Information and stories about economic growth.

Peru’s Economic Growth
For several decades, the World Bank classified Peru’s economy as one of the fastest-expanding economies. While this is true, this expansion slowed between 2014-2019. This led to an 11.1% drop in economic growth in 2020 as a result of the COVID-19 pandemic. The drop caused job sectors to slow down, though others surged in their place. Despite the fall, there is good news: Peru’s economic growth could increase by 13% at the end of the fiscal year 2021.

What is Economic Growth?

The improvement or decline in the market value of goods or services produced measures economic growth. The more goods and services produced or traded, the more money that goes to the economy. The changes in a country’s Gross Domestic Product (GDP) typically measure economic growth. With economic growth comes increased salaries, job availability and standards of living.

There are two primary methods to improve economic growth: improved goods, both technological and physical (capital) and tools that help increase production. Both avenues traditionally lead to economic growth. In this case, both methods explain why Peru’s GDP had a decline in 2020 and how Peru’s economy has recovered since then.

Peru’s Economic Foundation

Peru’s economy has experienced its ups and downs. The economy is based in the services sector, with telecommunications and financial services being the most significant. Services contribute to 60% of the overall GDP, with industries providing 35% to the GDP. However, reforms in the industry are a result of the changes in the mining industry. As Peruvian industries shrink, the telecommunications and services sectors grow.

Although mining was the primary source of income for Peru’s economy, the industry had the highest recorded fall in production ever. Many mining companies had to minimize the number of workers they could allow at a time in the mines and processing plants. The minimization cut production and output with a 13% reduction in copper production and processing. With the reduction in mining work and production output, other sectors stepped up to fill the job gap and start contributing to Peru’s GDP more significantly than in the past.

Improvements in 2020 and 2021

The downturn in Peru’s economy in 2020 left 27% of the population in poverty, as the World Bank reported. The additional 2 million people who slid into poverty highlighted the growing poverty rate in Peru. However, hope is on the horizon.

Due to the COVID-19 pandemic, the telecommunications sector expanded. Before the COVID-19 pandemic, telecommunications were slow to grow in Peru. Back in 2012, the Peruvian government passed law 29985, explicit approval of the usage of electronic money. Law 29985 showed the government’s willingness to explore technology and expand its place in Peru. However, there were still barriers to the use of e-money. In 2012, many Peruvians still lacked access to the internet, computers, and technology needed to access e-money.

Advantages of Technology

Technology in Peru improved in 2020 when most services, including banking, went remote. The number of individuals using e-money increased by an average of 1,000 new users in specific e-money platforms a month. With new internet platform users and increased internet usage came new jobs and the potential for economic gain.

Historically, increased online usage leads to job opportunities through expanded internet and broadband access, especially in areas that lacked immediate internet access. In 2020 and 2021, there were increases in job openings and hirings in the telecommunications sector across Peru. Jobs in telecommunications filled rapidly in 2021, with the most considerable growth taking place in June 2021.

Expected Economic Growth

Telecommunications and its contributions to Peru’s economy have steadily climbed since 2014. In 2019, telecommunications generated a revenue of approximately $6.3 billion. With the expected economic growth stemming from growing telecommunications, the sector’s contributions to the GDP could be even higher by the end of the year. This could make telecommunications one of the most significant contributors to the GDP in Peru’s service sector.

With the newly opened and added jobs, the Peruvian services and telecommunications sectors have grown. This is allowing the sectors to increase their income and contributions to Peru’s economy. Thus, enabling the GDP to expand and retain economic growth as well. As the market opens and job availability grows, the Peruvian government predicts that Peru’s economic growth will grow by 13%. With Peru’s projected economic growth, there is an excellent likelihood that the poverty rate could shrink at least 1% to 2%, if not more.

Clara Mulvihill
Photo: Flickr

House of Trade
House of Trade is a new platform based on an ancient method: bartering. Inspired by the sneakerhead community, the House of Trade offers a fresh take on fashion sustainability while reducing the exploitation of underpaid workforces in developing countries and providing a safe and efficient method for sneakerheads to trade their sneakers.

House of Trade: A Trading App for Sneakers

One of only five startups chosen for the 2021 Covintus National Technology Accelerator program, House of Trade is a trading app for sneakers: an app that allows sneakerheads to use their new or lightly-used sneakers as “closet currency” to trade items with other users. House of Trade facilitates each trade using a mail-in system, ensuring authenticity and trustworthy bartering commerce.

