The coronavirus pandemic is having a severe impact on the global economy, with international financial institutions expecting global growth to decline by 3 percent this year.
To find out more about the issue, Ahram Online talked to Mahmoud Mohieldin, the UN Special Envoy on Financing the 2030 Agenda for Sustainable Development and a former Egyptian investment minister, on the impacts of the pandemic on developing economies and emerging markets, including Egypt.
Mohieldin, who spoke to Ahram Online virtually from Washington, also discussed the opportunities that developing economies can tap into in the post-pandemic phase.
Ahram Online: As the UN Special Envoy on Financing the 2030 Agenda for Sustainable Development, what are the expected impacts on developing economies and emerging markets arising from the COVID-19 outbreak?
Mahmoud Mohieldin: First of all, the COVID-19 pandemic is a human catastrophe with extremely negative impacts on human lives as well as on economic and social aspects. Many have lost their lives around the world as COVID-19 has infected millions of people.
Until we find a proper vaccination, cure, and testing we have to try to deal with the implications of COVID-19 on the people who were infected and who are contacting those who have it, as they will be always under threat.
The fight against the disease is basically about testing, tracing, isolating, and treating until we have a vaccine. Even then, we need new regulations and arrangements to manage how we contain such a disease in the future.
There are many lessons learned from this pandemic and I hope matters related to health are taken more seriously, as this is the main lesson we can learn from the current crisis.
AO: In light of the Sustainable Development Goals (SDGs), how have health care systems in the developed economies proved themselves against the COVID-19 outbreak?
MM: The crisis proves that ignoring the third SDG that relates to health, including disregarding investing in human capital, investing in preparedness and in all the means of developing a sound health system, has been a fault around the world, across developed and developing countries alike.
AO: What about the economic and social impacts of the COVID-19 pandemic on developing economies and emerging markets?
MM: The economic and social impacts of the COVID-19 pandemic are reflected through the global figures of recession, which expect a 3 percent drop in growth around the world in 2020, and is impacting all economies to different extents.
Yet developing economies have a bad share, as well, of the decline in economic activity. The figures that come from different international financial institutions and rating agencies are telling us that we are, today, formally in a recession, and we need to do our best to prevent that recession from becoming a depression, which is basically lower growth rates for longer period of time.
Thus, as I said, we are in a war, or two wars, to flatten the curves, the curve that shows the numbers of those who are infected across countries, and the curve of declining growth as well as negative growth around the world.
There are 170 countries, including developed and developing countries alike, which are going to be seeing negative per capita income growth and, of course, the impact on employment will be extremely negative, and on incomes, equality, and poverty as well.
AO: So, how should these economies set their priorities amid the COVID-19 crisis?
MM: While we are giving the priority now, as we should, to the health dimension, investment in the future is going to be the key for how to get out of this crisis and its repercussions. Developing economies have to focus as well on investing in human capital, infrastructure, production, and resilience.
AO: What is the plan that the United Nations has prepared to support developing economies and emerging markets in this regard? And what about Egypt in particular?
MM: Since the start of the COVID-19 outbreak and its announcement as a pandemic in March, the UN has emphasised the importance of obtaining peace and stopping wars and ending hostilities. We cannot have wars and conflicts which are killing innocent people and at the same time we have this virus killing people as well, so we need to focus on maximising activities and mobilising our sources. These wars and conflicts had to be ended any way.
The socioeconomic impacts of COVID-19, according to the recent UN report on the pandemic’s impacts, issued in March, highlighted three windows of activities, including the health effort and mobilising in this regard behind the World Health Organization (WHO), in addition, providing resources required for obtaining the testing equipment, the personal protection equipment and gear, and obtaining the necessary central health devices, materials, and supporting the efforts to develop a vaccine for the disease.
The second window is about the socioeconomic measures to help minimising, as much as we can, the negative impacts on economic and social activities, including social protections, supporting communities, boosting gender-based economic activities because women, unfortunately, in this kind of crisis are disproportionally impacted negatively, and there are projects supporting the business sector in particular small and medium enterprises (SMEs). We do all of that in partnership with governments, international financial institutions, and local communities.
AO: What is the third window of the UN plan in this regard?
MM: The third window is about how to rebuild the economy to recover, which requires linking all of the activities to the SDGs to fight poverty, achieve better equality, invest in human capital and social development, and improve governments.
