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Rise in Global Wealth but Inequality Persists

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Global wealth grew significantly over the past two decades but per capita wealth declined or stagnated in more than two dozen countries in various income brackets, says a new World Bank report. Going beyond traditional measures such as GDP, the report uses wealth to monitor countries’ economic progress and sustainability.

The Changing Wealth of Nations 2018 tracks the wealth of 141 countries between 1995 and 2014 by aggregating natural capital (such as forests and minerals), human capital (earnings over a person’s lifetime); produced capital (buildings, infrastructure, etc.) and net foreign assets. Human capital was the largest component of wealth overall while natural capital made up nearly half of wealth in low-income countries, the report found.

“By building and fostering human and natural capital, countries around the world can bolster wealth and grow stronger. The World Bank Group is accelerating its effort to help countries invest more – and more effectively – in their people,” said World Bank Group President Jim Yong Kim. “There cannot be sustained and reliable development if we don’t consider human capital as the largest component of the wealth of nations.”

The report found that global wealth grew an estimated 66 percent (from $690 trillion to $1,143 trillion in constant 2014 U.S. dollars at market prices). But inequality was substantial, as wealth per capita in high-income OECD countries was 52 times greater than in low-income countries.

A decline in per capita wealth was recorded in several large low-income countries, some carbon-rich countries in the Middle East, and a few high-income OECD countries affected by the 2009 financial crisis. Declining per capita wealth implies that assets critical for generating future income may be depleted, a fact not often reflected in national GDP growth figures.

The report found that more than two dozen low-income countries, where natural capital dominated overall wealth in 1995, moved to middle-income status over the last two decades, in part by investing earnings from natural capital into sectors such as infrastructure, as well as education and health which increase human capital.

While investments in human as well as produced capital are essential, getting rich is not about liquidating natural capital to build other assets, the report notes. Natural capital per person in OECD countries is three times higher than in low-income countries, even though the share of natural capital in total wealth is just 3 percent in OECD countries.

“Growth will be short-term if it is based on depleting natural capital such as forests and fisheries. What our research has shown is that the value of natural capital per person tends to rise with income. This contradicts traditional wisdom that development necessarily entails depletion of natural resources,’’ said Karin Kemper, Senior Director, Environment and Natural Resources Global Practice at The World Bank.

The report estimated that the value of natural capital assets doubled globally between 1995 and 2014. This is due, among other reasons, to increased commodity prices along with a rise in economically-proven reserves. In contrast, productive forest value declined by 9 percent while agricultural land expanded at the cost of forests in many areas.

The latest report, which follows similar World Bank assessments in 2006 and 2011, includes estimates of human capital for the first time. Human capital is measured as the value of earnings over a person’s remaining work life, thereby incorporating the roles of health and education. Women account for less than 40 percent of global human capital because of lower lifetime earnings. Achieving gender equity could increase human capital wealth by 18 percent.

Human capital accounts globally for two thirds of global wealth; produced capital accounts for a quarter of wealth. Natural capital accounts for one tenth of global wealth, but it remains the largest component of wealth in low-income countries (47 percent in 2014) and accounts for more than one-quarter of wealth in lower-middle income countries.

Wealth accounts for countries are compiled from publicly available data drawn from globally recognized data sources and with a methodology that is consistent across all countries. Some wealth components from natural capital were not tracked in the report, including water, fisheries and renewable energy sources.

The report was funded in part by the WAVES (Wealth Accounting and the Valuation of Ecosystem Services) partnership and by the Global Partnership for Education.

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Russia Among Global Top Ten Improvers for Progress Made in Health and Education

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Russia is among the top ten countries globally for improvements to human capital development over the last decade, according to the latest update of the World Bank’s Human Capital Index (HCI).

The 2020 Human Capital Index includes health and education data for 174 countries covering 98 percent of the world’s population up to March 2020.

