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IEA for EU4Energy Policy Forum on energy subsidies taking place Kyrgyzstan

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The forum is being attended by over 80 participants from the 11 IEA EU4Energy countries (Photograph: IEA)

IEA for EU4Energy is holding a three-day Policy Forum in Issyk Kul, Kyrgyzstan from 26-28 June, focusing on energy security and energy subsidies. The forum will cover energy demand restraint programmes, fuel switching, response mechanisms, and energy access.

The forum is being attended by over 80 participants, including officials and experts from the 11 IEA EU4Energy countries (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan).

The aim is to promote policy discussion on energy subsidies and, in particular, to address government practices that set energy prices and subsidise different forms of energy, thereby discouraging investment in the sector and preventing energy system self-sufficiency.

This is a particular issue in the 11 EU4Energy countries, where energy subsidies often create pricing structures that are below cost-recovery levels. This hinders the energy sector’s ability to generate adequate financial resources and to maintain infrastructure at the necessary technical standards. As a consequence, aging infrastructure is in many cases in urgent need of upgrades.

Yet when upgrade programmes are carried out, they are often part of government-guaranteed long-term loans from international financial institutions. This puts even more pressure on the high levels of public finances.

Discussions during the forum will address these challenges and will consider pathways to reach fully cost-reflective tariffs that also allow for planned capital investment.

They will also consider best practice examples on the gradual phase-out of subsidies and exchange information on tariff methodologies for electricity and heat tariffs in EU4Energy countries.

The forum will also cover the development of emergency response mechanisms to address recurrent or other prolonged energy supply shortages. Particular focus will be placed on demand restraint management and the need for oversight by the authorities.

Statisticians from 10 different countries are playing a key role in the event, in line with the EU4Energy programme’s core objective of promoting evidence-based policy making. The IEA energy data team has put together an interactive programme of exercises to help non data specialists to increase the use the data in decision making.

Download Energy Balance and Use in Policy-Making: An Energy Factsheet from the EU4Energy Programme

The IEA is leading the implementation of the EU4Energy Programme funded by the European Union (EU) for the following Eastern Partnership (EaP) and Central Asian countries: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

The programme’s aim is to work with these countries to improve energy data capabilities and enhance data collection and monitoring, and assist them in evidence-based energy policy design relevant to the country’s needs.

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Development

Building science, technology and innovation capacity in developing countries

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The United Nations Industrial Development Organization (UNIDO) is contributing to a series of online training courses and workshops to build national capacity on science, technology and innovation (STI) in developing countries in order to help achieve the Sustainable Development Goals (SDGs).

The training has been organized online amid the current COVID-19 pandemic and is being carried out in partnership with the UN Inter-agency Task Team (IATT) on STI for the SDGs, an operational arm of the Technology Facilitation Mechanism (TFM) mandated under the 2030 Agenda for Sustainable Development to mobilize STI for the SDGs.

The three-part, agency-wide interactive webinar series, which has attracted over 50 government officials from 24 countries from Asia, Latin America, Africa and Eurasia, will conclude on December 3 with a session on innovation and entrepreneurship organized by UNIDO.

The final session will focus on how to provide practical and conceptual support for innovative entrepreneurship through policies that create business opportunities for start-ups and small and medium-sized enterprises (SMEs) while driving productivity, job creation and economic growth.

The first two sessions dealt with existing approaches for the design and implementation of STI policies and examined case studies on how policies are being geared towards achieving the SDGs. They also discussed how to strengthen and adapt STI policies to deal with current COVID-19 pandemic and any future crisis.   

The IATT is currently composed of diverse entities, including among others UNCTAD, UNIDO, UNESCO, UNU MERIT, WIPO, UNDESA, UNEP, World Bank, ITU, UNESCWA, UNECA, UNECLAC, UNECE and UNESCAP. The IATT’s Work Stream 6 is responsible for capacity building on STI for the SDGs, designing and delivering training courses and workshops on STI policy that target policymakers and key STI managers from developing countries.

