Reuters Insider - Davos Today: Wednesday 2016 - Part 1

Blockchain Industries

20/01/2016 23:50

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                 A very good morning, everyone. We're back with Davos Today, brought to you by 
Reuters and the World Economic Forum. We are live in this brand new set in the 
old library. 7:30 to 8:30 through Saturday, so make sure you join us every 
morning. 

Guesthouse everyday Mark Weinberger from EY is our very first guest of 2016. 
We'll talk to you in just a sec, Mark, plenty to talk about. Lots of big themes,
mastering of course the fourth industrial evolution is the main theme. Let me 
first bring you the headlines as they stand this morning. Saudi's Foreign 
Minister tells Reuters the lifting of sanctions on Iran will be harmful if 
Tehran uses the extra money to fund nefarious activities. Shares in Asia, Brent 
sinks towards $28 souring an attempted rally on Wall Street. 

Sarah Palin, the Politician turned Reality TV Star, formally endorses Republican
Presidential frontrunner Donald Trump declaring the status quo has got to go. 
Are you ready for a Commander-in-Chief who will let our warriors do their job 
and go kick ISIS' ass? And rapper and music Producer will.i.am recognized for 
his philanthropic work helping to educate America as the World Economic Forum 
kicks off with its annual Crystal Awards Ceremony. And I want kids to dream to 
be like Steve Jobs, not just Stevie Wonder. So lots and lots to talk about. The 
theme of this year's conference is, I just mentioned, Mastering the Fourth 
Industrial Revolution. 

We will examine how technology is reshaping the economic, social, ecological, 
and cultural context in which we live, eroding global solidarity. Also topping 
the agenda of course, we'll look at how governments are addressing the refugee 
crisis as people continue to flood out of Syria. And we'll take stock of the 
international security landscape in the wake of violent extremism. In today's 
busy line-up, we've got a raft of big names. I just mentioned Mark Weinberger. 
Of course we've got ahead of McKinsey, Iberdrola, WiPro, PwC, and plenty more 
for you. We also want to hear from you of course. We're running a couple of 
polls on Twitter. What do you think of the Iran nuclear deal, and are you 
worried about the slowdown in China? Of course, one of the big questions. We'll 
get the thoughts from our social media editor a little bit later on. 

We're using the #DavosToday. So do make sure you get in touch with us this 
morning. Now, amid continuing market pressures and political uncertainties, what
bold choices are chief executives making in their organizations for a stable and
sustainable future? Mark Weinberger is Global Chairman, CEO at EY – very good 
to have you on as our first guest. We've got you for half-an-hour. I wish we 
could keep you for the whole hour. Alright. Those headlines, let's just start 
with that. We've got US politics in there – Donald Trump, Sarah Palin. We've 
got the markets in there – oil at $28. We've got Saudi and Iran. 

There's another story overnight and exclusive for Reuters on VW which is the 
trust story in the corporate. It's a lot to worry about. What worries you most? 
What worries your clients most? Well, Axel, I think you hit it right. I mean 
first of all, there's not a feeling of a great recession again when you talk to 
the CEOs. It's not like 2008 where we're running into liquidity and things like 
that. But the pure breadth of the issues and the uncertainty that it creates 
makes it hard for investments. So one of the things that I think is most 
troubling is if you looked at the CapEx investment over the last 
year-and-a-half, it's going down quarter after quarter after quarter all around 
the world. Manufacturing is down. That's important to productivity and long-term
growth. That's how you grow the world economy. So this short-term thinking of 
dividends and stock buybacks post the long-term investments is something we all 
need to think about. We've got Dominic Barton coming on from McKinsey in a 
minute. I know this is a big topic for him as well. This is about, well a lot of
this is about the boards and their short-term thinking, isn't it? 

And we need to change that, that short-term thinking. That's something that's 
going to take a while, yeah? It is. I mean obviously there's the 24-hour new 
cycle. There's analyst reports. There's media. There's the activist shareholders
you mentioned. All of these things, and they're not all bad. They make you focus
on your business and being productive, which is good for the long term. But if 
you look to 60 years ago at the Fortune 500, there's only 57 companies left 
today. The average life span of a company in the S&P 500 is just 15 years. So if
you're not thinking long term, your business model might not likely survive. So 
you have to balance that long-term thinking and investment for the future in R&D
and your employees with making sure you meet the analysts' expectations. 

That's really hard. We'll talk more about that in just a sec. Let me quickly ask
you about China. We'll talk about regulation, the regulation picture in China in
a little while. But picture, two very distinct camps – those who are really 
worried that what we're seeing in the equity markets is a big economy story, et 
cetera, et cetera. Which camp are you in? Well, I'm in the camp that you can't 
avoid investing in China long term. I mean there's no doubt, with the 
demographics situation including the number of—there's more middle class 
people in China than there are Americans. With their capacity to consume, with 
their knowledge in technology and innovation, you have to be there. 

So what we're seeing is a reduction or a slowdown in industrial investment, 
okay? That's expected. It over-invested for years. Now, they're trying to move 
to a consumption-based economy, I think that's expected. How's your business 
doing in China? We're up nearly 20% last year and 20% this year. We're growing 
in leaps and bounds. And the amount of direct foreign investment that we're 
looking at going into China continues to be strong. Short term, if you look at 
the stock market, it's a paradox. The stock market doesn't represent long term 
economic situation in China. So I think the people who are looking through the 
long term understand the need to be there. Okay, very good. Well, let me stop 
you there. 

Brand new measure 2015 was one of the most testing on record for the European 
Union. That's another big subject we'll talk about this morning, in fact all 
week. But if the Brits vote to leave the bloc, this year could be even worse. 
WEF Founder Klaus Schwab says this is a critical time for the EU. We are at an 
inflection point from my generation, so first identity was Europeans, the second
one was national. Now we're seeing national egoism by I think 2016 particularly 
with the Brexit route. We'll be at the sides of fear for Europe. So you're 
saying you have not been more concerned? 