Russia’s improvements were largely in health, reflected in better child and adult survival rates and reduced stunting. Across the Europe and Central Asia region, Russia, along with Azerbaijan, Albania, Montenegro, and Poland, also made the largest gains in increasing expected years of schooling – mainly due to improvements in secondary school and pre-primary enrollments. The report also shows that over the last 10 years Russia has seen a reduction in adult mortality rates. However, absolute values of this indicator remain high in the country with this progress now at risk due to the global Covid-19 pandemic.

Human capital contributes greatly to improving of economic growth in every country. Investments in knowledge and health that people accumulate during their lives are of paramount concern to governments around the world. Russia is among the top improvers globally in the Index. However, challenges persist and much needs to be done to improve the absolute values of Index indicators,” said Renaud Seligmann, the World Bank Country Director in Russia.

The HCI, first launched in 2018, looks at a child’s trajectory, from birth to age 18, on such critical metrics as child survival (birth to age 5); expected years of primary and secondary education adjusted for quality; child stunting; and adult survival rates. HCI 2020, based on data up to March of this year, provides a crucial pre-pandemic baseline that can help inform health and education policies and investments for the post-pandemic recovery.

Of the 48 countries in Europe and Central Asia included in the 2020 Human Capital Index (HCI), 33 are among the upper-third in the world, and almost all are in the top half. However, there are significant variations within the region.

In Russia, a child born today can expect to achieve 68 percent of the productivity of a fully educated adult in optimal health. It is at the average level for Europe and Central Asia countries and the third result globally among the countries of the same income group. There is a stark contrast between education and health subscales in Russia. While the education outcomes of the country are high and outperform many high-income peers, its health outcomes are below the global average.

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Accelerating Mongolia’s Development Requires a Shift “from Mines to Minds”

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A new report by the World Bank estimates that out of every dollar in mineral revenues Mongolia has generated over the past 20 years, only one cent has been saved for future generations. The report argues that to break this cycle, Mongolia should use its mineral wealth to invest in people and institutions, while gradually reducing its dependence on the sector.

This is particularly true as demand for key minerals is likely to tumble due to climate change concerns, a shift of investors’ preference toward sustainability, China’s ambitious goal to reduce coal consumption, and persistence of the COVID-19 shock, according to Mongolia’s Mines and Minds, the World Bank’s September 2020 Country Economic Memorandum for Mongolia.

Since the advent of large-scale mining in 2004, Mongolia’s economy has grown at an average rate of 7.2 percent per year, making it one of the fastest-growing economies in the world. Growth has translated to rapid decline – although at times partly reversed – in the incidence of poverty and improved quality of life. The report also notes that Mongolia enjoys relatively strong human capital, and its infrastructure capital has improved for the last few decades, though remains scarce given the size of the country and low population density. This performance has been made partly possible through a generous but inefficient social assistance system and a large public investment program supported by mineral revenues and external borrowing.

However, a number of enduring challenges have grown in the shadow of this success. Mongolia’s rapid growth has been obscured by its extreme macroeconomic volatility and frequent boom and bust cycles. Growth has almost entirely come through capital accumulation and the intensive use of natural capital rather than through sustained productivity growth. Meanwhile, the country has not only consumed almost all its mineral outputs, but has also borrowed heavily against them, bequeathing negative wealth to the next generation.

Instead of maximizing the benefits of its mineral wealth for diversified and inclusive growth, Mongolia has increasingly become more addicted to it. At the same time, human capital has been underutilized and institutional capital has eroded.” said Andrei Mikhnev, World Bank Country Manager for Mongolia. “Such inability to capitalize on the country’s endowments has resulted in limited diversification of outputs and exports and has further amplified its vulnerability to the swings of the global commodity markets. Breaking this gridlock calls for a fundamental shift in approach that puts investing in minds on an equal footing with mines.”

