Archive for category: Economy

Information and stories about economy.

, , , ,

The Role of Oil in Algeria’s Economic Future

Algeria’s Economic Future
Algeria’s economic future looks bright as its role as a supplier of liquid crude oil has expanded amidst the shifts in European sourcing due to the Russian invasion of Ukraine. Algeria typically provides only 8% of natural gas for the European Union. However, the country is already taking steps to provide more oil as nations look to lessen their dependence on Russian oil. Such a change in supply could mean an economic boost, enabling Algeria to build future long-term renewable energy and labor markets.

Historical Context

Algeria is a country with a deep history of relying on its own resources and people to power its economy. Having internationally-recognized independence since 1962, Algeria has had to resort to its oil exports, internal agricultural labor and deals with neighbors such as Morocco and Spain in order to stay afloat. After former president Abdelaziz Bouteflika resigned in 2019, the old guard of Algerian leadership faced a new era in which the country’s non-oil industry required expanding and strengthening in order for its economy to have a bright future.

How Algeria’s Role is Currently Changing

Countries such as Spain, Italy, Greece and France are weaning off of Russian oil, while capital cities such as Madrid, Athens and Rome are currently setting up new energy provisions with Algeria.  In its most recent report, the World Bank noted that Algeria’s economy grew 3.9% bigger due to the extra demand for European oil alongside new construction and industrial activity. To maintain this continued growth Algeria’s leaders need to pay close attention to the possible obstacles.

In order for Algeria’s economy to find the funds to diversify its future economy, it must be able to provide more oil to European countries in the first place, an increase estimated at 12% to 38% of its current rate by the fall and winter of this year.  However, the state-run oil company Sonatrach is facing bureaucratic slowdowns, hacking to the refinery operations, and complications maintaining its already existing contracts.

In addition, there is a geopolitical complication in Algeria’s current status as a primary buyer of Russian weapons and arms, according to Modern Diplomacy.  If Russia can mitigate some of its lost oil revenue by increasing weapons sales to a growing Algerian economy, then European nations may turn away from contracting more oil supplies from Algeria.  These are complications that make Algeria’s economic future a tricky path of policy and economic landmines.

Possible Solutions

The primary solution for longer-term economic growth is to focus on building non-hydrocarbon industries with the profits from oil exports that could take place in the coming months. One major way to do this is for the World Bank to support further private sector projects related to agriculture, construction and development. In addition, Algeria could create stability in its current leadership by funding social programs, human rights protection and anti-corruption legislation. These measures could help prevent the widespread political uprising from citizens and extremist groups while keeping the leadership needed to maintain the centralized economy going.

According to Council on Foreign Relations, the U.S. role in Algeria’s economic future should be kept to a minimum of interference. Algeria is a nation that is very insistent on being self-sufficient and sovereign. In order for political and economic stability to succeed, U.S. measures need to include not sending more troops or intelligence to Algeria and instead diplomatic peers in order to better understand the needs and wants of the nation, CFR stated.

Algeria’s economic future looks bright when taking into account the post-COVID-19 recovery and the opening avenues for revenue to which Algeria can build a stronger, more diversified economy. This serves two primary purposes: keeping intact its sovereignty and forging a new path forward to end its long-tenured instability.

– Albert Vargas
Photo: Flickr

, ,

Unveiling Italy’s Stimulus Package

Italy’s Stimulus
On May 1, Italy’s Prime Minister Mario Draghi announced the approval of the new economic stimulus package dedicated to minimizing the impact of the war in Ukraine on Italian citizens and workers. Italy has a heavy reliance on many imported Russian goods. Of all the European Union nations, Italy will likely face the worst economic growth and supply chain issues the country has seen for decades.

The Economic Difficulties Causing the Need for Italy’s Stimulus Package

Italy’s stimulus package comes to lessen the impact of the war in Ukraine. The Economist Intelligence Unit (EIU) makes economic growth predictions annually. After the beginning of the war, the EIU changed its forecasts. The original projection for Italy’s economy was a growth rate of 4.4% but decreased to 3.4% within three months. Due to the investments and changes Italy must make over the next few months to support its economy and citizens the stimulus package will be necessary to aid future economic growth and security.

Russia originally supplied around 40% of Italy’s gas supply. Italy is determined to lessen its dependence on Russian gas and had been looking to do so before the conflict, but the war has sped up the need for change. Italy is hoping to increase its reliance on Algeria for its gas supply. Still, additional factors are at play with the deal Italy and Algeria have struck. According to Politico, Algeria needs to update its infrastructure for the gas industry, as investments in that sector have been lacking. The need for gas most likely means Italy must be the primary investor in the industry to receive the amount of gas necessary to support the country’s needs.

One of the other sectors that the lack of Russian support will hit the hardest is the tourism industry. Italy’s tourism industry, which like that of most nations experienced a decline in tourist numbers during the COVID-19 pandemic, will not recover to its original numbers without the assistance of Russian tourists. Overall, Russian tourists are only a small percentage of Italy’s tourists, about 1.5%. However, their economic impact is still significant because of how much they spend. Russian tourists spend almost €1 billion in Italy in 2019, La Prensa Latina reports. Countless other Italian industries and business sectors will suffer due to Russia’s actions in Ukraine and the domino effect it has had on economies worldwide. Italian citizens will be incredibly grateful for the government’s quick moves to draft the stimulus package.

