Jose Maria Ortiz, Palladium Managing Partner
Palladium Managing Partner Jose Maria Ortiz spoke via video to the Kuwait Foundation for the Advancement of Sciences (KFAS) about the impact of COVID-19 on Kuwait’s economy and society. The following is a transcript from that presentation, edited for length and clarity.
Hello Everyone. My name is Jose Maria Ortiz, and I am the Managing Partner for Palladium in Europe, Middle East, and Africa.
Palladium is a global organisation that operates in more than 90 countries. We help organisations to create greater socio-economic impact, with solutions that benefit businesses and society at the same time.
We have been operating in the GCC for four decades, and since 2018 have had a permanent office in Kuwait, working with public and private organisations in the country.
I would like to thank KFAS for inviting me to speak about the impact of COVID-19 on the economy and society. Today, my talk will focus on the medium-term consequences for Kuwait.
Instead of focusing my talk on the short-term impact of COVID-19 and the well-known disruptions to travel, trade, social life and the economy, I would like to discuss four trends that were in the world before the crisis began, and which will be accelerated, providing an opportunity for Kuwait to transform and achieve many of the objectives of Vision 2035.
1. Energy Transition and the Price of Oil
A few weeks ago, amid the pandemic’s most restrictive measures and for the first time in 100 years, oil in the United States became a liability and not an endowment. The negative price of WTI suggested that having oil was no longer a guarantee of wealth. Although this made global headlines, the reality is that it was an anecdote, and fuelled by strong demand, the price of oil has been increasing steadily since.
The impact of the negative price of WTI will be a long-term consequence of this crisis. Supply will reduce (since the less competitive producers will have fewer incentives to increase capacity) and demand will continue to drive the price of oil up for those producers, like Kuwait, who have the ability to produce at an efficient ratio. However, now we know that if countries do not produce efficiently, and do not have long term demand contracts and/or ways to store supply at scale, oil will become a liability again.
In the meantime, it is an endowment that needs to be used wisely, rather than depleted through low value-add activities. We will discuss the implications of this for Kuwait shortly.
2. Local vs. Global Supply Chains
The second trend is the acceleration of local value chains versus long distance value chains. Before the COVID-19 crises, the fourth industrial revolution was already transforming value chains to bring industries closer to clients.
Likewise, the combination of artificial intelligence, robotics, and 3D printing have brought industrial units closer to markets. They allow small series production and less dependence on large factories in places with cheap labour.
COVID-19 has proven that this is the correct trajectory. We need localisation of industries closer to markets and less dependence on long value chains that can be easily disrupted.
3. The Role of E-Commerce
The third trend is the acceleration of digital markets. While in lock-down, we have all consumed more through the internet than ever before. We have purchased more on Amazon, we have increase home delivery of food and consumption of entertainment through the internet, etc. This will only accelerate, and poses challenges and opportunities for societies as digitalised as Kuwait (which ranks number one in the world in internet penetration).
4. SMEs vs. Large Companies
This digital consumption favours large companies with the cash and means to create digital platforms, while creating a barrier for small and medium-sized enterprises (SMEs) in all sectors to compete. This tension is real and dangerous, commoditising employment and destroying SMEs in all sectors.
In the COVID-19 era, the winners are the super majors. But SMEs are the backbone of any economy, and protecting them should be one of the biggest concerns of governments across the world. Governments clearly have a role to play to revert this trend of SME bankruptcy and protect this crucial asset class, making it more resilient and inclusive than an economy dominated by factor monopolies.
So, what are the opportunities for Kuwait based on these four trends?
I would say there are five areas on which Kuwait needs to focus, using the energy that COVID-19 has created to fuel transformation.
Transform the food sector in the country. The food security agenda needs to be reinforced and strengthened. The same technologies that are applied to the fourth industrial revolution can be adopted in the food production industry. Kuwait needs to strengthen its local value chain from local farmers, but also with large industrial production units using the latest technology available for food production. This is a value chain that Kuwait needs to strengthen and transform, and one that has the possibility to create jobs and technology that boosts the future of the country.
Transition to sustainable energy. Oil is gold today, but now we know for a fact that it can be a liability. Using it wisely means restricting it to value-added initiatives. Kuwait is using more than 10% of its production for internal consumption, basically in electricity production. This is a waste of resources that Kuwait should not afford, and should be addressed through a deliberate energy transition agenda where sustainable energy sources replace oil as the way to produce electricity. Maximising the revenue generating role of oil is critical for Kuwait to succeed in achieving the Kuwait 2035 vision.
Support SMEs. Kuwait needs to take a decided action to help entrepreneurs and SMEs to succeed in the digital era, providing them with access to e-trade platforms and connecting them into local supply chains. Kuwait has the potential to help SMEs to succeed in the coming decade with little need for subsidies, but with decided action in policy making around certain industries, including food, energy, tourism and entertainment, and digital content, amongst others.
Take a regional approach. COVID19 has shown the value of proximity. Kuwait’s geographical position allows the country to tap into close markets that present huge opportunities. The belt and Road Initiative led by China provides Kuwait with the opportunity to play a new role in the region, building the infrastructure to attract regional and international investment. Silk City is one flagship program that could serve a large regional market including south of Iraq, eastern Saudi Arabia, and access to Iran when its economy opens.
Finally, I would like to highlight another big opportunity that COVID-19 has brought to Kuwait and to all countries in the world: the opportunity to show Kuwait’s citizens the value of government.
Oftentimes, governments are criticised for not delivering, with the private sector is put forward as a delivery partner, but as COVID-19 has impacted our societies, we have all turned to and expected our governments to deliver. And with some hiccups, governments have delivered the response across the world, showing that when needed they can mobilise resources and capabilities beyond any other organisation.
Now is the time to use this capability to create the enabling conditions for the future growth of Kuwait. This requires 3 areas of focus:
1) Health: Kuwait needs a strong health prevention strategy to reduce obesity and diabetes to be a healthier society, so that when the next pandemic crises arrives, the people of Kuwait are better prepared.
2) Education: Kuwait needs to reform its education to meet the demands of the future, which are reflected in the concepts I explained above: digital, global, and sustainable.
3) Infrastructure: The government can mobilise the resources to build the infrastructure for the energy transition and the regional market role we have discussed. This is a huge reform and a strong investment, which will lay the foundations to realise Vision 2035.
In any of these three areas, the government does not need to act alone. The government needs to create the policies and the frameworks for private sector to invest in public-private partnerships (PPPs) for both physical and social infrastructure.
Building these PPPs requires strong policy, decided action, and the attraction of investment, all of which Kuwait is well-positioned to deliver, having demonstrated its resilience during this unprecedented crisis.
Thank you very much.
Watch Jose Maria Ortiz speak live for the Kuwait Foundation for the Advancement of Sciences. Contact firstname.lastname@example.org to learn more.