Financial Approaches won’t Fix the World’s Economic Problems

Financial Approaches won’t Fix the World’s Economic Problems

Financial approaches won’t fix the world’s economic problems, predicts Gail Tverberg in a reasonably comprehensive post.  Up to lately, it was possible to get away with it.

So without further do, here is this post that elaborates on what are the changes as to why financial approaches alone cannot fix the world’s economic problems. 

Why financial approaches won’t fix the world’s economic problems this time

 

Financial Approaches won’t Fix the World’s Economic Problems Gail Tverberg

 

Time and time again, financial approaches have worked to fix economic problems. Raising interest rates has acted to slow the economy and lowering them has acted to speed up the economy. Governments overspending their incomes also acts to push the economy ahead; doing the reverse seems to slow economies down.

What could possibly go wrong? The issue is a physics problem. The economy doesn’t run simply on money and debt. It operates on resources of many kinds, including energy-related resources. As the population grows, the need for energy-related resources grows. The bottleneck that occurs is something that is hard to see in advance; it is an affordability bottleneck.

For a very long time, financial manipulations have been able to adjust affordability in a way that is optimal for most players. At some point, resources, especially energy resources, get stretched too thin, relative to the rising population and all the commitments that have been made, such as pension commitments. As a result, there is no way for the quantity of goods and services produced to grow sufficiently to match the promises that the financial system has made. This is the real bottleneck that the world economy reaches.

I believe that we are closely approaching this bottleneck today. I recently gave a talk to a group of European officials at the 2nd Luxembourg Strategy Conference, discussing the issue from the European point of view. Europeans seem to be especially vulnerable because Europe, with its early entry into the Industrial Revolution, substantially depleted its fossil fuel resources many years ago. The topic I was asked to discuss was, “Energy: The interconnection of energy limits and the economy and what this means for the future.”

In this post, I write about this presentation.

Slide 3

The major issue is that money, by itself, cannot operate the economy, because we cannot eat money. Any model of the economy must include energy and other resources. In a finite world, these resources tend to deplete. Also, human population tends to grow. At some point, not enough goods and services are produced for the growing population.

I believe that the major reason we have not been told about how the economy really works is because it would simply be too disturbing to understand the real situation. If today’s economy is dependent on finite fossil fuel supplies, it becomes clear that, at some point, these will run short. Then the world economy is likely to face a very difficult time.

A secondary reason for the confusion about how the economy operates is too much specialization by researchers studying the issue. Physicists (who are concerned about energy) don’t study economics; politicians and economists don’t study physics. As a result, neither group has a very broad understanding of the situation.

I am an actuary. I come from a different perspective: Will physical resources be adequate to meet financial promises being made? I have had the privilege of learning a little from both economic and physics sides of the discussion. I have also learned about the issue from a historical perspective.

Slide 4
Slide 5

World energy consumption has been growing very rapidly at the same time that the world economy has been growing. This makes it hard to tell whether the growing energy supply enabled the economic growth, or whether the higher demand created by the growing economy encouraged the world economy to use more resources, including energy resources.

Physics says that it is energy resources that enable economic growth.

Slide 6

The R-squared of GDP as a function of energy is .98, relative to the equation shown.

Slide 7

Physicists talk about the “dissipation” of energy. In this process, the ability of an energy product to do “useful work” is depleted. For example, food is an energy product. When food is digested, its ability to do useful work (provide energy for our body) is used up. Cooking food, whether using a campfire or electricity or by burning natural gas, is another way of dissipating energy.

Humans are clearly part of the economy. Every type of work that is done depends upon energy dissipation. If energy supplies deplete, the form of the economy must change to match.

Slide 8

There are a huge number of systems that seem to grow by themselves using a process called self-organization. I have listed a few of these on Slide 8. Some of these things are alive; most are not. They are all called “dissipative structures.”

The key input that allows these systems to stay in a “non-dead” state is dissipation of energy of the appropriate type. For example, we know that humans need about 2,000 calories a day to continue to function properly. The mix of food must be approximately correct, too. Humans probably could not live on a diet of lettuce alone, for example.

Economies have their own need for energy supplies of the proper kind, or they don’t function properly. For example, today’s agricultural equipment, as well as today’s long-distance trucks, operate on diesel fuel. Without enough diesel fuel, it becomes impossible to plant and harvest crops and bring them to market. A transition to an all-electric system would take many, many years, if it could be done at all.

