The coronavirus presents Germany’s most significant challenge in its postwar history; Chancellor Angela Merkel told viewers across the German nation. COVID triggered the most profound economic recession in nearly a century, threatening almost every fundamental aspect of our societies. The IMF estimates our global economy went down by 4.4% in 2020, the worst decline since the Great Depression. The only major economy to grow in 2020 was China of 2.3%.
The immediate outlook on the pandemic’s impact has made us think on how governments have dealt with prospects for economic growth. Most forecasts envision a 5 per cent contraction in global GDP, despite the outstanding efforts of governments to counter the economic spiral with fiscal and monetary policy support and even austerity. During the COVID-19 crisis peak, EU leaders regularly met via e-conferences to discuss and assess the situation and coordinate action COVID economic reactions. The same happened in other states internally, namely Canada, who spearheaded federal strategic communication and policy building under the Trudeau government to reboot the economy. Something that will cost Canadians considerably down the line. Yet most if not all world leaders know that this situation is expected to leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages. We are just about to enter a new world era. It is instructive for us international relation practitioners to review and refine our diplomatic, economic strategies to guide us through these hardships. What diplomatic tools can we use to help our communities get through, and how to go about it?
A little refresher for those interested in economic diplomacy and its study has rapidly developed over the past decade that is very relevant today, especially. Yet, there is still no strict consensus among academics about its definition. Despite this lack of agreement, in this short article, I will try to outline the basics of economic diplomacy theory and some examples of its practice.
We could see economic diplomacy as a policy practice, institutional structure, behavioural aspects, and policy aims and results in dealing with the state and businesses’ financial and commercial interests. Indeed, different thinkers have given a variety of angles of practice and theories on economic diplomacy yet they all agree that: economic diplomacy can be defined as a set of methods and processes related to cross border economic activities such as exports, imports, investment, lending, aid and migration, all of which are pursued by state and non-state actors. It is divided into three main elements; economic diplomacy encompasses the use of political influence and relationships to promote trade and investment, monetary assets and relationships to increase economic security including multilateral negotiations to consolidate the right political climate and political-economic environment to facilitate the institution’s objectives.
To distinguish it from diplomacy in general, we would have to highlight the private sector’s involvement in decision-making processes precisely because market developments are closely monitored by private sector actors and not government agencies to stay informed about where and how to invest in their country of interest. Economic diplomacy became particularly important within our globalized economic interdependence context to set the tone of foreign policy. It is also essential for domestic markets while managing regional trade and competitive international investment agreements. To get the desired financial results, states would have to use their available resources agencies, networks, and yes – diplomatic tools, while practising economic diplomacy.
The subject touches many levels, and governments practice informal dealing on various issues such as trade agreements and investment agreements. Multilateral approaches are assisted with pre-established guidelines within a set framework of international organizations in different levels such as the World Trade Organization, the Organization of Economic Co-operation and Development, etc. Strategic communication is imperative between the private and government sectors to agree on set positions, hardliners, in other words, taken between government actors and their stakeholders before negotiating with other countries or organizations in this framework.
Moreover, we must not forget the plurilateral or more commonly known as the regional approach. It offers a streamlined, expressway for exploring the market opportunity, The EU being the best example of this approach. From the plurilateral perspective, we can observe how economic diplomacy has many tools to remove trade barriers while its users aspire to liberalize economies. Liberalizing markets, of course, has proven itself easier done in the regional context.
Contemporary practices see economic diplomacy as mainly concerned with formal government activities to promote their economic interest. However, our readers are invited to see the idea in the broader sense, which goes much further than foreign ministers’ mandated responsibilities. Engagement in economic diplomacy concerns all government agencies that have economic responsibilities, it is not exclusive to the foreign ministries, although they might not acknowledge it themselves. That is, in other words, all ministers, and independent public agencies and institutions that are involved with economic issues are engaged in economic diplomacy.
Analyzing the current global cooperation structures shifts economic diplomacy to be deployed by states seeking to achieve the newly flexible international environment’s financial goals. These flexible approaches and the weakening adherence to strict multilateral rules have made bilateral policies more attractive to economic diplomacy. The same could also be said about plurilateral methods; geo-economic power shifts encourage governments to reassess their national and foreign policies to be compatible with regional power shifts. Modifications and changes spark new thinking, such as on commercial diplomats’ mandate working on trade and investment promotion. In emerging economies and small states, a larger role for the ministry in international economics becomes necessary for success because emerging forms are seen to have a much stronger influence on the domestic private sector. Therefore public institutions have a larger stake in economic diplomacy than the private sector alone.
