25/01/2014 Talking Business with Linda Yueh


25/01/2014

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with a win over Bournemouth. Now on BBC News it is time for this

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week's Talking Business, here is Linda Yueh.

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This quiet ski resort is transformed once a year when it hosts the

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biggest meeting of top business and world leaders.

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Here in Davos, Switzerland, at the World Economic Forum, I'm Linda

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Yueh, and we're Talking Business. A warm welcome to the programme.

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Davos is known for its mix of CEOs, policymakers and celebrities. We

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have just such a line-up of newsmakers. They share what they see

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as the biggest opportunities and challenges facing the global economy

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and business in 2014. Before we hear from them, let me show you what it's

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like behind-the-scenes at Davos. It's an unlikely spot for the

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biggest meeting of business leaders in the world. Yet here in Davos,

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Switzerland, 2,500 executives and world leaders congregate each year.

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This year's theme, how to reshape the world. Whether it's by bus,

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train or even helicopter, it's not just CEOs and finance ministers, but

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academics and journalists who come here to find answers. When I was a

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special adviser, I was always asked to propose concrete policy

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solutions. But first, what does the head of WEF think reshaping the

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world means? Reshaping means that the world is changing. We... The

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world in ten years will look very differently from what it looks

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today. Just look at the technological revolutions, look at

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the whole question of the cyber world, look at three-dimensional

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printing. And I could go on and on, where there is tremendous progress

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made in biology, in medicine and so on. So we will be in a different

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world, and we have to prepare for this world.

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Preparations may be nearly finished, but the hard work is yet to begin.

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There's going to be a lot of sessions talking about what the

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reshaped world will look like. There are the issues of slow growth, high

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unemployment, rising inequality and climate change, to name just a few.

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Maybe there'll be a report, but usually there isn't, and that's why

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Davos is frequently described as just being a talking shop. But then

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again, when the talking is by leaders, the networking process can

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be important. I've been invited to have drinks with a royal, dinner

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with a billionaire and a fireside chat with a tech entrepreneur. Some

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would say it's those conversations, rather than any concrete outcomes,

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that matter to reshape the world. As with all such grand plans, only time

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will tell. We first hear from Peter Sands, the

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CEO of Standard Chartered, a British giant that's one of the largest

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banks in the world with a strong presence in Asia and Africa. He

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shared with me his views on what 2014 holds. I'd start by saying that

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I'm looking at 2014 with a pretty positive view. The US is looking

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pretty strong. China, I think, is go to deliver at least 7% growth. Japan

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is not looking bad at all. And Europe, well, the least you could

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say is it is not going backwards. It may not be growing fast, but it is

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not going backwards, and in that backdrop, actually, I think 2014

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could be quite a positive year for the world economy. You ask about the

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challenges. There are a multitude of different challenges. We've got a

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huge amount of regulatory change going on in the banking industry, a

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lot of policy, important elections happening across the world in 2014.

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So there's no shortage of things going on. You mentioned there are a

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lot of regulatory challenges. Is there a chance that a lot of the

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regulatory changes in Europe is going to make it less competitive

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than, say, other parts of the world? There has been a massive amount of

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regulatory change, and one of the biggest challenges, and this is not

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unique to Europe, but Europe is part of this, is the degree of

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fragmentational difference. There was a huge amount of effort, early

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on after the crisis through the Financial Stability Board, to have a

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very co-ordinated and organised approach to changing banking

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regulation, but we seem to have lost some of that coherence. And that

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does create a danger, because it will drive a kind of deglobalisation

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of financial markets, which I think will cost everybody. You are a

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British bank, but you don't have a presence in British retail banking.