Founded in April 2020 by Chris Holloway and Keren Nimmo, the team behind the scenes at House of Trade represents diversity and supports the colorful world of sneakerhead culture on a weekly YouTube podcast called Kicks of the Trade. The trading platform does not end with sneakers — the team plans to expand the platform to include the trade of a variety of other items, from luxury handbags and watches to streetwear and sports cards.

A Trading App’s Role in Fashion Sustainability

House of Trade reduces fashion consumption by offering its users a solution: the user’s unwanted items can stand as “closet currency” for the items they do want, lessening (or even eliminating) the need to buy factory-new fashion.

The fashion industry has a significant impact on the environment. The industry produces 10% of the world’s carbon emissions, equating to more than all the emissions of “international flights and maritime shipping combined.” In addition, the fashion sector stands as “the second-largest consumer of water worldwide” in a world where 785 million people go without access to clean drinking water. On top of this, the fashion sector contributes to “20% of all industrial water pollution worldwide.”

Pollution is especially detrimental to developing countries where the U.S. fashion industry outsources 97% of manufacturing and where toxic wastewater from factories often ends up in rivers and oceans. For example, in India, a country where the sacred but polluted Ganges River supports one of the most densely populated regions in the world, 88 million people lack access to safe water. One of the contaminants that make the Ganges unsafe is chromium, a compound for dyeing fabrics and tanning leather.

How Outsourcing Fashion Manufacturing Exacerbates Poverty

The outsourcing of manufacturing exacerbates conditions of poverty in countries where exploitative working conditions go unregulated. As an example, Nike as one of the largest makers of footwear globally sold a record 25 shoes every second in 2018. In general, Nike’s sales average 780 million pairs of shoes annually. However, the manufacturing of Nike’s massive product line is outsourced to more than 41 different countries.

By outsourcing to developing countries, Nike and other major sportswear brands can maximize production at minimum costs. But, low overheads for big companies come at a high price for the people who work in the factories. According to the Clean Clothes Campaign (CCC), a worker rights coalition that comprises more than 235 organizations in more than 45 nations, the average salaries of factory workers in Indonesia, Vietnam and Cambodia (countries where Nike contracts much of its manufacturing) are 45%-65% lower than the average “living wage.” To put this into perspective, in March 2020, the Global Living Wage Coalition reported just 7,446,294 VND ($321) as the monthly living wage for a person in urban Vietnam.

House of Trade Offers a Solution to Fast Fashion

Several advocates and unions have called out leading fashion and sportswear companies for prioritizing profits over the well-being of workers, the planet and humanity at large. With these issues coming to the forefront, many consumers across the world aim to make conscientious shopping choices to alleviate these impacts.

At the forefront of fashion industry reform, the House of Trade offers an alternative to factory-new consumerism while ensuring that sneakerheads and fashion enthusiasts have access to the styles, brands and quality they desire. In a “global sneaker resale market” that projections have determined could expand from $6 billion in 2019 to $30 billion by 2030, platforms such as House of Trade are in the ideal position to maximize profits while providing a solution to alleviating the impacts of fast fashion.

– Jenny Rice
Photo: Flickr

USAID’s support in the Congo
As one of the poorest countries in the world, the Democratic Republic of the Congo (DRC) consistently deals with the consequences of poverty, such as disease and starvation. The country’s low GDP of $49.87 billion leaves its government with little funds for the infrastructural and industrial development necessary to invigorate its economy and derive profits. At the same time, the Congo contains trillions of dollars in untapped natural resources, which, of course, it cannot extract for sale on the global market because of its economic underdevelopment and consequent lack of industrial power. However, foreign aid can enable the Congo to develop its industries and invest in the machinery needed to cultivate and export its vast natural resources.

Successfully entering the global market promises large profits, economic development and stability and infrastructural development. For the Congo, such economic success entails allocating its profits towards government programs that would eliminate poverty, starvation and disease.

For this reason, the United States Agency for International Development (USAID) has intervened in the Congo, providing $781 million, with $40 million given for this reason alone, in financial and economic support to jumpstart the country’s underdeveloped industries. Furthermore, it has intervened in the Congo’s labor sector to open the ability for women and previously marginalized groups to work in hopes of increasing economic productivity. Details about USAID’s work and overall vision for economic development in the Congo are below.

