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How countries are raising debt to fight COVID and . . .

How countries are raising debt to fight COVID and . . .

How countries are raising debt to fight COVID and . . . why developing nations face tougher choices by Shamel Azmeh, Lecturer in International Development, Global Development Institute, University of Manchester is about the pandemic that is affecting all countries as described by the World Bank’s article as a heat-seeking missile speeding toward the most vulnerable in society. That metaphor applies not just to the vulnerable in the rich world; the vulnerable in the rest of the world is not more immune. 

The feature picture above is of the World Economic Forum‘s.

So here is :

How countries are raising debt to fight COVID and why developing nations face tougher choices

PM Boris Johnson (left) and Chancellor Rishi Sunak have come up with money to underwrite wages, rescue packages and meal vouchers during the pandemic. Jonathan Brady/PA Wire/PA Images

COVID continues to ravage societies around the world, and a key issue is how governments can afford to fight it. As economies are disrupted, governments are stepping in to increase their spending to bail out companies, pay the cost of health measures, and subsidise workers’ wages.

Before COVID, when people argued that the state should be able to offer free healthcare and free education, among other services, and welfare measures, a standard political response was that state resources were limited. Asked by a nurse in 2017 why her wages hadn’t increased from 2009 levels, then British prime minister, Theresa May, said: “There is no magic money tree that we can shake that suddenly provides for everything that people want.”

Except, a few years later, the government has not only been able to pay the wages of millions, it has also created rescue packages for thousands of firms and offered people vouchers to eat out in restaurants. A number of European countries have also taken the unprecedented step of underwriting the wages of millions of workers in response to the pandemic.

How is the British state and others capable of this radical increase in spending at a time when revenues from taxes are collapsing?

‘Magic money tree’

The answer to this lies in the debt market. Over the past few months, world governments have drastically increased their borrowing to cover the costs of the pandemic. It might appear logical that the cost of credit will go up during uncertain economic times. The reality, however, is that capital often goes to safer sovereign debt during economic downturns, particularly as the equity markets become unstable and volatile.

Over recent months, rather than struggling to find lenders or having to pay more for debt, the governments of the major economies have been awash with credit at historically low rates. In October, the EU, until now a small player in the debt market (as borrowing mostly is by national governments of member states), began a major borrowing campaign as part of the efforts to fight COVID through the SURE programme (Support to mitigate Unemployment Risks in an Emergency) which was created in May.

The first sale of bonds worth €17 billion was met with what some described as “outrageous demand”, with investors bidding a total of €233 billion to buy them. This intense competition was for bonds that offered a return of -0.26% over ten years, meaning that an investor who holds the bond to maturity will receive less than they paid today.

The EU is not the only borrower that is effectively being paid to borrow money. Many of the advanced economies have been in recent years and months selling debt at negative rates. For some countries, the shift has been dramatic. Even countries such as Spain, Italy and Greece that were previously seen as relatively risky borrowers, with Greece going through a major debt crisis, are now enjoying borrowing money at very low rates.

The reason for this phenomenon is that while these bonds are initially bought by “traditional” market actors, central banks are buying huge quantities of these bonds once they are circulated in the market. For a few years now, the European Central Bank (ECB) has been an active buyer of European government bonds – not directly from governments but from the secondary market (from investors who bought these bonds earlier). This ECB asset purchase programme was expanded to help weather the COVID crisis, with the ECB spending €676 billion on government bonds from the start of 2020 until September.

Other central banks in the major advanced economies are following the same strategy. Through these programmes, those central banks encourage investors to keep buying government bonds with the knowledge that the demand for those bonds in the secondary market will remain strong.

Poorer countries

Not everybody, however, enjoys a similar position in the debt market. While the rich economies are being chased by investors to take their money, the situation is radically different for poorer countries. Many poor countries have limited access to the credit market and rely instead on public lenders, such as the World Bank.

In recent years, this pattern began to change with a growing number of developing countries increasing their foreign borrowing from private lenders. Developing countries, however, are in a structurally weaker position than richer peers. The smaller scale of their capital markets mean that they are more reliant on external financing. This reliance means that developing countries rely on raising money in foreign currency, which increases the risk to their economies.

