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Is Russia Rich or Wealthy?

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Authors: Apurva Sanghi and Glenn-Marie Lange Vedemosti (Russia)

Which would you rather be: rich or wealthy? And what exactly is the difference?

Being rich is related to your regular paycheck: the monthly income you receive from your employer or your business. The fatter the paycheck, the richer you are. Being wealthy, on the other hand, is the value of all your assets: how much you have in savings in your bank account, your house, your car, and so on. The more of these assets you have, the wealthier you are.

Now you can be rich without being wealthy. But that will not be sustainable if you do not keep adding to your stock of assets. So, your economic well-being is a function of both your income and wealth.

What applies to you as an individual applies to a nation as well. Focusing only on national income, i.e. GDP, can be misleading. Wars or disasters increase GDP because reconstruction counts towards GDP, but this is in an accounting sense. Common-sense tell us they do not improve welfare of those affected. Yet policymakers and economists are obsessed with GDP. Perhaps it is because GDP is a relatively easy thing to measure. In our latest semi-annual report, we upgrade Russia’s growth numbers (1.2% for 2019, 1.6% and 1.8% for 2020 and 2021), which no doubt will generate much public attention but as mentioned above, can be misleading. Changes in income need to be complemented with a measure that captures changes in wealth. But how do you measure the wealth of a nation – especially one as large and diverse as Russia?

Our report aims to answer the question: “How wealthy is Russia” by measuring, for the first time, the country’s wealth from 2000–2017.  The analysis comprehensively measures four types of assets:

  • Produced capital: Russia’s buildings, bridges and infrastructure;
  • Human capital: the cumulative experience, knowledge and skills of Russians;
  • Natural capital: the lakes, forests, soil, air, water, oil and gas from which Russians derive a range of services;
  • Foreign capital: the net value of overseas assets owned by Russia.

The good news is that the typical Russian citizen was 1.8 times wealthier in 2017 than in 2000, with accumulated wealth of about 9 million rubles (or approximately US$ 153,000). The bad news is that this is only about a quarter of the wealth of a typical resident in member countries of the Organization for Economic Co-operation and Development (OECD).

Here is another question: which of the above four wealth components do you think comprises the largest share of overall wealth in Russia? It is not foreign capital; Russia simply does not own that many assets overseas. Is it natural capital? After all, Russia is blessed with abundant natural resources appropriately captured by the song in the famous 1936 Soviet film Circus: “Wide is my Motherland, Of her many forests, fields, and rivers!… From Moscow to the borders, From the southern mountains to the northern sea.” Or is it physical capital? From the shiny skyscrapers of Moscow to all the infrastructure spread around the world’s largest country — this surely must add up to a lot?

Well, the answer is neither of the above: rather, it is human capital – the cumulative experience, knowledge and skills of Russians – that comprises almost half of all Russia’s wealth, only then followed by physical capital (about a third), and natural capital (about a fifth). However, in comparison, the wealth composition of OECD countries on average is 70 percent human capital, 28 percent produced capital, 3 percent natural capital, and minus 1 percent net foreign assets (Figure 1).

Figure 1: Human capital comprises the largest share of wealth in Russia, but this is much lower than the OECD average

Here again, there is good news and bad news. The good news is that during 2000–2017, Russia’s per capita human capital grew massively at 80 percent, dwarfing growth in OECD countries and other commodity exporters. The bad news is that average annual growth has slowed from 4.7 percent in the 2000–2010 period to 1.8 percent during 2010–2017. Indeed, at this slower rate of 1.8 percent, it would take Russia almost 100 years to catch up with the OECD average. For Russia to grow wealthier, the policy focus is clear: increase both the returns to and share of human capital wealth.

Increasing returns to human capital, especially in education, ranges from improving the quality of vocational and college education throughout Russia’s regions to improving the 3 Cs of softer skills of Russian students: creativity, collaboration, and communication. One puzzle is why Russia’s human capital proportion of its total wealth (46 percent), is significantly lower than OECD’s (70 percent). After all, Russia’s education performance appears to be even better than the OECD’s in certain areas. For example, the proportion of the labor force with university degrees is higher in Russia than the OECD. And the quality of education as measured by certain global standardized tests is on par with the OECD. One possible explanation is that Russians are simply not earning adequate returns on their education.

