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Russia’s Economy Loses Momentum Amid COVID-19 Resurgence



The Russian economy contracted in quarter 2 by 8 percent and quarter 3 by 3.4 percent. This negative momentum is expected to continue in quarter 4 amidst the resurgence of the pandemic, according to the World Bank’s latest Russia Economic Report (#44 in the series). The report also says that fiscal, monetary and social policies put in place have helped contain the impact of the pandemic-induced crisis to date.

Russian economic growth is projected at -4 percent in 2020, a less severe contraction than the forecast in September. The revision reflects the better-than-anticipated economic performance in quarter 3. Consumer and business confidence is expected to improve assuming a vaccine deemed safe and effective is rolled out; this would pave the way for a gradual rebound at 2.6 and 3.0 percent in 2021 and 2022, respectively.

However, a more adverse scenario suggesting a sharp growth in new COVID-19 cases continuing in the second half of 2021 could further weigh on economic activity. In such a case, GDP in 2021 is projected to grow by 0.6 percent, with consumers and investment demand affected more deeply, and to increase by 2.8 percent in 2022.

Countercyclical fiscal policy and sizeable macro-fiscal buffers have helped contain the impact of the crisis. The general government deficit is expected to reach 4.6 percent of GDP in 2020, compared to a surplus of 1.9 percent of GDP in 2019. After a stronger fiscal stimulus in 2020, Russia’s fiscal consolidation in 2021-2022 will be deeper than in other emerging markets and developing economies and become a drag on growth. 

“Given relatively low public debt, sizeable macro-fiscal buffers, and expected relatively modest pick-up in growth, Russia has some fiscal space for a more gradual fiscal consolidation,” said Apurva Sanghi, the Lead Economist for the World Bank in Russia. 

The effects of the pandemic have touched various spheres of the Russian economy: the unemployment rate increased to 6.3 percent in October 2020, the highest in eight years. Approximately half a million jobs have been lost in each of three large sectors: manufacturing, construction, and retail and hospitality services between the second quarters of 2020 and 2019. The national poverty rate increased to 12.6 percent and 13.2 percent in the first and second quarter of 2020, respectively. The economic deceleration could have led to an increase to 14.2 percent in 2020: however, relevant adopted policies may fully offset the impact of the crisis on the poverty rate, with the 2020 rate is projected to be around or slightly below the level projected for the year before the pandemic. 

This year, the report also assesses how regional and global value chains (GVCs) have contributed to Russia’s development over the past two decades as well as the potential for GVCs to drive future economic growth.

“There are opportunities to drive Russia’s long-term economic growth, by deepening and expanding Russia’s participation in manufacturing and services global value chains,” said Renaud Seligmann, the World Bank Country Director in Russia. “In turn, these opportunities could help promote Russia’s National Goals aimed at developing exports of high-tech manufactured and agricultural goods, creating jobs in these sectors, and speeding up Russia’s technological development.”

Russia needs to position itself within the context of the changes in GVCs that were already under way and were accelerated by the COVID-19 pandemic, like mega-trends towards automation, digitalization and obstacles to free trade. In this context, the report  has developed several policy recommendations to overcome constraints towards furthering Russia’s integration into GVCs, including: trade policy reforms to reduce trade costs and promote participation and upgrading in GVCs; measures to enhance the role of domestic and traded services in the economy; and facilitating foreign direct investments and spillovers through improved institutional and regulatory quality, as well as reduced restrictions.

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Private markets forecast to grow to $4.9tn globally by 2025 and make up 10% of global AuM



Assets under management (AuM) in private markets to expand by between $4.2 trillion and $5.5 trillion in the years up to 2025 in worst/best case scenarios for economic recovery, according to new analysis from PwC.

The report, Prime time for private markets: The new value creation playbook, examines prospects for four primarily illiquid asset classes of private equity (including venture capital), infrastructure, real estate and private credit across a range of scenarios for 2019-2025. 

The report projects significant growth for the value of private markets of $5.5tn (best case), $4.9tn (base case) and $4.2tn (worst case) depending on how global economic conditions respond to the disruption caused by Covid-19.

Will Jackson-Moore, global leader for private equity, real assets and sovereign funds at PwC says,‘The report highlights the continued emergence of private markets as a fast growing and highly impactful portion of global capital markets. Investors continue to look to the sector to deliver the yields that lower risk and more liquid asset classes struggle to match. 