As many developing countries have less diversified exports with a higher percentage of commodities, the price decline in commodities in recent months has increased those risks. As a result, developing countries face a significantly higher cost of borrowing compared to the richer economies.

A few large developing countries, such as Indonesia, Colombia, India and the Philippines, have begun to follow the policy adopted by the advanced economies of buying government bonds to fund an expanding deficit. The risks of doing this, however, are higher than the richer economies, including a decline in capital inflows, capital flight and currency crises. A report by the rating agency S&P Global Ratings illustrated the differences between those two economies:

Advanced countries typically have deep domestic capital markets, strong public institutions (including independent central banks), low and stable inflation, and transparency and predictability in economic policies. These attributes allow their central banks to maintain large government bond holdings without losing investor confidence, creating fear of higher inflation, or triggering capital outflow. Conversely, sovereigns with less credible public institutions and less monetary, exchange rate and fiscal flexibility have less capacity to monetise fiscal deficits without running the risk of higher inflation. This may trigger large capital outflows, devaluing the currency and prompting domestic interest rates to rise, as seen in Argentina over parts of the past decade.

While the reaction of the market to this approach by developing countries has been muted so far, the report argued, this situation might change. Developing countries who do this could “weaken monetary flexibility and economic stability, which could increase the likelihood of sovereign rating downgrades”.

Ratings downgrades

Over recent months, downgrading by rating agencies have been a major risk facing developing countries with many economies facing higher costs of borrowing as a result of such downgrades. These downgrades were often linked to decline in prices and exports of commodities, as was the case for diamonds for Botswana and oil for Nigeria.

In July, following the participation of Ethiopia, Pakistan, Cameroon, Senegal and the Ivory Coast in a World Bank-endorsed G20 debt suspension initiative, the rating agency Moody’s took action against those countries arguing that participation in this scheme increased the risk for investors in bonds issued by these countries, leading to some developing economies avoiding the initiative in order not to send a “negative signal to the market”. Zambia is on the verge of being the first “COVID default” and other developing countries could face a similar situation in coming months.

As a result of these dynamics, many developing countries are facing the tough choice of giving up any economically costly health measures or facing serious fiscal and economic crises. Access to credit has become a defining factor in the ability of governments to respond to the pandemic. As a result of access to cheap credit, developed economies are so far able to take such health measures while limiting the social and economic impact of the pandemic. Many developing countries do not have this luxury. Not everyone gets to shake the branches of the magical money tree.

Shamel Azmeh, Lecturer in International Development, Global Development Institute, University of Manchester

The Conversation

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

Scope of Growth for the GCC’s B2B E-Commerce

Scope of Growth for the GCC’s B2B E-Commerce

E-commerce in the MENA’s Gulf took off despite certain difficulties to the point where Gulf Business‘ article titled Explainer: What is the scope of growth for the GCC’s B2B E-commerce industry? sustains that

The pandemic has helped boost digital marketplaces in the region, opines Muhammad Chbib, CEO at Tradeling.

7 November 2020

The pandemic has propelled the use of e-commerce in the region and globally. What are the key trends you have seen?
The most significant trend is the growth of homegrown capabilities in e-commerce in the region. Globally, while e-commerce has been recording strong growth – accelerated no doubt by the pandemic – the region has witnessed a transformational growth in the evolution of the digital economy. Not only have our homegrown companies demonstrated strong resolve to meet the needs of the people and support them, we have seen a tremendous amount of entrepreneurship – with new startups entering the market and building their own niche.

The second trend is more consumers warming up to the possibilities offered by e-commerce. While digital commerce was gaining momentum, one of the factors that has stymied its growth in the region is the relatively lower credit card penetration in some markets. There have also been typical concerns associated with conducting everyday business online. However, one thing the pandemic has brought about is the adoption of digital payments and the increased confidence of consumers to shop online and conduct e-commerce transactions.

In the B2B e-commerce space, how high is the penetration in the GCC market? Has it grown significantly this year?
While B2B e-commerce was evolving at a slower pace compared to consumer-oriented digital business, this year has witnessed a real transformation. I believe it is a case of supply and demand. What matters is that in the new reality, business customers too want to access products and services easily, quickly and efficiently. We see a growth in the B2B marketplace – here in the UAE – and growing enquiries from across the GCC.

