The COVID-19 crisis has disrupted two decades of steady growth and rising living standards in Indonesia, triggering the first recession in a generation and highlighting the need to improve skills, strengthen institutions and governance of state-owned enterprises, and reduce barriers to competition. Addressing these challenges, once the recovery is under way, will help build a stronger, more resilient, green and inclusive post-COVID-19 economy, according to a new OECD report.
The latest OECD Economic Survey of Indonesia says the recovery from the economic shock caused by COVID-19 will be gradual and subject to the evolution of the health situation, with considerable downside risks. Uncertainty will weigh on investment and tourism will likely stay depressed for some time. Support to households and firms should continue as long as needed, after which efforts should focus on bringing more workers into the formal economy, enhancing skills, and improving the business and investment climate.
“Indonesia is confronting its most severe challenge since the 1997 crisis. With the right reforms, Indonesia can harness the energy and talents of its young population and get the economy moving forward again,” said OECD Secretary-General Angel Gurría presenting the Survey at a virtual launch with Indonesia’s Finance Minister, Sri Mulyani Indrawati. “The OECD is here to help, with a fourth Joint Work Programme for 2022-24 which we hope will also serve to support Indonesia’s 2022 G20 Presidency.”
The Survey projects Indonesia’s GDP to rebound by 4.9% in 2021 and 5.4% in 2022 after a drop of 2.1% in 2020. This drop represents a 7 percentage point shortfall from the pre-crisis 2020 growth outlook of 5%, which will hurt many informal workers who have no social safety net. While income losses will weigh on consumption for some time, any pick-up in global trade would help Indonesian exporters, and improved business conditions from the recently approved Omnibus Bill for Job Creation could help spur domestic and foreign investment.
The pandemic cut short a sustained spell of economic growth that had seen GDP per capita rise from 19% of the OECD average in 2001 to 29% in 2019. Indonesia’s contribution to ASEAN GDP doubled over the same period from 17% to 35%. The current downturn could push up to 10 million people into poverty, adding to the 26 million classified as poor when the virus hit.
Even before the crisis, skills shortages and high youth unemployment were a concern. The Survey recommends stepping up vocational education and adult training, with an emphasis on digital skills. Better early childhood education can also improve later performance and help reduce inequalities. Moreover, getting more people – particularly women, internal migrants and foreign workers – into jobs will be key to mitigate the pressures of an ageing population.
The crisis has underscored the need for urgent action to address Indonesia’s low tax revenues. Poor tax compliance, generous exemptions and widespread reduced rates, with fewer than 8 million people paying personal income tax, meant Indonesia’s tax-to-GDP ratio was already just 11.9% in 2018, far below an OECD average of 34.3% and half as high as in G20 emerging economies. The government estimates tax revenues may have fallen by 20% in 2020. Once the economy is out of recession, raising more revenue from property taxes – which contribute just 2% of tax revenues versus 6% across the OECD – would help to address wealth inequality while contributing to local government budgets. Increasing selected tax rates – for example, on tobacco – as well as broadening the tax base, closing loopholes and improving compliance on sales taxes could also help to shore up revenues.
State-Owned Enterprises (SOEs) will play a vital role in the recovery. Despite the favourable operational conditions they enjoy, SOE performance is uneven and their rising debt represents a growing risk. The Survey recommends aligning SOE governance with global best practices, including keeping management and boards free of government interference, and implementing high standards of integrity, transparency and responsible business conduct. Simplifying regulations and lowering barriers to competition would help to attract private and foreign investors. Indonesia should also safeguard the independence and authority of its national anti-corruption commission (KPK) to ensure it can effectively detect, investigate and prevent misconduct.
The Survey also recommends redoubling efforts to improve environmental outcomes. Continued action to address deforestation in Indonesia – largely due to “slash and burn” clearing to cultivate palm – is key. This includes better protecting, rewetting and restoring peatlands and forests, and increasing resources for environmental protection, as well as establishing a carbon price.
