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Russia plans to develop Kuril Islands

Dimitris Giannakopoulos

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Welcome to the Caspian Daily, where you will find the 10 most important things you need to know on Caspian Sea Region. We appreciate ideas, reports, news and interesting articles. Send along to Caspian[at]moderndiplomacy.eu or on Twitter: @DGiannakopoulos

1Russian Prime Minister Dmitry Medvedev indicated Thursday he plans to inspect economic development on some of the Kuril Islands, about 1,300 km northeast of Hokkaido, including four claimed by Japan.The inspection may be designed to demonstrate Russia’s effective control of the four islands, which were occupied by Soviet forces following Japan’s surrender in World War II on Aug. 15, 1945. Earlier in the day, the Russian government approved a 10-year plan to develop the Kuril Islands. Medvedev said the government will spend 70 billion rubles the plan. Japan has urged Russian Prime Minister Dmitry Medvedev not to visit Japan-claimed islands off Hokkaido, Foreign Minister Fumio Kishida said today (July 24), calling the planned trip to the isles at the center of a long-standing bilateral dispute “unacceptable”. Mr Kishida said that the visit, if it pushes through, would “go against Japan’s position on the territories and hurt the feelings of the Japanese people”.

2The presidents of Armenia and Azerbaijan are ready to meet later this year in another attempt to revive the Nagorno-Karabakh peace process, international mediators said on Thursday as they ended their latest tour of the conflict zone. The U.S., Russian and French co-chairs of the OSCE Minsk Group issued a joint statement in Baku after holding talks there with Azerbaijani President Ilham Aliyev. They met with President Serzh Sarkisian in Yerevan earlier this week.

3Turkmenistan is implementing several major projects aimed at increasing the production and export of natural gas, as well as the projects for deep processing of gas, the country’s Ministry of Oil and Gas Industry and Mineral Resources said July 23.The total cost of these projects is $20 billion.Moreover, these projects include the second stage of Galkynysh field’s development, construction of Turkmen sector of the fourth branch of Turkmenistan-China gas pipeline with the total capacity of 30 billion cubic meters of natural gas, a plant for polyethylene and polypropylene production in Balkan province, as well as a plant for producing synthetic gasoline from natural gas in Ahal province.

4Not déjà vu all over again. The nuclear agreement with Iran is very different from the one with North Korea. “Just as important as the technical differences between the two agreements are the differences between the two societies. North Korea is the most hermetically sealed country on earth. Ending its isolation by exposing its terrified, impoverished people to outside influences was the last thing the Kims wanted. Iran has a large population of well-educated young people who use the internet and social media. The election of President Hassan Rohani was brought about by businesses and citizens painfully aware of the economic damage done by sanctions. Opportunities to trade with the rest of the world could revitalise Iran’s economy.” [The Economist]

5During a two visit of India’s Prime Minister Narendra Modi to Kazakhstan, the two countries have signed a number of new agreements in energy and defence.Kazakhstan and India expected signed agreements on supply of uranium and moved forward with their cooperation in rare-earth elements.The CamKazInd fund aims to combine Kazakhstan’s rare-earth elements and mineral wealth with India’s human capital and the experience of Cambridge scientists to develop various technologies.Quantum technologies using Kazakhstan’s minerals have a great potential in computers, keeping food fresh and decreasing mobile phone bills.

6Azerbaijan’s Foreign Minister Elmar Mammadyarov received Richard Hoagland, the US Principal Deputy Assistant Secretary of State for South and Central Asian Affairs on July 23. Cooperation in transportation and energy industry were discussed during the meeting.Hoagland, noting that he supports his country’s initiative for the development of the ‘Silk Road’, said Azerbaijan is playing an important role in this regard.He said the realization of these initiatives will serve to the stability, prosperity and development of cooperation in the Eurasia.Mammadyarov, for his part, said that Azerbaijan is carrying out a consistent work to enhance the capacity of the transport infrastructure as an important element of the strategy of development of the non-oil sector.In this context, Mammadyarov noted the importance of the Baku-Tbilisi-Kars railway and the new Baku International Sea Trade Port.