Slide 9

I think of an economy as being like a child’s building toy. Gradually, new participants are added, both in the form of new citizens and new businesses. Businesses are formed in response to expected changes in the markets. Governments gradually add new laws and new taxes. Supply and demand seem to set market prices. When the system seems to be operating poorly, regulators step in, typically adjusting interest rates and the availability of debt.

One key to keeping the economy working well is the fact that those who are “consumers” closely overlap those who are “employees.” The consumers (= employees) need to be paid well enough, or they cannot purchase the goods and services made by the economy.

A less obvious key to keeping the economy working well is that the whole system needs to be growing. This is necessary so that there are enough goods and services available for the growing population. A growing economy is also needed so that debt can be repaid with interest, and so that pension obligations can be paid as promised.

Slide 10

World population has been growing year after year, but arable land stays close to constant. To provide enough food for this rising population, more intensive agriculture is required, often including irrigation, fertilizers, herbicides and pesticides.

Furthermore, an increasing amount of fresh water is needed, leading to a need for deeper wells and, in some places, desalination to supplement other water sources. All these additional efforts add energy usage, as well as costs.

In addition, mineral ores and energy supplies of all kinds tend to become depleted because the best resources are accessed first. This leaves the more expensive-to-extract resources for later.

Slide 11

The issues in Slide 11 are a continuation of the issues described on Slide 10. The result is that the cost of energy production eventually rises so much that its higher costs spill over into the cost of all other goods and services. Workers find that their paychecks are not high enough to cover the items they usually purchased in the past. Some poor people cannot even afford food and fresh water.

Slide 12
Slide 13

Increasing debt is helpful as an economy grows. A farmer can borrow money for seed to grow a crop, and he can repay the debt, once the crop has grown. Or an entrepreneur can finance a factory using debt.

On the consumer side, debt at a sufficiently low interest rate can be used to make the purchase of a home or vehicle affordable.

Central banks and others involved in the financial world figured out many years ago that if they manipulate interest rates and the availability of credit, they are generally able to get the economy to grow as fast as they would like.

Slide 14

It is hard for most people to imagine how much interest rates have varied over the last century. Back during the Great Depression of the 1930s and the early 1940s, interest rates were very close to zero. As large amounts of inexpensive energy were added to the economy in the post-World War II period, the world economy raced ahead. It was possible to hold back growth by raising interest rates.

Oil supply was constrained in the 1970s, but demand and prices kept rising. US Federal Reserve Chairman Paul Volker is known for raising interest rates to unheard of heights (over 15%) with a peak in 1981 to end inflation brought on by high oil prices. This high inflation rate brought on a huge recession from which the economy eventually recovered, as the higher prices brought more oil supply online (AlaskaNorth Sea, and Mexico), and as substitution was made for some oil use. For example, home heating was moved away from burning oil; electricity-production was mostly moved from oil to nuclear, coal and natural gas.

Another thing that has helped the economy since 1981 has been the ability to stimulate demand by lowering interest rates, making monthly payments more affordable. In 2008, the US added Quantitative Easing as a way of further holding interest rates down. A huge debt bubble has thus been built up since 1981, as the world economy has increasingly been operated with an increasing amount of debt at ever-lower interest rates. (See 3-month and 10 year interest rates shown on Slide 14.) This cheap debt has allowed rapidly rising asset prices.

Slide 15

The world economy starts hitting major obstacles when energy supply stops growing faster than population because the supply of finished goods and services (such as new automobile, new homes, paved roads, and airplane trips for passengers) produced stops growing as rapidly as population. These obstacles take the form of affordability obstaclesThe physics of the situation somehow causes the wages and wealth to be increasingly be concentrated among the top 10% or 1%. Lower-paid individuals are increasingly left out. While goods are still produced, ever-fewer workers can afford more than basic necessities. Such a situation makes for unhappy workers.

World energy consumption per capita hit a peak in 2018 and began to slide in 2019, with an even bigger drop in 2020. With less energy consumption, world automobile sales began to slide in 2019 and fell even lower in 2020. Protests, often indirectly related to inadequate wages or benefits, became an increasing problem in 2019. The year 2020 is known for Covid-19 related shutdowns and flight cancellations, but the indirect effect was to reduce energy consumption by less travel and by broken supply lines leading to unavailable goods. Prices of fossil fuels dropped far too low for producers.

