How Europe moves

Original article by Manuela Andaloro published in Italian on Corriere dell’ Italianita’.

COVID-19, Brexit and populism have changed the choices of European Expats 

A recent report in the Financial Times on the impact of COVID on expats has confirmed what many have perceived and experienced for a few years now: the brain drain has stopped.

The EU’s 2019 Annual Report on intra-EU Labor Mobility confirms that although intra-EU mobility has continued to grow in 2019, it did so at slower pace than in previous years.

To date, three quarters of EU-28 expats living in Germany, the UK, Spain, and Italy represent 4.2% of the EU population.

But how have the trends and interests of many expats changed? How has the current pandemic affected the fluctuations? What other causes have an impact on expat choices?

First off, it’s appropriate to clarify the term “expat”. Various definitions can be given to the term, in this analysis we consider “expats” those living and working in a host country by choice or out of non-primary necessity, for a definite amount of time; professionals often with higher education (master degree, post graduate, PhD, etc.). Professionals who have freely chosen the host country for a number of “soft” reasons such as a family, the desire for internationality, and career advancement. Those who, by fortune or merit, had the luxury of choice.

How do European expats experience their choice today?

What factors, dynamics, and political events affect current, upcoming, or future plans to date? What social developments have triggered a remixing of expatriation and repatriation flows?

An interesting interview – part of a recent analysis by the Financial Times – to a return expat expresses some of it: “The lure of the dream expat life had faded” says Tara (not her real name), 38 “Trapped in quarantine meant that the ease of traveling – one of the main reasons for being there – no longer existed. And the rise in anti-foreigner sentiment was another factor” she says, “perhaps because of the increased competition for jobs caused by the economic downturn”. Tara is not the only expat who opts to return home due to the fallout from the pandemic. Significant data points to the fact that we are witnessing a strong upward trend.

To this day, there is no official and structured data on the topic, nor analysis released by official bodies. However, based on recent macroeconomic, political and social frameworks, on EU government data, as well as data from the real estate sector, we can make some hypotheses.

Many factors driving change and second thoughts point to Brexit, to the growth of populism, to the COVID-19 pandemic, and the related perception of how the host country has handled such an emergency. 

In a recent survey on its global customer base, the real estate franchise Knight Frank has revealed that nearly two thirds of expats (64%) say that the lockdown has influenced their decision to purchase a new property in their home country. Of these, approximately 29% said they will return to the country of origin full-time, and 57% are looking for a home to use there in the future.

UK and Ireland – Brain drain and counter-exodus?

Ireland seems to be leading the list of countries of return expats. The most recent figures of the Central Statistical Office show that 28,900 Irish people have returned to live and work from January to April 2020, the highest number in 13 years. And between March and September 2020, the Irish Department of Foreign Affairs  received approximately 8,000 return requests from the Irish abroad.

“Ten percent of our newly built home sales in Dublin in 2020 were from returning expats”, confirms Ray Palmer-Smith of Knight Frank’s Irish office.

The Oxford-Berlin Research study finds that the number of Brits who instead leave the UK for continental Europe is at its 10 year-highest, and about half of all British citizens living in Germany will have dual British and German nationality by the end of 2020.

The numbers are based on data from the Organization for Economic Cooperation and Development. The British who decided to obtain European passports (in Spain, Germany, France, and Italy) increased by more than 500 percent, and by 2,000 percent in Germany.

With expats reconsidering their options, the implications for relocation of businesses, for international schools, and for global corporations seem to be stronger.

Switzerland - reality check necessary?

Switzerland has a very high number of immigrants, about 25% of the resident population. Over 60% of them are highly educated, 85% are EU expats, often attracted in the country by very favorable fiscal conditions: a strategy, however, that other European countries are adopting more and more frequently. 

In 2019, net immigration was around 55,000, on par with the previous year, but down from an annual average of 72,000 from 2009 to 2016.

As for Switzerland as host country of choice chosen by European expats, the trend seems to be stalling. Life quality does not seem to be satisfactory.

The InterNations Expat Insider 2019 survey on expats shows how Switzerland scores 38th in terms of preferred expat country: the study highlights the difficulties and the cold reality of life in the Alpine nation.

