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“Operating System Upgrade” Needed to Renew Globalization, Avoid Future Crises

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The World Economic Forum today calls for a global public-private campaign to strengthen and modernize international cooperation and two key areas of domestic governance.

The call for engagement comes two months after the World Economic Forum Annual Meeting and 10 years to the day since the London G20 Leaders Summit, when concerted global action was credited with helping avert a deeper and more protracted global economic crisis.

In a new white paper, Globalization 4.0: Shaping a New Global Architecture in the Age of the Fourth Industrial Revolution, the Forum argues that major shifts underway in technology, geopolitics, environment and society are combining to give birth to a new phase of globalization – Globalization 4.0 – whose trajectory will depend in large part on how well governance at multiple levels – governmental, corporate and international – adapts to these changes.

The emergence of these four transformations as driving forces of Globalization 4.0, the paper argues, calls for a new approach by governments, companies, civil society institutions and citizens to strengthen and modernize international cooperation and domestic governance. The paper also urges leaders to heed the lessons of 2009 and work together now rather than become complacent about the gaps in national and global governance that accumulated as a result of changes in technology, markets and macroeconomic conditions, which ultimately led to the global financial crisis of 2008-2009.

A new era for global governance

In the run-up to the 75th anniversary of the United Nations and Bretton Woods institutions in 2020, the Forum seeks to inspire engagement by facilitating a year-long process of dialogue in cooperation with other institutions. The white paper is intended to help concretize these discussions and place them in systemic context. Drawing on discussions and consultations undertaken on its platform before, during and after the World Economic Forum Annual Meeting in Davos in January, it presents:

– 8 general design specifications of effective international cooperative architecture and domestic governance in this new era

– 100 architectural innovations – existing initiatives and proposals embodying these specifications that would go a long way towards modernizing and strengthening the effectiveness of institutions and arrangements in such areas as trade, finance, environment, technology and cybersecurity, as well as domestic corporate governance and labour policies

These are presented to raise the level of ambition and appreciation of the impressive array of practical opportunities for progress that are available and mainly awaiting wider support. Nearly 60 multilateral and intergovernmental governance initiatives are highlighted, including more than 20 led by the UN and 15 by the Bretton Woods institutions, OECD and WTO. In addition, 45 multistakeholder initiatives to strengthen global governance and cooperation are spotlighted, including 25 that are facilitated by or linked to the World Economic Forum’s platform.

The white paper argues that implementation of a substantial portion of these would amount to an “operating system upgrade” for international cooperation and its indispensable core of multilateral institutions. Much of the remarkable progress humanity has experienced since the Second World War has been constructed on the foundation of norms and shared policy and action agendas organized through the United Nations system and Bretton Woods institutions. The white paper includes a summary of these achievements and argues for strengthening this precious institutional infrastructure, while anchoring it in a wider, multidimensional geometry of cooperative arrangements – a more robust underlying operating system – that advances common objectives even further.

“Crisis need not and should not be relied upon again to be the mother of invention for improvements in governance required by our rapidly changing world. This report illustrates that there is no lack of opportunities to strengthen international cooperation and domestic governance now, so we do not have to resort to an emergency response later like the London G20 Summit a decade ago. The best way we can mark the 75th anniversary of the United Nations and Bretton Woods institutions next year is for all stakeholders to begin engaging this year in a sustained effort to strengthen and supplement the multilateral system,” said Richard Samans, Managing Director and Member of the Managing Board, World Economic Forum.

Other key messages in the white paper include:

– “There has been a systematic underappreciation of the human impact of rapid economic change, whether due to technology or policy liberalization, in the priorities of national economic policy and the corresponding international institutional architecture.”

– “There are three practical steps countries can take to improve social justice and economic growth simultaneously. They each involve raising the level of investment in people across the public and private sectors.” This is the crux of what it means for a country to strengthen its social contract in the world economy of the 21st century. It also represents the basis of a new, human-centred growth and development model that may be the best hope for sustaining the world economy’s momentum as the two growth engines on which many countries have been relying – extraordinary macroeconomic stimulus and export-led production – continue to lose steam.

