Statement of Dr. Mahmoud Mohieldin, the World Bank Group’s Senior Vice President, in the Fourth Arab Economic and Social Development Summit

Date: 20 - 01 - 2019

As per the official sources of Arab Economic and Social Development Summit held in Beirut between 20-21 January 2019

This important summit is held at a time when the world is more volatile politically, and more fragile economically, as world economic growth has weakened, and state of instability and conflict increased for world trade. The risks to economies have increased, with the probability of rising cost of borrowing. With the continuity of such uncertain situation, investments usually avoid risk and go for safe havens, as per their estimates, even if of lower return. That won’t contribute to increasing growth rate, or reducing unemployment, or achieve the objectives of sustainable development.

We are witnessing changes in the balance of global and regional economic powers, which grow quicker with the current financial crises that broke on 2008. The crises of food and energy prices that occurred before and after it, reflect the continuous protectionist tendencies, and the rise of populous streams, right-wing and left-wing ones, and polarization in the political scene, along with the state of anxiety from relative fall for some traditional economic powers, and rise of the new economic powers. Among the rising and falling economic powers, the Arabs are looking for a place for them, hoping that the new world reform would be fairer. We all learned that without continuous hard work to develop, update, and upgrade human capital, and adapting current technology, peoples lose in the race of progress, and what only remain for them from the ancestors’ glory is only monuments and ruins.

And within all those states of uncertainty and instability, and the quick movement of the world vastly changing, the world suffers climate change and risk of more dryness, increasing waves of people displacement and increase of refugees and forced migrants due to conflicts and natural disasters. And with the rising rate of technological changes in an era called “The era of great confusions”, we find the Arab economy, moreover those global challenges impacting it, has been hit by geopolitical issues since the beginning of the second decade of the twenty first century. The estimated cost of wars and conflicts that economic activity bears is more than 900 Million US Dollars, this would add another burden on a large set of accumulated burdens, which includes fall in economic growth and comprehensive development of most of Arab countries. And where all economic regions around the world managed to reduce the numbers of people of severe poverty, the numbers of the same in the Arab region have doubled, from 2.6 percent to 5 percent, for the period between 2013 and 2015, and this is the latest report issued by World Bank on 2018.

Also, the Arab economic region is the worst for inequitable distribution of income, where the richer 10 percent of population own 61 percent of GDP, where the richer 10 percent of population in Europe own less than 37 percent, and in china 42 percent, and in India less than 55 percent of GDP.

Arab economy must move fast to fulfil the requirements and expectations of general public. However, the expectations of economic growth point to a slight improvement for Arab economies growth, to reach 2.3 percent this year, compared to only 2 percent last year. This is a very low number, and not up to the requirements of development and population increase estimates.

Arab economy suffers the highest unemployment rate worldwide, where it reached 10.6 percent, almost double the world average of 5.7 percent. And unemployment concentration is higher among Arab youth, and higher in women compared to men. Arab economy needs to create new 10 Million job opportunities annually to face the dilemma of unemployment, where such job opportunities must be availed as per comprehensive growth policies that would increase the opportunity for women to contribute to job market, in the way that Belhaj, World Bank Group Vice President for Middle East and North Africa, emphasized in his speech yesterday (20 January 2019) in Mashreq Conference on Women’s Economic Empowerment, held under the Patronage and with the presence of H.E. Saad Hariri. This conference comes to be fair with Arab woman, and to appreciate her competency where she finds opportunity, and supporting sustainable development, that is just with all people and give them their rights, and not to waste half the Arab human power in vain.

Arab societies pyramid has more numbers of youth, where almost 60 percent of the population is under the age of thirty, this comes at the same time with longer life expectancy at birth, all these are positive aspects if we prepare well for them, by increasing investment in education and healthcare as fundamental components of human capital, and infrastructure built to benefit from new economy activities that IT and digital developments come in every aspect of them. Moreover, investing in the fields of risk mitigation. And if all those were the priorities of future that sustainable development agenda for 2030 puts a timeline for, handling them requires huge investment that needs diversified funding sources, as per the action plan acknowledged by member states of UN on July 2015 in Addis Ababa.