Increasing the share of human capital would require a decrease in the share of something else. A good candidate for Russia would be natural capital; specifically, oil and gas related assets, which remain a significant part of Russia’s wealth. Russia’s large share of carbon-based wealth faces increased risk due to future price uncertainty and large-scale attempts at global decarbonization. Additionally, better managing Russia’s forests is an immediate priority and can also enhance Russia’s role as an “ecological donor” to the planet. As a rough estimate, Russia’s forests provide annual absorption of about 640 million tons of CO2 equivalent or around 30,000 billion rubles (over US$ 500 billion) over their lifetime.

After all, nothing lasts forever, so this abundance needs to be sustainably managed if Russia is indeed to be more than just a rich tale. Otherwise pursuing riches without building wealth would be a bit like building mansions on a foundation of sand.

World Bank

Economy

Effective Investment in China: What Should Be Done When the Situation Gets Complicated?

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The current Chinese economy is facing a complex situation and is under unprecedented pressure to maintain steady economic growth. The growth was only 4.8% in the first quarter, making a poor start to 2022.

Domestic consumption has been in a slump for two years and is still lackluster in the first quarter of this year, with total retail sales of consumer goods growing by only 3.3% year-on-year (in the first quarter) and falling by 3.5% year-on-year in March. In terms of foreign trade, in the first quarter, imports and exports grew by 10.7%, exports by 13.4%, and imports by 7.5%. Compared with last year’s foreign trade data (in U.S. dollar terms), the growth of imports and exports slowed by 17 percentage points compared with the whole of last year, while exports slowed by 14.1 percentage points and imports significantly slowed by 20.5 percentage points.

With consumption and export growth slowing down, investment becomes an important means of stabilizing growth this year. In recent years, there has been a new concept of investment, known as “expanding effective investment”. Compared with the past investment that focused on scale and speed, to improve the effectiveness of investment is to pursue high-quality investment, which can also be seen as part of “high-quality development”. According to China’s National Development and Reform Commission (NDRC), the active expansion of effective investment is the focus of current macro policy, which will not only boost current demand and cope with downward pressure on the economy, but also help optimize the supply structure and promote high-quality development.

The NDRC called for targeted and effective investment, while resolutely avoiding indiscriminate investment. The state will appropriately advance infrastructure investment, and actively enhance water conservancy, transportation, energy, and other infrastructure construction. It will also strengthen the construction of new infrastructure and enhance the core competitiveness of the manufacturing industry. Additionally, it aims to improve the social and ecological environment, as well as urban infrastructure. The active expansion of effective investment does not mean blindly expanding projects or expanding infrastructure investment, nor imposing massive stimulus through large-scale infrastructure investment. Rather, it means focusing on key areas in economic and social development and carrying out targeted and orderly investment projects that benefit both immediate and long-term interests.

Yet government-driven investment still requires big projects. The NDRC put forward that 102 major projects in the 14th Five-Year Plan should be steadily promoted. In the view of the NDRC, the promotion of these projects is a major measure to actively expand effective investment. In addition, the expansion of effective investment also requires the market to play a major role in mobilizing social investment to participate. For example, within the more than RMB 50 trillion annual fixed-asset investment in China, government investment accounts for a very limited share, while nongovernmental investment accounts for the majority. Government investment plays a guiding role and arouses the proactiveness of social investment.

According to the researchers at ANBOUND, improving the effectiveness of investment starts with an understanding of effective investment itself, and how it can be differentiated in diverse situations.

What then, is an effective investment? As we have pointed out, effective investment is embodied in three aspects. First, it is economically effective. It would not be an investment for the sake of investment, nor to create a pile of debt and turn it into a dead-end project. Investment should be market-oriented, and should not be wholly invested by the state and government. Otherwise, it will cause a crowding-out effect on the private economy and foreign capital and is not conducive to giving full play to the guiding role of financial capital investment. Second, such an investment should be effective in innovation. There is no doubt that effective investment should reflect high-quality development as much as possible and give priority to innovation. In recent years, there has been a large amount of investment in semiconductor chips in China, but a lot of investment has resulted in hundreds of billions of yuan worth of dead-end projects, resulting in the most ineffective waste of investment. Third, it needs to be effective in improving people’s livelihood. Steady economic growth is closely related to the realization of common prosperity. To realize effective investment, the state needs to increase investment in projects related to public subsistence. Investment in the ecological environment, urban renewal, education, medical care, elderly care, and urban public services will all be encouraged.