Governments tried to get their own economies growing by various techniques, including spending more than the tax revenue they took in, leading to a need for more government debt, and by Quantitative Easing, acting to hold down interest rates. The result was a big increase in the money supply in many countries. This increased money supply was often distributed to individual citizens as subsidies of various kinds.

The higher demand caused by this additional money tended to cause inflation. It tended to raise fossil fuel prices because the inexpensive-to-extract fuels have mostly been extracted. In the days of Paul Volker, more energy supply at a little higher price was available within a few years. This seems extremely unlikely today because of diminishing returns. The problem is that there is little new oil supply available unless prices can stay above at least $120 per barrel on a consistent basis, and prices this high, or higher, do not seem to be available.

Oil prices are not rising this high, even with all of the stimulus funds because of the physics-based wage disparity problem mentioned previously. Also, those with political power try to keep fuel prices down so that the standards of living of citizens will not fall. Because of these low oil prices, OPEC+ continues to make cuts in production. The existence of chronically low prices for fossil fuels is likely the reason why Russia behaves in as belligerent a manner as it does today.

Today, with rising interest rates and Quantitative Tightening instead of Quantitative Easing, a major concern is that the debt bubble that has grown since in 1981 will start to collapse. With falling debt levels, prices of assets, such as homes, farms, and shares of stock, can be expected to fall. Many borrowers will be unable to repay their loans.

If this combination of events occurs, deflation is a likely outcome because banks and pension funds are likely to fail. If, somehow, local governments are able to bail out banks and pension funds, then there is a substantial likelihood of local hyperinflation. In such a case, people will have huge quantities of money, but practically nothing available to buy. In either case, the world economy will shrink because of inadequate energy supply.

Slide 16
Slide 17

Most people have a “normalcy bias.” They assume that if economic growth has continued for a long time in the past, it necessarily will occur in the future. Yet, we all know that all dissipative structures somehow come to an end. Humans can come to an end in many ways: They can get hit by a car; they can catch an illness and succumb to it; they can die of old age; they can starve to death.

History tells us that economies nearly always collapse, usually over a period of years. Sometimes, population rises so high that the food production margin becomes tight; it becomes difficult to set aside enough food if the cycle of weather should turn for the worse. Thus, population drops when crops fail.

In the years leading up to collapse, it is common that the wages of ordinary citizens fall too low for them to be able to afford an adequate diet. In such a situation, epidemics can spread easily and kill many citizens. With so much poverty, it becomes impossible for governments to collect enough taxes to maintain services they have promised. Sometimes, nations lose at war because they cannot afford a suitable army. Very often, governmental debt becomes non-repayable.

The world economy today seems to be approaching some of the same bottlenecks that more local economies hit in the past.

Slide 18

The basic problem is that with inadequate energy supplies, the total quantity of goods and services provided by the economy must shrink. Thus, on average, people must become poorer. Most individual citizens, as well as most governments, will not be happy about this situation.

The situation becomes very much like the game of musical chairs. In this game, one chair at a time is removed. The players walk around the chairs while music plays. When the music stops, all participants grab for a chair. Someone gets left out. In the case of energy supplies, the stronger countries will try to push aside the weaker competitors.

Slide 19

Countries that understand the importance of adequate energy supplies recognize that Europe is relatively weak because of its dependence on imported fuel. However, Europe seems to be oblivious to its poor position, attempting to dictate to others how important it is to prevent climate change by eliminating fossil fuels. With this view, it can easily keep its high opinion of itself.

If we think about the musical chairs’ situation and not enough energy supplies to go around, everyone in the world (except Europe) would be better off if Europe were to be forced out of its high imports of fossil fuels. Russia could perhaps obtain higher energy export prices in Asia and the Far East. The whole situation becomes very strange. Europe tells itself it is cutting off imports to punish Russia. But, if Europe’s imports can remain very low, everyone else, from the US, to Russia, to China, to Japan would benefit.

Slide 20

The benefits of wind and solar energy are glorified in Europe, with people being led to believe that it would be easy to transition from fossil fuels, and perhaps leave nuclear, as well. The problem is that wind, solar, and even hydroelectric energy supply are very undependable. They cannot ever be ramped up to provide year-round heat. They are poorly adapted for agricultural use (except for sunshine helping crops grow).