We have to learn lessons from the current crisis in order to build a supportive financial architecture.
AO: For Egypt, what are the opportunities that it can tap to overcome the crisis with minimal losses? And what kind of priorities should it adopt from now on?
MM: Generally, there are significant opportunities regarding investment in Egypt and other developing economies and emerging markets, especially investing in human capital, education, health care, and training that will require lots of investments by the public and the private sectors.
I was in a discussion a few days ago with one of the universities in Egypt and I said that it is good to see such growth in the number of universities in the country, but we need to see an enhanced quality of education as well.
The fourth goal of the SDGs related to education is not just about the number of who are enrolled in education at all levels and stages, but it is very much as well about the quality of education and linking education and learning to life and work.
There are a lot of good studies that are based on Egypt’s experience on that.
On the other hand, I hope health care will be a winner coming out of this crisis that we are living in today, and I think it is very important to give it sufficient attention in the future. Primary health care and health insurance are going to be among the many necessities of the new approach to develop the health sector in the future.
Also, training for digitalisation, as everybody now needs some sort of access to deal with this new world that is not just affecting our skills when it comes to the labour market, but has an impact on our lives too.
AO: Which other kinds of investments should the developing economies, including Egypt, focus on more amid the COVID-19 crisis?
MM: Infrastructure investments are important in order to facilitate economic activities, working more on investment zones, on industrial activities which will be a great potential for these economies going forward.
That requires investments in the infrastructure for technology, data systems and networks, platforms, and taking artificial intelligence more seriously in education and in the economic activities to support it.
We need to invest in resilience which would require investment in matters related to the resilience of society and the economy to different shocks like climate change, adaptation, and mitigation, in addition to focusing on requirements that the energy sector needs to be more dependent on renewables.
AO: In this regard, how do you see the impacts of the current global oil scene on the developing economies and emerging markets along with the COVID-19 crisis?
MM: I know that there have been major declines in oil prices that may discourage some countries [and lead them] to pursue their investments in renewables, but some countries in the region, including Egypt, have been investing heavily in solar energy and this is one of the ways to deal with the climate change, as well, while we are producing the necessary portion of our energy requirements from renewable sources.
AO: In light of the recent economic global and regional outlook reports issued by the International Monetary Fund (IMF), how can the expectations related to developing economies and emerging market economies affect their attempts to achieve the SDGs?
MM: I think if we design our economic and social activities in a way that supports the economy, not just for now, but to have a kind of a consideration for the future implication of the crisis, we will be doing a better job. That is why I issued, with a colleague, a piece for Brookings about how to get the SDGs to help us in the short-term and the long-term navigation of the crisis.
It reflects the importance of all the SDGs, especially the economic and social ones, and starts actually with the third goal, which is on health and how neglecting it is responsible for the mess we are experiencing at present in many countries.
That effort deals also with the cure; when people say please wash your hands properly, with soap, this is basically an element that many people take for granted, but at the same time we have an issue because there are three billion people who do not have adequate access to water around the world, so what we may consider a simple and obvious element is not a simple solution for those who do not have access to water.
If a person is suffering from poverty, obtaining a bar of soap could be a luxury item, and that requires good support over the short- and medium-term.
AO: How could it be carried out?
MM: Over the short-term, necessary support to those people must be provided, the poor and those who do not have access to water, while building infrastructure in the future to deal with the kind of challenges over the long-term.
The SDGs themselves must be taken as anchors of reform and targets of the economic policies and activities in developing and emerging economies.
AO: As a former Egyptian minister of investment, what is the outlook for foreign direct investment (FDI), indirect investment and Egypt’s stock investments during the crisis and in the post-crisis phase?
MM: I think all investments are being impacted negatively because of the pandemic.
When we comes to the budgets, countries might prioritise their activities over the short-term, so that might result in cutting some of the essential public investments.
Private sector investments could be also put on hold in a way, to see the economic mood.
For FDI, I saw reports that are talking about cuts of FDI by 35 to 40 percent globally in 2020 compared to 2019.
At the same time, the turbulence in the financial markets globally and the capital flight are very bad for investments over the short-term.
But after that, one needs really to have a fresh look at the role of investment in a post-COVID-19 world. I see that countries are going to be rebuilding fast and those countries are going to do better in terms of recovery.
AO: What about governments in this regard?
