The coronavirus (COVID-19) pandemic and the economic shutdowns are dealing a severe blow to the global economy and especially poorer countries. Developing countries and the international community can take steps now to speed recovery after the worst of the health crisis has passed and blunt long-term adverse effects, according to analytical chapters released today from the World Bank Group’s Global Economic Prospects report.
Short-term response measures to address the health emergency and secure core public services will need to be accompanied by comprehensive policies to boost long-term growth, including by improving governance and business environments, and expanding and improving the results of investment in education and public health. To make future economies more resilient, many countries will need systems that can build and retain more human and physical capital during the recovery – using policies that reflect and encourage the post-pandemic need for new types of jobs, businesses and governance systems.
The analysis has been released ahead of the June 8 issuance of the full report, which will include the Bank Group’s latest forecasts for the global economy.
“The scope and speed with which the COVID-19 pandemic and economic shutdowns have devastated the poor around the world are unprecedented in modern times. Current estimates show that 60 million people could be pushed into extreme poverty in 2020. These estimates are likely to rise further, with the reopening of advanced economies the primary determinant,” said World Bank Group President David Malpass. “Policy choices made today – including greater debt transparency to invite new investment, faster advances in digital connectivity, and a major expansion of cash safety nets for the poor – will help limit the damage and build a stronger recovery. The financing and building of productive infrastructure are among the hardest-to-solve development challenges in the post-pandemic recovery. We need to see measures to speed litigation and the resolution of bankruptcies and reform the costly subsidies, monopolies and protected state-owned enterprises that have slowed development.”
Deep recessions associated with the pandemic will likely exacerbate the multi-decade slowdown in economic growth and productivity, the primary drivers of higher living standards and poverty reduction. Adding to the inequality problem from slow trend growth, the poor and vulnerable are among the hardest hit by the pandemic and economic shutdown – including through infection, school closures and lower remittance flows.
Measures needed to protect public health have undercut an already fragile global economy, causing deep recessions in advanced economies and emerging market and developing economies (EMDEs) alike. EMDEs that have weak health systems; those that rely heavily on global trade, tourism, or remittances from abroad; and those that depend on commodity exports will be particularly hard-hit, the analysis notes.
In the long-term, the pandemic will leave lasting damage through multiple channels, including lower investment; erosion of physical and human capital due to closure of businesses and loss of schooling and jobs; and a retreat from global trade and supply linkages. These effects will lower potential output – the output an economy can sustain at full employment and capacity – and labor productivity well into the future. Pre-existing vulnerabilities, fading demographic dividends, and structural bottlenecks will amplify the long-term damage of deep recessions associated with the pandemic.
“When the pandemic struck, many emerging and developing economies were already vulnerable due to record-high debt levels and much weaker growth. Combined with structural bottlenecks, this will amplify the long-term damage of deep recessions associated with the pandemic,” said Ceyla Pazarbasioglu, World Bank Group Vice President for Equitable Growth, Finance and Institutions.“Urgent measures are needed to limit the damage, rebuild the economy, and make growth more robust, resilient and sustainable.”
Policies to rebuild both in the short and long-term entail strengthening health services and putting in place very targeted stimulus measures to help reignite growth. This includes efforts to maintain the private sector and get money directly to people so that we may see a quicker return to business creation after this pandemic has passed. During the mitigation period, countries should focus on sustaining economic activity with targeted support to provide liquidity to households, firms and government essential services. At the same time, policymakers should remain vigilant to counter potential financial disruptions.
During the recovery period, countries will need to calibrate the winding down of public support and should be targeting broader development challenges. The analysis discusses the importance of allowing an orderly allocation of new capital toward sectors that are productive in the new post-pandemic structures that emerge. To succeed in this, countries will need reforms that allow capital and labor to adjust relatively fast – by speeding the resolution of disputes, reducing regulatory barriers, and reforming the costly subsidies, monopolies and protected state-owned enterprises that have slowed development.
To make future economies more resilient, many countries will need systems that can build and retain more human and physical capital during the recovery – using policies that reflect and encourage the post-pandemic need for new types of jobs, businesses and governance systems. Enhancing transparency in financial commitments and investment would also help rebuild confidence and facilitate investment growth.
Restrictions on mobility and the global recession have resulted in the steepest one-month drop in oil prices on record, in March. The predominantly demand-driven plunge in oil prices, which came on the heels of disagreements among oil producers about production targets, has been accompanied by a steep rise in global oil inventories. The analysis also details the implications of the oil price plunge for the global economy and, in particular, for energy-exporting EMDEs.
In the short-term, while restrictions on transport and travel remain in place, low oil prices are unlikely to provide much support for growth and may, instead, compound the damage wrought by the pandemic by further weakening the finances of producers. Low oil prices are likely to provide at best marginal support to global activity early in the recovery.
“Oil-exporting emerging and developing economies entered the current crisis with eroded fiscal positions after having drawn on them to weather the 2014-16 oil price drop. In addition to the unprecedented public health crisis, these economies are now experiencing sharp economic downturns as their export revenues nosedive,” said Ayhan Kose, Director of the World Bank’s Prospects Group. “Even if oil prices rise as global oil demand recovers, the recent plunge in prices is another reminder for oil-exporting countries of the urgency to continue with reforms to diversify their economies.”