Few people realize that the benefits that wind and solar provide are tiny. They cannot be depended on, so companies providing electricity need to maintain duplicate generating capacity. Wind and solar require far more transmission than fossil-fuel-generated electricity because the best sources are often far from population centers. When all costs are included (without subsidy), wind and solar electricity tend to be more expensive than fossil-fuel generated electricity. They are especially difficult to rely on in winter. Therefore, many people in Europe are concerned about possibly “freezing in the dark,” as soon as this winter.

There is no possibility of ever transitioning to a system that operates only on intermittent electricity with the population that Europe has today, or that the world has today. Wind turbines and solar panels are built and maintained using fossil fuel energy. Transmission lines cannot be maintained using intermittent electricity alone.

Slide 21
Slide 22

Basically, Europe must use very much less fossil fuel energy, for the long term. Citizens cannot assume that the war with Ukraine will soon be over, and everything will be back to the way it was several years ago. It is much more likely that the freeze-in-the-dark problem will be present every winter, from now on. In fact, European citizens might actually be happier if the climate would warm up a bit.

With this as background, there is a need to figure out how to use less energy without hurting lifestyles too badly. To some extent, changes from the Covid-19 shutdowns can be used, since these indirectly were ways of saving energy. Furthermore, if families can move in together, fewer buildings in total will need to be heated. Cooking can perhaps be done for larger groups at a time, saving on fuel.

If families can home-school their children, this saves both the energy for transportation to school and the energy for heating the school. If families can keep younger children at home, instead of sending them to daycare, this saves energy, as well.

A major issue that I do not point out directly in this presentation is the high energy cost of supporting the elderly in the lifestyles to which they have become accustomed. One issue is the huge amount and cost of healthcare. Another is the cost of separate residences. These costs can be reduced if the elderly can persuaded to move in with family members, as was done in the past. Pension programs worldwide are running into financial difficulty now, with interest rates rising. Countries with large elderly populations are likely to be especially affected.

Slide 23

Besides conserving energy, the other thing people in Europe can do is attempt to understand the dynamics of our current situation. We are in a different world now, with not enough energy of the right kinds to go around.

The dynamics in a world of energy shortages are like those of the musical chairs’ game. We can expect more fighting. We cannot expect that countries that have been on our side in the past will necessarily be on our side in the future. It is more like being in an undeclared war with many participants.

Under ideal circumstances, Europe would be on good terms with energy exporters, even Russia. I suppose at this late date, nothing can be done.

A major issue is that if Europe attempts to hold down fossil fuel prices, the indirect result will be to reduce supply. Oil, natural gas and coal producers will all reduce supply before they will accept a price that they consider too low. Given the dependence of the world economy on energy supplies, especially fossil fuel energy supplies, this will make the situation worse, rather than better.

Wind and solar are not replacements for fossil fuels. They are made with fossil fuels. We don’t have the ability to store up solar energy from summer to winter. Wind is also too undependable, and battery capacity too low, to compensate for need for storage from season to season. Thus, without a growing supply of fossil fuels, it is impossible for today’s economy to continue in its current form.

What Lies Beneath the Slow Economic Growth in the MENA?

What Lies Beneath the Slow Economic Growth in the MENA?

What Lies Beneath the Slow Economic Growth in the MENA? apofeed with “What Lies Beneath the Slow Economic Growth in the MENA?” attempts to elaborate on the current situation that is prevailing in certain MENA countries.

What Lies Beneath the Slow Economic Growth in the Middle East and North Africa?

 

A dynamic private sector is key for the economies of the region to grow out of their currently high debt levels; Unlocking sustainable growth in the region’s private sector requires reforms that facilitate innovation, the adoption of digital technologies and investments in human capital; Reforms to support these objectives must take account of sustainability and the global agenda to limit climate change

Download document: https://bit.ly/3xwSHH9

The European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and the World Bank have published a joint report, Unlocking Sustainable Private Sector Growth in the Middle East and North Africa (MENA(https://bit.ly/3H73CdA). The report analyses constraints on productivity growth and limited accumulation of factors or production in the MENA private sector.

The report is based on the MENA Enterprise Survey conducted between late 2018 and 2020 on over 5 800 formal businesses across Egypt, Jordan, Lebanon, Morocco, Tunisia, the West Bank and Gaza. Historically, economic growth in the Middle East and North Africa has been weak since the global financial crisis of 2007-2009 and the Arab Spring of the early 2010s. Since then, gross domestic product (GDP) per capita has grown by only 0.3% a year in the MENA region. That compares unfavourably with rates of 1.7% on average in middle-income countries and 2.4% in the developing economies of Europe and Central Asia.

