COMMITTED TO

IMPROVING THE STATE

OF THE WORLD

Global Growth@Risk 2008

A Report of the Global Risk

Network

in collaboration with
PricewaterhouseCoopers
All the figures are prepared by PricewaterhouseCoopers for
the Global Risk Network of the World Economic Forum.

© 2008 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers

to the network of member firms of PricewaterhouseCoopers International Limited, each
of which is as separate and independent legal entity.

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REF: 200908
Contents

Page 4
Executive Summary

Page 5
From Global Risk to Business Risk

Page 6
The Current Economic Landscape

Page 8
The Financial Crisis and Access to Capital

Page 10
Demands on Resources

Page 12
The Next Drivers of Growth

Page 15
Acknowledgements

Page 16
Bibliography
Executive Summary
The convergence of the sub-prime crisis and the
ensuing credit crunch, concerns about inflation and
a possible slowdown in 2009 have engendered a
great deal of uncertainty about the short-term
outlook for global economic growth. Looking
beyond the immediate problems, three trends are
emerging as influential for future growth prospects
at the corporate, national and global level: first is
the emergence of fast-growing economies, with
large populations and rising middle classes; second
is the increased demand – and competition for -
the inputs, capital, energy, commodities and skills
necessary to sustain economic growth; and third is
the growing importance being placed on innovation
and technology as sources of solutions to a range
of global problems. The intersection of these trends
will offer opportunities to business and society, but
will also present fresh challenges and risks to be
managed.
This report explores these future drivers of growth,
as well as the risks and opportunities emanating
from three issues identified in the World Economic
Forum’s Global Risk Report 2008, i.e. financial risk,
energy and food security. Our conclusions all point
to a critical need to achieve a balance between
economic growth and resource sustainability.
Market regulation alone cannot prescribe this, as
tensions exist across markets and between long-
and short-term strategies. Companies with the
vision to connect global trends and risks with their
own strengths and market knowledge, and to
participate in collaborative efforts to manage those
risks accordingly, will be better prepared for global
growth.
4 | Global Growth@Risk 2008
Key conclusions
Key conclusions
• Global growth forecasts reflect a shift of
economic power to high growth, highly
populated economies and wealthy oil
producing nations
• Emerging market growth appears less
susceptible to a slowdown in the US but
low-income countries face risks from
inflation in the form of loss of domestic
market growth, wage increase pressures,
and greater societal and political instability
• Central banks and regulatory institutions are
facing a policy paradox: trying to restore
confidence while managing both
recessionary and inflationary pressures
• Uncertainty abounds about further losses
from the financial crisis and the extent to
which it will impact the real economy, both in
the US and globally
• Financial regulation must avoid placing
further pressure on the financial system
through high compliance costs and
decreased competitiveness and innovation
• Sovereign wealth funds, private equity and
financial institutions of high-growth markets
are significant sources of capital but may
face regulatory barriers or even economic
nationalism
• Population growth and the economic shift to
middle-income economies, are giving rise to
a rapidly growing global middle class. While
their spending power will drive growth,
governments and business need to create
ways to make this coming boom in
consumption sustainable
• Innovation and technology are drivers of
growth for businesses and economies but
require significant investment and support to
develop the human and financial capital
From Global Risk to Business Risk
The nature of global risks implies that no single company, industry or state can successfully mitigate them on their
own. Nonetheless, it should not be assumed that nothing can be done to address them. A selection of global risks
below highlights how they can routinely have direct implications for business. It can also be seen as a way for
business to frame these issues for discussions with governments and other stakeholders across a number of regions.
Global Trends Related Risks
Increasingly integrated Contagion of financial
global financial markets instability to the real
systems economy
Rise in protectionism
Disparities in underlying
approach to financial
regulation
Increasing pressure on Lack of capital/insufficient
physical infrastructure funding for existing and new
infrastructure
Reconfiguration of Difficulty in reaching
global power consensus on global issues
and prolonged delays in the
process
Global integration Corruption and transnational
outpacing global crime
governance
Decreasing air quality
Spread of liability regimes
Increasingly Increasing dependency on
interdependent critical large-scale data storage and
information infrastructure security
Implications for Business Growth
• Increased cost of capital
• Slowdown in growth of business to business
and consumer sales in some sectors
• Increased barriers to entry and to trade among
countries
• Higher duties and compliance costs
• Difficulties in entering joint ventures or seeking
mergers and acquisitions across borders
• Barriers to accessing certain capital markets
• Assuming high legal and compliance costs
across differing regulatory regimes
• Greater due diligence required for deals
• Choice of and competition for well-serviced
locations intensifies
• In extreme cases, companies have to bear the
costs of assuring critical infrastructure (local
generators, water, sanitation, etc.)
• Increased insurance and potentially liability costs
• Lack of transparency and certainty regulation,
e.g. future emissions and environmental
standards
• Higher compliance costs
• Time lost in obtaining clear guidelines on
standards
• Lack of rule of law and corrupt environments
expose companies to political and reputational
risk
• Poor or unsupported IP regimes render
protecting IP and combating piracy difficult and
costly
• Lack of clarity about local procedures and rules
adds time and costs to projects
• Poor air quality leads to increased incidence of
acute respiratory conditions, and related loss of
productivity and increased health costs
• Poor environmental conditions make it harder to
attract talent and entail higher premiums
• US liability-type regimes spread to other
countries increasing the cost of insurance of
operations, and directors and officers
• Potential losses from business disruption
• Major accidental loss of data or case of fraud
inflicts financial and reputational damage
Global Growth@Risk 2008

