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Investing in People is Crucial to Economic Recovery in Central Asia

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Central Asian economies are on course to contract by 1.7 percent  this year, a sharp reversal from the 4.9 percent growth in 2019, says the latest edition of the World Bank Economic Update for the Europe and Central Asia region released today.

The impact of the coronavirus (COVID-19) pandemic varies across Central Asia. Kazakhstan and the Kyrgyz Republic will see an economic contraction of 2.5 percent and 5.5 percent, respectively this year. Tajikistan and Uzbekistan, on the other hand, will avoid a recession but growth is likely to be tepid at 1.6 percent (from 7.5 percent in 2019) in Tajikistan and 0.6 percent (from 5.6 percent in 2019) in Uzbekistan.

The pandemic-induced contraction in 2020 is also expected to increase poverty in all countries of Central Asia. At the $3.20 per day poverty line, estimates suggest that an additional 1.4 million people may slip into poverty. At the $5.50 per day poverty line, customarily used in upper-middle-income countries (such as Kazakhstan), the increase in poverty could be over 1.8 million people. and, in the worst-case scenario, over 2.6 million could become poor in the region.

In Central Asia, the World Bank projects growth to recover to 3.1 percent in 2021, supported by a modest rise in commodity prices and foreign direct investment as the region deepens its integration with China’s Belt and Road Initiative. However, the outlook remains highly uncertain as the region continues to grapple with negative spillovers from the euro area, Russia, and China through trade, commodity, and remittance channels. As a result, the downside scenario for Central Asia projects a 1.5 percent growth in 2021.

The pace of recovery also depends on the duration of the pandemic, the availability and distribution of a vaccine, global demand for commodities and the degree of improvement in global trade and investment.

In Kazakhstan, growth could recover to 2-3 percent in 2021and return to its pre-pandemic level by 2022. However, the economy remains vulnerable to the course of the pandemic that could affect businesses and restrain employment.

The Kyrgyz Republic is among the countries hard-hit by the pandemic. Growth is likely to rebound to 4.8 percent in 2021, assuming the pandemic is brought under control and external demand improves. Over the medium term, economic performance will continue to be vulnerable to developments in Russia and Kazakhstan – the country’s major trading partners.

Tajikistan is experiencing its slowest economic growth in two decades. Across sectors, hospitality and tourism experienced the deepest hit from the pandemic. Growth could improve to 3.7 percent in 2021. Risks to the outlook primarily depend on the progress in finding a vaccine or a cure for COVID-19 and the restoration of remittances and external trade.

The COVID-19 crisis in Uzbekistan has almost entirely extinguished GDP growth in 2020. Despite the setbacks, the country’s outlook remains positive as reforms continue to shift the economy towards greater resource efficiency and private sector growth. Assuming limited further lockdowns, an easing of the pandemic, and a broader global economic recovery, growth is projected between 4.8-5 percent in 2021.

A special analysis in the Europe and Central Asia Economic Update focuses on human capital, an area that requires serious attention of the governments given the severe impact of the pandemic on health and education. The report finds that improving access to and quality of tertiary education and reducing adult health risk factors, such as obesity, smoking and heavy drinking, are key for a resilient recovery in the countries of Europe and Central Asia. While the region’s countries provide relatively good basic education and health services, as measured by the World Bank’s Human Capital Index, more needs to be done for individuals and countries to succeed in the future.

The report reconfirms that COVID-19 has deeply strained already-weak health care systems in the Central Asia states. It also shows that across Central Asia, more than 16 percent of the population is obese, nearly 12 percent of people are heavy episodic drinkers, and almost 18 percent are current smokers. Prevalence of these risks increases not only the likelihood of conditions such as cardiovascular disease, but also the mortality and morbidity consequences of infectious diseases like COVID-19.

The pandemic has also adversely affected education and learning in Central Asia, threatening economic losses of $44 billion. School closures may lead to learning losses equivalent to one-third to one full year of schooling, and they are likely to exacerbate inequalities, by disproportionately affecting students from disadvantaged backgrounds. In Central Asia, the gap in reading between students from the richest and the poorest households is expected to increase by between 8 and 30 percent. Given the demographic composition of Central Asia, where young people make up over half of the population, the current education crisis will have long-lasting negative consequences.

The World Bank cannot emphasize enough the need for Central Asian countries to focus on improving access to quality education for all students, as well as on recovering learning losses that threaten to keep an entire generation from achieving their potential,” said Lilia Burunciuc, World Bank Country Director for Central Asia region.

Good quality higher education is critical for people to remain competitive in fast-changing labor markets. Improving higher education in the Central Asian states would help them retain their high-skilled labor force in the face of sustained out-migration.

