The coronavirus epidemic, and the progressive lockdown into which it has plunged the whole planet, is not only a danger for global health, but also a major hit for its economy, whose long-term effects could threaten the global balance. We made a report of the situation with Rami Kiwan, economist and head of strategy and planning at the G20, who gave us his personal predictions about it.
What is the impact of the Covid-19 pandemic on Arab countries?
The region is usually divided into two separate groups of countries: oil producers and oil importers. In the case of oil producers, they were hit by the crisis and the decrease in demand in their economy, at the same time they also had to face an additional aspect of the situation and its side effects which is the collapse in oil prices. These countries have sufficient financial resources to face this situation, with hundreds of billions of dollars in reserve, so they are not gonna become poor overnight. However, the drop in oil prices has decreased the government revenues and some countries had to set up austerity measures like in Saudi Arabia for example, where they reduced allowances of the population. The downside of such policies is that it could aggravate the decrease in demand even further, and it could also slow down the diversification plan efforts of the country because there would be less money available for the different projects and the priority would be given to the health sector. Regarding oil importers, the decrease in oil prices will help them to save and reduce their import invoices, but at the same time, they will also lose an important part of their tourism revenues. For instance in Egypt, they rely heavily on tourism, and this source is basically gone with the COVID-19. The situation in Arab countries is one of the most dangerous right now because it will become the first epicenter of the epidemic very soon, after China and Europe. They desperately need rich countries and international community collaboration to help them in many aspects, including humanitarian help and social economy.
Can the crisis modify the world economic structure?
Obviously. It’s hard to speculate but a crisis of this nature will have an impact on the global order. Within the global financial system, the deglobalization started years ago even before the election of Donald Trump. He was only an aspect of the trend. When you look at history, what happens in the time of crisis is that it emphasizes the trend which was already taking place before it occurs. In that sense, the crisis could accelerate the deglobalization movement, but at the same time, I don’t expect anytime soon to see a world where all the countries would become protectionist and close their borders because no country can’t simply produce all the goods and services it needs. The global supply chains are now vulnerable, so what we could see is the start of a more robust and regional supply chain. I personally expect more regional cooperation, if international cooperation is not possible. The European Rescue Fund presented recently by the European Union is one example for instance.
Lebanon is already suffering from a liquidity crisis since the revolution. Has the epidemic worsened the situation?
If you look at the immediate impact you would think that it can make the situation worse and it could be true to some extent. People have to stay at home, restaurants, bars, and shops have been completely shut down. However, the oil crisis consequences of the pandemic helped Lebanon to save some very important funds and the possibility of getting foreign aid, like emergency relief from international organizations. Lebanon was already in a major crisis before the revolution, and it wasn’t because of a recession only. The Central Bank, the banking system, the National security… all of those big institution’s systems are bankrupt. The COVID-19 just brought some time to the government. The confinement put people back out of the streets and back to their houses. The problem is very structural and no matter what happens now, and which plan is set up, the roots of the issue are still there. The biggest threat to the crisis would be a mass emigration, which has always been the solution for Lebanon since the 19th century. But what makes me particularly optimistic is that emigration at least for the near future is impossible because of the COVID and the loss it cost all over the world, including Africa and The Gulf countries, where the Lebanese used to go for work. We will end up with thousands of young Lebanese stuck in the country, without any job and no significant opportunity to work abroad because the job market is bad everywhere and it will be complicated for them to get a visa. So two choices will remain: either you stay and you give up or you decide to stay and change things where you are. And I am leaning towards the second option.