A 165-strong international group including 92 former presidents and prime ministers, along with current economic and health leaders in the developed and developing world, have come together to demand the creation of a G20 executive task force and an immediate global pledging conference which would approve and co-ordinate a multi-billion dollar coronavirus fighting fund.
In an open letter addressed to G20 leaders, the group – which wants both to speed up the search for a vaccine, cure and treatments and revive the global economy – urges global collaboration and commitment to funding ‘far beyond the current capacity of our existing international institutions’.
“The economic emergency will not be resolved until the health emergency is addressed: the health emergency will not end simply by conquering the disease in one country alone but by ensuring recovery from COVID-19 in all countries,” the statement says.
The plea is for agreement within days for:
$8 billion to rapidly hasten the global effort for vaccines, cure and treatment;
$35 billion to support health systems — from ventilators to test kits and protective equipment for health workers; and
$150 billion for developing countries to fight the medical and economic crisis, prevent a second wave of the disease flowing back into countries as they come out of the first wave. This means waiving debt interest payments for the poorest countries, including $44 billion due this year from Africa.
$500-$600billion issue of additional resources by the IMF in the form of special drawing rights.
The letter also urges the co-ordination of fiscal stimuli to avoid a recession becoming a depression.
While welcoming the G20’s first communique on the COVID-19 crisis, the group is pressing the G20 to speed up an action plan.
The group states: “All health systems – even the most sophisticated and best funded – are buckling under the pressures of the virus. Yet if we do nothing as the disease spreads in poorer African, Asian and Latin American cities which have little testing equipment, hardly any ventilators, and few medical supplies; and where social distancing and even washing hands are difficult to achieve, COVID-19 will persist there – and re-emerge to hit the rest of the world with further rounds that will prolong the crisis.
“World leaders must immediately agree to commit $8 billion – as set out by the Global Preparedness Monitoring Board – to fill the most urgent gaps in the COVID-19 response. This includes $1 billion this year for WHO, $3 billion for vaccines and $2.25 billion for therapeutics.
“Instead of each country, or state or province within it, competing for a share of the existing capacity, with the risk of rapidly-increasing prices, we should also be vastly increasing capacity by supporting the WHO in coordinating the global production and procurement of medical supplies, such as testing kits, personal protection equipment, and ITU technology to meet fully the worldwide demand. We will also need to stockpile and distribute essential equipment.
“$35 billion will be required, as highlighted by WHO, to support countries with weaker health systems and especially vulnerable populations, including the provision of vital medical supplies, surge support to the national health workforce (70% of whom in many countries are underpaid women) and strengthening national resilience and preparedness.
“According to WHO, almost 30% of countries have no Covid\\\OVID-19 national preparedness response plans and only half have a national infection prevention and control program. Health systems in lower-income countries will struggle to cope; even the most optimistic estimates from Imperial College London suggest there will be 900,000 deaths in Asia and 300,000 in Africa.
“We propose convening a global pledging conference – its purpose supported by a G20 Executive Task Force – to commit resources to meeting these emergency global health needs.”
On the global economic outlook, the group proposes a range of measures and says:
“Much has been done by national governments to counter the downward slide of their economies. But a global economic problem requires a global economic response. Our aim should be to prevent a liquidity crisis turning into a solvency crisis, and a global recession becoming a global depression. To ensure this, better coordinated fiscal, monetary, central bank, and anti-protectionist initiatives are needed. The ambitious fiscal stimuli of some countries will be all-the-more effective if more strongly complemented by all countries in a position to do so.
“The long-term solution is a radical rethink of global public health and a refashioning – together with proper resourcing – of the entwined global health and financial architecture. “The UN, the G20 and interested partners should work together to co-ordinate further action.”
Bulent Gökay, Keele University elaborates on how Turkey tries to keep wheels of economy turning despite worsening coronavirus crisis. It, contrary to its neighbours, would not go down the same way. Read on to find out why.
Turkey confirmed its first case of the new coronavirus on March 11, but since then the speed of its infection rate has surpassed that of many other countries with cases doubling every two days. On April 2, Turkey had more than 15,000 confirmed cases and 277 deaths from complications related to the coronavirus, according to data collated by John Hopkins University.
The Turkish government has called for people to stay at home and self-isolate. Mass disinfection has been carried out in all public spaces in cities. To encourage residents to stay at home, all parks, picnic areas and shorelines are closed to pedestrians.
Some airports are closed and all international flights to and from Turkey were banned on March 27. All schools, universities, cafes, restaurants, and mass praying in mosques and other praying spaces has been suspended, and all sporting activities postponed indefinitely.