Nonetheless, economic and cultural and historic reasons explain why trade partners in emerging economies expect state involvement from their foreign partners in investment and trade. This contrasts the separation of public and private sectors as seen in larger capitalist economies. Economic diplomatic practices reflect the larger private sector and allow these to have an essential role in diplomatic practices. In the same way, states must be flexible; they have to change how they go about diplomacy depending on the economy they are dealing with.
As mentioned above, due to its main concerns with governments’ actions and what they do to promote their economic interests, economic diplomacy involves government agencies as primary actors. It recognizes the involvement of non-governmental entities in shaping economic diplomacy strategies. The case study of Latvia’s economic interests regarding economic diplomacy manifests in facilitating exports and promoting foreign investment, a good form of flexible economic diplomacy. Of course, most of the work concerning economic diplomacy is done through the Latvian Ministry of Foreign Affairs and its diplomatic representation network across many countries, each with commercial representatives that would deal with economic diplomacy. However, other ministries such as the Ministry of Economics, the Ministry of Transportation, the Ministry of Justice, the Ministry of Agriculture and the State Chancellery are also in touch with, say the embassies to define commercial targets.
Meanwhile, other government agencies such as the Investment and Development Agency of Latvia are involved, indirectly, in dealing with various issues more or less related to the realm of economic diplomacy. Relations between government agencies and non-governmental actors have been coordinated through several forms of cooperation, both formal and informal. Diplomacy, commerce, trade and international investment concepts are therefore hard to separate in cases of practical implications for Latvia, which leads to an assumption that businesses may have an easier way to access decision-making. Indeed, economic diplomacy favours the discussions as direct as a business owner and an ambassador. Internationally, Latvia’s economic diplomacy policy is highly influenced by its business sector and its membership in the EU. Since the EU has an exclusive role for trade policy and significant part of the investment policy, the EU monopolizes much of the economic diplomacy arena; the EU institutions are also negotiating EU-level treaties and agreements on behalf of Latvia. However, Latvia is still free to negotiate bilateral agreements with third-party countries, although only in cases where the EU has not already started negotiations and with the formal approval of other member states, and engage in external economic activities to promote trade and investment. Over the last 25 years, the Latvian government established a fully functioning set of state organizations from the ground up, responsible for formulating and executing an economic policy which includes economic diplomacy.
These frameworks imply action on both domestic and external levels for Latvia to be competitive enough in the international environment. Main policy initiatives suggest that the government is pursuing an active partnership with non-government actors to facilitate a better environment for business. Other state institutions, indirectly would do their part by informing and supporting Latvian companies that wish to enter foreign markets and provide useful services to foreign investors and enterprises looking to invest in Latvia. That said, it is evident that the Ministry of Foreign Affairs is not only the only coordinator since other agencies’ activities help towards this end as well. Yet the foreign affairs organizations have become the spearhead of foreign economic management since they are best positioned to represent and promote Latvian businesses abroad and access foreign markets. While there is no universally useful institutional framework of economic diplomacy applicable for every country, the coordination of economic diplomacy in Latvia has adapted to the changing environment and issues that are most pressing in a particular time frame, and that is so considering the current changes and tensions coming from contemporary EU challenges. This and other institutional frameworks’ success or failure can be observed only by an in-depth look at specific issues of economic diplomacy, not a general overview. To conclude, for those who are embarking in studying the challenges of a state’s economic diplomacy, they must dissect and uncover its layers due to its broad umbrella covering a series of stakeholders interconnected through formal and informal activities.
Price hike in Pakistan: the worst of all worries
The most serious issue Pakistan’s economy is currently dealing with is price increases or inflation. Life has become miserable for the average person as a result of the ongoing increase in the cost of necessities like food, fuel, and medicine. The general public’s standard of living is not the only thing this phenomenon is affecting; it is also fueling social unrest across the nation.
There are numerous factors contributing to the price increase. The rise in the price of oil on the global market comes first. Pakistan relies heavily on imported oil, and when the price of crude oil increases globally, it has a negative impact on the regional economy. The issue has also been exacerbated by Pakistan’s struggling economy, high-interest rates, and currency devaluation.
However, several causes can be identified for Pakistan’s dollar exchange rate’s ongoing rise. One of the main causes is the nation’s substantial import bill, which raises the demand for dollars. Energy and other necessities must be imported into Pakistan, and the pressure on its foreign exchange reserves is increased by the high demand for dollars to pay for these imports. Further weakening Pakistan’s currency is the fact that its exports have not been able to keep up with its imports, resulting in a trade deficit. Due to investors’ reluctance to invest in a nation with an unstable economy, political unrest, and economic ambiguity have also boosted the dollar rate.
