changes
2019 was a watershed year with regards to industries’ acceptance of their environmental impact and efforts to take remedial action.
TMT companies, and those they serve, are among the biggest consumers of natural or scarce resources (power, land, human
productivity/creativity) and they are very sensitive to any changes in how they are perceived and judged in this context.
With growing numbers of global and regional technology companies now committing to very ambitious carbon-reduction
initiatives, ranging from five to 15 years, it is clear that this is a trend that will play a key role in reshaping the competitive landscape
through to 2050.
Digital services are powered by vast numbers of large computers, all interlinked by a global network of cables, satellites and wireless
connections and data are processed in huge computing warehouses, called data centres. All of these need and consume enormous
amounts of power, a very high proportion of which comes from fossil fuels or their derivatives.
Popular media, e-commerce and information platforms (such as Netflix, Amazon and Google) depend on high non-renewable
power consumption and few consumers, if any, are cognisant of this fact. Fewer still are prepared to stop using these platforms
unless a shift to renewable power is implemented. Yet, tech companies - and the data centre operators on which they rely - are
making efforts to use power in a more sustainable fashion, and numerous power supply agreements have been struck with
renewable energy companies by tech giants such as Apple and Facebook.
In January 2020, Microsoft announced plans to become ‘carbon negative’ by 2030. The company already claims to have been
carbon-neutral for more than a decade, but this is based through emission offsetting initiatives rather than direct reduction in its
own energy-intensive activities. Perhaps recognising that offsetting could become brand-damaging in the future, Microsoft is now
turning to carbon capture as well as carbon-scrubbing ‘cleaning’ technologies to achieve its highly ambitious goals.
In the highly competitive technology space, where keeping consumers and shareholders onside is now a core business imperative,
we expect many of Microsoft’s peers and competitors to aim to become carbon-negative themselves, although a high proportion
will likely opt to wait for a few years to assess the efficacy of the new technologies Microsoft plans to use, including some that have
not yet been invented.
Pharmaceuticals, Healthcare & Medical Devices

Pharmaceuticals & Healthcare: Treatment Personalisation To Transform
Healthcare Sector
Key View: Over the coming decades, consumer-driven initiatives will have reformed healthcare systems around the world to
provide real-time, focused and more personalised medicines and healthcare services. As patients put a premium on convenience
and the ability to determine their own medical care, populations grow and age, disease prevalence increases and governments
focus on cost-effectiveness - healthcare sectors will be forced to be more proactive, providing services that aid the holistic
prevention and management of disease.
PHARMACEUTICALS & HEALTHCARE MEGATRENDS TO 2050: WINNERS AND LOSERS
Personalised Diagnosis To Shift Treatment Landscape Innovative drugmakers Generic drugmakers, public
IT service providers health providers
Telecoms companies
E-Health companies
Sports brands
DNA testing companies
Application developers
Infrastructure companies
Insurance companies
Medical device companies
Big-data specialists
Personalised healthcare networks
Targeted Therapies Will Drive Value-Based Care Innovative drugmakers Generic drugmakers
DNA testing companies Small, niche drugmakers
Personalised healthcare networks
Personalised Healthcare - Health Coaches And Home-Based Care IT service providers Public health providers
Medical device companies
Food and drink companies
Infrastructure companies
Healthcare is already evolving towards a system of predictive, preventive and precision care, and the generation of health data is
growing through genomic testing, connected healthcare and health wearables. The digitisation of many healthcare aspects is
leading towards a highly personalised treatment landscape. It is our view that by 2050, advances in technology, a global focus on
improved healthcare efficiency and increasing patient participation in the healthcare decision-making process will result in greater
healthcare personalisation. Individual-specific disease diagnoses and personalised, unique healthcare regimens will increasingly
become the standard practice of care in health sectors globally. In the field of oncology, the impact of personalised healthcare is
particularly evident: targeted treatments are helping cancer patients live longer, healthier and more productive lives.
App-based devices plus wearable monitors will further enable patients to have greater input and control over their healthcare.
Ultimately, healthcare will be led by the consumer, followed by healthcare professionals, as opposed to government mandates or
industry initiatives. As wearables become a lifestyle necessity and self-monitoring the norm, big data will be more ubiquitous, with
the aim of driving more disease prevention through better management of one’s personal health risks. Big data analytics and
artificial intelligence (AI) will leverage large collections of information to provide more powerful insights that will then help physicians
and patients better target health goals and measure progress. Advancements in precision medicine will also allow for more
personalised intervention when diseases do arise.
The results of our Megatrends survey also indicate that AI and big data will be the most impactful technology and megatrend across
the pharmaceutical industry over a thirty-year horizon. On average, across all the respondents, 72% believe that IoT applications will
be highly disruptive to their sector's business models over the next five years and this rises to 80% when asked to think of disruptive
forces over a thirty year timeframe. When asked to indicate their investments across six technologies, the top two included
personalisation of services (59%) and AI, big data, machine learning technologies for healthcare (57%).
Question: In Which Of These Areas Is Your Company Investing In Most Heavily Now
% Of Respondents From Pharmaceuticals Who Answered 'High Investment', by technology/trend
Personalised Diagnosis To Shift Treatment Landscape
Since the completion of the Human Genome Project in 2003, there has been an explosion in the availability of genetic information.
This will provide new avenues for advances in pharmaceuticals and healthcare and it is our view that, by 2050, genetic risk
assessments will be integrated into many aspects of medical care. An individual's genetic risk refers to the probability of the person
carrying a specific disease-associated mutation, or of being affected with a specific genetic disorder. Physicians will increasingly use
genetic tests to assess the risk of patients developing certain types of cancer, cardiovascular conditions and dementia. The data
provided by genetic risk assessments will allow for each individual to follow a tailor-made healthcare plan that promotes healthy
behaviours and early intervention for specific diseases. Highlighting the already-advanced field of genetic testing in a medical
setting, a test developed by Roche and analysed by California-based Ariosa Diagnostics is able to analyse a baby’s cell-free DNA in
the maternal blood and give a strong indication of whether the foetus is at high or low risk of having trisomy 21 (Down syndrome),
trisomy 18 (Edwards syndrome) or trisomy 13 (Patau syndrome) - a significant advancement from invasive tests that required
needle insertion into the womb a few years ago.
Moreover, direct-to-consumer (DTC) genetic testing will grow in popularity as consumers become increasingly aware of their health.
DTC genetic testing will place a wealth of information in the hands of an individual. With knowledge about potential diseases and
genetic effects on drug metabolism, more power will be placed with the consumer in choosing treatments. The rise in at-home
genetic testing could also lead to an increased number of people seeking tests at healthcare facilities at great expense. The results
of our Megatrends survey also indicate that respondents believe there will be a rise in personalised DNA genome sequencing
especially in areas such as personalising nutrition programs based on a person's DNA; determining the individual nutritional
requirements based on the genetic makeup of the person (personalised diet) as well as the association between diet and chronic
diseases.
Improved technology will enable companies to move away from purely ancestral genetic testing to supply genetic risk factors and
health status. While this is causing controversies with the use of the data generated and the interpretation of results, which could
lead to inappropriate treatment decisions, the demand for affordable, DTC genetic testing is driving the growth of companies such
as 23andMe, among others. The data provided by genetic risk assessments will allow for each individual to follow a tailor-made
healthcare plan that promotes healthy behaviours and early intervention for specific diseases.
In targeting the DTC market with genetic tests, companies will be able to build large genetic databases. These will then provide the
basis for potential partnerships with pharmaceutical companies, highlighting the value of the data acquired. For instance, 23andMe
already has partnerships with multiple pharmaceutical companies - including Roche and Pfizer - for access to the genetic data
pooled from the DTC tests. These partnerships primarily concern diseases that are currently underserved, such as neurological
disorders and autoimmune diseases.
The transformation in the awareness and expediency of patient conditions will impact the health insurance sector in major ways.
Insurers could benefit from access to genetic information by being able to tailor insurance plans for individuals. In the US, federal
law, based on the Genetic Information Nondiscrimination Act (GINA), does not allow health insurers to base these decisions on the
results of genetic information. However, this is likely to change in future, as insurers will argue the use of genetic information to state
that healthier people should pay lower premiums and that the data can be used to predict pay-out rates and better manage funds.
Currently, GINA also prohibits the use of genetic information in workplace employment decisions for non-governmental
organisations. However, this will also likely change in future as organisations strive for human-resource efficiency.
The boom in genetic testing to 2050 will primarily be a developed market (DM) phenomenon owing to technological
advancements, the rising awareness of genetic diseases and the high quality of infrastructure and personnel to support the genetic
testing industry in these markets. While emerging economies hold good potential for the growth of the genetic-testing market due
to large patient pools, the high cost of genetic testing, coupled with unclear or no reimbursement structures, a lack of skilled
personnel and a lack of regulations, will restrain the growth of genetic testing in these markets to 2050. In emerging economies, we
believe small, affluent pockets of populations will support the increase in genetic testing in a private healthcare environment.
Targeted Therapies Will Drive Value-Based Care
Rising pressures to decrease healthcare costs globally, the emergence of value-based reimbursement models and healthcare
digitisation trends will transition medication models from one-size-fits-all to stratified and outcome-based targeted therapies. With
non-communicable diseases being the leading cause of death and disability worldwide, and projected to grow in both high- and
low-income countries, precision medicine offers a novel approach to the prevention, management and treatment of these
conditions. Genomic data are gaining the attention of pharmaceutical firms, as can be seen through partnerships to secure human
genome data to enhance drug-development capabilities. As we move towards the middle of the century, the use of information
about a person's genes to prevent, diagnose and treat a disease will be customary, as existing technologies in genetic testing
proliferate and advance. The availability of genetic data - particularly the large, consented data sets collected by consumer DNA-
testing companies - will change the way in which drug companies conduct pharmaceutical R&D.
The one-size-fits-all model of healthcare is no longer relevant, as treatment only works for a number of patients. Moving on from the
blockbuster era, precision medicines will enable drugmakers and prescribers to target treatments specifically to patient
subpopulations who are more likely to respond to a particular treatment (pharmacogenomics). Medicines will not be unique to a
single patient, but rather the concept of personalised medicines is the ability to classify individuals into subpopulations that differ in
their susceptibility to a particular disease or their response to a specific treatment. Preventive or therapeutic interventions can then
be administered to those who will benefit, sparing the cost and side effects for those who will not. While targeted treatments have
been associated with high costs, the implications to the wider healthcare paradigm - such as reduced side effects, better treatment
outcomes and less time to find the correct treatment - may lead to lower costs in other healthcare areas. Genetic tests will become
a more common practice in the prescription process, particularly in the private healthcare sector. For instance, tests that show
whether a person's cancer is likely to respond to a certain treatment based on its gene changes or tests that show whether a
person's body can process certain medicines normally will allow for the more cost-effective prescribing of medicines.
Smaller patient populations are a fundamental roadblock to the development of personalised medicines, but we believe this will be
overcome by advanced cost-effectiveness studies in support of regulatory submissions. Medicines that offer fewer side-effects and
target illnesses more efficiently are increasingly subject to pharmacoeconomic analysis, especially as ageing populations and
chronic disease burdens command high healthcare budgets. This will enable drugmakers to command much higher prices for more
personalised medicines, thus pushing for the R&D of targeted medicines.
Additionally, we note that with the increased focus towards precision medicines, the era of late-stage failure leading to a drug being
shelved will become unlikely. If a drug has shown some promise at some point in development, it is likely that there will be a patient
population that will benefit from it. Even if the final target population is smaller than originally intended, a drug will still be able to
recuperate some development costs and could command a higher price due to the limited market.
People-Powered Research
The Number Of People It Takes To Power Meaningful Genetic Research Studies
Source: 23andMe, Fitch Solutions
Personalised Healthcare – Health Coaches And Home-Based Care
In the coming decades, we anticipate that doctor's appointments and waiting at GP surgeries will dissipate. Doctor's roles will have
transitioned to that of health coaches with a more person-centred approach, guiding people to make healthy choices, interpreting
genetic data and other statistical and non-statistical information to provide patients with insight on how they can best use
healthcare services to prevent and manage conditions. Due to the complexity of treatment regimes, prescribing decisions will be
made by algorithms and influenced by payer budgets.
The use of connected medical devices, supported by big data analytics, will change the existing paradigms of healthcare.
Connectivity and the telecare industry will be a crucial component in facilitating relationships. Individuals will interact with health
coaches, in real-time, using devices and communication technology. The use of communication technology for the provision of
health monitoring will become a global commercial opportunity, with investment returns available in both EMs and DMs. Watches,
phones and other technologically advanced devices will allow individuals to monitor their health on a continuous basis while also
providing health coaches with remote-monitoring capabilities. If patient data deviate from the reference range, health coaches can
provide rapid intervention to modify prescriptions and patient behaviour.
The cost of managing long-term conditions is high, and the key advantage of the use of non-hospital based devices and
communication technology to provide care is the reduction in healthcare delivery costs over the long term. Outpatient care uses
technology to provide medical care remotely, enabling doctors to monitor patients' health and equip them with devices to better
manage conditions at home. Moreover, chronically ill and older patients can be treated for longer at home rather than in hospitals
or care homes, thus relieving the burden on healthcare services. Infrastructure (including homes and offices) will become part of an
interconnected network, eliminating the traditional visits to a GP to obtain a diagnosis. Technology-enabled home care will support
health systems as they attempt to manage increasing demands placed on their systems, which coincide with cost-containment
efforts. Sensors will link to additional appliances and applications, tailoring and guiding workouts at the gym (prompting us to
include more cardiovascular exercise if we have been more sedentary than normal), tailoring supermarket shopping choices
(prompting people to choose products based on their blood sugar and cholesterol levels). Mirrors will be able to detect changes in
skin conditions alerting individuals and health coaches to potential cancers or infectious diseases, while toilets will be able to assess
urine and stool samples alerting individuals and health coaches to hormone imbalances or digestive issues. As such, there is
significant scope for the use of technologies in the home setting. Multiple technological platforms such as patient-monitoring
systems, telerehabiliation, telecare and mobile applications have transformative potential in home healthcare. These technologies
can be combined to improve healthcare delivery.
The linkage between medical devices, electronic medical records (EMRs) and IT systems will increase the volume of data available to
patients and medical professionals, allowing for a streamlined approach to care whether at home or hospital. Data is becoming
increasingly important in the treatment paradigm; text mining and big data analytics play fundamental roles in processing data at an
aggregate level to understand patterns of usage to make medicines more effective. Medical device manufacturers will progressively
invest in internet- and mobile-based technologies that improve patient medicine compliance, including voice-activated devices and
smartphone apps. With internet technology becoming more pervasive globally, connected devices will be used more readily to
improve care.
Furthermore, in the coming decades, we will see a decline in hospital numbers. Hospitals will be centres of excellence, providing
care to only those with the most acute levels of needs. Where people are living with chronic conditions, much of the care will be
delivered in the home through mobile technology, cutting government costs and empowering people to live fuller lives in the
environment of their own choice. This will provide revenue-earning opportunities for companies investing funds in the R&D of
network-connected medical devices.
Currently, outpatient care extends to communication between health services and individuals to ensure treatment compliance. This
is beneficial for boosting the cost-effectiveness of individual treatment plans. It is our view that by the middle of the century,
pharmaceutical companies will be heavily involved in this area of healthcare delivery. Drugmakers can facilitate the capture of real-
time patient data from mobile monitoring systems and aid in the improved health outcomes of patients - from a pharmaceutical
standpoint - providing patients with feedback on how to manage conditions while collecting post-marketing surveillance data to
lower market access and pricing hurdles, as well as aiding in direct R&D.
As we move towards 2050, healthcare will become a cross-industry focus. New business plans will need to include how a company
or service will improve the well-being and productivity of its workers or customers. The infrastructure industry will have to
demonstrate how each building contributes to wellness (eg, lowering emissions and encouraging active living). The food and drink
industry will need to produce products that replenish, revitalise and address many health and wellness concerns by enhancing
overall well-being, sometimes targeting a specific demographic.
While all of the above stands true for the developed states, the personalised healthcare arena will look significantly different in
emerging markets (EMs) to 2050. The underdeveloped nature of the healthcare sectors in countries in Latin America, Sub-Saharan
Africa and the Asia Pacific region will result in a move towards more private, rather than personalised, healthcare over the coming
decades, particularly as middle classes grow. Patients moving from just using public healthcare facilities to a mix of public and
private, or exclusively private, healthcare facilities will be seen as a shift towards more personalised healthcare.
Barriers To Greater Adoption Of Personalised Healthcare
The use of targeted pharmaceuticals and healthcare services will vary depending on the levels of personal income, economic
growth and infrastructure, as well as government commitment in markets globally. Communication is vital for the success of
personalised disease diagnoses, medicines and healthcare regimens. Therefore, it is vital that different stakeholders (patients,
doctors, drugmakers, healthcare bodies, legislators, device companies and information technology providers) are able to work
together to provide a single service.
While consumer genetic tests are becoming increasingly affordable, more complex genetic tests (that can significantly influence a
person's choices about healthcare and the management of a disorder) carried out in a medical setting are currently only accessible
to small pockets of the global population as a result of their high cost. Public healthcare services, such as the UK’s National
Healthcare Service (NHS), offer genetic tests but they are available to only a limited number of patients. Furthermore, the lack of
scientific expertise in the field of genetics in EMs limits the growth of the sector in a large number of countries globally.
The results of genetic tests are not always straightforward, which often makes them challenging to interpret and explain. A positive
test result means that the laboratory found a change in a particular gene, chromosome, or protein of interest. Depending on the
purpose of the test, this result may confirm a diagnosis, indicate that a person is a carrier of a particular genetic mutation, identify an
increased risk of developing a disease in the future, or suggest a need for further testing. A negative test result means that the
laboratory did not find a change in the gene, chromosome, or protein under consideration. This result can indicate that a person is
not affected by a particular disorder; is not a carrier of a specific genetic mutation; or does not have an increased risk of developing
a certain disease. In some cases, a test result might not give any useful information. This type of result is called uninformative,
indeterminate, inconclusive, or ambiguous. Uninformative test results sometimes occur because everyone has common, natural
variations in their DNA (called polymorphisms) that do not affect health.
If a genetic test finds a change in DNA that has not been associated with a disorder in other people, it can be difficult to tell whether
it is a natural polymorphism or a disease-causing mutation. An uninformative result cannot confirm or rule out a specific diagnosis,
and it cannot indicate whether a person has an increased risk of developing a disorder. This uncertainty regarding test results, or a
probability that the test results may be inconclusive, may result in the low uptake rate for genetic tests (even if the cost of tests
drops to very low levels), particularly for ambiguity-averse consumers or patients. The slow uptake in genetic tests will ultimately
restrict the collection of genetic data and inhibit the real impact of genetic tests on disease diagnoses and management - and
ultimately, pharmaceutical research. As the use of such services rises, there will be increased calls for transparency, higher levels of
encryption and the removal of personal identities from sensitive information, thus further increasing the complexity in the provision
of a service.
The transition towards real-time, focused and more personalised medicines and healthcare services, and the inevitable digitalisation
of services and data carry significant cybersecurity risks. The increasing connectivity between medical devices and mobile devices
will accentuate the importance of appropriate safety mechanisms to protect patients. This will be a pressing issue in the
pharmaceutical market as software and wireless technology revolutionises the management of the disease but may leave patients
vulnerable to cyber attacks. Medical devices commonly contain configurable embedded computer systems. Those that require a
connection to hospital and physician wireless networks to enable interoperability can be manipulated, posing risks to patients and
healthcare providers. Industries that have heavily moved into automation and online delivery of services have experienced hacks
and security breaches, and there is a strong likelihood of this taking place as healthcare takes the digital path. Cybersecurity risks
may lead to the enforcement of stifling regulations for new projects, hurting the advancement of targeted healthcare services.
Furthermore, individual government regulatory bodies may take a different track with regard to the suitability of a service, creating
hurdles for the roll-out and adoption of real-time services. As the delivery of targeted pharmaceuticals and healthcare services falls
between the two industries, so too does the regulation of the market, giving rise to a more complicated regulatory environment
that may hurt innovation and the development of services. Additionally, the underdeveloped healthcare sectors in the majority of
EMs globally will limit the level of personalisation in the sector.
Medical Devices: 3D Printing To Revolutionise The MedDev Industry

Key View
• Over the coming decades, the expansion of technology will underpin the trends in the medical device industry.
• Greater device connectivity will boost patient autonomy whilst reducing the financial strain on hospitals.
• As the importance of cybersecurity rises, we expect collaborations between medical device manufacturers and tech firms to
remain commonplace.
MEDICAL DEVICES MEGATRENDS TO 2050: WINNERS AND LOSERS

Big Data - Intrinsic To Medical Devices

Dell, Google, IBM, Microsoft na
Transformation
Cellular Companies, Public Health Systems,

The IoT Will Improve Patient Autonomy Technology Companies, Telecoms Companies, Wired Patient Monitoring Companies
Cybersecurity Companies
Value-based Care – Emphasis Will Shift From Traditional Manufacturers, Healthcare

Public Payers, Insurance Companies
Volume To Value Providers
3D Printing Will Continue To

3D Printed Implant Manufacturers Manufacturing Suppliers
Transform Healthcare
Robotic-Assisted Minimally Invasive Surgery Non-Robotic Implant Suppliers, Surgical

Surgical Robotics To Continue Expansion
Specialists Tool Manufacturers
Connected Drug Delivery Device

Cybersecurity Will Remain A Prominent Issue Healthcare Cybersecurity Firms
Manufacturers, Device Users
na = not applicable. Source: Fitch Solutions
A realistic view of what is possible in the medical device industry in the coming decades must focus on the changes that are already
gaining traction and have the potential for widespread adoption. In this analysis, we describe the key megatrends impacting
the medical devices industry to 2050, which have the scope to alter it, while being readily achievable and irreversible in nature. Our
selected trends are:
• Big data
• Internet of Things (IoT)
• Value-based care
• 3D printing
• Surgical robotics
• Cybersecurity
Big Data - Intrinsic To Medical Devices Transformation
The application of big data, supported by artificial intelligence (AI), will be the driving force behind a fundamental shift in how the
medical device industry functions. Big data is important in its own right, but it is also accelerating other trends, notably in the field of
precision medicine and the shift from volume to value-based healthcare.
While the abundant availability of data is a significant source of potential value, historically, the industry has struggled to connect the
large and complex data sets that medical devices produce. However, advances in big data have enabled the industry to support
diagnostic analytics, drug discovery and other areas such as monitoring patient adherence to drug delivery, digitisation of
pathology, improved communications between healthcare providers and patients, and also control device feedback. As the quantity
of data continues to grow, AI will be required to aid in the management and utilisation of complex sets of medical data.
There is also an increasing clinical application of AI in areas of research and product development, such as imaging diagnostics and
disease management, as well as the increasing adoption of algorithmic defence solutions in the form of cognitive computing and
machine learning (ML). In the long term, AI will be employed extensively to analyse large datasets, providing time and cost savings
for healthcare systems. The FDA has also updated regulatory frameworks to include software as a medical device (SaMD) which will
allow for better monitoring and updating for medical devices that incorporate AI and ML.
Traditional healthcare technology companies have expanded their capabilities in these areas as they recognise the potential of data
to improve outcomes. For example, GE Healthcare has established the GE Health Cloud, a cloud ecosystem designed to help
manage the volume, velocity and variety of healthcare data. Siemens Healthineers' Strategy 2025 is focused on future-oriented
areas including using data and AI to integrate existing and innovative technologies for therapy.
In addition, the entrance of non-traditional healthcare companies will be a key factor driving the adoption of big data and AI in the
coming decades. Companies such as Dell, Google Deep Mind, IBM Watson and Microsoft will continue to leverage their
expertise in big data and AI in the medical device sector. Some will forge partnerships with existing suppliers, whereas others will
operate independently, thus creating new disruptive competition.
The IoT Will Improve Patient Autonomy
The healthcare industry will benefit greatly from the IoT and its impact is already visible, with numerous medical devices (and
medicines) leveraging connected technologies. Connected devices enable the early detection of health problems as data can be
collected and delivered to monitoring stations for medical/professional interpretation. By 2050, the IoT in healthcare will become
more widespread as the technology progresses and demographic pressures increase the need for solutions that support the
improved monitoring of chronic diseases and enable health systems to care for more patients remotely, reducing the risk of costly
readmission. The impact of IoT in the healthcare industry is reflected in our Megatrends 2020 survey results with 64% of
pharmaceutical industry respondents stating that IoT and smart devices will have a high impact in their sector in regard to their
current business model over the 30-year horizon. This response is in line with other industries with the average response for high
IoT impact over the next 30 years being 65.5%.
Technological Progression: Where people are living with chronic conditions, much of the care will be delivered in the home
through mobile technology. The accessibility of wireless technology, mobile applications and other connectivity platforms enables
device manufacturers to make complex medical devices available for home use. There is already a large market for remote
monitoring products, but future iterations will create products that make current offerings obsolete. For example, the evolution of
alternative vital sign monitors such as ingestible vital sign monitoring systems that utilise the IoT may replace the wearable options
available today. Ingestible devices remove the need for superficial attachment of physically or logistically obtrusive sensors to
patients. We also expect non-contact technology to be commercialised, utilising cameras and videos to monitor vital signs. Such
developments will progress to 2050 and result in an improved patient experience.
Demographic Pressures: An ageing global population, combined with the budget constraints faced by public health systems, will
increase the need for IoT solutions which enable a stronger focus on preventative care and more efficient treatments. The ageing
population is particularly pronounced in developed regions such as Europe. In 2000, Europe's pensionable population expressed as
a percentage of the total working-age population was 20.0%. By 2050, we forecast this to reach 43.1%. Health systems will be
cognisant of the growing demand for medical services as the population ages and a greater prevalence of chronic diseases.
Growing Elderly Population Will Support IoT Adoption

Pensionable Population, % of total working age
Opportunities In The IoT: Traditional medical device companies will increasingly partner with technology players from outside of
the healthcare sector to capitalise on opportunities in the area of remote monitoring and an increased need for IoT solutions. Within
the IoT, healthcare will remain one of the biggest opportunities for cellular companies capable of providing widespread connectivity.
This is exemplified by Vodafone, which will leverage its Narrow Band (NB-IoT) network for an increasing number of
healthcare applications in Europe.
Value-based Care - Emphasis Will Shift From Volume To Value
Value-based care will continue to be embraced globally through to 2050, although its impact will be most visible in the US, where
increased spending pressures coincide with health outcomes are considerably worse than its peers. The traditional fee-for-service
payment model in the US does not function does effectively in the context of the expanding continuum of care and a change in
model is primarily driven by a need to reduce costs while increasing quality. As a result, public and private payors are changing
financial incentives to shift healthcare delivery from volume to value.
US Lagging In Value For Health Outcomes

Health Expenditure As A Percentage Of GDP Compared With Life Expectancy (2019)
The Affordable Care Act (ACA) enabled the Centers for Medicaid and Medicare Services (CMS) to test the use of bundled
payment models, which set a single spending target for all applicable healthcare services provided during a clinical episode of care,
creating a financial incentive among healthcare providers to coordinate care and avoid hospital readmission. The Trump
administration has curtailed the use of mandatory bundled payment models - encouraging smaller, voluntary models instead.
Despite this, the rise of value-based care in the US will continue in the coming decades, albeit at a gradual pace.
The shifting healthcare landscape will require action from medical device companies as the healthcare industry is demanding a
different type of medical supply than in the previous model. Medical device companies will be required to diversify their product
ranges and expand their service and solution offerings across the continuum of care so that they are well-positioned to succeed.
The utilisation of disruptive technology will underpin this healthcare transformation and it is a central component of the strategy of
leading medical device companies. Zimmer Biomet launched Signature Solutions, a suite of clinical services and technologies
that help providers oversee post-surgical recovery and improve outcomes. Medtronic has launched Orthopaedic Business
Solutions for total joint replacement episodes of care, which includes patient monitoring with care management services and a
bipolar sealer for bleeding control. The bipolar sealer combines radiofrequency energy and saline to provide haemostatic sealing of
soft tissue and bone. It is intended to decrease the length of stay and haematoma rate, and increase the number of patients
discharged to home self-care following primary total hip arthroplasty.
3D Printing Will Continue To Transform Healthcare
Towards 2050, we expect significant uptake of 3D printing as a mainstream manufacturing technique as it is used for an increasing
number of applications and leading medical device companies continue to invest in the technology. Until now, cost concerns and
the lack of high-speed manufacturing have limited the uptake of 3D printing in the medical devices industry. However, efficiency
(cost and production) will continue to increase as the technology diffuses and adoption across the wider industry will grow as early
adopters benefit from economies of scale.
3D printing plays a role in manufacturing within the orthopaedics and drug delivery sectors, with the FDA frequently releasing
guidance to encourage its use; but we highlight that it will complement existing manufacturing techniques, as opposed to replacing
them. Increasing utilisation of the technology will be driven by its benefit of enabling the design of geometries that previously were
unable to be manufactured. Within orthopaedics, the majority of 3D implants are off-the-shelf metallic implants, which use the
manufacturing technique to obtain the unique structure, but customised solutions that offer improved outcomes will be a key focus
for large companies. These companies include Stryker and K2M, which are focused on 3D printing titanium, and the porous nature
of titanium implants offers advantages over traditional polyetheretherketone (PEEK) implants. In
addition, Materialise and Medicrea are companies realising the value of additive technologies in the manufacture of personalised
prosthesis, with the application of customised 3D printed implants reducing surgical complications and promoting patient
compatibility. The technology will also be increasingly used in pharmaceutical products to formulate more effective drugs with high
bioavailability and to reduce non-adherence through reduced dysphagia and overcoming the pill burden.
We expect that the medical device industry will continue to find applications for 3D printing technology. Further innovations
through to 2050 will help burn patients, which can be treated with their own new skin cells that are 3D printed directly onto their
burn wounds; adopt 3D printing for surgical planning; use 3D printed devices for advanced wound care and develop applications for
tumour removal. In addition, there is the potential for this same technology to eventually be used to develop replacement human
organs.
Surgical Robotics To Continue Expansion
In instances when preventative care is not appropriate, the use of robotics will transform how surgical procedures are performed.
Robotic-assisted minimally invasive surgery extends the benefits of conventional minimally invasive surgery (MIS) by employing
technology to further enhance the surgeon's dexterity and expertise. For healthcare providers, robotic-assisted surgery systems
could be attractive relative to substitute techniques, particularly in a value-based care environment, due to the potential for
downstream cost savings related to shorter hospital stays and recovery times. However, the evidence on the costs and benefits of
robotic-assisted surgery is mixed depending on clinical application.
Nonetheless, supporting our positive outlook is the fact that robotic-assisted surgery is becoming commonplace in the US market
for procedures such as hysterectomy and prostatectomy. In addition, procedure volumes are continuing to grow globally as markets
in Europe and the Asia-Pacific also offer significant growth opportunities. For example, there are key elements of China's 13th Five-
Year Plan (2016-2020) that will support the uptake of robotic systems, in particular the deepening of healthcare reform, large-scale
development of hospitals and other healthcare facilities. With its da Vinci system, Intuitive Surgical is the leading player in the
laparoscopic robotic-assisted surgery market and its systems are principally focused on procedures in general surgery, gynaecologic
surgery and urologic surgery.
Worldwide Procedure Trend

Intuitive Surgical US & International da Vinci Procedures (2011-2018)
Source: Intuitive Surgical, Fitch Solutions
Intuitive Surgical will remain a market leader, although we expect small and large-cap manufacturers who are capable of
surmounting entry barriers to increasingly enter the laparoscopic robotic-assisted surgery market and shake-up competition. We
also expect the complexity of procedures to further increase, with orthopaedic, neurological and cardiovascular applications the
next frontier after the initial focus on laparoscopy. Surgical robotics manufacturers are also increasingly incorporating wireless
technology capabilities such as 5G to devices that will allow surgeons to perform remote procedures that are impossible today due
to geographic limitations or critical timing requirements, such as blunt trauma/accident injuries requiring operative procedures in
ambulances and in war zones, in remote locations without surgical specialists or in developing countries where per capita specialists
are limited. It is likely as wireless technology improves and latency times decrease the implementation of remote robotic-assisted
surgery will increase.
In addition, surgical robots with greater autonomy will be developed in the coming decades, which could reduce the need for
surgeons to deliver interventions. The Smart Tissue Autonomous Robot (STAR), developed by researchers at John Hopkins
University, has already outperformed human surgeons in routine procedures such as keyhole surgery. Further innovations in
robotic-assisted surgery will involve machine learning, increasing robot dexterity while significantly reducing human factor. However,
despite increasing automation, surgeons will not become obsolete and will continue to direct the robot during procedures.
Cybersecurity Will Remain A Prominent Issue
The increasing reliance on digitisation and cloud computing for healthcare delivery signifies a reduced patient interaction with
devices and increased vulnerability to issues such as cybersecurity attacks. As a result, cybersecurity will remain high on the medical
device industry's agenda as both manufacturers and regulators seek to minimise potential threats to patient safety. Furthermore,
threats related to cybersecurity and by extension information security, cannot be completely eliminated. Instead, hospitals, IT
companies, and manufacturers must work to manage these risks. It is also imperative that the devices being manufactured go
through a thorough check by organisations, such as the FDA, before being available to the public. The guidelines that these
organisations have then must also be regularly updated in order to incorporate all the different aspects from which cybersecurity
risks can arise within healthcare. These include IoT, AI, blockchain, and mobile payments. With all of these guidelines in place,
healthcare companies are more confident with dealing with cybersecurity threats despite their increasing prevalence - reflected in
our survey results, where only 8% of healthcare respondents stated that their sector was not prepared to deal with cybersecurity
concerns.
Cybersecurity Risks Remain Elevated

Healthcare Data Breaches Of 500 Or More Records
Source: HIPAA Journal, Fitch Solutions
Healthcare - Megatrends Survey 2020: IoT And Personalised Care At The

Forefront Of Industry Outlook
Below we highlight some of the key trends within the pharmaceutical industry over the coming years, as identified by respondents
in our Megatrends Survey 2020:
• Over a five-year horizon, 61% of respondents believe that the Internet of Things (IoT) and smart devices will have the greatest
disruptive effect on the traditional business model. The impact of IoT is already strongly visible, with numerous medical devices
leveraging connected technologies, and the use of such connected medical devices, supported by big data analytics, will
improve monitoring capabilities and patient outcomes.
• IoT can allow for the automated and remote monitoring of patients, as well as the automated and speedy discovery,
manufacturing and distribution of drugs. The need for speedy operations invariably falls down to harvesting data in a way that is
well organised and effective, complemented by required analytics. Additionally, IoT can foster greater collaboration within the
pharmaceutical sector - data (including the increasing mass of genetic data being collected) can be processed via analytics
platforms leveraging algorithms and presented in a way that offers the highest visibility to different industry stakeholders.
• Smart devices have enabled new services, from remote diagnosis to disease and lifestyle management via mobile applications to
medical device integration. The adoption of such devices will be supported by the combination of an ageing population and
cost-containment pressures, which will compel hospitals to seek efficient solutions.
Question: Looking Five And 30 Years Ahead, Rate The Potential Disruption To Your Industry’s Current Business Model From The
Following Technologies And Trends
% Of Respondents From Pharmaceuticals Who Answered 'High Impact' Of Disruption On Their Sector In Five & 30 Years, by
technology/trend
• In contrast, over a 30-year horizon, 64% of respondents - a higher percentage - believe that IoT and smart devices will have a
high impact in regard to a potential disruption to their current business model. This highlights that the industry believes that the
majority of the disruption will occur in the long term. In recent years, the healthcare industry has already invested heavily in IoT,
particularly to enable the remote monitoring of patients in their homes.
• Over a 30-year horizon, 68% of respondents believe that automation and robotics will have the greatest disruptive effect. With
regard to automation in the pharmaceutical industry, this can be deployed to increase operational efficiency, reduce operating
costs and minimise wastage - necessary for an industry in which product prices are under greater scrutiny.
In light of investment focus, 59% of respondents stated that the personalisation of services, and 57% of respondents stated that
artificial intelligence (AI), big data and machine learning are the primary areas where funds are being allocated. With regard to AI in
the pharmaceutical industry, accelerated drug discovery with expedited processes for target selection, reduced need for
researchers to read data, and improved computer modelling to reduce potential drug failures which will have a cost-saving effect
- necessary for an industry whose product prices are under more scrutiny now than ever. Drugmakers make use of AI to expedite
pre-clinical development times, which subsequently lead to meaningful patent lives and revenue gains, as well as breakthrough
discoveries of novel targets or molecules, which could potentially lead to differentiated, high-value therapies. Furthermore, the
generation of health data is growing through genomic testing, connected healthcare and health wearables. Beyond AI, the
personalisation of services can provide pharmaceutical companies with ways to improve the research landscape in areas with
notable failures, such as Alzheimer's disease.
• Unsurprisingly, 45% of respondents stated that technology and innovation will be the most importance driver of change in the
industry’s competitive landscape. Innovation is the key to success in the pharmaceutical industry and this respondent sentiment
aligns with our long-term view: the availability of genetic data - particularly the large, consented data sets collected by consumer
DNA testing companies - will change the way in which drug companies conduct pharmaceutical R&D.
• 28% of respondents stated that a shift to low carbon economy will also have a notable level of influence on the industry’s
competitive landscape. This is surprising as unlike most other industries, social sustainability rather environmental sustainability
is the priority for the pharmaceutical industry. Creating long-term shareholder value while considering environmental, social and
governance issues is not a new concept for drug companies. Many organisations already voluntarily distribute information on
their sustainability credentials to meet the interests of their investors as well as internal and external stakeholders. The next step
for the pharmaceutical industry will be to build its reputation and gain more trust. Those firms that implement strategic
sustainability practices will outperform their peers over the long term.
• Only 8% of respondents stated that their sector was not prepared to deal with cybersecurity concerns. The vast majority of
respondents believe the sector is well prepared to deal with cybersecurity threats. As IoT and smart devices become ubiquitous
in the healthcare industry, regulations have been changing to ensure manufacturers meet the criteria for cybersecurity. The
sector has also been increasingly investing in cybersecurity, and since cybersecurity threats cannot be fully eliminated, the
industry will feasibly continue to invest in this area over the 30-year horizon to ensure it remains prepared to deal with security
concerns.
Technology And Innovation To Drive Change In The Pharmaceutical Industry

Pharmaceutical Industry - % Of Respondents Indicating ‘High Importance’ To Question 'What Is Driving Change In Your Sector’s
Competitive Landscape?'

Agribusiness, Food & Drink, Consumer & Retail

Agribusiness: Disruption Ahead On Multiple Fronts For One Of World's
Oldest Industries
Key View: Agriculture and global food security will face considerable challenges in the coming decades. The episodes of supply
disruption and rising food prices will become more frequent, as rising consumption and the impact of climate change will put a
growing strain on available supply. Different continents will follow diverging trajectories: while developed markets will maintain
elevated levels of food self-sufficiency, Africa and the Middle East will see their food security worsen in the medium term. Consumer
awareness will be a key issue for agribusiness companies over the coming years, as will the theme of IoT and disruption, especially
for upstream companies and grain traders. Finally, we expect policy towards illicit organic narcotics to liberalise.
AGRICULTURE MEGATRENDS TO 2050: WINNERS AND LOSERS

Megatrend Winners (country or industry) Losers (country or industry)
According to research compiled by the IPPC, tropical

Precision agriculture companies regions will see a more drastic decrease in yields due to
climate change
Climate Change To Promote Focus On
Yield-boosting technologies: Big data
Environmental Sustainability
agri companies, animal genetics, GM Companies with large carbon footprints
companies
Crop insurance companies in EMs
Traditional agribusiness companies Small scale farmers, especially in developing countries,

providing agtech unable to adopt the agtech
Pushed By Agtech And Labour
Shortages, Agriculture Will Become Farmers adopting agtech will enjoy higher yields but
Capital-Intensive Tech companies specialised in agri face higher production/maintenance costs and a
strong dependence on providers
Tech companies (diversified) Fertiliser companies, grain traders
Traditional global breadbaskets Africa and the Middle East will see comparatively
Heightened Food Security Concerns Due (Europe including CIS) and the the limited production growth. Africa will see its food
To Production Divergence Between Americas security decrease in the coming years
Countries Trading companies
GM seed companies
Health conscious food producers

(dairy producers especially in the Meat companies if unable to capalise on cell-based
'nutrition' segment). Plant- or cell- trend
based meat companies
Consumer Awareness And Food
Organic food producers (WhiteWave
Regulations On The Rise
Foods, Hain Celestial Group and General Sugar companies
Mills in the US)
Fruits and vegetable producers and

Palm oil companies
exporting countries.
Early entry players. First mover

Traditional opiod medicines, pain relievers, anti-
advantage for any of major trading
depressants
Liberalisation Of Illicit (Organic) houses.
Narcotics Governments (higher tax revenue)
Food and beverage companies able to

offer specialty products
Weather Volatility From Climate Change To Promote Focus On Environmental Sustainability
Weather disruption events will become more recurrent due to climate change, and their impact on food supply will be aggravated
by growing water scarcity around the world. Climate change is not only expected to significantly increase global temperatures and
change precipitation patterns, but will also increase the frequency of natural disasters, such as drought, flooding episodes, and
storms. This will limit yield and arable land growth. Currently, Africa and South Asia are the most at risk of water stress, and climate
change will worsen these risks in the coming years. A large supply disruption, which is most likely to stem from natural disasters
(El Niño or La Nina-related unseasonal weather, dry or cold wave affecting a whole continent, etc), could clearly reduce global food
security for several consecutive years.
Livestock A Significant Contributor

Global - Agriculture GHG Emissions In 2017 By Sector, % of total anthropogenic emissions CO2 equivalent
Note: ATS = Applied to soils, LOP = left on pasture, Source: FAO, Fitch Solutions
Agriculture is the largest contributor to non-carbon dioxide (CO2) emissions in the world according to the IPCC, with most of its
emissions taking the form of methane (CH4) and nitrous oxide (N2O). Within agriculture, the livestock subsector is by far the largest
contributor to global GHG emissions: enteric fermentation (the digestive process that leads to methane emissions from ruminants
such as cows) and manure (left on pasture or used to fertilise soils) account for roughly two-thirds of the sector's
total GHG emissions. Inorganic fertiliser and rice cultivation are the next largest contributors, accounting respectively for 13% and
9% of the sector's total emissions in 2017. To mitigate this, we expect regulatory policy to become more stringent for the agriculture
sector.
The view that climate change will be a key megatrend for agriculture over the coming decades is shared by the agribusiness sector
contributors to our Megatrends 2020 survey, who said that climate change (along with diet and health), presented the most
disruptive potential to their business model relative to both other disruptors (see chart below) and other sectors, on a five-and thirty
year basis. Put another way, 60-70% of our agribusiness survey participants said that climate change would be a high impact
disruptor of the sector, while only 9% said it would be a low impact disruptor. The agribusiness participants also revealed that they
are more heavily investing in energy efficiency (which would complement a focus on reducing carbon emission intensity) relative to
other industry readiness projects (Q8_1), and saw climate change as the most important issue affecting the global economy relative
to other sectors.
Climate Change And Health Key Disruptors For Agribusiness

Agribusiness Survey Participants - Disruption To Business Model By Topic, %
Note: Results sum to 100 for each topic. Source: Fitch Solutions - Megatrends Survey 2020
We believe that climate-related policy and regulation will target livestock and soil management on a priority basis, as these are 'high-
impact' areas that could generate significant emissions reductions. Rice cultivation, by contrast, will be spared immediate action;
most rice is produced in low-income countries, where the grain plays a significant role in employment and food security, and
governments will avoid confrontation on this sensitive topic. We also expect government action on climate change to manifest itself
in the form of more stringent land use regulations, which may include restrictions on fertilisers and pesticides. In addition to
rigorous monitoring and enforcement mechanisms, governments many also introduce land registries and regulate land-use so that
a portion of farmland is set aside for environmental purposes. 2020 will see several significant events take place in this respect,
including the US Presidential election (where multiple Democratic candidates have relatively aggressive climate change proposals)
and the EU, which will begin both reforms of the Common Agricultural Policy and the outlining the European Green Deal, which
aims to make the Bloc carbon neutral by 2050.
Asia & Nitrous Oxide Generate A Growing Share Of Agricultural GHG Emissions
Agriculture - GHG Emissions By Region & By GHG, anthropogenic emissions in Gg of CO2 equivalent per annum
Source: FAO, Fitch Solutions
We also foresee a number of significant opportunities for farmers and agribusinesses that are able to remain ahead of the curve
when it comes to environmental regulation.
• Demand for innovative, environmentally friendly inputs and equipment will increase. These include, among other things: less
emissions-intensive fertilizers and fertilizer application technologies; top-of-the-range animal genetics (e.g. bovine semen);
equipment for the collection, storage and treatment of manure; high-quality and easily digestible animal feed; yield-boosting
technologies that decrease the land-intensity of agricultural production systems.
• Yield-boosting technologies will experience unprecedented growth. Food demand will increase significantly out to 2050, driven
by an increase in the global population, rising incomes and diet diversification in emerging markets. Given the expected increase
in land use restrictions, we expect yield-boosting technologies to become even more central to production growth than they are
now, generating significant opportunities for companies that offer high-tech inputs such as seeds, fertilisers, herbicides and
pesticides.
• Farmers will benefit from first-mover advantage if they are able to anticipate and prepare for change. The agricultural sector's
contribution to regulatory process will be crucial to the development of rational pathways towards a sustainable future. Those
who are able to influence the policy debate and implement best practices in a gradual manner will avoid sudden shocks to their
production processes and enjoy an advantage over their competitors when competing for markets with more stringent
environmental regulations.
• Feedstock and biofuel producers will benefit from ambitious government support policies. In countries that plan to increase the
share of biofuels in their energy mix as part of their commitments under the Paris Climate Agreement, we expect to see an
increase in biofuel support policies, including biofuel mandates, fossil fuel taxes, emissions trading schemes, and so on.
Feedstock and biofuel producers will benefit from the surge in demand for feedstock that will result from these policies.
• Organic agriculture will become increasingly mainstream, driven by rising health awareness and concern around the presence of
harmful chemicals in day-to-day food products. Acreage devoted to organic products and international trade is on the rise in
developed countries and we expect this trend to gain momentum going forward, opening opportunities along the supply chain.
Pushed By Agtech And Labour Shortages, Agriculture Will Become Capital-Intensive
Agricultural production and supply chain processes will also change dramatically in the coming decades with the acceleration in
adoption of machinery and technology in the sector and the concomitant decrease of labour at a time when labour shortages are
becoming a pressing issue in both developed and emerging markets. The agribusiness sector offers fertile ground for a confluence
of technology trends, including advanced automation (Internet Of Things objects including tractors and harvesting robots), artificial
intelligence aided by ‘big data’ and drones, among others. As a result, agriculture - traditionally one of the world’s most labour-
intensive industries - will become increasingly capital-intensive. Overall, agtech will be a major factor behind future improvement in
global yields. It will also help reduce waste in the supply chain and could connect more directly farmers and consumers, fulfilling
rising societal aspirations.
Developed World A Key Culprit

