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Low productivity jobs driving employment growth in many OECD countries

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Weak labour productivity growth continues to mark the world’s advanced economies and risks compromising improvements in living standards, says a new OECD report.

In its latest Compendium of Productivity Indicators, the OECD says that the slowdown in labour productivity growth (measured as gross value added per hour worked) has especially affected manufacturing – both high tech activities such as computers and electronics, as well as industries requiring lower skill levels – and that gaps in labour productivity levels between large and smaller firms remain high.

And although economic growth in many countries has led to rising employment, particularly in Italy, Mexico, Spain, the United Kingdom and the US, the majority of new jobs are in activities with relatively low productivity.

The greater number of low productivity jobs has also weighed down on average wages across the economy as a whole. Real wages (adjusted for inflation) fell between 2010 and 2016 in Portugal, Spain and the United Kingdom. Although in some countries, such as Germany and the US, real wages have begun to rise in line with, albeit still slow, labour productivity growth in recent years, in many sectors wages continued to lag labour productivity growth. This was the case in one third of all sectors in Germany and the US.

“The long-term decoupling in wage and productivity growth we see in many OECD countries may also be driving inequalities in income and wealth,” the OECD’s Chief Statistician Martine Durand said. “Slowing productivity growth and the large number of low productivity jobs being created both limit the scope for improvements in material well-being.”

The share of income from economic activity going to labour through wages has declined in most countries in recent years, but most markedly in Hungary, Ireland, Israel, Mexico, Poland and Portugal.

The Compendium shows that by 2016, the latest year for which comparable international data is available, investment, an important driver of productivity growth, was beginning to pick up. However, investment rates, particularly on machinery and equipment and other tangible assets, were still below pre-crisis levels in many OECD countries.

Investment in intellectual property products, such as software and R&D, has been increasing since before the crisis, often at a faster pace than investment in physical capital but significant differences remain across countries. The share of total investment going to intellectual property in 2016 ranged from 1.1% in Colombia to 30% in Switzerland and 56% in Ireland.

The Compendium says the relatively robust investment in intellectual property, where the benefits to business may take time to feed through, may act as a catalyst for stronger economic growth in the future.

The OECD says productivity is ultimately a question of “working smarter” rather than “working harder”. This reflects firms’ ability to produce more output by better combining inputs through new ideas, technological innovations, as well as by way of process and organisational innovations.

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Major Opportunities in Decarbonizing Maritime Transport

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The World Bank today published new research on decarbonizing the maritime transport sector with findings that indicate significant business and development opportunities for countries, including for developing and emerging economies.

To lower and ultimately eliminate its climate impact, maritime transport needs to abandon the use of fossil-based bunker fuels and turn toward ‘zero-carbon bunker fuels’, namely shipping fuels which emit zero or at most very low greenhouse (GHG) emissions across their lifecycles. The first report being launched today, “The Potential of Zero-Carbon Bunker Fuels in Developing Countries”, identifies two alternative fuels – ammonia and hydrogen – as the most promising zero-carbon bunker fuels for shipping at present, more scalable and cost-competitive than other biofuel or synthetic carbon-based options.

The second report, “The Role of LNG in the Transition Toward Low- and Zero-Carbon Shipping”, finds that liquefied natural gas (LNG) is likely to play a limited role in the decarbonization of the shipping sector, noting its specific niche applications on pre-existing routes or in specific vessel types. The research further recommends that countries should avoid new public policy that supports LNG as a bunker fuel, reconsider existing policy support, and continue to regulate methane emissions.

By transitioning toward zero-carbon shipping, many countries, especially those with large renewable energy resources, can break into a future zero-carbon fuel market, while modernizing their own domestic energy and industrial infrastructure. The reports evaluate which developing and developed countries may be well positioned to take advantage of this emerging investment opportunity, and present initial case studies for Brazil, India, Mauritius and Malaysia.

“The maritime community, particularly in developing countries, has a unique opportunity in the context of these emerging zero-carbon bunker fuels.” said Bernice Van Bronkhorst, Global Director for Climate Change at the World Bank. “Not only will they help decarbonize shipping, but they can also be used to boost domestic infrastructure needs and chart a course for low-carbon development more generally.”

The global maritime transport sector produces around three percent of global GHG emissions and an estimated 15 percent of the world’s air pollution annually. The International Maritime Organization’s (IMO) Initial Strategy on the Reduction of GHG Emissions from Ships mandates that shipping’s GHG emissions be reduced by at least 50% below 2008 levels by 2050, and to be fully phased out as quickly as possible within this century.

