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Pandemic recovery: Germany should invest more in digital economy and energy transition

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Germany should increase public infrastructure investment and accelerate its digital transformation and energy transition to strengthen and sustain its recovery from the economic crisis sparked by COVID-19, according to a new OECD report.

The latest OECD Economic Survey of Germany credits the government’s swift and effective crisis response and a strong healthcare system for enabling a less severe social and economic impact from the pandemic than in many neighbouring countries. The 1.4 percentage point rise in the unemployment rate in the first half of the year was small by international standards, thanks to the extensive use of the government-subsidised short-time work scheme. Yet the crisis has still pushed the economy into a deep recession after a decade of expansion, with economic output projected to shrink by 5.5% in 2020 and recover only gradually with GDP growth at 2.8% in 2021 and 3.3% in 2022. It is important that measures to support the health system and the hardest hit sections of society and the economy are not scaled back too fast.

“Germany has suffered a severe economic shock from COVID-19, despite the government’s swift and substantial response. Germany should use the recovery as an opportunity to invest in its digital transformation, accelerate its transition to a low-carbon economy, and increase labour market inclusion,” said OECD Secretary-General Angel Gurría.

While the government’s June stimulus package took encouraging steps towards advancing the digital and energy transitions, more infrastructure investment is needed to spur a sustainable and inclusive recovery and ensure that Germany can reap the productivity benefits of digital technologies and the environmental benefits of greener energy and transport, the Survey says.

Despite being a world leader in technology and engineering, Germany lags other advanced economies on the digital transformation at a time when the pandemic has heightened the need for good quality and reliable digital connectivity. Average mobile data usage and connection speeds are low, and uneven availability of high-speed Internet has created an urban-rural digital divide. Many small and medium-sized enterprises (SMEs) lag behind in the use of digital technologies, such as cloud computing, that are key for innovation and productivity. Only a small percentage of young people have programming skills, with the share even lower among girls and women. 

Improving competition among Internet providers and simplifying administrative processes for network deployment would help to improve digital connectivity. SMEs should be given better access to financial support, including Research and Development tax incentives, to help them adopt advanced technologies. More should also be done to promote digital skills across the population and to make computational thinking part of the school curriculum from an early age.

Germany has made significant progress on climate policy, particularly in the past year, with the introduction of an emissions pricing system in the transport and heating sectors, increased promotion of electric vehicles and charging stations, and higher targets for renewable electricity generation. However, per capita greenhouse gas emissions in Germany are still high by European standards. If Germany is to meet its Paris Agreement target of reducing its greenhouse gas emissions by 55 percent by 2030 relative to 1990 levels, greater efforts will be needed. The Survey recommends reducing coal-fired power generation earlier than planned, expanding energy-efficient building renovation, linking the pricing of fuels, vehicles and road use more clearly to environmental damage, and creating alternative, climate-friendly transport options.

Although public investment has increased since 2014, two decades of weak investment have left a backlog, particularly in the areas of low-emission transport solutions, digital transformation, health, social housing, early childhood education and power grids. In view of the negative net investment in many financially weak municipalities, the Survey recommends the federal government further support investment by municipalities.

The Survey also recommends expanding local planning capacity and improving co-operation across government agencies to speed up the implementation and effectiveness of infrastructure projects. It would be sensible, for example, to use independent infrastructure planning advice that facilitates alignment between different levels of government and sectors and gives construction firms more security in their planning.

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Are we on track to meet the SDG9 industry-related targets by 2030?

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A new report published by the United Nations Industrial Development Organization (UNIDO), Statistical Indicators of Inclusive and Sustainable Industrialization, looks at the progress made towards achieving the industry-related targets of Sustainable Development Goal (SDG) 9 of the UN 2030 Agenda for Sustainable Development. The report is primarily based on the SDG9 indicators related to inclusive and sustainable industrialization, for which UNIDO is designated as a custodian agency, showing the patterns of the recent changes in different country groups.