Food Waste & Loss, percent of Kcal lost & wasted
The rise of agtech use and ‘precision agriculture’ will benefit or disrupt a number of operations and businesses in the process and
we believe the winners of this key multi-decade shift will be farmers that have adopted the technology, who will record higher yield
and profits as well as the tech service providers in the sector. The corollary of the rise of agtech will be higher production costs at
the farm level and a strong dependence on providers. A larger share of farming profits will be captured by these suppliers at the
expense of farmers. Meanwhile, the fertiliser industry is set to suffer, as precision agriculture will likely mean lower input use,
especially fertiliser and pesticides.
IOT IN AGRIBUSINESS
Sub Sector Goal Type of technology and device used Impact
Collecting and sending information

on moisture, sunlight, rainfall, crop & M2M: Sensors, drones, satellites,
Crop farms Farm: Increased yield, better use of
soil, air monitoring, etc. Allowing connected and eventually autonomous
(grains, sugar, fertilisers and inputs, lower production
precision farming (precision planting, tractors. Data: data analytics, database
etc) costs (less input, less water).
fertiliser application, spraying, servers, cloud systems.
irrigation).
Input companies: decrease in fertiliser

use per ha.
Fence monitoring/fenceless
Increased productivity (detecting
farming; tracking and monitoring M2M: Sensors, drones, GPS-enabled
Livestock disease outbreaks early and decreasing
cattle (health tracking, calving collars. Data: data analytics, database
farms the impact of diseases), more efficient
cycles, localisation, etc); grazing/ servers, cloud systems.
feed use (potential for lower feed need).
feed management.
Farms: This technology will be more

suitable for developing countries,
Relations characterised by the pre-eminence of
Connecting field agents to a cloud-
between Handheld technology: Smartphones, small farms with very low investment
based analytics engine, in order to
input tablets used by intermediaries. Data: Data capacity and which rely on
give farmers customised products
companies, analytics, database servers, cloud intermediaries to a greater extent than
and increase efficiency for their
intermediaries systems. farms in developed markets. Better
intermediaries.
and farmers market, crop and input information
could boost yields and returns for
farmers.
Input companies: The aim would be to

gain market share by boosting
intermediary and farmer loyalty.
M2M: Sensors (on silos), GPS vehicle

Inventory tracking and product Reduction in waste along the supply
Supply chain tracking (telematics). Data: analytics,
traceability. chain.
cloud system.
In terms of geographical adoption, developed markets with a mature agricultural sector are largely mechanised and have already
started adopting agtech. They will remain at the forefront of adoption, helping them to remain large agricultural players on a global
scale. For emerging markets, the vast majority of them still rely on labour at the farm level, but we will witness an increasing
divergence in machinery and agtech use. Asia will outperform others in terms of adoption in the coming 10 years due to strong ICT
fundamentals and a positive outlook for agricultural production and trade. China in particular will embrace agtech on a five-year
horizon, helped by active public support, while Brazil is somewhere in between.
Meanwhile, African countries will stay behind in terms of mechanisation and agtech adoption trends, at least over a 10-15 year
horizon. A number of African governments and multinational agricultural machinery and fertiliser companies have tried to improve
mechanisation rates through significant investment of capital in recent years, but these efforts will have limited success for now. In
order to increase profitability in African agriculture and boost mechanisation use – whether ‘basic’ or ‘advanced’ – a number of
primary goals need to be achieved: partnerships with food companies, the development of cooperatives, greater access to credit
and in investment into sectors strongly linked to agricultural equipment, namely the development of infrastructure such as roads,
ports, power and finance.
Significant Increase In Recent Years

Africa – Tech Equity Funding, USDmn
Source: Partech
In terms of the agtech competitive landscape, we anticipate some degree of consolidation over the coming years, as farmers
continually indicate that they prefer an integrated approach to precision farming. This will have two implications: First, we see an
increasing divergence between agtech software vs agtech hardware, where hardware functions ultimately become commoditised
and sold relatively cheaply. By contrast, software applications will contain proprietary data and insights that can be specialised and
sold on an exclusive basis. Second, in line with trends we see occurring in other sectors, we anticipate agtech taking on the product
vs service paradigm. In particular, we see agriculture moving towards a subscription model where companies involved with agtech
are able to generate micro-customised solutions for farmers that they then subscribe to for a fee. To a degree this already happens
in agriculture, as farmers can rent farm-land and agriculture equipment, but the adoption of agtech will see an acceleration in this
trend over the coming decades.
For the legacy agribusiness companies, we have already seen a shift in their thinking from taking a wait-and-see stance towards the
startups to actively competing against them (we discuss this extensively in our agribusiness Key Themes For 2020). Over time, we
expect the agtech space to consolidate and for the competitive landscape to feature both legacy companies (with new product
lines) and startups, depending on the sub-sector and the extent to which the sector is B2B or B2C.
Heightened Food Security Concerns Due To Production Divergence Between Countries
Global food security remains relatively stable (the 2019 African Swine Fever outbreak notwithstanding), as the world is able to
produce more than it consumes. Some regions and populations suffer from temporary famines or remain undernourished or
malnourished (mainly in South Asia and Sub-Saharan Africa), but these situations can be attributed significantly to inefficient public
policy and the lack of investment, which are creating food shortages, as much to a global food supply issue. Global food
consumption will continue to accelerate in the coming decades in line with a growing population and emerging market middle
class. Indeed, we forecast world population to reach 9.7bn in 2050, and the Food and Agriculture Organization (FAO) believes that by
2050, global agriculture production will need to have increased by an additional ~70% from today's levels to meet growth in food
demand resulting from population increases, rising incomes, and a shift in preferences to more protein-rich diets, which in turn
requires a larger production of feed. The consumption of non-food products will also be behind the strain put on agricultural
production, as urbanisation and more wealthy lifestyles entail arable land encroachment, increase pollution and contribute to
climate change.
Dominated By The Americas

Select Countries - GM Seed Plantings, % Of Global (2018)
Sources: ISAAA, Fitch Solutions
Consequently, the episodes of significant global supply disruption and spiking food prices will become more frequent and severe, as
rising consumption and the impact of climate change will put a growing strain on food supply. To mitigate these effects, agricultural
productivity (and ultimately production) will require continuous expansion, and there is evidence that this is already happening.
Several countries - including China and India - have the potential to boost their agricultural output. In China, the commercialisation
of genetically modified seeds for food products (especially corn) - which we see happening on a three- to five-year horizon - will give
a significant boost to its yields. In India, investment in infrastructure and the supply chain would also help the country make some
breakthrough improvements in yields and exportable supply. Even in Africa, where GM products have previously been banned, we
are seeing gradual but broad liberalising of policy, and expect several countries to have GM products being commercially available
over the coming quarters.
GMO POLICY LIBERALISING IN AFRICA

COUNTRY RECENT GMO DEVELOPMENTS PENDING APPROVAL
Sweet potato (nutrient enhanced), rice (nitrogen-

Commercial release of Bt cowpea envisaged in 2019 in use efficient, water-use efficient, salt tolerant -
Ghana
partnership with Nigeria. newest), cowpea (Bt) cotton (Bt), cotton (stacked
traits)
There have been efforts to increase domestic cotton

production, and commercialisation of Bt cotton was
Ethiopia Cotton (Bt)
approved in 2018. The government has also authorised
confined field trials for Bt drought-resistant corn.
Côte d'Ivoire National Biosafety Law was approved in 2016. na
Cotton (Bt) has been commercialised in Burkina Faso but Cotton stacked Bollgard II and Roundup Ready
Burkina Faso is not being planted owing to an unresolved dispute with Flex (insect and herbicide tolerance), cowpea (Bt -
Monsanto regarding fibre lengths. insect resistance to Maruca vitrata), maize (Bt)
COUNTRY RECENT GMO DEVELOPMENTS PENDING APPROVAL
Senegal Updating its national biosafety law. na
Maize (drought-tolerance, water-efficient maize

Has revised the strict liability clause in its Environment
for Africa), maize (pest-resistant), cassava (tolerant
Tanzania Management Biosafety Regulations. It began
to cassava mosaic disease and cassava brown
conducting GM research trials in 2016.
streak disease)
Signed a biosafety bill and established the National Sorghum (bio-fortified), rice (nitrogen-use
Nigeria Biosafety Management Agency in 2015. Cowpea (Bt) and efficient, water-use efficient, salt tolerant -
cotton (Bt) have been approved for commercial use. newest), super cassava (fortified with vitamin A)
Now in a position to start research trials of GM crops

after having approved amendments to the Biosafety Maize (drought-tolerance, water-efficient maize
Mozambique
Regulations at the end of 2014. The country began its for Africa)
first GM corn field trial in February 2017.
Maize (drought-tolerance; water-efficient maize

GM gypsophila cut flowers now seem most likely to for Africa), cotton (insect-resistant), super cassava
move forward to open field trials given widespread (fortified with vitamin A), cassava (tolerant to
enthusiasm to pioneer this new variety on the world cassava mosaic disease and cassava brown streak
Kenya
market. Plans are also under way for Bt corn open field disease), sorghum (enhanced pro-vitamin A levels,
trials, and commercialised Bt cotton is expected to bio-available zinc and iron), sweet potato
commence shortly. (resistance to sweet potato virus disease),
gypsophila flower (pink colour flower stability)
Drafted a biosafety law which is yet to be passed by

The Gambia/Niger na
respective legislature.
Sources: USDA, Fitch Solutions
Another potential solution is the creation of alternative meat products. For example, meat processing companies are increasingly
looking at opportunities in the plant-based and lab-grown meat space as an alternative to low margin, labour intensive products
that carry potential health risks. While we believe this will be a long-term process developing over decades, we expect to see more
investment in this space in the short term as consumer taste preferences continue to shift towards high protein diets, eschewing
beef for chicken and other alternatives. Multiple plant-based meat companies have been expanding, most notably Beyond Meat
and Impossible Foods, while large meat processors, such as Tyson Foods, Cargill and JBS, are beginning to offer their own plant-
based products. Looking ahead, we believe that plant-based alternatives will only be able to develop so far in replicating cuts of
meat, and that cellular-based (lab grown) alternatives will emerge that could offer an alternative to cuts of traditionally reared meat.
Cellular-based protein alternatives are in the development phase and have yet to be commercialised and enter the mainstream,
but companies are investing and developing in this sector.
Consumers Open To Alternative Products

Survey Of Consumer Perceptions Of Plant-Based & Clean Meat In US, India & China
Note: Conducted by University of Bath (UK), The Good Food Institute (US) & Center For Long Term Priorities (HK), February 2019; Source: Source: Frontiers, Good Food Institute,
Genetic Literacy Project, Fitch Solutions
While global agricultural production will continue to grow in the coming decades, we believe different continents will follow
diverging trajectories in terms of supply growth and food security. We highlight three groups of countries. First, the traditional global
breadbaskets, namely Europe (including Commonwealth of Independent States countries) and the US, will see their output and
already-large food surpluses rise in the coming years. They will remain the most important agricultural suppliers on the international
stage. Second, Asia and Latin America (including Mexico) will see the most significant increases in production on a 10-year horizon,
but their food security will remain precarious due to strong growth in local food consumption (see chart below). Finally, Africa and
the Middle East will see little or no growth. As such, Africa will see its food security decrease in the coming years.
MEA Food Security On The Decline

Select Food Grains - Production Balance By Regions, mn tonnes
Sources: Sources: USDA, Fitch Solutions
Consumer Awareness And Food Regulations On The Rise
Consumer Awareness And Food Regulations On The Rise
The ongoing rise in consumer awareness and increased government scrutiny regarding food quality, health issues and the overall
sustainability trend will increasingly affect global agribusiness supply chains and food regulations in the coming decades.
Governments are slowly adopting increasingly stringent food labelling laws. So far, health and nutrition labelling has been targeted
the most, as a result of the obesity epidemic and other food disorder-linked diseases. We expect the spectrum of labelling laws
to broaden at a fast pace in the coming years, including country-of-origin labelling; environmentally, socially and ethically
sustainable production; animal welfare considerations; and health warnings pertaining to some products. These tightening
regulations and the push towards transparent disclosure will result in a rise in production and packaging costs, as companies will
have to adapt to different regulations across countries and reduce the use of controversial production methods and ingredients.
Meat Reduction Drivers Checklist

Four Key Drivers
Agribusiness companies, particularly those more downstream, will increasingly be affected by what our Food and Drink team terms
‘Social Risk.’ The advent of the social media age has brought with it a new layer of transparency and awareness regarding the
behaviour of companies. Consumers have an element of power when choosing to buy products from a range of brands and
increasingly use that power as an extension of their personal values. We have termed this as 'Social Risk', and represents a step
beyond traditional marketing and public relations, to determine the core belief of a brand. While price, loyalty and availability still play
a key role in buying decisions, consumers are looking at a myriad of different 'social' factors, all of which can be defined under 'Social
Risk' and may result in the consumer buying the brand or boycotting it. 'Social Risk' includes:
• Political support: Which candidates or political parties the company or high profile executives donate to. Public statements for or
against Brexit, NAFTA, Paris Agreement, etc. Origin location of manufactured goods 'Made in China' vs. 'Made in America'.
• Social/ethical causes: Support or opposition for; social justice, pro/anti-immigration hiring, working conditions and wages,
instances of sexual harassment, LBGTQ marriage rights, religious freedom.
• Environmental/Green: Use of renewable energy, 'green' technology and/or other company policies that encourage the
conservation of the environment. Sustainably sourced goods, farm-to-table and use of local products.
• Customer Relations/Marketing: Exceptional/poor treatment of customers, positive/negative social media presence, marketing
campaigns that focus on social issues, customer data privacy compromise.
The salience of this trend to agribusiness corporate executives and managers is clearly illustrated in our survey results, as our
developed market agribusiness participants rated health and diet as a significant disruption to the current business model, a key
change to the competitive landscape (especially changing consumer preferences and patterns), and cited veganism as a key trend
within the dietary disruption theme.
Consumer Trends A Key Driver For Strategy

Agribusiness Survey Participants - Disruption To Business Model By Topic, %
Note: Percentage based on number of participants out of total indicating this answer; Source: Fitch Solutions - Megatrends Survey 2020
Liberalisation Of Illicit (Organic) Narcotics
We believe over the next several decades there will be a change in the legal treatment of illicit narcotics, specifically marijuana but
potentially cocaine as well.
We expect that synthetic narcotics will remain illegal. The term 'narcotics' itself is somewhat amorphous, but for our purposes we
use the legal definition, which considers any illicit drug to be a narcotic. In our previous 'megatrends' analysis from 2016 and 2018,
we argued that the legal changes were slow but accelerating, mainly due to several US states passing referenda legalising the crop
for either medical or recreational purposes. Since then, momentum towards policy reform has accelerated considerably, most
notably due to the legalisation of marijuana in Canada in 2018 and the US state of California, which we feel is a potential game-
changer for sector in the US. As of early 2020, 33 US states allow at least medical use of marijuana products that don’t have
restrictions on THC content (the drug’s psycho-active component). This has led to a clash with the federal government (which still
nominally criminalises the drug), which will culminate in a discussion at the federal level over whether to legalise marijuana outright
over the coming decades. Indeed, we assign a considerable likelihood that marijuana will be re-scheduled at the US federal level
over that time. Indeed, current Democratic Party front-runner Bernie Sanders has said that if he wins the Presidency in November
2020 he will legalise marijuana (which can be done without Congressional action).
A Growing Trend
US - Marijuana Legality By State
Source: Wikipedia
At a basic level, and given that marijuana in particular is ultimately a crop, we believe there are two key issues related to eventual
legalisation both in the United States and abroad. First, regulation will need to strike the right balance between deterring excessive
consumption (which could lead to health risks) and ensuring that any black market for marijuana is crowded out. This has a number
of implications in terms of taxes, minimum age limits, quantity limits and use when operating vehicles or heavy machinery.
Second, the eventual regulatory framework will have implications for the commercial development of the industry. Within
agriculture, some parts of the crops sub-sector are relatively commercialised while others are more fragmented. For example, the
sugar industry is relatively commercialised, with large (in some cases public) companies owning sugar plantations. By contrast, the
grains sub-sector is more decentralised, with most corn in the US produced by family-run farms. We believe that the marijuana
industry will likely follow the latter sub-sector due to its counter-culture history and relative scalability, but more downstream
operations will likely be consolidated, especially logistics and distribution as established companies like Amazon potentially enter
the marketplace.
On an international level, legalising marijuana has serious implications for multiple international treaties, including 1961 Single
Convention on Narcotic Drugs, the 1971 Convention on Psychotropic Substances and the 1988 Convention Against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances. In Canada, legal experts believe that the new marijuana laws in effect will likely to
violate these treaties, and have suggested that Canada either convince other countries to change the treaties, give Canada a waiver,
or formally withdraw from the treaties altogether. The consensus in Canada appears to be to withdraw from the treaty, which, given
the country's close political and economic relationship with the US, is unlikely to lead to any significant international consequences.
However, the game changes considerably if the US federal government re-schedules marijuana. This could result in potential
amendments to various international treaties loosening marijuana restrictions and thus free individual member countries to
liberalise their own marijuana laws.
Finally, should marijuana be legalised, we also see potential for the crop to become financialised, with the possibility of financial
market participants trading 'dope futures'. We believe this is still years away, as the crop remains illegal at the US federal level, but
there are already discussions in the US about opening a mainstream (ie CME or ICE exchange) futures market for hemp, an industrial
cousin to marijuana (hemp and marijuana are both derived from cannabis herbs). A successfully run hemp exchange, combined
with an appropriate regulatory framework for marijuana, could lead to marijuana ultimately being traded on a futures exchange
similar to other crops.
Agribusiness - Megatrends Survey 2020: Climate Change, Health,

Technology Key Issues For The Agribusiness Sector
Our survey of senior decision-makers within the agribusiness sector indicates considerable awareness of the effect that climate
change will have on their operations, both over the next few years as well as decades, viewing it as a key disruptor. Moreover,
agribusiness participants in our survey, like many other sectors, viewed technology and innovation as the key factor driving change
in the competitive landscape. Finally, automation, both in terms of its impact on the labour force and operational efficiencies, was a
key concern among agribusiness executives.
Climate Change The Key Concern

Agribusiness Survey Participants - Disruption To Business Model, By Topic, %
Note: Percentage based on number of participants out of total indicating this answer; Source: Fitch Solutions - Megatrends Survey 2020
Below, we highlight a number of key takeaways from our survey of numerous agribusiness executives. We note that there are likely
to be considerable variations in responses depending on the company’s speciality and where they sit along the agribusiness supply
chain.
• Respondents overwhelmingly believe that climate change will be a key disruptor to the current business model, both on a multi-
year and multi-decade horizon. Indeed, almost 65% of our respondents believe climate change and environmental
considerations will have a ‘high impact’ in terms of disruption, the highest percentage of the six disruptions (IoT and automation
were also viewed as key disruptors). Aside from utilities, no other sector in our survey placed as high an emphasis on the
disruptive role of climate changes as the agribusiness sector on a 30-year horizon. Other than climate change, executives noted
automation/robotics, IoT, and diet & health changes as key disruptors on a 30-year basis. This is broadly similar to our 2018
survey, with the addition of diet & health trends as disruptors in the 2020 survey.
• To combat the effects of climate change, results in our survey indicate that executives are investing in energy and efficiency, as
well as personalisation of services to a lesser extent. In particular, 66% of our respondents said that energy efficiency was high
priority (as opposed to low priority), and 43% said that service personalisation was a high priority. This is also similar to our 2018
survey, although the number of participants citing personalisation (66% versus 43% in 2020) and energy efficiency (75% versus
66% in 2020) as having a high impact was slightly lower.
• In terms of the evolution of the competitive landscape, most participants saw technology and innovation as a key driving factor,
along with the shift to the low carbon economy (a new addition in 2020). Company executives strongly agreed with evolving by
migrating down the supply chain to provide higher value-added products. Participants mainly agree with the idea that sector
consolidation will leave a large handful of disruptors more dominant, with other smaller competitors on the left on the fringe.
Notably, although agribusiness survey participants were least likely to cite the risks and opportunities surrounding ESG as a key
impact on their business out of the five options (65% high impact), this was still the highest percentage out of any industry in our
survey.
• In a separate question quantifying the impact that IoT, automation and big data will have on a number of specific operational
issues, agribusiness respondents generally believe that automation and IoT will have the strongest impact on operational
efficiencies, cost reduction and labour force restructuring, which is similar to the results of our last survey.
• One final trend stands out, which is that although the agribusiness sector identifies IoT and technology (along with climate
change) as key themes driving the sector over the coming decades, the industry has been noticeably absent in terms of its focus
on these areas for investment, suggesting a possible dislocation regarding strategic direction. Indeed, the agribusiness sector is
lagging other sectors considerably in terms of relative investment in automation, big data, and especially cybersecurity. By
contrast, the sector is clearly recognising the coming importance of climate change, and is thus investing accordingly.
• Overall, these responses align many of the views we have regarding the future of the agribusiness sector. Agribusiness is one of
the world’s oldest industries, and many of its sub-sectors are highly consolidated featuring companies that are decades, if not
centuries, old. Since agribusiness trends occur in long cycles, in a sector that often has low margins, executive focus frequently
gravitates towards efficiency, with traditionally less of an emphasis on R&D and technology.
• However, two issues have arisen. First, our participants cite changes in health and diet as a key disruptor, and given that
consumer trends to tend to move much more quickly (over a period of months) than agribusiness trends (which can take place
over decades), consumer facing agribusiness companies will need to be increasingly nimble to both capitalise on revenue
opportunities while mitigating the social risk and/or negative media attention. Arguably, the early results suggest participant
circumspection, as the survey shows technology is being utilised towards operating efficiency and communication improvement
rather than additional revenue streams and customer engagement.
• The other issue for the sector going forward is whether companies, knowing that technological improvements will be required to
combat climate change, can adjust their strategic focus to include an increased emphasis on technology-related investment.
Industry Questionnaire: Agribusiness

Key Industry Disruptors & Investment Strategy
Food & Drink: Convenience And Healthification For An Ageing, Urban

Population
Key View: An older and more urbanised global population will emerge over the coming decades to 2050. This, combined with
growing health awareness and stronger demand for personalisation, will spur demand for convenient, healthy food products and
will transform the food and beverage industry. Technology, including genetic testing services and 3D printing will also be important
drivers of change within this sector over the next three decades. We believe that these interconnected megatrends will lead
companies to innovate and tailor their offerings as opposed to the traditional model of 'big brands' creating products and then
marketing them to consumers as ‘must haves.’ Consumers are becoming more educated and will demand greater levels on insight
and input into the products that they consume, which will result in changing corporate strategies in the food and drink sector.
FOOD & DRINK MEGATRENDS TO 2050: WINNERS AND LOSERS

Convenience, health care, fortified food and

Rise Of The Ageing Consumer drink products, virtual assistant compatible Low quality products, youth-only companies
brands
Fast food, red meat, sugary drinks,

Wearables, health foods, genetic testing
Intersection Of Health And Technology confectionery, brands that do not adopt
services, dietary supplements
personalisation
Plant-based protein alternatives, insects as

Future Generations Accepting Of Alternative &
food, lab-grown food, GM crops, 3D Meat producers, dairy companies
'Manufactured' Food
printering technology
Niche brands, 'craft' companies, premium

Traditional food and drink majors that do not
Food And Drink Barons Must Adapt products, personalised brands, e-commerce
adapt or diversify
food and drink brands
Delivery and last-mile companies,

Traditional restaurants, slower delivery
Food Retail And Restaurants Instant Delivery restaurants, drone/robot delivery, dark
service companies
store/restaurant adaptors
Rise Of The Ageing Consumer
The global population will expand by nearly 2bn over the coming decades to 2050, and with people living longer and birth rates
falling, this will result in a rapid swelling of the elderly/pensionable demographic (those over the age of 65 years old). This age range
will grow in total terms, but will also account for a larger share of the population worldwide by 2050. Globally, this will lead to the
65-plus age group rapidly increasing in size from 727mn and accounting for 9.4% of the total population in 2020, to 1.5bn and
15.8% of the total by 2050, according to our forecasts.
Markets such as Japan are already experiencing this shift towards a larger older population, and the developed markets in particular
will see a greater percentage of their population over the age of 65 years old by 2050. In developed states, the pensionable
population represents the smallest age bracket in 2020 at 19.6%, but we forecast this to account for 28% by 2050, the second
largest group behind only the middle-aged bracket (40-64 years old) at 29%. In emerging markets, the pensionable population's
share will grow from 7.7% of the total emerging market population to 14.3% over the same period, expanding rapidly by more than
double, representing 1.2bn people in 2050, up from 515.8mn in 2020. In key emerging markets, such as Russia and Turkey, the
pensionable population will account for 22.9% and 20.9% respectively by 2050, up from 15.5% and 9% in 2020.
Rapid Growth In Pensionable Population

Population By Age Range, %
f = forecast. Source: UN, Fitch Solutions
All three other age groupings (children: 0-19 years old; young adults: 20-39 years old; and middle aged consumers: 40-64 years old)
will grow over 2020-2050, but none will see faster growth than the 65-plus bracket. This will essentially create an ‘emerging’
consumer segment, which will require different and innovative products, marketing and branding strategies. Healthcare companies,
financial products and care services are among the areas that will benefit from this ageing population. This demographic segment
also offers opportunities for the food and drink sector, where companies will need to design specific products that will resonate with
an older generation, and examine the best way to market goods to them.
We highlight three areas where food and drink companies will adapt their strategies in order to better cater to an ageing population
over the next three decades:
• Packaging: We foresee that food and drink majors and packaging firms will increasingly invest in easy-to-open packaging.
Companies are expected to offer products in packaging that do not require additional items to open, such as scissors or knives,
in order to address concerns about packaging-related injuries among elderly consumers. Through to 2050, it is likely that food
and drink companies will progressively advertise and specifically label their easy-to-open packaging to appeal to this consumer
base. We also note that food and drink majors will provide products in smaller pack sizes as appetite decreases as we age. These
smaller packaging sizes will also aid the industry in addressing a key challenge facing food and drinks providers, that of waste.
• Nutrition: Elderly consumers have a greater need for vital nutrients (such as calcium, vitamin D and protein) and so companies
need to consider offering functional food and drink products that specifically target health concerns among the aging consumer
base. We believe that this will increasingly blur the lines between dietary supplements and food and drink items. We highlight
that some companies are already starting to explore this sector. In 2019, Perennial, a food start-up, launched a fortified plant-
based dairy alternative, specifically targeted to senior consumers. The product contains pre-biotic fibres, high levels of protein,
vitamin D, DHA omega-3s and is cholesterol free, and claims to promote healthy ageing. American health provider Tivity
Health is planning to roll out Wisely Well in 2020, a pre-packaged meal service designed to support the nutrition needs of
elderly consumers. Over the next 30 years, we predict that an increasing number of companies will launch fortified food and
drink products and services targeted to seniors in order to capitalise on this rapidly expanding demographic.
• Technology: Leveraging the growing prevalence of technology will be a key strategy for retailers and food and drink majors to
reach senior consumers over the next decades. The elderly tend to be less mobile than younger generations and will therefore
especially benefit from technology driven delivery services. Artificial intelligence and voice assistants, such as Amazon’s Alexa,
Apple’s Siri, and Google Home, will play a major role in this, allowing older consumers (with vision impairment for example) to
easily order essential grocery items within one platform, without the need for multiple devices. This will offer simplicity and
convenience for the older consumer. We also highlight the potential of at-home 3D food printing, allowing seniors not only to
easily create meals, but also giving them the opportunity to change food consistency. This will be especially advantageous for
older consumers who have difficulty chewing and swallowing. Almost half (47.2%) of consumer-facing participants in our survey
stated that they believe 3D printing will become a disrupting technology over the next 30 years.
Other demographic developments indicate that the world will be more highly urbanised in 2050. The population living in urban
areas is forecast to increase by 2.1bn between 2020-2050, representing 66.1% of the total population. Much of the ramp-up in
urbanisation levels will happen in emerging markets, where currently large parts of the population are still living in rural regions. As
urbanisation plays out, the consumer profile of countries and regions will shift, with urbanisation and the growth in disposable
income and retail formalization heavily correlated. These consumers will likely have greater financial spending power than previous
generations, which allows companies in the food and drink sector to offer higher priced premium goods of superior quality.
Population Living Longer As Births Fall

Global Population Trends
Intersection Of Health And Technology
Rising health-awareness from consumers across the globe, helped by the widespread proliferation of technology, has transformed
the way millions of consumers eat, exercise and make lifestyle choices. This is particularly important, given a 2015 study from the
World Health Organization, which reported that 39% of adults globally (more than 1.9bn people) were overweight, of which 600mn
were classified as obese. This trend has only grown over time, doubling since 1980 and becoming a serious issue for young children.
As a result, we foresee greater health-consciousness to gain momentum over the next 30 years, further aided by advances in
technology and the greater levels of information available about the risks associated with obesity (see 'Pharmaceuticals Megatrends
to 2050'). This trend will be more evident in developed markets, and will be driven by consumers' changing preferences and
companies innovating to meet this demand. We also predict the intersection of health and technology to progressively spill over
into emerging markets.
Part of the move towards healthier lifestyles will be driven by consumers, companies and governments encouraging balanced diets
and trends towards healthier foods. Healthification, the awareness about health benefits associated with certain types of food, has
been a constant theme over the last few years, and is the defining trend of the food and drink industry. We expect the healthification
trend to not only continue, but to intensify between 2020 and 2050. Processed food and drink companies, will likely face declining
consumer demand for these products, while firms in the healthier, more customisable space will benefit. Using information on
sourcing transparency, produce health benefits and data on their own health levels, consumers will become more educated in the
way that they approach their diets, forcing companies to meet this more individualistic approach.
We believe that genetic testing will be a key component of the healthification trend and personalisation in nutrition over the next
decades. In developed markets, consumer DNA testing kits have already emerged and companies operating in this sector are
increasingly concentrating their offering on health and wellness insights, as opposed to solely focusing on ancestry tracing. As DNA-
testing becomes more mainstream, we believe that food and drink companies will increasingly invest in genetic-based personalised
nutrition in the years to come.
We are starting to see the beginnings of this trend emerge. At the end of 2019 for example, UK’s mass grocery retailer Waitrose
started trialing DNANudge, a wearable that generates genetic-based nutrition recommendations. The wearable allows consumers
to scan barcodes of food and drink products, with the device flashing green if it is a good match for that consumers DNA, or red if it
is not. Another example of this emerging trend is Habit, a DNA-testing service that provides customers with a personalised nutrition
plan and recipes based on genetics. 59% of our survey respondents who think diet and health will be disruptive forces, state they
believe personal genetics will be highly impactful for the consumer industry over the next three decades. As such we foresee that
food and drink companies will increasingly capitalise on the demand for personalised nutrition based on DNA-testing. We believe
that this will be accomplished by food and drink firms partnering with or acquiring genetic testing firms and start-ups.
Digital health management, wearable devices and smartphones will be critical to this. We believe that these devices will
become more advanced over the megatrends time period, allowing users to monitor specific levels of calories, sugar, fat, protein
and salt content intake, portion size and frequency. We also expect genetic-testing services to become compatible with
smartphones and wearables, providing users with personal and genetic-based nutrition advice. As a result, users will be able to
adjust their diets, prompted by suggestions from data analysed by wearable devices or smartphones.
Speaking at a panel at the 2018 World Economic Forum, Nokia CEO Rajeev Suri said that a product under development at the
company is a wearable sleeve that has chips able to scan specific information such as cholesterol, lactic acid levels or glucose. We
believe that embedded subcutaneous devices have the potential to become popular over the next few decades as consumers seek
real-time data in order to make their purchasing decisions.
Wearable Technology A Game Changer

Wearables & Smartphone Device Forecasts, mn (2015-2050)

Future Generations More Accepting Of Alternative And 'Manufactured' Food
Over the next three decades we believe that consumers will significantly change their consumption patterns, as growing awareness
around food security, health, environmental and ethical concerns will have a greater impact on consumers purchasing preferences.
We believe that these four drivers, impacting the demand side and the development of technology on the supply side, will lead
consumers to increasingly incorporate alternative and ‘manufactured’ foods (engineered foods) into their diets.
We expect this shift to be especially strong in the protein sector. In fact, out of the 75% of consumer-facing survey respondents who
believe that dietary shifts will have an impact on their industry over the next 30 years, 64% state they believe that the rise of
alternative proteins will be highly disruptive. While traditionally animal-based foods, such as meat and dairy, have had a vital role in
human diets, with both considered staples across the world due to their high energy and protein levels, we believe that the
aforementioned demand drivers have the potential to decrease the prominence of meat and dairy in consumer diets over the next
decades.
The dietary shift towards alternative proteins and manufactured food will be partly driven by increasing concerns about the
environment, with the UN Food and Agriculture Organization (FAO) estimating that the livestock sector produces 14.5% of global
greenhouse gas emissions, while crop production also contributes to issues such as water pollution and deforestation. Additionally,
current meat and dairy consumption levels increase the risk of food insecurity over the next three decades, with rising consumption
and a rapidly expanding population expected to put a strain on available supplies of these products and other food groups. Another
driver behind consumers decreasing their consumption of animal-based food products will be tied to health concerns. For instance,
we foresee augmented awareness of lactose intolerance among global consumers, driven by self-diagnosis through the growing
availability of personalised genetic testing services. A growing focus on animal welfare also features as a driver for consumers
towards alternative proteins and manufactured food over the next 30 years.
Consumer Move To Alternative And 'Manufactured' Food

Four Key Drivers
As a result of a coalescence of these drivers, we believe consumers will increasingly seek new and innovative food products whilst
food and drink companies will invest in creating products that utilise alternative sources of protein and manufactured food over the
coming decades. We believe that plant-based protein (mimicking animal-based food, such as meat, dairy, eggs, and fish via plant-
based ingredients), insects and lab-grown food will see the strongest investment and become integrated in the diets of consumers
globally by 2050.
• Plant-Based Proteins: Plant-based proteins are already available via grocery retailers and food-service channels in 2020, most
notably in developed markets. While these products have captured consumer attention in recent years(see graph below), this is
set to significantly intensify over the coming decades. Over the next 30 years, we expect plant-based alternatives to become (1)
widely popular and a staple for consumers across the globe by 2050, and (2) significantly extended in scope. While plant-based
proteins currently concentrate on mimicking processed meat, milk and yoghurt, we foresee this to be extended to virtually all
types of animal-based protein, including fish, eggs, cheese, and meat cuts. We believe that the adoption of 3D printers in food
supply chains will be key to this. Through the incorporation of the 3D printer in the production process of plant-based proteins,
manufacturers will be able to accurately imitate the texture, appearance, and sensorial properties of traditional animal-based
meat, such as chicken breasts and steak. Tel Aviv based start-up Redefine Meat for example has already created a technology
that combines 3D meat modelling, food formulations and food printing to create plant-based meat alternatives that have the
same appearance, texture and flavour as animal meat, with a 95% less environmental footprint. The company plans to pilot its 3D
printed plant-based meat alternatives in restaurants throughout Europe in 2020.
Growing Consumer Interest In Plant-Based Diets And Meat Alternatives

Global - Google Search Interest Over Time
Note: 'Meat Analogue' refers to plant-based proteins. Numbers represent search interest relative to the highest point on the chart. A value of 100 is the peak popularity for the
term. Source: Google, Fitch Solutions
• Insects: Insects already form an important source of protein for consumers in a number of countries worldwide and will
increasingly be seen as an alternative protein option in states where insects are not traditionally consumed. Insects are rich in
protein and vitamins and have a much lower environmental impact, as they only need a relatively small area to be reared and
require less water compared to livestock. While today’s young adults (20-39) and middle aged consumer (40-64) groups in
countries where insects are not traditionally consumed tend to dismiss the idea of eating insects because of the “ick” factor, we
note that generation Z (born between 1995-2012) and generation Alpha (born between 2012-2024) will be more accustomed
to the idea of consuming insects, due to mounting pressures on global food supplies and the fact that food and drink companies
will increasingly launch insect-based products. Start-ups, including UK-based Eat Grub and France’s Jimini’s, have already
launched insect-based products. While we do not believe insects as an end product will become mainstream by 2050, we do
foresee insects being widely used as ingredients, such as cricket-based flour.
• Lab-Grown Food: By 2050, we believe that various lab-grown proteins will be available through mass grocery retail stores and
food services and so will be incorporated within consumer diets. Over the next 30 years, food and drink companies will
increasingly invest in cellular-based proteins with the aim of commercialising them. While lab-grown foods will not address the
driver of health worries around the consumption of animal-based protein, it does provide a compelling solution to environmental
and animal-welfare concerns, as well as growing food insecurity. We note that numerous tech firms have already started
investing in lab-grown meat with front runners Memphis Meats (US), Aleph Farms (Israel), Higher Steaks (UK), Mosa
Meat (Netherlands), and Meatable (Netherlands) all competing to bring cultivated meat to mass grocery retailers. While we
note that high production costs will remain a key barrier to the commercialisation of lab-grown proteins in the short to medium-
term, we believe that production costs will be driven down in the long-term. We note that Israeli start-up Future Meat
Technologies has raised USD14mn in 2019 to build its first pilot manufacturing facility, which will bring the production cost of a
lab-grown steak down to USD10 (compared to the estimated USD50 in 2019). While cellular-based meat is currently the sector
gaining the most focus and investment, we expect this concept to be extended to other protein areas as well. A few start-ups we
note have started trialling lab-grown fish and dairy. California-based start-up Perfect Day is developing cellular-based dairy
proteins (the company aims to commercialise this protein in 2020).
While consumers in developed markets will be the first ones to adopt plant-based proteins and lab-grown food, we expect to see
this expanding to emerging markets, as the drivers of food scarcity (which is already an issue for some emerging markets), health
awareness and environmental impact spread globally. If cellular protein costs are greatly reduced and the products developed are
able to provide affordable nutrition, we believe that lab-grown could aid the poorest populations and reduce the risk of food scarcity
in the emerging world.
Food And Drink Barons Must Adapt
The largest food and drink manufacturers (such as The Coca-Cola Company, Kraft Heinz and Kellogg's) cultivated some of the
most powerful global brands in the 20th century. However, these archetypal consumer packaged goods companies, face serious
challenges about how to remain relevant over the coming decades. The foundation products on which food and drinks ‘barons’
business success was built are beginning to crumble. This is a trend we have been highlighting since 2012, with for example,
breakfast major Kellogg's reporting declines in cereal sales, soft drinks ‘king’ Coca-Cola reporting stagnating soft drink sales and key
FMCG player Nestlé recording weakening convenience food sales.
Evolving demographics, changing consumer tastes and preferences, the threat of greater government involvement along with
regulation in addressing a wider health deficit, and more instructive food labeling are among the most regularly cited challenges
faced by food and drink majors. With the vast majority of our consumer-facing survey respondents stating that technology and
innovation (91%), and altering consumer preferences (87%) will drive change in the competitive landscape of their industry over the
next three decades, we believe that the established food and drink companies will have to adapt their strategies significantly. We do
not foresee the end of the legacy food and drink 'barons', but expect them to exist in future, in a very different form to what they
traditionally looked like.
We highlight two drivers that will lead to a shift in the food and drink competitive landscape over the following three decades.
1) Niche products and brands: We believe that the next three decades will witness a move beyond the 'big brand' era in food and
beverage manufacturing to a 'smaller and individuality focused' landscape. This trend will be driven by an increased focus on health
and the growing importance of personalisation. Therefore nimbler and more agile companies will have a better chance of success.
We note smaller manufacturers are already establishing strong niches traditionally not addressed by the big brands. For example,
hard seltzer brand White Claw, which plays in the same segment as alcoholic drink majors such as HeinekHeineken
en and AB inBev, offers
low carb alternatives to traditional alcoholic drinks such as beer, and has been able to pose a threat to established companies in the
industry. The adaption strategies of the food and drinks ‘barons’ in meeting this challenge are: cutting costs, selling off weaker
brands, merging or acquiring companies that play in their sphere, offering a focus that they do not have, and investing in R&D to
develop into segments where new players are competing with them. By adopting these strategies big food and drink companies will
adapt beyond their traditional product model.
This view has already begun to play out since 2016, when we released our first iteration of Megatrends, with some of the major food
and drink companies in the world acquiring and investing these niche, fast-growing brands. We note that craft beer and spirits,
healthy snack foods, plant-based meat and dairy alternatives, enhanced water and sports nutrition are among the segments that
have been targeted the most by food and drink majors as part of their M&A and investment strategies, as they seek to diversify away
from their own traditional brands. The food and drink majors' huge financial resources gives them a significant advantage to
implement M&A. This allows them to buy up or invest in smaller companies and so leverage these companies' unique selling points
and benefit from their growth.
SELECTED MAJOR F&D VENTURE CAPITAL INVESTMENT

Date F&D Major Investment Segment
Feb-20 Groupe Bel Yofix Plant-based dairy alternatives
Sep-19 Heineken Gallia Craft beer
Aug-19 The Hershey Company Fulfil Sports Nutrition
Mar-19 The Kellogg Company Kuli Kuli Foods Healthy foods
Feb-19 General Mills Good Cultutre Fortified/Functional foods
May-18 Tyson Foods Future Meat Technologies Lab-grown meat
Source: Corporate Websites, Fitch Solutions
2) The rise of new food and drink barons: Increased investment in the grocery and food delivery space by tech and e-
commerce firms has the ability to increasingly put pressure on traditional food and drink companies over the next 30 years.
While Amazon historically has been an online market space selling third-party brands, it is increasingly investing in its own food and
drink products, with this having the potential to significantly disrupt the industry’s competitive landscape over the long-term. We
note that Amazon’s access and ability to leverage big data gives it a strong competitive advantage over the traditional food and
drink companies. For instance, when Amazon launched its brand Happy Belly (one of Amazon’s food private labels) in 2017, it was
able to track the fact that consumers were favouring trail mixes over its spices products. As a result, Amazon was able to adapt
quickly and triple its assortment of trail mix products and nuts offerings while it reduced its spices portfolio. Through granular
shopper data Amazon would also able to prioritise its own brands in search results, allowing it to actively push its private labels to
consumers at the expense of third-party sellers.
With e-commerce majors expanding into the food and drinks sphere and with the potential for them to develop into the new food
and drink ‘barons’ over the long-term, traditional food and drink ‘baron’s will have to adapt in order to remain competitive. We
believe strategies of traditional players to consider will be: partnering with e-commerce grocery and food delivery platforms, and
providing higher-value added services alongside their core products. In line with the ‘value add’ option we note Nestlé, which has
trialed its “Nestlé Wellness Ambassador” programme in Japan, which allows consumers to send pictures of their food via Line (a
popular instant communications app), after which they receive lifestyle change recommendations and personalised formulated
supplements, that make nutritious teas, smoothies and fortified snacks.
Traditional Food & Drink 'Barons' To Shift Strategies

Development Outlook
Food Retail And Restaurants Instant Delivery
We have touched on a few trends already that will shape the way that retailers and restaurants operate. We believe there is still a lot
of scope for retailers and grocery stores to enhance delivery services and really integrate themselves into consumers' lifestyles. The
increased use of 'Big Data', artificial intelligence and predictive analysis tools will allow retailers to determine what shoppers need
before they even have to create lists or enter the stores. These grocery items can also be delivered to the consumer before they
even order the items themselves.
This convenience theme associated with delivery is also already evident in the food services sector. Companies, such
as Deliveroo, have already transformed the food services sector by consolidating the delivery and logistics needs of restaurants
and, in doing so, are able to offer consumers their food in ever quicker delivery times.
We highlight three key developments how food delivery will become faster and more efficient over the next 30 years:
• Drone delivery: Delivering food and drink products by drone will significantly lower delivery times, especially in large
metropolitan areas (due to heavy traffic) and remote areas that would otherwise take a long time to reach by car. Drone delivery
will also allow restaurants to reach a larger pool of consumers. Uber Eats started testing a drone delivery service in San Diego in
2019, after it was awarded airspace rights by the Federal Aviation Administration, with plans to roll out a commercial drone
delivery service in San Diego in the summer of 2020. Uber will not use the drones for full delivery, but will fly the drone to a pre-
determined drop-off location close to the custumer, after which a courier is in charge of the last mile logistics. Google also
continues to invest in drones, with the company conducting its first commercial drone service in Virginia in 2019, delivering
snacks, small food and drink items and over-the-counter medication. With large tech firms heavily investing in drones, we believe
that food and drink drone delivery services will become increasingly mainstream over the next three decades.
• Self-Driving Cars: Food retail and restaurant delivery through autonomous vehicles provides consumers with more control
over delivery times and locations, while it also reduces delivery costs. Udelv, an American based self-driving delivery startup,
teamed up with Walmart to launch an autonomous grocery delivery service in San Francisco, Phoenix and Houston in 2019.
Pizza chain Domino’s has also launched a pilot for self-driving pizza delivery in Houston in 2019. We note that the combination
of pairing self-driving cars with drones has the potential to significantly decrease delivery times, with the drone landing on the
autonomous car, which then finishes the final mile.
• Dark Stores and Restaurants: Dark stores and restaurants will see traditional retail and dining experiences evolve, as dark
entities solely focus on delivery. Dark stores function as local warehouses and are not open for the public, while dark restaurants
(sometimes called cloud restaurants) serve as kitchens to prepare food to deliver to customers without a dining area attached.
Dark stores and restaurants tend to be located in residential areas and so they have the potential to significantly reduce delivery
times. Middle Eastern delivery service Talabat for example launched its first dark store in Kuwait in 2019, which allows
consumers to receive their grocery order in just 15 minutes. With food retail and restaurant delivery becoming increasingly
mainstream and consumers expecting faster delivery services, we highlight that dark stores and restaurants will significantly
gather momentum over the next three decades.
We believe the evolution of food delivery either via the retail or food services aligns with the urbanisation and the aging consumer
themes, previously mentioned. Although drone delivery offers a logistics option to reach rural areas, self-driving cars and dark stores
and restaurants will all work best in urban settings. Their development will thus be driven by the ongoing urbanization of the global
consumer. In 2020 we estimate consumers living in an urban environment will account for 56% of total global consumers and
forecast this to rise to 66.1% in 2050.
Urbanisation Coming To Emerging Markets

