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Allies, Investors, Protesters press for Change in Lebanon

Allies, Investors, Protesters press for Change in Lebanon

Lebanon pushed to the brink, faces reckoning over graft after allies, investors, protesters press for change in the country as per Jonathan Spicer, Tom Perry and Samia Nakhoul, Reuters News in this ECONOMY‘s article dated 21 October 2019.

Demonstrators hold Lebanese flags as they gather during a protest over deteriorating economic situation, in Beirut, Lebanon October 18, 2019.
Demonstrators hold Lebanese flags as they gather during a protest over deteriorating economic situation, in Beirut, Lebanon October 18, 2019. REUTERS/Mohamed Azakir

BEIRUT – Lebanon is closer to a financial crisis than at any time since at least the war-torn 1980s as allies, investors and this week nationwide protests pile pressure on the government to tackle a corrupt system and enact long-promised reforms.

Prime Minister Saad al-Hariri‘s government on Thursday hastily reversed a plan, announced hours earlier, to tax WhatsApp voice calls in the face of the biggest public protests in years, with people burning tyres and blocking roads.

The country – among the world’s most indebted and quickly running out of dollar reserves – urgently needs to convince regional allies and Western donors it is finally serious about tackling entrenched problems such as its unreliable and wasteful electricity sector.

Without a foreign funding boost, Lebanon risks a currency devaluation or even defaulting on debts within months, according to interviews with nearly 20 government officials, politicians, bankers and investors.

Foreign Minister Gebran Bassil said in a televised speech on Friday that he gave a paper at an economic crisis meeting in September saying Lebanon needed “an electric shock”.

“I also said that what little remains of the financial balance might not last us longer than the end of the year if we do not adopt the necessary policies,” he said, without describing what he meant by financial balance.

Beirut has repeatedly vowed to maintain the value of the dollar-pegged Lebanese pound and honour its debts on time.

But countries that in the past reliably financed bailouts have run out of patience with its mismanagement and graft, and they are using the deepening economic and social crisis to press for change, the sources told Reuters.

These include Arab Gulf states whose enthusiasm to help Lebanon has been undermined by the growing clout in Beirut of Tehran-backed Hezbollah, and what they see as a need to check Iran’s growing influence across the Middle East.

Western countries have also provided funds that allowed Lebanon to defy gravity for years. But for the first time, they have said no new money would flow until the government takes clear steps toward reforms it has long only promised.

Their hope is to see it move towards fixing a system that sectarian politicians have used to deploy state resources to their own advantage through patronage networks instead of building a functional state.

A crisis could stoke further unrest in a country hosting some 1 million refugees from neighbouring Syria, where a Turkish incursion in the northeast this month has opened a new front in an eight-year war.

“If the situation remains, and there are no radical reforms, a devaluation of the currency is inevitable,” said Toufic Gaspard, a former adviser to Lebanon’s finance ministry and former economist at its central bank and the International Monetary Fund.

“Since September a new era has begun,” he added. “The red flags are large and everywhere, especially with the central bank paying up to 13% to borrow dollars.”

The first reform on Beirut’s agenda is one of the most intractable: fixing chronic power outages that make private generators a costly necessity, a problem many see as the main symbol of corruption that has left services unreliable and infrastructure crumbling.

Hariri, in a televised speech to the nation, said he had been struggling to reform the electricity sector ever since taking office. After “meeting after meeting, committee after committee, proposal after proposal, I got at last to the final step and someone came and said ‘it doesn’t work’,” he said.

Presenting the difficulties of implementing reform more widely, Hariri said every committee required a minimum of nine ministers to keep everyone happy.

“A national unity government OK, we understand that. But committees of national unity The result is that nothing works.”

Underscoring the pressure from abroad, Pierre Duquesne, a French ambassador handling so-called CEDRE funding, is traveling to Lebanon next week to press the government on the use of offshore power barges, a banker familiar with the plan said.

Duquesne wants the barges included in the electricity overhaul plan, the person said, requesting anonymity.

Duquesne could not immediately be reached for comment.

