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Services-led Growth Key to Nepal’s Green, Resilient, and Inclusive Development

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A gradual recovery is underway in Nepal, boosted by the lifting of containment measures as vaccination picks up and tourism and migrant worker flow recover. The economy is expected to grow by 3.9 percent in FY22, an improvement over 1.8 percent growth in FY21, but still below pre-pandemic growth averages, according to World Bank’s latest South Asia Economic Focus. 

In South Asia, recovery continues as global demand rebounded and targeted containment measures helped minimize the economic impacts of the recent waves of COVID-19. But the recovery remains fragile and uneven, and most countries are far from pre-pandemic trend levels, states the World Bank’s twice-yearly regional update. In Nepal, recovery is vulnerable to risks, and will rely on the continued gradual resumption of economic activities alongside social distancing and an effective vaccination rollout this year.

The latest South Asia Economic Focus titled Shifting Gears: Digitization and Services-Led Development projects the region to grow by 7.1 percent in 2021 and 2022. While the year-on-year growth remains strong in the region, albeit from a very low base in 2020, the recovery has been uneven across countries and sectors. South Asia’s average annual growth is forecast to be 3.4 percent over 2020-23, which is 3 percentage points less than it was in the four years preceding the pandemic.

“The pandemic provides the opportunity for countries to craft a recovery path that draws lessons from the crisis,” stated Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka. “Nepal recently adopted the Kathmandu Declaration as a joint commitment of the government and development partners towards the country’s Green, Resilient, and Inclusive Development (GRID). Mobilizing the private sector through green investment and support for small and medium enterprises with job growth potential in the services sector is a key part of Nepal’s GRID strategy.”

COVID-19 has left long-term scars on the region’s economy, the impacts of which can last well into the recovery. Many countries experienced lower investment flows, disruptions in supply chains, and setbacks to human capital accumulation, as well as substantial increases in debt levels. The pandemic is estimated to have caused 48 to 59 million people to become or remain poor in 2021 in South Asia. 

As countries build back, they have a chance to rethink their long-term development models. With the emergence of new digital technologies, South Asia has an opportunity to shift gears from a traditional manufacturing-led growth model and capitalize on the potential of its services sector.

The role of services in the region’s economy has been increasing amid rapid technological change and the accelerated structural transformation of global economic activity in response to the pandemic. The adoption of digital technologies makes services more tradable, enables services to increase productivity of other sectors—including manufacturing—and creates new markets. Some South Asian countries are increasingly providing business and professional services that add value to manufacturing and play a key role in global value chains. 

In Nepal, the pandemic has accelerated the growth of digital services, with the use of electronic payment transactions increasing by double digits. Growth in the services sector as a whole is expected to drive Nepal’s recovery, despite structural constraints such as slow domestic job creation, the country’s high vulnerability to natural disasters and climate change, and large infrastructure gaps.

Countries in South Asia have a strong comparative advantage in exporting services, particularly business processes and tourism, whereas they have struggled to break into manufacturing export markets,” said Hans Timmer, World Bank Chief Economist for the South Asia Region. “To realize the potential of the services-led development, the region needs to rethink regulations and establish new institutions to support innovation and competitiveness.”

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Strong Producer Organizations Key to a Vibrant Farming Sector

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Scaling up agricultural production among small farmers through clustering and organizing them into cooperatives and various types of producers’ organizations, and forging partnerships with agribusiness firms can help raise their incomes and subsequently spur the socio-economic transformation of the Philippine countryside.

A report titled “Realizing Scale in Smallholder-Based Agriculture: Policy Options for the Philippines” – launched jointly by the World Bank and the Department of Agriculture (DA) – said that there are rich lessons in the country and abroad for these clustering and consolidation of activities on-farm and along the value chain to succeed and transform the agricultural sector.

One notable example of this approach, the report said, is the Philippine Rural Development Project (PRDP), which is currently implemented by the DA. The PRDP clusters or organizes producers into enterprises that take a business-oriented approach to farming and fishing, supported through complementary investments in infrastructure such as farm-to-market roads, irrigation, post-harvest facilities, and cold storage.

“To succeed, efforts at clustering and consolidation needs to be voluntary, built on trust and confidence, and collaborative relationships among stakeholders—whether they are farmers, communities, municipalities, other local government units, or small and larger agribusiness enterprises,” said Ndiame Diop, World Bank Country Director Brunei, Malaysia, Thailand, and the Philippines.