Global Urban Vs Rural Population
Consumer & Retail - Megatrends Survey 2020: Technology, Sustainability

And Personalisation To Drive Change
The responses from our survey of decision-makers within the Consumer & Retail sector highlight the role that technology,
sustainability concerns, and rapidly changing consumer preferences will have on the industry over the next 30 years.
Consumer demands in 2050 will be vastly different to those of in 2020. Led by technological developments, we see an increase in
demand for niche products, more sustainable goods, and value-added services, which will change the face of the competitive
landscape. The impact of personalisation will also change how companies operate, and will lead to higher levels of investment in
Internet of Things (IoT) and Artificial Intelligence (AI), with these technologies having the potential to drive customer engagement
with products and brands.
AI Limited Investment, Yet Believed To Be Most Disruptive

Survey For Consumer & Retail - % Of Respondents Rating Issue As High-Impact
Below we highlight a number of key takeaways from our survey of consumer and retail companies, both in developed and emerging
markets:
• Over the next five years, respondents in the Consumer & Retail industry highlighted that Social Media poses the most disruptive
threat to current business models. 61% of respondents stated that they believe social media will have the greatest impact on the
industry through to 2025, followed by ‘Internet of Things (IoT) and smart devices’ at 53% and Automation and Robotics at 42%.
• Over the next 30 years, while social media will according to our respondents remain the key disruptor (at 65%), greater volumes
of respondents are noting the dawn of Artificial Intelligence (AI) and believe it will become the second greatest disruptor of the
consumer and retail sector over this time period (59%). While AI technology is currently in its infancy, we believe that that it will
become increasingly integrated in retail supply chains and marketing strategies for consumer-facing companies through to
2050.
• In our previous Industry survey in 2018, respondents in the Consumer & Retail industry stated that they believed that ‘Climate
change and environmental considerations’ would be the second most disruptive force to current business models over the next
three decades. In our latest survey, this has dropped to fourth position, with 49% of respondents stating climate change will be
highly impactful for business models. We believe this is due to the fact that over the last few years consumer-facing businesses
have invested in mitigating this risk and have adapted business models that are more environmentally sustainable.
Both Nestlé and Kraft Heinz have stated that they are shifting to a 100% recyclable/reusable packaging strategy, while
Unilever integrated sustainable development goals into its corporate strategy in 2018.
• Our Consumer & Retail respondents also highlighted that diet and health shifts have the potential to become disruptive forces to
the consumer industry. While 41% of respondents believe that dietary changes and health will be highly impactful to current
business models over the next five years, this number increases to 48% when respondents were asked to look 30 years ahead.
Out of the respondents who believed diet and health will be highly impactful in the long-term, they identified the rise of
alternative protein as the most disruptive threat, with 33% of our respondents stating that this will have a high impact on the
consumer and retail sector over the next 30 years.
• When asked 'which areas is your company investing in most heavily now?' ‘Personalisation of services’ was the most popular
choice for Consumer & Retail respondents, with 59% listing this as a high investment area. This ties in with our view that
consumer nutrition will become increasingly personalised over the next three decades, with genetic testing set to become a key
driver of this trend. The second strongest investment area as identified in our survey is ‘Cyber security and defense’, which was
listed by 47% of respondents as the area receiving the most investment from consumer and retail companies. As consumer-
facing companies adopt technologies and leverage big data, such as genetic information, cyber security will become a key
concern through to 2050. Only 21% of respondents stated that the consumer & retail sector is well prepared to deal with cyber
security concerns, while the vast majority, 66%, stating the industry is only somewhat prepared, indicating there is significant
room for improvement.
• When looking at the factors driving change in the competitive landscape, the ‘Shift to a low carbon economy' is the leader, with
48% of respondents listing this as having the highest impact on the consumer and retail landscape. While there appears to be
some level of discrepancy with our survey respondents listing climate change only as the fourth most disruptive force to
business models, we note that consumer-facing companies have started adapting business models to lower their carbon
footprint. This means that sustainability has already become part of corporate strategies, having lost some of its "disruptive"
character. As consumers are becoming more aware and engaged in understanding their purchasing habits’ impact on the
environment, companies that implement and communicate low carbon policies will be able to gain market share over the next
decades. This means that sustainable companies and start-ups will be able to shift the competitive landscape in the consumer
industry. As an example, plant-based milk alternatives (e.g. soy, oat, and almond milk alternatives) have been able to steal market
share from traditional dairy companies in recent years partly due to having a lower carbon footprint compared animal-based
milk.
• Diving deeper into the three major technology trends of IoT, Automation and AI, Consumer & Retail companies believe that IoT
and AI will be equally impactful through to 2050. 49% of our survey respondents highlighted these technological trends as
highly impactful for ‘customer engagement’ in the Consumer & Retail industry over the next three decades. Through these
technologies consumer-facing companies will be able to create personalised (nutritional) recommendations, as well as provide
fast and 24/7 customer support. In addition, food and drink companies will be able to set up subscription services based on
customers’ purchasing habits e.g. smart refrigerators analysing contents and automatically re-ordering pre-selected products.
Premiumisation and Higher Value Services To Define Competitive Landscape

Consumer Industry - % Of Respondents To Question 'What Is Driving Change In Your Sector's Competitive Landscape?'
Automotives
Autos: Autonomy, Sustainability & Digital Tech Revolutionising Mobility
Key View
• Existing relations between the various stakeholders in the Autos industry will be significantly altered by the eventual
standardisation of today's cutting-edge technologies in electrification, autonomy, sharing services, the Internet of Things and
manufacturing processes.
• The new ways in which vehicles are produced, purchased, used and disposed of will challenge the dominance of established
automakers in favour of new market disruptors and will push automakers into unfamiliar, non-core activities by mid-century.
AUTOS MEGATRENDS TO 2050: WINNERS AND LOSERS
The shift towards zero emissions vehicles EV and FCEV companies Fossil fuel-reliant automakers
Petrol- and diesel-related retailers, suppliers

Charging infrastructure/power providers
and logistics
Hydrogen fuel producers Oil & gas extraction/refinery firms
Lightweight material providers (aluminium,

Traditional steel manufacturers
carbon fibre, lightweight steel)
Component manufacturers for internal

Battery producers
combustion engines and transmissions
Miners of battery metals and minerals Miners of ICE-related metals
The mass adoption of self-driving car

Sensor manufacturers Motor Insurance companies
technologies
Companies enabling vehicle-to-vehicle and

Mass-market vehicle manufacturers
vehicle-to-infrastructure (telecoms)
Smart processor manufacturers

Performance vehicle manufacturers
(microchips)
Cybersecurity providers Large traditional road freight fleet operators
Automakers without proprietary

'Big data' and data storage firms
autonomous driving software
Automated taxi and logistics fleets Conventional taxi fleet operators
Multi-layered mapping services GPS-only mapping services
Artificial intelligence software providers Crash repair services
The use of shared mobility services as an Fleet management and maintenance

Automotive retailers
alternative to car ownership services
Mobility app providers and related software Traditional public transport providers (rail,
developers bus, and taxi)
Rental car companies with sharing emphasis Car financing services
Companies enabling vehicle-to-vehicle and

The incorporation of vehicles into Internet of
vehicle-to-infrastructure communications 3G and earlier mobile technology providers
Things
(eg, 5G mobile technology providers)
Traditional head-unit and dashboard

Smart processor manufacturers
component suppliers
Automakers unable to sell, or secure access

Cybersecurity firms to, data generated by connected car
components
Automotive brands whose customers no

Big data/data storage firms longer associate the brand with the user
experience inside the vehicle.
E-commerce companies Performance vehicle manufacturers
The shift towards labour-saving,

environmentally-sustainable manufacturing Renewable energy providers Fossil fuel-based energy providers
technologies
Bio-materials and renewable materials

Non-renewable chemicals manufacturers
providers
Metals and minerals recycling services Metals mining and refining
Labour services such as labour contractors

Robotics and digital solutions for
and consultancies (ergonomists, HR
manufacturing
consultancy)
Manufacturers with weak corporate social

3D printing companies
responsibility / sustainability strategies
After more than 100 years of global expansion, the traditional Fordist-styled automotive industry is fast becoming unsustainable in
its current form. Automakers, dealers, suppliers and other stakeholders now stand at the brink of a period of radical change as new
technology, demographics, climate change and consumption patterns start to shape the industry beyond recognition.
In this analysis we provide our views on what will be the five megatrends in the autos industry up to 2050, how these characteristics
will alter the dynamics of the industry and who the new dominant industry stakeholders will be. The seminal megatrends we focus
on are:
• The shift towards zero-emissions vehicles

• The mass adoption of self-driving car technologies
• The use of shared mobility services as an alternative to car ownership
• The incorporation of vehicles into the Internet of Things
• The shift towards labour-saving, environmentally-sustainable manufacturing technologies
Taking account of these five megatrends together it should become clear that the industry and its most powerful actors will only
barely resemble the autos industry of today. The mass adoption of zero emissions vehicles and a shift towards environmentally-
friendly processes highlights the way that resource scarcity, climate change and environmental concerns of governments,
consumers and companies will shape which products are produced and how.
At the same time, the introduction of autonomy, shared mobility and the development of the connected car eco-system will
threaten less agile carmakers, suppliers and traditionally important actors in associated industries like insurance, public transport
and logistics. As these actors are shut out, the door will be opened for new market disruptors with a flair for innovation and who
have the advantage of not being tethered to the stale, Fordist business models of today's car-making giants. Clearly, the need for
automakers to push into non-core activities will become ever more obvious as we move closer to 2050. This was overwhelmingly
supported in our most recent survey of industry executives in 2020, with 90% of respondents agreeing with the statement that
'companies have to provide higher value-added services alongside their core product'.
Shifting Towards A Zero-Emissions Vehicle Fleet
Pushed by emissions regulations, climate change goals, and shifting consumer tastes, economies will shift towards establishing a
zero emissions vehicle fleet. While the uptake of electric vehicles (EVs) and fuel cell electric vehicles (FCEV) will be slower in
emerging markets, in more developed markets diesel and petrol vehicles will become far less ubiquitous and will only be kept only
for specialised purposes in many cases. These include specialised vehicles such as those used in construction, vehicles used
regularly in isolated and off-grid areas such as farms, or vehicles used for recreational purposes amongst motoring enthusiasts. In
major cities, particularly in European cities, bans are coming into force for diesel vehicles with longer term full bans planned for all
ICEs in many countries, in the interests of public health, pollution or noise control.
Gathering Momentum
Electric Vehicle Fleet Forecast
f = Fitch Solutions forecast. Source: National sources, Fitch Solutions
The main fuel source for the majority of these zero-emissions vehicles is likely to be electricity, though hydrogen FCEVs will have a
place in the future fleet. EVs have the advantage over FCEVs in that the fuelling infrastructure for EVs is essentially one that already
exists in the form of the national power grid. Transporting electricity from its production source to the vehicle itself is also
instantaneous making it easy to address needs quickly and cheaply.
Furthermore, the cost and efficiency of EV batteries as well as the environmental sustainability of EVs is also likely to substantially
improve, making EVs an increasingly more attractive choice for consumers (see 'Batteries: Transforming The Energy System,
Shaping The Future', September 16 2016). Given the current government support and the investment boom in battery
technologies, we expect to see a wealth of innovations that will improve battery costs, efficiency, life expectancy, recyclability, and
charging speeds as well as lower their use of rare earth metals. Together, these innovations will make electric cars a more cost-
effective option than conventionally-fuelled cars.
Environmentally-conscious governments and consumers will also have all the more reason to support EV adoption as the source of
electricity becomes more sustainable. Our Power and Renewables team believes that as the number of EV batteries in circulation
surges, these batteries will become an increasingly important source of electricity storage at the grid level. Like stationary
storage, EVs can charge and discharge power from and into the grid in accordance with power supply/demand balancing needs. As
a result, EV batteries can mitigate the problem of non-hydro renewables power supply intermittence, allowing for a greater uptake
of wind and solar power generating capacity, lowering reliance on polluting fossil-fuelled back-up power generation.
EVs Charging From A More Sustainable Power Mix

Renewable Energy Sources As % Of Global Power Generation
f = Fitch Solutions forecast. Source: Fitch Solutions
Considering the whole zero-emissions picture, we believe hydrogen fuel cell-powered vehicles (HFCV) will develop into a
complementary product alongside EVs, as opposed to a replacement product and that the commercial vehicle (CV) segment will be
most suited to this technology due to the range and quick refueling capabilities. This means by 2050 the zero-emissions landscape
is likely to be one of the most suitable technologies for each use case rather than one dominant technology.
We also believe that int he longer term, the development of HFCVs will likely lead to a stand-alone and portable fuel cell which can
be fitted to existing EVs in order to extend their range and reduce recharging times, which is currently a major hindrance to
accelerated EV adoption. This will also have the ability to increase the uptake of EVs as the primary concerns about EVs (charging
times and range) will be reduced by the presence of a small self-contained hydrogen fuel cell, thus enabling the shift towards the
zero-emissions fleet by 2050.
Fully Autonomous Vehicles Take Centre Stage
In the period leading up to 2050, we expect autonomous driving capabilities will have become a standard feature of all newly
approved vehicles in much the same way as the anti-lock braking system (ABS) and airbags are today. Safety regulators and
researchers are already advocating the immediate introduction of some semi-autonomous features such as automatic emergency
braking (AEB) systems as standard across all new model type approvals to bolster safety. With industry developments like this
already occurring, it is not hard to believe that full autonomy - or at least the built-in option of autonomous driving - will be standard
across all new vehicles by 2050.
Giving up control of vehicles, or at least having an autonomous driving system on standby, will even start to become legally
mandatory under certain circumstances. For example, dangerous driving situations, like when travelling at speeds where a crash
caused by human error would prove fatal or when driving through high pedestrian areas, will all require autonomous functions to be
switched on. Entire parts of the road network such as highways or areas where crashes may cause extensive traffic gridlock may
even become exclusively autonomous.
Changing Industry Balance Of Power
We can expect the added introduction of autonomous vehicles to be a game-change for automotive industry relations. The rise of
autonomy will mean that the software, sensory hardware, and telecommunications infrastructure underpinning how the car drives
itself will become a major value-added part of the vehicle. Automakers who have balked at developing their own proprietary
autonomous technologies will, therefore, be left partly at the mercy of digital technology companies and major suppliers when it
comes to securing access to these necessary features (see 'Mapping Acquisition Helping Automakers Challenge Tech Giants',
August 4 2015).
Further adding to pressures on automakers, the rise of autonomy will accelerate the drop in car ownership rates that will have
already begun in the years leading up to 2050 due to factors such as ride-sharing and car-sharing. With the onset of full autonomy
we expect households will be able to better use one car leading to less need for a second or third (see 'When And How Will
Autonomous Cars Be Consumed?', August 19 2015). This will add to the already declining ownership rates in developed economies
and some emerging markets where high and growing urbanisation rates, changing consumer tastes, new alternative transport
options and rising costs of vehicle ownership will all lower the appeal of owning a vehicle (see 'Car-Sharing Offers A New Hope For
Automakers' June 8 2017).
Design Importance A Silver Lining For Automakers
However, the role for automakers will still be strong with brand development, product design and manufacturing know-how still
being critical to attracting consumers. As passengers give up control of the vehicle and turn to other activities while riding in an
autonomous car, vehicle designs with better interior aesthetics, entertainment options, comfort, practicality, acoustics, and brand
image will become the more attractive choice for consumers. Today's consumer concerns based on practical considerations of fuel
types, mileage, handling, and safety features will, therefore, be replaced with user experience aspects.
Autonomy A Serious Threat For Autos Insurance
We expect a strong period of consolidation in the insurance industry to follow the widespread adoption of autonomous
technologies. As autonomous features bring crash numbers down to never before seen levels some of today's motor insurance
products will become almost irrelevant.
Using advanced sensory components and real-time streams of vehicle-to-vehicle (V2V) and vehicle-to-Infrastructure (V2I)
communications, autonomous vehicles will be able to 'see', anticipate and avoid crash hazards while also eliminating the possibility
of driver errors. This will drastically reduce the number of crashes given that driver error is the critical reason for crashes in an
estimated 94% of all incidents according to crash surveys conducted in the US by the National Highway Traffic Safety
Administration (NHTSA). This is followed by 2% of accidents being caused by failure or degradation of components, 2% caused by
environmental factors such as slick roads and a further 2% caused by unknown circumstances.
Safer roads will, however, mean that insurance companies that derive their income from crash coverage will be hit hard, eventually
leading to consolidation in the industry. As the likelihood of a crash falls, Insurance premiums will fall significantly, leading to
reduced revenues for insurance companies. Insurance companies will also be less able to design profitable insurance products that
exploit the differing risk factors across groups of drivers and vehicles, since most cars will be using autonomous driving products
that all promise similar safety and reliability levels based on industry standards.
Autonomy Threatens Industry As It Passes USD1trn Mark

Total Motor Insurance Premiums Paid By Region, USDmn
f = Fitch Solutions forecast. Source: Fitch Solutions
More fundamentally, as people give up control of their vehicles, liability of a crash will also shift from the driver to the software
driving the vehicle and, thus, to the automaker or technology company responsible for its design. Incomes from third party
insurance policies that are paid by drivers will, therefore, also fall dramatically. In turn, product liability insurance lines, paid into by
companies selling autonomous driving technologies, will become far more important for the insurance industry. With product
liability becoming far more important, insurers will also lose much of their market bargaining power as they are forced to compete
for only a handful of insurance contracts with powerful carmakers and suppliers, rather than millions of contracts with individual
drivers. It is likely that by 2050 new revenue streams will have been found in the capture and sale of data generated during trips.
New Mobility: The Age Of Shared Services And Reduced Ownership
Another major trend that will further speed up the decline in vehicle ownership rates among households will be the evolution of
‘New Mobility’ services into mainstream transport options. App-based car-sharing and ride-hailing services – known collectively as
‘New Mobility’ services – are particularly well suited to the future of road transport, given their on-demand nature and their ability to
offer customers the freedom to travel where they want without shouldering the added costs of actual vehicle ownership such as
parking, maintenance, repairs, insurance and fuel.
By using location and other personal data generated by each consumer's smart devices to anticipate and react to patterns in
consumer demands and desired destinations, these New Mobility services will have become increasingly sophisticated and dynamic
by 2050. They are likely to be better linked into app-based ‘all-in-one’ platforms that link car sharing, ride-hailing, public transport
services (including rail, bus and shuttle services) and mainstream private taxi services all together. These multi-modal platforms
promise to make journeys involving more than one form of transport much more simple and seamless, which will further reduce
the need for vehicle ownership.
Autonomy Enhancing The Role Of New Mobility
Autonomy will also speed up the popularity of a new breed of ride-hailing companies similar to services offered by Uber
Technologies, Didi Chuxing and Lyft today, but which do not require a dedicated human driver. By removing the need for a
driver, taxi services no longer need to cover labour costs. At the same time, they will be able to better use their fleets as cars will no
longer need to sit idle at depots, during changeover, or while an owner-driver is off-shift. Thus, we expect the price and availability of
taxi services to drop dramatically, leading more people to switch to the use of these services rather than owning their own vehicles.
Economic actors with the most power in this field will be those that control the three key technologies that make driverless ride-
hailing services possible: the autonomous driving technology, the mapping/locational platform that underpins the service, and the
fleet management software that manages the demand and supply of vehicles. Each of these three key technologies will be very
hard to replicate and provide at a good quality, therefore, giving the company that can best control all three of these resources a
better shot at market success.
Judging what kind of companies will dominate this autonomous ride-hailing business in 2050 is, however, very difficult given the
current scramble for these three key technologies. Carmakers like Volkswagen Group and Daimler are developing their
autonomous driving capabilities, have bought ownership stakes in mapping platforms, and invested in both their own and pre-
existing ride-hailing services. However, Google's autonomous driving spin-off, Waymo, also boasts a well-developed autonomous
driving program, strong links to Google’s mapping technologies and partnerships with carmakers to build fleets of autonomous
vehicles. Ride-hailing companies with the most experience in providing a taxi fleet management platform, like Uber, Didi and Lyft are
also developing self-driving technologies but still lack mapping expertise.
With no obvious dominant player controlling all three of these key areas, we believe the lead up to 2050 will be characterised by
fierce competition, company acquisitions, tie-ups and partnerships.
Less Ownership And More Sharing Means A New Business Model Is Needed
Regardless of who controls the new mobility economy, we believe the current business models of major carmakers will be left partly
obsolete by the rise in sharing services. The combination of less need for household ownership of cars and the rise of alternative
mobility options - both spurred by increased autonomy - will not allow car sales growth to continue at the rate it is today, especially
in fast-growing emerging markets.
The growth-oriented models of today's car companies will, therefore, become unsustainable as private ownership rates
among households drop and fleet operators become able to use their fleets more intensely. Instead, automakers will have to adapt
or face the real possibility of becoming obsolete as new automakers with business models based around New Mobility models
move in. One such example being Lynk and Co, with its proposed subscription-based ownership programs as well as its shared
mobility service where vehicle owners can share their own vehicles through an app-based platform. Industry players echoed this
view in their responses to our 2020 Megatrends survey, with more respondents believing that blue-chip companies will need to
morph as the competitive landscape evolves, than in our 2018 survey.
By selling fewer cars to individuals and relying on fewer but much larger corporate fleet purchases by autonomous ride-hailing firms,
carmakers will also lose their monopolistic bargaining positions in the market. Instead of selling a single vehicle to millions of
individual buyers, larger one-off orders to fleet operators will begin to account for a larger proportion of total sales. In turn, this
means larger fleet operators will start to determine pricing and control demand much more intensely, becoming price makers
rather than just price takers.
A Fully-Connected Internet Of Things
The car is also now on a path to becoming well and truly connected to an ecosystem of smart devices and transport infrastructure
by 2050. Consumers will be able to connect with social media, entertainment services, and any other online activity through the
displays and components of the car. At the same time, by using data generated by users in the car and by receiving more data from
the user's other connected devices, the car will be able to anticipate the needs and wants of its user and to deliver relevant online
services directly to the user in the vehicle. This in turn will become an increasingly important alternative revenue stream for
automakers.
What is more significant is that the car will also exchange data with other cars - via V2V communication - and with new smart
transport infrastructures, such as traffic lights, through V2I data-sharing technologies. The combination of these technologies will
enable any car to anticipate and avoid obstacles, such as traffic jams and icy roads, well before they come into view. At the same
time, V2I communications will help smart traffic infrastructure better monitor and manage the flow of vehicles through a city.
The emergence of V2V and V2I data sharing on such a massive scale will also raise the importance of data-processing and storage.
Designing technology to handle the huge amounts of data produced and then to route it to where it is needed will become a critical
activity for carrying out connected car activities, autonomous driving, and maintaining smart city road networks.
Cybersecurity will also become paramount as cars and traffic-related infrastructure will be - at least theoretically - vulnerable to
being hacked. Here, the dangers may range from individuals and criminal groups gaining access to the user's personal and financial
information all the way to re-routing traffic, causing gridlocks in cities and even hijacking cars remotely. Even though these risks are
known, most respondents to our 2020 survey admitted to being only 'somewhat prepared' for cybersecurity threats.
Environmentally-Friendly But Not Labour-Friendly Manufacturing
We believe manufacturing will also be shaped strongly by the introduction of labour-saving technologies and new and reusable
materials. On the one hand, we believe the industry is headed for a period of political instability leading up to 2050 as the adoption
of new labour-saving technologies, known collectively as ‘Industry 4.0’ technology, is ramped up further and as less labour intensive
electric vehicles come to dominate production. In particular we see the widespread adoption of high-tech, connected
manufacturing robots as well as 3D printing techniques as two shocks that will affect the industry between now and 2050.
These machines promise to make the production process faster, more reliable and more dynamic in its use of new materials but as
more 3D printers and more advanced robots are installed at manufacturing plants, this will gradually cut out the need for assembly
workers and skilled machine operators. As a result, total employment and new job opportunities for workers in manufacturing
activities are likely to erode further, causing distress amongst industry employees and increasing political tensions.
Furthermore, the introduction of labour-saving tech will also spur a ‘re-shoring’ of investment back towards developed markets and
away from emerging markets, representing a major reversal in traditional investment patterns. Low labour costs will become less of
a pull factor for investment. Instead, investment is more likely to pour into more technologically developed countries with the skills
and infrastructure necessary to develop, install and maintain Industry 4.0 technologies (see ‘Industry 4.0 Will Shake Up Emerging
Market Manufacturing’, January 12 2018).
Adding to the pressures created by adopting labour-saving technology, the automotive industry’s labour force will also be hit by the
transition towards a more electrified vehicle fleet. Compared to internal combustion engine (ICE) vehicles, electric vehicles require
less man-hours to assemble given that ICE powertrains contain roughly seven times the number of components used in battery
electric powertrains. Thus, the potential for job losses at major OEMs transitioning to an electrified future are considerably high. This
threatens to further worsen labour tensions in the years leading to 2050.
However, while automotive manufacturing becomes less sustainable in a socio-economic sense, we believe it will become more
sustainable in an environmental sense. First, automakers eager to lower their environmental footprint will have greatly enhanced
their recycling efforts. We expect to see the emergence of closed-loop value chains where automakers are recycling close to 100%
of certain materials they put into production. For example, automakers using aluminium will be closer to securing 100% of their
aluminium inputs from tracking, reclaiming and recycling their vehicles at the end of their lifespan or from recycled aluminium
suppliers.
The importance of recycling and ensuring the development of closed-loop value chains will also increase with the growing
electrification of the vehicle fleet. Disregarding a potential breakthrough in battery chemistry technologies that use more
environmentally-friendly materials, EV batteries represent a potential ecological threat both in terms of the mining of their raw
materials, their production and the potential contamination dangers of batteries dumped in landfill or elsewhere. The need for EV-
related companies to collect, reuse and recycle batteries will, therefore, be fundamental for preserving their ‘green’ image.
Furthermore, battery production’s extensive use of rare earth metals, such as cobalt, will make battery recycling critical for avoiding
bottlenecks and shocks in supply chains for these materials.
We also believe that as more carmakers push the use of alternative fuel for vehicles, the use of renewable energy to power at least
part of the vehicle production process will become equally significant. The reason for this is that vehicle manufacturing is highly
energy-intensive and, therefore, another big generator of emissions. We are already seeing examples of carmakers using wind or
solar power for their manufacturing facilities, sometimes down to local regulations but increasingly through an awareness of the
need to be more sustainable throughout the manufacturing process and we believe this more environmentally aware approach will
be a regular part of the process by 2050.
Autos – Megatrends Survey 2020 : People Still Important In High-Tech

Future
Our Megatrends survey of senior decision makers within the Autos sector for 2020, updated to include some new drivers of
disruption we have identified for the period to 2050, shows some similarities to the 2018 survey, most notably that the respondents
see these drivers having a higher impact over the next 30 years than in the next five years. We also note, however, that in all cases,
the combined percentages of respondents expecting 'moderate impact' or 'high impact' is always much greater than 'no impact',
suggesting we are on the same wavelength with industry participants regarding the specific drivers of disruption. The drivers in
question are: 'Automation and Robotics'; 'Artificial Intelligence'; Internet of Things (IoT)'; '3D Printing'; 'Sharing Economy'; 'Climate
Change And Environmental Considerations'; 'Social Media'; and 'Diet and Health'.
Mixed Response To Short-Term Disruption
One of our key takeaways is that there is little difference between the percentage of respondents seeing 'moderate impact' and
'high impact' for all of the disruptors in the next five years, yet the gap becomes much bigger when asking about the next 30 years,
with a higher percentage leaning towards 'high impact'. For example, when asked about 'Automation and Robotics' as a driver of
disruption over the next five years, 37% of respondents expected 'moderate impact' and 45% expected 'high impact'. However,
when putting this into the 30-year time frame, the response switches to 60% for 'high impact' and 31% for 'moderate impact', and it
is similar for all of the drivers except 3D Printing. We think there could be two reasons for this. Firstly, the respondents do not believe
these drivers will be big disruptors at all over the next five years. Secondly, the respondents think they are already becoming part of
the industry's day-to-day operations and therefore not really disruptive within that time frame, but will be disruptive if they become
'the norm' within the 30-year period.
Longer Term Trends In Play

Percentage Of Respondents Identifying Trend As 'High Impact'
This is evident in the fact that, despite the conversation around electric and autonomous cars being the next big thing in the
industry, 'Social Media' had the highest percentage of respondents (49%) seeing this as a 'high impact' disruptor over the next five
years. We believe this is because it is already accessible and, as long as consumers have internet connection, there are no financial
or infrastructure barriers to its usage. YouTube channels now provide much more dynamic car reviews than a written review ever
could and carmakers themselves can use Facebook and Twitter to reach consumers at less cost than traditional advertising. It is
over the longer 30-year horizon that the bigger percentage (61%) see IoT as being the 'high impact' disruptor, which we believe
relates to not only autonomous cars and their infrastructure being connected but also factories, which we are already starting to
see as 5G rolls out, and will become more ubiquitous over time.
Given the expectation of this technology-oriented future for the industry, when asked about the most important skills of the future,
there was an overwhelming response for 'People Skills' - with 64% of respondents saying this would be important. It was also the
only one of seven - the others being 'Analytical Thinking'; 'Creativity'; 'Technical Skills'; 'Decision Making'; 'Interdisciplinary Knowledge'
and 'Subject Matter Expertise' - to register over 50% of the respondents. Although this may seem to be contrary to the direction of
travel for the industry, there is evidence to support it as even consumers who say they would happily research and find a new
vehicle online also say they would rather visit a physical dealership to see and test the car. If the view of falling private car ownership
over the next 30 years plays out, then there will be fewer consumers to win over and customer service could become a key
differentiator for dealers and service providers.
Soft Skills Still Important

% Of Respondents Agreeing With Importance Of Skill
This trend carried over to the question regarding the evolution of the Autos sector's competitive landscape, with 90% of
respondents agreeing that 'companies have to provide higher value-added services alongside their core product'. This was by far
the highest share, followed by 80% agreeing that the landscape is evolving 'to help companies become more agile'. The idea of
companies providing value-added services supports our view that the whole business model of carmakers will change over the next
30 years - from producing and selling vehicles to individuals, to providing on-demand services using fleets of their own cars, which
will ultimately be autonomous by the end of this period. However, there was less consensus on what would be driving the change in
competitive landscape when the respondents were given the options of 'shift to a low carbon economy'; 'technology and
innovation'; 'changing consumer preference' and 'changing regulations and/or public policy shifts', with the biggest shares of
respondents selecting 'little impact' for each of the drivers.
Emerging Markets Anticipate Bigger Disruption
There are much more nuanced trends in the survey data when the respondents are divided into emerging markets (EM) and
developed markets (DM). For example, while the total responses were split between 'moderate impact' and 'high impact' for the
identified disruptors over a five-year period, the 'high impact' response was much bigger from EM respondents. For example, 71.0%
saw IoT as a 'high impact' disruptor over the next five years, followed by 68.4% for Social Media. As with the total responses, the
percentages were even higher for the 30-year period, with 81.6% of EM respondents viewing IoT as a 'high impact ' disruptor in the
long term. For DM respondents, the percentages were much more along the lines of the overall survey trends, with the 'high impact'
expectations kicking in more so for the 30-year period than the next five years. We attribute this to some of the key disruptors, such
as automation and IoT, already feeding through to the industry in DMs where companies have more financial resources and suitable
infrastructure, thus they are seen as less of a shock to the day-to-day business.
This also fed through in the question about what these companies are investing in most heavily right now. For EM respondents,
there were notably higher percentages for the 'high impact' of energy efficiency (65.8%), cybersecurity (65.8%) and automation
(63.2%) on investment. In contrast the percentages were lower for DM respondents, which again had a closer split between 'little
impact' and 'high impact' on investment across the different drivers. We believe this could be down to the fact that DM companies
already have their investment strategy in place for these disruptors, which would align with their responses to the level of impact
these disruptors are expected to have. This trend also feeds through into what is driving the shift in the competitive landscape, with
EM respondents leaning much more definitively towards the low carbon economy as 'high impact' (55.3%) whereas for DM
respondents, with over 50% of respondents for 'high impact', there are no drivers. 'Technology and Innovation' is the greatest 'high
impact' response for DMs, with 37.5%. Again, this could point toward technology not yet filtering through to the sector in EMs,
markets that are, instead, catching up with areas such as alternative fuel vehicles.
IoT On EM Companies' Radars

% Of Respondents Registering 'High Impact' Response
There is more consensus on how the competitive landscape is evolving, however, with the biggest positive responses coming from
both EMs (94.7%) and DMs (87.5%) for the statement that companies need to provide value-added services. There was also
agreement from both groups on being only 'somewhat prepared' for cybersecurity threats, although there is divergence on actually
investing in cybersecurity - with 65.8% of EM respondents saying this had a 'high impact' on their current investment,
compared with 41.1% of DM respondents. We believe this additionally reflects the different stages of progression with the move
toward connected technology, both cars and factories, being quicker in DMs and therefore they already have their investment in
place.
Comparison With 2018
Given the differing sample sizes and locations of respondents, it is difficult to make direct comparisons with the 2018 survey. That
said, it is still interesting to compare the results as we are now within the five-year period that the 2018 respondents were
considering and we can compare how views might have changed. For example, a smaller percentage of respondents in 2020 said
'energy efficiency' was a 'high impact' driver of investment than in 2018, and we attribute this to companies already having their
investment plans related to energy efficiency in place, since the adoption of electric and other alternative fuel vehicles has gathered
momentum over the last two years. There is also a smaller percentage of respondents considering the sharing economy to be 'high
impact', which we would also attribute to the growth of ride-sharing and car-sharing globally as a more day-to-day feature of the
sector since 2018.
One notable similarity between the two surveys is the recognition that there will be a handful of major disruptors in the competitive
landscape, and this has been supported by developments such as Tesla overtaking the market capitalisation of major traditional
carmakers. However, another difference is that more respondents in 2020 think that blue-chip companies will need to morph as the
competitive landscape evolves, than in 2018. This could be down to the differences between the respondents in 2018 and in 2020,
or it could be that the extent to which existing companies need to adapt to the structural changes in the industry is becoming more
apparent over time.
Power & Renewables, Infrastructure

Power & Renewables: Decentralisation, Digitalisation And
Decarbonisation To Transform The Utilities Sector
Key View: The rise of decentralisation, digitalisation and energy storage technologies, along with the global push towards a low
carbon economy, will transform the global power sector over the coming decades and significantly alter the business models of
those utilities operating within in it. Shifting electricity consumption patterns and greater penetration of renewables as well as
natural gas-fired electricity generation will also be core megatrends for the power industry.
POWER MEGATRENDS TO 2050: WINNERS AND LOSERS
Slow-adapting utilities; Public and private

Manufacturers and installers of of
subjects exposed to cyber security risks;
Decentralisation, Digitalisation And The Utility distributed generation and energy IoT
Some telecoms and transmission
Of The Future equipment; Energy management software
companies (facing increased competition
providers; Cyber security service providers
from new entrants)
Renewable energy developers and

equipment providers; Providers of clean Utilities with a heavy portfolio of thermal
Power Sector Transformation Towards Low
energy technologies; Companies working assets; Coal and oil producers; Investors in
Carbon Economy
with financial products targeted for the Low assets exposed to fossil fuels
Carbon Economy
Companies producing and supplying natural

Owners of coal-fired power plants; Coal
Natural Gas Interim Prominence gas via pipelines and LNG; Makers of
producers and miners
equipment for gas-fired power plants
Energy efficiency solutions Utilities that are unable to decouple

providers;Renewable Energy Developers and revenues from electricity sales; Utilities with
Shifting Electricity Consumption Patterns equipment providers, Energy management a heavy portfolio of thermal assets; Retail
software providers, energy storage electricity providers; Companies depending
technology companies; EVs manufacturers on demand for gasoline and fossil fuels
Energy storage technology companies;

Renewable energy developers and
equipment providers; Miners focusing on Slow-adapting utilities; Utilities with a heavy
Spotlight On Energy Storage lithium, cobalt, nickel and other minerals portfolio of thermal assets; Oil & Gas
used for batteries; EV manufacturers; Grid companies; Coal producers and miners
infrastructure and EV charging developers;
Hydrogen manufacturers
Decentralisation, Digitalisation And The Utility Of The Future
Three main trends will transform the power industry over the next several decades: decentralisation, digitalisation and
decarbonisation. The electricity grid will shift from a hub-and-spoke structure to one that allows a two-way flow of electricity
between utilities and consumers, thanks to the growing penetration of distributed generation (primarily in the form of rooftop solar
power), demand-response technologies and behind-the-meter battery storage. This will see willing consumers also
become producers of power (the so-called 'prosumers’), setting the stage for the emergence of clusters of partially and
fully independent microgrids.
This decentralisation of the power grid will require its parallel digitalisation. The smart grid will be a key application field for artificial
intelligence (AI) and process automation – possibly with the support of the blockchain. These technologies will help manage an
increasingly sophisticated system of smart meters, sensors and actuators, intermittent power supply from wind and solar plants, and
other storage technologies. Utilities will be able to collect large amounts of data about the functioning of their assets and the
consumption patterns of their customers. In turn, consumers' integration in this growing Internet of Things (IoT) will give them
much greater control on their energy consumption. As a result, companies specialising in the analysis of big data and the creation
of software to optimise energy supply and demand management will find growing business opportunities in the power industry.
The Three Forces Reshaping The Power Industry

Digitilisation - Decentralisation - Decarbonisation
The penetration of prosumers, the electrification of transportation and the IoT will give utilities the opportunity to become providers
of a package of energy services, rather than just electricity. To capitalise on new revenue streams and adapt their business models
to an environment that at present is mostly uncharted territory, utilities will continue to acquire those companies that are facilitating
the transformation of the power sector's traditional operating model. These include battery technology firms, energy management
companies, smart meter manufacturers, rooftop solar installers and providers of EV charging infrastructure. By 2050, those utilities
still operating exclusively on a business model based around centralised power generation will face significant headwinds in mature
power markets. A focus on flexible grids, renewables and energy services - including electric transportation - will be the strategic
priorities of utility companies in the electric system of the future.
Operators, users and regulators of the digitalised grid will also have to address growing cyber-security risks. Energy infrastructure is a
strategically sensitive area, and as every aspect of the electricity system gets integrated and managed via computers, the risk of
cyber-attacks becomes exponential. This is verified by the results of our Megatrends survey of senior industry stakeholders that
shows that cyber security defense as the largest area where utilities are investing more heavily at present, which is rated higher than
investments into energy efficiency (see chart below).
Utilities Show High Awareness Of Cybersecurity Risk

% of Utilities' Respondents Reflecting 'Significant' Or 'Very Significant' Investments
Power Sector Transformation Towards Low Carbon Economy
The global push towards a low-carbon economy continues to gather pace, emboldened by countries' efforts to achieve the
objectives set under the 2015 UN Paris Climate Change Conference (UN COP21). Given that electricity and heat production
account for the relative majority of anthropogenic greenhouse gas emissions produced by any economic sector (around 25%), the
power sector is a prime target for policies intended to reduce greenhouse gas emissions. In addition, coal, which is one of the
largest carbon emission sources, still accounts for an estimated 36.4% of the total global power generation mix in 2019. We expect
the widespread adoption of environmental policies targeting the power sector, and coal-fired sources in particular, to continue and
even accelerate, in line with our view that a gradual and policy-driven decarbonisation will be a key megatrend for the power sector
over the coming decades.
Climate Change And Environmental Considerations Major Disruptor

% of Utilities Respondents Who Rated As Highest Impact, by disruptions
Note: 'Space Economy' and 'Blockchain Adoption' not included in five-year analysis. Source: Fitch Solutions - Megatrends Survey 2020
We highlight three main areas in which the global power sector will be most impacted by the transition to a low-carbon economy.
• Increased deployment of renewable energy – while falling costs for wind and solar technology is a key driver of renewables
uptake, we also acknowledge environmental regulatory support as an underlying force supporting the industry and incentivising
companies to invest in the renewable energy sector.
• Increasing opposition and stringent regulations targeting thermal assets – Thermal assets could come under
pressures from regulations mandating or encouraging a switch to alternative sources with a lower carbon intensity, requirements
to install equipment reducing their carbon emissions (CCS, coal gasification technologies) and the introduction of carbon taxes
and pricing. Coal-powered projects will also see increasing environmental and social oppositions, leading to increased project
realisation risks and stranded assets.
• Shifting financing environment for power sector – access to financing for the coal sector will become increasingly
restricted, and threaten the economic viability of planned coal projects as funding dries up. Concurrently, green bonds will
increasingly be used as financing mechanisms for cleaner generation technologies.
Role of Natural Gas Key In Decarbonisation Drive
While we expect a strong surge in renewables deployment over the coming decades, we stress that the need for an affordable
baseload resource remains crucial for grid stability and energy security. As such, we believe that natural gas will rise in prominence
as the interim choice of fuel over the next three decades while governments continue to seek out alternative clean fuel sources and
integrate them. Firstly, using natural gas as a fuel to generate electricity produces lower carbon emissions than coal, making gas
appealing to governments that are committed to decreasing the environmental footprint of their thermal power sector, such as
China. Secondly, the growing penetration of gas-fired power generation at a global level will be supported by the source's rising
availability and relatively contained price, thanks to growing production by countries from the US to Australia and an increasingly
integrated market for liquefied natural gas (LNG). Finally, natural gas-fired plants are relatively flexible, meaning that it's possible to
ramp their supply up and down faster than for other thermal plants, which makes them a good baseload resource to complement
growing power supply from intermittent wind and solar power plants.
Our forecast for strong growth in gas-fired power generation, coupled with the factors described above, indicates that natural gas
will enjoy a prominence in the global power industry over the coming decades. As shown in the chart below, we currently forecast
that global power generation from gas will record the biggest growth of any conventional source of electricity over our 10-year
forecast period. This will bring the share of gas in the global power mix from 23.8% in 2019 to 24.6% in 2029. That said, beyond
2050, it is likely that its relative share will fall in preference for even cleaner generation sources, and as technology improves to
integrate renewable sources.
Gas Power To See Biggest Expansion After Renewables By 2029

Global - Power Generation By Source (TWh) & Change In % Share of Total Power Generation Between 2019 & 2029
e/f = Fitch Solutions estimate/forecast. Source: EIA, IRENA, WNA, National sources, Fitch Solutions
Shifting Electricity Consumption Patterns
Growing concerns over global climate change and the negative sentiment surrounding fossil fuels will also shift electricity
consumption patterns. A general drive toward better energy efficiency across industry and consumers will contribute to stagnant -
and in some cases contracting - power consumption growth in mature electricity markets. In particular, according to our
Megatrends Survey 2020, we note that the high-power consuming extractive industries, manufacturing, and construction and
engineering sectors are investing heavily into energy efficiency measures at present. The introduction of smart meters in many
markets, combined with improved data aggregation and processing, will also optimise consumption patterns and improve demand
response and load curtailment. This will likely exert downward pressures on peak electricity demand, particularly if load shifting via
localised generation occurs, which can improve overall efficiency.
Energy Efficiency Seeing Significant Investments Across Most Sectors

% Of Respondents Investing Most Heavily In Energy Efficiency, by industry
We note that there is also a rising number of corporate energy procurement deals, primarily in renewable energy, which can include
power purchase agreements, green power purchases and green tariffs amongst others. A growing number of companies are also
looking to install their own distributed self-generation sources, such as rooftop solar or burning waste products for energy and cost-
savings. The growing prevalence of corporate ESG considerations and policies will be a fundamental driver of this trend, with
companies increasingly aware of consumer preferences for more sustainability sourced and produced goods and services. We
believe that this will be a significant driver behind more decentralised renewable energy developments, and will go hand-in-hand
with technological advancements that can support improved power demand and supply management and efficiency.
Growing environmental concerns will also see the transportation and heating sectors increasingly switch away from fossil fuels to
electricity. The electrification of these sectors will be a key driver of power demand through to 2050 and beyond. In particular,
electric vehicles (EVs) will provide a boost to electricity consumption for utilities to capitalise on as they gain an ever greater share of
the global autos market (see chart below).
Electric Vehicles On The Rise

