It would not be too far from the truth to say that China is not all that it says it is. Many of its military and diplomatic actions have gone against norms and messages propagated by its own government. Retracting its own statements and even concealing the truth comes naturally to a government that maintains a monopoly over all information in circulation within the country as well as that which leaves it. Recent statements from the Chinese government have painted a colorful picture for the coming months, with it soon to “regain the economic growth it lost” and maintain its internal strength. How much truth can actually be accorded to such a statement though? Is China’s economy truly in a good shape or is such a statement to be seen as a mere façade, shadowing a highly unstable country?
If recent trends emanating from the country were to be analyzed, one could indeed point to the latter. At the beginning of the year, China’s economic growth had already begun a steady decline, falling to its lowest in 27 years, a mere 6 percent in the 3rd quarter of 2019. Predictions during the time, from both within and outside, projected the growth rate to fall further, with an economist at the Chinese Academy of Social Sciences predicting a drop below the annualized 5 percent. Additionally, reports questioning the accuracy of the data released by China have also emerged. China’s national accounts are based on data collected by local governments who are rewarded for meeting growth and investment targets. In this regard, it has become apparent through outside observation as well as internal admittance that many of China’s provinces have had an incentive to skew local statistics, some by nearly 20% a few years ago.
Such manipulation of data can have serious ramifications on the calculation of national data, especially since China’s GDP is based on input data rather than real performance. It is also to be noted that in addition to local governments manipulating data, there is a discrepancy between underlying economic activity and GDP figures, which has allowed the government to ignore bad investments and project only the figures it approves off. Based on such an understanding of the Chinese economy, reports from 2019 show that both GDP as well as GDP growth in China are far below official predictions and statements. It must also be understood that the Chinese government itself has always had an incentive to project greater growth during its developing years. Claiming higher growth rates and lying about recessions has allowed China to retain or even increase investment. With that being said, it has become increasingly evident that the statistics and figures released by China cannot be wholly relied upon.
While the above highlights the concealing factor behind China’s economy, it also points to the possibility that China’s economy is currently in a bad state. With the shuttering of businesses across the country, it is evident that the Covid-19 crisis dealt a devastating blow to China’s already floundering economy. Reports published by China’s National Bureau of Statistics in April showed that the country’s GDP had fallen by 6.8 percent, a contraction the likes of which, China has not seen since at least 1992. However, with lockdown measures now ending and policymakers stepping up stimulus to combat the massive economic shock, the country is now set to return to a modest growth rate according to its government. This may be true as China has begun on a path of recovery, however, its economy may have to face another looming crisis soon.
Over the past few months, it has become increasingly evident that not only is foreign investment fleeing the country but there is increasing unrest among local investors as well. China’s economic downturn which began with the trade war and culminated in the COVID-19 economic crisis has frightened investors across China. Since the beginning of the trade war with the US, many international companies have begun shuttering business and departing from the country. The pandemic has seen that number only increase over the past few months with potentially disastrous economic outcomes. Additionally, fears within China have surfaced as well, with many attempting to send their capital abroad. The recent political turmoil now plaguing Hong Kong is also reviving fears over massive capital outflows from the country. China’s new national security bill and the retaliation promised by the US and others has stoked significant concerns. The first instance of this is seen in the immediate aftermath of China’s announcement of the Bill on May 22 when Hong Kong’s benchmark for local stocks plunged by 6.9%. Essentially, with tensions rising, further turmoil and capital flight may soon be in the cards.
Only time will tell whether the government will be able to reduce the possibly disastrous consequences of such capital flight or even reverse the same. In 2015, when similar fears of capital flight occurred, it spurred the country to spend nearly US$1 trillion of its reserves. However, with the current economic downturn in China, it would be highly unlikely that the Chinese government will be able to muster the funds needed in countering such consequences. The Chinese government has seemingly taken cognizance of this fact though and has therefore introduced measures aimed at ensuring Chinese investment and capital remains within China. Not only has China already put a cap on the amount of money allowed to leave the country but also cracked down severely on its underground banking system. Additionally, the government has been attempting to woo the fleeing investors back with promises of economic stability and recovery. China’s current projection of post-pandemic recovery and growth must therefore be viewed through a critical lens, and seen as merely a tool through which it attempts to influence and reassure investors.