Manufacturing remains open
Many small businesses in the service sector are closed, and many companies in banking, insurance and R&D have switched to working from home. But in many industrial sectors, such as metal, textile, mining and construction, millions of workers are still forced to go to work or face losing their jobs. In Istanbul, where more than a quarter of Turkey’s GDP is produced, the public transport system still carries over a million people daily.
Recep Tayyip Erdoğan, Turkey’s president, has openly opposed a total lockdown, arguing a stay-at-home order would halt all economic activity. On March 30, he said continuing production and exports was the country’s top priority and that Turkey must keep its “wheels turning”.
But in the short term, many of Turkey’s export markets for minerals, textiles and food, such as Germany, China, Italy, Spain, Iran and Iraq, are already closed due to the virus. This has led to enormous surpluses piling up in warehouses. Even where there are overseas customers, getting the goods delivered has proven difficult. The process of sanitising and disinfecting the trucks and testing the drivers before they travel takes many extra hours, sometime days, after waiting in long lines.
Still, Erdogan’s statements give the impression that he sees this pandemic not only as a serious crisis, but also as an opportunity for Turkish manufacturers. The hope is that, after the Chinese shutdown, European producers which depend on Chinese companies for a range of semi-finished products may consider Turkey as an alternative supplier in the longer term. That’s why the government is still allowing millions of workers to go to factories, mines and construction sites despite the huge health risk.
A bruised economy
The Turkish government announced a 100 billion lira (£12 billion) stimulus package on March 18. It included tax postponement and subsidies directed at domestic consumption, such as reducing VAT on certain items and suspension of national insurance payments in many sectors for six months. But this is an insignificant sum for an economy as big as Turkey’s.
Most of the support will go to medium and large companies that were forced to close, and only a very tiny amount to individual workers. In order to benefit from the scheme, a person must have worked at least 600 days in the past three years (450 days for those in Ankara). Those with most need get the lowest level of help or no help from the state.
The tourism sector, which accounts for about 12% of the economy, has already been decimated. Some 2.5 million workers will not be able to work as they had been expecting to in the peak tourist months between April and September.
Limited room for manoeuvre
Even before the virus hit Turkey the economy was already weak, still trying to recover from the impacts of a 2016 coup attempt and a 2018 currency crisis, both of which caused severe stress to Turkey’s economic and financial systems.
In March, Turkey’s Central Bank reduced its benchmark interest rate by 1%, and several of the country’s largest private banks announced measures to support the economy, such as suspending loan repayments. As a result, the Turkish lira initially held up reasonably well, compared with other emerging market economies, but it fell to an 18-month low on April 1 as the coronavirus death rates accelerated. Official interest rates have fallen below 10%, providing some protection to those holding Turkish lira versus some foreign currencies.
Turkey’s financial options to limit the impact of the crisis are limited. Credit rating agency Moody’s revised its prediction for the country GDP from 3% growth in 2020 to a 1.4% contraction. Still, it may get a reprieve from the low oil price. Turkey imports almost all its energy needs, and with the recent fall in the price of oil and gas, this means Turkey could save about US$12 billion (£9.6 billion) in energy imports.
It is hard to see very far ahead. During the next few months, it’s expected that Turkey, alongside South Africa and Argentina, could be sliding toward insolvency and debt default. After that, everything depends on how this crisis progresses and how long it will take to end.
MENA sovereign wealth funds are set to yank billions from stock markets, with the cash needed back home reportedAlison Tahmizian Meuse in an article Gulf faces recession as oil deluge meets COVID-19 in an Asian Times article dated March 30, 2020. It is said elsewhere notably in the local media that these sovereign funds could shed something like $300 billion.
A stairwell in the Queen Elizabeth II cruise liner docked at Port Rashid in Dubai, where the tourism sector has been devastated by the COVID-19 pandemic. Photo: AFP
Middle East oil exporters are bracing for recession and the lowest growth rates since the 1990s, with economists warning that the “twin shocks” of Covid-19 and plummeting oil prices will have a knock-on effect across the region.
“Quarantines, disruption in supply chains, the crash in oil prices in light of the breakdown of OPEC+, travel restrictions, and business closings point to a recession in the MENA region, the first in three decades,” the Institute of International Finance warned this week.
Oil exporters in the Gulf and North Africa are projected to see growth levels drop to 0.8%, IIF said, based on an average price per barrel of $40. At the time of publication on Monday, crude was hovering at cents above $20 per barrel.
Petro-titans like Saudi Arabia, which have shifted major resources toward sovereign wealth funds in recent years, are expected to recall funds back home as their collective surplus of $65 billion is flipped inside out to a deficit of the same amount or more.
