SECURING THE SOCIETY IN SALUSIA

SECURING THE SOCIETY IN SALUSIA

1 PROBLEM STATEMENT As the advisor to the Finance Minister of Salusia, you have been tasked to recommend measures to address the challenges related to social security and postretirement sustenance in the country. Having served in various related ministries and departments, you are aware of the social and financial challenges faced by the country, particularly in postretirement related issues. You understand that to ensure sustainable growth and ensure social harmony, these issues need to be resolved (see Annex 1 for the challenges). You have been mandated to propose measures to ensure the following: Reduce financial dependence of retirees in the economy Smoothen personal income consumption over a lifetime Generate a positive impact on the welfare of citizens and residents What measures would you recommend to the Salusian government in order to ensure post-retirement sustenance? The success of the proposed initiatives will be measured based on the Key Performance Indicators (KPIs) defined by the Minister (see Annex 3).

2 WHAT STRATEGIES SHOULD BE INCLUDED IN SECURING THE SOCIETY? A. The vision can be achieved using one of many possible approaches. You need to decide the best strategy for the country B. Create some quick-win strategies which can be realized in the next 1-2 years C. Develop critical recommendations that can drive Salusia s development over the next 10 years D. Guiding questions which will help structure your thinking are listed in Annex 2 E. The recommendations should also align with your KPIs both quantitative and qualitative (see Annex 3) Notes for Participants Guidance for developing case solution A. Your case solution must be in Microsoft PowerPoint and should not be more than 10 slides B. You can refer to and quote any additional information available in the public domain. You can also make assumptions where necessary C. The solution should be practical and rooted in reality. Out of the box solutions will be given higher ratings during evaluation Judging criteria 1. Quality of Analysis 2. Clarity of the presentation and solution flow 3. Creativity in developing out-of-the box solutions 4. Actionable recommendations 5. Language and completeness of solution

3 S alusia, officially the Democratic Republic of Salusia, is a country in Latin America, situated west of Argentina. The Salusian War of Independence was a series of military conflicts beginning in 1982 that culminated in the proclamation of the independence of Salusia on July 24, 1997. The wars of independence took place with the background of the 1990-1991 uprising by indigenous leader Franco Valentina II and the earlier removal of Upper Salusia Regions. Salusia is well known for its primary industry, including agriculture, general manufacturing. The economic roadmap of the current government of Mr. Rodriguez Dominic focuses on the development of the services sector. Salusia recovered quickly since the Great Depression, and has seen strong growth in its economy, attracting investments in many of its industries. However, this quick economic recovery has created new social challenges. During the global financial crisis, the retirement age in Salusia was lowered to 58 years (from earlier 60 years) to create new jobs for younger generations. This has led to a need for social welfare schemes for the retirees. While the short-term issue can be resolved by adding to the retirement fund through added taxation, the government believes that this is not a sustainable solution as it hampers economic development and flow of foreign capital. Some key challenges that continue to affect the society are highlighted below

3 Key Challenges Focus on Illiquid Assets Traditionally, Salusian people have preferred assets that cannot be sold quickly because of a lack of ready and willing investors or speculators to purchase the asset, such as real estate, cars and antiques. With a global dip in foreign capital flows, the real estate prices also declined in Salusia. This makes it hard for silver generation to liquidate their assets to finance their retirement. The typical savings rate is 20.2% of the GDP. Shrinking Nest Eggs Experts reveal that in order to overcome the increased cost of living and longer life expectancy, citizens need a minimum sum of SL$ 250,000 for their post-retirement life span. Only 22.3% of the population has this amount, while the average citizen currently has SL$ 88,000. Lack of Medical Insurance Recent polls have indicated that 82.3% of the population does not have any medical insurance coverage. Of these, 77.5% do not intend to purchase, or upgrade their insurance due to lack of awareness and high financial costs associated with the insurance. As such, only 32.4% of senior citizens mention that they are able to afford the health care in the country. Rising cost of Living Salusian currency has depreciated 10.2% against the US$ in the last 3 years. This has resulted in an average of 6.2% year-on-year inflation (real) since 2010. High Budget Deficit As per the latest available data, the budget deficit is 6.2% of GDP limiting the government s ability to increase spending. High tax rates The tax rates in Salusia are one of the highest in the world at 30.5% on average. This limits the government s capability to raise funds for any social security scheme. The government is looking at innovative solutions to address these funding challenges.

