World Economic Forum's warning on perils in region

Each year since 1979, the World Economic Forum’s Global Competitiveness Report has produced a snapshot of the health of the global economy and a comparative ranking of 138 countries.

The report’s authors assess the institutions, policies and factors that determine the level of competitiveness in an economy, which in turn sets the level of prosperity for that country.

For the UAE, the 2016 edition establishes its place as the most competitive country in the Middle East and North Africa, which is a significant achievement and a testimony to the skill of the country’s policymakers.

But the overall trend against which the UAE recorded this success is not encouraging. The report this year “comes out in the context of persistent low growth and a near-term outlook that is fraught with renewed uncertainty fuelled by continued geopolitical turmoil, financial market fragility and sustained high debt levels in emerging markets”, according to the authors.

“Despite unorthodox monetary policy, global GDP growth has fallen from levels of 4.4 per cent in 2010 to 2.5 per cent last year. This fall in growth reflects not only the productivity slowdown documented in last year’s report, which has continued this year, but also what now seems like a long-term downward trend in investment rates,” they say.

In other words, the recovery from the financial crisis and subsequent recession experienced six years ago has fizzled out, despite continued government-led stimulus in most major economies.

Moreover, it is by no means clear where a long-term recovery will come from. Challenges abound virtually everywhere, including slowing productivity, rising income inequality, ageing societies, protectionism and a decline in world trade associated with the end of globalisation.

In the Middle East, all these problems are present in acute form, and are exacerbated by the decline in commodity prices (notably oil) that has hit the region hard in the past two years. The report draws a clear link between the end of the financial crisis, the government economic intervention, dollar appreciation and the eventual end of the commodities supercycle.

The assumed cure for lack of competitiveness in regional economies is diversification, but the conditions necessary for successful economic diversification away from energy dependence become more difficult to attain when government budgets are under pressure.

Currency depreciation alone will not speed diversification, the report says. Increasing productivity and new growth sectors are needed to force through structural economic change.

The WEF’s great hypothesis for the eventual economic recovery of the world is that the results of the Fourth Industrial Revolution – the global transformation that it says will come about through the convergence of digital, physical and biological technologies – will provide new avenues for growth and development. It is against this background that the UAE’s “smart city” strategies and advanced infrastructure should be seen.

With luck and policy skill, that should keep the country ahead of the pack, in a very uncertain region, in what WEF sees as an increasingly fragile world.

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