Which are the verticals within the sector where you see most scope for growth?
It is really a matter of bringing more options to the customer, whatever the vertical. Customers like to shop around and feel they get value for money and exemplary service. But it is also a matter of sourcing new products and services that aren’t in the region yet.

For those entering the digital B2B industry, what are the main challenges?
The main challenges are finding the right talent with expertise and insights into the B2B sector, which is a different terrain compared to B2C e-commerce. An in-depth understanding of the global market is essential in addition to knowledge of the trading dynamics. You must be flexible and agile to overcome any unprecedented situation. It is also a matter of understanding the customer – the B2B customer is very different from the B2C customer.

Our priority is making the customer journey seamless, taking away their pain points and streamlining processes to ensure efficiencies that save them time and money.

Tradeling launched in April, in the midst of the lockdown – how was your experience? Do you have any immediate plans to expand?
We created Tradeling during the pandemic to connect regional and global suppliers to MENA-based business demand. Today, we have close to 400 suppliers from over 25 countries with gross merchandising value increasing from zero to a high two-digit million figure in just three months.

The key to overcoming the challenges was to enhance market confidence and we took decisive steps in this regard. Today, we have gone from a team of 40 to nearly 100 people and we continue to hire.

From logistics to financing support to ensuring a fully secure payment gateway, we are the first of our kind B2B platform across the region. This is our USP and this integrated approach to business has enabled us to address the challenges.

Looking ahead, what is the future of digital marketplaces in the region?
Digital marketplaces constitute the future of retail and in the new reality, they will record a stronger rate of growth compared to brick-and-mortar retail. But the key for success is to define your own unique niche for the marketplace; increasingly, we see online aggregators trying to capitalise on the opportunity, which will only lead to market fragmentation. What we need is bold, innovative ideas that will help accelerate the momentum of e-commerce growth in the region.COVID-19DIGITAL MARKETPLACEE-COMMERCEGCCTRADELING

Iraq’s Dire Fiscal Crisis

Iraq’s Dire Fiscal Crisis

Kirk H. Sowell describes in Carnegie Endowment for International Peace, how a newly appointed government finds it challenging to make ends meet through Iraq’s Dire Fiscal Crisis. In effect, like most oil-exporting countries of the MENA region, Iraq has to come to terms with the changing fundamentals of the world economy as aggravated by the pandemic.

Iraq’s Dire Fiscal Crisis


2 November 2020

Iraq’s Dire Fiscal Crisis

Iraq’s Prime Minister inherited a series of fiscal crises. As his interim government struggles to avert a complete economic collapse, austerity measures may come at the expense of much-needed reforms.

Since taking office, Iraqi Prime Minister Mustafa al-Kadhimi has faced a series of fiscal and security crises amid collapsing public services and protests. The collapse in global oil prices due to the coronavirus pandemic and the Saudi-Russia oil price war caused Iraq to face an internal solvency crisis as early as June. This fiscal crisis has short and long-term implications. In the short-term, Baghdad continuously struggles to pay public sector salaries, which required the state to borrow from the Central Bank over the summer. With low oil revenue, the state’s monthly profits are covering just over 50 percent of its expenses. In the longer-term, Iraq faces a looming macro-fiscal state collapse—potentially within the next year.

The state is struggling to cover its monthly expenses. Over successive governments, the size of the public sector has grown to the point that Iraq needs to spend more than its total revenue on basic payments—public sector salaries, pensions, food aid, and welfare—to keep a majority of Iraq’s population out of destitution. In 2019, oil revenue averaged $6.5 million per month, and with modest non-oil revenues (largely customs, well less than $1 billion per month), this covered operational expenses with a small amount left over for capital spending. Since the recovery of oil prices after the March collapse, Iraq’s monthly oil revenues have averaged just over $3 billion/month, hitting a high of $3.52 billion in August. In testimony before parliament in September, Finance Minister Ali Allawi revealed[1] that with revenues at these levels, the government was still borrowing 3.5 trillion Iraqi Dinars (IQD) — just over $3 billion—from the Central Bank each month.