Achieving higher and sustainable growth is particularly important in view of other economic challenges facing the region. Public debt has increased considerably over the last decade, accompanied by declining investment. More recently, the coronavirus pandemic has battered the region, further straining public finances. In addition, the Russian invasion of Ukraine affects the MENA economies through higher hydrocarbon prices, risks to food security and declining tourism.

Against this background, it is important that policymakers exploit the potential of the private sector to propel the region towards greater prosperity.

“The spillovers from the war in Ukraine add to structural vulnerabilities in the region. The prospects for global financial tightening, persistently high energy and food prices and concerns for food security come on top of concerns related to weak economic growth and rising debt levels,” said EIB Chief Economist Debora Revoltella (https://bit.ly/2UYJi4s). “When responding to the new shock, MENA countries need to tackle the main structural bottlenecks affecting the region. Reforms that lower regulatory barriers, tackle informal business practices, promote competition, and facilitate innovation and digitalisation are crucial for achieving sustainable economic growth and improving resilience to future shocks.”

The business environment in the MENA region as reported in the survey has been held back by various factors. Political connection and informality are undermining fair competition, bringing economic benefits to a limited number of companies. Management practices lag behind benchmark countries, with a decline in average scores in all MENA countries since 2013.

Customs and trade regulations appear to be more severe barriers for firms in the MENA region than in other countries. Firms need more time to clear customs to import or export than in other countries. The MENA economies depend on high levels of imports compared to low export activities.

Although firms trading in the international market are more willing to develop and innovate processes, only 20% invest in innovation, which can affect the long-term economic prospects for the region.

The region needs to make better use of its human capital. Predominantly, only a few foreign-owned companies invest in training their human capital, and they tend to be digitally connected exporting firms. Additionally, a significant share of companies are not engaging in financial activities with other economic players, opting to self-finance voluntarily.

Incentives for companies to decarbonise are weak, and MENA firms are less likely than their counterparts in Europe and Central Asia to adopt measures that reduce their environmental footprint.

Unlocking sustainable growth in the region’s private sector, the report calls for MENA economies to lower regulatory barriers for businesses, promote competition and reduce disincentives emerging from political influence and informal business practices.

The region is also in need of reforms to facilitate innovation, the adoption of digital technologies and investments in human capital, while being in line with the global agenda to limit climate change, enhance sustainability and protect the natural environment.

Improving management practices can be instrumental to that. “Good management practices can account for as much as 30% of differences in efficiency across countries,” said Roberta Gatti, Chief Economist for the Middle East and North Africa at the World Bank. “Management practices are lacklustre in firms in the region, particularly in those with some state ownership. Improving these practices can have substantial benefits, is not costly, but is not easy. It will require — among others — a change in mindsets.”

Companies should also be given incentives to exploit the benefits of participating in cross-border trade and global value chains more broadly, accompanied by better management practices.

At the same time, the state has a duty to ensure that this transition process is just, through measures that help workers to take advantage of opportunities to obtain new, higher-quality jobs linked to the green economy, while also protecting those at risk of losing their jobs. Such measures include labour market policies, skills training, social safety nets and action to support regional economic development.

EBRD Chief Economist Beata Javorcik said: “Climate change creates an opportunity  the MENA region to build up its green credentials and use them as a source of competitive advantage. This will create the much-needed high-quality jobs linked to the green economy.”

Distributed by APO Group on behalf of European Investment Bank (EIB).

Press contacts:
Eva De Francesco
eva.defrancesco@eib.org
+352 437 986 637
mobile: + 352 691 289 150

Serena Sertore
s.sertore@eib.org,
+352 437 970 859
Website: www.eib.org/press

 

Open banking makes MENA an oasis of financial opportunities for investors

Open banking makes MENA an oasis of financial opportunities for investors

Why and how does open banking make MENA an oasis of financial opportunities for investors? Maddyness answers quite elaborately as follows.

Economic growth in the MENA – Middle East and North Africa – region is on the rise, with Gulf countries leading the charge. The pace of innovation in places such as the UAE and Saudi Arabia is attracting foreign investment at a rapid rate, which, combined with dedicated tech programmes and an increasingly skilled workforce, sees the region stand out on a global front.

