Indonesia maintained strong economic growth in 2017 and the outlook continues to be positive, according to the World Bank’s March 2018 Indonesia Economic Quarterly.
Indonesia’s real GDP growth picked up to 5.2 percent year-on-year in the fourth quarter of 2017 from 5.1 percent in the previous quarter. For 2017, the country’s GDP growth rose to 5.1 percent from 5.0 percent in 2016, its highest growth rate in four years.
Faster growth in 2017 was due to stronger investments and net exports, lifted by improved global trade, and the continued recovery in commodity prices. Public investments also supported growth, with total government spending growing the fastest in three years.
“Sound macroeconomic policies have contributed to investment growth reaching a five-year high,” said Rodrigo A. Chaves, World Bank Country Director for Indonesia and Timor-Leste. “But to meaningfully accelerate investments outside the mining sector, Indonesia needs to consider putting together a bold and impactful mixture of policies that will open the economy.”
The country’s real GDP growth is projected at 5.3 percent in 2018. However, the forecast face risks if global trade slows along with growth of domestic private consumption, which constitutes over half of the country’s GDP.
This issue of the Economic Quarterly focuses on collecting more and spending better for inclusive growth. Over the last 15 years, fiscal policy has contributed to Indonesia’s economic growth by maintaining macroeconomic stability. However, fiscal policies can play a larger role to ensure sustainable and inclusive growth. Indonesia can reduce inequality by increasing the level and efficiency of expenditures that benefit the bottom 60 percent of Indonesian families. Most of these expenditures, such as health and education, also address inequality of opportunity and build the foundations for solid growth in the future.
“To support inclusive growth, Indonesia could spend more effectively in education and spend more in priority areas such as infrastructure, health, and social assistance. Increased spending could be supported by collecting more revenues in an efficient, growth-friendly manner,” said Frederico Gil Sander, Lead Economist for the World Bank in Indonesia.
The launch of the March 2018 Indonesia Economic Quarterly is part of Voyage to Indonesia, a series of events leading up to the 2018 IMF-World Bank Annual Meetings in Bali. The Australian Department of Foreign Affairs and Trade supports the publication of the report.
How Iraq Can Turn Economic Diversification into Growth and Stability
Nearly two decades after the 2003 war, Iraq finds itself at a crossroads: caught in a fragility trap and faced with increasing instability and multiple crises, Iraq is projected to have the worst annual GDP growth performance since the fall of the Saddam regime. Yet even in the midst of the COVID-19 pandemic, an oil price shock, and recent protests, Iraq can take the path toward sustainable growth, peace, and stability and improve living standards for its people.
These are the findings of the World Bank’s new Iraq Country Economic Memorandum, titled Breaking Out of Fragility. The report examines why Iraq has not managed to escape the fragility trap. It details what the country can do to turn crises into opportunity, diversify its economy away from the oil sector, and sustain future growth. The report highlights nonetheless that the path will demand persistence, and Iraq will face much uncertainty as it tries to address its long-lasting challenges and change the status quo.
“Economic diversification, through reforms and developing the private sector, is critical to reduce the continuous challenges Iraq is facing,” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “This Country Economic Memorandum provides a roadmap to help Iraq and the Iraqi people re-think the existing economic model, build a more diversified economy that creates opportunities for all Iraqis, and rebuild the social contract. The World Bank will be a committed partner in helping Iraq move down the path of reform to ensure peace and stability and give all Iraqis a chance to fulfill their highest aspirations.”
Breaking out of Fragility details how, for decades, Iraq’s oil wealth allowed the country to obtain upper income status, while in many ways the country’s institutions and social and economic outcomes resembled a low-income fragile country. Oil revenues eroded the country’s economic competitiveness, reduced the need for taxation, weakened the accountability link between citizens and the state, and fueled corruption.
The COVID-19 pandemic and the oil price shock have thrown into stark relief how much Iraqis have lost in the last two decades. The education system, which once ranked near the top of the MENA region, is now near the bottom. Iraq’s labor force participation is mired at 42%. Combined with one of the lowest female labor force participation rates in the world, Iraq faces low levels of human capital, deteriorating business conditions, and one of the highest poverty rates among upper middle-income countries.
Breaking out of Fragility outlines key pathways for Iraq to achieve sustainable growth after closely considering the country’s complex political economy. The report highlights that Iraq’s priority should be to refocus the country’s political settlement on development, and improve transparency in the management and allocation of its oil wealth and public resources. The report also underlines the urgent need for Iraq to rebuild the confidence between citizens and the government by strengthening citizen engagement and government accountability in the delivery of priority services and infrastructure, responding to youth demand for jobs and tackling socioeconomic inequalities.
