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We can Fix our ‘Imperfect Markets’ with Sustainable Liquidity Action

The impact of an abrupt end to vast borrowing is considerable, but with it come opportunities to build inclusive economies by ‘fixing’ the world’s imperfect markets.

Colleagues discussing business while standing outside a building with middle eastern business man

27/08/2021

Emerging from the fiscal stimulus of COVID-19, a volatile shakeout awaits the global business landscape. The impact of an abrupt end to vast borrowing is considerable, but with it come opportunities to build inclusive economies by ‘fixing’ the world’s imperfect markets. These are laid out in the Global Risk Report from the World Economic Forum in partnership with Marsh McLennan.

The report points to the enormously democratizing power of the much-vaunted and COVID-expedited digital transformation – giving rise to new business ecosystems, creative capital, leveling up opportunities, and closing digital divides in developing markets. Examples include platforms like ShEquity, which is widening access to alternative sources of capital for women-led enterprises in Africa by directing Venture Capitalists (VC) and investor capital towards sustainable, de-risked deals.

To thrive and grow, micro, small and medium sized enterprises (MSMEs) must turn to new funding alternatives to source capital. The good news is that the world economy remains in a protracted period of hyper-low interest rates. Borrowing is cheap for the time being – and low rates push investors and VCs to look for alternative avenues for capital returns. One such route is the fast-emerging sector of sustainable investment.

Green thinking

Climate experts have identified an opportunity for policymakers to consider what can be achieved if only a tiny fraction of those vast COVID-19 fiscal stimulus packages was invested annually in a ‘climate-positive’ recovery. The rationale is simple: if trillions could be found for COVID, why not for the climate emergency? How much could MEA countries set aside? What are the growth opportunities for regional businesses better able to embrace a more resilient and sustainable approach?

The numbers suggest that there could be room for a strategic pivot towards green investment. The UAE’s stimulus package totaled $107 billion as of February 2021 (and counting), whilst as early as April 2020, Saudi Arabia earmarked $31.9 billion for a pandemic stimulus package. A fraction of this could go a long way to stimulating private sector green innovation. It’s a sector that also boosts diversification – a critical dynamic in an age of oil price volatility. On 31st March 2021, Saudi Arabia announced plans to pump investments worth $3.2 trillion into the national economy by 2030.

But those strategies have to secure a reasonable return on investment – which is why government financial institutions that are pumping billions of dollars into GCC economies should utilize the digital transformation to get their monies’ worth. Procurement and digital enterprise platforms can ensure that government financial institutions get value for money and that economic development is more inclusive – with metrics across multiple areas of importance like the transference of skills and best practice.

Multistakeholder capitalism

A focus on skills is especially important: more than ever, agile economies need nimble workforces.  Physical space and organizational design must adapt to hybrid working as employees’ transition into new roles and navigate the opportunities of automation and digitalization — without reinforcing the systemic inequalities laid bare by COVID-19.

Of course, these are lofty goals and not easy to achieve. But many imperfections can be ironed out through a sharp, focused management of liquidity and an understanding of the long-term and highly sustainable nature of a greener, more inclusive economic model – one with conditional fiscal support mechanisms that force private companies to add value by boosting productivity and economic sustainability.

First published in Gulf Business July Edition : GULF BUSINESS JULY 2021 by Motivate Media Group - Issuu

The Global Risk Report, published by the World Economic Forum and Marsh highlights the disruptive implications of major risks, including the COVID-19 pandemic, that may reshape our world over the next decade. The full report is available to download free here: https://bit.ly/2Sunsui