African fisheries need reforms to boost resilience after Covid-19
The African fisheries sector could benefit substantially from proper infrastructure and support services, which are generally lacking. The sector currently grapples with fragile value chains and marketing, weak management institutions and serious issues relating to the governance of fisheries resources.
These were the findings of a study that the African Natural Resources Centre conducted from March to May 2020. The centre is a non-lending department of the African Development Bank. The study focused on the impact of the Covid-19 pandemic in four countries – Morocco, Mauritania, Senegal and Seychelles. The countries’ economies depend heavily on marine fisheries. The fisheries sector is also a very large source of economic activity elsewhere in Africa. It provides millions of jobs all over the continent.
The study dwells on appropriate and timely measures that the four countries have taken to avoid severe supply disruptions, save thousands of jobs and maintain governance transparency amid the ongoing global uncertainty and crisis.
Infrastructure shortcomings include landing facilities, storage and processing capacity, social and sanitary equipment, water and power, ice production, and roads to access markets.
Based on the findings, researchers made recommendations to strengthen the resilience of Africa’s fisheries sector in the context of a prolonged crisis, and looking ahead to a post-Covid-19 recovery.
The report strongly advocates for:
– Increased acknowledgment of the essential role of marine fisheries stakeholders and the right of artisanal fishermen to access financial and material resources.
– Strengthening the collection of gender-disaggregated statistical data in a sector that employs a vast number of women and youth.
– Establishing infrastructure and support services at landing and processing sites of fishery products, with priority access to water.
– Investing in human capital to ensure high-level skills in the different areas of fisheries management.
– Improving governance frameworks by encouraging the private sector and civil society to participate in formulating sectoral policies and resource management measures.
The study recommends urgent reforms to make marine fisheries more resilient and enable the sector to contribute sustainably to the wealth of the continent’s coastal countries.
Marine fisheries are a crucial contributor to food security and quality of life in Africa. Good nutrition is a key factor to quality of life, and the marine fisheries sector supports the nutrition of more than 300 million people, the majority of whom are children, youth and women. It also provides more than 10 million direct and indirect jobs.
Dominated by artisanal fishing and traditional value chains, the fisheries sector in Africa is mainly informal and is rarely considered in public policies or in assessing the wealth of countries.
Like other sectors, the African fisheries sector has been severely hit by the Covid-19 pandemic. Covid has affected supply markets and regional trade. This has resulted in substantial economic losses for most households that depend on fisheries.
Top Trends Impacting Global Economy, Society and Technology
The new technologies of the Fourth Industrial Revolution, such as artificial intelligence (AI), the cloud and robotics, are changing the way we live, learn and do business at a rate unprecedented in human history. This seismic shift is playing out in a world characterized by unreliable political landscapes and increasing environmental instability.
Scenario planning in this environment can be very difficult for businesses, affecting their ability to plan for the future, and properly assess the risks and opportunities that may present themselves. The Technology Futures report, released in collaboration with Deloitte, provides leaders with data analysis tools to scenario plan and forecast future technology trends.
“The rapid pace of technological change, alongside the global crisis caused by COVID-19, means that leaders today need new tools to understand challenges and develop strategies in the face of an increasingly uncertain future. This report provides three new analytical tools for business leaders to think about the future in a dynamic environment,” said Ruth Hickin, Strategy and Impact Lead, Centre for the Fourth Industrial Revolution, World Economic Forum.
“We are delighted to collaborate with the World Economic Forum to take a disciplined look into the future, particularly as we emerge from a world-altering event, like COVID-19,” said Mike Bechtel, Managing Director and Chief Futurist, US Consulting, Deloitte, and lead author of the report. “We hope that by providing a clearer picture of how today’s nascent technologies will impact our future, we can play a meaningful part in driving innovation, collaboration and economic growth that improves life for all people.”
The report breaks down future trends into four categories for business leaders and provides some examples of what is likely to remain constant in the years ahead.
- Information: With the volume of accessible data exploding and more of our personal lives lived online, the report projects the probable implications for remote learning, remote working and healthcare.