No, I'm much more concerned. You're much more concerned. Because we are missing 
now the solidarity which was at the base of Europe. Are we seeing a slow motion 
break-up of the Union, would you say? I definitely hope not. I think we still 
have it in our hands. And the refugee problem and the Brexit route will 
certainly be the decisive events. Klaus Schwab. Now, Dominic Barton is CEO of 
global consultancy McKinsey, and he's taking part in a discussion this week 
asking how business leaders can navigate this geopolitical uncertainty and make 
decisions for the long term, something Mark and I were just talking about. 
Dominic joins us and he's here. Now, very good to see you again. And you guys 
know each other, right? 

Absolutely. Right. I did an event a couple of weeks ago in London with Lord 
Browne. He used the McKinsey report which said 30% of a company's value is at 
stake unless we recognize the widest stakeholder, society as the stakeholder, et
cetera, et cetera. I think increasingly so. I mean there used to be this view 
that it was all about shareholder value creation. That was a Milton Friedman 
comment 30 years ago, that the business, the business is business and don't 
distract yourself with other things. And I think that is way too myopic. And I 
think now we see it, it's not a trade-off. 

If you need to earn shareholder value, you have to have the trust of 
stakeholders. So to do that means you do have to think about your purpose, your 
broader purpose and what you're doing. And we talked earlier about trust and 
business dropping, we have to go back to what capitalism was which was the— 
Dominic, you know, I couldn't agree more with you and you are a leader, and 
thank you for that in this field. You've really helped to make this case. But 
you have the tangible financial results that analysts look at and then you have 
this concept called purpose, and then you have this long term thinking. How do 
you come up with something that would counter-balance the financial tangible 
record-keeping? You're so right, Mark, that I think those—it's people focus on
what could be measured and it's talking about broad concepts like that because 
that's all very nice, but how do we know you're making a difference? What we're 
seeing, and it's early days, are more people are focusing on what we call health
metrics. So what is the quality of the talent that you have in your 
organization, the trust you have in the stakeholders? You can measure that. You 
can measure the reputation, the innovation levels that are going on. And these 
are measures that I think pension funds and institutional investors, and as you 
know, Mark, there's people like Larry Fink at BlackRock or Mark Wiseman, they're
demanding, we want to see some of those measures. And ESG for example, if you're
a long term investor, you do want to see what the results affect your 
performance. When we spoke last year, you talked about these gale force 
headwinds that the entire world is facing. I mean it sounded dramatic. I've got 
to say though looking at it now, on what you said, I looked at the clips, you're
kind of spot on with a lot of this stuff. 

What is worrying you most? What is worrying your clients most? I think it's the 
geopolitical uncertainty. I mean it's just at a level we haven't seen before, in
my career, 30 years. It's not at this level of tension. And that makes people 
afraid and makes them nervous about investing and moving forward. So that's an 
issue that's out there. There's also just a lot more fragmentation that's going 
on. Leadership all across every dimension has become more short term – 
political leadership, business leadership. And that makes it difficult I think 
to move forward yet. If you actually look at the underlying, the potential is 
huge. You mentioned, Mark, before this, rising middle class, the infrastructure 
we need to spend. It's there, but we're just nowhere near our potential. And 
that's the conundrum. 

So, Dominic, let me ask you because I know your clients and you're helping a lot
of them figure out how to grow. That's the problem, right? We're seeing a lot of
profitability still from cost cutting. So when you look at growth, it's coming 
through M&A – acquire, you're supposed to build, there's lack of CapEx 
expenditures like I mentioned. Where do you think, when you talk to CEOs, do you
see that growth starting to come from? Well, I think this middle class, we 
talked about it, there's 2.2 billion new middle class consumers in the next—we
haven't seen that number before, and it's there, but you've got to be granular. 
That's why I agree with what you're saying. China, people are all nervous about 
China. You can't look at China as a country, I think. I think it's 22 different 
regions. Some sectors were absolutely booming, some aren't. So to me it's the 
granularity of growth that's there and being much more focused about where that 
is, and it's in different parts of the world. And of course you can't ignore 
India which we haven't talked about— And you're pretty aggressive on India. I 
am very positive on India. 

Really, really quick, Mastering the Fourth Industrial Revolution, again you and 
I have spoken about digital in corporate across the world. How's your own 
digital push going? It's - we're moving but we struggle. I mean, again, we say 
it's easy to tell other people what to do, why not take our own right? We all 
struggle. But no, we're just - it's just - everyone has to be, if you will, 
re-educated - that's been there. And the people that are obviously coming in 
which is a substantial amount, they get it. So it's kind of the young teaching 
the old. All right. Dominic, great to see you again. Thank you, me too. Sorry, I
have to cut it short. Dominic Barton from McKinsey. Thanks very much indeed. 
Now, Davos could be pretty exhausting of course so we're going to give you a 
little bit of light relief. 

If you're looking for some extra energy, why not head out up the mountain for a 
shot of adrenaline? This is a confession. I'm very, very scared. Bon voyage. 
Right. A coalition deal in Spain looks increasingly unlikely after December's 
inconclusive elections so, what does this political logjam mean for Spain's 
biggest electricity group Iberdrola and will it prompt further expansion into 
North America? The chairman and CEO Ignacio Sanchez Galan joins me in the 
studio. Very nice to see you again. Good morning. 