On the government’s attempts at ensuring investment though, it has not merely acted in the field of rhetoric and promises though. Since the beginning of last year, the Chinese government has put a cap on the maximum amount allowed for withdrawal from its economy. According to new rules, individuals will only be allowed to withdraw a maximum of the equivalent of around $15,000 and carry transactions up to only $50,000 abroad in a year. Any Chinese citizen found to be withdrawing in excess of that amount will be barred from making any withdrawals for two consecutive years. Additionally, any Chinese citizen leaving China with an excess of RMB 20,000 in cash require a permit issued by the bank that provided the same. In enforcement, the State Administration of Foreign Exchange (SAFE) has already begun its crack down on capital flight. In November of last year, the agency fined Chinabank Payments $4.2 million for moving money overseas. In the following month, SAFE fined the Bank of China $6,000 for breaking a government rule and allowing a customer to withdraw over $50,000 in cash according to reports. One can be sure that the situation in China is indeed serious, when its government has become overly concerned over a mere $15,000 being withdrawn from the economy.
This concern has also been extended to the new surge in China’s underground banking system. China, in its efforts to counter threats to its economy, has begun a serious crack down on all capital outflows, whether legal or illegal. The Supreme People’s Court recently introduced stiff penalties for any and all illegal currency exchanges. According to new rulings, the government will introduce jail terms of five years or more for those operating ‘underground banks’, which currently facilitate illegal foreign exchange and cross border trading. Through this process, the Chinese government has effectively sought to stop tens of thousands of Chinese from funneling millions out of the country through these services. Since the government has put a cap on the amount of money being withdrawn from the country, people have sought other mechanisms through which they can transfer funds overseas, either for the purpose of investing in property or making other significant foreign exchanges.
The requirement for such mechanisms has motivated the creation of an Informal Value Transfer System (IVTS) known as ‘Underground Banking’. The IVTS involves the transfer of funds to a bank account controlled by a Chinese IVTS provider who then transfers the same into an account of the remitter’s choice. This allows for the transfer of large amounts of funds out of the country without the knowledge of the Chinese government. The stiff penalties now being imposed on such transfers are once again indicative of the governments need to retain capital within its own economy. Any large capital outflow can result in a fall in exchange rates, negative spiral of declining confidence and finally, no buffer for government debt. For a country currently facing a debt to GDP ratio of nearly 300%, capital outflows could result in serious consequences for its economy, especially during a time when mechanisms like the IVTS has seemingly gone into overdrive.
The government is currently doing everything within its power to paint a picture of recovery, provide opportunities for investment and crack down on individuals attempting to evade its rules and directives. While the crackdown on capital outflows and underground banking is evident, there has also been significant actions taken on the digital currency front. Within China, there has been a surge in both the transaction as well as mining of Bitcoins over the past few years. Many experts have stated the need for three factors in ensuring effective cryptocurrency mining, i.e. low-cost electricity, colder weather and reliable internet. The availability of all these factors in China has facilitated massive incursions into the usage of cryptocurrencies, with reports showing between 35-37 variants of the same currently available in the country.
With the property market currently being viewed as inflated and the stock market as a scam, cryptocurrencies provide an alternative to Chinese citizens who wish to make investments that are not riddled with problems or subject to government scrutiny. Many middle- and upper-class Chinese have thus begun making investments and transactions through Bitcoins and other cryptocurrencies. With the government being unable to shutdown Bitcoin accounts or monitor transactions made through the same, this mechanism effectively allows individuals to subvert it. It is estimated that this medium alone has accounted for transactions ranging in billions of dollars over the past few years. With the Renminbi (RMB) essentially losing its transactional value, the number of people now adopting these mechanisms has seen a significant increase, putting the government on alert. However, the only action the government can undertake in this regard, is accelerate the launch of its own sovereign digital currency and hope its citizens will give up on Bitcoins and other cryptocurrencies (a highly unlikely prospect).