7Southern Russia Mobilizes Against Islamic State. Moscow appears to be seriously concerned about the changes taking place within the ranks of the North Caucasian armed Islamists and the unexpected emergence of a branch of the Islamic State (IS) in the region. IS leader Abu Bakr al-Baghdadi declared the establishment of the Velayat Kavkaz of the Islamic State on the basis of the former Caucasus Emirate. [Jamestown]

8Russia guarantees energy security for Europe through the development of new gas transit capacities, Russian Prime Minister Dmitry Medvedev said. In December 2014, Moscow announced the cancellation of its South Stream pipeline project that was to transport Russian gas across the Black Sea to Europe. Russia cited the “non-constructive” stance of the European Union as the reason for scrapping the project. The European Commission claimed that the project would violate the EU Third Energy Package that prohibits simultaneous ownership of both the gas and the pipeline through which it flows.”Turkish Stream is taking South Stream’s place. It’s not proceeding as fast as we’d like, but it’s not stalled either. And then we thought of building a second Nord Stream line, which delivers Russian gas to Germany across the Baltic Sea. You probably heard that we have signed a memorandum between our companies to increase the gas volume via Nord Stream. So Europe’s energy security will be guaranteed,” Medvedev said in an interview with Slovenian radio and television company RTV Slovenija on the eve of his visit to Slovenia.

9Azerbaijan and Turkey will jointly invest in the renewable energy sector, Turkey’s Public Disclosure Platform said on July 22.The relevant Memorandum of Understanding was recently signed between the Turkish Turcas Enerji Holding and Azalternativenerji under Azerbaijan’s State Agency on Alternative and Renewable Energy Sources.According to the document, the sides will jointly invest in the construction of solar, wind, and geothermal power plants in Turkey and Azerbaijan, along with implementing other projects.The contract is valid for a period of three years from the date of signing.According to preliminary studies, Azerbaijan plans to construct up to 100 facilities for producing alternative energy in five years.

10President of Turkmenistan Gurbanguly Berdimuhamedov has received Martin Bouygues, chairman and CEO of French Bouygues company.During the meeting Bouygues informed the president about the company’s facilities, and made new proposals regarding the further partnership. These proposals were worked out taking into account the priorities of socio-economic development and ambitious reforms in Turkmenistan, also his interest in further strengthening its positions on the promising Turkmen market, where the company has been operating for more than 25 years. “The concept of further development of Ashgabat and other cities in the country offers great opportunities for fruitful cooperation with foreign partners, including the French companies,” the president said. The most important things are the timeliness and qualitative construction of facilities. Bouygues has been represented on the Turkmen market for a long time. The French concern has carried out several projects.

Journalist, specialized in Middle East, Russia & FSU, Terrorism and Security issues. Founder and Editor-in-chief of the Modern Diplomacy magazine. follow @DGiannakopoulos

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Africa-Europe Alliance: Four new financial guarantees worth €216 million

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The European Commission signed today four guarantee agreements worth €216 million that will help unlock €2 billion to invest in renewables, urban infrastructure and start-ups in Africa and the Neighbourhood. The guarantees were signed with the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the German KfW Group and the Spanish development cooperation agency, Agencia Española de Cooperación Internacional para el Desarrollo (AECID), at the 4th Strategic Board meeting of the External Investment Plan (EIP).

Commenting on these financial guarantees, Jutta Urpilainen, Commissioner for International Cooperation and Development, said: “The agreements signed today, worth €216 million, will aim to unlock €2 billion in new investment in Africa and the EU Neighbourhood. These guarantees share in the risk and help mobilise and attract public and private investments. They will help boost the supply of renewable energy to communities and businesses in Africa and the EU Neighbourhood, help small businesses invest and create jobs, and make African cities more resilient to growing populations and the effects of climate change. They are an example of how the EU’s new Green Deal initiative benefits citizens of our partner countries outside the EU”.

Commissioner for Neighbourhood and Enlargement Olivér Várhelyi added: “We want to ensure an investment boost that will drive forward growth and provide concrete benefits and opportunities to the people, for example when it comes to big infrastructure projects or the support to young entrepreneurs. The direct support to investment is a key element, but so are good governance and a conducive business environment that helps attracting investment, both domestic and foreign. This is why the External Investment Plan supports our partner countries also in developing more effective legal frameworks, policies and institutions that promote economic stability, sustainable investment and inclusive growth.”

