Information and stories about economy.

How Everest is Affecting NepalThe country of Nepal is often an afterthought to Mt. Everest, the mountaineering mecca of the world and the tallest peak. Unfortunately, tourism to Mt. Everest is affecting Nepal through the unstable economy it brings and sanitation concerns. The environment and the permanent residents of the mountain must be considered.

Tourism-based Economy

Throughout most of the cold war, Mt. Everest was closed on the Tibetan side and highly restricted within Nepal. Only climbers who were accompanied by scientists could climb. However, in 1993, the government relaxed the rules and regulations surrounding the mountain. Travel and adventure agencies began to crop up. They sell the dream, the ultimate bucket list item of summiting Everest.

Now, more than 7 percent of Nepal’s economy depends on the three months of March, April and May when people come from across the globe to take their shot at summiting one of the world’s seven wonders.  People from all across the world come to the region of Khumbu, located at the base of the mountain and home to the indigenous Sherpas. Between tourists and Nepali people coming from other areas to work, the population climbs from 40,000 to a staggering 700,000 people. However, this tourism-based economy is unstable and leaves many Nepali excluded from the enterprise.

Impact on Nepali People

Though this tourism boom has helped the Nepali government, its impact on the Nepali people is very isolated. The main benefactors are those connected to the few popular tourist attractions in the country, mainly Kathmandu and Everest. Tourism to Everest is Affecting Nepal. It is having a negative impact on sanitation in Khumbu. Climbers leave heaps of trash at camps, which becomes increasingly more difficult to remove as elevation rises. As the ice melts on the mountain, it washes the trash and human waste down into the villages bellow, creating an unsanitary environment and physical destruction from flooding.

However, despite these health and safety risks, the Nepali government has declined to stop tourism for any given time. While they have made some clean-up efforts throughout the past few years, sanitation continues to be an issue on the mountain and in the villages below.

Keeping the Mountain Clean

To help mitigate some of the impact made by tourists, organizations like KEEP (Kathmandu Environmental Education Program) have made efforts to educate both the Nepali people and tourists on how they can better care for the mountain and minimize their footprint. KEEP is a non-profit organization that works to conserve the mountains of Nepal. It has started programs in Eco-tourism, environmental awareness and rural community development.

In August of 2019, Nepal announced a ban of single-use plastics on the mountain, which will significantly reduce the amount of plastic waste that will be left behind by climbers. Additionally, in 2019 the country released the decision to make getting a climbing permit more difficult.

Economy or Environment?

The Nepali government is trying to decide what should and can be done about conserving Everest and other mountains in the country. If they limit the number of climbing permits allotted, it would improve the health of the mountain. However, it would take away money and a significant number of jobs from the Nepali people. Money from Everest has allowed people from one of the poorest countries in the world to send their children to secondary schools outside of the country. It has allowed people to create their own businesses. Also, it has fostered incomes for the Sherpas that far exceeds that of the average Nepali person.

Tourism-based income is unstable in the long run because it only provides a steady income for a short period of time. However, in the short term, it provides people with better living. Everest is affecting Nepal negatively in many ways, but the positives it brings cannot be ignored. It is difficult to know what to do about the issues tourism to Everest is causing when its short-term benefits have such a strong impact on the people of Nepal. Work is being done, but just like the trek to summiting Everest, this will be a long and challenging road for the Nepali people and government.

Emma Hodge
Photo: Flickr

Ghana's Poverty Rate
Ghana is a West African country that has made considerable progress in reducing poverty. Ghana’s poverty rate gradually lowered since the 1990’s. Poverty reduced from 52.6 percent in 1991 to 21.4 percent in 2011. Ghana slashed its poverty rate by more than half and became a middle-income country in 2011. The three reasons for this huge reduction are economic growth, diversification and education development.

Poverty Reduction in Ghana: 3 Keys to Success

  1. Economic Growth: Ghana’s 2017 GDP growth rate was about 8.4 percent, which was the seventh-fastest GDP growth rate in the world. The economy is developing quickly, as the country sets a few policy barriers to investment and trade in relation to other African countries in the region. Due to the few barriers, investment in natural resources such as oil and gold are common. Gold alone brings about 48 percent of the country’s revenue and is one of the main reasons for economic growth. Gold production amounted to about 590,000 ounces in 1990 and increased to 4.6 million ounces in 2018. As of 2018, Ghana is number seven in the world for gold production.

