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South Asia: Worst Economic Plunge, Informal Workers Hit Hardest

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South Asia is set to plunge into its worst-ever recession as the devastating impacts of COVID-19 on the region’s economies linger on, taking a disproportionate toll on informal workers and pushing millions of South Asians into extreme poverty, says the World Bank in its twice-a-year-regional update. 

Released today, the latest South Asia Economic Focus Beaten or Broken? forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7 percent in 2020, after topping 6 percent annually in the past five years. India’s economy, the region’s largest, is expected to contract by 9.6 percent in the fiscal year that started in March 2020. Regional growth is projected to rebound to 4.5 percent in 2021. Factoring in population growth, however, income-per-capita in the region will remain 6 percent below 2019 estimates, indicating that the expected rebound will not offset the lasting economic damage caused by the pandemic.

In previous recessions, falling investment and exports led the downturn. This time is different, as private consumption, traditionally the backbone of demand in South Asia and a core indicator of economic welfare, will decline by more than 10 percent, further spiking poverty rates. A decline in remittances is also expected to accelerate loss of livelihoods for the poorest in some countries.

“The collapse of South Asian economies during COVID-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “Immediate relief has dulled the impacts of the pandemic, but governments need to address the deep-seated vulnerabilities of their informal sectors through smart policies, and allocate their scarce resources wisely.”

Three-quarters of all workers in South Asia depend on informal employment, especially in hospitality, retail trade, and transport—sectors most affected by containment measures. The report warns that informal workers and firms have little room to cope with unexpected shocks of the magnitude of COVID-19. While the poor have faced rising food prices and suffered severely, the COVID-19 crisis has dealt a further blow to many informal workers in the middle of the income distribution who experienced sharp drops in earnings.

Few informal workers are covered by social insurance, have savings or access to finance. The report urges governments to design universal social protection as well as policies that support greater productivity, skills development, and human capital. In that effort, securing international and domestic financing will help governments fund crucial programs to speed up recovery. In the long-term, digital technologies can play an essential role in creating new opportunities for informal workers, making South Asia more competitive and better integrated into markets—if countries improve digital access and support workers to take advantage of online platforms.

“COVID-19 will profoundly transform South Asia for years to come and leave lasting scars in its economies. But there is a silver lining toward resilient recovery: the pandemic could spur innovations that improve South Asia’s future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital,” said Hans Timmer, World Bank Chief Economist for the South Asia Region.

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Global Deal report: Social dialogue crucial to tackling impact of COVID-19

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Social dialogue between employers, workers and government can play a central role in managing the impact of the COVID-19 crisis in the workplace and has great potential in ensuring that the livelihoods and opportunities of those hardest hit are protected, according to a new report.

Social Dialogue, Skills and COVID-19, published jointly by the OECD, ILO and Global Deal.

Partnership, says the pandemic has exposed and intensified underlying inequality and is having a disproportionate impact on vulnerable groups already facing insecurity, such as the low-skilled, informal workers, youth and women.

The report argues that social dialogue and collective bargaining have a key role to play in building back a more sustainable economy in which the benefits of growth are distributed across the whole of society.

Agreements between business, trade unions and governments have often played an important role in establishing the short-time working arrangements aimed at protecting incomes and firms during lockdowns. The key ingredients have been commitments by employers not to fire workers while unions accept shortening working times and a lowering of wages. Governments have then stepped in with benefits or wage subsidies to make up for the wage shortfalls.

Such agreements can help shore up consumer confidence by keeping workers in jobs and maintaining incomes. The report looks at how such arrangements have worked in a number of countries, including in Germany, Italy and France. In Denmark, the job retention scheme managed to limit the rise in unemployment to 0.1 percentage point between February and May 2020. In Korea, social partners agreed to lift the employment retention subsidy from 63% to 75% with additional emergency support available for small businesses and workers on non-standard contracts.

The report points to the importance of involving all social partners in ensuring safe working conditions during the pandemic, particularly as individual workers may be even more reluctant to voice their concerns during the crisis for fear of losing their jobs. Social dialogue provides a forum to understand workers’ concerns and negotiate balanced approaches.

