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Russia-Europe: Nothing New on the Western Economic Front?

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Since the autumn of 2020, the “Navalny Factor” has dominated the public and political discourse on Russia-EU relations. This factor fitted snugly into Brussels’ system of values that defines Europe’s principal approaches to its largest partner in the post-Soviet space. The nadir in the political dialogue was reached in October 2020, with the European Union adopting anti-Russian chemical cyber sanctions; November–December saw a period of somewhat smoothing out the particularly sharp angles. Yet, this was followed by Alexey Navalny’s return to Moscow from Berlin in January 2021, his subsequent arrest and several court sentences passed on him, as well as what Brussels deems a largely failed Moscow visit of Josep Borrell, High Representative of the Union for Foreign Affairs and Security Policy. All this doomed Russia–EU relations to an even deeper low. In early March 2021, the “insulted and injured” EU Ministers of Foreign Affairs spearheaded the adoption of new restrictive measures in the Council of the European Union as part of the Framework of Global Human Rights Sanctions Regime instituted on December 7, 2020. In addition, Charles Michel, President of the European Council, announced an upcoming revision of the EU’s strategic approach to Russia.

Frozen dialogues

The pressing political crisis backgrounded economic relations that had traditionally formed one of the key foundations of Europe–Russia relations. Nord Stream 2 was an exception, as many in the European establishment are attempting to turn this commercial project into an instrument for putting political pressure on the Kremlin.

Seven years ago, in the spring of 2014, Brussels one-sidedly froze the principal mechanisms of its economic and political collaboration with Russia, including bilateral summits, a number of sectoral/industrial dialogues, and inter-governmental consultations between EU member states and Russia. Additionally, stiff sectoral sanctions were imposed on several leading Russian financial and industrial entities. The well-known Mogherini guiding principles adopted in March 2016 became, in Andrey Kortunov’s opinion, something of the lowest common denominator for the diverse standings of EU members, as these principles enshrined a compromise between hard- and soft-liners in managing relations with Russia. The main economic issues were hidden behind the concepts of “selective engagement” and “bolstering internal stability”. In the summer of the same year, Sergey Lavrov proposed auditing the relations with a view to finding which connections would allow to restore constructive cooperation. Five years later, this proposal still elicits no response from his European colleagues. Ultimately, Russia’s Ministry for Foreign Affairs began to describe the European Union as an “unreliable partner” that bases its approaches to Russia on its short-term interests. Apparently, this applies to the economic area as well, including the Eurasian Economic Union track.

Bilateral cooperation

Over recent years, economic cooperation has mostly shifted to Russia working with individual EU states, primarily those forming the backbone of its economic potential: Germany, the Netherlands, Italy and France. These four countries [1] account for over half the mutual foreign trade that, together with investments, constitute the foreign economic framework of Russia–EU relations. Despite exports and imports significantly dropping from USD 262 bn in 2019 to USD 192 bn in 2020, the EU remains Russia’s leading partner, ahead of China. Its 27 states (without the UK) now account for 37% of Russia’s trade turnover (42.5% in 2019, over 50% in 2013), while China accounts for 20% (18% in 2019, about 11% in 2013). The commodity composition has not changed much since 2014: in exchange for primary and secondary energy sources, Russia receives machinery and equipment. The restrictive measures did have a negative impact on mutual trade but it was rather limited. Actors from other states, particularly from Southeast Asia, are successfully moving into the sanctions-affected segments. Russia’s sluggish economic and political reforms remain a traditionally negative factor. Russia never accumulated a critical mass of competitive small- and medium-sized businesses. In addition to red tape and corruption, European business complains of protectionism and of the Russian authorities demanding product localization and import substitution. 2020 saw added complaints that anti-COVID lockdown restrictions hindered cross-border travel for highly skilled professionals.

Transport and logistics offer good prospects for joint activities. In 2020, despite the pandemic and despite disruptions in global supply chains in the spring, European and Russian companies managed to expand their co-operation‒primarily in providing rail and truck container shipping. Russia’s objective advantages as an overland transit space between China and Europe lay the foundations for a long-term cooperation within China’s Belt and Road Initiative. Cooperation in using transport routes via the Arctic Ocean shows promise as well.