Four guarantees, one goal: more investment where it’s needed the most

These guarantees will significantly boost investment in renewable energy and increase access to finance for small businesses (MSMEs), while also improving investment in urban infrastructure and services in Sub-Saharan Africa and in the EU Neighbourhood.

·     Resilient City Development (RECIDE)

This €100 million guarantee agreement is signed with AECID, the Spanish development cooperation agency. It targets Sub-Saharan Africa and the EU Neighbourhood. It will help cities develop public-private partnerships and lower the risks for private investors involved in financing urban infrastructure, focusing on: energy efficiency, flood protection, public transport, water sanitation and solid waste treatment. The guarantee reassures lenders that they will recover at least some of their investment in the event of losses and lowers borrowing costs.

·     Boosting Investment in Renewable Energy 

This €50 million guarantee agreement with EBRD will help to scale up investment in renewable energy in Ukraine and in the EU Southern Neighbourhood, in particular in Jordan, Lebanon and Tunisia. It will substantially boost renewable energy potential. The guarantee will help to generate a total investment of up to €500 million and is expected to provide 340 MW of additional installed renewable energy capacity.

·     Supporting Investment in Sustainable Energy 

This €46 million guarantee agreement with the KfW Group will help to expand the generation of renewable energy in Sub-Saharan Africa and cut the region’s carbon emissions and increase energy efficiency. It will partially cover the offtake risks in renewable energy projects, such as windfarms and solar energy. This guarantee will give many more people access to energy and reduce power shortages. 

·     SME Access to Finance

This €20 million guarantee agreement with EIB is targeting Small and Medium Enterprises (SMEs) in the EU Neighbourhood, with a particular focus on young entrepreneurs, women entrepreneurs and start-ups. It will provide affordable funding to small businesses, with less access to finance because local financial institutions consider them as riskier clients. The guarantee is providing local banks and financial institutions a first loss credit protection. This guarantee will sustain around 18,000 jobs and support 1,000 small businesses. 

These guarantees are part of the External Investment Plan, which aims to mobilize more than €47 billion by 2020 in public and private investment for development in countries neighbouring the EU and in Africa using €4.6 billion in EU funds.

Background

The EU External Investment Plan has three pillars. The first is finance. Through financial guarantees, the EU mitigates the risk in countries with difficult environments so that private investors and development banks will lend to entrepreneurs or finance development projects. Three guarantee agreements had previously been signed so far: Nasira Risk-Sharing Facility and FMO Ventures, with the Dutch Development Bank and Archipelagos – One Platform for Africa, with Cassa Depositi e Prestiti (CDP), the Italian Development Bank, and the African Development Bank (AfDB).

The plan’s second part is technical assistance. This funds experts who help authorities, investors and companies develop new projects. Technical assistance may include, for example, market intelligence and investment climate analysis, targeted legislative and regulatory advice, support to partner countries in implementing reforms, chains and identification, preparation, and help to carry out necessary investments.

The third pillar consists of investment climate support. The EU works closely with governments in partner countries to help them improve the conditions which investors need like a good business environment and political and economic stability. The EU also brings together governments and business to discuss investment challenges.

The External Investment Plan is a key part of the Africa-Europe Alliance for Sustainable Investment and Jobs, launched in September 2018 with the objective of creating 10 million jobs in five years, boosting investment and promote sustainable development. The von der Leyen Commission intends to use the full potential of the External Investment Plan to boost private capital and investment, including through further guarantee agreements.

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Defining the Decade of Delivery: 50th Annual Meeting Calls for Stakeholder Responsibility

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The 50th World Economic Forum Annual Meeting closed today, a historic meeting bringing all stakeholders together to shape a cohesive and sustainable world.

World Economic Forum President Børge Brende said “Our 50th Annual Meeting has been truly remarkable, due to the real progress that we created on a spectrum of issues where public-private collaboration is crucial. We laid the basis for a decade of delivery.”