USAID’s Vision

USAID’s support in the Congo stems from its goal of bringing the country to a place of economic self-reliance. The organization believes it can achieve this goal by localizing agricultural practices, enlarging and empowering the Congo’s workforce, encouraging the expansion of farmable land, influencing local economic participation and introducing stable mining techniques to safely extract the Congo’s natural resources. While USAID’s support in the Congo has led to slow development, it hopes to see drastic economic changes by 2025.

Country Development Cooperation Strategy (CDCS)

The organization’s Country Development Cooperation Strategy aims to transform local enterprise by encouraging economic participation. USAID’s program first intends to do this by enlarging the Congo’s labor force and diversifying its agricultural sphere. The size of the labor force is a driving factor in economic development. Young people and women are also overrepresented in the country’s unemployed population.

Through its Country Development Cooperation Strategy, USAID desires to increase employment in the Congo, which would not only result in economic productivity but also market participation. Importantly, increased market participation results in the spreading of wealth in which both the buyer and the seller benefit from the exchange. Thus far, USAID has focused on widening the Congo’s labor force by empowering women and previously marginalized groups to work. If citizens become employed, they can adequately farm and harvest foodstuffs, which would bring them the agricultural productivity necessary for economic independence apart from global food imports. Furthermore, by increasing employment, USAID hopes that these workers will expand their local agrarian enterprises to account for the “80 million hectares of arable land” in the Congo that farmers currently only use 10% of. Such an expansion is a necessary step for economic self-reliance.

Another concern is establishing economic productivity in a way that preserves the Congo’s plentiful natural resources without damaging them. It is no secret that resources such as water and forests experience pollution or destruction during aggressive industrial development. Because USAID desires to foster the expansion of farmable land and induce market participation, it is also interested in minimizing “biodiversity and habitat loss.” In effect, safe practices that are conscientious of the environment and reflect sustainable resource management will inevitably “increase economic opportunities for local communities.”

Responsible Minerals Trade (RMT)

USAID’s Responsible Minerals Trade (RMT) program is concerned with commencing a well-regulated minerals sector that focuses on decreasing the likelihood of trafficking and slavery concerning humane economic progression. In the past, the Congo has struggled with a plethora of problems, with blood-diamond mining as the most prevalent issue because of its humanitarian negligence and economic greed. Aside from the strict humanitarian violations, mining agencies that engaged in illegal practices rightfully could not sell their products on the global market and instead sold their minerals on the black market, thereby evading taxes that the government would have profited from and allocated towards industrial development.

However, USAID’s Responsible Minerals Trade program helps the Congo’s government surveil illegal practices and encourages mining companies to adopt legal practices, such as paying their employees and paying their taxes to the government. Consequently, USAID’s support in the Congo, on “both industrial and small-scale, artisanal mines will build on the tax and business reforms” and “will continue to support responsible minerals trade and promote compliance.” If these legal business models become widely adopted, the Congo will continue to derive profits that it can channel towards industrial development, which, in effect, will bolster its economy and render government programs directed towards poverty elimination.

Conclusion

USAID’s support in the Congo has resulted in $781 million in foreign aid and culminated in the formation of the Country Development Cooperation Strategy and the Responsible Minerals Trade, which envision increased employment and high profits through legal and humane market practices. If done properly, the Congo’s economy will grow stronger, empowering it to extract its valuable resources leading to overall economic self-reliance. Because of USAID’s support in the Congo, poverty in the Congo is closer to reaching elimination.

– Jacob Crosley
Photo: Flickr

Reduce Poverty in India
In August 2021, India’s Prime Minister Narendra Modi announced that India will spend $1.35 trillion to improve the country’s infrastructure. The infrastructure plan called “Gati Shakti” will create jobs that can potentially reduce poverty in India by increasing household income across the nation and improving the economy at large. The plan also intends to expand the “use of cleaner fuels to achieve the country’s climate goals.”

The Gati Shakti Plan

The specifics of India’s Gati Shakti plan were not immediately announced, but amid the country’s economic decline and the impacts of the COVID-19 pandemic, Modi claims the plan will increase India’s economic output, which decreased by more than 7% in 2020. Specifically, “the plan will help local manufacturers compete globally and create new avenues of future economic growth.” In addition, Gati Shakti will help India “become energy independent by 2047,” by transitioning to “a gas-based economy” and developing India into “a hub for hydrogen production.”

