Costs of Technologies reshaping Energy-related Investment

Costs of Technologies reshaping Energy-related Investment

Following on the ever-increasing ease of accessibility of all renewables-hardware, the costs of technologies reshaping energy-related investment per The International Energy Agency’s World Energy Investment 2019 report have mainly affected and/or facilitated the surging demand for even more power. In effect, it is in the developing world, including, the MENA region where the market seems to be the highest, that this is happening before our very eyes. Hence this article of the World Economic Forum.

A general view of the DanTysk wind farm, 90 kilometres west of Esbjerg, Denmark, September 21, 2016. Picture taken September 21, 2016. To match EUROPE-OFFSHORE/WINDPOWER  REUTERS/Nikolaj Skydsgaard - D1BEUNDQTLAA
The costs of technologies are reshaping energy-related investment
Image: REUTERS/Nikolaj Srkydsgaad

The world invested almost $2 trillion in energy last year. These 3 charts show where it went

By Charlotte Edmond, Formative Content.

22 May 2019

The world invested $1.8 trillion in energy last year, with spending on renewables stalling, while oil, gas and coal projects increased.

The International Energy Agency’s World Energy Investment 2019 report shows overall global investment in energy stabilised in 2018 after a recent decline, with the power sector continuing to make up the biggest proportion of this spending. Much of that investment has been fueled by the world’s rapidly increasing demand for electricity.

Investment in coal increased for the first time since 2012, despite reduced Chinese spending to focus on power generation.

When it comes to cleaner fuels, there was little movement in the overall investment in renewables and no net addition to capacity, driven in part by the falling costs of some technologies. But production of biofuels, which has fallen behind the IEA’s sustainable development targets, saw a rise in investment last year.

The agency’s report also showed minimal increases in energy efficiency investments, with spending on transport efficiency remaining constant even though sales of electric vehicles are motoring upwards.

Indeed, the IEA warns there is a “growing mismatch between current trends and the paths to meeting” the world’s climate goals laid out in the 2016 Paris Agreement and “other sustainable development goals.”

The changing landscape

The costs of technologies are reshaping energy-related investment, as the chart below demonstrates.

Some of the most marked changes have been seen in the power sector, where there have been dramatic falls in the costs of solar, onshore wind and battery storage.

Prices for some efficient goods such as light-emitting diodes (LED) and electric vehicles have continued to fall, too. But investment in efficiency innovations is still being held back by governmental policy and financing challenges.

On the other hand, there has been little change in the costs of nuclear power projects and carbon capture and storage – a technology that aims to trap greenhouse gases before they enter the atmosphere.

Who invests the most?

China remained the biggest market for energy investment last year, even as the US is rapidly catching up, the IEA report said.

Increases in oil and gas — particularly in the shale sector — have driven the bulk US investment. By contrast, China is putting much of its money into low-carbon projects, with big investments in nuclear power and renewables.

India is the most rapidly growing market for investment. Elsewhere, investment in energy generally has fallen in recent years in Europe, the Middle East, Southeast Asia and sub-Saharan Africa, according to the agency.

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Centre for the Fourth Industrial Revolution in the UAE

Centre for the Fourth Industrial Revolution in the UAE

The UAE Government, in cooperation with the World Economic Forum (WEF), has opened the Centre for Fourth Industrial Revolution in the UAE at AREA 2071, Emirates Towers in Dubai, the first of its kind in the region and the fifth globally.

UAE opens centre for Fourth Industrial Revolution



In line with the rapid global changes and developments of the Fourth Industrial Revolution, the Center aims at preparing strategies, policies and developing solutions to the most pressing challenges in the region and the world. In addition, it works towards developing mechanisms, applications and uses for the fourth industrial revolution in the UAE.

Mohammed Abdullah Al Gergawi, Minister of the UAE Cabinet Affairs and The Future, vice chairman of the Board of Trustees and managing director of Dubai Future Foundation stated that the opening of the Centre for the Fourth Industrial Revolution reflects the vision of Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai.

Al Gergawi also highlighted that the UAE is continuously developing new business models that are dependent on technology and the outcomes of the Fourth Industrial Revolution, to join global efforts for shaping a better future.

