Welcome to Kopi Time, a podcast series on markets and Economies from DBS Group Research. I'm Taimur Baig, chief economist, welcoming you to our half century mark. Yes, it's the 50th episode, and we have a very special guest with us.
Piyush Gupta is Chief Executive Officer and Director of DBS Group. He has been with us since 2009. Prior to that, Piyush spent 27 years at Citigroup, where his last assignment was CEO for Southeast Asia, Australia, and New Zealand.
Piyush, a warm welcome to Kopi Time.
Piyush Gupta: I'm happy to join you on the 50th show of yours, Taimur.Taimur Baig: Thank you. I want to talk about a bunch of things with you, but let's start with one of the learnings from the pandemic. Agustin Carstens, head of BIS wrote around March of last year, just as the economic and the financial gravity of the crisis was becoming more evident that banks should be part of the solution, not part of the problem in this crisis. Have they delivered?
Piyush Gupta: Well, I think it's fair to say that the banks have come out of this crisis looking and smelling a lot better than they did through the 2008-09 crisis, and there are many reasons for that. I think the first is that the banking system is much healthier. So, banks came out without having themselves a need for bailouts, financial funding, Central Bank response, etc. In fact, banks were strong enough to build really large buffers and cushions ahead of time. And I think the solidity of the system, financial system stability engenders a level of trust. So that's the first, but that is important. I think the second reason banks are looking good is because they were very resilient. Banking in a completely service-oriented activity and for banks to function with everybody working from home at scale, without losing any productivity, any downtime and making every service available to the consumer at scale around the world was not easy. I think banks have benefited from the recognition that they were able to support customers through this period. So, I think that's the second positive. A third positive to me is the first cousin of that. I think banks, and particularly at DBS, we also stretched ourselves to find new solutions through this period of time. So, stitching up last mile, accepting documents digitally, helping companies to digitize their supply chains. All of these were interesting solutions. But perhaps the most important, obviously, is that we were at the core of the fiscal and monetary policy response that governments came up with. So, the government decided to provide moratoriums, the government guarantees, and they decided to put new money again with government guarantees. And because the banks were at the forefront of having to make the judgment, do the analytics, but finally dole out the money. Well, you always look good when you're doling out money. And I think there was a tremendous degree of recognition, therefore, that banks were seen as people who are providing liquidity, providing forbearance and that's always a good place to be. So, I think by and large, banks have come out looking quite good. I think frankly, we were part of the solution. Now, there’s always a caveat to these things. I think the next year is going to be a little bit more challenging for banks. And that's only because, as the moratoriums run out and the government programs run out, banks now have to go back to the fundamentals of making choices on who do they support and who do they not support anymore? And frankly, we owe it to our shareholders to be circumspect on our credit decisions. So we will have to go back to people and start calling our loans, will have to go back to people and trying to make sure that they are disciplined about payments and that's the antithesis of what we've been doing for the last 12 to 18 months. So, I do think that there will be a little bit more tension in the system over the next year as banks start fulfilling their obligation to the other stakeholder group, which is the shareholders.
Taimur Baig: Speaking of obligations, banks reside on a lot of data. I know that data is very close to your heart and one of the issues that came up during the pandemic last year was this issue between data privacy and the need to track and trace various aspects. I remember, back in April, you wrote a rather strident op-ed in The Financial Times. I think there are 350 comments on that at the bottom of the article, even today, and I was struck by your argument that between balancing data privacy and collective action, “We the people” trump “I the individual.” I'd like you to expand on that.