In particular, under the current economic situation in China, it is impossible to expand effective investment by only undertaking large projects or investing in infrastructure, because such projects will not boost the economy in a broader way. When it comes to boosting effective investment, the policy objective cannot be focused solely on making economic data look good. In addition to the three types of effectiveness mentioned earlier, the following aspects should also be noted:

First, effective investment should be made in a wide range of areas, rather than allowing only a few areas to occupy too many resources. Second, the focus of this round of investment is to stabilize the economy, but stabilizing the economy is not the same as maintaining steady growth. Under the current circumstances, stabilizing the economy is more about ensuring people’s well-being. The investment to be stepped up in 2022 is a bottom-up investment for the macroeconomy, which focuses on ensuring livelihood, basic operation, and social stability. This is different from investments aimed at high growth. Third, the current situation of domestic investment in China should be divided into several stages, namely, stabilizing the economy (basic fundamentals), seeking growth (fundamentals of growth), and seeking development (fundamentals of future growth). In terms of investment priorities, the first one should be promoting consumption, ensuring employment, and guaranteeing the survival of small enterprises. This should then be followed by investments in urban renewal, agriculture, energy, social security, and key industries. Finally, there should be investments in major projects and industries, which are related to the long-term development of the country.

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The Belt and Road Initiative: Innovative Chinese Ideas for a New World Order

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One Belt, One Road is China’s largest infrastructure and investment project. China’s “One Belt, One Road” strategy aims to develop economic and social linkages amongst the countries it passes through to revive the ancient Silk Road. Project covers 65% of global population and 40% of global GDP. China’s planned economy grew almost 10% each year from 1978 to 2014.

China initiated the initiative in 2013 to expand its exports and imports. Through this initiative, China seeks to establish trade and social links with other nations and economic blocs. This endeavor focuses on the expansion of the Chinese export markets through bilateral economic ties that will become strategic partnerships and alliances. The yuan is utilized as a trade currency, and one of China’s goals is to raise the rate of trade exchange in this currency, which will assist strengthen the yuan globally while reducing trade exchange costs and settlement times.

For the geopolitical axis, all maritime and land channels were planned to achieve additional geopolitical goals that may lead to future partnerships. More than 100 countries and international organizations have signed Belt and Road Initiative cooperation agreements and invested $5.4 billion in 28 projects in diverse countries. 4,000 rail links connecting China to Asian and European countries were also built. China and other countries have invested $70 billion.

This initiative comprises developing rail networks, oil and gas pipelines, power lines, the internet, and marine infrastructure.

This initiative includes the New Eurasian Land Bridge, The China-Indochina Peninsula Economic Corridor (CICPEC), China–Central Asia–West Asia Economic Corridor (CCAWEC), China-Pakistan Economic Corridor (CPEC), and the Bangladesh, China, India and Myanmar Economic Corridor (BCIM). China will contribute $126 billion if each participant pays for its own infrastructure. Asian Infrastructure Investment Bank (AIIB) and Silk Road Fund give loans.

Half of its six Middle East lines travel through or end on the Mediterranean. China’s foreign policy is to stabilize the Middle East, which is known for wars and terrorism. European optimism and pessimism were split. Chinese funding thrilled Eastern and Central Europe. Germany, France, and many western European countries, especially northern ones, were suspicious.

Transatlantic Trade and Investment Partnership (TTIP) is a direct rival. China’s low interest rates are blamed for developing countries’ debt. In a scathing rebuttal to Trump’s protectionist policies, the Chinese president vowed to reject “protectionism.” All cooperation projects in the initiative would be guided by market principles, according to the Chinese president.

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Economy

All About Soybeans and the 5 Highest Soybean Producing Countries in the World

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Eating a balanced diet is one way to maintain health and a healthy lifestyle. The recommended balanced diet has a proportion of 4 healthy 5 perfect meals consisting of staple foods, side dishes, vegetables, fruit and milk or carbohydrates, proteins, vitamins, minerals and fats. Of the 5 compositions, the five components are easily found, including protein. The protein we consume can neutralize toxins in the body, help carry out the body’s metabolism and it can maintain fluids in body cavities (Ajeng, 2021). One type of protein that is most easily found in everyday life is food derived from processed soybeans. Soybean is one type of legume that contains protein so that it is used as a protein source that is easily found by the public. Soybeans are consumed in almost all countries in the world, although these countries do not produce soybeans independently but can export from other countries that are soybean producers. Each country has a unique product from soybean. For example, in Indonesia, soybeans are processed into tempeh, tofu, soy sauce and milk. While in Japan soybeans are processed into traditional foods natto, sauces such as miso and shoyu.

