This Moody’s negative rating outlook for the 2020 GCC sovereigns was published after it issued a little earlier, a similar downgrade for GCC corporates. But before we start wondering how relevant and whether, in this day and age, it applies to the MENA region and particularly to the Gulf sub-region, let us see who and what is behind Moody’s. It has by the way in 2018, citing as always, the still on-going and potentially worsening geopolitical event risks that play a crucial role in defining sovereign credit quality, come up with a particular set of ratings. Moody’s Corporation is the holding company that owns both Moody’s Investor Services, which rates fixed-income debt securities, and Moody’s Analytics, which provides software and research for economic analysis and risk management. Moody’s assigns ratings based on assessed risk and the borrower’s ability to make interest payments, and many investors closely watch its ratings.
ZAWYA GCC on January 9, 2020, posted the following articles.
The image above is used for illustrative purpose. A screen displays Moody’s ticker information as traders work on the floor of the New York Stock Exchange January 20, 2015. REUTERS/Brendan McDermid
GCC sovereigns’ 2020 outlook is negative, says Moody’s
Negative outlook reflects slow progress on fiscal reforms, weak growth and higher geopolitical risks.
Moody’s Investors Service said in a report that the outlook for sovereign creditworthiness in the Gulf Cooperation Council (GCC) in 2020 is negative.
The negative outlook reflects slow progress on fiscal reforms at a time of moderate oil prices, weak growth and higher geopolitical risk, the ratings agency said.
“The pace of fiscal consolidation will remain slow in the GCC in 2020 and fiscal strength will continue to erode in the absence of significant new fiscal measures and reforms,” said Alexander Perjessy, a Moody’s Vice President – Senior Analyst.
“This will be exacerbated by existing commitments to limit oil production, which will reduce government revenue,” Perjessy added.
The ratings agency expects a further gradual erosion in GCC credit metrics as oil prices remain moderate over the medium-term. It also pointed that lower oil revenue available to fund government spending will constrain growth in the non-oil sector which will, in turn, discourage governments from undertaking more fiscal tightening.
Moody’s sees the region’s geopolitical risk as higher and broader in nature than in the past, amid ongoing tensions between the United States and Iran.
Moody’s: 3 factors behind GCC sovereigns’ 2020 negative outlook
GCC’s geopolitical risk is higher in nature than in the past.
By Staff Writer, Mubasher
Moody’s Investors Service explained the factors which led to the negative outlook for sovereign creditworthiness in the Gulf area for the year 2020.
A recent report by Moody’s showed that the slowdown in the development of fiscal reforms at a time of reasonable oil prices contributed to the outlook, along with weak growth and higher geopolitical risk.
Further gradual erosion in GCC credit metrics is expected by Moody’s which relied in their outlook on the moderate oil prices over the medium-term.
Moody’s vice president – senior analyst, Alexander Perjessy, highlighted: “The pace of fiscal consolidation will remain slow in the GCC in 2020 and fiscal strength will continue to erode in the absence of significant new fiscal measures and reforms.”
Perjessy added, “This will be exacerbated by existing commitments to limit oil production, which will reduce government revenue.”
Growth in the non-oil sector will be constrained by lower oil revenue available to fund government spending; this will discourage governments from undertaking additional fiscal tightening.
Moody’s noted that “the region’s geopolitical risk is higher and broader in nature than in the past amid ongoing tensions between the US and Iran.”
Economic growth in the region of North Africa and the Middle East is expected to drop to 0.6 pc in 2019 against a 1.2 pc growth posted last year, says the World Bank in its latest report.
The growth forecast for 2019 has been revised downwards due to intensified global economic headwinds and rising geopolitical tensions, explains the WB, noting that the current sluggish growth is due to conservative oil production outputs, weak global demand for oil, and a larger-than-expected contraction in Iran.
On the other hand, a boost in non-oil activities in the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates), most prominently in construction, partially offset the dampening effect on the region’s average growth numbers as a result of Iran’s economic contraction.
“Countries in the region have implemented bold reforms to restore macroeconomic stability, but the projected growth rate is a fraction of what is needed to create enough jobs for the fast-growing, working-age population,” said Ferid Belhaj, World Bank Vice President for the Middle East and North Africa region. “It is time for courageous and far-sighted leadership to deepen the reforms, to bring down the barriers to competition and to unlock the enormous potential of the region’s 400 million people as a source of collective demand that could drive growth and jobs.
In the medium-term, the World Bank expects real GDP in the MENA region to grow at 2.6 pc in 2020 and 2.9 pc in 2021. The projected pickup in growth is largely driven by increasing infrastructure investment in GCC countries and the recovery in Iran’s economy as the effects of current sanctions wane.
However, the report warns that a further escalation in regional tensions could severely weaken Iran’s economy and spill over to other countries in the region.
While rising oil prices would benefit many regional oil exporters in the short run, the overall impact would be to hurt regional trade, investment, and spending on infrastructure, affirm the WB experts.
They also tackled the issue of unfair competition in the MENA region saying that “countries in the region have an opportunity to transform their economies by leveling the economic playing field, and creating business environments that encourage risk-taking and reward innovation and higher productivity”.
The WB report calls for strengthening competition, streamlining management of state-owned enterprises and promoting the private sector.
Romain Duval and Davide Furceri, authors of this article that obviously elaborates on the currently so-called developing countries. It does not ignore that there is some differentiation between oil and/or other scarce natural resources and the non-exporters of the same. It might as well be talking about these two categories of countries but perhaps along with the character traits described in the image below. Why you might wonder. Simply because How To Reignite Growth in Emerging Market and Developing Economies as developed here, could well apply to all countries in the MENA region, perhaps worldwide not for the same reasons.
Let us, in the meantime, read what they say.
Emerging markets and developing economies have enjoyed good growth over the past two decades. But many countries are still not catching up with the living standards of advanced economies.
At current growth rates, it would take more than 50 years for a typical emerging market economy to close half of its current income gap in living standards, and 90 years for a typical developing economy.
Our research in Chapter 3 of the October 2019 World Economic Outlook finds that implementing major reforms in six key areas at the same time—domestic finance, external finance, trade, labor markets, product markets, and governance—can double the speed of income convergence of the average emerging market and developing economy to the living standards of advanced economies. This could raise output levels by more than 7 percent over a six-year period.
Structural reforms can yield sizable payoffs.
More room for reforms
Policies that change the way governments work—known as structural reforms—are difficult to measure. They often involve policies or issues that are not easy to quantify, such as job protection legislation or the quality of supervision of the domestic banking system.
To address this, the IMF recently developed a comprehensive dataset covering structural regulations in domestic and external finance, trade, and labor and product markets. The data cover a large sample of 90 advanced and developing economies during the past four decades. To the five indicators, we added the quality of governance (for example, how countries control corruption) from the World Governance Indicators.
The new indicators show that, after the major wave of reforms in the late 1980s and—most importantly—the 1990s, the pace slowed in emerging market and developing economies during the 2000s, especially in low-income developing countries.
