COVID-19, Poverty and The Debt Service Suspension Initiative (DSSI)
In the wake of its continuing devastation, Covid-19 has left, among other things, recessions across the world’s poorest countries. These recessions threaten to push more than 100 million people below the $1.90-a-day threshold that defines extreme poverty. To prevent poverty exacerbation, G20 countries have been called on by the World Bank and the International Monetary Fund to establish the Debt Service Suspension Initiative (DSSI). The initiative is designed to redirect funds planned for debt liquidation towards battling the pandemic and helping the most vulnerable populations.

How Does It Work?

Established in April 2020, the DSSI allows the suspension of government-to-government debt payments for 73 eligible countries. Over 60% of these countries accepted the offer as of 2021. The International Development Association and the U.N.’s respective lists of least developed countries encompass all countries cleared for suspension, minus Angola. Qualification for deferment also requires an application for an arrangement with the IMF, along with a commitment to use unfettered money towards social, health, or economic spending designed to remedy the effects of Covid-19.

Including interest and amortization payments, the total sovereign debt servicing payments in 2020 was projected to reach nearly $14 billion. Less than $4 billion of that belongs to the Paris Club group, prompting calls for other creditors like China and Russia to take part. Additionally, the G20 received requests to include entities such as banks and investment funds in the initiative, but this call has yet to receive a favorable response. About $5.7 billion in payments were deferred in 2020, with an additional deferment of $7.3 billion planned for June 2021.

The Unturned Stones

Reservations have been voiced regarding the ability of the temporary cessation of bilateral debt payments to provide adequate relief for the countries concerned. All debt is not the sovereign debt that is accounted for in the DSSI, and the fiscal ability of the approved countries is largely insufficient to weather the inclemency of Covid-19, even with debt deferment. At the vanguard of the call to private-sector creditors to adopt the initiative is the Institute of International Finance (IIF), a global association concerned with the finance industry.

Estimations from the IIF show that participation by private-sector creditors would provide an extra $13 billion in deferment. This would offer significant potential relief from the $35.3 billion owed collectively by the countries eligible for the DSSI. However, the IIF has made its concerns clear, particularly concerning the DSSI’s lack of consideration for the unique situation of each debtor country and the doubt that this causes for private-sector creditors.

The overall narrow eligibility scope of the DSSI has also been called into question. Middle-income countries have over eight times the amount of collective external debt outstanding compared to DSSI eligible countries. With $422.9 billion in debt payments in 2020 alone, these countries also run the risk of being financially incapable of dealing with Covid-19. After foreign investors pulled approximately $100 billion from middle-income countries’ markets in stocks and bonds, capital outflows leveled. The IIF, perhaps because of this observation, projected that the countries in question will encounter difficulties in borrowing money. The IIF also made projections that indicated unparalleled fiscal deficits in 2020.

Possible Solutions

Currently, no mechanism is in place to ensure that deferred debt payments will be used accordingly. One proposal involves the creation of a central credit facility (CCF) at the World Bank. This organization, if allowed, would require countries requesting relief to deposit deferred interest payments to certify that the funds would be used to negate the effects of the pandemic. Although the CCF has gained academic support and press recognition, whether countries will adopt it is uncertain.

Corporate or individual bankruptcy for countries is not an option.  The IMF attempted but failed to establish a sovereign resolution regime with its Sovereign Debt Restructuring Mechanism (SDRM) proposal in 2002, ultimately because of conflicting opinions on how to structure its design. A notable implementation of a debt moratorium occurred in 1931 by Herbert Hoover, then President of the United States. His declaration was followed by a rush of countries defaulting. Although these countries recovered faster than countries that did not default, such countries were hard-pressed to find any foreign lending for more than 20 years after defaulting.

Forging A Way Forward

While COVID-19 inflicted disastrous financial difficulties on nations worldwide, initiatives like the DSSI work to counteract the damage. In April 2021, G20 government-to-government creditors extended the DSSI for the final time by six months, taking its activity through December 2021. Despite concerns about its implementation and consequences, the DSSI represents a positive attempt by creditors nationwide to help the most vulnerable in the wake of COVID-19.

– Mohamed Makalou
Photo: Unsplash

Developed nations are witnessing a steep decline in labor union participation. Labor unions are organized groups of workers who negotiate decisions concerning their working conditions. From 1985 to 2017, union membership declined by 13%. Several factors have contributed to this decline, however, labor unions are important as they play a role in reducing poverty across the world.

The Decline in Labor Unions

The recent trend toward globalization has admittedly fostered business competitiveness. However, this threatens labor unions due to the belief that unionization can harm a company’s ability to compete internationally. This belief stems from the strong negotiating power of unions, forcing companies to pay and treat their workers well, which many international companies do not have to do. In addition, organizational and technological changes have threatened union longevity. The final contributing factor is the decline of the manufacturing sector, a sector that is more likely to support unionization than other industries.

Along with the organizational factors contributing to the decrease in labor unions, the societal understanding of the value of labor unions is also decreasing. In part due to mass propaganda campaigns and anti-labor advertising unleashed by businesses in the last three decades, there is a growing sentiment that these organizations are no longer useful or necessary. This sentiment poses a direct threat to workers throughout the world as these organizations play an important role in poverty reduction.