COMMITTED TO
IMPROVING THE STATE
OF THE WORLD

The Current Economic Landscape

Figure 1. Global Growth Forecast higher than anticipated exports (with annual growth
Growth among oil exporters, along with China, India and Russia,
forecasted at 13.2%) and a decline in imports.
expected to dwarf growth in developed markets
10% These stronger growth figures also show that the
US Federal Reserve Bank’s approach of focusing
8
2008

on growth rather than inflation is bringing results.

Forecast GDP growth

2009

6
The decision to intervene rapidly in the cases of
4 Fannie Mae and Freddie Mac, and to allow banks
to draw on foreign sources of capital has also
2

allayed some of the pressures on the US financial

0
sector. However, while the chances of a protracted
Kuwait

Norway
Japan
India

United
States

Saudi
Arabia
United Arab
Emirates
China

Nigeria
Iran

Algeria
Russia

Eurozone

Venezuela

slowdown may now appear decreased, concerns

Oil exporters remain about further losses, in particular in the area
Source: PwC; IMF of credit card debt default and in the US$ 62 trillion
credit derivative markets. The US financial sector
The latest International Monetary Fund (IMF) has already written off more than US$ 400 billion.
forecasts for GDP growth for 2008-2009 present Given the current lack of trust in its outlook, the
an interesting picture of how the world is now collapse of another major bank could have
divided in terms of growth economies (see Figure implications for the speed of the recovery of global
1). Overall, the IMF forecasts global GDP growth of financial systems.
4.1% (year on year) for 2008, down from 5% in 2007
but still in line with the average of 4.2% realized over Europe and Japan
the past five years. When this is broken down, the Prospects for growth in Japan and the eurozone
figures show three groups of countries: the leading are also weaker. Both have to digest higher energy
emerging economies; the US, eurozone economies and commodity prices, with inflation proving a drag
and Japan; and the oil exporting nations. Each of on consumer spending. They are also both faced
these groups, and indeed each of the individual with the fiscal challenges of ageing populations and
countries, has very different growth stories and pensions; these are longer term issues but ones
challenges, but the picture is indicative of the shift which already require unpopular reforms that may
that is happening in terms of economic growth – prove even harder to push through in a downturn.
and power – moving from the traditional leading
economies to emerging ones. Figure 2. Contributions to Global Growth in 2008

China to represent one quarter of global GDP growth this year

The US
Other countries China
Though this year’s IMF forecasts were for very low
US growth, actual figures for second-quarter US
GDP growth, released just as this report was going France

to press, showed an annualized rate of GDP Korea

growth at 3.3% for 2008, higher than the US UK

United States

government’s own July estimate of 1.9% or Japan

economists’ estimate of 2.7%. The government’s Brazil

Russia
Germany
tax incentives and a drop in oil prices helped India

consumer spending, while the weaker dollar led to Source: PwC forecasts

6 | Global Growth@Risk 2008

On the political front, Russia’s recent actions in Figure 4. Food Inflation and CPI
Georgia and South Ossetia, and the response of Poor countries assign relatively high weight to food expenditures in consumer price indices