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Tech News

Fintechs See Increased Growth as Firms Adapt to COVID-19

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The World Economic Forum has today released results of a study on how the fintech industry has been impacted by COVID-19.

Since the onset of the pandemic, the fintech industry has seen increased growth. In 2020, firms saw an average rise of 13% compared to 11% growth in previous years. The expansion of transactions was noticeably higher in countries with strict lockdown measures, where growth was 50% higher, compared to firms who were operating in countries with looser measures. Though the highest gains were seen in the digital payments sector, nearly all fintech services saw increased growth. Digital lending was the only service that did not see increased growth.

“It’s clear COVID-19 has disrupted the global economy with lasting implications for corporates and consumers,” said Matthew Blake, Head of Financial and Monetary Systems, World Economic Forum. “Despite this challenging backdrop, fintechs have proven resilient and adaptable: contributing to pandemic relief efforts, adjusting operations and offerings to serve vulnerable market segments, like micro, small and medium-sized businesses, while posting year-over-year growth across most regions.”

Despite this growth, many fintech firms are in a deteriorating financial position, with over half of survey respondents reporting a negative impact on their capital reserves and mixed views for future funding. The Global COVID-19 Fintech Market Rapid Assessment report, which the Forum has launched in collaboration with the Cambridge Centre for Alternative Finance (CCAF) and the World Bank, explores these trends in depth, examining both financial and policy effects on the fintech industry during COVID-19.

Fintech trends during COVID-19 lockdowns

On average, fintech firms in economies with stricter lockdown measures saw 50% higher transaction growth than economies whose governments applied looser measures. Firms in the markets with the strictest lockdowns saw 15% growth in their transactions compared to 10% growth in countries with the fewer restrictions.

Transaction volumes and number of transactions under low, medium and high COVID-19 lockdown stringencies

Image: CCAF/World Economic Forum/World Bank

These trends were also seen in fintech employment in these economies. Fintechs in countries with more lockdown restrictions reported an average of 10% increase in full-time employees, while fintechs in economies with fewer lockdown restrictions actually saw their full-time staff decrease by 19%.

Launch of new products and services and changes to existing ones

Fintechs have responded to the COVID-19 pandemic by implementing changes to their existing products, services and policies. Two-thirds of surveyed firms reported making two or more changes to their products or services in response to COVID-19, and 30% reported being in the process of doing so. The most prevalent changes across all fintech sectors were fee or commission reductions and waivers, changes to qualification, and onboarding criteria and payment easements.

Fintechs have also launched a range of new products and services in response to the pandemic. Some 60% of surveyed firms reported launching a new product or service in response to COVID-19, with a further 32% reporting that they were in the process of doing so.

The most prevalent new change for digital payments firms was the development and deployment of additional payments channels (introduced by 38% of firms), for digital lending it was value-added non-financial services (e.g., information services; introduced by 35% of firms) and, for digital capital raising it was hosting COVID-19-specific funding campaigns (introduced by 35% of firms).

Despite significant willingness, fintech involvement in relief remains limited

To date, fintech involvement in the delivery of COVID-19-related relief is limited, despite significant willingness by firms. More than a third of surveyed firms reported a willingness to participate in the delivery of one or more COVID-19-related relief measures or schemes.

While this demonstrates strong interest, the participation rates of fintech firms in relief schemes ranged between 7% for NGO-led measures to 13% for government job-retention measures. Fintech firms were most likely to indicate interest to participate in the delivery of industry-led relief measures (32% of firms), government match-funding schemes (32%), and government-bases stimulus funding to MSMEs (30%).

Expert thoughts

“This study reveals a global fintech industry that has been largely resilient in spite of COVID-19. Nonetheless, its growth must be interpreted with nuance and in the context of unevenness, and the opportunities for the industry should be juxtaposed with the challenges it faces,” said Bryan Zhang, Co-Founder and Executive Director of the Cambridge Centre for Alternative Finance.