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Would you consider doing that? Our history, our strategy is focused

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on Asia, Africa and the Middle East. We are based in the UK, it a good

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place from which to run an international bank, but we have no

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plans to be involved in domestic business in the UK. Is there a

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reason for that? I think the Government would be very keen if you

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might be! We have huge growth opportunities in our markets, we

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have big and exciting growth plans in China, India, Indonesia. And

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also, that's where our history is, that's where we have deep

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relationships, where we have deep knowledge of what's going on. We're

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playing to our strengths. In terms of the emerging markets, larger

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economies are now saying that the emerging economies are not so

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exciting, they are back to thinking about the dull and old economies as

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being where the money should go. Have they got it wrong? I think

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economists are... Be very careful, Peter! I know, but economists are as

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prone to fads as anyone else. And I don't think the realities of the

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nature of the growth drivers in emerging markets have changed that

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dramatically over the last 18 months. Maybe they were overhyped

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before, but now the sort of gloom and doom about them is overdone as

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well. And you seen that, I mean the number of people who been calling

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the end to China's growth, and China seems remarkably immune to these

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kind of predictions. So of course, of course there are challenges,

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these are economies which are changing very dramatically, there

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are huge issues around financial deepening, infrastructure,

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governance, political change and all this stuff. So of course there will

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be dislocations and bumps and all this sort of stuff. But we see the

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opportunities in the emerging world, particularly in Asia, Africa and the

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Middle East, the places we know well, as being very exciting. China,

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of course, is a very big emerging economy. There's been a bit of

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concern that the shadow banking system has become, well, somewhat of

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a risk. You're very active in China, do you think there's a risk that

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China could have a banking crisis? I think China will and is taking

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action on the shadow banking sector, and it is a problem. One should

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expect, if an economy grows that fast, you're going to get sort of

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bubbles and distortions. It's not possible to do it all in a

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completely smooth way. But I think what you're seeing, if you look at

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the actions of the authorities around the shadow banking sector,

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they're squeezing it and putting pressure on it, and it will change.

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From our perspective, we have no exposure to it, we're not involved

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in it, and we still see China as a very significant opportunity for the

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bank. You mentioned that your areas of expansion, where you are more

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interested in, are Asia, Africa, the Middle East. Any plans to expand,

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Latin America, North America? We are very clearly focused on Asia, Africa

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and the Middle East. We have over 150 years of history in these

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markets, we really understand them, we have fantastic client

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relationships, and they offer massive opportunities for growth.

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Now, we are growing in Europe and the Americas, both Latin America and

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North America, but what we're doing there is enabling the trade and

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investment flows between those parts of the world and Asia, Africa and

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the Middle East. So we're not trying to do domestic business in those

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parts of the world, but there's an enormous amount of commodity trade

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and all sorts of types of trade and investment that we are involved in.

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That was Peter Sands, CEO of Standard Chartered. What does the

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view look like from one of India's biggest corporations? I asked

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Infosys CEO SD Shibulal about his latest technology investment in

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India. I think technology is becoming an

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enabler today more than anything else in the world. If you look at

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the history of technology, it started with data, and now it is

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about insight and intelligence. You are trying to get insight out of

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your data, your information, using it for your business purposes. So

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for example, some of the things which we do in India, we have a

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trading platform called TradeEdge. This platform allows providers,

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manufacturers, to get insight into their sales in emerging countries.

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The las- mile sales, for example how many pieces of candy have been sold

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in India or in China. And then that information can be fed back, and

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that can create the demand chain that can create insights into how

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the sales are flowing. We have launched a platform which is meant

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for financial inclusion for the bottom of the pyramid. These are

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people who are not part of the banking system. We process income

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tax returns in India, so we can do quite a lot of that kind of work,

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where the intelligence being used either creates insight or efficiency

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and productivity. One of the things about introducing technology to a

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low income country is, some may say, it isn't that profitable. What would

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you say to that? I think it's an opportunity and a challenge, because

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in India, if you want to do something, it has to cost 100th of

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what it would elsewhere. If you look at ICICI Bank, it uses our platform

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Finacle, and their cost of a transaction, the size is one tenth

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of the rest of the world. And the cost of the attraction has to be

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100th of what it is in the rest of the world to make a profit. So it

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creates an opportunity for what I call frugal innovation, innovation

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which is affordable, durable and leaner. See, the world has been

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doing very difficult things, faster, smarter and expensive, but countries

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like India need innovation which is affordable, durable, Lena, and that

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is an opportunity. One of the things about tech companies is that it is

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hard to stay a head of the game, what is your secret? Innovation is

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the secret, we always believe we have to be agile, nimble, we show is

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beat, and you have to be innovative in everything that you do. Whether

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it is delivering products to our clients, or to employees, or even

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doing things in India which have been done in the rest of the world

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but never done in India. You are a global company with a good profit

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forecast for this year, tell us about how you expect growth to be.

