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Nigeria’s Economy Faces Worst Recession in Four Decades

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The collapse in oil prices coupled with the COVID-19 pandemic is expected to plunge the Nigerian economy into a severe economic recession, the worst since the 1980s, according to the latest World Bank Nigeria Development Update (NDU).

The report, “Nigeria In Times of COVID-19: Laying Foundations for a Strong Recovery,” estimates that Nigeria’s economy would likely contract by 3.2% in 2020. This projection assumes that the spread of COVID-19 in Nigeria is contained by the third quarter of 2020. If the spread of the virus becomes more severe, the economy could contract further. Before COVID-19, the Nigerian economy was expected to grow by 2.1% in 2020, which means that the pandemic has led to a reduction in growth by more than five percentage points.

The macroeconomic impact of the COVID-19 pandemic will likely be significant, even if Nigeria manages to contain the spread of the virus. Oil represents more than 80% of Nigeria’s exports, 30% of its banking-sector credit, and 50% of the overall government revenue. With the drop in oil prices, government revenues are expected to fall from an already low 8% of GDP in 2019 to a projected 5% in 2020. This comes at a time when fiscal resources are urgently needed to contain the COVID-19 outbreak and stimulate the economy. Meanwhile, the pandemic has also led to a fall in private investment due to greater uncertainty, and is expected to reduce remittances to Nigerian households, which in recent years have been larger than the combined amount of foreign direct investment and overseas development assistance.

“While the long-term economic impact of the global pandemic is uncertain, the effectiveness of the government’s response is important to determine the speed, quality, and sustainability of Nigeria’s economic recovery. Besides immediate efforts to contain the spread of COVID-19 and stimulate the economy, it will be even more urgent to address bottlenecks that hinder the productivity of the economy and job creation,” said Shubham Chaudhuri, World Bank Country Director for Nigeria.

The report shows that the human cost of COVID-19 could be high. Beyond the loss of life, the COVID-19 shock alone is projected to push about 5 million more Nigerians into poverty in 2020. While before the pandemic, the number of poor Nigerians was expected to increase by about 2 million largely due to population growth, the number would now increase by 7 million – with a poverty rate projected to rise from 40.1% in 2019 to 42.5% in 2020.

The report notes that the pandemic is likely to disproportionately affect the poorest and most vulnerable, in particular women. School closures have reduced the food intake of almost 7 million children who are enrolled in the national school feeding program. Economic activities have been disrupted and women’s livelihoods have been particularly impacted. Over 40% of Nigerians employed in non-farm enterprises reported a loss of income in April-May 2020. In addition, the fall in remittances is likely to affect household consumption because half of Nigerians live in remittance-receiving households, of which about a third are poor.

“The unprecedented crisis requires an equally unprecedented policy response from the entire Nigerian public sector, in collaboration with the private sector, to save lives, protect livelihoods, and lay the foundations for a strong economic recovery,” said Marco Hernandez, World Bank Lead Economist for Nigeria and co-author of the report.

The government of Nigeria has already taken important health, fiscal and monetary measures to contain the outbreak, moderate the recessionary pressures and start mitigating the effects of the economic shock. Looking ahead, the report discusses policy options in five critical areas that can help Nigeria recover from the COVID-19 crisis: (1) containing the outbreak and preparing for a more severe outbreak; (2) enhancing macroeconomic management to boost investor confidence; (3) safeguarding and mobilizing revenues; (4) reprioritizing public spending to protect critical development expenditures and stimulate economic activity; and (5) protecting poor and vulnerable communities.

Besides the assessment of the economic situation, this edition of the Nigeria Development Update discusses the impacts of the 2019 land border closure; the opportunity to promote agribusiness for food security and job creation; and options to leverage emigration, remittances, and the diaspora for development.

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Philippines: Reducing Inequality Key to Becoming a Middle-Class Society Free of Poverty

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Policies that support employment and workers, raise education quality and improve access, boost rural development, and strengthen social protection can reduce inequality, thus enhancing Filipino peoples’ chances for improving their well-being.

