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Maintaining Stability is Crucial to Russia’s Growth and Poverty Reduction Goals

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Russia’s growth prospects remain modest, forecast at between 1.5% and 1.8% for the period 2018-20, says the World Bank’s latest Russia Economic Report (#40 in the series). Growth momentum increased in the first half of 2018, supported by robust global growth, rising oil prices and a macro policy framework that has promoted stability.

Preliminary estimates suggest, however, that growth appears to have weakened to 1.3% (year-on-year) in the third quarter of 2018, following a weak harvest, sluggish performances in manufacturing and construction, and the waning effects of the 2018 FIFA World Cup.

Driven by a rebound in real wages and disposable incomes, the number of poor people in Russia decreased by 1.1 million in the first half of 2018. However, the poverty rate remains over 13% and is projected to average 12% over the next three years – still above its pre-crisis rate of 10.8% in 2013.

“Russia’s goal of halving poverty to 6.6% by 2024 could be achieved, even under a modest annual growth scenario of 1.5%, by additional redistribution of about 0.4% of GDP annually through social assistance and transfers,” says Andras Horvai, World Bank Country Director and Resident Representative for Russia. “This assumes a significant improvement in coverage of the poor compared to the current social assistance system, and would be in line with other countries. Some of these additional funds could be replaced by savings through efficiency improvements in the current system.”

Monetary policy remained consistent with the inflation-targeting regime in 2018. Although inflation has been increasing since July, it stayed below the Central Bank of Russia’s target level of 4% in annual terms, with non-food products contributing the most to headline inflation. Inflationary risks stem from the value-added-tax (VAT) rate increase, a higher-than-expected rise in gasoline prices, a closing of the output gap, elevated inflation expectations and heightened external volatility.

In September, after a prolonged period of monetary loosening, the Central Bank hiked the policy rate from 7.25% to 7.5%, in the face of elevated inflationary risks, ruble depreciation prompted by elevated geopolitical tensions and turbulence in emerging markets, and the planned hike in the VAT rate.

Russia’s banking sector remains relatively weak with less of a capital buffer and a higher Non-Performing-Loans ratio than other BRICS countries. At the same time, public dominance in the banking sector increased even further: five large banks control 60% of the system’s assets – up from 52% at the end of 2013.

Furthermore, state-owned entities account for nearly 70% of Russian bank assets. As a result, private and smaller banks find it more difficult to compete, as public banks often enjoy preferential access to government programs, clients, cheaper funding and large distribution networks. As such, increasing competition in the financial sector is one of the priorities of the Central Bank’s financial sector development strategy for 2018-2021.

The fiscal balance improved at all levels of the budget system. Improvement in the fiscal stance was due to higher oil prices, combined with a weaker ruble, a better tax administration and a conservative fiscal policy. However, while the funding of the “May Decree” goals puts an impetus on revenue mobilization, it also increases fiscal risks, which, given Russia’s low public debt levels and manageable financing needs, are currently contained.

A potential sudden tightening of global financial conditions could negatively affect growth in Russia by pressuring the financial account and exchange rate, translating into higher inflation and lower domestic demand. And, with increasing downside risks from rising trade tensions, global growth could be affected, including in Russia’s main trading partners. As such, maintaining stability will continue to be an important aspect of Russia’s economic policy framework.

Taking a long-term perspective, various government initiatives could double Russia’s potential growth rate to 3% by 2028. The report concludes that the three-pronged approach of maintaining stability, doubling growth, and halving poverty can be achieved in Russia.

“Maintaining stability will require a high level of skill to navigate an increasingly uncertain external environment. Doubling growth will require, in addition to expanding the labor force through increasing the retirement age, the implementation of reforms that would increase inward migration, boost investment, and increase productivity growth,” says Apurva Sanghi, World Bank Lead Economist for Russia, and main author of the report. “Increasing competition and targeted interventions in human capital that specifically give people the skills of the 21st century would help boost productivity growth.”

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Wide Variations in Post-COVID ‘Return to Normal’ Expectations

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London, UK, Covid-19 restrictions in place in Soho. IMF/Jeff Moore

A new IPSOS/World Economic Forum survey found that almost 60% expect a return to pre-COVID normal within the next 12 months. including 6% who think this is already the case, 9% who think it will take no more than three months, 13% four to six months, and 32% seven to 12 months (the median time). About one in five think it will take more than three years (10%) or that it will never happen (8%).

Views on when to expect a return to normal vary widely across countries: Over 70% of adults in Saudi Arabia, Russia, India, and mainland China are confident their life will return to pre-COVID normal within a year. In contrast, 80% in Japan and more than half in France, Italy, South Korea, and Spain expect it will take longer.

At a global level, expectations about how long it will take before one’s life can return to its pre-COVID normal and how long it will take for the pandemic to be contained are nearly identical. These findings suggest that people across the world consider that being able to return to “normal” life is entirely dependent on containing the pandemic.

An average of 45% of adults globally say their mental and emotional health has gotten worse since the beginning of the pandemic about a year ago. However, one in four say their mental health has improved since the beginning of the year (23%), about as many that say it has worsened (27%).

How long before coronavirus pandemic is contained?

Similar to life returning to pre-COVID normal, 58% on average across all countries and markets surveyed expect the pandemic to be contained within the next year, including 13% who think this is already the case or will happen within 3 months, 13% between four and six months and 32% between seven and 12 months (the median time in most markets).