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), told participants that we are in a better place in January 2020 than we were in October 2019. There are several drivers for this positive momentum: trade tensions are receding; central banks have loosened monetary policy; and global industrial production is bottoming out.

The IMF’s economic forecast is for 3.3% growth this year and 3.4% next year. This level of growth was characterised as “sluggish”, and governments were called on to enact structural reforms and boost spending.

In 2019, 29 central banks globally reduced rates 71 times and it is now time to pass the baton on to fiscal policy. “We need to go beyond monetary stimulus – fiscal policy needs to become more aggressive,” Georgieva added.

Christine Lagarde, President of the European Central Bank, shared this relatively sanguine outlook. Uncertainties have abated on issues like trade and Brexit, she said, and it is likely that income growth and low unemployment will eventually be reflected in prices.

“The European Central Bank has launched a broad strategic review, the first since 2003, to revisit the bank’s processes and policies and to recommend structural changes,” she said, committing to delivering the outcomes of this review at the next Annual Meeting.

Steven Mnuchin, Secretary of the Treasury of the United States, said: “The US economy continues to be the bright spot in the world.” The economic outlook for 2020 is very robust, he added. Inflation remains muted, incomes are rising and unemployment is near historic lows.

“Trade negotiations have started with both the EU and the UK and we look forward to completing both of those deals this year,” he said.

Haruhiko Kuroda, Governor of the Bank of Japan, said: “We expect Japan’s economy to grow by 1% to 1.5% this year.” Nevertheless, inflation in Japan is stubbornly low. Continued accommodative monetary policy will be required for some time to achieve the 2% inflation objective, he added.

Climate risk is quite real for Japan, he said. In the fourth quarter of last year, the Japanese economy experienced negative growth largely because of two large typhoons. These types of natural disasters are intensifying and Japan stands ready to do more to reduce greenhouse gas emissions and combat global climate change.

Germany has embarked on an expansionary fiscal policy programme, said Olaf Scholz, Vice-Chancellor and Federal Minister of Finance of Germany. Taxes have been reduced by about $25 billion a year, investment in infrastructure is at record levels and R&D spending is targeted to reach 3.5% of GDP.

“Germany’s economy remains strong and we expect these investment measures to have a material impact on demand,” he added.

However, we must act urgently on sustainability issues, he said. Europe will continue to lead on climate change, with a target to be carbon neutral by 2050 backed by investments in the green economy and renewable energy.

Outcomes of the Annual Meeting 2020

In a letter sent to participants in advance of the Annual Meeting, Klaus Schwab, the Forum’s Founder and Executive Chairman, and the heads of Bank of America and Royal DSM, asked all members and partners to commit to achieving net zero carbon emissions by 2050 or earlier. In part inspired by this, the World Economic Forum Annual Meeting 2020 saw a number of outcomes that made progress towards a more cohesive and sustainable world:

Cohesive World

Skills and Work

· The Reskilling Revolution was launched to provide better education, skills and jobs to 1 billion people by 2030, with the initial backing of the governments of Bahrain, Brazil, Denmark, France, India, Oman, Pakistan, Singapore, United Arab Emirates and the United States as well as business partners, including PwC, Salesforce, ManpowerGroup, Infosys, LinkedIn, Coursera Inc. and The Adecco Group. Commitments to provide better education, skills and work for 250 million people have already been made. The Forum’s Global Shaper community further pledged to provide skills to 100,000 people in vulnerable communities.

· Six leading platform companies – Cabify, Deliveroo, Grab, MBO Partners, Postmates and Uber – became founding signatories of the Forum’s Charter of Principles for Good Platform Work.

· The Valuable 500 initiative of companies committed to placing disability inclusion on their leadership agendas that was launched last year in Davos, announced that 241 companies from 24 countries have pledged their support.

· Ingka Group (IKEA) and Royal DSM became founding members of the Forum’s Hardwiring Gender Parity in the Future of Work initiative. McKinsey joined as knowledge partner.

· The Partnership for Global LGBTI Equality, which was launched in Davos last year to accelerate inclusion for lesbian, gay, bisexual, transgender and intersex (LGBTI) people, announced that it has grown its membership to 17 international businesses.