You're a regular on our show here in Davos. Let's start with the US energy 
industry. The deal you did, can it transform the US energy industry? Well, no. I
think this is one, there's four or more. I think United States, most of the 
distribution companies are very small and I think they require more 
concentration. And we make a ready guess, the first step in this direction. I 
think there's no sense that most of distribution companies there are already 
holding a few hundreds to thousands of customers towards millions in Europe. I 
think we in the group, we are already serving more than 100 million people 
through 30 million connections and the United States, most of these, it was on 
company side, yes, a few hundred thousand, million, something else. So I think 
in any world, it would require much more investment, much more digitalization in
the network. It's needed in much bigger groups within our financial resources to
make the necessary investment with the people required. Ignacio, let me switch 
it from the US to global for a second. Big deal, CAP21 and the agreement in 
France and all the positive messaging coming out of it, what should we be 
looking at to see whether we're on track and whether it's really making progress
or is it just going to be another pronouncement? Well, I'm especially delighted 
with the result of the CAP21. We have been one of the companies which in the 
last 50 years, we have been heavily investing in clean energies, in renewable. 
We are world leader in wind. So we are the second yet, the largest worldwide. 
And I think what they recognize, the first thing they recognize that the problem
exists. So 190 countries recognized ht existing problem and they put solutions, 
so they try to put solution for this one. And one of the solution clearly is to 
electrify much more the economy. So the electricity company, we are responsible 
of 20% of the emission worldwide but we have technologies for making things in a
better way. And how quickly will we see your company and companies like yours 
shift your investment decisions, change your investment decisions based always 
on CAP21 and the impact of course of those actions? Well, as I mentioned to you,
we did. Fifty years ago, we decided that we have to move in the different 
direction. So we are investing more than $30 billion in wind technologies, we 
are investing huge amount on money in pumping the storage of energy. We had 
already invested huge amount of money in network. So, digitalization of the 
networks, as man-made to the sector. In this moment, we have more than 7 
million, man-made -- in our customer fleet. Is the wind technology sustainable 
economically now on its own or is still government incentives needed to help get
it off the ground? I know in the US for example, we have a lot of incentives and
things like that. Well, I think it's moving better rapidly to the breakeven on 
that one. I think United States, they have already extended their PTCs, the tax 
credits up to 2020. But I think with an escalation in such a way that for 2020, 
probably they would not require any kind of subsidy. The most important thing 
for that is to put a price to the carbon. I think subsidies are needed because 
in another technology, the fossil fuels has already today, the subsidy they are 
receiving is double their renewable one. So I think -- and another one is 
already pricing the carbon, it's completely competitive, certain technologies, 
clearly they win. Let me finish up with a question on your home market in Spain.
Clearly, politics is an issue there for the whole country right now, for 
business right now, what are your plans now in Spain? We've talked about selling
your grid assets in Spain, are we going to see you move further out of your home
market? Well, I think as well we did very many years ago, in this moment, 70% of
our business are not in Spain, more in United States, more in Britain, in Mexico
so I think, what is going to happen in Spain? Nothing different in a democratic 
country can happen. So they will reach agreement - the political parties - to 
give stability to run the country properly. Big, big question actually on that 
but is the European project given what might happen with Brexit, is there a 
danger this year if your project is going to unravel? Well, I think now that we 
are - I'm not British, even we have a lot of interest in Britain so I would 
respect whatever thing the British will do but I'm sure that the British will 
make the right choice. They have already always going there - people are really 
rational and they will already move in a direction to a rational decision at the
referendum. 

I'm sure that is going to happen. All right. Ignacio, thanks a lot for coming 
here. Thank you to you. Thank you very much indeed. Now, gloomy is how top CEOS 
see prospects for global growth according to PricewaterhouseCoopers, its latest 
survey of chief executives, unveiled yesterday. We do this survey in the fourth 
quarter as you point out. Clearly, the trend was getting worse and worse as we 
conducted the results through December. I got to believe it. We would have done 
the survey in the first two weeks of January. Given the environment that exists 
today, it'd even be worse. So it's not a pretty picture to say the least. All 
right. 

I've got to ask you about their survey. I mean, you do your own. That seems to 
be the general message. It's getting more gloomy. It's gloomier now than it was 
at the end of last year when that survey was done. How much worse can it get? 
Well, we hope not much worse. It really depends what sector and Dennis is right,
I think there are more headwinds now than we even anticipated at the end of last
year but you really got to separate the financial markets and the passion that's
driving that versus the underlying growth, right? As I said before, Axel, I 
really think the long term investment in capex is what's more worrisome. If 
you're an oil company, it's really bad, right? If you're probably not investing 
anymore, so where is that productivity and growth going to come from? 
Manufacturers were seen going down. 

The service industry, on the other hand, if you're in that business, that's 
going up. Yeah. You know, we've talked about some of the big issues, some of the
big risks - the geopolitics and the markets and oil. There's this real 
preoccupation. You and I have talked about this before with regulation - that is
still the top worry for these guys and that survey and I'm sure for other 
surveys - why there's still this preoccupation with regulation? Well, regulation
is more and more involved in curtailing or enabling business. And so, you're 
concerned about tomorrow, take away your business or add to it. And the 
uncertainty that's created by all these political elections you talked about, 
where we're seeing new parties come in and change direction over night. 

You know, well, even the US we're talking about - very different for Republicans
and Democrats who are in control of what your environment is going to be if 
you're a healthcare company or if you're a multinational. And so you really, you
can't control those things. The one positive news, honestly, at the end of last 
year in the US, they passed the extenders, made some permanence as opposed to 
the constant annual renewal and they have the Highway Trust Fund bill where 
there's going to be over $300 billion of investment. There's some good news 
there. You know, very quickly, before I introduce our next guest, I just want to
touch on cyber. Someone will come out with later. Cyber clearly an issue but I 
was surprised. Again, in that survey that only 61% of CEOs put cyber high up on 
their list of concerns for the year end. It surprises me, 61%. Yeah, that's 
probably because that suddenly the other percentages of those people are pushing
it off on their IT professionals and you worry about it because it's so hard. 
But every boardroom I go to, all the audit committees, all the board members, 
they are all worried about cyber in many different ways - protection, your 
privacy rights, and your ability to be able to operate across the world. All 
right. Mark, let me stop you for a second. 

Brazil of course is another country we haven't talked about. Latin America's 
largest economy has nosedived after a ballooning budget deficit and high 
inflation prompted. The president there and the Central Bank to raise taxes cut 
spending and jack up interest rates last year. Joining me now, chief economist 
of the country's biggest bank, Itau Unibanco. Very nice to see you, Ilan. Hello.
Let's start with the Central Bank. A lot of noise that it's being pressured not 
to move on rates given the growth forecasts, would that be wrong of the Central 
Bank not to move on rates given what inflation is doing in your country? Well, 
we have a recession of -4%. So it's not going to be wrong not to raise interest 
rates in that environment. You're right that inflation is 10% so it's a very bad
trade-off, minus 4, we've done. So they are in a very tight position, very, very
difficult position. Ilan, can I ask you a question. It's an unfair question. 

