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Transparency is Key to Weathering Shocks, Investing in Growth, and Enhancing Trust in Government

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— Transparency about critical economic issues — such as public debt and employment — will be the key to driving growth and enhancing trust in the governments in the Middle East and North Africa (MENA) region, according to the World Bank’s latest regional economic update.

The need for greater transparency comes as the MENA region faces unprecedented dual shocks from the COVID-19 (Coronavirus) pandemic and the collapse in oil prices. The shocks have exacerbated already slow economic growth in the region, due, in part, to lack of data transparency.

The new report, entitled How Transparency Can Help the Middle East and North Africa, shows that estimates of the costs of the current crisis are fluid because it is difficult to predict how the global economy, national policies and societies will react as the pandemic spreads. Consequently, estimates of the costs can vary in a matter of days. As an example, the report shows how the spread of COVID-19, along with the collapse in oil prices, brought changes in private-sector and World Bank growth forecasts for 2020. As of April 1, changes in forecasts implied that the costs for MENA were about 3.7% of the region’s 2019 GDP (approximately US$116 billion) compared to 2.1% as recently as March 19.

“More than any other region, MENA is confronting two distinct but related shocks with the spread of the virus and the collapse in oil prices. The World Bank is ramping up efforts to help governments weather these shocks and leave no one behind,” Ferid Belhaj, World Bank Vice President for the Middle East and North Africa, said. “But to bring new hope to citizens, we must learn and change. Across the region, transparency can help lead to growth with enhanced trust in government in the years and decades to come.”

According to the new report, the COVID-19 pandemic is affecting MENA economies across four channels: the deterioration of public health; falling global demand for the region’s goods and services; declines in MENA’s domestic supply and demand because of social distancing measures; and, importantly, falling oil prices. The collapse of oil prices hurts both oil exporters directly, and oil importers indirectly, through declines in regional remittances, investment and capital flows.

The report recommends that countries respond with policies in two parallel steps: address the health emergency and the associated economic contraction; and start in the enactment of transformative and largely budget-neutral reforms such as debt transparency and restructuring of state-owned enterprises.

“Investing in transparency now will break the vicious cycle of distrust and lack of government accountability in the region,” said Rabah Arezki, World Bank Chief Economist for the Middle East and North Africa Region.

In addition to estimating the effects of these latest shocks, the report examines the challenges across MENA that predate the crisis — most notably slow growth. The authors estimate that if the region’s growth of output per capita had been the same as that of typical peer economies over the last two decades, the region’s real output per capita would be at least 20% higher than what it is today.

The report argues that a large part of MENA’s slow growth is due to a lack of transparency. MENA is the only region that has dropped in data capacity and transparency since 2005.

“The decline in MENA’s transparency between 2005 and 2018 is associated with an expected loss of the region’s income per capita ranging from 7 to 14%,” said Daniel Lederman, World Bank Deputy Chief Economist and lead author of the report.

The report highlights two areas where the lack of transparency hinders credible analyses of important issues:

Lack of data transparency hampers credible analyses of MENA’s debt sustainability, which will be an important issue to examine after the crisis. MENA countries vary greatly in their debt reporting standards, and World Bank economists and other external analysts do not have access to vital information about many types of public debt.

Unemployment and informality numbers in the region are ambiguous because MENA countries rely on varying definitions of employment. There is little harmonization — across the region, or with respect to international standards — which affects analyses of informality and unemployment.

On April 2, the World Bank announced an initial surge of support to help countries across the Middle East and North Africa.

The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response, increase disease surveillance, improve public health interventions, and help the private sector continue to operate and sustain jobs. It is deploying up to $160 billion in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses and bolster economic recovery.

Due to the COVID-19 pandemic, economic circumstances within countries and regions are fluid and change on a day-by-day basis. The analysis in this regional report is based on the latest country-level data available as of April 1.

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A rapid rise in battery innovation is playing a key role in clean energy transitions

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Affordable and flexible electricity storage technologies are set to catalyse transitions to clean energy around the world, enabling cleaner electricity to penetrate a burgeoning range of applications. Between 2005 and 2018, patenting activity in batteries and other electricity storage technologies grew at an average annual rate of 14% worldwide, four times faster than the average of all technology fields, according to a new joint study published today by the European Patent Office (EPO) and the International Energy Agency.