    Oil is also an important export but is relatively new. The oil sector is less than 10 years old, yet is growing at a rapid rate. In 2017, more than 500 million barrels were produced from the Sankofa fields. Ghana’s growth averaged about 4 to 5 percent in the 1990’s and has gradually increased over time. Thanks to steady growth, Ghana’s poverty rate was 21 percent in 2012, which is less than half the African average of 43 percent.

  2. Diversification: Oil and gas are two areas that helped diversify the economy and reduce Ghana’s poverty rate by creating jobs and increasing wages for those transitioning out from low-wage occupations and into more lucrative fields. The service industry is 57 percent of GDP and remains the largest sector and another important area in Ghana’s growth. The service sector also employs about 40 percent of the population.

    Agriculture still employs a little more than a quarter of the population, yet the service and manufacturing sectors have steadily grown since 1991. Developing economies are mainly agriculture-dependent economies. As a middle-income country, the amount of the population employed by Ghana’s manufacturing and service sector expresses transitioning into a developed and stable economy. In 2008, employment in agriculture was 52.5 percent and reduced to 33 percent in 2018. Service employment rose from 33 percent in 2008 to 47 percent in 2018. In only 10 years the service sector has grown 14 percent. The industry grew 4 percent during that same time period. Telecommunications and tourism are two services that helped grow the service sector.

  3. Focus on Education: A better educated and trained country leads to more opportunities. The number of people in Ghana’s workforce without education dropped from 41 percent in 1991 to 21 percent in 2012. Almost 90 percent of children attend school, which is a big difference from other African countries. Only 64 percent of Nigerian children attend school. Ghana spends about 8 percent of its budget on education, which is more than the United Nation’s 6 percent benchmark. For reference, the U.K. spends a little more than 6 percent on education. Ghana’s progress in education began with the U.N.’s millennium development goals that the U.N. set in 2000, and it developed at such a fast rate because it pushed for education.

Ghana’s poverty rate slashed in half thanks to education development, diversification and fast economic growth. The economy is still strong despite its 2015 recession. The economically diverse and natural resource-rich Ghana has made tremendous progress in poverty reduction and is projected to continue reducing its poverty rate in the future.

Lucas Schmidt
Photo: Flickr

China's Protests Affect its Poverty and Economy
As protests in Hong Kong have continued to escalate between protesters and China’s ruling Communist Party, each side appears to become increasingly distant from the other. The term One China is not new, but what is new is the number of protests that have occurred and the amount of support that it is receiving from citizens. The protests in Hong Kong began to occur in April 2019 following an extradition bill that would have allowed the extradition of the citizens of Hong Kong to the mainland. Here is how China’s protests affect its poverty and economy.

Tourism and the Economy

In Hong Kong’s top tourist area Tsim Sha Tsui, many shop workers tend empty shops waiting for consumers. This district holds an assortment of luxury hotels, restaurants and boutiques that attract tourists. In recent months, however, it has seen an inverse of traffic as shoppers occupy it less and protesters occupy it more. At the beginning of 2019, businesses started to struggle from the strained U.S. and Beijing trade war. In the months following, the economic state worsened and the protesting has lasted for months to date.

Similar to the tourism business, other industries across the region have felt comparable effects from the protests as well. A large number of startup companies are beginning to consider other areas like Singapore for future operations. Some economists believe that China may be one step closer to a recession as GDP has decreased. Select industries are seeing a decline rate in the double-digits from previous years.

Immigration

As the economy of China has been on the decline for months, immigrants from the mainland have moved to Hong Kong at high rates for the past 10 years. Estimates determine that between 60 to 70 percent of China’s population came from the mainland. In 2017, approximately 40 percent of immigrants from the mainland to Hong Kong were living under the poverty line.

Success So Far

Chinese leaders have held a goal to eliminate national poverty for several years now. Even with the protest and political tension that the region is facing, it still seeks to eradicate poverty. In the last seven years, nearly a billion citizens have risen from their impoverished status. In 2018, official counts determined that there were only 16 million people living below the poverty line. If the country continues at the rate it has been going, there will be just a few million people still in poverty by the end of 2019.