4 Note: These questions are meant to guide your thinking as you work on your analysis. They are not intended to serve as an exhaustive sweep of all underlying issues. What should be the framework to ensure post-retirement sustenance of the population? Think of non-traditional solutions, as much as possible. What can we do in order to address the postretirement needs of the silver tsunami* within the next 5 years? How can we balance economic development, while meeting social needs? How can we provide affordable health care health care for the elderly, without overspending government s budget? How should the policies be segmented to cater to the different needs of Salusians? What are some of the negative impact resulting from the policies, and how should the government balance this? *Silver tsunami refers to the a large number of persons turning 60 and above, as a result of the post war baby boom

6 Note: These KPIs are a guide to measure the impact of your proposed strategies. You may choose to meet all or some of these KPIs. Key Performance Indicators (Targets) Reduce government budget deficit to below 4% of GDP Inflation rate to be below 5% GDP growth to be maintained at 4% or above Increase in the number of citizens with the minimum sum ($250,000) by 10% Increasing retirement savings sum per capita by 20% by 2030. Improve senior-citizen population s access to health care to old-age health care Encourage savings per capita in the economy Reduce the social disparity amongst different segments of the population Minimize the public spending on the initiatives, while maximizing the selfsustenance/private funding of initiatives

1 Geography Location: Southern Latin America, bordering the Pacific Ocean Area: 406,752 sq. Km. Government Government Type: Democratic Federal Republic Elections: Every 5 years (Scheduled) Parliamentary System: Bicameral Administrative Systems: 15 states and 2 Federal Districts (Athome administrative capital, and Venan main economic centre)

8 Economy GDP, current (SL$): 1,523.3 billion (2014), 1,438.0 billion (2013) GDP growth (2014, %): 5.6% GDP growth (2013, %): 4.5% Annual Inflation: 7.6% (2014) Budget Surplus (Deficit): (6.2%) of GDP (2014) target: deficit below 4% by 2020 Public Debt: 49.5% of GDP (2013) SME Contribution to GDP (2013): 36.2% of the GDP (incl. Foreign SMEs) Exports: 70.3% of GDP 20.2% of total Exports are for the Services Imports: 75.4% of GDP 56.7% of total Imports is Services Foreign Direct Investment, net inflow (% of GDP, 2014): 3.5 % of the GDP Foreign Direct Investment, net outflow (% of GDP, 2014): 0.8% of the GDP Composition of Economy: Agriculture 36.4% Industry 32.1% Services: 21.5% Tax Rate: Businesses (25.0%) Individuals (30.5%, average) Currency Unit: Salusian Dollar (SL$) Exchange Rate: 1 US$ = 8.68 L$ Joined World Trade Organization (WTO) in 2009 Demographics Population: 63.3 million (2010 census) Population growth rate: 2.2% (annually from 2000 to 2010) Ethnic Mix: Ethnic races such as Silesia, Butenese, and Tihas form approximately 92% of the population. Other ethnicities such as Spanish, Portugese, Chinese, and Indians form the remaining 8% Languages: Salusee (87%), English (68%), Spanish (32%), Portugese (27%) Age Split (2010 census): o 0-14 years: 15.6% of population o 15-25 years: 16.8% of population o 26-40 years: 25.7% of population o 40-58 years: 33.6% of population o >58 years: 8.3% of population Gender Split (2010 census): o Male: 53.4% of population o Female: 46.6% of population Net migration Rate (2010): 0.3 migrant(s) per 1,000 population (official) Urbanization: 42.2% of population (2010, growth rate of 2.3% annually) Life Expectancy at birth: 71.2 years (overall) 70.3 (male), 72.4 (females) Population below poverty line: 33.6% (2012) Distribution of family income (Gini Index, 2011): 41.4

9 Labour statistics Literacy Rate: Total Population (76.8%) Males (80.1%), Females (70.3%) Labour Force (2010 census): 32.7 million 60.3% males, 39.5% females, Labour force by Education: 26.7% (primary) 25.3% (secondary) 48.0% (tertiary) Unemployment: 7.7% (2013) Foreign Workforce Participation: 40.2% (skilled), 60.4% (unskilled) (2013) Public Expenditure on Education: 3.1% of GDP (2013) Number of Graduates (Degree): 305,247 (2014) Universities: 10 with federal status, and 23 associated with various states in the country Infrastructure Mobile Penetration: 78.5% (2013) Broadband Penetration (>256kbps): 40.3% (2013) International Airports: 2 (Evimeria capital, and Salutem economic centre) connected to all major Latin American destinations Sea Ports: 3 Railways: 3,456 km Roadways: 205,567 km Frost & Sullivan, a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 50 years from more than 30 offices on six continents. The company's industry expertise integrates growth consulting, growth partnership services, and corporate management training to identify and develop opportunities. Frost & Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community by providing comprehensive industry coverage that reflects a unique global perspective and combines on-going analysis of markets, technologies, econometrics, and demographics. www.frost.com