Economic Research Forum (ERF)

The year ahead: a view from the Nile

In 2023, what lies ahead for Egypt, the Middle East and North Africa, and the wider world? This column, first published by The NileView, suggests that this year is likely to be a blend of volatility, uncertainty, complexity and ambiguity.

In a nutshell

The MENA region will experience wide discrepancies and mixed fortunes with varying growth prospects – especially in the Gulf countries, due to the growing global demand for oil and gas.

Key issues to watch include accelerating digital transformation, investing in human capital, growing the entrepreneurial ecosystem, diversifying the economies, leveraging cross-border trade and investments and gradually transitioning to greener economies.

In Egypt, the government is expected to make some timely decisions, including transforming its role in the economy into an enabler, regulator and supporter, expediting structural reform and making the economy more competitive.

In 2023, there is a long list of global challenges, each with economic, political and social implications. It includes the war against Ukraine, economic slowdown, high inflation, an energy crisis, climate catastrophe, political instability, widening economic inequity, geopolitical uncertainty and the aftermath of the pandemic. Therefore, this year will probably be a blend of volatility, uncertainty, complexity and ambiguity.

Economically, 2023 is not going to be a particularly easy year. It will be slow with a recession and rising inflation already on the cards, furthering the pressure on governments, businesses and individuals – with variations from one region to the other and one country to the other.

According to the International Monetary Fund, economic growth globally is expected to range between 1.5% and 3%. But where will interest rates go? Will they keep climbing? I would say probably yes, well into the year, and it is important not to change course prematurely. So, the world will not be roaring back smoothly this year – hopefully, there will be a gradual improvement in the last quarter or maybe early in 2024. The question is, where will 2023 leave the middle class around the world?

Technologically, economies worldwide will witness a continued acceleration of digitalisation coupled with a gradual growth of a tech-enabled environment. Innovative technologies have the prospect of constantly creating smarter solutions to global challenges.

But one thing to keep in mind is the repercussions of widening the existing divides between and within societies – and not just the digital divide. This entails ensuring nationwide affordable access to high-speed connectivity, including 5G rollout, technology platforms, digital services and the opportunity to acquire the knowledge and skills to adopt them. Therefore, organisations of all types are compelled to cope with the acceleration in digitalisation or risk being left behind.

The fourth industrial revolution innovations – such as artificial intelligence (AI), machine language (ML), data analytics (DA) and the internet of things (IoT) – will fast improve and become increasingly invaluable for businesses, industries and societies alike. Innovations like AI will help firms better understand market needs and develop new products and services. The objectives include improving their bottom line and carrying out their core competencies in a more inclusive, sustainable and efficient way while optimising and streamlining operations to become more competitive, agile and resilient.

The future will revolve around people’s experiences and how they will cope with the fast-changing environment. In recent years, we have seen just glimpses of what AI can offer; much more is yet to come in almost everything we do, including health, work, education and commerce – and customer-centricity will be at the core of all this. But despite all the talk about digitalisation, I firmly believe that the world will be overwhelmingly analogue in 2023 and for the foreseeable future.

Is the Metaverse real? Does it reflect the NextGen online experience in a more elaborate and advanced way? Will it lead to another transformation in the way we do things?

This emerging fusion of real and virtual reality will offer people new experiences not just in gaming and entertainment but also in other walks of life. It is an innovation that is one step ahead of virtual and augmented reality, bringing together human capital’s diverse capacities with innovative technologies to address pressing social challenges. it will also create new ones, given the existing divides worldwide. It will help introduce a fascinating and innovative human-centric experience in an ecosystem free of time, space, and physics. It is a different way of life that is intrinsically tech-enabled with full-fledged interactivity and more sophisticated and powerful wearables.

AI is a transformative innovation with ample opportunities for different stakeholders in society. Its degree of deployment will vary from one country to the other based on the availability and readiness of the required digital infrastructure, regulations, policies, and other supportive environments.

For example, ChatGPT is a fast-emerging AI disrupter that promises to affect many professions. Stay tuned for more AI-enabled transformative breakthroughs. The literature on artificial intelligence is rich and insightful, but I recommend the recently published book All in on AI by Thomas Davenport and Nitin Mittal.

In 2023, organisations will continue their rightsizing journey in light of the economic conditions coupled with the acceleration of digital transformation, including the leading IT companies in the world. They will focus on trimming expenses and maximising efficiency while realising productivity gains.