Borge Brende, president of WEF said: “In the Fourth Industrial Revolution, countries and businesses need to move fast or risk getting left behind. Emerging technologies like artificial intelligence and blockchain have the power to benefit everyone, but they must be shaped strategically to maximize the benefits and mitigate the risks.”

 “We are looking forward to working with the UAE to accelerate the impact of the Centre for the Fourth Industrial Revolution Network’s work in this area and scale projects globally” Brende added.

 The opening of the Centre was attended by His Excellency Omar Sultan Al Olama, Minister of State for Artificial Intelligence, Deputy Managing Director of Dubai Future Foundation, His Excellency Borg Brenda, President of the World Economic Forum, Her Excellency Dr Aisha Bint Butti Bin Bishr, Director General of Smart Dubai, His Excellency Khalfan Belhoul, CEO of Dubai Future Foundation, alongside a number of senior representatives from the local government and the World Economic Forum.

The Centre for the Fourth Industrial Revolution (C4IR UAE) is a collaboration between the Dubai Future Foundation (DFF) and the World Economic Forum (WEF).

An affiliate center of C4IR San Francisco, opened in 2017, C4IR UAE researches key focus areas in the fourth industrial revolution network: Blockchain and Distributed Ledger, AI and Machine Learning, and Precision Medicine.

 Blockchain is the first project area launched under C4IR UAE in 2019 and will look into the governance frameworks around implementing blockchain across government sectors. The center will also trial a supply chain pilot, focusing on the correct governance protocols and practices with regards to security, data privacy and identity verification within blockchain. Across the three project areas, C4IR UAE aims to showcase UAE case studies, policy, and governance frameworks to WEF’s global network, as well as develop new research and policy around relevant UAE 4IR topics.

 The Centre’s official launch follows the MOU signing that took place at the Annual Meeting of the Global Future Councils at the World Economic Forum in Davos earlier this year, in the presence of His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of Dubai Executive Council.

The Centre for Fourth Industrial Revolution in the UAE, seen as the fifth of its kind in the world after the United States of America, Japan, India and China, comes as part of the strategic partnership between the UAE government and the World Economic Forum.

TradeArabia News Service

Who can move the Construction Industry into the Digital Era

Who can move the Construction Industry into the Digital Era

Governments can, as per McKinsey in their Capital Projects & InfrastructureCapital Projects & Infrastructure, in answer to who can move the Construction Industry into the Digital Era.

Around the world, trillions of dollars are spent each year building skyscrapers, highways, pipelines, schools, and countless other structures, and the resources that could be saved using advanced analytics, automations, machine learning, and other technologies that are available now is staggering. As a primary investor and procurer in infrastructure projects and the shepherd of national economies, governments have a clear incentive to help accelerate adoption within the construction industry.

Governments can lead construction into the digital era

April 2019 | Article By Jose Luis Blanco, Thomas Dohrmann, JP Julien, Jonathan Law, and Robert Palter

New technologies can advance project outcomes in the construction industry. Governments are well-poised to cultivate greater adoption.

An industry notorious for cost and time overruns, the construction sector can capture significant efficiencies by adopting new technologies. While many executives acknowledge the potential of new technology, they often hesitate to risk multi-billion-dollar projects on applications they consider unproven. To create greater value from public and private spending on large capital projects, governments can help clear the path and bring new technologies to bear.

New technologies—advanced analytics, automation, machine learning, and the Internet of Things, for example—have delivered substantial benefits to industries at the forefront of adoption, particularly telecommunications and finance. And while these disruptive forces will eventually wash over every industry, the construction industry still lags.

Digital tools are already available, with $18 billion invested in construction technology between 2013 and early 2018. McKinsey research, however, finds that leaders struggle to adopt these applications—not because of cost concerns or lack of interest, but rather because of insufficient internal processes and risk aversion.

Pressing need for improvement

Using technologies to boost construction productivity can have a profound impact on public and private spending. In the United States alone, expenditures on construction reached $1.29 trillion in 2018, after rising an average of 7.4 percent annually over the previous five years.1 1.US Census Bureau.

The public sector accounts for a significant share of this total. Stripped of residential and private-use projects, construction expenditure on public infrastructure—for instance health care, education, and transportation—reached $334 billion in 2018 (Exhibit 1). Public spending will finance almost 80 percent of these infrastructure expenditures, by our estimates.