“Fintech has shown its potential to close gaps in the delivery of financial services to households and firms in emerging markets and developing economies,” said Caroline Freund, World Bank Global Director for Finance, Competitiveness and Innovation. “This survey shows how the fintech industry is adapting to the pandemic and offers insights for regulators and policymakers seeking to promote innovation and reap the benefits of fintech, while managing risks to consumers, investors, financial stability, and integrity.”

“Covid-19 is accelerating change in how people interact with financial services, which has led to unprecedented demand from developing countries to progress their transition to secure and inclusive digital finance. Whilst it is encouraging to see the growth reported by Fintechs in the study, there are also cautionary indicators that some firms are suffering a deterioration in their financial position and are concerned over their ability to raise capital in the future. This is something that the FinTech community should be mindful of given the significant economic opportunities that Fintech presents,” said James Duddridge MP, the UK’s Minister for Africa at the Foreign, Commonwealth & Development Office (FCDO).

The report was based on survey responses from 1,385 fintech firms in 169 countries. The survey was carried out by CCAF, the World Bank and the World Economic Forum.

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Africa Today

Central African Republic: Diversifying the economy to build resilience and foster growth

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According to the latest economic update for the Central African Republic (CAR), which was published today by the World Bank, the country’s pace of economic growth for 2020 will have slumped to between 0 and −1.2% as a result of the COVID-19 pandemic following five years of robust growth (4.1%, on average). In 2019, although the country’s growth rate slipped to 3.1%, it was still higher than the rates recorded by neighboring countries that are facing a similar situation of fragility, conflict, and violence.  

Entitled The Central African Republic in Times of COVID-19: Diversifying the economy to build resilience and foster growth,theupdate notesthat the global slowdown has not spared CAR, where production of its main export products, such as coffee and cotton, has plummeted. The health crisis has weakened public finances and deepened the country’s balance of payments deficit.

The authors observe that the pandemic’s effects may wipe out years of progress in the area of human development and could drive as many as another 140,000 people into extreme poverty, which was already the plight of 71% of the population in 2019. The growth rate should start climbing again once the pandemic is brought under control, however, rising to an average of 3.9% in 2021-2023, although this is still lower than the projected rates for those years before the outbreak of the pandemic.

Even though the security situation has improved since the peace agreement was signed in February 2019, pre-existing structural problems in the Central African economy have exacerbated the impact of the pandemic,” explained Wilfried A. Kouamé, World Bank Economist and lead author of the report. The economy’s lack of diversification makes it vulnerable to shocks and limits its participation in global value chains, while its heavy dependence on international assistance reduces its budgetary maneuvering room.”

A number of recommendations are made in the report for spurring the economic recovery and boosting the country’s potential growth rate:

Diversify the economy by capitalizing on existing export opportunities. The country’s major export products, such as timber and cotton, offer opportunities for specializing in a wide range of related products, creating new jobs, and generating additional revenue. CAR could also begin to export a variety of new products in which it has a comparative advantage.

Address the major cross-cutting problems affecting the country by putting an end to the violence, strengthening its institutions, ensuring respect for the law, and investing in sustainable development. These steps would expedite the reconciliation process and promote private enterprise and investment. The transport sector also needs to be developed in order to further cross-border trade and open up access to electricity in a country where just 8% of the population currently has access to a source of electrical power.

Reinforce subregional trade. Asia and Europe are among CAR’s top export markets despite their highly competitive nature and the significant constraints associated with the resulting transport costs. Meanwhile, neighboring countries have the potential to be important markets for the country, since they are currently net importers of products that CAR exports elsewhere. This subregional market represents some $31 billion in imports per year and has a population of over 175 million.

CAR has an important choice to make,” said Han Fraeters, the World Bank’s Country Manager for CAR. It can build a strong, diversified, and resilient economy but only if all stakeholders in the country are committed to holding peaceful general and local elections and to implementing the peace accord. Without peace and the prospect of long-term stability, CAR will be unable to realize its strong economic potential.”

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