Although MENA’s escalating influence is widely known, it’s not necessarily talked about for facilitating financial progress in particular. Nonetheless, that’s about to change. In the past decade, the region has carefully cultivated a fertile soil that’s ready to flower. And it’s starting to blossom thanks to technological advances driving concepts like open banking that have the power to transform our financial future forever.

The UK’s longstanding relationship with MENA

It’s safe to say that the extensive opportunities haven’t gone unnoticed in Britain. Over several decades, the UK has maintained strong business ties and fostered stable relationships with MENA countries. For example, the UK has consistently been one of the largest investors in the global hub city of Dubai. So, with such a strong history, why is now an especially opportune moment to take notice of Middle East fintechs?

The transformation of the financial ecosystems in the region is certainly clear. MENA’s finTech sector is growing rapidly, with a compounded annual growth rate of 30%, paving the way for it to become a leading destination for digital financial activities in the very near future. 

However, there is still plenty of room to maximise MENA’s full financial potential. The great disruptor of open banking (not to mention the even more progressive world of open finance) will be a driving force in attracting British investors to the region.

MENA as an emerging hotspot for investment

Before discussing the opportunity for fintechs, let’s take a step back. Why is there an opportunity in the first place?

The region’s demographics should enthuse any investor looking for innovation. The MENA population is one of the youngest globally, with an estimated 60% of the population under 30. Much of the region’s youth are also motivated to embrace new ways of thinking and leverage digital technologies to improve both their own lives and those of their communities. Internet penetration in MENA is one of the world’s highest. 

Furthermore, the local population has proved willing to adopt digital solutions for their financial needs. According to research by Deloitte in 2020, 82% of customers in the Middle East are eager to start using fintech solutions, which coincides with the rise of a cashless economy.

Savvy entrepreneurs are already stepping up everywhere to capitalise on this market demand. Backed by the financially progressive infrastructure – which provides fintechs with regulatory support and government incentives – the fintech sector in the region has a very high growth rate. The UAE has become a hive of fintech activity – 465 fintechs there are set to generate over $2B in investment capital funding in the upcoming year, compared to merely $80M five years ago. 

Open banking as the game changer

MENA is ready for disruptive innovations, which open banking can plentifully provide. Regulated access for fintechs to use financial data in order to provide solutions to a hungry audience will drive significant and sustainable economic growth. Consumers want more freedom to handle their finances and there is a need for better banking solutions, such as instant access to money and fully digitised payments.

Open banking makes all of this possible and more when banks, fintechs and even telcos work together to improve their products and put the customer in control. Against this backdrop, everyone can benefit if we move quickly to meet demand.

The emergence of a solid regulatory framework

We’re seeing MENA tread in the footsteps of the UK when it comes to regulating open banking. The PSD2 directive, which kicked off the concept in the UK, informs much of MENA’s recent developments in terms of its financial ecosystem. In Europe, the regulatory framework proved successful in levelling access to the financial services market and promoting the role of non-traditional financial institutions. As a result, the framework enhanced competition between financial service providers and provided consumers with better financial tools. 

Similar regulations are shaping the evolution of MENA’s financial landscape, offering security for investors while remaining flexible enough to stay relevant in the face of constant technological development. Although the regulations differ across jurisdictions, making it potentially challenging for fintechs to scale throughout the region, any obstacles are well worth overcoming. 

How to navigate your fintech journey in MENA

Considering the whole picture, MENA should get your attention as a rising star of the global financial scene. It is easy to see how becoming part of an emerging, but promising ecosystem yields tangible benefits for investors.

To comply with the regional frameworks and regulations, interested parties should seek local experts who know which paths to travel and how to traverse them. The rise of open banking is already a fundamental factor driving MENA’s financial environment forward, and its growth will only increase. As opportunity knocks, it’s better to be at the front of the queue than at the end of it.  

Justin Henry is executive director at KMMRCE Pay.

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Remarks by World Bank Group President David Malpass

Remarks by World Bank Group President David Malpass

The World Bank at a time when according to the IMF, the MENA region is on track for a recovery, despite some rising social unrest threatening the ‘fragile’ progress of low-income economies, produced the following enthusiastic remarks by World Bank Group President David Malpass address to the Arab Governors of the World Bank Group.