– “Implementing the Paris accord will therefore require us to think beyond, and build upon, it.” The white paper outlines four “new dimensions of climate change cooperative architecture – industry sector, value chain, plurilateral intergovernmental and bottom-up societal – that would facilitate the implementation of the NDCs registered by governments, likely strengthening the political confidence necessary to raise the ambition of such commitments in future years as foreseen by the Paris agreement.”

– “The Fourth Industrial Revolution and Globalization 4.0 are accentuating several risks that henceforth will require more explicit and proactive attention by boards. Loss of trust stemming from problems in any of them can reverse years of advances in market value and threaten a firm’s very existence. These relate to the use of personal and other sensitive data; the deployment of algorithms in internal processes and external products and services; the implications of climate change; corruption and financial crime; and labour practices.”

– “Companies have not only a legal obligation to pay taxes, but also a broader fiduciary responsibility stemming from their long-term value-creation mandate to ensure that they pay their fair share, which may not always be the same amount as that resulting from aggressive, multijurisdictional tax planning. Boards have a responsibility to ensure that their firms are acting not only legally, but also in keeping with the trust society has placed in them to contribute fairly and responsibly to the long-term viability of the economy in which they operate.”

– In the absence of an international organization dedicated to governance of advanced technologies, “the Forum itself launched the Centre for the Fourth Industrial Revolution Network in 2017 to serve as a public-private platform for the collaborative development and refinement of governance frameworks and protocols that more fully anticipate the risks and accelerate the benefits for societies of advanced technologies. It brings together governments, business organizations, dynamic start-ups, civil society, academia and international organizations to co-design human-centred governance protocols and policy frameworks, and pilot them with government and industry partners. It is establishing leader-level global councils composed of ministers and heads of regulatory agencies, chief executive officers, and leading technical and civil society experts to help shape the global technology policy and corporate governance agenda by providing a unique place in the international system where policy dialogue, practical learning and international agenda setting can take place across stakeholders and regions on an ongoing basis.”

– We do not face a stark choice between free trade and protectionism, technology and jobs, immigration and national identity or economic growth and social equity. These are false dichotomies. However, the prominence of these polemics in contemporary political discourse illustrates how underprepared we are for Globalization 4.0.

– “The paper should not be read as a general treatise or comprehensive overview of global governance but rather as a set of architectural blueprints for helping public and private institutions remain ‘up to code’ in Globalization 4.0, as well as a practical “users guide” of opportunities for immediate engagement by all stakeholders.”

The paper does not seek to be exhaustive or prescriptive but rather illustrative and suggestive. Nor does it represent a formal position of the World Economic Forum or its members, partners, communities or constituents.

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After stalling last year, renewable power capacity additions to hit double-digit growth in 2019

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After stalling last year, global capacity additions of renewable power are set to bounce back with double-digit growth in 2019, driven by solar PV’s strong performance, according to the International Energy Agency.

The IEA expects renewable capacity additions to grow by almost 12% this year, the fastest pace since 2015, to reach almost 200 GW, mostly thanks to solar PV and wind. Global solar PV additions are expected to increase by over 17%.

Last year was the first time since 2001 that growth in renewable power capacity failed to accelerate year on year, largely due to a Chinese government policy change. This highlights the critical role of governments for the deployment of renewables and the need to avoid sudden policy changes that can result in strong market volatility.

Renewables have a major part to play in curbing global emissions and providing universal access to affordable, secure, sustainable and modern energy. Renewable capacity additions need to grow by more than 300 GW on average each year between 2018 and 2030 to reach the goals of the Paris Agreement, according to the IEA’s Sustainable Development Scenario.