The report recommends key policy actions to build the foundation of a diversified and sustainably growing  economy. These include:

  • Implement countercyclical fiscal and monetary policies – supported through transparent fiscal rules, an independent fiscal council, a market-driven exchange rate, and a well-functioning stabilization fund – to smooth consumption over the business cycle rather than maximize current consumption.
  • Undertake bold investment climate reforms to enhance competition, secure investor rights, and create a more level playing field that enables productive firms to invest and grow.
  • Move away from the mindset of diversifying products to expanding endowments, especially in terms of better utilization of Mongolia’s young and educated, especially female, labor force.
  • Accelerate the implementation of fundamental governance reforms (especially on the government effectiveness and control of corruption) to reduce political interference, increase transparency, and improve regulatory quality throughout the economy.

“Fortunately, there are many encouraging signs of improved macroeconomic management in 2017-19, providing the new government an opportunity to advance its reform efforts,” said Jean-Pascal Nganou, World Bank Senior Country Economist and lead author of the report. “Some impressive fiscal outcomes were achieved not by introducing new reforms but by effectively implementing existing ones. They demonstrate that with the right political will and leadership, similar improvements are possible in other areas including monetary and exchange rate policy, the financial sector, the business environment, and the labor market. The new administration has, therefore, an opportunity to institutionalize these reforms and avoid policy regression in the future.”

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Nearly 9 in 10 People Globally Want a More Sustainable and Equitable World Post COVID-19

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In a new World Economic Forum-Ipsos survey of more than 21,000 adults from 28 countries nearly nine in ten say they are ready for their life and the world to change.

72% would like their own lives to change significantly and 86% want the world to become more sustainable and equitable, rather than going back to how it was before the COVID-19 crisis started. In all countries, those who share this view outnumber those who don’t by a very significant margin (more than 50 percentage points in every country except South Korea). Preference for the world to change in a more sustainable and equitable manner is most prevalent across the Latin America and Middle East-Africa regions as well as in Russia and Malaysia.

Next week’s World Economic Forum Sustainable Development Impact Summit will address the achievement of the sustainable development goals and the appetite for transformation which will drive the “decade of delivery”.

Clear majority ready for a more sustainable and equitable world

Globally, 86% of all adults surveyed agree that, “I want the world to change significantly and become more sustainable and equitable rather than returning to how it was before the COVID-19”. Of those, 46% strongly agree and 41% somewhat agree, while 14% disagree (10% somewhat and 4% strongly).

Russia and Colombia top the list of countries that strongly or somewhat agree with that statement at 94%. They are followed by Peru (93%) Mexico (93%) Chile (93%) Malaysia (92%), South Africa (91%) Argentina (90%) and Saudi Arabia (89%). The countries that are most change averse – disagreeing somewhat or strongly disagreeing with the statement – are South Korea (27%), Germany (22%), Netherlands (21%), US (21%) and Japan (18%).

Dominic Waughray, Managing Director, at the World Economic Forum said, “The Great Reset is the task of overhauling our global systems to become more equitable and sustainable, and it is more urgent than ever as COVID-19 has exposed the world’s critical vulnerabilities. But the technology to transform things tends to outpace the human will to change. In six months, the pandemic has systematically broken down this cultural barrier and we are now at a pivot point where we can use the social momentum of this crisis to avert the next one.”

Ready for significant personal change

Across all 28 countries, 72% want their lives to change significantly rather than returning to what it was like before the COVID-19 crisis (30% strongly and 41% somewhat) while the other 29% disagree (21% strongly and 8% somewhat).

Latin America stands out for its optimism, with Mexico, Colombia and Peru in the top five countries strongly or somewhat agreeing. Agreement is also high South Africa (86%), Saudi Arabia (86%, Malaysia (86%) and India (85%). By contrast, at least two out of five adults in the Netherlands, Germany, South Korea, Japan, Sweden, the US, UK and Canada long for their life to just return to how it was before the pandemic.

MethodologyThese are the results of a 28-country survey conducted by Ipsos on its Global Advisor online platform. Ipsos interviewed a total of 21,104 adults aged 18-74 in United States, Canada, Malaysia, South Africa, and Turkey, and 16-74 in 23 other countries between August 21 and September 4, 2020. Where results do not sum to 100 or the ‘difference’ appears to be +/-1 more/less than the actual, this may be due to rounding, multiple responses or the exclusion of don’t knows or not stated responses.

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