Remarks by World Bank Group President David Malpass to the Arab Governors of the World Bank Group

Let me begin by congratulating Minister Khalil.  Your appointment as Minister of Finance comes at a crucial moment in Lebanon’s history. The World Bank Group will work with you to support the critical reforms needed to address Lebanon’s challenges.   Thank you for mentioning Hela in your opening.  She’s the new IFC Vice President for the region, and I want you all to know the high priority we place on private sector advancement in the region.  All parts of the World Bank Group are making that a high priority.

Dear Governors and distinguished guests, it is a pleasure to be with you again to discuss the challenges and opportunities in your region.  Thank you for your recent annual letter outlining the key and urgent development challenges of the region. Let me also thank our Dean Dr Merza Hassan for helping to convene this meeting and for his unwavering support to the MENA region.

We meet today against a backdrop of uncertainty. The COVID-19 pandemic has led to reversals in development gains in many regions, threatening jobs, social stability – and lives.

MENA was hit particularly hard by Covid 19. Even before the pandemic, growth had stalled, poverty was on the rise, and the social contract between citizens and the state was strained. Climate change adds a further burden to the development challenge.

During my recent visits to the region, to Sudan, Jordan and the Palestinian territories, I saw firsthand the impact of this multi-pronged crisis. I was concerned by low investment levels, high unemployment rates, and low female labor participation rates.

I also saw potential via regional integration, pro-growth investment, and improvements in the enabling environment for business. The recovery in global growth provides opportunities to make positive changes, and I was encouraged by my discussions with officials and businesses.

As you know, MENA is the least economically integrated region in the world. We have expressed our support for any initiative aimed at developing economic ties between countries in the region, and we are thus looking at ways to support the gas and electricity potential connection between Egypt, Jordan and Lebanon.

While we are not in a position to engage in Syria, we nevertheless are concerned about the Syrian people’s economic woes due to the degradation of the situation in the country. Our position has always been to look after the people, and we are doing so for Syrian refugees in Lebanon and Jordan.

In the year leading up to the next annual meetings in Marrakesh, my message will remain focused on the importance of improving access to vaccines; recovering from Covid; overcoming conflict; mitigating and adapting to climate change; containing debt; and creating strong sustainable jobs for the youth of this region.

Morocco has made progress on all of these, and I want to thank you for graciously hosting us in 2022.

As a region, MENA will need to generate 300 million new jobs by 2050. These will be created largely by the private – not public – sector.  Reaching this critical goal of sustainable job creation needs governance and transparency, rule of law, and an attractive business environment.

IBRD, IFC and MIGA are fully engaged. I’m interested in hearing from you where the World Bank Group can position itself better.

As we move toward Marrakesh in 2022 and Cop27 in Egypt, how can the Bank Group assist in making these events a launching pad for more sustained and comprehensive development in MENA?

Thank you again for inviting me and let’s now open our discussion.

The anxiety list for MENA entrepreneurs is long, as is the one curing it

The anxiety list for MENA entrepreneurs is long, as is the one curing it

Hadi Khatib on AMEInfo of 18 September 2021 came up with this deep statement on the anxiety list for MENA entrepreneurs that is long, as is the one curing it

The anxiety list for MENA entrepreneurs is long, as is the one curing it

A research report on the mental health challenges and wellbeing of entrepreneurs due to COVID-19 in the MENA region revealed anxiety has several facets in the minds of these leaders. But all of these insecurities have cures.

  • 55% of startup founders said that raising investment has caused the most stress.
  • More than 95% of entrepreneurs view co-founders as family members and/or friends.
  • Research finds that entrepreneurs are happier than people in jobs.

EMPWR, a UAE-based digital media agency dedicated to mental health and an exclusive mental health partner for WAMDA and Microsoft for startups, published a research report on the mental health challenges and wellbeing of entrepreneurs due to COVID-19 in the MENA region.

he anxiety list for MENA entrepreneurs is long, as is the one curing it

The research indicated that startup founders undergo higher levels of stress than the rest of the region, with twice the likelihood of developing depression issues.

