State-owned enterprises play critical role in emerging markets amid COVID-19 crisis: EBRD

Doaa A.Moneim , Tuesday 10 Nov 2020

The new report discussed the reappraisal of the role of the state in the economy, and how it has been affected, amid the ongoing COVID-19 crisis


State-owned enterprises in emerging markets, especially in the southern and eastern Mediterranean, are playing a major role in primary sectors in these economies, according to the European Bank for Reconstruction and Development (EBRD).

These primary sectors include industries such as phosphate mining, chemicals, manufacturing of consumer goods, finance, and real estate.

These findings were part of the 2020-2021 transition report released on Tuesday by the EBRD, which classified Egypt in the southern and eastern Mediterranean region.

The report discussed the reappraisal of the role of the state in the economy and how it has been affected amid the ongoing COVID-19 crisis and its associated impacts, especially in emerging economies.

According to the report, state-owned enterprises and the broader public sector, over the years, remain a critical source of the social contract in those economies, a source of jobs, and a part of the social safety net and an engine for public investment.

The report cited Egypt’s privatization experience that had been applied in the 1990s, saying that when the state-owned enterprise sector was downsized in Egypt, it caused a culling of unproductive but relatively well-paid employment, yet, it was not accompanied by sufficient strengthening of the social safety net or job creation in the private sector.

“That was arguably one of the factors that contributed to the unrest seen in 2011 in the country," according to the report.

But, the report said that all countries in the mentioned region have no state ownership policies, except Egypt that has set out broad objectives concerning governing state ownership.

State-owned enterprises have historically played an important role across the EBRD-operation regions, accounting for almost half of all public-sector employment currently, according to the report.

Concerning state-owned enterprises' role in employment, especially amid the ongoing crisis, people employed by the state have been more shielded from economic hardship during the crisis, while people employed by private-sector firms are significantly more likely to have been negatively affected by the crisis.

According to the report, state-owned enterprises account for around 17 percent of total state employment in the economies of the southern and eastern Mediterranean, compared with an average of 44 per cent in the EBRD's regions as a whole.

In terms of state-owned banks, the regions that the EBRD invests in have the second-highest percentage of state-owned banking assets in the world after Asia, having overtaken Latin America following the global financial crisis that took place in 2008, according to the EBRD's estimations.

The report owed that to the high levels of financial and banking performance - especially in introducing banking services to people, and in the total assets they own - seen in some of the largest countries in the EBRD's regions, including Egypt, Russia, Turkey and Ukraine.

On the other hand, the report asserted the importance of green economy transformation that will help in economic development in the regions that EBRD invests in, and in recovering from the pandemic.

In this regard, the region’s countries need to adopt policies supporting the transition to a green economy, and to coordinate efforts to support the economic recovery following the COVID-19 crisis over the short run.

It also urges these economies, from now on, to focus on investing in achieving net-zero emissions by 2050, especially in infrastructure and renewable energy that can also generate more employment in the short term amid the ongoing challenges.

“Sustainability and the transition to a zero-carbon economy should be built into post COVID-19 recovery packages,” said the report.

In the medium term, countries need to address the barriers, market imperfections, and policy failures that are impeding the transition to a green economy that will lead to better functioning markets and a cleaner environment, according to the report.

It also called for strengthening public policy in order to address market failures, and integrate environmental policies into a wider industrial strategy aimed at achieving clean growth; asserting that such investments can deliver resource efficiency and productivity enhancements that is expected to improve the competitiveness of the economy as a whole.

Meanwhile, the report stressed that the transition to sustainable growth and a green economy will only be a success if the private sector applies its ingenuity, investment, and entrepreneurship to that endeavour.

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