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.
Amidst Strong Economic Rebound in Russia, Risks Stemming from COVID-19 and Inflation
Following a strong economic rebound in 2021, with 4.3 percent growth, Russia’s growth is expected to slow in 2022 and 2023, with a forecast of 2.4 percent and 1.8 percent growth, respectively, according to the World Bank’s latest Regular Economic Report for Russia (#46 in the series).
The Russian economy has now recovered to above its pre-pandemic peak, with growth driven by a strong rebound in consumer demand. In 2022, growth will be supported by continued strength in commodity markets, but will likely also be hampered by COVID-19 control measures and tighter interest rates.
Household consumption in the second quarter increased to more than 9 percent on the previous quarter (seasonally adjusted), showing the fastest rate of growth in a decade. Labor markets also saw a substantial upswing, with unemployment falling to a four-year low and real wages growing.
Russia’s current account surplus has also been exceptionally strong, on the back of high commodity prices and low levels of outbound tourism. The federal budget has been consolidated, led by a strong growth in revenue, and is on track to meet the authorities’ target of meeting the fiscal rule next year.
“This surge in spending resulted from the release of pent-up demand created by pandemic restrictions,” said David Knight, Lead Economist and Program Leader, World Bank. “It was aided by increased credit, Russian tourists staying at home for the holidays this year, and resource inflows via the energy sector.”
The report assesses the short-term risks weighing on Russia’s growth and finds that low vaccination rates are necessitating stricter COVID-19 control measures that may reduce economic activity, while more persistent inflation will likely call for tighter interest rates for a longer period, limiting the growth outlook.
The report also analyzes how Russia could be impacted by global economic growth under three different green transition scenarios, and suggests that domestic climate action can help mitigate some of the possible impacts of a global green transition and create new opportunities for Russia.
The country’s new low-carbon development strategy, which aims for a 70 percent reduction in net emissions by 2050 and net carbon neutrality by 2060, will become an important first step for Russia. A focus on enabling the transition to a more diversified and faster growing economy will call for strengthening of a broad range of assets including human capital, knowledge, and world-class market institutions.
“Environmental sustainability is becoming central to the global economic agenda. Increased commitments by countries and firms to carbon neutrality signal that wholesale changes to policy frameworks will be needed in the coming years,” said Renaud Seligmann, World Bank Country Director for Russia. “With Russia’s pledge to become carbon neutral by 2060, the country now needs to take concrete actions of moving towards decarbonization.”
To accomplish these goals, the report recommends the implementation of carbon pricing and the consolidation of energy subsidies for consumers in Russia. At the same time, measures should be taken to ensure people are protected from the costs and any adverse impacts of the transition.
The report estimates that consumer energy subsidies on electricity, gas and petroleum in Russia amounted to 1.4 percent of the country’s GDP in 2019. By redeploying these resources, the authorities could increase GDP and ensure that no consumers are left worse off. At the same time, this would help reduce greenhouse gas emissions and move Russia closer to its goal of a green and sustainable economy.
World trade reaches all-time high, but 2022 outlook ‘uncertain’
Global trade is expected to be worth about $28 trillion this year – an increase of 23 per cent compared with 2020 – but the outlook for 2022 remains very uncertain, UN economists said on Tuesday.
This strong growth in demand – for goods, as opposed to services – is largely the result of pandemic restrictions easing, but also from economic stimulus packages and sharp increases in the price of raw materials.
According to UN trade and development body UNCTAD, although worldwide commerce stabilized during the second half of 2021, trade in goods went on to reach record levels between July and September.
Services still sluggish
In line with this overall increase, the services sector picked up too, but it has remained below 2019 levels.
From a regional perspective, trade growth remained uneven for the first half of the year, but it had a “broader” reach in the three months that followed, UNCTAD’s Global Trade update said.
Trade flows continued to increase more strongly for developing countries in comparison to developed economies overall in the third quarter of the year, moreover.
The report valued the global goods trade at $5.6 trillion in the third quarter of this year, which is a new all-time record, while services stood at about $1.5 trillion.
For the remainder of this year, UNCTAD has forecast slower growth for the trade in goods but “a more positive trend for services”, albeit from a lower starting point.
Among the factors contributing to uncertainty about next year, UNCTAD cited China’s “below expectations” growth in the third quarter of 2021.
“Lower-than-expected economic growth rates are generally reflected in more downcast global trade trends,” UNCTAD noted, while also pointing to inflationary pressures” that may also negatively impact national economies and international trade flows.
The UN body’s global trade outlook also noted that “many economies, including those in the European Union”, continue to face COVID-19-related disruption which may affect consumer demand in 2022.
Semiconductor stress test
In addition to the “large and unpredictable swings in demand” that have characterized 2021, high fuel prices have also caused shipping costs to spiral and contributed to supply shortages.
This has contributed to backlogs across major supply chains that could continue into next year and could even “reshape trade flows across the world”, UNCTAD cautioned.