It is evident that the government in China may soon have an economic crisis on its hands, one which it may be unable to counter. Extremely high debt to GDP rates and possibly massive capital outflows has put the government in a precarious position. It has therefore sought to curb high debt and also put out reports that its digital currency would be a game changer for Asia, allowing for more RMB demand in the region. Undoubtedly these reports are another one of its propaganda activities, aimed at retaining investment. According to reports, China’s economy will face two major shocks, a pandemic stimulus and a post-pandemic economic fallout.
It must also be noted that China depends on the global economy for its own recovery and if this does not occur soon enough, its economy will have to face serious consequences. The reasons for this are manifold. Most importantly, China, the world’s largest exporter, relies on the United States, Japan, South Korea and others for its economic activity. Exports to the US, are currently facing a shortage of demand as well as disruptions across global supply chains. Additionally, China needs to ensure continued implementation of its Belt and Road Initiative in order to continue a majority of its overseas economic activity. Currently, from Europe to Asia, trade as well as infrastructural projects across the BRI, which accounts for around 17 percent of China’s exports, have been put on hold.
It has therefore become apparent that China’s economic growth is not all that it would seem. While it is the second largest economy in the world and has shown spectacular growth in the past, it would seem like China’s glory days are behind it. Forces that once drove China’s economic growth are now withering. China’s economy can no longer rely on a trade surplus or foreign investment to boost growth and will probably see increased capital outflows in the coming months. Additionally, China is now on the verge of a debt crisis and the massive foreign reserves it has repeatedly used as stimulus in the past have been slowly declining. In this context, it is imperative to question the narratives propagated by the Chinese government. If the Chinese economy is truly on the path of economic recovery, then why has there been an increase in the lack of confidence shared by its own civilians? And if such are the woes facing the country, is the future of its’s economy truly as promising as it’s government would have the world believe? One would think not.
Financial Bubbles in the Coronavirus Era
There is reason to believe that the coronavirus will not be going anywhere soon. What is more, IMF experts warn that problems that existed before the pandemic will only worsen in the coming decades. One of these problems is the state of the global financial market, which is more susceptible to all kinds of financial bubbles than ever before.
When we talk about financial bubbles, we usually mean a sharp increase in the value of assets in an economic climate that has either stagnated or started to deteriorate. A similar situation is currently unfolding on the American stock market, which is experiencing an extraordinary rise in the value of hi-tech companies against the background of a record drop in GDP (by over 30 per cent in the second quarter of 2020) and a projected budget deficit (−15.5 per cent). This rise has been caused by three factors: 1) a soft monetary policy as a result of the need to service the rapidly growing public and corporate debt; 2) the huge liquid resources at the disposal of legal entities and individuals that are frantically looking for ways to make a profitable investment in anticipation of the increased risks and systemic uncertainties brought about by COVID-19; and 3) the speculative excitement caused by the technologies of the fourth industrial revolution. In order for us to judge how likely the optimistic sentiments of the global financial markets are to change, let us consider the impact of these factors separately.
The Debt as it Stands
A key element of the “new abnormality” that has characterized both the development of the global economy as a whole and the U.S. economy, in particular, is the debt model of economic growth. Investment and business activity has stagnated as interest rates around the world are hovering around zero, while the U.S. dollar (a key reserve currency) stubbornly refuses to depreciate and has even strengthened its value on the forex markets on a number of occasions, despite the fact that the situation at home is worsening. For example, U.S. national debt increased by $4 trillion in the first nine months of 2020, from $22.7 to $26.7 trillion. This is the largest increase in U.S. national debt ever. A considerable amount of this debt is financed through the extraordinary growth of the U.S. stock market, which currently accounts for over half of the combined capitalization of the world’s stock markets. A correction on the stock market (caused by an increase in interest rates, for example) could trigger numerous defaults on debt obligations. According to Fitch Ratings, more defaults were announced in the first five months of 2020 than in the whole of 2019 and may reach record numbers by the end of the year (the current record holder is 2009). And more than half of all corporate defaults around the world have occurred in North America.
Let us recall that the value of financial assets dropped by $50 trillion during the 2008–2009 crisis. However, central banks and the fiscal authorities compensated for these losses by injecting roughly the same amount of liquidity into the market. But the newly created financial resources did not jolt consumer demand, as had been hoped. Rather, they were largely swallowed up by various segments of the global financial market. International portfolio investments alone more than doubled in 2008–2019 – by $35 trillion.