While this slowdown reflects the prior generation of reforms, as in advanced economies, there remains ample room for a renewed reform push, particularly in developing economies—notably, across sub-Saharan Africa and, to a lesser extent, in the Middle East and North Africa and the Asia-Pacific region.
Reforms can boost growth and living standards
Based on our empirical research of reforms in 48 current and former emerging markets and 20 developing economies, we find that reforms can yield sizable payoffs. But these gains take time to materialize and vary across different types of regulations. For example, a domestic finance reform of the size that took place in Egypt in 1992 leads to an increase in output of about 2 percent, on average, six years after implementation. We get a similar result for anti-corruption measures, whose effects are sizable in the short run and stabilize at around 2 percent in the medium term. In the other four reforms areas—external finance, trade, product markets, and labor markets—the gains are about 1 percent six years after the reform.
For the average emerging market and developing economy, the results imply that major simultaneous reforms across all six areas considered in this chapter can raise output by more than 7 percent over a six-year period. This would increase annual per capita GDP growth by about 1 percentage point, doubling the average speed of income convergence to advanced-country levels. Model-based analysis—which captures the longer-term effect of reforms and provides insights on the channels through which they affect economic activity—points to output gains about twice as large as the empirical model over the longer term (beyond 6 years).
One channel through which reforms increase output is by reducing informality. For example, lowering barriers to businesses’ entry in the formal sector encourages some informal companies to become formal. In turn, formalization boosts output by increasing companies’ productivity and capital investment. For this reason, the payoff from reforms tends to be larger where informality is pervasive.
Getting the timing, packaging and sequencing right
Some reforms work best when the economy is strong. In good times, reducing layoff costs makes employers more willing to hire new workers, while in bad times it makes them more willing to dismiss existing ones, magnifying the effects of a downturn. Similarly, increasing competition in the financial sector at a time of weak credit demand may push certain financial intermediaries out of business, further weakening the economy.
In countries where the economy is weak, governments may prioritize reforms—such as strengthening product market competition—that pay off regardless of economic conditions, design others to alleviate any short-term costs—such as enacting job protection reforms now with a provision that they will take effect later. These reforms can also be accompanied with monetary or fiscal policy support where possible.
Reforms also work best if properly packaged and sequenced. Importantly, they typically deliver larger gains in countries where governance is stronger. This means that strengthening governance can support economic growth and income convergence not just directly by incentivizing more productive formal enterprises to invest and recruit, but also indirectly by magnifying the payoff from reforms in other areas.
Finally, to fulfill their promise of improving living standards, reforms must be supported by redistributive policies that spread the gains widely across the population—such as strong social safety nets and programs that help workers move across jobs. For reforms to be sustainable and therefore effective, they need to benefit not just some, but all.
About the IMF Blog
IMFBlog is a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.
New York (CNN Business) The epic American oil boom is just getting started. OPEC, on the other hand, is stuck on the sidelines. US oil production is on track to spike to a record 13.4 million barrels per day by the end of 2019, according to a recent report by energy research firm Rystad Energy. Texas alone is expected to soon top 5 million barrels per day in oil production — more than any OPEC member other than Saudi Arabia. Oil plunges back into bear market The surge in American barrels — led by the Permian Basin in West Texas — has offset oil blocked by US sanctions on Venezuela and Iran. But all of that US oil is also contributing to a supply glut that last week sent crude into another bear market. OPEC has been forced to scale back its output — a trend that could continue as the cartel tries to prop prices back up. “We continue to see the Permian representing the key driver of global oil supply growth for the next five years,” Goldman Sachs analyst Brian Singer wrote to clients on Monday.
US daily output could soon top 14 million
The shale oil revolution has made the United States the world’s leading producer, surpassing Saudi Arabia and Russia. The ferocity of the US shale oil revolution has caught analysts off guard several times over the past decade. Rystad Energy ramped up its year-end US output forecast by 200,000 to 13.4 million barrels per day. In May, the United States likely produced a record 12.5 million barrels of oil per day, the firm added. All but four million of those barrels were from shale oilfields. That growth is expected to continue. The United States is on track to end 2020 by producing 14.3 million barrels per day, Rystad projects. That’s slightly higher than the firm previously estimated and nearly triple 2008’s output. Of course, analysts could have to rein in those blockbuster forecasts if oil prices crash significantly further. That would force American frackers to preserve cash and pull back on production.
OPEC’s production hits five year low
OPEC remains in retreat as the cartel tries to balance the market by putting a floor beneath prices. OPEC’s oil production tumbled to 29.9 million barrels per day in May, the lowest level in more than five years, Rystad said. OPEC output is down 2.6 million per day since October 2018 — the month before oil prices crashed into the last bear market. Khalid al-Falih, Saudi Arabia’s energy minister, said on Friday that OPEC is close to a deal to extend its production cuts. Those cuts, which Saudi Arabia has borne the brunt of, are due to expire at the end of June. The stock market is ‘spoiled’ by rate cuts” We think that OPEC will at least maintain its output cuts, and maybe even deepen them at their next meeting,” Caroline Bain, chief commodities economist at Capital Economics, wrote in a note to clients on Monday. Rystad dimmed its projection for Saudi Arabia’s oil production from 10.6 million barrels per day to 10.3 million.
Venezuela, Iran under pressure
OPEC’s output could be further hurt by problems in some of its member countries. Iran’s oil exports have plunged because of US sanctions. The years-long collapse of Venezuela’s oil industry has been accelerated in recent months by US sanctions and sprawling blackouts in the South American nation. “There appears little prospect of a recovery in output from Iran or Venezuela any time soon,” Bain wrote. Violence is also threatening oil production in Libya and Nigeria. All told, Rystad Energy estimates 1.3 million barrels per day of oil production is at risk in those four OPEC nations. “Risks to short-term supply are undoubtedly still plentiful,” Rystad analyst Bjørnar Tonhaugen said in the report.
Will crude slide below $50?
Despite all this, analysts aren’t predicting a spike in oil prices. If anything, forecasters are bracing for more pressure on prices, due in part to robust US production. Brent, which has tumbled about 15% since late April to $63 a barrel, should finish the year at around $60 a barrel, according to Capital Economics. The US economy is about to break a record. These 11 charts show why US oil prices, trading at about $54 a barrel, are down nearly 19% since late April. Recent selling has been driven by a spike in oil inventories that suggest demand for crude is deteriorating. Goldman Sachs said that a reversal in the oil demand metrics will be required to prevent US oil prices from sinking below the $50-$60 range.”Our real concern is over demand weakness,” consulting firm Facts Global Energy wrote in a report on Monday. “Have we entered an era where demand will keep falling and we have a lot more oil on our hands than expected?”
Since time immemorial, and all in the MENA region know that growth or rather the lack of it for centuries, has brought only dire consequences. Why has growth been the panacea to any development never questioned? Richard Heinberg, author and speaker, gives us his straightforward opinion in this article of ensia republished here below.
The end of growth will come one day, perhaps very soon, whether we’re ready or not. If we plan for and manage it, we could well wind up with greater well-being.