The contents of the 2020 budget will be key to helping unlock some $11 billion conditionally pledged by international donors under last year’s CEDRE conference. But a cabinet meeting on the budget set for Friday was cancelled amid the protests.

‘TAX INTIFADA’

Hariri’s government, which includes nearly all of Lebanon’s main parties, had proposed a tax of 20 cents per day on calls via voice-over-internet protocol (VoIP) used by applications including WhatsApp, Facebook FB.O and FaceTime.

In a country fractured along sectarian lines, the protests’ unusually wide geographic reach may be a sign of deepening anger with politicians who have jointly led Lebanon into crisis.

Fires were smoldering in central Beirut, where streets were scattered with glass of several smashed shop-fronts. Tear gas was fired on some demonstrators.

The newspaper an-Nahar described it as “a tax intifada”, or uprising. Another daily, al-Akhbar, declared it “the WhatsApp revolution”.

“With this corrupt authority, our kids have no future,” said protestor Fadi Issa, 51. “We don’t just want a resignation, we want accountability. They should return all the money they stole. We want change.”

As confidence has faded and dollars have grown scarce, new cracks have emerged between Lebanon’s government and its private lenders, according to several of the bankers, investors and officials who spoke to Reuters.

After years of funding the government with the promise of ever higher rates of return, the banks – sensing the country is approaching collapse – are pressing for it to finally deliver reforms to win over donors.

Most said Lebanon would likely feel more economic and financial strain in the months ahead but avoid haircuts on deposits or a worst-case sovereign default.

Yet Beirut’s years of failure to deliver reforms and the new determination among its traditional donors to press for them has left even top officials, bankers and investors divided over whether a devaluation is in store for the Lebanese pound.

“You need a positive shock. But unfortunately the government thinks reforms can happen without touching the structure that benefits them,” said Nassib Ghobril, head of economic research and analysis at Byblos Bank.

Lebanon must promote reforms to increase capital inflows, he said.

“We can’t keep going to the Emirates and Saudis. We need to help ourselves in order for others to help us.”

CLOCK TICKING

This month, Moody’s put Lebanon’s Caa1 credit rating under review for a downgrade and estimated the central bank, which has stepped in to cover government debt payments, had only $6 billion-$10 billion in useable dollars left to maintain stability.

That compares with some $6.5 billion in debt maturing by the end of next year.

The central bank says its foreign assets stood at $38.1 billion as of Oct. 15.

An official told Reuters Lebanon has only $10 billion in real reserves. “It is a very dire situation that has five months to correct itself or there will be a collapse, around February,” he said.

Hariri’s government may have only a few months to deliver fiscal reforms to convince France, the World Bank and other parties to the CEDRE agreement to unlock $11 billion in conditional funding.

The head of regional investments for a large U.S. asset manager said Lebanese officials are privately saying a plan that addresses short- and long-term electricity shortages will be announced before year-end, after which the government will raise tariffs.

But critics say no concrete steps have been taken despite energy ministry statements that the plan is on track.

Hariri left Paris last month with no immediate cash commitment after visiting French President Emmanuel Macron. Likewise this month he left Abu Dhabi empty-handed after meeting Crown Prince Sheikh Mohammed bin Zayed al-Nahyan.

Lawmakers in Beirut struggled to explain what happened in Abu Dhabi after Hariri claimed the United Arab Emirates had promised investments following “positive” talks.

EYES ON HEZBOLLAH

Investors, bankers and economists say at least $10 billion is needed to renew confidence among the Lebanese diaspora whom for decades have underpinned the economy by maintaining accounts back home.

But so far this year, deposits have shrunk by about 0.4%.

The government has sought a smaller cushion from Sunni Muslim allies to buy some time. But to secure funding from the UAE or Saudi Arabia, Beirut would likely have to meet conditions meant to weaken Shi’ite Hezbollah’s hand in Lebanon’s government, said several sources.

Hezbollah, which faces U.S. sanctions, is seen to be gaining more control over state resources by naming the health minister in January after last year’s elections brought more of its allies into the legislature.

Some say Saudi Arabia, UAE and the United States are motivated to hold out on Beirut as part of their wider policy seeking to weaken Iran and its allies which have been fighting proxy wars with Gulf Arab states on several fronts.