The history of capitalism is not short on examples where the state tried to solve debt problems at the expense of the market, leading to the creation of financial pyramids. In 1720, for example, two giant financial bubbles burst at almost the same time in Europe. In an effort to clear themselves of the massive debts they had accumulated during the War of the Spanish Succession, the governments of France and England encouraged the growth of cash in circulation. This money was pumped into equity securities of Mississippi Company in France and the South Sea Company in England, which were joint-stock companies created with backing from their respective governments. The companies promised their investors huge profits that would come from overseas territories. The proceeds from the sale of shares were used to buy back government debt instruments. The stock market bubbles that appeared in France and Great Britain were the result of the governments trying to rid themselves of their excessive debt burdens and to stimulate their respective economies through inflation and debt-equity swaps. In a way, the current excitement on the U.S. stock market is reminiscent of the situation three hundred years ago.
A New Digital Bubble?
As of late September 2020, the four largest companies in the world by market capitalization were American digital brands: the computer giants Apple and Microsoft and the internet companies Amazon and Alphabet (Google). The total market capitalization of these companies has more than doubled this year to over $6 trillion. “Pessimists” believe that the U.S. over-the-counter (OTC) market is currently experiencing another boom similar to the dot-com bubble that burst in 2000. Meanwhile, “optimists” point to the huge success of FAANG stocks, Facebook, Apple, Amazon, Netflix and Google, as justification for the current market explosion. Shares in these companies outperformed the market throughout the 2010s, and prices have soared against the background of the pandemic. They currently make up 23 per cent of the total capitalization of the U.S. S&P 500 Index.
The growth in the market value of these companies is directly related to the activities of private and institutional investors around the world, who invest their savings in banks and various investment funds with their highly developed infrastructure in order to receive guaranteed profits. A number of retail investors have given an additional impulse to the dynamics of the OTC market by purchasing shares in newly created companies in the digital economy that have connected to free trading platforms such as Robinhood.
At the same time, the “optimists” believe that the comparisons with the dot-com bubble of 2000 are not entirely appropriate. A number of arguments support this claim: 1) the ratio between the market value of shares and the total annual profit is lower – 26.9 in September 2020 versus 45.8 in March 2000; 2) companies in the digital economy turn in real profits, as opposed to expected future returns; and 3) Nasdaq OTC hi-tech growth rates are more moderate – 23 per cent per year on average, compared to 43 per cent per year in the seven years before the tech bubble burst in 2000.
The dynamics of the market on the eve of the financial crisis in 2008–2009 were also characterized by an “irrational euphoria” similar to what we are seeing today. Back then, in the depths of the crisis, the G20 introduced a supranational financial monitoring system that was designed to prevent destabilizing spikes and falls in asset prices. However, experience has taught us that regulation cannot keep up with market innovation and is perennially unprepared for new challenges, primarily the digitalization of the global economy.
Technology and Politics
Historically, financial bubbles have tended to form whenever new revolutionary technologies have appeared, be it the invention of railways, electricity, automobiles, etc. Many new technologies have appeared during the Fourth Industrial Revolution (from smartphones and 3D printers to blockchain technologies and artificial intelligence) that have led to the mass automation of business processes and, consequently, the loss of jobs for a large part of the workforce, thus reducing production and operating costs significantly.
At the same time, we have not seen galloping inflation as a natural market reaction during this global crisis (all other things being equal) to the cheap money policy that has dominated the past decade. On the one hand, prices have been kept in check by the pandemic, which has pushed households and companies to hold onto their savings and made consumption more difficult due to the partial blocking of the economy. On the other hand, in the present context, a sizeable portion of the newly created liquidity is immediately swallowed up by the stock market, the U.S. stock market in particular, which continues to grow thanks to the advance funding of new technologies that are being developed at a fantastic pace. Exactly how long such a model can survive depends on at least three factors: 1) whether or not the soft monetary policy of near-zero or negative interest rates pursued by central banks will continue; 2) the ability of the market to adapt to new technological transformations; and 3) the smooth running of the international monetary system based on the U.S. dollar.
