These findings are based on the official statistics of the CU (Eurasian Economic Commission), analysis of statements and comments made by the representatives of government, diplomatic and business circles of the Republic of Belarus, Republic of Kazakhstan and the Russian Federation on the situation in the national economies and the social sphere in the framework of the Customs Union.
The results of the analysis showed that the problems and risks identified by us in March 2013, not only deepened by September, but also formed persistent negative trends.
Countries of the Customs Union demonstrate reductions in the mutual trade. Thus, according to the data for the first five months of this year, the mutual trade within the Customs Union and the Eurasian Economic Commission was down 9.9 per cent from the same period last year. The decrease compared to the same period last year happens each month, which is confirmed by the official statistics (see Annex 1). The largest drop in trade performance is observed in Kazakhstan and Russia. In May 2013 the trade performance of Kazakhstan tumbled 15.8 per cent compared to the same period last year, and the trade performance of Russia tumbled 15.1 per cent. This trend indicates a steady reduction of internal trade volume in the CU.
The poor dynamics in the mutual trade between the member countries is caused by the facts that the exports are mainly raw materials and the competitiveness of non-oil commodities is low. The main problem of the turnover between the members of the CU is still a small amount of goods that the participants are willing to offer each other, excluding energy sources. In addition, the increased competition as a result of lower prices for imported goods hits some industry markets. This creates the conditions for crowding out of some domestic producers from the market and for hostile takeovers.
Representatives of Kazakhstan believe that, despite the growth of trade within the Customs Union since 2010, its establishment had little effect on the positions of Kazakhstani goods in the markets of Russia and Belarus, but rather strongly affected the country’s structure of imports, where the share of Russian products has increased. At the same time the commodity structure of exports and imports, as well as the proportion of the volume of these products, have not changed much after the establishment of the CU.
Russia has resorted to external and internal trade wars, as a way of protecting the domestic Russian market.
Low growth rates of the trade within the CU, as well as the crisis developments in the Russian economy, contribute to waging trade wars against internal and external partners on specific product lines. This supports our predictions made in March of this year.
To date, Russia is going through a difficult situation in the economy and in the public sector. The Ministry of Economic Development of the Russian Federation believes that the Russian economy is in a state of stagnation. At the same time, Moscow fears the beginning of a slump, which will lead to a rise in unemployment. The plans of the Russian government to adopt a balanced budget for the fiscal 2015 are obviously impractical. According to the estimates of the Ministry of Finance of the Russian Federation, the budget deficit in 2014 will be at 0.6 per cent of the GDP, which is 0.4 per cent higher than the figure in its earlier forecast. However, such an index will not be achieved, because the reduction of 650 billion roubles in oil and gas and other revenues is expected in 2014, while maintaining the level of expenditure. The proposal of the Ministry of Finance of the Russian Federation to the Ministry of Defence of the Russian Federation to postpone some of the costs of the state armaments program for several years in order to ensure stability of the Russian budget is indicative of problems in the public sector.
According to the Federal State Statistics Service, the GDP growth in the second quarter of 2013 was only 1.2 per cent, well below the forecast of the Ministry of Economic Development. For comparison, the economic growth in the second quarter of 2012 was 4.3 per cent over the same period of 2011. The GDP growth declined to 1.6 per cent in the first quarter of 2013. Thus, 2013 may turn out to be the worst year in terms of economic growth for the entire presidency of Mr. Putin.
Financial statements of large-scale enterprises in the Russian Federation indicate that the fall in investment since April is more than 5 per cent. This is indirect evidence and a leading indicator of pitching into recession.
It is expected that the Russian government will have to cut down on its budget. Thus, the amount of federal revenues in the first half of 2013 was 48.6 per cent of the projected amount approved by the Federal Law on the Federal Budget for 2013 and for the Planning Period of 2014 and 2015. At the same time, Moscow will try to avoid a budget sequester, which will create new political tensions in Russia.
This means that the Kremlin is interested in establishing a maximum level of protectionism and import substitution for goods from third countries and for goods originating in the countries of the Customs Union with the aim of maximum load of Russian companies, growth of budget revenues and GDP.