January 8, 2019 — Both the U.S. economy and the global economy have
expanded dramatically in the past century, as have life expectancies and
material progress. Economists raised in this period of plenty assume that
growth is good, necessary even, and should continue forever and ever without
end, amen. Growth delivers jobs, returns on investment and higher tax revenues.
What’s not to like? We’ve gotten so accustomed to growth that governments,
corporations and banks now depend on it. It’s no exaggeration to say that we’re
collectively addicted to growth.
The trouble is, a bigger economy uses more stuff
than a smaller one, and we happen to live on a finite planet. So, an end to
growth is inevitable. Ending growth is also desirable if we want to leave some
stuff (minerals, forests, biodiversity and stable climate) for our kids and
their kids. Further, if growth is meant to have anything to do with increasing
quality of life, there is plenty of evidence to suggest it has passed the point
of diminishing returns: Even though the U.S. economy is 5.5 times bigger now than it was in 1960
(in terms of real GDP), America is losing ground on its happiness index.
So how do we stop growth without making life
miserable — and maybe even making it better?
To start with, there are two strategies that many
people already agree on. We should substitute good consumption for bad, for
example using renewable energy instead of fossil fuels. And we should use stuff
more efficiently — making products that last longer and then repairing and recycling them instead of tossing them in a landfill. The reason these
strategies are uncontroversial is that they reduce growth’s environmental
damage without impinging on growth itself.
But renewable energy technology still requires
materials (aluminum, glass, silicon and copper for solar panels; concrete,
steel, copper and neodymium for wind turbines). And efficiency has limits. For
example, we can reduce the time required to send a message to nearly zero, but
from then on improvements are infinitesimal. In other words, substitution and
efficiency are good, but they’re not sufficient. Even if we somehow arrive at a
near-virtual economy, if it is growing we’ll still use more stuff, and the
result will be pollution and resource depletion. Sooner or later, we have to do
away with growth directly.
Getting Off Growth
If we’ve built our institutions to depend on
growth, doesn’t that imply social pain and chaos if we go cold turkey? Perhaps.
Getting off growth without a lot of needless disruption will require coordinated
systemic changes, and those in turn will need nearly everyone’s buy-in.
Policymakers will have to be transparent with regard to their actions, and
citizens will want reliable information and incentives. Success will depend on
minimizing pain and maximizing benefit.
The main key will be to focus on increasing
equality. During the century of expansion, growth produced winners and losers,
but many people tolerated economic inequality because they believed (usually
mistakenly) that they’d one day get their share of the growth economy. During
economic contraction, the best way to make the situation tolerable to a
majority of people will be to increase equality. From a social standpoint,
equality will serve as a substitute for growth. Policies to achieve equity are
already widely discussed, and include full, guaranteed employment; a guaranteed
minimum income; progressive taxation; and a maximum income.
These are ways to make economic shrinkage
palatable; but how would policy makers actually go about putting the brakes on
Meanwhile we could begin to boost quality of life
simply by tracking it more explicitly: instead of focusing government policy on
boosting GDP (the total dollar value of all goods and services produced
domestically), why not aim to increase Gross National Happiness — as measured by a
selected group of social indicators?
These are ways to make economic shrinkage
palatable; but how would policymakers actually go about putting the brakes on
One tactic would be to implement a shorter
workweek. If people are working less, the economy will slow down — and
meanwhile, everyone will have more time for family, rest and cultural
We could also de-financialize the economy,
discouraging wasteful speculation with a financial transaction tax and a 100
percent reserve requirement for banks.
Stabilizing population levels (by incentivizing
small families and offering free reproductive health care) would make it easier
to achieve equity and would also cap the numbers of both producers and
Caps should also be placed on resource extraction
and pollution. Start with fossil fuels: annually declining caps on coal, oil
and gas extraction would reduce energy use while protecting the climate.
Altogether, reining in growth would come with a
raft of environmental benefits. Carbon emissions would decline; resources
ranging from forests to fish to topsoil would be preserved for future
generations; and space would be left for other creatures, protecting the
diversity of life on our precious planet. And these environmental benefits
would quickly accrue to people, making life more beautiful, easy and happy for
Engineering a happy conclusion to the growth binge
of the past century might be challenging. But it’s not impossible.
Granted, we’re talking about an unprecedented,
coordinated economic shift that would require political will and courage. The
result might be hard to pigeonhole in the capitalist-socialist terms of
reference with which most of us are familiar. Perhaps we could think of it as
cooperative conservatism (since its goal would be to conserve nature while
maximizing mutual aid). It would require a lot of creative thinking on everyone’s
difficult? Here’s the thing: ultimately, it’s not optional. The end of growth
will come one day, perhaps very soon, whether we’re ready or not. If we plan
for and manage it, we could well wind up with greater well-being. If we don’t,
we could find ourselves like Wile E. Coyote plunging off a cliff. Engineering a
happy conclusion to the growth binge of the past century might be challenging.
But it’s not impossible; whereas what we’re currently trying to do — maintain
perpetual growth of the economy on a finite planet — most assuredly is.
The analysis of demographics in some countries, often forgotten in many studies, raises the issue of both development and national security. Because without sustainable development, it eventually could constitute a real social time-bomb. Algeria’s challenges facing its population pressure getting more acute every year will have to be addressed and at the earliest.
Whilst the evolution of the world’s population increased per the below chart.
The demographers estimate that the global human population is increasing by 246,000 inhabitants per day, a result equal to the difference between 403,000 births and 157,000 estimated deaths per day on Earth, representing an increase of 90 million people per year. By geographical area on average in 2017, Asia represents 4,504,4280,000 inhabitants or 59.7%, Africa 1,256,268,000 is 16.6%, Europe, the richest zone in the world, 742,741,000 is 9.8%, Latin America and the Caribbean 645,593,000 or 8.6%, USA and Canada 361,208,000 or 4.8%, Oceania, 40,691,000 or 0.5% and Antarctica 1,500 or 0.0% for a total of 7,550,262,000 inhabitants.
The growth of the African population is going to be more important during this period. According to the INED of France https://www.ined.fr/ , the population of Africa is going to double between 2017 and 2050, it will rise from 1.25 billion inhabitants to 2.574 billion. On the other hand, the population World should Tend towards 10 billion human beings (9.846 billion).
What about the evolution of the Algerian population?
The figures given by the NSO (National statistical Office) on forecasts of the evolution of the Algerian population by 2030 would be 51,26 million. And according to the current rate hypothesis of 2.4 children per woman and by 2050 to reach 65 million inhabitants, data that must be correlated with life expectancy.
While it is 77.1 years for men and 78.2 for women, it will at birth be 81 years for men and 83 years for women in 13 years. The figures of the INED confirm the trends of the NSO, showing that the Algerian population is young, constituted at 29% of under 15 years, the over 65 years representing about 6%. According to the INED, the forecast on the strong growth of the Algerian population over the next 33 years is due to several annual births of 1,103,000 and a relatively high fertility index (number of children per woman) of 3.1 whereas countries of the Mediterranean basin such as Morocco with 2.4, Tunisia, 2.4, France, 1.9 and Libya, 2.4 have much lower rates. Egypt has however a higher one with an index of 3.3 but Niger occupies the first place in the world ranking with the highest index of 7.3.
