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BRICS Bank Could Change the Game

Kester Kenn Klomegah

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In full-fledged preparation for the official launch of BRICS New Development Bank (NDB) as an extraordinary highlight event during the July Summit under his chairmanship, Russian President Vladimir Putin has ratified an agreement on the establishment of a $100 billion BRICS pool of currency reserves, according to a document published early May on Kremlin’s official website.

Putin signed the federal law “On ratification of the Treaty establishing the pool contingent of foreign exchange reserves of the BRICS countries.” The federal law was first passed by the State Duma (Lower House) on April 24 after series of parliamentary deliberations and was finally approved by the Federation Council (Upper House) on April 29, 2015.

The agreement provides for the establishment BRICS pool contingent of foreign exchange reserves in order to provide financial support in the event of the partners of the BRICS problems with dollar liquidity in their domestic financial systems. This means that the $100 billion pool will maintain financial stability of the BRICS countries and allow for defenses against market volatility. The fund is meant to shield the BRICS against “short-term liquidity pressures” and promote greater cooperation between the five member countries.

On July 15 last year, in the city of Fortaleza (Brazil), BRICS members (Russia, China, Brazil, India and South Africa) signed an agreement to establish the $100 billion development bank, as well as a $100 billion reserve currency pool. China is set to provide the largest share of $41 billion to the pool, while Russia, Brazil and India will provide $18 billion each. South Africa is set to chip in the remaining $5 billion.

The headquarter is expected to be based in China’s Shanghai. The group agreed that India will preside as president on its first year. Russia, meantime, will be the chairman of the representatives.

Professor Georgy Toloraya, an Executive Secretary at the National Committee on BRICS Studies, in an interview with Buziness Africa notes the significance of BRICS bank as a catalyst to other international financial institutions, and explains further that “the Asian Infrastructure Investment Bank (АIIB) is a regional bank while the New Development Bank (NDB) is supposed to have a global outreach.”

“The AIIB is technically China-dominated and will center on projects, interesting to China. The New Development Bank (NDB) will have equal representation. Thus, it’s influence in changing the global financial architecture can be bigger. But competition is a good thing for these two banks as well,” the Executive Director wrote in an email comment to Buziness Africa.

He also recalls Russia’s suggestion to reform the international financial and economic architecture (including the International Monetary Fund) in the context of new developments in the world economy taking into account the legitimate interests of all the countries in order to create a more representative, stable and predictable system, reduce risks of destabilization of monetary and stock markets related to the massive cross-border movements of capital.

Toloraya points out assertively that an effort should be to create the road map of investment cooperation in the BRICS framework, conclude a multilateral agreement on the encouragement and protection of investments, and to single out areas for intra-BRICS cooperation and to develop cooperation in new technologies.

Contributing to this discussion, Professor David Shinn, who is an Adjunct Professor of International Affairs at The George Washington University’s Elliott School of International Affairs, argues in an email interview that “the BRICS New Development Bank is not yet functioning and it is not clear how the five original partners will share power. Other countries have been invited to join the bank, which could further alter the decision making process.”  

The idea is that the five countries contribute a total of $100 billion for an initial capitalization pool for the bank. Should some countries contribute more than others, it is safe to assume those countries will have more leverage than those who put in lesser amounts, the former U.S. Ambassador and now Professor argues, adding that “the devil is always in the detail.”

It is also important to remember that the bank is the first tangible result of the BRICS, five countries that have only one thing in common: at the time they joined BRICS they were the largest economies in their geographical regions. The Nigerian economy has now surpassed South Africa’s economy, so even this commonality is in question, he says.

“I don’t really see the BRICS New Development Bank as operating in competition with the Asian Infrastructure Investment Bank. There is much to be done in the developing world generally and Africa specifically that will accommodate both banks in addition to the contributions of the World Bank and African Development Bank. So long as the BRICS bank is run competently and follows international standards, I expect it will make a positive contribution. But first it has to open its doors and start making loans,” concluded Professor Shinn

According to the biographical history, David Shinn is an American diplomat and professor. He is currently an Adjunct Professor of International Affairs at The George Washington University’s Elliott School of International Affairs. He offers consultancy to the U.S. Government on the Horn of Africa and Sino-African relations. He served previously as an Ambassador to Ethiopia and Burkina Faso.

