Makhtar Diop, the World Bank’s vice president for Infrastructure - Photo courtesy of WB's VP Diop
CAIRO – 26 March 2019: Egypt is one of the pioneering countries in the region to transform to digital economy, with high expectations that the country, under the right policy, can harness the power of digital technology to accelerate development, modernize its entire economy and improve the lives of all Egyptians.
Makhtar Diop, World Bank’s vice president for Infrastructure, told Business Today Egypt how digital transformation represents an unprecedented opportunity for Egypt.
In the below lines, Business Today Egypt poses some questions to Mr. Diop
BT: The World Bank approved a US$1 billion for Egypt to focus on new financial technology, what is the bank’s plan to enhance Egypt’s transformation to digital economy?
Diop: Information and Communication Technologies currently account for 3.1 percent of the [Egyptian] national GDP. The [Egyptian] government is looking to double this to about 6 percent by 2025. I see five key foundations that can help Egypt meet this ambitious target and build a vibrant digital economy: digital infrastructure (fixed and mobile broadband, fiber optic cables…); innovation and entrepreneurship; digital platforms (e-commerce, e-government, data sharing…); digital financial services; and digital literacy and skills.
We are proud of supporting Egypt as it embarks on this journey toward digital transformation. There is a wide range of options to help build up the country’s digital infrastructure and platforms as efficiently as possible—including by deploying innovative solutions like public-private partnerships and guarantees. We are also keen to bring in our global experience in digital development to support policymaking and help Egypt create the right conditions for a thriving digital economy.
In addition to direct financial and technical assistance, the World Bank is a great convener and facilitator, and could help bring together public agencies, experts, innovators, private companies, and investors that will shape Egypt’s digital future. No single ministry, development institution, or private firm can realistically drive this agenda alone; the amount of financing and knowledge that is required is simply too vast. Effective coordination and partnerships between all relevant stakeholders will be the name of the game, and our institution is uniquely positioned to help Egypt connect these dots.
Finally, as the World Bank’s vice president for infrastructure, I am also interested in opportunities to foster collaboration between digital technology and other sectors. In some of our transport and energy projects, for instance, we have been able to share assets or bundle civil works contracts to expand digital connectivity at a fraction of the cost. It is a lot less expensive to bring broadband internet to a community if you lay out cables at the same time you build a road or upgrade the electricity network. Likewise, experts across the bank are increasingly turning to digital innovation to solve a host of challenges in areas as diverse as urban mobility, power distribution, or disaster relief… reminding us that technology is not an end in itself, but a means to achieve something much bigger.
BT: Meeting Egypt’s prime minister and investment minister in December 2018, you said the WB is looking forward to intensifying cooperation with Egypt; would you please tell us more about this joint cooperation?
Diop: Egypt is at a critical juncture in its development. The ambitious reforms implemented since 2014 are already showing tangible results and laying the foundations for a prosperous future. The World Bank has worked hand in hand with the government to inform the design and implementation of many of these flagship measures, and we look forward to taking this cooperation even further over the coming years.
That is precisely the motivation behind the recent development policy financing announced in December 2018. This $1billion program seeks to help Egypt leverage the private sector for its inclusive growth strategy, with a focus on small businesses—the country’s largest source of jobs.
We intend to deepen our engagement in critical sectors like energy, transport, and digital development. This involves, in particular, mobilizing more private investment for major infrastructure projects, which will allow the country to reallocate a significant portion of public resources toward education, health, and social protection.
Our close partnership has helped the government of Egypt devise reforms in the energy sector that made the supply of electricity to businesses and people more reliable, attracted over $15 billion in foreign direct investment, and freed up public funds for the quadrupling of budget for social safety nets. Moving forward, we are looking at ways to support Egypt’s efforts to scale up investment in solar and other renewable power sources while continuing to assist the country on energy subsidies reform.
BT: Among the proposed fields of cooperation is boosting the electrical linkage between African states; how do you see this beneficial to the continent’s countries as Egypt plans to expand a power linkage beyond Sudan?
Diop: Connecting distribution grids and creating a more active electricity market between Egypt and neighboring countries could bring significant benefits to the region.
Egypt has some of the highest solar radiation indices in the world, giving it the opportunity to become a leader in renewable energy that could eventually generate up to 74 million GWh a year using solar energy. If the country were to scale up investment in solar generation, better regional integration in the energy sector would make it easier to sell some of this solar power to others, and would give countries in the region access to sustainable, affordable electricity.
Reciprocally, efficient regional interconnections also mean Egypt will be able to rely more extensively on its neighbors to meet its own electricity needs. This could bring significant relief after 2022 when rising demand is expected to put a strain on the domestic market.
BT: How can digital transformation help a nation’s economic reform program?
Diop: It is hard to overstate the economic significance of digital technology. The ongoing wave of innovation has created entirely new business models, products, and services, giving countries a unique chance to generate value and jobs.
The impact of this digital revolution extends far beyond the technology and telecom industries. We are looking at a profound transformation that permeates all sectors of the economy, and can potentially benefit all segments of the population. E-commerce platforms, for example, have allowed businesses to participate in the global economy regardless of their size or location. Likewise, online work platforms are giving people access to more job opportunities than ever before, especially for those living in isolated or fragile communities. Advances like mobile money or blockchain have become invaluable tools for tackling the challenge of financial inclusion and empowering unbanked individuals.