The report, Innovation in batteries and electricity storage – a global analysis based on patent data, shows that batteries account for nearly 90% of all patenting activity in the area of electricity storage, and that the rise in innovation is chiefly driven by advances in rechargeable lithium-ion batteries used in consumer electronic devices and electric cars. Electric mobility in particular is fostering the development of new lithium-ion chemistries aimed at improving power output, durability, charge/discharge speed and recyclability. Technological progress is also being fuelled by the need to integrate larger quantities of renewable energy such as wind and solar power into electricity networks.

The joint study shows that Japan and Korea have established a strong lead in battery technology globally, and that technical progress and mass production in an increasingly mature industry have led to a significant drop in battery prices in recent years. Prices have declined by nearly 90% since 2010 in the case of lithium-ion batteries for electric vehicles, and by around two-thirds over the same period for stationary applications, including electricity grid management.

Developing better and cheaper electricity storage is a major challenge for the future. According to the IEA’s Sustainable Development Scenario, for the world to meet climate and sustainable energy goals, close to 10 000 gigawatt-hours of batteries and other forms of energy storage will be required worldwide by 2040 – 50 times the size of the current market.

“IEA projections make it clear that energy storage will need to grow exponentially in the coming decades to enable the world to meet international climate and sustainable energy goals. Accelerated innovation will be essential for achieving that growth,” said IEA Executive Director Fatih Birol. “By combining the complementary strengths of the IEA and the EPO, this report sheds new light on today’s innovation trends to help governments and businesses make smart decisions for our energy future.”

“Electricity storage technology is critical when it comes to meeting the demand for electric mobility and achieving the shift towards renewable energy that is needed if we are to mitigate climate change,” said EPO President António Campinos. “The rapid and sustained rise in electricity storage innovation shows that inventors and businesses are tackling the challenge of the energy transition. The patent data reveals that while Asia has a strong lead in this strategic industry, the US and Europe can count on a rich innovation ecosystem, including a large number of SMEs and research institutions, to help them stay in the race for the next generation of batteries.”

The joint study follows the publication earlier in September of the major IEA report Energy Technology Perspectives 2020, which has deepened the IEA’s technology analysis, setting out the challenges and opportunities associated with rapid clean energy transitions.

As governments and companies seek to make informed investments in clean energy innovation for the future, sector-specific insights like those offered by the joint study will be highly valuable, including for helping bring about a sustainable economic recovery from the Covid-19 crisis. The innovation study provides an authoritative overview of the technologies and applications receiving research attention – and of those that are underserved. It also shows where they stand in the competitive landscape.

Innovation is increasingly recognised as a core part of energy policy, and this year the IEA has been introducing more tools to help decision-makers understand the technology landscape and their role in it – and to track progress in innovation and the deployment of technologies. This includes a comprehensive new interactive guide to the market readiness of more than 400 clean energy technologies.

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Russia Among Global Top Ten Improvers for Progress Made in Health and Education

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Russia is among the top ten countries globally for improvements to human capital development over the last decade, according to the latest update of the World Bank’s Human Capital Index (HCI).

The 2020 Human Capital Index includes health and education data for 174 countries covering 98 percent of the world’s population up to March 2020.

Russia’s improvements were largely in health, reflected in better child and adult survival rates and reduced stunting. Across the Europe and Central Asia region, Russia, along with Azerbaijan, Albania, Montenegro, and Poland, also made the largest gains in increasing expected years of schooling – mainly due to improvements in secondary school and pre-primary enrollments. The report also shows that over the last 10 years Russia has seen a reduction in adult mortality rates. However, absolute values of this indicator remain high in the country with this progress now at risk due to the global Covid-19 pandemic.

Human capital contributes greatly to improving of economic growth in every country. Investments in knowledge and health that people accumulate during their lives are of paramount concern to governments around the world. Russia is among the top improvers globally in the Index. However, challenges persist and much needs to be done to improve the absolute values of Index indicators,” said Renaud Seligmann, the World Bank Country Director in Russia.

