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Palestinian Economy Experiences Growth but Prospects Remain Uncertain

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The Palestinian economy is showing signs of recovery largely due to improved activity in the West Bank, according to a new World Bank report. However, Gaza still suffers from a particularly difficult economic situation with very high unemployment and deteriorating social conditions. In the current economic context, the outlook is uncertain as sustainable sources of growth remain limited.

The Palestinian Economic Monitoring Report to the Ad Hoc Liaison Committee (AHLC) will be presented on November 17, 2021, in Oslo Norway, during a policy-level meeting for development assistance to the Palestinian people. The report highlights the critical challenges facing the Palestinian economy in general and more specifically Gaza’s economic performance and development needs.  

The current consumption-led growth in the West Bank reflects a rebound from a low base in 2020, exacerbated by the COVID-19 crisis. The economy still suffers from restrictions on movement, access, and trade– the biggest impediment to investment and access to markets. It also lacks growth drivers for sustained positive impacts on the economy and quality of life. The way ahead is still uncertain and depends on coordinated actions by all parties in revitalizing the economy and providing job opportunities for the young population,” said Kanthan Shankar, World Bank Country Director for West Bank and Gaza. 

Business activity has gradually rebounded as a result of a decline in new COVID cases, the progress of the vaccination campaign, and ease of lockdowns. The improved economic performance was fully driven by the West Bank while Gaza’s economy remained almost stagnant impacted by the 11-day conflict in May. Growth reached 5.4 percent in the first half of 2021 and is expected to reach 6 percent this year. However, growth in 2022 is expected to slow to around 3 percent as the low base effect weakens and as sources of growth remain limited.

The Palestinian Authority’s (PA) fiscal situation remains very challenging. Despite an increase in fiscal revenues, public spending grew at the same rate and aid reached a record low. Additional deductions by the Government of Israel (GoI) from the monthly taxes it collects on behalf of the PA (clearance revenues), added to the fiscal stress. After accounting for the advance payment given to the PA on clearance revenues by the GoI, and donor financing, the PA’s deficit is expected to reach US$1.36 billion in 2021. The PA may encounter difficulties in meeting its recurrent commitments toward the end of the year. No longer able to borrow from domestic banks, the PA may be forced to accumulate further arrears to the private sector, pulling away more liquidity from the market.

The projected gap remains very large. In the immediate term, the report calls on donors to help reduce the budget deficit and the GoI to address some of the fiscal leakages that remain outstanding. For example, the Israeli civil administration collects tax revenues from businesses operating in Area C and the GoI collects exit fees at Allenby Bridge, but there has not been systematic transfer of these revenues to the PA as requested by the signed agreem3ents. Releasing some of these funds would provide much needed quick financing in these difficult times. Beyond the immediate priorities, efforts should be exerted by the PA to place the fiscal stance on a more sustainable path through widening the tax base, better management of the generous public pension system and health referrals and improving of the regulatory environment to be more favorable for investment and private sector growth. 

The report also examines the accumulated effects of years of blockade on Gaza’s economy, which is currently a fraction of its estimated potential. Gaza’s contribution to the overall Palestinian economy was cut by half over the past three decades, narrowing to just 18 percent currently. Gaza has also undergone deindustrialization and its economy has become highly dependent on external transfers. Moreover, Gaza’s economic decline has had a severe impact on living standards with an unemployment rate of 45 percent and poverty reaching 59 percent as a result of the 11-day conflict and worsening COVID-19 conditions. Gaza’s citizens suffer from poor electricity and water-sewerage availability, conflict-related psychological trauma, and limited movement.

The dire living conditions and the high dependency on social assistance of the people of Gaza is of particular concern. Concerted efforts by all sides are needed to address the needs identified in the Gaza Rapid Damage and Needs Assessment (2021) led by the World Bank, EU, and UN to support reconstruction, and reverse the declining trajectory of Gaza development and quality of life,” added Shankar.

Priority actions require increasing electricity supply and upgrading infrastructure and networks to enable economic growth and improve public services. This includes bringing natural gas to Gaza to unlock the renewable energy potential. With only one percent of the population having access to improved drinking water and limited wastewater treatment, there is an urgency to restore universal access to an improved water supply and to treat 95 percent of wastewater produced in Gaza. Efforts to restore connectivity of Gaza to the West Bank economy and external markets are critical, including issuing business permits to Gazan traders and easing the restrictions on dual-use inputs to production. It is also necessary to allow universal access to digital connectivity that will help connecting people and the economy to regional and global markets. It is then critical to introduce at least 3G mobile broadband in Gaza within a clear timeframe and ease restrictions on the entry of ICT equipment. 