Decrease in Economic Inequality

Labor unions play an important role in decreasing economic inequality. Unions provide people with the power to negotiate, which in turn, strengthens the middle class and increases salaries for blue-collar workers. Unions give power to people in lower positions in companies so they can negotiate and work for better wages. Unionized workers are typically able to raise their wages by 20% through negotiation.

White-collar workers do not reap the same benefits and labor unions play an important role in stopping runaway incomes for people at the top. This gives power to the middle class and reduces the power of the top 1%. Not only do higher wages for blue-collar workers support the workers themselves but they also boost economic mobility for future generations. By empowering workers to collectively bargain for higher wages, labor unions have played a vital role in the rise of the middle class.

Healthcare

Because members of labor unions can negotiate better benefits, they are 30% more likely to have healthcare benefits than non-union workers. Additionally, these healthcare benefits are typically higher quality than baseline coverage. On average, unionized workers are more likely to have health plans, including dental and vision care. Quality health insurance plays an important role in reducing the risk of poverty. The CDC finds that workers who possess and utilize health plans are more productive. Increased productivity among workers provides a foundation for educational and workplace success.

Along with increasing productivity, quality healthcare can reduce the risk of medical debt-induced poverty. Medical coverage for working adults can also cover the worker’s children. This is important as children who have medical coverage are less likely to develop chronic health conditions. Through family care, labor unions provide workers and their families the resources necessary to remain in good health, achieve success and protect their futures.

Work-Life Balance

Labor unions provide workers with the chance to negotiate better working conditions, including more paid time off. Unionized workers have 26.6% more vacation time on average than non-unionized workers. This time off is important for a work-life balance, overall longevity and family time. Children who spend quality time with their parents are more likely to be physically healthy and are less likely to partake in risky behaviors such as drug and alcohol abuse. Furthermore, these children are more likely to stay in school and achieve academic success, helping them secure well-paying jobs in the future. By supporting a work-life balance, labor unions ensure that households have a pathway out of poverty.

In these ways, labor unions play a vital role in reducing poverty. By increasing wages, strengthening the middle class, providing healthcare access and facilitating quality family time, labor unions can help people break cycles of poverty.

– Haylee Ann Ramsey-Code
Photo: Flickr

Decent LifeEgypt’s President Abdel Fattah Al-Sisi kicked off the first stage of Egypt’s groundbreaking anti-poverty project, the “Decent Life” (Haya Karima) Initiative, at the first conference on July 15, 2021. Al-Sisi declared that this initiative would kickstart “Egypt’s New Republic” especially in the Egyptian countryside. The massive development and resource injection into education and health infrastructure, primarily in rural areas, appears as if it will significantly improve the Egyptian landscape for the future. This initiative comes at a crucial turning point in a country that has struggled significantly with poverty over the past years. Statistics such as how 32.5% of Egyptians reported being below the poverty line in 2019 or how the pandemic has increased the official unemployment rate to 9.6% as of November 2020 highlight Egypt’s difficult poverty battle. However, with the ‘Decent Life’ Initiative in action with its numerous quality components, Egypt’s economy looks to be turning a corner.

Four Pillars

Within the framework of the UN Egypt Vision 2030 Strategy, the initiative consists of four main pillars:
1. To ameliorate living standards and invest in human capital,
2. To grow infrastructure services,
3. To improve human development services,
4. To spur economic development especially by contributing to the poorest villages with increased access to basic services such as sanitation and education infrastructure.

These pillars provide the foundation for how Egypt is tackling poverty in a more assertive manner.

First Phases

Prior to President Al-Sisi establishing the initiative, he launched an unofficial phase of the project in 2019. This came in the form of him pressuring the Minister of Social Solidarity to develop Egypt’s 1,000 poorest villages. After the success of this stage of the process, the official first phase started in January 2021. This first phase expands the number of targeted villages to 4,500, covering 58% of the country’s population.

Since January 2021, the initiative has taken crucial steps in developing Suhag water and sanitation services in 33 villages, renovating transportation stations at a cost of EGP 183 million (almost $12 million), and creating new transportation stations at a cost of EGP 219 million (almost $14 million). This process forms as the initial stages of the 2021-22 plan of the initiative, which carries with it a budget of EGP 200 billion (almost $13 billion).

The 2021-22 plan for the initiative has specific and bold aims that ensure Egypt is tackling poverty in a decisive and thorough manner. Details of the 2021-22 plan include:

  • To set up 10,828 classrooms,
  • To improve 782 youth centers,
  • To renovate 317 public service buildings,
  • To develop 1,250 health care units, establish 389 ambulances and 510 mobile clinics, and 112 veterinary units,
  • To create 191 agricultural service centers.

Final Targets

The “Decent Life” Initiative has several end goals it aims to achieve which President El-Sisi set out. One of the main goals is that the Egyptian government plans to utilize overall investments amounting to EGP 700 billion (almost $45 billion) by the end of the project, demonstrating that Egypt is tackling poverty in an aggressive manner. President El-Sisi has also made the promise that “the Egyptian countryside will be transformed in three years’ time,” signifying an attempt to minimize the rural-urban inequality.