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Russian Nornickel signed a deal with UK chemicals giant Johnson Matthey

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Russian Nornickel, the world’s largest metal producer has signed a deal with Johnson Matthey (JM) on long-term supply of critical metals for their battery materials production in Finland.

The Finnish government is actively developing production sites for battery components. Finnish budget for 2021 includes additional funding of EUR 300 million for Finnish Minerals Group to promote investments for the production of precursor and cathode active materials used in lithium-ion batteries in Finland.

Earlier in April Nornickel announced plans to ramp up sustainable nickel and cobalt production at its refinery in Finland — NN Harjavalta — in response to the growing European demand for high quality and responsibly sourced metals for the EV industry. NN Harjavalta’s product range will be playing an important role in satisfying Johnson Matthey’s requirements for its precursor and cathode active materials production in Finland as well as for its existing factory in Poland.

Johnson Matthey announced the development in Finland of its second commercial plant with a nameplate capacity of 30 kt of ultra-high energy density cathode materials required by EV producers. The factory will be powered solely by renewable energy and incorporate an innovative effluent treatment solution.

Nornickel and Johnson Matthey have also signed a memorandum of understanding to explore options to further extend metal supply in the future. The parties also intend to collaborate in other important parts of the battery materials value chain, including new metal dissolution technology, circular economy opportunities, and tokenization of the supply chain using blockchain technology. Implementation of token-based smart contracts allows combining metal deliveries with complete provenance as well as ESG credentials including carbon footprint to ensure the unprecedented level of responsible sourcing.

The deal will allow the Russian and British company to define joint sustainable development initiatives.

“We are delighted for this opportunity to develop our business together with Johnson Matthey — a new important player in the Finnish battery materials ecosystem — and help the company expand on the European EV market. Our memorandum should enable us to identify mutually beneficial sustainability initiatives that support the ambition of achieving the most sustainable battery materials value chain in Europe,” commented Vladimir Potanin, President of Norilsk Nickel.

Earlier, Norilsk Nickel signed a letter of intent to establish a battery recycling cluster in Harjavalta, Finland, to serve the electric vehicle market in partnership with Finnish energy company Fortum and German world’s leading chemical company BASF. This will successfully complete the “closed loop” recycling cycle for critical metals present in used batteries.

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Bangladesh Economy Shows Early Signs of Recovery Amid Uncertainties

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Bangladesh’s economy is showing  nascent signs of recovery backed by a rebound in exports, strong remittance inflows, and the ongoing vaccination program, says a new World Bank report, “Bangladesh Development Update- Moving Forward: Connectivity and Logistics to strengthen Competitiveness,” launched today.

After being severely affected by the COVID 19 pandemic—which slowed growth and for the first time in two decades reversed the poverty reduction trend—the economy is recovering gradually.

Over the first half of FY21, factories reopened and exports rebounded. However, the economy faces elevated risks in the context of the ongoing COVID-19 pandemic.

In Dhaka and Chittagong, the country’s two largest cities, recent surveys pointed to a recovery in the labor market in the first half of FY21. With gradual restoration of livelihoods, food security in poor and slum areas improved. In Chittagong, the percentage of adults working had returned to pre-COVID levels by February 2021.  

Despite the uncertainty created by COVID-19, the outlook for Bangladesh’s economy is positive. Much of the pace of recovery will depend on how fast mass vaccination can be achieved,” said Mercy Miyang Tembon, World Bank Country Director for Bangladesh and Bhutan. “The World Bank will support a resilient recovery, helping Bangladesh achieve green, smart, and inclusive growth.”

In FY21, growth will be supported by a recovery in manufacturing as export demand strengthens, a rebound in construction supported by accelerating public investment, and robust service sector growth as the vaccination campaign progress. inflation is projected to remain close to Bangladesh Bank’s 5.5 percent target, and the fiscal deficit is projected to remain at 6 percent of GDP.

Risks to the outlook remain elevated. A fragile global economic recovery could dampen demand for RMG products and limit job opportunities for migrant workers. The COVID-19 pandemic has exacerbated financial sector risks stemming from nonperforming loans and weaknesses in bank governance and risk management.

Improving logistics performance could help accelerate the recovery and improve competitiveness. The report outlines opportunities to modernize the logistics system to ensure business continuity and build resilience. This can be achieved through a system-wide strategy to increase logistics efficiency; improve the quality, capacity, and management of infrastructure; improve the quality and integration of logistics services; and, achieve a seamless integration of regional logistics services. 