“Their tolerance of Iran and Hezbollah has lowered significantly. The ‘Lebanese exception’ is gone,” said Sami Nader, Beirut-based director of the Levant Institute for Strategic Affairs.

“The balance has tilted and we are now at odds with our former friends because Hezbollah now has the upper hand politically.”

The former regional head at a major Western bank put it bluntly: “People have lost patience with the corruption in which a frozen Parliament with no authority is simply divvying up the pie among politicians.”

“But at the end of the day the Lebanese political class usually succeeds in convincing allies that they should not let the system collapse and bring civil war again,” he added.

WANING TRUST

Lebanon, straddling the Middle East’s main sectarian lines, was historically the region’s foreign-exchange hub into which deposits flowed, especially since 1997 when its currency was pegged to the dollar at 1,507.5 pounds.

But after a reckoning in August and September in which the cost of insuring Lebanon’s sovereign debt surged https://tmsnrt.rs/2MORZfM to a record high, things have changed.

Depositors, including the diaspora drawn by rates much higher than in Europe or the United States, are pulling funds in the face of Lebanon’s swelling twin deficits, inability to secure foreign funding, and unorthodox central bank efforts to attract dollar inflows.

Among Lebanon’s 6 million citizens, trust has worn thin.

Depositors can no longer easily withdraw dollars, and most ATMs no longer provide them, forcing people to turn to so-called parallel FX markets where $1 is worth more than the official peg.

“I am with the protesters,” said Walid al-Badawi, 43. “I have three children, I am a taxi driver, I work all day to get food for my kids and I can’t get it.”

Gaspard, the central bank’s former research head, said foreign exchange was easy even through Lebanon’s 15-year civil war. There was also always a balance of payments surplus – until 2011 when deficits began to grow, reaching $12 billion last year.

LOST RESOLVE AT BANKS

Three events precipitated the crisis of confidence that for years seemed inevitable: a series of central bank efforts since 2016 to keep growing deposits with rates of more than 11% on large deposits; a public sector pay hike last year that raised the budget deficit to more than 11% of GDP; low oil prices in recent years that have weakened Gulf allies.

In a report on Thursday, the IMF described Lebanon’s position as “very difficult,” adding “substantial new measures” are needed to protect it and reduce large deficits.

As dollars have dried up, banks have effectively stopped lending and can no longer make basic foreign-exchange transactions for clients, one banker said.

“The whole role of banks is to pour money into the central bank to finance the government and protect the currency,” he said. “Nothing is being done on the fiscal deficit because doing something will disrupt the systems of corruption.”

The resistance from banks has been subtle but telling given their central role in financing the government.

When Beirut proposed a $660 million reduction in debt service costs in its 2019 budget, banks never signed up to the idea. They have also been less enthusiastic about subscribing to Eurobonds including a planned $2-billion issuance later this month, officials said.

Without reform, “banks agree we can no longer support the public sector,” said Byblos Bank’s Ghobril.

(Reporting by Jonathan SpicerTom Perry and Samia Nakhoul; Additional reporting by Yara Abi Nader and Ellen Francis in Beirut and John Irish in Paris; Editing by Hugh Lawson) ((jonathan.spicer@reuters.com; Reuters Messaging: jonathan.spicer.thomsonreuters.com@reuters.net @jonathanspicer))

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Geopolitical Tensions Affect Growth in MENA in 2019

Geopolitical Tensions Affect Growth in MENA in 2019

In its World Economic Outlook published yesterday, the IMF cut forecasts for almost all countries in the MENA as the region is going through some geopolitical troubles or as posted by NORTH AFRIC of October 15, 2019, in its article titled ‘World Bank: Geopolitical Tensions Affect Growth in MENA in 2019.’

Economic growth in the region of North Africa and the Middle East is expected to drop to 0.6 pc in 2019 against a 1.2 pc growth posted last year, says the World Bank in its latest report.

The growth forecast for 2019 has been revised downwards due to intensified global economic headwinds and rising geopolitical tensions, explains the WB, noting that the current sluggish growth is due to conservative oil production outputs, weak global demand for oil, and a larger-than-expected contraction in Iran.