Piyush Gupta: I'm not sure if I would call it strident. But yes, it is a point of view, which obviously evokes a lot of emotions. The way I think about privacy is from two or three dimensions. First, remember, and privacy is not an absolute, privacy is a relative concept and the notion of privacy has changed over time. It is different across cultures. It is, frankly, different across generations. Even in the West, if you go back 1000-1500 years ago and you go back to the Roman public baths, everybody bathes together. Everybody swam together. People have common bedrooms. We're all together at night, people raised and reared families together. So where did this notion of modern-day privacy come from? It doesn't go back, deeply rooted into the psyche. Actually, in some ways, the notion of privacy came from the emergence of the photograph. Kodak invented the photograph, and that’s when people started ringfencing, “can you use this image and not use this image?” So, the point I am making is that it's not an absolute thing. And certainly, in large parts of the world, people are less hung up about the notion of individual privacy than they are in Western liberal countries and democracies. The second dimension to me about privacy is that even we in today's day and age are not consistent about how we think about privacy. We change our minds about privacy from time to time. Every one of us will say we want to be private. But if I ask you to show me your mobile phone and I look at the apps, every app has location on, every app is sharing data, you have made a subconscious choice to trade off your privacy for convenience and benefits. And that is true, particularly with the younger generation, if the value exchange is reasonable, they will trade off their privacy. So, I think, I will start with that. That privacy is not absolute, and people are willing to trade off privacy for various reasons. Then you come to the bigger question. What are you prepared to trade off privacy for and where does it start making sense? And I've always been a big believer in the fact that there's a trade-off between rights and responsibilities. Everybody talks about the Declaration of Human Rights. Few people know that in the 50th anniversary of the Declaration of Human Rights, there was a global endeavour to pass a declaration on human responsibilities. That endeavour failed, and it failed principally because of push back from the US. But to me, this idea that we, as members of society and human beings have an intrinsic responsibility to each other is as important as the fact that we have a right to ourselves. And when you want to make the trade-off, there are points in time where the responsibility to each other, the responsibility for society, to my mind, is perhaps more important than our own individual right. In this pandemic, public health was a great case in point where everybody is suffering. Nobody knows who can get infected. If you can use data to try and triangulate where the problem is, how we can actually bring succor to people, how we can remedy it. What's wrong with that? And so that was the genesis of the article that there are situations and points in time where public responsibility actually trumps the individual need.
Taimur Baig: But would you say that in some cases the pendulum swung a bit too much? And now we're going to see, for example, apps have opt-in as opposed to opt-out feature? Or that in certain social media space, we're seeing some backlash that yes, in terms of public emergency, national crisis, wartime efforts, there are certain trade-offs that are more stark. But in day to day life, maybe we have given up a bit too much.
Piyush Gupta: These are different questions. First, the question is, are there circumstances in which responsibility trumps rights. And I said there are. The next question is that are there situations in which too much data has been made available and I would say the answer is yes, like everybody, I feel uncomfortable. But I would also tell you that I think the train's left the station. I think we live in a world where the notion of having control of your data privacy is dead and the digital footprint is too strong, too immense, and too powerful. And today, with visual data, digital data, all kinds of data, it's really hard to ensure privacy at any level. And so, we're going to have to think about different ways of protecting what we want to protect, not the traditional ways that we've been able to do it. I think in some ways, and I have the analogy of guns and knives. So how do you guard against guns in most countries, through a licensing regime, which is ahead of time. How do you guard against knives? Everybody can buy a knife, but you do it through regime of trying to determine what was the nature of the use. If you use the knife to eat your food, you are okay. If you use it to kill somebody or not, so that's a post facto regime. My own sense is that data and the appropriateness of data used is going to have to slip to a post facto regime where you go back and determine was the data used for the purpose it was meant for, was it legitimate, as opposed to ahead of time regime.
Taimur Baig: That's very interesting. And I think, even from an app developer perspective, I think that sort of stuff would be a very high level of standard to live up to. But I suppose you're right. From a law enforcement perspective, that probably would be the most efficient way of applying it. Piyush, so many accelerated disruptions over the last year. So, from tele-health to distance education, digital payments, food delivery, you track all of these; which one intrigues you the most, positively, or negatively?