On October 10, as Iraq’s cash crunch became more acute, Allawi explained that state employee compensation rose from 20 percent of oil revenues in 2005 to 120 percent today. To help the public understand why the government of such an oil-rich country was broke, he explained that a government of this size should have at least $15 to 20 billion in funds to pay monthly expenses on an ongoing basis, but when this government took office, only about $1 billion was available.[2] This is in part due to weak revenues, the result of low oil prices and Iraq’s adherence to OPEC’s limitations on oil exports. In the past, Iraq’s oil exports have reached 3.5 million barrels per day (bpd), yet they decreased to 2.5 million bpd in recent months. Prominent figures, including former oil minister Ibrahim Bahr al-Ulum, have argued in favor of leaving the OPEC agreement unilaterally. Yet Allawi, speaking before Parliament, explained that while he agreed that OPEC’s quota formula was unfair, Iraq needs the OPEC agreement to keep oil prices from collapsing. More recently, according to the Iraq Oil Report, the government has signaled that it may try to thread the needle by increasing exports by 250,000 barrels per day to satisfy critics—an amount above its quota, but still about 750,000 barrels per day below peak production, and thus hopefully too small an increase to incur Saudi retaliation.

Iraq’s monthly oil revenue to collapsed from $6.2 billion in January to just $1.4 billion in April. The figure recovered to $2.9 billion in May and has gradually improved since, but in August was still just $3.5 billion. Since the government only had about $3 billion in expendable reserves in May, it became clear that Iraq could not pay state employees in June. Salaries over the summer were paid as money became available. As late as July 28, the prime minister’s spokesman admitted that employees at the Culture & Antiquities Ministry (apparently the lowest priority), were still waiting to be paid.

The government saw this crisis coming and began preparing the public for austerity. Finance Minister Allawi made multiple public appearancesdescribing Iraq’s situation as dire and arguing for radical reform. In particular, he predicted that the government, while protecting base salaries, would make large cuts to employee benefits and other costs. On June 9, the cabinet followed through when it voted to implement a series of austerity measures, including cutting benefits, cutting unessential spending, and capping income from “double-salary” payments.[3] Kadhimi’s advisor Hisham Daoud described the new policies as “not enough but only a start” toward reform.

Kadhimi, with no electoral base or political base of his own, has faced the fiscal crisis with a weak hand. This became clear when Parliament overwhelmingly rejected the government’s austerity policies on June 10, one day later. Even MPs friendly to the government described the government’s measures as premature, suggesting that they should try to raise revenue through customs first. Parliament eventually passed a borrowing law on June 24 to allow the government to borrow just enough to make basic payments. This law, however, prohibited the government from cutting benefits. Previously, the cabinet had the authority to cut benefits because, unlike salaries set by law, benefits were set by previous cabinet decrees. Thus, Parliament made the long-term problem worse.

In July, protests resurged in Baghdad as a result of the fiscal crisis. The shortage of money caused Iraq’s electricity shortage to worsen dramatically. Outgoing Electricity Minister Luay al-Khatteeb attributed the decline to two factors: lack of maintenance and the suspension of planned electricity projects.

The government has a few possible, but politically difficult, fixes at its disposal. They could cut the subsidy of roughly $1 billion per month to private electricity consumption, which exists because the ministry only collects a fraction of consumer payments. Finance Minister Allawi pointed out that “people don’t pay their electricity bills” and that “95 percent” of consumption costs was absorbed by the state, asserting that “electricity is not a constitutional right.”[4] Yet such an effort will recall former prime minister Haider al-Abadi’s experience trying to extract electricity payments in 2017, which precipitated a strong protest movement. So far, Kadhimi has shown no sign of pushing the issue. His published comments during a cabinet meeting devoted to the electricity issue focused on “reducing bureaucracy” and improving maintenance, sidestepping the fact that maintenance workers have to be paid.

Iraq’s fiscal crisis comes on the heels of the political crisis of the outgoing government, which left the country without a budget for most of 2020. In such cases, Iraqi law allows the government to spend one twelfth of the previous year’s actual spending each month. Since this year’s revenues have been low, it never had the money to spend that much and simply spent what it had on basic payments. In September, the government released a budget for 2020 and the planned deficit was large—well over 100 percent—so as with past budgets much of the deficit will likely not be spent. The total anticipated revenues are 67.4 trillion dinars, or $57 billion, compared with proposed expenditures of 148.6 trillion dinars, or  $125.7 billion. Oil revenue in 2019 was $78.5 billion yet is projected to be just $49.3 billion for 2020. The government withdrew the bill just two days after it arrived in parliament.