Electric Vehicle Fleet & EV Fleet As % Of Total Passenger Car Fleet
e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions
Spotlight On Energy Storage
The largest bottleneck still facing the global renewables industry is the intermittent nature of the power supply from wind and solar
power plants. This problem - however - would be mitigated if the electricity produced by intermittent renewables could be
effectively stored. Energy storage technologies that are installed at a generator, consumer and grid level can smooth power supply
fluctuations, which remains the largest bottleneck still facing the global renewables industry. A less volatile supply would not only
protect the grid from instability but also allow more wind and solar capacity to be integrated to a country's power mix. This would
also reduce the need for coal and gas-fired power generation back-up generation - by extension reducing power sector carbon
emissions.
Utilities could benefit from the rise in EVs in terms of vehicle-to-grid (V2G) services, which hold the potential to perform distributed
storage and grid-balancing tasks otherwise restricted to dedicated power generation equipment and batteries. We note that EVs will
represent by far the largest addition of electricity storage capacity over the coming decades. The ability of EV batteries to absorb
excess power supply during peak generation and release these supplies during peak demand by utilising V2G technology will be key
to improved energy management. We believe this type of charging behaviour will be stimulated by electricity price fluctuations, and
the most likely way this will occur is through the autonomous monitoring of power prices via smart devices in an EV itself, becoming
an integral aspect of the energy internet. This will enable battery charging when electricity prices are low (in an oversupplied
market), and then feed of power back into the grid when prices are high (in an under-supplied market).
We have also seen notable technology advances with battery storage over the last couple of years, most notably in the form
of lithium-ion batteries, but also for molten salt and flow battery storage. These storage technologies can be used for a variety of
applications, including portable devices, transportation and stationary storage. The potentially vast market for batteries - particularly
in the transportation sector - has led to substantial investment into manufacturing capacity, helping to drive down
costs. Nevertheless, widespread deployment of battery storage technologies at a commercial level remains limited, due to the
immaturity of the technology, and in many cases, inhibitive costs
Energy Storage Upside To Renewables Capacity Forecasts

Global - Non-Hydro Renewables Capacity & Generation
f = Fitch Solutions forecast. Source: EIA, IRENA, National sources, Fitch Solutions
A breakthrough in battery storage over the coming decades, whereby the technology became more competitively priced, would
have a transformative impact on the global renewables and power industry. A large-scale uptake of battery storage would boost
renewables installation rates and accelerate the process of decentralisation of the power grid that we described above in this piece,
while also allowing much faster electrification of private transportation.. A number of R&D avenues are currently explored, with
lithium-ion technology received the majority of investment. These include nano-technological solutions, the development of solid-
state lithium-ion batteries, graphene-coating of anodes and evolving the chemistry of cathodes. All of these focus areas hold the
potential to improve the cross-sector business case for battery adoption over the coming decades.
We note that hydrogen fuel as a form of energy storage will also offer increasingly similar appeal. Green hydrogen production will
become more relatable to markets with high renewable penetration as the industry seeks to utilise energy that might not be
captured. By storing this excess renewable energy through electrolysis, the fuel can balance variable power profiles, and has further
applications in heavy industries, transport, chemical & petroleum refining, domestic heating and cooking. We are already seeing a
proliferation of projects underway to produce and utilise green hydrogen in many sectors in the European Union in particular, but
we also note the US and Asian markets as likely for significant uptake. We expect to see more traction behind green hydrogen over
the coming decades, assuming that costs can become competitive. While the fuel will be limited initially to highly-developed power
markets that can afford to make large-scale initial investments, we expect to see the technology mature and emanate out to other
markets over this time frame.
Power & Renewables – Megatrends Survey 2020: Technological

Advancements Shaping Utilities’ Businesses
Our survey of senior decision-makers within the Utilities industry indicates high awareness of the transformative impact that
technology will have on the industry over the next three decades, as well as a commitment to investing immediately in
cybersecurity defence and energy efficiency. Utilities respondents see technology and innovation as a key driver of change in their
competitive landscape, and believe they will need to provide higher value-added services alongside their core product offering in
order to remain competitive in the long run.
Environmental Considerations And Automation Seen As Largest Disruptors

Survey For Utilities - % Of Respondents Rating Issue As High-Impact
Below we highlight a number of key takeaways from our survey of 90 respondents from the Utilities industry, across five countries –
both in developed and emerging markets:
• Utilities have raised climate change and environmental considerations, automation and robotics and artificial intelligence (AI) as
the highest disruptors to Utilities’ business model both over the next five and 30 years. In the near term (five years), climate
change and environmental considerations is seen as the most impactful by a notable margin (54% voted this as most impactful),
but, when looking at a longer time frame of 30-years, this is surpassed by automation and robotics (58% voted this as most
impactful, compared to a 54% for climate change and environmental considerations).
Automation More Critical Over The Longer Term

% of Utilities' Respondents Identifying Trend As 'High Impact'
• In line with these results, the survey illustrated that a majority of utilities’ business investments are concentrated in
cybersecurity defence and energy efficiency, at present.
• Cybersecurity defence emerged as the most important area of immediate investment for the utilities executives we surveyed.
We note that 80% of respondents said that their current investment in cybersecurity defence is significant, which aligns with the
industry's general awareness of the importance and integration of new technologies. This is a notable uptick compared to our
2018 survey results, when cybersecurity was ranked second to energy efficiency, with 75% flagging significant investments.
• Energy efficiency measures see a similar significance in investments, though second to cybersecurity defences. We believe this
result reflects the opportunity that energy efficiency interventions - such as reducing power losses along the grid - offer to
utilities in terms of cost-cutting, for instance by avoiding investment in new power generation plants. Moreover, the focus on
energy savings correlates with utilities' sensitivity to environmental considerations, which is currently front and centre on
government policy agendas in several markets around the world as well as consumer expectations on the role Utilities have to
play in reducing their environmental footprint.
• Moreover, 63% of respondents believe that there is a radical transformation of the competitive landscape underway in the
utilities’ sector, with technology and innovation being largely seen as the most important driver of change. We believe that this is
greatly due to the growing technologies, which support self-generation and self-consumption, with an increasing number of
‘prosumers’ as well as minigrid or off-grid capabilities. This has fuelled a rise in new software players entering the market offering
solutions, either on a household or enterprise level, enabling the growing digitilisation of the utilities space; a trend our
respondents indicate will remain prevalent.
• In the contrast, changing regulations and public policy shifts was seen as of a lower importance, with only 4% of respondents
rating this as most important, and 31% rating it as least important (the highest across all driving indicators). This is particularly
noteworthy, given that the utilities sector is traditionally a highly-regulated industry, with the dominance of state-owned
companies, but is becoming increasingly liberalised and decentralised in many markets.
• Utilities' decision-makers also showed to be paying attention to the relationship with their clients. When asked about the
direction in which they see the industry's competitive landscape evolving, a whopping 90% of respondents believed that they
had to ‘provide higher value-added services alongside their core product offering to remain competitive’. Additionally, 81% of
respondents felt that management of risks and opportunities related to ESG is fundamental to the performance of their
company.
Infrastructure: Adapting To Urbanisation And New Technology

Key View: Environmental challenges and technological advances will be the two major themes shaping the construction industry
over the coming decades. Projects will increasingly be required to mitigate the impact of climate change and service growing client
demand for low-carbon designs. Technological advances will increasingly be integrated into construction design, development and
asset operation in order to boost productivity and efficiency in the industry. However, this also increases risk to the industry through
labour restructuring and vulnerability to cyberattacks.
INFRASTRUCTURE MEGATRENDS TO 2050: WINNERS AND LOSERS

Companies less able to track and monitor

Largescale contractors capable of delivering
Climate Change Projects their environmental impact, leading to their
high-specification projects
exclusion from bidding processes
Construction firms specialising in rail

Companies producing vehicles running on
Alternative Transportation infrastructure; rolling stock (rail/bus)
ICE
providers; alternative mobility companies
Agricultural, extractive and manufacturing

Desalination and water conservation
methods that require lots of water. For
Water Provision companies; smart metering and technology
example, almonds in California or mining
firms
companies in Northern Chile
Those unable to invest in new materials or

Green Construction Contractors that specialise in this space
techniques
Banking/Financial Services firms offering

green financing options
Architecture firms, green building materials

producers, energy efficiency companies
Companies that help facilitate data

Smaller scale EPC firms without in-house or
Smart Cities collection and the integration of technology
partnership technology capabilities
into infrastructure assets
Major real estate developers, technology

companies and consultants
Construction firms that are unable to adapt

New Building Methods Early movers in the space
quickly
Construction firms that adopt the method

and therefore can offer cheaper, more Traditional home builders, real estate
Modular Construction
efficient construction options to buyers and developers
clients
Threats posed to infrastructure, especially

the electricity grid and the companies that
Cybersecurity Cybersecurity leaders own/operate them. Increased costs to
prevent attacks, as well as the threat of an
attack causing outages
Climate Reaction And Climate Adaption
Infrastructure project design and construction will increasingly be driven by climate change and low-carbon related demands.
Firstly, a changing climate will necessitate policy makers and the private sector to adapt their plans to allow for greater investment
into projects to protect and sustain population centres against extreme weather, accounting for growing resource pressures
including on space, air or water. Secondly, global efforts to reduce the impact of carbon emissions will see governments, corporates
and individuals react through changing their project specification demands, with low-carbon options viewed paramount. These two
trends will manifest in a number of ways:
Climate Change Projects
Some of the largest and most expensive infrastructure projects to be developed over the coming decades will be climate adaptation
projects, such as flood prevention. Projects such as St Petersburg's Flood Prevention Facility, which was commissioned in 2011 at a
cost of USD3.85bn, will become increasingly essential to protect major cities from the growing threat of flooding. Jakarta - most
commonly cited as one of the fastest sinking cities in the world, and located next to the sea - has initiated a USD40bn project to
construct 32km of seawalls, with construction commencing in 2014 and expected to be completed by 2025. Other cities at risk
cities include New York City, Tokyo and Shanghai (see table below).
The biggest challenge will be financing and developing these projects in emerging markets, where the high cost and unclear
revenue streams will be prohibitive for both public and private sectors respectively. Emerging market cities are the most at risk
globally, with millions of people and billions of dollars of assets under threat (see table below based on OECD estimates).
Increasingly, we expect developed markets and high polluting countries to be targeted to fund these projects. One example of this is
the Green Climate Fund, a UN based fund aimed at helping developing countries prepare for climate change. This received
USD9.3bn in pledges in November 2014 from a range of developed markets including Japan, the US and the UK.
Furthermore, emerging markets will be some of the most affected by climate change through exposure to more aggressive weather
events, and will need significant additional funding for either reconstruction or to build more resilience into projects initially. For
example, in markets such as the Philippines or islands in the Caribbean region, funding currently available to rebuild assets following
tropical storms does not often allow for the quality of build needed to withstand future events of similar strength. We expect that the
additional funding availability mentioned above will also be focused on this area: targeting innovative technologies and building
methods to provide lower cost and more robust construction options to improve asset resilience.
Alternative Transportation Infrastructure
With personal vehicles running on traditional internal combustion engines (ICE) seen as a leading contributor to carbon emissions
and climate change, governments are expected to introduce measures and policies to discourage their use. This is to encourage
commuters to travel using other forms of transport#, such as mass transit and cycling. While such a trend is expected to be more
prevalent in urban areas, motivated by the need to reduce greenhouse gas emissions, as well as to reduce traffic congestion,
developed markets are expected to take the lead, due to the amount of funding required.
Investment in infrastructure for alternative mobility will be directed towards several areas, such as the provision of dedicated
cycling/e-scooter lanes and traffic signalling designed to incorporate bicycle/e-scooter traffic. Also, parking and storage facilities
including bicycle racks and docking stations for e-scooters and the modification of other modes of public transport, such as the
metro network, will allow for the transport of bicycles. Some cities, such as London and Amsterdam, already have well-developed
cycling infrastructure networks that co-exist alongside traditional road infrastructure. However, many other cities lack substantive,
dedicated cycling infrastructure and cyclists often ride by the side of paved roads, which poses a safety threat for both the cyclist
and other road users that lowers uptake.
Another alternative transportation method is mass transit, which can take the form of rail or bus networks. These systems have the
potential to greatly reduce passenger vehicular traffic and reduce emissions. Though metro systems can be found in many large
cities around the world, there remains significant untapped demand for metro systems, even in these large cities. Bus rapid transit
(BRT) systems are seen as alternatives to metro systems for cities with smaller populations, or where geography precludes the
affordable development of metros. Aside from a specialised fleet of buses, BRTs require dedicated roads, modified traffic junctions
and pedestrian crossways, stations and power infrastructure to function.
Water Provision
Urbanisation and population growth, poor water resource management and climate change are all placing growing pressure on
water resources. The water crisis in Cape Town, South Africa, has been the most high profile instance of changing weather patterns
threatening a major urban hub, but we expect that this will be a growing occurrence globally (see table below for most at risk
cities). In response we expect several measures to take place:
• Growing investment into water resource management. This will be closely related to smart city developments in urban
areas and include metering, water treatment and increased efficiency. It will also be essential in the use of water in industry, such
as farming and mining. Technological advancements to improve efficiencies and provide water, such as solar powered irrigation
or desalination, will become essential in these industries. There will also be growing economic and political pressure to reduce
water consumption in industries and buildings. We expect technological innovation in, for example, areas such as dry processing
or water recycling.
• Water desalination will become more widespread. High cost projects will be developed globally, creating opportunities for
companies with desalination technology. China is already expanding its desalination capacity through both multi-billion dollar
and small-scale local projects, aiming to have 600,000 tonnes of daily capacity by 2020. However, the bigger challenge will be for
poorer emerging markets. We expect financing these projects will likely see a rise in PPPs in the water sector, such as Ghana's
Accra Desalination Unit. The Middle East is far ahead of the curve here, with major independent water and power plants having
been developed over the last decade and more to come. Countries, as well as companies who have business operations
vulnerable to drought, will look to follow this example as water scarcity becomes a more widespread issue.
• The price of water will come under increasing pressure to cover the investment required and the growing strain
on demand. Water is often considered a public right and, as a result, is low cost and highly regulated. Yet, as demand grows and
supplies shrink, water will increasingly be seen as a commodity. While we expect water to remain a highly regulated market, we
expect cost increases, and this will in turn allow for increased water availability through, for example, expensive desalination.
TOP WATER STRESSED CITIES

Urban Area Country Population, '000 (2015)
Tokyo Japan 38,001
Delhi India 25,703
Mexico City Mexico 20,999
Shanghai China 23,741
Beijing China 20,384
Kolkata India 14,865
Karachi Pakistan 16,618
Los Angeles US 12,310
Rio de Janeiro Brazil 12,902
Moscow Russia 12,166
Istanbul Turkey 14,164
Shenzhen China 10,749
Chongqing China 13,332
Lima Peru 9,897
London UK 10,313
Wuhan China 7,906
Tianjin China 11,210
Chennai India 9,890
Bangalore India 10,087
Hyderabad India 8,944
Source: Nature Conservancy, UN, Fitch Solutions
Green Construction: Both from building materials and project design perspectives, the construction and infrastructure sector will
increasingly play a facilitating role in the low carbon economy.
Clients who are demanding investments into built assets according to more environmentally sustainable practices will be a key
driver of change, along with top tier contractors equipped with resources and the technological know-how. Demand-driven change
will be spearheaded by clients who have incorporated sustainability within their business strategy through environmental, social,
governance (ESG) goals and clients who are keen to reduce overhead costs by including green elements into building design and
construction. There will also be a niche demand for premium built assets: projects obtaining certifications, such as BREEAM, LEED or
Green Star.
Green construction will mainly be undertaken by top tier contractors, with the budget and flexibility to invest in new areas to drive
change. These players are motivated by a desire to reduce carbon and waste profiles of the construction process itself, as well as the
operational efficiency of built assets in terms of energy and water usage. Most major contractors have time-bound commitments to
reducing their carbon footprint, to be achieved through various means. This is ranging from the reduction of energy consumption
at facilities they own, to reducing their carbon footprint at construction sites. Waste reduction and recycling is another area that will
gain prominence over the coming decades, as it has the potential to significantly reduce carbon emissions. A common way to
achieve this is to reduce the overall amount of raw materials produced, transported and used. From materials producers are
researching for the ability to reuse carbon that is emitted in the production of new materials, to contractors better utilising recycled
aggregates in new projects, we are seeing more projects planned on the basis of minimising waste, offering both financial and
environmental benefits.
Regulation is currently behind the curve in terms of having specific policies that would necessitate greener construction, but this is
expected to change in the long term. Currently, a handful of markets have governments playing a strong role in regulating energy
efficiency in buildings. However, this will remain largely confined to developed markets such as the UK, where the government has
the purchasing power to embed sustainability into its procurement, or where enforcement of more stringent building regulations is
not too expensive or difficult. Taking this a step further, markets such as Singapore or the United Arab Emirates (UAE) have
attempted to establish themselves as green building hubs - largely due to the unique environmental factors requiring energy
intensive cooling, but also in an attempt to build up supply chains and knowledge bases, which can later be used as a competitive
advantage for firms.
We note the huge potential for proactive emerging market governments to set standards, given that there is significant real estate
and infrastructure still to be built. This is particularly pertinent for select markets where pollution, living standards, workers’
conditions and rising income levels all combine to force governments to be more active in regulating building standards. Countries
such as China, India and those in South-East Asia, which face severe urbanisation pressures, are where stringent construction and
energy efficiency standards that promote sustainability will be most needed.
Growing Urban Pressures

Global - Urban & Rural Populations
e/f = Fitch Solutions estimate/forecast. Source: UN, Fitch Solutions
Smart Systems: The definition of a Smart City is fluid, varying from developed to emerging markets and even within countries. In
short, it is the idea of a connected city and covers all areas from transportation, public utilities and housing, governance and
education, healthcare and technology.
Below are the key elements we believe are crucial for smart city solutions to be properly deployed and utilised:
• High levels of urbanisation leading to a concentration of people, making service provision, data collection and citizen
engagement easier. Furthermore, connectivity needs to be high so that a population can engage with service providers.
• With high levels of urbanisation often come a multitude of complexities such as congestion, poor housing provision, pollution
and a strain on resources. These are the issues that smart cities should aim to solve, rather than attempting to create a new
‘lifestyle’ using smart technology.
Smart Cities will guide a lot of urban infrastructure investment and will raise the importance of city planning and government
oversight. In emerging markets in particular, the scale of work to develop smart cities is huge, but equally provides an opportunity to
leapfrog developed markets. If building power grids, water supply and housing from scratch, this provides a greater opportunity to
integrate new smart technologies.
We anticipate transport infrastructure, in the design and operation, will be the most obvious area in which smart systems will be
increasingly incorporated, altering the landscape of infrastructure players to include technology companies. Transport infrastructure
will increasingly be viewed as not only the hard assets but the service provided to consumers, with technology to improve the
efficiency and integration of networks, especially in urban areas, accounting for a growing portion of investment. Greater
information availability and aggregation will be a key goal for city planners in moving people and looking at the most efficient way to
get from A to B. The goal will be to provide people with all the information necessary to decide the most effective way to travel,
allowing for improved flows of movement, reduced bottlenecks and increased productivity.
To achieve this service, there will be a greater adoption of smart sensors across a wide range of infrastructure assets and buildings.
For example, sensors will help facilitate the smoother operation of existing infrastructure projects such as roads, whereby identifying
accidents or congestion at an early stage will allow authorities to react in a timely fashion and remove inhibitors to normal traffic
flow. Elsewhere, by measuring foot traffic patterns in airports, sensors allow operators to effectively position amenities and security
measures so as to improve the experience of end-users and optimise assets. For asset maintenance, embedding sensors in
infrastructure assets such as bridges will allow operators to better identify and diagnose structural deficiencies, which in turn will
serve to streamline workflows and limit repair work impact on the operation of the bridge and result in a more efficient allocation of
maintenance resources.
Technologies To Change The Industry

Future Construction Methods
Source: Fitch Solutions Construction Disruption Special Report
Cybersecurity: We expect there to be a growing cost burden for companies in the form of cybersecurity provision. With the
proliferation of connected infrastructure assets, as with any other industries, comes significant risk of cyber-attacks. Unlike other
industries, however, infrastructure assets are often classed as strategically critical to countries, hence the potential damage caused
from a cyber-attack is significant.
Given the growing number of cyber-attacks on critical infrastructure observed - such as the 2015 attack on the Ukrainian grid
network, or breach of a nuclear plant’s computers in US in 2017 - governments are now increasing their scrutiny of infrastructure
operators to ensure that these risks are limited. For example, the UK is looking to financially penalise operators who do not provide
adequate cybersecurity measures, while the US has established the Office of Cybersecurity, Energy Security, and Emergency
Response (CESER) at the US Department of Energy, which will coordinate the preparedness of US assets.
Consequently, we expect that companies are increasingly going to need to offer secure assets as part of their proposals, which will
have cost implications. As with other areas of technology and infrastructure, these costs could take the form of development
security software in-house, or acquiring technology companies that offer that service.
Potential For Shift In Labour Dynamics

Automation Potential, %, Selected Construction Sector Jobs
Source: McKinsey, 'Automation potential and wages for jobs'
Construction & Engineering - Megatrends Survey 2020 : Advance

Technologies To Disrupt Status Quo
We continue to observe a high level of agreement among Construction and Engineering industry respondents that there will be
disruption to the status quo in the sector. Advanced technologies such as the IoT, robotics and automation are believed to be the
biggest disruptors to the industry in the long term, but short-term capex is currently focused on climate-change related issues.
ST Focus On Environment, LT Focus On Technology

% Of Respondents In Construction Rating Issue As High Impact
Source: Fitch Solutions – Megatrends Survey 2020
Key Survey Takeaways:
• More than two-thirds of the survey respondents believe that the Internet of Things (IoT) and smart device technology will have
the highest impact as a disruptor in both the short (68% of respondents) and long term (67%). This observation mirrors that of
our previous survey conducted in 2018, where IoT ranked as the top disruptive force for the industry, albeit at a much higher
response rate (2018: 89% versus 2020: 68%). While a connected construction site has the potential to improve productivity in
areas such as worker’s safety, real-time reporting and automated work flows, these results suggest that the promise of
productivity gains may have been overstated.
• When asked about how much of an impact IoT, Automation and Artificial Intelligence (AI) would have on various aspects of their
business (e.g. operational efficiency, cost reduction, additional revenue streams and communications improvement), an average
of 44% of the respondents believed that these technologies would have a high impact. 50% of respondents believed that AI will
have a high impact on additional revenue streams in the future, while 49% believed that Automation will have a high impact on
labour force restructuring.
• That said, most investments are going into the area of Energy Efficiency and Climate readiness, with 67% of the respondents
noting that factor as High Investment, the highest percentage amongst factors listed. IoT, on the other hand, ranks fourth behind
Energy Efficiency, Cybersecurity Defence and Personalisation of Services, in terms of investment volume. If such a trend were to
persist, the industry may not be well-positioned to reap the benefits of IoT in the future, given that investments are concentrated
on other disruptive technologies. The short-term focus on investments in energy efficiency is not unique to the construction
industry, and could be explained by a sharp increase in awareness of the potential adverse effects of climate change to the
environment. This has prompted certain governments to introduce policies to curb emissions, such carbon taxation and green
credits, which may be a motivating factor for construction companies to invest in green technology. This could also be motivated
by funding purposes, as construction companies re-think current business operations and projects in order to tap into a growing
pool of 'green' capital or avoid divestment campaigns by shareholders.
• In line with the current focus on energy efficiency technology, 43% of construction executives consider the shift to a low carbon
economy as the main driver of change in the industry’s competitive landscape. Technology and Innovation came in a close
second, with 39% of respondents believing that it will prompt new market entrants and M&A activity, the latter of which we think
is more likely given high barriers to entry into industry. The need to offer more green construction solutions, coupled with the
potential productivity gains from the use of technology, will likely result in construction companies acquiring smaller technology
and consulting companies in these areas.
Technology Believed To Have High Impact Across Business

% Of Respondents In Construction Rating Issue As High Impact
Note: Comms = Communications. Source: Fitch Solutions – Megatrends Survey 2020
Oil & Gas, Mining (Extractive Industries)

Metals And Mining: Sustainability, Technology And Shifting Product
Portfolios Main Trends To 2050
Key View
• The metals and mining industry is now in the nascence of a multi-decade structural shift towards environmental sustainability,
advanced technological integration in operations, exploration of the final frontiers and rearranging product portfolios as per
changing mineral consumption patterns.
• Over the coming decades to 2050, the ability to conform to the changing dynamics of the industry will determine long-term
company survival.
METALS AND MINING MEGATRENDS TO 2050: WINNERS AND LOSERS
Small miners without the capital to invest in

Advanced Technological Senior miners with the capex to invest in advanced
technology, which will eventually be faced with
Integration In Operations technology
relatively higher production costs
Technology firms partnering with miners Traditional mine services firms, EMs where cheap
(Cisco Systems, IBM) labour is a competitive edge in mining costs
Countries - DMs with connectivity and skilled labour

to facilitate integration
Increasing Pressure On Miners ahead of the curve investing in clean power Miners focused on increasing supply in countries
Environmental & Social sources, desalination plants (Codelco, Rio Tinto, with relatively lower environmental standards
Footprint BHP) (Freeport)
Miners investing in transparency of operations

Miners with low supply chain transparency and late
including blockchain technologies, especially those
in putting in efforts to increase visibility.
dealing with conflict minerals.
First movers in developing final frontier projects

Exploration Of The Final Miners facing declining ore grades, local opposition
(Nautilus Minerals, Deep Space Industries, Planetary
Frontiers at existing operations
Resources)
Firms helping servicing frontier mining (private

space launch companies, etc)
Major PGM (platinum and palladium) and lead

Shifting Metal Consumption Lithium, cobalt, copper and nickel producers such
producers including Anglo American Platinum,
Patterns as SQM, Glencore, China Molybdenum, Vale
Implats, Hindustan Zinc
Countries - Lithium and cobalt producers including

Argentina, Chile and DRC
Emerging market producers in countries with less-

Pressure To Exit Energy Coal Developed market coal producers (Peabody Energy,
stringent environmental regulations (Coal India,
Market Murray Energy)
Vedanta Resources, PT Bumi Resources)
Integration Of Advanced Technology To Be The New Standard For Low-Cost Operations
The integration of advanced technology in mining operations will accelerate over the coming years, increasingly
becoming a necessity for firms to remain competitive. Digitalised mining operations, enabled by the deployment of various
technological applications, will see the shift of the competitive edge to developed markets over emerging markets, as the use of
advanced technology requires the availability of strong network connectivity, power and highly skilled labour rather than the
advantage of cheap labour in traditional low-cost producers. Additionally, miners will turn to leading technology firms to supply the
latest innovations, creating partnership opportunities for technology providers while eating into traditional mine services firms'
share of mining capital expenditure. Here we identify the most disruptive trends for the industry.
• Automation: Automation is already prevalent in the industry and adoption will be significantly ramped up. It will reduce costs
for miners by eliminating human labour. Automation includes process and software automation, as well as applying robotics to
vehicles and equipment. A decade ago Rio Tinto pioneered the use of automation in the mining sector and currently has
the largest fleet of autonomous trucks in the industry.
• Artificial Intelligence: The integration of artificial intelligence (AI) into mining operations, from the exploration stage to
processing, will streamline operations and improve safety at mines. Using vast amounts of data inputs, such as drilling reports
and geological surveys, AI can make predictions and provide recommendations on exploration, resulting in a more efficient
process, higher-yield results and less environmental impact. In the production stage, machine learning can predict failure,
facilitating repairs, and better identify valuable ore during the fragmentation assessment. BHP utilises artificial intelligence to
improve decision-making in supply chains; for instance, an expert system to schedule track movements and the dispatch of
trains carrying iron ore between mines and Port Hedland. This has dramatically reduced cancellations due to congestion and
allowed BHP to run more trains.
• Blockchain: This technology will streamline and accelerate supply chain transactions and the international trading of
commodities, and will be of particular importance to mineral end-users concerned with supply chain transparency. For instance,
diamond giant De Beers uses blockchain to ensure all registered diamonds are conflict-free and natural, in addition to
improving efficiency. Similarly, blockchain technology will reportedly be used to track cobalt mined in the Democratic Republic of
the Congo (DRC), as many consumer-conscious technology firms look to ensure their material is conflict-free and not sourced
from child labour. The technology eliminates the need for intermediaries, providing consumers with more direct access to
ensure the legality of the source.
• Drones: Drones improve safety by ensuring areas are clear before blasting, tracking fumes post-blast, monitoring traffic and
road conditions, and inspecting overhead cranes and towers etc. They provide real-time aerial footage and 3D maps of mining
sites with significant cost savings compared to planes, and faster and more accurate measurements of stockpiles. BHP began
implementing drone technology in 2017 at its coal mines in Queensland and the Olympic Dam mine in South Australia. In the
coming decades, we expect drones with autonomous capabilities and extended flight time will be preferred as both offer further
efficiency gains compared to other available options. Already, some mining firms have been implementing autonomous drone
technology, such as Barrick implementing SenseFly's eBee autonomous fixed-wing drone at its Pueblo Viejo mine.
• 3D Printing: Beyond the additional efficiency gains to be realised from having 3D printing integrated with mining operations,
this technology will significantly condense the metals production/refining process. Additive manufacturing as opposed to the
traditional metals production process provides a shorter time frame, less waste due to less energy-intensive process, custom
designs, and allows smaller operations to be profitable.
Capex Will Increasingly Focus On Tech To Weather Volatility

Select Metals Prices & Copper Competitive Peers Capital Expenditure, % y-o-y Growth
Source: Bloomberg, Fitch Solutions
Scrutiny On Environmental And Social Footprint To Mount
We believe the mining and metals industry will face rising pressure in the coming decades to increase their
environmental and social accountability. While meaningful efforts to reduce the environmental and social impact of the
extractive industries require significant up-front costs, the long-term cost savings and reputational boost will benefit companies that
are ahead of the curve in prioritising such strategies. Top-down policy and regulatory measures implemented or recommended by
host governments and international stakeholders such as global exchange houses or multi-lateral sustainability initiatives will be the
key drivers behind the adoption of environmentally and socially sustainable solutions within the mining and metals industry. Due to
the innate energy intensity of the mining process, from digging to ore processing and smelting, the industry is one of the largest
contributors to global greenhouse gas (GHG) emissions. According to the International Energy Agency (IEA), the mining sector is
among the top global energy end-users, representing a significant share of resource-rich countries’ final energy consumption. As an
example, the OECD estimates that in 2014 the mining sector accounted for up to 38% of electricity consumption in Chile and 7.5%
in Australia. As such, and in line with broader emissions cut and energy transition objectives of the Paris Agreement and the 2030
sustainable Development Agenda, host governments are increasingly looking at renewables instead of fossil fuels as a means of
powering their energy-hungry mining sectors. This is particularly so as the cost of solar or wind generation becomes more
competitive than coal or diesel-generated power, presenting a strong business case for the use of the former. In order to do this,
government policy support will be key.
Additionally, consumers will contribute to corporates' increasing focus on improving their social sustainability
profile by increasing supply chain transparency, particularly in relation to in-demand minerals that are commonly
sourced unethically, such as diamonds and cobalt. A significant portion of metals end-use is in construction and
infrastructure, which is less prone to individual consumer scrutiny surrounding environmental issues. However, as the more
consumer-conscious tech industry (particularly with regard to hardware or EVs) becomes an increasingly valuable customer for
major mining and metals producers, there will be a push for firms to improve environmental standards and social supply-chain
transparency over the coming decade. While price and shifting technology needs are the main drivers behind EV manufacturers'
shift away from cobalt use in the production of batteries, consumer pressure will become a growing consideration as more than
60% of global cobalt supply comes from the DRC, where a lack of supply chain transparency raises ethical concerns surrounding the
use of child labour or conflict mines. Blockchain technology has the potential to serve as a powerful tool for mining companies
looking to improve their social and ethical supply chain standards as consumer pressure in this regard continues to grow. As a
centralised, digitalised ledger that cannot be tampered with, blockchain presents a valuable opportunity for mining companies to
effectively track the sourcing of minerals across the supply chain to ensure they abide by ethical and sustainability standards. So far,
blockchain has proven to be a valuable tool for diamond-makers, which are prone to consumer concerns about ethical supply
chains, due to the prevalence of conflict diamonds sourced from illegal operations that fund armed groups in Sub-Saharan Africa.
Rio Tinto Leading The Green Curve

Rio Tinto - Total Greenhouse Gas Emissions & Primary Aluminium Production, mnt
Source: Bloomberg
Exploring The Final Frontiers
Although mining in remote and previously inaccessible locations still faces major hurdles and bears tremendous
risk, we believe that projects to explore and mine commodities in the final frontiers will gain traction over the
coming decades. As traditional and known reserves start to deplete and ore grades fall, rising mineral prices will enable riskier
projects to gain commercial viability, significantly rewarding pioneers with the technological know-how and capital. Rising
environmental standards will also incentivise miners to develop increasingly remote deposits to avoid conflict with local
communities. Among the final frontiers for mining - namely the Arctic, deep sea and space mining - Arctic mining is thus far the
most developed venture of the three, occurring mostly in Canada, Russia and the US. Although the first deep sea expedition was
planned to start in 2019 off the coast of Papua New Guinea by Canadian miner Nautilus Minerals, the company filed for
bankruptcy in November 2019. Asteroid mining exploration is also in the works through Deep Space Industries and Planetary
Resources. Most commodities can be found in these locales, including base metals, precious metals and rare earths.
• Mining in the Arctic will become increasingly attractive over the next decade, driven by junior miners investing in greenfield
exploration and larger firms expanding existing operations. Rising mineral prices will allow for riskier projects, declining ore grades
at traditional operations will push exploration to more remote locations, and melting ice due to climate change will open up
trade routes north of the 60-degree line of latitude, all of which will catalyse this trend. Major countries with the Arctic coastline,
namely Canada, Russia and the US, rank highly on our Mining Risk/Reward Index, which quantifies the attractiveness of mining
investment destinations, indicating stable operating environments and significant reserves for project development.
• Demand for rare earths and precious minerals will make the commercial viability of deep sea mining more attractive as land-
based reserves struggle to meet demand from new centres such as batteries and EVs. As prices for minerals such as copper,
cobalt and lithium increase, and supplies tighten, we expect miners with the capital might and technological know-how to
explore this frontier. Environmental criticism will remain the major impediment to deep-sea mining in future.
• Space mining will become increasingly mainstream within the next two decades as a necessary tool for the rapidly expanding
space industry and a viable long-term solution to depleting ore reserves on earth. Increasing levels of investment and innovation
among private players will dramatically improve the cost-efficiency of space missions, while government support continues to
grow. However, regulatory uncertainty surrounding still-nascent commercial space-mining activity will be a key constraint to the
successful development of the industry.
Declining Ore Grades To Prompt Remote Exploration

Select Mineral Reserves - Average Ore Grade, %
Note: Average based on global producers. Source: Bloomberg
Shifting Metals Consumption Patterns
We expect a structural shift in the global metal consumption mix in the coming decades, with metals required in latest technological
innovations and the green revolution taking precedence over traditional metals that are more polluting to produce. Accordingly,
miners who are able to adjust their product portfolios to cater to rising demand will benefit, while those who are unable to switch
operations swiftly will lose out.
Metals Used In EVs To Gain Prominence: We believe EV battery metals including nickel, cobalt and lithium will see greater
demand over the coming decades. Cobalt and lithium have received significant investor interest since 2015 due to their increasing
use in lithium ion batteries, which power the burgeoning EV industry. However, based on findings from our own proprietary model,
nickel is set to be the primary demand beneficiary of the EV revolution on the metals side, significantly ahead of lithium or cobalt
- as the use of nickel-heavy NMC cathodes among manufacturers become increasingly prevalent over the same
period. The NMC cathode will become the chemistry of choice for EV manufacturers over the coming years, due to its high energy
density, thermal stability and low cost.
Substitution To Reduce Demand: Substitution of metals in various applications will rise in the coming decades, although we
believe the pace of substitution has already peaked during the commodities super-cycle period when most metal substitutes were
researched on and technological innovations initiated. Although the pace of substitution will slow, as historical price-relationships
persist, the risk of certain metals losing their market share to alternatives will remain high. For instance, we expect refined nickel to
increasingly lose its prominence to cheaper alternative, nickel pig iron. On the other hand, while steel will still remain in demand due
to the unique qualities it possesses at such a low cost, copper will lose dominance in traditional markets to aluminium but regain
ground in advanced applications of the future and renewable energy systems. Copper demand and prices will be supported by
strong power grid investment and falling mine ore grades in the coming years. Primarily used in power grid construction, the
outlook for this sector remains strong.
Metals Recycling To Increase: Stricter environmental regulation and improved technology will increase metals recycling rates,
particularly among ferrous metals. While recycling will not necessarily reduce overall metals consumption, it will reduce primary
(non-recycled) metal consumption. As an example, iron ore demand will be impacted by the growing use of electric arc furnaces,
which require less iron ore than traditional blast furnaces. Consequently, the call on mines to extract and smelters to refine ever-
growing volumes of mineral ores will weaken.
EVs To Boost Nickel Demand

Cumulative Metals Demand From EV Battery Manufacturing, tonnes (2019-2029)
Rising Pressure To Exit Energy Coal Market
The coming decades will see heightened pressure on mining companies to reduce the percentage of energy coal in
their product portfolios, underscored by major banks refusing to fund new projects as tougher global environmental
rhetoric and the ratification of the UNCOP21 climate change framework rejects fossil fuel. In 2019, investor pressure led
to Glencore capping coal production to around 150mnt a year and limiting its production capacity broadly to current levels. The
company was previously known for its aggressive acquisition of coal assets and strong priority on coal in its commodity
mix. Glencore produced 145mnt of coal in 2018. Additionally, Glencore also announced it will prioritise its capital investment to
grow production of commodities essential to the energy and mobility transition to a carbon-free future. BHP also made
announcements that it will limit its future coal production following pressure from shareholders and a bleak outlook for fossil fuel
generally due to tightening regulations on emissions. Energy coal now constitutes only 3% of the company's product portfolio.
Furthermore, in 2018, competitor Rio Tinto completed the sale of its remaining coal assets in Australia for USD3.95bn, making it the
only major mining company without any coal assets. At the end of 2018, more than 70% of the electricity used across Rio's
business came from renewable sources. The company is committed to substantially decarbonising its business by 2050, in
accordance with its endorsement of the Paris Agreement. The company's higher-quality iron ore is also more carbon-efficient.
Oil & Gas: Digitalisation & The Energy Transition

Pressured into finding cost improvements, oil and gas companies are increasingly leveraging the benefits of technology. Given
many projects are highly mechanised and new projects are planned with multi-year production timeframes, a more extensive roll
out and application of digital technology will take years to become common practice. However, early adopters are citing the
financial savings through investment in digitalisation. Climate change awareness has increased substantially and we have seen
increased activism leading to increased efforts to mitigate global impacts. Governments have been slow to enact substantial
legislation on achieving carbon neutrality but investors have begun to commit to targets limiting investment in climate damaging
investments. Leading corporates have taken action to achieve lower carbon emissions and climate impacts by setting carbon
reduction targets and increasing investment in parallel energy verticals to support a transition to low carbon energy. Lastly,
consumer behaviour has begun to shift towards reducing fossil fuel use and limiting their carbon footprint as society comes to
terms with an uncertain future.
On the supply side we identify four major areas of evolution expected to 2050:
• Investment managers are increasingly under pressure to end or limit financing for carbon emitting projects including
both crude and natural gas development projects
• Rising growth in the collection of data and increasing connectivity across oil and gas assets and process - creating the
Internet of Oil Things
• Better management and analysis of that data results in more automation and efficient operations - greater use of machine
learning and artificial intelligence
On the demand side we highlight the following:
• Government and international policy targeting air pollution and climate change will impact oil consumption patterns
moving developed and then emerging markets closer to peak demand
• Corporate strategy will evolve in order to meet the challenges of a low-carbon future
• Social and consumer trends will be key determinants on demand for carbon intensive products
OIL & GAS MEGATRENDS TO 2050: WINNERS AND LOSERS

Sensor developers, network providers, data

Slow adopting companies, companies with
Building Out The Internet of Oil Things centre providers, cybersecurity firms,
poor cybersecurity
satellite data providers
Data management firms, automation Less well funded companies, smaller

Managing The Move To Digital companies, companies with larger asset companies, inspection maintenance and
bases repair firms
Investment Managers Reluctant To Support Companies that can demonstrate carbon Companies with high coal or oil heavy
Fossil Fuel Investments neutral operations in near term production
Oil companies with lower carbon intensity Companies with high coal or oil heavy
Governments Commit To Low Carbon Policy
production production
Corporates Adapting And Embrace Energy Oil companies more willing to adapt and Oil companies with a more rigid business
Transition flexible in the face of change model
Companies able to transition to shifting

Plastic manufacturers, manufacturers of
Shifting Social And Consumer Behaviour demand patterns, alternative fuel vehicle
diesel specific autos components
manufacturers
The build out of the Fourth Industrial revolution will overlap heavily in the evolution of the oil and gas industry. The internet of oil
things, harvesting value from big data using machine learning and artificial intelligence coupled with automation and robotics will all
support an integrated approach to the adoption of technology. We are seeing the early signs of the transition from leading oil and
gas companies whose expertise is rapidly developing as they seek to innovate. However, the complexity of new technology means
integration will be slow and we see three stages adoption:
• The technology is too new, too difficult and too expensive;

• We can save money and cut costs with the technology;
• we can make money and develop a new business model with the technology.
We also believe that for elements of the fourth industrial revolution to fulfil its full potential, the different technologies must be
interconnected, interdependent and convergent. Otherwise, there is a risk that technology creates smarter services for the sake of
technology rather than for a step-change in operations and business models. Below we discuss the key elements of the integration
of technology into the oil and gas industry as part of the evolution of fourth industrial revolution.
Building Out The Internet Of Oil Things
The ability to monitor, process and analyse information from physical assets can offer significant benefits for the oil and gas industry,
such as reducing cost, supporting the optimisation of capital allocation and improving efficiency. Typically oil and gas infrastructure
is very mechanical rather than digital and we see substantial potential to build out monitoring technologies, such as ruggedised
sensors, wireless communication devices and IoT-enabled applications across oil and gas operations. Already, several applications of
this integrated approach has allowed early adopters to do less with more with BP reporting it's US onshore operation yielding a 20%
increase tasks completion with 40% less labour. This will provide companies with large volumes of data, which can be leveraged to
optimise production, facilitate greater automation, extend asset life, minimise downtime and ultimately boost profits:
• Digital twins and remote operations are beginning to be rolled out across the industry which will allow faster decision making
through scenario testing and real-time monitoring of entire facilities allowing the reduction of staff at remote facilities.
• Reservoir Management: Downhole well sensors can monitor differential reservoir depletion, cross-flow between reservoir layers
and measure changes in wellbore conditions, such as pressure levels, temperature, flow rates (of oil, gas and water) and
acoustics, which can be used to optimise production, infill drilling locations, capital allocation for workovers and well designs.
• Equipment Monitoring: Sensors can be added to equipment and parts to monitor the condition. Real-time feedback and
predictive analysis can significantly reduce downtime in drilling and production operations. Smart sensors attached to oil and gas
pipelines can detect leaks and prevent corrosion, by monitoring flow rate changes and variations in acoustic signature.
• Refining Optimisation: Sensors installed throughout oil refineries can detect and pre-empt operational abnormalities and
equipment outages, by automatically monitoring asset health of pumps, motors, steam straps, heat exchangers, valves, pipes and
other equipment. This will also improve capital expenditure allocation for maintenance, repairs and upgrades.
• Improving LNG Plant Performance: Pressure-tracking sensors paired with thermocouples can monitor and prevent failures of
individual plant parts such as refrigerant compressors, cryogenic pumps, hydraulic turbine, all of which operate under extreme
thermal pressure. Optical sensors at regasification and liquefaction sites can measure impurities in feed gas, and enable in-situ
gas composition analysis, needed to optimise combustion efficiency and emissions levels.
Managing The Move To Digital
With more assets and systems delivering real-time performance feedback, the processing and control of this data will become of
increasing importance. Successful systems will have the ability to automate certain operations, monitor performance and condition,
allow for remote operation and improve safety. All of these areas will be crucial to improving operational efficiency and optimising
capital spending, and ultimately lowering costs. Technology uptake has been limited to date, though in our view, the greater
acceptance of technology and growing need to manage costs will drive a more comprehensive roll out of data management and
control solutions across oil and gas projects to 2050.
Automation - Greater Application Of Artificial Intelligence
Process automation can be applied across many areas of the oil and gas sector through the wider application of sensors across
the upstream. Real-time feedback enables the optimisation of production through managing output based on well performance or
injection rates. Constant monitoring can also shut off production in the case of pressure surges.
Regular structural inspections will also be increasingly automated using unmanned aerial, land and underwater vehicles.
Inspections of subsea and offshore infrastructure, pipelines and remote facilities can be regularly scheduled, flagging any
infrastructural issues that need to be attended to.
Autonomous transport will reduce need for human judgement reducing the rate of accidents and injury make operations safer
and less costly.
Condition Based Maintenance - Identify An Issue Prior To Failure
With greater monitoring of assets, a better understanding of performance can be used to optimise the allocation of capital
spending. Constant asset monitoring allows for investment to be focused on the most critical areas to ensure, production efficiency,
asset integrity and safe operations.
This also reduces the likelihood of downtime from equipment failure by pre-empting issues before they become potentially more
hazardous. Required parts can be ordered, delivered and replaced before they are fatigued, sustaining uptime and revenue
generation. In some cases there is scope for items to be made onsite through 3D printing.
Remote Operation And Troubleshooting
More oil and gas is being produced in remote regions, such as offshore, and sparsely populated areas. By connecting assets to a
central control location, possibly situated in a city, workers can operate much of the oil and gas production chain without being in
the field. This will reduce the number of high cost workers and lower the number of people exposed to safety risks.
Finally, there may be a reduced need to send highly skilled engineers on site for troubleshooting and third party certification. Issues
could be inspected remotely through video communication and remedied via local operators. Similarly, once the necessary new
part or solution has been applied, remote verification of safety standards can be conducted in a similar manner.
Smart Oil and Gas Assets Lower Cost