Current low oil prices also present an opportunity to review energy pricing policies as energy-importing EMDEs need to move away from costly subsidy schemes and allocate their limited fiscal resources for higher-priority expenditures involving improvements in public health and education programs.
World Bank Group COVID-19 Response
The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. We are supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. We will be deploying up to $160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, maintain the private sector, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans.
Small Business, Big Problem: New Report Says 67% of SMEs Worldwide Are Fighting for Survival
Small- and medium-sized enterprises (SMEs) and mid-sized companies are the backbone of the global economy. They create close to 70% of jobs and GDP worldwide. But, amid warnings of a global recession, research from the World Economic Forum and the National University of Singapore Business School indicates that 67% of executives from SMEs cite survival and expansion as their main challenge.
They mention low margins, the challenge of scaling the business and expanding to new markets, and clients/consumers as the main pressure points.
The report, Future Readiness of SMEs and Mid-Sized Companies: A Year On, looks at companies emerging from the pandemic. It builds on analysis of over 200 peer-reviewed articles and the quantitative and qualitative surveying of about 800 leaders and executives from SMEs and mid-sized companies. Business leaders also cite talent acquisition and retention (48%), culture and values (34%), funding and access to capital (24%), as well as non-favourable business policy environments (22%) as their biggest challenge.
The report also identifies pragmatic ways for smaller companies to embed future readiness into corporate strategies and highlights sustainability and digital transformation as two overlooked challenges. It focuses on how smaller companies can boost their resilience through stronger business frameworks. It also highlights how their high level of agility can benefit the development and implementation of:
– A strategic approach to talent management
– A staged approach to digital transformation
– Specific sustainability measures depending on the company’s level of maturity in this space
While smaller companies can increase their future readiness, the wider policy environment – such as the infrastructure for digital trade and finance – has a direct and important impact on their ability to thrive. It is, therefore, key for policy-makers, investors and other stakeholders to do what is in their capabilities to contribute to building the future readiness of this segment of the economy.
“The business community is stepping up to tackle the biggest issues facing the world. SMEs and mid-sized companies are key enablers in this pursuit. This report sheds light on some key opportunity spaces for SMEs and mid-sized to do exactly that,” said Børge Brende, President, World Economic Forum.
Rashimah Rajah, Professor at the National University of Singapore and co-lead author of the report, added: “SMEs and mid-sized companies have unique strengths in their ability to pivot their business models to be more future ready and, by hiring and developing the right talent, they can mobilize positive internal and external change faster than larger companies. However, to fully realize their potential, they also need the support of policy-makers in recognizing their credentials as well as in rewarding sustainability initiatives.”
The report was developed in collaboration with the National University of Singapore Business School, as well as with expert contributions from UnternehmerTUM, Aston Business School, TBS Education, the Aspen Institute, Asia Global Institute and the International Chamber of Commerce.
The World Economic Forum will be leveraging the insights generated in this report to further support SMEs and mid-sized companies in their future-readiness journey. This will be done through the creation of additional resources including the continuous development of the Forum’s self-assessment and benchmarking tool on future readiness, as well as the creation of a space for informal peer-to-peer learning between companies as well as meet-ups with key experts.
With some of the key insights of the report coming from the New Champions Community, the Forum aims to amplify the voices of purpose-driven mid-sized businesses. This community and its more than 100 members share and learn from best practices, proven innovations and support new partnerships for the common good in the mid-sized landscape.
The Forum is now accepting applications from forward-looking mid-sized companies that are pioneering new business models, emerging technologies and sustainable growth strategies.
A Greener Cooling Pathway Can Create a $1.6 Trillion Investment Opportunity in India
A new World Bank report finds that as temperatures steadily rise in India due to climate change, keeping spaces cool using alternative and innovative energy efficient technologies can open an investment opportunity of $1.6 trillion by 2040. This also has the potential to reduce greenhouse gas emissions significantly and create nearly 3.7 million jobs.
India is experiencing higher temperatures every year. By 2030, over 160-200 million people across the country could be exposed to lethal heat waves annually. Around 34 million people in India will face job losses due to heat stress related productivity decline. The current food loss due to heat during transportation is close to $13 billion annually. By 2037, the demand for cooling is likely to be eight times more than current levels. This means there will be a demand for a new air-conditioner every 15 seconds, leading to an expected rise of 435 percent in annual greenhouse gas emissions over the next two decades.
The report, “Climate Investment Opportunities in India’s Cooling Sector” finds that shifting to a more energy efficient pathway could lead to a substantial reduction in expected CO2 levels over the next two decades.
“India’s cooling strategy can help save lives and livelihoods, reduce carbon emissions and simultaneously position India as a global hub for green cooling manufacturing,” said Auguste Tano Kouamé, the World Bank’s Country Director in India. “The report suggests a sustainable roadmap for cooling that has the potential to reduce 300 million tons of carbon dioxide annually by 2040.”