Piyush Gupta: I'm going to mention two. But I'm going to dwell on the second. The first thing though that does intrigue me is the exponential increase in the nature of digital consumption. And if you think about the movie that was done a few years ago, “Avatar”, I guess maybe a decade, 15 years ago, it first brought the notion that you could effectively live your life in a virtual world and your Avatar went around and did everything for you. I think today we're getting to the stage where more and more of our life is in that virtual world. And this year it showed you that whether it's health services or education services or financial services, people are willing to consume a lot more digitally. And I think this has some pretty important implications on what happens in real time, real world, and what happens in the virtual world. But I think more immediately, the thing that does intrigue me the most is the nature of change in our work environment and our work habits. I think everybody knows that the whole work from home or work from anywhere that we saw this year was unprecedented. If somebody had told me a year ago that we could run a bank for the whole year with 90% of our people not showing up at office, it would have been unbelievable, you'd have laughed at it. And nevertheless, you were able to do it. Now, the implication of this, people have not really got the minds around yet, and that implication is actually quite contrarian to things you're hearing about, which is the end of globalization or reverse globalization. I think the main implication of this is a massive increase in globalization, and that comes from the fact that the global availability of the workforce and the labour pool is now a reality. When you think about the BPO industry, the offshoring industry, it's been important. But there are a couple of million people who work out of India, who do this whole BPO work for the world and everybody talks about it. I think in the next 10 years that couple of million is going to go into tens, 15 and 20mns of people who can sit anywhere and work for anywhere. I can see us having a small bunch of people in Israel doing innovation, and I can see us having a team in Silicon Valley and what's quite clear is that you can stitch all of these teams together in a way that is seamless and it's productive. And that change will be quite disruptive in the way work gets done in the future.
Taimur Baig: I always wonder how the tax regimes will deal with that. I work for DBS, but I sit in Israel. So, do I pay taxes there or here. We saw that for some of the people who were working away from their country of operation and now the tax authorities are giving them a hard time about how to tax them. In terms of professionals versus say, the low-end frontline workers, the dynamic is a bit different. I suppose if you are at an executive level job where your job is decision making and mostly meetings as opposed to developing a specific product, I suppose you can do that remotely. But do you think that the creative energy that comes from people sitting around the table and arguing and iterating, that can be replicated in a virtual environment?
Piyush Gupta: No, frankly, even for white collar workers, it can't be. When I said that, the work will get distributed and you can have teams and workers anywhere, that doesn't take away from the need to physically get people together frequently and to recognize that what makes us human beings is human interaction. We are social creatures and you cannot eliminate that. So, I'm not suggesting that is going to be 100%, we all go virtual, never meet each other. I don't think that's productive. Frankly, in our own context, we announced the whole set of new work policies. And, we put a cap, work two days a week from home, 40%. My own assessment is that if you're new to the company, for example, you can probably get about 20%., you will work from home or work flexibly. And I think that's where you will wind up at. I think that's a good thing because it is important to get people together. To me, it's not just about innovation, ideation, serendipity, meeting people, I think all of those are important. I think it's about something deeper and more profound. And that is what is our life about? We've all got used to a world where social interactions, getting up in the morning, going out, meeting people, that is what makes us who we are. And, if you ask us to turn off 60 -70% of our life forever, you're going to have a serious problem. A lot of people suffer the stress of being on Zoom calls this whole year. I think you've seen at the end of 12 months, that a large part of that stress comes from the fact that you're sitting by yourself and you want to be with people. So, I think the underlying thesis of change in the nature of work does not mean that people are not going to meet. In fact, as we think about our own workplace situation, we are re-architecting the office space to allow people to collaborate more, to create more, to come and have more celebratory moments, etc. But without doubt, expecting people to be back.
Taimur Baig: On education, you seem to think that more disruption is possible, because it seems to me that the really good schools have had basically an artificial constraint created around how many students they accept and very low acceptance rate. I think that probably gets broken down with this accelerated disruption.
