Information and stories about economy.

Human Capital Investment in SomaliaSomalia 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 war, coupled 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

The Fall of Venezuela’s Oil-Based Economy
Currently, Venezuela is in an economic crisis. According to the International Monetary Fund (IMF), Venezuela’s inflation rate will exceed 10 million percent by the end of 2019. This high inflation has destroyed Venezuela’s economy, causing poverty and unemployment rates to rise. In turn, it has also created mass food and medical supply shortages across the nation. Venezuela was not always in a state of crisis; it was once a thriving country backed by a booming oil-based economy. If one understands the fall of Venezuela’s oil-based economy, they will know how Venezuela’s current crisis came to be.

Fruitful Origins

Back in the 1920s, people found some of the world’s largest deposits of oil in Venezuela. Upon this discovery, Venezuela embarked on the path of a petrostate. As a petrostate, Venezuela’s economy relies almost entirely on oil exports. The government overlooked domestic manufacturing and agriculture, choosing to import basic goods instead of producing them within Venezuela. With strong support for an oil-based economy, Venezuela rode on its economic boom until the end of the worldwide energy crisis of the 1970s.

The 1970s energy crisis involved international oil shortages due to interrupted supplies from the Middle East. In place of the Middle East, Venezuela became one of the top oil suppliers worldwide. Oil prices thus skyrocketed due to limited suppliers and oil production in Venezuela increased to meet rising demand. Venezuela added about $10 billion to its economy during the energy crisis, providing enough wealth to cover the importation of basic goods. It was even able to begin more social welfare programs.

The Fall

Once the energy crisis ended in the early 1980s and oil prices stabilized again, Venezuela’s economy saw its first notable decline. Oil production did not decrease in spite of lowered oil prices and demand, resulting in a capital loss for Venezuela’s economy. The production of oil is an expensive endeavor which requires high capital investment in the hopes of that even higher sales can offset the investment. Therefore, while oil production remained high, Venezuela failed to build off of the investment, losing capital immediately.

This loss of capital marked Venezuela’s oil-based economy’s initial fall, as Venezuela risked its well-being on the unstable oil market. Just prior to the drop in oil prices, Venezuela went into debt from purchasing foreign oil refineries. Without investing in domestic agriculture or manufacturing, the Venezuelan government became economically strapped; it could no longer pay for its imports and programs, and especially not its new refineries.

In order to pay for its expenses, Venezuela had to rely on foreign investors and remaining national bank reserves. Inflation soared as the country drilled itself further into debt. It was not until the early 2000s that oil prices began to rise again and Venezuela could once more become a profitable petrostate — in theory. Under the regime of Hugo Chávez, social welfare programs and suspected embezzlement negated the billions of dollars in revenue from peaked oil exports.

By 2014, when oil prices took another harsh drop worldwide, Venezuela did not reserve enough funds from its brief resurgence of prosperity. Ultimately, the country fell back into a spiral of debt and inflation.

Lasting Effects

The fall of Venezuela’s oil-based economy sent shockwaves throughout its population, affecting poverty and unemployment rates and causing mass food and medical shortages. Estimates determined that in April 2019, Venezuela’s poverty rate reached nearly 90 percent nationwide. A notable factor of its widespread poverty, some suggest that Venezuela’s unemployment rate was 44.3 percent at the start of 2019.

Unemployment is rapidly increasing in Venezuela as both domestic and foreign companies lay off workers — with some companies offering buyouts or pension packages, and others just firing workers without warning. As Venezuela falls further into debt and its inflation rises, there is not enough demand within the country for foreign companies to stay there.

As previously mentioned, the earlier Venezuelan government chose to rely on imports rather than domestic production for its basic goods. Now, in 2019, the country suffers from its past mistakes. Unable to afford its imports, food and medical supply shortages are rampant across Venezuela. According to recent United Nations reports, over a 10th of the nation’s population is suffering from malnourishment. In addition, malaria — which the country virtually eliminated several decades prior — is reappearing as there are more than 400,000 cases nationwide.

A Way Out

While the fall of Venezuela’s oil-based economy may be detrimental to the nation’s overall stability, there is a way out of ruin: the International Monetary Fund, an international agency that exists to financially aid countries in crisis. In the fight against global poverty, the IMF is a vital tool that can prevent countries from reaching an irreparable state.

If Venezuela defaults on its debt and seeks funding from the IMF, Venezuela would be able to invest in domestic agriculture and other infrastructure. Therefore, if the oil industry continues to decline, there will be a fallback for supplies and potential exports. While this is not a panacea to the fall of Venezuela’s oil-based economy, it is a way for the nation to prepare for any future declines in oil prices and begin to work toward prosperity.

