Authors: Dr. Matthew Crosston , Andy Deahn
Russian President Vladimir Putin has loudly projected that his nation and the other Caspian nations will leave the dollar behind. Mr. Putin has exclaimed that the United States runs a “Dollar dictatorship” when it comes to global market oil prices and affirms that his nation’s currency will not become a victim subjected to its rule.
In order to combat this “dictatorship” attempts have been made to enhance relations with China in order to integrate both the ruble and the yuan into the global market more dominantly. His belief is that in doing so he will weaken the dollar while strengthening both national currencies. However, Mr. Putin is potentially committing a mistake, as he is generally associating a strong currency with national strength and views the decline in the ruble’s value as an offense against Russia’s prowess. These are clearly political statements used to project an aura of strength that disregard the economic realities facing the Kremlin. Rather than take meaningful counter-actions so as to create positive momentum and strong economic stimuli, Putin sometimes seems more focused on capitalizing on his celebrity status to ‘tweak the American eagle’ as it were. Putin’s “projection” as stated above can thus be observed as an attempt to manufacture a sense of Russian exceptionalism that will counter the ‘insult’ that he considers as a constant American exceptionalism on the global stage. However, these geopolitical playground battles do not outweigh the realities of the world economy and how Russia needs to create serious policies to deal with sanctions and weak oil prices.
While China is Russia’s largest trading partner and has become the world’s largest consumer of fossil fuels — a vital aspect to Russian economic health — the Chinese financial crisis that occurred in August 2015 has weakened the Yuan, consequently placing increased pressure on the Russian economy as well. The Chinese economic meltdown and the resultant devaluation of the Yuan held global implications. From Wall Street to Venezuela to Saudi Arabia, economic downturns were observed. On Wall Street the drop in the stock market created panic among brokers/investors and in Saudi Arabia and Venezuela a drop in oil prices impacted their economies rather severely, given both have bet some of their financial futures on China’s continual thirst for commodity imports. Russia, however, which exports approximately 14 percent of its annual oil production to China, has a lot more to lose from the Chinese economic decline. This is because oil and natural gas are at the heart of the Russian economy. These commodities account for over 75 percent of export revenues and over 50 percent of government budgetary resources. The Russian ruble, which is directly linked to global oil prices, has been steadily decreasing in value throughout the last 12 months. This direct link is identified through the correlating data of the market price for oil and the value of the ruble to the U.S. dollar. For example, the market price for oil dropped from $104 USD per barrel to around $50 USD per barrel from September 2014 to September 2015. At the same time the value of the ruble, which in the beginning of September 2014 was 36 RUB to 1 USD, had slipped by September 2015 to 68 RUB to 1 USD—a steep devaluation rate not seen since the 1997 global financial recession.
In addition to having the value of its currency decline, for every dollar that global oil prices drop Russia loses an estimated $2 billion a year in revenues. When combined with other harmful realities like Western sanctions, Russia’s relative dependence upon a singular commodity market, and lavish spending rather than modernizing its energy sector during high oil prices, it is clear that Russia pontificating about a ‘dollar dictatorship’ should not be its focus. Indeed, there is something of a flawed logic in the premise: why does President Putin believe he can leave the dollar behind by tying the punished ruble with the declining Chinese yuan? In the near-term at least this strategy is destined to fail.
One regional influence Russia is also somewhat disregarding (or making too many positive assumptions) in this endeavor and that will potentially become of greater geopolitical importance is the Islamic Republic of Iran, now that the new nuclear accord has been struck and many sanctions lifted. By hedging their bets too heavily on China and disregarding up-to-the-minute regional economic shifts, Russia is possibly inflicting its own monetary wounds while uselessly blame-shifting on America for its economic woes. The lifting of Iranian sanctions would mean that Russia could face a newly invigorated, oil-producing, heavyweight regional competitor, one that could reshape the power balance in the Caspian Sea Region and may not necessarily be willing to be as close an ally to Russia as Russia assumes it will be.
A more economically and politically independent Iran, and its ability to influence regional power shifts, would allow for the other Caspian states to modernize and diversify their economies. This would mean that Turkmenistan and Azerbaijan may finally be able to break free of the Russian influence that has basically engulfed them since the Soviet era by building the Trans-Caspian pipeline. Likewise Kazakhstan, a nation whose economy is also built upon the same commodity market as Russia, may finally be able to lessen the havoc that the Russian currency decline is playing within its own borders. Right now there are few analysts seriously considering these potentialities, both here in the West and within Russia. This is an error. Russia clearly thinks the new nuclear accord will lead only to improved ties and deeper economic prosperity for both itself and Iran. But there is ample historical evidence to consider that an emboldened and newly stabilized Iran simply might not need Russia as much as Russia needs it. This future reality could signal a dramatic change in the Russian-Iranian relationship, and not to Russia’s favor. The longer Moscow assumes this is a geostrategic impossibility and that its only concern is battling the ‘dollar dictatorship,’ then the Kremlin only creates more danger for itself.
We already know that a devalued yuan is further assisting oil prices to drop on a global scale, placing great strain on the Russian economy as well as on some bordering Caspian states. Historically, when the Kremlin feels threatened, it shifts blame to other scapegoats rather than seriously tackling its problems. The current sharp slowdown of Chinese economic growth has already impacted multiple Russian economic sectors, including energy, metallurgy, timber, and agriculture. The future alliance with Iran is not an automatic guarantee. Western sanctions still grind along. The Caspian littorals may see opportunities to loosen Russia’s economic grip over their local economic standings. Clearly, plenty of ‘real’ problems exist. So it would behoove Russia to stop spending time on economic fantasies of ‘dethroning the dollar dictatorship.’ That seems to be the least of its real problems.
Côte d’Ivoire: Robust growth under the looming threat of climate change impacts
According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.
“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.”
However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.
As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.
“This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”
The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.
The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.
A future of work based on sustainable production and employment
On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.
As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.
In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.
A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.
I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.
Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.
We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.
The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.
Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.
As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.
Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed
Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.
“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.”
The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.
The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.
The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.
In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.
“To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.
The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.
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