As the number of European economic entities in Russia’s economy shrinks [2] during the 2020 pandemic in particular, EU companies have continued to invest directly in Russia. The number of Russian investors in EU states is also gradually rising. Unfortunately, there is no reliable data broken down by their quantitative, cost, sectoral and regional structure. Recent high-profile deals include founding the Wintershall Dea energy concern in Germany, 33% of which is owned by a Russian partner. Total accumulated FDI of EU companies in Russia is about three times Russia’s investment in Europe.

Being a commercial project, Nord Stream 2 remains the most significant stumbling block in Euro-Atlantic and intra-EU relations alike. Even though most EU politicians and experts recognize the project’s importance for European energy security and sovereignty, hardliners support the American extra-territorial sanctions and continue to insist that the project be shut down [3].The key context is grounded in the need to continue transit shipping of the bulk of Russian gas via Ukraine as a guarantee of the latter’s treasury continuing to receive foreign currency payments from Gazprom and of its gas pipeline system’s modernization. The arguments used here focus on the need to maintain European solidarity and counter “the Kremlin’s gas aggression and uncontrolled expansion.”

The energy track shows a particular need for resuming full-fledged Russia–EU relations. As of today, the Gas Advisory Council (GAC) is represented by expert Work Stream 2, “Internal markets”, co-chaired by Andrey Konoplyanik for Russia and Wim Groenendijk for the EU (established in 2011 to reduce infrastructural and regulatory risks in bilateral gas relations). Two other GAC work streams (“Long-Term Gas Scenarios” and “Outlooks and Developing Gas Transportation Infrastructure”) have virtually stopped working. At the same time, trilateral Russia–EU–Ukraine talks on Russian gas deliveries and transit via the Ukrainian gas pipeline system were launched in May 2014. In 2019, the participants reached a new five-year transit agreement.

“Green” challenges and economic cooperation opportunities

In December 2019, the EU adopted the European Green Deal, a strategy determining the parameters for transitioning to a new energy paradigm by 2050. This paradigm will largely inform the way the EU will interact with Russia in the coming decades. In 2020, the European Commission adopted additional documents setting forth specific directions of the new course in industrial policies and digital transformation, in hydrogen energy, critically important raw materials, energy-efficient construction and building modernization, the closed-cycle economy, agriculture and forestry, and biodiversity. The particulars are still being actively discussed in the European political and expert communities. In 2021–2022, a new legal framework will be adopted and requisite mechanisms launched on the basis of these discussions.

All the areas announced in the New Green Deal open new avenues for European and Russian economic entities in implementing various cooperation projects. Hydrogen energy in all its aspects appears to be the most intelligible area in terms of possible co-operation. These aspects include manufacturing, storing, transporting and using environmentally-friendly hydrogen, which, in Russia’s view, includes not only green but also blue, turquoise and yellow Н2. Last summer, the Eastern Committee of the German Economy (ECGE) and the Russian-German Foreign Trade Chamber (RGFTC) protested against Russia not having been mentioned in the German and European hydrogen strategies. These actions triggered movement and, by the autumn of 2020, a discussion had been launched on a series of bilateral entrepreneurial projects. Germany’s Federal Ministry for Economic Affairs and Energy and Russia’s Ministries of Energy and of Industry and Trade launched informal contacts in the area. Despite operational difficulties in using Н2 and hydrogen technologies, the Russian-German initiative has good prospects for promoting joint projects on the EU market, including the European Clean Hydrogen Alliance [4] In addition to big reserves of methane and fresh water, besides major surplus capacities of low-carbon hydropower plants and nuclear power plants generating cheap energy, coupled with the significant potential of renewable energy sources and unique Russian know-how (such as research conducted by the Technological Hydrogen Valley consortium established in November 2020), European stakeholders are interested in using Gazprom’s existing pipeline and storage infrastructure as well as in deliveries of various equipment, including that for hydrogen electrolysis and pyrolysis. In mid-February 2021, Denis Manturov, Russia’s Minister for Industry and Trade, speaking at a conference on Russia-Germany strategic cooperation, announced the intention to put hydrogen technologies on the list of priorities for second-generation special investment contracts.