Regarding education and health services, the initiative is aiming to build 13,000 classrooms and activating the new Universal Health Insurance System by the project’s conclusion. The Universal Health Insurance System will consist of mandatory coverage to all citizens by unifying with the private healthcare sector and minimizing existing health insurance disparities.

UN Response

The UN has responded extremely positively to the official launch of the initiative, with the Executive Director of the International Monetary Fund, Dr. Mahmoud Mohieldin, stating that the UN considers the “Decent Life” project at top spot for the best application for sustainable development goals around the world and has full confidence that it will provide essential job opportunities for Egyptians in impoverished areas. Furthermore, the UN has praised the initiative as it also confirms the country’s willingness to “implement the participatory planning approach through integrating citizens in the need’s identification stage.”

–  Gabriel Sylvan

Photo: Flickr

Film Industry in Saint Kitts and NevisSaint Kitts and Nevis became the Eastern Caribbean Currency Union’s (ECCU) first sovereign state to lower its debt-to-GDP ratio to the minimum 60% benchmark in 2018. The dual-island nation also adopted the Poverty Alleviation Program. Through this initiative, the government provided a monthly stipend to 4,000 families making less than EC $3,000 (USD $1,100) each month. However, the impacts of the COVID-19 pandemic are jeopardizing the country’s economic growth. The tourism industry contributes 60% of Saint Kitts and Nevis’s GDP. Because of the pandemic’s disruption to the tourism sector, predictions have determined that the country will experience -2% GDP growth in 2021. Fortunately, an unexpected economic opportunity has arisen that will assist the nation in generating additional revenue: the new film industry in Saint Kitts and Nevis.

The MSR Media Deal

The entertainment industry suffered a significant economic collapse due to the shutdown of movie theaters and film production studios during lockdown regulations. In 2020, estimates determined that the international theatrical and home entertainment industry was worth $80.8 billion. This is a drop of 18% from the previous year. The most substantial decrease was in theater revenue, which fell from $42.3 billion in 2019 to $12 billion in 2020. Moreover, theater companies generated just 15% of the world’s total entertainment revenues compared to 43% in 2019.

COVID-19 safety regulations cost film companies like Universal an extra $8 million due to the overall production costs in the U.K. Due to the strict safety precautions and rising production costs in the U.K., film companies like MSR Media sought after COVID-19 safe havens to continue filming. The company found Nevis Island to be the ideal solution.

Saint Kitts and Nevis had only 44 reported coronavirus cases by March 2021. All but two of the patients had recovered completely, and there had been no fatalities. Since the end of August 2020, there have been no curfew or shelter-in-place restrictions throughout the country. Additionally, the CDC has also given Saint Kitts and Nevis a Level 1: Low Covid Risk rating. In contrast, the State Department has given the nation a Level 2 travel advisory. MSR Media has invested a multi-million dollar film industry investment in Saint Kitts and Nevis as a result of the country’s efficient control of the COVID-19 pandemic. As a result, the film industry in Saint Kitts and Nevis underwent formal establishment.

New Employment Opportunities

According to data from the Eastern Caribbean Central Bank (ECCB), Saint Kitts and Nevis’ economy had a GDP of $927.4 million (2.5 billion Eastern Caribbean dollars) in 2020, down 11.2% due to the prolonged COVID-19 pandemic and its effect on the tourism industry. In 2019, the tourism industry in Saint Kitts and Nevis employed 4,800 people. However, a World Food Programme survey found 51% of the population reported job losses or lower income as a result of the pandemic in 2020. Winston Crooke, a former actor and native Nevis Islander, detailed the tourist industry’s dire state. “I haven’t seen a tourist in a year and a half,” he told The Borgen Project in an interview.

Film creators will shoot six films on the island of Nevis as part of the MSR Media deal. MSR Media has recruited a total of 32 locals to work full-time with the film crew. Eight locals have landed speaking roles. Additionally, the crew cast 160 locals as extras. Nevis Premier Mark Brantley expressed gratitude to MSR Media for bringing employment and development opportunities to the island.

Boosting the Economy

The debut of the film industry in Saint Kitts and Nevis is also proving to be profitable. As a result of the MSR Media deal, opportunities for economic diversification have developed. It has created new prospects for employment, education and increased the exposure of Nevis across the world. Every four months, $1 million will go to the national economy per terms of the MSR Media deal.

The arrival of the film industry in Saint Kitts and Nevis has also ushered in the possibility of a new tourism category known as film tourism. Several distinct characteristics contribute to Saint Kitts and Nevis’ appeal as a filming location, setting the twin islands apart from others in the Caribbean. The country’s breathtaking scenery includes green hills that meet at Mt. Liamuiga’s volcanic peak, a rainforest, a harbor with several hidden coves and inlets and many beautiful beaches. Several tourist sites, including the Saint Kitts Scenic Railway and the Brimstone Hill Fortress, are located there. The Hamilton Museum is located on Nevis, as the island is the birthplace of Alexander Hamilton, one of the founding fathers of the United States

Saint Kitts and Nevis is developing new hotels in anticipation of more tourists. Prime Minister Timothy Harris of Saint Kitts has outlined a varied hotel complex that is nearing construction. The Trinity Sunset Shores, Seaview Hotel and Hillsborough Suites Hotel are among these buildings, all of which will open in 2021.

