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[Video] How can developing countries prepare for the post-pandemic world? Ft. Youssef Boutrous Ghaly
The Business Forward annual event saw a slew of economic and policy experts share their insights on the state of the world economy today and the way forward following the pandemic. Dr. Youssef Boutrous Ghaly, a renowned economic adviser and Egypt’s ex-minister of finance, shared valuable insights covering everything from policies needed to overcome the fallout of the pandemic, to how the world economy is going to look like in this economically bipolar world. Moderated by Heba Saleh, Cairo and North Africa correspondent for the Financial Times, and a member of Business Forward’s editorial board, we invite you to watch the insightful discussion below.“Today, emerging markets are competing to stay on the world market, because the world market as you’ve seen – the IMF has predicted contraction of 4.4 percent this year. There is a slight pickup next year, but very uneven in most countries. Emerging countries are all competing to stay in the market. You also have massive indications in countries in the world, from advanced economies where trillions have been spent, to emerging market economies where many have spent vast amounts to try to address the fallout of the pandemic.On a national level, you have a massive unemployment wave. People are losing jobs. The massive increase in poverty. People are pushed to use their limited savings, and poverty rates are increasing. Not only in emerging market economies, but also in developed economies. Here in the UK, poverty rates have increased massively; there are queues in front of food banks; the free distribution of food has increased enormously. Now this is a rich country. Imagine what happens in countries like ours.Of course, there’s also parallel to this, capital stock destruction. All of these companies, enterprises that are going bankrupt. Therefore, we need to do something and many countries have taken measures to address this issue so that this capital stock does not disappear. When a company goes bankrupt after the pandemic, it will not come back. Therefore, you have to take measures to prevent this.Inequality is massively increasing. Some people are benefiting. But the vast majority are not. Therefore, the gap between the upper income and the lower income is going to increase. All of this, and I haven’t even mentioned the health requirements, the spending and the challenges faced by this sector in most of these countries. Be it hospitals, clinics and now, with the vaccine, the distribution.I don’t think that the appearance of a vaccine will address these issues in the short term. Because we have an issue of distribution and production. When you put all of these vaccines together, the most you can produce is about two and a half billion doses per year. Now, at the rate of two injections per person, that’s half a billion. We’re 7 billion people, and therefore, there will be inequality as to who gets the vaccine first. Developed countries will probably get it first, before we and the emerging markets get it. And within countries, probably those who have more resources will get it first, and those with less access will get it last – typically the poor. So, you’ll have even more inequality.What do we do? The question then arises, what do we do? What can we do? At the personal level, well, my advice is increasing your versatility; make sure you can do multiple things, because we don’t know what the work environment is going to be like in the next 10 years. What we do today is going to affect the environment we’re living and working within in the next decade.And therefore, since we don’t know how it’s going to look, you have to learn many skills, digital skills, because now the work-from-home mode isn’t going to go away once the pandemic is over. Some companies have discovered that you work as well from home as you do from the office. So a lot of these mechanisms are going to change. You want to be able to adapt quickly. You must increase you resilience. You have to be able to survive a period of unemployment, even mental resilience. You have to learn new skills quickly. Don’t get stuck running after degrees. The world today is not degrees, it’s skills. So you need to make sure you are competitive, remain flexible in the job market.What do countries do?Now what happens at the country level? There’s massive destruction in our structures, productivity, employment, human, everything is being restarted. The question is, do we rebuild better? Or do we rebuild as it was? If better, then we have to start thinking how. If we’re going to rebuild it the way it was before, okay well, do it. But, most practical economies will tell you never let a crisis go to waste. Use the crisis to change, to push forward policies that normally you would not be able to accept. Now is the time to change, to evolve and to build better.What are the main policies? Employment, you have to make sure we concentrate on productivity. Emerging market economies are going to be competing in the world. They’re going to lower the currencies, increase the productivity, competitiveness. You have to be part of that race. I’m helping a number of South American countries, and the first obsession is productivity. Improve the quality of your