Six years after the adoption of the 2030 Agenda for Sustainable Development and its 17 SDGs, there has been increasing demand for information on whether the SDG targets could be reached, and what actions should governments take to accelerate progress. The UNIDO report introduces two new tools developed by UNIDO to help countries measuring performance and progress towards SDG9 industry-related targets: the SDG9 Industry Index and SDG9 progress and outlook indicators. The SDG9 Industry Index benchmarks countries’ performance on SDG-9 targets over 2000-2018 for 131 economies. In addition, the report develops two measures to answer the main questions:

  • Progress: how much progress has been made since 2000?
  • Outlook: how likely is it that the target will be achieved by 2030?

The global COVID-19 pandemic has inevitably had a negative toll on the progress towards reaching the SDG9 indicators, but the extent of the long-term impact remains to be seen. Industrialized countries continue to dominate global manufacturing industry, but their relative share has gradually declined over the past decade. In 2010, industrialized economies made up 60.3% of global production, which has decreased to 50.5% in 2020. China has been the largest manufacturer, now accounting for 31.7% of global production. This is a trend that has been reinforced by the pandemic.

Progress for the least developed countries (LDCs), at the heart of the 2030 Agenda, is a different story. While economic theory and countries’ experiences across the world have established that industrialization is an engine of sustainable growth, progress among LDCs remains very diverse. Asian LDCs are poised to double their share of manufacturing in GDP and thus meet SDG target 9.2, but African LDCs have stagnated.

SDG9 Industry Index

The SDG-9 Industry Index, consisting of five dimensions, covers three targets and five indicators and assigns a final score to countries. In 2018, the top ten consisted of exclusively industrialized economies, with Taiwan, Province of China, Ireland, Switzerland, the Republic of Korea and Germany making up the top five. In general, industrialized economies perform best in all dimensions of the Index.

The countries at the bottom of the ranking are LDCs, in particular those located in sub-Saharan Africa. Although some African countries have been displaying impressive growth rates, growth has been driven by an extended commodity boom and foreign capital inflows, while industrialization and structural transformation have stagnated. Additionally, substantial data is lacking for a significant amount of the countries. In the SDG9 Industry Index, only 24 out of 54 African countries are included, from which only eight are LDCs. It is clear that national statistics offices need strengthening, as data availability helps countries formulate, review and evaluate their development plans and programmes.

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ASEAN Survey Calls for Joint Action for an Inclusive and Sustainable Digital Economy

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The World Economic Forum launches today the ASEAN Digital Generation Report 2021, a special edition of its annual ASEAN youth survey report series, which examines the impact of the pandemic on personal income, savings and the role of digitalization in the region’s economic recovery. The report’s survey, conducted with close to 90,000 participants from Indonesia, Malaysia, the Philippines, Singapore, Thailand and Viet Nam, also flags the gaps needed to build a more inclusive and sustainable economy, namely: access to technology, digital skills training for all generations, and measures to enhance online trust and security.

The survey’s findings confirm e-commerce’s role as the key driver of growth in the ASEAN region. Wholesale and retail trade sector had the highest proportion of people starting new businesses (50%), while the logistics sector had the highest share of people finding new jobs (36%).

Notably, respondents from these two sectors are among those who also reported a decline in income. This could be because when people experienced a fall in income, they started new businesses in the wholesale and retail trade sector to leverage e-commerce opportunities.

A majority of respondents have adapted to the challenges of the coronavirus pandemic through significant digital adoption. Across ASEAN, 64% of respondents have digitalized 50% or more of their tasks, as have 84% of respondents who are owners of micro, small and medium enterprises (MSMEs). Respondents who reported greater levels of digitalization of their work and business reported lower levels of income decline. Similarly, business owners with an online presence were more likely to report an increase in savings (24%) and income (28%) compared to those without one (18%).

However, the benefits of digitalization are unevenly spread across the region. Those who are less “digitalized” found further digital adoption less appealing. As in 2020, respondents continued to point to expensive or poor internet quality or digital devices as the top barriers to digital adoption. While less digitalized respondents pointed to lack of digital skills as a key additional obstacle, more digitalized respondents pointed to trust and security concerns instead.

The identified obstacles were consistent across all six countries surveyed. As such, multistakeholder and regional joint actions are needed to unlock the full potential of ASEAN nations in the digital age and narrow these gaps.