“These latest numbers give us many reasons to celebrate: Renewable electricity additions are now growing at their fastest pace in four years after a disappointing 2018,” said Dr Fatih Birol, the IEA’s Executive Director. “We are witnessing a drastic decline in the cost of solar power together with strong growth in onshore wind. And offshore wind is showing encouraging signs.”

“These technologies are the mainstays of the world’s efforts to tackle climate change, reduce air pollution and provide energy access to all,” Dr Birol said. “The stark difference between this year’s trend and last year’s demonstrates the critical ability of government policies to change the trajectory we are on.”

The cost of solar PV has plunged more than 80% since 2010, making the technology increasingly competitive in many countries. The IEA estimates that global solar PV capacity additions will increase to almost 115 GW this year, despite a slight decline in China, the world’s largest market. This is set to be the first year that solar PV additions have surpassed 100 GW and the third year in a row that they account for more than half of global renewable additions.

The softness in the Chinese solar PV market is being offset by faster expansion in the European Union, led by Spain; a new installations boom in Vietnam as developers rush to complete projects before incentive cuts; and faster growth in India and the United States. Japanese solar PV developers are also expediting the commissioning of projects to meet deadlines for higher incentives.

The pace of acceleration in the Chinese solar PV market remains the biggest uncertainty for the IEA’s 2019 estimates. China’s policy transition from feed-in tariffs to competitive auctions resulted in relatively slow solar PV deployment in the first half of 2019. But installations in the second half of the year are expected to accelerate with the completion of the first projects linked to large-scale auctions and the emergence of projects that rely far less on incentives to compete with other power sources.

The rebound in renewables is also supported by higher onshore wind growth, which is expected to rise 15% to 53 GW, the largest increase since record deployment in 2015. In the United States, project developers have accelerated deployment before the phase-out of federal production tax credits. In China, lower curtailment levels have unlocked additional growth in several provinces this year, enabling faster expansion.

Offshore wind growth is expected to be stable at around 5 GW in 2019, led by the European Union and China.

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Liquidity Crisis Weighs on An Already Strangled Palestinian Economy

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Palestinian Authority (PA) faces a financing gap that could exceed US$1.8 billion for 2019 driven by declining aid flows and the unresolved transfer of taxes and import duties collected by Israel on behalf of the PA (clearance revenues), according to a new report released today by the World Bank. 

The report highlights the financing gap that has forced the PA to accumulate debt from domestic banks, and build up arrears to employees, suppliers and the public pension fund, creating large liquidity challenges for the economy. The Palestinian economic monitoring report will be presented to the Ad Hoc Liaison Committee (AHLC) on September 26, 2019 in New York, a policy-level meeting for development assistance to the Palestinian people.

“The outlook for the Palestinian territories is worrisome as drivers of growth are diminishing and the severe liquidity squeeze has started to affect the PA’s ability to fulfill its responsibilities of paying its civil servants and providing public services,” said Kanthan Shankar, World Bank Country Director for West Bank and Gaza. “With the right actions and collaboration between the parties, the situation could be reversed and bring relief to the Palestinian people, its economy and living standards.”

Overall revenue received in the first half of 2019 was half the amount in the same period last year mainly due to a 68 percent drop in clearance revenues. The PA has rejected the transfers of all clearance revenues due to deductions by Israel of US$138 million per year. As a result, the PA has taken a number of steps to cope with the loss of liquidity including fully using its borrowing capacity from domestic banks and paying only 60 percent of salaries to its employees while protecting those that make NIS2,000 per month (US$ 550) and below.

The retroactive transfer of fuel taxes made by the Government of Israel in August 2019 is expected to enable the PA to manage till the end of 2019 with reduced spending, while continuing to accrue arrears to employees, and private sector suppliers. Transferring to the PA the responsibility for fuel taxes that comprise about a third of total clearance revenues would be a partial help, but a more comprehensive agreement needs to be reached covering the mechanism and nature of Israeli deductions from clearance revenues going forward. 