Central Control Of Operations
The Energy Transition
We see a collective effort from key stakeholders to stave off climatic impacts from increasing emissions and environmental
degradation as key driver of disruption in the Megatrends time frame. Consumers, investors, corporates and governments are acting
on the growing awareness which will translate to increasing action to mitigate climate change. We see this fundamental altering the
competitive landscape for the oil and gas industry as business as usual increasingly becomes subject to increased risk of regulation,
built-in demand destruction, and lower financial performance as the core products see demand peaking in the coming decades.
While, we do not see the end of hydrocarbon economy we do see it transitioning to a low carbon economy that will aim towards a
carbon neutral focus. Wider adoption of renewables in transport, power and industry while alternatives to plastics and recycling gain
wider acceptance lowering growth expectations for traditional fossil fuels. Our 2020 Megatrends survey revealed that climate
change and environmental considerations ranked highest for potential disruption to current business models for both the 5 year
outlook and 30 year timeframes for oil and gas industry respondents. These results reinforce our views that today's climate for
policy and action will only grow more intense in the coming decades as the global community work to lower emissions and combat
climate change.
Low Carbon Economy: The Industry Impact

Low Carbon Economy Infographic
Investment managers reluctant to support fossil fuel investments
2020 has seen several high profile announcements from investment managers and groups pledging to end or limit support for
fossil fuel projects. The highest profile of those, that surprised many in the industry, was Black Rocks’ marked change in tone as it
acknowledged a fundamental reshaping of finance with climate change set to have a significant and lasting impact of economic
growth and prosperity. In short, Black Rock lists climate risk as investment risk and will focus on sustainability as key element of
investments. This included an end to investments in thermal coal as well as commitments to increase focus on sustainable
investments and board activism. Groups of investors are pooling their influence to force change across the industry and one such
group Climate Action 100+ now counts 450 investors with over USD40trn in assets under management as members. Investor led
climate efforts will also see the backing of increased transparency the efforts to standardise climate related financial disclosures. As
these numbers grow the influence of sustainability and climate impacts will undoubtedly narrow the traditional sources of funding
for carbon emitters putting more pressure on oil and gas companies to transition to low the carbon economy.
Government Policy To Drive Demand Destruction
Clean air initiatives will continue to be central to a large number of political agendas across the world over the longer term, as
governments crackdown on air pollution. This will be driven by societal awareness of the negative effects of pollution, as well as a
wider impetus to address anthropogenic climate warming. We expect to see increasingly punitive and increasingly widespread
policy targeting older inefficient vehicles and internal combustion engines. This has already begun to manifest, with a number of
countries now targeting a ban on the sale of petrol and diesel cars by the 2040’s with some like UK moving that date for to 2030s.
Increasingly punitive policy towards ICE transport will accelerate the erosion of refined fuel demand over the next 30 years. In
combination with rapid penetration of electric and alternative fuelled vehicles, peak fuels demand is more likely than not by 2050.
As a result of this policy momentum and increasing efficiency, we note that fuels consumption from the personal transport
segment of demand is set to fall into structural decline, starting in developed nations and manifesting in emerging markets over the
longer timescale.
At present, much of the most aggressive policy targeting fossil fuel powered vehicles is concentrated in city centres due to the
comparative concentration there of negative externalities of ICE use, namely high levels of air pollution. As such, moving forward we
expect government policy and demand destruction will increasingly focus on a city scale, before wider demand destruction trends
are filtered out to a national level.
Our team has begun tracking the changes at a country level in policy and regulation through our Sustainability Policy Score Index
(SPSI). Fuel demand when plotted against the SPSI score show a several clear trends. First the developed markets generally have
higher SPSI score reflecting but are generally have decreasing fuel demand. Emerging markets are growing markets, which growth
ratios above one, however their SPSI scores tend to be lower reflecting a lower level of government intervention on sustainable
energy policy. The notable exceptions are the two largest by volume growth markets China and India which score near the middle
of the table. Due to their outsized growth by volume expected China and India sustainability policy could see demand erode faster
than currently forecast. In addition, if many of the emerging markets slated for growth adopt greener policy in aggregate we could
see fuel demand fall even further.
Emerging Market Policy Impacts Less Clear Than Developed Markets

Fuel Consumption Growth By Sustainability Policy Score EM (Blue) With DM (Red)
Source: Fitch Solutions Sustainability Policy Index
In fact gasoline demand destruction modelling using our 10-year Electric Vehicle forecasts reveals a growing, but still relatively small
drag on fuel consumption from the increased penetration of EV's into the global vehicle fleet. This is the case under several
efficiency scenarios (forecasting the improvements in combustion engine efficiency over the same forecast period), with the
divergence between the scenarios relatively small. However,
Beyond the timescale of our forecasts, out to the middle of the century, this demand destruction dynamic will become a far larger
and far more noticeable trend, which will grow exponentially as more electric vehicles are introduced. We note that some segments
of fuel demand are less susceptible to destruction, such as the aviation sector and the industrial sector, although within these areas,
the potential for a significant disruptive technology over our 30 year timeframe is high.
Corporates Adapting To Lower Carbon Future
The global energy landscape is changing fundamentally, with carbon-intensive fuels progressively losing ground to renewables in
the overall energy mix. Projections of peak demand for fossil fuels vary widely, along with assumptions around market and policy
trends and technological progress. However, under no scenario is there a lasting place for oil and gas companies in their current
form. As the world transitions to a low-carbon economy, we see three possible responses that these companies can adopt:
adaption, disruption and managed decline.
Mixed Pathways For Oil & Gas Companies

O&G Corporate Strategy For The Energy Transition
Adaption involves an oil and gas company decoupling its revenue growth from emissions growth, gradually shifting its asset base
away from oil and gas to alternative energies. For firms in this category, in the short to medium term, oil and gas will continue to
absorb the bulk of capital and operational spend, albeit with a shift in focus favouring short-cycle oil projects, oilfield digitalisation
and natural gas. These companies will put a heavy focus on greening their image and operations - improving the transparency of
their environmental reporting, raising their operational efficiencies and cutting their emissions. By 2050, renewables, biofuels (or
carbon neutral fuels) and battery technologies will hold a large minority if not outright majority in these companies' physical asset
base. The shift can be in part organic, leveraging in house expertise in research and development or existing infrastructure (e.g.
through the installation of battery charging points at fuel stations), but will also rely heavily on M&A.
Adaption is the most sustainable of the three responses but also carries a high degree of risk. It demands a large and flexible capital
base, a move away from the companies' core competencies and into the highly competitive green energy space and hinges on the
successful integration of myriad companies from distinct operational and cultural backgrounds. This strategy will be most
appropriate to the majors, large independents and selected national oil corporations. To capture this Fitch Solutions have developed
our own proprietary 'Transition Tracker'. Using publicly available company ECG metrics, the tracker attempts to proxy both the depth
of a company's exposure the 2 degree Celsius transition, as well as its ability and willingness to adapt, relative to other companies.
Compared to our initial analysis in 2018, for 2020 we still see the Majors as the top performers in all categories though they have
seen a slight fall in financial scores. Notably, NOCs have seen the most improvement overall in ESG but operational scores have
fallen in the latest round of analysis.
NOCs Post Gains But Fall Below Majors

Transition Tracker, Average Scores By Company Type
Note: Scores out of 100, with higher values indicating a better score. Source: Bloomberg, Fitch Solutions
Disruption involves the company deploying a technology which allows for the broadly carbon-neutral production and consumption
of hydrocarbons. Disruption entails companies in deploying technologies that would allow for the carbon neutral consumption of oil
and gas, notably carbon capture, use and storage (CCUS) technologies. In theory, this would be the most advantageous to oil and
gas companies, given that it would protect their existing business model. Disruptive strategies are best pursued in the form of cross-
industry collaborations, such as the Oil & Gas Climate Initiative (OGCI) – a collaboration of BP, CNPC, Eni, Pemex, Reliance Industries,
Repsol, Saudi Aramco, Royal Dutch Shell, Equinor and Total. In practice, disruption will most likely be pursued as a fringe strategy, in
complement to adaption. Given the scale of investment required and the barriers to entry in the sector, commercialisation of any
disruptive energy technology has always demanded a high level of policy support. Meaningful policy support is unlikely to be found,
given the increasing politicisation of the energy sector and mounting social pressures for a shift away from fossil fuels in the global
energy mix.
Managed decline involves a more-or-less 'business as usual' approach. Investments are focused towards minimising cost and
maximising recovery and the asset base will remain loosely unchanged. Companies adopting this strategy will target assets at the
bottom of the global cost curve and look to maximise returns over a limited period before liquidating. There are significant risks to
this strategy. Tighter environmental policy or technological breakthroughs could accelerate demand destruction and risk stranding
assets. While asset selection and the use of technology can reduce costs, margins may become squeezed in other ways - for
example, through carbon price increases or rising cost of compliance with environmental standards. This strategy would be most
suited to small- and mid-cap companies, as well as some of the larger independents and NOCs as their role in the sector will be
progressively shrinking by 2050.
Shifting Social & Consumer Behaviours
Greater climate awareness will increase pressure on the oil and gas sector over the next several decades. As global efforts to arrest
and reduce carbon emissions intensify, consumer-led opposition to production methods and infrastructure
development will spur significant changes that will aim to reduce carbon intensity.
From a consumer perspective, a growing opposition towards carbon-intensive feedstock will encourage greater utilisation of
alternative sources of energy. Over the next decade, natural gas will serve as a bridging fuel away from coal and oil, increasing its
share of total electricity generation from 24% in 2020 to an estimated 25.0% by 2029. However, we expect uptake of
renewables will accelerate through 2050, with a greater impact on less-developed emerging markets. Although overall, gas will
remain large share of energy mix in MENA and North America where reserves are abundant.
Renewables Growth Yet To Reach Potential

Share Of Natural Gas & Renewables Of Total Power Generation In 2020 & 2029, %
Source: National sources, Fitch Solutions
This will combine with greater utilisation of electric and other alternative fuel vehicles to reduce carbon-intensity per capita. A
number of developed markets have outlined incentives for EV ownership such as limiting down payment requirements, granting
preferred access on more heavily-trafficked highways, tax credits and reducing or eliminating the cost to recharge a vehicle over a
fixed period of time.
We caution that the adoption of EVs will be highly reliant on the development of supporting infrastructure, such as charging
stations, throughout urban areas. Without adequate facilities to service the EV fleet, consumers will be less likely to transition away
from traditional combustion engine vehicles, regardless of the incentives. We therefore believe DMs will remain the largest player in
the EV sector for the foreseeable future given their more well-established EV infrastructure framework. Hydrogen could prove to be
another avenue of disruption in transport though currently we see its impact mostly in the larger and heavier vehicles segment
used mostly industrial and goods transport sectors. Although, we expect aviation to be area of growth in transportation, overall we
expect fuel demand to peak in the coming decades as the transportation sector shifts to a carbon neutral approach to emissions.
Consumer choice and government policy could accelerate this transition shortening the time to peak demand for oil derived fuels.
A growing backlash against single-use plastic packaging will see the petrochemicals sector curtail its expectations for growth. We
estimate that a reduction in the growth rate of plastics production to 1% per year over next ten years -down from an expected 2-3%
annual increase- could rival the impact of EV adoption on a global level in terms of the reduction in crude demand. The possible
scale of disruption that may ensue for the oil and gas industry from the proliferation of bans and changing attitudes towards plastics
and single-use plastic would be enough to accelerate peak oil demand.
Extractive Industries - Megatrends Survey 2020: The Future Lies In The

Low Carbon Economy And Technology
For the extractive industries, which here we define as including oil & gas, mining and chemicals, key longer term trends are set to
revolve around greater and more ingrained use of digital technology in line with the Fourth Industrial Revolution and implications of
climate change and a shift to a low carbon economy. Across the megatrends time frame we see peaking demand dictating
companies to improve efficiency, lower costs to remain competitive. Especially for O&G, this fits in with the megatrend we have
identified as moving from decades of strong reliance on mechanical processes to a high reliance on digital processes for optimising
production capacity. In the latest survey for 2020, respondents from the extractive industries see climate change and
environmental considerations as the area of greatest impact over our 2018 results, which pegged the Internet of Things (IoT) as the
greatest potential disruptor to the current business model over the 30 year time horizon. In the two years since our last survey we
have seen our climate change megatrend shift into the forefront of consumer, corporate, investor and governmental agendas -
supporting our key views for the extractive industries.
Below, we highlight a number of key takeaways from our 2020 survey of extractive industries executives. The survey
data was taken from a wide ranging cross-section of business leaders from companies based in both the emerging market and
developed markets and from companies large and small. Additionally, age related trends were identified to help provide context on
the short-term and long-term views from current and future generations of decision makers.
• Respondents overwhelmingly cited climate change as the highest potential disruptor to current business models looking 5 years
ahead. 59% of our respondents believe climate change and environmental considerations will have a ‘high impact’ in terms of
disruption over a low or no impact, easily the highest percentage of the eight disruptions in 2020. This a marked change from
our 2018 survey, where Automation and Robotics placed highest and climate change and environmental considerations were
only ranked the third highest of the available choices. The recent surge in climate awareness in popular culture is fuelling this
view and we believe this will impact the extractives industry from a consumer behaviour, corporate strategy and government
policy perspective.
• Interestingly, the largest share of respondents who saw 'no impact' for our two leading categories for 'high impact' IoT and
climate change, were based in finance roles and others, while those over 55 years were the largest age segment to see 'no
impact' from these two categories.
Climate Change And Environmental Concerns Seen As Greatest Disruptor In Five Years
2020 Megatrends Survey Results - Impact Of Potential Disruptors To Current Business Models In Five Years, % of total responses -
Extractive Industries
• In comparison, over the thirty year timeframe the 2020 survey revealed a strong belief that IoT and smart devices (66% of
respondents believe the impact would be high compared to low or no impact) would be most disruptive to current business
models, which was consistent with the results from 2018. In the long term, innovation spurned by technology will be what most
disrupts current business models.
IoT Seen As Greatest Multi-Decade Disruptor

2020 Megatrends Survey Results - Impact Of Potential Disruptors To Current Business Model In 30 Years, % of responses - Extractive
Industries
• Based on the responses from emerging markets specifically, Industrial Revolution 4.0 technologies - such as Automation and
Robotics, Artificial Intelligence (AI) and IoT and smart devices - were viewed as having greater impact in both the five year and 30
year views, when compared to the developed market. We see this as indication that emerging markets view technology as
having a propensity to disrupt more so than developed market peers. We surmise that EM leaders may be closer to types of
technology being developed to power the fourth industrial revolution and that they are actively supporting the technology in
their roles.
Extractive Industries Investing Most In Energy Efficiency

2020 Megatrends Survey Results - Level Of Investment By Area
• In terms of the evolution of competitive landscape, most participants saw changing consumer preferences and patterns as well
as changing regulations and/or public policy shifts as key driving factors that will have the greatest impact on shaping the
competitive landscape in extractive industries in the coming years. This is also largely in line with our view, especially for mining,
that rising resource nationalism and other regulations as well as consumer preferences against the production of coal for
energy and pollutive metals will drive the industry in the coming decade, with consolidation of the sector largely depending on
companies that are able to adhere.
• Further to the competitive landscape issue, 85% of respondents agree that Companies have to provide higher value-added
services alongside their core product offering to remain competitive. 82% also show agreement to the fact that to help
companies become more agile, operations are becoming a lot more decentralized.
• In a separate question quantifying the impact that IoT, automation, and AI will have on a number of specific operational issues,
extractive industries respondents generally believe that automation and IoT will have the strongest impact on operational
efficiencies, cost reduction, communication improvement, labour force restructuring, customer engagement enhancement and
additional revenue streams.
• In line with what respondents feel is the greatest disruptor to business models five years ahead, the area in which respondents
are now investing in most heavily is energy efficiency (62% of respondents have stated significant investment in this area) which
aligns with our view that reduction in operating costs and net emissions are driving many of investments for extractives industry.
We also highlight cybersecurity defence as second in this category, with 51% of respondents stating that their company is
investing in the issue significantly. This is in line with our view that cyber risks, owing in part to the proliferation of new digital
technologies, increasing degree of connectivity and a material increase in monetisation of cyber-crime, will become a larger
cause for extractive companies' concern.
Emerging Markets View Greater Impending Disruption

Percentage Of Respondents Who Rate High Impact For The Five & 30 Year Disruption Potential To Current Business Model, by
market
• The divide between emerging market and developed markets can be highlighted by the difference in expectations for a high
impact from technology and climate change. On average, more EM respondents saw technology related areas highly
impactful over their DM counterparts. The widely differing views on technology saw climate change vault to top on average for
disruption in the 5 year timescale despite not being the most chosen factor for high impact by either group. While there may be
some disagreement on the potential disruption from technology, it is clear both the EM and DM view on climate change is more
aligned, signalling the global importance of shift to a low carbon economy.
Political & Macroeconomic Megatrends To 2050

Global: Multi-Polar World To Portend Greater Instability And Complexity
World Order To Become Fully Multi-Polar By 2050
A shift towards a more multi-polar world order appears virtually inevitable over the coming decades. This is because China, India,
and several middle-ranking powers will rise economically and geopolitically, meaning the US and EU will decline in relative terms.
Meanwhile, Russia and Japan will seek to gain or retain influence, even as they face structural economic challenges stemming from
lack of reform and poor demographics, while several middle-ranking regional powers will grow in prominence, some of which will
have very close ties with major powers.
More Powers Could Result In More Rivalries

Global & Regional Powers In 2050
Overall, political risks will grow in complexity by 2050 as the number of powerful actors with a greater geographic scope of
interests will grow, resulting in greater scope for geopolitical tensions to emerge. Within 10 years, China and possibly India will
establish military bases overseas to safeguard their interests, and in doing so, they may sign defence pacts with new allies. We
expect the Middle East, the Caucasus and Central Asia to remain key areas of geopolitical tensions. They will be joined by the Indian
Ocean, Africa and most likely the Arctic Circle, with much of this competition being driven by the need to safeguard natural
resources. Indeed, the economic growth of China, India, and other emerging markets means that the demand for resources will
become greater, even as these economies slow. We also expect the island nations of the South Pacific to gain greater geopolitical
significance, as China and the US struggle for regional dominance.
The age of cyber warfare and the ascent of hypersonic missiles mean that military decisions will need to be made faster, thus raising
the possibility of miscalculation. Meanwhile, the growing use of military drones and plausible deniability associated with intrusions in
cyberspace will lower the immediate cost of going to war. Existing flashpoints present possibilities for a Sino-US conflict (in the East
China Sea, South China Sea, Taiwan Strait and the Korean Peninsula), a Sino-Russian war (in Central Asia and Siberia), a US-Russia
war (in Eastern Europe, the Caucasus, and the Arctic), and a Sino-Indian war (in the Indian Ocean and the Himalayas) (see '70 Years
After WWII, 'Great Power' Conflict Risks Rising', August 14 2015).
Such wars could start by accident or miscalculation, and possibly escalate beyond control. However, in an economically integrated
world, there will remain inherent constraints on open military conflict between global and/or major regional powers, which will push
actors toward much more limited measures.
A World Of Worries
Potential Flashpoints For 'Great Power' Conflicts
As a result, businesses in 2050 will face a greater risk from coercive foreign policy measures. While we believe that
globalisation will continue to be sustained in some form despite some ebbs and flows, it will also be subject to greater political
interference. The US and increasingly China will prove the key actors on this front. While US economic sanctions enjoy a globally
unrivalled impact due to the dominance of the US dollar, Beijing’s ability to direct its economy grants it the power to affect rare earth
metals exports and technology supply chains, among other things. However, both countries will continue to balance the use of
these tools with the imperative of economic growth. The US financial sector would suffer should the position of the US dollar
deteriorate as a result of an overuse of US sanctions, while China faces a range of societal and economic challenges as it seeks to
achieve high-income status and develop industries as per the Made in China 2025 strategy.
In a multilateral and still interconnected world, these measures will likely grow beyond the traditional tools of tariffs
and export controls. By 2050, the US, China, and other major countries will have incorporated advanced cyber capabilities into
their foreign policy apparatuses, possibly alongside other tools, such as pressure campaigns leveraging the media, private lobbying
companies, and the shadow economy. New technologies – potentially including quantum computing – will speed up this trend,
while their development could become subject to a new arms race. Together with US reluctance to bind itself with global trade rules
and Beijing’s exploitation of poor enforcement of such rules, this will translate into a more unpredictable risk of political interference
in international trade.
Despite the shift towards multi-polarity, the US followed by China will remain the dominant geopolitical forces by
2050. In our view, China is the only country with both the ability and willingness to pursue global power status aside from the US.
The EU will struggle to achieve a full political union by 2050, Russia and Japan could weaken under demographic pressure, and India
could fail to reach its economic potential. This would leave the US and China as the only real candidates for global power status in
2050. The struggle between them could thus become the most prominent feature of the international system, particularly in the
context of Beijing’s efforts to avoid the middle-income trap and transition to a higher-income economy.
Multi-vectoralism and shifting alliances are already making a more fluid world. The increasingly multi-polar world could
allow some regional powers or small states to pursue 'multi-vector' foreign policies, whereby they develop key relationships with
opposing powers rather than relying on one state as a main trade partner and 'protector’. This this would grant the regional power
or small state a degree of geopolitical independence – such as in the case of Turkey – allowing them to play off global or major
regional powers against each other while receiving various economic and political concessions from them. Such a policy would rely
on a delicate balance of international political alliances, economic and trade links, and a stable government at home. Should one of
these factors change, this could create significant downside risks of alienating one or several powerful actors at once. Examples of
middle-ranked powers include Mexico, Colombia, Argentina, Egypt, Nigeria, Angola, South Africa, Uzbekistan, South Korea,
Indonesia and Australia.
The Future Of The Nation State
The decentralisation debate will rise up on the political agenda. One of the more prominent political themes worldwide over
the coming decades will be increased tensions between central and regional governments, with the latter seeking greater
autonomy from the former (see 'Secessionist And Autonomist Movements To Gain Major Momentum', August 20 2014). Dozens of
countries have movements that are agitating for greater autonomy or independence from their parent state, with the highest-
profile examples at present being Scotland in the UK, Catalonia in Spain, and the Donetsk and Luhansk regions of Eastern Ukraine.
In most cases, autonomist or separatist movements are based on cultural, ethnic, and linguistic differences, but even in
homogenous countries such as Japan, some political leaders are advocating greater regional autonomy to reinvigorate local
economies.
Many New States Could Emerge

Autonomist & Secessionist Movements
Fiscal issues will feature prominently in the decentralisation debate. Wealthy areas are increasingly reluctant to subsidise
poorer regions, while many poor regions that are rich in resources are resentful that the revenues from these resources are not
being shared with the region from where the resources were extracted. Even in countries where secession fails, considerable
political capital will be consumed by debating and negotiating greater autonomy for assertive regions. This will detract from other
policy issues while the resulting uncertainty about the future status of autonomist regions could hurt investment.
Diverse states could see more fragmentation. Given the global tendency towards regionalisation and localisation, the
possibility must be considered that the world's geographically larger, most populous and more diverse countries will experience
more centrifugal forces. This raises the possibility of further decentralisation in Russia, China, India, Indonesia, Pakistan, Nigeria,
Ethiopia and even in the US itself. It is quite possible that some of these states could fragment completely by 2050. Historically,
authoritarian regimes have cracked down on openly secessionist movements, leading to open conflict, which could be exploited by
outside powers in contexts where ethnic or tribal lines cross state borders.
Are there alternatives to nation states? While reports of the death of the nation state are greatly exaggerated, it is evident to us
that the emerging economic order is making cities and 'mega urban regions' more important. Cities typically house higher-income
populations amid rising income inequality and experience higher levels of immigration, often leading to significant differences in
voter behaviour compared to rural areas. As a result, capital or large cities in any given region often have more in common with one
another than with the hinterlands of their home countries. We believe this will affect policy in these cities in three main ways:
• Firstly, large mega-urban regions, such as Tokyo-Nagoya-Osaka in Japan, the Ruhr Area in Germany, or São Paulo-Rio de Janeiro in
Brazil could assume greater political weight within their home countries. These regions are largely informal and lack direct
political influence, but could see momentum build for greater political and financial recognition.
• Secondly, we believe there will be growing cooperation and inter-connectedness between cities spanning different countries as
globalisation, even if less pronounced than before, has already reduced the importance of geographical distance. Such formats
could seek to tackle global challenges, such as the C40 Cities Climate Leadership Group, or have an exclusive regional focus,
such as the Pact of Free Cities in Central Europe. While these groups will not directly affect the constitutional order of any given
country, they could prove instrumental in shaping policy in their respective issues or areas.
• Thirdly, we expect to see greater regional cooperation, including in Central America, Central Asia and West Africa or Southern
Africa, as small countries seek to pool sovereignty to compete with the more powerful countries. The EU, which has initially
served as an inspiration to some of these blocs, will itself likely experience these pressures, with sub-EU blocs of states set to
become more prominent in shaping policy.
Urbanisation To Continue In Emerging Markets, Bringing New Risks
Political risks will become more urbanised. As the world's population becomes increasingly urbanised, more political risks will
emanate from urban issues. Emerging markets will be most affected as their rate of urbanisation will be the highest. The provision of
utilities and public services (education, healthcare, transportation, basic connectivity) will become key political issues. For example,
the mass protests in Turkey in 2013 began amid plans to redevelop a park in Istanbul, while the protests in Brazil the same year
reflected widespread discontent over inadequate public services, and the excessive amount of money being spent on the 2014
World Cup instead of on ordinary Brazilians. Simultaneously, the development of public services, the proliferation of technology and
growing size of cities will allow civil discontent in urban areas to mobilise faster and more easily.
With more people living in cities, violent conflicts will also be increasingly characterised by urban warfare. This is already evident
from fighting in Syria and Ukraine. Urban warfare will increase military and civilian casualties (due to higher population densities and
higher risks of people being caught in the cross-fire) and destruction to property and infrastructure. City police forces are already
becoming militarised in many countries, which could cause controversy in countries where the public is unaccustomed to a heavy
hand.
Africa And Asia To See Biggest Urban Expansion

Urban Populations By Region, '000s (2015 & 2050)
Source: UN World Urbanization Prospects, Fitch Solutions
Technological Change To Drive Political Change
New technologies - especially in the ICT sector - are bringing new risks. Within the cyber realm, data breaches are becoming bigger
risks for companies, while individuals are increasingly concerned about breaches to their privacy and government surveillance of
the internet. Revelations in 2013 by former US National Security Agency contractor Edward Snowden led to a backlash against
electronic surveillance, and such concerns are likely to re-emerge as technological development continues. This will be particularly
pronounced in countries with a history of abuses by secret services during past periods of undemocratic rule, such as Germany.
Elsewhere, governments, especially authoritarian ones, are becoming increasingly concerned about the use of the internet and
social media to stir up unrest. Consequently, we expect such governments to take more active steps to censor or suppress the
internet. At the same time, many governments will use the internet as a means to monitor their citizens. In extreme cases, we may
see governments create de facto national internets which they can customise from the wider global internet. For example, Iran has
in recent years been attempting to build the infrastructure for a self-contained internet.
Rising risks of cyber war: Future conflicts will make much greater use of cyber warfare, which is growing in importance as a
number of key global or regional actors – including US, China, Russia, Iran, and North Korea – continue to develop offensive cyber
capabilities. Cyber warfare threatens to bring conflict to the home front faster than ever, causing widespread disruption to
infrastructure, utilities, communications, and other aspects of civilian life whilst also threatening commerce on an industrial scale.
Moreover, it presents opportunities for small- and medium-sized countries to wage war asymmetrically against bigger powers.
The threat posed by cyber warfare will continue to grow as the number and complexity of major urban areas and industrial systems
continue to rise. By nature, plausible deniability will most likely characterise any cyber attack outside of an armed conflict. This will
prevent most cyber attacks from escalating into a kinetic conflict, while the severity of a major cyber attack which would shut down
critical infrastructure (which the US has stated could trigger a nuclear weapons response) means that such operations would likely
only be used as part of an open armed conflict.
Over the past 10-20 years, there have been several massive blackouts affecting tens of millions of people over large areas, in
countries and regions as diverse as north-eastern North America (2003), Italy (2003), Brazil and Paraguay (2009), and most notably
large parts of India in July 2012. These serve as test cases for a cyber attack - although arguably the blackout in north-eastern North
America is less relevant as a simulation for the present day because people are much more 'dependent' on their mobile phones
than in 2003. Unsurprisingly, countries which are less urbanised and less dependent on modern infrastructure are arguably better
placed to cope with cyber attacks, if only because their citizens are more accustomed to life without constant electricity, mobile
phones, and complex distribution systems.
Greater Connectivity = Greater Cyber Vulnerabilities

Smart Cities Connectivity Scheme
Wide Scope Of Change Will Impede Progress Towards Democracy
The end of the Cold War triggered a wave of democratisation around the world, though since the late 2000s, numerous countries
across the world have been accused of sliding back towards authoritarianism. Historical datasets such as Polity IV indicate that
states which are attempting to transition to democratic rule are the most likely to see a regression towards authoritarian rule, as
their institutions are often not well established and vulnerable to corruption, state capture, or even an outright coup d’etat.
Between 2020 and 2050, the world will likely experience several economic and geopolitical crises, likely revolving
around a combination of relatively new challenges, including fast-paced technological and social change, climate change, or
migration. Ruling elites across the world will have to respond to these challenges, which may impede progress towards 'good'
governance as populations are overall likely to be placated by the implementation of quick fixes rather than lengthier structural
reforms. In some cases, big challenges will foster the perceived need for 'strong' governments. Against this backdrop, the path to
democratic rule in many countries will be non-linear and accompanied by backsliding towards authoritarianism.
Many of these challenges will also have the potential to fuel radical ideologies advocating a major increase or change to the role of
the state in society. States or regions with a history of identity-based politics or with higher sensitivity to economic inequality where
protest votes would be more easily galvanised could be particularly vulnerable. At present, economic pragmatism prevails in much
of the world, but future economic crises could once again raise questions about the merits of state interventionism versus laissez-
faire economics.
We also believe that Western countries are at risk of becoming more authoritarian in character, thanks to the rise of
mass electronic surveillance and 'big data'. The ability of governments and businesses to collect huge quantities of data on
individuals is unprecedented, and raises question marks about the durability of privacy as data becomes central in most industries.
The temptation for populist governments to misuse these powers whilst citing the need to respond to domestic or foreign
challenges to appeal to the electorate could prove too great. Meanwhile, if China achieves Japan-style levels of prosperity without
democratisation, this could provide a tremendous boost to the forces of global authoritarianism worldwide.
Robot-isation of warfare: New technologies will likely lower the threshold for going to war. Robotics and automated combat
platforms could reduce the need for large militaries and the risk aversion factor that fear of casualties brings. This could benefit
countries with ageing and shrinking populations, such as Japan and most European countries, as well as states which would
otherwise suffer from an overstretched military.
The growing use of unmanned aircraft vehicles (UAVs) has a similar effect. UAVs – or drones – are already controversial and their use
in warfare has often had unwanted effects: aside from civilian casualties, drones used as part of foreign intervention appear to be
feeding resistance from militias waging asymmetric warfare much more than is the case with troops on the ground, as appears to
have been the case in Yemen. An even more controversial move would be the development of fully or near-fully autonomous
drones, which would be able to take decisions on target selection and execution without human involvement. This would allow for
an effective deployment of a swarm of drones in a coordinated fashion – a method already used by non-state actors such as the so-
called Islamic State on a small scale – thus further speeding up the pace of warfare.
Mixed Relationship Between Robot Usage And Unemployment

Robots Per 10,000 Industrial Jobs (LHS) & Unemployment Rate, % (RHS)
Source: International Federation Of Robotics, Fitch Solutions
Rare earths could bring new geopolitical hotspots: The growing use of high-tech equipment will bolster demand for rare
earth minerals (REMs), which are currently mostly (more than 80%) produced by China. Although REM deposits are spread
throughout the world, China's quasi-monopoly on production reflects the fact that extraction and processing are very
environmentally hazardous, and many other countries do not wish to absorb such pollution. While many conflicts in the past were
focused on dominating oil supplies, future disputes could emerge over access to rare metals. The issue attracted international
attention in September 2010, when China apparently blocked or slowed down REM exports to Japan, after the latter detained a
Chinese fishing boat captain whose vessel had collided with Japanese coast guard ships in a disputed part of the East China Sea
Rising Demand Could Spur New Disputes

Select Countries - Lithium Resources, mnt
Source: US Geological Survey
Rising demand for lithium, which is used in rechargeable batteries, implies a greater geopolitical significance for Bolivia, in particular
colossal deposits of the metal in the Salar de Uyuni salt flatlands, in the south west of the country. There are also significant deposits
in Salar de Olaroz in neighbouring north-western Argentina. Both areas lack access to the Pacific Ocean, and Bolivia has long
demanded that Chile return territory connecting it to the sea, which was seized from it in a conflict in 1879-1883. Thus, future
attempts to mine lithium could exacerbate the Bolivia-Chile territorial dispute, which could become a proxy struggle between rival
global powers.
Other countries that have been the subject of speculation concerning their alleged rare earth deposits include Afghanistan, North
Korea, and the eastern part (North and South Kivu) of the Democratic Republic of the Congo. All three are highly unstable, and any
future race to tap their resources is bound to exacerbate conflicts within them.
Space race: We expect the space race to heat up over the coming decades. Although the US and Russia are the dominant space
powers, China and India are both playing catch-up as a means of boosting their technological prowess and national prestige.
European countries, along with Japan and South Korea, and probably several others, will also increasingly pursue space
programmes.
It is very likely that we will see the increased militarisation of space. By 2050, we would expect the world's major powers to have
more space-based research facilities and combat platforms. The latter could entail orbital 'battle stations' that could be used to
strike targets on Earth, or fire beam weapons that are designed to destroy nuclear-tipped intercontinental ballistic missiles - a
scheme proposed by former US president Ronald Reagan in 1983.
Climate Change And Environmental Degradation
The long-term geopolitical implications of climate change are uncertain, but already the possibility that the warming of the Arctic
will allow greater resource extraction has drawn the attention of the US, Canada, Russia, China and others. Elsewhere, rising sea
levels threaten to unleash a wave of environmental refugees, most notably from overcrowded Bangladesh and from Pacific islands.
The emergence of new migration patterns driven by climate change would certainly lead to new tensions between and within
states, and some governments could increasingly resort to deadly force to deter migrants. Agricultural production in already arid
areas could suffer more crop failures as a result of droughts, thus raising food prices and causing social instability.
If current forecasts about the rise of middle classes in China, India et al are correct, then the quantity of food, water and
manufactured goods demanded by consumers could take a terrible toll on the environment. We acknowledge that the severe
pollution experienced by China could be a transient phenomenon that could ameliorate as efficiencies improve, as was the case in
Japan after the 1970s. However, the pollution affecting China and India is on a scale never seen before, and this arguably gives it a
qualitative difference. Thus, environmental politics could gain greater momentum in many emerging markets.
Water security to rise up public agenda: Rising populations, prosperity, and agricultural and industrial activities, combined with
global climate change, are placing ever greater strains on water resources through higher demand. At the same time, severe
pollution in rapidly developing countries such as China is making domestic water unusable. Because the provision of basic utilities is
often ultimately the responsibility of governments, water shortages will create backlashes against governments. This will manifest
itself in three ways. Firstly, we will see more anti-government protests based on inadequate utilities and infrastructure. Secondly, we
will see more migration from arid areas to better hydrated areas, placing ever greater pressure on the latter places. Thirdly, we will
see more interstate tensions, especially between upstream countries that seek to build hydroelectric power plants, and downstream
states whose water for agriculture and industry may be in short supply.
Regions or countries of the world where we will see greater tensions over water include Mexico; the Parana river between Argentina,
Brazil and Paraguay; the Middle East; the Nile basin from Egypt to Sudan and Ethiopia; Central Asia; South Asia; and the Mekong
basin, amongst others. In some cases, we will see wars break out over control over water sources.
Demographic Shifts Will Shape Politics And Labour Markets
Ageing populations to presage inter-generational tensions: Demographic shifts will have a tremendous impact on politics
worldwide (see 'Emerging Demographic Trends: Eight Factors To Consider', September 10 2012). Most developed and emerging
countries are experiencing ageing populations, which theoretically bodes well for political stability, because older people are less
likely to take to the streets or embrace radical ideologies. The ageing of populations in developed states and the more advanced
emerging markets will also theoretically result in greater conservatism, and a greater emphasis on healthcare and social services. At
the same time, the ageing of populations could open up new inter-generational tensions between the old and young in developed
states, especially since many among the young will perceive themselves as being less well off than the previous generation. Some
political leaders may more consciously seek to tap the grey vote, while others will seek to attract the youth vote.
Most Regions Will Age Significantly

Percentage Of Population Aged 65 & Above
f = Fitch Solutions forecast. Source: UN World Population Prospects, Fitch Solutions
Labour markets will require greater government intervention: We believe that several key industries in multiple regions will
experience mismatches within the labour market, either by having to lay off too many unskilled workers, as in agriculture in Asia, or
by struggling to attract enough qualified workers, such as in tech and possibly oil and gas. We expect this will lead to greater
government involvement with various scope and degrees of success depending on local contexts. Countries like China will likely
resort to direct interventions in the economy, while other states will adjust or in some cases reform social and education policies.
Labour Market Will Struggle To Meet Skill Demands

Most Important Skills For Businesses By 2030, %
Many commentators now believe that people in most developed states will have to work into their 70s or even 80s to maintain their
economic wellbeing and uphold the welfare state model. If so, this is bound to cause resentment among the elderly of the coming
decades, who will recall their parents and grandparents retiring in their 60s. There are also question marks over whether those in
their 80s will be 'up to their jobs', physically or mentally. The answers will depend on how much progress is made over the coming
decades in technologies to extend the human lifespan, 'rejuvenate' the elderly, or at least delay their ageing.
Increasing role of women in economy: The empowerment of women in various regions of the world could also have a
transformative impact on domestic politics. The Middle East and Africa have been notable laggards on this front, which partly
explains their high birth rates. However, their societies could change significantly over the coming decades. Until the late 1980s,
most Latin American states were authoritarian and dominated by the military, birth rates were high, and there were hardly any high-
level female leaders. Many were also racked by insurgencies. However, over the past 30 years, Latin America has democratised,
women have become increasingly active in politics, and birth rates have declined. There are certainly still huge governance
problems in the continent, but on the whole, most Latin American countries have never been as politically mature as they are now.
Although Middle Eastern and African societies are different from Latin America, the experience of the latter demonstrates that
societal change can come relatively quickly.
Conclusion: A Much More Complicated World Emerges
Overall, we expect the new geopolitical landscape to be the most complex in generations. It will be increasingly multi-polar, with
shifting or more ad hoc alliances, and a wider variety of actors than ever before, consisting of several great powers or near great
powers, countries, city-states, powerful transnational institutions, big corporations (with an increasing number from emerging
markets), investment funds, terrorist groups, organised criminal groups, pirates, cyber actors and the like. However, greater
complexity need not mean greater chaos, but could in fact offer countries more geopolitical opportunities. Furthermore, a global
economic order less dependent on three big economies - the US, China and Europe - for growth would arguably be a more
balanced one.
Global Economy: Far-Reaching Changes To Take Hold By 2050

Key View
• Globalisation will very likely stall over the coming decade and go into partial reversal, but could accelerate again beyond 2030,
driven by the rise of China and India.
• China’s long-term ascent is likely to continue, but it faces major risks from the sustainability of its financial and political systems,
and environmental degradation. India’s long-term ascent also faces formidable structural obstacles.
• Most emerging market (EM) economies will rise further up the global rankings in terms of absolute GDP, but many are at risk of
getting stuck in the ‘middle-income trap’.
• Demographics will not have a clear-cut impact on economic fortunes, as some EMs will fail to maximise the opportunities of
expanding populations, while some developed states will mitigate the effects of ageing through technological advancements.
• Changing demographics, ideologies, and technologies will result in new economic models emerging, although there is unlikely
to be a single dominant model worldwide.
• Climate change will play a major role in changing economic patterns over the next 30 years.
• The US dollar will likely remain the world’s dominant currency even in 2050, although other currencies will also gain importance.
The future of globalisation – at least as we have known it since the late 1990s – appears to be in doubt, amid the rise of anti-
globalist populism in developed states. We at Fitch Solutions believe that globalisation has reached a plateau and could see a partial
reversal over the coming decade (2020-2030). This would hardly be unprecedented. The period 1870-1913 saw a rapid integration
of the world economy that was interrupted and reversed by World Wars I and II and the inter-war years. Globalisation began to take
off again after World War II, as the US emerged as the strongest world power unscathed domestically by fighting, and accelerated in
the 1990s, as the collapse of global communism allowed dozens of countries to ‘rejoin’ the US-led world economy, and as the
emergence of the US as the world’s sole superpower allowed it to set the new rules of the international system.
By ‘globalisation’, we generally refer to the trend of greater integration of the world economy through economic, financial, political,
and cultural channels. For instance, this entails the increasing importance of global trade to the world economy, the deepening of
global capital markets, the proliferation of supranational political organisations and more international migration of labour, and the
faster spread of popular culture across international borders. We tilt our analysis towards the trade aspect of globalisation due to
greater relative availability of data and relevance for economics and industry compared to aspects such as cultural globalisation.
Rising Protectionism To Curb Trade Growth

Growth Of Global Trade (Exports & Imports), % chg
Source: IMF, Fitch Solutions
Weak global trade growth and rising protectionism are signs that the most recent phase of globalisation has stalled:
Weak trade: After contracting by 3.0% in 2016, global trade rebounded in 2017 and continued to grow at a robust rate in 2018.
That said, a dismal global trade performance over the three years prior to the rebound means that annual average global trade
growth was significantly weaker than global economic growth over the past five years. Indeed, IMF data shows that while global
trade grew by an annual average of 1.1% since 2014, world output grew by an annual average of 3.1%. Over the past several
decades, this disconnect has been rare outside periods of global recession, and it suggests that economic growth is becoming less
trade intensive. According to the IMF, global trade (defined as the sum of exports and imports) grew by 10.2% in 2018, bringing
annual average growth since 2015 to 5.6%. This compares with an average of 8.2% over the decade leading up to 2014, 8.4% in the
10 years prior to that (1995-2004) and 8.9% in the decade prior to that (1985-1994). As a result, the period since 2015 has
represented the worst period for trade growth since the early 1980s.
Rising protectionism: A trend of rising developed market protectionism has already been in place since 2009, judging by several
metrics. For instance, according to data from Global Trade Alert, protectionist measures implemented by the largest five developed
economies have surged since 2009. Global Trade Alert also noted that resort to protectionism accelerated in 2018 and 2019, with
1,050 and 1,048 new trade ‘distortions’, respectively, being implemented by governments worldwide, compared to 625 measures in
2017. Although the media narrative has been on US-China trade tensions, the two countries accounted for ‘only’ 23% of new trade
distortions between 2017 and 2019 inclusive.
As things currently stand, most of the major enablers of the most recent phase of globalisation have either been
exhausted or are being reversed. Some of the enablers were ‘one time’ historic events that cannot be repeated easily; in other
cases, the results of globalisation have led to backlashes that are now fueling a reversal. These enablers included the collapse of
communism in Central and Eastern Europe (CEE) and the absorption of these countries into the EU and NATO; improved relations
between Russia and the West; the initiation of market reforms in India from 1991; the acceleration of economic reforms in China in
the 1990s and its accession to the WTO in 2001; the rise of the internet and mass communications; the rise of low-cost air travel;
and ultimately US global economic, financial, and military dominance in the 1990s and the aggressive promotion of globalisation
and free trade under Bill Clinton’s presidency (1993-2001).
Most significantly, since the 2008-2009 global financial crisis, globalisation has lost much of its appeal in the country
that had most aggressively promoted it, namely the United States. The backlash against manufacturing jobs being shifted
to China and other emerging markets, combined with fears about rising immigration led to the election of Donald Trump as US
president in 2016. Similar populist figures have gained power and influence in Europe. In both the US and Europe, large segments of
the electorate feel that they have either not benefited or have actually suffered from globalisation. The rise of more protectionist
trade policies and tighter immigration policies have thus dealt a blow to globalisation.
Meanwhile, China and India, which are both perceived as beneficiaries of globalisation, are not yet in a position to
drive the process forward in the absence of the US. China is still far from being an open economy; it also lacks the military
power to underpin a global system; and its existing power is already leading to concerns about its rise. For its part, India is still a far
smaller economic and geopolitical player than China, and much of its attention will remain consumed by domestic matters for
many years to come. Over the coming decades, China’s Belt and Road Initiative (BRI) could form the basis of the next phase of
globalisation, but the BRI remains dependent on China’s ability to finance it, and participating countries’ willingness to allow Beijing
to gain economic or geopolitical influence in their territories. The development of BRI will thus proceed in fits and starts, rather than
in a smooth, linear fashion.
Assuming that globalisation has peaked for the time being and may partly reverse, we are likely to see more
regionalisation, that is to say, deeper integration within regions, with each region’s most powerful country or countries acting as
the integrator. For example, Asian countries are becoming increasingly reliant, economically, on China, and Beijing has created the
Asian Infrastructure Investment Bank (AIIB) as a new financial lender. It has also championed the Regional Cooperative Economic
Partnership (RCEP) trade pact, and along with Russia, has gradually expanded the Shanghai Cooperation Organisation across much
of Eurasia, including to many of the countries participating in the BRI.
The rise of ‘regionalisation’ also dovetails with our forecast for an increasingly multi-polar world order over the
coming decades. The main powers are likely to be the US, China, Russia, the EU core, and Japan, among others, with Turkey, Iran,
Saudi Arabia, India, Brazil, Nigeria and South Africa as major regional powers.
Finely Balanced Futures