How Better Infrastructure Can Reduce Poverty in India

Studies show a clear link between improved infrastructure and poverty reduction. Better infrastructure may help reduce poverty in India in a variety of ways. Improved infrastructure has the ability to increase economic activity in the country by minimizing “production and transaction costs” and increasing “agricultural and industrial productivity.”

Infrastructure leads to job creation due to the demand for labor in both the development process and the ongoing management and maintenance of the infrastructure. Therefore, impoverished and disadvantaged people can participate in an economy that they once had no place in.

Even though income-related aspects of poverty are at the forefront of the issues better infrastructure addresses, better infrastructure also has non-income advantages, including “health, nutrition, education and social cohesion.” These aspects improve the quality of life for people across the nation. Overall, better infrastructure has the potential to contribute to reaching the United Nations’ 17 Sustainable Development Goals (SDGs).

How Infrastructure Improvements Contribute to SDGs

  1. SDG 2: Zero Hunger. Malnutrition and food insecurity are significant problems in India, with more than 200 million citizens lacking “sufficient access to food.” Modern infrastructure can help improve people’s access to food by promoting better productivity (particularly among farmers) and by helping to decrease production costs. Decreased production costs can drive prices of food products down, making them more accessible to the impoverished.
  2. SDG 3: Good Health and Well-Being. Adequate health infrastructure means more people will have access to health care services, especially impoverished people in remote locations. Better health infrastructure will increase the number of in-hospital births, which will reduce both the infant mortality rate and the maternal mortality rate. This reduction will come as a result of the presence of skilled birth attendants and access to hospital equipment in case of emergencies. India’s current infant mortality rate stands at a staggering 28.771 deaths per 1,000 live births.
  3. SDG 4: Quality Education. Road infrastructure influences the attendance and enrollment of students in schools. This also affects the quality of teachers attracted to a school. More school facilities mean education is more accessible to children in remote locations. More than 27% of Indian youth find themselves “excluded from education, employment or training.” Education infrastructure is essential because education helps people acquire the skills and knowledge to obtain higher-paying, skilled jobs that can help them rise out of poverty.
  4. SDG 8: Decent Work and Economic Growth. Due to the economic impacts of COVID-19, according to The Indian Express, almost 200 million more Indian people could face poverty by the close of 2021. Ultimately, this means that more than 50% of the Indian population may live in poverty. Under SDG 8 is target 8.7, eliminating child labor in its entirety by 2025. Families tend to resort to child labor when they need extra income to meet their basic needs. India’s infrastructure plan can potentially help reduce poverty in India by providing adults with more job opportunities and by increasing household income, negating the need for child labor. Similarly, parents marry off their young girls to take the economic burden off the household, hoping that the girls’ husbands will economically provide for the girls. However, with increased household income and more employment opportunities, families can bear the costs of taking care of all their children. Then, marriage will be an option and not an economic necessity.

For all these reasons and more, better infrastructure can reduce poverty in India, improving lives throughout the nation.

– Jared Faircloth
Photo: Flickr

Juice Companies in Sierra LeoneIn the African country of Sierra Leone, the annual “wet season from May through September” is commonly titled “the hunger months” because farming and harvesting conditions are not ideal. Many impoverished farmers in Sierra Leone survive on less than $1 per day, only able to afford the costs of one daily meal. Fruit juice companies in Sierra Leone aim to improve the lives of impoverished farmers and ignite economic growth.

Poverty in Sierra Leone

Out of the nation’s population of 7 million, 53% endure conditions of poverty. According to a June 2020 report, more than 700,000 people in Sierra Leone suffer from severe food insecurity. In addition, “Only one-fifth of the estimated 5.4 million hectares of arable land is used for agriculture.” This leaves much room for agricultural expansion in the nation. The agricultural sector is underdeveloped, “dominated by smallholder farmers practicing subsistence farming with traditional methods and limited use of improved seeds and fertilizers.” As such, Sierra Leone’s agricultural sector has much potential to contribute to economic growth.

Sierra Juice

In 2013, Hamza Hashim, a cacao trader living in Sierra Leone, created the Sierra Juice company as a way to reduce food “waste and give farmers better livelihoods.” While transporting fruits to sell to markets, Hashim realized that due to a lack of cold storage facilities in Sierra Leone and the high cost and unreliable nature of electricity, fruits would start rotting before even reaching the market. Hashim came up with the idea of turning the fruits into “juice as a way to process and preserve the fruit.”