Saint Kitts and Nevis’ Citizen by Investment Program (CBI), which began in 1984, is the world’s longest-running investment migration program. In exchange for contributing to the Sustainable Growth Fund, the program provides a haven for U.S. families. The income that the fund creates goes toward assisting many aspects of society, such as tourism and healthcare. Winston Crooke feels the film industry will aid in increasing interest in the CBI program. “There’s no such thing as bad publicity, and [filming movies in Nevis] is great publicity. I think what [MSR Media has] done is showcase not only [the island] but also what Saint Kitts and Nevis can offer to small companies,” he said.

The Acting Academy

One of the MSR Media team’s goals is to teach individuals from Saint Kitts and Nevis the skill of creating films. On February 22, 2021, the Acting Academy opened its doors. Phillipe Martinez, MSR Media’s Chief Producer and Director, and Winston Crooke, now an acting coach, lead the academy. The Nevis Performing Arts Center hosts the Acting Academy. Aspiring performers will take evening lessons twice a week, from 6 p.m. to 9 p.m. on Mondays and Wednesdays. “The Acting Academy is about developing whatever skill sets [locals] have, nurturing [those skills] and owning them,” said Winston Crooke. All classes at the academy are free.

Future of the Film Industry

The film industry in Saint Kitts and Nevis has a bright future. MSR Media is currently working on projects including A Week in Paradise, Assailant and One Year Off in Saint Kitts and Nevis. “The most important thing is to help develop these other people [or] youngsters and so on in the film industry so they will carry on and develop the market. And I also want to thank MSR Media, Philippe Martinez and the production company for being bold enough to look at Nevis Island in the way that they have and give us this fabulous opportunity,” expressed Winston Crooke.

– Tiara Tyson
Photo: Flickr

Law in Timor-LesteAll states face economic, social and political pressure, but when the pressure exceeds a state’s ability to control it, the state becomes fragile. The Fund for Peace uses the Fragile States Index (FSI) to assess the vulnerability of 179 countries every year. The Southeast Asian nation of Timor-Leste has shown significant decreases in economic and environmental fragility in recent years. In 2020, for the first time, the Organization for Economic Cooperation and Development’s (OECD) report on the state of fragility did not list Timor-Leste as a fragile state. In the FSI’s 2021 report, Timor-Leste ranked first of all the world’s countries for yearly reduction in overall fragility score. Improvements to fragility and rule of law in Timor-Leste have also helped the nation reduce poverty.

History of Timor-Leste

Timor-Leste, formally known as East Timor, is one of the world’s youngest nations. It was a Portuguese colony until 1975, then remained under Indonesian sovereignty until 1999. In 1999, the U.N. organized the East Timorese Independence Referendum, in which citizens chose independence over greater autonomy within Indonesia.

Timor-Leste became the first new sovereign state of the 21st century after the formal ratification of independence in 2002. Timor-Leste has devoted the last 20 years to rebuilding infrastructure and formal institutions damaged by past conflict. Around 1.3 million people call the newly peaceful, democratic nation home.

Economic Growth in Timor-Leste

Timor-Leste’s poverty rate dropped from 50% in 2007 to 42% in 2014, indicating economic growth. Less poverty means less violence, so the drop in poverty means improvement in fragility and rule of law in Timor-Leste. The Timorese government has put great effort toward reducing disparities within the economy, especially through education.

After decades of conflict, the Timorese needed to rebuild nearly all institutions from the ground up. Between 2005 and 2008, the government devoted significant funding to primary education, leading primary education enrollment to increase from 68% to 85%. However, older youth and adults still lacked the education to participate fully in society and the economy.

In 2010, with only 36% of the population functionally literate, the World Bank launched the Second Chance Education Project. The program set up nine community learning centers with flexible hours, providing a second chance to those too old for primary school. By the time the project ended in 2017, 1,670 students had participated in the mature education course, 55% of whom were women. Timor-Leste’s recent efforts put the country on target to achieve U.N. Sustainable Development Goal 4 (quality education) by 2030.

Social Improvements

Improvements in health and nutrition directly improved fragility and rule of law in Timor-Leste. Malnutrition is the country’s leading cause of premature death and disability. Timorese children suffer the third highest stunting prevalence in the world, with more than 50% of children younger than 5 identified as stunted. Experts believe that loss of productivity due to malnutrition costs Timor-Leste $40 million per year.

To combat malnutrition, the World Bank implemented the Community Driven Nutrition Improvement Program. Operating in 49 villages, the four-year program taught families how to grow and cook nutrient-rich foods. The program gave more than 1,000 families sweet potato cuttings and provided more than 400 families with seeds for their home and community gardens.

With the help of the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM), Timor-Leste has also brought its malaria epidemic under control. The GFATM funded and helped launch the National Malaria Control Program in 2003. Following the launch, Timor-Leste saw a 97% decrease in reported cases, which dropped from around 223,000 cases in 2006 to only around 6,200 in 2012. The program followed a six-part strategy:

  1. Enhance early detection and effective therapies.
  2. Distribute long-lasting insecticidal nets.
  3. Conduct indoor residual spraying.
  4. Improve epidemic prevention, preparedness and response.
  5. Educate the public.
  6. Enhance monitoring and research.