In September the government ran out of money, having used up the borrowing authority from the June bill.[5] Given the population’s overwhelming dependence on state salaries, this brought the short-term financial problems to the fore. Furthermore, Parliament refused to authorize the new borrowing authority Allawi sought because the government had not submitted a “reform plan.” Thus in early October the government released a “White Paper” reform plan. The plan draws a broad and long path to reform that does not directly address the immediate crisis, except to the extent that its publication formally satisfies Parliament’s precondition for new borrowing.

An important part of Allawi’s efforts was his advocacy of Iraq accepting an International Monetary Fund “Stand-By Agreement” (SBA) which might be the only way to prevent a fiscal collapse next year. The agreement would also require spending cuts that parliament has already rejected. Allawi stressed that the IMF would not require cuts to programs protecting the poor, but rather to public sector compensation that, in Allawi’s view, Iraq needed to cut anyway.[6]

This set the stage for a new debacle as the government then sent a new borrowing law to Parliament only to condemn it. A member of Parliament on the Finance Committee criticized the figures in the bill as irresponsible.[7] Given the parliament’s role in aggravating the crisis, this was grandstanding. The looming parliamentary elections, due no later than 2022 and possibly earlier, are driving the political theater. Parliament will presumably pass an amended version of the government’s borrowing bill to allow the government to pay salaries. In the meantime, with salaries being paid late, disposable income is squeezed, further damaging an already weak economy. But Iraq could face a much worse scenario in 2021, as the IMF’s updated forecast for Brent oil prices projects $46.70 per barrel. Iraq’s Central Bank, which rescued the government over the summer, relies on a steady flow of dollars from oil revenues and given current prices range from $40 to $45, reserves are gradually declining. According to financial analyst Ahmed al-Tabaqchali, at current oil prices the Central Bank can continue to print money to fund the government “for about eight or nine months.”[8]  

In terms of immediate steps, at a minimum, a devaluation of the Iraqi dinar (long pegged at 1,182 to the dollar) seems likely in 2021. This would relieve some pressure on the Central Bank and make the government’s expenses cheaper (since its income is in dollars), but it would also drive up inflation over time. The bigger threat is that by mid-to-late 2021, the Central Bank will no longer be able to support the government, forcing austerity through non-payment of operational expenses, including salaries.

It is clear that the government needed to adopt a policy of cutting public sector expenses while increasing its capital investment in agriculture and industry and devoting more resources to education and health. Kadhimi’s reform measures in June were too little, too late.  Still, the austerity that Parliament has resisted will be inevitable if oil prices do not rise dramatically in the months to come. A key priority from an international point of view is that the IMF, as a condition for its loans, impose upon Iraq the reforms for which Allawi has been advocating and which parliament has so rejected. It does not seem likely that reform will come to Iraq by any other means.

Kirk H. Sowell is the publisher of the biweekly newsletter Inside Iraqi Politics (www.insideiraqipolitics.com). Follow him on Twitter @uticarisk.

[1] See 2:13:00.

[2] In most of these comments, Allawi gives the figures in Iraqi dinars. I have converted them to dollars. Thus, he said, for example, that the Finance Ministry had 1.3 trillion IQD when he came into office. This is slightly over $1 billion.

[3] When a family received a payment for a deceased breadwinner and receives another government benefit.

[4] Discussion begins around 1:06:00.

[5] Testimony by the finance minister and discussion of the budget starts at 1:38:00.

[6] In the previously cited video from Parliament on September 8, he refers to the IMF briefly around 2:25:00, then again around 2:48:00, and once more near then end of the four-hour video in response to an MP attacking the IMF option.

[7] The reading begins at 00:09:00 and the comments referred to in the text follow.