“The COVID-19 pandemic has led to an unpreceded global recession,” said Bernard Haven, World Bank Senior Economist, and co-author of the report. “Protecting households affected by the pandemic remains an urgent priority, while structural reforms can help accelerate the recovery.”

The Bangladesh Development Update is a companion piece to the South Asia Economic Focus, a twice-a-year World Bank report that examines economic developments and prospects in the South Asia Region, and analyzes policy challenges faced by countries. The Spring 2021 edition titled South Asia Vaccinates, launched on March 31, 2021, shows that economic activity in South Asia is bouncing back, but growth is uneven, recovery remains fragile, and the economic outlook is precarious. The report also focuses on the different dimensions of vaccine deployment and provides a cost-benefit analysis of vaccination in the region. 

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26 million jobs lost in Latin America and the Caribbean during a year of the pandemic

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The Latin American and Caribbean region lost 26 million jobs as a result of the pandemic, and started 2021 with a complex employment landscape aggravated by new waves of contagion and slow vaccination processes that make the prospects for recovery in labour markets more uncertain, says a new technical note from the International Labour Organization (ILO).

“The quest for better normality will require ambitious action to recover from setbacks in the world of work”, warned Vinícius Pinheiro, ILO Director for Latin America and the Caribbean, when commenting on the note, which presents the latest data on the impact of COVID-19 over the past year.

“It is now time to rebuild the jobs lost by the pandemic and create new decent work opportunities,” Pinheiro said, noting that despite adversity, action must be taken and consensus reached so that “2021 is the year of vaccination and economic recovery with more and better jobs”.

However, the ILO Regional Director highlighted that “in the pursuit of recovery, addressing pre-existing conditions in the region will be unavoidable and those conditions are key to understanding why the impact of the pandemic on employment was so strong. Many of the challenges we had before the pandemic remain in place, although they are now more urgent”.

“High informality, small fiscal spaces, persistent inequality, low productivity and poor coverage of social protection, coupled with problems that still persist such as child labour and forced labour, are part of the ongoing challenges in the region”, he added.

The ILO regional technical note, “The employment crisis in the pandemic: Towards a human-centred job recovery”, emphasizes that the labour impacts were devastating in the second quarter of 2020 when the employment and participation indicators plummeted, and then partially recovered.

However, by the end of 2020 the region’s average employment rate had fallen from 57.4 per cent to 51.7 per cent, a sharp drop equated to the loss of around 26 million jobs, of which 80 per cent, or more than 20 million people, left the workforce.

This significant exit from the workforce was unprecedented and has been characteristic of 2020. By comparison, the unemployment rate has only partially reflected the magnitude of the difficulties faced by labour markets in the region, increasing by just over 2 percentage points between 2019 and 2020, from 8.3 per cent to 10.6 per cent.

This situation would have begun to change, explained Roxana Maurizio, ILO Regional Labour Economics Specialist and author of the technical note, who commented that in 2021 there could be “a significant increase in the employment rate when millions of people who had ceased to participate in the labour force return to the workforce”.

In addition to lost jobs, the region experienced a sharp contraction in working hours, as well as a reduction in labour incomes, which account for 80 per cent of what people in Latin America and the Caribbean earn. The region has recorded the largest losses in hours worked worldwide.

The ILO’s technical note indicates that during the crisis both formal and informal employment experienced very pronounced contractions, but with greater intensity for the latter and for this reason the informality rate was reduced (temporarily), in the context of the widespread collapse in employment demand, especially in the early months of the pandemic.

But that situation has already started to change.

“There is a high risk of informalization that adds to the already high levels of labour informality that countries had before the pandemic”, said Maurizio.

According to available data from seven countries, employment recovery in the second half of 2020 has been almost entirely contracted by informal employment growth. These occupations account for more than 60 per cent of the total increase in employment.

“The formal work deficit, in turn, is likely to become more apparent to certain types of workers such as young people, women and adults with lower qualifications – groups that traditionally experience greater difficulties in accessing formal employment”, she added.

“The macroeconomic collapse has disproportionately impacted some segments of the population, amplifying labour and social gaps – especially gender gaps – that characterize the region”, she continued.

“The outlook for economic recovery by 2021 is modest and still very uncertain, so expectations about a possible reversal of the critical labour market situation should be very cautious”.

The ILO has proposed developing recovery strategies based on a Policy Framework with four main pillars: stimulating the economy and employment; support businesses, jobs and incomes; protect workers in the workplace; and resort to social dialogue to find solutions.

The technical note highlights that in a scenario as complex as the current one “social dialogue and the building of new consensuses, pacts or agreements are more relevant than ever” to advance the recovery of employment.

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