Sergio Pimenta
Q: How will the Covid-19 pandemic affect economies in the Middle East and north Africa (MENA) region in the longer term?
A: Even before the pandemic, economic growth in the region was already quite modest and it is clear that the pandemic will have a severe and lasting impact. When we look at the medium term, we need to think about the structure of the economies in the MENA region and how they can evolve.
Importantly, it is an opportunity to restructure and reform areas of the economy that needed to change and, in particular, to ensure a bigger role for the private sector. The private sector has the potential to grow and contribute to development in these economies. The fiscal situations of most countries in the region going into the crisis didn’t leave them with much room for manoeuvre. Not only do they need funding from the private sector, they also need the innovation, discipline, capacity and knowledge that comes from the private sector.
Co-operation between the public and the private sectors will help the region to overcome the challenges presented by these unprecedented times. If countries put in place the right reforms now, such as diversifying economies away from oil and taking the right steps to increase private sector participation, then I think the opportunities will come to the fore.
Q: The International Finance Corporation (IFC) has been working with many governments to help mitigate the impact of Covid-19. How adequate have their responses been thus far in the MENA region?
A: We have been very active in MENA since the beginning of the crisis and stepped up our efforts to bring the necessary responses to different countries. We do that by working closely with the World Bank, but also with the governments in the region. Some governments have been very engaged in identifying the right reforms that can create a better environment for the private sector to contribute to the resolution of the crisis.
Q: Are there positive case studies that stand out in terms of government response?
A: Some countries have been particularly rapid in their response and bringing in the right solutions and innovative measures to not just contain the virus, but also preserve the economy and help different players in the economy weather these difficult times.
For example, Egypt has been very diligent in putting in place reforms and opening up to the private sector to intervene in many sectors. It launched a comprehensive package of measures, including relief for manufacturing companies and tour operators. Tourism, an important sector for the country, has been hit hard by the crisis, so having targeted responses for sectors that are most affected is a very efficient measure.
I would also like to mention Morocco, which is another country that has taken rapid measures to help the local private sector withstand the crisis.
IFC has been active in supporting governments and the private sector in most countries by bringing in additional funding and also advisory work to help mitigate the crisis. At the outset, IFC deployed an $8bn global facility for responding to the crisis and helping our existing clients in these difficult times. We’ve rolled out a significant amount of this facility in the MENA region.
Q: In addition to providing financial support, what has been the IFC’s overall approach during this crisis?
A: Our approach has been based on our experiences in other crises; however, this crisis is really unprecedented, with so many different things happening at the same time. But our response is always proactive and engaged.
We have a three-phase approach: relief, restructuring and recovery, the three Rs. During the relief phase, which is the immediate one, our approach has been to provide funding liquidity for companies that suddenly don’t have liquidity in these circumstances.
We have worked with some financial institutions to provide funding for small and medium-sized enterprises [SMEs], because they constitute the vast majority of employment in the region and they are suffering. In a region where one of our key strategic priorities has always been employment – not just maintaining but creating jobs – we need to focus on tools that can help employment. For example, in Egypt we’ve deployed $100m with the Commercial International Bank, to provide funding for SMEs.
It is not easy but Africa is doing a good job in finding the right balance between lives and livelihoods
The second phase is restructuring, which includes looking at how value chains are being affected and how different components are interacting, so that we can help stabilise and start rebuilding for the future.
And then the third phase, recovery, which we start at the same time, has a more long-term perspective and is aimed at helping countries rebuild better and greener. We need to look at how the economy and society are going to change following the pandemic.
There is going to be a new normal and we need to prepare for that. A large part of what we are doing in the medium term is working with governments on the reforms that are needed to build a better environment for the private sector to contribute to the economic development.
These include interventions in the investment climate, cutting red tape, encouraging a more level playing field and so on, as well as bringing in disruptive technologies. The new world after the pandemic will be much more digital than before, so we are looking at how we can support the deployment of these new technologies.
In the second and third phase, we are taking much more of a sector view. We are focusing on sectors that are heavily affected, such as health and tourism, and looking at how we, as a development financial institution, can help these and other sectors. We are helping companies with financial solutions that can help them brave the next few months, or years in some cases.
We are also encouraging companies to take this opportunity to upgrade and update their business, bring in more digital components, more innovation, more green solutions, and build for the future. A lot of this is being done at the sectoral level, with a combination of financial instruments but also advisory tools that we can deploy.
Q: How is sub-Saharan Africa responding to this crisis?
A: It is not easy but Africa is doing a good job in finding the right balance between lives and livelihoods. I think they’ve learned from the Ebola crisis and are probably better prepared than most regions for this type of situation.
But we need to look at what’s going to happen post-Covid and how quickly the continent can come out of it. The huge economic support packages deployed by governments in other countries haven’t been rolled out in most African countries because they don’t have the fiscal capacity. So, it’s going to be a little harder to build back.
That is why it has been so important that Africa receives support from the international community to pull out of the crisis and return to a path where its growth is higher than the rest of the world, and can therefore continue to catch up in poverty reduction.
Another important point is that Africa presents a great opportunity on the digital side. The ‘Digital Moonshot’ is a major effort led by the World Bank Group, working with the African Union and others, to push the digital economy and help the continent improve its digital development, not just the digital infrastructure but the whole ecosystem. This effort cannot be slowed down; the region’s economy will be much more digital after the crisis. That’s where there can be a complete change within Africa’s new normal after the pandemic.
Q: What’s the next big digital leap, whether within the financial services landscape or in general?
A: While the digital divide also exists in Africa, there is an opportunity for the continent to jump further ahead than the rest of the world in terms of using technology in disruptive ways. For example, we have supported companies in Africa in the agricultural space that are introducing ‘smart agriculture’, using disruptive technologies to implement micro-irrigation systems, improve fertiliser utilisation and get real-time information about markets.
So without going through the same development model that other countries have gone through, many African economies will shift to a new normal that will be very different. Furthermore, one of Africa’s biggest assets is a young population. Even if access to the internet is more challenging than in other regions, the youth still have access to much more information than their parents. This is a source of optimism regarding what can be done.