Distractions or Support

People have made numerous cases against the middle class, the largest class in the country. Some believe that this initiative has drowned out other issues that impact the nation. Topics such as extreme poverty and class status are beyond the realm of politics and legislation that people typically see. Another claim is that the economic frustrations of China’s citizens are pushing the protest to expand. What initially was about an extradition bill also serves as an opportunity for protesters to speak out about their concerns.

In the last decade, China has reduced the number of people living in poverty substantially, however, it has been occurring at a decreasing rate. In recent months, the discussion of China relates to the increasing rate of protests in Hong Kong. Many people have taken notice of how China’s protests affect its poverty and economy. The nation’s finances have been a point of interest as numbers fail to match those of previous years.

Kimberly Debnam
Photo: Flickr

Human Capital Investment in Somalia

Somalia is one of the 10 poorest countries in the world. UNICEF estimates that 43 percent of the Somali population live on less than a dollar a day, while around half of the labor force is unemployed. Social unrest caused by a long civil warcoupled with weak institutions have contributed to devastatingly high levels of poverty in the region. One especially prominent effect of this has been the incredibly weak education system in Somalia. Only half of the Somali population is literate and in 2016, only 32 percent of Somali children were enrolled in school. This has undermined much of the government’s attempts to build successful anti-poverty initiatives, as economic development requires substantial improvements in the human capital development of Somalia.

Partnership with the World Bank

Somalia had previously been unable to attain a partnership with the World Bank, due to high levels of debt carrying over from previous World Bank loans. However, the ambitious economic reforms of the new Somali government which was established in 2012, offer hope for improvement, culminating in the new Country Partnership Framework established by the World Bank in 2018. The World Bank has dedicated its resources to aiding the Somali government in developing stronger institutions and economic growth, in line with the government’s National Development plan. As a result of the new partnership, the World Bank now accounts for 15 percent of total financing (around $28.5 million) for Technical and Vocational Education and Training programs in Somalia.

Human Capital Investments

These investments play a significant role in human capital development, as they offer an opportunity for Somalia to diversify its economy and offer the potential for granting individuals access to sustainable long-term income. This is especially true of the role that education plays, as creating a more educated population can be vital to ensuring continued economic growth, reducing the overall reliance on foreign aid. Improvements in human capital have the potential for massive returns. The World Bank estimates that human capital growth can produce a 10 to 30 percent increase in per-capita GDP, providing economic resilience, as well as developing the tools necessary to help lift a country out of poverty. 

Such programs can play a vital role in improving employer confidence and organizing effective human capital advances. While many other reforms may contribute to economic growth, it is important to note that since the World Bank began the partnership in 2018, the country’s GDP has grown by 0.7 percent.

Overall, by securing this partnership with the World Bank, Somalia is working toward major educational reforms to boost human capital development for this and future generations.

– Alexander Sherman
Photo: Flickr

Technological Access in Bhutan

A mountainous landlocked kingdom of 766,000 people, Bhutan has been traditionally been isolated and disconnected from the outside world for a number of centuries, with previous rulers keeping the nation as a “hermit kingdom” prior to the legalization of television and Internet in 1999. Bhutan‘s economy relies heavily on its agriculture and forestry alongside the budding hydroelectricity industry, which has proven difficult due to the mountainous terrain of the country. The country’s main trade partners are India and Bangladesh, with no known relationship with the U.S. or other major U.N. members. The legalization of the Internet in 1999, as well as investments in technological advancement in the mountainous country, is a turning point for the kingdom as the developing technological access in Bhutan is expected to bring the country to the modern era.

Internet Development

Since the Internet’s introduction in 1999, Bhutan quickly was able to quickly build its telecommunication infrastructure and have much of the country connected. Cell phone services began in 2003, with 80 percent of the population owning a cell phone as of 2018, which includes 70 percent of the population that consists of farmers, making Bhutan one of the most connected countries in the world. This jump from the days of being isolated from the world allows the people of Bhutan to communicate both within and outside of the country’s borders.