Piyush Gupta: I think education is rife for change. In countries like Singapore, everybody gets a good education. But if you go back to India and you explore that there's just not enough schools. There are just not enough good teachers. So, most kids drop out. They don't have access to anything. I think that's just going to be completely be disrupted dramatically and for the positive. But even with education, I'd be reluctant to take it beyond a point, because when you think back at your own education. I certainly think back at mine. How much was it the content that I got from my pedagogy and from my books? And how much of it is what I learned through social interaction, being with people? It's hard to say that it's all pedagogy. So, beyond the point in time, you still need to get people together so you can learn from each other and learn from your life. I don't think even that is a binary 0-1 situation. But without a doubt, I think education will see a huge change.
Taimur Baig: Personally, I think that the power of a large lecture room where you have an authority figure sharing insights, the live experience is unparalleled. I remember when I was an undergrad, Elie Wiesel, who was a Holocaust survivor coming to my college to give a speech. You can see celebrities talk about tragedy and in-depth stuff online, on TV, all the time, but to have a survivor in front of you talk. There were 1000 people, but it was so powerful. It's never left me, and that can never be replicated.
Piyush Gupta: That’s my point. Its rightly said we underestimate the sense of touch and the sense of physical presence. I've asked a lot of people this question and everybody says, “I am productive, I do everything on Zoom. It works well.” And so, you're on Zoom every day with your family, with your parents, your children and remote location, and you're seeing them every day on the screen. So, does that mean you're happy, never meeting them again. And 100% of people are not happy. So obviously, just seeing you on the screen is not good enough. You're still missing something. You're missing the capacity to hug. You're missing the capacity to see the full body language. You're missing a physical warmth that exists because you're with each other. So, I think we have to recognize that those things will not change, and we are talking about disruptions. I think they're important, but in a relative sense, there will be a shift from where we were. But I certainly don't see a shift going to a world which is just completely ex any human interaction, cannot be.
Taimur Baig: Right. It's remarkable that the 1918-20 pandemic was so devastating. But by the time it was 1921-22, the world had moved on to a status quo ante in many ways. Coming back to banking, low interest rates, of course, are a perennial headache for banks’ profitability. But what are the other big challenges you're looking at as far as the banking system is concerned?
Piyush Gupta: It depends on time frames. In the short term, the cost of credit is not behind us. In fact, I would argue that in many cases, bad loans, or provisioning the cost of credit is still ahead of us. And that's principally because of where I started. The government support programs have been very beneficial in kicking the can down the road. But as the programs come to an end, when the tide runs out, we'll start finding more and more companies and sectors who are not able to cut it and make it. So, I fully expect that you will see a pickup in delinquencies and cost of credit both in the consumer space as job benefit schemes run out. But perhaps more importantly, in the small and medium enterprise space, there are many companies which are just existing hand to mouth, particularly food and beverage, retail, construction. Sooner or later, when the support on the largess winds up, many of them will not able to continue to exist with their model. So, I think there's going to be one source of challenge for the banking system. I think the second source of challenge which will accompany that is something I alluded to earlier, which is the idea of the social role of banks. A lot of people will have the expectations that banks should be a lot more forgiving, be a lot more generous, be willing to put a lot more money out as people continue to transition. Frankly, as I said, banks have come out looking good because they did that to all last year. A large part of that was support from the government. Some of it was not; in our own case, for example, our moratorium program, we kicked off way before the government programs did. But there is also a need to recognize that there's only a finite time to which the banks can continue to defer their loan collection process or to go and ask you to pay your legitimate interests and so on. And I think the time is on us. So, the next couple of years, that’s the second challenge I see. How do you make sure people understand that when you're trying to do your job, a regular job as a banker, you have an obligation to protect the depositor’s money, protect shareholder’s money. You're not just doing this because of an evil Shylock. I think you'd have to deal with that. Further out, I think there are two challenges, one which has been on us for some time, but which has continued to gather pace, and that is the impact of technology, which is effectively eliminating industry-borne boundaries. So, as you know, in our part of the world, the Chinese big tech-fin companies have been in the financial services space for several years. But in the last couple of years you can see the advent of the American companies. So, Google, Amazon and Apple, etc. are beginning to enter the space. And apart from the fact that they're obviously very competent companies, in some cases benefited from regulatory arbitrage. But most of all, they benefit from a source of capital, which is very different from the source of capital of public listed firms. Which means that they can actually burn a lot of money in being able to gain market share. So that's going to be a challenge for the incumbent banking system. And, finally, if I can add the last one, I think there's a challenge and an opportunity, that is around the whole sustainability agenda, particularly the environmental part of the agenda. One of the good things of the pandemic has been broad recognition that tail risk can happen, and it is incumbent on all of us to start thinking about those tail risks. As a consequence, regulators, risk managers around the world are increasingly focusing on the tail risks that come from climate change or from biodiversity loss. So, banks are going to have to focus very hard on getting the hands around those tail risks and the risk come in many forms, is the transition from regulatory change, the physical risk from rising water levels or big storms. It is the technology risk from technology obsolescence, which accompanies some of this stuff, so those risks we are going to have to think about. But like I said, there's an opportunity in that as well. And the opportunity is that when you see such profound shift in the way people want to build and build economies, maybe there's an opportunity for banks.