Undoubtedly, South Africa is a minority contributor to the total currency reserve pool (contingent reserve arrangement – CRA) but an equal contributor to the New Development Bank (NDB or BRICS Bank). With the CRA, the funds committed remain in possession of South Africa.

“The rhetoric is that South Africa’s voice in BRICS financial matters is not going to be compromised, despite being a minority contributor to the CRA, yet South Africa has been shut down in BRICS negotiation processes before and there is a strong tendency for this arrangement as well as the NDB, which will be headquartered in Shanghai, to be driven by China,” says Hannah Edinger, a Director at Frontier Advisory (a research, strategy and investment advisory firm that assists clients to improve their competitiveness in emerging market economies) headquartered in South Africa.

Similarly, Edinger further explains, the AIIB is China’s brainchild and one more initiative to give China a greater leadership voice in the region, given that reform of existing institutions such as the World Bank and broadly speaking global governance has been slow and not that reflective of China’s economic rise.

While focus of both the NDB and the AIIB will be on infrastructure project financing, I don’t think these two banks will necessarily go head to head in terms of competition. Even with the existing Asian Development Bank (ADB) in the region, there is room for co-financing of projects, given that in Asia the infrastructure funding gap is multiple trillions of dollars.

Underlining the high relevance of these two banks, Edinger told me that “in fact, India’s infrastructure deficit alone is already in the multiple trillions of dollars…. Current lending institutions in the regions are unlikely to fill this gap, and even when the NDB and the AIIB are at full lending capacity they might still not plug the deficit. Also, the NDB’s mandate will not only focus on Asia, but also on Latin America and sub-Saharan Africa. I think the challenge for both banks will be to find good projects.”

Alex Vines, a Director for the Africa Programme at Chatham House in London, explains to Buziness Africa that South Africa’s inclusion in the BRICS has been a way for the ANC government to leverage its foreign policy, and position itself within the emerging narrative on South-South cooperation and trade. Their support for the creation of a New Development Bank is a continuation of this, and although only Russia has ratified it so far, the South African’s are in the final stages of ratifications.

The Agreement on the New Development Bank that formerly established the bank at the VI BRICS summit in Brazil last year stated that each of the founding members will initially subscribe to an equal number of shares, indicating equal voting rights on those shares. The bank will invest primarily in infrastructure projects in both BRICS and non-BRICS countries, and the establishment of the first regional office in Johannesburg will give access to the African continent where infrastructure development needs are highest.

The establishment of the first regional office in Johannesburg will give a boost to South Africa’s attempts to market itself as the ‘gateway to Africa’, a position it has had difficulty maintaining against emerging regional hubs such as Lagos and Nairobi. The bank will also deepen the political relationship between China and South Africa.

“The NDB is the first tangible outcome from the BRICS organization, but the political relationship between China and South Africa extends outside the organization. China has become South Africa’s main trade partner, and South Africa is China’s largest partner on the African continent,” he wrote in an email to Buziness Africa.

Plans for the Asian infrastructure Investment Bank are still in their infancy, the MOU was only signed last October, but it looks like these institutions will complement, rather than compete with, each other.

Vines also said: “the establishment of the NDB was in part a reaction to under-representation in the existing international financial institutions, but it is unlikely that they will become direct competitors. It is estimated that the infrastructure investment requirement developing countries tops $1trillion per year, so there is plenty of room for new players in the marketplace, including the World Bank’s proposed Global Infrastructure Facility.”