‘Yet this is also an opportunity for private markets to take a lead on ESG and net zero commitments and demonstrate the impact they can make in public perception beyond public markets.’

Opportunities across asset classes

Even in the worst case scenario of a prolonged recession, the projections look ahead to growth of almost 50%  up to 2025.

While private equity is very much “the asset class of the moment” there is evidence that there are significant opportunities for growth and returns in areas such as real estate, infrastructure and private credit.

Will Jackson-Moore says,‘While opportunities for growth are out there, it is important to emphasise that returns will be harder to find and be more aggressively fought for. Managers will need to be innovative in their approach to value creation and respond swiftly to changing investors and governmental expectations as economies recover from the effects of the crisis.’

ESG and going beyond financial return

Will Jackson-Moore says,‘Our research highlights the extent to which financial return is no longer the sole driver of private markets growth. ESG and Net Zero commitments now represent a significant source of value preservation and creation. 

‘Private market managers need to respond by looking at how to apply an ESG lens to investment strategy and product development. Whether it is in impact turnaround initiatives in which ‘dirty’ production facilities are turned green, or building strong commitment to diversity and inclusion at your organisation, these matters are no longer an overlay.’

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Key Reforms Needed to Grow Albania’s E-commerce Sector



A new World Bank Albania E-Commerce Diagnostic highlights key reforms needed to better leverage digital trade as opportunity for economic development.

E-commerce can be an important asset for Albania. Online sales channels allow businesses to reach more customers, at home and abroad. Customers gain from greater convenience and more choice. Sectors enabling e-commerce can create new jobs, including in technology companies, logistics and online payments.

During the COVID-19 pandemic, online markets are playing a particularly important role by allowing economic life to continue despite social distancing. The 2020 World Bank Enterprise Survey reveals that almost 20 percent of Albanian firms surveyed reported having either started or increased online business activity during the crisis.

To help Albania seize the digital trade opportunity, this new diagnostic identifies a roadmap of critical reforms in logistics and customs;  digital connectivity; online payments; private sector capabilities and skills; and the e-commerce regulatory framework.

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Digitalizing the Maritime Sector Set To Boost the Competitiveness of Global Trade



A new report launched today by the World Bank and the International Association of Ports and Harbors (IAPH) shows that better digital collaboration between private and public entities across the maritime supply chain will result in significant efficiency gains, safer and more resilient supply chains, and lower emissions.

Maritime transport carries over 90% of global merchandise trade, totaling some 11 billion tons of cargo per year. Digitalizing the sector would bring wide-ranging economic benefits and contribute to a stronger, more sustainable recovery.

Accelerating Digitalization: Critical Actions to Strengthen the Resilience of the Maritime Supply Chain describes how collaborative use of digital technology can help streamline all aspects of maritime transport, from cross-border processes and documentation to communications between ship and shore, with a special focus on ports.

The COVID-19 crisis has evidenced a key benefit of digitizing waterborne and landside operations: meeting the urgent needs to minimize human interaction and enhance the resilience of supply chains against future crises.

“In many of our client countries, inefficiencies in the maritime sector result in delays and higher logistics costs, with an adverse impact on the entire economy. Digitization gives us a unique chance to address this issue,” noted Makhtar Diop, World Bank Vice President for Infrastructure. “Beyond immediate benefits to the maritime sector, digitalization will help countries participate more fully in the global economy, and will lead to better development outcomes.”

IAPH Managing Director of Policy and Strategy, Dr Patrick Verhoeven, added: “the report’s short and medium term measures to accelerate digitalization have the proven potential to improve supply chain resilience and efficiency whilst addressing potential risks related to cybersecurity. However, necessary policy reform is also vital. Digitalization is not just a matter of technology but, more importantly, of change management, data collaboration, and political commitment.”

Although the International Maritime Organization (IMO) has made it mandatory for all its member countries to exchange key data electronically (the FAL convention), a recent IAPH survey reveals that only a third of over 100 responding ports comply with that requirement. The main barriers to digitalize cited by the ports were the legal framework in their countries or regions and persuading the multiple private-public stakeholders to collaborate, not the technology.

The report analyzes numerous technologies applied already by some from the world’s leading port and maritime communities, including big data, the internet of things (IoT), fifth-generation technology (5G), blockchain solutions, wearable devices, unmanned aircraft systems, and other smart technology-based methods to improve performance and economic competitiveness.

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