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Prior to the COVID-19 pandemic, a number of inter-related economic and societal drivers were improving life for a billion emerging middle-class consumers. At Ogilvy, we termed this velocity — the accelerating pace at which economic improvement, coupled with technology and urbanization, transforms middle-class social values, sentiment, and consumer attitudes.
Ultimately, this velocity has reshaped daily life for scores of people in “emerging” markets in South and South-East Asia, such as India, Pakistan, Bangladesh, Vietnam, Indonesia, and the Philippines.
Then came the pandemic, which reversed the progress for swathes of those emerging middle-class consumers. Businesses folded, tourism dwindled, growth faltered, and the decline of global inequality and poverty (previously due to rising emerging middle-class incomes) went into reverse. As key economic indicators declined, Asia’s velocity markets took some hits.
As we enter a second year of the pandemic, there are many questions about the damage the pandemic has inflicted on the global growth model, the path of the bounce-back, and whether there will be a full return to normalcy. Central to these considerations is the question: Will velocity markets in Asia regain their growth and get back to the transformation path of the past few decades?
However, the key to several of the velocity markets has been the declines in tourism and the informal economies.
Ultimately, our view is that the velocity of emerging middle-class consumers in Asia will return. Powerful forces — in combination — previously lifted a few billion people into the global middle-class and are likely to do so with the next billion in the coming years. But the path of return, and the timing, will depend upon key factors that were driving velocity prior to the pandemic.
The pandemic has taken a real bite out of the global economy, and the economies of developing Asia. Estimates from the Asian Development Bank are that the pandemic resulted in a global loss of between 5.5 and 8.7 percent (or $4.8 to $7.8 trillion) of world GDP in 2020. Current projections are for a further global loss between 3.6% and 6.3% ($3.1 to $5.4 trillion) again this year.
In developing Asia, the pandemic took an even greater bite estimated at 6.0 to 9.5 percent of GDP loss in 2020, and — in line with the world — a 3.6 to 6.3 percent decline again this year. South Asia — the epicenter of projected growth of middle-class consumers in the coming decade — took a disproportionately bigger hit.
Multiple factors impact an economy, from consumer and domestic spending to exports, tourism, foreign direct investment, and the extent of government intervention and stimulus. These factors have all varied across the velocity markets during the pandemic. However, the key to several of the velocity markets has been the declines in tourism and the informal economies.
Despite the recent challenges, there are reasons to believe in the continued aspirations of emerging middle-class consumers.
The informal sector makes up one-third of the GDP of developing economies. It is estimated that globally informal workers lost 60 percent of their income in the first month of the pandemic. The crisis has threatened to destroy the livelihoods of 218 million informal workers in South-East Asia, which represents anywhere between 51 and 90 percent of the non-agricultural workforces in the countries in this subregion.
Tourism revenue as a proportion of the total economy varies across Asian markets. However, it is clear that it is a major factor in the decline and also linked to the decline in female employment during the pandemic. The return of both informal sector jobs and tourism, as COVID-19 eventually gets contained, will play a key role in the economic bounce-back.
Despite the recent challenges, there are reasons to believe in the continued aspirations of emerging middle-class consumers. In the years running up to the pandemic, many of the velocity markets in aggregate were moving towards a critical tipping point at which the local middle-class, defined on a local purchasing power parity basis, would become the majority of the population.
The move of consumers into the middle-class broadens spending, lifestyles, and consumer expectations. Take China, where the past two decades brought about tectonic shifts in consumerism and lifestyles. Entertainment, particularly the Chinese box office, and tourism both enjoyed multi-year booms.
The rise of China’s digital society also spawned an e-commerce revolution, spurring more economic activity, and pushing the cycle of change for hundreds of millions of people. The visible benefits of economic inclusion have not been lost on the emerging middle-class — the “next billion”. Their fundamental aspirations have not been extinguished, even if their progress has been slowed during the pandemic.