Russia is extremely wary (adopts a de-facto negative stance) of the “carbon border adjustment mechanism” that entails imposing a tax on the “carbon footprint” of imported goods as part of the energy transition, which could result in multi-billion losses for Russian exporters of oil, gas, coal, steel and several other “carbon-intensive goods.” Moscow still has a chance to stand up for its interests, though the window for action is very small. It might be expedient to establish specialized expert groups on the issue, both in Russia and at the level of international multilateral dialogue, including by submitting the results of the discussion to the relevant UN agencies, including UNIDO and UNCTAD.

Let us note as an aside that the European Union is continuing to collaborate with Russia on a series of initiatives as part of long-term partnerships in climate and the environment: these are cross-border cooperation, the Northern Dimension programs, and partnerships for implementing the Paris Accords. Specific projects, including those in waste disposal and processing, wastewater treatment, increasing energy efficiency, entail equipment deliveries from the EU, which creates the prerequisites for cooperation in these areas. Bilateral initiatives implemented by Germany’s Federal Ministry for the Environment, Nature Conservation and Nuclear Safety and Russia’s Ministry for Natural Resources and the Environment also hold a special place in this process. These projects are, for instance, “Climate-neutral economic activities: introducing best available technologies (BAT) in the Russian Federation”, “Climate-neutral waste management” and “Peat bog restoration in Russia with a view to preventing fires and mitigating climate change”. In 2019, the parties agreed to resume the activities of the Russian-German Coordination Council on Environmental Protection. The German-Russian Agricultural and Political Dialogue has never ceased its activities; among other things, it works on forestry-related interactions.

Prospects

Another positive note is that Russian academic bodies can continue their collaboration with their EU partners under the 9th EU research and innovation framework program Horizon Europe, which runs until 2027. Some of the results obtained (such as in medicine, IT, digital, hydrogen and other technologies) might ultimately be put to commercial use. This applies fully to bilateral cooperation as well, for instance, cooperation with Germany: in late 2018, implementation was launched of a ten-year roadmap for academic and educational partnership.

Despite the evidently crying need to resume sectoral dialogues between Russia and the EU, this is unlikely to happen in the near future. The principal reason for this is a deep value-based conflict and a lack of progress in implementing the Minsk Agreements, which makes it impossible to put on the agenda the issue of lifting or at least mitigating the many restrictive measures introduced by the EU. In the near future, economic interaction will still be based on market entrepreneurial cooperation that partly relies on government and regional support instruments as well as on bilateral inter-agency mechanisms (such as the Russian-French Council for Economic, Financial, Industrial, and Trade Matters (CCIFR) and the Russian-German High-Level Working Group on Strategic Cooperation in Economy and Finance (JWG)).

An important role is played by interest groups; the above-mentioned Germany ECGE and RGFTC are traditionally seen as the most advanced of these. In addition to their own existing lobbying mechanisms, which have acquitted themselves well, in December 2020 these groups spearheaded the establishment of a German-Russian Economic Council. The French-Russian Chamber of Commerce and Industry, the Economic Council of French and Russian Enterprises, and the Russia-France Business Cooperation Council represent the interests of French companies, while Italian businesses are represented by the Italian-Russian Chamber of Commerce, with the European Business Association [5] standing for European businesses.

Russian business operating in the EU is essentially disorganized and can only count on the Russian state for support. We are mostly talking about Trade Missions, which were transferred in 2018 from the purview of the Ministry for Economic Development to that of the Ministry of Industry and Trade. Currently, the difficult process of reforming them is under way, and it will show whether they will be able to fit into the system that supports market interests of Russian businesses‒small- and medium-sized in particular‒on international markets, including those of Europe. We believe the activities of the Trade Mission in Berlin deserve special attention. On 6 May, it will celebrate its centennial. It has been active in introducing new instruments for co-operation with Russian economic actors. Internationally-based bodies of the Russian Export Centre are only now finding their way around European countries and seeking their niche in this area.

The current level of Russia’s bilateral interaction with EU states could advance preservation of their present potential and help achieve progress in some cooperation niches, including the European Green Deal. Russia’s negative image in the European media remains a powerful hindrance. This image is being formed, among other things, by the decisions of the European Council, including prolongation of existing sanctions and imposition of new ones. This picture makes small- and medium-sized businesses more wary of possible business ties with Russia and indefinitely postpones their willingness to establish contacts. Joint state formats, such as the Russian-French Cross Year of Regional Cooperation (2021), the Year of Germany in Russia (2020–2021) and the Russian-German Cross Year of Economy and Sustainable Development (2020–2022) are intended for countering these negative trends.