Today, the Sierra Juice company provides more than 5,000 farmers with steady livelihoods by supplying fresh fruit to the company to produce juices. The company’s goal is to provide affordable, natural juices to the community while providing farmers with an outlet to sell their produce.

The company takes it upon itself to train farmers and key equipment operators in order to keep costs low. The company is also responsible for its “own water filtration” and “electricity generation,” making Sierra Juice a “360-degree company.”

Juice Worth the Squeeze

Juice Worth the Squeeze is a 2019 project that came to a close at the end of 2020. A collaboration between Sierra Agra Inc. (Sierra Leone’s “only juice processing company”), Woord en Daad, FairMatch Support (FMS) and IDH The Sustainable Trade Initiative, the project aided “mango and coconut farmers in Sierra Leone.” Sierra Agra itself was responsible for providing incomes to more than “3,500 smallholder farmers” who provided fruits to Sierra Agra, which the company then exported “to the global market.”

Women account for about 70% of the farmers providing fruits to Sierra Agra. In 2018, Sierra Agra bought more than 2,000 metric tons of fruit from these smallholder farmers.  Many of these smallholder farms “have undergone organic audits by Control Union” in order to achieve organic certification that will assist these farmers in accessing “higher market prices” in order to raise their incomes further.

The Juice Worth the Squeeze project provided training and assistance to these farmers to increase agricultural productivity, raise profits and strengthen livelihoods, targeting roughly 7,000 farmers.

Juice companies in Sierra Leone support the people of Sierra Leone by strengthening their livelihoods and providing job opportunities to communities. With support and training to increase productivity and profits, these companies empower impoverished citizens to rise out of poverty.

– Makena Roberts
Photo: Unsplash

Economic Growth in the Philippines 
Bananas, coconut oil and refined copper form the core of the Philippines’ growing, thriving economy. The Philippines is the second-largest exporter of coconut oil in the world, and the United States and the Netherlands consume 70.5% of Filipino exports. The growth of coconut oil as an export has mirrored dramatic economic growth within the Phillippines, a result of a change in power and policy. However, COVID-19’s impacts on the economy could indicate a slowdown in economic growth in the Philippines.

Recent Figures

Prior to the second quarter of 2021, the Filipino economy had faced a five-quarter recession. During the lockdown in 2020, the GDP contracted by a record low of 17%. Due to a reallocation of $11.5 billion to fighting the COVID-19 pandemic, infrastructure spending declined by 22%, limiting how much the government could spend on rebuilding housing and transportation in the densely populated nation. With overseas workers from Singapore returning and people losing their jobs, the unemployment rate rose to 17.6%. Estimates show that almost 22% of the population could be living under the poverty line, with recent trends of a growing middle class abruptly reversing.

Important Policies

Essentially, there was remarkable economic growth in the Philippines prior to the COVID-19 pandemic and subsequent lockdowns. Numerous pivotal pieces of legislation along with a shift in Duterte’s fiscal policies were responsible for this growth.

In February 2019, the Philippines passed the Rice Tarrification Law (RTL). For decades, the National Food Authority had a monopoly over imports and prices, leading to excessive prices for consumers. While this monopoly had the intention of ensuring that Filipino rice farmers would have revenue, the policies of the NFA disproportionately affected poorer people from rural areas by driving up prices. After a rice shortage led to poor Filipinos struggling to put food on the table daily, Manila lawmakers decided to reverse the NFA’s policies by passing the RTL. By removing restrictions on rice imports and replacing them with a blanket tariff, the price of rice stabilized, allowing poor Filipinos to have access to food. By supporting the domestic rice supply with additional imports, poorer Filipinos could now eat and purchase other goods.

COVID-19’s Impact

However, the Filipino economy has shown remarkable grit. In the second quarter of 2021, the economy grew by 11.8%, outpacing the 6.6% annual growth between 2012 and 2019. The Filipino government has planned a campaign to get 70% of the population vaccinated by February 2022, which could facilitate further growth. Lockdowns due to the Delta variant may hamper economic growth in the Filipino economy, but second-quarter growth indicates that it will have a limited impact.

