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A Sustainable Recovery In Gaza Is Not Foreseen Without Trade

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Gaza has seen conditions steadily deteriorate over the last two decades, leading to collapsing of the economy and basic social services. While additional cash inflows are urgently needed to bring relief to the difficult living conditions, a lasting recovery depends on a concerted strategy to revive the Gaza economy through access to external markets and expansion of commercial activities.

A new World Bank report explores the nature of the rapid decline of the socio-economic conditions in Gaza and identifies what is needed to unlock sustainable growth. The report will be presented to the Ad Hoc Liaison committee (AHLC) on March 20, 2018 in Brussels, a policy-level meeting for development assistance to the Palestinian people.

While additional aid is needed to provide humanitarian relief in the short term and ease the fiscal stress, it cannot continue to substitute for long term measures,” said Marina Wes, World Bank Country Director for West Bank and Gaza. “Serious commitments by all parties are needed to spur growth and jobs by putting in place the right conditions for a dynamic private sector. Without addressing the constraints, Gaza will continue to suffer with a heavy toll on its population,” she added.

Donor aid is urgently needed in the short-term to address the recent liquidity squeeze and improve dire humanitarian conditions.

Recent economic data revealed a drop in Gaza growth from 8 percent in 2016 to a mere 0.5 percent in 2017 with almost half of the labor force unemployed. The drop is attributed to a decline in inflows that has weakened reconstruction activity and led to a sharp decline in the income of a quarter of Gazans.

Access and quality of basic services such as electricity, water and sewerage is rapidly deteriorating and posing grave health risks. An additional destabilizing factor is the possible cuts to UNRWA funding – one of the main providers of jobs and services in Gaza. In fact, the cuts could risk income loss to 18,000 staff, and even more when counting their dependents.

Additional aid will be needed to avoid financial exacerbations. The potential reconciliation with Gaza, a positive for the territories overall, could increase the expected financing gap for 2018 from USD440 million to USD1 billion. Measures proposed by the Palestinian Authority will not be enough to close the gap and it will resort to domestic sources of financing including debt from local banks and arrears to the private sector and the pension fund. This could eventually choke the economies of both the West Bank and Gaza with negative consequences on suppliers, banks and ultimately growth and tax generation.

In the long term, aid will not be able to provide the impetus for growth, nor can it reverse Gaza’s de-development. The current market in Gaza is not able to offer jobs and incomes leaving a large population in despair, particularly the youth. Gaza’s exports are a fraction of their pre-blockade level and the manufacturing sector has shrunk by as much as 60 percent over the last twenty years. The economy cannot survive without being connected to the outside world.

Any effort at economic recovery and development must address the impacts of the current closure regime. Minor changes to the restrictive system currently in place will not be sufficient. Proposed projects to increase the supply of water and electricity are extremely welcome, but unless there is an opportunity to boost incomes through expanding trade, the sustainability of these investments will be in doubt.

The report highlights necessary preconditions for a sustained economic recovery in Gaza. They include a private sector that can compete in regional and global markets and increase its exports of goods and services. Required actions include relaxing the dual use restrictions, streamlining trade procedures at Gaza’s commercial crossing and rebuilding trade links with the West Bank and Israel.  Effective governance systems and institutional strengthening under the Palestinian Authority’s leadership are also key for a sustainable recovery.

Donors can also help by offering innovative financing instruments that can mitigate risks holding back transformative investments by the private sector in Gaza.

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Deeper Participation in Global Value Chains Will Strengthen Recovery of the Philippine Economy

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Post-pandemic, the Philippines has more opportunities to deepen its participation in global value chains (GVCs) especially in business clusters like industrial, manufacturing, and transportation; technology, media, and telecommunications; and health and life sciences. Addressing constraints to participation in these GVCs will boost the recovery, resilience, and competitiveness of the Philippine economy.

A new World Bank report – A New Dawn for Global Value Chain Participation in the Philippines – launched today said there are global trends favoring the country’s chances to succeed in GVCs, among them the increasing use of automation and artificial intelligence, the rise of services in manufacturing demanding higher labor skill, and the efforts by companies during the COVID-19 pandemic to diversify suppliers.

GVCs are international production sharing arrangements where manufacturing and assembly of products take place in multiple countries, with each step in the process adding value to the end-product. Through GVCs, countries trade more than products; they trade know-how and collaborate, boosting growth and creating jobs within their borders.

“Greater participation in global value chains can be a powerful driver for productivity and growth, enabling countries to leap-frog their development process as seen in many countries in East Asia,” said Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “Countries that embrace GVCs are able to leverage their strengths in specific tasks and roles in manufacturing and services and export at scale, enabling them to sustain growth, create more jobs, and reduce poverty faster.”