If there’s one single factor most responsible for generating velocity, it is women. Women’s critical role in the economy, and as societal shapers, must be recognized.
A steady increase in female education over decades has been the foundation for the rise of women. In some markets, women have begun to outstrip men in the attainment of higher degrees. This has led to more women in the workplace, some in more senior roles — though it is important to note a gap still persists in many markets.
Female empowerment has impacted more than corporate culture. Women have increasingly turned to entrepreneurship, including Instapreneurship — leveraging social media to conduct business via social selling.
The return to velocity is dependent upon the return of women to prior levels of both informal and formal work, and their continued involvement as entrepreneurs of all stripes.
Women — both directly as purchasers and indirectly as influencers — are critical to generating economic activity and instigating social change. Female spending spurs the consumer economy but also has an important longer-term cyclical impact as women often leverage full and part-time income to reinvest in their family’s care and development, providing tuition, helping a relative, or acquiring items that will help their direct family.
In short, women are the ultimate force of change in the Asian economy and society.
Against this backdrop, the disproportionate impact of COVID-19 on women should be concerning for all. Globally, 58 percent of employed women work in informal employment — as already noted, one of the hardest-hit sectors. Formal economy jobs have been impacted too.
According to the International Labour Organization, 140 million full-time jobs may also be lost to COVID-19, and female employment is 19 percent more at risk. Adding insult to this injury are social inequalities that preceded the pandemic, such as the gender pay gap. Globally, 70% of health workers and first responders are women.
Yet, according to the UN Women’s department, there’s a health sector pay gap of 28%, which is higher than the overall pay gap of 16% — at a critical time when women’s participation should be more valued than ever vi. Sadly, it is not a surprise that the Gates Foundation and UN Women’s division both project that the female poverty gap has widened due to COVID-19, with women representing an even higher proportion than men of the newly impoverished.
The return to velocity is dependent upon the return of women to prior levels of both informal and formal work, and their continued involvement as entrepreneurs of all stripes. The foundational role of education will be critical too to the future. It will be vital to ensure that young girls are able to return to school, and – as feared by UNESCO – 11 million young women don’t leave school permanently due to the pandemic and fail to return.
During the pandemic, women have often played the role of primary caregivers. Via social media, they continue to play an active and vocal role in social commentary. And women continue to harness their education and inventiveness to find and create new economic activity. Some countries have recognized the importance of supporting women during COVID-19.
India, for example, transferred cash via its digital identity and payment system to 200 million women once the crisis hit. Women are resilient. So, despite the temporary setbacks created by the pandemic, women will create ongoing velocity in the rebound, and continue to spur future change in Asia.
Over the past several decades, technology and urbanization have been twin pillars reshaping the virtual and physical lives of people around the world. COVID-19 has impacted these pillars in different ways, acting as an accelerant for digitalization, while causing new demands and limits on our physical surroundings. However, both digitalization and urbanization will be major factors in velocity in Asia beyond the pandemic.
Urbanization has been perhaps the most visible sign of velocity in the Asian markets. The growth of the Asian mega-cities, and their transformation to gleaming skyscrapers, has been an unmissable sign of change. Cities spur economic activity. It’s no wonder that prior to the pandemic, 25-30 people migrated to Indian cities every minute.
Going forward, cities will not disappear, though they will need to continue to reinvent, which is likely to spur their transformation as smart and greener cities.
However, the deeper story of urbanization has been occurring in the second and third-tier cities, which are also key economic engines. The spread of new growth towns and satellite towns, sometimes around new factories, lead to more shops, conveniences, and services that spur opportunity and activity.
COVID-19 has certainly put a temporary halt on some of the key aspects of life in cities. Lockdowns and social distancing have cut back on normal activities, and many hotels, restaurants, and areas for entertainment have been shuttered. The lack of jobs in cities has triggered some reverse migration back to rural areas by informal workers without jobs. Plus, the switch to working from home has led to more knowledgeable workers considering new living options in less densely populated areas.