Political Improvements

Timor-Leste’s democracy continues to flourish. Since gaining independence in 2002, the state has successfully held four peaceful, free and fair multi-party elections, all of which ended with a smooth transfer of power. Democratic stability will continue to improve fragility and rule of law in Timor-Leste. As one of Southeast Asia’s most stable democracies, the 2020 Sustainable Development Goals (SDG) Report classified Timor-Leste as on target for SDG 16 (peace, justice and strong institutions).

The Timorese government now prioritizes rebuilding infrastructure and public services. The Timor-Leste Road Climate Resilience Project is currently restoring 110 kilometers of road connecting three of the main districts in the country. Inability to travel throughout the country isolates communities and isolation hurts the economy. The project will connect 410,000 citizens, encouraging greater economic activity. The road will also help decrease malnutrition by giving families access to diverse foods grown in other parts of the country. The road restoration project is nearly 80% complete.

Goals for Timor-Leste Through 2024

In November 2019, the World Bank Group established the Country Partnership Framework for Timor-Leste. It plans to transform Timor-Leste’s “natural wealth into improved human capital and sustainable infrastructure” with three main objectives:

  1. Promote private sector-led growth and diversify the economy.
  2. Improve human capital.
  3. Continue to rebuild infrastructure, especially transportation.

Along with Timor-Leste, the OECD also removed Egypt, Malawi, Nepal and Rwanda from the list of fragile nations in 2020. As fragility and rule of law in Timor-Leste and other nations improve, their neighboring nations will also find more stability. There is always room for improvement but the world should take a moment to celebrate the significant progress in the small, young country of Timor-Leste.

– Ella LeRoy
Photo: Flickr

Globalism Reduces PovertySeveral factions surround globalism, some cite statistical reduction in poverty, while others decry effects on local communities. As in all reductive thinking, oversimplification misstates the complexity, succumbing to the facility of a universal perspective. What is absolutely clear, however, is the initial decades of global trade created categorical winners and losers — the most impoverished 5% gained $.07 in daily income, while the top 1% averaged $70. The theory that globalism reduces poverty is multifaceted, and such, globalism is best described as a “two-way street.”

Global Inequality

As the global pool of wealth undeniably grows, financial resources are increasingly concentrated among a powerful economic cadre, actually increasing global inequality. Subsequently, inter-national economies are seeing more parity, but intra-national wealth distribution is increasingly unequal.

Absent the economic investment from global trade, however, developing nations struggle to modernize. Lacking foreign capital investment to create sustainable industries, an estimated 95% of Indian youth are forced into informal child labor. In the nation-state equivalent of “Sophie’s Choice,” governments are forced to participate while the premise that globalism reduces poverty remains dubious.

Relative and Absolute Poverty

Early returns from globalism showed a reduction in extreme poverty from 36% to 19% between 1990-2008 and capitalists trumpeted imminent eradication of poverty by the benevolent “invisible hand” of market forces. Undoubtedly a monumental achievement, millions have benefited from access to foreign markets.

As always, the devil is in the details. Poverty is an indiscriminate measure, a theoretical categorization defines the powers that be. For the World Bank, poverty is a function of daily income. But, between 1990-2018, the threshold indicating extreme poverty has preposterously risen a mere $0.90 while global GDP grew by $60 trillion during the same period. Given such disproportionality, it is difficult to see how globalism reduces poverty.

Global Poverty or Global Inequality

Ambiguous poverty metrics belie a true consequence of globalism, that the top percentile claimed more than 60% of growth. To retain these substantial gains, it is the providence of influential international corporations and institutions to promote globalism. Exceedingly fungible, poverty metrics become a prism through which various interests and policymakers justify exploitative agendas, often accompanied by stifling conditionalities.

As the International Monetary Fund and European Union counsel draconian measures to fledgling economies, local “governments often find it politically easier to cut the public expenditures for the voiceless” impoverished as connected wealthy classes are “disinclined to share in the necessary fiscal austerity.”

Equally as true in developing nations, entrenched hegemonies have little incentive to shoulder the burden of globalism and frequently siphon economic growth for personal enrichment. Irresponsible stewardship of finances and resources, as always, disproportionately affects voiceless and impoverished communities.

Generations after the ouster of foreign monopoly United Fruit Company from Latin America, indigenous farmers’ share of profit is essentially stagnant as corrupt domestic entities pocket revenue. Globalism reduces poverty only when sufficient protection is guaranteed to populations most at risk of exploitation and achieved only when international, federal, corporate and municipal institutions communicate with disenfranchised communities.

Paternalism in South Africa

Under the best of circumstances, sudden inundation of investment and foreign influence is devastating. For countries without robust legislative institutions, it is cataclysmic. The hyper-racialized-apartheid bureaucracy of South Africa was particularly ill-prepared for the rapid modernization required by globalism.

Despite democratic revolution, political bodies could not address the dual responsibilities of erasing paternalistic and racist policies while simultaneously reentering international trade. After centuries of protectionism and isolation, South African society was a manicured house of cards temperamentally opposed to foreign influence.

The draconian society, which enslaved the Black majority, created a delicate homeostasis and the post-apartheid government was manifestly incapable of protecting the citizenry as globalism began in earnest. A systematically underprivileged class was ripe for exploitation.