Taimur Baig: I want to go back to one phrase that you used earlier which is regulatory arbitrage. So, the non-bank financial system, in your view, is not on a level playing field with the banking system, and do you see that as a potential source of systemic risk?
Piyush Gupta: Actually, I think it's changing. So, it has not been on a level playing field. I made this point earlier that many of the companies which take public money, they call it a fund. They move money around. They do insurance, they give out loans. And frankly, if it talks like a duck and walks like a duck, then you know it's a bank. But they've not been regulated like banks, and therefore they haven’t had liquidity requirements, capital requirements, supervision requirements. So, I made the case for a period of time that both from a financial system stability standpoint, but also from a level playing field and competitive standpoint, there needs to be a different way of thinking about many of these players. However, in the last two years, I think that environment has been changing. You can see, in many ways, there's a backlash against big tech. You talked earlier about privacy and data privacy. So obviously that has some issues. I saw more recently the Australian issue, where the regulators have pushed and said big tech needs to pay for the extant infrastructure that incumbents have put into place through some, pay for the news. If you look at the consultation paper the Chinese authorities have pushed out, that to me is really thought provoking. They've defined monopoly and oligopoly situations. They've defined a predatory pricing situation. They've defined anti-tying situations. And they said they're going to try and regulate all of these and make sure they don't happen. Just yesterday in Indonesia, the President talked a little bit about making sure that there is level playing field between online and offline retailers in terms of licensing requirements. So, I think the playing field is beginning to level. And I think it's a useful because while you do want innovation, you also want to make sure that you keep systemic stability, that you have consumer protection and you have a level and competitive playing field.
Taimur Baig: Absolutely, I fully agree. I've heard you talk about business as usual as far as the way we run our lives, our society may have run its course. And remember, in a podcast last year, you sort of criticize the generally accepted accounting principles-based business model. Expand on that, what is missing in the way we look at companies or assess their balance sheets?