Three Scenarios For Globalisation (2020-2050)
Alternative Scenarios For Globalisation: Triggers And Implications
Below, we examine two alternative scenarios for globalisation in the coming decades, namely: a ‘great reversal’ (scenario 1), and a
‘great resurgence’ (scenario 2):
Scenario 1: The Great Reversal
In this scenario, globalisation goes into a dramatic reversal, as populist forces come to power or retain power in most major
economies, consolidate their positions, and refuse to move towards ‘pragmatism’ or ‘moderation’. Existing free trade deals are
reversed, travel and immigration rules are tightened dramatically, and global institutions become split along regional lines. A general
surge in international tensions increases the chances of ‘great power’ conflict.
Triggers:
Future US leaders extricate the US from existing trade deals, while abandoning traditional US military alliances in favour of looser,
more ad hoc arrangements.
In Europe, a future economic crisis once again pushes the eurozone towards breaking point. Several countries decide to leave the
eurozone and EU, effectively ending the ‘European project’. Even Germany decides that the ‘European project’ is dead, and behaves
in a more unilateral manner.
In Asia, the intensification of geopolitical competition between China on one hand and the US and Japan on the other divides Asia
into rival camps. The risk of this would increase, if China and the US come to blows, forcing Asian states to choose sides. Any US
attempt to impose sweeping sanctions on China amid future conflict would also hasten the end of globalisation.
After witnessing the rise of protectionism in the US and Europe, the governments of China, India, and other major EMs also adopt
similar measures. China, India, Brazil, and Russia, increasingly angered by the West’s refusal to give them a greater say in global
institutions, make a concerted effort to establish or strengthen regional institutions that they are able to dominate.
A massive terrorist attack in a major city matching or exceeding 9/11 in scale (and possibly involving weapons of mass destruction)
triggers much tougher international travel and freight shipping rules, severely impeding international movement of people and
goods. (A major global pandemic could also have similar effects.)
A massive cyber attack (or frequent instances of significant cyber attacks) disrupts communications and electrical systems for
weeks or months at a time. The resulting ramp up of draconian cyber-security regulation in developed states dilutes the globalising
impact of improving telecommunications infrastructure.
A major conflict or natural disaster in a large country sends waves of refugees towards Western countries and other economies,
leading to a huge backlash that further demands tighter border controls.
GLOBALISATION SCENARIOS MATRIX

CORE SCENARIO ALTERNATIVE SCENARIO 1 ALTERNATIVE SCENARIO 2
Globalisation Plateau The Great Reversal The Great Resurgence
CHARACTERISTICS AND
IMPLICATIONS:
Global Trade Continued protectionism; slow Dramatic rise in trade and New trade architecture
growth; limited progress on new investment barriers; breakdown emerges, based on China-led
trade deals; partial reversal of of existing trade pacts and BRI, India and other 'South-
deals weakening of WTO South' arrangements
Global Institutions Most global institutions survive, Global institutions break down, New global institutions emerge,
but are weakened through and are replaced by smaller, reflecting increased clout of
benign neglect or active erosion; regional organisations or more China, India and major Emerging
some regional organisations will fluid and ad hoc organisations Markets; non-Western business
supersede global ones for tactical rather than strategic practices, culture and narratives
purposes become more prevalent
Geopolitics Multipolar world order; rising US- Multipolar world order; sharply Multipolar world order; amicable
China and Russia-West increased global tensions; resolution of US-China and
competition; modest increase in higher risk of 'great power' Russia-West rivalry; China-driven
global tensions conflict amid rival power blocs; global framework built on 'Belt
more countries raise defence And Road'; new global security
spending and acquire nuclear organisation takes shape
weapons amid arms races
US US retains most alliances Increasingly aggressive US US increasingly treats China,

(eg, NATO, Japan, S. Korea), but posture; strong isolationist India, Russia and EU as partners
increasingly criticises allies; currents; some alliances are rather than rivals in new era of
China and Russia remain main replaced with ad hoc tactical multilateralism
US rivals arrangements
Latin America Only modest progress in efforts US retrenchment from Eurasian Latin American integration
to increase regional integration stage would lead to more focus continues; LatAm forms closer
on LatAm; LatAm integration ties with Asia and West Africa
efforts to stall amid rising
nationalism
Europe EU and eurozone expansion EU/eurozone dissolve into sub- EU and eurozone remain intact
becomes stalled; partial regional blocs such as Germany- and become more integrated;
decentralisation of EU powers led core, Scandinavia, Southern Russia-EU relations improve; EU
back to national governments Europe and CEE; Russia forms stronger economic ties
amid modest uptick in increases influence in Eastern with China and Russia through
euroscepticism Europe as EU no longer acts as Belt And Road; 'Eurasianism'
anchor to eastern members becomes economically binding
force
MENA Continued tensions, as US Higher risk of major regional war, Rising ties with China via BRI and
contains Iran; modest increase in if US abandons alliances or if US with India increase MENA's
Russian and Chinese influence, comes to blows with China and/ importance; Iran emerges as
especially as Belt And Road or Russia, directly or via proxies major East-West and North-
advances (eg, Saudi Arabia and Iran) South nexus
Africa Modest efforts to boost Africa becomes new African nations become
continental integration; modest battleground of 'great powers' increasingly important
competition between China and competing for its resources; this economic hubs; deeper regional
rival powers for influence in undermines regional integration; rising ties with Asia
Africa cooperation and spurs more and Latin America
proxy conflicts
China Modest but manageable US- Rising risk of conflict with US; China, increasingly prosperous
China tensions; ongoing efforts geopolitical competition and open, emerges as the main
by China to advance its destabilises BRI corridors; rising driver of globalisation, with BRI
technological base and Belt And pressure on China's economy, acting as a major conduit; China
Road; low-key US efforts to amid reduced access to global increasingly leads through 'soft
contain China markets; risk of unexpected power', but occasionally
political shift in China intervenes through multilateral
coalitions
Asia ex-China Modest but contained Rising tensions as China Multilateral cooperation
competition between China and aggressively seeks regional between China, India, Japan, US
the US, Japan and India in the dominance; risk of division into and other non-Asian powers
Indo-Pacific region pro-China and pro-US camps; lead to new economic zone
economic stresses for encompassing Indo-Pacific
manufacturers no longer having region
easy access to US markets
Frontier Markets Modest increases in economic Higher tariff barriers would Frontier Markets become next-
advancement, but difficulties in reduce ability of frontier markets generation manufacturing hubs
reaching high-growth phase, due to pursue export-oriented increasingly integrated into the
to greater protectionism in growth models; domestic global economy
developed states services would thus be the main
growth driver, but
unemployment could rise
sharply
Domestic Politics Populist parties continue to Rising political tensions, Populist forces become
exert great influence over especially in labour-intensive discredited, having overeached
government policies, even if manufacturing states that are themselves while failing to raise
they do not come to power; less able to rely on exports for living standards for their
ongoing policy shifts based on growth; rising xenophobia populations and risking conflict
shifting balance of power worldwide
between 'populist' and
'establishment' parties
Domestic Economics Status quo is largely maintained, Economic nationalism becomes Advances in manufacturing
with occasional tilts leftwards or more entrenched; higher trade reduce cost of goods worldwide,
rightwards depending on how and immigration barriers lead to resulting in disinflationary or
parties see popular sentiment higher goods and labour costs; even deflationary conditions
shifting inflation rises worldwide
Energy Status quo is largely maintained, Hydrocarbon-rich areas such as Revival of multilateralism could
but there is greater demand for Gulf, Caspian Sea, South China see increased efforts to change
sourcing energy closer to home; Sea, East Med, Arctic, etc, see global energy landscape,
climate change concerns persist greater tensions or conflict; especially to reduce carbon
more countries would seek emissions; greater international
'energy independence'; coal, cooperation to develop oil and
nuclear and solar power, and gas resources in disputed areas
renewables would all receive
greater attention, although oil
and gas would remain
prominent; climate change
action would wane, as nations
promoted self interest
Technology Status quo is largely maintained, The tech realm could be Tech would return to the
but there are greater restrictions completely bifurcated into non- globalised nature of the pre-
on tech sharing and involvement interoperable rival US and Trump era; multilateral co-
in different markets; greater Chinese systems under full-scale operation would see national
competing standards tech war; supply chains would be bans on foreign tech companies
dramatically re-organised; new lifted or reduced
bans on foreign equipment and
software; greater internet
censorship would occur in
individual states to suppress
dissenting voices; Western
governments (rather than
private sector) could become
more involved in new
technological developments
Scenario 2: The Great Resurgence
In this scenario, populist forces in developed states prove transient, as their undiluted policies fail to improve economic conditions
for their core supporters, thus triggering a backlash and a move back towards the previous ‘mainstream’. It is possible that world
leaders, fearing a global depression, could eventually respond by increasing their co-operation, possibly by building new global
institutions that better reflect the distribution of international wealth and power compared to the US-dominated Bretton Woods
institutions and the present-day UN Security Council.
Moreover, rising economic prosperity in China and India, benefiting from greater technological adaptation and innovation, leads
their economies to become much bigger drivers of demand for goods and services from North America, Europe, and elsewhere. As
Chinese and Indian companies move up the value chain, they become increasingly outward in their focus, leading them to deepen
ties with Latin America and Africa. Thus, globalisation enters a new era, but this time driven more by Asia’s two giants than by the
US/West.
Scenario 2 also allows for the possibility of two competing globalisations, one led by China and the other led by the US, each
dominating their respective spheres of influence and seeking to gain supremacy in ‘third’ areas in the world. This would be
reminiscent of the Cold War, during which the spread of communism by the USSR represented a rival system of globalisation to the
US capitalist one. For the foreseeable future, the US and China will be the only two countries powerful enough to drive or uphold the
process of globalisation. However, other ‘globalist’ forces can ride the wave of globalisation. For example, the US-led wave of
globalisation in the 1990s and 2000s also allowed the spread of transnational radical Islamist ideology, on the back of the internet,
smartphones, and increased air travel. Radical Islamism was staunchly opposed to US values, but still benefited from the ‘medium’ of
globalisation.
Triggers:
Populist forces would need to be thoroughly discredited, possibly by 1) enacting economic policies that fail to improve the
livelihoods of their core supporters; 2) over-reaching themselves politically by seeming too xenophobic or otherwise politically or
socially incorrect; 3) losing their core leaders, who often exert disproportionate sway over the party or movement.
The world’s major economies would need to be led by globally minded leaders as opposed to ones focused mainly on domestic
interests. Yet, they would have to show sufficient sensitivities to anti-globalist forces at home, while making a persuasive case that
those left behind will henceforth benefit from globalisation.
Such a scenario would likely only emerge in an environment of stronger global economic growth. The global economy will have to
be sufficiently robust so that economic rewards are felt by the middle classes and ‘masses’, and that the vast majority of the
population feels the benefits of the ‘rising tide that lifts all boats’.
China would probably need to take the lead in the next phase of globalisation, possibly accompanied by India. In the absence of
China, the US would need to take the lead, as Europe is likely to be too fragmented to take the initiative.
Emerging Markets To Rise Up The Ranks Of The World’s Biggest Economies
Over the next 30 years, there will inevitably be significant changes in the rankings of the world’s biggest economies (as measured by
nominal GDP in US dollar terms), with many emerging markets likely to overtake existing developed states. These rankings matter
because they will help determine countries’ ‘global clout’. Although some economic forecasters prefer measuring GDP and GDP per
capita in purchasing power parity (PPP) terms, global trade, including in commodities, is still conducted in US dollars, meaning that
nominal GDP in US dollars is a major determinant of global clout. GDP in PPP terms is a useful indicator of a country’s potential
resources for military spending, assuming that all defence equipment is sourced locally (e.g. in China and Russia), while GDP per
capita in PPP terms offers a more accurate picture of domestic living standards within the economy.
Nevertheless, the use of GDP has been criticised for being too broad, as it mainly measures the speed of economic growth, without
taking into account other important factors such as quality of growth, possible negative side effects, and people’s general wellbeing.
For example, China’s breakneck real GDP growth during the 2000s certainly won plaudits, but the headline figures masked
questions about the sustainability of such growth rates, and failed to fully address negative issues such as periods of high inflation,
rising socioeconomic inequalities, uneven regional growth, and environmental degradation. The Chinese authorities attempted
from 2003 to devise and implement a ‘Green GDP’ measurement that took into account losses incurred by environmental
degradation, but internal disagreements and bureaucratic resistance caused the scheme to be abandoned in 2007. Nevertheless,
we believe that as concerns about environmental ruin and climate change rise across many countries, the notion of ‘Green GDP’ or
other alternative economic measurements could gain traction. For example, the government of Bhutan in 2008 adopted a ‘gross
national happiness’ system of measurement that examines multiple socioeconomic variables. Meanwhile, the UN has long
maintained a Human Development Index scoring system that can be viewed as an alternative to GDP per capita rankings. Against
this overall backdrop, by 2050, it is entirely possible that many governments may be using alternative measures to GDP, or
publishing alternative measures alongside traditional GDP. The rise of alternative indicators could have significant policy
implications, if governments seek to actively increase variables such as ‘happiness’ or ‘wellbeing’. This could pose a challenge to
more laissez-faire economic systems, under which the government seeks to maximise economic growth on the assumption that
newly created wealth will trickle down to society.
Overall, we believe that China has a realistic chance of becoming the world’s biggest economy by 2050. Although we at
Fitch Solutions do not forecast beyond 10 years, we anticipate that China will approach the US in absolute GDP by the end of the
2020s. Even if China fails to overtake the US by 2050, it is likely to vie with the US for top position or not be far behind. Aside from
China’s future real GDP growth, much will depend on the dollar-yuan (USDCNY) exchange rate. For many years, it was assumed that
the yuan was undervalued against the dollar, with the US accusing China of keeping the yuan weak to maintain the competitiveness
of its exports. However, in recent years, the yuan has come under depreciatory pressure, partly due to capital flight. The long-term
direction of the yuan is thus unclear, and could significantly affect China’s global economic ranking in US dollar terms.
China Could Overtake The US In The 2030s

Nominal GDP In US Dollar Terms, USDbn
Despite some structural weaknesses, China’s economic rise, at least in absolute terms, appears highly likely, although it will inevitably
grow at a much slower pace than the double-digit rates in the 2000s, as its economy matures and its population ages rapidly.
However, even assuming China’s continued economic expansion, the most optimistic forecasts acknowledge that its per capita GDP
will remain far below the US’s by 2050.
The biggest risks to China’s continued economic rise are the stability of its financial system, the sustainability of
one-party rule under the Communist Party of China (CPC), and the state of its environment. In the event of a financial
crisis, China could experience a prolonged period of much slower than anticipated growth, perhaps comparable to Japan’s ‘lost
decade’ in the 1990s, but this would not necessarily preclude a more impressive recovery than Japan’s at a later date if the Chinese
government enact bold reforms. Meanwhile, the possibility of a major political crisis in China remains the biggest wild card. This
could be triggered by deteriorating economic conditions, which would expose the CPC to more criticism. The CPC successfully
quashed a democratic uprising in Tiananmen Square in 1989, but the regime is mindful of a repeat uprising, especially after the
‘Arab Spring’ in 2011-2012, and massive and sustained protests in Hong Kong in 2014 and 2019. The nightmare scenario for the
CPC is the possibility that China could enter a multi-year period of instability comparable to Russia in the 1990s, during which there
was an economic depression accompanied by sudden economic policy shifts, deteriorating security, and separatist conflicts. In our
view, the best-case scenario for China from the point of view of safeguarding long-term (i.e. multi-decade) stability would be an elite-
led managed transition that phased in some form of democratic elections at the municipal and provincial level over a multi-year
period before moving to a national level. However, at the present time, there are no signs that the CPC is willing to countenance this.
Rather, the political system appears to have become more centralised under President Xi Jinping. However, Xi’s eventual successor
could take a different approach.
SIX CONTRADICTIONS FACING CHINA'S ECONOMY

Contradiction Description Risk
De-risking and Beijing's easing of monetary policy and push to get The pause in overall debt load growth may be reversed,
deleveraging vs growth credit to smaller, riskier private enterprises are at putting medium-term growth at risk by compromising
support odds with its efforts to deleverage and reduce risks in the financial sector's ability to lend. Lower lending rates
the economy compared to shadow financing is a thinner barrier
against excessive risk taking
SOE control vs market The Communist Party of China uses State Owned SOEs grow in dominance, as they receive preferential
reform Enterprisies to maintain control of the economy and treatment, and could absorb many private players
pursue political objectives
Continued funding for China's current account is likely to flip into deficit by Exporting capital in the midst of a declining current
BRI vs declining 2021 amid economic restructuring. However, Beijing account balance is likely to exacerbate the downtrend.
current account continues to champion the BRI. While Beijing plans to The yuan could weaken significantly over time as a
surplus expand the role of private and international financing, result, which could reduce Beijing's willingness to
it will likely remain the main source of capital for continue opening up its capital account
projects, especially in riskier countries
Greater yuan China wants to encourage greater use of the yuan As along as restrictions remain on the capital account,
internationalisation vs around the world and has succeeded in improving its internationalisation of the yuan will likely be held back.
closed capital account usage over the past decade. However, China still does Yet a completely open capital account remains a distant
not have a completely open capital account prospect because Beijing is still wary of the instability
such a policy could bring at this stage of China's
development. Even now, the risk remains that Beijing
could reimpose restrictions on the capital account
during times of capital flight
Fostering innovation China wants to foster innovation and be a global China will likely not be able to match the advantage of
vs discouraging leader in cutting edge technology. However, Beijing the US's open society where ideas flow freely between
dissent and also strictly controls the media, often censoring what different cultures and nationalities. The discouraging of
maintaining strict it regards as sensitive content. Beijing discourages immigration also leaves China more vulnerable to the
censorship dissent, and has detained dissidents. For these challenges of an aging population, which is detrimental
reasons, Beijing is unwilling to open China up to freer to innovation
immigration
Contradiction Description Risk
Adherence to Marxist President Xi has reaffirmed Marxism as the correct Marxism is focused on class conflict and advocates
ideology vs rising guiding philosophy for China. However, years of violent action on the part of the proletariat against the
inequality economic boom brought on by market reforms have richer segments of society. Therefore, the potential for
led to a high degree of income inequality class conflict and dissatisfaction against the
government arising from high inequality is theoretically
more pronounced in China
Other major risks to China’s economic ascent include getting stuck in the ‘middle income trap’ (see more below) as a
result of slowing growth and population ageing, and environmental degradation. In the event that China experiences the ‘middle
income trap’, it would still be a major global economic force, given its huge total population, but it would likely delay government
attempts to shift towards a more consumption-driven model rather than one driven by fixed investment and exports. As regards the
environment, air, water, and land pollution could force a substantial curb on economic activities, if it becomes a bigger public health
issue. Continued loss of farmland to industrial and commercial activities and water shortages as a result of overuse and pollution
could meanwhile leave China more dependent on food and water imports. (Indeed, we see a possibility that China and other water-
deprived countries could import vast quantities of water in giant supertankers similar to those used to transport crude oil.)
On the upside, China is making strenuous efforts to become a technological superpower, and new advances in artificial intelligence,
pharmaceuticals, and green technologies could mitigate some of the negative effects of population ageing and environmental
pollution. However, there is no guarantee that these technologies will offset all of these risks. Indeed, it would be highly risky for the
CPC to count on technology alone as ‘magic solutions’.
Any greater or longer than expected slowdown of the Chinese economy would pose downside risks for economies
reliant on China through trade, especially commodities. Countries counting on Chinese foreign direct investment and
financial assistance would also be vulnerable. The Belt And Road Initiative, which could potentially be a conduit for the next phase of
globalisation, would also face greater delays.
India is also likely to make significant economic advances by 2050, although it is starting from a much lower base than
China in terms of total GDP and GDP per capita and urbanisation levels, suggesting that it will not catch up with China even by mid-
century. India’s main advantage over China is that it has a more youthful demographic profile, which will be beneficial for domestic
consumption. India is also considerably less exposed than China to external shocks such as the global trade war. India’s more
decentralised and democratic political system also suggests that it is somewhat less vulnerable to major policy missteps by the
central government compared to China.
However, India also faces multiple formidable obstacles to its continued economic ascent. Firstly, the generally
fragmented and decentralised political system (notwithstanding Prime Minister Narendra Modi’s strong position) makes it harder for
governments to devise and implement national-level economic reforms and development plans. Secondly, India’s ethnic, linguistic,
religious, and caste divisions mean that there is a considerable level of underlying social tensions, which threaten stability. Indeed,
Modi’s current Hindu nationalist drive could exacerbate these tensions. Thirdly, while India’s large and youthful population is
considered advantageous for growth, this could place unbearable strains on India’s environment and resources, especially if the
‘Make In India’ manufacturing programme initiated in 2014 accelerates. Ongoing industrialisation and urbanisation point to further
loss of farmland in India, which could result in elevated food price inflation. Moreover, India will soon be supporting a larger
population than China on a considerably smaller territory.
Other large emerging markets, such as Brazil, Indonesia, Mexico, Nigeria, Russia and Turkey all face substantial
obstacles to their continued ascent, and are at risk of experiencing the ‘middle income trap’.
Escape May Not Be Easy

Caught In The Middle
Note: Reform Score (0-10), where higher scores = stronger reform momentum; Corruption Score (Transparency International CPI Index, 0-100), where 0 is highly corrupt and
100 is very clean; Operational Risk Score (0-100), where higher scores = lower risk; STPRI = Short-Term Political Risk Index (0-100), where higher scores = lower risk. Source: Fitch
Solutions
The term ‘middle income trap’ refers to a phenomenon whereby emerging markets that have experienced rapid growth
subsequently experience a marked slowdown that persists for an extended period after reaching middle income status (as
measured by GDP per capita). The reasons may vary, but sometimes the country has exhausted one-time benefits such as cheaper
labour and youthful demographics, while the political leadership has become unwilling or unable to enact reforms that could
elevate the country towards higher-productivity and higher value-added industries. Other factors include low education levels, high
levels of corruption (which favours vested interests), and a poor business environment. Based on analysis of 12 emerging market
economies, we have identified Argentina and South Africa as being most vulnerable to failing to reach higher income status by
2029. Brazil and Thailand have the potential to move to higher-income status by the end of the decade, but both could still fall short
of this, due to governance challenges. In any case, their per capita GDPs would still be far behind that of most developed states.
History suggests that the vast majority of countries will struggle to escape the middle income trap. A study in 2013 by
the World Bank and Chinese government of global economic history since 1960 reveals that of 101 economies classified as middle
income at that time, only 13 became high-income ones, namely Equatorial Guinea, Greece, Hong Kong, Ireland, Israel, Japan,
Mauritius, Portugal, Puerto Rico, Singapore, South Korea, Spain, and Taiwan. We would add to that list Bahrain, Kuwait, Qatar, Saudi
Arabia, and the United Arab Emirates. In most cases, somewhat ‘unique’ circumstances facilitated these countries’ rises. Hong Kong
and Singapore are de facto city-states that have long been major trading hubs. Japan and South Korea staged rapid recoveries after
being devastated in major wars, and benefited from US military protection, relatively protected domestic markets, and open access
to the US consumer market. The Gulf states and Equatorial Guinea all benefited from vast hydrocarbon resources. Greece, Ireland,
Portugal, and Spain all joined the increasingly prosperous EU. These ‘unique’ opportunities are not available to the vast majority of
countries around the world. Nevertheless, technological changes imply that consumers in most emerging economies can benefit
from improved living standards, even if their incomes lag that of developed states.
Some emerging economies are also at risk of experiencing deteriorating living standards, if population growth
outstrips economic growth. Usually, this happens in ‘extreme’ circumstances, such as military conflict, which destroys an
economy. However, as a peacetime example, Venezuela, despite its vast oil wealth, has seen years of economic contraction, due to
chronic mismanagement. Russia and the former Soviet Union also saw substantial declines in GDP per capita after the collapse of
communism and the USSR itself. Over the coming decades, demographic ageing could conceivably tip some high-income
countries back towards middle-income status, while poor economic policies could tilt some middle-income countries back to low-
income status.
Demographics As A Double-Edged Sword
The idea that ‘demography is destiny’ has often been used by economists to justify upbeat economic growth forecasts for a number
of emerging nations, and pessimistic outlooks for several developed states. However, we believe that there are important caveats to
this argument. Indeed, the phrase is too fatalistic, as ‘destiny’ implies a predetermined path of events which cannot be changed.
Also, demographic projections are not fixed in stone.
Below are some reasons to be cautious about demographic forecasts and their implications.
Countries with rapidly rising populations:
• Total fertility rates (the average number of children a woman can be expected to have in her lifetime) can fall very rapidly. We
have seen this in several hitherto pro-big family places, such as the Canadian province of Quebec in the 1970s, and traditionally
‘family-oriented’ countries such as Italy and Spain, which now have very low birth rates. In general, urbanisation reduces the need
for large families to toil the land, and results in more congested living spaces in cities, which are less suited for large families.
Improved women’s education and job prospects are also major factors behind falling fertility rates.
• Large, youthful populations like India’s are considered positive for growth, but this must be accompanied by concomitant job
creation and opportunities. Otherwise, the demographic youth bulge will end up underemployed or unemployed, become a
source of social and political instability, and a drag on fiscal expenses. The ‘Arab Spring’ states exemplify these risks.
• Large, youthful populations mean abundant labour and lower wages. However, this also means that there is less incentive for
technological change through industrialisation and automation. The historian Fernand Braudel cites China’s large population as a
reason why it failed to industrialise early vis-à-vis Europe. There is a risk that countries with these demographic characteristics
could fail to take advantage of technological revolutions, for fear of boosting unemployment.
• Traditionally, some populous, developing nations have exported ‘surplus’ workers abroad before they become socially
problematic. These expatriate workers have become sources of substantial remittances. However, this may be less feasible in
future, given that many developed states are tightening immigration restrictions and could adopt greater automation.
Countries with stagnant or declining populations:
• People are staying active longer. Today’s ‘old’ people are often reported to be more youthful than the previous generation. Thus,
bleak economic forecasts based on ageing populations can be mitigated if people work longer. Going forward, advances in
biotechnology and medical treatment may prolong human beings’ active life-spans between now and 2050.
• Advanced technology can to some degree replace workers. Increasing use of robotics in factories and hospitals, the
phenomenon of self-driving cars and trains, supermarket self-checkouts, and the like, all demonstrate how human workers can
be replaced by machines. However, robots are far from being an economic panacea, for unlike human workers, they do not pay
taxes, and they are not consumers.
• There are potential consumer opportunities to tap the ‘grey’ population. Some retirees accumulate significant savings, which can
be spent on holidays and other leisurely activities. Those who choose not to do so will still need to spend on age-related
products and services. This can generate economic activity.
• Immigration of young workers may not be a sustainable solution to offsetting ageing. Eventually, the immigrants will themselves
age, thus adding to the grey population.
Changing Ideologies And Demographics To Force Changing Economic Models
The next three decades could see dramatic changes to the prevailing global economic models, which have for decades been
dominated by free-market capitalism. During the Cold War (1945-1989), the world economy was divided into two broad rival camps,
namely the US-led capitalist system and the USSR-led communist system, with large numbers of countries caught in between them
with mixed economic systems. There was also considerable variation in economic systems within the capitalist world, with the US
having a more laissez-faire model, while many Western European states adopted social-democratic systems with strong welfare
states, and Japan and South Korea favoured government-directed models of economic development. (The communist world also
had considerable differences in economic models, with North Korea exemplifying the more statist model, while Yugoslavia
exemplified the more liberal model.) From the 1980s, many developed states and emerging markets adopted a ‘neoliberal’
economic model, whereby the state’s involvement in the economy was greatly reduced through the privatisation of state-owned
companies, the deregulation of financial systems, the reduction of tariffs and barriers to foreign investment, and greater opening to
foreign labour. Neoliberalism and globalisation further flourished in the 1990s, as communism was by then thoroughly discredited
by its economic failures and the Soviet collapse, while the Asian financial crisis of 1997-1998 discredited the Asian model of state-
directed capitalism. Furthermore, the US’s emergence as the sole superpower in the 1990s allowed it to ‘export’ its economic model
worldwide, assisted by its dominance of international institutions such as the IMF and World Bank.
Overall, the rise of China with its state-driven authoritarian capitalist model clearly demonstrates the existence of a
successful alternative development model to the US-led neoliberal system. Indeed, Vietnam had already adopted such a
model in the 1980s, while Russia sharply curtailed its free market experiments after its own financial crisis in 1998 in favour of a
state-capitalist system. China’s economic ascent since the 2000s has made it an attractive role model for a variety of emerging
markets, especially ones with authoritarian governments. Of course, in the event that China experiences a major economic crisis, its
model could be discredited, but it would still be regarded as having been successful in enabling China’s rise until that point.
Meanwhile, the 2008-2009 global financial crisis has shaken public faith in the neoliberal system in many developed
states. Indeed, even during the boom years in the 2000s, critics of neoliberalism warned of rising socioeconomic inequalities in
developed countries. The rise of populism in the US and European countries in the 2010s appears to reflect a backlash against
neoliberalism and globalisation, although as yet, a coherent alternative system has yet to be espoused. In the US, President Trump’s
trade policies are protectionist, but his domestic agenda has focused on deregulation rather than increasing the role of the state.
The UK’s first post-Brexit government under Boris Johnson also appears to be moving towards greater deregulation and reduced
workers’ protections, which implies that socioeconomic divisions could widen. At the same time, the UK is seeking new free trade
deals rather than raising trade barriers. Meanwhile, in Europe many hitherto powerful social democratic parties have found
themselves out of power and seemingly in decline, as nationalist parties have gained ground. Nonetheless, even if populism and
nationalism persist or increase in influence over the coming decade, it is quite possible that politics in the Western world could shift
back towards the centre-ground beyond 2030.
Most likely, the transition to a multi-polar world order means that there will not be a universally adopted economic
system. However, if socioeconomic inequalities continue to rise across the world, populations are likely to demand greater state
intervention in their economies to redistribute wealth. Such calls could grow louder, if businesses’ adoption of Artificial Intelligence
and automation leads to greater job losses or structurally higher unemployment while at the same time allowing corporate profits
to rise and their top executives to receive ever greater rewards. Indeed, even nominally economically right-wing governments could
be forced to impose higher taxes and regulations on businesses.
Increased automation could also lead to rising calls for the adoption of universal basic income (UBI) in countries that
experience structurally higher unemployment. Although automation has been leading to job losses for generations, most
economies have managed to create new types of jobs, so that structurally higher unemployment has been avoided. However, over
the coming 30 years, there may come a point where human workers are replaced by automatons at a faster pace than new types of
jobs can be created for humans. Moreover, it may not be practical for workers in their 50s to retrain for entirely new careers at such
a late stage in their employment cycle. If those aged in their 50s are forced to retire early due to technological shifts, then they are
likely to add to pressures on national pension systems caused by ageing populations. Also noteworthy is that while low-skilled jobs
are typically among the first to be replaced by automation, future advances in technology are likely to lead to many ‘white collar’
jobs being replaced. This could create ever greater pressures on the middle classes, which are typically the pillars of stability in
societies. This could galvanise the middle classes into more radical rather than centrist political positions against technologically
enriched elites. For their part, these ‘elites’ will have an incentive to prevent their societies from becoming impoverished, as this
would mean that populations would no longer be able to afford the goods and services produced by their companies.
Consequently, the elites could come to favour universal basic income or redistributive economic systems for the purposes of
supporting private consumption.
In large parts of the developed world, economic models will also need to change because of population ageing. In
particular, the ageing and in some cases decline of populations will bring forth the question of whether economic expansion should
be a goal in itself. Barring major wars and pandemics, most countries have seen their populations expand throughout history, and
governments have promoted economic expansion as a means of raising their populations’ living standards – which generally has
the benefit of increasing stability. However, as individual countries see their populations decline, bringing reduced total
consumption, then economic growth may no longer be a priority or even feasible. Rather, the challenges for some governments
may switch to ‘managed decline’ (although the term itself is unlikely to be formally used, due to its negative connotations), i.e.,
keeping their economies from declining faster than their populations. Japan will be a test case for this, because its population is
already one of the most aged in the world and is shrinking. If populations decline faster than total GDPs, then per capita GDPs
should, ceteris paribus, still rise. Yet, this will be hard to achieve in practice, as it assumes that GDP is evenly distributed, which is
never the case. In addition, each recession could erode sizeable percentage points off GDP that could be harder to recoup, post-
recession. Thus, economic decline could end up happening faster than population decline. Combined with uneven wealth
distribution, this could lead to large segments of society becoming impoverished, and thus a source of discontent. Meanwhile,
companies based in or reliant on countries with ageing or declining populations will increasingly feel compelled to tap commercial
opportunities abroad out of sheer necessity.
Climate Change To Exacerbate Economic Risks
Climate change could also force changes in economic patterns in developed states, with a greater emphasis on sustainability of
consumption. In recent years, there has been less emphasis on owning physical products such as audio and visual media and
books, as digitalisation has taken hold. In addition, younger generation consumers are increasingly prizing experiences (mainly
foreign travel) over owning products. In time, ‘virtual experiences’ are likely to become more sophisticated, too. However, reduction
of physical consumption is not necessarily beneficial for the environment. For example, streaming television programmes and films
is a highly energy-intensive activity, while greater international air travel is contributing to higher carbon emissions. Nonetheless,
pressure for more recycling and sustainable consumption will almost certainly gather momentum in developed states.
Although developed world consumption could decline in tandem with ageing and shrinking populations, we anticipate continued
demand for manufactured goods in major emerging markets such as China and India, where certain physical items (especially
luxury or high-brand goods, cars, etc) are status symbols. EM consumers will also continue to demand all the ‘mod-cons’ taken for
granted in the Western world (e.g. refrigerators, washing machines, high water consumption), thus continuing to place high pressure
on the environment. Attempts by Western countries to ‘lecture’ EMs on curtailing consumption to protect the environment will
most likely be rebuffed as hypocrisy on the part of the former.
That said, major EMs cannot ignore environmental concerns, not least because the deterioration of their own environments will
have social consequences, which will galvanise populations into demanding improvements.
In the coming decades, we expect climate change will result in erratic weather systems, with a knock-on effect on
political and economic stability. According to reports from the Intergovernmental Panel on Climate Change, climate change will
increase global temperatures and change precipitation patterns, leading to a more intense hydrological cycle. In some places this
will prompt stronger rainfall and result in greater flooding, while others will be faced with more severe drought conditions. It could
also bring more frequent natural disasters, including more powerful storms, while rising sea levels threaten low-lying regions and
communities.
Moreover, many of the regions most exposed to the effects of climate change are the least well positioned to
respond to mitigate these effects. According to the Notre Dame Global Adaptation Initiative, Africa and Asia are most exposed
from a biophysical perspective. Indeed, out of the 50 most exposed countries, all but four are in these regions. Latin America and
the Caribbean also stand out as particularly exposed, albeit to a lesser extent. That said, not all highly exposed countries are equally
vulnerable.
While some countries are set to benefit from new investment in sustainability – opening up new growth opportunities – countries
with high levels of poverty and income inequality, poor business environments, relatively undiversified economies and limited fiscal
freedom will struggle to adapt to the impacts of climate change. Based on these metrics, Sub-Saharan Africa stands out as by far the
most vulnerable. The chart below reflects this, examining countries’ biophysical exposure and the strength of each country’s
economic, political and operating environment as expressed by Fitch Solutions’ Country Risk Index scores (a low CR index score
indicates high country risk). Thirty out of the 51 countries that fall into the ‘high exposure, high country risk’ category are in Sub-
Saharan Africa, compared to 10 in Asia, six in Latin America and one in the Middle East and North Africa.
Africa Will Be Worst Affected By Climate Change

Country Risk Index Scores & Climate Change Exposure
Note: Red=Asia, yellow=Africa, blue=MENA, green=Caribbean, purple=Lat Am, grey=Europe. Source: University of Notre Dame Global Adaptation Initiative, Fitch Solutions
There are several channels that climate change will likely feed through to economic and political instability.
Growth, incomes and inflation: Extreme temperatures and more variable precipitation patterns are likely to hit key sectors,
putting downward pressure on company profit margins, consumer incomes and headline GDP growth. In already arid regions,
outside temperatures may become too extreme to work during the hottest parts of the day or else require new equipment to
function in a higher temperature band, with an impact on cost and productivity. Similarly, more extreme conditions pose a
significant threat to tourism-reliant economies. In some regions, changes in biodiversity (such as the loss of species and destruction
of reefs) or more extreme heat or cold are likely to discourage visitors. Meanwhile, rising sea levels and stronger storms threaten key
tourism infrastructure in large coastal areas and island economies. Indeed, a 2018 Inter-American Development Bank report
suggests that climate change could cost the region more than USD22 billion by mid-century, around 10% of the region’s current
GDP.
Agricultural production is likely to remain one of the most vulnerable sectors, with episodes of significant global supply disruption
and skyrocketing food prices likely to become more frequent and severe. Regions that are heavily reliant on rain-fed production and
which have limited capacity to quickly build robust irrigation systems are most vulnerable to these disruptions. For countries with
populations that are most reliant on agriculture as a source of employment, this is likely to have a significant impact on livelihoods.
On this metric, Africa stands out as the region most reliant on rain-fed agriculture (95% of farmed land is rain-fed), while nearly one-
third of the population is still employed in the sector.
New technologies and continued efforts at crop diversification and genetically modified seeds may reduce some of the impact of
climate change on the agricultural sector. Similarly, we expect greater economic diversification within emerging markets, with
significant growth in the services sector. However, lack of sufficient large-scale investment and inefficient public policy will create
divergences in how well different regions are able to adapt. Indeed, while we expect that production will accelerate in traditional
breadbaskets like Europe and the US, and rise sharply in Asia and Latin America, Africa and the Middle East will see far more limited
growth, remaining vulnerable to large-scale supply disruptions. Aside from the direct impact on livelihoods, food production
disruptions are likely to lead to periodic bouts of elevated inflation, impacting not only consumer purchasing power but also
potentially heightening popular discontent
Resource competition: Competition for natural resources is likely to increase as scarcity of key resources (most notably water) is
exacerbated by rapid population growth. We are already seeing this play out in the Nile Valley, where the Grand Ethiopian
Renaissance Dam (GERD) has heightened tensions between Ethiopia, Egypt and Sudan over water usage. According to data from
the World Resources Institute, Northern and Southern Africa as well as the Middle East and parts of Central and Southern Asia are all
already classified as facing ‘extremely high’ risks to the physical quantity of water. This will likely become more pressing, as extreme
weather patterns increase desertification.
While climate change will make some areas of the world increasing uninhabitable, it will open up opportunities, most notably in the
Arctic, with warmer temperatures making transit easier and boosting access to resources. Some forecasts suggest that the Arctic
Ocean will be ice-free during the summer as early as 2040, opening shipping routes like the Northwest Passage and a new route
from Asia to Europe. Meanwhile, a landmark US Geological Survey suggests massive potential resources in the Arctic, including
90bn barrels (bbls) of oil, 670tn cubic feet of natural gas and 44bn bbls of natural gas liquids. Although this could potentially bring
significant economic benefits to countries with claims on Arctic territory, it could increase geopolitical risks, as Russia, Canada, the
US, China and others vie for control.
Migration: Increasingly challenging climate conditions are also likely to increase large-scale population displacement, including
internal migration, and heighten competition for resources both within and between countries. We have already begun to see how
climate change can lead to internal migration, in turn increasing political tensions as previously geographically separated ethnic or
religious groups come into closer proximity and are forced to compete for the same resources. For example, Nigeria is facing
increasing outbreaks of violence and conflict over land usage, as desertification brings the mostly Christian farmers and Muslim
herders living in the country’s ‘middle belt’ closer together. According to a World Bank report, this trend is only likely to accelerate in
the years ahead, with potential for 143mn internal climate migrants by 2050 within Sub-Saharan Africa (SSA), South Asia and Latin
America – 86mn of which would be in SSA alone, representing an estimated 4.0-5.0% of the population. External migration can
bring additional challenges, stripping developing countries of crucial human capital as young and skilled workers move abroad to
find new opportunities.
The US Dollar’s Dominance Will Decline, But Only Very Gradually
As global economic trends, trading patterns and international payments continue to evolve, the status of the US dollar as the
world’s dominant currency will decline further, but it is unlikely to lose its status as the world’s largest reserve currency. This is largely
because the US dollar makes up the lion’s share of the world currency composition of official foreign exchange reserves, as reported
by the IMF. As of Q3 2019, the US dollar represented 61.8% of total allocated foreign exchange reserves, compared to 20.1% for the
euro, 5.5% for the Japanese yen and 2.0% for the Chinese yuan.
Only A Gradual Decline

US Share Of Global GDP & US Dollar Share Of Global FX Reserves, %
f = Fitch Solutions forecast. Source: IMF, Fitch Solutions
From an economic growth perspective, we do not expect the US dollar’s share of total foreign reserves to fall below
50% over the next decade, although it has been steadily declining over the past 20 years. This decline has approximately been in
line with the size of the US economy as a share of global GDP, which has also come down (see chart above). According to our
calculations, the size of the US economy will decline to 21.4% of global GDP by 2029 from 24.8% in 2019, and we estimate that the
share of the US dollar could fall to around 60% by 2029. The US as a share of the global economy would need to shrink dramatically
to around 4.0% of global GDP for its currency to lose its dominant status, i.e for the US dollar to represent 50% of total foreign
reserves. This seems highly unrealistic, even on a multi-decade timeframe to 2050, and even if China becomes the largest economy
over this period. Our 10-year forecasts show that China will almost catch up with the US in nominal GDP within the next ten years, as
we see the Chinese economy making up 20.2% of global GDP by 2029. China could thus overtake the US as the world’s largest
economy in the subsequent decade.
That said, the structure of the Chinese economy, rather than its size, will increasingly matter for the composition of
global foreign reserves. The ongoing rebalancing of the Chinese economy means that China will structurally shift from a ‘current
account surplus’ country to become a ‘current account deficit’ country – we forecast China’s current account to fall into a slight
deficit by 2023, which will gradually reach 1.5% of GDP by 2029. This means that China will need to attract foreign capital in order to
finance its deficit. Beijing has already clearly demonstrated that it wants a stable currency, and has already started to open its capital
markets in recent years, as evidenced by the Shanghai-Hong Kong Stock Connect, the Hong Kong Bond Connect, and the inclusion
of Chinese indices and bonds into world indices. We expect more market liberalisation reforms to emerge over the coming decades.
As a result, we expect the yuan to become a more internationalised currency, although this will be a slow process, given that Beijing
will want to maintain a degree of control over the currency and reduce the opportunity for destabilising speculative attacks. The
Bank for International Settlements (BIS)’s Triennal Central Bank Survey shows that the Chinese yuan is the eighth most traded
currency (in terms of FX market daily turnover, as of April 2019). Lastly, given that China is likely at some point to become the largest
economy in the world, the yuan will become a significant de facto reserve currency in coming decades. The Chinese yuan, as of Q3
2019, represented 2.0% of total world foreign reserves, up from 1.1% in 2016.
The slow decline in the status of the US dollar as a reserve currency could be further accelerated by ‘new’ means of
trading and payments, such as cryptocurrencies, although this would be contingent on future regulations. Crypto, or digital,
currencies are not (yet) legal tender in any jurisdiction and are still marginally traded. The BIS survey showed that trading in
traditional foreign exchange reached USD6.6trn per day in April 2019, compared to around USD110-140bn according to the
website CoinMarketCap for the 100 largest cryptocurrencies (by market capitalisation) on a daily average during the last week of
February 2020. Overall, we will see an increasing number of countries finding interest in developing their own cryptocurrencies. As
such, regulations will be required at the national level. These are likely to come sooner rather than later in order to tackle current
taxation issues and criminal activities (eg, money laundering and terrorism) aided by the use of cryptocurrencies. Lastly, as we see
globalisation stalling slightly with greater regionalisation, digital currencies could be a way to facilitate transactions within regional
economic blocs, which would at the same time reduce the dependence on the US dollar (de-dollarisation of the global economy).
World leaders from Europe, China and Russia have increasingly questioned the ubiquity of the US dollar, especially with regard to
commodity payments and for some economic sanctions. A stronger political will could increase the pace of regulations towards
cryptocurrencies at a national and even regional levels, which could somewhat further challenge the status of the US dollar as the
world’s predominant currency.
North America: Maintaining Cutting Edge Amid Ageing Population In

Multi-Polar World
North America will remain one of the world’s leading economic and political actors through to 2050. However, demographic and
climate changes, alongside a more multi-polar global political framework, will pose challenges to its status.
North America will remain a leading global economic and political actor over the period to 2050. However, the coming decades will
not be easy for the US and Canada (Mexico is covered in our Latin America megatrends analysis). Ageing populations will
necessitate a greater focus on social services while shifts in the ethnic composition of the electorate will have political
reverberations in both countries. The US in particular will have to adapt to a more multi-polar world, which will shift its geopolitical
priorities. Increasingly visible and diverse impacts of climate change will pose downside risks to growth and make it a much more
prominent political issue in the US and Canada.
Demographic Changes To Be Paramount
Demographic changes will drive North America’s transformation over the coming decades. The populations of the US and Canada
are ageing rapidly. This has been somewhat offset by immigration from around the world, meaning that they are further behind
Europe and Japan in experiencing population ageing or decline. Nevertheless, the US and Canada will have considerably older
populations by 2050, potentially sapping their economic vitality. According to the US Census Bureau’s 2017 National Population
Projections, the proportion of the population 65 years and older will rise from an estimated 16.9% of the population in 2020 to
22.0% by 2050. In Canada individuals aged 65 and above rose from 11.3% of the total population in 1990 to 16.9% in the 2016
census. We estimate this number will rise to 25.0% by 2050.
In both cases, the ageing of the populations will likely mean a greater emphasis placed on pensions, social services and healthcare,
similar to in Europe. This will entail a far more significant shift in the US, as the government has played a smaller role in providing
these services. Greater provision of social services at a time when the population is ageing could result in a significant increase in
public debt burdens. However, we cannot rule out that significant technological change will lead to productivity growth strong
enough to help offset the effects of a shrinking working age population. Indeed, North America is likely to remain one of the most
technologically advanced regions in the world, leaving it well positioned to mitigate demographic decline.
US And Canada Best Of A Bad Bunch