As for the latter, its functioning largely depends on the political system in the United States, and on the results of the November presidential elections in particular. One of three things will likely happen after that: 1) the current configuration of the global financial system will remain in place, with a few minor alterations here and there; 2) the existing system will undergo a major upheaval; and 3) the global financial system as we know it will collapse and a new model will take its place.
If the first scenario plays out, then the world economy will most likely continue to function in the same institutional format that we know today. If the second scenario prevails, then the radical reform of the existing system of global institutions could give the RIC countries (Russia, India and China) the bargaining power to insist on more favourable conditions for their integration into the world economy (for example, by moving away from reliance on the U.S. dollar in international transactions, promoting the use of their national currencies more actively, re-evaluating their positions within the International Monetary Fund and the World Bank alongside their partners in BRICS in order to effectively obtain a collective veto power, etc.). The third scenario would make it possible to create regional monetary and financial systems (as full-fledged independent financial structures of the emerging multipolar world) on the basis of various regional financial institutions that already exist, increasing the role of national currencies in mutual settlements and international financial instruments (or through the creation of new international liquidity in the form of national collective settlement monetary units).
Where Does Russia Stand amid the Global Turbulence?
The Russian economy demonstrated greater resilience during the first wave of the coronavirus crisis than the economies of both developed countries and the economies of its partners in BRICS. Despite the sharp decline in world prices for carbon fuel (Russia’s main export), in terms of key macroeconomic indicators, Russia has managed to maintain more stable positions than the G7 countries. As a result, the IMF predicts that Russia will have the lowest budget deficit among the world’s major economies by the end of 2020 (−4.8 per cent), with relatively low unemployment (4.9 per cent).
The Russian Federation is, in a sense, protected from financial bubbles as (unlike the United States) as it is more focused on developing the real sector of the economy rather than the financial sector. At the same time, the main problem of Russia’s integration into the global economy is the lack of stabilizing mechanisms to counter the volatile and hard-to-predict elements of the global financial market. We are talking here about the lack of a reserve currency, something that many countries use to protect themselves against external shocks, especially during periods of global crisis, when the demand for reserve assets rises sharply. Let us consider the following example. Russia has been a net creditor in the global financial system for years. As of year-end 2019, Russia’s external financial assets exceeded its external financial liabilities by $358 billion. Meanwhile, its investment income balance amounted to −$50 billion. This lop-sidedness is down to the fact that Russia places its international reserves in low-yield foreign assets and serves its foreign financial liabilities at higher interest rates. What this means is that the Russian Federation has been subsidizing those countries that issue reserve currencies for years while not always receiving adequate compensation and now living in economic isolation in the form of economic sanctions. In this context, Russia urgently needs to create its own reserve currency similar to the transferable rouble that the Soviet Union used in its trade with the Council for Mutual Economic Assistance in 1964–1990 and which existed long before other collective currencies (such as the special drawing rights, the European Currency Unit and the euro) were developed. This mechanism removed a number of inconsistencies at the regional level (the problem of imbalances in particular) that we are now seeing in connection with the use of the U.S. dollar as a means of carrying out international settlements, loans and investments around the world.
An oft-cited report by Goldman Sachs predicts that Brazil, Russia, India and China (the BRIC countries) will all be among the world’s top five economies by 2050 and, tellingly, the stock market is not the main source of financial resources for any of them. A common problem for the BRIC countries is the need to develop the enormous potential of their domestic markets by implementing large-scale infrastructure projects. A kind of dual system of monetary circulation whereby foreign trade is carried out using monetary units of account could help make this happen. Such a model would make it possible to separate the intrinsic value of money (its purchasing power) from its extrinsic value (its exchange rate). This is necessary to prevent newly created value (through the financial market) flowing from regions with low productivity to regions with high productivity. This is precisely what is happening in the Eurozone, and it is deepening the structural imbalances in the single European market. In addition, such a system would help resolve the issue of creating international liquidity without the need to move the national currency out of circulation to form unproductive national reserves or carry out speculative transactions.