The impressions of expats living in Switzerland have deteriorated in all five indices in recent years: quality of life, ease of accommodation, work, family life, and personal finance. “Switzerland has lost 40 places in the past five years. This is a big drop”, admits Malte Zeeck, founder and co-CEO of InterNations. Affordable health care (61st) and childcare (35th out of 36) are also major issues for expats .

While Switzerland was a major destination for career expatriates just a few years ago, it appears to have lost some of its appeal: around a fifth of respondents express great dissatisfaction .

To date, we can only hypothesize that the Covid crisis will have a further role in confirming a trend that still seems to point to the fact that fewer expats in recent years choose Switzerland as a new destination, or choose to stay there.

Germany - efficiency and humbleness

Germany has a significant and powerful economy which allows expats to have a high quality of life. The population of expats in the country has gradually increased over the years, and to date, expats in Germany represent 3.7% of the population (as opposed to 15% of total immigrants). The level of education in the country is high, as are public infrastructure and health systems.

A recent analysis of the country by Bloomberg shows how Germany tends to often be painted either by outsiders or by insiders in superlative terms  that are however mutually exclusive. A dichotomy, but neither extreme captures the real picture. Externally an enigmatically strong, orderly, efficient, or even enlightened country? Internally painted as a country that lives in the past, slow and calcified? Observations that often say more about observers than about the observation itself.

Germany is an economy, a society, and a culture extraordinarily good at cushioning the blows, but at the cost of giving up reinvention, innovation, and adaptation.

Unfortunately, various German institutions reinforce the tendency towards scarce innovation. The strong and traditional professional training of students proves to be useful to provide highly skilled workers for a specific career. But it does not help to prepare young Germans for the continuous challenges posed by the Fourth Industrial Revolution and the need for life-long learning. 

There is a strong humbleness in Germany: the country has sadly learned from history that “exceptionalism” is not only wrong, but dangerous. And it acts accordingly.

The Expat Insider 2019 analysis points out that the country ranks fourth in the world in terms of work, but social and language barriers often don’t make expat experiences easy.

Germany ranks third out of 64 for job security but among the bottom 10 for ease of acclimatisation. As for families, it seems that only Austria and Switzerland have an even more hostile attitude towards families with children.

A study by Destatis , the German Federal Statistical Office, confirms a strong decrease in arrivals and departures recorded in the first half of 2020; a decline recorded in March that is only due to the pandemic, while the data in recent years had shown a permanent trend in expat arrivals, and increasing if we consider the entire migrant population (2019 data).

For many, both inside and outside Germany, the efficient management of the pandemic has highlighted the country’s appeal: low unemployment, a generous and accessible healthcare system, effective political leadership and a stable society .

Italy - the new era that attracts foreign talent and return expats

Italy has almost 10% of the foreign population in 2019 , in third place after Germany and the United Kingdom, and followed by France and Spain .

Expats from all over Europe settle in Italy and represent almost 6% of the European population in the country (50% of the total number of immigrants, EU data, Istat, statista).

However, in expat polls, at least up to 2019, Italy does not score excellent results.  The cost of living in Italy is “higher than in many other EU countries, but different depending on the region and the city”.

The vast majority of European expats in Italy is concentrated in Lombardy, and in particular in Milan, with 15% of immigrants. The latter has received, from 2015 to date, an inexorable flow of investments in various sectors, including those of EU expats.

As for returning expats, the COVID crisis seems to have played a key role, in combination with the recent fiscal policies implemented by various European governments, Italy among the first to offer interesting tax benefits.

What emerges from the research COVID-19 - L’impatto sui giovani talenti (the impact on young talents) – conducted by the PWC Study Center on the joint initiative of Talents in Motion, PWC, and Fondazione con il Sud (foundation for the South) through the LinkedIn platform during the acute phase of the health emergency – is clear. The aim of the study was to understand how the pandemic has affected lifestyles, career paths, and expectations of Italian talents with an international profile. The results give a strong indication: over 25% of Italian expats abroad will return or have returned to Italy, and almost 80% are considering this option.

