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Mr Saad Azhari Chairman and General Manager, BLOM Bank Opening Remarks as Panel Chair Panel 2: Global Economic Trends BIFEX 2017: Brand Lebanon: Boosting Prosperity 12-2 pm, 26 April 2017 BIEL, Beirut, Lebanon

April 26, 2017
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Mr Saad Azhari Chairman and General Manager, BLOM Bank Opening Remarks as Panel Chair Panel 2: Global Economic Trends BIFEX 2017: Brand Lebanon: Boosting Prosperity 12-2 pm, 26 April 2017 BIEL, Beirut, Lebanon

Hello everyone, and welcome to Panel 2 on Global Economic Trends. My name is Saad Azhari, Chairman and General Manager of BLOM Bank; and before I present a few opening remarks on the subject of this Panel, I would like to thank the Lebanese Franchise Association and its President Mr Charles Arbid on this excellent and timely conference, and thank the panelist for being with us today. And they are a distinguished pair: Mr Carsten Beck, Director, The Copenhagen Institute for Future Studies, a globally-renowned futurist; and Mr Allan O’Neill, Managing Director, Kara Change Management, an internationally-recognized business speaker and management consultant.

My background is in banking, finance, and economics so I will restrict my comments to these areas, and leave it to our panelists to discuss ideas on strategic megatrends and retail-inspired change. I will do that by focusing first on global economic trends, then on regional trends, and lastly on the Lebanese ones.

In case of global economic trends, I think it is important to take a longer-term view that looks beyond the short-term ups and downs of the economic and political cycle. And to the extent that events such the election of President Trump and Brexit point to deeper structural shifts, such as the backlash against globalization, immigration, and the rise of inequality, they present short-to medium-term challenges for policy makers to boost education and training and to address unfairness through well-targeted fiscal policies; but, most likely, they will not affect the long-term trajectory as determined by fundamentals like demographics and technology.

So of the four long-term global economic trends that I will identify, the first is the shift in global growth. Emerging economies will account for 50% of world GDP in about 10 years’ time and are already growing at twice the rate of developed economies. This will open up great opportunities for businesses prepared to make long-term investments in these markets. But that does not mean that businesses should give up on developed economies. Of the expected $14 trillion growth in consumption in the next 10 years, 40% will come from developed countries where the majority of global upper-middle class lives.

The second of these trends is new waves of technological innovations. We are already witnessing innovations that will change the way we live, work, and play, spurring new generations of entrepreneurial start-ups that bring novel products and services to the market. They also result in an ever-increasing flood of information, opening up entirely new areas of activity for companies. These new innovations are bound to show up in markedly enhanced world productivity especially as they gain more momentum and spread.

The third of these trends is that we are moving towards smarter, healthier populations. Better education and health are increasingly making human capital as the engine for powerful long-term growth. In this respect, emerging markets are still lagging in terms of their people’s health and education, creating potential constraints to growth but also opportunities to fill the gap. As interesting are the demographic developments between developed and developing countries, combining the aging societies of the former with the young societies of the latter, and all the business and financial opportunities to serve these two asymmetric markets.

The fourth and last trend is the intensifying competition for finite resources. Economic growth and expanded prosperity will set off a scramble for basic food, water, energy, and industrial commodities, stimulating supply but also igniting geopolitical instability. Businesses should continue to invest in scenario-planning to prepare for such potential shocks; but more importantly – and with the help of advancing technologies – they should develop strategies that aim at the gradual de-coupling of economic growth from intensive resource consumption so as to ensure the sustainability of the entire economies and perhaps the planet.

Moving briefly to the economic trends in the region, it is apparent that, unlike at the global level, one can’t but be absorbed by the short-term challenges facing the Middle East. Political instability, economic slowdown, and the oil-price cycle have all left their wounds on the regional economies. In this sense, finding political solutions to the increasing conflicts will be a pre-requisite to economic and social development.

As to long-term economic trends, the first that we can ascribe to the region is population growth. This has led to a “youth bulge”, where over 40% of the population is under 25. While this factor has contributed to instability by straining resources and causing youth unemployment (at 28%), it can however be considered under better circumstances an agent for prosperity through larger markets and a younger labor force. The second long-term trend is rapid urbanization. This has put pressure on climate change and resource scarcity, especially water whose use is expected to increase by a third in 10 years, and in the process has hindered economic development. But, again, it represents an opportunity or the need to develop infrastructure projects – estimated to be worth $4 trillion – that can be an important driver for sustained, inclusive growth. The third trend is largely a positive one, and it is the shift in global economic power that raised the strategic location of the Middle East among developed Europe, resurgent Asia, and growing Africa. The benefits from exploiting this position could be tremendous. But even here, the region can’t take advantage of this strategic position if it has not polished up its economic prowess as a stable destination for investment and a secure hub for trade flows.

Concerning Lebanese economic trends, they are parallel to the regional ones, except that short-term political instability seems to have been notably reduced in Lebanon. The country remains in dire need of an infrastructure overhaul, and suffers from serious youth unemployment and brain drain. But its economic prospects could be good and could signal positive trends. These are underpinned by promising developments in the oil and gas sector, by nascent growth in the IT sector driven by BDL’s “Directive 331” initiative, and by a significant potential upturn in exports of goods and services, including tourism and exports to aid in the re-building of Syria. Moreover, these sectoral economic trends would alleviate chronic imbalances in the current account and the fiscal budget, through higher export revenues and oil royalties, which could restore them onto sustainable, manageable paths.

Lastly, Lebanon’s financial sector – as reflected in its buoyant banking system — has always been in better shape than its real sector. So if these potential economic trends and their implications were to fully materialize, then long-range, real-sector reforms – such as establishing better governance in public institutions, enhancing the environment for greater entrepreneurship, and of course maintaining durable political stability – are perhaps more needed than ever before. These reforms are necessary and sufficient if the country were to overcome its loss of competitiveness and agility, and finally put behind it the wasteful cycle of political conflict and economic stagnation.

I will stop here and give the floor to our participants. First will be Mr Beck talking about, “Towards 2025: Strategic Megatrends”; then it will be Mr O’Neill discussing, “Driving Change: Retail-Inspired Thinking and Strategies”. This will be followed by Q&A and audience participation.

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