In a report titled “Overcoming Poverty and Inequality in the Philippines: Past, Present, and Prospects for the Future” released today, the World Bank said that the Philippines has made important gains in poverty reduction. Driven by high growth rates and the expansion of jobs outside agriculture, poverty fell by two-thirds—from 49.2 percent in 1985 to 16.7 percent in 2018. By 2018, the middle class had expanded to nearly 12 million people and the economically secure population had risen to 44 million.

Yet inequality remains high: the top 1 percent of earners together capture 17 percent of national income, with only 14 percent being shared by the bottom 50 percent. With an income Gini coefficient of 42.3 percent in 2018, the Philippines had one of the highest rates of income inequality in East Asia.

“The Philippines aims to become a middle-class society free of poverty by 2040, but we know from global experience that no country has managed to make this transition while maintaining high levels of inequality,” said Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines, and Thailand. “Inequality of opportunity and low mobility across generations wastes human potential and slowdown innovation, which is crucial for building a competitive and prosperous economy that will in turn improve the well-being and quality of life of all Filipinos.”

The report highlights that the expansion of secondary education, mobility to better-paying jobs, access to basic services, and government social assistance have started to reduce inequality since the mid-2000s. However, unequal opportunities, slow access to tertiary education among low-income households, inequality in returns to college education, and social norms putting the heavier burden of childcare on women has slowed down the narrowing of inequality in the Philippines.

Despite the strong recovery of growth and the labor market, COVID-19 pandemic has partly reversed decades-long gains in reducing poverty and inequality in the Philippines. It halted economic growth momentum in 2020, and unemployment shot up in industries that require in-person work. In 2021, the national poverty rate rose to 18.1 percent despite government assistance.

Recovery in the Philippines is uneven across the income distribution and the poorest who suffered the most from COVID have yet to fully recover their incomes. With food prices going up, many families coped by reducing their consumption, including eating less. These coping strategies can have serious consequences on the health and nutrition of children in these vulnerable households.

The report says that inequality starts even before birth and is perpetuated over the life cycle. It starts with maternal nutrition and health during pregnancy. Differences continue into childhood, where disparities in access to health care, proper nutrition, safe drinking water, sanitation, and quality education determine the extent to which a child’s human capital develops.

“Inequality shapes outcomes later in life, such as employment opportunities and income, which in turn influence how much support adult Filipinos are able to provide for their children to help maximize their potential,” said Nadia Belhaj Hassine Belghith, Senior Economist with the East Asia Poverty Global Practice covering Thailand and the Philippines who led the study.

The report says that policy priorities to reduce inequality in the Philippines can be structured around three themes, including healing the pandemic’s scars and building resilience, setting the stage for a vibrant and inclusive recovery, and promoting greater equality of opportunity.

Healing pandemic’s scars will require promoting greater vaccine booster uptake, overcoming the learning loss due to COVID-19, strengthening social assistance, unemployment insurance programs for the informal sector, and taming inflation.

Setting the stage for vibrant recovery entails reskilling of workers, promoting entrepreneurship, increasing the participation of women in the labor force, and raising the productivity of agriculture.

Promoting greater equality of opportunity entails increasing access to quality health care, increasing equality of opportunity in education, and improving access to quality housing, among others. Equality of opportunity needs to target the lagging regions and other people disadvantaged in accessing these because of the circumstances of their birth.

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Germany in secret talks to buy Iranian oil: report

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An Israeli paper has claimed that Germany is in “secret” talks with Tehran to buy Iranian oil as part of its efforts to wean itself off Russia’s energy supplies.

The Jerusalem Post quoted the chief economist for the partially state-owned bank LBBW in the southwestern German state of Baden-Württemberg as saying that Germany is engaged in secret talks with the Islamic Republic to buy Iranian oil.

“Intensive talks are already being held behind the scenes with Venezuela, Iran or Algeria to cover Germany’s oil and gasoline needs,” said Moritz Kraemer, the chief economist of the Landesbank Baden-Württemberg (LBBW).

Bernd Wagner, a spokesman for LBBW, told the Jerusalem Post that “as a matter of principle, LBBW does not conduct any Iran-related business.”