The actions implemented by the Italian government are perceived as more effective than those of the European Union, in responding to the COVID-19 crisis. The Italian government’s response is widely perceived as one of the best after the German one.

Will life as an expat in Europe as we know it today survive COVID-19, populism and Brexit?

Health concerns and travel restrictions mean that more expats in Europe and around the world return home.

All too quickly, COVID has stripped many elements of life from expats. Families in other countries suddenly seeming too far, the fear of being confined in a country where anti-COVID measures are not efficient, and the growing populism that could increase due to the inevitable economic crisis are all factors that have exponentially increased the interest of many in moving or returning to their country of origin. International companies will most likely continue to transfer talent across the world , perhaps in less amounts, or especially people in leadership positions. But even so, the constant flow of expats returning home is evident according to government data, recruitment indicators, and to real estate agents of the countries where many of them return. While the figures are still hard to come by, clear and strong signs of lasting change are beginning to emerge.

M.

(info@smartbizhub.com)

Original article published in Italian on Corriere dell’ Italianita’.

Is this the end of big cities?

Article by Manuela Andaloro for Corriere dell’italianita’.

Being an investor in the real estate market for years, I have grown quite an interest in the dynamics that drive the sales and rental markets. The golden rule has always been the same: location is key.

This was a cornerstone in the pre-COVID time. What about now? 

Will COVID cause a real estate vacuum in big cities and a boom in rural towns?

The latest developments suggest that the ‘smart working revolution’ will prompt people to flee overcrowded and expensive cities for greener and more sustainable areas. Thanks to speedy broadband connections and a reliable network infrastructure, many are considering moving to holiday homes, in the suburbs, the countryside or the mountains, at the beach or the lake. Lockdowns seem to have opened up new scenarios: living in nature, reconciling family, career and leisure time whilst keeping a well-paid job in the city is now possible.

Will the urban fabric undergo some deep changes then? And, above all, is this event large enough to be considered a structural change?

A shift towards a coveted more sustainable future, supported by the introduction of COVID-19-related rules, was inconceivable until a few months ago in a society devoted to extreme urbanisation. 

Social distancing and the ongoing pandemic have deprived big cities of their greatest charm – melting pots that attract and blend the lives and skills of different people. Those who love cities – and there are many of them – cannot wait to return to normalcy or, rather, to a new normal, because this epidemic, like every crisis, is also an opportunity to rethink and improve our lifestyle. And this is true also for large cities.

Famous architect Stefano Boeri, earlier this spring expressed his stance on the matter without any doubts: "In the UK people are expected to leave most densely populated areas soon". The same goes for Italy, where those who own a second home will most likely decide to move there or, at least, spend long periods there, making the most of the convenience and potential of smart working. Boeri considers this experience an opportunity to rethink one's way of life and stresses that "going through this tragedy without understanding its causes would be a real waste".

After all, what is the point of paying more than a thousand Euro for a room in central London, Paris, Milan, New York, if you can work from a larger house, perhaps with a garden, from any location?

Questions like this are frequently asked in public debates worldwide and many people answer without a second thought, especially in the wake of the recent lockdowns, confined to narrow spaces without any nature. It is not worth it, the future of our cities is at risk. 

The New York Times has published an extensive article on this subject. The analysis concludes that the Coronavirus could represent an unprecedented cut-off for urban concentrations.

Gabriele Albertini, the former mayor of Milan, talks about the lure of large urban hubs: “Should this situation persist for years, urban design will have no choice but to adapt. Cities have much more to offer than only a physical workplace: besides the work opportunities, we cannot forget also the social and cultural ones. It is wrong to limit a city only to its offices”.

However, the tendency to flee large cities is quite significant: as the Financial Times reported, in the City of London most companies are in no hurry to bring their employees back to their offices.

Many big companies are going down the same road – Google will not have its employees back in the office before spring 2021 while Facebook went the extra mile, announcing that half of its employees will work from home within the next 10 years.

Are the policies of some companies sufficient to generate a structural change leading to the opposite direction to what we have witnessed for hundreds of years, during which mankind has migrated to cities, or will this be merely a privilege for a few?

Will the housing market in cities hold up in the short term? What about megacities versus smaller, greener cities close to nature?