Dependent Ratio, % total working age population
e/f = Fitch Solutions estimate/forecast. Source: UN, Fitch Solutions
Over the coming decades, the US and Canada are also likely to become more ethnically and racially diverse, with significant political
implications. In the US, the Census Bureau’s National Population projections suggests that the country will not have an ethnic or
racial majority by 2045. While the non-Hispanic white population is set to experience a natural decrease (more deaths then births)
during that period, other ethnic and racial groups will continue to grow both due to 'organic' increases (more births than deaths)
and increased immigration. Although the restrictions on immigration put into place by the Trump administration could have an
impact on US demographic trends (should they be continued by subsequent administrations), it is too early to determine at this
time.
US political parties will need to adapt to the electorate’s changing demographic profile. A more diverse electorate will likely demand
greater action on policies that often disproportionately affect non-white voters, such as educational inequality and police violence.
The next few decades are likely to be highly politically challenging, as ethnic minorities continue to grow as a percentage of the total
and eligible voter populations while the electorate also ages considerably, necessitating debate on major issues such as social
security and the government’s role in providing social services. Demographic change is likely to sharpen debates over 'identity'
politics in the US and we cannot rule out a period of racial or ethnic unrest (similar to the 1960s) as citizens feel that legislative
action on issues such as police violence or minority rights is insufficient.
Demographic Profile Changing

US - Select Races/Ethnicities, % total population
Source: US Census Bureau, Fitch Solutions
Turning to Canada, ‘visible minorities’ represented 22.3% of the population as of the 2016 census, driven in part by Canada’s
relatively high level of immigration. Indeed, nearly two-thirds of self-identified visible minorities were born outside of the country.
Rising immigration will help to further boost diversity as the government attempts to offset the impacts of an aging population.
21.9% of the population was foreign born in 2016, up from 17.4% in 1996, and data from Statistics Canada suggests this number
could rise to 28.2% as of 2036. Compared to many of Canada’s developed market peers, popular pushback to elevated immigration
numbers has been relatively mild. Indeed, according to a 2018 Pew Research study, 68% of Canadians polled believed that
immigrants made the country stronger – the largest proportion of any of the 18 countries studied. Nevertheless, the mood may be
starting to shift. According to a 2019 poll by Leger, 63% of respondents indicated the government should prioritise limiting
immigration. With immigration policy preferences breaking down along party lines, the risk of greater polarisation on this issue
cannot be ruled out, especially in periods of weaker economic growth. Signs that some Canadians are beginning to conflate
immigration status, race and ethnicity - as shown in a 2019 EKOS poll highlighting that around 40% of those asked thought that too
many immigrants are members of 'visible minorities' - could heighten tensions and pose risks of unrest.
Canada's Multiculturalism Suggests Immigration May Be More Politically Palatable

Canada - Foreign-Born Population
Note: Forecasts are from Statistics Canada. f = Fitch Solutions forecast. Source: Statistics Canada, Fitch Solutions
Meanwhile, divergent regional interests are likely to remain a key challenge for Canada. Quebec's autonomy and previous demands
for sovereignty remain long-term factors in Canadian politics, though are not among the biggest risks, with the desire for secession
seemingly waning among residents of the province. Notably, while the Bloc Quebecois returned to greater prominence in the 2019
general election after poor results in 2011 and 2015, the current iteration of the party has not shown the same level of support for
separatism.
However, the rise of western separatist movements highlights a growing cleavage between Ottawa and some of the Prairie
provinces. The reliance of these provinces (most notably Alberta) on extractive sector activity at a time of lower global commodity
prices and increased attention on climate change in much of the rest of the country has already begun to fuel growing political and
economic tensions in recent years, leading to deepening political polarisation. This was, perhaps, most apparent in the October
2019 general election. The Liberals (whose policies, many in the western provinces view as detrimental to growth) were closed out
of Alberta and Saskatchewan, while the Conservatives ran up their popular vote count there. Meanwhile, some disgruntled Albertans
have begun to moot the idea of a ‘Wexit’ (an exit from Canada by some western provinces). Such an outcome seems highly unlikely
for the foreseeable future, but the fact that it is entering the national discourse highlights the discontent and challenging policy
balance facing the Canadian government.
Shifting Geopolitical Priorities
The US is likely to enact significant changes in foreign policy over the coming decades, gradually reducing its global military
presence as the world order becomes more multi-polar in nature and domestic challenges posed by an aging population refocus
spending preferences. Moreover, the US’s energy boom could eventually reduce its strategic interest in the Middle East, especially
as Gulf oil supplies will become more important for China and India. China’s push to complete the ‘Belt and Road’ Eurasian
infrastructure network could also diminish the US’s sway in Asia, the Greater Middle East, and parts of Europe.
We could also begin to see changes in the relationship between the US and the rest of the Western Hemisphere, particularly in Latin
America. A growing Hispanic population, particularly in the US South and Southwest, could increase the US’s cultural links to Latin
America. However, the US's role as a hemispheric power is unlikely to go unchallenged. We expect Brazil and Mexico to become
increasingly assertive on the international stage as their economic stature grows, and they may increasingly chafe against US
policies in the region. Mexico, in particular, may be less willing to take the US’s lead on immigration, security and trade policy, and will
attempt to outgrow its longstanding role as the relationship's junior partner.
Climate Change To Rise Up The Agenda
North America will be subject to climate changes over the next few decades, increasing the issue’s political importance and posing
downside risks to growth. Eastern coastal regions will likely be hit by severe storms with greater frequency. Combined with rising sea
levels, this will contribute to more significant flooding and damage to infrastructure. More arid parts of the US will be subject to
higher temperatures and more severe droughts. This will increase the prospect for wildfires, and may raise question marks about
these regions’ long-term economic viability. Melting snowpacks in mountainous areas, higher temperatures and more droughts will
increase competition for water resources across the US and Canada. While rising temperatures may increase arable land in some
traditionally cold areas, this change is likely to come with increased pests and other climatic changes that may reduce the potential
output gains.
Climate Change Impacts To Be Substantial

Map Of Climate Change Impacts
Source: Unesco
Together, these issues will ensure that concerns about climate change are increasingly prominent on government agendas in both
the US and Canada. Greater and more frequent damage to infrastructure via storms or wildfires will also raise rebuilding costs for
governments, increasing questions about funding sources and whether infrastructure should be built to withstand greater damage
(at a greater cost).
Arctic Warming To Increase Canada's Geopolitical Importance
Growing competition for mineral resources and trading routes in and around the Arctic Circle could increase Canada's geopolitical
importance. The warming of the Arctic Ocean will help to thaw sea ice, reducing the cost of transport and likely leading to a
significant increase in traffic as firms and governments look to capitalise on the Europe-Asia polar shipping route. Indeed, some
forecasts suggest that the Arctic Ocean will be ice-free during the summer as early as 2040. Meanwhile, a landmark US Geological
Survey suggests massive potential resources in the Arctic, including 90bn barrels (bbls) of oil, 670tn cubic feet of natural gas and
44bn bbls of natural gas liquids.
As a result, we expect geopolitical competition to increase between the US, Canada, and Norway on the one hand, and Russia on
the other. China could become an increasingly prominent player in the Arctic. Its 'Belt and Road' initiative will provide financing for
mining projects in the region and it will have a significant stake in the commercial trade route. Our Mining team has identified the
Arctic Circle as one of the sector’s ‘final frontiers' over the coming years given the region's significant mineral deposits. These factors
will boost Canada’s geopolitical importance, particularly to the US in the context of its potentially diminished global role, likely
requiring a close defence partnership to counteract any moves by Russia and China to assert control in the region.
Canada To Play Role In Arctic Competition

Map Of Arctic Circle
Source: National Geological Survey Of Norway
Latin America: Climate Change And Population Growth At Core Of

Challenges
Key View
• Over the coming three decades, we at Fitch Solutions expect Latin America will be reshaped by climate change and population
growth.
• These two forces will push the region to cooperate more closely to coordinate policy responses, promote regional integration
and assert the region's voice on the global stage.
• Many governments within the region will likely struggle to manage the economic benefits of growing populations with the
strains of responding to citizens' rising expectations.
• We believe the most likely path toward economic diversification in the region is via the services sector, which will leverage new
technologies and the region's growing population to drive dynamic growth.
Climate Change Impacts Will Intensify
Much of Latin America, and particularly Central America and the Caribbean, will be highly vulnerable to the effects of climate change
over the coming decades. Agriculture remains central to the economies of much of Central and South America, and the Caribbean
is highly vulnerable to rising sea levels and increasingly severe storms. As a result, climate change could significantly undermine
economic growth and increase political instability across the region.
Major Challenges To Come

Latin America & Caribbean - Map Of Climate Change Impacts
Note: Brazilian cerrado is a tropical savannah; Source: UN Economic Commission for Latin America and the Caribbean
In Central and South American, volatile weather patterns will strain ecosystems and their populations. More persistent episodes of
dry or wet weather will curtail crop yields, reduce economic output and stoke episodes of food price inflation. Water scarcity is likely
to become an issue in parts of Central America, further raising the risk of economic and political instability. Rainfall is likely to
decrease in parts of the Amazon basin, exacerbating the effects of deforestation. At the same time, the melting of Andean glaciers is
likely to increase flooding in parts of Chile, Argentina, Peru and Bolivia. In addition, rising sea levels will put major port cities, such as
Rio de Janeiro in Brazil and Barranquilla in Colombia at significant risk.
The situation in the Caribbean will be even more challenging, given that the island economies are highly vulnerable to rising sea
levels and increasingly frequent severe storms. A 2011 Inter-American Development Bank report suggests that one-third of
Caribbean tourism resorts are at risk of being flooded if sea levels rise by one meter, and many more would have their beach assets
destroyed or significantly eroded. In recent years, a steady succession of devastating hurricanes have upended the region. In 2017,
two Category 5 (the highest possible category) hurricanes swept across the Caribbean within weeks of each other, setting back
some islands' development by years. For example, an estimated 95% of structures on the island of Barbuda were destroyed,
rendering the island all but uninhabitable. With severe storms likely to become more frequent, Caribbean economies will struggle to
escape low-growth, high-debt equilibriums, subject to frequent disruption.
Demographics Provide Opportunities And Challenges
Many of Latin America's markets have favourable demographic profiles that suggest growing working age populations will expand
the region's domestic markets. The working age population (age 15-64) in Brazil (the region's largest) will peak as a percentage of
the total in 2020, at 68.9%. In Peru and Mexico, the peak in the active population will come in 2030. Growing labour forces will
naturally grow the size of the region's internal markets, creating opportunities for many goods and services sectors and likely
helping to increase investment into productive capacity oriented toward domestic and regional demand rather than exports.
Provided that educational attainment continues to rise, this also suggests that the ranks of the middle class will continue to expand.
Additional Tailwinds Forthcoming

Brazil - Population Pyramid 2016 (LHC) & 2050 (RHC), '000s
Note: 2016 and 2050 = Fitch Solutions. Source: Fitch Solutions, UN
However, the region's shifting demographics will also generate significant challenges. Steady increases in living standards during the
commodity boom in the early part of the century led to an increase in citizens’ expectations of their governments. This in turn led to
a broad push for greater political representation, stronger social safety nets and better access to education, healthcare, and other
resources necessary for achieving and maintaining a middle-class lifestyle. In the years since the end of the commodity boom, weak
economic growth and a lack of employment opportunities have undermined citizens' trust in their governments and contributed to
political instability. If the region cannot generate employment opportunities to match its growing working age populations, its
demographic boon will become a potent source of instability.
Additionally, a sharp rise in dependency ratios across Latin America beginning around 2030 will challenge governments by
increasing pension obligations and healthcare costs. How severe this challenge is will be determined in part by the generosity of
social safety nets in the decades to come. Leftist governments in many large Latin American economies have implemented
generous social safety nets in recent decades. While some governments have begun to implement reforms aimed at reducing long-
term pension obligations, their success has been mixed. The region's social safety nets remain a sensitive political issue, and efforts
at reform will remain an exceedingly difficult challenge for many governments.
Over Longer Term, Aging Populations Could Strain Government Resources

Latin America - Dependent Ratio, % Working Age Population
e/f = Fitch Solutions estimate/forecast. Source: National Sources, UN, Fitch Solutions
Geopolitical Significance To Increase
Latin America's geopolitical significance will rise over the coming decades due a number of major factors. First, climate change is
steadily increasing the relevance of the region's economic and political development to the rest of the world. For example, climate
change is a leading factor driving migration flows through the region and toward the United States, as many Central Americans are
unable to earn a living in agriculture due to volatile weather and a lack of employment opportunities in other industries. Additionally,
deforestation of the Amazon rainforest threatens the world's ability to meet its emissions reductions targets and is drawing
increasing attention from developed states.
Second, the region is likely to be the focus of a number of global powers angling for dominance in a multi-polar world. Latin America
lost the attention of the 'great powers' after the Cold War concluded. However, China, Russia and the US have all attempted to
reassert themselves in the region over recent years. China's growing political and economic interest in Latin America has been
evident since the 2000s, and Beijing will likely continue to use investments to grow its regional footprint and influence. For its part,
Russia has endeavoured to establish a long-term strategic position in Venezuela's oil reserves by extending significant credit. At the
same time, the US still considers the region to be within its sphere of influence and will likely seek to curb China and Russia's rising
influence through diplomatic, economic and security measures.
Third, Latin American powers are likely to take a greater interest in asserting themselves on the global stage. To date, the region has
had an uneven approach to global issues. The region has historically been relatively focused on internal issues, and it has had only a
sporadic interest in the rest of the world. For example, Brazil under former President Luis Inácio Lula da Silva endeavoured to
establish its role as a developing power, but Brazil has more recently backed off the global stage as a result of an extended recession
and a political turn toward nationalism.
Nonetheless, as the rest of the world pays more attention to the region, its leaders will likely seek greater regional cohesion and
assertiveness. Elements of this effect are visible in the region's response to the unfolding political and economic crisis in Venezuela.
Leaders of Latin America's major economies have worked together to develop a cohesive policy towards Venezuela and sought to
interact with the international community on its own terms. Regardless of the efficacy of this particular response, it demonstrates
their interest in cooperation as a means of amplifying the region's geopolitical influence.
Political And Economic Integration To Proceed In Fits And Starts
Latin America's major economies will likely seek degrees of greater economic and political integration over the coming decades. To
be sure, the process is likely to move in fits and starts, as is clear from the development of tensions within the Mercosur trading bloc
following the election of a less trade-oriented administration in Argentina in 2019. Nonetheless, we expect the region to be more
integrated on aggregate by 2050. Rhetoric from some leaders aside, Latin America has over recent years broadly bucked a global
trend toward more protectionist trade policies, pursuing efforts to diversify trading partners and deepen regional trade frameworks.
Underpinning these efforts is the economic reality that much of the region continues to rely on export-oriented growth models,
particularly the region's major commodity producers. For example, much of the Andean sub-region continues to see its future in
open trade, which it has pursued through the Pacific Alliance and the CPTPP, the successor to the Trans-Pacific Partnership deal that
has come into effect despite the US's non-participation.
Integration The Way Forward

Latin America - Pacific Alliance Countries
Source: D-maps, Fitch Solutions
We also believe the broader global trend toward protectionist trade policies has spurred interest in developing intra-regional ties. For
example, US President Donald Trump's ascendancy in 2016 demonstrated that key parts of the US-Mexico relationship are not
beyond re-working due to domestic political shifts. As a result, we expect Mexico will seek to diversify its trading partners to reduce
its dependency on the US, as it did when pursuing agricultural purchases from Brazil over recent years. Moreover, while closer ties
between the Pacific Alliance and Mercosur trade blocs appear to be on pause over the near term, a stronger push toward economic
and political integration could nonetheless develop over the coming decades as the region works to coordinate policy responses to
regional challenges such as climate change, migration and political instability. Further, while freer trade in goods and the potential
for cross-border supply chains will face a substantial impediment in the region's lack of infrastructure, cross-border services could
nonetheless provide an avenue for greater economic integration.
Services Likely To Underpin Economic Diversification
Our core view is that most of Latin America's major economies will diversify over a multi-decade time-span, with the services sector
driving the growth of new industries and reducing the region's dependence on commodity exports. We acknowledge that there are
significant risks to this view, as many markets in Latin America are at risk of falling into the ‘Middle Income Trap’ due to headwinds to
productivity growth including low educational attainment and a lack of long-term investment. Moreover, the traditional path to
economic diversification via the steady development of value-added manufacturing appears relatively unlikely to take hold in much
of the region, outside those markets with well-established manufacturing sectors such as Mexico and, potentially, Central America.
Significant Catch-Up Potential

Latin America - Banking Sector Assets, % GDP
e/f = Fitch Solutions estimate/forecast. Source: Respective banking sector supervisors, Fitch Solutions
Nonetheless, the growth of the region's internal market and the adoption of new technologies will create new opportunities in the
services sector that could help the region chart its own, unique path to diversification. Banking, technology and professional and
business services will grow in prominence, making the tertiary sector an increasingly important driver of growth. São Paulo and
Mexico City already are sizeable financial centres, and stronger growth over a multi-decade time-frame will encourage their
expansion. Banking sectors in many Latin American countries have focused on corporate lending and high-income consumer
segments over recent decades, but growing middle classes and new financial technologies will support the expansion of consumer
lending. This pertains particularly to countries where banking sector penetration, measured by assets-to-GDP, remains relatively low,
such as Mexico and Peru. Mobile banking will also likely catalyse growth in consumer lending, particularly in some of the region's
smaller economies.
Europe: Demographic Shifts And Decentralisation To Dominate Policy

Agendas
Key View
• The two biggest megatrends in Europe to 2050 will be demographic shifts as a result of ageing populations and immigration, and
the decentralisation of power away from the EU.
• From an economic perspective, increasingly bold and experimental monetary and fiscal policies will continue to be necessary to
combat the precarious mix of ageing demographics and large debt burdens.
• Politically, the EU is likely to experience considerable decentralisation, eventually resulting in the emergence of more culturally
and economically 'organic' regional groupings. Europe's external orientation will also change, with Trans-Atlantic ties waning.
Despite its present and anticipated political and economic woes, we expect the European continent to remain one of the most
prosperous regions of the world over the coming decades. One of Europe's biggest challenges will be coping with demographic
change, brought about by ageing and declining populations, and immigration from the Middle East and Africa. Even so, European
states are far better resourced than other parts of the world for dealing with these challenges. Europe's strengths include mature
political systems, centuries of accumulated wealth, highly advanced scientific and technological knowhow, and considerable
cultural capital and 'soft power'.
Europe's second big challenge will be to strike a suitable balance between the centralisation of power in the EU and other European
institutions, and the devolution of power to member states. At present, centralisation appears to have peaked, with 'core' European
integration projects, such as the eurozone common currency and the passport-free Schengen travel zone facing existential crises.
These developments, plus the UK’s exit from the EU in 2020, have raised question marks about the survivability of the EU itself, and
we see a possibility that the EU will be superseded in importance [SM1] by more 'organic' regional sub-groupings over the coming
decades. Nevertheless, the decentralisation of the EU into regional blocs need hardly spell disaster, as we would expect these new
groups to seek close economic relations with one another, likely within existing EU frameworks.
Ageing Demographics A Growing Burden
Ageing populations across Europe will be one of the most important trends shaping the economic and political landscape from now
until 2050, posing major challenges for policymakers. Low fertility rates will drive population declines across major Western
European economies over the next 30 years, while increasing longevity will provide major downside pressures to the working age
population. These negative demographic trends will be even more pronounced across Central and Eastern Europe (CEE) and South
Eastern Europe after years of emigration towards Western peers have seen fertility rates plummet. A partial reversal of migration
flows back towards CEE induced by economic development will likely fail to offset the upcoming population decline. Population
projections for Nordic countries are more upbeat, largely on the back of assumption about immigration and increased life
expectancy.
CEE To Bear Most Of The Brunt

Europe – Forecast Population Changes Between 2020 (LHC) & 2050 (RHC), % chg
Source: UN, Fitch Solutions
Rising dependency ratios and shrinking working-age populations will place a growing strain on public finances. This
could make public debt loads unsustainable without significant cutbacks in pension fund transfers, higher taxation and/or
exceptionally strong productivity growth. According to our forecasts, the demographic challenges will be most acute for Western
European countries with the highest public debt burdens - such as Greece, Italy, Spain, and Portugal - meaning that debt
sustainability will become an increasingly pressing concern over the coming decades. On this front, CEE countries appear in a better
position to deal with the long-term strains on public finances from ageing populations given public debt loads are generally low
across the region.
A Growing Burden
Dependent Ratio, % of total working age
e/f = Fitch Solutions estimate/forecast. Source: UN, World Bank, Fitch Solutions
Population declines will thus make productivity growth crucial for European states to maintain strong economic
growth rates and keep EU convergence prospects alive, making research and development (R&D) spending, educational
achievement, and business environment reforms especially crucial. Economies in Eastern Europe will likely lose their current
competitive advantage underpinned by low labour costs, and will need to shift away from the labour-intensive model of growth to a
capital-intense paradigm. Granted, the potential for rapid technological advancements over the coming 30 years could conceivably
lead to the rates of productivity growth needed to compensate for shrinking working age populations.
Furthermore, the influx of migrants and refugees into Europe has the potential to alter the demographic trends in some countries. In
Sweden, for example, migrants and refugees appear to have boosted the total population by around 2-3% in 2014-2016. However,
political and social opposition to the mass influx of migrants has grown rapidly, and it remains too early to tell what impact it will
have on long-term demographic profiles.
Bolder Monetary And Fiscal Policies
Ageing demographics will provide major upside pressures to pension expenditure, at the cost of fiscal sustainability.
Attempts to offset increases in the population of pensioners, for instance by raising the retirement age or cutting pensions, will
trigger social discontent. Older voters will make up a larger share of the electorate, presenting major obstacles to the
implementation of such changes. Meanwhile, measures countering the shrinking working age population, such as activating the so-
far unemployed or mobilizing additional resources, will necessitate additional funds. This, coupled with weaker potential growth
rates, will make public and private debt loads much harder to pay off in the coming decades.
In order to avoid major strains on the global financial system and social cohesion - and if there is any hope of keeping the eurozone
together over the long term - we believe increasingly experimental monetary and fiscal policies will eventually become
the norm. In a previously unthinkable policy, several European central banks have lowered interest rates into negative territory in
recent years in an increasingly desperate attempt to boost inflation. We believe this is just the start of extraordinary action to be
taken by economic policymakers to combat the precarious dynamic of low growth and high debt.
One potential option will be outright sovereign debt forgiveness, which is not difficult to imagine given that the major global
central banks are now prominent holders of sovereign debt securities. Indeed, government debt held by central banks has already
been de facto forgiven, in the sense that most of the maturing debt principal will eventually make its way back into national
treasuries. The leap to cancelling this portion of public debt is thus not a great one. This move would significantly benefit countries
such as Italy and Greece, which have the most precarious mixes of low potential growth, high public debt, and ageing populations.
Moving a step further, by 2050, private sector debt forgiveness may also become a viable option, albeit more difficult to
implement in practice given that, among other things, the government would have to compensate private creditors. Much more
likely, in our view, will be some form of 'helicopter money' - direct cash transfers to households. This is not a new idea in the realm of
economics, but has never been seriously considered as a standard policy tool (with the exception of Hong Kong’s response to the
Covid-19 crisis). Another idea already being considered in several European countries is a 'universal basic income' (UBI) to all citizens
regardless of their work status. This will likely gain traction in the coming decades, especially if technological advances lead to
greater automation of the industrial and services sectors.
EU To Experience Further Decentralisation
Europe is facing a dangerous decade ahead. The survival of the EU is at stake, having been weakened by the eurozone debt crises in
2010-2012 and the migrant crisis in 2015. In addition, the aftermath of Brexit in 2020 could eventually encourage other members
to leave, if the UK prospers outside the EU. Serious fragmentation would in turn dampen the EU’s and all member states’ clout on
the world stage, and the effectiveness of their external policies amid the rise in emerging countries’ power. Meanwhile, Russia under
President Vladimir Putin is increasingly seeking to regain influence in Eastern Europe, while the Balkans remains fragile. This
backdrop raises the possibility of a new armed conflict in Eastern Europe (most probably in Moldova or the Balkans).
Of course, it would be hasty to merely project current trends and assume that a disintegration of the eurozone or EU is inevitable.
Nevertheless, it appears that centrifugal forces are set to prevail eventually. The glaring shortcomings inherent in the construction of
the two unions, and the economic pain they have inflicted on many in the bloc, have done significant damage to the unity of the
continent and the public's faith in the perceived benefits of closer integration. The 2015 migrant crisis and ensuing political paralysis
over how to deal with it has only fuelled these sentiments further, not just in the eurozone but across the European Union. Big tests
such as the financial and migrant crises, are likely to be repeated at some stage, meaning that even if the eurozone and EU survive
their current woes, they could yet be crippled by any future crisis between now and 2050. Much will therefore depend on whether
the EU succeeds in addressing these shortcomings in its multifaceted reform initiatives scheduled for the coming decade, which will
likely include changes to the eurozone’s banking, economic, and digital frameworks, as well as a new EU treaty.
Climate change will also present major challenges to cohesion and policy-making in the EU. This may be due to a failure to
coordinate new migrant inflows from severely threatened regions neighbouring Europe, including the Middle East and North and
Sub-Saharan Africa. Meanwhile, potential extended drought conditions could hamper productivity in the agricultural sector,
especially in Southern Europe, exasperating economic inequality within countries and across the region. Finally, controversies over
the transition to clean energy in order to meet the EU’s 2050 climate neutrality goal will exacerbate the divide between Eastern EU
members, heavily reliant on coal, and Western peers.
A 'New' Europe Emerges…

Possible New Groupings In Europe By 2050
Overall, we believe that the eurozone and EU will change somewhat from in their current forms by 2050. European integration will
likely have peaked, and more 'organic' regional groupings could become more prominent. A 'core' EU comprising Germany, France,
Belgium, the Netherlands, and possibly several other states, will likely be more united than it is today. Nordic countries may see
merits in deepening their politico-economic ties, given their shared linguistic and economic characteristics. Meanwhile,
Mediterranean European states, led by Italy and Spain, could establish their own grouping, as could CEE states such as Poland, the
Czech Republic, Slovakia, and Hungary. These hypothetical groupings are much more closely aligned not only in terms of their
societies and cultural leanings, but in their economic and foreign policy stances. This trend may also involve more states than
currently exist, as the decentralisation of EU powers will add momentum to separatist movements in Scotland, Catalonia, and
Flanders, among others. These new regional blocs could still co-operate closely with one another under EU frameworks, but leave
the EU as a much more multi-tiered organisation than it is today.
Reorientation Of Foreign Policy Ties
By 2050, we expect significant changes in relations between the EU (or its successors) and the outside world.
We expect Trans-Atlantic ties to diminish in importance to the US (and most likely to Europe, too), as the growing
Hispanicisation and Asianisation of the American population mean that Washington will become less euro-centric than ever before.
Most European countries will maintain close relations with the US, while NATO or a NATO-like organisation will probably still exist in
some form. However, we expect the US to become much more focused on its relationships with Asia and Latin America, and quite
possibly Africa, too. The European countries most in favour of preserving close Trans-Atlantic ties for the foreseeable future will
remain the UK, and Eastern European states such as Poland and the Baltic nations, which fear the resurgence of Russian power.
However, since we expect Russia to weaken considerably under demographic pressures by 2050, while its agricultural sector will
suffer owing to warming scenarios and the energy industry comes under threat by climate mitigation, the perceived need for a
robust alliance against Moscow will diminish in line with Russia’s geopolitical power.
Europe's relationship with Russia will remain complicated. Much will depend on whether Russia is perceived to be
democratic and threatening over the coming decades. In addition to economic woes, we believe that Russia will weaken on the
back of internal issues, such as the decentralisation of power away from Moscow, security challenges from its south and east, and
Europe’s transition toward renewable energy. Specifically, Russia is likely to see modest social transformation as a result of higher
birth rates in the Muslim North Caucasus, as well as migration from the Muslim states of Central Asia. Meanwhile, although
immigration from China into the Russian Far East will have slowed by 2050, it will still bring changes to eastern Russia. All these
factors suggest that expanding its influence in Eastern Europe will not be Russia's top priority.
Turkey is unlikely to join the EU by 2050, even if the EU still exists by then. Essentially, the longer that Turkish entry is
denied, the bigger its population will be, making it less 'absorbable' into the EU. Much will depend on whether Turkey's traditional
staunchly secular old establishment will be able to revive its fortunes in the post-Erdogan era. Assuming that Turkey becomes more
prosperous and powerful, the desirability of joining the EU will wane among Turks themselves, especially if the EU begins to fail.
Finally, the survivability of Turkey within its current borders is in question, as Kurdish separatism could eventually result in the
emergence of a new sovereign state encompassing south-eastern Turkey and northern Iraq and Syria. That is not to say that
Turkey's relations with European states will necessarily be poor. Turkey will remain of tremendous geopolitical significance, owing to
its strategic location between Europe, the Middle East, and Asia. However, there is a strong possibility that Turkey will increasingly
lean towards China over the coming decades, as Beijing consolidates its 'Belt and Road' vision of a new transport corridor
connecting itself to Europe via the Middle East.
China will become increasingly important to Europe. By 2050, transportation links between Europe and China will have
improved greatly meaning that Beijing will be a much more prominent player in Europe economically and politically than ever
before as the rise of China has so far failed to generate angst in most of Europe to the same extent it has in the United States.
Chinese influence will likely be felt most in Eastern Europe, due to Belt and Road-related trade and investment, but we also expect
many Western European economies will dramatically step up their commercial ties with China, which will likely overtake the US as
the world's largest economy well before 2050. This will force European nations into several periods of heightened geopolitical
pressure in the coming decades, where they will face demands from both the US and China to change policy in their favour, as has
been the case with the 5G rollout in 2019 and 2020.
Economic ties between Southern Europe and North Africa will deepen over the coming decades. Indeed, this trend is
already evident, in part because of the strong levels of net migration from North Africa into the EU in previous decades. Free trade
agreements, deeper investment linkages, and the growing use of North Africa as a manufacturing hub will reinforce this trend.
Unsurprisingly, migration into Europe from the Middle East, North Africa, and other troubled parts of the world will remain a major
political hot issue for the foreseeable future. A lack of integration, could result in further inequality, ghettoisation and
marginalisation, which in turn could threaten stability across Europe, with the radicalisation of youth likely to remain a significant
concern for European governments. A November 2017 report by the Pew Research Center titled Europe’s Growing Muslim
Population, forecasts a significant increase in the Muslim populations of Western Europe. Although the proportion of Muslims in
Western European countries will still be small, between 11% and 14% according to the Pew Research Center’s projections, this will
seem higher to locals, as most migrants will be in the big cities, and perhaps concentrated in certain neighbourhoods.
Overall, we expect European concerns about migration to persist for the foreseeable future, but believe these fears could eventually
subside, as immigration will rejuvenate the European population. The wild card is a major breakthrough in automation technology,
which would reduce Europe's need for young migrant workers from abroad, and thus lead to a much tighter immigration policy.
Eurasia: Rising Risks Of Instability On Multiple Fronts

Key View
• Eurasia will experience considerable political turbulence over the decades to 2050. Russia is likely to become an increasingly
decentralised polity, as demographic and cultural changes dictate a devolution of political power.
• Central Asia is likely to see greater instability as a result of a generational shift in leadership, rising ethnic tensions, and climate
change.
• The Arctic Circle is likely to attract increasing geopolitical competition as a result of rising temperatures. Against this backdrop,
China is likely to increase its sway over Eurasia, but will be resisted by Russia, leading to proxy struggles.
The future of Eurasia - by which we mean the territory of the former Soviet Union excluding the Baltic states - will be determined by
Russia and China. Russia is still by far the world's biggest country, spanning a huge swathe of the northern hemisphere, and retains
strong economic, cultural, and political influence in Central Asia. However, China is ultimately likely to displace Russia as the
dominant power in the region, thanks to its far greater economic resources. Beijing's ambitions in Central Asia are most evident
from its 'Belt and Road Initiative' that seeks to build transport corridors through the region to Eastern Europe and the Middle East.
The competition between Russia and China will lead to greater tensions between the two, potentially drawing them into proxy
conflicts.
Russia To See Decentralisation Of Power
Russia and the former Soviet Union have experienced alternating phases of centralisation and decentralisation of power. The most
recent phase of decentralisation began under the last Soviet president, Mikhail Gorbachev, in the late 1980s, in response to rising
nationalism in the 15 republics of the USSR. Gorbachev decentralised power as part of a wider administrative reform ('perestroika')
that aimed to modernise the Soviet Union. However, he ended up losing control of nationalist currents that ultimately broke apart
the Union in 1991.
The Russian Federation under President Boris Yeltsin (1991-1999) also devolved considerable power to its 22 titular ethnic republics
and dozens of other territories and regions. However, this, combined with the collapse of the Russian economy in the 1990s, and
Chechnya's war of secession, led to fears of the break-up of the Russian Federation itself. Consequently, Yeltsin's successor Vladimir
Putin in 2000 created seven federal districts headed by close associates, as part of a bid to recentralise power (an eighth district for
the North Caucasus was created in 2010). In 2005, Putin scrapped direct elections for regional leaders, which were thereafter
directly appointed by the Kremlin. Regional elections were gradually restored from 2011, but remain heavily managed by the central
government.
We believe that Russia will experience new pressures to decentralise once Putin leaves office, most probably in the late 2020s. This
will be prompted by demographic changes in the Far East, the Volga-Urals region, and the North Caucasus, by economic pressures
as Russia seeks to diversify away from the oil and gas industry, and by proliferation of technology which will empower protest
movements.
The Far East region is likely to become increasingly integrated into North East Asia, thanks to growing trade and investment links
with China, Japan, and the Koreas, and because of increasing Chinese migration into cities such as Vladivostok and Khabarovsk.
Siberia and Mongolia will also come under greater Chinese influence, with China keen to develop their natural resources. This will
cause eastern Russia's bonds with Moscow to be loosened. Although parts of Russia's Far East were forcibly taken over from China in
treaties in 1858 and 1860, there is little reason to believe that Beijing will seek to take over these regions outright, as this would
almost certainly lead to war with Russia. Rather, Siberia and the Far East may demand greater autonomy so that they can maximise
the benefits of their relationship with China.
In the Volga-Urals region, the republic of Tatarstan has long demanded greater autonomy from Russia, and will become more
assertive. So too will neighbouring Bashkortostan. The two republics are rich in oil and lie at the crucial intersection between
European and Asian Russia, meaning that developments there will be particularly closely watched by the Kremlin. We also see the
potential for the Volga-Urals region to receive an influx of migrants from Central Asia, in the event of future instability there and
because of the negative economic effects of climate change.
Overall, the predominantly Muslim North Caucasus is the region which is most likely to slip out of Russia's de facto or even de jure
control over the coming decades. This process began with the attempted secession of Chechnya in the early 1990s. Although
Russia crushed the separatist movement there in the mid-2000s after a decade of conflict, the legitimacy of Chechnya's regime and
its Kremlin backers could come into question in the coming years. Chechnya's neighbours, Dagestan and Ingushetia, often
experience low-level political violence, as does the nearby republic of Kabardino-Balkaria. While radical Islamist groups struggle to
gain full backing of the local population, we expect that the North Caucasus' separate cultural identity from Russia will sustain
separatist or autonomist sentiment for decades.
Meanwhile, Turkey, which will most likely outperform Russia economically, is likely to expand its reach into the North Caucasus.
Several of the region's ethnic groups have historical links with Ottoman Turkey, thus explaining Ankara's interest in their wellbeing.
For example, in recent years the Circassians have been reasserting their identity and attempted to use the 2014 Sochi Winter
Olympic Games to draw international sympathy for their cause. (The year 2014 marked the 150th anniversary of the Circassians'
expulsion to the Ottoman Empire.) In the South Caucasus, Georgia, Armenia, and Azerbaijan are likely to become the subject of
rising geopolitical competition between Turkey and Iran.
Turbulent Times Ahead

Eurasia & Federal Districts Of The Russian Federation
Demographics To Weaken And Transform Russia
Russia's population is forecasted by the UN to shrink from 145.9mn in 2020 to 135.8mn by 2050. Over the same period, the
percentage of Russians aged 65 and above will rise from 13.5% to 23%. The contraction and ageing of Russia's population will sap
its economic vitality, and is raising severe questions about Russia's ability to remain a 'great power'. For example, Russia already has
difficulties recruiting enough healthy young males to fill the ranks of its military. Although the Kremlin has rebuilt its armed forces
from their collapsed state in the 1990s, this has only been possible on the back of high oil prices, which are subject to dramatic ups
and downs. A more aged Russian population will demand greater expenditures on health and welfare, meaning fewer funds will be
available for the military. Of course, the rise of drones and automated combat platforms means that the ageing countries of Europe,
Russia, Japan, and increasingly China will be able to maintain formidable military forces, but these are more likely to be geared
towards combat. Tasks such as maintaining order will probably still be the preserve of human soldiers.
Another way in which demographics could sap Russian geopolitical power relates to the relative sizes of the population of Russia
and former Soviet republics. At present, Russia retains considerable geopolitical influence over Central Asia. However, the ethnic
Russian population in Central Asia has fallen sharply since the Soviet collapse in 1991, and is likely to weaken further over the
coming generation. The UN forecasts the combined populations of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and
Uzbekistan to rise from 68.7mn in 2015 (equivalent to 48% of Russia's total) to 100.2mn in 2050 (74% of Russia's total). Although
Central Asian states are far from united, their demographic strength could embolden them in their dealings with Moscow.
Another noteworthy demographic change will be the rising proportion of Muslims in Russia. According to an April 2015 Pew
Research Center report titled The Future of World Religions: Population Growth Projections, 2010-2050, Russia's Muslim population
will rise from 10% in 2010 to 16.8% by 2050. Although this is far short of some non-mainstream (and extremely dubious) forecasts
in the mid-2000s of a Muslim-majority population by mid-century, Russia will still undergo cultural change. Given that there are
already frequent reports of Muslim migrants from the Caucasus and Central Asia being subject to ethnic and racial harassment and
even violence, the Russian authorities will need to work hard to ensure tolerance and social cohesion.
Overall, a combination of internal decentralisation and rising challenges from the east (China) and south (Central Asia and the
Caucasus) is likely to prompt Russia to de-prioritise Eastern Europe, geopolitically. Indeed, we also see a considerable
decentralisation of power in the EU, meaning that European institutions will be less able and willing to embrace countries such as
Belarus, Ukraine, and Moldova, which Russia wishes to retain in its sphere of influence.
Russia Will Struggle To Shed Its Authoritarian Past
Russia has alternated between cycles of authoritarianism and relative liberalism. For example, the tyranny of Joseph Stalin gave way
to the considerably more open and reformist Khrushchev era (1953-1964). This was followed by the more conservative
authoritarianism of Leonid Brezhnev (1964-1982), and a brief interregnum before Mikhail Gorbachev (1985-1991) pursued
dramatic political reforms. Russia experienced remarkable political economic and political liberalisation in the 1990s under Boris
Yeltsin, but this was partly reversed under Vladimir Putin, who favours a strong state. It is too early to say who or what will follow
Putin, but there is a reasonable chance that a new liberal cycle will eventually follow in the 2020s or 2030s. Even so, this could still
give way to a new authoritarian phase between the 2030s and 2050. Much will depend on the state of Russia's economy and
geopolitical backdrop. A weak economy, fragile domestic security situation, or dangerous international backdrop is more likely to
make Russians favourable to a strong state and a strong leader.
Central Asia At Risk Of Considerable Upheaval
We believe that Central Asia will eventually begin a process of dramatic political change, once long-serving autocrats such as Kazakh
paramount leader Nursultan Nazarbayev (79) and Tajik President Emomali Rahmon (67) depart the scene. Although the leadership
transitions from long-serving Uzbek president Islam Karimov (1989-2016) and Turkmen president Saparmurat Niyazov (1985-2006)
have been relatively smooth, boding well for Kazakhstan's own transition, the region's regimes face considerable socio-economic
challenges over the decades ahead. Eventually, public dissatisfaction with the lack of democracy could pave the way for pro-
democracy movements and Islamist currents to expand their influence, leading to more unstable polities. Central Asia could thus
experience its own version of the 'Arab Spring'.
This implies that there is also a considerable risk of conflict in Central Asia. There is a substantial ethnic Russian population in
Northern Kazakhstan, meaning that Russia could seek to annex the region or at least turn it into a de facto extension of Russia,
similar to its actions in Crimea and Eastern Ukraine since 2014, in the event of instability in Kazakhstan.
Meanwhile, the Fergana Valley in Central Asia is divided between Kyrgyzstan, Tajikistan, and Uzbekistan, as a result of Soviet border
policies in the 1920s, and ethnic tensions have reportedly been quietly rising in the area for many years. These are largely contained
by tightly controlled regimes (at least in Tajikistan and Uzbekistan), but could be exploited by a future generation of more
nationalistic leaders.
Central Asia is also vulnerable to water conflicts over control of the Syr Darya and Amu Darya rivers. The upstream states, Kyrgyzstan
and Tajikistan, are small in terms of population and are keen to develop hydropower resources. The downstream states, Kazakhstan
and Uzbekistan, have much bigger populations and economies, and thus higher demand for water. Climate change could
exacerbate regional tensions, leading to conflict, which could easily draw in Russia and China.
China To Expand Its Influence In Central Asia
We see China greatly expanding its influence in Central Asia over the coming decades, eventually displacing Russia's dominance.
China's sway will stem from rising trade and investment ties with the region. Indeed, China sees Central Asia as a key component of
its 'Belt and Road Initiative' of a Eurasian transport corridor. For its part, Russia will likely resist China's rising clout, meaning that
Central Asia could become subject to proxy conflicts between the two 'great powers'. Turkey and Iran will also compete for influence
in Central Asia, as both have ethnic, linguistic, or cultural bonds with the peoples of the region. By 2050, we would also expect India
to have emerged as a player in Central Asia. All these developments will raise question marks about the survival of the Russo-
Chinese dominated Shanghai Cooperation Organisation (SCO).
At the same time, China may face a much more assertive separatist movement in its westernmost province of Xinjiang, which
adjoins Central Asia. Recent years have seen a resurgence of ethnic tensions between the Turkic Muslim Uighur population (which
forms a plurality with 45%) and Han Chinese (40%). Beijing already fears that radical Islamist currents could spread from the
Caucasus, Afghanistan, and even Syria into Xinjiang via Central Asia.
Reviving The Silk Route

New Transport Corridors In Eurasia
Climate Change To Make Arctic Circle A Zone Of Competition
Finally, we expect Russia to increasingly be drawn into the competition for natural resources in the Arctic Circle, which will be
facilitated by warmer temperatures there. The entirety of Russia's northern coast adjoins the Arctic, meaning that Russia will be one
of the most powerful players. However, the US, Canada, and China will also be prominent in the new 'great game' for the Arctic.
Climate change itself is a wild card for Russia. Some hope that rising temperatures will make large parts of Siberia more habitable by
2050. However, the thawing of permafrost could also cause land subsidence in existing settlements and increase the frequency of
forest fires. In the summer of 2010, huge forest fires spread across Russia, causing smog, large numbers of deaths, and severe
disruption to agriculture. Future such events could prove economically destabilising.
MENA: Economic Diversification, Demographic Youth Bulge, Water To

Destabilise Region
In this article, which serves as an update to our 2018 megatrends report, we examine the key trends that will define the Middle East
and North Africa (MENA) over the next three decades.
They are:
• MENA countries will continue to diversify their economies away from the current heavy reliance on hydrocarbons, reducing
some of the region’s vulnerability to the volatile commodity boom-bust cycle. We stress though, that progress will be gradual
with some economies (such as the UAE, Qatar and even potentially Saudi Arabia) better placed than others (such as Kuwait) to
expand into new areas.
• Ties with Asia, especially China, will grow in importance to the MENA region. While predominantly economic in nature, at least at
first, by 2050 Asia's major states will most likely impact the region’s political and security dynamics.
• Risks to political stability will remain elevated, driven not only by continuing sectarian tensions, but increasingly by climate
change and large youthful populations throughout the region. While the demographic dividend may offer tailwinds to growth in
some countries, a failure to provide sufficient employment in many MENA countries will bring severe challenges.
• The governance model that currently exists in many of the major countries in MENA will have likely shifted by 2050, with an
impact on both domestic policy as well as foreign policy alliances.
Demographics: Youth Unemployment To Remain A Key Source Of Instability
Over the coming decades, social and political stability will be highly dependent on governments’ ability to address the region’s
demographic challenges. Population growth has slowed considerably in recent years, on the back of falling fertility rates – from
almost seven children per woman in the 1960s to less than three today. That said, population growth remains robust, with only Sub-
Saharan Africa set to register faster rates. The MENA region currently has a combined population of about 465mn and by 2050, the
UN (from which all Fitch Solutions population data is sourced) forecasts it to reach 654mn.
MENA Still Expanding

Global Population By Region, bn
Although these demographic dynamics should lower the region’s dependency ratios, meaning that countries could potentially have
fewer children and elderly people to support relative to the number of working adults, we believe that MENA economies will
struggle to reap the benefits from the demographic dividends. Weak job creation in the region – an issue which is
disproportionately hitting the youth – remains a key cause for concern. Very few, small states, such as Kuwait, Qatar, and the UAE are
escaping the curse of high youth unemployment, which is otherwise as high as 35.0% in Jordan. Combined with some of the lowest
rates of labour force participation globally, especially for women, we believe that the region will struggle to create sufficient jobs for
labour market entrants. This will undermine economic growth over the foreseeable future.
Insufficient job creation carries significant risks for social stability across the region, having been a key trigger of the popular
upheavals ('Arab Spring') of 2011. We highlight countries with large, young populations and modest living standards as particularly
at risk. Iraq and Egypt stand out as particular concerns. Given the sheer size of their populations, large-scale popular unrest (further
unrest in Iraq's case) would carry significant regional implications. Although the Gulf monarchies appear better positioned due to
their strong financial buffers, they are also at a turning point, as they seek to reduce employment in the public sector and improve
the quality of their education systems. Thus far, measures to reduce popular discontent have largely taken the form of cash
handouts and promises to create government jobs, which will not address the issue of high unemployment over the long term.
Indeed, over the longer term, automation could further threaten jobs in the MENA region.
Elevated Joblessness Poses Risks To Political Stability