several EU states, could have implications for 70

Nigeria

Percentage share of food expenditure in CPI

energy agreements as Europe heads into the high- 60
Ghana
demand winter period. Europe has also 50

experienced falling asset prices, inflation and the 40

Pakistan
Jordan

Hong Kong
impact of the sub-prime crisis. The effects of the 30 Ecuador
Japan

crisis on several major European banks have also 20

Indonesia
Ireland US
led to credit tightening and a loss of consumer 10
Thailand
Korea
Germany Switzerland
Norway

confidence that is affecting demand in some 0

0 5 10 15 20 25 30 35 40
sectors. Unlike the US Fed, the European Central
GDP per capita in constant PPP international dollars (thousands)
Bank has pursued its policy of managing inflation
rather than targeting growth. Currently, the outlook Source: UN FAO, "Soaring Food Prices: Facts, Perspectives, Impacts and Actions Required" (June 2008)

for European economies seems less positive than

the US, and recent business confidence figures for However, the biggest emerging markets, China and
the United Kingdom and Germany have decreased India, have both seen strong growth in domestic
sharply, with figures for the second quarter of 2008 consumption, and have also improved productivity
showing German business confidence at its lowest and diversified their trading partners to neighbouring
since 2003. European exporters have to manage and other economies, making them less reliant on
increased costs due to higher oil and commodity US demand than in the past. The IMF outlook for
prices, as well as the strength of the euro against 2009 (see Figure 2) still forecasts strong growth in
the dollar and dollar-pegged Asian currencies. On almost all the major emerging markets, with China
the other hand, the region as a whole still has still set to grow at 10% in 2009 and India expected
growth in the newer economies, and a relatively to achieve year-on-year growth of 8%.
flexible and skilled labour market is also an
advantage. A decrease in inflationary pressures and Rising inflation, set to be at double digit rates in
a strengthening of the dollar against the euro would most emerging markets by the end of this year has
improve the outlook for eurozone growth. been cause for concern. However, as energy and
food prices have fallen over the past months,
Emerging Markets and Oil headline inflation rates are expected to drop in early
2009 (see Figure 3). However, even with recent price
Producing Nations
decreases, both food and energy remain far more
While US GDP still accounts for almost one-quarter expensive then they were 12 to 18 months ago.
of global GDP, the prospect of a two-speed global With food accounting for 30-40% or more of the
economy has reignited the debate on economic consumption basket in many emerging countries
coupling, decoupling and re-coupling. The total (see Figure 4), versus 15% in G7 economies, higher
value of US imports is almost US$ 2 trillion (WTO’s food prices have a greater adverse effect on lower
International Trade Statistics 2007), 40% of which income populations and could remain a source not
comes from Asia, and predominantly from China. only of economic but also of political risk.
(Europe, Canada and Mexico produce 20%, 15%
and 10% of US imports respectively.) Hence, One of the most striking features of recent times is
should a significant slowdown occur in the US or, how fast-growing economies, and in particular the
as currently looks more likely in Europe, some oil producing nations, have been able to
sectors in emerging markets may be affected. accumulate foreign currency reserves from export
Figure 3. Inflation in Emerging Markets
profits and investment inflows. Rising surpluses
have enabled them to use these accessible
Inflation rate in China expected to triple from 2006 to 2008
resources to stimulate domestic growth and
14%
decrease dependency on Western consumer
12
spending – and lending. The rise in these reserves
10 Russia is accompanied by rapid growth in savings and in
Inflation rate

8 Turkey private investment sources native to these markets.

6
India With high savings rates and a healthy stock of
Brazil
4 China
Mexico
capital, both public and private, emerging market
2 money is looking for investment opportunities at
0 home and abroad. Although investment flows from
2005 2006 2007 2008F 2009F
emerging markets still only account for 10% of the
Source: Brazilian Central Bank; Mexican National Institute of Statistics, Geography and Data Processsing;
IMF; Eurostat; Indian Office of the Economic Adviser; Chinese National Bureau of Statistics; global total (UNCTAD’s World Investment Report
PricewaterhouseCoopers forecasts
2007), the potential for growth in this area is strong.