A similar situation can be observed in Belarus. Thus, the GDP of Belarus in January to July 2013 in current prices was 340.1 trillion roubles and increased compared to the same period last year, in comparable prices, by 1.4 per cent. The forecast for 2013, in accordance with the Decree of the President of the Republic of Belarus of 25 September 2012 No. 418, anticipates its growth by 8.5 per cent that, given the current momentum, is not possible.
Establishing of the CU has led to increase in prices of particular commodity groups. On one side this is happening due to increase in customs tariffs leading to increase in prices for commodities imported from third countries, and, from another side, due to equation of prices within the CU. As a result, Kazakhstan has to resort almost to fixing of prices for socially important commodities and introduction of state regulation of prices. There is a significant increase in primary commodities observed at the market against decrease in purchasing capacity. Thus, in the RB there is constant high inflation rate which has been 36.1 per cent according to the results of 2012.
Protectionism is able to provide a temporary boost to industrial growth within the CU. However, such measures may cause industrial upgrading of the member countries to inhibit.
So far, the protective barriers affect trade. Thus, sources in diplomatic circles in Kazakhstan linked the reduced trade performance of the country in 2012 with protective barriers set by other participants. This is particularly true for food products, in some cases, these barriers are of technical nature. Discrimination against Astana is happening in the market of alcoholic beverages, confectionery (Russian legislation allows to import only a part of the product range) and in import VAT matters. For example, the Russian-made juice relating to child nutrition falls under the rate of 10 per cent, whereas the same juice made in Kazakhstan is taxed at 18 per cent.
We would like to draw your attention to the fact that the food production sector is equally developed in Kazakhstan, Belarus and Russia. This explains the fact that Russia is creating trade conflicts primarily in these sectors.
Despite the fact that the factor of rapprochement between Ukraine and the EU is indeed present in the motives of behaviour of the Federal Service for Supervision of Consumer Rights Protection and Human Well-Being, the underlying economic causes of introduction of protective barriers by Russia are precisely the crisis of development and trade inside the CU. This is confirmed by the fact that Russia has recently banned imports of not only Ukrainian goods, but those of other countries (including EU members), as well.
Thus, on August 12, 2013, the Federal Service for Veterinary and Phytosanitary Surveillance reported on the inspection of 6 enterprises producing food of animal origin in Turkey: three of them were specializing in dairy products and other three — in fish products and seafood. On the same day the Federal Service for Veterinary and Phytosanitary Surveillance restricted imports of Fonterra (a New Zealand-based company) products because of the causative agent of botulism. On August 15, 2013, 133 Germany-based companies were excluded from the list of food suppliers “because of the numerous detections of violations of the requirements of Russia and the Customs Union during the laboratory safety monitoring and systemic deficiencies recorded during inspections of German enterprises”.
In recent weeks, Russian officials have made claims to the quality of Polish food products and to the Polish suppliers. It started with Polish pork and continued 4 days later with Polish vegetables and fruits in connection with the alleged presence of nitrates and pesticides in the imported fruit and vegetable products. At the same time, Moscow does not confirm its accusations with specific facts. It must be emphasized that the intensification of the Russian-Polish trade claims is against the background of growth of exports from Poland to Russia by 12.8 per cent (EUR 3.9 billion) in the first half of 2013, while imports of Russian goods to Poland fell by 12.4 per cent (EUR 9.5 billion). The drop was primarily due to the decline in world prices for oil and gas that Warsaw buys mainly from the Russians.
This confirms our findings that Moscow is imposing trade sanctions against its economic partners to hide and balance the negative and crisis developments in its own economy and the one of the CU, and to create the illusion of effectiveness of the Customs Union.
We would like to note that not only the Kremlin uses this tactic, but also the official Minsk.
This is clearly shown by the situation where the leadership of Belarus attempts to regain control over the export of potash without the participation of Russian business by unprecedented action against Uralkali. We would like to note also that this tactic does not add to the stability of the Custom Union, but leads to political conflicts that may ultimately affect the functioning of the Union.
Putin’s “January Sermon”: Is it a path to democratization of Russia or a hoax?
The volatile political trajectory and its subtle actions in Russia have always created awe among the political pundits in the West who are immensely obsessed with the geopolitical space in Ruski Mir. However, history has always aggrandized Russia as a state that cannot be easily fathomed. Just like how a dull and calm plot reaches its most unexpected culmination in a Dostoyevsky’s novel, the political trajectory in Russia has always been thrilling. The most recent political events followed by president Vladimir Putin’s annual speech in the state Duma on 15th of January is an epitome for the uncanny political nature of the world largest state.
