Complex Made Simple

Want economic growth? ‘Invest in human capital, health, education…’

Mohamoud Mohieldin, Senior Vice President, The 2030 Development Agenda, World Bank Group discusses the economic outlook for 2018, resilience and reforms.

What’s the economic outlook for 2018 for the MENA region?

We had a recent report on the region, which basically predicts that there is going to be a slight improvement in the economic growth in the region.

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However, there will be a requirement of more inclusiveness in that growth. This means that we need more of the growth that is associated with good and decent job creation opportunities. This is basically what this region requires at this moment. But to do this, we need some prerequisites to be considered and addressed. First is that we need to invest in human capital, health, quality education and good social protection schemes. Undoubtedly, this investment is the core basis of our economic growth.

Second is the investment in infrastructure. Here the infrastructure is not just road networks or seaports or airports, but investment in the internet, in fiber optics and in all of the associated technologies. Investing in these is as important as the road networks, airports and seaports for any economy.

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Third prerequisite is the investment in resilience. So, to sum up, three kinds of investments required for any kind of sustainable growth in the region are investments in human capital and social security, in infrastructure and in resilience. Only then the desired outcomes will be apparent in the coming months.

How would you define the concept of investment in resilience? Why is it needed and how does it help economies in the region?

Let me explain this with examples. Countries around the world have been subject to a number of shocks and disturbances at regular intervals. From pandemics in Africa and Latin America, we are talking about Ebola and Zika, to the shocks because of what is happening in the neighboring countries after the disruption of several wars. We have to understand that the neighbor countries are affected by what happens in countries of geographical proximity and so we need to get ready for these kinds of shocks as well. And how can it be done – by investing in resilience.

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However, a good part is that we have seen all across the world that despite of all of these natural disasters and shocks, we have proved the resilience. Various economies and the countries across the world have fought against all odds. What I mean is that if we invest in resilience we will be in a better position to handle various troubles – be it natural disasters or war consequences. It is important to make this investment if we want to recover the losses.

The banks in this region are facing the problem of liquidity crunch. How do you look at this hurdle and how drastic is it?

The problem of a liquidity crunch really depends on the kind of case we are talking about. If we go to the fundamental issue of concern, it is basically the lower saving rates in this region.

Even in some countries with higher per capita income there isn’t really decent accommodation and mobilization of national, domestic, public and private savings. I would say that some countries, including some of the Gulf countries, did well in the investment through sovereign or wealth funds which have been mobilizing the sources. But in the other countries, including the non-oil countries, you will see a lower saving rate regardless of the per-capita income.

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This is because even if you see that the per capita income in other countries could be low or high, the receiving rates and the saving rates are higher than the region. We really need to reconsider some of the issues related to reforms on the financial sector. We have to flow the funds to those who don’t have it and ingrain an increased tendency to save by making some behavioral changes and cultural changes.

So there are a variety of matters here. Now this is how we look at the liquidity issue in a broader sense and in terms of long-term future. But in the short term, liquidity issues require management changes and enhancing the capacity to mobilize funds from abroad, including foreign direct investment and portfolio investment.

You mentioned reforms. So, how is World Bank contributing in this direction, when it comes to MENA region? Do you currently have any projects in this region? If yes, can you elaborate?

Well, the World Bank has a variety of programs that we are funding or organizing with various countries in the region. Some of these are technical assistance programs. To mention some, we have capacity building programs, like improving tax systems or government systems that we are doing with countries in the region.

We also have big projects including investments to the private sector arms or assisting in loans in all of the areas I mentioned.

We have programs in education, infrastructure, renewable energy and more. We are working with different countries for different projects, like we have one program in Morocco called Morocco – Identity and Targeting for Social Protection Project. The project’s objective is to expand coverage of a Unique Identifying Number (UIN) for the Moroccan population and foreign residents, and to improve targeting of Social Safety Nets (SSNs). The enhancement of identity and targeting systems will particularly benefit women by facilitating their access to social and financial services.

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Then we have one in Egypt named Equal Access and Simplified Environment for Investment Project. The main aim of this project is to improve the regulatory environment for investors through simplified licensing and transparent industrial land allocation processes. The project focuses on supporting cross-cutting reforms in the country that target constraints affecting firms in all sectors of the economy. It particularly works on reforms that promote transparency and predictability of the regulatory environment.

The World Bank programs, although they are basically about providing financial assistance, are more importantly about the technical assistance and the sharing of the knowledge and know-how too. We are also involved on various other levels too, apart from just monetary help that we offer.

How do you look at the banking sector globally in 2018? Will it be a comfortable journey ahead?

Well, I think that the financial sector around the world has been learning from the experience of the recent financial crisis. Due to this, there is greater adherence to the regulations, as far as the micro and the macro prudential regulations are concerned.

For example, having capital adequacy, like having loan to value ratios and more will come to play as the lessons learnt and they will be implemented by various institutions across the world.

However, the kind of changes, growing competition and the disruption to the business, including the increasing use of alternative options, such as financial intermediaries – will be another issue that all the banks will have to consider going forward.

Overall the year will see changes, as most of the technologies in the industry will change too. It will be a comfortable journey if we prepare ourselves and are ready to change with the changes that are happening around us. It is also important to have a diversified view of changes and challenges.

This interview first appeared in AMEinfo’s sister publication, TRENDS.