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Coronavirus-driven debt crisis threatens poor countries already at risk

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As governments struggle to cope with the COVID-19 pandemic, billions of people living in countries teetering on the brink of economic collapse are being threatened further by a looming debt crisis, according to a new UN report released on Thursday.

In its report, the UN-led Inter-Agency Task Force on Financing for Development explores the steps that governments must take to avert debt overload and address the economic and financial havoc wrought by the pandemic. 

“The global community was already falling behind in efforts to end poverty, take climate action and reduce inequalities”, said UN Deputy Secretary-General Amina Mohammed. “We have one chance to build back better together for people and for the planet”.

With recommendations based on joint research and analysis from more than 60 UN agencies and international institutions, the 2020 Financing for Sustainable Development Report outlines measures to address the impact of the unfolding global recession and financial turmoil – particularly in the world’s poorest countries. 

Least Developed Countries

The COVID-19 crisis has shaken global financial markets with heavy losses and intense volatility that has prompted investors to move around $90 billion out of emerging markets – the largest outflow ever recorded. 

Particularly alarming for many Least Developed Countries (LDCs) is the prospect of a new debt crisis. 

To mitigate this, 2020 Financing for Sustainable Development calls, among other things, suspending debt payments from LDCs and other low-income countries; strengthening the global financial safety net; and reversing the decline in official development assistance.

“We are far from having a global package to help the developing world to create the conditions both to suppress the disease and to address the dramatic consequences in their populations”, said UN Secretary-General, António Guterres, during the recent launch of his Report on the Socioeconomic Impact of COVID-19.

“What is needed is a large-scale, coordinated and comprehensive multilateral response amounting to at least 10 per cent of global GDP”, he added.

Long-overdue measures

Beyond the immediate crisis response, the coronavirus pandemic should prompt the implementation of long-overdue measures to reset the world on a sustainable development path and make the global economy more resilient to future shocks.

To do this, the report recommends accelerating investment in resilient infrastructure; strengthening social protections; enhancing regulatory frameworks; and strengthen the international financial safety net and framework for debt sustainability.

While highlighting gaps, new challenges and risks, the current crisis also provides a timely example of the potential of digital technologies. 

As lockdowns and physical distancing have become the norm, digital communication tools have helped keep people connected and provided online platforms for children to continue their education.

But many workers in the so-called “gig economy”, dominated by service sector start-ups, are poorly protected against income losses in a recession. 2020 Financing for Sustainable Development addresses these gaps and other opportunities and challenges of digital finance. 

“Only a collective response, inspired by shared responsibility and solidarity, will suffice to address the unprecedented  challenges of the COVID-19 pandemic”, said Liu Zhenmin, Under-Secretary-General for Economic and Social Affairs and Chair of the Task Force that issued the report. 

“Governments, development partners, the private sector and other stakeholders must work together to combat COVID-19 and support every effort to address its social and economic impacts,” he underscored.

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Private markets forecast to grow to $4.9tn globally by 2025 and make up 10% of global AuM

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Assets under management (AuM) in private markets to expand by between $4.2 trillion and $5.5 trillion in the years up to 2025 in worst/best case scenarios for economic recovery, according to new analysis from PwC.

The report, Prime time for private markets: The new value creation playbook, examines prospects for four primarily illiquid asset classes of private equity (including venture capital), infrastructure, real estate and private credit across a range of scenarios for 2019-2025. 

The report projects significant growth for the value of private markets of $5.5tn (best case), $4.9tn (base case) and $4.2tn (worst case) depending on how global economic conditions respond to the disruption caused by Covid-19.

Will Jackson-Moore, global leader for private equity, real assets and sovereign funds at PwC says,‘The report highlights the continued emergence of private markets as a fast growing and highly impactful portion of global capital markets. Investors continue to look to the sector to deliver the yields that lower risk and more liquid asset classes struggle to match. 

‘Yet this is also an opportunity for private markets to take a lead on ESG and net zero commitments and demonstrate the impact they can make in public perception beyond public markets.’

Opportunities across asset classes

Even in the worst case scenario of a prolonged recession, the projections look ahead to growth of almost 50%  up to 2025.