The global economy has fallen into the trap of “new abnormality,” where incessantly creating money does not solve pressing socioeconomic problems. Other countries are following in the footsteps of the United States, repeating its domestic policy. This has resulted in the further deepening of social inequalities and imbalances at the national and global levels. Bearing in mind the fact that the United States’ share of global gross domestic product has been falling over the past 20 years, it is entirely possible that the U.S. dollar may be used less frequently in international transactions, even though the exchange rate proves favourable from time to time. To make matters worse, the unusual reaction of the markets to the monetary policy of the Federal Reserve System, along with the growing political tension in the United States, increases the risk of the destabilization of the current financial system. It should be stressed here that global economic leadership has always been tied to the leading countries consolidating their positions in both the economic and financial spheres. Clearly, we have reached the point where the only thing that will help stabilize the world economy in the long term is the more active involvement of the BRICS countries in the functioning of the global financial system.
From our partner RIAC
Innovative ideas and investment opportunities needed to ensure a strong post-COVID recovery
After the huge success of its opening day, AIM Digital, the first digital edition of the Annual Investment Meeting, continued to gain momentum as it reached Day 2. The three-day mega digital event, an initiative of the Ministry fo Economy, under the patronage of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President and Prime Minister and Ruler of Dubai, concluded its second day with interactive activities that catalysed investment-generation, knowledge-enhancement, and local, regional and international collaborations.
Joined by more than 15K participants from over 170 countries, including 70+ high-level dignitaries from across the globe, the second day of AIM Dıgital witnessed a wide range of major events, from the Conference, Exhibition, Investment Roundtables, and Regional Focus sessions to Conglomerate Presentations and Startups competitions; all geared towards providing opportunities to achieve a digital, sustainable & resilient future.
In his keynote speech in the FDI session, Ministers Roundtable: Adapting to the New Flow of Trade and Investment, His Excellency Dr. Thani Al Zeyoudi, the UAE Minister of State for Foreign Trade, said: “It is my distinct honor to welcome you to the UAE’s first-ever digital edition of the Annual Investment Meeting. Thank you to everyone participating, including our panelists from the Governments of Costa Rica, Canada, Nigeria and Russia. Today’s discussion on how countries are ensuring the free flow of trade and investment could not be more timely, especially as the world grapples with the economic recovery and moves toward building a more resilient, post-COVID economy. The pandemic has significantly impacted global markets that created new challenges for trade and investment. While the challenges ahead are enormous, the UAE sees tremendous opportunity for governments and business leaders to work together through trade and investment to reshape policies, create new partnerships, leverage new technologies, and build a future global economy that is more diverse, inclusive, and sustainable. We know that FDI can bring new technology and know-how, lead to new jobs and growth, and is often the largest source of finance for economies – making today’s discussion even more imperative.”
He further stated that FDI has played a critical role in the UAE’s economic growth, with policies and measures in place, such as the Foreign Direct Investment Law enacted in 2018 to further open the UAE market to investors in certain sectors, and the issuance of Positive List, which allows for greater foreign investment across 122 activities, and increasingthe UAE’s FDI value by 32% in 2019. He also mentioned that the UAE came in 16th of 190 countries in the World Bank Ease of Doing Business 2020 Ranking due to the country’s digitization strategies and promising business regulatory environment.
His Excellency Al Zeyoudi furthered: “The UAE is continuing to refine and implement policies that will maximize competitiveness, increase collaboration, and provide opportunities to facilitate trade and investment. Our aim is to become the #1 country for foreign investment, target zero contribution from oil to our GDP in the next 50 years, and support research, development, and innovation. The UAE’s trade and investment strategy is centered on economic diversification and focuses on enhanced investment in industries such as communications, Blockchain, artificial intelligence, robotics, and genetics. We are also initiating measures to strengthen our position as a regional leader in supplying financial and logistical services, infrastructure, energy supplies, and other services.”
He added: “The UAE believes that increased partnership and cooperation with governments and the private sector will be key to achieving our objectives. We view platforms such as the Annual Investment Meeting as instrumental in bridging the gap between nations and supporting global efforts to strengthen international trade and investment. Through this platform, we hope that participants will uncover new, innovative ideas and investment opportunities needed to build back better and ensure a strong post-COVID recovery.”