In the case of the BRICS bank, Christopher Wood, a Researcher on Economic Diplomacy at the South African Institute of International Affairs (SAIIA), also explains in an email discussion recently…“China does not actually contribute more. All five countries are contributing $10 billion of callable capital to start with, giving them equal say in the decisions of the banks. Where China does contribute more is in the case of the Contingent Reserve Arrangement, which is a separate agreement that is a pool money that the five BRICS can draw on in times of financial crisis. The best way to think about the relationship between the two is that the BRICS New Development Bank is like the World Bank (providing funding for development projects), while the CRA is like the IMF (providing emergency funding in times of crisis).”

In the case of the CRA, South Africa does have a very small voice, but it’s not so important in this type of organization. The only decisions that will be made will be over whether to release funds to a country that requests help, and this would usually be an easy decision to make, based on hard economic evidence, according to Wood.

There are challenges to overcome. Researcher Wood thinks that “the bank’s short term challenges will be logistical, completing basic things like hiring staff, building internal operational procedures, and so on. Once this is completed, two larger challenges will present themselves. First, making a decision on what projects to fund, which will involve answering difficult questions on what type of projects the bank prioritizes, where it most wants to operate, and what role political priorities might play. Second, would be in building relationships with existing funders, like the World Bank and AIIB, to assure the BRICS bank doesn’t have to bear all the risk of the projects it gets involved in.”

On the other hand, Wood does not think China’s position in both the AIIA and BRICS bank indicates it wants to dominate the global space of these institutions, but certainly indicates it wants to play a bigger role. Traditional institutions are still dominated by developed countries and reforms that would give a bigger voice to countries like China have been very slow. In the Asian Development Bank, for example, the US and Japan each have more than twice as much voting power as China. The new institutions represent China’s frustration with the lack of reform and the persistence of a voting structure that doesn’t reflect its growth into a global superpower.

Chris Weafer, a Senior Partner with Macro Advisory, a consultancy advising macro hedge funds and foreign companies looking at investment opportunities in Russia, said in comments published recently that “within this new group, Russia certainly has a role because the country is the world’s biggest energy exporter and, on aggregate, the world’s biggest minerals exporter. Neither China nor India could sustain their current high pace of growth without either direct materials imports from Russia or, indirectly, from the global marketplace.”

He says “that alone justifies a seat at the BRICS table. Beyond that, Russia is already one of the largest consumer markets in the world and is, on a per capita and per household basis, the largest in the emerging market world.”

The idea to set up BRICS bank was first proposed by India and that topped the agenda at the summit of the group in New Delhi in March 2012. India believes a joint bank would be in line with the growing economic power of the five-nation group. The bank could firm up the position of BRICS as a powerful player in global decision-making. India believes that a BRICS bank could, among others, issue convertible debt, which would arguably be top-rated and can be bought by central banks of all BRICS countries. BRICS countries would thus have a vessel for investment risk-sharing.

The BRICS countries collectively represent about 26% of the world’s geographic area and are home to 42% of the world’s population. The BRICS consumer market is the largest in the world and is growing by $500 billion a year. Since the start of April, Russia has assumed the presidency of the BRICS group, taking over the position from Brazil. The next BRICS summit will take place in Ufa, the capital of Russia’s Volga republic Bashkiria, on July 8-10, 2015.

Kester Kenn Klomegah is an independent researcher and writer on African affairs in the EurAsian region and former Soviet republics. He wrote previously for African Press Agency, African Executive and Inter Press Service. Earlier, he had worked for The Moscow Times, a reputable English newspaper. Klomegah taught part-time at the Moscow Institute of Modern Journalism. He studied international journalism and mass communication, and later spent a year at the Moscow State Institute of International Relations. He co-authored a book “AIDS/HIV and Men: Taking Risk or Taking Responsibility” published by the London-based Panos Institute. In 2004 and again in 2009, he won the Golden Word Prize for a series of analytical articles on Russia's economic cooperation with African countries.

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Economy

How U.S.’s Response to Covid-19 Could Precipitate 2nd Great Depression

Eric Zuesse

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On March 10th of this year, there were 290 daily new U.S. cases of Covid-19 (coronavirus-19).