No breakthrough in Russia’s economic and political cooperation with EU states should be expected in 2021–2022. Co-operation dynamics will be informed by the EU’s successes in combating the coronavirus pandemic and by possible positive signals from the Russian regions to European and Russian business concerning planned steps for improving the framework state of the economy. As of the early spring of 2021, European entrepreneurs were mostly pessimistic. For instance, while the German business community positively assessed the prospects for their economic cooperation with China, the US and the Eurozone (a poll conducted by the German Chamber of Commerce and Industry (DIHT)) (with figures of +15, +11 and +6 points for bottom line expectations), the prospects for cooperation with Russia were mostly viewed negatively (-19 points). Unlike their parent companies, the top management of their Russian subsidiaries were more optimistic in late 2020 about the prospects for working in Russia (a poll conducted by the ECGE and the RGFTC). They particularly noted the importance of and the need for the EU to co-operate more closely with Russia on such matters on the bilateral agenda as industrial modernization and increased efficiency, waste processing and management, energy and climate, alignment of rules and standards. It is noteworthy that the respondents did not view such areas as space, mobility, and production of natural resources in 2021 as particularly significant.

In conclusion, I would like to refer to the opinion of Oliver Hermes, Head of the Eastern Committee of the German Economy, expressed at the 24th Potsdam Meetings in mid-November 2020 to the effect that only a powerful joint economic space stretching from Lisbon to Vladivostok would allow German and, consequently, European industry to pool the technological know-how and market potential of Western and Eastern Europe and Central Asia and become the leader in digital and green technologies in the future. He believes that specialized institutions need to be established right now to launch EU-EAEU talks on a single market. Yet, the signal sent to Brussels during Germany’s presidency of the Council of the European Union has so far fallen on deaf ears of the European Commission. Apparently, the time for a constructive response has not yet come.

From our partner RIAC

1. Germany is the backbone partner in Russia-EU relations who largely defines their qualitative and quantitative contents.

2 For instance, there were 4,274 legal entities with German capital in 2019, with 3,971 in 2020.

3 It appears that the EU failed in its attempts to introduce an effective mechanism for counteracting third countries’ extra-territorial sanctions by late 2020. See also Ivan Timofeev’s opinion.

4 Russian companies’ experience of interacting with the European Clean Hydrogen Alliance is interesting in terms of the participation by Russian actors in other similar alliances with the status of an “Important Project of Common European interest” (IPCEI)

5 The EU–Russia Industrialists Roundtable Association was established in 1997 and was active until 2014. It held its last events in 2015. Apparently, its participants are not interested in restoring this once-effective mechanism for discussing existing problems and possible solutions to them.

Ph.D in Economics, Deputy Director of the RAS Institute for Europe, Head of the Country and Regional Researches Department, Head of the German Research Center

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World Order Is Old Order: New World Order Is No Order

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The grand hallucinations: When there is any order, it always becomes visible as an orderly progression, when it is supposed to be a secret or an invisible order, then it is grand hallucinations for a cult of illusionists. Observe how the World Order is an old order, and notice how the new world order is no order. The random engagements in illusionary cultish acts of chaos sold as order. Fakery sold and resold as victory, illusions pushed as hallucinations of success. Courage is needed to see the big magical acts of grand hallucinations.

The feel of afternoon-high: Across the world, free economies are already bent, twisted or broken, while procedures, policies and laws, everything on sale for the right price. Mighty-money, delivered crisply stacked, shrink-wrapped as freshly printed solutions, to buy more chaos, spread misery and create the economic hallucinations and stage the smoke and mirrors, all without any totals, balances or columns. Sold to feel a real afternoon-high.

The interchange: When integrity gone, fakery dominates, when real value-creation gone value-manipulation regulates, when vision gone illusions thrives, when national economics gone hallucinations declared as great success and reality interchanges to fakery.  

The elasticity left: Needed across the free economies of the world, no further proof required, a total change, no further verification needed, as political power no longer economical power, no further help needed, as most nations in need of basic diaper change. Visible damage to skills and competency, inability to understand and articulate the real problems with grassroots solutions is now a big tragedy of our times. Nations already stretched via rubber band economy, some with elasticity left before going bust.