MM: Governments may invest more in infrastructure, while the private sector will seek opportunities in potentially winning sectors like health, services, supporting the health sector and major investments in digitalisation; moreover, there will be major investments in the support of a digital-based economy.
I anticipate, as well, that there will be more localisation of economic activities, which means more investments in the infrastructure and production sector, and between these different trends sectors education needs more investments as well, by both the public and the private sector.
AO: How could Egypt’s efforts regarding adopting the SDGs be affected by the COVID-19 outbreak?
MM: The SDGs might get more attention and more support from the government, the private sector, and the community in the future.
Moreover, Egypt and other countries across the region should take matters related to health, education, and environment more seriously, and this is good for those who are going to be impacted by this kind of attention.
AO: To what extent can small and medium enterprises (SMEs) play a role in backing Egypt’s economy in dealing with the current and anticipated impacts of the COVID-19 pandemic?
MM: SMEs have been impacted negatively, and the impact is based on the kind of business that the SME operates in. Tourism and entertainment businesses, for instance, were hit significantly, while supporting businesses that focus on digitalisation, communication, and information technology (IT) or providing support to health sector or essential food and value chains will benefit.
Yet, when we talk about the future that requires more skills and more infrastructure preparedness, SMEs which do not have an access to a digital economy, an adequate access to finance, a proper access to solutions and others which are lacking technical support or SMEs which have a problems related to their fair share of research and development will be at a disadvantage.
AO: So, how this situation can be tackled?
MM: I think we need really to take the SMEs into a kind of a policy and a framework in order to support them, as they are the major employers in many countries around the world, especially in developing economies, and even the OECD (Organisation for Economic Co-operation and Development) countries have significant numbers employed by SMEs. SMEs account for beyond 90 percent of the registered enterprises and they are responsible for a significant portion of the labour market and the production sector.
AO: What should the government adopt to see the informal sector merged into the formal one? And what kinds of incentives should it provide?
MM: I worked in the informal activities field, including informal markets, for many years, and one of the matters at hand was why the informal entity is informal; it is because the formal sector is not formal enough, not efficient enough, and not competent enough, as it is full of obstacles.
Thus, formalising the formal sector to make it able to overcome such disadvantages and to tackle the high transaction costs is necessary, to make it easy for any entity to not think twice about registering its activity, to benefit from the variety of support the formal sector can provide.
This support, which could be provided through such a kind of network, can include obtaining better credit, better finance, to being supported in their markets, training their workers, and having better access to the good services market for their inputs and outputs.
Thus, it is a very important element to formalise the formal sector, to make it attractive for economic activities.
We have seen in the latest report issued by Egypt’s Central Agency for Public Mobilization and Statistics (CAPMAS) the significant numbers of informal enterprises in the economy, and I think there will be major gain to economic activity through merging those informal entities by financial inclusion and social protection, which are really good starting points.
Those economic activities need support in order to come with a positive attitude, attracted to the services that the state and the formal sector are providing.
AO: What challenges is Egypt likely to witness regarding unemployment and social protection aspects?
MM: Unemployment and social protection go hand-in-hand. The recent report issued by the International Labour Organization (ILO) said that the COVID-19 outbreak has had a catastrophic effect on working hours and earnings globally, with an expected 6.7 percent of working hours to be wiped out in the second quarter of 2020, which is equivalent to 195 million full-time workers.
The number is huge and we will be seeing increases in the numbers of unemployed people because their sectors have been impacted negatively by the COVID-19 outbreak, especially tourism, entertainment, exports, industry, airlines, and travel.
All these activities are impacted significantly and unfortunately that is reflected in the workers and employees, either by cuts in salaries or cuts in jobs, and I hope that will be only for the very short-term.
I think it is very important to establish a better social protection system. I have been discussing and promoting elements of support for the social protection skin including the consideration of a universal basic income, which is basically covering the essential necessities of people who are seeking work but have not secured it. Such a question needs to be supported by the budgets of states, by the agencies responsible for social protection, and they need to integrate it in a kind of a new social contract that requires some sort of balancing act between the different beneficiaries of social protection.
I would like to see that being introduced soon to be factored into the budgets of states, because we need it.
I think lots of discussions in the past about universal basic income were around issues related to the impact of the fourth industry revolution, atomisation and digitalisation on the labour force, but now I think we need to considerate even further, because of the new kinds of exposures to shocks that we are seeing now across the world.