products. Second you have to make sure to lower the cost of moving from low-skilled to high-skilled jobs. A lot of low-skilled jobs are going to disappear.Many women and low skilled labor are going to disappear. Many companies have cancelled their rental agreements and will work from home – all the people that were in charge of cleaning, providing food services, have lost their jobs and they’re not coming back. These people need to upgrade their skills. We, as a government, need to make sure that whoever has the skill to upgrade can do so, we need to salvage the capital stock.All of these companies that are going to be bankrupt need to be helped now. Now, these are the main lines, if I look at the tools we have at hand, on a micro level, I need to create fiscal space – to be able to spend money without wrecking the rest of the economy. Domestic indebtedness is not the issue – if you don’t borrow today to salvage your economy, you won’t have an economy in the future. What is relevant in our countries is debt-to-GDP. Now if this GDP can grow at 10 percent, then you can take care of GDP ratios fairly quickly. So don’t be afraid to borrow, to have a big deficit.Protecting the poor should be first priority, what destroys an economy is mass poverty, mass income inequality. Not the income inequality that comes in transitional economies that go from low to high growth. There’s usually an increase in income inequality in the beginning and then it catches up later on. You also have to preserve the capital stock, help companies to stay in the market, because they are the ones who are going to give you the taxes later on that you’ll use to cover your deficits and indebtedness. Therefore, have programs that aren’t afraid to go into grant money and unconditional assistance.You have to promote a rich recovery. Go hot; get hot macroeconomic policies, not tentative ones. Push at the heart. You’re in quick sand and you’re sinking, so you need to push hard. This is the essence of fiscal policy.Monetary policy has to have its primary purpose to facilitate lowering the cost of fiscal intervention. Because printing domestic currency is a convention. The interest doesn’t come from God, it’s not in any holy book; it’s a custom; an agreement between the issuer and the user. But it’s a convention. Now we need to go past the convention. Also lower the cost of indebtness to the economy. Lower the interest rate on companies to help them cross over to viability after the pandemic.Finally, on the external sector, preserve competitiveness. You do this by increasing your productivity.”Youssef Boutrous Ghali.
At the beginning of 2020, Egypt's economy was booming at an impressive pace; a comprehensive economic reform program, backed by a USD 12 billion dollar IMF loan, had catapulted the economy into being the most attractive country for foreign direct investment in MENA by the end of 2019.Foreign reserves peaked at USD 45.2 billion; remittances reached USD 26.8 billion; and tourism brought in a historically high revenue of USD 13 billion. Following the first stages of the monetary reform program in November 2016, Egypt’s GDP took a hit, reaching USD235.4 billion in 2017 from a high of USD332.9 billion in 2016, however it has since rebounded to USD303.2 billion in 2019.Moreover, Egypt’s GDP growth accelerated from 4.2 percent in 2016/17 to 5.6 percent in 2018/19, and effectively rebalanced after having been largely driven by consumption, contributions of net exports and investments had started taking the driver's seat, leading the current account deficit to narrow from 6.1 percent of GDP in 2016/17 to 3.6 percent in 2018/19.The Egyptian pound had stabilized at 15.9 EGP/USD after reaching a high of 19.1 EGP/USD during the months following the devaluation. Consequently, inflation had also begun to decline, reaching 5.3 percent in February 2020, after peaking at 33 percent in July 2017.In March 2020, as COVID-19 took over the world, a nation-wide lockdown and suspension of flights, brought Egypt's economy came to a stand-still, costing it billions of dollars monthly on lost tourism, Suez canal and productivity revenues, among others.Anticipated megaprojects including the relocation to the new administrative capital, as well as the opening of the Grand Egyptian Museum, have been postponed to 2021.And unemployment that had recorded just above 12 percent in July 2017, before improving to 7.7% in January 2020, has been pushed up again by the pandemic to 9.6 percent in July 2020.The pandemic has stressed on longstanding structural vulnerabilities in Egypt's economy, with its reliance on tourism, Suez Canal, and remittances as sources of foreign currency making it particularly vulnerable to global market trends.Egypt's poorest were hit the hardest in the wake of the pandemic, and with up to 50 percent of non-agricultural employment being informal, the lockdown brought about severe struggles for those workers with no safety nets. In a recent CAPMAS study, 55.7 percent of surveyed households reported less working days/ hours due to the pandemic; 26.2 percent reported having become unemployed; and 73.5 percent reported a decline in income.Female workers also suffered disproportionately more than others, with 2.3 million women leaving the labor force after having lost their ability or willingness to look for a job.The Egyptian