I'm going to say it upfront because nobody has the answer but I get asked it all
the time. What do you think Brazil needs to do to start to turn the quarter? You
need to have long term fiscal measures approved by Congress. But Congress is 
divided and what you need to do cannot be passed this year or next year. So 
that's the problem. And is Nelson Barbosa your new finance chief, the right man 
to do this because there's been debate about this as well. Is he the right man 
in that job as far as you can say? He's close to the president so he may be 
politically more friendly to the congressmen and to the government but 
essentially, technically, he's no different from the previous finance minister, 
who was Joaquim Levy. When do you think the economy can grow again? I think the 
best we could hope at this point unfortunately is by next year, 2017. 

Maybe by the end of this year, start to rebound. And can I ask you, can't have 
you here without asking the Olympics question. You know, I was full over the 
sight in Rio where they're starting to build the Olympic village and they had a 
lot of work to do. You think Brazil is going to get ready and rally like they 
did for the World Cup? I think so. I'm from Rio, I go there every month to see 
because I work in San Paolo and things are getting ready. I think this is 
probably going to be one of the few good news around. And let me ask, pertaining
to this actually, do you think it was a rash decision of Brazil to go for this? 
For the Olympics? Given the context? Well, it's always difficult. An increase in
the Olympics is you know, is even, from their own population, it's getting more 
questions but to your point, I think a rally is what's needed in Brazil and they
did a nice job with the soccer tournament and I think the rally for this will be
a plus. Commodity price slide, just give us a sense of what you feel the impact 
is. Very, very strong impact on commodity producers. 

But changes have depreciated. The trade-off I just mentioned, high inflation 
with low growth, this is a concept whereas terms of trade just going down. I 
mean, we have copper just very low, we have irone ore very low; oil is just very
low prices. I mean, to reverse boom is quite difficult. The bust is much more 
difficult to leave than the boom. Back to the context again, which includes of 
course the vote on the impeachment of the President - What- to what extent do 
you think that impeachment could compromise the economy further or could it, on 
the contrary, help? You need some kind of political resolution. I don't think 
the impeachment will go forward. 

It looks to me that you have somehow to lead with this government for the next 
two years and they have to somehow get a majority to approve things, and then 
you get new election, and with the new election you get a new government. Ilan, 
got to stop you there. Many thanks for coming in again. Thank you. Ilan Goldfajn
from Itau Unibanco. Right, they were invited, then they were uninvited- North 
Korea seeing its invitation to Davos torn up after the country- after the 
country's claimed test of a hydrogen bomb. But we found that Klaus Schwab says 
the door isn't totally shut for poignant. We are open for dialogue. We have 
communicated to the North Koreans. If the spirit of Davos can be maintained, 
which means reconciliation, which means a positive contribution to improving the
state of the world, this is an open platform and they would be welcomed. Right, 
let's get a quick rundown of today's agenda of the World Economic Forum. 
Reuters' Joel Flynn has a look at what's in store for us. As the sun rises on 
another World Economic Forum, speakers have their eyes on the horizon. In 
keeping with this year's theme of mastering the fourth industrial revolution, 
what better way to kick things off than a look at the future of technology? 

Microsoft CEO Satya Nadella and Facebook's Sheryl Sandberg discuss the 
transformation of tomorrow and how we can expect tech to change industries and 
societies. As Europe wrestles with demographic change, German President Joachim 
Gauck will offer some reflections on migration. Berlin said just a couple of 
weeks ago that more than a million refugees were registered in Germany last 
year. Christine Lagarde, another unmissable speaker, she'll be talking 
transformation and finance later in the day, with many wondering how the IMF 
sees its role changing amid a global economic slowdown and growing market 
volatility. Then there's something more philosophical to end the day, as the 
World Economic Forum wonders what life will be like in 2100. Now, India software
services sector is not just well-placed to capitalize on the digital revolution.
Some would say it's helped drive it. The country's third largest software 
services exporter is Wipro. 

Outgoing CEO TK Kurien joins me in the studio. Now, very nice to see you. Thank 
you very much for having me. Thanks for getting up so early for us. Who's 
spending most on IT outsourcing services right now? I think it's across the 
board. And if you look at the geographies, I would say that the- what we're 
seeing is US is strong. And the US has flipped a little bit in terms of the 
market pickers. What we're finding is a slowdown in discretionary expenditure 
right now, but we're seeing the outsourcing budget actually going up as 
corporates are under cost pressure. What industry sectors? So if you look at 
investment banking and financial services, always been the leader in this. 
Healthcare follows very closely. And then the rest of them kind of- there's a 
big deal out there. But I would say these two industries lead. 

TK, you've done a terrific job of positioning Wipro across the world over the 
many years you've been there. And you've seen a lot of change. We're looking 
forward now in your profession- where do you see the next big change coming in 
businesses like yours? I think the biggest change that we see in our business is
automation. White collar productivity- we've not seen what's happened to 
manufacturing happening in our industry. And I think when that comes in, it's 
going to display significant number of jobs. And it's going to bring in a new 
breed of people in terms of technology, because the way we train people, the way
we manage people has to completely change. 

Great. So for us, it's going to be a fairly large transformation going forward. 
US election year of course- that often comes hand in hand with this backlash 
against outsourcing. How much of a hit is that potentially to your businesses 
here and in the next few years? With the past five elections, we have realized 
one thing that between the noise and the reality, there's a fairly big gap. 
Right. And I guess some would call it "politics". That's the way I would 
describe it. They would call it a lot of things. Politics is probably the worst 
thing you'd call it. Could I take you back to India for a second? I mean, you 
may have heard us talking- I'm a big fan on investment in India. We see it in 
our survey as the - for the next three years - one of the top investment- 
foreign direct investment choices for businesses. How do you see the pace of all
these changes and how it's going, and how would you handicap things? I think it 
started off very well in terms of all the pronouncements that were there. 