7 | Global Growth@Risk 2008

Global Growth@Risk 2008

COMMITTED TO
IMPROVING THE STATE
OF THE WORLD

The Financial Crisis and Access to Capital

The financial market crisis that began in early 2007 Innovation in capital markets appears to have been
has not only resulted in losses in markets and responsible for both the enormous growth of the
financial institutions, over US$ 500 billion have past six years and the vast losses witnessed over
been written off by banks since January 2007. The the past 12 months. But, in reality, capital market
crisis has triggered a major loss of trust and innovation was perhaps less at fault than
confidence both in the financial sector and among insufficient capital reserves, the lack of
the institutions (see Figure 5). The extent of this transparency on the number of intermediaries and
credit crunch and the persistent lack of confidence the scale of interdependency of today’s markets.
in and among banks are unprecedented. The US Key to restoring confidence is to build (or rebuild)
Federal Deposit Insurance Corporation, has now trust in financial and monetary institutions.
117 institutions on its “problem list”, representing However, an inappropriate regulatory response
combined assets of US$ 78 billion. Financial would trigger further problems. The challenge for
institutions became more cautious and cut credit regulators is three-fold: to ensure that regulatory
lines and margins on other financial intermediaries; changes do not incur large compliance costs; that
central banks responded quickly by providing easy they do not reduce the competitiveness of the
access to short-term funds but with mixed financial markets and territories they cover; and
success; and concerns still abound about further that they do not stifle innovation.
credit risks. Moreover, hedge funds and other
highly leveraged institutions are facing severe If capital has become more expensive, it is because
complications as banks increase margin calls on of uncertainty, and perceived and real risk, rather
their credit lines. than a global lack of funds. The financial instability
seen in developed economies can and will
Figure 5. Short-term Interbank Lending Spread generate opportunities for emerging countries with
Three-month LIBOR spread is nearly four times wider than at the start of 2007
capital surpluses. Tighter credit conditions in the
6% West, combined with the lack of trust that the sub-
5
USD 3-month LIBOR
prime crisis and its fallout have engendered in
26 basis points
US 3-month T-bill banks and institutions, might provide the
4
appropriate scenario for capital-rich economies to
Interest rate

3 develop their financial hubs, improve their

93 basis points
2 governance systems and promote the rise of new
1
financial institutions capable of competing globally.
Capital accumulation during the past years (see
0
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Figure 6) and high savings rates will allow emerging
countries to provide credit to enterprises, making
Source: British Bankers' Association; IMF
the economies more resilient. Therefore, increasing
financial activity in these economies would
stimulate financial market growth and
sophistication.

8 | Global Growth@Risk 2008

 Figure 6. Foreign Reserves

Chinese and Russian currency reserves each surpass those of the US and Europe combined

$1,000
(standard dollar reserves, billions)

800
Foreign reserves, excluding gold

China

600

400

Russia
US, UK and Eurozone
200
India

0 Brazil
1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: IMF

However, just as capital may flow from emerging

markets, large capital inflows seeking quick profits
are also reaching emerging economies. Entering
these economies through various channels, “hot
money” and its potential impact on national
economies has generated substantial debate.
Capital inflows in emerging countries that
contributed to the expansion in the last few years
may now become more unstable if there is an
increase in speculative inflows. Hot money tends to
follow pro-cyclical patterns and the risk of a
sudden halt to capital inflows and/or the risk of
massive capital outflows in a short period of time
poses risks to the financial system and to the real
economy.

9 | Global Growth@Risk 2008

Global Growth@Risk 2008

COMMITTED TO
IMPROVING THE STATE
OF THE WORLD

Demands on Resources

Since the beginning of 2002, crude oil prices (in Figure 7. Commodity Prices of Energy and Metals
dollars) have increased six-fold, coal and scrap Prices for most major extracted commodities have risen

steel prices have increased five-fold and the price 600

more than three-fold in real terms since 2003

of chemicals has quadrupled. A critical force

Real price index (100=January 2003)

500
behind the price surge is the emerging market Coal

boom in demand: China’s demand for oil has more 400

Copper
than doubled since 1995, Poland’s demand for 300
Iron Ore
these products increased more than 40% and 200
Oil*
India’s more than 35%. Gas consumption will also
Aluminium
100
keep growing: the International Energy Outlook
2008 prepared by the Energy Information 0
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Administration (EIA, US Government) estimates * West Texas Intermediate crude oil

worldwide gas consumption will increase 64% from Source: IMF; US Bureau of Labor Statistics; PwC analysis