Exhibit 1

And the rise in construction spending is unlikely to abate soon. Increased urbanization is creating demand for projects that support denser population centers, such as transportation, power, and sewage. And in the United States, deteriorating public infrastructure must be addressed urgently. McKinsey research found that the country requires an additional $500 billion in infrastructure funding between 2017 and 2035 to meet its estimated requirements.

Amid this growing need, public and private projects have struggled to keep costs and construction times within original projections, especially for complex, high-cost projects. Early adopters have already begun to test new technologies to improve project outcomes. For instance, some companies are using wearable GPS devices or smartphone apps to optimize workflows and resources. Others have begun using virtual-reality systems for supervisors and crew to “walk through” processes to prepare sequencing, identify potential problems, and conduct safety trainings more efficiently.

Governments are well positioned to catalyze change

Despite these early efforts, many companies are reluctant to experiment in untested waters. This is understandable since billions of dollars and corporate reputations are at risk with these projects, and there is no room for do-overs. These hurdles, however, present a prime opportunity for governments to take the lead and break the inertia that slows the construction industry from entering a digital era.

Public expenditures account for a significant portion of non-residential, public-use construction projects, and government agencies work closely with private companies of all sizes to deliver these complex infrastructure projects. Such projects span a wide range of infrastructure, from roads to buildings to sewer systems (Exhibit 2). The government’s purchasing power touches every corner of the construction industry, while its regulatory power allows it to set standards that are most easily met using new technologies or even to mandate their use.

Exhibit 2

Our experience and research suggest five measures available to governments that can be powerful tools in accelerating adoption.

Set bold aspirations

At the outset, governments can articulate bold aspirations for the adoption and use of technology in public sector projects. Beyond increasing awareness, such public aspirations demonstrate the priority given to developing a more efficient construction industry through broader deployment of new technologies.

One approach would be to craft a digital construction strategy that encourages the use of new tools to reduce the time and cost of public works projects. For example, clear targets could be set for the use of pre-fabricated or modular components, enabled by digital collaboration tools such as BIM, that would reduce the instances of rework and change orders.

Some countries have already taken steps on this direction. In Ireland, for example, the National BIM Council published a national strategy for the construction industry in 2017 that included clear digital targets.2 2.National BIM Council, Ireland, Roadmap to Digital Transition for Ireland’s Construction Industry 2018-2021, December 2017. As part of its vision, the council strives to reduce project delivery times by 20 percent, increase construction exports by 20 percent, and cut capital costs by 20 percent, all by 2021 compared to 2018 levels.

Create meaningful incentives

Governments can also use their purse strings and tendering processes to create meaningful incentives for construction companies. For example, public grants could be offered to help companies adopt technologies that aid in project design and execution. National competitions and prizes that reward technology adoption in construction projects can also provide first movers with additional financial support, as well as publicly recognizing the importance of using technology to accelerate and bring down the costs of construction. Similarly, governments may consider publicly supported incubators that allow low-risk testing for new applications.

Further, public contracting agencies can insist that successful bidders incorporate digital collaboration tools into publicly-owned projects. For example, the Tennessee Department of Transportation recently announced it will require prime contractors and designers to use construction productivity software on all its projects, beginning with March 2019 contract awards.

In another example, the UK Infrastructure and Projects Authority estimated that public and private investment in infrastructure projects will total about $780 billion between 2017 and 2027 and pledged “to use its purchasing power to drive adoption of modern methods of construction.”3 3.UK Infrastructure and Projects Authority, Transforming Infrastructure Performance, December 2017. Among the announced measures, five major government departments will weigh offsite construction capabilities in assessing tenders for projects.

Manage risk

In addition to creating meaningful incentives to spur adoption, governments can help reduce the barriers and risks that are unique to these emerging technologies. For example, procurement or acquisition regulations often place a great deal of emphasis on a contractor’s past performance in future source selections. However, contractors that wish to pilot new technologies will not have as much experience or demonstrated cases as those offering traditional solutions. If this is seen as a major disadvantage, it could hinder the use of government procurement processes to encourage the adoption of new technologies. Re-thinking these guidelines to make allowances for emerging technologies, giving them time to establish a foothold, may be crucial to accelerated adoption.