Despite Iraq’s current political and economic challenges, three areas of focus can help lead to economic diversification, growth, and stability:
First, maintaining peace can, by itself, be a strong driver of growth. Iraq’s per capita GDP was about one fifth lower in 2018 than it would have been if not for the conflict that began in 2014, while non-oil GDP was one-third lower. In countries that have undergone a vicious cycle of violence and fragility, coordinated policies from a broad coalition of actors are critical to maintaining “peaceful pathways” and kickstarting a virtuous cycle. The report finds that, in the short term, Iraq should focus on reforms that expand social safety nets for the poor and most vulnerable, improve delivery of basic services such as education and health, and ensure greater transparency in the functioning of the government institutions.
Second, tapping into Iraq’s export potential to help diversify the economy away from oil production and toward trade and integration. Iraq’s geographical position has the potential to make the country a regional logistics hub; however, Iraq’s logistical performance lags behind its peers so much that it is instead a regional bottleneck.
Third, reviving Iraq’s agriculture sector to serve as a key pillar of a more diversified, private sector-led economy. Agriculture production; food processing; and related services including logistics, finance, manufacturing, and technology have large potential to expand and create jobs. The agri-food sector has not been subject to the same level of government control as other sectors, so it is well positioned to develop new methods and adopt the latest technologies to maximize its competitive potential.
The latest Country Economic Memorandum builds on two previous reports, from 2006 and 2012, which noted the need for Iraq to move from conflict to rehabilitation; from state dominance to market orientation; from oil dependence to diversification; and from isolation to regional and global integration.
Breaking out of Fragility builds on those recommendations by 1) conducting a close analysis of Iraq’s underlying fragility and political economy challenges and their implications for a diversified growth model; 2) analyzing Iraq’s growth characteristics and the country’s potential for and benefits from economic diversification; 3) assessing Iraq’s potential for trade and regional integration to create growth; and 4) reviewing Iraq’s agriculture sector and its potential to support economic diversification.
Curbing Corruption in the Midst of a Pandemic is More Important Than Ever
Progress against corruption can be made even under the most challenging conditions, a new World Bank report finds. At a time when unprecedented levels of emergency funds have been mobilized to respond to the COVID-19 pandemic, the report offers a fresh look at some of the most effective approaches and tools to enhance government accountability.
Enhancing Government Effectiveness and Transparency: The Fight Against Corruption focuses on ways to enhance the effectiveness of anti-corruption strategies in the sectors most affected. It serves as a reference guide to policy makers and anti-corruption champions as further work is needed to sharpen the application of traditional tools.
“The COVID-19 pandemic has resulted in large scale emergency spending by governments at rapid speed to revive the economy as well as protect the poor and vulnerable who suffer disproportionately. As countries embark on the road to a more resilient and inclusive recovery, prudent use of scarce resources in a transparent manner is critical,” said World Bank Managing Director Mari Pangestu, “Progress is possible in all environments and we are committed to work closely with our partners in government, civil society, and the private sector to address corruption and its corrosive impacts.”
Some of the unprecedented emergency spending against COVID-19 has occurred without adhering to the regular checks and balances. While speed is understandable, without proper controls, it exposes governments to a variety of corruption risks that may undermine the effectiveness of their responses. To foster greater accountability, the report calls on governments to clearly articulate their actions, enforce rules, address violations, and remedy problems as quickly as possible, and in a transparent manner.
The report covers five key thematic areas: public procurement, infrastructure, state-owned enterprises, customs administration, and service delivery, and cross-cutting themes such as open government initiatives and GovTech, with case study examples from around the world. It will help equip public sector officials and civil society with a modular set of approaches and tools that can be drawn upon and adapted to their specific country context.
The report’s case studies show that measures to curb corruption are often opportunistic, targeting specific areas of vulnerability where and when the political space allows. But even when actions have apparently limited impact, they can provide important foundation for future progress.
In Bangladesh, the implementation of the e-Government Procurement, combined with increased transparency and citizen participation, halved the number of single bidder tenders which improved competition significantly; increased the number of contracts awarded to non-local firms; and led to better prices with successful bidders.
Colombia updated its e-procurement system to publish data in an open way following international standards. As a result, single bid tenders in the public roads agency, INVIAS, went down from 30% to 22%, while cities like Cali saw competitive processes increase from 31% to 56% in about two years.