The speech delivered by president Putin on 15th of January in the Duma was entirely an unexpected political explosion. In his speech, he proposed a serious of constitutional changes that would escalate the powers of the parliament eventually leading to an increase of prime minister’s power. Article 83 and 84 of the Current constitution in Russian federation have vested considerable power in the hands of the president over the state duma and the proposed changes would inevitably revoke them. A legitimate question appears before any inquisitive person on Russian politics is “Why Putin would allow Duma to curtail his power “. Political history of president Putin has aptly proven his sharp political acumen as a politician who properly kept his grip. However, this time he opted for rather a completely a different strategy by empowering the state Duma, which is the lower house of Russian parliament to appoint the prime minister who is currently being appointed by the president with Duma’s consent.
The increasing the power of a national council happens to be the most notable proposition of these recommendations and Putin indicated the need to strengthen the constitutional role as a crucial factor. The state council was a creation of Putin during his first term in Kremlin. Thus far it has served as an advisory body and it is consisted of regional governors, speakers of the both houses in the parliament and the party leaders. The proposed constitutional recommendations will boost its power and it is still unclear the way it would safeguard Putin from a political ebb. It not clear what role president Putin fancies in empowering the national council from nonentity to a powerful tool in Russian state apparatus. The evasive step taken by the former president of Kazakhstan Nursultan Nazarbayev in 2019 seems like a potential strategy Putin determines to implement. The last holdover from the Soviet era Kazakhstan resigned from the presidency and retained the influential job of leading country’s security council as the leader of the nation. Perhaps, Putin will embrace the same strategy of symbolizing an honorable step down while keeping his grip in a different way such a making himself as the head of the national council. Yet, making such an arm chair prediction about his possible strategy to remain in power beyond 2024 may be rather futile as Vladimir Putin has always shown a political unpredictability in his actions.
The appointment of Mikhail Mishustin to the prime minister post after Dmitry Medvedev stepped down along with his cabinet is the next notable incident emerged after 15th of January. Unlike Putin’s protégée Medvedev the newly appointed president holds no significant political activism as an ally or at least as a panegyric. He is being described as a technocrat and apolitical figure who was responsible for transforming the aged old Russian tax service into an era of digitalization. From a vantage point, the choice of Putin appears to be a wise move with the meritocratic capability of Mishustin regardless of his lack of affinity with the politics. Since the Ukrainian crisis in 2014, the economy of Russia has been in the doldrums and some economists have described the last decade as a stagnant decade for Russia’s economy. Given his solid background in economics and practical experience with taxation may prove his competence to become the premier in midst of an economic stagnation. Mishustin’s appointment reminds of the count Sergei Witte’s appointment by Tsar Nicolas II in 1905 whose capacity as an econometrician boosted Russia’s industrial growth for a shorter period.
The democratic reforms have always been sort of tough moves throughout Russian history. Especially the centralization of political power has always impeded Russia from reaching democratization. The confrontation between president Yeltsin and the parliament in the fall of 1993 eventually ended up in Yeltsin’s outrageous move of sending armed tanks to the parliament building. The current Russian constitution which has placed enormous power under in the hands of the president is an offshoot of the constitution adopted in Yeltsin era. Putin’s abrupt decision to reduce that will at least theoretically undo the damage wrought by 1993 constitution. In principle, the transition of power from the president to the parliament will pave the way to increase the high chances of check and balance in power crating a greater change in Russian political culture.
All in all, the ostensible motive of the constitutional reforms will assist Russia to get into better strides as a normal democracy without enabling the centralization of power around one man. But can we believe that country that has never undergone a proper western democracy will be adamant for such a mammoth change? The real politic in Russian history has always shown the rise of lesser known political characters to the zenith of power by taking the advantage of chaos. When Russian state was in a verge of extension Mikhail Romanova came out of nowhere and created the house of Romanovs that lasted for three hundred years. When Lenin died creating chaotic power vacuum in 1924, lesser known Stalin exterminated all his foes and tightened the power of newly born USSR and finally made it a super power. The sudden power shift Putin proposed on 15th of January is simply a tranquil sign before a great political storm in Russia and ironically Russians are no strangers for such political storms.