– Suzette Shultz
Photo: Flickr

Oil Discovery in Guyana
The 2018 oil discovery in Guyana means this former British Colony can expect a massive increase in wealth by the early 2020s. The country found over three billion barrels worth of oil off its coast and it will likely positively impact its future economy. By 2020 Guyana will be a major petroleum producer. This may lead to a 300 percent increase in Guyana’s GDP by 2025.

For a country that heavily relies on agricultural, mining and lumber exports such as sugar, rice, bauxite, timber and gold, the oil revenue will heavily impact the Guyanese economy. As of now, Guyana’s agriculture industry experiences many ups and downs because of its vulnerability to floods. Between 1990 and 2014, floods were responsible for 93.6 percent for Guyana’s economic inactivity.

Currently, the oil project is still under production so it does not account for any percentage of the GDP. The oil and gas revenue, however, for the 2017 fiscal year is $2.8 billion. This accounts for only 14 percent of the Guyanese revenue generated by extractives.

As of 2017, 36 percent of Guyana’s population lived in poverty with unemployment rates almost reaching 12 percent. Education and trade learning are essential for the elevation of a country out of poverty. However, many are unable to continue their education after primary school. Youth from 15 to 24 make up 40 percent of the population, yet unemployment rates for them are 22 percent. Fortunately, with the recent oil discovery, Guyana’s oil industry has hired 10 more graduates of the University of Guyana in 2018 than it did in 2017. However, since the oil discovery, Guyana’s unemployment rates have remained around 11 to 12 percentage. As of 2019, oil and gas companies claimed 51 employees making up only 0.02 percent of the population.

What is the Resource Curse?

The resource curse refers to the idea that countries with a significant amount of their own natural resources experience little economic growth, development and more authoritarianism. The oil industry is unpredictable, and when governments tend to rely on it, citizens suffer. Several countries that were once in Guyana’s shoes, like Nigeria and Venezuela, experienced corruption and a contradicting lack of economic growth when their oil business began to boom. The influx of wealth that accompanies the discovery of oil, transparency, accountability and active oversight are important for avoiding the feared resource curse.

Venezuela, Nigeria and the Resource Curse

Venezuela’s oil reserves are larger than any other country’s. Since Venezuela’s focus on oil meant that it ignored other industries, however, poverty in Venezuela has reached devastating highs. Children have been suffering from malnutrition at alarming rates, and as of 2018 up to two million people have fled the country.

In Nigeria, the influx of oil came with a bevy of problems including theft of oil pipes, damage to nearby ecological systems, oil spills and abuse of the natural resource wealth. According to the World Bank, only one percent of the Nigerian population benefits from just 80 percent of the revenue brought in by the oil. The attention and support that Nigeria received for its oil industry also meant that the country neglected other industries like agriculture.

The EITI and NPPDG in Guyana

Upon the recent oil discovery in Guyana, the country has become apart of the Extractive Industry Transparency Initiative (EITI) and the New Petroleum Producers Discussion Group (NPPDG).

The goal of the EITI is to ensure that a country is managing its natural resources in a way that benefits its citizens as much as possible. Some key standards of the EITI include informing the public, providing transparency within governments and companies dealing with the natural resources and holding those in power accountable.

As of 2019, the EITI has introduced new transparency requirements. One requirement impacting Guyana specifically is the contract transparency requirement. This states that by the year 2021, all participating countries must publish new oil, mining and gas contracts. Guyana has committed itself to the formulation of new contracts along with three other countries.

The purpose of the NPPDG is to help emerging oil producers make effective policies and decisions and remain proactive. Governments receive training sessions, mentorships and existing techniques via current successful oil-producing countries. Countries can provide one another with advice and support when facing novel challenges. In a summary of the most recent NPPDG meeting, consistency and politics were topics of discussion for Guyana. Because oil-production is a long-term project, keeping plans consistent and on track despite the occasional election of new leaders is a topic of concern for Guyana. This is mainly because prior to the discovery of the oil, Guyana began its Low Carbon Development Strategy. In this strategy, the country developed plans to fight climate change through sustainable development. According to the report, participants of the meeting are concerned that the recent oil discovery and subsequent oil production may not fit in with the Low Carbon Development Strategy.

Guyana’s New Sovereign Wealth Fund

Another proactive step taken by the Guyanese government since the oil discovery in Guyana includes the recent approval of the creation of a sovereign wealth fund. A sovereign wealth fund comprises of money from the country’s natural resources and a country uses it to boost its economy. With a sovereign wealth fund, Guyana has allowed the opportunity for other industries it relies on, such as sugar and gold, to benefit from the revenue that the oil will produce. Furthermore, since the oil industry is somewhat unpredictable, the sovereign wealth fund will allow the country to save up money in the event of hard times.