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Small Business, Big Problem: New Report Says 67% of SMEs Worldwide Are Fighting for Survival

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Small- and medium-sized enterprises (SMEs) and mid-sized companies are the backbone of the global economy. They create close to 70% of jobs and GDP worldwide. But, amid warnings of a global recession, research from the World Economic Forum and the National University of Singapore Business School indicates that 67% of executives from SMEs cite survival and expansion as their main challenge.

They mention low margins, the challenge of scaling the business and expanding to new markets, and clients/consumers as the main pressure points.

The report, Future Readiness of SMEs and Mid-Sized Companies: A Year On, looks at companies emerging from the pandemic. It builds on analysis of over 200 peer-reviewed articles and the quantitative and qualitative surveying of about 800 leaders and executives from SMEs and mid-sized companies. Business leaders also cite talent acquisition and retention (48%), culture and values (34%), funding and access to capital (24%), as well as non-favourable business policy environments (22%) as their biggest challenge.

The report also identifies pragmatic ways for smaller companies to embed future readiness into corporate strategies and highlights sustainability and digital transformation as two overlooked challenges. It focuses on how smaller companies can boost their resilience through stronger business frameworks. It also highlights how their high level of agility can benefit the development and implementation of:

– A strategic approach to talent management

– A staged approach to digital transformation

– Specific sustainability measures depending on the company’s level of maturity in this space

While smaller companies can increase their future readiness, the wider policy environment – such as the infrastructure for digital trade and finance – has a direct and important impact on their ability to thrive. It is, therefore, key for policy-makers, investors and other stakeholders to do what is in their capabilities to contribute to building the future readiness of this segment of the economy.

“The business community is stepping up to tackle the biggest issues facing the world. SMEs and mid-sized companies are key enablers in this pursuit. This report sheds light on some key opportunity spaces for SMEs and mid-sized to do exactly that,” said Børge Brende, President, World Economic Forum.

Rashimah Rajah, Professor at the National University of Singapore and co-lead author of the report, added: “SMEs and mid-sized companies have unique strengths in their ability to pivot their business models to be more future ready and, by hiring and developing the right talent, they can mobilize positive internal and external change faster than larger companies. However, to fully realize their potential, they also need the support of policy-makers in recognizing their credentials as well as in rewarding sustainability initiatives.”

The report was developed in collaboration with the National University of Singapore Business School, as well as with expert contributions from UnternehmerTUM, Aston Business School, TBS Education, the Aspen Institute, Asia Global Institute and the International Chamber of Commerce.

The World Economic Forum will be leveraging the insights generated in this report to further support SMEs and mid-sized companies in their future-readiness journey. This will be done through the creation of additional resources including the continuous development of the Forum’s self-assessment and benchmarking tool on future readiness, as well as the creation of a space for informal peer-to-peer learning between companies as well as meet-ups with key experts.

With some of the key insights of the report coming from the New Champions Community, the Forum aims to amplify the voices of purpose-driven mid-sized businesses. This community and its more than 100 members share and learn from best practices, proven innovations and support new partnerships for the common good in the mid-sized landscape.

The Forum is now accepting applications from forward-looking mid-sized companies that are pioneering new business models, emerging technologies and sustainable growth strategies.

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A Greener Cooling Pathway Can Create a $1.6 Trillion Investment Opportunity in India

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A new World Bank report finds that as temperatures steadily rise in India due to climate change, keeping spaces cool using alternative and innovative energy efficient technologies can open an investment opportunity of $1.6 trillion by 2040.  This also has the potential to reduce greenhouse gas emissions significantly and create nearly 3.7 million jobs.

India is experiencing higher temperatures every year. By 2030, over 160-200 million people across the country could be exposed to lethal heat waves annually. Around 34 million people in India will face job losses due to heat stress related productivity decline.  The current food loss due to heat during transportation is close to $13 billion annually.  By 2037, the demand for cooling is likely to be eight times more than current levels. This means there will be a demand for a new air-conditioner every 15 seconds, leading to an expected rise of 435 percent in annual greenhouse gas emissions over the next two decades.

The report, “Climate Investment Opportunities in India’s Cooling Sector” finds that shifting to a more energy efficient pathway could lead to a substantial reduction in expected CO2 levels over the next two decades.

“India’s cooling strategy can help save lives and livelihoods, reduce carbon emissions and simultaneously position India as a global hub for green cooling manufacturing,” said Auguste Tano Kouamé, the World Bank’s Country Director in India. “The report suggests a sustainable roadmap for cooling that has the potential to reduce 300 million tons of carbon dioxide annually by 2040.

Recognizing this challenge, India is already deploying new strategies to help people adapt to rising temperatures. In 2019, it launched the India Cooling Action Plan (ICAP) to provide sustainable cooling measures across various sectors, including indoor cooling in buildings and cold chain and refrigeration in the agriculture and pharmaceuticals sector and air-conditioning in passenger transport.  Its aim is to reduce the demand for cooling by up to 25 percent by 2037-38.

