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The $10 Trillion Question: How to End a Lost Decade of Global Productivity

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Ten years on from the global financial crisis, the global economy remains locked in a cycle of low or flat productivity growth despite the injection of more than $10 trillion by central banks. While these unprecedented measures were successful in averting a deeper recession, they are not enough on their own to catalyse the allocation of resources towards productivity-enhancing investments in the private and public sectors. The Global Competitiveness Report 2019, published today, points to the path forward.

Launched in 1979, the report provides an annual assessment of the drivers of productivity and long-term economic growth. The assessment is based on the Global Competitiveness Index (GCI), which maps the competitiveness landscape of 141 economies through 103 indicators organized into 12 pillars. These pillars are: Institutions, Infrastructure; ICT adoption; Macroeconomic stability; Health; Skills; Product market; Labour market; Financial system; Market size; Business dynamism; and Innovation capability. For each indicator, the index uses a scale from 0 to 100 and the final score shows how close an economy is to the ideal state or “frontier” of competitiveness.

This year, the report finds that, as monetary policies begin to run out of steam, it is crucial for economies to boost research and development, enhance the skills base of the current and future workforce, develop new infrastructure and integrate new technologies, among other measures.

With a score of 84.8 (+1.3), Singapore is the world’s most competitive economy in 2019. The United States remains the most competitive large economy in the world, coming in at second place. Hong Kong SAR (3rd), Netherlands (4th) and Switzerland (5th) round up the top five. The average across the 141 economies covered is 61 points, almost 40 points to the frontier. This global competitiveness gap is of even more concern as the global economy faces the prospect of a downturn. The changing geopolitical context and rising trade tensions are fuelling uncertainty and could precipitate a slowdown. However, some of this year’s better performers in the GCI appear to be benefiting from the trade feud through trade diversion, including Singapore (1st) and Viet Nam (67th), the most improved country in this year’s index.

“The Global Competitiveness Index 4.0 provides a compass for thriving in the new economy where innovation becomes the key factor of competitiveness. The report shows that those countries which integrate into their economic policies an emphasis on infrastructure, skills, research and development and support those left behind are more successful compared to those that focus only on traditional factors of growth.” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

The report documents emerging areas of promising policies, reforms and incentives to build more sustainable and inclusive economies. To manage the transition to a greener economy, the report recommends four key areas of action: engage in openness and international collaboration, update carbon taxes and subsidies, create incentives for R&D, and implement green public procurement. To foster shared prosperity, the Report recommends four additional areas of action: increase equality of opportunity, foster fair competition, update tax systems and their composition as well as social protection measures, and foster competitiveness-enhancing investments.

Global trends and highlights

In addition to providing an annual assessment of economies’ long-term health, the report also highlights five trends in the global economy and their implications for economic policymakers

The last ten years saw global leaders take rapid action to mitigate the worst of the financial crisis: but this alone has not been enough to boost productivity growth.

With monetary policy running out of steam, policymakers must revisit and expand their toolkit to include a range of fiscal policy tools, reforms and public incentives

ICT adoption and promoting technology integration is important but policymakers must in parallel invest in developing skills if they want to provide opportunity for all in the era of the Fourth Industrial Revolution.

Competitiveness is still key for improving living standards, but policymakers must look at the speed, direction and quality of growth together at the dawn of the 2020s.

It is possible for an economy to be growing, inclusive and environmentally sustainable – but more visionary leadership is needed to place all economies on such a win-win-win trajectory.

The report’s data also shows growing inequalities in the global economy.

Market concentration: The report finds that business leaders in the United States, China, Germany, France and the United Kingdom believe that market power for leading firms has intensified over the past 10 years.

Skills gap: Only the United States among G7 economies features in the top 10 on the ease of finding skilled employees. It is, in fact, the best economy in the world in this category. Of the others, the United Kingdom comes next (12th) followed by Germany (19th), Canada (20th), France (41st), Japan (54th) and Italy (63rd). China comes 40th.

Technology governance: Asked how the legal frameworks in their country are adapting to digital business models, only four G20 economies make it into the top twenty. These are; the United States (1st), Germany (9th), Saudi Arabia (11th) and the United Kingdom(15th). China comes 24th in this category.

“What is of greatest concern today is the reduced ability of governments and central banks to use monetary policy to stimulate economic growth. This makes it all the more important that competitiveness-enhancing polices are adopted that are able to boost productivity, encourage social mobility and reduce income inequality,” said Saadia Zahidi, Head of the Centre for the New Economy and Society at the World Economic Forum.

Regional and country highlights

G20 economies in the top 10 include the United States (2nd), Japan (6th), Germany (7th) and the United Kingdom (9th) while Argentina (83rd, down two places) is the lowest ranked among G20 countries.