55% of startup founders said that raising investment has caused the most stress; the pandemic was the second most-cited reason cited by 33.7% of respondents.   44.2% spend at least 2 hours a week trying to de-stress. 

he anxiety list for MENA entrepreneurs is long, as is the one curing it

Other insights, uncovered by the report, include:

  • A good relationship between co-founders can help startups navigate the pandemic-hit market. More than 95% of entrepreneurs view co-founders as family members and/or friends
  • Many entrepreneurs live well below their means to fund their ventures, leading to stress that is detrimental to their health

With only 2% of healthcare budgets in the MENA region currently spent on addressing mental health, the impact of the COVID-19 pandemic on young entrepreneurs and achievers could lead to an economic burden of $1 trillion, by 2030, according to the report.

he anxiety list for MENA entrepreneurs is long, as is the one curing it

EMPWR’s MENA partners shared special offers on their mental health services for the region’s entrepreneur community.

From Saudi Arabia:

Labayh is offering the technology ecosystem a 20% discount on their online mental health services for 2 months. Promo code: empwr, with the offer valid until October 29.

From Egypt:

O7 Therapy are offering 50% off their online mental health services, for 50 Entrepreneurs in the MENA region. Promo code: Entrepreneur50, valid until December 1, 2021.

From the UAE:

My Wellbeing Lab is offering 20 one-on-one coaching sessions to entrepreneurs that wish to be coached and helped; alongside unlimited access for any entrepreneur to their “Discovery Lab”, a platform that gives entrepreneurs and leaders insights into their mental wellbeing as well as their teams. Promo code: MWL21.

Takalam is offering 10% off for 3 months. Promo code: Impact.

Mindtales is offering the MENA ecosystem 50% off their services for one month. Their App can be downloaded here.

H.A.D Consultants is offering 20 one on one coaching sessions to entrepreneurs. Promo code: HAD_SME01.

From Oman:

Nafas, a meditation app focused on reducing stress, anxiety, and help with insomnia, is offering access to its platform. Register as a user via this link to redeem benefits. 

Entrepreneurs’ mixed emotions

Entrepreneurs must grapple with uncertainty and being personally responsible for any decision they make. They likely have the longest working hours of any occupational group and need to rapidly develop expertise across all areas of management while managing day-to-day business.

Yet despite all this, research finds that entrepreneurs are happier than people in jobs.

To understand this, a comprehensive and systematic review of 144 empirical studies of this topic, covering 50 years revealed:

1. It’s not all about pay

Work on the economics of entrepreneurship traditionally assumed that entrepreneurs bear all the stresses and uncertainties in the hope that over the long term they can expect high financial rewards for their effort. It’s false.

2. Highly stressful, but…

High workload and work intensity, as well as financial problems facing their business, are at the top of the entrepreneurs’ stress list.

But some stressors have an upside. While they require more effort in the here and now, they may lead to positive consequences such as business growth in the long term. Some entrepreneurs appear to interpret their long working hours as a challenge and therefore turn them into a positive signal.

he anxiety list for MENA entrepreneurs is long, as is the one curing it

3. Autonomy is both good and bad

The autonomy that comes with being an entrepreneur can be a double-edged sword. Entrepreneurs can make decisions about when and what they work on – and with whom they work. But recent research into how entrepreneurs experience their autonomy suggests that, at times, they struggle profoundly with it. The sheer number of decisions to make and the uncertainty about what is the best way forward can be overwhelming.

4. An addictive mix

The evidence review confirms that, by any stretch of imagination, entrepreneurs’ work is highly demanding and challenging. This, along with the positive aspects of being their own boss coupled with an often competitive personality, can lead entrepreneurs to be so engaged with their work that it can become obsessive.

So the most critical skill of entrepreneurs is perhaps how they are able to manage themselves and allow time for recovery.  

Stress management tips for entrepreneurs

Identify what the actual source of your stress is. Is it tight deadlines, procurement issues, raising capital, managing investors’ expectations, building a talented team, or delay in landing the first sale for your new startup business?

Even if numbering more than a few, break them down because unmanageable tasks look simpler when broken down into smaller segments. Then, list down how you plan to successfully tackle each issue. Meanwhile, exercising multiple times a week has been rated as one of the best tactics for managing stress.  

Another technique for handling stress is to take a break. Rest as much as you can before going back to continue with the tasks.  It’s also a good idea to reach out to friends, family, and social networks because they are likely to understand what you’re going through and offer words of wisdom and courage.

Stay away from energy-sapping junk food. Eating healthy keeps you fueled for the next challenge. Finally, get enough sleep, and power naps. Sleep helps your body and mind recover.   

Hadi Khatib is a business editor with more than 15 years of experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about them. He can be reached at:  hadi.khatib@thewickfirm.com

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