Skills-Based Bias

During apartheid, underpaid, low-skill labor provided the engine for economic growth in South Africa. Known as “lumpenproletariat,” these peri-urban shantytown workers relied on the largesse of landed aristocracy for survival.

As a matter of course, economic opportunities through education represented an existential threat to White hegemonies. Because “it is surely the lack of opportunities of the less advantaged that is the real concern” in reducing poverty, undereducated South Africans were dispositionally unable to profit from economic growth.

Compounded by exclusion from land ownership, Black South Africans possessed neither the capital nor the skills for socio-economic gain. Various policy initiatives for Black Economic Empowerment (BEE) have targeted inequality, but generations of subjugation cannot be erased during the short lifespan of South African democracy.

Case Study: South African Winemakers

Overregulation and heavy subsidies throughout the 20th century created an extremely inefficient South African wine industry. Traditional focus on bulk production for domestic markets encouraged widespread plantation of high-yield, low-quality cultivars that were antithetical to international demand for higher quality. With a contorted supply chain entirely unfit for global competition, South African winemakers responded by replanting 50% of vineyards between 1990 and 2005.

To finance these changes, producers required foreign investment. At the behest of multinational distributors, conglomeration through a spate of mergers destabilized traditional market structures — the consolidation of Distillers and Stellenbosch Farmers Winery eliminated 2,000 jobs alone.

Moreover, a weak currency forced producers to rely on foreign capital for infrastructure improvements to replace apartheid-era slave labor. As South African winemakers became increasingly dependent on external financing, mechanization reduced permanent employment by 60%.

The Unequal Distribution of Benefits

Nonetheless, foreign investment allowed the wine industry to grow. Exports increased tenfold during the 90s, and by 2002, South Africa was the fastest-growing sector in the all-important British market. Representing 45% of domestic exports, the fortunes of South African winemakers were existentially linked to unpredictable foreign markets.

But, native producers have seen little benefit. As of 2018, the average return on investment for those costly infrastructure upgrades is an abysmal 2%. And after three decades of democratic rule and countless land reforms, Black ownership in the wine industry is 3%. However, a goal of 20% by 2025 was established in 2007.

A Two-Way Street

In the hyper-competitive wine trade, “survival is not made any easier by the fact that globalization is a two-way street.” The South African wine industry is just one example of countless local communities at the mercy of free markets.

Nonetheless, increased trade and economic growth from globalism affect poverty. The 21st century will be judged by how well the fruits of international wealth are distributed to the most vulnerable populations. As early growing pains subside, poverty eradication is within grasp if the world so chooses.

Kit Krajeski
Photo: Flickr

Economic Expansion and Poverty Reduction Over the past half-century, Asia has become the world’s standard-bearer for both economic expansion and poverty reduction. Asia has made tremendous growth that accompanies poverty reduction.

Asia’s Economic Profile

In 2020, the Gross Domestic Product (GDP) of Asia was greater than the GDP of the rest of the world combined. Experts estimate that by 2030, the Asia-Pacific region will account for 60% of the world’s economic growth.

Tremendous economic growth is not a new phenomenon in Asia. In fact, since 1960, Asia’s economy has grown at a higher rate than any other continent. East Asia’s economy, specifically, has exceeded the rest of the world over the same time frame. Japan kickstarted Asia’s period of growth after World War II. Soon after, the “four dragons” —  Taiwan, Singapore, Korea and Hong Kong, emerged. The dragons each experienced tremendous and sustained economic growth in the latter half of the 20th century. In 1978, China opened its economy to the world, marking a huge leap forward for Asia’s economy.

With economic growth comes an increase in prosperity as the Asia-Pacific region is home to 90% of the world’s new members of the middle-class. While Asia’s economic prospects are tremendously promising, economic growth does not always translate into advancements in quality of life. Poverty reduction is an essential component of improving living standards and poverty reduction in Asia has been an important focus for Asian governments.

Poverty Reduction in Asia

Since the beginning of Asia’s period of tremendous economic growth, the region has seen similarly tremendous progress in poverty reduction. Asia continues to lead the world in poverty reduction.

No single country is more responsible for this achievement than China. In the last 30 years, more than 700 million people in China have made it out of extreme poverty. On a shorter time scale, China’s efforts to reduce poverty have yielded similarly promising results. From 2015 to 2019, China reduced poverty from 5.7% to 0.6% of the total population. In February 2021, China officially celebrated the end of absolute poverty, defined as the level at which a person cannot afford to meet their basic needs like food, water, healthcare, education and more.

Room for Improvement

Economic growth is not solely responsible for the successes of poverty reduction in Asia. In fact, as economic growth has progressed, Asia has actually experienced diminishing marginal returns in poverty reduction. In other words, as Asian economies have continued to grow, the growth has had a reduced effect on poverty reduction rates. Economic expansion and poverty reduction do not always happen equally. Policy is still needed to ensure poverty does not become a hidden issue. Despite all the expansion of the past 50 years, poverty in Asia is still a significant problem.

Asia’s progress in reducing poverty has been substantial but continued efforts are needed to truly eradicate poverty with further progress. There are still more than 320 million people in Asia who live in extreme poverty, defined as less than $1.90 a day. Furthermore, the COVID-19 pandemic has negatively affected poverty reduction in Asia. A World Bank report in September 2020 estimated that for the first time in 20 years, poverty could rise in East Asia. It estimated that as many as 38 million East Asian people could fall below the $5.50 poverty line. As such, continued focus on poverty reduction efforts is crucial, now more than ever.