“Where different approaches to clustering land management are not feasible, support for the mechanization of farming and post-harvest operations may be an alternative or complementary strategy for smallholder-based systems to increase farmer productivity and incomes, both on and off the farm,” Diop said.

Philippine agriculture is dominated by small farmers and fishers who operate independently, mostly using traditional production practices and earning low incomes. A typical farmer earns an average of P100,000 pesos each year, well below the poverty line (based on 2015 PSA figures).

Average farm size declined from three hectares (ha) per family per holding in the 1980s to only 0.9 ha per family per holding in 2012. These increasingly smaller farms are often split into more fragmented blocks. The country has some 5.56 million farms, totaling 7.2 million hectares, of which more than half (57 percent) are one ha or less, 32 percent are one to three ha, 9 percent are three to seven ha, and only two percent are seven ha or larger.

Agriculture Secretary William Dar has highlighted that using modern technology, schemes like block farming, trust farming, and contract farming can make farming more efficient and profitable for farmers and their partners in agribusiness ventures. With higher and better-quality production, linking agriculture to the domestic and global manufacturing sectors and accessing markets become easier, he said.

“Finding opportunities for clustering and consolidation of small and medium-sized farms as well as partnerships with agribusiness enterprises – to bring about economies of scale (and lower per-unit cost of production), particularly for crops that require mechanization and extensive use of technology – is part of the ‘new thinking’ of the Department of Agriculture,” said Secretary Dar.

“We want to collectively empower farmers, fisherfolk, and the private sector to increase agricultural productivity and profitability, taking into account sustainability and resilience,” the DA chief added.

Global experience shows that forcing collaboration among farmers and agribusiness enterprises through decree or subsidies (top-down approach) usually does not work but those that emerge from farmers’ bottoms up collective initiatives yield good results.

The report says that the country can explore various arrangements based on global experiences, including:

  • Realizing scale in primary production. In the Philippines, perhaps the most promising areas to pursue clustering can be among selected irrigation schemes where water user associations are already well established; and within Agrarian Reform Communities supported by the Department of Agrarian Reform.
  • Supporting market-oriented producer organizations. Encouraging the growth of cooperatives and producer organizations. In the East Asia region, Japan, South Korea, and Taiwan have had especially rich experiences promoting farmer groups or cooperatives.
  • Fostering contract farming, productive alliances, or other linkages between farmers groups and agricultural enterprises. These are well understood in the Philippines and can be scaled up.

Elsewhere in the region, contract farming has become increasingly common in some value chains, including value chains for specialized rice varieties or rice production systems.

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Saint Lucia Builds Investment Reference Guide to Boost Sustainable Development

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In partnership with the Government of Saint Lucia, the World Economic Forum is launching the Country Financing Roadmap for the SDGs. It aims to help Saint Lucia unlock sources of funding, remove investment bottlenecks and develop a more coordinated approach for financing projects that are environmentally friendly or can help people develop new skills.

The Country Financing Roadmap for Saint Lucia provides an overview of priority initiatives for leaders to assess and action project work – potentially saving money and helping to identify synergies across funding areas.

For example, the initiative brought together reskilling programmes with $12 million in total budget that can support the country’s economic recovery efforts – potentially supercharging efforts. These include a collaboration between the European Commission and Forte, to help 500–600 people develop skills related to hospitality, digital skills and green or blue economy by the end of 2022, at no upfront cost to the government.

Another project, the Caribbean Climate-Smart Fund initiative by the Rocky Mountain Institute (RMI) and Lion’s Head Global Partners (LHGP), is working towards mobilising both private and below market rate capital to finance a $80 million project pipeline dedicated to renewable energy in Saint Lucia.

“Finding viable solutions in the short, medium and long term to the myriad challenges that plague small island developing states (SIDS) like Saint Lucia is critical to safeguarding and putting the needs of our people first while achieving meaningful post-COVID socioeconomic recovery and implementing the Sustainable Development Goals,” said Wayne Girard, Minister in the Ministry of Finance, Economic Development and the Youth Economy, Government of Saint Lucia. “The CFR not only presents Saint Lucia with actionable options to unlock some of the financing and investment bottlenecks that limit sustainable development, it also presents a useful mechanism for replication across other SIDS in the Caribbean region. Saint Lucia is committed to continuing its work with the Sustainable Development Investment Partnership (SDIP), to advance a regional approach to driving our collective capacities to build back better.”