All in all, this oil discovery in Guyana could have an extremely positive impact on the Guyanese economy. Looking at other successful oil-producing countries for guidance, and learning from other country’s mistakes will allow Guyana to make the best decisions for its citizens.

– Desiree Nestor
Photo: Flickr

The African Continental Free Trade Agreement The African Continental Free Trade Agreement is the largest free-trade agreement in the world with a 1.2 billion-person market and a combined GDP of 2.5 trillion dollars. It was signed in March of 2018 by 44 African heads of state, and following the initial signing, 5 more countries joined in July for a total of 49. The African Continental Free Trade Agreement’s primary focus is to increase intra-African trade by promoting free movement of goods and tariff-free trade. In fact, for the countries that joined, tariffs are expected to decrease by 90 percent within 5 years.

According to an article by The Economist, roughly 82 percent of African goods are exported to other countries. Due to high transport costs, poor infrastructure (e.g. in West Africa, less than one-fifth of the roads are paved) and time-consuming border procedures, it is more costly to trade within Africa than to export to foreign countries.

With the new free-trade agreement, a more competitive market will emerge that will reduce costs for consumers. Additionally, producers will have access to a larger number of potential buyers, as well as more investment opportunities from foreign countries. Strengthening intercontinental trade has the potential to protect the countries in Africa from the impact of exogenous trade shocks.

Maximizing the Impacts of AfCFTA

In order to reap the highest benefits from the new intra-continental free trade agreement, it is imperative to make adjustments to Africa’s trade structure. However, trade facilitation is not an easy task. It involves coordination between countries, transparency in policies and easing the movement of goods. Currently, intra-African trade accounts for only 16 percent of Africa’s total exports, while the bulk of its exports are to Europe (38 percent), China (19 percent), and the U.S. (15 percent). With the implementation of the African Continental Free Trade Agreement, The United Nations Economic Commission for Africa estimates that intra-African trade will see a 52 percent increase by 2022.

Infrastructure Development

Reducing non-tariff barriers, like transport time for goods, is an essential component of solidifying the new free-trade agreement. According to the International Monetary Fund, the average cost of importing a container in Africa is about $2,492, which is significantly more expensive than the cost of exporting to another continent. This helps to explain Africa’s high incentive to export the majority of its goods.

In order to aid with the implementation of infrastructure projects, the New Partnership for African Development (NEPAD) has facilitated two main systems of information. The African Infrastructure Database (AID) concerns itself mainly with data management and stores information about ongoing infrastructure development projects including the location as well as relevant financial and economic information. The Virtual PIDA Information Centre contains regional and continental infrastructure projects and promotes investment opportunities.

Clearly, higher access to information regarding infrastructure projects can help countries organize themselves around infrastructure development efficiently. This will help to reduce the intra-African costs of trade by fostering more easily navigable and cheaper transport routes between countries.

Economic Integration

It is crucial to consider that the informal trade sector contributes to a large amount of overall trade in Africa. The Africa Economic Brief is a document published by Jean-Guy Afrika and Gerald Ajumbo that discusses the specifics of informal trade in Africa. It states that the informal cross border trade sector (ICBT) represents 30-40 percent of total intra-African trade. In West and Central Africa, women make up almost 60 percent of informal traders, and 70 percent in Southern Africa.

Problems that affect the formal sector, like infrastructure and trade, have a disproportionate effect on the informal sector—especially for marginalized groups such as women and youth. It is unclear how the African Continental Free Trade Agreement will affect these groups as trade is adjusted; however, an increased focus on local trade and easier trade routes will likely facilitate trade for everyone involved. Since informal trade struggles with the same main issues as formal trade, making trade more accessible in the formal sector can create positive spillovers.

The informal trade sector is an important one to protect. Big businesses often avoid trading with rural areas due to high transportation costs, so instead these areas rely on informal trade for food, clothing and other commodities. Furthermore, ICBT provides a vital source of income to individuals who are often low-income or low-skilled. According to the Africa Economic Brief, studies estimate the average value of informal cross border trade to be 17.6 billion dollars per year in the Southern African Development Community (SADC).

In order to provide support for informal traders in Eastern and Southern Africa, the United Nations is funding a project to help decrease gender-specific obstacles in Malawi, Tanzania and Zambia. A focus on female empowerment will help maintain and improve the informal trade sector and contribute to poverty reduction.

With support from various organizations, countries in Africa are taking defining steps to reduce taxes, transport times, and an increase in market competition. Signing the African Continental Free Trade Agreement opens Africa up to free trade and, if facilitated effectively, it will have enormous positive implications for Africa’s economy.

– Tera Hofmann
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