Inclusive Growth

· The International Business Council, incorporating 140 of the world’s largest companies, agreed to support efforts to develop a core set of common metrics and disclosures that could be used to measure private sector progress against key environmental, social and governance (ESG) goals.

· The Forum also became a founding partner this week, alongside Refinitiv, United Nations and others in the Future of Sustainable Data Alliance. The alliance focuses on improving the quality of ESG data available to governments and investors to inform decision-making.

· The Davos Friends of Africa Growth Platform launched with the support of the Presidents of Botswana and Ghana to promote entrepreneurism in Africa. The platform’s initial target is to reach 1 million entrepreneurs by the end of 2020.

· A strategic partnership was signed between the World Economic Forum and the Organisation for Economic Co-operation and Development (OECD) to accelerate progress towards inclusive and sustainable growth globally.

· Some 42 organizations, including businesses from mining, automotive, chemical and energy that have a combined revenue of $1 trillion dollars agreed on 10 guiding principles for a sustainable battery value chain, enabled by a traceability platform called Battery Passport.

· The Australian state of Queensland announced it will join the Forum’s Global Lighthouse Network in a bid to help small and medium-sized enterprises adopt advanced manufacturing technologies.

Saving Lives

· CEPI, the Coalition for Epidemic Preparedness Innovations that was launched in Davos in 2017, today announced the initiation of three programmes to develop vaccines against the novel coronavirus, nCoV-2019, in partnership with Moderna and the Wellcome Trust. The swift action was made possible by the fact that the leaders of the partner organizations were all in Davos.

· GAVI, the Vaccine Alliance, celebrated its 20th anniversary. GAVI was launched at the Annual Meeting 2000 with the backing of the Gates Foundation, World Health Organization, pharmaceutical companies and governments to bring vaccines to children who lacked access. Since then, GAVI has reached 760 million children.

· The World Economic Forum announced a partnership with the Global CEO Initiative (CEOi) to form a coalition to accelerate diagnostics and treatments for Alzheimer’s disease.

· The Forum initiated Ending Workplace Tuberculosis, a multi-sector initiative aimed at tapping into the business community to help stop TB in countries affected disproportionately by the disease.

Trade

· Ministers at Davos announced negotiations between 99 economies on a new international agreement on investment facilitation at the WTO. The agreement is aimed at making it easier for investment to flow between economies while increasing its development impact.

· As theUS and France agreed a detente on digital tax during the Annual Meeting, the Forum received a mandate from multistakeholder partners to further build multistakeholder understanding of and input to international tax reforms and assist the search for broadly supported solutions.

· The Forum partnered with the Japanese government on a multistakeholder effort to find practical mechanisms to enable free “Data Free Flow with Trust” in support of the Osaka Track process that was initiated at the G20 in 2019.

Civil Society

· The Schwab Foundation for Social Entrepreneurship announced that its community has improved the lives and livelihoods of more than 622 million people in 190 countries since 2000. Impacts include distributing $6.7 billion in loans or value of products and services; mitigating more than 192 million tonnes of CO2; improving education for more than 226 million children and youth; improving energy access for more than 100 million people and driving social inclusion for over 25 million people.

· 11 NGO executives united to stop sale of .org domain to a private equity firm. Executive directors of Greenpeace International, Access Now, Human Rights Watch, ACLU, International Trade Union Confederation, Sierra Club, Amnesty International, Consumer Reports, 350.org, Color of Change and Transparency International released an open letter on 21 January 2020 “calling on the leaders of Internet Society (ISOC) and Internet Corporation for Assigned Names and Numbers (ICANN) to stop the sale of the .org top-level domain to private equity firm Ethos Capital”.

Sustainable World

Combating climate change

· 1t.org, a new multistakeholder initiative aimed at supporting efforts to grow, conserve and restore 1 trillion trees by the end of the decade was announced. Within the first days of its launch, the US and China announced support. Salesforce announced a new commitment to plant 100 million trees; Colombia confirmed its existing commitment to plant 180 million trees by 2022; Pakistan reaffirmed its 10 billion trees campaign; and the Global Shapers also committed to planting 1 million trees by 2021 across its 400 hubs worldwide.