Putin and the “Xi Jinping” Model in Russia
The first month of this new decade would be remembered in future for one of the very significant events which could mark a drastic shift in the world order. Putin has tried to outplay the very constitutional values of the country and it could prove very dangerous to Russia and its citizens.
Putin tries to get the “Power” For-ever
Russian President Vladimir Putin, on 15th January 2020, announced few drastic changes which he was planning in the country. He announced his plans to hold a referendum to make major constitutional changes which would change picture of Russian politics and internal governmental system completely. Firstly, as per the Russian Constitution the limit to Presidential term for a candidate is two-consecutive terms which clearly means that Putin, who had acquired power by swapping his office with the then President in 2012, has a constitutional mandate to leave his office in 2024 without being any chance to be re-appointed. Also given the fact that 2012 swapping was also followed by the massive protests in the country, he could not plan the same strategy for yet another time as there are chances that if he does so then even more protests are bound to take place. Furthermore, he has tried to reduce the Presidential powers and has decided to resist the political powers of one his closest political ally – the Prime Minister who quit – Mr Dmitri Medvedev and has succeeded in making Mr Mikhail Mishustin the next PM of the country. This move is very clever one as Mishustin was more of a bureaucrat without any strong political image. This further means that there would be no one in the government who could politically compete with Putin in near future. The constitutional changes also include vesting more powers with regards to judiciary in the parliament which indicates that it would serve as a resistance, to some extent, for a free and fair judicial system of the country which might be a good sign for politicians but is surely worrisome for the common citizens. Putin thus has tried to make a way for himself as a politician and has seek his self-interest keeping Russia’s political system at stake. The already “not so democratic” Russia will further find itself in a worsened situation.
All may not go well within Kremlin
The attempt by Vladimir Putin to get a permanent solution for his political career by outplaying the constitutional norms may not be welcomed by the Russians. Firstly, the move might be facing a great backlash in form of the protests which were also used to greet Putin in 2012 after he swap his constitutional position with the then President in order to get his term as President. Those protests were shut down anyhow but these might not. These may further create an additional chaos in the upcoming years, given the fact that Putin’s Presidential term still has 4 more years left. Furthermore, vesting more constitutional powers for him clearly means that further suppression of the rights of Russians which have taken place in recent years.
The recent laws and legislations which are effective taken up to censor the media from reporting against state, to curb internet rights by not allowing “Foreign” media, to not respect the voices of people that are against the regime, suggests that if Putin gets an eternal political power in Russia then further depletion of democratic norms are probably inevitable in the country. Moreover, another impact of this step would be a complete rupture of the “opposition” in the country. Leaders and political opponents would no longer be able to counter Putin or even prominently challenge any of his decisions in the future as judiciary itself would be under eyes of the parliament.
This further means that “One-man rule” is a future scenario in Russia, if these steps which Putin has planned and is planning gets implemented successfully. The proposal of setting upper limit for total number of terms of President as two in number and not allowing any candidate to hold the post who either hasn’t been a resident in the country for past 25 years or else has held any foreign passport or residential permit in past is also to curb the opposition. This proposal is clearly targeting the candidates who might have a liberal western influence in their ideology and work, thereby depleting the citizens from even having proper opposition leaders.
Although he has still sought the referendum on the proposals, given the present circumstances and past records, the decision by Putin is expected to face protests throughout the country. Earlier, in 2012, Putin had ruptured down the protestors and thereby Putin has cleverly tried to make this decision seem a Public opinion through referendum but it would be interesting to watch how transparent the referendum is actually going to be.
A future trajectory for Policies getting Influenced
Putin having a “life-long” political power being in the governmental system might set up few new trajectories in the Russian policies and for the long term in the global order as well. Putin remaining permanently means further improvement in Russia’s bonding with Beijing and thereby broadening of the scope for Chinese influence in Central Asia affecting many countries which were part of the former Soviet Union. Furthermore, these countries would see themselves sandwiched between two major communist countries having “One-man Rule”. This would further mean diminishing the chances of Russian pull-off from Syria which further implies a non-stable Middle East indulged in a tug of war between various non-regional powers. Moreover, if Putin gets extraordinary power without any scrutiny from any organ of the government inside the country, he would further continue giving its support to the oppressive Asaad regime in Syria clearly stopping any further attempts of de-escalation in the region.