What is the spatial distribution of the population?
According to data for 2016, the 12 provinces with a density of less than 20 inhabitants per km² account for 89% of the country’s area with just 13% of the population. The 36 other provinces, all located in the north, have a higher density of more than 120 inhabitants per km², representing 11% of the area, approximately 240,000 km2 and includes 87% of the population.
Among these 36 provinces of the north, the highest densities are found around the large agglomerations of Algiers, Oran, Constantine and Annaba, then come the more rural coastal provinces, then the inner land provinces and finally the wilayas close to the Sahara.
More precisely and in descending order we have: Algiers, Oran, Boumerdes, Constantine, Annaba, Mostaganem, Tizi-Ouzou, Bejaia, Tipaza, Jijel, Sétif, Mila, Skikda, Chlef, Bouira, Ain Defla, Ain-Temouchent, Bordj Bou Arredj, Relizane, Mascara, El Tarf, Guelma, Tlemcen, Souk Ahras, Tissemsilt, Médéa, Batna, Oum El Bouaghi, Sidi Bel Abbes, Sila, Saida, Tiara, Khenchela Biskra, Laghouat and Djelfa.
The other provinces like El Oued, Naama, Ghardaia, El Bayath, Ouargla, Bechar, Adrar, Tamanrasset and Illizi come from far behind.
Good governance and social purpose
Satisfying the needs of a given population must obligatorily whilst considering the new transformation of the world, link economic and social dynamics to achieve some reliability.
The set of previous data shows that in the event of non-development, the demographic pressure would constitute a real social timebomb. As demographic pressure involves increasing needs such as more food consumption and durable consumer goods, more infrastructure, more schools, more training centres and hospitals. Hence the importance for any government to have a forward-looking vision
It is also a matter of thinking already of the diversification of the national economy to create more jobs to meet the needs of an increasingly demanding population. For that, with the scarcity of financial resources, which is likely to impact development projects, the urgency of a new governance re-foundation would be required.
Would it suffice to say that a reorientation of the current socio-economic policy to have necessarily a growth rate higher than the population growth rate otherwise the rate of unemployment will increase (rate of Growth greater than 7/8% over several years to create 350,000 / 400,000 new workstations per year)?
Does not this mean also the imperative to abandon the old patterns of the 1970s especially in the field of industrial policy, to adapt to the Fourth World Economic Revolution which promises to be irreversible and on us by 2020 through 2030, based on networks, more social dialogue and more decentralization, not to be confused with deconcentration.
In its well-known IMF Country Focus blog, it holds that Egypt’s economy is recovering, supported by prudent macroeconomic policies and initial bold reforms aimed at addressing the major challenges that have confronted the economy in recent years. The task now is to deepen reforms to raise economic growth further, make it last, and spread its benefits to Egypt’s rapidly growing population and its youth and women, the IMF says in its latest economic health check.
Young women in Al-Azhar Park, Cairo, Egypt. The country must integrate its women and youth into the workforce to keep its economy growing (photo: iStockPhoto/jcarillet
After more than a year since the launch of the economic reform program, GDP growth is strengthening and inflation is declining. The government trimmed the budget deficit, tourism revenues and remittances are increasing, and the country’s foreign exchange reserves have been rebuilt. The floating of the pound and the initial steps to improve the business climate have helped boost growth.
“This macroeconomic turnaround at home and the supportive global economic environment provide a unique opportunity to carry the reform momentum into areas that have historically been hard to tackle. Deep and lasting structural reforms are needed to create jobs as speedily as needed for Egypt’s growing population,” said Subir Lall, head of the IMF team for Egypt.
Below are the IMF’s key recommendations.
Making stability last
Egypt must entrench the stability attained thus far. This entails preserving the flexibility of the exchange rate and further reducing inflation. The government should also continue to lower the budget deficit to contain public debt. For this purpose, the IMF suggests:
Collecting more revenue to pay for much-needed social services and to invest in education, health, and infrastructure. Reducing tax exemptions, making the tax system more progressive (richer people pay progressively more in taxes), and making tax administration more efficient will facilitate this process. Revenue could grow by 4 percent of GDP in the medium term as a result, analysis in the report suggests.
Eliminating most fuel subsidies, which benefit mainly the rich, and allowing fuel prices to change in line with costs: This would protect the budget from movements in global oil prices and the exchange rate, and safeguard priority spending on social programs and necessary infrastructure.
Egypt launched a reform program when its economy faced rising imbalances that led to weakening growth, high public debt, a widening current account deficit, and declining official reserves. To support the homegrown reforms, in November 2016 the government initiated an IMF-supported arrangement to restore the stability of the country’s finances and promote growth and employment, while shielding lower-income households from the adverse effects of the changes. On December 20, 2017, the IMF Executive Board approved the third installment of the three-year, $12 billion Extended Fund Facility.
Helping low-income families
Although economic stabilization is critical, Egypt also needs to protect its lower-income families. This requires continuously improving the efficiency of social assistance by reducing price subsidies and expanding better-targeted cash transfer programs such as Takaful and Karama to free up resources for those who need them most, while avoiding the buildup of unsustainable public debt.
Letting the private sector flourish
Egypt’s growing population needs about 700,000 new jobs every year, which is possible only if the private sector becomes the main engine of growth. For that to happen, the state—which has a prominent role in the Egyptian economy—needs to step back from certain sectors and make room for the private sector to invest and grow.
To this end, priorities include ensuring fair competition for private companies in the markets for their inputs and products, improving the governance and transparency of state-owned enterprises, reducing the perception of corruption, improving access to financing and land, and integrating more women and youth into the labor market.
The global economic recovery that has started mid-2016 is gaining momentum with growth accelerating according to a report by the International Monetary Fund (IMF) published with however a warning that this 2017 global recovery is incomplete with MENA’s share modest.
Growth in the MENA countries dropped from 5.1% to 2.2% so far in 2017 but is anticipated to get back to 3.2% in 2018.
Political unrest was found to be still hampering and / or delaying economic recovery generally, but more specifically in the MENA region where different tensions subsist in several of its countries. Geo-political risks continue to weigh on all investments whether domestic and / or international.
Nevertheless, Djibouti has the highest growth in 2017 with 7%, followed in this order by Morocco, Egypt, Mauritania, and Sudan and Kuwait.
Yemen, Syria, Iraq would obviously be going through recession because of either their on-going political tension or unrest. The effect of oil prices’ drop would be affecting all hydrocarbons exports related economies of the Gulf and North Africa with budgetary restrictions. With money oversupply in these latter countries, inflation is bound to reach unforeseen heights but is nonetheless forecast to generally reach an estimated 7.1%.