Some tech giants – such as Google’s parent company Alphabet, Twitter, Amazon, Microsoft and Salesforce – have already announced massive layoffs of around 10,000 staff each as a reaction to growing concerns of a broader global economic slowdown and uncertainty. This clearly demonstrates that, on the one hand, even the high-tech industry – which has been steadily growing for decades, massively recruiting during the pandemic and penetrating just about every business and profession – has not been immune from the slowing global economy.

On the other hand, one crucial question that has already emerged as a consequence of the pandemic – for tech giants such as Apple, which spent billions of dollars in advanced supply chains in China – what would be their next move in terms of diversification? What options do they have? Will governments and global firms reconfigure their supply and value chains to address the bottlenecks – including the global semiconductors shortage? They should, but how and will that affect their productivity and profitability?

Cybersecurity will not be an issue for techies only but for everyone. But finding the right talent with the required skill set to operate in an increasingly growing tech-enabled environment is one of the critical challenges, mainly when recruiting and retaining IT, data and cybersecurity professionals.

On this note, watch out; you cannot be too careful; many creative hackers are out there, and once you are connected, you are exposed. Therefore, as we see a surge in digital transformation, I expect the laws, rules, regulations and governance around data protection, privacy and security to become more stringent. Besides, passwords will be gradually replaced by passkeys using a secure token stored on phones or laptops accessed by a fingerprint or facial recognition for logins to boost security. Such technology has been around for some time but will spread faster in 2023 – all contributing to building digital trust.

As for social media, where will the major players go from here? What will happen to Twitter? It has been messy recently, but I believe the company will survive. An outcome I do not think will be matched by the cryptocurrency business prospects. Accordingly, those who are adamant fans and have invested heavily in 2022 might risk losing more in 2023.

In mobility, eSIMs, with digital codes, will spread, but the physical SIMs, as we know them, will not go away, not this year. As for data, how will it be kept and shared? The answer is the acceleration of private, public or hybrid cloud adoption, allowing flexibility based on need and offering better optimisation of resources. The future does not belong to private data centres.

For climate, I do not see much change in 2023, at least not a significant breakthrough. According to what we heard during COP27, most firms’ current targets are not ambitious enough, and time is running out if the world wants to meet the Paris Agreement goal of limiting global warming to 1.5C – an objective that is far-fetched given that we have already reached 1.1C. Projections indicate that the threshold of 1.5C could be achieved by 2026.

So, where will the pledges made in COP27 take our planet? What will the impact of the newly created Loss and Damage Fund be? How will governments and firms take that forward in the build-up to COP28?

While addressing the issue of climate, how will cities deal with heat waves? We have seen what Qatar did to host the World Cup, offering cooling technologies for the stadiums giving us a preview of how future stadiums will look and feel. For cities, how will the buildings of the future be designed? How about the acceleration of cool roofs? Would pavement structure be changed to allow for cooling spaces, as is already the case in some locations?

The climate conversation will undoubtedly shape policies and actions this year and throughout the coming decade. But with an expected economic slowdown in 2023, firms will be cautious in their spending. I hope they do not consider climate-related decisions insignificant and that their actions on the ground will be at the same level of enthusiasm as the conversations and pledges in high-profile conferences.

Climate change and sustainability represent two of the biggest challenges humanity has ever faced. Is this an exaggeration? The next decade will demonstrate their magnitude and impact. For sustainability, with current energy prices, investing in green technologies and industries, renewables, energy efficiency, carbon reduction and recycling efforts will continue to grow, but would that be enough? What more needs to be done? What needs to be done differently? Can boosting innovation in GreenTech stimulate growth in new markets?

In geopolitics, what forces and dynamics will likely determine the world’s direction in the next decade? Since the pandemic hit, the landscape has been changing, and countries worldwide have been revisiting their foreign policy directions and pursuing their interests while opting to have different choices. Accordingly, the world has recently seen some significant shifts, and 2023 will not be an exception – irrespective of the opportunities created and the challenges faced. Is this the beginning of multilateral world order?

Energy will be a significant component of geopolitics, not just a carbon concern. Chip-making is undoubtedly in the mix as well. Besides, this year will be massive for India, surpassing China and becoming the world’s most-populous nation – if this has not happened already, with the population in China declining for the first time since the 1960s. China has followed a trajectory often similar to developing nations in that as their economic growth improves and incomes rise, the quality of life improves, the level of education increases, people are healthier and live longer, and fertility rates fall.

Is this the start of a demographic crisis in China? Is this trend reversible? Is this the beginning of the end for China as the home of a massive young, vibrant and growing population? Is this an overstatement? How will this affect China’s future economic growth and that of the world? In the short term, and despite the zero-Covid policy, I believe China will turn things around and might restore its economic growth to 5%.