MENA - Youth Unemployment, %
Note: Youth = 15-24 years old, ILO estimates. Source: ILO, Fitch Solutions
We believe that these dynamics will encourage emigration to more developed regions. In particular, the emigration of high-skilled
individuals, which are equally affected by high unemployment, will have a negative long-term impact on human capital across the
region, and weigh on productivity levels. This will in turn limit the potential to move towards knowledge-based economies –
something many governments in the region are aspiring to.
Climate Change To Further Fuel Social Instability
These challenges will be further exacerbated by climate change over the coming decades. The MENA region already suffers from
high water stress by global standards, and climatic conditions are expected to get worse over the coming decades. By 2050, average
temperatures across the region are expected to increase by around three degrees celsius, with more frequent hot temperature
events. Meanwhile, the frequency of extreme climatic events is also expected to increase over the coming decades. Given the
limited accountability of civil servants in the region, due to the autocratic nature of most regimes, we believe that the poor
management of extreme weather conditions could become a source of major popular discontent, or could shed light on corruption
in public procurement. This was for example the case with the large-scale floods which hit Jeddah, Saudi Arabia, in 2009, which
underscored the poor quality of public infrastructure due to the mismanagement of public funds. Such cases could pose increasing
threats for governments across the region. Global warming could also have a negative impact on the agricultural sector,
encouraging migration from rural to urban areas. This would further exacerbate the issue of youth unemployment.
Access to natural resources, including water and food, will also be a source of geopolitical tensions and will pose risks to social
stability over the coming decades. Water scarcity is already a major preoccupation across the region. The Middle East and North
Africa is home to around 5.9% of the global population, but has less than 0.6% of the world’s total renewable freshwater resources.
Population growth will further exacerbate the issue, resulting in increasing tensions between governments over access to
freshwater resources. In particular, we highlight the Nile Valley as a key flashpoint. The use of the Nile is already elevated, and with
expected high population growth in Egypt, Sudan and Ethiopia, tensions are set to rise between these countries. The Grand
Ethiopian Renaissance Dam (GERD), due for completion in 2020, could reduce Egypt’s share of water by as much as 25%. This could
not only be negative for Egypt’s agricultural sector, by weighing on irrigation capabilities, but is also likely to fuel political tensions
between Egypt and Ethiopia. As countries compete for natural resources, we could see flashpoints emerge over the coming years.
One Of The Most Water-Deprived Regions On Earth

Global - Availability of Water
Source: International Water Management Institute, Fitch Solutions
Food security will be another main challenge over the coming decades, with both domestic and regional implications. The MENA
region imports around 30-35% of its total food needs, with import dependency as high as 90% for Qatar. More worrying, the region
imports around 50% of its cereal needs, which forms a crucial part of the typical diets for the most vulnerable households, leaving
them exposed to fluctuations in international prices and potential trade disruptions. Although relatively less dependent on food
imports, we believe that the region’s oil importers and non-Gulf Cooperation Council (GCC) oil exporters are relatively more at risk,
given more modest living standards and governments’ lower financial buffers. Food shortages could significantly weigh on overall
social stability.
On the upside, climate change could create incentives for governments to transition away from hydrocarbons, and to favour more
sustainable forms of energy. The UAE is currently developing Masdar City – which is expected to become a hub for green
technologies and entirely fuelled by renewable energy – while Saudi Arabia officially launched its NEOM mega-city project in 2017.
Morocco is also seeking to become a hub for solar energy. Meanwhile, climate change could also encourage cooperation on
environmental issues, which could be positive for overall political stability in the region. That said, in order to have a substantial
impact on stability, we would need to see the security situation improve greatly as a precondition.
Diversification: The Gulf Will Make Progress At Last
More positively, we believe that the next three decades will see the six economies of the Gulf Cooperation Council - Saudi Arabia, the
UAE, Kuwait, Qatar, Oman and Bahrain - make tangible towards economic diversification, allowing them to reduce at last their
longstanding dependence on the energy sector. Diversification is hardly a new goal: most Gulf countries first elaborated
economic policies towards that end in the 1970s, when awareness of the finite nature of oil resources - followed by the collapse in
energy prices in the following decade - raised the need for a more sustainable growth model. Yet these efforts have had limited
results: with the partial exceptions of UAE (especially Dubai) and Bahrain, no Gulf state currently enjoys a truly diversified economy
able to function without strong support from government spending. However, we are now turning more optimistic towards the
diversification of the bloc, especially given the member states' apparent commitment to ambitious diversification plans. Saudi
Arabia’s Vision 2030 – announced in 2016 - is the most notable example, setting a framework for economic diversification in the
country, but similar initiatives are in force in the entire GCC.
Diversification Progress Has Been Slow Thus Far

GCC - Gross Value Added By Sector, % total GVA
Note: Mostly oil and gas. Source: UN, Fitch Solutions
While there are some risks that recovering oil prices may reduce the impetus to reform, we believe that demographic change will
also act to push forward diversification. Indeed, hydrocarbon production has never provided substantial job opportunities for Gulf
citizens. Rather, the Gulf economies have long depended on oil to drive fiscal revenues, using that to support their populations with
low taxes, good public sector jobs and a high level of social services. As the large youthful populations enter the workforce though,
this model will increasingly come under pressure, necessitating continued progress toward reform.
Meanwhile, we are seeing the ascension to power of a new generation of leaders across the region, with the promotion to crown
prince of Mohammed bin Salman (34) in Saudi Arabia, Sheikh Tamin bin Hamad Al Thani (39) coming to power in Qatar or the rising
influence of Abu Dhabi Crown Prince Mohammed bin Zayed (58). These leaders have shown commitment to reform, even if that
involves going against other members of the political and religious establishments. Given their young ages, we believe that their
reforms will have a long-term impact of the trajectory of the region. Over the longer term, the investments carried out in physical
infrastructure and human capital will begin to reap rewards, particularly in heavy and primary industries - where easy access to
natural and energy resources provides an advantage - and healthcare and trade. The proportion of Gulf nationals in the workforce
(as opposed to expatriates and guest workers) will also rise, driven by government policies and awareness of the political and
economic dangers presented by high local unemployment.
This does not mean that progress will be rapid or all-inclusive. Achieving a high degree of export sophistication or moving towards a
knowledge-based economy - the stated aim of countries such as Qatar - will require decades of sustained policy efforts and a
coordination of public and private efforts. Investment in quality education will also be crucial. Countries which have failed to move
swiftly with new investment projects in recent years, such as Kuwait, are likely to continue lagging behind. Nevertheless, we believe
that the Gulf will enjoy a more innovative, dynamic, and diversified economic structure by 2050.
Political Systems Will Look Very Different
By 2050, we believe that the governance model that currently exists in many of the major countries in MENA will have likely shifted,
with important political and economic ramifications. Monarchies across the MENA region have benefited from political stability in
recent years, even in the wake of the Arab Spring, which brought down governments in Egypt, Libya and Tunisia. That said, the
macro-fundamentals that underpin the stability of these institutions are unlikely to remain static. Crucially, the Gulf monarchies have
largely relied on deploying ample hydrocarbon resources to keep their populations satisfied and limit demand for political reform.
Even the comparatively resource poor states like Bahrain have been backstopped by regional allies. With rising young populations
across the GCC – all of which will need jobs – and these countries’ oil and gas resources ultimately finite, the eventual need for
economic reforms will likely begin to strain the social contract that has sustained the current style of government. A violent
transition of power cannot be ruled out, though we think it is far more likely that monarchs in these countries will engage in a slow
shift towards greater-power sharing with elected legislatures.
We see a similar trajectory of political change in countries like Jordan and Morocco. It is important to acknowledge that there are
differences between how these monarchies function compared to those in GCC states. Specifically, in Jordan and Morocco, the
leadership has already made concessions to elected parliaments to share some powers. At this stage, we do not classify either as
having a true constitutional monarchy – defined as a state of affairs where the king (or queen) wields largely ceremonial power
only. However, by 2050, there is a possibility that the modest transfer of political authority we have already seen could continue, and
eventually leads to true constitutional monarchies.
Iran is also likely to see considerable political transformation, although we believe that a completely smooth transition is somewhat
unlikely. At present, much of the power to make policy rests in the hands of the hardline religious establishment. Indeed, while the
presidential elections themselves are largely free and fair, the process of selecting which candidates are permitted to run is closely
monitored by the hardline elite. However, over a multi-year timeframe, a combination of stagnant economic growth and growing
discontent over limited socio-political freedoms would be likely to spur a popular push for increased democratisation. In the
meantime, tensions with the US will temper a more significant boost in foreign investment. Meanwhile, social liberalisation, which in
other Gulf states has been utilised to avoid popular backlash to economic restructuring, is in many ways likely to remain restricted in
Iran by the religious establishment. Nonetheless, with access to social media increasingly connecting Iran’s population to the
outside world, the disparity between their own economic prospects and those of peers around the globe is becoming more visible.
This will only exacerbate discontent and increases the likelihood that by 2050, Iran’s government will look very different from the
one currently in place.
We see a number of potential implications from changes in governments in the MENA region. Policy continuity would look far less
certain in regimes ruled by leaders without absolute power. For those countries whose leaders are currently in the midst of major
reform drives or are quite pro-business, such a change could temper investor confidence and cause disruptions to efforts to
diversify growth. We also see potential that foreign policy alliances will begin to shift as governance models change. While the Gulf
monarchs would likely stick together in the event that they all began to transition to constitutional monarchies, a radical change in
government in one country (for example, an overthrow of one of the monarchs and embrace of democracy) could see it shunned
by its neighbours. In contrast, a new regime in Iran could be more amicable to Western powers and might finally see the country
emerge from relative isolation, such that by 2050, Iran is far more integrated into global economic markets and trading partnerships.
Looking East: MENA's Links With Asia To Deepen
Asian states, and in particular China, will grow substantially in importance to MENA countries over the decades ahead. This
importance will, at least initially, be predominantly economic in nature. For the hydrocarbon producers, Asia will become a primary
export destination (especially as US hydrocarbon import needs diminish). For the region more broadly, China - whose leadership is
looking to expand its international influence and trade links via initiatives such as Belt And Road - will become a key source of
investment. This investment, as well as access to more advanced (Chinese) technology, will be important to help develop the MENA
economies, particularly those that seek to diversify away from hydrocarbons. Meanwhile, as trade links between the two regions
become more established, Asian (cost-competitive) exports to MENA will increase dramatically.
China Will Remain The Driver Of Global Oil Demand

China & The US - Refined Oil Products Consumption
Source: National sources, Fitch Solutions
Over the longer term, deepening economic links with Asia will inevitably impact the region’s political and security dynamics. At
present, the US is by far the most important external power broker in MENA, and we expect it to remain so for the foreseeable
future, as it still has a strong interest in securing the hydrocarbon trade, protecting Israel, containing Iran and countering Islamist
terrorism. Asian countries, whose military capabilities are far inferior to those of the US, will be unable to challenge the US's position
for many years to come. In any case, few of them appear interested in doing so. China, most notably, has repeatedly demonstrated a
lack of willingness to take sides in MENA conflicts, and a strong reluctance to increase its military presence there. It is seemingly
content for the US (supported by Europe) to take charge of stability missions and interventions, which help secure its assets and
trade routes to the region at little cost.
Over a multi-decade time horizon, however, this could change. As Asian countries’ economic interests in MENA grow, their stake in
regional stability will rise. It is therefore highly likely that major powers such as China and India will eventually expand their strategic
links to, and military presence in, the region. For example, China opened a military base in Djibouti in 2017, allowing it to project
power into the Middle East and Africa. More such bases could follow. India’s navy is also exploring the option of extended
deployment to the region. Japan and South Korea could follow suit. If the US at some point in the future chooses to disengage from
the Gulf, then these powers would come under pressure to step in and fill the vacuum. Such a decision by the US could for example
be brought forward by major shifts in its strategic partnerships (in the region or globally), severe economic downturns, or a growing
support for isolationism among Americans. Alternatively, if the US’s MENA presence begins to threaten Asian interests there (for
example in the event that the US-China rivalry intensifies), then some Asian powers could conceivably decide to defend their
interests by upgrading support for, and involvement with, allied MENA states.
Geopolitical Shifts To Pose Substantial Risks
Geopolitical risk will remain considerable across MENA over the coming decades. Most notably, there appears to be no obvious way
of reducing tensions between Iran and Saudi Arabia (and lately, the US), which have in recent years found themselves waging an
intensifying proxy war for influence in the region. This geopolitical rivalry has assumed a sectarian character. Iran leads the Muslim
world’s Shi’a camp, and is perceived by Saudi Arabia and its allies to be supporting Shi’as in Bahrain, Iraq, Lebanon, Syria, Yemen, and
even Saudi Arabia’s Eastern Province. For its part, Saudi Arabia regards itself as leader of the Sunni Arab camp. Riyadh has the
backing of the US and wider Western world, while Tehran is broadly backed by Russia, which has been seeking to strengthen its
relations with regional states such as Syria and Iraq. Thus, MENA tensions also reflect wider global rivalries. Thus far, China has been
aloof from MENA’s conflicts, but we expect Beijing to become more diplomatically (and possibly militarily) active in the region over
the coming decades. India, too, looks likely to follow suit, albeit on a much slower timeframe than China.
Although Iran has been a self-proclaimed enemy of the West since the Revolution of 1979, we do not necessarily expect that this
will be the case by 2050. Indeed, it is quite possible that domestic political changes in Iran over the next three decades could lead
Tehran to reach some sort of rapprochement or accommodation with the Western powers, while retaining cordial relations with
Russia and China. This geopolitical shift could make Iran the most important country in the region, as a key node in Beijing’s ‘Belt
and Road’ transport corridor across Eurasia. Meanwhile, although Saudi Arabia has been allied to the West for many decades, we
cannot rule out a geopolitical shift away from the West, especially if there is significant domestic political change.
A Dangerous Region
Greater Middle East - Flashpoints And Active Conflicts
We also see Egypt as playing a much more prominent role in regional geopolitics by 2050. Egypt has long been the ‘sleeping giant’
of the Arab world, and has largely been playing a passive role in the MENA region, especially in relation to its status as the most
populous Arab nation (with around 100mn people) and traditional cultural hub of the Arab world. Egypt has seen stabilisation under
President Sisi since 2013, and while we cannot rule out a second ‘Arab Spring’ over the coming decades, the country is likely to seek
to regain regional influence, even if its political system changes. Egypt’s critical location between the Arab world, Africa, and the
Mediterranean suggests that it will be courted by the world’s major powers.
Elsewhere, it is difficult to see a peaceful solution to the Israeli-Palestinian conflict by 2050, unless the US dramatically changes its
pro-Israeli stance or other major world powers such as China eventually join the peace process. As things stand, Israeli-Palestinian
relations are deteriorating rapidly, and we see scope for a third Intifada over the next few years, which would worsen relations
between the two sides for many more years to come. Beyond the next few years, Israel is likely to face growing demographic
pressures from the Palestinians, whose population is expanding more rapidly than Israel’s. The growing Palestinian population could
prove much more restive and difficult for Israel to manage. The most dangerous situation for Israel would entail a major political shift
in Egypt, Jordan, or Saudi Arabia that aligns one or more of their governments more strongly behind the Palestinians, thereby
turning up the pressure on Israel.
Finally, we see a risk that several borders in MENA may be altered, most probably violently, by 2050. Most notably, the long-term
instability of Syria and Iraq could finally result in the emergence of a Kurdish state, which could include parts of south-eastern
Turkey, although this would likely only happen in conjunction with a political shift in Turkey towards a softer stance on the Kurds.
Yemen could well be broken up into a northern and a southern part under an eventual peace treaty, especially given the support
lent to southern separatists by the UAE. Saudi Arabia could see a push for secession, or at least significant devolution of power, by its
Eastern Province. Although the world’s major powers do not appear willing to countenance a redrawing of Middle Eastern borders
for the foreseeable future, much could change by mid-century.
Sub-Saharan Africa: Demographics, Diversification, And Climate Change

The Main Challenges
Key View: A number of key themes will become evident in Sub-Saharan Africa over the next thirty years, shaping the region’s
macroeconomic and political outlook. These include changing demographics, the push for diversification and integration of
financial services, as well as the increasing prominence of external dynamics in political risk, such as climate change and
competition for influence between global powers.
Diversification For Some
By 2050 we at Fitch Solutions expect pockets of Sub-Saharan Africa to look more economically diversified, benefiting from stronger,
more stable growth. The region as a whole has already taken some steps to move away from its heavy reliance on primary resource
production as the main driver of growth over the past three-to-four decades, with services (a combination of wholesale and retail
trade, restaurants, hotels, transport, communications and storage) leading the way. However, progress has been slow and patchy.
We see diversification making further gains through to 2050, with services likely to continue expanding, supported by a combination
of high population growth, increasing urbanisation (see below), and the potential for technological ‘leapfrogging’ as well as
increased intra-African trade in services as a result of increased regional integration. Opportunities for growth in the tourism sector
are also increasing. With studies still suggesting that, compared to previous generations, the millennial demographic in developed
markets prefers to spend money on ‘authentic experiences’ rather than consumable objects, SSA could benefit as a new tourist
hotspot. Meanwhile, rising middle classes in Latin America and Asia could also act as new markets for tourist arrivals to the region.
We also see potential for gains in manufacturing, a sector that has slumped in recent decades. A number of factors have hindered
growth in manufacturing, including inadequate infrastructure and human capital, unfavourable regulatory environments and
elevated political risk. As a result, manufacturing currently represents only around 10% of total GDP in Africa on average.
Encouragingly, we have seen a number of SSA economies beginning to take steps to close their infrastructure deficits in recent
years, including boosting power generation capacity and road and rail access. Over a multi-decade time horizon, investment from
China, India and other large emerging markets like Brazil will help these countries address the kind of logistical challenges that have
held back the development of manufacturing.
Manufacturing Sector Is Underdeveloped

SSA - Manufacturing As % Of GDP, selected states (2018)
Source: World Bank, Fitch Solutions
Moreover, the African Continental Free-Trade Area (AfCFTA), formally launched in July 2019 and due to come into operation in 2020,
offers potential benefits for manufacturers. The AfCFTA should ease the process of importing raw materials from other African
countries, while enabling firms to establish assembly operations in other African states, so as to access cheaper means of
production. Moreover, if achieved, liberalisation of investment (due to be discussed in a second phase of negotiations) should
facilitate greater linkages with multinationals in technology transfer and the development of raw materials.
We stress that gains will not be shared equally, with some SSA countries likely to remain mired in political instability or undermined
by the persistence of a poor operating environment. Most notably, many of the poorest and most unstable states in the world lie in
Central Africa, and we see little sign of a surprise renaissance. In contrast, we continue to believe that a combination of increased
integration, substantial infrastructure development and relatively business-friendly regulation in East Africa will pave the way for
reform and offer significant growth potential for sectors beyond the extractive industries.
Climate Change To Elevate Political Risk
We expect that climate change will lead to increasingly erratic rainfall, intensifying existing problems of food and water security. It will
also fuel desertification and—given restricted capacity to adapt to climate change in many areas—poverty and social tensions. We
have already seen the Sahara Desert expand over recent decades, destroying both arable and grazing land, adding to poverty and
increasing migration. Migrations amongst herders from the more arid areas of West Africa have increased in scale and distance,
creating social tensions with settled farmers across the region and fuelling widespread violence in Nigeria's Middle Belt, as well as
social tensions in Ghana. As the Sahara Desert expands, we expect such migrations to continue as people in the Sahel struggle to
sustain themselves in an increasingly hostile environment. Some will move into already overburdened cities, while others will
migrate across porous borders or areas already occupied by militias. This will also strengthen insurgencies as the destruction of
agricultural land will likely exacerbate ethnic tensions in affected areas and consequently drive recruitment for separatist and
Islamist movements in Mali and Chad.
Sahel Region Most Exposed To Changing Climate

West Africa - The Sahel
We maintain that the risk of droughts will be greater in the coming decades for the entire SSA region, as populations see significant
growth and water supplies are affected by more erratic rainfall. The threat will be elevated in the Sahel and Southern Africa—with
the latter already experiencing its third successive year of drought—and in areas where water basins cross a number of state
boundaries (for example, Lake Chad). Risks will also be acute in the Nile Basin, where disputes over access to Nile river water are
already intense. The construction of the Grand Ethiopian Renaissance Dam has helped elevate international tensions over water
supplies to the point where military build-ups have occurred in Eritrea, Sudan and Ethiopia. These tensions will likely increase
significantly over a multi-decade time horizon as the population of the Nile Basin increases and rainfall becomes more erratic.
Water Scarcity Will Add To Tensions In Nile Basin

Nile Basin
Note: Red Circle = Disputed Area Between Egypt And Sudan. Red Lines Show Aswan and Grand Renaissance Dam. Source: Fitch Solutions
Rising Powers To Increase Their Role In Africa
We believe that rising powers in Asia will have growing influence and greater economic ties in Africa in 2050. China has already
invested heavily in Africa, above all in infrastructure and in the development of the continent’s primary resources. In addition to its
considerable investments in Africa’s infrastructure and extractive industries, we believe that Beijing will continue to develop a
military presence, which at the time of writing extends only to a base in Djibouti, but we maintain that there is some potential for a
presence in Southern and Western Africa, where China has considerable interests. This will create burgeoning Chinese influence in
certain countries, but it may lead to a backlash in others, with local communities and governments opposing the country’s growing
presence.
This trend brings with it the likelihood that China’s rival powers, such as India and Japan, may also begin to step up their presence in
Africa in order to counter Chinese influence and secure greater access to the region’s resources. Growing ties between China and
Mauritius have already driven India to increase its aid and military ties with the island economy, and start to formulate a bilateral free-
trade area. Increased demand for commodities and raw materials sill likely see increased Indian activity, particularly in
Anglophone states such as Ghana and Nigeria. Similarly, Japanese companies have begun investing in vital water infrastructure in
Ethiopia, which we believe is a model for further Japanese investment in the continent. Some Sub-Saharan African countries will
stand to benefit from geopolitical competition between the world’s main powers, if they are skilful enough to play off the major
powers against each other and maximise economic incentives in the process. This would also allow the countries to maximise their
geopolitical independence. However, the growing involvement of powerful nations in SSA also poses downside risks to stability,
because localised regional disputes or internal conflicts could quickly be subjected to the interests of the major powers. This would
exacerbate the conflict and remove the ability of local governments to resolve them by themselves. For example, during the Cold
War, large parts of Africa were subsumed into the wider US (capitalist) versus USSR (communist) global struggle.
Rising Population Growth To Challenge State Policy-Making
Rapid demographic expansion will double the size of SSA's population from 1.1bn in 2019 to 2.2bn by 2050, increasing challenges
for African states’ policy-making in the years ahead. Rapid population growth is anticipated even assuming a substantial reduction in
the fertility rate, which is expected to decrease from 4.4 births per woman in 2015-2020 to 3.1 in 2045-2050, according to the
United Nations Population Division.
While the region’s population growth will translate into a rising proportion of the population within the working age, we believe this
will present more risks than opportunities. We expect that many governments will fail to foster the growth-supportive policies
needed to offer adequate opportunities for employment to this demographic, particularly in the context of rising mismatches within
the labour market (with workers either lacking sufficient skills or mechanisation leading to lay-offs of surplus labour). Meanwhile,
administrations are also likely to struggle to meet rising demands for better social services for citizens.
SSA Will Have The Highest Rate Of Population Growth To 2050

Global - Average Annual Rate Of Population Change By Region, % y-o-y
Source: UN Population Division, Fitch Solutions
Without adequate growth in demand for labour, we believe that the region’s population boom risks contributing to social instability
going forward, as those left behind vent their frustrations about the lack of opportunities available to their generation. This trend has
already played out to some degree in South Africa, where new jobs created have not been enough to cater for the growing labour
supply. In this environment, we believe the persistent slack in SSA’s labour market will add further impetus to flows of migrants
across the region and beyond, compounding the impact of climate change, as individuals gravitate to where employment is most
available.
Rapid Urbanisation Will Limit Sustainable Growth
African states will see a faster rate of urbanisation than any other region in the world between 2020 and 2050, representing a
significant challenge for policy-makers. According to the African Development Bank (AfDB), Africa’s urban population will continue
to expand at 3.5% over the next three decades, with the amount of people living in urban areas increasing from 36.0% of the total
population in 2016 to 60.0% by 2050. In addition, the number of megacities—that is, cities with a population of at least 10mn
people—will rise. Sub-Saharan Africa already contains two such megacities, Kinshasa in the Democratic Republic of the Congo and
Lagos in Nigeria. Luanda in Angola, Dar es Salaam in Tanzania and Johannesburg in South Africa are due to attain the status by
2030, according the United Nations, with Abidjan in Côte d’Ivoire and Nairobi in Kenya surpassing the 10mn threshold by 2040. By
2050, Ouagadougou in Burkina Faso, Addis Ababa in Ethiopia, Bamako in Mali, Dakar in Senegal, and Ibadan and Kano in Nigeria are
also expected to be megacities, bringing the total number in Africa to 14.
In addition to population growth being concentrated primarily in urban centres, urbanisation will also increase due to rising rural-
urban migration, with many of Africa’s rural inhabitants coming to cities to find better economic opportunities, avoid local security
threats or escape the effects of climate change (although some populous conurbations in seaboard areas are themselves
potentially vulnerable to rising water levels). While the region’s rapid urbanisation will support growth in those industries that can
benefit from the growing concentration of the population, such as retail, we believe that much of Sub-Saharan Africa will struggle to
reap the benefits, failing to marry urbanisation with a rise in incomes and living standards. We expect several cities in the region will
struggle to accommodate their rapidly growing populations, with public services and infrastructure becoming overstretched
through rapid, unplanned urbanisation.
Urban Population Growth Will Increase Cities’ Fragility

SSA – Urban Population Growth, Population In 2016, (Predicted Population In 2030)
Source: UN Population Division, Fitch Solutions
According to the African Development Bank, African economies will need to invest close to USD110bn a year in infrastructure to
keep the pace with urban population growth, excluding additional resources needed to maintain levels of education, healthcare and
employment generation. With rapid urban population set to outpace economic growth, many cities will develop large slums similar
to the ones in Lagos, Kinshasa and Nairobi. Currently, SSA has the second lowest proportion of citizens living in urban areas (37.4%)
and the highest proportion of slum dwellers (56.0%) in the world. The expansion of slums will increase levels of inequality in the
region, with the level of inequality in African cities remaining the second-highest in the world with an average Gini coefficient of
about 0.58. We believe these dynamics will increase political risk in countries that are unable to generate employment and maintain
sufficient health care standards for the rising number of urban citizens.
Growing Penetration Of Banking Services
A low base leaves plenty of room for growth in Sub-Saharan Africa’s commercial banking sector, with expanding services likely to
underpin economic growth over the next 30 years. This trend will in part be driven by the higher rate of urbanisation – the growing
number of people living in urban areas is helping to increase the market size available to those banks that have yet to expand their
presence into rural areas. However, the modernisation of product offerings will also play a large role in the sector’s development,
particularly those that help banks overcome the challenges of operating in Sub-Saharan Africa. A number of countries have already
successfully developed the most obvious of these new products in the form of mobile financial services (MFS). Around 44.0%
of people living in Sub-Saharan Africa have access to mobile phones, a far higher percentage than those with access to a bank
account. In countries such as Kenya, operators have been quick to jump on this as an opportunity to develop mobile financial
services, which range from mobile transfers to microfinancing and investing, all via mobile phones. According to our Telecoms team,
those operators that are failing to tailor their services to the demands of the African market are struggling to compete.
Greater Intraregional Integration
Regional economic unions and trade blocs will likely see greater integration in the longer term across Sub-Saharan Africa. Blocs
such as the Southern African Development Community (SADC), East African Community (EAC) and Common Market for Eastern
and Southern Africa (COMESA) have gradually worked to integrate trade and economic policy in order to enhance cooperation, and
we expect this trend to continue. Indeed, the African Continental Free-Trade Afrea (AfCFTA), under which trading is due to start in
2020, potentially covers more than 47 Sub-Saharan Africa states (the holdout thus far being Eritrea), with a total population of 1.2bn
people and more than USD4trn in combined consumer and business spending. It aims to create a single continental market for
goods and subsequently services, with free movement of businesspeople and investment flows, thus facilitating the establishment
of a Continental Customs Union and African customs union. The AfCFTA will face a number of obstacles in the short to medium
term, including the difficulty of securing genuine and broad-based political buy-in given concerns about differing stages of
development among Africa’s heterogeneous economies. A fully functioning free trade area will also require substantially improved
transport and communication infrastructure: weak road, rail and port interconnectivity have long contributed to notably higher time
and costs in moving goods throughout the region. Potentially, however, the AfCFTA will offer a significant incentive for greater
economic diversification and more congruent supply chains. Resulting opportunities for scale production, improved market access
and better reallocation of resources could boost the competitiveness of African industries and corporates, and promote economic
diversification at a national level.
Intra-African Trade Remains Below That Of Other Regions

Sub-Saharan Africa - Intra-Regional Trade As Proportion Of Total Trade Volume; %
Source: African Union, Fitch Solutions
Asia: Sino-US Competition And Ageing Demographics Pose Main

Challenges
Key View: Asia faces considerable challenges over the coming decades, with rising geopolitical tensions, demographic shifts,
climate change and increased competition over water resources posing downside risks to the region's growth. On a more positive
note, continued regional economic integration should reduce the risks of conflict.
In this article, we examine the key megatrends that will shape the Indo-Pacific region between now and 2050. We and others
previously referred to this region as 'Asia-Pacific', but the growing geopolitical and economic importance of the Indian Ocean means
that it makes more sense to use the term 'Indo-Pacific'. We anticipate rising geopolitical competition between China and its most
powerful neighbours, Japan and India, with the latter two backed by the US. At the same time, we envisage deeper regional
economic integration. In addition, we expect demographic shifts (principally ageing populations) to have significant repercussions
for economies and societies. Meanwhile, climate change and the resulting acute water shortages will place added pressure on
government resources, raising production costs while posing risks to food security.
Greater Geopolitical Competition Between China And The US/India
One of the most prominent themes over the coming decades is China's apparent bid to dominate the Indo-Pacific region,
squeezing out the US, which in 2011 publicly stated its intention to 'pivot' towards the Pacific (see 'Sino-US Geopolitical
Competition To Intensify In 2015-2020', March 26 2015). Most countries in the region have refrained from choosing between
Beijing's and Washington's leadership, instead choosing to balance closer economic ties with China by maintaining or stepping up
security ties with the US. In particular, China's increasingly assertive stance towards territorial disputes with its neighbours in the
South China Sea (mainly with the Philippines and Vietnam) and in the East China Sea (with Japan) since 2010 has alarmed several
countries in the region, prompting them to step up defence co-operation with one another and the US. That said, there are no
indications that these countries will formally bandwagon with the US to create an Asian equivalent of NATO, as this would be
deemed excessively provocative towards Beijing.
For its part, China had perceived the US-proposed Trans-Pacific Partnership (TPP) as a move by Washington to reduce Beijing's
influence in regional trade. With the US having abandoned the TPP in 2017, Beijing is promoting the Regional Comprehensive
Economic Partnership (RCEP) in its place, and more ambitiously, the 'Belt and Road Initiative' connecting Asia to the Middle East,
Africa, and Europe via enhanced road, rail, and sea networks. Meanwhile, China's establishment in late 2014 of the Asian
Infrastructure Investment Bank (AIIB) appears aimed at developing alternative organisations to US-dominated institutions such as
the World Bank and the Japanese-influenced Asian Development Bank (ADB).
Geopolitical Tensions On The Rise

Asia - Regional Flashpoints
Source: Fitch Solutions. Template image: D-maps.com
The Indo-Pacific region's geopolitics over the coming decades will depend greatly on whether China overplays its hand. The Taiwan
Strait, South China Sea, East China Sea, and Korean Peninsula remain major flashpoints that could trigger Chinese military
intervention to safeguard its interests. Although none of the major powers - the US, China, and Japan - want war, we see a
considerable risk that their navies could come to blows in disputed waters. There is also a danger that aerial or naval skirmishes
between them could trigger at the very least limited wars in the region. In the event of Chinese aggression, the US's willingness to
defend treaty allies such as Japan and the Philippines will be tested, as many Americans will be reluctant to go to war with China over
seemingly 'obscure' Asian flashpoints. Meanwhile, South Korea, India, and Vietnam will build up their own military capabilities over
the coming decades, and will become important players in their own right. The future of the Korean Peninsula will also merit close
attention. It would be surprising if the two Koreas had not taken much greater steps towards unification by 2050, but the question is
whether the 'new Korea' would align with China or the US, or attempts to adopt some form of neutrality.
By the end of the period to 2050, and most probably well before then, we expect that India will have emerged as a formidable
geopolitical rival to China, meaning that Beijing would be unlikely to dominate the Indo-Pacific region. Indeed, the rise of India
portends rising tensions with China in the Indian Ocean and also potentially in the Himalayas, where the two countries have border
disputes.
We also expect rising Sino-US geopolitical competition to spread across the South Pacific, where more than a dozen countries and
territories will be subject to influence bidding by Beijing, Washington, and possibly other regional powers such as Australia. At the
same time, these island nations will experience rising challenges as a result of an anticipated rise in sea levels.
Overall, we note that even if China becomes democratic between now and 2050, there is no reason to expect geopolitical
competition in Asia to fade. The US, which is a long-standing democracy, has not hesitated to use military force and economic
sanctions to enforce its global hegemony. The best hope for reducing regional tensions lies with deepening economic integration
between as many countries as possible.
Regional Integration Set To Continue
Despite rising geopolitical competition in the Indo-Pacific realm, we expect efforts to strengthen economic ties between countries
in the region to continue. This will gradually reap considerable benefits over the coming years, particularly among ASEAN as the
ASEAN Economic Community (AEC) slowly takes shape. The gradual implementation of AEC provisions will also improve the flow of
labour across borders with the waiving of visas and the harmonisation of labour standards.
Regional Connectivity To Proceed Gradually

Thailand A Hub In Future Expanded Railway Network
Source: Fitch Solutions. Template image: D-maps.com
At the same time, continued efforts by China to expand outwards (as part of its Belt and Road initiative) will also promote the further
development of regional rail networks, improving connectivity. This will be supported by the opening up of air routes due to the
gradual implementation of free skies pacts, improving the flow of cross-border investment and increasing the ease of doing
business in the region.
In addition, the eventual signing, ratification, and implementation of various trade pacts such as the Regional Comprehensive
Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (also known as the
TPP11) will provide a boost to economic growth by lowering tariff and non-tariff barriers to trade and investment. ASEAN will also
continue to actively engage economies in North and South Asia, leading to the deepening of regional supply chains and increased
investment opportunities. While we expect China to remain an important regional player, we see opportunities for India to gradually
play a greater role in the region as it participates in regional trade agreements.
Decentralisation Tendencies In Large States
We see rising momentum for the decentralisation of power in Asia's more populous and geographically larger states. China will
eventually experience 'federalist' tendencies, as its more prosperous regions increasingly seek to manage their own affairs. Ethnic
regions, such as Tibet and Xinjiang, will also agitate for more autonomy. The decentralisation of power will win more support, if the
central government in Beijing comes to be seen as too distant or unresponsive to 'local' issues, or if China experiences
democratisation, which would most probably begin at a municipal or provincial level before taking hold nationally. India is already a
fairly decentralised country, but the creation of a new state, Telangana, in 2014 in response to popular demands demonstrated that
'separatist' movements exist within the federal states. Several other Indian states have faced popular calls to be broken up into
smaller, more governable entities. Elsewhere in Asia, Japan, Thailand, Myanmar, Indonesia, and Pakistan all have political movements
favouring greater regional autonomy.
Secularism At Risk In South And South East Asia As Religious Identity Takes Over
A surge in populism and identity politics could cast a long shadow on the political stability of erstwhile secular countries like India
and Indonesia. Both these nations – sprawling democracies with secular constitutions – have seen a rise in majoritarian politics
representing the core religious groups, Hindus in the case of India and Muslims in the case of Indonesia. The intermingling of
religious and political identity has not only raised tensions in civil society but has also led to violent protests and thereby
undermined social stability. Our view is that while the leaders of these nations have short-termist desires to stay in power, the
damage to the social fabric they have engineered will be of a long-term nature, and this will jeopardise the secularist governing
models these large democracies have relied upon.
Religious identity is gradually becoming crucial elsewhere in Asia (excluding Central Asia) as well. The issues usually arise from the
tensions between a local majority religion and Muslim minorities. Asia has around 45% of the world's Muslim population, owing to
the large populations of Indonesia (261mn), Pakistan (193mn), and Bangladesh (163mn), and the large number of Muslims in India
(190mn). Pakistan has long experienced tensions between secularist and Islamist (including radical Islamist) forces, but recent years
have also seen growing Islamist currents in traditionally secular Indonesia and Bangladesh. If these currents persist, then political
instability could increase, as the public discourse comes to be dominated by religious issues rather than basic economic issues.
Meanwhile, governments of non-Muslim countries with Muslim minorities, such as China, Thailand, the Philippines, and Myanmar,
will maintain hardline stances towards perceived Muslim separatism, leading to resentment among local Muslims, and the risk of
violence. Indeed, the Myanmar government's crackdown on Muslim Rohingyas in Rakhine state since 2016 has been characterised
as 'genocide' by its critics.
Demographics: India Gains The Advantage Over China
Most Asian states, especially Japan, South Korea, Taiwan, and China, will experience rapidly ageing populations between now and
2050, with the percentage of those aged 65 and above rising to around 38% in Japan and South Korea by mid-century. However,
India is in a comparably favourable position, especially in relation to China. China and India account for around two-thirds of Asia
Pacific's total population, which means that the two giants will play a dominant role in the region's demographic composition over
the next 30 years. The two countries contrast markedly in this respect: China's working age population (those aged 15-64) as a
percentage of total peaked at 73.8% in 2010, and is gradually falling to around 60% by 2050, according to UN forecasts. Meanwhile,
India's population is significantly younger: at 67.3% of total in 2020, the UN forecasts that its working age population as a proportion
of the total will peak in 2035-2040 (at 68.5%), after which time it will begin to fall very gradually.
Over The Hill

China - Population Pyramid, 2018 (LHC) & 2050, '000 (RHC)
The divergence in the two countries' demographic trends will have significant repercussions for their respective economies and
societies. China's vaunted personal savings rate will inevitably decline as the dependency ratio rises, while India's should rise,
supporting investment in the latter. The rising working population will act as a modest tailwind to both real GDP growth as well as
GDP per capita in India, while it has already begun to act as a net drag on China's economy. In terms of government policy, the
Communist Party of China (CPC) will focus increasingly on bolstering the social safety net for elderly citizens, a costly endeavour that
will likely lead to a larger government revenue footprint as a share of GDP. In addition, the shadow cast by the CPC's former 'one
child policy' (from 1980 to 2015) will continue to be felt for decades to come. India, meanwhile, will have slightly more fiscal leeway
in terms of social spending, with the option of directing a greater share of state funds into research and development and
education.
North East Asian governments will increasingly promote the use of automation, artificial intelligence (AI), and robotics to mitigate
the effects of an ageing population on their workforces. However, it is unclear whether such technologies alone will be sufficient. If
new technologies fail to ease labour supply problems, governments will have to turn to immigration, most probably from South
Asian nations, which have rapidly rising populations and are relatively close by. Yet, Japan and South Korea are among the most
homogeneous countries in the world, and there is widespread public resistance to mass immigration. Thus, North East Asian
governments and societies will face growing dilemmas over immigration policies over the coming decades.
Still Reaping Dividends

India - Population Pyramid, 2018 (LHC) & 2050, '000 (RHC)
Climate Change To Undermine Growth
The impact of climate change will become more acute over the coming years due to more extreme weather patterns. With much of
Asia likely to remain fairly dependent on agriculture, changes in rainfall patterns will have a considerable impact on developing Asia.
Higher rainfall could lead to unseasonable flooding in low-lying areas, having a negative impact on crop yields. With plants having to
adapt to more severe floods and droughts and countries lacking the technology to cope with the changing weather patterns, food
security could become a major issue in many developing Asian nations. This will also lead to higher food inflation in both rural and
urban areas, and could result in considerable social instability.
A Susceptible Neighbourhood
Asia - Cities Most At Risk From A Rise In Sea Levels
Source: East-West Center, Fitch Solutions
In addition, flooding could render arable land unusable, forcing the mostly subsistence farmers off their land and into already
overcrowded cities, leading to the expansion of shanty towns, raising inequality, and posing risks to public health as well as social
stability.
Climate change will also threaten densely populated mega cities, most of which are built of deltas, namely the Gulf of Thailand, the
Mekong, Yangtze, and Pearl River Delta, and the Ganges-Brahmaputra plains. Coastal cities are likely to bear the brunt of rising sea
levels, which would render them more vulnerable to amplified storm surges. Major cities such as Tokyo, Shanghai, Jakarta, Mumbai,
Manila, and Bangkok will likely see maintenance costs increase as more money is spent on coastal defences and to prevent
buildings from being flooded.
Increased Competition Over Water
As climate change affects weather patterns, competition for water both between countries and within individual countries across
Asia will increase, as rapidly developing economies seek water to develop their industries and agricultural sectors. As seen in the
map below, many parts of the continent already face acute water shortages. This is likely to intensify over the coming years, as the
growing population places increasing pressure on already scarce water resources, leading to heightened tensions.
Asia: The Thirsty Continent

World - Availability Of Water
Source: International Water Management Institute, Fitch Solutions
For one, competition among countries along the Mekong river is likely to intensify over the coming years, as each country seeks to
utilise the river's resources. In particular, tensions between upstream (China and Laos) and downstream countries (Vietnam and
Cambodia) will continue, as the diversion of the river upstream leads to a decreased flow of water for downstream countries.
Water-scarce countries like China and Australia have also embarked on various river diversion plans aimed at moving water from
water-rich to water-scarce parts of the country. Some schemes include China's South-North water transfer project and Australia's
Sugarloaf North-South Pipeline. Both have faced considerable opposition due to environmental and economic concerns.
Water shortages will prove detrimental for the agricultural and manufacturing sectors, both of which require a steady supply of
water to ensure production. As such, increased competition over water resources could see a rise in social tensions, as certain parts
of individual countries advance at the expense of others. The business environment will suffer accordingly, with increased
uncertainty over production materials, threatening economic growth.
Fit
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Global Trend 2050

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April 2020

Technology, Media, Telecommunications (TMT) ...............................................................................................................22

Pharmaceuticals, Healthcare & Medical Devices..............................................................................................................37

Agribusiness, Food & Drink, Consumer & Retail ...............................................................................................................53

Power & Renewables, Infrastructure.....................................................................................................................................98

Oil & Gas, Mining (Extractive Industries) .......................................................................................................................... 119

Political & Macroeconomic Megatrends To 2050 ........................................................................................................... 138

Global Industry Megatrends To 2050

From Macro Megatrends To Industry Megatrends

MACRO INDUSTRY MEGATRENDS

TMT MEDICAL DEVICES PHARMACEUTICALS

Low Carbon Economy

§ Transforming Food & Drink Majors § Legalisation of Organic Narcotics

AUTOS OIL & GAS MINING

Our Industry Megatrends checklist:

There are three criteria which for us define an industry megatrend:

• It will be, or have the potential to be, global in scope;

• Sustainability and Low Carbon Economy

About Our Megatrends Survey 2020

Section 1 – Identifying Megatrends

Source: Fitch Solutions - Megatrends Survey 2020

AI And A&R Gain Most As 30 Year Disruptors

TOP RATED CATEGORY/DISRUPTOR, BY RESPONDENTS INDUSTRY

Construction and Engineering IoT (68%) Automation & Robotics (65%)

Extractive Industries* Climate Change (59%) IoT (66%)

Manufacturing IoT (69%) IoT (79%)

Utilities AI (68%); IoT (68%) AI (76%)

Autos Social Media (49%) IoT (61%)

Technology and Communications IoT (72%) AI (76%)

Pharmaceuticals IoT (61%) Climate Change (69%)

Consumer/Retail Social Media (61%) Social Media (68%)

Financial Services IoT (57%) Automation & Robotics (68%)

Agribusiness Climate Change (59%) Climate Change (70%)

This reflects two underlying trends from the industry-specific responses.

Source: Fitch Solutions - Megatrends Survey 2020

Emerging Markets And Developed Markets

Source: Fitch Solutions - Megatrends Survey 2020

Source: Fitch Solutions - Megatrends Survey 2020

Section 2 – Capex, M&A and Competitive Landscapes

Reality versus Aspiration

HIGH INVESTMENT AREAS FOR RESPONDENTS' COMPANIES PRESENTLY, BY INDUSTRY GROUPING

Extractive 47% 45% 50% 51% 47% 62%

Manufacturing 59% 52% 62% 64% 58% 72%

Utilities 61% 50% 64% 80% 58% 73%

Autos 52% 40% 41% 51% 49% 54%

Pharmaceuticals 55% 57% 49% 56% 59% 59%

Consumer/Retail 31% 32% 45% 47% 59% 46%

Financial Services 44% 49% 50% 65% 58% 50%

Agribusiness 35% 29% 40% 43% 43% 66%

Average 50% 48% 53% 58% 55% 61%

Source: Fitch Solutions - Megatrends Survey 2020

Agribusiness - Divergence In Current Capex And Expectations Of Future Disruption

Source: Fitch Solutions - Megatrends Survey 2020

Construction And Engineering - Aligning Capex With Future Disruptive Forces

Source: Fitch Solutions - Megatrends Survey 2020

Source: Fitch Solutions - Megatrends Survey 2020

Source: Fitch Solutions - Megatrends Survey 2020

Operational Efficiencies 57% 64% 52%

Cost Reduction 59% 62% 53%

Communications Improvement 68% 57% 54%

Labour Force Restructuring 57% 65% 56%

Additional Revenue Streams 62% 61% 60%

Section 4 – Demographics and Methodology

Respondents By Industry Share