government, fearing to lose the fruits of a tough 3-year reform journey, quickly came forward with a EGP 100 billion relief program to confront the economic fallout caused by the pandemic, which was backed by an unconditional USD2.77 IMF loan under the Rapid Financing Instrument program, and further foreign borrowing included USD 5 billion Eurobond issuance in May, USD2 billion financing package from UAE banks secured in August, and USD750 million Green Bond issuance in September.The Egyptian Central Bank also moved quickly, slashing interest rates by 3 percent, providing subsidized loans to affected sectors, removing ATM withdrawal fees, exempting late loan payments from fines, and encouraging credit lines for companies to finance salaries and capital.The Egyptian government announced a number of programs to support informal workers, however only reaching a portion, leaving millions more vulnerable to the fallout of the pandemic.Despite economic growth rate declining to a forecasted 3.6 percent in 2020, Egypt stands as the only MENA country projected to have a positive growth rate this year.The resumption of economic activity with the gradual phase out of containment measures have also helped to improve unemployment.And continued execution of mega projects have helped cushion growth, with official unemployment rate decreasing from 9.6 percent in June 2020 to 7.3 percent in September due to the resumption of economic activity with the gradual phase-out of lockdown measures.Egypt’s foreign reserves are once again rebounding, reaching USD39.2 billion in October 2020 after dropping by USD9.5 billion since March. Also, capital outflows started to reverse, with portfolio inflows totaling USD11.3 billion until the end of October to reach a total of USD 21.7 billion.What has Egypt done right and what could be done better in the era of the pandemic? How will Egypt co-exist with the global pandemic this coming year?Stay tuned for our exclusive coverage on the way forward for Egypt's economy - based on insights and opinions of the renowned experts who spoke at the Business Forward annual event on December 14.
In the midst of the COVID-19 pandemic, how will the resulting economic crisis affect rates of investment in innovation and digital technologies? And what do emerging markets such as Egypt need to do to ensure that digital technologies continue to drive growth and job opportunities?These are just some of the questions which Professor Soumitra Dutta, professor and former founding dean SC Johnson College of Business, Cornell University, and chair of the board of directors of the Global Business School Network (GBSN), attempts to answer in the webinar "Technology and Innovation Competitiveness for a post-COVID World", part of the Willard W. Brown International Business Leadership Webinar Series hosted last month by the AUC School of Business, and moderated by the School's dean Professor Sherif Kamel.Dutta explains that historically, investment in innovation usually mirrored the GDP growth rates. What he interestingly notes is that the data that is now available for the last decade, shows that in fact innovation investment rates have risen even more than GDP growth rates in most parts of the world. This trend is driven by the whole digital revolution that has largely accelerated during the last 10 years.Dutta believes that this is a trend that will strongly continue across sectors. Based on his 20+ years experience of studying technology innovation trends across countries, Dutta emphasizes the vitality of human capital, as people are the source of ideas. Investing in education, including universities, is the best way to build human capital."The university acts as a magnet for talent and essentially creates that hub from where great talent can nurture themselves, develop themselves and can go and create wonderful new companies and wonderful new employment opportunities for others. I think universities and human talent is very critical."What is essentially important for less developed economies, according to Dutta, is the 'environment', referring to the regulations, the judicial system, the political stability, the rules and policies supporting business, all which help drive innovation technology and growth.Watch the full webinar on this link: https://youtu.be/JAm21xhYT6o Dutta is a professor of management and former founding dean of the SC Johnson College of Business at Cornell University, New York. Currently, he serves as Chair of the Board of Directors of the Global Business School Network, a Washington DC-based non-profit organization which helps emerging markets to improve their management capacities.He is also the founder of the Global Innovation Index, an annual report published by INSEAD and the World Intellectual Property Organization which ranks countries around the world along multiple variables based on their levels of innovation and technology competitiveness. It is considered one of the world's most influential reports on technology and innovation policy.The Willard W. Brown International Business Leadership Series brings global business leaders to share their knowledge and expertise with the AUC School of Business and Egypt's business community on how to navigate the precarious but potentially exciting opportunities of a post-COVID world.
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