Furthermore, world-class speakers shared their viewpoints in Day 2 of the Conference highlighting Foreign Direct Investment, Foreign Portfolio Investment, Small and Medium-sized Enterprises, Startups, Future Cities, and One Belt, One Road, including H.E. Amb. Mariam Yalwaji Katagum, Minister of State, Federal Ministry of Industry Trade and Investment of The Federal Republic of Nigeria; Victoria Hernández Mora, Ministry of Economy, Industry and Commerce of Republic of Costa Rica; Hon. Victor Fedeli, Minister of Economic Development, Job Creation and Trade of Ontario, Canada; and Sergey Cheremin, Minister of Moscow City Government Head of Department for External Economic and International Relations, among others.
Two Investment Roundtables were also held successfully at the second day of AIM Digital, concluding with strategies to facilitate sustainable, smart and scalable investments. The Energy Roundtable was led by Laszlo Varro, the Chief Economist of International Energy Agency, which works with countries around the globe to structure energy policies towards a secure and sustainable future. Among the notable participants include H.E. Arifin Tasrif, Minister for Energy & Mineral Resources of the Republic of Indonesia; and H.E. Gabriel Obiang, the Minister of Mines and Hydrocarbons of Equatorial Guinea. The Agriculture Roundtable was led by Islamic Development Bank Group, the multilateral development bank working to promote social and economic development in Member countries and Muslim communities worldwide, delivering impact at scale.
In addition, the second set of National Winners competed on Day 2 of the AIM Global National Champions League. Overall, a total of 65 countries competed at this international startups competition. The top five global champions that will win a total prize of USD50,000 will be announced on the last day of AIM Digital.The competition was launched in a bid to help startups in maximizing their potential to attract funding and promote their business ideas to a global audience, getting utmost exposure and expanding their network.
Participating in the Conglomerate Presentation feature of AIM Digital is Elsewedy Electric led by Eng. Ahmed Elsewedy, its President and CEO. Elsewedy Electric began as a manufacturer of electrical components in Egypt 80 years ago, and Electric has evolved into a global provider of energy, digital and infrastructure solutions with a turnover of EGP 46.6 billion in 2019, operating in five key business sectors, namely Wire & Cable, Electrical Products, Engineering & Construction, Smart Infrastructure and Infrastructure Investments. As part of its commitment to sustainability, it has established green energy and smart metering projects across Africa, the Middle East and Eastern Europe.
The Regional Focus Sessions featured the regions of Asia and Latin America and explored the risks, challenges and opportunities for growth and regional cooperation. Regional Focus Session on Asia brought together government officials and investment authorities from the ASEAN Member States and discussed their strategies to create a borderless and sustainable bloc that will push organic growth, as well as their approaches to gain resilience in the economy. Regional Focus Session on Latin America highlighted the significance of regional and international partnerships to combat the current pandemic and boost trade, investments and employment within the region.
Moreover, Country Presentations on Day 2 presented the outstanding features and investment opportunities in Colombia, Egypt and the Federal Democratic Republic of Ethiopia which highlighted the countries’ status as attractive investment destinations.
Another highly anticipated event in the largest virtual gathering of the global investment community is the announcement of winners for the Investment Awards and Future Cities Awards which will take place on Day 3 of AIM Digital.AIM Investment Awards will grant recognition to the world’s best Investment Promotion Agencies and the best FDI projects in each region of the globe that have contributed to the economic growth and development of their markets. Likewise, AIM Future Cities Awards will give tribute to the best smart city solutions providers and for outstanding projects that have resulted to enhanced operational efficiency and productivity, sustainability, and economic growth.
Day 1 of AIM Dıgital welcomed the presence of globally renowned personalities such as the UAE Minister of Economy, His Excellency Abdullah bin Touq Al Marri who emphasised the vision of UAE’s wise leadership for the post-COVID era, reflecting great significance to enhancing the readiness of the country’s government sector, raising efficiencies and performance at the federal and local levels. Keynote remarks were delivered by H.E. Juri Ratas, the Prime Minister of Republic of Estonia; H.E. Rustam Minnikhanov, the President of the Republic of Tatarstan; H.E. Dr. Bandar M. H. Hajjar, the President of Islamic Development Bank Group (IsDB Group); H.E. Mohammed Ali Al Shorafa Al Hammadi, the Chairman of Abu Dhabi Department of Economic Development (ADDED); and Dr. Mukhisa Kituyi, the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).