At the same time, governments can consider assuming some of the contractor risks associated with trialing new technologies. In selected projects or portions of projects, for example, governments can offer to reimburse contractors if the new technologies fail to deliver projected savings. Such guarantees may sound bold, but they can be successful if focused on targeted project components, phases, or solutions with substantial long-term savings potential.

Ensure transparency

Measures can also be taken to increase transparency around the costs and progress of public projects. This transparency is supported by digital technologies that provide real-time information on the progress of major projects. In turn, increased transparency creates pressure to complete projects on budget and on time, which becomes easier when new technologies are deployed. The United Kingdom’s infrastructure initiative includes benchmarking tools that track cost and schedule during the life of a project. The system not only follows the progress of individual projects underway, but also assesses the impact of completed projects in their overall asset class, as well as movement toward network goals, such as customer satisfaction and performance, and national goals, such as reduced carbon emissions and economic development.

Ultimately, these benchmarks can be provided on online dashboards that allow the public and other stakeholders to monitor progress, increasing the pressure on construction companies to meet deadlines and costs. For now, like in the United Kingdom, the results of these benchmarking exercises are generally available in annual reports.

Build capabilities

As with most industries, the construction sector will struggle to find the talent needed to use new technologies effectively. Governments can play a dual role in helping to meet this challenge. First, they can invest in training programs that not only build needed capabilities but also provide new opportunities to workers displaced by these technologies.

Singapore, for instance, includes construction in its $3.3 billion Industry Transformation Programme, announced as part of the country’s 2016 budget plan.4 4.Singapore Ministry of Trade and Industry, “Industry Transformation Maps (ITMs),” Oct. 31, 2016. In this effort, the government wants to train 80,000 workers in new construction technologies, such as design for manufacturing and assembly methods, integrated digital delivery, tools that enhance collaboration, and offsite construction, as well as green building capabilities. Structured internships and additional training for recent university graduates are two measures the country is using to reach this goal.

And second, governments can lead by example by building their own internal digital capabilities. Developing these skills—for instance by creating an advanced analytics group—would allow public agencies to use new technologies more effectively in overseeing projects and optimizing maintenance operations and to understand more clearly how new technologies can be deployed broadly in the industry.


About the author(s)

Jose Luis Blanco is a partner in McKinsey’s Philadelphia office, where JP Julien is a consultant. Thomas Dohrmann is a senior partner in the Washington, DC office; Jonathan Law is a partner in the New York office; and Robert Palter is a senior partner in the Toronto office.

Further reading:

  • Seizing opportunity in today’s construction technology ecosystemRead the article

Social Media’s giant platforms current impact on the MENA’s youth

Social Media’s giant platforms current impact on the MENA’s youth

A review-analysis of the Social Media’s giant platforms current impact on the MENA’s youth by Damian Radcliffe and Payton Bruni was posted on Journalism.co.uk yesterday 15 April 2019.

The most recent manifestation of their widespread use could be assessed as resulting in amongst many things, the calm and easy dethroning of two of North Africa’s long-endured head of states. Their current and discrete assignments appear to be concerned with the complete disposal of the out-dated support systems. One thing is sure in that without these Social Media’s deep penetrations in the region, none of this youthful regeneration could be obtained or at least at such low price.

What is the most popular channel in Saudi Arabia and how many young people still use Facebook? Here are some key facts about one of the most youthful regions on the planet

Social media in the Middle East: five trends journalists need to know about

By: Damian Radcliffe and Payton Bruni

darcey-beau-1265447-unsplash.jpg

Credit: Photo by Darcey Beau on Unsplash

This article is authored by Damian Radcliffe, the Carolyn S. Chambers professor of journalism at the University of Oregon and Payton Bruni, a journalism student at the University of Oregon’s School of Journalism and Communication, who is also minoring in Arabic Studies.

The Middle East is a large, diverse, region. The fact that one-third of the population is below the age of 15 years, and a further one in five of the population is aged 15-24 years old, means that the Middle East and North Africa (MENA) is one of the most youthful regions on the planet.

Since the Arab Spring, there has been increased interest in the role that media, and in particular social media, plays in the region. Our recent report, State of Social Media, Middle East: 2018 explored this topic in depth. Here we outline the implications our research has for journalists.

