Few companies have a pulse on the state of the world’s economy the way Coca-Cola (KO) does. And while the company’s chairman and CEO Muhtar Kent is generally positive, he sees the need for some improvement.
Coca-Cola’s fate is conventionally thought of as being tied to that of the world’s middle class. As incomes rise in a country, the company sees more opportunities to sell its products.
However, the world’s economies have recently started to face some worries. The International Monetary Fund (IMF) made its third cut in less than a year on its projections for global growth, in part because of concerns over China. The IMF now projects the world’s economy will grow by 3.4% in 2016 and 3.6% in 2017.
“The world is a very volatile place,” Kent told Yahoo Finance editor-in-chief Andy Serwer at the World Economic Forum in Davos, Switzerland. “What used to be the norm of BRIC countries [Brazil, Russia, India, and China] growing faster than developed countries and so forth has changed in the last 24 months ... It’s not just about volatile exchange rates, volatile commodities, but volatile growth rates. And most of them are more subdued than they used to be.”
Though China’s growth in 2015 was the slowest in a quarter of a century, the country’s economy still grew by 6.9% versus 7.3% in 2014. The IMF forecasts a 6.3% rate in 2016 and 6.0% in 2017.
Yet Kent doesn’t see that as a reason to be overly concerned and continues to invest in China. In 2013, Coca-Cola announced plans to invest $4 billion in the country from 2015 to 2017. The company purchased local protein drink company Xiamen Culiangwang for $400 million last year.
“Everything is relative,” Kent said, adding that although growth rates have come down, it’s still off a large base. China’s GDP is more than $10 trillion, making it the world’s second-largest economy after the United States.
“When the base gets bigger, it's harder to grow,” he said. “A 6% growth rate is very healthy for an economy of that size.”
Kent has generally positive views on the rest of the developing world’s growth.
“Latin America continues to be a creator of middle class,” he said. “Small increments of improvement in governance in African nations are producing exponentially beneficial results in terms of GDP growth rates in African countries. And then many parts of Asia are, again, very exciting. But at the same time there are a lot of puts and takes.”
But Kent sees major threats to his company’s core consumer, the global middle class.
As a key member of the World Economic Forum’s (WEF) International Business Council, he has been part of the group’s initiative to bring together businesses, governments, and NGOs to tackle youth and female unemployment.
“Two hundred million people aren't employed today,” said Kent. “The latest Human Capital Report of the WEF says that on top of that, we’ll be shedding a net of 1 million more jobs, mostly administered in white-collar jobs. The creation of new jobs in new technology cannot make up for the loss of those traditional administrative jobs. And we've got to find a solution to stop it. Otherwise, the social mosaic as we know it is going to crumble. And we're all going to crumble underneath that.”
To stem growing unemployment, Kent advocates training programs.
“We have to all, as businesses, come together and create programs like apprenticeships and short-term training,” he said. “There's a huge skill gap. Many companies can't hire enough people in certain areas. At the same time, there's a huge pool of unemployed. Why can't we go out and provide the necessary training programs? Not necessarily everybody has to go to university.”
Kent sees the private sector’s role in solving the problem is to push the developing world’s political leaders to do more for their constituents.
“We as CEOs have to impress upon the governments to become more progressive so that we can channel foreign investment into those regions that are more progressive,” he said.
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