Excerpts of the IMF blog written by Maurice Obstfeld on October 10, 2017, follows;
The global recovery is continuing, and at a faster pace. The picture is very different from early last year, when the world economy faced faltering growth and financial market turbulence. We see an accelerating cyclical upswing boosting Europe, China, Japan, and the United States, as well as emerging Asia.
The latest World Economic Outlook has therefore upgraded its global growth projections to 3.6 percent for this year and 3.7 percent for next—in both cases 0.1 percentage point above our previous forecasts, and well above 2016’s global growth rate of 3.2 percent, which was the lowest since the global financial crisis.
For 2017, most of our upgrade owes to brighter prospects for the advanced economies, whereas for 2018’s positive revision, emerging market and developing economies play a relatively bigger role. Notably, we expect sub-Saharan Africa, where growth in per capita incomes has on average stalled for the past two years, to improve overall in 2018.
The current global acceleration is also notable because it is broad-based—more so than at any time since the start of this decade. This breadth offers a global environment of opportunity for ambitious policies that will support growth and raise economic resilience in the future. Policymakers should seize the moment: the recovery is still incomplete in important respects, and the window for action the current cyclical upswing offers will not be open forever.
Global recovery still incomplete
First, the recovery is incomplete within countries. Even as output nears potential in advanced economies, nominal and real wage growth have remained low. This wage sluggishness follows many years during which median real incomes grew much more slowly than incomes at the top, or even stagnated. Drivers of growth including technological advances and trade have had uneven effects, lifting some up but leaving others behind in the face of structural transformation. The resulting higher income and wealth inequalities have helped fuel political disenchantment and scepticism about the gains from globalization, putting recovery at risk.
Second, the recovery is incomplete across countries. While most of the world is sharing in the current upswing, emerging market and low-income commodity exporters, especially energy exporters, continue to face challenges, as do several countries experiencing civil or political unrest, mostly in the Middle East, North and sub-Saharan Africa, and Latin America. Many small states have been struggling. About a quarter of all countries saw negative per capita income growth in 2016, and despite the current upswing, nearly a fifth of them are projected to do the same in 2017.
Finally, the recovery is incomplete over time. The cyclical upswing masks much more subdued longer-run trends of productivity and demographics, even correcting for the arithmetical effect of more slowly growing populations. For advanced economies, per capita output growth is now projected to average only 1.4 percent a year during 2017–22 compared with 2.2 percent a year during 1996–2005. Moreover, we project that fully 43 emerging market and developing economies will grow even less in per capita terms than the advanced economies over the coming five years. These economies are diverging rather than converging, going against the more benign trend of declining inequality between countries due to rapid growth in dynamic emerging markets such as China and India.
Creating three million jobs would require a growth rate between 2017 and 2020 of a minimum of 7 to 8%. The results of the bodies responsible for employment of the ANDI, the ANSEJ as much as of the NACC, are mixed despite their many allowed benefits. This is the New Government vs. social and budgetary tensions dilemma that the country’s newly appointed Prime Minister has to face up to within the remaining time of the president’s mandate.
However, the growth rate is relatively low in reference to public spending of 3% on average between 2000 and 2016. According to the ONS, quoted by APS, in April 2017, the employed population was estimated at 10.769 million against 10.845 million people in September 2016, registering a negative balance of the 76,000 people where six unemployed on ten on average are long-term unemployed.
Utopias or real socio-economics of Algeria
The International Monetary Fund (IMF) report on the global economic outlook for Algeria shows that if in 2016, the growth of the real GDP was 4.2%, the situation could significantly deteriorate in 2017 and 2018. Indeed, the IMF expects growth of 1.4% of GDP in 2017 and 2018, the Algerian economy should know a stagnation, with a growth rate of its GDP of only 0.6%.
A direct result of this economic slowdown would be the unemployment rate that should substantially increase over the same period and is estimated at 13.2% in 2018 with an inflationary trend always according to the IMF that we are trying to compensate by creating jobs with very low added value. This is mainly due to the decline in spending in infrastructure, up to now key engine of growth and the business climate.
Similar countries with spending of a 1/3 of that of Algeria have more significant growth rates.
What will happen if the oil price stagnated at 50 – 55 Dollars a barrel or even less at between 40 – 45 dollars? Would the risk of social tensions in the case of dwindling financial resources, while posing no problems for three years be on the increase? But what are the $100 billion of foreign exchange reserves in July 2017, with an output of currency goods-services and capital transfers of $60 billion and inflows of foreign currency of only $29 billion or $32 – 35 billion dollars by end of 2017 if the price of a barrel is maintained between $50 – 55 despite all restrictions on import?
According to various statements of Mr. Ahmed OUYAHIA, prior to his appointment as Prime Minister saying : “If we don’t get over not standing on the economic plan, we risk ending up at the IMF” So what to do?
Contents of the Finance Act 2018?
Would we still hold on, in the Finance Act 2018 for budgetary calculation the $50 dollars a barrel like for 2017’s?
Would we above the regular 11% tax?
Can we have a VAT increase from 7% to 9% for the reduced rate, and 17% to 19% for the higher band even with the risk of inflation and unfair indirect taxes applied to all; direct tax being a sign of a greater citizenship?
Will we restrict all spending: where the capital budget that has been reduced to $22 billion by 2016 as a result of the latest budget cuts as much as the operating budget of about $41 billion that is incompressible unless of a deep public service redesign?
Will we establish a tax of wealth as based on accurate assessment of the distribution of income and the model of consumption by social strata and mastering of the importance of the informal sphere?
Will we to avoid external debt go towards a de-monopolisation program and further privatization with partial or total transfer of ownership of a number of public companies whose financial situation is deteriorating due to workload and management issues where Public Treasury has supported for more than $70 billion dollars in sanitation between 1974 and 2016 or with over 70% returned to the starting block?
Will we go for targeted subsidies where according to the Government about $18 billion was spent transfers in 2016, while revenues in foreign currency during the year fell by $37 billion,?
What will the socio-economic policy be?
Will it always use the Dinar (DZD) skidding to more than DZD127 a Euro as a means of adjustment of the deficit of the balance of payments?
Would the current industrial policy lead the country to debt therefore dependence and to correct it how would a dynamic industrial sector which represents less than 5% of the gross domestic product and 80 / 85% of raw materials of public and private sector coming from overseas and what would without proper analysis, the rush into car assembly plants with a low rate of integration bring?
Will we still keep to that out of date policy from the 1970 – 1980 years at the time of the fourth economic revolution looming between 2020 and 2030 as based on good governance, the economy of knowledge and environmental challenges?
What will a program that is dated, accurate and taking into account of the transformation of the new world of structural reforms to combat the prevailing central and local bureaucracy through to a real decentralization of the financial system onto a social and educational system as hub of the creation of value and the thorny problem of land?
Will we hang on to the same 2009 ownership share rule as applicable to all sectors instead being targeted and thus encouraging FDI in nonhydrocarbon sectors?
What will the proposed import licenses without any strategic vision nor taking into account that the Algerian economy is dominated by the service sector where small trade and services represent 83% of the economic area with dominance of the informal sphere?