The United States (2nd overall) is the leader in Europe and North America. The United States remains an innovation powerhouse, ranking 1st on the Business dynamism pillar and 2nd on Innovation capability. It is followed by the Netherlands (4th), Switzerland (5th), Germany (7th), Sweden (8th), the United Kingdom (9th) and Denmark (10th). Among other large economies in the region, Canada is 14th, France 15th, Spain 23rd and Italy 30th. The most improved country is Croatia (63rd).

The presence of many competitive countries in East Asia and the Pacific makes this region the most competitive in the world, followed closely by Europe and North America. In Asia Pacific,Singapore leads the regional and the global ranking thanks to a top-10 performance in seven of the 12 GCI pillars, including Infrastructure (95.4), Health (100), Labour market (81.2), Financial system (91.3), quality of public institutions (80.4) and it takes advantage of being the most open economy in the world. It is followed by Hong Kong SAR (3rd), Japan (6th), and Korea (13th). China is 28th (the highest ranked among the BRICS) while the most improved country in the region this year (Viet Nam) is 67th. The ranking reveals how heterogenous the regional competitiveness landscape is. Although the region is home to some of the most technologically advanced economies in the world, the average scores of the innovative capability (54.0) and business dynamism (66.1) are relatively low, lagging behind Europe and North America.

In Latin America and the Caribbean, Chile (70.5, 33rd) is the most competitive economy thanks to a stable macroeconomic context (1st, with 32 other economies) and open markets (68.0, 10th). It is followed by Mexico (48th), Uruguay (54th), and Colombia (57th). Brazil, despite being the most improved economy in the region is 71st; while Venezuela (133rd, down six places) and Haiti (138th) close the regional ranking. The region has made important improvements in many areas, yet it still lags behind in terms of institutional quality (the average regional score is 47.1) and innovation capability (34.3), the two lowest regional performances.

In the Middle East and North Africa, Israel (20th) and the United Arab Emirates (25th) lead the regional ranking, followed by Qatar (29th) and Saudi Arabia (36th); Kuwait is the most improved in the region (46th, up eight) while Iran (99th) and Yemen (140th) lose some ground. The region has caught up significantly on ICT adoption and many countries have built sound infrastructure. Greater investments in human capital, however, are needed to transform the countries in the region into more innovative and creative economies.

Eurasia’s competitiveness ranking sees the Russian Federation (43rd) on top, followed by Kazakhstan (55th) and Azerbaijan (58th), both improving their performance. Focusing on Financial development (52.0), and Innovation capability (35.5) would help the region to achieve a higher competitiveness performance and advance the process towards structural change.

In South Asia,India, in 68th position, loses ground in the rankings despite a relatively stable score, mostly due to faster improvements of several countries previously ranked lower. It is followed by Sri Lanka (the most improved country in the region at 84th), Bangladesh (105th), Nepal (108th) and Pakistan (110th).

Led by Mauritius (52nd), sub-Saharan Africa is overall the least competitive region, with 25 of the 34 economies assessed this year scoring below 50. South Africa, the second most competitive in the region, improves to the 60th position, while Namibia (94th), Rwanda (100th), Uganda (115th) and Guinea (122nd) all improve significantly. Among the other large economies in the region, Kenya (95th) and Nigeria (116th) also improve their performances, but lose some positions, overtaken by faster climbers. On a positive note, of the 25 countries that improved their Health score by two points or more, 14 are from sub-Saharan Africa, making strides to close the gaps in healthy life expectancy.

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The Covid After-Effects and the Looming Skills Shortage

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coronavirus people

The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.

The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.

In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.

In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.

The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.

From our partner RIAC

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Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery

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Lunzu market in southern Malawi. WFP/Greg Barrow

Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.

Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.

I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.

In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.

Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.

However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people.  The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.

Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.

As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.

For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.

Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.

Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.

This op-ed first appeared in The Nation, via World Bank

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An Airplane Dilemma: Convenience Versus Environment

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Mr. President:  There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior.  For example, the decline in the use of automobiles has been to the benefit of the environment.  A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.

Yet there is hope.  We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort.  Such is also the belief of aircraft operators.  Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.

In short, the need for passenger planes has diminished while cargo operators face increased demand.  Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation.  All of which has led to a new business with new jobs — converting passenger aircraft for cargo use.  It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.

After the seats and interior fittings have been removed, the cabin floor has to be strengthened.  The side windows are plugged and smoothed out.  A cargo door is cut out and the existing emergency doors are deactivated and sealed.  Also a new crew entry door has to be cut-out and installed. 

A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space.  A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.

The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics.  At the end of it all, we have a cargo jet.  If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.

Airline losses have been extraordinary.  Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues.  This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.

For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes.  The latter also requires obtaining regulatory approvals.

A promising development for the future is sustainable aviation fuel (SAP).  Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.

It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing.  The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth.  All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.

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