One year on from the onset of the novel coronavirus (COVID-19) pandemic, countries around the world are still navigating both the public health challenges and the economic impact of the pandemic.
While the health crisis is not yet in retreat globally, the unprecedented rapid development of vaccines and their ongoing rollout provide some optimism that we may be able to embark on a return to some form of “normalcy”.
However, the road to recovery in the Middle East and North Africa (MENA) region remains uncertain, with large divergence between and within countries. Many of them are still grappling with the second wave of rising infection rates, and have only limited access to vaccines.
The recovery will hinge on containment measures, access to and distribution of vaccines, and the scope of policies to support growth and mitigate economic scarring.
While the long-run effects of the health crisis are exceptionally uncertain, there will likely be fundamental changes in work practices and consumer behaviours. There is also likely to be resource reallocation from sectors that have been permanently affected to those emerging stronger from the crisis.
Global trade and countries’ relative position in international supply chains will also likely be altered. For the MENA region, this uncertainty about the “new normal” is compounded by oil price volatility and the accelerating global efforts in combatting climate challenges.
This would affect oil-producing countries directly and other economies in the region indirectly through investment and financial linkages, including through remittances.
The pandemic has highlighted further the limitations of the current growth model, and revealed the vulnerabilities deriving from insufficient economic diversification, sluggish private sectors, and inefficient social protection systems in many MENA countries.
Moreover, the region’s large exposure in the hard-hit services sector and limited ability to work from home, in addition to a large informal sector, add to the difficulty of adjusting to the post-COVID-19 world.
This uncertainty invites us to rethink the way the recovery should be engineered. While governments have attempted to bolster social safety nets and support businesses as in Egypt, these efforts may not be enough to build for the future in unprecedented times.
To accelerate the recovery and avoid a lost decade, work should start now to promote a new economic model that creates more jobs and improve living standards. The model should also look to support a further equitable distribution of the growth dividend, address the aspirations of youth, and assimilate additional women into the labour force.
While the specific design and sequencing of reforms to achieve these goals differ across countries in the region, all MENA economies would need to consider four guiding principles:
First, rethinking the role of the State. The COVID-19 crisis has necessitated large state interventions to mitigate the social and economic impact of the pandemic. Once the crisis is behind us, there needs to be a determined effort to reduce the state footprint in the economy to allow the private sector to grow and provide jobs at the scale needed to meet the aspirations of the young and growing population.
This is especially the case in those MENA countries where public intervention has often been associated with market distortions, an unequal playing field with limited competition, and a burdensome business environment. Removing these distortions and enhancing public governance are essential steps to promote growth and foster good quality jobs.
Second, enhancing social spending, particularly in health care, education, and social safety nets. In many MENA countries, reforms are needed to enhance coverage, efficiency, and targeting. Fostering a dynamic and competitive economy requires high-quality social services, to support human development.
Moreover, an ambitious and necessary set of reforms, including to build a greener economy, cannot succeed without an effective and targeted social protection system that shield the most vulnerable from the disruptive effects of much needed reforms.
Third, investing in human capital and bringing more women into formal employment. A young population that can quickly adapt to technological advances is the region’s biggest asset.
This unique human potential should be fully utilized to achieve a successful transition to a private sector-led growth model. It is equally important to ensure that women participate more effectively in building a modern economy with higher living standards for all.
Concurrently, ambitious investment is needed to upgrade the quality of education and ensure that all potential aspirants into the labour market are adequately equipped to seize the opportunities that a new economic model can offer.
Fourth, investing in a greener economy. With a global consensus emerging on the need to collectively address the challenges posed by climate change, there is a heightened need to proactively apply ecological policies to reap the benefits and complete the transition to a green economy. Such transition is an opportunity to create high quality jobs in emerging sectors, and to build resilience against the adverse impact of climate-related events, which disproportionately affect those already at risk.
The COVID-19 crisis has added to the challenges facing MENA economies as they seek to transition to a new development model that leads to higher and more resilient growth. However, it also provides a rare opportunity to accelerate the transformation toward a more sustainable, inclusive, and green path for the future.
Implementing such ambitious reforms will require strong support from all segments of society and careful design, especially considering the remaining uncertainty on the ultimate effects of the health crisis.
Delays in starting these reforms will only make the required transformations more difficult to achieve and increase the risks that the aspirations of the population will not be met. Now is the time to prime the process of recovery with agility and preparedness toward a future that will lift living standards for all and leave no one behind.
Jihad Azour is the Director of the Middle East and Central Asia Department at the International Monetary Fund.