Countries face major challenges this year as the specter of a new cold war threatens to fragment the world into competing economic blocs. The issues range from the global economic slowdown and climate change to the cost-of-living crisis and rising debt levels. There is no easy and quick way to overcome all these challenges, which when added to the geopolitical tensions, have made addressing global issues more difficult.
Climate change was a major focus of discussions at the World Economic Forum held in Davos, Switzerland under the theme “Cooperation in a Fragmented World.” A significant portion of the annual meeting’s sessions were dedicated to climate change, highlighting the growing importance of this dilemma and its centrality in the agendas of international forums and conferences.
The mood at Davos shifted from anxious at the start to cautious optimism by the end, with a more positive outlook for the global economy in 2024 than initially feared.
The head of the International Monetary Fund, Kristalina Georgieva, offered a “glimmer of hope” by announcing that the days of downgraded global growth forecasts by the IMF may be coming to an end. The Fund was forced to cut its global growth forecast multiple times in October 2022 due to the acceleration of negative events and their repercussions on global economies.
ECB President Christine Lagarde offered good news for the eurozone, which had been worried that the winter would be precarious amid the energy crisis. Moderate weather conditions in Europe helped ease energy supply disruptions and curb rising energy prices, leading Lagarde to predict from Davos that 2023 would be “much better” 2023 than many had feared.
Davos took place without Russian participation as a result of the country’s actions in Ukraine and was marked by a strong presence from the Gulf region.
Maroun Kairouz, head of the Middle East and North Africa Division at the World Economic Forum, spoke to Economy Middle East about the significance of the Gulf’s presence at Davos.
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The world’s attention has once again been directed toward the Middle East and the Gulf in particular due to current global circumstances, after a period of distancing from the region by first world countries. This shift in focus came about due to the region’s significance in the energy sector, which emerged after the conflict in Ukraine.
The importance of the Middle East in addressing global climate change was emphasized through two consecutive summits on the subject, hosted by two Arab countries. The first was held in Egypt last November as part of COP 27, and the next will be organized in November for COP 28. This highlights the region’s crucial role in global efforts to tackle climate change. The following is a transcript of the interview with Kairouz.
Do you believe that, post this forum, the world will witness progress in combating climate change?
The theme of the Annual Meeting of the World Economic Forum this year was “Cooperation in a Fragmented World,” which reflects the current state of the world marked by increased polarization among the major powers. especially after the war in Ukraine began.
However, the World Economic Forum believes that there are “oases” within which cooperation and coordination remain possible, as everyone has an interest in addressing common challenges such as inflation and the ensuing decline in purchasing power, climate change, food security, energy stability, sustainable production chains, avoiding a global economic crisis, and addressing the repercussions of the Coronavirus pandemic on healthcare systems. These were the topics that garnered the most attention at the our Meeting.
The UAE is expected to play a significant role in the fight against climate change as the host of the COP28 climate summit. The UAE and the Middle East region are directly involved in addressing this great challenge facing humanity, as this region is heavily impacted by rising temperatures, which are expected to be twice as high as the global average.
That is, if temperatures rise by 2 degrees globally, the rise will be more than 4 degrees in the Middle East. Climate change could also have a more significant impact on the region’s economy than wars or financial crises, as it could lead to a 14 percent decrease in the region’s GDP due to water scarcity.
The World Economic Forum has signed a collaboration agreement with the UAE to support its efforts on COP 28 by facilitating private sector participation in assuming its responsibility toward future generations. Just as we say that the private sector must be the main engine of economic growth and job creation, it must also be at the forefront of addressing the negative effects of this growth.
For example, the emissions of the top 20 companies in the region were found to be equivalent to those of Canada, highlighting the importance of private sector responsibility toward future generations. Due to its diplomatic experience, strategic location, embrace of innovation, and expertise in renewable and conventional energy, the UAE has the potential to play a crucial role in this area by acting as a connector between Western and Middle Eastern countries, as well as between developed and developing countries.
Are you optimistic about the global economy? In your opinion, what are the reasons for post-Davos optimism?
The optimism surrounding the global economy is contingent on the maintenance of its current positive trajectory and the ability to mitigate potential risks that may impede growth.
Among these risks, we can draw attention to the outcomes of the war in Ukraine and its impact on the energy and food sectors in particular, the direction of economic growth in China and the speed of its recovery from the recent COVID wave.
There is also the growing internal divisions in a number of large countries such as the United States, Britain, France, and Brazil, for example, and the resulting paralysis in policymaking, as well as the course of disagreement between the United States and Europe against the background of the U.S. “Inflation Reduction Act” and the escalation of protectionism in general.