Piyush Gupta: Let me start with the GDP itself. I think that the Gross Domestic Product is a construct, created by Kuznets and people, in the 1930s, in the height of the Depression. It was created for its times, which is the time of massive under consumption. So, the big focus was on measuring the productive capacity and the productive output of a country’s goods and services. And we found three different ways of measuring that. That's how you measure GDP. It's an absolute nominal value of what is measurable and reflected in the GDP accounts of a country. The same principle is what GAAP sort of adopts in thinking about companies, which is what is measurable, what is visible and tangible in assets and liabilities or maybe some intangible assets. But those are the things that you can see and account for. Now, this whole metric has been useful in driving economic growth for the past 70, 80-100 years. So, I think has been very helpful. It keeps you focused on development. It gives you focus on economic value creation, which is not a bad thing. But today you got to the stage where you start thinking in terms of what we really want for us. What do we want for society and people, and often times it is not just getting more. It's not more physical goods. I don't actually need more shirts or more buildings or more cars. You have got to a state where people, at least in many parts of the world if not universal, are open to now thinking about welfare in different terms. What keeps me happy? What is my welfare all about, the Maslow’s hierarchy of needs, you get to a point in time where you are looking for a more holistic measure of outcomes, which are more than just a tangible outcomes and things that you see on the balance sheets and profit and loss of companies today. This is also important because when you start thinking about the future, the next generation and 2-3 generations after that, what they will see and inherit is not the physical assets that we see around us. They will inherit the planet, so they will have to worry a lot more about natural capital, about social capital, not just the physical capital and financial capital that we currently measure. I think fundamentally the problem is that our current method of accounting does not address and capture what the world today calls externalities, either positive externalities or negative externalities. So, we don't price carbon. We don't price human rights. We don't price child labour. On the positive externalities, equally, we don't price somebody who's done work and created incremental education. We don't price somebody who has created better living conditions or health conditions. I think we need a measure of accounting which captures these externalities. And therefore, a lot of people are working at what they call impact weighted accounting. So how can you actually weigh what you do in respect of the positive and negative impact that you create? For many years, I've been sceptical that this could be done because this is all very airy - fairy. It's up in the cloud, how do you actually put a number to it? Everybody does green washing, so is it really real? In the last year, I'm getting a little bit more confident that this can happen because the power of data and artificial intelligence. The amount of data we have and a capacity to now sensor technology, data technology to capture everything is immense. And then the compute power we have to run on top of that and make sense of this is also tremendous. So exactly, we're using all of this big data and AI to try and determine on Facebook, what is the next thing you should do or who you should vote for? We should be able to use that data and AI to determine what are you doing that is really producing good outcomes. And what are you doing that is not producing good outcomes and take a more holistic view of this. I'm encouraged that where we are today in terms of technology as well as our own thinking that over the next decade or so, we will be able to do much better justice to this idea of impact weighted accounting and looking at the externalities than we've been able to do in the past.
Taimur Baig: Okay, one decade is very far away. As a bank today, how would you influence your investment or lending decision around such considerations?
Piyush Gupta: Well, we are already doing that. Let me answer in two ways. So, one, we are influencing it in things which are obvious. For example, it's quite obvious that coal is not the most effective way of creating energy when you take a look at the overall cost of nature, healthcare, pollution, etc. That’s still the cheapest cost of production in many countries, and there are still many people who don't get electricity, you have to keep that in mind. But if you put all of it together, then it's perhaps time for us to wean ourselves of coal and move to something else. You can see that for several other sectors, mining and metals, plantations. There are use cases you can find, which are easier. For those kinds of use cases, we've actually just put lines in the sand. For each of the sectors, we've come up with policies of what we will do less of and what we will try to do more of. So, in the energy complex, for example, we said we stopped doing new coal financing, but we will try to do a lot more wind, solar and renewable energy financing, so that's not a difficult choice to make. The choice starts becoming a lot more complicated when the look-through is difficult, what are the positive impacts and what is the negative impact? So, let me give you another example, which to my mind, is not that easy. And that is palm oil. A lot of people raise the question on palm oil. But first of all, the science around palm oil is not obvious. A lot of people say it is a lot more healthy than other forms, from a health standpoint. From biodiversity standpoint, quite clearly it’s negative because you cut down rainforests and have monoculture, so that's not good. But on the other hand, palm oil, most of it is in Indonesia and Malaysia, is the source of livelihood for 15 million people and the 15 million people who were translocated by government policy, from places like Kalimantan to places like Sumatra, they were given smallholder plantations and their entire livelihood, the education of their children, their health, all depends on they being able to cultivate these palm oil plantations. Now, when you try and do the trade-off between the positive and negative externalities of financing palm oil, it becomes very complex. So, there is a negative because of the biodiversity loss, but there's a positive around millions and millions of people whose livelihood you are closely involved with in financing. I often wonder and say so how do you play God, and how do you decide one is better than the other? So, what we've been trying to do is work with extremely well renowned agencies and thinkers to come up with methodologies sector by sector, to try and determine what is the positive and negative impact. We've done three sectors so far. Palm oil, interestingly, was one. We've done one for the energy sector, the lithium, and the EV sector, and a third, where we're actually working with people from think tanks, from Oxford University, universities in Singapore to help us dimension, what is the best way to measure these positive and negative impacts? So far, we've done three pilot studies and once we've got our hands around understanding how to measure this, we will try and apply it to the rest of our banking activities. But when I say it's a decade, this is not going to happen overnight. It's going to take us a few years to really understand how best to be able to calibrate this appropriately.