The new World Bank report proposes a roadmap to support the ICAP’s new investments in three major sectors: building construction, cold chains, and refrigerants.

Adopting climate-responsive cooling techniques as a norm in both private and government-funded constructions can ensure that those at the bottom of the economic ladder are not disproportionately affected by rising temperatures. The report suggests that India’s affordable housing program for the poor, the Pradhan Mantri Awas Yojana (PMAY), can adopt such changes on scale. This could benefit over 11 million urban homes and over 29 million rural houses that the government aims to construct.

The report also recommends private investments in district cooling technologies. These generate chilled water in a central plant which is then distributed to multiple buildings via underground insulated pipes. This brings down the cost for providing cooling to individual buildings and can reduce energy bills by 20-30 percent compared to the most efficient conventional cooling solution.

To minimize rising food and pharmaceutical wastage during transport due to higher temperatures, the report recommends fixing gaps in cold chain distribution networks. Investing in pre-cooling and refrigerated transport can help decrease food loss by about 76 percent and reduce carbon emissions by 16 percent.

India aims to phase out the production and use of ozone-depleting hydrochlorofluorocarbons, used as coolants in air conditioners and refrigerators by 2047. The report recommends improvements in servicing, maintenance and disposal of equipment that use hydrochlorofluorocarbons, alongside a shift to alternative options with a lower global warming footprint. This can create 2 million jobs for trained technicians over the next two decades and reduce the demand for refrigerants by around 31 percent.

“The right set of policy actions and public investments can help leverage large scale private investment in this sector. We recommend that these moves be accelerated by creating a flagship government mission to address the challenges and opportunities from rising temperatures in India,” say the authors of the report, Abhas K. Jha, Practice Manager, Climate and Disaster Risk Management, South Asia and Mehul Jain, Climate Change Specialist, World Bank.

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Pandemic Recovery Efforts Trigger New Energy Access Policies

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Two years of pandemic have highlighted the vulnerability and isolation of populations without electricity and have prompted countries to increase their focus on energy access and affordability, finds a new World Bank report on energy policies and regulations. The 2022 edition of the RISE (Regulatory Indicators for Sustainable Energy) report shows that many countries have embedded new policies to improve their energy independence and minimize energy costs in their COVID-19 recovery plans.

“Confronted with multiple crises, now more than ever countries are recognizing the urgency of connecting their populations to sustainable, affordable and resilient energy sources,” said Riccardo Puliti, World Bank Vice President for Infrastructure. “Clear policy frameworks and planning enable governments to map out their energy strategies and to provide the predictability and transparency needed to attract investments.” 

According to the bi-annual report that evaluates energy policies and regulatory frameworks across a set of indicators, the pandemic  was a strong trigger: nearly half of the 140 surveyed countries in each region included new policies to minimize disruptions to electricity access, quality, and affordability in their COVID-19 recovery packages.

Many governments improved their electricity access policies, with Sub-Saharan Africa and Latin America and the Caribbean scoring the highest on this indicator. This included the two largest energy access-deficit countries—Nigeria and Ethiopia— which showed noteworthy progress thanks to policy and regulatory measures on electrification planning, frameworks for mini grids and off-grid systems, and consumer affordability of electricity.

And the number of countries with advanced mini-grids policy frameworks more than doubled between 2019-2021, reflecting how mini grids and solar home systems are now widely viewed as sufficient substitutes for grid extension. Over 40% of countries surveyed offered publicly funded financing options to secure funding for mini-grid operators. This had a positive effect on the cost of off-grid electricity, as the unsubsidized levelized cost of mini-grids fell by a third, from US$0.55 per kilowatt-hour (kWh) in 2018 to US$0.38 per kWh in 2021.

Meanwhile, with renewable technologies becoming cost-competitive with traditional baseload energy sources over the last decade, many countries phased out incentives to compensate for renewable energy production. Tax reduction is now the most prevalent renewable energy fiscal incentive in place to attract large-scale corporate investments, with half of the countries surveyed offering tax reduction incentives for renewable energy projects.

Finally, the report found that energy efficiency policies were not receiving adequate attention despite unprecedented energy price hikes, with 49 countries showing little to no advances on energy efficiency policy frameworks.

Every two years, the Regulatory Indicators for Sustainable Energy or RISE report measures policy progress in 140 countries, representing over 98 percent of the world population, on renewable energy, energy efficiency, electricity access, and access to clean cooking – the four target areas of Sustainable Development Goal 7 (SDG7) on access to affordable, reliable, sustainable and modern energy for all by 2030. RISE 2022: Building Resilience is the fourth edition of the report. The report is published by the World Bank with funding from the Energy Sector Management Assistance Program (ESMAP). The full report, along with detailed country profiles and previous editions of the report, is available at https://rise.esmap.org/

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