The economic impact of this digital transformation is already impressive. In 2016, the global digital economy was worth $11.5 trillion, or 15.5 percent of the world’s GDP. This figure is expected to reach 25 percent in less than a decade. As the digital economy continues to grow, countries that seize this opportunity could see significant GDP growth and development progress. That’s why we are working closely with governments to harness the full power of technology and close the digital divide.
In this rapidly-evolving context, Africa is probably the continent that stands to gain the most from embracing the possibilities of the digital economy, and I feel particularly enthusiastic about the recently announced Digital Economy for Africa Moonshot. Under the leadership of the African Union and with our support, this initiative aims to strengthen the foundations of the digital economy and to connect every African individual, business, and government by 2030. Being one of the most populous and influential countries in the continent, Egypt will have an important part to play in realizing this vision, especially as it assumes the presidency of the African Union.
BT: What are the indications that encourage the World Bank to invest in a country’s infrastructure?
Diop: The mission of the World Bank is to eliminate poverty and boost shared prosperity. As a catalyst for growth and human development, infrastructure is absolutely central to this vision.
From electricity to transport and telecommunications, every country needs reliable infrastructure to stimulate economic output and job creation. This is particularly relevant in a globalized and increasingly digital economy, as ambitious infrastructure programs will be essential in creating more efficient supply chains, and in connecting people and businesses to the global market.
While the economic case for infrastructure investment seems almost self-evident, its impact on human development is just as important. In fact, global experience over the last decades has shown that inclusive and sustainable infrastructure programs are a fundamental prerequisite for building resilient communities and expanding access to essential services like health or education.
That is precisely why I feel so passionately about the potential of infrastructure, and am proud to help countries develop adequate regulatory environments to attract investment, and innovative infrastructure plans that can adequately address their development needs.
BT: How does the WB enable private investments in its infrastructure programs?
Diop: First, I’d like to emphasize that infrastructure programs are not ours. Each government decides how and where it wants to invest in infrastructure. Often, we are asked by governments to advise on technical matters and overall enabling environments that support smart, sustainable infrastructure spending.
The World Bank is now using a model by which—whenever an infrastructure project is presented for our support—we consider a spectrum of solutions, private as well as public. Then, if appropriate, we help governments tap a variety of financing opportunities, incorporate global best practices, and address equity and affordability for consumers. Our aim is to maximize finance for development, as there is simply not enough public and donor money to address all the developing world’s infrastructure needs.
For example, with our support for policy and regulatory reforms, private finance can become an option for countries that have not been able to access it because they lack the right institutions or markets. A country may need technical support to develop strong public-private partnerships. At the same time, our instruments (such as guarantees) can help address risks for investors who may be nervous about entering new markets.
The idea is this: If countries are equipped to attract and manage private solutions, this can help level the playing field for the poorest. Developing countries can expand their range of options for financing efforts to sustainably grow their economies, reduce poverty, and expand opportunity.
BT: Being one of the proposed fields of cooperation, how do you plan to cooperate with Egypt and Africa in air transport?
Diop: The World Bank Group has a long history of cooperation with the air transport sector in Egypt, including through transformational projects such as Cairo Airport’s Terminal 3, the expansion of Sharm El-Sheikh Airport, and, most recently, the rehabilitation and capacity increase program at Cairo’s Terminal 2.
Aside from financing large infrastructure programs, we have also been working closely with Egypt to help it strengthen air transport institutions and develop an optimal governance model for the sector. Finally, at the request of the government, the World Bank is developing an Airport Master Plan to help guide long-term planning and investments prioritization.
We are keen to continue supporting air transport in Egypt, especially considering its potential to boost overall economic development. Safe and efficient passenger air transport will be key to revitalizing the tourism industry, a vital component of the Egyptian economy. Boosting freight services could yield even higher dividends, and has become an important focus of our engagement with the aviation sector. Due to its unique geographical position between three continents and the proximity of the Suez Canal Zone, Cairo International Airport could become a significant regional and international hub for air freight.
To make this happen, public-private cooperation will be essential. The private sector can play a key part in modernizing Egyptian air transport by fostering innovation, bringing in new technical expertise, introducing efficient management practices, creating new revenue streams for airports, and contributing to infrastructure investment.
BT: If you have to choose between tapping into ‘grey matter’ or investing in infrastructure in Egypt (water and energy…etc.), which do you think should come first in the structural transformation process?
Diop: This question comes up a lot. However, I believe that it is largely a false dilemma; for countries to make lasting development progress, infrastructure investment and human capital must go hand in hand rather than compete with each other.
Simply put, quality infrastructure is one of the key building blocks that can help people thrive and achieve their full potential. Reliable transport connections, for instance, are essential to reaching essential services like education or healthcare. Digital connectivity now allows individuals to access global information and knowledge at the push of a button, no matter where they are located. Electricity has transformed so many aspects of our lives—including by letting children study after dark and create a better future for themselves. In other words, infrastructure is critical to supporting healthy, educated communities.
But to make the most of this human capital, countries also need jobs. This is particularly relevant to Egypt and MENA, where youth tend to be more educated than in other regions but struggle to find employment. Here again, as one of the main driving forces behind economic growth and job creation, infrastructure has an important part to play in making sure that grey matter can be put to good use.
The opposite is just as true, though, in the sense that the infrastructure sector is heavily reliant on an educated, skilled workforce. Planning, building, and operating well-functioning infrastructure over the long term requires a wide range of expertise and technical capacity.