Geopolitical factors may also play a role in this change, as regional trade within Africa and within the Asia-Pacific area increases on the one hand, “diverting trade away from other routes”.
Similarly, efforts towards a more socially and environmentally sustainable economy may also affect international trade, by disincentivizing high carbon products.
The need to protect countries’ own strategic interests and weaknesses in specific sectors could also influence trade in 2022, UNCTAD noted, amid a shortage of microprocessors called semiconductors that “has already disrupted many industries, notably the automotive sector”.
“Since the onset of the COVID-19 pandemic, the semiconductor industry has been facing headwind due to unanticipated surges in demand and persisting supply constraints…If persistent, this shortage could continue to negatively affect production and trade in many manufacturing sectors.”
Small Businesses Adapting to Rapidly Changing Economic Landscape
The World Economic Forum has long been at the forefront of recognizing the strategic importance of sustainable value creation objectives for business. While interest has mostly focused on how large corporations contribute to the global economy and sustainable development objectives, small and mid-sized enterprises (SMEs) are often overlooked as major drivers of economic activity, as well as social and environmental progress around the world.
A new report released today finds factors that previously disadvantaged SMEs can lead them to new opportunities. Nine case studies from multiple industries and regions highlight what SMEs can do to increase their future readiness.
Developed in collaboration with the National University of Singapore Business School, the University of Cambridge Judge Business School and Entrepreneurs’ Organization, the report also finds that SMEs are lagging behind in terms of societal impact. Although there is a clear need to operate in line with sustainability goals, many SMEs have yet to include explicit strategies and performance measurement centred on societal impact.
The top challenges cited by SME executives include talent acquisition and retention (for 52.5% respondents), survival and expansion (43.8%), funding and access to capital (35.7%), non-supportive policy environment (21%), the difficulty of maintaining a strong culture and clear company purpose and value (20%).
SMEs can leverage their size, networks, people and the strengths of technology to support their goals of sustainable growth, positive societal impact and robust adaptive capacity. While it is essential for SMEs and the wider economy to increase their future readiness, they can thrive only insofar as the necessary supporting infrastructure and regulatory frameworks exist.
“We hope this will inspire and encourage SMEs and mid-sized companies to harness their potential in becoming a major driver of sustainable and inclusive economic growth and innovation by focusing on several core dimensions of future readiness,” said Børge Brende, President, World Economic Forum.
“Through this report, the Forum aims to highlight the significant role SMEs can play not just locally but also globally. The New Champions Community is a step towards bringing these smaller companies into the forefront of global discourse around socioeconomic development and engaging them in a community of forward-thinking companies from across the world,” said Stephan Mergenthaler, Head of Strategic Intelligence and Member of the Executive Committee, World Economic Forum.
The report aims to develop a deeper understanding of organizational capabilities and orientations needed for SMEs to successfully generate lasting financial growth, affect society and the environment positively, and develop high levels of resilience and agility.
It relies on robust research methods and combines rigorous primary and secondary research. The takeaways and conclusions presented in the research have been derived from an analysis of over 200 peer-reviewed articles and engagement of more than 300 CEOs and founders of SMEs through surveys and in-depth interviews.
Local Wisdom Brings Everybody Towards Sustainability
Climate change, carbon emission, zero waste, circular economy, and sustainability. If you are anywhere on the internet just like 62%...
China will donate 1 billion covid-19 vaccines to Africa
Chinese President Xi Jinping during his keynote speech, via video link, at the opening ceremony of the Eighth Ministerial Conference...
Shifting Geography of the South Caucasus
One year since the end of the second Nagorno-Karabakh war allows us to wrap up major changes in and around...
Uzbek home appliance manufacturer Artel joins United Nations Global Compact
This week, Artel Electronics LLC (Artel), Central Asia’s largest home appliance and electronics manufacturer, has become an official participant of...
Afghanistan: The Humanitarian Imperative Must Come First to Avoid Catastrophe | podcast
The international community must urgently step-up direct funding through United Nations agencies and NGOs to provide Afghan girls & boys...
Being Black in the Bundestag | podcast
The official dress down as Chancellor for Angela Merkel is in full swing. Recently, the first significant step that would...
Vaccine Passports Mandated in the New World Order | podcast
At this moment in western democracies, we are passing into a period of great unrest -social, political, and corporate where...
South Asia4 days ago
Why Nepal’s Maoist finance minister is talking about legalizing black money?
Africa4 days ago
China and Africa Move into New Era of Cooperation
Intelligence3 days ago
ISIS-K, Talc, Lithium and the narrative of ongoing jihadi terrorism in Afghanistan
Africa4 days ago
The role of China’s Health Silk Road to combat Covid-19 in Africa and Egypt
Africa4 days ago
Eighth Ministerial Meeting of the Forum on China-Africa Cooperation “FOCAC”
Economy3 days ago
Gender-based violence in Bangladesh: Economic Implications
Africa3 days ago
What a Successful Summit for Democracy Looks Like from Africa
Middle East3 days ago
Vienna Talks: US-Russia-China trilateral and Iran