On top of that, there is a social factor to consider. Both private and working life is fuelled by physical presence, by one's network, by the readiness to seize new opportunities or participate in events... All of this is possible only in large cities.

Finally, we must take into account the inevitable commercial interests of the geopolitical stakeholders in big cities. The investors backing the construction of skyscrapers and offices in "prime locations" will clash with large companies for divergent interests.

The governance of the cities will not accept full time smart working indefinitely. The conflict will then affect access to public assets, events, public transport.

If buildings, theatres, cinemas, trains can no longer reach their full occupancy, costs will increase and the final consumer will have to bear them.

Not to mention health. How will countries deal with an increasingly elder population, dispersed in small towns?

Will we face increased health risks when living far from the major health facilities?

Politics will then come into play, taking one or the other side. Climate change will be a hot topic too: on the one hand, it is safe to say that less crowded urban areas ensure environmental sustainability and less pollution; on the other hand, however, we will have to rely less on public transport and more on private cars and we will have to build new homes and infrastructure.

There is clear evidence that megacities (cities with a population of more than 10 million people) such as New York, and London will suffer long-term impact.

The so-called “London crisis” goes beyond the fear of Covid, Londoners were happy to give up days that involved hours of travel squashed on tube and trains, unhealthy and expensive meals and stressful interactions with bosses and colleagues.

Unlike in other smaller cities, only 20% of employees has gone back to the office and to the City. The remaining 80% has little intention to return to a pre-COVID time.  Will London become a ghost town? The fear is real: the City remains empty, offices are deserted, cafes closed, few people around, public transport sees 70% less people. The result is catastrophic: the entire economic system on which the British capital was based is crushed. It is the business model of the capital that is going into meltdown: until now it was based on the idea of ​​concentrating millions of people in the centre.

The pandemic has made clear that current technology makes all this superfluous as everything can be done from home.

Someone compared the fate of London to that of the Northern England mines in the 1980s: when their model became obsolete, they were forced to close. Will the same happen to what used the most electrifying metropolis in the world?

And what about the city that never sleeps, New York City, will it ever wake up?

Not according to James Altucher, a best-selling author and former hedge-fund manager who wrote, in a recent article that went viral, that New York City is “dead forever” as its residents come to grips with the reality of the coronavirus pandemic and what it means for the fate of the Big Apple. Altucher isn’t alone, of course. The New York Times back in June asked the “agonizing” question: “Is New York City worth it anymore?” amid a mass exodus of an estimated 420,000 residents between March and May.

What about smaller cities?

What will be the normal way of city life when the pandemic passes? What will remain and what will disappear?

Like all change, it is difficult to predict. But lessons from history provide us with important knowledge: 

1.     Temporary change sometimes has little lasting effect.

2.     Lasting effects are often the acceleration of existing trends, rather than new, crisis-caused trends.

Working from home has overnight become endemic. Schools and universities switched remarkably quickly to almost exclusively online platforms. We might truly have an opportunity for our cities to shift to new ways of more sustainable urban living. This might be harder to achieve for megacities, easier perhaps for smaller, more adaptable cities. Businesses should seize the opportunity, implement the technology and leverage the current strong determination to achieve successful outcomes and more sustainable ways of living.

So will COVID cause a real estate vacuum in big cities and a boom in rural towns?

Through an exploration of trends the virus has brought to retail, office, hotel and residential real estate, as well as the air travel and vacation industries, a recent report by Fitch Ratings, makes some predictions for the future.

City center real estate may take a hit.

Newly remote workers may transform the residential real estate landscape because of a desire to move to suburban or rural cities. They need bigger homes to fit in their home offices, the report said. People also want outdoor living space because of their experiences during lockdowns.

“Within the big cities, there could be weaker demand for malls, non-grocery real estate and office space. Empty office and multi-family residential buildings may wind up meeting housing needs and bringing down housing pricing pressure in big cities, the report said.

Renting, rather than buying, apartments or homes may become more popular for several reasons. Some people may not be able to obtain affordable credit, while others will just feel uncomfortable taking on a big loan during the uncertain economic climate.