[8] Author interview conducted on October 28, 2020 via Skype.More on: 

Bloated public salaries at heart of Iraq’s economic woes

Bloated public salaries at heart of Iraq’s economic woes

Bloated public salaries at heart of Iraq’s economic woes

Until recently, labour markets in the MENA’s oil-exporting countries were characterized by a large public sector, a small, weak private sector, and depending on the country, a sizable agricultural industry, and a sizable informal sector. But in the case of Iraq like elsewhere in the region, the volatility of oil prices and the pandemic impacted the economy, resulting in a critical situation where bloated public salaries at the heart of Iraq’s economic woes result in increasingly unstoppable youth unemployment.
The currently general upheaval in the region, rural to urban and cross-border migration has not helped, leading to an even greater informal market.

Bloated public salaries at heart of Iraq’s economic woes by Samya Kullab is a vivid picture or a series of pictures on life in Iraq as perceived by a locally based journalist.

People shop for clothing at the used-clothes market in Baghdad, Iraq, Tuesday, Oct. 20, 2020. Iraq is in the throes of an unprecedented liquidity crisis, as the cash-strapped state wrestles to pay public sector salaries and import essential goods while oil prices remain dangerously low. (AP Photo/Khalid Mohammed)

BAGHDAD (AP) — Long-time Iraqi civil servant Qusay Abdul-Amma panicked when his monthly salary was delayed. Days of waiting turned to weeks. He defaulted on rent and other bills.

A graphic designer for the Health Ministry, he uses about half his salary to pay his rent of nearly 450,000 Iraqi dinars a month, roughly $400. If he fails to pay twice in a row his landlord will evict him and his family, he fears.

“These delays affect my ability to survive,” Abdul-Amma said.

Iraq’s government is struggling to pay the salaries of the ever-swelling ranks of public sector employees amid an unprecedented liquidity crisis caused by low oil prices. September’s salaries were delayed for weeks, and October’s still haven’t been paid as the government tries to borrow once again from Iraq’s currency reserves. The crisis has fueled fears of instability ahead of mass demonstrations this week.

The government has outlined a vision for a drastic overhaul of Iraq’s economy in a “white paper” presented last week to lawmakers and political factions. But with early elections on the horizon, the prime minister’s advisers fear there is little political will to execute it fully.

“We are asking the same people we are protesting against and criticizing to reform the system,” said Sajad Jiyad, an Iraq researcher.

The white paper’s calls for cutting public sector payrolls and reforming state finances would undermine the patronage systems that the political elite have used to entrench their power.

A major part of that patronage is handing out state jobs in return for support. The result has been a threefold increase in public workers since 2004. The government pays 400% more in salaries than it did 15 years ago. Around three-quarters of the state’s expenditures in 2020 go to paying for the public sector — a massive drain on dwindling finances.

“Now the situation is very dangerous,” said Mohammed al-Daraji, a lawmaker on parliament’s Finance Committee.

One government official said political factions are in denial that change is needed, believing oil prices will rise and “we will be fine.”

“We won’t be fine. The system is unsustainable and sooner or later it will implode,” the official said, speaking on condition of anonymity to discuss internal politics.

Iraq’s activists have called for a march on Oct. 25, expected to draw large crowds, a year since massive anti-government protests first brought tens of thousands to the streets demanded reforms and an end to the corrupt political class.

“As far as meeting our demands, there have been no changes,” said Kamal Jabar, member of the Tishreen Democratic Movement, founded during the protests last year. “To us, the white paper is a joke.”

Abu Ali, a merchant in Baghdad’s commercial district of Shorjah, fears what the following months have in store. The state is the primary source of employment for Iraqis, and civil servants are the lifeblood of his business.

“The delays in salary payments have affected the market directly,” he said. “If these delays continue our business and the economy will collapse.”

Abdul-Amma’s September pay was 45 days late, and he still hasn’t received the October pay that was supposed to come on the first of the month. He worries about the coming months as well.

“I have a history of chronic heart disease, and one of my daughters is also sick,” said the father of four. He pays $100 in medical fees per month.

But to the architects of the reform paper, he is part of the problem: Public sector bloat is first in line for reform.

“We hope the civil service and bureaucracy will recognize a need for change,” Finance Minister Ali Allawi told The Associated Press in a recent interview.

Iraq relies on oil exports to fund 90% of state revenues. Those revenues have plunged to an average $3.5 billion a month since oil prices crashed earlier this year.

