BONUS | Alia Moubayed - The Regional Economy because of and Post COVID-19

February 18, 2021 | 28 Minutes

Alia Moubayed, chief economist for the MENA region at an investment bank based in London, joins Count Me In to talk about the impact of COVID-19 and how the world has changed because of it. As an experienced economist, Alia explains how her role has changed because of the pandemic, the challenges that still remain ahead in the global economy, and what it will take for an economic bounce-back. Download and listen now!

Adam: (00:00)
 Welcome back to Count Me In IMA's podcast about all things affecting the accounting and finance world. I'm your host, Adam Larson and today I have another bonus episode for you. This special conversation features my co-host, Rouba Zeidan and Alia Moubayed, an experienced economist, General Manager, and Global CFO. In this episode that discussed the impact of the COVID-19 pandemic and Alia shares her perspective on how the world has changed because of it. She also shares how finance and accounting profession can better arm itself for the next chapter of business. Stay tuned as we begin listening to their conversation now.

Rouba: (00:47)
Good afternoon, Adia, and thank you so much for joining me for this episode. I'm really looking forward to getting your input. You are one of the top economists in this region, and your view on the current situation and going forward, you know, as we begin, 2021 is of great importance, and so thank you.

Alia: (01:07)
Thank you very much for hosting me.

Rouba: (01:09)
How has the pandemic changed your role as an economist?

Alia: (01:15)
Well, I mean, the, pandemic changed the way we do our work as economists, particularly in the middle East and North Africa region at two levels. The first is, our own understanding of the economies in the light of the COVID. It requires from economists a non-traditional approach to analyzing the impact of the pandemic. So fundamentally it is hitting, people's health and therefore a key resource. So fundamentally the pandemic is affecting our work as economists at two levels. First in our approach in, analyzing, the developments in the economy, notably, understanding the impact of the pandemic, both at the macro, but also more importantly at the micro level, because, particularly that, that the pandemic is hitting, the lives and livelihoods of people, but also supply chains and therefore industries, and at the same time global economic factors like oil, and, capital flows, and trade. So our understanding of, and our approach to analyzing, economic development has been transformed. But I think also the second level is, how go about doing our work. The East and North Africa region, is a region that you cannot analyze by staying behind your desk and looking at numbers, first, because, there's less data transparency in the region, and our work as economists requires us being, in the country, traveling, talking to policymakers and to decision makers in both the public and the private sector. And obviously our, ability to travel has been challenged by the pandemic and that significantly impacted our work, but thanks to digital technology. We have, moved our work and our connectivity with people in the region, to all these platforms, Zoom and others, and they have also transformed the way we interact with decision makers in the region.

Rouba: (03:52)
Every quarter IMA and ACCA collaborate and we publish an economic conditions report, which details global developments, and in the most recent global economic conditions survey, which covered Q4 2020 and the middle East region recorded a huge jump in confidence. In your view, what is driving this kind of progress? Is it the easing of geopolitical tensions? is it the continued recovery in oil prices and demand? I mean, when you look at oil prices, they've jumped around 25% to $50 per barrel between September and December.,and also, what are the challenges that remain ahead for the region?

Alia: (04:34)
Sure, I think all the factors that you have listed have been important in shoring up, sentiment in the region, and I think, the four are essentially, first one is a sign that we have seen in Q4 that there are signs that the vaccine is at a reach and that a rollout is imminent. So that has, given hope of the resumption of economic activity, particularly in the hard hit sector, service sector, which constitute a large part of the services economy in the region, but also globally. I think certainty from that sort of, this, expectation that a, economic rebound is slowly on their way has transpired into the demand for oil, even though there are still pressures and uncertainty on the outlook for demand for oil as has been estimated recently by the IMF, but also by the International Energy Agency, however, I think the response from, all exporters, particularly in the context of the OPEC plus meeting to, to curb and continue to curb supply, has also helped, bring oil prices, to levels that, that affects sentiment in the region, I E 50 plus, level. And I think as long as, as oil prices remain in that, in that bound, the pressure, particularly on the, fiscal, and external, wind oil windfalls to the region, will be much less than what we have seen in 2020. And that takes me to the third factor, which is really, in Q4. We have seen, most with Eastern country countries, particularly in the gulf put out budgets for 2021, that confirmed their commitment to supporting, their local economies whether in Saudi Arabia or in the UAE, in Qatar. These are budgets that have maintained, some form of minimum fiscal stimulus, but also there have been a rollout of many of the liquidity packages that have been provided by the central banks or, delaying, the periods of, further exemptions from paying taxes and fees. So alleviating the pressure on, on businesses across the economies. So the kind of fiscal and policy framework, that has been maintained for 2021 also has contributed to the sentiment. And, finally I think, what we have seen is also the reduction in geopolitical tension on the back of the U S election, and this is a perception, at least so far, that, a diplomacy and not confrontation, will be the theme, when it comes to, to dealing with the, many, complicated, tensions, that has marked the region for a long time.

