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Italy should strengthen reform implementation to boost skills

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Recent reforms of Italy’s education system (“Buona Scuola”), labour market (“Jobs Act”) and industrial policy (“Industria 4.0”) have clear synergies and could reduce worrying imbalances between the supply and demand of skills on the Italian labour market, according to the new OECD report Getting Skills Right: Italy

Stefano Scarpetta (Director of Employment, Labour and Social Affairs at the OECD) has said, however, that there are still a number of unresolved issues over the effective implementation of the reforms. Speaking alongside the Italian labour minister Giuliano Poletti, Mr Scarpetta said: “Italy has done a great deal over recent years and the reforms are starting to bear fruit. There are still a number of issues which, if resolved, could lead to the effective implementation of important reforms such as a programme for alternating school and work, Industry 4.0 and active labour-market policies.

The results of the new OECD Skills for Jobs indicators, published alongside the report, provide a detailed snapshot of the most sought-after skills on the Italian labour market and differences between the various regions. The data shows high demand for skills related to knowledge of new technologies such as IT and electronics, software programming and use of digital technologies. Scarpetta said: “[Italy] still has work to do to develop the IT skills needed to confront labour-market challenges, now and in the future. Our data clearly shows major demand for digital skills across the country which, unless it is met, could have negative consequences for Italy’s growth and competitiveness.” Professionals with good knowledge of IT, new digital technologies, and medical and engineering technologies are highly prized in the Italian job market, with employability and salaries well above the average.

Even so, demand for these skills – and high-level skills in general – remains too weak and is confined to the needs of large Italian corporations. The rest of the Italian economy is concentrated in traditional, low-productivity sectors where there is little demand for high-level skills, with about 85% of Italian businesses being small and mainly family-run.

Italy is therefore in a state of equilibrium, with the supply and demand of skills tending to level downwards, in a vicious cycle that has clear negative repercussions on productivity, growth and use of new technologies.

The report also shows that many Italians specialise in areas with few employment opportunities, despite the demand for technical, engineering, technological and mathematical skills, which itself remains too weak. About 35% of Italian workers are in jobs that are unrelated to their training and 21% are in jobs for which they are over-qualified. Moreover, the report shows that this situation is associated with an average salary loss of around 17% compared to those who specialise in an area with clear employment opportunities whose skills are in demand from businesses.

The report sets out a number of points for consideration, including:

  • Italy needs stronger ties between the education system and the world of work at all levels. The creation of higher technical colleges (“ITS”), based on robust links with the local economy, is a welcome innovation in Italian professional training and so far has generated brilliant results, helping to develop skills that are rapidly absorbed into the Italian labour market. The new Professional Degrees also have the potential to fill the shortfall of technical skills in Italy, but to do so they must forge strong links between universities and business from the start, aiming to develop high-level professional and technical skills, rather than primarily theoretical skills as has been the case in the past.
  • The programme for alternating school and work is a step in the right direction, but many challenges remain. On one hand, businesses need to take a greater role in designing the content of work-based learning and, on the other hand, educational managers need adequate financial and teaching resources to forge links with businesses across Italy, including in poorer areas where there is less scope for engaging with business.
  • Italy needs to strengthen high-performance working practices (HPWP) such as mentoring, job rotation or flexible responsibilities. These practices are already fairly widespread in other countries but are still too rare in Italy. The skill level of Italian managers – especially in small companies – is not always adequate and needs to be improved through targeted training programmes. This would enable small businesses to grasp the importance of new technologies and be able to benefit from their productive potential.
  • Opportunities for workers to upgrade and update their skills must be improved through the more judicious use of funds for continuous training, linking their use to the real needs and challenges of the Italian labour market. Indeed, there are still many Italian workers with poor IT skills, little knowledge of foreign languages and a shortage of a wide range of core technical skills. Often, though, a considerable proportion of continuous training funds have been channelled into developing skills in areas that are merely incidental to the challenges posed by rapid technological change, globalisation and automation.
  • Active labour-market policies are a crucial challenge for Italy. In view of current institutional arrangements, Italy needs to adopt mechanisms to strengthen cooperation between the central state and the regions, by identifying clear, shared and objective parameters to ensure that unemployed persons receive the same quality of services throughout the country.

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Iceland’s slowdown underlines the need to fix structural issues

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Sound macroeconomic policies and favourable external conditions have enabled Iceland’s economy to emerge stronger from a decade of post-crisis management. Yet the impact on growth from a drop in tourist arrivals and seafood exports underlines the need for reforms to open up and diversify the economy and improve its resiliency to sectoral shocks, according to the latest OECD Economic Survey of Iceland.

The Survey, presented in Reykjavik by OECD Secretary-General Angel Gurría alongside Finance Minister Bjarni Benediktsson and Minister of Education, Science and Culture Lilja Dogg Alfredsdottir, takes stock of Iceland’s progress on improving fiscal and monetary policy, reducing debt and building up financial buffers. Today Iceland enjoys sustainable public finances, high employment and one of the lowest levels of income inequality of OECD countries.