How to apply one of the articles of the new Constitution and not differentiate the State sector from that of the private sector for all national and international creation of wealth enterprise by the lifting of all constraints of the business community?
And finally how do we go about organizing an economic and social dialogue so as to carry out reforms with economic and social credible intermediation?
Strategic vision within the new world
All political, social and economic actors are riveted to the presidential deadline of April 2019, but maintaining the status-quo until then could be suicidal. We must as of now envisage through the right strategic vision certain short-term economic policies and not appearances that might increase economic and social tensions and ultimately lead to a further deterioration in the purchasing power of the Algerians.
Any increase in the rate of inflation will involve primary banks interest rates rising, to avoid bankruptcy and discouraging investment. Without structural reforms related to good governance, there may not be genuine development in Algeria with the added risk of returning to the IMF in 2019 – 2020.
There are, for Algeria, opportunities to increase its growth rate because of its substantial potential that despite the crisis would assume a new strategic governance
The major challenge for Algeria would mean to implement operational instruments capable of identification, to anticipate changes in the behaviour of the economic, political and social actors at geostrategic level.
There is a dialectic link between development and security, and because without sustainable development there is necessarily increase of insecurity which has a growing cost. Strategic objective must reconcile modernity and authenticity, economic efficiency and a deep social justice if Algeria wants to avoid its marginalization from within the global societies. The passage of the status of ‘support against the rentier economy’ to that of the rule of law “based on work and intelligence” is a major political gamble since it simply involves a new social contract and a new political contract between the Nation and the State.
A brilliantly educational article of Brad Keywell with our compliments shed some light of what awaiting us in the near future. This is positively a world where Human Brilliance, Ingenuity and Skills will always be needed.
The Fourth Industrial Revolution is about empowering people, not the rise of the machines
14 Jun 2017
The world is changing. There’s no way around this fact.
Billions of people and countless machines are connected to each other. Through ground-breaking technology, unprecedented processing power and speed, and massive storage capacity, data is being collected and harnessed like never before.
Automation, machine learning, mobile computing and artificial intelligence — these are no longer futuristic concepts, they are our reality.
To many people, these changes are scary.
Previous industrial revolutions have shown us that if companies and industries don’t adapt with new technology, they struggle. Worse, they fail.
But I strongly believe that these innovations will make industry – and the world – stronger and better.
The change brought by the Fourth Industrial Revolution is inevitable, not optional.
And the possible rewards are staggering: heightened standards of living; enhanced safety and security; and greatly increased human capacity.
For people, there must be a shift in mindset.
As difficult as it may be, the future of work looks very different from the past. I believe people with grit, creativity and entrepreneurial spirit will embrace this future, rather than cling to the status quo.
People can be better at their jobs with the technology of today—and the technology that is yet to come—rather than fearing that their human skills will be devalued.
Human and machine
I’m reminded of chess.
We have all heard the stories about computers beating even the greatest grandmasters. But the story is more nuanced; humans and computers play differently and each has strengths and weaknesses.
Computers prefer to retreat, but they can store massive amounts of data and are unbiased in their decision-making.
Humans can be more stubborn, but also can read their opponent’s weaknesses, evaluate complex patterns, and make creative and strategic decisions to win.
Even the creators of artificial chess-playing machines acknowledge that the best chess player is actually a team of both human and machine.
The world will always need human brilliance, human ingenuity and human skills.
Software and technology have the potential to empower people to a far greater degree than in the past—unlocking the latent creativity, perception and imagination of human beings at every level of every organization.
Power of data, power of people
This shift will enable workers on the front line, on the road and in the field to make smarter decisions, solve tougher problems and do their jobs better.
This is our mission at Uptake—to combine the power of data and the power of people, across global industries.
Here’s what this looks like:
Railroad locomotives are powered by massive, highly complex electrical engines that cost millions of dollars.
When one breaks down, the railroad loses thousands more for every hour it’s out of service (not to mention, there are a lot of angry travellers or cargo customers to deal with).
After the locomotive is towed in for repairs, technicians normally start by running diagnostic tests. These can take hours, and often require technicians to stand next to roaring engines jotting down numbers based on the diagnostic readings.
That’s the old way – or, at least, it should be.
Machines, rather than something to be feared, are the tools that will help us solve the world’s biggest problems Image: Unsplash/Sorasak
When locomotives operated by our customers roll into the shop for routine services, all diagnostics have already been run.
Our software has forecast when, why and how the machine is likely to break down using predictive analytics — algorithms that analyze massive amounts of data generated by the 250 sensors on each locomotive.
Our systems have examined that data within the context of similar machines, subject- matter experts, industry norms and even weather. If there’s a problem, we detect it, and direct the locomotive to a repair facility.
A mechanic can then simply pick up an iPad, and learn in a few minutes exactly what is about to break down, as well as the machine’s history and the conditions it’s been operating under.
That leaves the mechanics to do what they do best: fix it, using their experience, judgement and skill. And the mechanics decisions and actions become data that feeds back into the software, improving the analytics and predictions for the next problem.
So, technology didn’t replace mechanics; it empowered them do their job.
In the same way that chess masters and computers work best together, the mechanic used human skills that a machine can’t replicate: ingenuity, creativity and experience. And the technology detected a problem that was unknown and unseen to human eyes.
In short, when the mechanic and the technology work together, the work gets done faster, with fewer errors and better results.
Multiply this across all industries: aviation, energy, transportation, smart cities, manufacturing, natural resources, and construction.
The productivity we unleash could be reminiscent of what the world saw at the advent of the first industrial revolution. But the impact of the Fourth Industrial Revolution will run much broader, and deeper, than the first.
We’ll have the knowledge, the talent and the tools to solve some of the world’s biggest problems: hunger, climate change, disease.
Machines will supply us with the insight and the perspective we need to reach those solutions. But they won’t supply the judgement or the ingenuity. People will.
The WEF recommends to read more on the same subject:
German Chancellor Angela Merkel, calling for closer cooperation with the countries of North Africa, intends to obviously achieve, on the occasion of her visit, more of the security situation in the region and by the same consolidate the economic relations between the 2 countries. Chancellor Angela Merkel in Algiers on 20 and 21 February follows on the Algerian Prime Minister’s visit on 12 January 2016 that in addition to the discussed security aspects, it had enrolled as part of the consolidation of economic cooperation between Algeria and Germany notably through the germano-algerian joint commission. This latter was set up in 2010, following the visit of the president of the Algerian Republic, to Berlin.
German politics traditionally are normally dominated by two large movements, the CDU – CSU (the Christian democratic union of Ms Merkel and its Bavarian ally, the Christian Social Union) and the SPD (Social Democratic Party). German diplomacy strives to develop a balanced position in its dialogue with the Arab and Muslim world. Present in several States in the region, close political foundations of the major German parties play an important role in this effort of dialogue with all of the local political movements.