That’s half the $7 billion a month needed to pay urgent expenses. Of that, $5 billion is for public sector salaries and pensions, according to Finance Ministry figures. Iraq also imports nearly all of its food and medicine; with foreign currency reserves at $53 billion, the World Bank estimates the country can sustain these imports for another nine months. Foreign debts account for another $316 million.

Poor productivity of public workers is the heart of the issue, Allawi said.

“We’ve ended up with a low productivity, high-cost public sector that doesn’t really earn its keep,” he said. “In one way or another this issue has to be tackled by either reducing numbers, which is politically difficult, reducing salaries … or increasing productivity.”

The white paper calls for public sector payments to be reduced from 25% of GDP to 12% but doesn’t detail how. Officials said one step may be to restore taxes on civil servants’ benefits that previous administrations had lifted.

To meet month-to-month commitments now, the government has had to borrow internally from its foreign currency reserves. A request of a second loan of $35 billion was sent to parliament, drawing criticism from lawmakers.

Haitham al-Jibouri, head of parliament’s Finance Committee, said in televised remarks that if borrowing was the government’s only plan he would fetch a shopkeeper from Bab al-Sharqi, a commercial area in the capital, to do the finance minister’s job.

Parliament’s endorsement of the loan and the reform paper is crucial for the government to avoid a full-scale economic crisis.

But this will prove difficult with elections slated for next June, since factions want to hand out jobs to maintain their constituencies.

“Whoever decides to push ahead and support reforms first will lose out, they will also need to convince other political players who will also lose out,” said Jiyad. “That is a tough sell.”

Al-Kadhimi’s advisers privately acknowledge the challenges of having the system that produced such mismanagement and corruption be its own savior.

One official recalled a remark made by the finance minister at a meeting of a high-level committee tasked with managing the crisis.

He looked at the room of officials charged with halting the country’s fast spiral toward insolvency and said, “I can’t believe this was done for 10 years and none of you did anything to stop it.” There was silence.

Four strategies for growth in MENA

Four strategies for growth in MENA

The London based WARC posted a summarised page of News on 16/09/2020 of its report covering how Four strategies for growth in MENA would be best to be followed in the MENA region.


An analysis of the results of this year’s WARC Prize for MENA Strategy reveals key takeaways for the region’s marketers looking for growth opportunities, from finding niche audiences in smaller markets to developing more resonant touchpoints.

“As certain MENA markets are already enduring their second wave of COVID-19 and several continue to be buffeted by economic recession, identifying new strategies for growth is vital for brands,” says Lucy Aitken, Managing Editor, Case Studies at WARC.

“In this report, we’ve identified new approaches that this year’s winners have incorporated in their campaigns that can help brands to build strong strategic frameworks that have growth baked in.”

The four key takeaways highlighted in WARC’s 2020 MENA Strategy Report are:

1. Target the frontier markets

Pragmatic solutions that help specific communities in MENA’s frontier markets can be instrumental in driving growth. Empowering marginalised communities, particularly within the region’s smaller markets, can be an effective way to brand-build.

This year’s Grand Prix-winning initiative from Tunisie Telecom helped female farmers access social security via their handsets. The technological innovation instigated by the campaign set the precedent for a new digital government vision.

Melek Ourir, Strategic Planner at Wunderman Thompson Tunisia, advises: “Resist the temptation to ignore smaller markets and audiences that could unlock significant growth for your business.”

2. Unconventional touchpoints can underpin strategy

Identifying new, creative touchpoints strengthens strategy, resonating with or delighting audiences.

Three standout campaigns addressed consumer challenges and were not constrained by where the brands were traditionally ‘allowed’ to be present: clothing retailer Babyshop promoted the long-term health of mothers; cheese brand Puck reclaimed share at breakfast and lunch; and NGO Donner Sang Compter encouraged those who spill their own blood onto the streets in the tradition of Ashura to donate it instead.

Admiring the risks and the rulebreakers among this year’s winners that explored new touchpoints, judge Sunjay Malik, Associate Director, Strategy at PHD UAE, says: “Media mixes are rulebooks that we set ourselves, which over time make us less imaginative and less brave. Long live the rulebreakers, who in challenging themselves inspire us to be better.”