While private equity is very much “the asset class of the moment” there is evidence that there are significant opportunities for growth and returns in areas such as real estate, infrastructure and private credit.

Will Jackson-Moore says,‘While opportunities for growth are out there, it is important to emphasise that returns will be harder to find and be more aggressively fought for. Managers will need to be innovative in their approach to value creation and respond swiftly to changing investors and governmental expectations as economies recover from the effects of the crisis.’

ESG and going beyond financial return

Will Jackson-Moore says,‘Our research highlights the extent to which financial return is no longer the sole driver of private markets growth. ESG and Net Zero commitments now represent a significant source of value preservation and creation. 

‘Private market managers need to respond by looking at how to apply an ESG lens to investment strategy and product development. Whether it is in impact turnaround initiatives in which ‘dirty’ production facilities are turned green, or building strong commitment to diversity and inclusion at your organisation, these matters are no longer an overlay.’

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Key Reforms Needed to Grow Albania’s E-commerce Sector

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A new World Bank Albania E-Commerce Diagnostic highlights key reforms needed to better leverage digital trade as opportunity for economic development.

E-commerce can be an important asset for Albania. Online sales channels allow businesses to reach more customers, at home and abroad. Customers gain from greater convenience and more choice. Sectors enabling e-commerce can create new jobs, including in technology companies, logistics and online payments.

During the COVID-19 pandemic, online markets are playing a particularly important role by allowing economic life to continue despite social distancing. The 2020 World Bank Enterprise Survey reveals that almost 20 percent of Albanian firms surveyed reported having either started or increased online business activity during the crisis.

To help Albania seize the digital trade opportunity, this new diagnostic identifies a roadmap of critical reforms in logistics and customs;  digital connectivity; online payments; private sector capabilities and skills; and the e-commerce regulatory framework.

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Digitalizing the Maritime Sector Set To Boost the Competitiveness of Global Trade

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A new report launched today by the World Bank and the International Association of Ports and Harbors (IAPH) shows that better digital collaboration between private and public entities across the maritime supply chain will result in significant efficiency gains, safer and more resilient supply chains, and lower emissions.

Maritime transport carries over 90% of global merchandise trade, totaling some 11 billion tons of cargo per year. Digitalizing the sector would bring wide-ranging economic benefits and contribute to a stronger, more sustainable recovery.

Accelerating Digitalization: Critical Actions to Strengthen the Resilience of the Maritime Supply Chain describes how collaborative use of digital technology can help streamline all aspects of maritime transport, from cross-border processes and documentation to communications between ship and shore, with a special focus on ports.

The COVID-19 crisis has evidenced a key benefit of digitizing waterborne and landside operations: meeting the urgent needs to minimize human interaction and enhance the resilience of supply chains against future crises.

“In many of our client countries, inefficiencies in the maritime sector result in delays and higher logistics costs, with an adverse impact on the entire economy. Digitization gives us a unique chance to address this issue,” noted Makhtar Diop, World Bank Vice President for Infrastructure. “Beyond immediate benefits to the maritime sector, digitalization will help countries participate more fully in the global economy, and will lead to better development outcomes.”

IAPH Managing Director of Policy and Strategy, Dr Patrick Verhoeven, added: “the report’s short and medium term measures to accelerate digitalization have the proven potential to improve supply chain resilience and efficiency whilst addressing potential risks related to cybersecurity. However, necessary policy reform is also vital. Digitalization is not just a matter of technology but, more importantly, of change management, data collaboration, and political commitment.”

Although the International Maritime Organization (IMO) has made it mandatory for all its member countries to exchange key data electronically (the FAL convention), a recent IAPH survey reveals that only a third of over 100 responding ports comply with that requirement. The main barriers to digitalize cited by the ports were the legal framework in their countries or regions and persuading the multiple private-public stakeholders to collaborate, not the technology.

The report analyzes numerous technologies applied already by some from the world’s leading port and maritime communities, including big data, the internet of things (IoT), fifth-generation technology (5G), blockchain solutions, wearable devices, unmanned aircraft systems, and other smart technology-based methods to improve performance and economic competitiveness.

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