I think he's running to a little bit of trouble with the opposition parties. My 
own sense is that that'll kind of ease itself out in the next couple of months, 
and then we should be back on track. But overall, I think on the ground level, 
he's been able to do a lot in terms of simplification. Initially, it was driven 
by the central government. Now it's being driven by policy. To me, the policy 
part is far more sustaining than just individuals kind of - if you may - using 
their arm to kind of arm wrestle people into doing things. That's not 
sustainable over a period of time. But the policy changes have been impactful, 
there's no question about it. 

You- just to finish up, you - as I mentioned - hand over the reigns pretty soon 
actually, and you've become Executive Vice Chair in February. What do you want 
the new CEO to prioritize and how long are you going to give him to put in place
what's needed in this company? Because some would say you've fallen a little bit
behind some of the competitors? You're probably right. But I think the biggest 
thing that I would kind of give the new CEO is time and space, because there are
three things that are coming together at this time. There's a technology change.
Customers' buying patterns have changed. 

And more importantly, the geopolitical issues that affect our business have 
changed. Given all three- it's almost a perfect stone for all of us. So I think 
in our business we make money when there are breaks and trends. When there's a 
trend reversal, that's when we make money. I think the biggest challenge for 
Abid would be to kind of figure out what the next trend is, have a fair idea of 
what it is, focus on executing to what we believe is the little window that we 
are going to get. TK, thank you very much indeed for talking with us this 
morning. Thank you very much for having me. Right, I cannot believe that we've 
almost going to let you go, Mark. 

It's been half an hour. I'm going to miss you over the next half hour. I'll miss
you too actually. Look, the way I want to do this last bit- Breakingviews- 
Reuters Breakingviews did a- every year they do a look-ahead prediction- a book.
And they make them pretty bold predictions. And I'm going to throw a few of them
at you and just get your "yes" or "no" agreement on some of these. Okay. And 
then I'm going to mention something very quick on fintech, because that's what- 
that's personally very interesting to me. Right, have we seen the last hurrah 
for M&A? Breakingviews says yes. What do you think? No. Okay. Is the least bad 
way to help Europe to ditch Schengen? That's a bad way, period. Okay. 

Is recession awaiting the next White House Chief? No. Global corporate profit 
under serious threat? Yes. Fed's going to need to cut rates again very soon? Cut
rates? Yeah. No. And oil to blow past $80 a barrel this year? No. They say yes. 
You don't think so? No, no. Okay, one other I'm going to pick you up on- you say
recession is not awaiting the next White House Chief, what's going to stop the 
US from heading into a recession this year? Well, again, in the US, you got bad 
corp ex, bad investments- you got a strong Dollar, which is a headwind, but you 
also have some underlying positives. You do have the service sector doing well, 
you do have consumers continuing to buy, you have housing continuing to do 
fairly well, interest rates are low, oil prices are low- so there's a lot of 
fundamentals that'll keep it bubbling along. So I don't see strong growth, Axel,
but I don't see it going deeply into a recession, unless the rest of the world 
drags it in somehow. 

I'm going to finish up with fintech, because it fits nicely into the theme this 
forum. You, I believe, EY have come up with this fintech adoption index. I heard
one of your guys though say recently that- well, asking the question- but 
there's a lot of it out there. But is anyone actually using this stuff? Can 
fintech deliver on its promise to democratize finance? What do you think? It 
will, but it's going to take longer than people expect, as many things. 

So we are seeing a bigger take-up. We did a survey around seven or eight 
different countries. It's a big take-up in Hong Kong, it's a big take-up in the 
US, not so much elsewhere. There's regulatory hurdles. Most of this fintech is 
developed by small startups and they don't have the money, and there's of course
questions- when you're re-changing all the finance rules, you got to get through
all the regulators. They're very skeptical. Now, you're seeing fintech small 
companies hook up with larger banks and financial institutions- that's where 
it's going to really start to take off. Alright, Mark, it's been a real pleasure
having you on the show this morning. I really hope we can repeat this. This 
should be great, Axel, thank you. I really hope we can. Thanks for your time 
though. 

Thanks for all your views this morning. I'm going to head out to the balcony to 
find out about our social media, but we will see you around Davos for the next 
few days. Sounds good. Thank you very much. Mark Weinberger, everyone, from EY. 
Right, we're going to head out to find out what's going on, on the social media.
Our Social Media Editor Cassandra Garrison has been keeping an eye on this for 
us. Cassandra, the main things people are talking about? Good morning, Axel. 
Yes, we've been keeping an eye on our main hashtag this year, which is #WEF16, 
and seeing what people are tweeting about when using that hashtag. Some of the 
main things we're seeing are global population, climate change, cancer - which 
of course was a big topic yesterday with Joe Biden being here- robots, and 
inequality. And another big topic we're seeing people talk about is of course 
the Iran nuclear deal. We actually polled our followers about this and the 
answers are pretty slip. We asked people whether they thought it was a good 
thing or not, and 32% agreed it was a good thing; 33% believe it's still a big 
danger; but 35% think it's still remains to be seen. What trends at Davos? What 
sort of topic? Well, we're definitely seeing a lot about inequality this year. 
There's a lot of discussion about Davos is a very lavish place but there's a lot
of problems that people are seeing that who obviously can't attend Davos. 
Another big topic of course is the China slowdown. We polled our readers about 
this as well. We asked whether or not they thought it was something to be 
concerned about or nothing to worry about at the moment. 

Trump and Sarah Palin? Oh, yes. We have the soundbite- the talk of the show from
Sarah Palin- Yes. I imagine that's getting a lot of attraction. Oh, it certainly
is. People are definitely keeping close eye on the US election this year. Best 
tweet of the day? Yes, we had a really interesting tweet from a journalist at 
Welt. His name is Holger Zschapitz. And he actually bumped into Bill Browder, 
who is the CEO of- oh, I'm so sorry, I've got it here. Don't worry. And he- 
Hermitage Capital- Yes, exactly, you've got it. And he actually predicts that 
Russia is going to run out of money within 18 months. 

