Last week, the President of the European Commission Ursula von der Leyen made an ambitious proposal. By 2030, the European Union would aim to reduce greenhouse gas emissions by at least 55 percent below their 1990 levels. And this is just an intermediate target. The final goal is for the EU to become climate neutral by 2050, as stated in the European Green Deal. (more…)
Small and medium-sized enterprises dominate the business landscape in the Middle East and North Africa region. These enterprises account for more than 90 percent of the region’s businesses and, in some countries, contribute as much as 50 percent of employment and 70 percent of GDP.
Yet they face impediments to growth, and their contribution to employment is below potential. In much of the region, small and medium-sized enterprises are handicapped by limited access to credit, unfavorable business environments, and talent gaps.
Digital technologies present new opportunities for these businesses to achieve faster growth. Emerging technologies and broadband internet can facilitate operational efficiencies, innovation, access to markets and finance, and can enable firms to operate remotely during lockdowns. The flexibility of remote working can help integrate women and youth in the labor market.
But so far, small and medium-sized enterprises in the region have been slow to embrace digital technologies and e-commerce, and businesses trail governments and consumers in internet usage.
As consumers rapidly shift to online shopping and increasingly prefer rapid and convenient services, smaller businesses will need to adopt digital solutions to remain competitive and survive.
Because small and medium-sized enterprises hold the key to employment generation, governments can help expedite their digital transformation by developing and implementing national strategies that address both supply and demand constraints standing in the way of digitalization.
On the supply side, priority should be given to removing barriers to competition and increasing investment in information and communications technology to ensure universal access to affordable high-speed internet. Currently, while all countries have easy access to international fiber optic networks, many maintain barriers to entry such as government monopolies or restrictions on foreign participation and network peering. These, coupled with high capital investment requirements, have slowed deployment of advanced network technologies and internet exchange points. Apart from the Gulf Cooperation Council states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (GCC), many countries have limited access to high speed broadband internet, and internet services are often slow, unreliable, and unaffordable, constraining use of the internet for business creation.
Educational and labor market reforms are needed to reduce the digital skill gaps. Digital skills are in short supply across the Middle East and North Africa region and some countries with high levels of digital expertise, such as Lebanon and Egypt, sometimes suffer brain drain to higher income countries, including the GCC. Mandating science, technology, engineering and mathematics subjects and providing technical and vocational education and training through public-private partnerships can increase supply of tech skills in the medium term. At the same time, easing labor restrictions to facilitate expatriates in highly technical areas can reduce the skill gaps in the near term.
Reforms are also needed to improve E-commerce logistics and reliability of electricity, without which the Internet cannot function. Deficiencies in E-commerce logistics—unified address systems, area codes, postal service, land and customs clearance—currently delay delivery and increase costs for online trading.
Regulatory and other reforms are also essential to facilitate development of digital financial infrastructures. Digital financial services currently do not provide a strong foundation for digital transformation as the infrastructure and instruments for accepting electronic payments—such as point-of-sale terminals, credit and debit cards—have limited penetration, and payment systems are mostly not interoperable.
Digitalization of government services and procurement can incentivize small and medium-sized enterprises to follow suit given the significant size of the public sector in most countries and the pervasiveness of making payments to, or receiving payments from, governments.
On the demand side, the digital usage gap—the disparity between people who live in areas covered by broadband but who are not using internet—is several times the coverage gap. This suggests that demand is being constrained for reasons other than the non-availability of internet access.
To increase demand for digital services, governments should develop digital literacy and awareness programs as well as foster consumer trust by strengthening frameworks for cybersecurity, digital identification, data privacy, and consumer protection. Across the region, consumers reportedly do not trust websites to handle their information and are unaware of their consumer rights. In some countries, consumers are not well equipped to adopt digital solutions as large segments of the populations are not connected to the internet and are unbanked. In parts of the region, including North Africa and Iran, ownership of smartphones and other internet-enabled devices is below the global average.
Finally, for digital benefits to materialize, the digital strategy must be underpinned by financial sector and business environment reforms, particularly strengthening financial infrastructures—credit registries and bureaus, modernized bankruptcy laws, collateral registries—and business support, all of which will help SMEs access credit.
In the face of unprecedented uncertainty and the severe economic impact triggered by COVID-19, the Fund continues to adapt its lending. At the same time, it aims to ensure realistic targets, uphold the credibility of programs, and foster national ownership. (more…)
Perhaps first among the many lessons of 2020 is that the notion of so‑called black swan events is not some remote worry. These purportedly once‑in‑a‑generation events are occurring with increasing frequency.
As the world seeks to comprehend the new normal, we face many unknowns. Will jobs come back? How will we travel again? What will recovery look like? Much is still a question mark. In fact, we are living in the most “unmeasurable of times,” writes the IMF’s Geoffrey Okamoto, making it hard to quantify high uncertainty and risk.
What we do know is that the age of COVID-19 has painfully exposed and widened existing economic and social divisions and created new ones. It has accentuated disparities among workers, especially the young, female, and least educated. It has made more acute frailties in public health systems, the precariousness of work, and the digital divide. It has challenged governments, which now face higher spending needs and ballooning debts. And it has brought to light the long simmering issue of racial injustice.
Yet this crisis and the fault lines it is exposing are inspiring calls for a rethinking of our priorities and reconsidering the very structure of the world economy toward a future that is more equitable, adaptable, and sustainable—more resilient.
This issue of Finance &Development gives voice to diverse contributors on what needs to be done.
“The networked problems of our time are amenable to networked solutions,” writes Ian Goldin, making the case for international cooperation not only among governments but also in civil society and business. Joseph Stiglitz argues for rewriting the rules of the economy to protect workers and the environment, calling for greater global and national solidarity. Carmen Reinhart, Kenneth Rogoff, and others consider ways to handle a coming wave of debt restructuring for the poorest countries. Kevin Watkins urges debt relief for the poorest countries, including by converting debt liabilities into investments that protect children. Other contributors focus on the role of new technologies, climate, and public health, including vaccine development. Finally, the IMF’s Ratna Sahay and coauthors grapple with race and racism in the economics profession, recognizing that addressing biases begins at home.
The post-pandemic world will likely be transformed in important ways. If the crisis prompts a radical reset of our economic and social life with policies that invest in people and reflect a shared sense of our fate as human beings, so much the better. The world will emerge resilient from this dark chapter. In the words of songwriter Leonard Cohen, “There’s a crack in everything, that’s how the light gets in.”
Read full issue here.
The COVID-19 pandemic could be a game changer for digital financial services. Low-income households and small firms can benefit greatly from advances in mobile money, fintech services, and online banking. (more…)
Since the COVID-19 outbreak was first reported in Wuhan, China in late December 2019, the disease has spread to more than 200 countries and territories. In the absence of a vaccine or effective treatment, governments worldwide have responded by implementing unprecedented containment and mitigation measures—the Great Lockdown. (more…)