Growth in the Palestinian territories is estimated at 1.3 percent in 2019. This forecast is largely due to a slight improvement in Gaza of 1.8 percent growth, after a dramatic 7 percent decline in 2018. Reflecting the liquidity squeeze, growth in the West Bank is expected to slow in 2019 to the lowest level over the last five years at 1.2 percent.  As the PA, businesses and households exhaust their options for coping with the liquidity crisis, a recession is forecasted for subsequent years in the absence of an agreement that restores the normal flow of these revenues.

 “While the regular flow of clearance revenues is an immediate priority, for sustained economic expansion, steps need to be taken to reduce access and trade barriers. Work also needs to be done to enhance the business environment for Palestinian businesses. Coordinated efforts and support by all parties could offer better economic prospects for Palestinians,” added Shankar.

Progress can be made by expanding the pilot of door to door transport (a single movement of cargo on one mode of transport) through the West Bank crossings; completing the negotiations over electricity purchases between Palestinian and Israeli electricity companies; and revising the dual use goods system. Internally, reforms to improve the business climate are critical, including finalizing the revised Companies Law before the end of the year; and completing the institutional reform at the Palestine Land Authority to improve the efficiency and transparency of land administration. 

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New Study Offers Pathways to Climate-Smart Transport

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A two-volume study laying out a pathway to a low-carbon and climate-resilient transport sector in Vietnam was released at a workshop on Addressing Climate Change in Transport, held in Hanoi today.

This analytical work comes at a critical time when the Government of Vietnam is updating its Nationally Determined Contribution on reducing carbon emissions and set out its next medium-term public investment plan for 2021-2025.

“A resilient transport system is critical to the continued success of Vietnam’s economy, which relies heavily on external trade and seamless connectivity,” said Ousmane Dione, World Bank Country Director for Vietnam. “We hope that the findings and recommendations of this new report will help Vietnam in its efforts to achieve a resilient and sustainable transport sector.

The first volume demonstrates that by employing a mix of diverse policies and investments, Vietnam can reduce its carbon emissions in the transport sector up to 9 percent with only domestic resources by 2030, and 15-20 percent by mobilizing international support and private sector participation.

Currently, the transport sector contributes about 10.8 percent of the total CO2 emissions. In a business-as-usual scenario, these emissions are projected to grow at an annual rate of 6-7% to nearly 70 million tons CO2e. The most cost-effective measures to boost the resilience of the transport sector include shifting traffic from roads to inland waterways and coastal transport, deploying stricter vehicle fuel economy standards, and promoting electric mobility.

The second volume provides a methodological framework to analyze critical and vulnerable points of the transport network, and presents a strong economic case for investing in building the climate resilience of Vietnam’s transport networks. A vulnerability assessment looks at the potential impact of different hazards on the transport corridor or network, and the criticality assessment considers such questions as which links and routes along transport networks are the most critical for the unimpeded flow of transport across a particular transport network.

The study identifies systemic critical issues and hazard-specific, high-risk locations in Vietnam’s transport network. Considering climate change, it is estimated that 20 percent of the network is most critical in terms of its exposure to future disaster risks. Meanwhile, road failures can result in very high daily losses of up to US$1.9 million per day, while railway failures can result in losses as high as US$2.6 million per day.

To prepare for the increasing intensity and frequency of extreme hazards due to climate change, it is imperative to make investments to overhaul existing road assets to higher climate-resilient design standards.

Given the vulnerability of land-based transport, a shift to waterborne transport offers a good resilience strategy. A 10-percent shift in that direction could reduce climate risks by 25 percent, according to the report.

This report is a collaborative effort among the Vietnamese Ministry of Transport, the World Bank and Deutsche Gesellschaft für InternationaleZusammenarbeit GmbH (German Development Cooperation GIZ) under the commission by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU). It is sponsored by the Australian Government through the Australia-World Bank Group Strategic Partnership in Vietnam – Phase 2 (ABP2) program.

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