Similarly, the debt incurred by Pakistan is a sizable additional factor in raising the dollar rate in that country. Pakistan has one of the highest debt-to-GDP ratios in the world and has borrowed a significant amount of money from international financial institutions to meet its financial needs. The pressure from this borrowing has reduced the nation’s foreign exchange reserves and devalued its currency. The country’s economy has been severely impacted by the COVID-19 pandemic, necessitating a significant fiscal stimulus on the part of the government. This has further aggravated the situation. In Pakistan, the dollar rate has been rising steadily as a result of all these factors working together.
Simultaneously, inflation and price increases affect Pakistan’s politics as well as its economy. The opposition parties are using the government’s inability to control the price increase as a major issue to attack it and win over the public. The opposition parties are protesting and demonstrating against the government, accusing it of being responsible for the price increase. They contend that the general populace is suffering because the government’s policies have failed to control inflation. The price increase controversy is being manipulated by the opposition to advance their own political goals and turn the public against the ruling party.
The government, on the other hand, is making an effort to address the issue by implementing a variety of measures, including raising subsidies for necessities and lowering import taxes. However, the opposition parties are utilizing this failure to their advantage because these measures have failed to contain inflation. Similarly, the price increase has important political repercussions. Public support for the opposition parties is growing, while support for the government is eroding. If the government is unable to control the price increase, it may trigger more political unrest, demonstrations, and even violence.
Therefore, a price increase has far-reaching effects. The groups with lower incomes are most negatively impacted because they cannot afford the necessities of life. They are compelled to reduce their food intake as well as their health and education spending. The middle class is also suffering. After all, they must second-guess any major purchases because their purchasing power has significantly dropped.
In addition to economic issues, the price increase is also creating social ones. As they struggle to meet their basic needs, people are growing agitated and desperate. Riots, demonstrations, and protests against the government are being sparked by this annoyance. As people struggle more to make ends meet, inflation also causes a rise in the crime rate.
The government must act swiftly and effectively to stop the price increase. Controlling the hoarding and smuggling of essential commodities is the first step. Second, to lessen their reliance on imports, they must make investments in regional industries. Additionally, the government should prioritize economic expansion because it can result in more job opportunities and, ultimately, greater purchasing power for the average citizen.
The government needs to pay attention to it right away and take action. The stability of the nation’s social and economic systems is in jeopardy, and if the issue is not quickly resolved, it might fuel more unrest and instability. This issue requires both political and economic solutions. The public must see that the government is acting practically to control inflation by effectively communicating its policies to them. Furthermore, the opposition parties should cooperate with the government to find a solution rather than use the price increase issue for political purposes.
To address the issue, the government must take a comprehensive approach that includes both immediate and long-term actions. The private sector and civil society can both be crucial players in finding solutions to the issue. The only way the nation can hope to overcome the problem of price increases and guarantee a higher standard of living for its citizens is through collective effort.
The opposition parties should work with the government to find a solution to this issue, as the government must act quickly and effectively to control inflation. The common people’s lives are being impacted by the price increase, and resolving it will require a collaborative effort from all parties involved. The federal government ought to prioritize long-term economic plans that can boost employment opportunities, reduce reliance on imports, and promote sustainable economic growth. To encourage trade and commerce, the government ought to work on enhancing the infrastructure, such as the roads and communication systems.
Additionally, the government needs to take strict action against anyone hoarding, smuggling, or profiting from the situation in order to make extra money. In order to boost production and lessen reliance on imports, the government should also support local industries by offering incentives and support.
Vietnam’s macroeconomic policy and post COVID recovery
As per the latest IMF reports real Gross Domestic Product(GDP) of Vietnam in 2023 is estimated at 6.2 percent. This clearly shows that Vietnam has been avoiding the usual recessionary trends across the Asian markets and is showing better than average growth .With inflation rate being less than 4 per cent, it clearly shows that Vietnam is likely to emerge as a promising economy in Asia. According to the regional economic outlook which has been released by the IMF , it clearly projects that there are high expectations of uncharacteristic slow down in China benefitting competitors such as Vietnam, Philippines and Indonesia .
Asian Development Bank(ADB) has forecasted that Vietnam’s GDP was expected to grow by 6.5% in 2022 and nearly 6.7% forecasted for the year 2023. If one looks into the comparative forecast for countries in Southeast Asia it is stated that Philippines will grow by 6.3 per cent ,Cambodia 6.2 per cent ,Indonesia 5 per cent, Thailand 4.2 per cent , Laos 3.5 per cent ,and so on. If one looks into the core fundamentals of Vietnam following the COVID-19 pandemic, it has been clearly stated that Vietnam’s annual economic growth rate hovered between 6.3 per cent to 6.5 per cent for the decade preceding the current one.