News consumption for Arab youth is social media-led

“Like their peers in the West, young Arabs today are digital natives,” said Sunil John, founder and CEO of ASDA’A Burson-Marsteller, which produces the annual Arab youth survey.

“Young Arabs are now getting their news first on social media, not television. This year, our survey reveals almost two thirds (63 per cent) of young Arabs say they look first to Facebook and Twitter for news. Three years ago, that was just a quarter.”

YouTube is huge. And growing

The number of YouTube channels in MENA has risen by 160 per cent in the past three years. More than 200 YouTube channels in the region have over one million subscribers. Over 30,000 channels have more than 10,000 subscribers.

In 2017, the 16 nation Arab youth survey also reported that YouTube is viewed daily by half of young Arabs.

To encourage further growth of the network, Google opened a YouTube Space at Dubai’s Studio City in March 2018, the tenth such hub to be opened by YouTube around the globe.

According to Arabian Business, content creators with more than 10,000 YouTube subscribers enjoy “free access to audio, visual and editing equipment, as well as training programmes, workshops and courses. Those with more than 1,000 subscribers will have access to workshops and events hosted at the space.”

In most countries, Facebook has yet to falter

The social network now has 164 million active monthly users in the Arab world. This is up from 56 million Facebook users just five years earlier.

Interestingly, in contrast to many other markets, 61 per cent of Arab youth say they use Facebook more frequently than a year ago, suggesting the network is still growing.

Egypt, the most populous nation in the region with a population of over 100 million, remains the biggest national market for Facebook in the region, with 24 million daily users and nearly 37 million monthly mobile users.

Saudi Arabia is a social media pioneer

“In 2018, YouTube upstaged long-time leader Facebook to become the most popular social media platform in Saudi Arabia,” reported Global Media Insight, a Dubai based digital interactive agency.

Data shared by the agency showed YouTube has 23.62 million active users, in the country, with Facebook coming in second with 21.95 million users.

Alongside this, although there are about 12 million daily users of Snapchat in the Gulf region (an area comprising Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) a staggering 9 million of these are in Saudi Arabia (compared to 1 million in UAE).

A complicated relationship with platforms

Despite YouTube’s wide popularity in the MENA region, the company faced some pushback in the past year, after the network was accused of removing online evidence of Syrian chemical attacks.

Meanwhile, YouTube suspended accounts belonging to Syria’s public international news organisation (SANA,) the Ministry of Defence, and the Syrian Presidency “after a report claimed the channels were violating US sanctions and generating revenue from ads,” Al Jazeera reported.

More generally, social networks have a complicated relationship with the region, with service blocks, or the banning of certain features (such as video calling) being relatively common place, and both news organisations and individuals, can fall foul of greater levels of government oversight.

Derogatory posts have resulted in deportations of residents from UAE, while in 2018, the Egyptian government passed legislation categorising social media accounts with more than 5,000 followers as media outlets, thereby exposing them to monitoring by the authorities.

To find out more, download the full study State of Social Media, Middle East: 2018 from the University of Oregon Scholars’ Bank, or view it online via ScribdSlideShareResearchGate and Academia.Edu.

Three ways cities can help feed the world . . .

Three ways cities can help feed the world . . .

In effect, three ways cities can help feed the world . . . without costing the Earth, per Silvio Caputo, University of Kent seem to be one of the few options remaining for life on earth to carry on.

Climate change is underway, and human activities such as urbanisation, industrialisation and food production are key contributors. Food production alone accounts for around 25% of global carbon emissions. Ironically, the changing weather patterns and more frequent extreme weather events resulting from climate change also put the world’s food supplies at risk.

Food production drives deforestation, meaning there are fewer trees to absorb carbon dioxide, which contributes to the greenhouse effect. What’s more, the fertilisers and pesticides used to protect crops have caused a dramatic decline in insect populations, and in soil fertility, by affecting the microbial organisms that enrich the soil and enable plants to gain nutrients.

At the same time, the world population is rising and there are expected to be more than 9.5 billion people on Earth by 2050. In response to these projections, the UN’s Food and Agriculture Organisation (FAO) is campaigning for a 60% increase in food production by 2050, by intensifying agriculture to be more productive and use fewer resources, all without increasing the amount of farm land.

It’s not yet clear exactly how this “intensification” should happen. Alternative methods, such as organic farming, are respectful of soil ecology and insect life and can restore soil fertility. But they cannot, at present, produce as much food as industrial agriculture.