And ten Arab countries voluntarily submitted plans for their development programs, within the UN High-level Political Forum on Sustainable Development, and six more countries are to follow on next July, whose announced programs are aligned with sustainable development agenda. We learned from development experiments that it takes three prerequisites: detailed data to support decision and follow up on it, sufficient fund for development programs and projects, and effective implementation at local level. And the distinguished study prepared by Arab Forum for Environment and Development (AFED), and published in Beirut last November, shows that Arab economies need funds of at least 230 Billion US Dollars annually, to contribute to achieving the objectives of sustainable development, and the fund gap in the countries of financial deficit reach 100 Billion US Dollars annually. So, let’s think together how to provide such huge fund.

I’d like to stress that sustainable development fund doesn’t come from scattered financial bargains, or distracted spending. But it must be based on comprehensive methodology, composed of consistent policies and competitive organizations. This methodology depends on enabling youth or woman through providing job opportunities, investment, and entrepreneurship, through specialized organizations and supporting fund. It also focuses on localizing development and creating competition among cities, directorates, and territories in attracting investments, and in developing production units, and basic and developed services. All this would increase efficiency through financial procedures, and stimulating competition and innovation. All that won’t replace stopping financial losses of state-owned entities, and the necessity to utilize idle assets in increasing resource, and convert those assets into productive ones, or balances to fund development, rather than being left useless.

And there are seven pillars of Arab development, the World Bank Group can contribute to developing them through technical support, financial contribution, and knowledge and expertise transfer. The first of these pillars depends on mobilizing domestic resources efficiently, and spending them effectively, aiming at the right fields for public spending. And it is necessary to quickly face deficiencies in Arabic public budgets, to stop the consequent accumulation of local and international debts, and rising in inflation rates and prices. Although a slight improvement occurred in the total budgets of Arab economies, with deficit reduced to 4.5 percent, comparing estimates to last year’s budgets, the Arab economies are still of high probability to be impacted. And with the tendency to raise the cost of borrowing to fund deficit, and with reduced sovereign incomes, the risks rise.

We can also notice that despite the efforts exerted to diversify the production hierarchy and incomes of Arab economies, their public budgets and balance of payments are still suffering high impact of oil price changes, directly and indirectly. The average price of oil exceeded 100 US Dollars in period between 2011 to 2014, it went down to less than 50 in the period between 2015 to 2018, and the price estimates, which are periodically reviewed, are between 69 to 74 US Dollars in the current and next years. This severe change in few years doesn’t help at all to control budgets and pushing growth for economies that are still strongly tied with one commodity and its extracts, in a world witnessing a change of oil export map, and reducing its dependency by diversifying renewable energy sources.

We also saw the efforts of economic reform and the endeavors to diversify the production base and energy sources, and how those reform efforts increase on reducing oil prices in exporting countries, and increasing the prices in importing countries. And then suddenly all those efforts fade with oil price changes, this would make it difficult for an economy and its stability and growth. Some Arab countries did great undertaking reforms in public financials, and creating sovereign funds, run by professional organizations to increase ROI and diversify sources of income, this would protect the rights of coming generations.

But there is still a need to improve tax incomes for Arab public budgets, those tax incomes represent 11 percent of GDP, which is below the recommended ratio of no less than 15 percent. This requires organizational and legal reform, and equality in tax burden-sharing, as well as discipline, efficiency and effectiveness in spending. And through controlling public spending, the required banking and non-banking fund would be available for private sector, to fulfil its role in development, contributing to the economy growth, availing job opportunities, and paying taxes from its realized gains. Fintech has reduced costs of transactions, and raised the capabilities to serve large numbers of new customers through services of internet and mobile phones, this made financial services reach remote places after they were exclusive for some rural areas.

But there are risks related to how secure the payment systems are, securing transactions, protecting clients’ accounts and their privacy, and protecting those accounts from any new risk that transactions networks and platforms might encounter. There is also the challenge of coordination among financial regulatory bodies, central banks, network operators, and technology companies. Also, privacy breaches through logging on to large databases and manipulating them, have imposed new risk that must be faced. Also the hoax of cryptocurrency, and the severe changes in its prices, rising and falling without any good known reason, have revealed one more necessity to have comprehensive policy for fintech, and elevating financial regulation and the skills of its workers, and developing the rules of protecting clients, in collaboration with financial services providers, whether they are banking services or others, and raising financial awareness in the society. And the recent annual meetings for world bank and international monetary fund (IMF), that were held in Bali, Indonesia, have witnessed the launch of what is called “The Bali Fintech Agenda”, it included 12 specific elements, to increase the benefits from fintech contribution to mobilizing resources, and directing them towards development paths, with preserving financial and banking stability, and protecting rights. And the expected results can only be realized through efficient implementation of those elements.