Going forward, cities will not disappear, though they will need to continue to reinvent, which is likely to spur their transformation as smart and greener cities. The irony amidst the financial devastation is that that COVID-19 has been a boon to cities in terms of cleaner air.
As noted, the re-thinking of lifestyles could further spur the growth of second and third-tier cities, which could lead Asia’s future urbanization trends as a key source of velocity. As sometimes happens as a result of a crisis, there are changes that make systems better in the long run. The decades-long trend of urbanization will continue.
People begin to look more to trust and accountability from companies as well as institutions.
The multi-decade trend of digitalization, on the other hand, has only accelerated during the pandemic. This is no surprise — and empirically obvious to most people — given the need for businesses to respond to consumers’ needs with new solutions to extended lockdowns in many countries.
COVID-19 has produced a burst of innovation and digitization of commerce, logistics, direct-to-consumer products and services, and digital payments. But even then, the degree of acceleration is surprising. By some estimates, businesses have accelerated the share of digital or digitally enabled products by seven years during less than one year of COVID.
The demand for home deliveries for food and a variety of commerce is creating new jobs, filling some of those that dwindled during the pandemic. And the view is that many of the consumer habit shifts to more regular use of digital entertainment, broadening use of e-commerce, more sustained work-from-home, and the increased use of social platforms will be permanent in nature, constituting an accelerated ‘new normal’ post the pandemic.
Balancing this optimistic outlook about the acceleration of digitalization is the reality that COVID-19 has further accentuated the problems of the digital divide, with children on the less fortunate side of that divide suffering in terms of their schooling, ability to continue lessons or exercise virtually.
Plus, the least developed Asian markets lag in high-speed internet, and the gender gap plays a role too, with female access to the internet lagging behind men in some markets. According to the United Nations Economic and Social Commission for Asia and the Pacific, more than half of the region’s 4.1 billion people remain offline. So, despite the seeming ubiquity of digital devices, there is still a real gap in digital inclusion, generally at the lower socio-economic levels.
The pre-pandemic projections were for a continued, steady increase of digital access for emerging middle-class consumers in Asia, due to a host of factors including ever-cheaper mobile technology and public and private sector initiatives to close the digital access gap.
Growing technology access, coupled with the accelerated uses of technology for those already with access, will continue to be a key component of Asia’s future velocity — particularly as technology enables more forms of informal economic activity and greater female economic and social participation.
The pandemic has dominated both the headlines and the mindshare of many consumers. But that doesn’t mean the disappearance of other social and environmental concerns amongst the growing middle-class of Asia. Consumers were making a myriad of demands on companies and brands prior to the pandemic, and they will continue to do so.
The growth of the middle-class has historically represented a shift in values — and it does so today in Asia. Spurred by technology, which affords greater access and exposure, and the ability to both virtually organize and communicate, a key aspect of velocity has been the growing activism of consumers. People begin to look more to trust and accountability from companies as well as institutions.
Particularly in difficult times, companies need to show their best selves and act by the brand values they espouse. COVID may have temporarily altered purchase behavior, but in the long-term, brands that heed this call for being more than a product will succeed. Ignoring this will put a brand’s standing and its growth potential at risk, as companies potentially under-estimate the rate of change.
COVID-19 constitutes the largest economic shock in decades. The set-back has slowed the progress of the emerging middle-class. However, societies have weathered previous shocks and setbacks. Ultimately, there will be a return to growth. It may not happen as quickly as we want, and some Asian markets may recover slower than others. A longer-term view, one with focus and foresight, suggests that the future is better than it appears now.
No matter the trajectory COVID-19 takes, Asia’s overall path still looks bright, thanks to the ongoing potential of new middle-class consumers. There will be some modifications and changes and people’s lifestyles will change in the short term, but the fundamentals driving velocity in Asia are enduring. Watch them for a glimpse into the progress Asia will make and look to them as a guide for priorities and opportunities for marketing in the future.
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