The UAE Minister of State for Entrepreneurship and SMEs, His Excellency Dr. Ahmad Belhoul Al Falasi, underlined in his Keynote Address for the SME Pillar, that it is crucial for Startups and SMEs to be given opportunities to bounce back from the impact of pandemic and provide a conducive environment that will empower them to have the capability of supporting growth and success.
The Global Leaders Debate featured prominent keynote debaters such as Armida Salsiah Alisjahbana, the Under-Secretary-General of the United Nations and Executive Secretary of United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP); Mohamed Alabbar, the Founder of Emaar Properties, Alabbar Enterprises and Noon.com; Mohammad Abdullah Abunayyan, the Chairman of ACWA Power; and Arkady Dvorkovich, the Chairman of Skolkovo Foundation, who discussed the strategies to restructure the economies in overcoming the consequences of the pandemic.
The first digital edition of the Annual Investment Meeting with the theme “Reimagining Economies: The Move Towards a Digital, Sustainable and Resilient Future, will be held until the 22nd of October 2020.
H.E. Dr. Thani Al Zeyoudi: Our aim is to become the #1 country for foreign investment
It is my distinct honor to welcome you to the UAE’s first-ever digital edition of the Annual Investment Meeting. Thank you to everyone participating, including our panelists from the Governments of Costa Rica, Canada, Nigeria and Russia. Today’s discussion on how countries are ensuring the free flow of trade and investment could not be more timely, especially as the world grapples with the economic recovery and moves toward building a more resilient, post-COVID economy.
As you know, the pandemic has significantly impacted global markets, creating new challenges for trade and investment. According to the United Nations’2020World Investment Report, global FDI flows are estimated to decrease by up to 40% this year, dropping well below their value of $1.54 trillion in 2019. This would bring global FDI below $1 trillion for the first time since 2005. Global FDI flows are expected to decline even further in 2021, by 5% to 10%, and only in 2022 do we expect to start seeing markets recover.
While the challenges ahead are enormous, the UAE sees tremendous opportunity for governments and business leaders to work together through trade and investment to reshape policies, create new partnerships, leverage new technologies, and build a future global economy that is more diverse, inclusive, and sustainable. We know that FDI can bring new technology and know-how, lead to new jobs and growth, and is often the largest source of finance for economies – making today’s discussion even more imperative.
For the UAE, FDI has played a critical role in our economic growth. In 2019, the UAE was the largest recipient of FDI in the region, largely due to our increased focus over the years on enhancing local conditions to attract FDI. With policies and measures in place, such as our Foreign Direct Investment Law enacted in 2018 to further open the UAE market to investors in certain sectors, and the issuance of our Positive List, which allows for greater foreign investment across 122 activities, the UAE was able to increase our FDI value by 32% in 2019. The UAE also came in 16th of 190 countries in the World Bank Ease of Doing Business 2020 Ranking due to our digitization strategies and promising business regulatory environment.
The UAE is continuing to refine and implement policies that will maximize competitiveness, increase collaboration, and provide opportunities to facilitate trade and investment. Our aim is to become the #1 country for foreign investment, target zero contribution from oil to our GDP in the next 50 years, and support research, development, and innovation. The UAE’s trade and investment strategy is centered on economic diversification and focuses on enhanced investment in industries such as communications, Blockchain, artificial intelligence, robotics, and genetics. We are also initiating measures to strengthen our position as a regional leader in supplying financial and logistical services, infrastructure, energy supplies, and other services.
The UAE believes that increased partnership and cooperation with governments and the private sector will be key to achieving our objectives. We view platforms such as the Annual Investment Meeting as instrumental in bridging the gap between nations and supporting global efforts to strengthen international trade and investment. Through this platform, we hope that participants will uncover new, innovative ideas and investment opportunities needed to build back better and ensure a strong post-COVID recovery.
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