A lack of structural reform has left Iceland heavily dependent on volatile sectors however. Tourism ballooned over the past decade, overtaking aluminium and fishing to account for 40% of export income and 10% of GDP, but has stalled since the insolvency of a low-cost Icelandic airline. Seafood exports are also down. After several years above 3%, the OECD projects Iceland’s GDP growth will drop to 0.2% in 2019 before rebounding to 2.2% in 2020.

“Iceland’s resurgence since the financial crisis to reach some of the highest living standards of OECD countries has been remarkable. It is a beautiful example of how a robust economy can co-exist with an egalitarian society,” said Mr Gurría. “However this slowdown shows that now is the time to go structural and to further open up the economy. Iceland should focus on reducing regulatory red tape and restrictions on foreign investment.”

Among Iceland’s structural challenges, competitiveness is declining as wages rise faster than productivity. The competitive edge gained after the 2008 crisis has vanished. Foreign direct investment is low, due in part to a high regulatory burden.

The Survey recommends reducing over-regulation, especially in services and for foreign investment, where restrictions are among the highest in the OECD, and lightening the administrative burden for start-ups. Iceland is already working with the OECD to improve its competition policy. Wage settlements across the economy should be in line with productivity growth, and fiscal prudence should be exercised through the current slowdown in order to further reduce the public debt.

In the tourism sector, the Survey suggests considering measures to improve sustainability given that – whether the downturn proves to be temporary or longer lasting – Iceland is already at six foreign tourists a year for each resident and may already have reached a point where the negative social and environmental impacts exceed the economic benefits.

On public finances, the Survey notes that the contribution of public spending to growth has declined since the 2008 crisis. It recommends extending spending reviews to core policy areas like education and health care, and applying more rigorous cost-benefit analysis to spending plans as two ways to improve the effectiveness of public investment.

The Survey also discusses the need to address a decline in high-school student performance and better match adult skills to the labour market. Iceland has a highly equitable education system and a large share of its workforce educated to tertiary level, but it could increase vocational training and make the education system more responsive to the labour market to avoid having people overqualified or possessing the wrong skills for jobs.

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Agricultural Innovation & Technology Hold Key to Poverty Reduction in Developing Countries

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Developing countries need to dramatically increase agricultural innovation and the use of technology by farmers, to eliminate poverty, meet the rising demand for food, and cope with the adverse effects of climate change, says a new World Bank report released today.

The relative stagnation in agricultural productivity in recent decades, particularly in South Asia and Africa where the vast majority of the poor live, underscores the need for new ideas to improve rural livelihoods. Renewed investment to increase new knowledge and ensure its adoption can help harness the large potential gains to be made in agricultural productivity and, hence, income, says the Harvesting Prosperity: Technology and Productivity Growth in Agriculture report.

It notes that nearly 80 percent of the world’s extreme poor live in rural areas, with most relying on farming for their livelihood. Poverty reduction efforts, thus, need an intensive focus on raising agricultural productivity, which has the largest impact of any sector on poverty reduction, roughly twice that of manufacturing.

“Boosting productivity in the agriculture sector can lead to more and better jobs while enabling more people to move off-farm to cities to pursue other opportunities. This requires comprehensive reform of domestic agricultural innovation systems, more effective public spending and the cultivation of inclusive agricultural value chains with an increased role for the private sector,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu. “New technologies are improving access to and costs of information, finance and insurance in all sectors, including agriculture. This can help raise the productivity of low skilled farmers, but only with the right incentives and capabilities to develop and scale these technologies,” she added.

The report examines the drivers and constraints to agricultural productivity and provides pragmatic policy advice. It notes that while in East Asia, crop yields have increased six-fold in the past four decades, contributing to the dramatic reduction in poverty in China and other East Asian countries, it has only doubled in Sub-Saharan Africa and parts of South Asia, with corresponding disappointing reductions in poverty.    

In addition, climate change, together with a deteriorating natural resource base, will hit agriculture hard, impacting the poor and vulnerable, precisely in Africa and South Asia.

The key driver for increasing agricultural productivity and rising incomes is the adoption of innovative technologies and practices by farmers. This will enable farmers to raise yields, manage inputs more efficiently, adopt new crops and production systems, improve the quality of their products, conserve natural resources, and adapt to climate challenges.  

However, the world is facing a widening research and development (R&D) spending gap, even as government funding for agriculture is reaching new heights. In developed countries, investment in agricultural R&D was equivalent to 3.25 percent of agricultural GDP in 2011, compared with 0.52 percent in developing counties. Among the latter group, Brazil and China invested relatively high amounts into agricultural R&D, while Africa and South Asia had the lowest spending relative to agricultural GDP. In fact, in half of African countries, R&D spending is actually declining.