3. Humour: a strategic shortcut to likeability

Making people laugh is one of the most powerful ways to connect and can make your brand distinct from the competition.

Winning brands that used humour include Burger King, which launched a new spicy menu with its Who Said Men Don’t Cry campaign; telco Jawwy, which used entertaining video content to resonate with Saudi youth; and Egyptian telco Etisalat crafting a comic campaign to win customers over to its hybrid offer.

Jury member Shagorika Heryani, Head of Strategy at Grey MENA, says: “There’s always a place for humour – even during a crisis. Smart brands understand the relationship between humour and humanity. Companies know that we buy from brands and people we like. And humour is a shortcut to likeability and authenticity.”

4. Localise to resonate

This year’s winners are a treasure trove of local insight, proving how time invested upfront to unearth strong local insights tends to pay dividends in terms of a robust strategy.

Best-in-class examples include: KFC in Saudi Arabia, which communicated its commitment to locally-sourced chicken by turning all of its brand assets green – the colour of the Kingdom’s flag; and Grand Prix winner Tunisie Telecom, which devised a programme to offer social welfare coverage to female farmers.

WARC’s 2020 MENA Strategy Report can be downloaded here. The full report is available to WARC subscribers and includes chapter analysis of the four themes with views and opinions from the judges; objectives, results and takeaways of the winning case studies, and what these mean for brands, media owners and agencies; and data analysis.

WARC’s Lucy Aitken will deep-dive into using humour as a successful marketing strategy at Lynx Live on 5-7 October in her keynote ‘Humour: the smart shortcut to brand fame’.

The WARC Prize for MENA Strategy is a free-to-enter annual case study competition in search of the best strategic thinking from MENA’s marketing industry. Next year’s prize will open for entries in January 2021.

TOPICS

Saudi non-oil private sector deteriorates after VAT hike

Saudi non-oil private sector deteriorates after VAT hike

Saudi non-oil private sector deteriorates in August after tax hike – PMI. Saudi Arabia’s non-oil private sector’s per TRADING ECONOMICS (see graph below) witnessed a drop in business conditions in August 2020, after having stabilised a month earlier.
The economy fell back after the planned and long-dreaded hike in the value-added tax (VAT) charges. The on-going Covid-19 prevention measures did not help either.

The image above is a FILE PHOTO: Cars drive past the King Abdullah Financial District in Riyadh, Saudi Arabia, November 12, 2017. REUTERS/Faisal Al Nasser

Saudi non-oil private sector deteriorates after VAT hike
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48.8050.0061.8042.402011 – 2020pointsMonthly

DUBAI (Reuters) – Business conditions in Saudi Arabia’s non-oil private sector deteriorated in August after signs of stabilisation the previous month, as demand was hurt by a sharp hike in value-added tax, a survey showed on Thursday.

The seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) declined to 48.8 from 50.0 in July, slipping back below the 50 mark that separates growth from contraction.

“After stabilising in July, the economy fell back into a downturn as firms registered a solid drop in new business, in part linked to the rise in VAT charges and ongoing social distancing measures,” the IHS report said.

Saudi Arabia, the world’s largest oil exporter, tripled VAT in July to 15% to boost state coffers badly hit by low oil prices, in a move several economists said will likely slow the economic recovery from the coronavirus downturn.

“Newly-imposed VAT changes stalled consumer spending across the Saudi Arabia economy in August, latest PMI data suggested,” said David Owen, economist at IHS Markit.

“New business was down solidly from July, as several firms commented that the sharp uptick in prices kept some customers away from markets,” he said.

Business activity and employment declined for the sixth consecutive month, although the declines were modest and the drop in employment was the slowest since May.

Due to the VAT hike, businesses reported the sharpest increase in input costs since September 2012, as suppliers increased prices of raw materials.

There had been signs of resilient economic activity in July, including annual increases in points of sales transactions and lending to the private sector, data from the central bank, the Saudi Arabian Monetary Authority, showed on Aug. 30.

To stem the impact of the pandemic on small and medium-sized enterprises, the central bank this week extended deferrals on bank payments for three more months.

Reporting by Davide Barbuscia; Editing by Hugh Lawson