· New members signed up to the Forum’s community of CEO Climate Leaders. The community are committed to helping their respective companies meet the Paris Climate Goals. New members include: AstraZeneca; Bayer AG; BBVA, Dalmia Cement; Jacobs Engineering Group; JLL; Newmont Corporation; OVG Real Estate, and Zurich Insurance Group.

· The Sustainable Markets Initiative, backed by a Sustainable Markets Council, was launched by HRH The Prince of Wales in collaboration with the World Economic Forum with the goal of bringing about a transition to sustainable markets and rapid industry-wide decarbonization.

· The Forum’s Advanced Manufacturing and Production community launched the Carbon Reduction in Manufacturing Initiative with Johnson & Johnson, Schneider Electric and Unilever, with support from Al Gore’s Generation Investment Management to achieve a goal of cutting carbon emissions in manufacturing by 50% by 2030.

· The Net Zero Asset Owner Alliance of 16 pension funds and insurers committed to helping achieve the Paris Climate Goals added the Church of England and Generali as new members. The alliance’s portfolio now stands at $4.3 trillion.

· The Champions for Nature, a high-level group calling for raised ambition on nature, was launched. It is chaired by the Executive Director of UN Environment Programme, the CEO of Unilever, and the President of Costa Rica. The launch followed a new report Nature Risk Rising which found that over half the world’s total GDP – is moderately or highly dependent on nature.

Sustainable Development Goals

· Frontier 2030 was launched as a platform to leverage the technologies of the Fourth Industrial Revolution to accelerate the Sustainable Development Goals. The platform is chaired by UNDP in partnership with the governments of Botswana, South Korea and Norway, as well as private sector commitment from Microsoft, Google, Cisco, Arm, Planet Labs, X, Amazon Web Services and Chipsafer. It is hosted by the World Economic Forum.

· The Food Action Alliance was launched by over 25 partners of the World Economic Forum, UN agencies, companies, farmer organizations, civil society, and finance institutions to scale collective action and transform foods systems to be sustainable, nutritious and healthy, efficient and inclusive.

· A new multistakeholder partnership, SDG500, was launched to mobilize $500 million towards achieving the Sustainable Development Goals in emerging markets through a series of six blended finance funds. SDG500 is a partnership between the International Fund for Agricultural Development, the United Nations Capital Development Fund, Smart Africa, Stop TB Partnership, the IDB Lab of the Inter-American Development Bank, the International Trade Centre, CARE USA, and Bamboo Capital Partners.

A Cohesive and Sustainable Fourth Industrial Revolution

Emerging Technologies

· The Forum partnered with a community of 40 central banks, international organizations, academic researchers and financial institutions to create a framework to help central banks evaluate, design and potentially deploy Central Bank Digital Currency (CBDC).

· The World Economic Forum, in collaboration with 100 stakeholders, produced theEmpowering AI Toolkit to help board members better understand the positive and negative implications of deploying artificial intelligence.

· The Government of Brazil, together with the World Economic Forum and key business stakeholders, rolled out a set of new scalable policy interventions to increase successful adoption of industrial internet of things technologies by small and medium-sized enterprises in manufacturing.

· Partners of the Centre for the Fourth Industrial Revolution Global Network, including Brazil, Colombia, Japan and Saudi Arabia, expanded their commitment to ensuring responsible and ethical governance of smart city technologies through the G20 Global Smart Cities Alliance on Technology Governance, led by the World Economic Forum.

· The World Economic Forum’s Global AI Council, launched in 2019, collaborated with UNICEF to create guidelines for AI-supported toys for under seven-year-olds, as well as identifying young people under the age of 18 to sit on a Global AI Youth Council.

Cybersecurity

· A group of private-sector leaders from cybersecurity companies, services providers and global corporations along with law enforcement agencies, Interpol and Europol, agreed to work together with the World Economic Forum through 2020 to foster a global public-private alliance against cybercrime.