Due to the high demand for soybeans in each country, some countries are unable to meet the domestic supply of soybeans, so the option that can be done is to export soybeans from other countries. There are 5 countries that are known as the highest soybean producers in the world, the five countries are:

  1. Brazil

Brazil has the advantage that the climate and soil are very suitable for growing soybeans. So that the Brazilian government continues to expand the land used to increase soybean production every year. Based on World Atlas data, Brazil is listed as the largest soybean-producing country in the world with a total supply of soybeans produced reaching 124 million metric tons in 2019-2020 (Pratomo, 2022). And in 2020/2021 Brazil can hold 37% of world soybean production beating the United States (USA) which is in second position as the highest soybean producing country in the world.

  1. United States of America (USA)

The majority of farmers in America grow soybeans because the large land is supported by suitable climate. American soybean production reached 96.79 million metric tons.

  1. Argentina

Furthermore, the third country as the largest soybean supplier is Argentina. Soybean production reached 51 million metric tons. Argentina itself does not consume soybeans, soybean production is mostly imported and soybean commodities account for 31.8% of Argentina’s import income. Considering that soybean is Argentina’s main import commodity, the government has conducted a lot of research to increase its soybean production (Nur Aini, nd).

  1. China

The fourth position is held by China with soybean production reaching 19.6 million metric tons in 2020/2021. However, despite having a fairly high soybean production, China is also one of the importing countries for soybeans to meet domestic soybean needs.

  1. India

Then the last one in fifth position is India with soybean production reaching 11.9 million metric tons in November 2021. This puts India in the second largest position in Asia as well as contributing 3.9% of global production.

Soybean itself has 4 types, namely white soybeans, black soybeans, yellow soybeans and edamame. Each type of soybean has a function as a raw material for different processed products. Some examples of processed soybeans include: the first is tempeh, tempeh is one of the processed products from soybeans which is made through the process of fermenting a type of fungus in the process of making this tempeh, namely Rhizopus oligosporus. The process of making tempeh is initially carried out by boiling the soybeans for some time then soaking them overnight, adding yeast, packing them and letting them sit for + 48 hours. Tempe is a product that is sensitive to temperature, so in its manufacture it is necessary to pay attention to the amount of yeast added to the temperature. Then the second is tofu, tofu is made from soybeans that are soaked for + 6 hours and then mashed, filtered, the dregs are taken and the remaining water is boiled at a temperature of 70-80 °C then certain ingredients are added to produce a tofu precipitate so that the tofu can be pressed to reduce the water content in the tofu. Then the third is natto, natto is also a fermented product from soybeans. How to make natto, soybeans are washed and soaked for about 12-20 hours so that their size increases. Then the soybeans are steamed for 6 hours. If you use a press pot, the time can be less. The next stage, soybeans are mixed with Bacillus Subtilis bacteria. During this process, cleanliness must be maintained to avoid dirt and other bacteria. Then the mixture was fermented at a temperature of 40 °C for 24 hours. Then the natto is cooled for about a week until it forms fibers (Widya, 2017). And lastly, there is also processed drinking product from soybeans that is easily found in various countries, namely soy milk. Making soy milk is quite easy. First, soak the soybeans for 8 hours, wash and remove the skin. Then the clean soybeans are mashed, filtered and boiled over medium heat. During the boiling process, sugar, vanilla, or other flavors can be added according to taste. In addition to the four types of food and drink above, there are many other processed foods that can be made from soybeans. In fact, apart from being processed food that can be consumed by humans, soybeans can also be processed into animal feed and biodiesel.

With the many benefits that soybeans have as raw material for processed food and animal feed, it is hoped that in the future the soybean needs from every country can be fulfilled because it is estimated that soybean demand will always increase every year. With the proper handling process, it is hoped that in the future countries that can produce soybeans with good quality will emerge so that they can improve the economy of the country and meet the world’s supply of soybeans.

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