Taimur Baig: Absolutely. In my former life, I used to be in Washington, D.C., working for the IMF and the impact assessment store, and the narrative was there even in those days, but at a very macro level. What you're talking about is very granular and addresses the reality at the ground level. I think multilateral agencies have been remiss in addressing these issues in that way. So, I commend you for taking that very difficult approach. I've heard you talk about and it feeds right into what you just said that you know, ESG type issues are not necessarily an obligation, they can be opportunities. So, here's an example where you are telling us that how you can engage in these critical sectors, any other opportunities that you want to share with us?
Piyush Gupta: First of all, this whole agenda in the last year around, what they started calling “build back better,” and some people now call “build forward better,” will create a tremendous range of opportunities. I think industry and infrastructure is being re-architected for the future and as that happens, people are going to have to build out completely new infrastructure. So green buildings, the energy complex moving from the internal combustion engine to either battery or hydrogen, hydrogen itself as an industry. There is going to be tremendous amounts of money going into this building back better, and you can already see that. Think about the Euro Green Recovery Fund, EUR750bn, or you look at President Biden's stimulus program, large chunks of this are architected around rebuilding in a different way. In Singapore, I am on the emerging stronger task force and, as we're thinking about investing for Singapore's future, there’s really a very clear focus on digitization and sustainability because we think sustainability and focusing on some of these issues will create tremendous opportunities to invest in opportunities for growth. In addition to change in the infrastructure industry, I think there's also going to be a tremendous opportunity from recasting the plumbing, the infrastructure. In our case, for example, one of the things that we're trying to build out is the carbon exchange, to be able to deal in the voluntary carbon markets. Why? Because every company in the world has got carbon commitments. And the voluntary carbon markets are going to be very, very large. Now to be able to provide services to authenticate and validate the carbon credits, to trade the carbon credits, to be able to rate the carbon credit is going to be a completely new activity that never existed before. And participating in such infrastructure creating activities is going to be a new source of income and opportunity as well. That's another example for you.
Taimur Baig: Would you want to help the effort in Singapore to bring in more EVs?
Piyush Gupta: Yes, of course. As you know, DBS announced the last month, we have tied up with Tesla to do financing for a lot of Tesla cars. So certainly, that's something that we are keen on. But there are also other things that we announced recently. Last month, we announced with the Inditex, the owner of the Zara, a program to help them source organic cotton from India. Now this cotton is grown by hundreds of thousands of farmers. We have tied up with 2000 farmers. These 2000 farmers, through our supply chain financing and our tracking mechanisms, provide organic cotton, and we can certify the provenance of the cotton and create entire supply chain visibility for Inditex. That's another opportunity. So as people start looking at provenance, looking at sustainability, there are millions of opportunities you can create, whether in the EV space, as you suggested, or in the Zara example that I gave.
Taimur Baig: Absolutely fascinating. Finally, a bit of a regional question. So, we're lucky to live in Southeast Asia, which is increasingly prosperous and relatively speaking, stable. But there are three big undercurrents. Climate change is one, great power rivalry is the other one. And then this issue of the supply chain that is getting bifurcated around the great power rivalry. How do you see all this painting out in the coming years?