Majorities in India, China, and Saudi Arabia think the pandemic is already contained or will be within the next 6 months. In contrast, four in five in Japan and more than half in Australia, France, Poland, Spain, and Sweden expect it will take more than a year.

Change in emotional and mental health since beginning of the pandemic about a year ago

On average across the 30 countries and markets surveyed, 45% of adults say their emotional and mental health has gotten worse since the beginning of the pandemic about a year ago, three times the proportion of adults who say it has improved (16%)

In 11 countries, at least half report a decline in their emotional and mental health with Turkey (61%), Chile (56%), and Hungary (56%) showing the largest proportions.

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African fisheries need reforms to boost resilience after Covid-19

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The African fisheries sector could benefit substantially from proper infrastructure and support services, which are generally lacking. The sector currently grapples with fragile value chains and marketing, weak management institutions and serious issues relating to the governance of fisheries resources.

These were the findings of a study that the African Natural Resources Centre conducted from March to May 2020. The centre is a non-lending department of the African Development Bank. The study focused on the impact of the Covid-19 pandemic in four countries – Morocco, Mauritania, Senegal and Seychelles. The countries’ economies depend heavily on marine fisheries. The fisheries sector is also a very large source of economic activity elsewhere in Africa. It provides millions of jobs all over the continent.

The study dwells on appropriate and timely measures that the four countries have taken to avoid severe supply disruptions, save thousands of jobs and maintain governance transparency amid the ongoing global uncertainty and crisis.

Infrastructure shortcomings include landing facilities, storage and processing capacity, social and sanitary equipment, water and power, ice production, and roads to access markets.

Based on the findings, researchers made recommendations to strengthen the resilience of Africa’s fisheries sector in the context of a prolonged crisis, and looking ahead to a post-Covid-19 recovery.

The report strongly advocates for:

– Increased acknowledgment of the essential role of marine fisheries stakeholders and the right of artisanal fishermen to access financial and material resources.

– Strengthening the collection of gender-disaggregated statistical data in a sector that employs a vast number of women and youth.

– Establishing infrastructure and support services at landing and processing sites of fishery products, with priority access to water.

– Investing in human capital to ensure high-level skills in the different areas of fisheries management.

– Improving governance frameworks by encouraging the private sector and civil society to participate in formulating sectoral policies and resource management measures.

The study recommends urgent reforms to make marine fisheries more resilient and enable the sector to contribute sustainably to the wealth of the continent’s coastal countries.

Marine fisheries are a crucial contributor to food security and quality of life in Africa. Good nutrition is a key factor to quality of life, and the marine fisheries sector supports the nutrition of more than 300 million people, the majority of whom are children, youth and women. It also provides more than 10 million direct and indirect jobs.

Dominated by artisanal fishing and traditional value chains, the fisheries sector in Africa is mainly informal and is rarely considered in public policies or in assessing the wealth of countries.

Like other sectors, the African fisheries sector has been severely hit by the Covid-19 pandemic. Covid has affected supply markets and regional trade. This has resulted in substantial economic losses for most households that depend on fisheries.

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Top Trends Impacting Global Economy, Society and Technology

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The new technologies of the Fourth Industrial Revolution, such as artificial intelligence (AI), the cloud and robotics, are changing the way we live, learn and do business at a rate unprecedented in human history. This seismic shift is playing out in a world characterized by unreliable political landscapes and increasing environmental instability.

Scenario planning in this environment can be very difficult for businesses, affecting their ability to plan for the future, and properly assess the risks and opportunities that may present themselves. The Technology Futures report, released in collaboration with Deloitte, provides leaders with data analysis tools to scenario plan and forecast future technology trends.

“The rapid pace of technological change, alongside the global crisis caused by COVID-19, means that leaders today need new tools to understand challenges and develop strategies in the face of an increasingly uncertain future. This report provides three new analytical tools for business leaders to think about the future in a dynamic environment,” said Ruth Hickin, Strategy and Impact Lead, Centre for the Fourth Industrial Revolution, World Economic Forum.

“We are delighted to collaborate with the World Economic Forum to take a disciplined look into the future, particularly as we emerge from a world-altering event, like COVID-19,” said Mike Bechtel, Managing Director and Chief Futurist, US Consulting, Deloitte, and lead author of the report. “We hope that by providing a clearer picture of how today’s nascent technologies will impact our future, we can play a meaningful part in driving innovation, collaboration and economic growth that improves life for all people.”

The report breaks down future trends into four categories for business leaders and provides some examples of what is likely to remain constant in the years ahead.

  • Information: With the volume of accessible data exploding and more of our personal lives lived online, the report projects the probable implications for remote learning, remote working and healthcare.
  • Locality: Since the onset of COVID-19, even more of our interpersonal interaction is virtual and physical experiences have dwindled. The report projects more niche, readily available virtual experiences available to consumers.
  • Economy: The report forecasts a growing likelihood that flexible and clean energy production will continue rising.
  • Education: Personalized education will likely grow, along with the availability of digitized and virtualized content.

In addition to strategic modelling, the report gives leaders a baseline history of how the Fourth Industrial Revolution has progressed. It highlights just how fast technology is evolving and outlines one way risk management could evolve to better address and adapt to it.

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