Currently, the migration crisis and the situation in the Middle East do concern jointly Turkey (first host country of refugees, with 2.5 million) and Germany, (first host of the European Union). Dialogue around this issue, for which Germany is quite involved, was to find an agreement between the European Union and Turkey, which aims to permanently reduce the number of people seeking asylum in Europe. Based on three central pillars (bilateral trade rooms, Germany Trade and Invest Agency, and economic counsellors of embassies), economic diplomacy conducted by Berlin translates into a strong attention paid to large emerging countries.
Largest economy in the European Union, Germany is a federal State consisting of 16 Länder account about 82 million inhabitants to 01 January 2016 with demographic projections of 72.2 million in 2030 explaining its immigration target with a + 1.4 million migratory balance policy (2015) where the Turks represent in 2015, 9.1 million or 11.1 percent of the total population.
This may put into question its economic dynamism and eventually expose it as a result its open economy to international uncertainties including the protectionist threat of the new American president, the British Exit from the EU and the current fragility of China. Its Gross Domestic Product in 2015 was € 3026.6 billion, with a Per Capita GDP of € 37,107 with an unemployment rate of 5.0% (2015) and 4.5% for 2016, with an annual average inflation rate to 0.1% for 2015.
Meanwhile Germany continues for several years its fiscal policy that is marked by the desire to reduce debt and public deficits, in accordance with objectives set by European treaties. Public debt amounted to € 2150 billion at the end of year 2015 (71.2% of GDP) and 69.2% (2016). The Bundestag has adopted on November 25, 2016 a Federal budget for 2017 and plan for its 2018-2020 program a budget that will be balanced on the whole of the period.
The 2017 federal budget spending is € 329.1 billion, representing an increase of € 12.1 billion compared to 2016.
Tax revenues are planned at € 301.03 billion. According to the multi-annual programming of the Bund, the federal budget should be balanced and should continue to be as such on the whole of the budgetary program of 2018 to 2020 period.
Industry, which represents a significant share of GDP remained almost stable for 20 years (25.7% in 2016 and 23.0% in 1994). Agriculture represents 0.9%, industry 28.2% and services based on new technologies 72%.
German GDP grew by 4.1% in 2010, from 3.7% in 2011, 0.5% in 2012, 0.5% in 2013, 1.6% in 2014, 1.7% in 2015, and 1.9% in 2016. Highly internationalised companies, exports represent 39% of the GDP in 2015. World Trade Organisation ranked the country in 2015 as the third largest global exporter, behind China and the United States. The density of its fabric of medium and intermediate-sized companies (the “Mittelstand”) innovative and export
Literally champion of the world for exports, Germany has with a trade surplus in current accounts at $ 297 billion for 2016 before China’s $ 245 billion, according to a study by the IFO economic Institute, while in 2015, the balance of payments surplus of China totalled $ 293 billion and that of Germany was $ 257 billion and the United States run a deficit of $ 478 billion.
For 2015, its main customers were: United States (9.5%), France (8.6%), United Kingdom (7.5%), Netherlands (6.6%), China (5.9%), Italy and Austria (4.8%) and suppliers (2015): China (9.7%), Netherlands (9.3%), China (9.7%), Netherlands (9.3%), France (7.1%), United States (6.3%), Italy (5.3%)
What prospects for cooperation?
According to the Secretary of State at Germany’s Ministry of Economy and Energy and co-Chair of the economic joint commission, Germany and Algeria since its independence had good relations of friendship, and I quote him :
“We are aware of the political importance of Algeria in the Arab world and Africa. Algeria is a major and reliable political partner of Europe, for example in the areas of security, regional stability and our common fight against terrorism which are the subject of a close and trusting cooperation between our countries since many years. In addition, Algeria is one of the largest national economies in Africa. It is located at the interface of the Western world, of the Eastern world and the African world, and connects, because of its geographical location, the markets of Europe, Africa and the Arab world.”
Algeria at current prices Gross Domestic Product according to the World Bank was for 2015 at $ 214 billion, with as at January 1st, 2016 a population of 40.4 million inhabitants and an economy that directly and indirectly relies on hydrocarbon exports for 97 / 98% of its foreign exchange earnings.
The volume of bilateral trade between Algeria and Germany recorded in 2014 about € 5.1 billion and no significant change between 2015 and 2016. Germany imported from Algeria for an amount of € 2.5 billion (mainly oil) and exported at a cost of about € 2.6 billion to Algeria. According to Reuters News Agency and the information site “Deutsche Welle”, there was a signing of a major contract of armament between Algeria and Germany (to be confirmed) and exports in armament of Germany destined for Algeria would have reached during the period of January to September 2016 over € 4,029 billion.
In 2015, the bulk of the external trade of Algeria remained focused on its traditional partners such as China with $ 8.22 billion, France $ 5.42, Italy with $ 4.82, Spain with $ 3.93 and Germany $ 3.38 billion. In the first eleven months of 2016, Algerian Customs data show $ 42,78 billion for imports of goods, services not included.
Italy preserved its traditional first customer position of Algeria’s in the first eleven months in 2016, by absorbing $ 4.41 billion of exports, or 17.24% of Algerian overall exports during this period. It was followed by Spain, France and the United States, as well as by Canada that have imported for respective amounts of $ 3.24 billion (12.67%), $ 2.95 billion (11.53%), $ 2.79 billion (10.9%) and $ 1.25 billion (4.91%). Paradoxically Germany does not show in this section of the Algerian exports for these seem not exactly high enough to be classed within it.
In terms of imports, China remains at the top of the supplying countries of Algeria with $ 7.7 billion representing 18.01% of imports overall Algerian between January and November. France with $ 4.37 billion (10.22%), followed by Italy with $ 4.26 billion (9.96%), Spain with $ 3.29 billion (7.71%) and Germany with $ 2.7 billion (6.34%).
So what are these prospects for the Algero-German cooperation?
Several areas of cooperation have been identified, but the main hurdle would be that most German operators appear not to be attracted by investments in Algeria, for at least as long as the regulatory framework is really not in their favour. According to numerous statements of many German operators and government agencies, the Algerian rule 51/49 share ownership split, that is applied to foreign investments, with total disregard for either strategic or non-strategic sectors would be the main culprit for all potential German investors including SMIs/SMEs like from many other countries to stay away from Algeria.
However some 4400 family-run companies in Germany form the backbone of the German economy, not to mention an Algerian diaspora evaluated to approximate 30,000 in Germany, are rather “well integrated”. According to German data, about 220 German companies are located in Algeria and employ around 2000 people, operating in different sectors of activity such like energy, services, hydraulics, transport and construction technology and the development of renewable energy in which Germany has a great experience. Algeria import essentially mechanical, electric, steel, equipment vehicles and chemical products and fats from Germany.
Algerian exports are, conversely, made up mainly of hydrocarbons (oil and gas) and derivatives. Despite this minimal trading far below the potential, the ‘shared’ political of the two capitals and their economic and geostrategic interests, remain, despite the world economic and financial crisis, in support of the strengthening of all economic exchanges and bilateral cooperation in all sectors. The main objective is to strengthen the partnership, while studying the economic market of the two countries to seek opportunities of cooperation so as to increase trade and bilateral cooperation especially in the sector of energy (solar, wind, and solar) and technologies.