The report says that the Philippines, for instance, can capture bigger shares in the electronics and electrical parts and components GVCs by attracting foreign investments in design capacity so that more value added is captured and manufacturing is retained and expanded in the country. There are also bigger opportunities for business process outsourcing (BPO) companies to move up the ladder by providing value added services like analytics. This can be achieved through a 3-pronged strategy:

  • Strategic reorientation:  Mobilize key stakeholders to build opportunities from accelerated digitalization, automation and robotization for the electronics and BPO sectors for which the Philippines is known for.
  • Bundling: Capitalize complementarities across clusters; diversify electronic and electrical intermediate goods into electric vehicles, medical equipment, and others; add analytics to the voice service sector; and expand the voice service sector into telemedicine, pharmacovigilance, and patient care services.
  • Sequencing: Upgrade BPO to KPO (Knowledge Process Outsourcing) as a key steppingstone to an integrated telecommunication cluster; anchor health and life sciences businesses on telehealth and pharmaceutical multinational companies while further developing the life science subsector; and expand intermediate goods in the three industrial, manufacturing, and transportation subsectors (electronics, automotive, aerospace) which have increasing commonalities.

According to the report, the country needs to overcome some “structural constraints” to take advantage of on-going trends in GVCs. These constraints include restrictions on foreign direct investments (FDI) in various sectors of the economy and scarcity of advanced science, technology, engineering, mathematical skills, among others.

To attract FDIs, the Philippines passed amendments to the Foreign Investments Act, easing restrictions to foreign participation in the economy; Retail Trade Liberalization Act lowering the minimum paid-in capital requirement for foreign retailers, and the Public Service Act opening selected industries such as telecommunications, airline, maritime, and rail transport to foreign investments; among other reforms.

“Timely implementation of these legislations is essential for the Philippines to attract investors looking for alternative production sites as transnational companies adjust to the challenges posed by pandemic,” said Souleymane Coulibaly, Lead Economist and Program Leader for Equitable Growth, Finance, and Institutions Practice Group for Brunei, Malaysia and the Philippines.

Given fiscal space constraints, the report says that partnership with the private sector may be needed to raise the financing required to fill the country’s infrastructure gap, focusing on connectivity – digital as well as physical – and secure access to a competitive and clean energy supply.

To boost advanced skills in the Philippines, the government needs to accelerate its innovation strategy, according to the study. In 2019, Congress enacted Republic Act no. 11293 or Philippine Innovation Act to support education, training, and research and development to foster innovation, internationalization, and digitalization. The implementation rules and regulations were published in February 2020. Accelerating the implementation of this strategy could help to create a Silicon Valley type of environment in which cities and clusters of cities host engineers, technicians, doctors, and nurses working in various business clusters in the country.

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Ten years of Afghan economic growth, reversed in just 12 months

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photo © UNICEF Afghanistan

A year on from the Taliban takeover in Kabul, Afghanistan is gripped by “cascading crises”, including a crippled economy that humanitarian aid alone cannot address, according to a new report from the UN Development Programme (UNDP) on Wednesday.It says that the already-declining regular economy, as opposed to the black market, lost nearly $5 billion after August 2021 and is reversing “in 12 months what had taken 10 years to accumulate.”

Soaring prices 

The cost of a basket of essentials needed to avoid food poverty has meanwhile risen 35 percent, forcing poorer households to go deeper into debt or sell off assets, just to survive.

Nearly 700,000 jobs have vanished, said UNDP, further threatening a population reeling from impacts of the COVID-19 pandemic, conflict, drought, and war in Ukraine.

“The Afghan people have been relentlessly subjected to extremely difficult circumstances. They have survived numerous challenges in the last 40 years and shown enormous resilience”, the report states, officially entitled, One Year in Review: Afghanistan Since August 2021.

“Yet the last 12 months have brought cascading crises: a humanitarian emergency; massive economic contraction; and the crippling of its banking and financial systems in addition to denying access to secondary education to girls and the restrictions on women’s mobility and participation in the economy”.

‘Strong response’ by UN

The head of UNDP, Achim Steiner, praised the UN’s “strong, coordinated response to the crisis” saying it proved critical in averting a catastrophe last winter.

“Building upon what worked last year including tailored efforts across multiple sectors to improve the livelihoods of more than half a million people, there is a pressing need to support further measures to prevent a deeper crisis.”

“We need to help Afghans cope with the coming winter including through our ABADEI programme which aims to support two million people with livelihood and job opportunities over the next two years – with a focus on particularly vulnerable groups such as women entrepreneurs and young people.”

Expanding connectivity

The report paints a bleak fiscal picture of the country, dating back more than a decade before the Taliban ascendency.

With GDP in steady decline since 2008, Afghanistan had come to rely on international aid to sustain its economy, which accounted for a staggering 75 percent of total Government spending and nearly 40 percent of GDP at the time of transition. But foreign donors largely suspended aid after the transition, UNDP notes.

Without support from outside, Afghanistan must now rely on limited domestic revenue from agriculture and coal exports.

Authorities have sought to address revenue shortfalls by cracking down on corruption in key revenue streams, such as customs, and by reaching out to the private sector and foreign investors.

“Two decades of heavy dependence on international aid and imports, a lack of industrialization and competitiveness, and limited mobility and connectivity among regions, among other factors, have hindered Afghanistan’s forward momentum,” the report says.