On March 13th, U.S. President Donald Trump declared a pandemic national emergency, because the number of daily new cases was now suddenly doubling within only three days. However, no lockdown was imposed. The policy-response was instead left to each individual. This is in accord with America’s libertarian idelogy. Trump even announced that “he was allowing his health secretary to bypass certain regulations to provide more flexibility to doctors and hospitals responding to the outbreak” — outright reducing, insead of increasing, federal regulations, this being his way to address the matter. That’s the libertarian response.

Covid-19 (coronavirus-19) cases started soaring in the U.S., from 600 daily new cases on March 13th, to 25,665 on March 31st. Americans were scared to death, and facemask-usage soared, and independent small businesses started laying people off en-masse. (Restaurants, hair salons, travel agencies, inns, dental offices, etc., were hard-hit.)

Immediately, the alarming rise in new cases halted on April 4th (at 34,480), and the daily new cases remained approximately flat, but slightly downward, from March 31 to June 9th (when it reached bottom at 19,166), but then soared yet again, to 78,615, on July 24th.

But, then, it again declined, so that, on September 8th, it was at only 28,561. This was already returning to around what the new-cases rate had been back on March 31st. So: despite peaking again on July 24th, the rate of daily new cases was little changed between March 31st and September 8th. And, all during that 5-month period, people were coming back to work.

The key immediate and direct economic variable affected by Covid-19 is the unemployment rate. Here, that economic effect is clearly shown:

U.S. unemployment: March 4.4%, April 14.7%, May 13.3%, June 11.1%, July 10.2%, August 8.4%

Though the daily-new-cases rate went down after March 31st and after July 24th, the unemployment rate progressed far more gradually downward after March 31st: the small businesses that had been panicked by the explosion of new cases during March were now gradually re-opening — but they remained very nervous; and, so, unemployment still was almost twice what it had been during March.

Here, that experience will be compared with two Scandinavian countries, starting with Denmark, which declared a pandemic national emergency on March 13th, just when Trump also did. “Starting on 13 March 2020, all people working in non-essential functions in the public sector were ordered to stay home for two weeks.” The daily new cases fell from the high of 252 on March 11th, down to the low of 28 on March 15th, but then soared to 390 on April 7th, and gradually declined to 16 (only 16 new cases) on July 9th. Then it peaked back up again, at 373, on August 10th, plunged down to 57 on August 26th, and then soared yet again back up to 243 on September 8th. The new-cases rates were thus irregular, but generally flat. By contrast against the experience in U.S., Denmark’s unemployment-rate remained remarkably stable, throughout this entire period:

Denmark: March 4.1, April 5.4, May 5.6, June 5.5, July 5.2

Sweden’s Government pursued a far more laissez-faire policy-response (“The government has tried to focus efforts on encouraging the right behaviour and creating social norms rather than mandatory restrictions.”), and had vastly worse Covid-19 infection-rates than did the far more socialistic Denmark, and also vastly worse death-rates, both producing results in Sweden more like that of the U.S. policy-response than like that of the Danish policy-response, but far less bad than occurred on the unemployment-rate; and, thus, Sweden showed unemployment-increases which were fairly minor, more like those shown in Denmark:

Sweden: March 7.1, April 8.2, May 9.0, June 9.8, July 8.9

That was nothing like the extreme gyration in:

U.S.: March 4.4%, April 14.7%, May 13.3%, June 11.1%, July 10.2%, August 8.4%

Why was this? 