Zero-carbon fuels will need to represent at least five percent of the bunker fuel mix by 2030 to put shipping on a GHG trajectory consistent with the Initial IMO GHG Strategy, as well as the Paris Agreement’s temperature goals, ” said Binyam Reja, World Bank Acting Global Director for Transport. “This means they need to be scaled up rapidly. These reports will be critical to help accelerate their targeted development and deployment.”

“It is vital that we address the impacts of maritime transport on ocean health, which is at the heart of the Bank’s transition to a Blue Economy. These reports offer policymakers useful tools to achieve a triple win – a healthier ocean, improved air quality and reduced GHG emissions,” said Karin Kemper, Global Director for Environment, Natural Resources and the Blue Economy.

The research makes the case that strategic policy interventions are needed to hasten the sector’s energy transition and seize opportunities for wider economic, energy, and industrial development in developing countries. For instance, the introduction of a meaningful carbon price would create a level playing field for the development and utilization of zero-carbon bunker fuels. Revenue generated by such a market-based measure can help support developing countries in their energy transitions and accelerate crucial research, development, and deployment of these fuels. Business should also focus on “no-regret” options, such as increased energy efficiency and maximum fuel flexibility. Constructive collaboration between industry stakeholders and policymakers, both at the IMO and on a national/regional level, can also create greater certainty on the availability, pricing, and timing of zero-carbon bunker fuels which can further boost their rapid uptake from 2030.

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COVID-19 spending helped to lift foreign aid to an all-time high in 2020

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Photo: MINUSCA

Foreign aid from official donors rose to an all-time high of USD 161.2 billion in 2020, up 3.5% in real terms from 2019, boosted by additional spending mobilised to help developing countries grappling with the COVID-19 crisis, according to preliminary data collected by the OECD.

Within total Official Development Assistance (ODA) provided by members of the OECD’s Development Assistance Committee in 2020, initial estimates indicate that DAC countries spent USD 12 billion on COVID-19 related activities. Some of this was new spending and some was redirected from existing development programmes, according to an OECD survey carried out in April and May 2020. Most providers said they would not discontinue programmes already in place.

Total ODA equated to around 1% of the amount countries have mobilised over the past year in economic stimulus measures to help their own societies recover from the COVID crisis. Meanwhile the global vaccine distribution facility COVAX remains severely underfunded, OECD Secretary-General Angel Gurría said during a virtual presentation of the aid data.

“Governments globally have provided 16 trillion dollars’ worth of COVID stimulus measures yet we have only mobilised 1% of this amount to help developing countries cope with a crisis that is unprecedented in our lifetimes,” Mr Gurría said. “This crisis is a major test for multilateralism and for the very concept of foreign aid. We need to make a much greater effort to help developing countries with vaccine distribution, with hospital services and to support the world’s most vulnerable people’s incomes and livelihoods tobuild a truly global recovery.”

Foreign aid rose in a year that saw all other major flows of income for developing countries – trade, foreign direct investment and remittances – decline due to the pandemic, and domestic resources under increased pressure. Total external private finance to developing countries fell 13% in 2020 and trade volumes declined by 8.5%. (See the OECD’s Global Outlook on Financing for Sustainable Development 2021.)

The rise in 2020 ODA was also affected, however, by an increase in loans by some donors. Of gross bilateral ODA, 22% was in the form of loans and equity investments, up from around 17% in previous years, with the rest provided as grants.

The 2020 ODA total is equivalent to 0.32% of DAC donors’ combined gross national income, up from 0.30% in 2019 but below a target of 0.7% ODA to GNI. Part of the rise in the ratio was due to the fact that GNI fell in most DAC countries. Six DAC members – Denmark, Germany, Luxembourg, Norway, Sweden and the United Kingdom – met or exceeded the 0.7% target. Among non-DAC donors, whose assistance to developing countries is not included in the ODA total, Turkey provided aid equivalent to 1.12% of its GNI.

ODA rose in 16 DAC countries, with some substantially increasing their aid budgets to help developing countries respond to the pandemic. The largest increases were in Canada, Finland, France, Germany, Hungary, Iceland, Norway, the Slovak Republic, Sweden and Switzerland. ODA fell in 13 countries, most notably in Australia, Greece, Italy, Korea, Luxembourg, Portugal and the United Kingdom. G7 donors provided 76% of total ODA and DAC-EU countries 45%. ODA provided by EU Institutions jumped by 25.4% in real terms as they mobilised funds for COVID-19 related activities and increased sovereign lending by 136% over 2019. 