Telecommunications

The continued developing technological access in Bhutan has also seen growth through Bhutan’s own investment into its communication networks. Bhutan‘s internal ICT development includes:

  • implementing protection lines for consumer purchases
  • building stations for mobile carriers and broadcasters and expanding upon broadband connections for wireless connections and private access for citizens
  • investing in cybersecurity and strengthening the overall connection quality

The investments in the internal network lines have allowed Bhutan to quickly connect the nation at a rapid pace. However, challenges remain in terms of developing the rural areas of the country within its mountainous terrain. That said, the government is actively looking at ways to change the status quo.

The National Rehabilitation Program (NRB) and the Common Minimum Program are two examples of initiatives focused on building new facilities and roads as well as easier access to electricity and supplies. Mountain Hazelnuts, a company headquartered in Eastern Bhutan has also made major tech investments for its farms, increasing employment and supplying smartphones for hired farmers that help with directions on the road and improve communication.

Henry Elliott
Photo: Flickr

 

Startup Companies in India
With a booming population and competitive economy, India has made a mark in the global playing field. However, nearly 60 percent of India’s population lives on $3.10 per day and 21 percent (250 million people) live on $2 per day. The uneven spread of wealth leaves many people in poor living conditions. The top 1 percent of Indians own 58 percent of India’s wealth, meaning 16 people own the wealth of 600 million people. Unfortunately, over 70 percent of the population still lives in rural villages and work labor-intensive jobs with minimal profits.

The extremely high growth rate of the population leads to a strain on resources. This leads to growing illiteracy and a lack of health care facilities and services. Some expect the total Indian population to reach 1.5 billion by 2026 which means the country will require 20 million new jobs to sustain its people. There is now a desperate need for a better solution to pull people and their families out of poverty.

The Nature of Startup Companies in India

The economy in India continues to compete on a global scale as highly intellectual individuals are progressing with new businesses and startups. In fact, India is the home of 48 million new businesses, which is more than twice the number in the United States at 23 million. The startup companies in India have unlimited access to software and intelligence, making it a competitive playing field. Due to the startups, India has the fastest growing economy and market place in the entire world, taking over China and the United States.

The number of startup companies in India is continuing to grow from 3,100 companies in 2014 to an expected number of 11,500 companies by 2020. The current day and age make India an ideal place of startups as entrepreneurs have access to the internet, educational initiatives and experienced mentors. All of these factors improve the success of startup companies. India has the third-largest startup ecosystem in the world, which was worth over $32 billion in market valuation in 2017. The ever-growing field has drawn in numerous foreign investors leading to a 167 percent growth in 2016 alone.

How Startup Companies Create Jobs

The Indian government has recognized the growing startup companies and has created a plan for ‘New India.’ This involves encouraging employment among the youth. The millennials in India can take advantage of the possible employment ventures as startups create an open atmosphere for innovation. With new information trends every year, these creative companies are creating jobs for people and reducing poverty as people can better support themselves and their families. The startups alone create one billion jobs for millennials. Companies such as Flipkart, Ola and PayTM have an equity of $1 billion, inspiring young entrepreneurs to take risks and start companies. In 2016, India had the most job creation of all countries in the Asia and Pacific Region.

What Now?

Despite the high poverty rates in India, there are new opportunities emerging for people to improve their living conditions. The startup companies in India are extremely successful and allow for families to improve their financial standings. The nature of the startup ecosystem makes it easier for people to start new businesses and become successful. Startup companies in India are changing lives and the same could happen in other countries.

– Haarika Gurivireddygari
Photo: Flickr

Rwandan Economy

Rwanda is located in the heart of Africa. Although the Rwandan economy is dependent on agriculture, Rwanda‘s infrastructure has made progress through its Urban Development Project. Kigali Innovation City is an effort to further develop the economy and invite businesses to invest in key areas such as commercial and retail real estate, biotechnology and education. Africa50 partnered with the Rwanda Development Board to improve basic infrastructure such as roads, drainage, solid waste management and sanitation. Thanks to these and other major projects, Rwanda has one of the fastest-growing economies in Africa. President Paul Kagame hopes to transition the economy from a subsistence farming economy to a service-oriented, middle-income economy by 2020.