Even though Sweden’s policy-effectiveness was more like America’s than like Denmark’s at keeping down the percentages of the population who became infected, and who died from Covid-19 (i.e., it was not effective), Sweden’s policy-effectiveness at keeping down the percentage of the population who became unemployed was more like Denmark’s (i.e., it was effective, at that). Unlike America, which has less of a social safety-net than any other industrialized nation does, Sweden had, until recently, one of the most extensive ones, and hasn’t yet reduced it down to American levels (which are exceptionally libertarian). Therefore, whereas Swedes know that the Government will be there for them if they become infected, Americans don’t; and, so, Americans know that, for them, it will instead be “sink or swim.” Make do, or drop dead if you can’t — that is the American way. This is why Swedish unemployment wasn’t much affected by Covid-19. When a Swede experienced what might be symptoms, that person would want to stay home and wouldn’t be so desperate as to continue working even if doing that might infect others. Thus, whereas Sweden’s unemployment-rate rose 27% from March to May, America’s rose 202% during that same period. Americans were desperate for income, because so many of them were poor, and so many of them had either bad health insurance or none at all. (All other industrialized countries have universal health insurance: 100% of the population insured. Only in America is healthcare a privilege that’s available only to people who have the ability to pay for it, instead of a right that is provided to everyone.)

On September 9th, Joe Neel headlined at NPR, “NPR Poll: Financial Pain From Coronavirus Pandemic ‘Much, Much Worse’ Than Expected”, and he reported comprehensively not only from a new NPR poll, but from a new Harvard study, all of which are consistent with what I have predicted (first, here, and then here, and, finally, here), and which seems to me to come down to the following ultimate outcomes, toward which the U.S. is now heading (so, I close my fourth article on this topic, with these likelihoods): 

America’s lack of the democratic socialism (social safety-net) that’s present in countries such as Denmark (and residual vestiges of which haven’t yet been dismantled in Sweden and some other countries) will have caused, in the United States, massive laying-off of the workers in small businesses, as a result of which, overwhelmingly more families will be destroyed that are at the bottom of the economic order, largely Black and/or Hispanic families, than that are White and not in poverty. Also as a consequence, overwhelmingly in the United States, poor people will be suffering far more of the infections, and of the deaths, and of the laying-off, and of the soon-to-be-soaring personal bankruptcies and homelessness; and, soon thereafter, soaring small-business bankruptcies, and ultimately then big-business bankruptcies, and then likely megabank direct federal bailouts such as in 2009, which will be followed, in the final phase, by a hyperinflation that might be comparable to what had occurred in Weimar Germany. The ceaselessly increasing suffering at the bottom will ultimately generate a collapse at the top. Presumably, therefore, today’s seemingly coronavirus-immune U.S. stock markets, such as the S&P 500, are now basically just mega-investors who are selling to small investors, so as to become enabled, after what will be the biggest economic crash in history, to buy “at pennies on the dollar,” the best of what’s left, so as to then go forward into the next stage of the capitalist economic cycle, as owning an even higher percentage of the nation’s wealth than now is the case. Of course, if that does happen, then America will be even more of a dictatorship than it now is. Post-crash 2021 America will be more like Hitler’s Germany, than like FDR’s America was.

The Democratic Party’s Presidential nominee, Joe Biden, is just as corrupt, and just as racist, as is the Republican nominee, Donald Trump. And just as neoconservative (but targeting Russia, instead of China). Therefore, the upcoming November 3rd elections in the U.S. are almost irrelevant, since both of the candidates are about equally disgusting. America’s problems are deeper than just the two stooges that America’s aristocracy hires to front for it at the ballot-boxes.

Author’s note: first posted at Strategic Culture

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Democracy in the doldrums

Samudrala VK

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It is clear that during the COVID-19 pandemic  times, Democracy has gone pear shaped throughout the world. Power and Political activity are considered as alpha and omega of the modern day democracy.
The Modern state(political authority),which is based on legitimacy and a tool to deliver political, economical and social justice, has been rendering yeoman service to
corporates, both domestic and foreign. The ruling dispensations all around the globe have resorted to authoritarianism under the guise of health emergency. In addition, the topsy turvy of Democracy, through excessive centralisation and the iron curtain imposed on political activities during this pandemic, has left minimal space to raise the concerns of the urban poor. The pandemic, a bolt from the blue, has caught our health systems off guard. In India, the labour class has caught between the devil and the deep sea, thanks to the recent twin moves of the central government, privatization and the helter-skelter lockdown. The pernicious effects of the lockdown are yet to hit the masses. Seemingly, the rudderless policies of central government have created enough space to further pauperization of masses, mostly have-nots.
Now, the federal governments of third world countries have to walk on razor edge by meeting the fiscal deficit targets on one hand and by connecting the welfare dots on the other.It is not surprising to say that the big corporates are making good fortunes with the relaxation of tax rates and new labour codes. As unemployment is hanging like the sword of domacles over the working class, the corporate class would expect this surplus labour to be at their beck and call.The early warnings of intelligentsia on the consequences of disastrous lockdown  were remained as the voices crying in the wilderness. The ruling elite has been trying to enshroud the general despondency among the civic force by shifting the propaganda machinery to sensitive elements like religion, hyper nationalism and sloganeering-not to mention self aggrandizement.