Presenting the report alongside ILO Director-General Guy Ryder and Swedish Trade Minister Anna Hallberg, OECD Secretary-General Angel Gurría said, “Social dialogue has shaped the policies that supported workers and sustained the economy, helping to boost confidence during the crisis. Social dialogue’s importance is not limited to the immediate management of the crisis. It also helps countries to meet their UN 2030 Agenda commitments and prepare for global trends such as digitalisation, globalisation and climate change.”

With many of the essential ‘frontline’ workers on low wages, such as those in healthcare, food processing, or for instance supermarket cashiers, setting appropriate minimum wages via statutory provisions and/or collective bargaining and achieving balanced decisions through social dialogue can improve standards of living. Fairness and equity will result in a more resilient labour market and a stronger economic recovery, the report says.

Beyond the challenges brought by the COVID-19 crisis, labour markets are having to adapt to technological change creating a demand for new skills. The report says clear policies and mechanisms are needed to promote lifelong learning and skills development. Social dialogue is needed at national, sectoral and firm level, and involving workers in the decisions can facilitate effective adoption of the skills development programmes.

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MENA: Trade and Regional Integration are Critical to Economic Recovery in the Post-Covid Era

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Trade and integration — within the Middle East and North Africa (MENA) region and with the rest of the world — will be critical to lowering poverty, empowering the poor, and igniting economic growth in the post-COVID era, according to the World Bank’s latest regional economic update.

The report, titled Trading Together: Reviving Middle East and North Africa Regional Integration in the Post-Covid Era, paints a comprehensive picture of MENA’s economic situation six months into the COVID-19 pandemic. It examines the lasting effects of the dual economic shocks from the spread of the coronavirus and the collapse in oil prices, and it recommends policy changes and reforms to build a new integration framework across the region.

The MENA region was already lagging behind economically before the COVID-19 pandemic struck. Six months into it, we can see — with stark clarity — the severity of the devastation on lives, livelihoods, and region-wide prosperity,Ferid Belhaj, World Bank Vice President for the Middle East and North Africa, said. “We are continuing to help MENA countries stop the spread of the disease and protect and care for their people. We will keep insisting on the need for MENA countries to give the highest priority to transparency, governance, the rule of law and market contestability, and to instill trust, promote the private sector, and build a new framework for the sustained regional economic integration that will make trade a powerful tool to alleviate poverty and expand access to opportunities for all.”

The Economic Shocks of the Pandemic and Decline in Oil Prices

The dual economic shocks of the COVID-19 pandemic and decline in oil prices have affected all aspects of MENA’s economies, which are projected to contract by 5.2% in 2020 — 4.1 percentage points below the forecast in April 2020, and 7.8 percentage points worse than the forecast in October 2019. The latest data reflect an increasingly pessimistic outlook for the regional economy, which is expected to recover only partially in 2021.

The outlook for MENA’s current account and fiscal balances has also deteriorated. Driven by lower oil export revenue, declines in other fiscal revenues, and the high expenditures required to respond to the pandemic, the region’s current account and fiscal balances in 2020 are forecast at -4.8% and -10.1% of GDP respectively, much lower than the forecasts from October 2019. Public debt is projected to rise significantly in the next few years, from about 45% of GDP in 2019 to 58% in 2022.

The pandemic continues to inflict economic losses, and the poor and vulnerable are being disproportionately affected,” said Ha Nguyen, Senior Economist and co-author of the report. “The growth outlook for 2021 suggests that a V-shaped recovery is unlikely, although the forecasts are fluid and subject to great uncertainty.”

Trade and Regional Integration

According to the report, MENA’s integration — both within the region and with the rest of the world — was underperforming before the pandemic. This is due to economic reasons, such as poor logistics’ performance, inefficient customs, high infrastructure costs, the inadequacy of legal frameworks for investments, and disparate regulations that add up to high trade costs and have become non-tariff impediments to trade. Political economy obstacles have also prevented regional cooperation, while the effects of conflicts and violence have hindered trade and deterred economic growth.

Challenges with logistics and the business environment impede MENA’s integration in regional and global value chains. Despite improvements in recent years, the MENA region underperforms in access to credit, which is lower than anywhere else in the world. Trading across borders is expensive and time-consuming: It costs, on average, US$442 and 53 hours to comply with border requirements for exporting, which is three times more expensive and four times longer than averages in high-income economies. MENA is also one of the most restrictive regions regarding trade in services.