Cost of excluding women

UNDP analysis forecasts that restricting women from working can result in an economic loss of up to $1 billion – or up to five percent of the country’s GDP.

“The rights of women and girls are critical for the future of Afghanistan,” said UNDP Asia-Pacific Director Kanni Wignaraja. “It starts with education and continues with equal opportunity when it comes to employment and pay.

“UNDP made the support to women-owned businesses front and center of its aid activities: we provided support to 34,000 women-owned small businesses. Our goal is to reach 50,000 women-owned business by the end of this year.

UNDP Resident Representative Abdallah Al Dardari said they was grateful for the $300 million in funding provided for the programme’s work on livelihoods as part of the overall crisis response, “but much more is needed for economic recovery”.

“Afghans are running out of time and resources. Afghanistan needs support from the international community to bring back to life local markets and small businesses which are the backbone of Afghanistan’s economy.”

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Commitment to ESG Reporting is Driving Change within Global Corporations

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New case studies from the World Economic Forum show how comprehensive environmental, social and corporate governance (ESG) reporting has started to drive corporate transformation around the world, particularly in sustainability efforts and company culture.

Based on case studies from companies reporting on the Stakeholder Capitalism Metrics, the white paper found examples of specific strategy and operations changes as a result. These include initiatives such as new approaches to water management in real estate and implementing biodiversity strategies and targets.

The case studies also indicate that despite some progress, companies are still struggling with competing and disparate ESG frameworks around the world. As regulators begin to roll out mandatory ESG reporting across regions, alignment will be key to ensuring that the clarity and efficacy of ESG reporting continues to improve globally.

We’re happy that support continues to grow for this set of metrics even in the face of geopolitical challenges, the lingering global pandemic and economic disruptions of the past two years,” said Emily Bayley, Head of Private Sector Engagement, ESG, World Economic Forum. “As this growth continues and jurisdictions transition from voluntary to mandatory sustainability reporting standards, we hope these learnings can provide valuable insights for companies that are just getting started on sustainability reporting and those that have been doing it for years.”

ESG-Driven Corporate Impacts

The Stakeholder Capitalism Metrics Initiative case studies engaged a global set of companies to gather how, and if, their ESG reporting has informed corporate transformation both internally and externally.

Examples of these transformations include:

Ecopetrol

Stakeholders told Ecopetrol their report was too long – the Forum’s core metrics helped the company focus on reporting topics that are most material and will generate value.

HEINEKEN

The metrics go beyond ESG to capture commercial metrics on employment, economic contribution, investment and tax. This delivers “an annual dashboard of comparable data on both sustainability and prosperity that will provide us with a snapshot of how healthy our company is”.

JLL

The core metric on water consumption and withdrawal in water-stressed areas led the company to encourage its teams and clients to agree water management plans and targets. It may even influence where the company rents office space in the future.

Philips

Accurate reporting on the environmental and social impacts of its operations. For example, the metric on resource circularity points customers towards the most impactful products on the market and drives the company’s innovation agenda to design more sustainable solutions.

SABIC

Reporting on the Forum’s metrics has increased the value of transparency within the company, leading to conversations and progress on difficult issues.

Schneider Electric

The metric on land use and ecological sensitivity contributed to Schneider’s new approach to biodiversity, as it adapted its reporting and asked all sites to set specific biodiversity action plans.

ESG Regulatory Landscape

While progress has been made on the creation and implementation of meaningful and effective ESG disclosures globally, concerns remain about the disparate nature of the competing and complex ESG reporting mechanisms that exist today.

There are also concerns that as reporting becomes mandated there could be less transparency because people will not want to disclose more than they have to. As mandated ESG reporting becomes more widespread, both regulators and internal advocates should ensure corporations understand the full value of transparency on sustainability and other ESG issues.

Addressing this issue is particularly important as regulators in different regions begin to roll out their mandatory reporting requirements. Focus on a common set of comprehensive and material metrics will be important for both the efficacy and feasibility of ESG reporting in the coming months. As much as possible, the European Union, the US Securities and Exchange Commission (SEC) and the International Financial Reporting Standards (IFRS) Foundation should align their metrics to ensure companies are able to implement effective ESG reporting globally.

Stakeholder Capitalism Metrics Initiative

The World Economic Forum and the coalition of companies adopting the Stakeholder Capitalism Metrics, engaged with the preparatory working group and are continuing the dialogue with the International Sustainability Standards Board (ISSB) technical teams under the IFRS Foundation as they go through the standard-setting process. The metrics are expected to form part of the ISSB “exposure draft” next year on cross-thematic disclosures and metrics.

Announced at the World Economic Forum Sustainable Development Impact Meetings 2022, these case studies build on the earlier report to showcase progress on the commitment made by companies at the Annual Meeting in 2020. Since then, 186 global companies, with a combined market capitalization of over $6.5 trillion, have adopted the Stakeholder Capitalism Metrics. Of these, 126 companies have disclosed against the metrics in their mainstream reports for either one or two years.

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