On the other hand, a boost in non-oil activities in the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates), most prominently in construction, partially offset the dampening effect on the region’s average growth numbers as a result of Iran’s economic contraction.

“Countries in the region have implemented bold reforms to restore macroeconomic stability, but the projected growth rate is a fraction of what is needed to create enough jobs for the fast-growing, working-age population,” said Ferid Belhaj, World Bank Vice President for the Middle East and North Africa region. “It is time for courageous and far-sighted leadership to deepen the reforms, to bring down the barriers to competition and to unlock the enormous potential of the region’s 400 million people as a source of collective demand that could drive growth and jobs.

In the medium-term, the World Bank expects real GDP in the MENA region to grow at 2.6 pc in 2020 and 2.9 pc in 2021. The projected pickup in growth is largely driven by increasing infrastructure investment in GCC countries and the recovery in Iran’s economy as the effects of current sanctions wane.

However, the report warns that a further escalation in regional tensions could severely weaken Iran’s economy and spill over to other countries in the region.

While rising oil prices would benefit many regional oil exporters in the short run, the overall impact would be to hurt regional trade, investment, and spending on infrastructure, affirm the WB experts.

They also tackled the issue of unfair competition in the MENA region saying that “countries in the region have an opportunity to transform their economies by leveling the economic playing field, and creating business environments that encourage risk-taking and reward innovation and higher productivity”.

The WB report calls for strengthening competition, streamlining management of state-owned enterprises and promoting the private sector.

Algeria’s Political deadlock and economic breakdown

Algeria’s Political deadlock and economic breakdown

The political impasse in which Algeria has been mired for more than seven months would result in a sharp economic slowdown in the short term. This Algeria’s Political deadlock and economic breakdown that the World Bank forecasters have reached is by any means comprehensive but could be read as some sort of alert.

By  Hakim Ould Mohamed in REPORTERS DZ of October 12, 2019.

The institution expects non-hydrocarbon sectors, as well as all oil and gas-related activity, to run through an air hole this year; which should have some unavoidable consequences on the country’s GDP growth. In effect, in similar way to other developing countries, it is expected to come down to 1.3% in 2019 from 1.5% the previous year.

Algeria's Political deadlock and economic breakdown

“Uncertainty policy is expected to lead to a slowdown in the non-hydrocarbon sector in 2019,” reads a World Bank report released last Thursday. The Bretton Woods institution has not failed to highlight the impact of the arrests of business leaders on investment morality grounds or lack of these, and more generally, on the economy. “Business leaders from various sectors were arrested in connection with corruption investigations, which has disrupted the economy due to sudden changes in the direction and supervision of these companies, as well as uncertainty over investment,” the same report said. Since the beginning of the crisis, a wave of arrests affected the business community, public institutions, banks and social bodies alike. This blocking situation had worsened over the weeks; appropriation sets did not meet, officials at the level of economic administration were careful not to take the slightest risk. That is to say how violent the shock wave was. The impact on the economy could be disastrous as the situation continues to worsen by the day. As such, the World Bank (WB) estimates that “the pre-election period also risks further delaying the fiscal consolidation process scheduled for 2019, increasing the budget deficit to 12.1% of GDP and increasing the risk of a more abrupt adjustment in the future.” For the WB, widening budget and current account deficits is almost inevitable. While the fiscal deficit would be unlikely to be reduced internally, “on the external front, the current account deficit is expected to widen to 8.1% of GDP, mainly due to a significantly larger trade deficit.”

 Investment is being impacted

 “As the course of political events is expected to have an impact on economic activity, it is also expected that more resources will be allocated to social measures, to the detriment of public investment spending,” the Bank predicts. The report, stating that “private sector activity and investment will be affected by political disruptions and an unfavourable business climate, as well as disruptions caused by delays in payment of workers in several industries.” This is the case, since the draft Finance Bill 2020 foresees a sharp decline in capital expenditure, to the tune of 20.1%, while operating expenses and social transfers are maintained as they are. WB experts are merely saying out loud what Algerian economists and operators are thinking, warning of a situation that could go along if solutions to the political impasse run out. “The delays at the end of the political impasse and political uncertainty could further damage the country’s economy, leading to increased imports and further dwindling foreign exchange reserves,” concludes the WB report. Moreover, macroeconomic indicators are unlikely to improve at any time under current political conditions.