2005 to 2030, replacing oil wherever possible. The

industrial sector and electricity generation are the The current commodity boom is at the centre of
largest consumers of natural gas and they are the interaction of several factors occurring
expected to account for more than 75% of total simultaneously in the global economy. Commodity
gas consumption by 2030. As gas combustion market prices have reached record levels over past
produces less carbon dioxide than petroleum or years (see Figure 7) and the origins of the increase
coal, governments may encourage its use to in prices go beyond supply-side shocks: since
decrease greenhouse gas emissions. 2002, emerging economies account for over 90%
of the rise in global consumption of oil and metals;
Global energy demand has not been slowed by oil production since 2005 from OPEC (Organization
sustained high oil prices. Given that global energy of the Petroleum Exporting Countries) has
consumption is set to double from 2005 to 2030 remained broadly stagnant; and the costs of oil
(International Energy Agency’s “World Energy exploration are rising. This situation is aggravated
Prospects and Challenges 2006”), the dilemma of by the current financial situation, weakening dollar,
how to balance growth with sustainability must be market speculation and low interest rate landscape
faced. As economies industrialize, develop and, in some cases, by low inventory levels.
infrastructure and increasing incomes lead to
greater energy needs, energy supply will struggle to
keep pace. The energy landscape will be very
different 10 years from now. How this evolution will
unfold in the fields of regulation, policy-making and
technological change remains highly uncertain.
What is sure is that the increased cost of all fossil
fuels, not just oil, is driving another surge in R&D
and investment into renewables. In the very short
term, high prices at petrol stations have had an
immediate effect on automobile use in the US and
Europe.

10 | Global Growth@Risk 2008

The future – the slow shift to technologies that are feasible in terms of cost and
renewables scale and second, a concentrated effort to improve
both energy productivity and efficiency from
According to current estimates, supplies of easily
existing sources. Innovative companies willing to
accessible oil and natural gas will probably no
improve energy efficiency and invest the necessary
longer keep up with demand after 2015. To close
capital to undertake and implement projects of fuel
this gap, the world will have no choice but to use
efficient technologies clearly have a role to play in
energy more efficiently and increase its use of
the coming years.
alternative sources of energy. This means more
renewable energy, more nuclear energy and more
oil and natural gas from difficult-to-reach locations.
Despite the growing presence of nuclear power
and large-scale hydro and wind plants, oil, gas and
coal remain the principal energy sources for most
countries and industries. High oil and gas prices
will encourage more research and development of
previously uneconomical alternative energy sources
and renewable fuels. Investment in clean energy
has climbed to almost US$ 140 billion in 2007 from
US$ 33 billion in 2002. In 2005, 30% of global
investment in power generation was in renewable
energy. But oil-based fuels will remain the
predominant choice for transportation of both
goods and people for the next decade, even if
alternative energy sources are becoming more
prevalent. Oil and gas are also key raw materials for
the petrochemical and agrichemical industries, two
industries whose growth is also driven by rising
demand from emerging markets.

Several factors will drive corporations to move

towards an energy-efficient production and supply
chain. The reduction of energy costs must be a
priority for many businesses today; aside from
direct costs, other costs such as emissions
reduction, regulatory compliance and pressures to
improve their environmental footprint are all driving
factors. A high energy price environment will force
firms to rethink their processes, achieve savings
and seek innovation in the way products are made
and delivered; the outcome should be positive for
both the companies themselves and their
customers.

Today, the existence of market-distorting subsides,

booming energy prices and misaligned incentives
undermine energy productivity. A holistic approach
to energy costing and consumption – factoring in
direct costs and associated costs, such as the
carbon footprint of the business’ value chain – is
fundamental to the development of energy strategy.

