How the pandemic is paving way for a more sustainable future

Jarmo T. Kotilaine

The global pandemic, now well into its second year, may not be over, but it has undoubtedly already become a historic inflection point on multiple levels.

While disrupting the march of economic growth worldwide, it has also pushed people to consider alternative ideas about development. It has coincided with an unusually turbulent year for global climate, with numerous extreme weather events that have dramatically strengthened the popular resolve to tackle climate change, while also reshaping investor behavior.
The UN Intergovernmental Panel on Climate Change this month was presented as “code red” for humanity in the face of unprecedented climate change; the past five years have been the hottest on record. The International Energy Agency delivered its own wake-up call in May, claiming that the goal of net zero carbon emissions by 2050 would mean no new hydrocarbon development projects from now on since their share in the global energy mix would have to fall from almost 80 percent to just over 20 percent.

The impact of the pandemic on public health and the economy has been even more immediate and profound. But while the financial costs and human suffering have been unprecedented in recent history, they are also preparing the ground for a different future.
In the Gulf, these disruptions have come after years of deliberate policy refocusing reflected by visions and strategies across the region. A number of these developments are worthy of particular attention, even if their long-term impact still remains uncertain.
Gulf countries have been pursuing proactive fiscal consolidation for years in a bid to reduce their systemic dependency on oil revenues. The fiscal burdens caused by the pandemic have further underscored the importance and urgency of this goal, but have also highlighted the determination of the regional governments to stay the course.

Fiscal consolidation makes a direct contribution to broader sustainability by repricing energy. This has already begun to reduce waste and curb the internationally high energy intensity of the Gulf economies. It has created incentives for more prudent resource use by incentivizing less polluting forms of power generation, whether domestic natural gas or renewable energy.
The region has repeatedly set new global records with its solar projects, and this has not only reshaped attitudes but also shifted investor preferences. The more market-based pricing of power is also reshaping the regional real estate sector by incentivizing smarter construction and better planning.

However, the shock to the regional private sector also represents an opportunity for smarter diversification in future. The long-standing bias toward low-productivity activities, such as physical retail, food and beverage, construction and some basic services, has been challenged by thinning profit margins in the face of market saturation, higher input costs and technological change.
E-commerce, for example, has disrupted traditional bricks-and-mortar retail. The need to think out of the box has also validated the growing interest in technology-based startups that have challenged traditional business models, and offered the prospect of continuity in the face of lockdowns and other restrictions.

The growing technology bias at a time of a reduced reliance on low-cost labor is a welcome development. It will stimulate productivity, and a more productive economy makes better use of its resources.
COVID-19 is also promising to reshape the Gulf labor markets in important ways.
Globally, distance work has become increasingly widely accepted. It offers many businesses the prospect of reduced spending on real estate, while employees can benefit from less time and money spent commuting. Women, for example, have greater flexibility in balancing family responsibilities with economic participation.

Regional markets have also become much more open to new ways of working, such as self-employment as well as part and flexi-time work. Greater flexibility tends to entail increased inclusion but can also make local staffing solutions available to businesses in ways that are more flexible and cost-effective. This, in turn, can begin to reduce the traditional appeal of expatriate labor as a default option. The end result could then become reduced labor intensity, better jobs and, ultimately, increased living standards thanks to higher economic participation and productivity.

The writer is an economist and strategist focusing on the Gulf region. He writes on issues ranging from economic development to changes within the corporate sector