Rouba: (08:19)
Undoubtedly, the global economy is in a very fragile state at. Its worst state since 1930. COVID infection rates are increasing, was the virus continues to mutate. And what lies ahead will definitely include further lockdowns, compromise, consumer trust, and respect of spending a lot of strain on cashflow and rising, private, and public debt that to name, but a few, but the progress made on vaccine approval. And what is being dubbed the most ambitious global vaccination campaigns humanity has ever seen. It kind of raises hopes for a permanent economic improvement. How do you see its successful implementation impacting the regional and the global economy? And can we hope for an economic bounce back?

Alia: (09:09)
I think, bounce back is a bit, too optimistic. I mean, there certainly there are based effects we quote because we are going to go to go from a deep recession, as you rightly said, I mean, let's, let's just put some numbers here. I mean, the word economy and the world output, is estimated to have been, to have contracted by, by 4.4%, in 2020, with advanced economies  contracting by around 5.8% while emerging markets, by, a 3.3%. These are by far, a very deep recession, and obviously they will leave deep scars in, in many of the economies, therefore, why there will be a rebound from this recession, however, there is a great uncertainty first on the, extent and strengths of this, of this recovery, but also on its durability, because, first we are, we are seeing, unfortunately second waves of hitting in many countries leading to second waves of severe lockdown, particularly in Europe, and in some emerging economies, but also, the rollout of the vaccine will be a long drawn, and it will take time. It needs resources, it needs the right infrastructure. That's why maybe in the developed world, they will be able to, they are relatively well prepared, although, I mean, not all of, all of them, but in much greater part of the emerging world, that will take a long time. So, so, so the, the strengths and the, speed of the recovery, is, is extremely uncertain. I think, this is important because the recovery will need to rely on the resumption of trade and travel and, and the, and the renewed momentum in the service sector, which has been the most battered, by the city session, unlike previous recessions that hit the financial sector only, or, this time it's really core service sector and trade and, and travel, that will take time to resume. And that is particularly important for our region, which relies on the sectors quite importantly, and as I mentioned, the deep scars are, are not only on the economic level, but they are also on the social level. A recent research, particularly done by the IMF and the World Bank actually shows that the pandemic, will deepen and aggravate significantly inequalities within society because of record level of unemployment, and, difficulty in access to basic services of large swaths of the population. In particular, the scars will be left on, populations that have a large segment of youth and women, which also again, here in the Mid East region is region countries like Egypt, like Morocco, will be significantly impacted. And therefore this is why as policymakers and as economists, we, we have been saying that it's extremely important to maintain, the policy support, the liquidity,  the support to SMEs that, that are needed to absorb the impact on these fragile and vulnerable, population. And these are the kinds of challenges when you asked me about the challenges and the previous question, I think, our problem in the region, is that, whether oil exporting countries, remain, will remain, vulnerable to the volatility in oil prices, even though they have been making tremendous effort to transform the economies while in the oil importers, the, the deep scars left, will be challenged by, high levels of debt relatively constrained the fiscal resources and therefore the need, to continue to engage with international development partners to provide the finance that is needed to, limit, the impact of the crisis, and also help a more durable and speedy recovery.

Rouba: (14:01)
Over recent years. The Gulf region, Saudi, and UAE in particular have made great strides to migrate away from oil reliant economies, and though we've seen a number of national strategies that have been put in place to kind of formulate the next chapter. COVID-19 limited even halted progress on so many levels, but how has the COVID-19 pandemic affected those plans and how challenging is it really for governments to be balancing, you know, this balancing act between short and long-term goals, do you think?

Alia: (14:35)
Absolutely. I think, as we started, the pandemic has, has forced every country given sort of its level of serious, serious impact on the way it affected the lives and livelihoods of people and, hit fundamental sectors in the economy challenged the public finances of government, will imply a serious, rethink of, sort of the strategic direction of economic policy, in many countries, but more particularly in oil exporting countries. And I think this is what is happening, particularly in both Saudi and the UAE. Maybe the UAE is already rolling out this transformation towards, more, digital, based, economy, the focus on the high value added, health-related and health boosting, kind of sectors through telemedicines, investing in food security, related supply chains. I think the pandemic will bring the fundamental changes to the policy process, the economic policy process in Gulf countries.  As they assess and evaluate and absorb, the impact, the scale of the impact of the pandemic and its strategic implications, for that pursued economic paradigms and models that as you mentioned, have been embedded in that visions 2030 and 2040. Now obviously, the, the UAE has, has been going on in this direction of, adaptation and, and change and has seen a greater agility in adapting its policy, to these, to these changes. Saudi Arabia is on the way, but I guess as we, as we think about these changes, I think we need to understand them at two levels. The first one is that these changes are imperative because the shock of the pandemic has, has shown that there is a need to allocate a scarce resources, much more strategically in where you could get the bigger impact on the economy. And already these economies with lower oil prices are facing funding constraints, and therefore there is a need to review some of these strategies to align them to these new, levels of, funding and, and resource, availability and constraints that the pandemic has, has put forward. But the second and most important is really the change. The fundamental changes that it will bring to the, to the, to the paradigm, and, of economic transformation that has been set in those visions. Most of the visions, particularly Saudi division, 2030 has put a lot of onus on the service sector on, expanding it, particularly, travel tourism, sector as a major drive for employment. Now obviously, as it would need to be revisited, to be adjusted, that it will affect investments in these sectors. But I think more importantly is that it will accelerate what is in these vision in terms of embracing a digital economy faster than what has been planned. I think, investments and expansion of health, related, sectors and upgrading them faster will take priority over other sectors. But I think more importantly, moving towards sustainable and green sectors and growth, models, will be increasingly a priority, in those countries. These have been at the core of these strategies, but I think now they will be further emphasized.