Neo-liberalism and corporatisation

The diktats of the world bank and the IMF(International monetary fund) on the third world nations like pruning the subsidies, roll back of welfare measures and the abatement of labour laws as an essential sina qua non for any sort of relief package during the crisis of BOP(Balance of payments) have left labour class of the thrid world nations in quandary. The US with the support of the WTO( World Trade Organization)had exhorted all these countries to provide untrammeled access its products. Apparently, the aims and paths of federal governments of these nations ,the WTO and the IMF are congruent with regard to free trade and the globalization of capital. The lawful protections for the working class under the labour laws have proved disastrous for the interests of the capitalist class and being viewed as shackles for the exploitation. The decades-long struggle to retain these labour rights in independent nation states has been ending in smoke due to weakened trade unions and the decline of social capital. The time has come to fight tenaciously and move heaven and earth to restore their rights which are otherwise go to the dogs. When the market space is being dominated by Monopoly or Duopoly or Tripoly, the free and fair competition which the unhindered market guarantee is an absolute sham. Extolling the virtues of Neo-liberalism, the modern nation states have centred their development agenda in and around urban centres. Economically, in the post-liberal era of India, the upward mobility is largely confined to a few sections of the urban middle class.

Welfare economics

It is wrong to mention that welfare economics is based on “Rob Peter to pay paul principle” when Peter has direct access to resources(natural, political, economical and social) vis-a-vis Paul. It is not the Peter but the Paul who is running from the pillar to post in search of opportunities. The notion of political equality of liberal ideological stream revolves around freedom and liberty of an individual and overlooks the core elements of equality like social and economical justice. The central governments all over the world have successfully repudiated the pro-poor agenda and this volte face from welfare state to pro-capitalist state has pushed the labour class out of the frying pan into the fire.

Nexus between political class and biggies

The unholy nexus between the political class  and corporates has been riding roughshod over the interests of poor. This alliance behooves the political class to safeguard the vested interests of corporate bigwigs. It is apposite to mention that representative democracy has been metamorphosing into a turncoat democracy. Back in the day, Politicians were known for their erudition, statesmanship and uncompromising ideological commitment. On the contrary, present day representatives are turning into snollygosters for their personal gains. There are several voluminous reports from different corners on rising economical disparities in the post-liberal era on which no political party is keen to act upon. As Michael Jackson, king of pop, penned in one of his famous tracks “All I want to say is that they don’t really care about us”-the lyrics are still relevant in this pandemic times.

Globalization and dependency

The South Asian nations have started their LPG (Liberalisation, privatization and Globalization) path at the same time, with the exception of Sri Lanka which had opened its economy by fits and starts.They had adjusted their economical apparatus with a new global integration process at a time when the global economical architecture was dominated by unipolar power, the US.
The lopsided globalization process has been converting many third world countries as dependents and in some cases almost to a level of aid recipients upon the erstwhile colonial powers or the US. Under the banner of global integration, all these nations were dragged into this complex whole, in most of the cases through persuasion. In the name of free trade, the Western powers have been  bleeding these nations white of their resources. The asymmetrical globalization has also challenged the sovereignty of these nations while the same has remained intact in case of developed nations. The US has been playing a rigged game of globalization under the auspices of the WTO, the world bank and other agencies. The time has come for these players to bury their hatchet and rise as a one voice to have a just order at the international sphere.