- Locality: Since the onset of COVID-19, even more of our interpersonal interaction is virtual and physical experiences have dwindled. The report projects more niche, readily available virtual experiences available to consumers.
- Economy: The report forecasts a growing likelihood that flexible and clean energy production will continue rising.
- Education: Personalized education will likely grow, along with the availability of digitized and virtualized content.
In addition to strategic modelling, the report gives leaders a baseline history of how the Fourth Industrial Revolution has progressed. It highlights just how fast technology is evolving and outlines one way risk management could evolve to better address and adapt to it.
South Asian Economies Bounce Back but Face Fragile Recovery
Prospects of an economic rebound in South Asia are firming up as growth is set to increase by 7.2 percent in 2021 and 4.4 percent in 2022, climbing from historic lows in 2020 and putting the region on a path to recovery. But growth is uneven and economic activity well below pre-COVID-19 estimates, as many businesses need to make up for lost revenue and millions of workers, most of them in the informal sector, still reel from job losses, falling incomes, worsening inequalities, and human capital deficits, says the World Bank in its twice-a-year regional update.
Released today, the latest South Asia Economic Focus: South Asia Vaccinates shows that the region is set to regain its historical growth rate by 2022. Electricity consumption and mobility data is a clear indication of recovering economic activity. India, which comprises the bulk of the region’s economy, is expected to grow more than 10 percent in the fiscal year 2021-22—a substantial upward revision of 4.7 percentage points from January 2021 forecasts.
The outlook for Bangladesh, Nepal, and Pakistan has also been revised upward, supported by better than expected remittance inflows: Bangladesh’s gross domestic product (GDP) is expected to increase by 3.6 percent in 2021; Nepal’s GDP is projected to grow by 2.7 percent in the fiscal year 2021-22 and recover to 5.1 percent by 2023; Pakistan’s growth is expected to reach 1.3 percent in 2021, slightly above previous projections.
The improved economic outlook reflects South Asian countries’ efforts to keep their COVID-19 caseload under control and swiftly roll out vaccine campaigns. Governments’ decisions to transition from widespread lockdowns to more targeted interventions, accommodating monetary policies and fiscal stimuli—through targeted cash transfers and employment compensation programs—have also propped up recovery, the report notes.
“We are encouraged to see clear signs of an economic rebound in South Asia, but the pandemic is not yet under control and the recovery remains fragile, calling for vigilance,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “Going forward, South Asian countries need to ramp up their vaccination programs and invest their scarce resources wisely to set a foundation for a more inclusive and resilient future.”
While laying bare South Asia’s deep-seated inequalities and vulnerabilities, the pandemic provides an opportunity to chart a path toward a more equitable and robust recovery. To that end, the report recommends that governments develop universal social insurance to protect informal workers, increase regional cooperation, and lift customs restrictions on key staples to prevent sudden spikes in food prices.
South Asia, which grapples with high stunting rates among children and accounts for more than half of the world’s student dropouts due to COVID-19, needs to ramp up investments in human capital to help new generations grow up healthy and become productive workers. Noting that South Asia’s public spending on healthcare is the lowest in the world, the report also suggests that countries further invest in preventive care, finance health research, and scale up their health infrastructure, including for mass and quick production of vaccines.
“The health and economic benefits from vaccinations greatly exceed the costs involved in purchasing and distributing vaccines for all South Asian countries,” said Hans Timmer, World Bank Chief Economist for the South Asia Region. “South Asia has stepped up to vaccinate its people, but its healthcare capacity is limited as the region only spends 2 percent of its GDP on healthcare, lagging any other region. The main challenge ahead is to reprioritize limited resources and mobilize more revenue to reach the entire population and achieve full recovery.”
The World Bank, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries respond to the health, social and economic impacts of COVID-19. This includes $12 billion to help low- and middle-income countries purchase and distribute COVID-19 vaccines, tests, and treatments, and strengthen vaccination systems. The financing builds on the broader World Bank Group COVID-19 response, which is helping more than 100 countries strengthen health systems, support the poorest households, and create supportive conditions to maintain livelihoods and jobs for those hit hardest.
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