The challenges to overcoming the political and economic obstacles to MENA’s integration would be difficult in ordinary times, let alone in the midst of a pandemic and economic crisis,” said Blanca Moreno-Dodson, Manager of the Center for Mediterranean Integration and leader of the report. “But the COVID-19 pandemic offers a great opportunity for MENA countries to rethink their social and economic policies and strengthen trade integration while reducing their oil dependency at the same time.”

The report proposes a new trade integration framework that goes beyond reducing tariffs. Some of the suggestions it makes indicate that trade liberalization must be comprehensive and benefit all sectors, including agriculture and services. Without improving the overall business environment and without encouraging the role of the private sector, the region will not reap the benefits of trade liberalization. In terms of implementation, a better balance between political and economic objectives will be needed to ensure that trade agreements do not fail. Simultaneous, behind-the-border reforms — within the MENA region and in collaboration with Europe and Africa — necessitate clear rules and effective implementation mechanisms.

A coordinated MENA trade integration framework would facilitate regional value chains and pave the way toward integrating into global value chains. The report recommends focusing on trading regionally in sectors such as food security, health systems, renewable energy, and the knowledge economy. It suggests creating a common MENA digital market so that MENA countries can improve both trade and digital connectivity, with broader markets in Africa and the Mediterranean. This should help increase productivity; coordinate efficient responses to the pandemic; and promote inclusive, resilient, and sustainable jobs in the region.

The African Continental Free Trade Area (AfCFTA) offers an opportunity for MENA and sub-Saharan Africa to simplify and harmonize non-tariff measures between them. Ongoing bilateral dialogue with the European Union could at the same time focus on including agriculture and services, which would greatly benefit MENA countries while addressing issues of labor mobility as they relate to trade.

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Half of Working Adults Fear for Their Jobs

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In a new World Economic Forum-Ipsos survey of more than 12,000 working adults in 27 countries, more than half (54%) say they are concerned about losing their jobs in the next 12 months. Perceived job insecurity varies widely across countries: it is stated by three in four workers in Russia, compared to just one in four in Germany.

Two thirds of workers worldwide say they can learn skills needed for the jobs of the future through their current employer. Nearly nine in ten workers in Spain think they can gain essential new skills on the job, whereas fewer than half in Japan, Sweden and Russia.

Concern about job losses

On average, 54% of employed adults from 27 countries say they are concerned about losing their job in the next 12 months (17% are very concerned and 37% somewhat concerned). The prevalence of job-loss concern in the next year ranges from 75% in Russia, 73% in Spain, and 71% in Malaysia, to just 26% in Germany, 30% in Sweden, and 36% in the Netherlands and the United States.

Ability to acquire new skills

Globally, 67% of employed adults surveyed say they can learn and develop skills needed for the jobs of the future through their current employer (23% are very much able to do so, 44% somewhat able). Across the 27 countries, perceived ability to learn and develop those skills on the job is most widespread in Spain (86%), Peru (84%), and Mexico (83%) and least common in Japan (45%), Sweden (46%), and Russia (48%).

Saadia Zahidi, Managing Director at the World Economic Forum said, “The current crisis means that the job creation rate has gone significantly down compared to two years ago, but there is an optimistic scenario overall compared to the rate of job destruction. Of course, it depends on the choices we make today. It depends on the kinds of investments governments make today – and the investments workers make in terms of their own time. And it depends on the choices that business leaders make when it comes to retaining and protecting jobs versus shorter-term decisions that are more focused on quarterly results.”

New skill acquisition versus job insecurity

Globally, workers are more likely to say they can learn and develop skills needed for the jobs of the future through their current employer (67%) than to express concern about losing their job in the next 12 months (54%), a difference of 13 percentage points.

The countries where those who can gain new skills on the job outnumber those who are concerned about losing their job by the largest margins are the United States and Germany (by 40 points).

In reverse, job loss concern is more prevalent than perceived ability to acquire skills in Russia (by 28 points) and, to a lesser extent in Malaysia, Poland, Japan, Turkey, and South Korea.

World Economic Forum Jobs Reset Summit

Job losses and the skills challenge are two of the issues that will be addressed at the forthcoming Jobs Reset Summit. The summit brings together more than 1200 visionary leaders from business, international organizations, government, civil society, media and the broader public to shape a new agenda for growth, jobs, skills and equity.

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