It should come as no surprise if US finds itself more uncomfortable in various regions and policies as China – which has a “Permanent Xi-Jinping” term and Russia – which is expected to have a “Permanent Putin” term will always keep Washington annoying in various aspects of foreign policy. Thus, it would be notable to see how Americans vote in 2020 for their presidential elections and if Republicans are able to retain power or not.
However, main concern for Kremlin is going to be its economy in the future. After disintegration of former USSR, Russia has always found difficulty in competing in the global markets and has relied mainly on the weapons for gaining a boost in their economy, however Putin has shifted from this trend and has started exploring African subcontinent for Russian advantage. Thus, Putin gaining a permanent power means a reinforce of this strategy and a more prominent use of regional partnership including BRICS and SCO.
Thus, Putin getting a permanent leadership role of Moscow has its own implications for country’s internal politics as well as its various foreign policy aspects. If the referendum is held just for the name’s sake then Russians would the most vulnerable among all the players involved in this constitutional change as the change certainly makes their future most uncertain. It is a high time that Russians understand their basic rights and Putin understands the past of the Revolutions.
Meet Mikhail Mishustin, Russia’s new Prime Minister
Plucked from obscurity and little known in wide national political scene, the Head of the Federal Tax Service, Mikhail Mishustin, to become the new Prime Minister was a complete surprise, but not the first time in Russia’s politics. President Vladimir Putin was pulled upto the top political field, in a similar way, by Boris Yeltsin. In August 1999, Putin was appointed one of three First Deputy Prime Ministers, and later on, was appointed acting Prime Minister of the Government of the Russian Federation by Yeltsin.
Yeltsin announced that he wanted to see Putin as his successor. Readily, Putin agreed to run for the presidency and later approved by State Duma with 233 votes in favor (vs. 84 against, 17 abstained), while a simple majority of 226 was required, making him Russia’s fifth PM in fewer than eighteen months.
On his appointment, few expected Putin, virtually unknown to the general public, to last any longer than his predecessors. He was initially regarded as a Yeltsin loyalist, like other prime ministers of Boris Yeltsin, Putin did not choose ministers himself, his cabinet was determined by the presidential administration.
Now, with a new chapter opening, Mikhail Mishustin eventually replaces Dmitry Medvedev who served as Prime Minister until mid-January 2020. Putin and Medvedev worked together and even switched positions between President and Prime Minister. This switch was termed by many in the media as “Rokirovka”, the Russian term for the chess move “casting” and later Medvedev said he himself would be ready to perform “practical work in the government” with under Putin.
On January 15, in his address to the Federal Assembly, Putin explicitly explained: “Our society is clearly calling for change. People want development, where they live and work, that is, in cities, districts, villages and all across the nation. The pace of change must be expedited every year and produce tangible results in attaining worthy living standards that would be clearly perceived by the people. And, I repeat, they must be actively involved in this process.”
Meeting with the Cabinet thereafter, Putin said: “For my part, I also want to thank you for everything that has been done so far in our joint work. I am satisfied with the results of your work. Of course, not everything was accomplished, but things never work out in full.” He thanked the government and added that Medvedev served as President and for almost eight years now he has been the Prime Minister, which is probably the longest stint in this post in Russia’s recent history.
Further, Putin held a separate working meeting with Head of the Federal Taxation Service Mikhail Mishustin and proposed him to take the post of Prime Minister. Having received his consent, the President submitted the candidacy of Mikhail Mishustin for consideration to the State Duma.
On January 16, the State Duma (lower house) endorsed Mishustin, as the new Prime Minister of the Russian Federation. As many as 383 lawmakers supported Putin’s choice, none were against, and 41 parliamentarians abstained. “Colleagues, the decision has been taken. We have given consent to the appointment of Mishustin Mikhail Vladimirovich as Prime Minister by the president of the Russian Federation,” Duma Speaker Vyacheslav Volodin said, summing up the results of the vote.
President Vladimir Putin has signed a decree appointing Mikhail Mishustin as the country’s Prime Minister. “In accordance with Article 83(a) of the Russian Constitution, Mikhail Vladimirovich Mishustin is appointed as Russia’s Prime Minister,” says the decree published on the Kremlin’s website. The decree comes into force on the day of its signing.