The truth: Which nation has the capacity to face the truth? Which nation can fix itself not just top reshuffle, but rather from top to bottom to the real core? Which nation can uplift its citizenry to stand up to global age skills and cope with global speed and competitiveness? Which nation is capable of understanding and has the right to mobilize its hidden national entrepreneurialism and provide a future for the next generation?

No electricity and missing bulbs: Is there any value left in the most cherished Machiavellian style political power without ever creating any economic power? Is there any remaining value in economic power play of today without entrepreneurial growth models? What good are economies when stuck in waste paper baskets still without digitization like a nation being without electricity? What real economic value is created when odd mindsets playing with economic development procedures like creating light but with no bulb?  

Welcome to cold facts and warm realties.

The branded nations: Why each and every single nation of our planet is now branded every single day of the year? Like it or not, agree with what is said, disagree with what gossiped, simple fact of the day,  each nation is branded, between each sunrise and sunset. Here is some advanced level insight for the national leaderships on global corporate communication challenges, as what may be altering their efforts on global affairs, what might mold their global trades as the deep undercurrents of global ‘likes’ and ‘dislikes’ from the global populace shape their national global image and rate of popularly and any level of respect on world stage.

The global opinion: Observe how fast the world changed, how the ocean of “global opinion” is now drowning ponds of “national opinion”. Notice, nations already intoxicated, in joy over the popularity of their own national opinion, while having just an opposite global opinion on the world stage. What does this mean to a nation’s image supremacy, how does this translate into economic impacts? Why is any global opinion of any kind important anyway? Be cautious, if such important topics are not discussed in your boardrooms, check out the restrooms.

The fabric of humankind. Every huge, little, deadly, serious or funny incident of any kind, becomes ‘alive’ in global social media, where despite all controls its is processed with common sense with common emotions, commented and circulated around the world, many times, registered, measured, analyzed, criticized and humanized as good, bad or ugly in the minds of the global populace.  No one can stop it. Facing truth is now a new global challenge of moral strength, something that increasingly demands insight and awareness. Shunning, arguing or defending and fighting has little or no power, as the real power hidden is in critical thinking to solve common good, humankind issues.   

The 200 nations, now under their own global digital spell, responding, and adjusting their own feedback and updating reality checks, influenced by the five billion, connected populace driving the world opinion.  The voices are no longer the big old-media, as they have already lost their credibility and power,  but across the world the new known and unknown big and small clusters of people sharing their thoughts amongst their local and global connectivity and surroundings. The truth rises, because this is how the critical needs for common good and social justice advances. The fabric of humankind stretches, starts to cover all nations.

Weaponization of Ideologicalism:  Why are most nations increasingly unable to control their restless citizenry? How much more will the citizens of these nations, continuously influenced by the global opinion, facing common sense, chasing truth, turning internal tribalism, into cultural wars defining limits of ideologies, as Weaponization of Ideologicalism slowly ripping local social fabric and crushing economies. Where are the repairmen, where are the solutions, which leadership is ready to articulate and bring national mobilization of entrepreneurialism as an untapped national treasure. Which nation is ready to face reality and show their advanced skills?

The aimless directives: When nations appear aimlessly drifting into hallucinations, the lack of vision, absence of social justice, unable to control internal tribalism, cultural wars move to ideological wars. Nations fragmented and splintered, now facing street by street mental wars. The visible lack of skills at the top management, lack of speed of execution at middle level and the absence of any motivation at remaining workforces now seriously limits all new options.

The coming revolution: The next global revolution, driven by economic chaos based on social failures, while the middle classes already disappeared, may not be about the mobs of commoners with broom-sticks but most likely the imploding calm and silent systemic collapse of bureaucratic administrative blockades and fall of economic intellectualism for destroying the fabric of humankind.