Rwanda Urban Development Project

The Urban Development Project for Rwanda, approved in 2016, completed Phase 1 in October 2018. The project began in September 2017 and focused on infrastructure improvement and urban management in secondary cities such as Nyagatare, Rubavu, Rusizi, Muhanga, Musanze and Huye. Infrastructure is lacking in the country, yet the Urban Development Project is a solution to the following component: roads, solid waste management, sanitation and stand-alone drainages. The end date for the $100 million project is June 2021. About $80 million are directed towards component one – provision of basic infrastructure in secondary cities. The rest of the funds go towards three other components, such as technical assistance for sustainable urban management.

According to Minister of Infrastructure, Honorable Claver Gatete, “Phase 1 implemented under the World Bank funding in all six secondary cities is meeting the main objective to provide access to basic infrastructure and enhance urban management.” About 28.3 kilometers (17.6 miles) of urban roads and 13.8 kilometers (8.6 miles) stand-alone drainages were completed during phase 1. Another major component of the project is upgrading unplanned settlements in the capital city called Kigali. The last two components involve technical assistance for sustainable urban management and support for project management, as the scope of the project and funds involve substantial risks. The project’s progress was successful. Phase 2 began in July 2019.

Kigali Innovation City

Kigali Innovation City is a giant project garnering investors from across the globe. The main goal is to create an innovative business hub in the heart of Africa that’ll include four first-rate universities, innovative agriculture, healthcare, technology, financial services, biotech firms and both commercial and residential space. The targets include creating 50,000 jobs, generating $150 million in ICT (information and communications technology) exports annually and attracting more than $300 million in foreign direct investment. Africa50, the pan-African infrastructure investment program, partnered with the Rwanda Development Board to invest $400 million in the tech hub. The Africa50 investment shows interest in diversifying the Rwandan economy and promise in private investors developing the country through infrastructure and innovation.

Clare Akamanzi, CEO of Rwanda Development Board, stated the deal between the board and Africa50 is a key milestone in transforming Rwanda from an agriculture-dependent economy into a knowledge-based economy. About 75 percent of the labor force is agriculture-related, yet the service sector is gaining higher importance due to the fast-growing economy. The GDP growth rate rose from 4.6 percent in 2013 to 8.6 percent in 2018. It has steadily averaged about eight percent growth since 1999, which was after the country rebounded from the 1994 genocide that produced a devastating recession. The plans for university development in Kigali Innovation City shows promise in not only infrastructure development but also progress in improving education, a long-term solution to reduce poverty in Rwanda.

Future Outlook

The Rwandan economy is strong, and the progress made in the Rwanda Urban Development Project shows promise that the country can transition into a middle-income, service-oriented economy by 2020. A South American technology firm, Positivo BGH, saw growth in Rhanda’s emerging market and decided to open up a business in Kigali. Positivo BGH creates laptops made in Rwanda and employs more than 100 locals. With Africa50 investing a massive $400 million into Kigali Innovation City and firms such as Positivo BGH expanding to Kigali, external investors are seeing potential in the fast-growing Rwandan infrastructure sector.

– Lucas Schmidt
Photo: Flickr

Economic Growth in Nigeria
Nigeria, a country located on the western coast of Africa, makes up to 47 percent of the population of Africa. With the rising amount of people surrounding the area, there has been a vast amount of poverty overtaking the country. Recently, the economic growth of Nigeria has risen due to many factors such as its production of oil. However, no matter how much the economy grows, poverty continues to rise as well due to the inequality between the poor and rich.

Economic Growth

In 2018, the oil and gas sector allowed the economic growth in Nigeria to grow 1.9 percent higher than the previous year when it only grew to 0.8 percent. Although that is where more of the growth is, the oil sector does not have physical bodies working to ensure that the industry continues to grow. This leaves no growth in the stock of jobs, leaving the unemployment rate to rise to 2.7 percent since the end of 2017. Many hope that the new Economic Recovery and Growth Plan (ERGP) will promote economic resilience and strengthen growth.

ERGP

ERGP projects that there will a growth rate of 4.5 percent in 2019, but within the first quarter, there was only a growth of 2.01 percent. Charles Robertson, the global head of the research at Renaissance Captial, believes that ERGP’s 4.5 percent target was not unrealistic, especially since Nigeria was unable to meet those projections. Because most of the country’s economic growth comes from oil, there have not been many other non-oil jobs that have made a lot of profit.