Rouba: (19:06)
The tourism industry was noted to be hit the most. I mean, we're talking about $1 trillion in losses and over 100 million jobs that risk of being lost. One industry amongst many others have been hit. How can finance and accounting professionals become indispensable to their employers at this very critical time in history when furloughs and job loss are a daily outcome for, for so many people around the region and the world?

Alia: (19:35)
Well, I think it's, it's extremely important. I mean, that, that all jobs adapt to this changing environment and the finance and accounting professionals are under of course, a lot of pressure to, to, to understand, how the pandemic and the economic and the changes in economic landscape, is, is impacting, the operating environment of their businesses. So, the main challenge for them is really, building the knowledge and the capacity to quickly absorb and understand, the, the way, the pandemic, if, the pandemic is impacting, the businesses at, at the various level. So there is a part that is related to the personal knowledge because we need to know to preserve our health, but also other professional knowledge that is needed to understand, how, how this pandemic is affecting the businesses and its finances, and to, and therefore to build the strategies to limit the, the financial impact of the pandemic on their employers. Secondof course is that much of the finance and accounting, profession, will also become increasingly, if I may say, transformed by the wave of digitization and, and, and I think, facing up to this challenge will be, will be, will be critical, for anybody working in this, in this, in this field.

Rouba: (21:34)
Climate change is becoming a more prominent point of discussion in boardrooms the world over. The associated financial risks pose threats to, I mean, not only on a regionals, level, but also on a global economic scale. According to the UN, delays in tackling this issue could cost companies nearly $1.2 trillion over the next 15 years. This is making it critical for companies to take the impact of climate change into consideration when planning their strategies and operations and the process, which also requires a lot of transparency and disclosure of related risks. So when we look at globally, a review of over 1000 companies showed that that yes, many of them are engaging in this whole disclosure process, and this number is actually increasing, it's increased to nearly 15% over just the last two years, but how do the public and private sector, in the middle East region fair in terms of taking such consideration to account, to mitigate the risks, climate change present or not?

Alia: (22:45)
Well, I think, I mean, climate change is, is a major challenge that we'll face the region at the macro level. And it particularly in the, , in the Gulf countries. And I think now that we have seen, yesterday President Biden, his first, one of the first orders, to embrace back the Paris agreement for climate change, that means, essentially that we are on for fundamental changes in the global, again, a policy framework and an acceleration of the climate change agenda globally, on all fronts. And one of them obviously, is, as you mentioned the ability of companies, to, properly assess, the risk of climate change on their businesses, property costs the risk that transpired to them, and integrated into their, strategies and financial planning. And I think, Middle Eastern companies, have a long way to go, on that, particularly, maybe, maybe less so in, in some of the private sector, companies, although this is a, we are still relatively behind, but I think more so because the region is very much, driven also by, state owned or state linked companies, the state owned sector is, is, is, is first lacks the broader, transparency and relatively solid corporate governance rules, let alone, estimating and incorporating, the, necessity, the climate change related accounting and finance and the and risk assessments that, that these new, policy changes, will imply.

Rouba: (25:07)
We have been hearing a lot of speculation on the role of cash in today's world, as some analysts and finance professionals have made statements such as cash is no longer King, but liquidity is. So what is your view on this?

Alia: (25:22)
Now, obviously this is a very important saying we are living in a world of, where global, global liquidity, is example given the accommodating stance of, global central banks, at the level of their monetary policy, historically, prolonged period of low interest rates that will be with us, and in some countries, negative interest rates. So cash is, it's certainly not the right option, to, or position to, to hold on to, but rather, finding, means to, employ the liquidity in, revenue in higher yielding, assets or revenue generating, ventures, whether, in the bond or equity markets or, or even in, in investments, in productive sectors. So, so obviously the global, set up, where, the challenge now is to get the global economy, out of it's a deep recession and demand that, the scars, which the pandemic has left will, will mean that, global, monetary policy of, major central banks will remain, accommodating and interest rates historically low. And this will mean that in the short term, at least, cash is not, is not king.

Rouba: (27:14)
I appreciate your input Alia that was quite insightful, and you truly lived up to your evolving economist role in the region. Thank you so much for joining us, and I look forward to further discussions with you in the future.

Alia: (27:28)
Thank you very much, Rouba. Thank you.

Closing: (27:32)
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