The public debt crisis in developing countries is a matter that cannot be overlooked and its potential impact on sustainability due to the US Federal Reserve’s interest rate hike policy is a concern. All of these issues could topple the current positive trend if not contained.
Despite the challenges posed by the public debt crisis, there is reason to be optimistic. The pandemic has taught us that governments have the capability to provide protection to vulnerable groups that may be impacted by any deterioration in their economic situation and that international cooperation is crucial in ensuring their economic well-being.
However, these policies must be deliberate and focus on supporting citizens and not on subsidizing goods or using protectionist means that lead to a decline in international trade and threaten global production supply chains.
What does this year’s remarkable Gulf presence at the World Economic Forum indicate? What are some key points of the vision put forward by Gulf countries about the future of the global economy?
Following a period of time when great powers sought to distance themselves from the region, current global circumstances have redirected the world’s attention to the Middle East, and the Gulf in particular. This region’s primary role in the energy sector first emerged soon after the war in Ukraine broke out.
The importance of the Middle East in addressing global climate change was emphasized through two consecutive summits on the subject, hosted by two Arab countries. The first was held in Egypt last November as part of COP 27, and the next will be organized in November for COP 28. This highlights the region’s crucial role in global efforts to tackle climate change.
Last year, the Gulf countries experienced some of the most impressive economic growth rates, largely due to their “patient” use of capital and long-term perspective. This approach was further reinforced by the crucial role played by their sovereign wealth funds in ensuring liquidity in global markets during the 2008-2009 financial crisis.
In addition, in the cultural field, the Dubai Expo and the World Cup in Qatar were milestones that attracted the attention of the entire world.
Finally, politically speaking, we are observing renewed interest from the great powers to build strategic partnerships with and in the region. This interest is illustrated by U.S. President Joe Biden’s visit to Saudi Arabia, the Arab-Chinese summit, and the European Union’s announcement of a strategic partnership with the Gulf.
For all these reasons, it was natural to see Gulf countries at the center of Davos’ deliberations on all these issues, when influential government delegations participated in addition to engaging nearly 60 of the region’s largest companies.
There is no doubt that Gulf states play a pivotal role in the transition to clean energy. Do you think what they are doing is enough? What is lacking?
The shift towards environmental sustainability through the adoption of clean energy must consider both the stability and affordability of energy sources. The fact that 2022 saw an increase in the number of individuals disconnected from the electricity grid serves as a reminder that the transition to clean energy should not hinder economic growth, particularly in developing nations.
Gulf states are making a significant impact in ensuring this transition. They have the most cost-efficient and environmentally friendly methods of production globally. Companies such as ADNOC and Aramco boast the lowest emissions per barrel of oil, while Qatar has a strong presence in the global gas markets, with gas expected to play a crucial role in energy production as it is considered the cleanest hydrocarbon source.
Gulf countries hold a unique advantage in the clean energy sector, with key components that position them as leaders in the industry. Companies like Masdar and Aqua Power are among the most competitive in the sector, and the region’s geographical location offers the lowest cost for solar energy production. Furthermore, these countries boast significant financial resources and a long-term perspective that facilitates investments. With a history of successful partnerships with international firms, a highly developed infrastructure, and strong alliances with energy-consuming countries in Europe and East Asia, the Gulf region is well-equipped to continue leading the way in clean energy innovation.
Although the steps taken by Gulf states are heading in the right direction, the magnitude of the impact of climate change on the region requires additional steps.
These include accelerating investment in renewable energy sources, thereby freeing up more oil and gas for export, fostering interconnectivity of electricity networks between regional countries, and adopting a cooperative approach toward technological development. Additionally, it is crucial to shift away from policies of subsidizing pollutants and providing direct subsidies to citizens, as some countries have already initiated. Furthermore, it is essential to establish cooperation and coordination in the realm of alternative energy at the regional level, specifically regarding clean hydrogen.
Sultan Al Olama, UAE Minister of State for Artificial Intelligence
Gulf countries are moving toward diversifying their economies in a robust manner. Do you consider those efforts to be sufficient?
Indeed, the economic performance of Gulf states today is a result of the economic strategies and reforms they have implemented over time. The UAE was the first to diversify its economy and over a span of 29 years succeeded in reducing its dependence on oil and gas from 90 percent to 30 percent of its GDP.
To enhance these efforts, it is important to further institutionalize regional economic integration as currently only 18 percent of Arab countries engage in trade among themselves compared to the 35 percent among Southeast Asian countries, for example. Additionally, it is crucial to balance the agility in decision-making with providing a state of certainty regarding stability in economic policies to support the private sector’s investment needs.
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