We will have to wait and see how geopolitics evolve in the coming years, but we should get a sense of the changing dynamics soon with the United States and the European Union as major players in addition to the fast-growing economies in Asia well positioned to play a part. The critical question is, what will that bring to the world, and what will be the implications and understanding of the new look of globalisation?

In 2023, India will chair the G-20, offering multiple opportunities, most importantly, to broker an end to the war against Ukraine and help to stop the suffering of many societies worldwide affected by the increase in energy prices, food crises and rising inflation. Is this also an opportunity to leverage India’s demographic dividend? Could this incredibly growing human capital asset become a platform to create more jobs, transform the economy and sustain its growth?

What is next for the future of work? The emergence of fusion models will mean mobility in a true sense and moving from office-centric to working from anywhere, not just at home. The future of work will be about more than just where the office resides. It will be more about solving the productivity paradox of different fusion models and for each industry, let alone firm, what would be the best model?

The term fusion or hybrid will continue to evolve and spread, reflecting a journey that will further humanise the workplace experience, including how to foster mental health, happiness, wellbeing, engagement and development. Moreover, future generations across different societies will look for job opportunities where environmental, social and governance issues are well addressed and integrated into the corporate DNA and culture – and not just mentioned in firms’ documentation pour la forme.

I have always firmly believed that people are society’s most important asset. Accordingly, in 2023 and moving forward, keeping talented people with suitable capacities and skills within any organisation will be a growing challenge. That situation is here to stay, representing a concern to most industries and economic sectors in today’s time and age. Corporate culture and values will increasingly be among the most significant motivating factors to attract, recruit and retain talent, furthering the need for lifelong learning and expanding the opportunities for micro-credentials.

The future of work will keep transforming with no perfect model in sight – at least for now. What is undoubtedly shaping up is that the future will be associated with a flexible work environment. This conclusion came as a result of several studies where the hybrid work model has not demonstrated any loss of performance but an increase in productivity and motivation.

It is worth noting that these results are industry and business dependent. Moreover, for productivity paranoia, some of the questions raised include: do executives and subordinates see eye to eye? What is the firms’ confidence level that efficiency and effectiveness improve when comparing working from the office to using a fusion-hybrid model?

In addition, the future of work and the emergence of various models in the years to come because of digitalisation will affect the proximity of where people live compared to where they work. How will the working week be redesigned? Is the three-day week almost there?

For decades, the world has seen an unprecedented level of urbanisation. Are we about to see a U-turn in that department and witness more de-urbanisation? We have already seen some early signs, but it may be conditional to offices becoming more creative and public transport adapting to changing needs. How will this affect real estate prices? It is like a value chain with multiple implications across different sectors, including climate. Undoubtedly, the effect will differ from one country to the other; but we have also learned from previous experiences that as much as societies have differences, they also have similarities.

For the Middle East and North Africa, the region will experience wide discrepancies and mixed fortunes with varying growth prospects – especially in the Gulf countries, due to the growing global demand for oil and gas. The key issues to watch include accelerating digital transformation, investing in human capital, growing the entrepreneurial ecosystem, diversifying the economies, leveraging cross-border trade and investments and gradually transitioning to greener economies.

For Egypt, following an unsustainable economic position in 2022, things need to change this year. Today, the US dollar is valued at 30.08 Egyptian pounds – it was 15.74 on the same day last year, losing 50% of its value in one year—but is it still overvalued? Does the current value reflect a complete float?

The overall economic indicators have put more pressure on society. Therefore, in 2023, the government is expected to make some timely decisions, including transforming its role in the economy into an enabler, regulator and supporter; expediting structural reform, making the economy more inviting and competitive; rationalising public spending, transforming export revenues, reducing the national debt, and addressing rocketing inflation.

Is it an exhaustive list? Yes, but doable and it could be a game-changer for a large and growing society with limited purchasing power yet enormous potential that is mostly untapped. The government is already discussing these issues; it is time to take actions supported by sound economic policies and an empowered private sector that will act as a catalyst for foreign direct investments as well as create a wide range of economic opportunities.

Finally, the long wait is almost over, and this year, Egypt will officially open the Grand Egyptian Museum next to the Great Pyramids of Giza. It will be the largest museum in the world dedicated to one civilisation, with a collection of more than 100 thousand artefacts. The museum complex is built on around 117 acres at a cost exceeding $1 billion – a unique addition to a country uniquely rich in cultural heritage spanning centuries of civilisations.

This column is a lightly edited version of a 31 January post at The NileView, the Substack newsletter of Sherif Kamel.

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