The absence of dialogue, only proves lack of real pragmatic solutions, skills and competence. Electioneering, sloganeering and fakery of wars to remain in power with no real economic solution, in global opinion a colossal failure.  Therefore, “Self Mastery” urgently needed to differentiate between a mesmerized mind with an enlightened one will possibly be a way to face the new challenges. Economies will only improve when old methodologies declared broken

The new world order: No other time in the history of civilization, so many globally connected will hold responsible the so few in power for destroying the remains of world order and bringing the world to a nuclear war.  A war, suggested to eliminate five billion people. It is possible, the coming revolutions to be less about anarchy but more about establishing real meritocracy. The need to search, find and strive for real value creation to answers grassroots prosperity affairs and eliminate lingering bureaucracies with fermented layers of incompetency. How soon will the five billion connected reach a critical point to select the right players with right policies and declare common good the new ultimate goals? This may eventually lead to a new world order. Pandemic was just a sneeze, economy, now like a hole in the empty pocket, leadership like a circus show, while billions looking up. Acquire mastery. Get ready for major global shifts of major economic behaviorism. The rest is easy. 

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Mosul’s recovery moves towards a circular economy

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Five years since the end of the ISIL(so-called Islamic State in Iraq and the Levant) conflict in 2017, the International Organization for Migration (IOM) in Iraq and the UN Environment Programme (UNEP), with funding from the Government of Japan, has established a debris recycling centre in Mosul. After its initial use, the centre has now been handed over to Mosul Municipality for its continued, sustainable operation.

“On behalf of the Iraqi Government, the Ministry of Environment expresses its gratitude to the Government of Japan for generously supporting this important project and to UNEP and IOM for enabling the sustainable management of the huge quantities of conflict debris and restabilization of the liberated areas in an environmentally sustainable manner,” said Iraq’s Minister for Environment, Dr. Jasim Abdulazeez Humadi.

The handover of the Mosul debris recycling centre marks a significant step in the sustainable management of the huge volumes of debris — an estimated 55 million tonnes — created by the ISIL conflict. It also opens the way for the recycling of routine construction and demolition waste, contributing to ‘building back better’ and an increased circularity in Iraq’s development.

UNEP West Asia Regional Director, Sami Dimassi, emphasized that “by reducing waste, stimulating innovation and creating employment, debris recycling also creates an important business opportunity.” Indeed, construction companies in Mosul have expressed interest in purchasing the recycled aggregate, thereby underscoring the longer-term sustainability of debris recycling.

“This project supports recovery and livelihoods by drawing on principles of a circular economy, wherein waste and land pollution is limited through production processes that reuse and repurpose materials for as long as possible,” explained IOM Iraq Chief of Mission, Giorgi Gigauri. “Collaboration and sustainability are key priorities in IOM’s work toward durable solutions to displacement, and we are pleased to have partnered with UNEP and the Government of Japan so that this is represented not only in the function of the plant itself, but also in its functioning, by supporting local authorities to be prepared to effectively operate the plant moving forward.”

On 28 July 2022, Mosul Municipality hosted an event to officially hand over the debris recycling centre, attended by senior government officials and academia, as well as representatives from IOM, UNEP and the United Nations Assistance Mission for Iraq (UNAMI).

Masamoto Kenichi, Charge d’Affaires, Embassy of Japan to Iraq stated: “We are glad to know that the project funded by the government and people of Japan has contributed to cleanup of debris and reconstruction of Mosul. We would like to commend UNEP, IOM and the city of Mosul for their tremendous efforts of turning the legacy of ISIL’s devastation into building blocks of reconstruction”.

Through the rubble recycling project, nearly 25,000 tonnes of debris have been recovered and sorted, of which around half was crushed into recycled aggregate. Material testing of the recycled aggregate endorsed by the National Center for Structural Tests of the Ministry of Planning confirms its compliance with the Iraqi State Commission for Roads and Bridges design standards for road foundational layers and its suitability for several low strength end-use applications such as concrete blocks and kerbstones.

The project created 240 much-needed jobs through cash-for-work schemes targeting vulnerable persons, including 40 women.

Building on this experience, IOM has set up two other debris recycling operations in Sinjar and Hamdaniya in Ninewa Governorate, and a third in Hawija in Kirkuk Governorate, where a pilot phase using a mobile crusher was implemented in al-Buwaiter Village in 2021. In addition, two other conflict-affected governorates — namely Salah al-Din and Anbar — have  also shown a high-level of interest in replicating and scaling up debris recycling in their own regions. 

UNEP has been supporting Iraq in cleaning up the huge volumes of debris created by the ISIL conflict since June 2017. Initially, this included carrying out technical assessments and planning workshops with UN-Habitat, and subsequently designing and implementing debris recycling pilot projects to support returns in Mosul, Kirkuk and other conflict-affected areas in cooperation with IOM.