He's coming on the show tomorrow or the day after I believe. He's always a 
regular. Okay, you should talk to him about that. Cassandra, thank you very much
indeed for this. It's a great slaw. I look forward to doing the same tomorrow. 
Cassandra Garrison. Thanks, Axel. Right, plenty ahead- we got Adam Posen from 
Peterson. We've got William Saito coming in, among others. Let me quickly run 
you through the headlines once again this morning. Saudi's Prime Minister tells 
Reuters the lifting of sanctions on Iran will be harmful if Tehran uses the 
extra money to fund nefarious activities; shares in Asia in full retreat as a 
relentless slide in oil prices fell; an attempted rally on Wall Street; Sarah 
Palin, the politician turned reality TV star, formally endorse Republican 
presidential frontrunner Donald Trump, declaring the status quo has got to do. 
You're ready for a Commander in Chief who will let our warriors do their job and
go kick Isis ass? And rapper and music producer Will. 

I.Am is recognized for his philanthropic work helping to educate America at the 
World Economic Forum kicks off with its annual Chrystal Award ceremony. And I 
want kids to dream to be like Steve Jobs, not just Stevie Wonder. There are two 
very distinct schools of thought on whether the slowdown in China starts trouble
for the globabl economy. It's something I talk to Mark Weinberger about or 
whether it's just a by-product of a rebalancing going on there. Adam Posen is 
President of the Peterson Institute for International Economics and joins me in 
the studio. Very nice to see you, Adam. Thanks for having me. 

Had you chalk a little bit on the back of the Sarah Palin sound? Well, it's hard
not to because otherwise you cry. Right, okay. Thank you very much. China, which
camp are you in? Now, I like Mark Weinberger said before the break. I believe 
it's mostly reflecting the rebalancing. If anything, they've got centralized 
authority which has screwed up their communications now in terms of the stock 
market and the exchange rates, so the people in the markets tend to get very 
nervous. But these kinds of markets are not fundamental to China right now. They
make everybody else nervous but the basic Chinese thrust towards rebalancing the
economy is underway. Okay. US, is the Fed committing a policy error in raising 
rates? 

A minor one. A minor one? Minor one. So sometimes- What is a minor one versus a 
major one do for the market? Well, a minor one, what it does for the market is 
it takes a little air out of the economy and it probably means that unemployment
won't drop as much as it may otherwise. But it's not going to do anything 
terrible and it buys us against exporting economies because the dollar is going 
to be a little stronger than it was. But the key point is the US economy is back
enough to normal that their raising isn't a major one, like say, ECB in 2011. So
you don't think they're going to have to reverse course? No, I don't. I mean, I 
think they're going to do a couple more hikes before the summer when the 
election really is in swing. They're going to wake up in November, December 
after the election and say, "Oh my God, fiscal policy is going to be terrible 
and we probably don't need those hikes and stop." You don't think, though, that 
things are bad enough like 2008 to tip the global economy into recession? No, 
not at all. 

I think there's an understandable bias that, you know, we got it wrong the last 
time that we thought sub-prime was small and it led to something big. But the 
problem is that four out of every five times, something small only leads to 
something small. And China's downturn isn't small. It was as bad as people 
thought but it's not. You look at India, you look at Japan, you look at US, you 
look at Western Europe, UK, you've got a lot of major economies add up about 70%
of the world economy is doing okay. Oil at $30 or $28. $26. $26, whatever. I 
mean, it might be a huge boost to the global economy, you know. Well, this is 
what I don't understand. Everybody is freaking- Does anyone understand this? No.
But I don't understand as to why everybody is freaking out so much. I mean, take
for example, India. You know, everybody talks about this commodity price falls 
has been terrible for emerging markets but there are a lot of economies in 
emerging markets like India that were having to pay hard currency dollar prices 
for importing energy, and they are the beneficiaries. But people are freaking 
out because the global economy isn't getting the boost that it should be getting
from this, or at least we're not seeing it. Well, we're not seeing it but I 
think it's there. I mean, if you look at the consumer in the US, it certainly 
have an effect, if you look at real estate in the US, it certainly have an 
effect. And again, I say India. I don't mean to single them out. But I think 
you've got a tier, you've got to put the emerging markets into tiers. You've got
the Mexicos and the Indias and arguably the Indonesias that broadly speaking are
going to be okay. They're going to have a bit of a slowdown, they're going to be
okay. You've got the middl countries like the Chiles that were exporters of 
commodities, have basically done things right but they're going to have more of 
a setback. And then you've got the Brazils or the Thailands who have fundamental
problems and they're being shown. I've got to finish up by obviously asking you 
about Brexit. Not at all. What does a Brexit do to Europe and what does a 
potential unraveling of the European project do for the rest of the world? 
Brexit does more to the UK than it does to Europe. It's a terrible 
self-inflected wound for the UK through uncertainty, but what it does to Europe 
is it deadened some of the more liberal voices and it makes it all or nothing in
terms of EU centralization. Now, that's not entirely a bad thing because they 
need to have more strong centralization to deal with the migration problem, to 
create a common border and a common policy. If they don't deal with that, the 
Euro crisis wasn't the existential challenge, the migration crisis is the 
existential challenge. 

Adam Posen, thank you very much indeed for sharing. Thanks for having me. Thanks
very much indeed. Adam Posen of Peterson. Now, it's fair to say Davos has had 
these some sizable subjects to tackle this year. We've been talking about them 
this morning. One man is on hand to help focus their minds. Jon Kabat-Zinn 
explains the mindful meditation secrets he'll be sharing with delegates. I don't
say anything. We practice and that's the power of mindfulness. It's not a 
concept, it's not a thought, it's not a good idea, it's a way of being. So what 
I will do is I will guide them in cultivating intimacy with their own moment by 
moment experience, usually starting with the body and with their breathing 
because very often that's the first thing to go out the window when you fall 
into thought. And you get, as we say in English, "lost in thought". So once we 
start exercising the muscle, I don't have to tell them anything, they're 
brilliant people. 