“Through this annual survey, we wanted to understand the views, priorities and concerns of the digital users in ASEAN and gain statistical insights that will help inform and shape relevant regional policy,” said Joo-Ok Lee, Head of the Regional Agenda, Asia-Pacific, World Economic Forum. “The survey showed improving the quality and affordability of ASEAN digital infrastructure, equipping the ASEAN workforce with appropriate skills and enhancing people’s trust in the digital environment are crucial to bring ASEAN over the tipping point for inclusive and sustainable digital transformation.”

“One of the key findings was that digitalization has a ‘flywheel’ effect wherein users who had first experienced the benefits of technology were more eager to deepen their levels of digitalization,” added Santitarn Sathirathai, Group Chief Economist at Sea, a Singapore-based global consumer internet company.“It is critical for the public and private sector to work even more closely to lower any friction and barriers, which may prevent the positive digitalization momentum from taking place. Through this, digitalization can enable post- pandemic recovery in an inclusive and sustainable way.”

Between July and August 2021, the survey polled participants from Indonesia, Malaysia, the Philippines, Singapore, Thailand and Viet Nam. Some 77% of respondents are youths aged between 16 and 35, 56% female and 10% business owners.

This year’s edition continues tomonitor the impact of the pandemic on respondents, explores how the ongoing digitalization has benefited their life and society in the real economy, what stands in their way of further digitalization and maximization of such benefits, and how to tackle the identified obstacles.

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Trade can play a pivotal role in addressing climate change

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Economies in the Asia-Pacific region need to urgently reduce greenhouse gas emissions, including to maintain their trade competitiveness as carbon taxes at borders threaten to rise, according to a new United Nations report.  

Around 16 million new jobs could be created in clean energy, energy efficiency, engineering, manufacturing and construction industries in the Asia-Pacific region, more than compensating for the estimated loss of five million jobs by downscaling industries. 

The Asia-Pacific Trade and Investment Report 2021 was jointly launched on Monday by the UN Economic and Social Commission for Asia and the Pacific (ESCAP), the United Nations Conference on Trade and Development (UNCTAD), and the UN Environment Programme (UNEP). 

Climate-smart policies have a significant cost, particularly for carbon-intensive sectors and economies, but the cost of inaction is far greater. Some estimates are as high as $792 trillion by 2100, if the Paris Agreement targets are not met. 

Risks and competitiveness 

Launching the report, Armida Salsiah Alisjahbana, Executive Secretary of ESCAP, remembered that key trade partners are considering border taxes on carbon. 

Ms. Alisjahbana said this causes “strong concerns on the effects on the developing countries since many economies in the region are at risk of being pushed out of key markets”. 

For her, the roll-out of COVID-19 recovery packages could provide opportunities to invest in low-carbon technologies and sectors.  

Room for improvement 

The Asia-Pacific region is currently the largest emitter of greenhouse gases, but the new report reveals significant room to make these economies greener. 

For example, there are still more barriers to trade in environmental goods than in carbon-intensive fossil fuels and fuel subsidies continue to exist.  

According to the report, the “timely abolishment” of these two policies, and replacement with more targeted measures, could provide much-needed finance and reduce emissions. 

Other proposals are trade liberalization in climate smart and other environmental goods, transition to climate friendly transportation, incorporation of climate issues in trade agreements, carbon pricing and carbon border adjustment taxes. 

For the Bangladesh Commerce Minister, Tipu Munshi, Honourable, these measures “are very much befitting given the crises” the world is facing. 

Positive and negative effects 

In a joint message, New Zealand’s Minister for Trade and Export Growth, Hon Damien O’Connor, and the Minister of Climate Change, Hon James Shaw, said that “one of the most substantial roadblocks in the way of cutting emissions is fusil fuel subsides”. 

UNCTAD chief Rebeca Grynspan, highlighted “the links between trade, investment and climate change are complex”.  

She explained that “the key is to ensure that the positive effects of trade and investment are maximized, such as by promoting trade and investment in renewable energy and low-carbon technologies, while minimizing the adverse effects, like by digitalizing trade and transport systems”.  

According to the report, regional trade agreements can also help, and this change has started to happen. The report points to a general trend towards more environmental provisions in these agreements. 

The Asia-Pacific Trade and Investment Report 2021is the first to examine the impact of upcoming border carbon adjustment in the region.  

It is also the first time an index evaluates climate-smart trade and investment policies. 

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