UNEP

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Digital Futures: Driving Systemic Change for Women

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Authors: Erin Watson-Lynn and Tengfei Wang*

As digital technology continues to unlock new financial opportunities for people across Asia and the Pacific, it is critical that women are central to strategies aimed at harnessing the digital financial future. Women are generally poorer than men – their work is less formal, they receive lower pay, and their money is less likely to be banked. Even when controlling for class, rural residency, age, income, and education level, women are overrepresented among the world’s poorest people in developing countries. Successfully harnessing digital technology can play a key role in creating new opportunities for women to utilise formal financial products and services in ways that empower them. 

Accelerating women’s access to the formal economy through digital innovations in finance increases their opportunity to generate an income and builds resilience to economic shocks. The recently issued ESCAP guidebook titled, Harnessing Digital Technology for Financial Inclusion in the Asia Pacific, highlights the fact that mechanisms to bring women into the digital economy are different from those for other groups, and that tailored policy responses are important for women to fully realise their potential in the Asia-Pacific region.

Overwhelmingly, the evidence tells us that how women utilise their finances can have a beneficial impact on the broader community. When women have bank accounts, they are more likely to save money, buy healthier foods for their family, and invest in education. For women who receive Government-to-Person (G2P) payments, there is significant improvement in their lives across a range of social and economic outcomes. Access to safe, secure, and affordable digital financial services thus has the potential to significantly improve the lives of women.

Despite the enormous opportunity, there are numerous constraints which affect women’s access to financial services. This includes the gender gap in mobile phone ownership across Asia and the Pacific, lower levels of education (including lower levels of basic numeracy and literacy), and lower levels of financial literacy. This complex web of constraints means that country and provincial level diagnostics are required and demands agile and flexible policy responses that meet the unique needs of women across the region.

Already, across Asia and the Pacific, governments are implementing innovative policy solutions to capture the opportunities that come with digital finance, while trying to manage the constraints women often face. The policy guidebook provides a framework to examine the role of governments as market facilitators, market participants and market regulators. Through this framework, specific policy innovations drawn from examples across the region are identified which other governments can adapt and implement in their local markets.  

A good example of how strategies can be implemented at either the central government or local government levels can be found in Pakistan. While central government leadership is important, embedding tailored interventions into locally appropriate strategies plays a crucial role for implementation and effectiveness. The localisation of broader strategies needs to include women in their development and ongoing evaluation. In the Khyber Pakhtunkhwa province, 50,000 beneficiary committees comprising local women at the district level regularly provide feedback into the government’s G2P payment system. The feedback from these committees led to a biometric system linked to the national ID card that has enabled the government to identify women who weren’t receiving their payments, or if payments were fraudulently obtained by others.

In Cambodia and the Philippines, governments have implemented new and innovative solutions to support remittance payments through public-private-partnerships and policies that enable access to non-traditional banks. In Cambodia, Wing Money has specialised programs for women, who are overwhelmingly the beneficiaries of remittance payments. Creating an enabling environment for a business such as Wing Money to develop and thrive with these low-cost solutions is an example of a positive market intervention. In the Philippines, adjusting banking policies to enable access to non-traditional banking enables women, especially those with micro-enterprises in rural areas, to access digital products.

While facilitating participation in the market can yield benefits for women, so can regulating in a way that drives systemic change. For example, in Lao People’s Democratic Republic and India, different mechanisms for targets are used to improve access to digital financial products. In Lao People’s Democratic Republic, the central government through its national strategy, introduced a target of a 9 per cent increase in women’s access to financial services by 2025. In India, their targets are set within the bureaucracy to incentivise policy makers to implement the Digital India strategy and promotions and job security are rewarded based on performance.

These examples of innovative policy solutions are only foundational. The options for governments and policy makers at the nexus of market facilitation, participation and regulation demands creativity and agility. Underpinning this is the need for a baseline of country and regional level diagnostics to capture the diverse needs of women – those who are set to benefit the most of from harnessing the future of digital financial inclusion.

*Tengfei Wang, Economic Affairs Officer

This article is the second of a two-part series based on the findings of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) Policy Guidebook: Harnessing Digital Technology for Financial Inclusion in Asia and the Pacific, and is jointly prepared by ESCAP and the Griffith Asia Institute.source: UNESCAP

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