· A group of telecommunications stakeholders, including BT, Deutsche Telekom, Du Telecom, Europol, Global Cyber Alliance, Internet Society, Korea Telecom, Proximus, Saudi Telcom, Singtel, Telstra and ITU, endorsed new principles combating high-volume cyberattacks that could protect up to 1 billion consumers in 180 countries.

· A community of key stakeholders from international organizations, government and business was formed to reinforce cyber resilience in global aviation.

· Navdeep Bains, Canadian Minister of Innovation, Science and Industry, and Ajay Banga, CEO of Mastercard, announced a $510 million investment by Mastercard to establish a new global Intelligence and Cyber Centre in Vancouver, British Columbia.

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CAR Economic Update: A Call for Domestic Revenue Mobilization to Sustain Growth

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The second edition of the Central African Republic (CAR) Economic Update, which was published today by the World Bank, examines evolving economic trends in the country and proposes options to boost domestic revenue by improving tax and customs policy and administration.

Titled “Strengthening Domestic Revenue Mobilization to Sustain Growth in a Fragile State,” the report notes that the improved security situation is leading to brighter economic prospects, with the real GDP growth rate estimated at 4.8% for 2019. The authors indicate that although the country’s growth rate has outpaced that of countries in the Central African Economic and Monetary Community (CEMAC) and Sub-Saharan Africa, it continues to lag behind peer countries such as Burkina Faso, Malawi, Mali, Niger, and Uganda.

CAR has not experienced sustained growth since gaining independence in 1960. With the signing of the Political Agreement for Peace and Reconciliation in February 2019, the economic outlook is, however, positive,” states Wilfried A. Kouamé, World Bank economist and lead author of the report. “The successful implementation of the peace agreement is critical for jumpstarting growth. By implementing this agreement in the run-up to the elections, we are expecting growth of around 5% in the medium term.”

The report also reveals that while CAR is still at high risk for debt distress, its efforts to streamline public expenditure and clear domestic arrears are driving down the public debt level to below CEMAC and Sub-Saharan Africa averages and bringing it closer to the debt levels of its peers.

Han Fraeters, World Bank Country Manager for the Central African Republic, explains that “this report aims to help the government and its development partners identify opportunities and address challenges in order to move forward on combating extreme poverty. Domestic resources will therefore have to be mobilized to boost public revenue and enhance delivery of basic public services, which are pivotal to guiding the country into a virtuous cycle of peace and security. The upcoming elections will require sound fiscal discipline and provide a unique opportunity to place the country on a path of sustained growth.” 

The report presents a number of options to address the growing needs of Central Africans:

Strengthen the social contract: The social contract between the State and its citizens, which is vital to mobilizing tax revenue, was undermined by the recent crisis. To strengthen the social contract, the State must undertake to improve the efficiency and quality of goods and social services, while restoring the trust of taxpayers to encourage them to move out of the informal sector and pay their taxes.

Broaden the tax base: CAR’s tax revenue currently accounts for approximately 8% of GDP, which is below its potential and among the lowest in Sub-Saharan Africa. CAR could consider increasing the tax rates on alcohol and tobacco products in the short term, and reducing the number of tax brackets that hinder business creation and development in the long term. 

Improve property tax collection:  Legislation on property taxation has not been updated to reflect recent economic developments. Current revenue collection is inefficient and is based on a declarative system that narrows the tax base. New legislation could generate close to CFAF 12 billion (roughly $22 million).

Limit tax exemptions: In 2016, tax exemptions were a major source of lost tax revenue for the country (almost CFAF 2.4 billion or roughly $4 million). A significant share of these exemptions were granted to the private sector and related primarily to VAT. The adoption of the new investment charter in 2017 and the implementation of reforms aimed at curbing tax exemptions and improving the business environment to attract private investment require the firm commitment of the authorities and a formal legal system to institute legal proceedings in the event of abuse.

Modernize the tax system: Strengthening tax administration capacity is critical to improving the tax system. This requires heavy investment in the computerization of public administrations and the purchase of the equipment and software needed to improve revenue collection.  Computerization will help curb abuse and corruption, trace transactions related to taxes and duties, facilitate the sharing of information between tax and customs authorities, and enhance the efficiency of financial boards.

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