Third: funding plan for sustainable development, this is a pillar for streaming private funds in the form of foreign investments, etc. And a study by ESCWA explains that for every Dollar of investment incoming to Arab economy, there are outgoing 1.8 Dollars, in the form of investments in non-Arab countries or ROI to the foreign partner, with a note that foreign investments in Arab countries generally have reduced and didn’t rise back to the levels of before the global financial crisis. Moreover, there is an increase in the size of Arab overseas bank deposits. Also, if we add the transfers of workers abroad, despite their importance for some Arab countries, the Arab economy is a pure source of those transfers. If we sum up all what was previously mentioned, the picture may be different for some Arab countries, but this is the Arabic situation in general.

Some opportunities for Arab economies appear, with globally increasing flows in the field of green funding, and also in what is known as impact investing, and the increase in creating huge funds in the past two years, where their founders stated that their investments are going to be only, and only in such type of environmental and social impact. It was recently announced that the capital invested in this type of funds reached 228 Billion US Dollars in December 2018, by double increase from what they used to be last year. And the estimates for those investments to exceed a Trillion US Dollars in short term.

This type of investment is characterized by targeting fields that yield measurable, positive environmental and social return, in addition to the financial return of the projects. It might come to mind that socially responsible investment is a well-known type of investment, which follows known social and environmental standards, and governance. But the new thing is that investors don’t just look for avoiding negatively impacting society or environment, but essentially target maximizing value, in a measurable way through their projects.

Fourth: The global development aids are officially an average of 15 Billion US Dollars annually. Although donor countries are required to fulfil donating 0.7% of their incomes to those of less income, only a few donors are committed to that. However, the share of Arab countries has recently increased, after years of reduction, and those financial aids were mainly directed towards humanitarian fields and refugees’ support. Anyways those aids can help in the phases of transformation towards stability, especially in the sectors of social impact, even with the importance of them to the countries of low income, or those that have suffered over years from fragility, or conflicts or civil wars.

Fifth: with the increase in spending in many Arab countries, and reducing savings in most of them, now it became a must for them to identify comprehensive frameworks for development funding, and to coordinate among public and private funding, as well as local and foreign funding. And implementing cooperation systems to push growth and to reduce debt burdens. And a collaborative work paper prepared by world bank and IMF states three areas to handle the requirements of managing public debts, the first is increasing the capability of countries for technical analysis of public debts and financials, and their policies, second is supporting declaration, knowledge, and information systems to realize the actual size of debts and all types commitments for all parties, as well as reform procedures, burdens, and durations, and third area is related to supporting capabilities of institutions of the State, and coordinating their policies to manage debts and risks. No need to mention that these three areas of debt handling require efficient administration of publicly owned assets, and maximizing their returns.

Sixth: there is a dimension of trade that can’t be ignored to achieve development objectives, which is cross-border trade. It is still small in Arab region relative to total size of trade, as in best case it doesn’t exceed 10%, and it’s hindered by cost of transport and logistics, although the distances are small, and plenty of agreements that would enable cross-border trade, implementing them was very limited and didn’t have any significant impact on reducing transportation cost. The average facilitation in Arab region for customs procedures doesn’t exceed 56% in some estimates, plus the non-custom blockers, and difficulties of service trade.

And IT and digital economy, if utilized efficiently, would bring big opportunities to flow Arab cross-border imports and exports.

And of this is the situation of traditional trade, then today Arab economies must have integrated strategy specific for eCommerce, contributing to aligning with the requirements of new industrial revolution and its types of economic activities, which are based on electronic platforms, their networks, and big data, and securing them. Also, to guarantee reconciling their payments, and facilitating their operation, and protecting clients within, and encouraging competition and inclusion for their services, to connect them to production sectors in chains of value.

Seventh: As the document of Financing Sustainable Development, sustainable development objectives can’t be achieved without utilizing science, technology, and innovation. With science and money people build their country…No country was built with ignorance and poverty. With this poem line, Ahmed Shawqi, the Prince of Poets, celebrated the establishment of Banque Misr by Talaat Harb and his fellow investors 100 years ago.