In Ukraine, making wealth declaration forms of public officials available online was recognized by citizens and the international community as a key tool in the fight against corruption. The latest data shows that close to 5,3 million documents in the e-declarations system are accessible to the public. As of mid-2020, the High Anti-Corruption Court of Ukraine had 19 cases against officials accused of submitting false information in the Asset and Interest Declaration or intentionally not submitting a declaration.
In Afghanistan, the customs department has been progressively implementing a countrywide computerization of customs clearance operations. Although significant vulnerabilities exist and revenue loss at the borders remains a substantial challenge, revenue collected by customs has increased seven-fold between 2004 and 2019, and clearance time and the transparency of trade transactions has improved significantly.
The land reform program in Rwanda helped manage the conflicts around land and led to increased efficiency, transparency, citizen participation, and development of viable land governance institutions. Automation of land records reduced bribes paid to land registry officials as the information was in public domain.
“Institutions are incredibly important for implementing government policies, engaging civil society, and ensuring greater transparency in government operations,” said Ed Olowo-Okere, World Bank Global Director for Governance, “The global report highlights the importance of complimenting the traditional methods of dealing with corruption with advanced ones like GovTech and e-Procurement to address corruption, even in the most challenging and fragile environments.”
The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. We are supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. We will be deploying up to $160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans.
A rapid rise in battery innovation is playing a key role in clean energy transitions
Affordable and flexible electricity storage technologies are set to catalyse transitions to clean energy around the world, enabling cleaner electricity to penetrate a burgeoning range of applications. Between 2005 and 2018, patenting activity in batteries and other electricity storage technologies grew at an average annual rate of 14% worldwide, four times faster than the average of all technology fields, according to a new joint study published today by the European Patent Office (EPO) and the International Energy Agency.
The report, Innovation in batteries and electricity storage – a global analysis based on patent data, shows that batteries account for nearly 90% of all patenting activity in the area of electricity storage, and that the rise in innovation is chiefly driven by advances in rechargeable lithium-ion batteries used in consumer electronic devices and electric cars. Electric mobility in particular is fostering the development of new lithium-ion chemistries aimed at improving power output, durability, charge/discharge speed and recyclability. Technological progress is also being fuelled by the need to integrate larger quantities of renewable energy such as wind and solar power into electricity networks.
The joint study shows that Japan and Korea have established a strong lead in battery technology globally, and that technical progress and mass production in an increasingly mature industry have led to a significant drop in battery prices in recent years. Prices have declined by nearly 90% since 2010 in the case of lithium-ion batteries for electric vehicles, and by around two-thirds over the same period for stationary applications, including electricity grid management.
Developing better and cheaper electricity storage is a major challenge for the future. According to the IEA’s Sustainable Development Scenario, for the world to meet climate and sustainable energy goals, close to 10 000 gigawatt-hours of batteries and other forms of energy storage will be required worldwide by 2040 – 50 times the size of the current market.
“IEA projections make it clear that energy storage will need to grow exponentially in the coming decades to enable the world to meet international climate and sustainable energy goals. Accelerated innovation will be essential for achieving that growth,” said IEA Executive Director Fatih Birol. “By combining the complementary strengths of the IEA and the EPO, this report sheds new light on today’s innovation trends to help governments and businesses make smart decisions for our energy future.”
“Electricity storage technology is critical when it comes to meeting the demand for electric mobility and achieving the shift towards renewable energy that is needed if we are to mitigate climate change,” said EPO President António Campinos. “The rapid and sustained rise in electricity storage innovation shows that inventors and businesses are tackling the challenge of the energy transition. The patent data reveals that while Asia has a strong lead in this strategic industry, the US and Europe can count on a rich innovation ecosystem, including a large number of SMEs and research institutions, to help them stay in the race for the next generation of batteries.”
The joint study follows the publication earlier in September of the major IEA report Energy Technology Perspectives 2020, which has deepened the IEA’s technology analysis, setting out the challenges and opportunities associated with rapid clean energy transitions.
As governments and companies seek to make informed investments in clean energy innovation for the future, sector-specific insights like those offered by the joint study will be highly valuable, including for helping bring about a sustainable economic recovery from the Covid-19 crisis. The innovation study provides an authoritative overview of the technologies and applications receiving research attention – and of those that are underserved. It also shows where they stand in the competitive landscape.
Innovation is increasingly recognised as a core part of energy policy, and this year the IEA has been introducing more tools to help decision-makers understand the technology landscape and their role in it – and to track progress in innovation and the deployment of technologies. This includes a comprehensive new interactive guide to the market readiness of more than 400 clean energy technologies.
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