Leo Ratté
Photo: Flickr

Africa's Digital Economy ContributesDigitalization is not new to the African economy. However, with the COVID-19 pandemic, the need to improve and expand Africa’s digital economy has become evident. With intentions to minimize the health and economic risks of the pandemic, African businesses are implementing strategies that will lead to the rise in digital transformation. Economic sectors such as banking, transportation, agriculture and telecommunication have already digitally evolved to adjust to the economic climate and health crisis. Most importantly, Africa’s digital economy contributes to the U.N. Sustainable Development Goals (SDGs).

Developing Africa’s Digital Economy

The World Bank started the Digital Economy Initiative for Africa (DE4A) in mid-2019 to accelerate digital enabling achievements as part of the 2030 SDGs. As the COVID-19 pandemic transpired, the rise in digitalization laid expectations for more transformations in the coming years. With investments being made, Africa’s booming digital economy contributes greatly to the SDGs.

A digital economy would create more jobs, promote entrepreneurship and introduce new markets. Reaching DE4A’s targets would raise growth per capita by 1.5 percentage points annually and poverty would be reduced by 0.7 percentage points per year. In addition, this approach takes into account that only 27% of the African population has access to the internet. Increasing access to digital resources will be the focus of the five pillars of the DE4A. This includes digital infrastructure, digital public platforms, digital financial services, digital businesses and skills.

Growing the Economy by Promoting Digital Transformation

The African Union (AU) has launched the Digital Transformation Strategy for Africa (2020-2030). The initiative strives for a collaborative digital single market, building on the recent trade initiative, Africa’s Continental Free Trade Area (AfCFTA). This would facilitate the movement of digitized services and propel the expansion of internet access across the continent.

Notably, the initiative also promotes innovation and digital upskilling with development programs. The e-skills vocational program will reach 100 million Africans a year by 2021 and 300 million annually by 2025. This would not only integrate Africa into the digital era but create new opportunities for startup businesses.

An important tool to achieve the initiative’s objectives is collaboration with policymakers. The government plays an important role in the promotion of market transformation. As a result, the AU will propose actions to equip educational institutions with renovated technology, promote digital rights and security awareness.

Significant growth will occur when stable infrastructure is built for the 200 million people currently without internet access. Addressing this digital divide is how Africa’s digital economy contributes to the SDGs as it plans to build resilient infrastructure, create sustainable industrialization and foster innovation.

Investing in Digital Resources

There are many investment opportunities in Africa’s digital economy as a myriad of sectors start transitions. For example, banking in Africa is experiencing major changes. Mobile-based digital banks provide access to transaction activity, savings, loans and other financial services. Banking in Africa is expected to increase to $53 billion by 2022 so long as digitalization continues, contributing to the DE4A’s digital financial service objective.

Additionally, large international corporations have set foot in Africa, which will further increase investment flow. In 2019, Amazon Web Service launched its first data center in Africa. Likewise, Microsoft expanded its cloud services and opened its first data centers in South Africa. With two of the biggest players in the global digital economy in Africa, increased access to methods for digital transformation for businesses becomes more feasible. Digital transformation in Africa has the potential to significantly reduce poverty on the continent.

Malala Raharisoa Lin
Photo:Flickr

Renewable Energy in BarbadosBarbados is quickly becoming a leader in renewable energy. A former English colony, Barbados is a small island in the Caribbean known for its scenic beaches and tropical ecosystem. Natural disasters in the past and the COVID-19 pandemic have highlighted the need for a more diverse economy in Barbados. Renewable energy is a promising solution moving forward. Barbados is investing in renewable energy to reduce poverty and ensure sustainability.

4 Facts About Renewable Energy in Barbados

  1. Investing in the Future – Barbados may be a small island but it has taken large steps to transition to renewable energy. By 2030, Barbados plans to have 100% of its energy consumption come from renewable sources. Although this goal may be ambitious, Barbados put its words into action by securing loans, including a $30 million loan in 2019 from the Inter-American Development Bank. The focus is on building solar photovoltaics for both residential and commercial purposes. Barbados is also interested in growing wind, waste, biomass and ocean and wave energy in order to modernize its energy grid while cutting costs for energy imports and creating jobs.
  2. Geographic Advantages for Wind and Solar Energy – The political feasibility of renewable energy in Barbados is unique because it does not have large petroleum reserves that would cause competing interests. This is a problem that is characteristic of countries in other regions such as North America and the Middle East. The tropical climate in Barbados makes it ideal for wind and solar energy. Barbados averages 8.3 hours of sunshine per day and 5.6 kilowatts of solar irradiation per square meter. Additionally, the annual wind speed averages 5.5 meters per second. These averages make Barbados well-positioned to utilize wind and solar energy compared to the rest of the world. Barbados also has the ability to use the ocean not only for energy produced by water but for installing offshore wind turbines. The ocean provides stronger wind regimes. Since there is very little space to build large wind turbines onshore, this feature will become increasingly valuable.
  3. Renewable Energy Cuts Costs – Barbados experiences very high electricity costs due to its reliance on crude oil. The high electricity bills for an individual household or business and the economic burden of purchasing oil from other countries caused the need to transition to renewable energy. Fuel reflects an average of 15% of its import costs and about half of this is used just for generating electricity. Cutting down the cost of fossil fuel spending and having a more sustainable and efficient energy source would cut costs for citizens and improve the overall economy.
  4. Economic Vulnerability – Because of the COVID-19 pandemic, the economy of Barbados has suffered a major setback. With 40% of its GDP and 30% of the workforce in the tourism industry, many are without an income. About 90% of the industry, including hotels, had to close or reduce their normal operating levels because of the pandemic. In addition, Barbados has a hurricane season every year. Hurricanes damage infrastructure, harm the health of beaches and prevent tourists from coming to the island. Hurricane Dorian cost the country an estimated $3.4 billion or a quarter of its GDP when it hit the island in 2019. In the United States and around the world, renewable energy jobs are some of the fastest-growing occupations. Barbados would greatly benefit from being a part of the trend.