With oil prices set to remain high for several years

to come, a two-pronged approach to energy may
emerge: first, an acceleration of investment and
research and development of alternative energy

11 | Global Growth@Risk 2008

Global Growth@Risk 2008
The Next Drivers of Growth
A demographic and economic shift
By 2012, the world’s population is expected to
grow by almost 7% to 6.8 billion, and by 2050 to 9
billion. Central America, North Africa and South-
East Asia are the regions with the highest expected
population growth for 2007-2012. By 2012,
International Monetary Fund population growth
projections show Asia and the Pacific region as the
most populated with more then 4 billion people,
over one-quarter of whom live in China.
Between 2007 and 2012, 40 countries are
projected to increase their GDP per capita by more
than 50%. Unfortunately, as illustrated below (see
Figure 8), population increase and GDP per capita
growth are not always aligned. But, even when they
are, as in the case of Asia, on average annual GDP
per capita in these countries will still remain below
US$ 10,000 (International Monetary Fund, World
Economic Outlook Database, April 2008).
Nonetheless, the past decade has illustrated how
population growth can translate into economic
growth if it is accompanied by investment in
development, higher entrepreneurial activity and
higher income per capita. If questions abound
about decoupling, and the demand for energy and
commodities is growing exponentially, it is because
the global economy is feeling the first effects of an
historic shift in economic and demographic power.
Power is shifting to middle-income economies, with
a growing middle class. This “global middle class”,
as it is labelled in a recent McKinsey report, is
defined as those earning between US$ 6,000 and
US$ 30,000 per annum in purchasing power parity
(PPP) terms. Such a global middle class will result
in hundreds of millions of people changing dietary
habits and seeking better housing and education,
adopting more sophisticated technology and
financial services.
12 | Global Growth@Risk 2008
COMMITTED TO
IMPROVING THE STATE
OF THE WORLD
Figure 8. Worldwide Population Growth
Much of Europe set to decline in population
Population growth, 2000-2050 (CAGR)
Greater than 2%
Between 1 and 2%
Between 0 and 1%
Less than 0%
Source: UN Population Division, World Population Prospects (2006)
This shift will bring opportunities and risks.
Population increase poses risks and challenges in
terms of food and energy production, and
consumption and environmental impact. Food and
energy consumption will increase as a higher
percentage of the population increases its income,
which will require an expansion of the current
capacity to produce them. Many of these middle
class populations are clustered in large and rapidly
expanding cities. They are part of the biggest shifts
of population to urban areas since the industrial
revolution. This, in itself, raises risks from the
concentration of millions in areas lacking in the
appropriate infrastructure, from roads and housing
to sanitation and health. The biggest opportunity,
and perhaps challenge, is for governments and
companies to work together to create the
necessary infrastructure and serve these markets
with more sustainable products and models. If
presented with the right products, these
consumers could leapfrog Western consumers in
choosing a more sustainable consumption path.
Natural resources – strategic influenced by shifts in supply and demand, and in
sustainability exploring ways they can innovate when it comes to
serving new markets or developing new goods and
Population growth and the spread of a Western
services.
consumption model mean ever greater pressure on
resources. Resource-rich developing countries have
already experienced high growth rates in recent
Innovation and Technology
years due to rising international commodity prices. What unites all of the above is the extent to which
These countries could partially finance their innovation is key to managing these trends and
development using their natural wealth, although mitigating, even preventing, related risks. Policy-
historical evidence has often indicated the reverse. makers will need to find innovative solutions to
The phenomenon of Dutch disease, over-reliance promote sustainable behaviour, improve the
on one source of wealth, combined with efficient use of resources and maximize gains from
macroeconomic volatility, political instability and current resources to expand other areas of the
weak governance are the challenges that some of economy. For business, the opportunity is to
these countries face. Improvement in their resource innovate to generate growth through new services
management is crucial to formulate growth-oriented and better processes.
policies and corporate strategies that would trigger
further economic development. A number of elements are required to create the
environment for innovation and the technological
Although oil and minerals usually come to mind first breakthroughs on which so many hopes are
when discussing natural resources, growing pinned. More work is necessary to scale up those
pressure on the environment, through climate breakthroughs and distribute their advantages while
change or the impact of dense urban populations, protecting the value of the patents and intellectual
may force a rethinking of the value and definition of rights necessary to return on investment.
natural resources. As the global population grows, Corporations and governments have to collaborate
consumes and produces more waste, “natural to close skills gaps, whether for engineers,
capital”, energy, fertile land, air quality and, most designers or financial experts. Today both
importantly perhaps, water will be of strategic established and fast-growing companies complain
importance – both economically and geopolitically. of a talent shortage, either regionally or within
certain professions and vocations. As populations
Figure 9. Oil, Gas and Water Endowments grow, countries and companies have a relatively
Russia among the top-10 countries in all three resources short window of opportunity to develop a strategy
that creates a culture of innovation that ensures
training and education are focused on future
growth needs.