The HCI, first launched in 2018, looks at a child’s trajectory, from birth to age 18, on such critical metrics as child survival (birth to age 5); expected years of primary and secondary education adjusted for quality; child stunting; and adult survival rates. HCI 2020, based on data up to March of this year, provides a crucial pre-pandemic baseline that can help inform health and education policies and investments for the post-pandemic recovery.

Of the 48 countries in Europe and Central Asia included in the 2020 Human Capital Index (HCI), 33 are among the upper-third in the world, and almost all are in the top half. However, there are significant variations within the region.

In Russia, a child born today can expect to achieve 68 percent of the productivity of a fully educated adult in optimal health. It is at the average level for Europe and Central Asia countries and the third result globally among the countries of the same income group. There is a stark contrast between education and health subscales in Russia. While the education outcomes of the country are high and outperform many high-income peers, its health outcomes are below the global average.

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Accelerating Mongolia’s Development Requires a Shift “from Mines to Minds”

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A new report by the World Bank estimates that out of every dollar in mineral revenues Mongolia has generated over the past 20 years, only one cent has been saved for future generations. The report argues that to break this cycle, Mongolia should use its mineral wealth to invest in people and institutions, while gradually reducing its dependence on the sector.

This is particularly true as demand for key minerals is likely to tumble due to climate change concerns, a shift of investors’ preference toward sustainability, China’s ambitious goal to reduce coal consumption, and persistence of the COVID-19 shock, according to Mongolia’s Mines and Minds, the World Bank’s September 2020 Country Economic Memorandum for Mongolia.

Since the advent of large-scale mining in 2004, Mongolia’s economy has grown at an average rate of 7.2 percent per year, making it one of the fastest-growing economies in the world. Growth has translated to rapid decline – although at times partly reversed – in the incidence of poverty and improved quality of life. The report also notes that Mongolia enjoys relatively strong human capital, and its infrastructure capital has improved for the last few decades, though remains scarce given the size of the country and low population density. This performance has been made partly possible through a generous but inefficient social assistance system and a large public investment program supported by mineral revenues and external borrowing.

However, a number of enduring challenges have grown in the shadow of this success. Mongolia’s rapid growth has been obscured by its extreme macroeconomic volatility and frequent boom and bust cycles. Growth has almost entirely come through capital accumulation and the intensive use of natural capital rather than through sustained productivity growth. Meanwhile, the country has not only consumed almost all its mineral outputs, but has also borrowed heavily against them, bequeathing negative wealth to the next generation.

Instead of maximizing the benefits of its mineral wealth for diversified and inclusive growth, Mongolia has increasingly become more addicted to it. At the same time, human capital has been underutilized and institutional capital has eroded.” said Andrei Mikhnev, World Bank Country Manager for Mongolia. “Such inability to capitalize on the country’s endowments has resulted in limited diversification of outputs and exports and has further amplified its vulnerability to the swings of the global commodity markets. Breaking this gridlock calls for a fundamental shift in approach that puts investing in minds on an equal footing with mines.”

The report recommends key policy actions to build the foundation of a diversified and sustainably growing  economy. These include:

  • Implement countercyclical fiscal and monetary policies – supported through transparent fiscal rules, an independent fiscal council, a market-driven exchange rate, and a well-functioning stabilization fund – to smooth consumption over the business cycle rather than maximize current consumption.
  • Undertake bold investment climate reforms to enhance competition, secure investor rights, and create a more level playing field that enables productive firms to invest and grow.
  • Move away from the mindset of diversifying products to expanding endowments, especially in terms of better utilization of Mongolia’s young and educated, especially female, labor force.
  • Accelerate the implementation of fundamental governance reforms (especially on the government effectiveness and control of corruption) to reduce political interference, increase transparency, and improve regulatory quality throughout the economy.

“Fortunately, there are many encouraging signs of improved macroeconomic management in 2017-19, providing the new government an opportunity to advance its reform efforts,” said Jean-Pascal Nganou, World Bank Senior Country Economist and lead author of the report. “Some impressive fiscal outcomes were achieved not by introducing new reforms but by effectively implementing existing ones. They demonstrate that with the right political will and leadership, similar improvements are possible in other areas including monetary and exchange rate policy, the financial sector, the business environment, and the labor market. The new administration has, therefore, an opportunity to institutionalize these reforms and avoid policy regression in the future.”

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