Short-term support to help with the COVID-19 crisis focused on health systems, humanitarian aid and food security, according to the OECD survey. Aid providers indicated they would focus in the medium-term on making diagnostics and vaccines available to countries in need, as well as offering support to address the economic and social repercussions of the pandemic.

“At the outset of the pandemic, DAC donors said that they would strive to protect ODA volumes. I am grateful and proud to say that they have done that and more. Donor countries have stepped up to support developing countries struggling with the health and economic fallout of COVID-19, even as their own economies and societies have been battered,” said DAC Chair Susanna Moorehead. “The next few years will be tough and the finance we provide must work harder than ever. If we really are going to build forward better and greener, we must focus on the most vulnerable countries and the most vulnerable people in them, especially women and girls.”

Bilateral ODA to Africa and least-developed countries rose by 4.1% and 1.8% respectively. Humanitarian aid rose by 6%. Excluding aid spent on hosting refugees within donor countries – which was down 9.5% from 2019 to USD 9.0 billion and mainly concerned Canada, Iceland and the Netherlands – ODA rose by 4.4% in real terms in 2020.

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Export competitiveness key to Nepal’s green, resilient, and inclusive recovery

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After contracting for the first time in 40 years in FY2020, Nepal’s economy is projected to grow by 2.7 percent in FY2021, driven primarily by services as social distancing measures continue to be relaxed and vaccines rolled out for priority populations. Agriculture is also expected to perform well, on the back of recent favorable monsoons. Exports could be a powerful platform to boost post-pandemic recovery and enable Nepal to transition towards green, resilient, and inclusive development, states the World Bank’s latest Nepal Development Update.

The update notes that the tourism sector may not fully recover without reforms to readjust to a post-COVID-19 tourism market. The current account deficit is expected to widen marginally in FY2021 to 1.2 percent of GDP as imports and remittances recover modestly while exports remain tepid. Revenue performance is also expected to remain weak. This coupled with additional spending on economic relief measures, vaccinations, and the resumption of project implementation should contribute to increase the fiscal deficit close to 7 percent of GDP in FY2021.

While the government has outlined a program to address the impacts of COVID-19 to mitigate the attendant risks to the outlook, the Nepal Development Update highlights the importance of improving export competitiveness for a resilient economic recovery.

Nepal’s untapped export potential is estimated to be around US$9.2 billion, 12 times its actual annual merchandise exports,” said Dr. Kene Ezemenari, World Bank Senior Economist and lead author of the update. “This export potential represents an opportunity to create an estimated 220,000 new jobs, with significant implications for productivity growth. Realizing that potential is not unrealistic in the medium term.”

The report outlines six key priorities for Nepal to achieve its export potential. These include reforming the tourism sector for a quick and resilient recovery; simplifying and streamlining processes to attract more FDI; modernizing export promotion and upgrading exporters’ capabilities; reducing trade costs; investing in phytosantary and quality control-related infrastructure; and boosting digital trade and e-commerce for more opportunities linked to global value chains.

Nepal’s economy is on the path to recovery amid the severe impacts of the global COVID-19 pandemic which affected people lives and livelihoods, and businesses,” stated Honorable Finance Minister, Mr. Bishnu Prasad Paudel. “The recommendations that can help harness the potential of exports in supporting Nepal’s economic recovery are in line with the government’s policies and priorities. The Government of Nepal is working together with development partners and the private sector on a green, resilient and inclusive development agenda to help Nepal build back better and greener from the pandemic.”

The Government of Nepal’s relief, restructuring and resilience plan addresses the pandemic’s impacts from the immediate to the long term with a focus on a green, resilient, inclusive recovery. The first stage of the plan is focused on relief support to businesses and households most affected by COVID-19. In the restructuring phase or medium-term, the focus is on recovery through investments to promote and create green jobs that sustain the country’s natural capital base. In the long term, the plan focuses on sustainability and resilience for inclusive growth.

We welcome the government’s planned reforms to support Nepal’s green, resilient, and inclusive development. This will be the foundation for Nepal to emerge stronger from the crisis,” stated Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka. “We look forward to continued collaboration with the government and development partners in this effort, particularly on investments that harness Nepal’s export potential to support a sustainable and resilient recovery.”

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