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11.5-12% is a good increase from last year, approximately 5%, so this

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is a good increase. We have added a number of clients this quarter, so

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overall our clients are feeling a bit more confident than in the

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past. At the same time, there is an apprehension because of the

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challenges which they went through in the last two or three years. But

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we are finding that our clients are more confident. A good forecast for

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your performance this year, still a tough backdrop in India, tell us a

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little bit about the scope of your business.

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We need to remember that this is a global market. 97% of our revenue

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comes from outside of India. Our market is 67% US and 25% the UK and

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the continent. We are playing in a global market. Who is on to winning

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the election? Only you can predict that. You worried? Is there any

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concern? India has had multiple elections over the past 15 years.

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But as I say, the direction has been the same. The country has been

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focused on creating, bettering the quality of life for people. I expect

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that to continue. Regardless of who wins? Yes. Before I bring you more

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newsmakers, let me show you what a typical day is like here at the

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World Economic Forum. Everyone stays in a pretty small town. And the way

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to get around from one venue to another is to get on one of the

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special shuttle buses. The thing about the buses is that you never

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know who you might meet on board. I hope the next person we picked up

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his match Damon -- the next person we pick up is Matt Damon or George

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Clooney. Or the Central bank president, Mario Draghi. Hello. I am

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Linda Yueh. I am Tony Hyams. What are you doing here? I am with the

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Australian Commonwealth superannuation Corporation. I am

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chairman of that fund. It is a large pension fund in Australia. What do

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you hope to do at the World Economic Forum? In particular, we are

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interested in long-term investment and the role of business. And also

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all sorts of other ideas and different perspectives. Finally,

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what is the best party you have been invited to? There are a couple this

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evening and we will see if we can make it. Thank you very much.

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Meeting people is one of the reasons why a lot of people come to the

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World Economic Forum. It is almost unique in that you can meet any

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number of contacts for your business or policy that could be important.

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It is the reason why 2500 delegates come to this very small ski resort

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in the Swiss Alps. We have heard the perspective from the business world

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but what do policymakers think? I caught up with the President of the

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World Bank, who shared with me what he saw as the key risks of 2014.

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Looking at it from the perspective of the emerging markets, the biggest

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risk would be a bumpy ex-it from unconventional monetary is. -- exit.

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When Benbow 90 made the announcement about the future capering, we saw a

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bump in interest rates. It is not clear to what extent we have seen

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these. We think we have seen between a third and a half. As long as it is

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smooth, we think that emerging markets can respond, but if it

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doesn't, a lot of capital could stop. That is the biggest risk from

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what we see. I think in the Eurozone and also in southern Europe, there

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are high levels of unemployment among young people. So there are

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still big issues that we have to tackle, not to mention the banking

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union, which is an issue we are watching closely. As you say, up to

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half of the capital flow could actually leave emerging economies. I

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am sure that that would be destabilising. That would be

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destabilising. And that would be all we could do to respond to that. In

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talking with the policymakers and leaders in the financial sector,

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every intention is to taper as smoothly and over as longer period

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as possible. Here and elsewhere, the talk is about slow growth rising

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inequality. What can be done about this? The top 85 people in the world

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control the same amount of wealth as the bottom 3.5 billion. The good

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news is that many of those top 85 are there and are committed to

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trying to reduce income inequality. But the good news is that there are

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a bunch of things we can do right now that will help economies to grow

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while at the same time being more inclusive. What I don't want to

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happen is that we sit around nibbling hors d'oeuvres and

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contemplating inequality. The message we put out is that yes, it

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is a huge problem and we know that there are things that we can do

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right now to grow our economy and reduce inequality. That was Jim Yong

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Kim. We have heard from a top policymaker and Chief Executive is.