The plan not only focuses on the rate of economic growth but also makes predictions that the unemployment rate will decrease to 12.9 percent. With the lack of available jobs, there has been little to no change in this rate as well. Many of the individuals that do have jobs, however, are earning up to $1.25 or less per day, which is not enough to pay for one household.

Inequality

As the economic growth in Nigeria grows, so does the gap between the poor and the rich. With the poor as the bottom 23 percent, the gap between the two has widened to 16 percent. A lot of the high-paying jobs are looking for people that have received high-quality degrees. If one does not have the money to pay for a good education, then they automatically miss out on the job opportunities that are out there. This means, that the children that come from rich families are the only ones that will be able to get the best jobs in the market.

The current government has been running a cash transfer program that provides 5,000 nairas to each household per month, which is approximately $14. This amount is not enough to relieve any household expenses because “less than 1 percent of poor people are benefiting.” Without any increase in money for each household, one cannot do much to decrease poverty.

Although there is economic growth in Nigeria, poverty is still on the rise. Many countries have faced this problem with trying to break the balance between the two and found it has not helped to decrease poverty as much. Hopefully, as the ERGP continues, it will help make changes.

Emilia Rivera
Photo: Flickr

10 Facts About Life Expectancy in Greece
The life expectancy age in Greece has been at a constant 0.22 percent increase since 2015. Out of all the countries in the world, Greece ranked at number 31 in 2019. The current average age of life expectancy is 81 years old. There are many factors that affect this average but the main one is poverty. Here are 10 facts about life expectancy in Greece and how it relates to poverty.

10 Facts About Life Expectancy in Greece

  1. The CIA World Factbook reported that the average living ages in 2017 were 83 for women and 71 for men. This coincides with the current average living age of 83 for women but men have increased by at least seven years since 2017.
  2. Socioeconomic status and class tend to directly correlate with poverty. The unemployment rate in Greece is currently 15.3 percent, which is much higher than the average unemployment rate. Unemployment can put Greeks in a lower class range, thereby forcing them into poverty. According to the IFA, as one’s status decreases so does one’s life expectancy.
  3. Access to good health care can affect life expectancy because if one has better access to health care, they could live longer. In Greece, public health care has been chronically underfunded and the country does not have an integrated health system making it harder for Greeks to receive proper assistance. Greece is trying to transition into a new health system to improve health care. These efforts include focussing on promotion and prevention in order to provide public health service at a regional level and district level.
  4. The Changemakers is an organization that started a competition called Destination: Change. New Solutions for Greece. It is meant to help find sustainable and systemic solutions for problems in Greek society. It looks at how to reduce issues like poverty which may affect the rate of life expectancy.
  5. In 2018, poverty rates increased by 6.7 percent in Greece and Eurostat data stated that more than 20 percent of Greeks have “severe material deprivation.” This means that there is an inability to afford items suited for a quality life among individuals and families in Greece.
  6. Help Age International is an organization that measures how elderly populations are doing in various countries. It conducted an annual study that shows how the elderly population in Greece have the poorest quality of life in Europe. Greece ranked 79th in quality of life compared to 96 other countries. Although Greece’s life expectancy is higher than the European average, more than 19.3 percent of its population is elderly. Understandably, health care and finances might impact the elderly’s life expectancy. Life expectancy is high but the quality of life among the elderly is not.
  7. Poverty rates in Greece are increasing and more Greeks are at risk of being in poverty. The financial crisis Greece encountered has caused a lot of this. Greece currently owes the European Union 290 billion euros. An article by Greek reporter Nick Kampouris stated that since 2018, “34 percent of Greeks are in danger of living in poverty.”
  8. The World Health Organization is trying to improve the quality of health care in order to improve life expectancy. It works in 150 different countries working to provide quality health care to those in need, and in turn, helps improve life expectancy. Greece has a representative who gives and collects data concerning its population.
  9. According to a report from the OECD in 2017, over the past 10 years, “Despite stalling in 2007, 2012 and 2015, life expectancy at birth is now over a year higher than it was a decade ago in Greece.” This is due to the fact that many Greeks reported being in good or very good health in the years following 2015.
  10. A BBC travel article published in 2017 stated that the Island of Ikaria has the highest life expectancy rate in Greece. Katerina Karnarou, a local of the Island of Ikaria, happens to be the oldest woman in Greece. People of this island often live longer with many citizens living past 90. Their diets and active lifestyles are what permits them to live so long and rank them as one of the top five locations with the highest life expectancy.