If the Filipino economy is able to sustain continued recovery despite the economic weaknesses that are plaguing Southeast Asian nations fighting COVID-19, it is on its way to becoming a regional economic power and reducing the poverty rate it is infamous for. Recent policies like the Rice Tarrification Law should help economic growth in the Philippines as well, while allowing more impoverished Filipino people to have access to food.

– Shruti Patankar
Photo: Flickr

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

Made in China 2025Over the last few decades, the Chinese economic miracle has astounded pundits across the globe. When reforms began in 1978 under Deng Xiaoping, China accounted for about 5% of the world economy. In 2020, that figure was more than 17% and rising quickly, second only to the United States. During the same period, extreme poverty was effectively erased, down from a high of 90% in 1981. The Made in China 2025 initiative aims to reduce poverty even further and ignite economic growth so that China can avoid the middle-income trap.

Poverty and the Middle-Income Trap in China

In some ways, many of these figures paint an inaccurate picture of the Asian giant. China is wealthy but its population is enormous, meaning that average incomes remain relatively low. In the United States, GDP per capita is almost four times higher than China’s. Furthermore, Chinese economic growth is slowing. Ballooning levels of debt and an aging population create worry for Beijing, even as the Communist Party celebrates its 100th anniversary. Economists fear that China could fall into the middle-income trap, a situation where rising wages for developing countries erode their manufacturing advantage but their innovative sectors remain too small to compensate.

Radical Planning for a Radical Problem

In 2015, preempting these concerns, Chinese leadership announced the Made in China 2025 initiative, hoping to move the nation up the value chain. As Harvard University explains it, the strategy intends to “secure China’s position as a global powerhouse in high-tech industries.” Furthermore, “the aim is to reduce China’s reliance on foreign technology imports and invest heavily in its own innovations in order to create Chinese companies that can compete both domestically and globally.” If China succeeds, it will create a blueprint for other developing countries in Africa and Asia to bypass the middle-income trap and liberate their populations from the grips of poverty.

Made in China 2025 outlines 10 key industries that the nation must master if it seeks to move up the value chain.

  1. Information technology
  2. Robotics
  3. Aerospace equipment
  4. Pharmaceuticals
  5. Medical equipment
  6. Electrical equipment
  7. Farming
  8. Railway equipment
  9. New energy vehicles
  10. Ocean engineering

From artificial intelligence to quantum computing, China has poured billions into developing cutting-edge technology. The U.S. administration cast the effort as an attempt to displace U.S. technological leadership, sanctioning Chinese companies from doing business with their suppliers in the United States. In reality, much of the motivation behind the Chinese initiative stems from a more basic goal: lifting the nation out of poverty and inspiring other nations to do the same.

Avoiding the Middle-Income Trap

The middle-income trap that confronts China is daunting as only a few countries have ever escaped its grasp. Most prominent were the Asian Tigers — South Korea, Taiwan, Hong Kong and Singapore — economies that defied the odds and delivered decades of sustained growth. But, many have failed to replicate the Asian Tigers’ success. Nations like Brazil and South Africa became mired in the middle-income trap, unable to escape the hard ceiling.

The danger for developing countries around the world is a run-in with the same fate. Before COVID-19, African nations were fast-growing. The World Bank predicted that many would reach middle-income status by 2025. But, upon achieving this milestone, they would encounter the same middle-income trap that Brazil and South Africa once faced. If this occurred, the region could be forever stuck in a grey zone, one where poverty would be reduced but not eliminated.

Looking to China

China offers a solution. If nations can move up the value chain with enough speed, they can escape the middle-income trap. Governments can help. The Communist Party has poured billions of dollars into research and development for Made in China 2025, creating some of the world’s largest technology companies in the process. African and Asian nations can do the same on their path to development.

Of course, investment has its downsides. Corruption takes a significant toll on the ability of a government to distribute funds in an appropriate manner. Tackling this problem will not be easy or simple, but a roadmap to success has been laid. With the rise of Asia and Africa in the decades ahead, countries have a chance to crush poverty and increase welfare for billions of people.

– Zachary Lee
Photo: Flickr

;The Potential of Africa
Throughout its history, Africa has faced innumerable challenges. War and conflict have taken a massive toll on the people who call Africa home, and instability is often the norm. Most recently, the rise of Islamic terrorist groups has contributed to growing unrest and instability. Nearly 350,000 people died from a recent Nigerian conflict alone and many governments in Africa are experiencing political turmoil. Overall, Africa has averaged four coup attempts per year in recent decades. On top of instability and violence, Africa’s citizens face frequent environmental challenges. From the 1960s on, millions have died from a lack of food security due to famine and drought. Poverty has a grip on 36% of the African population. Despite all the forces going against the largest continent on Earth, there is a silver lining. Although it has a challenging road to the future, the potential of Africa to be a wealthy, stable player on the world stage is significant.