 Economic growth to only 1.9% in 2020

 Moreover, against a background of falling capital spending and low morale among investors, the growth of the Algerian economy would be only 1.9% in the year 2020. A stagnation is due in particular to the “slow” growth of the hydrocarbons sector, combined with the contraction in economic activity, which has limited growth in non-hydrocarbon sectors, according to the WB’s economic monitoring report released on Thursday. “Growth in the hydrocarbon sector has been slow, with economic activity contracting by 6.5% and 7.7% in 2018 and the first quarter of 2019, respectively, partially off-sparing the effects of the slight increase in non-core growth 3.4% and 3.9% in 2018 and the first quarter of 2019, respectively,” the WB noted. The tiny increase in investment in the first half of the year (4.9%) was driven by public investment in construction, public works and hydraulics, as a result of the expansion of social housing programmes, the WB said. Furthermore, the institution believes that “the recent discovery of a new gas field suggests a rebound in gas production and exports, but only in the medium term, and if and only if the framework for investment in hydrocarbons lends it to it.” The World Bank is merely bringing water to the government’s mill, which has called the enactment of the new hydrocarbon law urgent.

Iraq protests expose the fallacy of the country’s democracy

Iraq protests expose the fallacy of the country’s democracy

Streets demonstrations in the vast and populous countries of the MENA region’s Algiers, Khartoum, Cairo and finally, Bagdad chasing some long-time running democratic awakening appear to be stalling. However, these capital cities of the so-called republics’ populations seem to be going through a quasi-general disenchantment with their respective establishments because of all the prospects for future development in political and security terms have become uncertain given this sudden but not surprising worsening regional situation. Like throughout all these countries, Iraq protests expose the fallacy of the country’s democracy. Technological advances in the world and their penetration in the MENA region could definitely be behind all these upheavals.

Whether these media as social or just digital distribution of news, they did help to connect citizens and build linkage to an unprecedented level. Government organisations always in desperate need of credibility fell short to keep up with how fast the region’s peoples demands of more democracy, etc. This article elaborates on the specifics of Iraq’s.

Iraq protests expose the fallacy of the country's democracy
Anger on the streets: protesters in al-Tayaran square in central Baghdad on October 4. Murtaja Lateef/EPA

Violent crackdown against Iraq protests expose fallacy of the country’s democracy

By Balsam Mustafa, University of Birmingham

When Muhanad Habib, a 22-year-old Iraqi from the Sadr City district of Baghdad, posted on Facebook in late September, he probably didn’t imagine that his demands for a better life and basic rights would be met with bullets.

It will be a huge and angry public revolution in Baghdad … We will take to the streets protesting … Enough silence about what’s going on in Iraq. We cannot just watch Iraq being destroyed when we have armies of jobless and poor.

This was how it all started. Angry youth from Baghdad took to the streets. Unaffiliated with any political party or with well-known activists, the protesters – the majority of whom were born in the late 1990s or early 2000s – despaired about any prospect for change in Iraq.

The crackdown by security forces that followed left more than 100 people dead and thousands more injured. Iraqi President Barham Salih condemned the crackdown in a televised speech on October 7, claiming that orders to shoot at the protesters weren’t made by the state or its apparatus. The interior ministry ordered an investigation into the deaths.

Yet, Salih’s statement raised questions about who is actually running the Iraqi state. And despite his and international condemnation, the crackdown continues on the ground.

Calls for a homeland

Endemic corruption, unemployment, flawed institutions and poor public services linger in Iraq and have prompted protests since 2011, including notably in Basra in 2018. The recapture of Iraqi lands from the grip of Islamic State (IS) gave many Iraqis hope that lessons would be learnt about the repeated failures which gave rise to IS, and that those in power would take sincere steps to reform. But that hope has been diminishing every day.