These sovereign wealth funds could shed up to $75 billion in stocks in the coming period, Reuters on Sunday quoted JPMorgan’s Nikolaos Panigirtzoglou as saying.
Saudi Arabia’s Public Investment Fund currently holds significant shares in everything from ride-hailing app Uber to Japan’s SoftBank.
Such funds have likely already offloaded as much as $150 billion-worth of stock in the month of March, said Panigirtzoglou.
How did we get here?
Saudi Arabia earlier this month launched an oil price war, flooding the market with crude in a game of chicken against Russia after the latter refused to collaborate on production cuts.
Moscow, which desired lower prices to compete with US shale, did not blink.
The result has been, Bloomberg reports, a “cascade” of oil surplus, with some landlocked producers literally paying buyers to relieve them of supplies they cannot store.
From Saudi Arabia to Algeria, MENA exporters are expected to see hydrocarbon earnings fall by nearly $200 billion this year, according to the Institute of International Finance report, resulting in a loss of more than 10% of GDP in this sector alone.
As the price war was launched, the novel coronavirus began spreading through the Gulf, shattering hopes of diversifying toward tourism in the near future.
Saudi Arabia, with approximately 1,300 confirmed cases as of Monday, has shuttered the gates of Mecca over fears it could become the new virus epicenter after Iran.
The religious pilgrimage to Islam’s holiest sites, mandatory for every Muslim, nets Saudi Arabia billions of dollars each year.
Knock-on effect
The financial troubles in the Gulf do not stop at the Persian Gulf, but are slated to have a painful knock-on effect across the Middle East region.
Young people from Lebanon, Jordan, and Egypt – with its population of 100 million, have for decades turned to the Gulf Arab states for jobs after graduation, doing everything from running restaurants in Riyadh to working in banks in Dubai.
Such positions have become even more crucial in a time of heightened visa restrictions in the United States and Europe.
A recession in the Gulf, thus spells an even worse outlook for already struggling economies in the Levant, which often look to the oil producers for help during hard times.
“A global recession will lead to a reduction in trade, foreign direct investment, tourism flows, and remittances to Egypt, Jordan, Morocco, and Lebanon,” IIF said.
Egypt, the report notes, is expected to see a “significant drop” in critical Suez Canal transit revenues, as global trade suffers.
The Egyptian government earlier this month revoked the press credentials of Guardian correspondent Ruth Michaelson after she reported on a researcher’s findings that Egypt was seeing a higher number of Covid-19 cases than reported.
Recent oil market developments reveal a strong and sustained declining trend in the global oil demand, which is now expected to peak in 2040 or earlier. This outlook spells a significant fiscal sustainability challenge for the GCC region, says a new International Monetary Agency (IMF) report. The expected speed and size of the fiscal consolidation programmes in most GCC countries may not be sufficient to stabilise their wealth. These adjustments need to be accelerated and sustained over a long period of time, in line with the expected path of hydrocarbon revenue, says the study titled “The Future of Oil and Fiscal Sustainability in the GCC Region.” The oil market is undergoing fundamental change; new technologies are increasing the supply of oil from old and new sources, while rising concerns over the environment are seeing the world gradually moving away from oil. The combination of rising supply amid the global push to reduce reliance on fossil fuels is expected to continue, heralding what has been dubbed “the age of oil abundance”, the report says. This spells a significant challenge for oil-exporting countries, including those of the GCC who account for a fifth of the world’s oil production, says the report. The GCC countries have recognised the need to reduce their reliance on oil and are all implementing reforms to diversify their economies as well as fiscal and external revenues. Nevertheless, as global oil demand is expected to peak in the next two decades, the associated fiscal imperative could be both larger and more urgent than implied by the GCC countries’ existing plans. At the current fiscal stance, the region’s financial wealth could be depleted by 2034. Fiscal sustainability will require significant consolidation in the coming years. Its speed is an intergenerational choice. Fully preserving current wealth will require large upfront fiscal adjustments. More gradual efforts would ease the short-term adjustment burden but at the expense of resources available to future generations, it says. Anticipating and preparing for what comes next will be critical for oil-exporting regions. Oil remains critical to both external and fiscal revenues and overall GDP of the GCC states. A legacy of sharply rising fiscal expenditure during 2007–14 followed by a steep decline in hydrocarbon revenues have weakened fiscal positions in the GCC region. The decline in oil revenues sparked a period of intensive reforms, including sizable fiscal consolidations. Nevertheless, the effect of lower hydrocarbon revenue is yet to be fully offset. The resulting fiscal deficits have lowered the region’s net financial wealth during 2014–18, the report says. A path of prolonged deceleration in hydrocarbon revenue growth would add to this decline in wealth. At the current fiscal stance, the region’s existing financial wealth could be depleted in the next 15 years, warns the