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Now it is time to get the expert economic view on what 2014 holes. I

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caught up with one of the best-known economists in the world, Nouriel

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Roubini, a Professor at New York University, and asked him what he

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thought was the biggest challenge for 2014. The biggest challenge is

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coming from the fact that the still are a lot of risks in the economy.

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The Eurozone crisis is not over. The could be political tension in the

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Eurozone. There are certainly crises in the US. -- crisis mag. -- is

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there are certainly crises. In China, there is the question of a

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soft landing. And there is also geopolitical risks, but we will see

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whether a permanent agreement can be reached with Iran. There are

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tensions territorially between China and Japan which could eventually

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lead to a flare-up and military confrontation. Those are some of the

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main risks. How does the US economy look to you? The US economy is

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improving and growth is strong. There is less of a fiscal drag.

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There is shoring up of manufacturing and there is some strong creation of

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jobs. There are also risks because there is still gridlock in Congress

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and there will be shut downs on fiscal issues because of the lack of

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agreement between Democrats and Republicans. Important structural

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reforms will have to be undertaken, like structural tax reform and

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reforming entitlements like social security and health care. Unless the

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US does these things, the potential growth could be constrained. What is

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your one big prediction for 2014? Probably the commodities super

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cycle, the boost in commodities, precious metals, that could be over.

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The commodity price might correct worldwide. China is slowing down and

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the growth model will be less. For other commodities, there are new

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suppliers. After years of investment into new capacity. That will

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dampen, because of shale gas and so on, energy supply. And in the case

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of gold, the fact that gold prices have been boosted, gold has now been

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downwardly corrected. That was Nouriel Roubini. As I said earlier,

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you never know who you will talk to at divorce. I am about to go and

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talk to Matt Damon and Gary Whyte about their water charity, Bono. --

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Davos. Good to meet you both. Matt Damon,

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your day job is that you are an actor. Why have you come to the

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World Economic Forum? Why did you choose this place to talk about your

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charity? Well, we felt that it was a good laugh on to talk about what,

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and the work we are doing with water.org. -- talk about water.

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Water is on the agenda at a forum like this but they tend to look at

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water security and scarcity. We want to make sure that universal access

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to safe water is in the conversation. What do you hope to

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achieve here? What do you hope to get out of it? First and foremost,

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to elevate the issue on the agenda. There is water on the agenda here

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which draws us, but oftentimes it is about this looming water crisis,

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about water for agriculture or water for industry. And those are

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important things but the problem is that the 718 all you people get lost

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in the shuffle. So the crisis for them is now, not looming. -- 780,000

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people. We want to be the voice of the pure and help them to get to the

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front of the line, instead of being afraid that the water crisis is so

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great that we cannot afford water to connect them. There are many

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charitable causes you could support. Why water? There is limited time,

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and there are many wonderful causes, but water seemed to underpin all of

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the problems of poverty. It is so essential to life, and it is

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something that as I read more about it, and travelled more, I understood

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the complexity of it, if fascinated me. It is very complex and endlessly

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interesting. It is our goal to put ourselves out of business but our

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mission statement is that we envision the day when everyone can

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access a safe drink of water and adequate sanitation. Who are you

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most looking for to meeting? Lets see, I have met some wonderful

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people. I saw Bill Gates earlier. Another Harvard dropout. That was

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nice. And I saw the president of Hertford, who is a friend. That was

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nice. -- harboured. Hanging out with bone of was fun. -- Bono. Top

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business leaders and policymakers are more optimistic about this year

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than at any time since the global crisis. But there are is still a lot

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that keeps them awake at night including the causes of slow growth

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and its consequences. That is all we have time for this week. Check out

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our website and me on Twitter. And join us next week for more talking

:23:32.:23:33.

business. Today we saw some intense

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thunderstorms moving south-east across the country. While there is a

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bit of a lull out there at the moment, there is more severe weather

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to come. Concentrating on today, you can see that line of blue and

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green, our thunderstorms cleaving eastwards. Still a scattering of

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shower the Rumack to the north. But the forecast contains heavy rain,

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wind and

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