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Economy

Economic Diplomacy in times of Pandemic

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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.

Economy

The Covid After-Effects and the Looming Skills Shortage

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coronavirus people

The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.

The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.

In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.

In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.

The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.

From our partner RIAC

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Economy

Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery

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Lunzu market in southern Malawi. WFP/Greg Barrow

Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.

Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.

I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.

In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.

Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.

However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people.  The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.

Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.

As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.

For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.

Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.

Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.

This op-ed first appeared in The Nation, via World Bank

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Economy

An Airplane Dilemma: Convenience Versus Environment

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Mr. President:  There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior.  For example, the decline in the use of automobiles has been to the benefit of the environment.  A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.

Yet there is hope.  We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort.  Such is also the belief of aircraft operators.  Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.

In short, the need for passenger planes has diminished while cargo operators face increased demand.  Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation.  All of which has led to a new business with new jobs — converting passenger aircraft for cargo use.  It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.

After the seats and interior fittings have been removed, the cabin floor has to be strengthened.  The side windows are plugged and smoothed out.  A cargo door is cut out and the existing emergency doors are deactivated and sealed.  Also a new crew entry door has to be cut-out and installed. 

A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space.  A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.

The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics.  At the end of it all, we have a cargo jet.  If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.

Airline losses have been extraordinary.  Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues.  This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.

For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes.  The latter also requires obtaining regulatory approvals.

A promising development for the future is sustainable aviation fuel (SAP).  Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.

It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing.  The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth.  All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.

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