While there may not be a direct correlation between

10 countries with the largest reserves of:
Proven oil reserves (including oil sands)
Proven gas reserves
Annual renewable water resources
Sources: BP; Pacific Institute
innovation and technology, it is clear that the most
innovative countries in the world invest in and know
how to leverage technology for innovation (see
Figure 10). The same can be said for companies. It
is surely no coincidence that the US, Japan,
Finland and South Korea consistently appear at the
Figure 10. The World’s Most Innovative Countries

The demands being placed on resources needed

to drive growth, such as fertile soil, clean air and
biodiversity, are accelerating. The role of, and
policies for, sectors linked to the deploying of
resources, whether energy related, agricultural or
technology driven, is key. A country’s natural
resource endowment is an important aspect that
will determine its independency to develop and
finance its growth in the near future. For Most innovative potential
Above average innovators
Below average innovators
companies, the opportunity is both in Least innovative potential

understanding how their costs are likely to be Source: World Business / INSEAD Global Innovation Index (2007)

13 | Global Growth@Risk 2008

 top of rankings for innovation capacity, including
that of the World Economic Forum’s Global
Information Technology Report. They also top the
rankings for patents granted and company
spending on R&D. A culture of innovation clearly
thrives in an environment where its value is
recognized and its results protected. Intellectual
property regimes are not perfect – the debate on
how to improve them continues – but their
traditional role of rewarding innovation is more
important than ever. Weak intellectual property
regimes, or those not adequately supported by the
rule of law, will not drive innovation. Furthermore, if
technology is really to drive solutions for energy
alternatives, water usage and agricultural
productivity, it will have to be made available to
many countries, which currently do not offer
sufficient, if any, IP protection. As has happened
with crucial drugs for diseases in the health sector
in the developing world, new models will need to
be developed to enable the necessary technology
transfer, while providing incentives to business and
governments to make the necessary investments.

Public and private sector collaboration to support

technological progress and create incentives to
encourage innovation is a key factor in building the
foundations of sustainable growth models and
providing solutions to global challenges.

14 | Global Growth@Risk 2008

Acknowledgements

This report was prepared by Irene Casanova and Sheana Tambourgi of the Global Risk Team of the World
Economic Forum.

Global Risk Team, World Economic Forum

Irene Casanova, Associate Director
Viktoria Ivarsson, Project Manager
Johanna Lanitis, Research Analyst
Pearl Samandari, Team Coordinator
Sheana Tambourgi, Director, Head of the Global Risk Network

In consultation with the World Economic Forum’s Global Competitiveness Network:

Irene Mia, Director and Senior Economist
Eva Trujillo-Herrera, Research Assistant
Thierry Geiger, Global Leadership Fellow, Senior Manager and Economist

PricewaterhouseCoopers
Catherine Jourdan, Director, US Advisory
Sophie Lambin, Director, Global Thought Leadership
Christopher Michaelson, Director, US Advisory

Material for the report was gathered through interviews with leading experts and representatives from business
and academia. In particular, we would like to thank the following individuals for their time and valuable
contributions which shaped the content of this report:

Tim Brown, President, Chief Executive Officer and Partner, Ideo Inc.
Frances Cairncross, Rector, Exeter College
Marcelo Claure, Chairman of the Board, Brightstar Corp.
Bulent Goktuna, Chairman, Mineks International
James Hogan, Chief Executive Officer, Etihad Airways
Madhu Koneru, Executive Director, RAK Minerals & Metals Investments, TRIMEX Group
Margery Kraus, President and Chief Executive Officer, Apco Worldwide
Anil Kumar, President, Ransat Group
Yoko Ishikura, Professor, Graduate School of International Corporate Strategy (ICS), Hitotsubashi University
Moisés Naím, Editor-in-Chief, Foreign Policy Magazine
Deepak Puri, Chairman and Managing Director, Moser Baer
James H. Quigley, Global Chief Executive Officer, Deloitte
Vivek Ranadivé, Chairman and Chief Executive Officer, TIBCO Software
William Rhodes, Senior Vice-Chairman, Citigroup; Chairman, President and Chief Executive Officer, Citibank
North America
Anthony Scaramucci, Managing Partner, Skybridge Capital
Martin Wolf, Associate Editor and Chief Economics Commentator, Financial Times

15 | Global Growth@Risk 2008

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