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Economy

Objectives and Importance of Advertising in a Competitive Business World

Ahsan Siraj

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The best way to communicate with the customers is communication through advertisements. Through advertising customers are informed about the available brands in the market and also variety of new and existing products useful for them.Here are different definitions of advertising.

According to Kotler’s definition: “Advertising is any paid form of non-personal presentation & promotion of ideas, goods, or services by an identified sponsor.”

According to the Advertising Association of the UK: “Advertising is any communication, usually paid-for, specifically intended to inform and/or influence one or more people.”

Advertising is done by using different media types and different techniques and methods as per the requirements. It also aims to attract all age groups depending on the nature of brands and products they are offering to their customers. Communication between companies and customers are basically carried out in a very artistic way and for this effective communication in order to fulfil desired objectives one should possess great communication skills and convincing power.

What are Advertising Objectives?

Advertising is part of marketing and one of the most creative fields. Advertising is part of marketing but normally people confuse advertising with marketing. Hence, the objectives of Advertising are completely different from Marketing. The main objective of advertising is to carry out communications between the brand and the customer. Here are some more important objectives of advertising.

  • The introduction of the new product in the market is the most common reason behind the advertising by the brands and these brands can be new in the market as well as existing brands. The objective here is to tell customers about the new product launched in the market.
  • There are a lot of new businesses starting in the market and many among those are service providing businesses. For services the business are marketed as a brand instead of marketing their individual products.
  • Businesses use advertising to get attention as well as creating desire to buy a certain product or service and according to the AIDA model mostly followed in advertising basically getting attention is awareness creation while desire creation leads to buying. By advertising companies capture attention of people and make them aware of the products available in the market.
  • Another important objective of advertising is seeking customers. These customers can be both new and the ones purchasing from other brands. By effective advertising potential customers can be attracted to a certain brand making existing customers to switch brands.
  • In a competitive business world, it is very important to differentiate a brand’s product and service from its competitors and it is done by effective advertising. A customer can only differentiate between products and services based on the value a certain business provides over its competitors. That’s why advertising is used to create value and to differentiate one brand’s products and services from others in the market.
  • Brand building is also an important objective of advertising. So, when a brand regularly advertises and delivers quality products and fulfills the promises it makes, automatically the value of the brand is built.
  • Increasing the sales is another objective being achieved by effective advertising. The more customers attracted to a brand by advertising the more increase in sales is recorded.
  • With the value being communicated and the brand being differentiated as well as sales being increased, there is no doubt that advertising can contribute a lot to increasing profits.

What is the Importance of Advertising?

Advertising is equally important to customers, businesses and society. So, here are some of the important factors to all above mentioned areas.

Importance of advertising to Customers

Convenience: Advertisement is very helpful for customer’s decision-making process because through advertisement customers are well aware of their desired products available in the market. So, it is convenience for them to find their desired products in the market.

Awareness: It is due to the advertising that customers are well aware of the products and their features available in the market.This awareness not only helps customers to make purchase decision but also enable them to compare different products and choose the best product for them.

Quality Assurance: When we look at the trends in the market we come to know that advertising is done by brands only about their products and services. No local businesses go for advertising because no advertisements are required for unbranded products. This ensures quality products to the customers.

Importance of advertising to Business

Awareness: It is because of advertising that people are well aware of their desired brands and productsavailable in the market.

Brand Image: It is very important to create a positivebrand image and brand personality in the minds of the customers and it is done efficiently by advertising.

Product Differentiation: One business is able to differentiate its product from those of its competitors’ and communicate its features and advantages to the target audience by using effective advertising.

Profit MaximizationDue toadvertising brands are able to deliver their message to a large audience and hence more people tend to buy from those brands ultimately making them able to earn more money.

Importance of advertising to Society

Advertising is really helpful in educating people. There are some social issues required to be addressed for social benefits and advertising deals with them like child labor, smoking, family planning education, etc. therefore, advertising plays a significant role in society.

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