Organic produce: delicious, but not yet scalable. Shutterstock.

Yet the idea that we need more food is debatable. Although, according to the FAO, there are 821m people globally suffering from hunger, the world produces 50% more food than is needed to feed the global population. Another estimate from biologist and author Colin Tudge suggests that the current food production can feed as many as 14 billion people. But one third of this food is wasted because of distorted supply systems, unjust food distribution and unhealthy and unsustainable diets.

So, the efforts of experts in the food sector should not concentrate on agriculture intensification, but rather on strategies to change patterns of consumption and waste at a local and global level. My own research on urban agriculture and sustainable cities suggests there are three main areas where effective changes can be made.

1. Recycling food waste

Food consumption needs to become “circular”. This means that organic waste such as food scraps does not go to landfill, but is instead transformed into compost (which will be needed in a transition to organic agriculture) and biogas.


Read more:
Ugly veg: supermarkets aren’t the biggest food wasters – you are


At present, organic waste is only recycled to a small extent, with some countries such as Germany and the Netherlands leading, while others including Italy and Belgium lag behind. But there are new technologies emerging to make this process easier.

Waste not… Shutterstock.

For example, the Local Energy Adventure Partnership (LEAP) has created an anaerobic digester designed for an urban context: this machine can transform organic waste from residential or commercial buildings into compost and biogas that can fuel urban food growing.

Some experts also suggest that some food waste – if treated properly – could be used as animal fodder: a practice currently forbidden on hygiene grounds. If reinstated, this measure could reduce the environmental impact of grain cultivation, as less is grown to feed livestock.

2. Urban farming

Another option is to decrease demand for agricultural land by growing food in cities, where more people need it, thereby reducing the distances food has to travel. This would also allow producers to map and match consumers’ demand more effectively, by producing close to the places where food is consumed.

Vertical farming: on the up. Shutterstock.

There is a lot of research on urban agriculture and how cities can support it, spanning from vertical farms – hydroponic systems enabling cultivation on vertical surfaces – to principles for planning cities that facilitate the use of land, rooftops and other spaces to grow food into a continuous green infrastructure.


Read more:
How urban farmers are learning to grow food without soil or natural light


In this area, too, it’s possible to find innovations designed to make urban farming easier and more sustainable. For example, The Farmhouse is a modular housing system suitable for vertical stacking that enables all residents to grow food. And Blockchain Domes is a patented system that uses excess heat from computer servers to provide optimal thermal conditions for greenhouses in colder climates.

3. Changing diets

The third option is to encourage people to change their diets. Growing middle-income groups in developing countries are consuming ever higher quantities of meat, cheese and eggs. In China, since 1990, consumption of beef and poultry has quadrupled. But the diet of farmed animals is heavy in grains, which instead could be used to feed people more efficiently. Also, cattle farming requires vast quantities of water and grassland, sometimes obtained through deforestation.

Getting people to eat less meat will help to ease the pressure on the world’s food system. In cities, governments, research institutions, communities and businesses can collaborate on food initiatives to give people healthier, cheaper and more sustainable choices – but this requires political will and organisation between different levels of government.


Read more:
Bug burgers, anyone? Why we’re opening the UK’s first insect restaurant


Clearly, each of these approaches has a limited scope of action, compared to agricultural techniques or strategies which can be deployed at an industrial level. But with so many promising proposals, there can be a many-pronged approach that that makes efficient use of the existing resources in cities, while also changing consumers’ habits. Together with these three changes, more effective policies for food justice and sovereignty can establish fairer food supply chains and more just distribution of food around the world.The Conversation

Silvio Caputo, Senior Lecturer, University of Kent

This article is republished from The Conversation under a Creative Commons license. Read the original article.
The Conversation

How Middle Eastern retailers can keep up with E-commerce

How Middle Eastern retailers can keep up with E-commerce

This article is part of the World Economic Forum on the Middle East and North Africa and is co-authored by Abdellah Iftahy, Partner, McKinsey & Company, Franck Laizet, Partner, McKinsey & Company and Zaid Ghazaleh, Associate Partner, McKinsey & Company.