When asked about Kraemer’s statement about secret talks with Iran, Wagner said, “There seems to be a misunderstanding. The chief economist is talking about the national economy, not about LBBW’s business. We have a very clear distinction here.”

No official announcements have so far been made about the alleged secret talks between Tehran and Berlin. But tensions have been on the rise between the two sides over German officials’ statements regarding Iran’s internal developments. 

On Monday, the Iranian foreign ministry summoned the German ambassador to Tehran, Hans-Udo Muzel, over German Chancellor Olaf Scholz’s “meddlesome” remarks about Iran.

“Following the meddlesome and irresponsible statements of the German chancellor towards the Islamic Republic, Hans-Udo Muzel the German ambassador to Tehran was summoned to the foreign ministry on Monday,” the Iranian foreign ministry said in a statement.

The statement added, “During the session, the director general of the west European affairs of the foreign ministry condemned the irresponsible statement of the German official. He conveyed strong protest of the Islamic Republic of Iran about Germany’s destructive approach towards the domestic developments of Iran to the German envoy.”

It continued, “The foreign ministry official said the German side should bear the consequences of the continuation of such non-constructive statements and acts on the future of the mutual ties. He stressed that the Islamic Republic of Iran is monitoring the stances and actions of the other sides with dignity and grandeur, taking into account its national interests, and will give them proportionate responses.”

The statement concluded, “The German ambassador, for his part, said he will convey the message of the Islamic Republic of Iran to his government at the earliest. During the meeting the formal notice of protest of the Islamic Republic was handed over to the German ambassador.”

Tehran Times

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India’s Urban Infrastructure Needs to Cross $840 Billion Over Next 15 Years

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A new World Bank report estimates that India will need to invest $840 billion over the next 15 years—or an average of $55 billion per annum—into urban infrastructure if it is to effectively meet the needs of its fast-growing urban population. The report, titled “Financing India’s Urban Infrastructure Needs: Constraints to Commercial Financing and Prospects for Policy Action” underlines the urgent need to leverage more private and commercial investments to meet emerging financial gaps.

By 2036, 600 million people will be living in urban cities in India, representing 40 percent of the population. This is likely to put additional pressure on the already stretched urban infrastructure and services of Indian cities – with more demand for clean drinking water, reliable power supply, efficient and safe road transport amongst others. Currently, the central and state governments finance over 75 percent of city infrastructure, while urban local bodies (ULB) finance 15 percent through their own surplus revenues.

Only 5 percent of the infrastructure needs of Indian cities are currently being financed through private sources. With government’s current (2018) annual urban infrastructure investments topping at $16 billion, much of the gap will require private financing. 

“Cities in India need large amounts of financing to promote green, smart, inclusive, and sustainable urbanization. Creating a conducive environment for ULBs, especially large and creditworthy ones, to borrow more from private sources will therefore be critical to ensuring that cities are able to improve living standards of their growing populations in a sustainable manner,” said Auguste Tano Kouamé, Country Director, World Bank, India.

The new report recommends expanding the capacities of city agencies to deliver infrastructure projects at scale. Currently, the 10 largest ULBs were able to spend only two-thirds of their total capital budget over three recent fiscal years. A weak regulatory environment and weak revenue collection also adds to the challenge of cities accessing more private financing. Between 2011 and 2018, urban property tax stood at 0.15 percent of GDP compared to an average of 0.3-0.6 percent of GDP for low- and middle-income countries. Low service charges for municipal services also undermines their financial viability and attractiveness to private investment.

Over the medium term, the report suggests a series of structural reforms including those in the taxation policy and fiscal transfer system – which can allow cities to leverage more private financing. In the short term, it identifies a set of large high-potential cities that have the ability to raise higher volumes of private financing.

“The Government of Indiacan play an important role in removing market frictions that cities face in accessing private financing. The World Bank report proposes a range of measures that can be taken by city, state, and federal agencies to bend the arc towards a future in which private commercial finance becomes a much bigger part of the solution to India’s urban investment challenge,” said Roland White, Global Lead, City Management and Finance, World Bank, and co-author of the report. 

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