Egypt followed the Fed by raising rates in December but its new central bank 
governor is facing mounting pressure to devalue its currency. Our next guest is 
Chairman and CEO of Qalaa Holdings, a leading investment company in Africa and 
the Middle East, Dr. Ahmed Heikal. Very good to have you back on the show. Thank
you. Again, a regular on our show. Thank you. Fresh blood at the top, the 
central bank has raised hope for change. Are you optimistic? Yes. I am. No doubt
that many parts of the world are facing problems and people need to take risks 
off. At this point in time, the world as a whole is a place where I'm sure your 
prior guests have said it, China is facing problem, interest rates rises, 
emerging markets flow out, etcetera, Middle East is facing turmoil, oil at $30. 
So there is a whole variety of factors that are influencing our part of the 
world. But having said that, this is always the time for people to make reforms.
The reforms that are happening in the Middle East, broadly in Egypt and in 
Africa, are mind-bogling. So things that were unimaginable only two years back. 
So this is a window of opportunity you're saying- 

Absolutely. But they need to take that moment now and if they miss it- I think 
we're seeing across this part of the world, Middle East, Egypt and Africa, we're
seeing a momentum for broad reforms, and those broad reforms at a certain point 
in time will yield the desired results. You know, given what's happened - and a 
lot has happened in Egypt, of course, on many fronts - what steps do you think 
does the government need to take to reinsure investors, with domestic investors 
and indeed, international investors? Egypt is doing a lot to make sure that all 
the problems that existed within a number of investors will have problems, that 
those problems get resolved. And it's commendable, the number of cases that they
solved. So by and large, the investor pool that exist today, Egypt is a happy 
investor pool. I think there is a lot more to happen, but nonetheless, the 
backlog of problems that existed is being taken out. A happy investor pool? I 
think so. And that's reflected in the numbers? No. Look, you have to look at 
that in the context of political issues in terms of balance of payment problems,
currency issue. And in any case, the world at this point and time with interest 
rates rises, it's not exactly jumping into emerging market as an asset class as 
a whole. So you have to put that in the context of a global economic situation 
that you have to operate within. How does Egypt's tourism industry recover? 
Egypt needs to - there are three things here: One, I don't think that there 
should be a break with people who take law into their own hands. So you know, 
terrorism, you have to call it terrorism, you have to fight it and you have to 
stand by that. So anybody who attacks people on the streets, there is a law and 
the law needs to be applied, point all in. The second thing that is to happen, 
you need to tackle and that's the theme within Davos with year, you need to 
tackle the old inequalities that exists within the world and you need to provide
jobs, okay? The Islamists used to say Islam is the solution, and I say economic 
opportunity is the solution. There is no solution except you provide jobs for 
people within this big part of the world. Third, which is in my view a very 
important thing that needs to be looked at, you need to look at the security 
situation beefing it up. Egypt has taken an unprecedented step by outsourcing 
part of its security to foreign companies. That's unimaginable a year back. Very
quick final question. 

Your own performance of Qalaa Holdings hasn't looked great. When do you expect 
to return to profitability? We made the right moves - if you remember last year 
- the theme was derisking, deleveraging, we're selling assets. We've sold seven 
or eight of our non-core assets. We still have three or four to go. And after 
that, we will emerge as a company that is quite profitable and I think with the 
level of debt that is extremely low. So this year profitability maybe? This 
year, profitability, yes, but on the back of disposals because we've made 
capital gains out of those disposals. But from next year, it is from an 
operating point of view. Got it. 

Ahmed, thank you very much indeed for coming in. Thank you. Ahmed Heika from 
Qalaa Holdings. Now, this year, security is tighter than it's ever been at World
Economic Forum following the rise in terror attacks across the globe. So what 
does that mean for the tourism industry, something we've been talking about just
now. Our reporter Angeline Ong went down to the Intercontinental Davos to talk 
to IHG's Chief Executive Richard Solomons about how security threats are 
changing his business. She began by asking him what steps he's taking to make 
sure his clients are safe. Security of our guests but also our employees is 
paramount to us. 

So as you'd imagine, we have very strict guidelines, very strict rules, a lot of
training. And we also have almost different levels of risk or preparedness 
depending upon the markets. So it's something I think that's expected of a 
global brand and certainly we take it very seriously. And it's the obvious 
things about who you let into the hotel, how you check them, how you just think 
about physical security, but really important that your people are focused on it
and that you train them. So it's something we spend a lot of time on. Richard, 
we've obviously seen an impact on tourism in some of these markets. 

Have your bookings gone down? Well, you tend to get a short-term impact. So you 
take a market like Paris, clearly there's been an impact in Paris and other 
people have talked about it and you'd expect that. But actually, I think a 
characteristic of the market more so in recent years has been quite equipped, 
bounced back generally, whether it's from a natural disaster or whether it's 
from terrorism or anything else. And I think we've got - travel is now an 
intrinsic part of life, whether it's for business, whether it's for leisure, and
people will travel and they tend to be quite sanguine about some of these things
and come back because the advantage of being- having nine brands in a 100 
countries is that if you put aside not to visit say Paris, they may well decide 
to go to London or Berlin for their business or their vacation. So actually, we 
can pick the business that way. The other big theme at Davos this year is 
technological disruption. 