“Saint Lucia has demonstrated its commitment to meeting the SDGs by embarking on several important initiatives, with some of the most important focusing on financing targets,” said Sean de Cleene, Member of the Executive Committee of the World Economic Forum. “We hope that this CFR initiative will create opportunities for Saint Lucia and other countries to fast track similar impact projects.”

The CFR is a country-led initiative in collaboration with the Sustainable Development Investment Partnership (SDIP) and a joint initiative of the World Economic Forum and the Organisation for Economic Co-operation and Development (OECD). Its goal is drive economic recovery and achieve the Sustainable Development Goals by presenting viable solutions that address barriers to investment and attract greater sources of capital.

As a small island nation, Saint Lucia is vulnerable to economic shifts and continues to expand recovery efforts due to the consequences of the COVID-19 pandemic, which pushed the country to an 86.5% debt-to-GDP ratio for 2020. In 2019, tourism accounted for 80% of the nation’s labour market which faced a reduction in jobs from 63,400 in 2019 to 41,600 in 2020 as a result of the crisis, according to the World Travel and Tourism Council. Barriers to sustainable growth also hinge on the population’s dependence on fossil fuels which, through a successful transition to renewable energy, could increase self-sufficiency, equity, and environmental sustainability.

Alongside the CFR, the government in collaboration with the United Nations Office for Project Services (UNOPS) and the University of Oxford launched the Saint Lucia National Infrastructure Financing Strategy developed using the Sustainable Infrastructure Financing Tool (SIFT), which complements the CFR and further explores the opportunities for sustainable infrastructure financing in the country.

The Sustainable Development Investment Partnership plans to continue its support to the Government of Saint Lucia and regional organisations in hosting a series of discussions on reskilling and renewable energy solutions with over the next six months.

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World Bank Supports Croatia in Transforming Its Primary Education

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The World Bank Board of Directors today approved a loan to the Republic of Croatia in the amount of EUR25 million ($28.9 million equivalent) for a project to improve the learning environment in selected primary schools. 

The Croatia: Towards Sustainable, Equitable and Efficient Education Project (SEE Education) will support the Ministry of Science and Education’s (MSE) introduction of the Whole Day School (WDS) system in selected schools, which is designed to improve student learning outcomes, particularly among disadvantaged students, through increased instructional hours and improved teacher training and school infrastructure. Since school days will be better aligned with common working hours, young mothers and fathers, of children attending WDS will find it easier to participate in the labor market and thereby increase their earnings. The project will also strengthen the capacity of MSE to scale up the WDS system at the national level and to implement other needed sector reforms.

Croatia has committed to a set of sweeping reforms, outlined in the National Recovery and Resilience Plan (NRRP) 2021-2026, to modernize and improve the education system and respond to the learning challenges which have been further exacerbated by the COVID-19 pandemic and the two large earthquakes that struck Croatia in 2020.

“We are so pleased to partner with Croatia in this vital effort that will ultimately bring benefits to the whole Croatian society through better learning outcomes, higher labor force participation and increased productivity,” said Jehan Arulpragasam, World Bank Country Manager for Croatia and Slovenia. “The SEE project comes at a critical stage of the transformation of Croatia’s education system and will substantially improve educational opportunities for current and future generations of children, including those from disadvantaged backgrounds and vulnerable groups.”

The proposed project will support a systemic transformation of Croatia’s basic education sector. It will initially help to implement the WDS reform in 50 demonstration schools by providing both technical assistance and the needed infrastructure. The capacity built as a result of these efforts will help authorities to introduce the WDS model at the national level. The direct beneficiaries of the project will include approximately 32,500 students, their parents and teaching and administrative staff.

The project will also support the design of new infrastructure standards for Croatian schools, incorporating seismic resilience into building upgrades, and encompassing best practice OECD-EU climate, environment, and energy-efficiency standards, contributing to the European Green Deal agenda.

The World Bank has been a partner to Croatia for over 27 years. During this period, the Bank has supported more than 50 projects, worth almost US$5 billion, produced numerous studies, and provided technical assistance to help strengthen institutions and support the design of policies and strategies. The Bank’s current program focuses on mitigating the economic and social impact of COVID-19, post-earthquake reconstruction, transport, justice, innovation, business environment, land administration, science and technology, and economic development of the Pannonian region.

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