report. Although the importance of non-oil sectors has increased in recent decades, many of them still rely on oil-based demand either in the form of public spending of oil revenue or private expenditure of oil-derived wealth. The 2014–15 oil price shock, which notably slowed non-oil growth in most of the region, was a stark reminder of this dependence, it says. Recognising this challenge, the GCC countries are all implementing programmes to diversify their economies as well as fiscal and external revenues away from oil. The success of these programmes will be central to achieving strong and sustainable growth in the years to come, says the report.The report estimates that growth of global oil demand will significantly decelerate, and its level could peak in the next two decades. In assessing the long-term oil market prospects, it is useful to look beyond the geopolitical and cyclical factors and focus on trends that are robust to temporary shocks. Growth of global demand for natural gas is also expected to slow, although it is expected to remain positive in the coming decades. The fiscal policy need implied by this challenge is both larger and more urgent when compared to GCC countries’ existing plans. In the context of broader goals of sustainability and sharing of exhaustible oil wealth with future generations, all GCC countries have recognised the lasting nature of their challenge and are already planning continued fiscal adjustment in the context of their broader strategic long-term visions. Managing the long-term fiscal transition will require wide-ranging reforms and a difficult intergenerational choice. Continued economic diversification will be important but would not suffice on its own. Countries will also need to step up their efforts to raise non-oil fiscal revenue, reduce government expenditure, and prioritise financial saving when economic returns on additional public investment are low. While fiscal starting positions are still strong in a global context in four of the six GCC countries, the longer-term fiscal challenges are substantial, the report adds. –
OPEC earned about $711 billion in net oil export revenues (unadjusted for inflation) in 2018
Saudi Arabia accounted for the largest share of total OPEC earnings, $237 billion
India only imports between 4.5 and 5 million barrels per day of oil, but it is shaping up to be the biggest competitive space for producers
OPEC is still making money, despite challenges coming from every which way.
Be it falling prices, market volatility, regional insecurity, trade wars, armed conflict, talks of recession, US production, electric vehicles and renewable energy, or US Iranian sanctions, OPEC still finds a way to generate billions in revenues.
Now, mixed with current production leaders are a few new players making a splash.
The 2018 net oil export revenues increased by 32% from the $538 billion earned in 2017, mainly as a result of the increase in average annual crude oil prices during the year and a slight increase in OPEC net oil exports.
Saudi Arabia accounted for the largest share of total OPEC earnings, $237 billion in 2018, representing one-third of total OPEC oil revenues.
EIA expects that OPEC net oil export revenues will decline to about $604 billion (unadjusted for inflation) in 2019, based on forecasts of global oil prices and OPEC production levels in EIA’s August 2019 Short-Term Energy Outlook (STEO), according to Hellenic Shipping News.
EIA’s forecasts that OPEC crude oil production will average 30.1 million barrels per day (BPD) in 2019, 1.8 million BPD lower than in 2018.
For 2020, OPEC revenues are expected to be $580 billion, largely as a result of lower OPEC production.
Important countries to watch for in the oil sector
5. India—Right now India only imports between 4.5 and 5 million barrels per day of oil, but it is shaping up to be the biggest competitive space for producers.
India is the third-largest oil consumer in the world. Previously, the biggest competition ground for oil producers was for sales to China, but with 1.37 billion people, India has the potential to impact the market much like China has.
4. Saudi Arabia—This Arab Gulf nation owns the world’s most profitable (oil) company, houses the second-largest proven oil reserves in the world, and has the most spare capacity of any country. Oil from Saudi Arabia fuels much of east Asia. Aramco is also expanding its exports to India to compensate for lost Iranian oil.
3. Russia—Russia can produce in excess of 10 million barrels per day, or one-tenth of the world’s oil production. Russia is not a member of OPEC, but as the vital piece in the OPEC and Non-OPEC Declaration of Cooperation.
2. China—This country is the second-largest consumer of oil and is the largest oil importer in the world at around 10.64 million barrels per day. China is such an important oil consumer that any indication that economic growth in China is slowing sends oil prices tumbling.
1. United States –The U.S. is currently producing oil at record levels (12.3 million barrels per day according to the EIA). This is being driven by the shale oil industry. The U.S has shown its ability to impact other countries’ oil business, as it did with Iran’s exports in recent months. Presidential tweets also impact prices.
Author Hadi Khatib is a business editor with more than 15 years’ 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 it.
Traditional construction methods were no match for the earthquake that rocked Morocco on Friday night, an engineering expert says, and the area will continue to see such devastation unless updated building techniques are adopted.
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