Poverty tends to have a huge impact on life expectancy in Greece. Poverty impacts socioeconomic status, health or living conditions, which all influence the longevity of each citizen. When more Greeks are falling towards the poverty line, they may find it challenging to access what is necessary to live a long, healthy life.

– Jessica Jones
Photo: Flickr

inflation in Venezuela

Venezuela has been in a decades-long economic crisis. Its economic decline is historically marked by el Viernes Negro or Black Friday. Black Friday took place on February 18, 1983, when the nation’s bolivar began depreciating in value. Inflation in Venezuela has been rising ever since. Recent hyperinflation in Venezuela has caused mass poverty across the nation. The result have been shortages of food and medical supplies and an unemployment rate of 35 percent as of December 2018.

Origins of Depreciation

In order to understand potential ways to alleviate Venezuela’s rising inflation rates, it is essential to understand how the economy reached this point. Back in the 1970s and early 1980s, Venezuela was a flourishing oil tycoon in possession of some of the world’s largest oil deposits. A worldwide shortage of oil raised the prices of barrels and created a golden period of economic growth for oil giants like Venezuela. Once the 1980s rolled in, oil prices stabilized. People started looking for more affordable, alternative energy methods.

This was detrimental to Venezuela’s economy since there was less demand for oil. Heightened production due to the previously increased oil prices left Venezuela with an abundance of oil produced and less demand. Venezuela’s reliance on exporting oil became its undoing. The price of oil continued to drop as the years progressed. Venezuelan oil production continued to exceed the actual demand. Inflation in Venezuela began here as the nation struggled to adapt in the face of failing exports.

Worsening Factors

Several factors contributed to the inflation of the Venezuelan bolivar. One factor was increased spending on social welfare programs and the importation of basic goods during Hugo Chávez’s presidency. While these actions helped to alleviate social unrest, this type of spending couldn’t be sustained as the oil-based economy tanked. In 2008, the global price of oil dropped to around $34 dollars per barrel, a record low that severely cut Venezuela’s core income. In 2014, another record low sealed Venezuela’s economic down spiral as the nation could no longer rely on its chief export for a means of financial stability.

However, this did not deter spending on welfare programs and imports, which led the nation into deficit spending. Deficit spending continues to be a major factor in increasing inflation in Venezuela. The further the nation falls into debt, the more the value of the bolivar depreciates. Currently, the full value of Venezuela’s debt is exceeds “the value of its exports” by 738 percent. Because of its massive debt, the U.S. implimented trade restrictions in early 2019. This has further decreased the sales from exports and the nation’s gross revenue.

Currency printing has been another cause of inflation in Venezuela. In order to pay for the importation of basic goods, more money has and is being printed by banks and the government. The value of the bolivar depreciates the more that is printed. It should be kept in mind, however, that these aren’t the only factors in inflation. The situation is deeply complex, spanning over decades of domestic mismanagement and failing international relations.

Qualifications for Hyperinflation

According to Forbes, a nation’s economy reaches hyperinflation once its monthly inflation rate surpasses 50 percent for a full thirty days. Once that inflation rate drops below 50 percent for another full thirty days, it is no longer in hyperinflation. Venezuela has been in a continued episode of inflation with some peaks of hyperinflation since November 2016.

Because of the longevity of Venezuela’s financial crisis, the nation’s economy is considered to be in hyperinflation. According to the International Monetary Fund, Venezuela’s GDP will drop another 25 percent by the end of 2019. The projected inflation rate by the end of 2019 will surpass 10 million percent.

Alleviating Inflation

Despite the economic down spiral in Venezuela, there is a potential solution that is common across business analysts. Forbes and Bloomberg Business both suggest that Venezuela adopts “dollarization.” This means abandoning the domestic currency in favor of foreign currency. Dollarization allows the economy to stabilize as Venezuela could leave behind the bolivar and adapt to an already stable foreign currency.

The reasons for inflation in Venezuela are numerous. There are some solutions out there, but they have yet to be implemented. In this case, adopting the American dollar may be the best approach to curb the rising inflation in Venezuela and reduce the poverty caused by inflation.

Suzette Shultz
Photo: Flickr