One of the major aspects of this better than average economic growth was high foreign direct investment, increased domestic consumption, sizeable increase in the middle class, and Vietnam’s focus on promoting its manufacturing to be export oriented. In terms of other critical aspects Vietnam has been securing loans from many other international agencies over the past few years. With funding and grants from different international economic agencies ,Vietnam has been able to upgrade its road, rail transport and border connectivity infrastructure along with promoting social economic growth of nearly 243,000 people across the provinces.
One of the mainstays of Vietnam economy has been small and medium enterprises along with active participation of women.These enterprises have been getting bank credit and technical assistance through different initiatives such as public private partnerships, promotion of private sector development, and extensive reforms in state owned enterprises. Vietnam has been preparing well for facing the severity of climate change and also undertaking pilot projects for post disaster reconstruction and rehabilitation. It has institutional arrangements with World bank and Netherlands to develop resilience for the coastal areas particularly Mekong delta to undertake comprehensive efforts in mitigating the climate change effects.
Over a period of time Vietnam has been making serious efforts in emerging as a knowledge network society. This includes improving policy applications, enhancing capacities of stakeholders and providing information to the communities on a regular basis. Vietnam has also received more than USD $ 2 million grant for climate resilient inclusive infrastructure through high technology fund from ADB. In terms of meeting UN sustainable development goals, Vietnam has successfully provided electricity to its cent percent population.
It has been stated that Vietnam is one of the economies which is going to benefit from Regional Comprehensive Economic Partnership(RCEP) given the reduction in tariffs during the period 2020 to 2035 and because of these reductions the export of electrical equipment and machinery from Vietnam is going to grow to the level of 12.1% while the main stay of its exports primarily textiles and apparels are going to grow by nearly 10%. Given the fact that RCEP would facilitate Vietnam’s entry into high end markets such as Japan, Australia and New Zealand might translate into better trade revenues.
In fact better integration with regional economies would promote its sectors such as tourism, entertainment, education, agriculture, automobile telecommunication, and IT. Two different aspects have gained international attention because of Vietnam ranked 70th out of 190 countries in terms of ease of doing business, and its major strength has been the young population as nearly 70 per cent of its population is aged between 15 to 64. This large working population reduces social security liabilities to the aging population. Major work which has been done by the current Vietnamese government is its national strategy for Environmental Protection 2030 with a comprehensive plan under Vision 2050.
It is expected that Vietnam’s construction sector is going to grow because of increase spending on infrastructure projects along with improvement in regional connectivity through rail, road, and air transport infrastructure. There are high expectations that Vietnam tourism sector will post impressive recovery, and last year the country witnessed an increase of tourist arrivals by more than 185 per cent in the first four months of 2022. The tourism sector is going to increase further given the fact that Vietnam has signed a comprehensive agreement in boosting sustainable tourism and post COVID recovery at the national level. During the period 2022 to 2025 it is expected that the cumulative average growth rate of tourism would be 13.5% average each year .
As per the global data set and the General Statistical Office of Vietnam, the industrial production is also going to increase substantially and export orders as well as internal domestic demand is going to bring about remarkable improvement in production as well as exports. Last year, the G7 countries have agreed to grant a loan of US $5.5 billion for helping Vietnam transition from coal to other sources for power generation. This was based on the promise that Vietnam should make plans for shifting to nearly 50 per cent of its power requirements from renewable energy by the year 2030. It is also expected that foreign direct investment in Vietnam is going to be steady with high tech industries, knowledge based service industries, and education gaining the maximum investments. The real estate and construction sector are other sectors which are going to gain international attention.
This year it is expected that public investment would be helpful in post pandemic recovery and under the Socio Economic Recovery and Development Programme nearly US $15.4 billion has been approved for accelerating the economic growth. Furthermore, commodity exports is likely to see a remarkable two digit jump and the FTAs that Vietnam has signed with various partners will help in building the capacities of Vietnamese manufacturing sector in product transformation, exploring diversified markets, better restructuring, and skill development at different levels. The transformation is also happening in terms of fiscal and monetary prudence as well as undertaking reforms within banking system and financial governance. The anti corruption drive that the Vietnam has undertaken in the last few years have built the investor confidence and it is expected that Vietnam will reap the dividends of better business environment, market connectivity, and relatively comparative advantage among other competitors in Southeast Asia. As expected the fundamentals are getting stronger, and therefore Vietnam can witness a stronger economic growth and better macroeconomic stability in the year 2023.