This may significantly increase demand for rental housing, which should boost demand for single-family and multi-family rental properties.

This could be different for student apartment complexes, since university classes are remote and fewer overseas students will attend because of how the pandemic has slowed international travel and impacted immigration figures. Some students may just attend college close to home, for budgetary reasons.”

For centuries, cities have played a fundamental role for mankind. If in the future, people will not spend most of their time in a lockdown and the social distancing issue will be at least partially solved, then the cities, especially those close to countryside, lakes, mountains and seaside, will again become the political, economic, social and commercial core of our society, at least for a large part of the population. A large question mark however remains on large megalopolis that confine people in small apartments and are not located close to natural escapes, shifting the real estate demand for new, sustainable locations.

 Manuela Andaloro

(info@smartbizhub.com) 

(Sources: CNN, Il Sole24Ore, Linkiesta, New York Times, Financial Times, The Conversation, Globest, Fitch Ratings)

COVID-19 LENS: LONGEVITY ECONOMY AND GRETA GENERATION. FINTECHS MUST THINK BIG.

Built for growth, the global economic machine has been brought to a screeching halt. Thanks to intervention on an unprecedented scale, a full-scale meltdown has been averted – for now.

On January 30th, 2020, 43 representatives from 32 UK FinTechs, 25 Swiss banks and financial institutions, 7 VCs, 19 Swiss FinTech players, and many others gathered in Zurich: over 180 experts met to talk innovation, sustainability, and investments.

We didn’t know then that our world was about to change for a while to come – perhaps forever – and that soon we’d have put our discussions about innovation and sustainability to practice.

5th UK FinTech Mission to Switzerland event, 30.1.20, British Embassy Bern, DIT, Zurich Insurance

Key discussions of the day focused on social shifts driven by the longevity economy, age diversity, and ethics reshaping the financial world. Our aging society has been affecting consumer trends, opening new opportunities for businesses and workforce, while increasingly, 40-year-old millennials have been leading the charge of socially-responsible and sustainable investing, both ultimately driving the greater good.

COVID-19 has changed the ball game in today’s global economy, society, and impact investment strategies, calling into serious question our ability to reach the Sustainable Development Goals (SDGs) by 2030 – if that was ever possible.

With the current crisis in full development, many hope that a “mindset shift” will occur once a “new normal” is achieved. Both optimists and pessimists seem to agree that western balance sheets will at best go back to 2008 levels. In terms of debt-to-GDP, we’re talking of 10 percent or more, plus unemployment at 15-20 percent coupled with the strong possibility of populist-enforced cuts in foreign aid and the very likely scenario of social unrest across the first world.

The financial meltdown (currently deemed to be worse than that of 1987 or indeed, as some say, similar to the Great Depression of the 1930s) will also very likely reduce traditional foundation funding. 

It is interesting, and very difficult, to think now of the topics we discussed on stage only a few months back, and to do so, wearing a Covid-19 lens. Most of the challenges we discussed – whether concerning the aging population among consumers and investors as well as in the workplace, or the attitude of millennials towards social good – have only worsened. Possibly, two key aspects will emerge and might be the staple to overcome the ever-greater challenges ahead: digitization and sustainability, sparking new discussions around a new way to work and to engage in less-social contexts, and around the increasing need for impact and sustainable investing.

“As the Chair of the International Accounting Standards Board recently noted, the current approach ‘will not prioritize planet over profit.’ What is important for both sides of the for-profit and not-for-profit divide is not what people are saying – but what they are already doing to be socially impactful. What are we paying for?  And what is the incremental impact of each government or corporate dollar to each SDG? In other words, we need a metrics process whereby everyone is seriously involved and stakeholder actions are competitive, comparative and, predictive.

If not, we will continue to witness a decline in both the effective statistics measuring the SDGs as well as the effectiveness of programs designed to serve them, with an expansion of the funding gap. The danger is that, by 2030, the international community will have spent $6 trillion with little to show, particularly to teenage Swedish activist Greta Thunberg’s generation.”

Governments are pumping out capital to try to save economies and bridge financing gaps around the world, but it is apparent that government funding alone is likely to be insufficient to solve this immediate crisis. Nor can it be relied on as the only solution for the longer-term investments required to build stable, resilient systems that can manage a planet headed toward a population of 10 billion people within the next few decades. 

