São Paulo – The Arab countries have gone through the Covid-19 crisis with relative resilience, but the pandemic has wrought changes to the region’s economies. Bahrein Economic Development Board chief economist Jarmo Kotilaine discussed these changes during an online event hosted by the Arab Brazilian Chamber of Commerce (ABCC) this Thursday (11).
“Everywhere across the region we see a relative resilience. Even in countries that were relatively vulnerable to macroeconomic risk, we haven’t seen that serious of a deterioration, and economies have endured relatively well,” he said.
The region’s Gross Domestic Product (GDP) slid by 4% to 5% last year, yet a significant pickup is expected in 2021, depending on how the pandemic will progress going forward, according to Kotilaine. “Generally speaking, we should see up to 5% growth in several countries as economic activity resumes,” he said.
The economist argued that the pandemic had a major impact on the Middle East. However, it has affected different parts of the Arab world in different ways. Egypt, for instance, saw its economy grow last year in spite of Covid-19.
Kotilaine started his address by looking back on the events that impacted the region in the past few years, such as the oil price hike, which was halted by the global financial crisis of 2008. Next came the Arab Spring, and then oil prices plummeted early last year, at which point Covid-19 hit.
The economist argues that the crisis came at a time when the idea of openness was central to several Arab countries, which were pushing to modernize their economies and fuel growth through tourism, investment in logistics and trade, aviation, etc. “That idea was ultimately tested out by a crisis that brought the hammer down on the notion of globalization,” said Jarmo Kotilaine.
The specialist has published a book on the impact of Covid-19 on Gulf economies (Trials of Resilience – How Covid-19 is Driving Economic Change in the Arab Gulf). During the online event, he spoke at length on the matter. Kotilaine said the drivers of growth in the Gulf had been losing steam in the past few years, including oil extraction and state-sponsored activity, which led to the Arab infrastructure and real estate booms.
Private sector time
Amid this conjuncture of lower government spending and slower infrastructure projects, the private sector took on a novel role. “Growth will have to originate from the private sector and from productivity,” asserts Kotilaine. He said there are three different profiles when it comes to businesses in the region: majors, which are globally active and able to compete in any environment; small and medium businesses, which are the majority; and family-run enterprises.
Small and medium businesses are mostly in retail and basic services. They have capitalized by spotting opportunities and minimizing costs through cheap labor. Much of local retail did not react well to the crisis, including e-commerce and majors that usually bid in tenders. Some family-run businesses have also failed to develop as corporate entities.
“I believe these challenges are very relevant opportunities for people looking to enter these markets with a good standing, capital, and possibly good partnerships, taking advantage of consolidation opportunities,” he said as a suggestion to Brazilian enterprises. “This is a field in which companies that have faced challenges in Brazil might see great value,” he said.
The Covid crisis was the first time businesses across the region began spending more on technology than on cheap labor, the economist said. He believes this could have happened earlier, considering the capital available in the region and its small population. “This is beginning now, and productivity is going up,” he said.
Kotilaine expressed optimism regarding potential lessons from the Covid-19 crisis across the region, even though he concedes that this was a tough, challenging time for many people. “I believe the stars are aligned to support a new mentality in the Gulf, one that’s more focused on innovation and creativity than ever before.”
Funds and plans
Questioned on the matter by ABCC secretary-general Tamer Mansour, Kotilaine said that although Arab sovereign funds will keep investing abroad, there’s much interest in channeling cash towards local endeavors. He mentioned that Saudi Arabia’s Public Investment Fund will keep three quarters of its assets in the country between 2021 and 2025.
Inquired by ABCC president Rubens Hannun as to how the pandemic has affected countries’ strategic plans, such as Saudi Arabia’s Vision 2030 plan, the economist said there have been no fundamental changes. “But anyone that had any question about the need for change that these plans propounded, the pandemic became proof of this need,” he said, referring mostly to economic diversification away from reliance on oil.
The webinar “Perspectives for the Economy, Innovation and Technology in 2021” also featured a lecture from attorney Ronaldo Lemos, who specializes in information technology. ABCC professionals presented the organization’s 2021 activities calendar. Hannun kicked off the event, and Mansour was the moderator. Stay tuned for more stories on the webinar.
The full event is available on YouTube.
Here’s more on the webinar:
Countries need data policy to develop
Translated by Gabriel Pomerancblum