A saleswoman attends to a customer at the cash counter inside a shop at Dragon Mart in Dubai, March 2, 2011. Built in the shape of a dragon, the 1.2 km long and 150,000 sqm large mall is a trading centre with almost 3,950 shops selling mainly Chinese products ranging from office appliances to garments and daily products.  Picture taken March 2, 2011.    REUTERS/Jumana El Heloueh (UNITED ARAB EMIRATES - Tags: BUSINESS) - GM1E73318X601

01 Apr 2019

Traditional bricks and mortar retail is under attack globally. Retailers have struggled to compete with the growing popularity of large-scale competitors such as Amazon and Alibaba. The industry is also in the grip of a revolution powered by digital technology, as people shop online rather than in stores. Millennials comprise the largest internet audience, and will have more buying power than any generation before. But they still want to touch, feel and explore products. Shopping is becoming more of an experiential activity, during which stores compete for consumers’ “share of wallet”.

Middle Eastern retailers and consumer goods companies are even more vulnerable, as the pressure from e-commerce and changes in consumer buying behaviour are compounded by rising costs associated with economic reforms, such as workforce localization, taxes, and increasing fuel and electricity prices. As prices rise, consumer buying power and confidence is becoming subdued.

In fact, our latest survey, conducted in September 2018, reveals that consumers in the Middle East are spending even more cautiously than they have in previous years. They are also more anxious: 80% of survey respondents in Saudi Arabia and 72% in the United Arab Emirates are worried about losing their jobs. In both countries, more than 40% of respondents said they’re cutting down on spending and paying closer attention to prices.

Consequently, traditional retailers have limited levers to operate in response. They have a large fixed base of assets, which they need to rethink as shoppers favour the convenience of purchasing online rather than visiting stores. It is absolutely critical that retailers think about how to operate at maximum efficiency, with a hard focus on cash and working capital, in order to survive to the next stage. They are in a paradoxical moment where their revenues and returns are declining, yet they must invest in technology. It is not always easy to justify this spend with investors. And in thinking beyond the present to the different value propositions and approaches needed to recapture the customer, they must re-skill their employees and recruit new talent.

Customers are now more interested in experiences than products. In considering how to stay with them throughout their buying journey and not just at the end of it, retailers need to make many changes in the way they reach their customer, how they interact with them, what they learn about them, and how they ultimately sell them a product, service or experience. Convenience is also becoming important to consumers as they move their retail activity online. In fact, 50-60% of consumers state that saving time is one of the main reasons why they shop online.


Digital technologies and changing shopping habits are a clear threat to traditional retail business models. But there are positive ways to respond to these trends. To embrace these opportunities, real-estate developers must get closer to consumers and figure out how to meet their evolving wants and needs.

The good news is that by leveraging their assets – physical proximity to consumers, logistics, brand, in-store experience – traditional players still have the right to win. The Middle East has a young population with aspiring lifestyle choices, and with the various macroeconomic transformations taking place, buying power will recover and grow. But retailers must be willing to undertake rapid, radical and lasting transformation when it comes to efficiency, and the ways they embrace technology and offer products.

A transformation can be designed around the following five fundamentals or key success factors.

First of all, the full leadership team – not just the Board and CEO – has to be behind the change required to turn the business around.

Second, this motivation needs to move beyond the boardroom fast and engage the front line, going deep and wide across the organization.

In the Middle East, those two elements are typically in place. It’s the following three that need more focus.

The right structures need to be put in place to ensure that any response is effectively executed and delivered – for example how the business is organized, how governance is implemented, and how objectives and deliverables are executed.

Culture is also important. This is not about how to respond from a technical point of view, but the changes necessary in the mindsets and behaviours of everyone in the organization to make the transformation a success.

The last element is identifying, developing and elevating the best people in your organization, because they are the resource who will take you from point A to point B.

There is no doubt that physical retail is here to stay, and will keep its place alongside the online marketplace. Even e-commerce giants are entering into physical retail, as digital natives invest offline – see Amazon acquiring Wholefoods, and Alibaba’s Hema concept. These new stores have decoupled the notions of “shopping” and ‘“buying”, showing the face of retail is changing. Traditional retailers’ main challenge is to accelerate the pace of transformation, while ensuring they address, in a holistic way, the growth side, cost side, cash side and re-skilling of employees, in order to deliver results.

Read more here.

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