The most recent protests came in the wake of multiple smaller demonstrations by different groups, including PhD graduates, doctors and engineers in September 2019.

They followed government actions that caused widespread anger. Impoverished people were outraged at a recent state campaign to destroy unlicensed properties and market stalls across Iraq, leaving many homeless and jobless.

It also followed the removal of a key general, Abdul Wahab Al Saadi, from his position as commander of the Counter-Terrorism Service, followed by his demotion to a lower post at the Ministry of Defence. The marginalisation of a figure admired for his role in the military campaign against IS enraged many Iraqis.

The new generation want a homeland. “We want a respected homeland,” and “I am taking to the streets to get my right,” were among the slogans on display during the protests. “The issue is not about water or electricity, but about a homeland,” shouted another protester.

Violent crackdown

The immediate crackdown of the protests has surprised, shocked, and shaken Iraqis. The suppression turned a protest about anti-corruption and unemployment into an uprising against the status quo and what participants see as foreign interference, particularly from Iran.

Tear gas, live ammunition, and snipers were used to quell the protesters. As one protestor put it: “They did things to us they never did to IS. They beat and insulted us. They used live fire and grenades. What have we done? All what we are asking for are our rights and all people’s rights.” The protestor’s words were used as the opening of a new rap song titled “Iran’s tails” released in the wake of the crackdown by an Iraqi expat in solidarity with the demonstrators.

Iraq protests expose the fallacy of the country's democracy
The funeral in Baghdad of a protester allegedly killed by Iraq soldiers. Murtaja Lateef/EPA

The violent oppression and state’s authoritarian measures to cover up the carnage are reminiscent of the days of Baathist rule and former president Saddam Hussein’s oppression of a 1991 uprising. In 2019, such measures included an internet blackout across Iraq except in the Kurdistan region, curfews in Baghdad and other provinces in the south, and blocked roads leading to Tahrir square in Baghdad where demonstrators gathered. Comparisons were also made with IS, who also cut off the internet in Mosul when Iraqi troops were advancing to retake the city in 2016.

Offices of media agencies covering the protests were attacked and reports emerged of protesters, activists and journalists being threatened and arrested.

By disconnecting Iraqis from the outside world, the authorities in Iraq tried to control the circulation of videos that showed civilians killed in broad daylight. But they also pushed the narrative of Iran-backed political parties and officials: that “intruders” – an implicit reference to Baathists or actors backed by an external agenda – were responsible for riots. A similar narrative was echoed by Iranian media outlets to undermine the legitimacy of the protests, accusing foreign powers of being behind them, an indirect reference to the US, Israel and Saudi Arabia.

Despite the internet blackout, which remains partially in place, footage of the live shooting at the protestors and ambulances carrying the wounded were shared on social media as some Iraqi protesters resorted to innovative methods with the help of Iraqi expats to reveal the scale of the violence.

The heartbreaking scenes caused uproar among the Iraqi diaspora who protested in several countries around the world in solidarity. But for people inside Iraq, many still don’t know the scale of the atrocities as they haven’t been able to access social media sites.

The fallacy of democracy

Since the fall of Hussein’s regime in 2003, successive governments have failed to put an end to Iraqis’ grievances. Time and again, only empty promises were made, and superficial measures taken. The electoral system has helped to produce and perpetuate a hybrid form of kleptocracy, authoritarianism and kakistocracy – a government run by the worst, or most unscrupulous people. Armed groups, tribes, foreign powers and religious clergy have all maintained this system.

The latest protests may have been suppressed but they revealed that democracy in Iraq is nothing but a facade. What sort of democratic government kills its own people, taking away their hopes and dreams? And can it still be called legitimate? Reacting indifferently to the deadly crackdown of innocent people in Iraq, the world needs to at least recognise that the root causes of Iraq’s ills are in the post-2003 system itself.

Balsam Mustafa, Teaching Fellow, University of Birmingham

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Growth in Emerging Market and Developing Economies

Growth in Emerging Market and Developing Economies

Romain Duval and Davide Furceri, authors of this article that obviously elaborates on the currently so-called developing countries. It does not ignore that there is some differentiation between oil and/or other scarce natural resources and the non-exporters of the same. It might as well be talking about these two categories of countries but perhaps along with the character traits described in the image below. Why you might wonder. Simply because How To Reignite Growth in Emerging Market and Developing Economies as developed here, could well apply to all countries in the MENA region, perhaps worldwide not for the same reasons.