Piyush Gupta: I think the demographics and the fundamentals of Asia are intact and they will continue to drive a lot of opportunity in this region for the foreseeable future. I’ll list a few of those. So, I think it's a young population, and you could argue that in some cases the young population could be a time bomb. You know, in the countries like Indonesia and India, employment is a problem. But by and large, I think the basic truth that growing and young population still drive GDP growth, that still stands. And I think that will be a big driver of economic activity and growth, certainly large growth in consumption demand. There's also an increasing link to that, growth of wealth in Asia, more millionaires and billionaires being formed in Asia every day than in any other part of the world. And when you put that together, I think that will continue to underlie 4.5 -5% growth in real GDPs around the region for the foreseeable future. If you add some inflation on top of that, that gives a very decent nominal economic activity and growth. I don't think that's going away in a hurry. The second fundamental, which is really helping, is what I think of as the integration of Asia. So, Asia doesn't have Brussels, but that notwithstanding, the private sector and the people sector in Asia, continues to integrate rapidly. If you look at even the last decade and track intra-Asia trade relative to global trade, intra-Asia trade outperforms. But perhaps more important, if you think about intra-Asia capital flows, those have really exponentially grown over the last 10, 20 years. I remember in 1998-2000, the big question mark used to be that there are no fixed income markets in Asia, all of the money round trip from the US, while that's no longer true. And frankly, even if there's money sourced from the West, a lot of the decision making now takes place in Asia. So, this integration of Asia on trade, capital, I think that's quite powerful. Sometimes people say, Asia grows at night when the government sleep. So not having Brussels might actually be a good thing. Asia continues to integrate, and I think that sense of integration will still be there. That's notwithstanding the geopolitics etc. of Asia. The third is technology. For a bunch of these, I think, to a large extent linked to the first question of demographics, digitally native populations. Asia’s adoption of digital technology has actually been far more rapid than other parts of the world. And perhaps it's just that the average Asian age is 27, in the US is in the late thirties. In Europe, it's almost 40. And therefore, if you look at the use cases in China and India and Indonesia, ecommerce, gaming, finance, it's just at a different level from many other parts of the world. So, I think that fundamental is very much in place, and I don't think that is disappearing in a hurry either. I think there will be some challenges. It'll be trickier. The next decade will be trickier than the last 20 years have been for the reasons you cited; I think geopolitics was important in Asia’s success. Stability in the region was helpful. We're now going to have to duck and weave, and to make sure that we don't get caught between two elephants dancing. That's never an easy thing to do. Climate change is a big issue for many of our countries, Singapore, Jakarta with low lying locations. Now this is not imminent of the next 5 -10 years, but it is something that is going to get us to focus on a different set of challenges. And in Southeast Asia, I do think that the capacity of the region to come together and address these challenges is sometimes underestimated. We don’t have Brussels, but ASEAN is not a bad grouping. And Kishore Mahbubani says often ASEAN is probably the second most successful grouping in modern day history. It works in a strange way; everybody moves in their own bilateral pace, is not a unified agenda, but if you look at the outcomes ASEAN has achieved in the last 50 years, you can't scoff at them either. So, I think collectively in the region, we still have the wherewithal to be able to give people the livelihood, to be able to get growth rates that we've been talking about in the foreseeable future, And my last comment, from a financial standpoint, we approach the next 10 years with much better condition than we were 20 years ago. We go back to the Asian financial crisis. Today, corporate leverage is lower, banking sectors are stronger, currencies are more flexible. Foreign exchange reserves are far more robust than they used to be. So, yes, I think there will be challenges, but I still continue to be confident about the future of the region and about Southeast Asia in particular.
Taimur Baig: I fully share your micro realism and macro optimism. Thank you so much for your time and insight.
Piyush Gupta: It's been a pleasure, Taimur. Thank you very much indeed.
Taimur Baig: Great, thanks. And thanks to our listeners too.
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Taimur Baig, Ph.D.
Chief Economist - G3 & Asiataimurbaig@dbs.com
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