Beyond Covid-19: Could local and regional economies benefit from a new landscape?

As the coronavirus loosens its grip on the world’s population, the requirement to stay at home to stop its spread and protect human life has created its own economic uncertainties.

With some countries beginning to take tentative steps to reinvigorate their economies post-Covid-19, we examine the potential speed and shape of the bounceback in the local, regional and global economies, and the potential benefits associated with that recovery.

1. Understanding bounceback

According to the IMF’s World Economic Outlook, the UAE’s economy will contract 3.5% in 2020 amid the pandemic, but is expected to grow 3.3% in 2021.

The economies of the Middle East and North Africa (MENA) are expected to contract 3.3% before recovering to 4.2% growth in 2021. Economic forecasts from leading investment bank economists suggest global GDP will fall by 6% in the first half of 2020, rebounding in Q1 2021 to exceed pre-pandemic levels.

Is this optimism well founded, and how quickly can the region recover?

KSA and the UAE, the region’s two biggest economies, have already intervened with stimulus packages for the all-important SME sector, preparing those economies to recover more quickly and more strongly than they might otherwise have done.

The UAE government is exploring further incentives and schemes for businesses to keep jobs and keep companies operating in Dubai.

It’s too early to predict the shape of the recovery; it may emerge in the UAE as a V-shaped recovery, a double-dip W-shaped bounce, a U-shaped recession or a tick-style profile that points to a sharp downturn. Such a profile would be followed by a gradual recovery as lockdowns are eased more gently than they were imposed, and economic activity fired up more slowly than it was smothered.

Do previous epidemics give us any clue as to the future in MENA?

Severe Acute Respiratory Syndrome (SARS) appeared at a time when China accounted for just over 8% of global economic output. By 2019, China’s share had increased to nearly 20%, suggesting coronavirus yet has the potential to introduce more uncertainty in the global economy.

Analysis from the experience of the Spanish flu pandemic of 1918-1919 in the US, thought to have killed around 50 million people worldwide, has shown that national manufacturing output declined by nearly 20% in 1918-1919, and lowered real GDP by 6%-8% in all countries affected.

Today, however, unlike the Spanish flu, the coronavirus is thought to present relatively little danger to those under 60 with no underlying health conditions. Recent analysis from the UK’s Office for National Statistics (ONS), reveals that the 20-64 age group (ie, the majority of working age adults) represents a relatively small percentage of total fatalities.

2. More resilient supply chains

The pandemic has laid bare the fragility of our global supply chains, historically driven in part by the relentless pursuit of lower costs, at the expense of due diligence on manufacturing locations and associated risk.

There is an emerging global consensus on its current vulnerability, but is a stronger, better-balanced future-proof system possible?

One option under discussion is to run an industry’s disaster and recovery plan in tandem alongside normal operations, but whether that emerges as an integral, or affordable, solution is unknown.

Nevertheless, business leaders in the region are already hinting at how things may change – while globalisation made sense, economies may now need to become more local and regional. The Gulf region could transform into a series of more resilient economies with the ability to bounce back faster.

One beneficial impact of the global pandemic in the region may be a shift in the world economy, with some predicting a move away from a reliance on big economies like the US and China, instead creating regional economic hubs that are relevant.

At the very least, we would expect the development of multiple suppliers in alternative countries or hubs, where one failure wouldn’t spell instant disaster.

3. Continuing our common purpose

The sense of shared endeavour against the coronavirus, an invisible but common enemy, has shown itself in many positive ways in the UAE and across the world.

The UAE had already made steps towards a goal of common purpose through a variety of initiatives and actions over recent years, such as the “Year of Giving” in 2017 and the National Strategy for Higher Education 2030; this has served to both prepare the country for the response it has shown, and to fortify that response.

This is apparent at both a community level in the UAE, and at a regional level in the Gulf. Not only has the UAE been the largest aid donor in the Arab world since 1970, it has also set aside recent diplomatic tensions with Iran to concentrate on protecting human life, with its first delivery of medical aid arriving in Tehran in March.

In addition, the country has dispatched medical aid to at least eight other countries, including China, Greece, Italy and Pakistan.

Harnessing that sense of common purpose at both a federal and community level can be used to greater effect as a result of the UAE’s experiences. This has already been shown by the government’s policy of synthesising the strengths of the UAE’s leading emirates, Abu Dhabi and Dubai.

The Dubai dream as a commercial and financial hub between East and West has become the aspiration of the whole UAE. The pursuit of economic dominance in the western Indian Ocean and the entrepreneurial spirit of becoming, with the growth of Dubai World Ports, an unrivalled gateway, has galvanised the whole of the UAE.

Harnessing common purpose for our economic future

Diversifying the UAE economy in such a way that its many capabilities and assets are not in competition with each other could put the UAE in a better position to emerge stronger in the Covid-19 aftermath and foster further UAE-wide aspirations for the future.

Both Abu Dhabi and Dubai own and control their own utilities, airlines, airports and stock markets, for example; some consolidation in the pursuit of a shared purpose across the whole of the UAE could help diversify the federal economy in the future, with fewer duplications making it not just bigger and more influential, but leaner, more flexible and more adept at harnessing that common purpose.