Growth in Emerging Market and Developing Economies
NPR quotes the Associated Press, which says that the term ‘developing country’ is more appropriate than Third World when referring to the economically developing nations of Latin America, Africa, and Asia.

Let us, in the meantime, read what they say.

Growth in Emerging Market and Developing Economies
(photo: Kacper Pempel/Reuters/Newscom)

Emerging markets and developing economies have enjoyed good growth over the past two decades. But many countries are still not catching up with the living standards of advanced economies.

At current growth rates, it would take more than 50 years for a typical emerging market economy to close half of its current income gap in living standards, and 90 years for a typical developing economy.

Our research in Chapter 3 of the October 2019 World Economic Outlook finds that implementing major reforms in six key areas at the same time—domestic finance, external finance, trade, labor markets, product markets, and governance—can double the speed of income convergence of the average emerging market and developing economy to the living standards of advanced economies. This could raise output levels by more than 7 percent over a six-year period.

Structural reforms can yield sizable payoffs.

More room for reforms

Policies that change the way governments work—known as structural reforms—are difficult to measure. They often involve policies or issues that are not easy to quantify, such as job protection legislation or the quality of supervision of the domestic banking system.

To address this, the IMF recently developed a comprehensive dataset covering structural regulations in domestic and external finance, trade, and labor and product markets. The data cover a large sample of 90 advanced and developing economies during the past four decades. To the five indicators, we added the quality of governance (for example, how countries control corruption) from the World Gov­ernance Indicators.

The new indicators show that, after the major wave of reforms in the late 1980s and—most importantly—the 1990s, the pace slowed in emerging market and developing economies during the 2000s, especially in low-income developing countries.

While this slowdown reflects the prior generation of reforms, as in advanced economies, there remains ample room for a renewed reform push, particularly in developing economies—notably, across sub-Saharan Africa and, to a lesser extent, in the Middle East and North Africa and the Asia-Pacific region.

Reforms can boost growth and living standards

Based on our empirical research of reforms in 48 current and former emerging markets and 20 developing economies, we find that reforms can yield sizable payoffs. But these gains take time to materialize and vary across different types of regulations. For example, a domestic finance reform of the size that took place in Egypt in 1992 leads to an increase in output of about 2 percent, on average, six years after implementation. We get a similar result for anti-corruption measures, whose effects are sizable in the short run and stabilize at around 2 percent in the medium term. In the other four reforms areas—external finance, trade, product markets, and labor markets—the gains are about 1 percent six years after the reform.

For the average emerging market and developing economy, the results imply that major simultaneous reforms across all six areas considered in this chapter can raise output by more than 7 percent over a six-year period. This would increase annual per capita GDP growth by about 1 percentage point, doubling the average speed of income convergence to advanced-country levels. Model-based analysis—which captures the longer-term effect of reforms and provides insights on the channels through which they affect economic activity—points to output gains about twice as large as the empirical model over the longer term (beyond 6 years).

One channel through which reforms increase output is by reducing informality. For example, lowering barriers to businesses’ entry in the formal sector encourages some informal companies to become formal. In turn, formalization boosts output by increasing companies’ productivity and capital investment. For this reason, the payoff from reforms tends to be larger where informality is pervasive.

Getting the timing, packaging and sequencing right

Some reforms work best when the economy is strong. In good times, reducing layoff costs makes employers more willing to hire new workers, while in bad times it makes them more willing to dismiss existing ones, magnifying the effects of a downturn. Similarly, increasing compe­tition in the financial sector at a time of weak credit demand may push certain financial intermediaries out of business, further weakening the economy.

In countries where the economy is weak, governments may prioritize reforms—such as strengthening product market competition—that pay off regardless of economic conditions, design others to alleviate any short-term costs—such as enacting job protection reforms now with a provision that they will take effect later. These reforms can also be accompanied with monetary or fiscal policy support where possible. 