We know that climate change will disproportionately affect those at the base of the economic pyramid; as we are experiencing with coronavirus-related deaths and job losses, the same is true for this pandemic. The crisis has highlighted the case for purpose-driven, inclusive finance across both the environmental and social sectors, which is at the core of impact investing.

An encouraging takeaway from the crisis is that the push for private capital to act more decisively as a force for good in society and to shoulder a portion of the investment burden does not have to come necessarily with attractive returns.

 Visionary leadership needed.

As the COVID-19 pandemic continues to create uncertainty, many FinTechs are under stress on a number of fronts. Access to funding – especially for some early-stage ventures, as many investors focused on established FinTechs with clear business models –, recent interest rate cuts and the economic slowdown have radically changed many industry assumptions.

Yet, as the broader economy shifts from response to recovery, COVID-19 may create new opportunities for some FinTechs. For example, as social distancing has taken hold worldwide, there has been very strong growth in the use of digital financial services and e-commerce, as well as an increased interest in doing the “social good”.

Keeping an eye on future opportunities, FinTech companies may be forced to reexamine their missions and business models after COVID-19. A key question is how to leverage both existing and newly-developed assets to seize new opportunities in the future. It could be an opportune time to think big and act boldly. First and foremost, it is apparent that social distancing is accelerating customers’ use of online – especially, mobile – channels to view and manage their finances. Because many FinTechs are purpose-built for the mobile channel, they often excel in offering presentation, on-boarding, underwriting, and data visualization services, as well as in providing the right context for transactions. These capabilities will likely become even more relevant and important as a greater number of financial transactions are conducted through digital channels.

FinTechs can play an important role, perhaps through strategic partnerships across a broad ecosystem of players – including financial institutions, retailers, and the government sector – in distributing benefits to more vulnerable sectors of the population. Indeed, many FinTechs made it their mission to democratize financial services by providing basic financial services in a fair and transparent way. 

COVID-19 and the Longevity Economy

Despite the outbreak, the global population continues to age, and we expect global life expectancies to creep higher over the long term. Although we may see some changes in consumption patterns post-COVID-19, the key drivers of the longevity economy will likely remain intact.

The “Longevity Economy” is redrawing economic lines (AARP research), changing the face of the workforce, advancing technology and innovation, and busting perceptions of what it means to age. Bank of America Merrill Lynch projected in 2019 that the global spending power of those aged 60-plus would reach $15 trillion annually by the end of 2020.

Increasing longevity had, until February 2020, spurred unprecedented economic growth and new opportunities for personal fulfilment. Markets have been evolving to meet their needs and aspirations, offering new opportunities.

Aging adults are not only consumers – they are our only increasing natural resource, a talent pool that can power businesses and enhance the communities of the future.

Over the next few decades, baby boomers and Gen X will pass a significant amount of wealth (calculated at $30T prior to the COVID crisis) on the millennial generation. With very high spending power, millennials have started to reshape the investing and FinTech spaces to better align with their ethical values.

FinTechs for social good

“Life is what happens when you are busy making other plans.”  As we struggle to bring into focus the long-term impacts of a post-COVID-19 world, Lennon’s quote is a poignant reminder of the uncertainties that lie ahead for sustainable and responsible investors. 

We are now approaching an inflection point in the crisis, where savvy investors are fundamentally reassessing economic, environmental, social and, governance factors to adjust to the new normal.

The time has passed for small commitments, hyperboles, and delays in embracing sustainable investing. Now is the time for leadership, investment, and action.  Companies and investment managers that remain on the sidelines will sacrifice their opportunity to shape their own, and the planet’s, future.

Within 36 months, there will no longer be a discernable distinction between sustainable and traditional investing, predicts the Responsible Investor.

We can only take note and act fast.

Manuela Andaloro

(info@smartbizhub.com)

Sources: Global Geneva, the Guardian, Deloitte, Gig Economy Data, Responsible Investor.

Republished also on Corriere dell’Italianita’

UK FinTech Mission to Switzerland 2020