Moving Forward

Barbados is planning ahead for its future and moving forward with renewable energy to ensure economic stability and lessen the effects of natural disasters. The country stands as a strong model for other nations in approaching renewable energy and preparing for the future.

Stephen Illes
Photo: Flickr

the AfCFTATrading within the African Continental Free Trade Area (AfCFTA) finally took effect on January 1, 2021. The AfCFTA is the world’s largest trading area since the establishment of the World Trade Organization with 54 of the 55 countries of the African Union (AU). The AfCFTA was established by the African Continental Free Trade Agreement signed in March 2018 by 44 AU countries. Over time, other AU countries signed on as the official start of trading under the provisions of the agreement approached. The AfCTFA is projected to create opportunities and boost the African economy. By facilitating this intra-African trade area, the international community expects sustainable growth and increased economic development.

The Implementation and Benefits of the AfCFTA

  1. Creating a Single Market. The main objective is to create a single market for goods and services to increase trading among African nations. The AfCFTA is tasked to implement protocols to eliminate trade barriers and cooperate with member states on investment and competition policies, intellectual property rights, settlement of disputes and other trade-liberating strategies.
  1. Expected Economic Boost and Trade Diversity. UNECA estimates that AfCFTA will boost intra-African trade by 52.3% once import duties and non-tariff barriers are eliminated. The AfCFTA will cover a GDP of $2.5 trillion of the market. The trade initiative will also diversify intra-African trade as it would encourage more industrial goods as opposed to extractive goods and natural resources. Historically, more than 75% of African exports outside of the continent consisted of extractive commodities whereas only 40% of intra-African trade were extractive.
  1. Collaborative Structure and Enforcement. All decisions of the AfCFTA institutions are reached by a simple majority vote. There are several key AfCFTA institutions. The AU Assembly provides oversight, guidance and interpretations of the Agreement. The Council of Ministers is designated by state parties and report to the Assembly. The Council makes the decisions that pertain to the Agreement. The Committee of Senior Trade Officials implements the decisions of the Council and monitors the development of the provisions of the AfCFTA. The Secretariat is established as an autonomous institution whose roles and responsibilities are determined by the Council.
  1. Eliminating Tariffs. State parties will progressively eliminate import duties and apply preferential tariffs to imports from other state parties. If state parties are a part of regional trade arrangements that have preferential tariffs already in place, state parties must maintain and improve on them.
  1. Settling Trade Disputes. Multilateral trading systems can bring about disputes when a state party implements a trade policy that another state party considers a breach of the Agreement. The AfCFTA has the Dispute Settlement Mechanism in place for such occasions which offers mediated consultations between disputing parties. The mechanism is only available to state parties, not private enterprises.
  1. Protecting Women Traders. According to UNECA and the African Trade Policy Centre, women are estimated to account for around 70% of informal cross-border traders. Informal trading can make women vulnerable to harassment and violence. With the reduced tariffs, it will be more affordable for women to trade through formal channels where women traders will not have to put themselves in dangerous situations.
  1. Growing Small and Medium-Sized Businesses. The elimination of import duties also opens up trading activities to small businesses in the regional markets. Small and medium-sized businesses make up 80% of the region’s businesses. Increased trading also facilitates small business products to be traded as inputs for larger enterprises in the region.
  1. Encouraging Industrialization. The AfCFTA fosters competitive manufacturing. With a successful implementation of this new trade initiative, there is potential for Africa’s manufacturing sector to double in size from $500 billion in 2015 to $1 trillion in 2025, creating 14 million stable jobs.
  1. Contributing to Sustainable Growth. The United Nations 2030 Agenda for Sustainable Development includes goals that the AfCFTA contributes to. For example, Goal 8 of the Agenda is decent work and economic growth and Goal 9 is the promotion of industry. The AfCFTA initiative also contributes to Goal 17 of the Agenda as it reduces the continent’s reliance on external resources, encouraging independent financing and development.

AfCFTA: A Trade Milestone for Reducing Poverty in Africa

The establishment of the AfCFTA marks a key milestone for Africa’s continental trade system. The size of the trade area presents promising economic development and sustainable growth that reaches all market sectors and participants. Additionally, the timing of the initiative launch is expected to contribute to the alleviation of the pandemic’s economic damages.

Malala Raharisoa Lin
Photo: Flickr