Governments need to consider both public and private research and technology transfer in strengthening their overall innovation system. Repurposing the current public support for agriculture offers a significant opportunity to revitalize public agricultural research systems, invest in agricultural higher education, and create the enabling conditions to leverage private sector R&D. The private sector, in turn, can stimulate more rapid access to new technologies for farmers. In developed countries, private companies contribute about half the total R&D spending targeting the needs of farmers, and as much as one-quarter in large emerging economies, such as China, India, and Brazil. Policy tools to encourage more private R&D in agriculture include reducing restrictions on market participation, encouraging competition, removing onerous regulations, and strengthening intellectual property rights.

“Agriculture in Africa and South Asia faces an innovation paradox. While the economic returns to and growth effects of R&D and knowledge diffusion are documented to be very high, research spending is decreasing in critical areas of the world and local universities and think tanks are not keeping up. Policy makers in developing countries need to give careful attention to reversing these trends and improving the broader enabling environment to encourage private sector contribution as well,” said World Bank Chief Economist for Equitable Growth, Finance and Institutions, William Maloney, who is the lead author of the report.

While new communication technologies make improving access to information, finance and insurance more feasible than before, small farmers face major barriers to adopting the new technologies that such research efforts yield.  

“Poor information about new technologies, absence of insurance and capital markets, high market transaction costs, land tenure insecurities and lack of transportation infrastructure are inhibiting adoption and diffusion of new technologies among farmers. Together with increased R&D spending, sustained efforts are needed to remove these barriers,” said World Bank Global Director for Agriculture and Food, Martien Van Nieuwkoop.

Harvesting Prosperity: Technology and Productivity in Agriculture is the fourth volume in the World Bank’s Productivity Project series, which examines the ‘productivity paradox’ of a persistent slowdown in productivity growth despite technological advancements. To access Harvesting Prosperity: Technology and Productivity in Agriculture report and related products:

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Digital Technologies Can Facilitate Access to Trade Finance in Asia-Pacific Region

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Financial technologies, such as blockchain and artificial intelligence, can enhance the efficiency and availability of trade finance, especially for small and medium-sized enterprises (SMEs) in the Asia and Pacific region, according to a report launched today by the Asian Development Bank (ADB) and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

The Asia-Pacific Trade Facilitation Report 2019, highlights the need to address the largely unmet demand for trade finance globally, estimated at $1.5 trillion, of which 40% is from the region. SMEs are the most affected as they tend to have higher rejection rates for trade finance applications, compared with larger firms. SMEs account for 45% of rejected trade finance transactions as their applications tend to incur relatively high costs for banks to comply with anti-money laundering and know-your-customer requirements. Low credit ratings of counterparty banks and companies are other barriers restricting access to trade finance.

“There is an enormous untapped potential in the rapidly evolving digital technologies. Emerging new technologies can help address long-standing issues of high transaction and processing costs, while mitigating the huge trade finance gap,” ADB Vice-President for Knowledge Management and Sustainable Development Mr. Bambang Susantono said at the report launch during the Asia-Pacific Trade Facilitation Forum in New Delhi.

Technologies can help cut costs, eliminate manual documentation, and enable accumulated digital information on SME profiles for lenders to assess risks. E-commerce platforms and cloud-based invoicing can allow direct transactions between buyers and sellers, and blockchain technology and artificial intelligence can facilitate due diligence and payments for SMEs. These technologies offer solutions to improve efficiencies at various stages of international trade.

The report notes the digitalization process is far from complete. Challenges include the high cost of adopting some new technologies and the lack of international rules and standards covering digital trade. Fragmented digital technologies also make it difficult for all parties to be compatible and interoperable. Blockchain technology is not free of risks related to incorrect information input, cyber security, and operations.

The report supports three initiatives that can enable widespread technology adoption: Digital Standards for Trade initiative to develop trade ecosystem standards; Global Legal Entity Identifier system to issue unique identifiers for both large and small firms at low cost and help enhance transparency; and model laws on electronic transferable records, electronic commerce, and e-signatures under a UN system to help countries implement legislation in a concerted fashion towards digital trade.

It also calls for governments to collaborate with private sector and other partners to expand technology adoption to enable cross-border trade financing. It highlights the importance of reducing the knowledge gap by improving awareness of trade finance products as well as building more databases to help SMEs tap trade finance.

The report features the findings of a global survey by ESCAP on digital and sustainable trade facilitation that tracks the implementation progress on various trade facilitation measures related to the World Trade Organization’s Trade Facilitation Agreement and ESCAP’s UN treaty on enabling paperless trade in Asia and the Pacific. Very few countries have customized trade facilitation measures to support SMEs and women, with implementation rates of 36% and 23%, respectively.

“Cross-border trade digitalization will help all firms in the Asia-Pacific region, particularly SMEs, which are the most vulnerable to trade uncertainty. It could cut trade costs by 16%, but this will be difficult to achieve without closer regional cooperation,” said UN Under-Secretary-General and Executive Secretary of ESCAP Ms. Armida Salsiah Alisjahbana.

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