Considering Africa’s Resources

Africa is extremely resource-rich. Many African countries sit on top of massive amounts of gold, platinum, natural gas or other rare earth minerals. This puts them in an exceptional position relative to other countries when it comes to sheer resources. One pound of gold is worth about $22,000 as of February 2021. In 2020 alone, Africa produced 663 metric tons of gold. It is also responsible for being home to 40% of the world’s gold. In addition, it is home to a massive quantity of the world’s liquid wealth – crude oil, 12% of it. On top of sitting upon massive heaps of gold and oil, the continent is host to some of the largest quantities of diamonds on earth.

Silver Linings Are Not Just Underground

The potential of Africa appears more promising as the continent makes forward progress on many fronts. Population expansion, modernization, increased access to tech, poverty rates and life expectancy have all seen positive statistical changes. About 45% of Africans live in poverty as of 2012, about a 5% drop from 1981. Further, Africa’s population has increased exponentially in recent years and is on track to keep increasing with a larger and larger percentage of this population moving to cities.

In due time, projections have determined that Africa will have some of the largest megacities on the planet. Traditionally a continent without much internet access, recent years have seen remarkable breakthroughs in online connection. As time goes on, Africans are adopting more cellular tech. Those with high-speed internet connections or broadband have reached 16% as of 2012 and could reach 99% by 2060. Lastly, life expectancy has gone up dramatically.

As Africa continues to make positive changes, its future looks brighter and brighter and inches ever closer to a new era for the continent. The potential of Africa is on the rise.

– Cole Izquierdo
Photo: Unsplash

Greek and Cypriot povertyAfter decades of economic struggle which the pandemic and COVID-related restrictions exacerbated, Greece and Cyprus are optimistic about their economic futures. In 2019, both countries’ economies were in grim states. In Cyprus, 15.3% of the population was at risk of poverty as of 2020, a marginal rise from the previous year. Meanwhile, 30% of Greece’s population was at risk of poverty or social exclusion in 2020. Amid all the pessimism, however, there are reasons to have a bright outlook for the future of Greek and Cypriot poverty reduction.

EU Funding

Massive pandemic relief packages stemming from the E.U. budget have already allowed a solid recovery for Greece and Cyprus.

In June 2021, the E.U. approved a recovery plan worth 30.5 billion euros for Greece. According to E.U. Commission President Ursula von der Leyen, the plan “will help Greece build a better future.” The recovery plan could spur Greek economic growth by 7% within the next six years, giving people a reason to be optimistic about the future of Greece’s economy.

In Cyprus, the 1.2 billion euros that Greece secured from the E.U. Recovery and Resilience Program and 1.8 billion euros from the E.U.’s Structural and Investment Funds form part of the Cypriot president’s self-described “ambitious” recovery plan. The massive cash influx will help add at least 11,000 new jobs, a significant number for a country with a population of around 875,000. In addition, it will help Cyprus reverse course from the continuous austerity its government has implemented in recent years, which has proven counterproductive in the fight against poverty. These two gigantic pandemic relief packages from the E.U. will allow a bright future for Greek and Cypriot poverty reduction.

Optimistic Economic Growth Projections

Another major reason for optimism about Greek and Cypriot poverty rates is the countries’ economic growth projections. Despite the pandemic significantly shrinking both nations’ economies, economic growth projections for upcoming quarters and years are notably better than expected.

In Greece, for example, after a fantastic 4.4% rise in GDP in the first quarter of 2021 despite the COVID-related restrictions that were in place for almost the entire quarter, the E.U. Commission has released a favorable economic forecast for Greece for the remainder of 2021 as well as for 2022. It expects Greece’s GDP to grow by 4.3% in 2021 and 6% in 2022. Cyprus’s economy also appears poised to bounce back phenomenally from its shrinkage. Cypriot President Nicos Anastasiades has said that the E.U.’s relief plan will enable a 7% increase in GDP over the next five years.

Gabriel Sylvan
Photo: Flickr