Recognizing this challenge, India is already deploying new strategies to help people adapt to rising temperatures. In 2019, it launched the India Cooling Action Plan (ICAP) to provide sustainable cooling measures across various sectors, including indoor cooling in buildings and cold chain and refrigeration in the agriculture and pharmaceuticals sector and air-conditioning in passenger transport. Its aim is to reduce the demand for cooling by up to 25 percent by 2037-38.
The new World Bank report proposes a roadmap to support the ICAP’s new investments in three major sectors: building construction, cold chains, and refrigerants.
Adopting climate-responsive cooling techniques as a norm in both private and government-funded constructions can ensure that those at the bottom of the economic ladder are not disproportionately affected by rising temperatures. The report suggests that India’s affordable housing program for the poor, the Pradhan Mantri Awas Yojana (PMAY), can adopt such changes on scale. This could benefit over 11 million urban homes and over 29 million rural houses that the government aims to construct.
The report also recommends private investments in district cooling technologies. These generate chilled water in a central plant which is then distributed to multiple buildings via underground insulated pipes. This brings down the cost for providing cooling to individual buildings and can reduce energy bills by 20-30 percent compared to the most efficient conventional cooling solution.
To minimize rising food and pharmaceutical wastage during transport due to higher temperatures, the report recommends fixing gaps in cold chain distribution networks. Investing in pre-cooling and refrigerated transport can help decrease food loss by about 76 percent and reduce carbon emissions by 16 percent.
India aims to phase out the production and use of ozone-depleting hydrochlorofluorocarbons, used as coolants in air conditioners and refrigerators by 2047. The report recommends improvements in servicing, maintenance and disposal of equipment that use hydrochlorofluorocarbons, alongside a shift to alternative options with a lower global warming footprint. This can create 2 million jobs for trained technicians over the next two decades and reduce the demand for refrigerants by around 31 percent.
“The right set of policy actions and public investments can help leverage large scale private investment in this sector. We recommend that these moves be accelerated by creating a flagship government mission to address the challenges and opportunities from rising temperatures in India,” say the authors of the report, Abhas K. Jha, Practice Manager, Climate and Disaster Risk Management, South Asia and Mehul Jain, Climate Change Specialist, World Bank.
Pandemic Recovery Efforts Trigger New Energy Access Policies
Two years of pandemic have highlighted the vulnerability and isolation of populations without electricity and have prompted countries to increase their focus on energy access and affordability, finds a new World Bank report on energy policies and regulations. The 2022 edition of the RISE (Regulatory Indicators for Sustainable Energy) report shows that many countries have embedded new policies to improve their energy independence and minimize energy costs in their COVID-19 recovery plans.
“Confronted with multiple crises, now more than ever countries are recognizing the urgency of connecting their populations to sustainable, affordable and resilient energy sources,” said Riccardo Puliti, World Bank Vice President for Infrastructure. “Clear policy frameworks and planning enable governments to map out their energy strategies and to provide the predictability and transparency needed to attract investments.”
According to the bi-annual report that evaluates energy policies and regulatory frameworks across a set of indicators, the pandemic was a strong trigger: nearly half of the 140 surveyed countries in each region included new policies to minimize disruptions to electricity access, quality, and affordability in their COVID-19 recovery packages.
Many governments improved their electricity access policies, with Sub-Saharan Africa and Latin America and the Caribbean scoring the highest on this indicator. This included the two largest energy access-deficit countries—Nigeria and Ethiopia— which showed noteworthy progress thanks to policy and regulatory measures on electrification planning, frameworks for mini grids and off-grid systems, and consumer affordability of electricity.
And the number of countries with advanced mini-grids policy frameworks more than doubled between 2019-2021, reflecting how mini grids and solar home systems are now widely viewed as sufficient substitutes for grid extension. Over 40% of countries surveyed offered publicly funded financing options to secure funding for mini-grid operators. This had a positive effect on the cost of off-grid electricity, as the unsubsidized levelized cost of mini-grids fell by a third, from US$0.55 per kilowatt-hour (kWh) in 2018 to US$0.38 per kWh in 2021.
Meanwhile, with renewable technologies becoming cost-competitive with traditional baseload energy sources over the last decade, many countries phased out incentives to compensate for renewable energy production. Tax reduction is now the most prevalent renewable energy fiscal incentive in place to attract large-scale corporate investments, with half of the countries surveyed offering tax reduction incentives for renewable energy projects.
Finally, the report found that energy efficiency policies were not receiving adequate attention despite unprecedented energy price hikes, with 49 countries showing little to no advances on energy efficiency policy frameworks.
Every two years, the Regulatory Indicators for Sustainable Energy or RISE report measures policy progress in 140 countries, representing over 98 percent of the world population, on renewable energy, energy efficiency, electricity access, and access to clean cooking – the four target areas of Sustainable Development Goal 7 (SDG7) on access to affordable, reliable, sustainable and modern energy for all by 2030. RISE 2022: Building Resilience is the fourth edition of the report. The report is published by the World Bank with funding from the Energy Sector Management Assistance Program (ESMAP). The full report, along with detailed country profiles and previous editions of the report, is available at https://rise.esmap.org/
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