Azerbaijan’s Favorable Climate for Foreign Investments
Azerbaijan, situated at the crossroads of Europe and Asia, presents investors with plentiful opportunities, chiefly in the area of oil and gas, tourism, and agriculture, as well as policies developed to stimulate foreign investment and enhance the investment environment. Furthermore, Azerbaijan invested in order to gain access to additional markets and strengthen its presence in the international economy, and the country has committed capital to sectors such as energy, real estate, infrastructure, and tourism.
Azerbaijan’s economy has seen an impressive rate of growth over the past decade. According to the World Bank, the country’s Gross Domestic Product (GDP) increased by 1.4% in 2020, despite the global pandemic. This serves as a testament to the fortitude of Azerbaijan’s economy, which has endured multiple economic disturbances in the past. Estimations suggest that Azerbaijan’s Gross Domestic Product is approximately $54 billion, with an average annual increase of 1.9% over the past four years. Azerbaijan has experienced a steady low rate of unemployment over the past decade, with an average of 5%, indicating a strong labor market and a prosperous business environment.
Azerbaijan has cultivated wise investments in fields that demonstrate promising growth and profitability. The efforts of the nation to broaden its economic base have proven successful, resulting in a decrease in its reliance on petroleum. Azerbaijan has achieved notable success in diversifying its economic base and diminishing its dependence on oil exports. The non-oil exports of Azerbaijan have been rising continuously in the recent years; as reported by the Azerbaijan Export and Investment Promotion Agency (AZPROMO), there was a 47.2% ($2713.40 million) and 12.3% ($3047.67 million) increase in 2021 and 2022 respectively. Between January and February of 2023, the country recorded an increase of 36.6% in non-oil export earnings, amounting to approximately $651.42 million, compared to the same period the year before.
Multinational corporations from around the world are highly eager to access Azerbaijan’s natural resources, mainly its oil and gas reserves. In 2020, Azerbaijan’s oil production reached 33.5 million tons, followed by 29.5 million tons and 32.8 million tons in 2021 and 2022 respectively, as reported by the State Oil Company of the Republic of Azerbaijan (SOCAR), thus placing the nation among the major oil-producing countries in the region. Oil production is projected to reach 35 million barrels in 2023. According to the Oil and Gas Journal, Azerbaijan has more than 2 trillion cubic meters of natural gas reserves, representing a significant opportunity for energy companies worldwide.
In 2020, Azerbaijan attracted a total of $4.5 billion in foreign direct investment (FDI):
Azerbaijan saw a 5.9% increase in Foreign Direct Investment (FDI) compared to the past year, which made it one of the most prominent FDI recipients within the Commonwealth of Independent States (CIS) area. In 2020, the United Kingdom, Turkey and the United States were the top three countries by FDI in Azerbaijan, with the United Kingdom contributing $1.7 billion, Turkey investing $577 million and the United States investing $475 million, according to the Central Bank of Azerbaijan.
Furthermore, the Sustainable Development Goals (SDG) Index reveals that Azerbaijan has made substantial strides in reaching the objectives that were put in place by the United Nations across multiple domains. According to the SDG Index, the rate of global poverty has decreased from 49.6% in 2010 to 5.9% by 2022. Azerbaijan’s Global Hunger Index (GHI) has seen a positive trend, decreasing from 14.5 in 2010 to 9.7 in 2019 and further to 7.5 in 2022. The citizens of the country have reaped the benefits of its efforts to bolster health and well-being, as evident by the increase in life expectancy from 68.6 years in 2010 to 73.3 years in 2022. Azerbaijan’s commitment to improving the standard of living for its people and promoting economic growth in a sustainable manner are reflective of its commitment to the achievement of the Sustainable Development Goals.
In 2019, Azerbaijan achieved a ranking of 25th place in the World Bank’s Ease of Doing Business report, which marks a notable enhancement of 32 places from the previous year and highlights a favorable business climate for foreign investors. In 2020, the World Bank’s Ease of Doing Business Report ranked Azerbaijan 34th among 190 countries, with a score of 76.7 for the ease of setting up a business.
Taking all factors into consideration, Azerbaijan is a highly attractive investment opportunity for a variety of industries, including energy, tourism, agriculture, and technology. In order to stimulate foreign investment, the government has put in place a variety of incentives to simplify the foreign investment process. Azerbaijan is an attractive option for investors to expand their investment portfolios and explore new markets due to its attractive business environment, strategic location, and robust economic growth. Moreover, Azerbaijan’s foreign investments have had a considerable influence on the nation’s economic growth. The country has leveraged investments to expand its portfolio and reduce its reliance on oil and gas industries, as well as to access novel markets.
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