Algeria, prioritised for next years, despite the existence of several other options, resourcing of renewable energy whilst pursuing at the same time win/win partnership with Germany for an integration and advancement of technological and managerial know-how of Algerians, with the aim to concluding contracts of cooperation with Algerian companies in all sectors including those channels where Algeria has a global comparative advantage to use its international business networks.
In conclusion, Germans that generally have no historical precedent with Algeria, as of their well-reputed pragmatic attitudes and well-known frankness did recently approach the Algerian Government confirming that their readiness to intensify cooperation, was it not for those recent Government measures of Algeria. These were qualified as being counterproductive, administrative in their outlook whereas what is required should focus as the economic reference of the currency exchange balance as well as the accumulation of organisational and technological knowledge. The Algerian economy predominantly bureaucratic and rentier economy that produces the informal sphere could do with a financial and socio-educational reform, in addition to the lifting of the land system. And it is up to the Algerians to remove those obstacles for the good implementation of the business, assuming of deep structural reforms, good governance and a visibility and coherence of socio-economic policies of the Government. It is under these reservations, that any Algero-German cooperation could be and intensify in the context of mutual respect.
The best way to go about discussing the topic covered by the proposed article written by Anne-Marie Slaughter, President and Chief Executive Officer, New America and published on Monday 13 February 2017 by the WEF is to recall the failure and eventual collapse of the former Soviet Union and what caused its abrupt end not so far ago. Is it lack of these 3 core responsibilities of every government of any nation discussed here, from the agenda of the successive governments?
Or was it as many see it, like in those MENA’s region so-called republics due to that sprinkle of socialistic orientations in their political strategy of the 60s and 70s ? Any thoughts ?
Or is the whole thing a soft reminder directed towards the new tenant of the White House of his basic duties?
The oldest and simplest justification for government is as protector: protecting citizens from violence.
Thomas Hobbes’ Leviathan describes a world of unrelenting insecurity without a government to provide the safety of law and order, protecting citizens from each other and from foreign foes. The horrors of little or no government to provide that function are on global display in the world’s many fragile states and essentially ungoverned regions. And indeed, when the chaos of war and disorder mounts too high, citizens will choose even despotic and fanatic governments, such as the Taliban and ISIS, over the depredations of warring bands.
The idea of government as protector requires taxes to fund, train and equip an army and a police force; to build courts and jails; and to elect or appoint the officials to pass and implement the laws citizens must not break. Regarding foreign threats, government as protector requires the ability to meet and treat with other governments as well as to fight them. This minimalist view of government is clearly on display in the early days of the American Republic, comprised of the President, Congress, Supreme Court and departments of Treasury, War, State and Justice.
Protect and provide
The concept of government as provider comes next: government as provider of goods and services that individuals cannot provide individually for themselves. Government in this conception is the solution to collective action problems, the medium through which citizens create public goods that benefit everyone, but that are also subject to free-rider problems without some collective compulsion.
The basic economic infrastructure of human connectivity falls into this category: the means of physical travel, such as roads, bridges and ports of all kinds, and increasingly the means of virtual travel, such as broadband. All of this infrastructure can be, and typically initially is, provided by private entrepreneurs who see an opportunity to build a road, say, and charge users a toll, but the capital necessary is so great and the public benefit so obvious that ultimately the government takes over.
A more expansive concept of government as provider is the social welfare state: government can cushion the inability of citizens to provide for themselves, particularly in the vulnerable conditions of youth, old age, sickness, disability and unemployment due to economic forces beyond their control. As the welfare state has evolved, its critics have come to see it more as a protector from the harsh results of capitalism, or perhaps as a means of protecting the wealthy from the political rage of the dispossessed. At its best, however, it is providing an infrastructure of care to enable citizens to flourish socially and economically in the same way that an infrastructure of competition does. It provides a social security that enables citizens to create their own economic security.
The future of government builds on these foundations of protecting and providing. Government will continue to protect citizens from violence and from the worst vicissitudes of life. Government will continue to provide public goods, at a level necessary to ensure a globally competitive economy and a well-functioning society. But wherever possible, government should invest in citizen capabilities to enable them to provide for themselves in rapidly and continually changing circumstances.
This celebration of human capacity is a welcome antidote to widespread pessimism about the capacity of government to meet current national and global economic, security, demographic and environmental challenges. Put into practice, however, government as investor will mean more than simply funding schools and opening borders. If government is to assume that in the main citizens can solve themselves more efficiently and effectively than government can provide for them, it will have to invest not only in the cultivation of citizen capabilities, but also in the provision of the resources and infrastructure to allow citizens to succeed at scale.
Invest in talent
The most important priority of government as investor is indeed education, but education cradle-to-grave. The first five years are particularly essential, as the brain development in those years determines how well children will be able to learn and process what they learn for the rest of their lives. The government will thus have to invest in an entire infrastructure of child development from pregnancy through the beginning of formal schooling, including child nutrition and health, parenting classes, home visits and developmentally appropriate early education programmes. The teenage years are another period of brain development where special programmes, coaching and family support are likely to be needed. Investment in education will fall on barren ground if brains are not capable of receiving and absorbing it. Moreover, meaningful opportunities for continuing education must be available to citizens over the course of their lives, as jobs change rapidly and the acquisition of knowledge accelerates.
Even well-educated citizens, however, cannot live up to their full potential as creative thinkers and makers unless they have resources to work with. Futurists and business consultants John Hagel III, John Seeley Brown and Lang Davison argue in The Power of Pull that successful enterprises no longer design a product according to abstract specifications and push it out to customers, but rather provide a platform where individuals can find what they need and connect to whom they need to be successful. If government really wishes to invest in citizen talent, it will have to provide the same kind of “product” – platforms where citizens can shop intelligently and efficiently for everything from health insurance to educational opportunities to business licenses and potential business partners. Those platforms cannot simply be massive data dumps; they must be curated, designed and continually updated for a successful customer/citizens experience.
Finally, government as investor will have to find a way to be anti-scale. The normal venture capitalist approach to investment is to expect nine ventures to fail and one to take off and scale up. For government, however, more small initiatives that engage more citizens productively and happily are better than a few large ones. Multiple family restaurants in multiple towns are better than a few large national chains. Woven all together, citizen-enterprise in every conceivable area can create a web of national economic enterprise and at least a good part of a social safety net. But government is likely to have to do the weaving.
A government that believes in the talent and potential of its citizens and devote a large portion of its tax revenues to investing in its citizens to help them reach that potential is an attractive vision. It avoids the slowness and bureaucracy of direct government provision of services, although efficient government units can certainly compete. It recognizes that citizens are quicker and more creative at responding to change and coming up with new solutions.
But government investment will have to recognize and address the changing needs of citizens over their entire lifetimes, provide platforms to help them get the resources and make the connections they need, and see a whole set of public goods created by the sum of their deliberately many parts.
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