Mikhail Mishustin was born on March 3, 1966 in Moscow to a father of Russian-Jewish origin and a mother of Russian origin. He completed postgraduate studies in 1992. He is married and has three sons. His interest is in sport, playing ice hockey. He is a member of the supervisory board of HC CSKA Moscow.
In 2003, he defended a thesis, headlined “Mechanism of state fiscal management in Russia” and received a PhD in economics. In 2010, he received a doctoral degree in economics at the Academy of National Economy under the Government of the Russian Federation (currently Russian Presidential Academy of National Economy and Public Administration).
Since graduation, he has worked in several enterprises. In February 2009, he joined the personnel reserve of the President of Russia. In 2010, Mikhail Mishustin was appointed as the Head of the Federal Tax Service (FTS). From 2011-2018, he was a member of the Presidential Council for Financial Market Development.
During this period, the tax service was criticized for its overly strict approach to business, and Mishustin rejected this accusation, citing a significant reduction in the number of inspections. So, with the arrival of Mishustin in 2010, the Federal tax service changed its approach to the organization of control events, focusing on analytical work.
As a result, the number of on-site tax audits has sharply decreased, while their efficiency has increased. If earlier every tenth taxpayer was checked, in 2018, the tax authorities checked only one small business company out of 4,000. The number of inspections of large and medium-sized businesses has also decreased significantly.
“This candidacy comes absolutely unexpectedly, but that does not mean he is a figure who brings about repulsion. Perhaps even the contrary. Not all fiscal heads are likeable and agreeable. In my view, Mishustin is largely seen by the public as agreeable,” Federation Council Deputy Speaker Ilyas Umakhanov told Interfax News Agency.
“This is yet more proof that our president relies on professionals at this difficult, critical moment when the country needs a qualitative leap, primarily in the economic sphere. This is down to new technology, digitalization; this is precisely where Mishustin made a mark as the Russian tax chief. He has huge experience under his belt, which has been embedded into the system,” added Umakhanov.
First Deputy Head of the Federation Council Committee for the Budget and Financial Markets Sergei Ryabukhin, for his part, described Mishustin as a very successful public administrator. “A top professional, a very big statesman and individual who has achieved great successes within the system of public administration in the tax and financial sphere. I think his is a good candidacy,” according to Ryabukhin.
According to experts, the surprise shake-up could have been triggered by launching a reset of the Russian political system and the upcoming power shift. Political Analyst Konstantin Kalachev believes that Putin’s decision to pick Mishustin as the new premier is related to his political neutrality, and he is also known in the business and corporate community. However, the new head of the government is unlikely to become Putin’s successor.
All officials interviewed by Vedomosti have described the choice as a surprise but a good one. Taxation is the only sector that has demonstrated a breakthrough in Russia’s state administration. The Russian Tax Service is one of the best in the world in terms of collecting taxes and developing technologies, an official linked to the financial system said. Mishustin is well-known in the government as a good administrator and his service was a lifesaver during the crisis, according to several media reports.
Mishustin is tasked with fulfilling Putin’s economic program, namely the National Projects to the tune of 26 trillion rubles ($424 billion) up to 2024. The program’s slow implementation and weak economic growth were among the reasons Medvedev’s government came under fire, the paper says. Mishustin’s major achievement is turning the tax-collecting agency into a service tool, said Partner at Taxology Alexei Artyukh.
He reformed the administration of major taxpayers and businesses can coordinate deals in advance in exchange for the Federal Tax Service’s access to companies’ accounting systems. If these approaches are extended to other services, this would result in huge progress, Alexei Artyukh said.
Kommersant, a local Russian newspaper, reported that Russia would remain as a strong presidential republic, and all the upcoming changes are linked to the the upcoming presidential election in 2024. Unreservedly, Mishustin stated during a plenary session of the State Duma that Russia has sufficient funds to achieve all goals set by President Vladimir Putin. Implementation of all the social obligations the president enumerated in his State of the Nation Address would require $64.8 billion.
Russia, with the largest territory in the world, has a wide natural resource base, including major deposits of timber, petroleum, natural gas, coal, ores and other mineral resources that can be used to support the expected economic development and raise the overall living standards of the population.
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