And in the time the world witnesses the emergence of the fourth industrial revolution, we must remember that the shares of Arabs in the past three industrial revolutions and their returns were not in proportion with their capabilities. In the eighteenth-century steam engines were invented, which caused a paradigm shift in economies of industrial production, and the first industrial revolution occurred. And the second industrial revolution coincided the discovery of electricity in the nineteenth-century, this led to developing new products that changed production patterns and developed the lives of humans. The third industrial revolution, was depending on technological developments in the twentieth-century, which were connected to inventing and developing computers, and their spread among the fields of production, services, and means of living. Meanwhile, the new industrial revolution represents a large shift, through launching digital economy and IT, and all their related innovations and products that would change the lives of people and production in a manner that has never been for any of the past industrial revolutions.

There is no exaggeration in saying that “Big Data is the new oil”, as big data is the official fuel for the era of information and economy. And no wonder that the five companies controlling bug data are of the highest profitability and highest value in stock markets. So, did the Arabs prepare to handle this new oil? To answer this question, information laws must be reviewed like what Europe did about “General Data Protection Regulation (GDPR)”. Also, we must review institutional efficiency to handle data and information, from collection, to storing, analyzing, circulating, and declaring, as well as the standards of privacy protection.

We knew from the results of the past industrial revolutions that the future is for those who would go pursuing development, and what arbitrates progress from underdevelopment is only up to how fast societies and economies would align with the technological updates and adapting technology for the benefit of people. And there is an important indicator that can be used to guide on whether a nation is capable of utilize the new industrial revolution, this index is the Human Capital Index, issued by World Bank on 2018. This index ranked the economies of countries based on detailed indices for education, healthcare, and life expectancy for newborns up to school age. And it wasn’t strange that Singapore, Korea, and Japan were of top three rankings, and to find at the end of the list of 157 countries, economies of vast lands and abundant natural resources. The Arab countries, with a few exceptions, were of low performance, and don’t meet their potential. The results were also similar within two other indices. The first was “Change Readiness Index” prepared by KPMG, which included reports on capabilities of governments, business sector, and civil society, to seize the opportunities availed by change, whether they were shocks or social or economic changes that bring risk and opportunity that can be handled. And the second was The Economist Intelligence Unit (EIU) index for available technological capabilities, from the aspects of using IT network, and infrastructure of digital economy, and production based on ideas and innovations, including patents and spending on research and development.

Perhaps the idea of progress through sustainable development, and its related aspirations, requires utilizing realistic practical methodology to implement. And in the occasion of passing 50 years to the time of first human landing on moon, we can have a good example of what the US president Kennedy did with The National Aeronautics and Space Administration NASA. NASA was established on 1958 to achieve numerous public objectives like conquest of space, and developing advanced technology in their field of work. And to achieve that, resources were provided, and scientists were recruited. And Kennedy saved NASA from an inevitable fate of bureaucracy, he did so by stating a specific objective for the organization, without it the agency would have stayed roaming without objective or direction. So, what Kennedy did in 1961 was that he gave NASA a specific objective, to make the first human moon landing, and bring the astronaut back to earth safe and sound, the objective was set to be achieved before ending the decade off 1960s. By that, Kennedy altered the uncertainty of multiple purposes, to an ambitious objective, time lined, attainable, and measurable. Thus, resources were provided, and efforts were summoned to achieve the objective, wills and minds were set for that. And the objective was achieved for real on 1969 by the first step of Neil Armstrong on the surface of the moon. This was the start for a big leap of humanity, as Niel predicted in his speech, which was aired from moon to the people on earth.

This big achievement was a result of what we call now “Moonshot”, which means bold ambition in decision making. And as Bill Gates, the founder of Microsoft, emphasizes, a good moonshot is characterized by being of measurable objective, and can take the human minds and inspire them, and disruptively change what is considered doable or achievable.

The Arabs need many good moonshots, for progress, sustainable development, eliminating poverty, and raising the standard of living. And we hop this year would be a year of goodness, maybe those priorities, and what surrounds them of global and regional updates, would be fields to fruitful joint collaboration, for the benefit of Arab people, and all the peoples in general.