Reforms also work best if properly packaged and sequenced. Importantly, they typically deliver larger gains in countries where governance is stron­ger. This means that strengthening governance can support economic growth and income convergence not just directly by incentivizing more productive formal enterprises to invest and recruit, but also indirectly by magnifying the payoff from reforms in other areas.

Finally, to fulfill their promise of improving living standards, reforms must be supported by redistributive policies that spread the gains widely across the population—such as strong social safety nets and programs that help workers move across jobs. For reforms to be sustainable and therefore effective, they need to benefit not just some, but all.

About the IMF Blog

IMFBlog is a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

E-commerce for “Back to School” shopping for MENA parents

E-commerce for “Back to School” shopping for MENA parents

MENA online “Back to School” sales have grown 6 times and will continue to grow by Artem Rudyuk, would be an eye-opener on how certain countries of the MENA’s education systems related activities are evolving. As a matter of fact, E-commerce for “Back to School” shopping for MENA parents is, according to this article, increasing as demonstrated in actual happenings between 2017 through 2019.

MENA parents are attracted to e-commerce for the “Back to School” shopping, increasing their interests and buying habits at exponential levels between 2017 and 2019.

MENA online “Back to School” sales have grown 6 times and will continue to grow
  • The buying trends between August 2017 and August 2019 in the Back to School category revealed that traditionally the sales spike around the month of August
  • In 2019, online sales reached their highest level, measuring a 6 times growth compared with August 2017
  • With the region opening up more to e-commerce and with the market competitive sellers, the Back to School online sales will stay on a growth pattern

ADMITAD analysts recently released an online sales report that shows Back To School shopping has grown 6 times since 2017. Analysts observed data over the course of 2 years measuring the buying trends in the Back To School categories across different countries in the MENA region.

The buying trends between August 2017 and August 2019 in the Back to School category revealed that traditionally the sales spike around the month of August. However, in 2019, online sales reached their highest level, measuring a 6 times growth compared with August 2017. With the region opening up more to e-commerce and with the market’s competitive sellers, Back to School online sales will stay on a growth pattern, expecting to reach in August 2020 the highest level measured in the past years. 

“The growth we’ve seen in 2 years is indicative of MENA region developing into a more mature market in e-commerce, with giants like Amazon, Noon, Namshi creating outstanding value for the customers. Other factors are contributing too, such as the rise of social media influencers and the unparalleled cash value offers online shopping provides. Having said that, this is just the beginning as we estimate the growth to continue at a rapid rate in the next 2 years” said Artem Rudyuk, head of MENA Operations at ADMITAD

The convenience of fast-delivery, an abundance of offers and eye-catching promotions alongside a wider diversity of the products, are some of the top reasons why MENA region Back-To-School customers’ interest in online shopping is growing. 

One of the fastest-growing marketplace for parents, Sprii.com, is confirming the positive climb of the online sales during August, with a growth of 181% in the back to school category. Sarah Jones, CEO, and Founder of Sprii said: “Sprii has seen a 181% increase in sales in its back to school category over the last year. We see traffic fast moving away from your traditional bricks and mortar stores to online platforms as product ranges increase, prices are cheaper and delivery becomes easier. The leading contributor of growth in this category has been kids lunchboxes and healthy snacks, which we see in keeping with the regional movement towards healthy sustainable living, and the site-wide increase in organic product sales.”

The estimated increase in back-to-school spending represents an opportunity for MENA based e-commerce companies to capitalize on this new profit-making shopping season, together with Christmas, Ramadan, and Back Friday. The MENA region players have an unprecedented opportunity to convert customers with competitive advertising, offers, prices and bundles during the online browsing process.

Read: Cartlow: the UAE e-commerce app that sells top quality goods for less

Read: Back to School – Three priorities for Education IT Teams in the new academic year

Author

Artem Rudyuk is the Head of MENA Operations for Admitad, heading the Development of affiliate partnerships between e-commerce merchants and online publishers on cost per action basis and bringing affiliate marketing in MENA region to a new level with the most transparent and tech advanced platform.

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