Middle Eastern markets will need a post-pandemic 'great reset'
Covid-19 does not recognise borders. Contagion has been evident not only in the transmission of the virus across countries but in the global economic propagation of this health shock on production, consumption and the consequent slow down in economic activity.
Countries in the Mena are no exception to this rule. But in addition to their general exposure, the region also has a set of particularities that make response and recovery strategies more strenuous.
Leaders have called for greater public-private collaboration to foster integrated economic and trading systems
First, the impact of the Covid-19 crisis is compounded by the region’s vulnerability vis-a-vis price volatility in energy markets, whose ripple effects disproportionally affect regional economies.
Second, this twin-crisis context has had an impact on the ambitious reform agendas many governments have started to implement. While some of the largest regional economies have significant reserves, certain strategic sectors that are vital to these economies’ diversification – tourism and entertainment, for instance – are directly affected. This adds complexity to the delivery of these reforms.
Third, the crisis has aggravated existing societal and economic fault lines within conflict-afflicted societies such as Yemen and Syria.
Overall, lower levels of societal and economic resilience across the region – due to high youth unemployment, the presence of swelling refugee populations and weakened regional economic integration mechanisms – make the impact of Covid-19 particularly challenging for the region.
Fresh thinking is needed on how the region can become more resilient. In particular, the region’s diverse stakeholders – leaders in government, the private sector, civil society and the academic and scientific community – must adopt a shared vision and language for collaboration.
A key pillar of this new understanding of cooperation is around the role and responsibility of companies in society – encapsulated in the principles and practice of stakeholder capitalism.
Stakeholder capitalism proposes a company consider the interests not only of customers, suppliers, employees and shareholders, but also of the wider community, the environment and society at large. Especially relevant to the societies of Mena, it also puts the emphasis on companies’ responsibility with respect to the most vulnerable segments of the population.
Since its inception in the 1970, the World Economic Forum has advocated for stakeholder capitalism, and its principles were reaffirmed by major private sector leaders in the Davos Manifesto during the Annual Meeting 2020.
Today, as Covid-19 affects health and economic systems globally, these principles have acquired an even greater sense of urgency. Now, they are part of the Forum’s Great Reset initiative to shape a more inclusive and resilient post-Covid world.
A call to action
Recently, we facilitated a virtual community meeting of the Regional Action Group for the Mena, where a number of leaders from various industries and sectors identified systemic challenges where greater levels of public-private collaboration based on stakeholder capitalism principle are needed. The community decided to work on the following four areas.
Accelerating inclusive economics and societies: With the Covid-19 crisis leading to profound alterations to the nature of work and employment, broader measures are needed to provide for social and economic inclusion of Arab youth populations – particularly women. Government and private sector leaders have called for greater efforts to promote labour market policies stimulating job creation, including re-skilling and up-skilling initiatives; fiscal policies that provide social safety nets in support of the vulnerable and the poor; and targeted private sector development that will reduce youth unemployment and stimulate the integration of women and refugee populations into the Arab workforce.
Shaping a New Vision for Economic Integration: Effective containment of the pandemic and ensuing recovery requires a holistic and integrated regional response, which is currently hindered by low levels of intraregional trade and cross-border collaboration between the region’s diverse economies.
According to McKinsey, intraregional trade of goods in the Mena region accounts for only 16 per cent of total trade, compared to 63 per cent in the EU and 52 per cent in Asia Pacific.
As the resilience of Mena societies and economic development more broadly is hindered by the fragmentation of the region, leaders have called for greater public-private collaboration to foster integrated economic and trading systems.
This includes the development of mutually supportive institutional mechanisms and regulatory environments, including with regard to cross-border data flows and the digital economy overall.
Harnessing the Fourth Industrial Revolution: As the pandemic exemplifies the centrality of advanced technical solutions such as contact tracing and remote work, the future of the region will depend on a tech governance architecture that is able to balance both privacy and efficiency.
Leaders have called for greater collaboration to leverage a number of crucial factors specific to the region, such as available digital infrastructures, high rates of internet penetration and tech-savvy youth populations, in order to connect the region’s digital economies, provide delivery platforms for services and leverage fintech solutions to foster greater financial inclusion through digital payment systems.
Promoting Environmental Stewardship: Finally, the crisis serves as a potent reminder of the extent to which a black-swan-type event can disrupt economic and political life globally. As the region faces a number of acute threats related to desertification, water scarcity and heat waves, a renewed focus on the environment is all the more urgent for climate-related risks to be mitigated and potential future disruptions to be avoided.
In light of the imperative for Mena countries to transition towards greener economy, there is an opportunity for governments to design their fiscal and monetary responses in such a way that national economies are nudged towards environmental sustainability, including supporting innovative green projects within the area of the circular economy, as one example.
While this crisis is a clear public health emergency that requires an urgent and adequate response, it also presents a unique moment for regional decision makers. By endorsing the principles of stakeholder capitalism for the Mena region, they have an opportunity to articulate a response whose outcomes not only addresses existing grievances, but also reshapes societies and economies – allowing them to emerge from the pandemic stronger, more unified and more resilient than before.
Mirek Dusek is the regional head of the World Economic Forum; Rania Al Mashat is Egypt's Minister of International Co-operation; Alain Bejjani is the chief executive of Majid Al Futtaim
Updated: June 8, 2020 08:03 PM