Mitigating the impact of Covid-19: Risks facing GCC economies and measures required to innovate out of the shock

Recent events that have transpired due to the Coronavirus (Covid-19) outbreak have been unprecedented - governments have closed their borders, companies have halted production, consumers are restricted in terms of how many purchases they can make. The unpredictable nature of the disease has resulted in many questions, with more difficult times inevitably ahead.
Yet, despite the current uncertainties, there are encouraging signs that the emergence has begun - human vaccination trials are underway, business activities in China are recovering, the daily number of fatalities in Italy is decreasing.
However, there will undoubtedly be obstacles on the road toward recovery, with countries across all continents likely to witness economic recessions. This includes the GCC region, with the IMF's World Economic Outlook predicting a -3 per cent growth in GDP in 2020 - down by more than five percentage points (5.3 per cent) from the projection made in October 2019. When compared to the -2 per cent growth during the 2008/09 global financial crisis, this implies an outcome far worse than what occurred little over a decade ago.
BCG's article "Understanding the Economic Shock of Coronavirus" examines two supply-side economic threats as a recession looms. With the pandemic simultaneously raising liquidity and capital risks in both the financial system and real economy, it is essential to understand the two potential paths that might deliver structural damage in light of ongoing events:
Financial system risks - the outbreak has inflicted stress on capital markets and ushered a robust response from central banks. If liquidity problems continue and real economic issues result in write-downs, capital problems may arise, which could, in turn, lead to capital formation taking a substantial hit that drives a prolonged slump in which labor and productivity are not spared.
Extended real economy 'freeze' - social distancing over a prolonged period could disrupt capital formation, labor participation, and productivity growth. Unlike financial crises, an extended freeze on this scale and subsequent damage to the supply side would be new territory for policymakers.
Already, we have seen governments announce economic stimulus packages to address the real economy, financial system, or both. Just as the size of support packages vary significantly globally, package sizes of GCC countries vary from one per cent to 30 per cent of their GDP. Some are focusing on more monetary support such as debt deferral or lower interest rates, while others are focusing more on the fiscal side in terms of suspending taxes and seeking help from national development funds.
But more must be done, and GCC countries need to innovate out of the shock. They must assess the effectiveness of these packages periodically and adjust the strategy for deployment. At the same time, they need to address numerous questions - are the package sizes sufficient? Are these the correct measures? Have they reached the right audience?
To prioritize, as healthcare sectors are coming under mounting pressure, countries should redefine related practices. While vaccines are being developed, next-generation innovations are required throughout the medical industry. Hotels have already been repurposed to quarantine facilities and exhibition halls to field hospitals to boost medical resources. The effectiveness of different treatments are being experimented, and this should continue before vaccines are introduced.
Advancing digital services should also be a priority, and social distancing introduces opportunities for digital products and services such as e-commerce, home entertainment, and video conferencing. Moreover, the need for timely evidence-based decision-making calls for the development of smart government is also apparent. One of the most prominent examples during the outbreak, the Coronavirus contact tracing app, is being piloted in UAE together with other technologies which provides an opportunity to pursue smart government development.
Localizing vital industries would also be prudent, as would ensuring local supplies of essential goods and services due to global supply chain disruption. Innovative solutions are needed to localize industries such as food, pharmaceuticals, energy, and utilities - with recent examples of increasing the production of preventative products in GCC countries and investment received by UAE-based agri-tech firm Pure Harvest mirroring early progress. More innovations are urgently needed to emerge from the current difficulties more robust than ever before.
Reflecting on past crises, positive change has occurred as a result - the second World War led women to the workforce, the SARS outbreak opened the door for e-commerce, the 2008/09 financial crisis resulted in stricter banking regulations. In time, the world will recover from Covid-19, with behavioral and societal shifts set to shape the future led by innovation.
- Rami Rafih is the managing director and partner at Boston Consulting Group. Views expressed are his own and do not support the newspaper's policy.