You've just launched your trends report for this year. Tell us about how huge 
global companies, such as yours, can actually adapt and keep customers coming 
back in this age of AI? I think all of this, whether you're talking about 
meaningful membership and connecting with your customers, whether you're talking
about technology, it comes back to two things. It comes back to having brands 
that fundamentally stand for something, which enables you to think about -- and 
you know, secondly, really understanding your customer. And we have- there's no 
question, I think, we're ahead of the game in our industry in terms of needs, 
base, occasion, segmentation – so who's come into your hotel, for what reason,
and how does your brand delivered them. And if you've got that understanding, 
whether it's a behavioral issue, whether it's a service issue, whether it's a 
technological issue, you can actually understand what the brand and what your 
customer needs and respond to it. And there's a whole series of things, you 
know, we could talk to about that. Richard Solomons. Now, a raft of technology 
startups is here in Davos, of course. Our reporter Julian Satterthwaite took 
ride up Davos' famous Schatzalp funicular railway and spoke to TransferWise 
Founder and CEO Taavet Hinrikus, a co-founder, of course, of Skype, who's now 
revolutionizing how we transfer money around the world. So, Skype has terrorized
telecom companies. What's the goal with TransferWise? Is it essentially to do 
the same thing to banks? With TransferWise, we took one banking service -- 
international money transfer, and we just -- the way banks are doing it at this 
very far from the way it should be done in the 21st century. So, we build a 
service where you can transfer money very quickly for super low cost, and do it 
ten times better than the bank. Okay, as you say just one service. Are banks 
ripe for more disruption? They must be these big stall-gy old businesses, I 
guess. If you look at what banks are doing, they're in kind of every vertical of
banking from lending to money transfer, to asset management, it's being 
disrupted by a tech company. So I think, clearly, banks are heading for some 
rough times. Do you have your eye although on a specific next service that you 
could disrupt? Money transfer is a huge area. We estimate it's between $5 
trillion to $10 trillion which moves across country borders every year. So, 
that's going to keep us busy for a long time to come. What sort of response do 
you expect from the banks? Can they respond? 

Are they nimble enough to respond? I think it's very hard for them to have a 
fast response. I think they're in for a complete overhaul of their systems and 
for their way to do business, and that's going to be a very long and hard 
project, kind of same as Skype did to telecom and that's has happened in many 
other industries. Do you have to be a startup in a sense to be disruptive in 
this fashion? Is it only startups that can do it? The challenge is that banks 
have their legacy business to support, and it kind of very hard to start- to 
start hurting their own business by disrupting yourself. We still haven't really
seen any company that's able to do it. So I think startups starting with a blank
sheet, employing modern technology, keeping consumers in the center of what they
do, do have an advantage. When you look at FinTech more broadly, lots of buzz 
about it here at Davos, but is there a gap between hype and deliver? I was from 
figures from Ernst & Young this morning saying about 40% of people in the UK use
FinTech of some kind. Is it all hype and no delivery at the minute? I think 
we're at the very beginning of this. You know you have to think about the kind 
of- the chain of events. We've seen retail be disrupted kind of 10-20 years ago.
We've seen music and media be disrupted. And we're just starting with financial 
services. While today it might be 40%, we've done our research which said a lot 
of consumers will be looking to replace a lot of financial services with the 
once provided by tech companies. 

Now, the World Economic Forum officially kicked off last night with the Crystal 
Awards ceremony. Actor and producer Leonardo DiCaprio adding a bit of Hollywood 
glamour to the proceedings - the climate advocate telling delegates that 
December's Paris deal was an important first step but with just 3% of all 
philanthropic activity going to environmental causes. He didn't hold back in his
call for action. We simply cannot afford to allow the corporate greed of the 
coal, oil, and gas industries to determine the future of humanity. 

-recently that many people, of course- many executives are declaring cyber as 
the risk that would define our generation. Yet, the group CEO survey shows only 
61% of CEOs say cyber's a worry. So, if you're in the US, the UK, parts of 
Europe, Australia for example, the percentage is much greater. CEOs really 
concerned about it. And I think also you got to look at the industry sectors as 
well. If you're in banking, if you're in retail, insurance, etc. you know 
really, really high levels of concerns from those CEOs in terms of what's really
impacting the business. So how can states and businesses protect critical 
infrastructure against cyber threats? William Saito, Special Advisor to the 
Cabinet of Japan, he's on a panel examining just that and joins me now. Very 
nice to see you in the studio again, William. Let's just start with cyber. I 
don't know if you heard that stat - 61% of CEOs said that's a worry for them, 
this cyber threat, which surprised me. Does this surprise you? Well, I think 
that's increased significantly. But I think a lot of CEOs still don't realize 
how dependent they are on ICT. Right. So what's your message in this panel 
though we just talked about? So I think one realizes that you can't do business 
without the Internet these days, and the fundamental nature of the Internet, you
require cyber security. And so, whether you get it or not, you'll be business in
the future or not. Is Japan well protected would you say? Well, there's a lot to
do. I think Japan has what I call euphemistically a natural firewall where a lot
of these things aren't on IT still. And so, their perception of it, they still 
think that they're an island. So there's a mindset change. Just- as I was 
prepping for this, I saw- I was looking at what you do – Special Advisor, 
Cabinet Officer of Japan, Japan Chief Security Officer, you're in Palo Alto 
Networks, you're the CEO of a VC firm, you're involved in the Fukushima Nuclear 
Disaster Commission. Do you time to do anything else? Well, I mean but the 
common theme there is obviously resilience and going forward. 

So I mean I enjoy, they all work on the same plane, I think. And of course, it's
something you and I talked about before is your mission to make your country 
more entrepreneurial. Yes. I guess this is all part of what we were talking 
about. But how agile do you think is your entrepreneurial sector in Japan? Well,
there's a lot to be done there that the large corporations dominate the market 
place, so it's very difficult for the entrepreneurs to do this. But I think 
merging the topic with cyber security actually works together. That a lot of 
people think cyber security is a negative. But if you actually flip it around 
and use an entrepreneurial perspective, this actually becomes a business driver.
Yes. The- you know every entrepreneur I talk to says failure is a big part of 
being an entrepreneur. Yes. You've got to be ready for it. Is it harder in Japan
given this- and I think it's fair to say this taboo over failure. Exactly. The 
word 'failure' is actually a negative connotation in the Japanese wording, and 
so it's getting past that. Everything else exists there. So, it's a pity to see 
that the fear of failure is what inhibits entrepreneurship. Couldn't let you go 
without asking about the bigger economic picture and this deflationary mindset 
in Japan, some would say the failure of 'Abenomics'. What's left of the toolbox 
in Japan? Well, I think that there are three new arrows that the Prime Minister 
is coming up with. So 

- More to follow, for following part double click  ID:nRTVc1Kb