How is it Different from Past Stimulus Packages?

This new stimulus package is not Italy’s first. The government sent out the last of Italy’s most recent stimulus packages in March 2021 for €32 billion. Around €11 billion in that package went to companies that lost at least 30% of their income in 2020. Eight billion euros of the stimulus was for fighting poverty and supporting employment and those in unemployment too. The COVID-19 stimulus package allocated €900 million for seasonal workers and €5 billion for purchasing vaccines and unexpected additional health care costs.

Prime Minister Draghi said this about Italy’s stimulus package in 2021, “This decree is a significant and very coherent response to poverty and businesses, it is a partial response, but it is the maximum that we have been able to do,” Euronews reports. Italian absolute poverty decreased from 7.7% in 2020 to 7.5% in 2021, showing a positive trend and the overarching benefits of Italy’s stimulus packages.

Overall, during the COVID-19 pandemic, Italy spent more than €200 billion to counteract economic damages. Thankfully, by the end of 2021, Italy’s economy grew by 6.5%, having recovered from the worst of the financial crises that the pandemic initiated. Italy’s stimulus package in 2022 provides hope and expectations for a similar recovery despite the difficulties.

What Will This Stimulus Package Do for Italy?

Italy’s stimulus package in response to the war in Ukraine has various components, including individual bonuses of €200 to middle and low-income families. The package secures bank loans too and directs funds at supporting families struggling with the cost of living as prices skyrocket. One of the most burdensome costs internationally is the cost of gas. The Italian government extended the cut on rising gas prices. The prices cannot increase an additional 25 cents per liter (0.25 gallons) of gas until at least July 8, 2022, when the government hopes to have the rising prices under control.

Rising prices dramatically changed Italians’ ability to purchase construction materials. Thus, the Italian government is setting aside €3 billion to help the construction companies immediately battle these prices. According to Reuters, Italy’s stimulus package sets aside an additional €400,000 in grants and funding for guarantees on bank loans and grants for all types of firms and companies impacted by the sanctions on Russian companies and products.

The funding for most of Italy’s stimulus package comes from newly created taxes on energy companies. The taxes ensure that the burden of significantly increased prices does not fall on the individuals who have been struggling since the COVID-19 pandemic.

– Clara Mulvihill
Photo: Flickr

,

Laos’ Development Into A Digital Economy

Digital Economy
Many consider Laos one of the poorest countries in its surrounding region. However, its economy has significantly improved in the last 20 years, slowly connecting to the rest of the world digitally, especially as businesses were forced to adapt during the COVID-19 pandemic. While Laos has made progress to develop a digital economy, it is still lagging behind as accessibility, quality and affordability are currently issues for its citizens. Thankfully, the Lao Ministry of Technologies and Communications has recognized the need for Laos to develop digitally. In fact, several sectors of the Lao Government are partnering with USAID to allow businesses to access the SMART UP e-learning platform to help enhance their digital literacy.

The Larger Issue

Laos’ lag in digitalization results in a lack of transparency, increased procedural hurdles for investors, high costs for business and lacking public-service delivery for the government. Laos ranks 154 of 190 in the World Bank’s Doing Business 2020 report as well as 117 of 132 in The World Intellectual Property Organizations 2021 Global Innovation Index. Around 80% of the country works for small and medium-sized enterprises (SMEs), in which an estimated 100,000 operate informally due to “time, fees and paperwork associated with registering.”

Much of this is due to the Lao PDR’s processes being inefficient, having higher costs and disincentivizing businesses to be part of the formal economy. During the COVID-19 pandemic, approximately 78% of children in urban centers and 87.5% of children in rural areas could not access schooling. Around 48.9% of the population remained offline at the beginning of 2020. With 37.6% of the current population in urban areas and 64.2% in rural areas, Laos needs to increase its digitalization for its own development and to catch up with the rest of the world.

Efforts to Create a Digital Economy

The Lao Minister of Technologies and Communications Boveingkham Vongdara has acknowledged Laos’ need to accelerate and move into digital transformation with sustainable development. He claims the ministry is “promoting local language and creation of digital contents by developing fonts and keyboards that support the Lao language for computers and mobile devices.”

The Department of Small and Medium Enterprises Promotion, Ministry of Industry and Commerce and the Lao ICT Commerce association partnered with USAID to launch the SMART UP e-learning platform to help SMEs enhance their digital skills. SMART UP has eight modules that aim to help provide skills to businesses to enhance and promote themselves. It should help with digital literacy to help businesses become agile in the current economic environment, as well as to respond to digital development challenges so SMEs can survive as well as create new opportunities. With SMART UP helping SMEs and entrepreneurs, it will also create more jobs and opportunities for Lao citizens.

Within the first month of the launch, 373 users registered to use the SMART UP platform including 109 for Basic Accounting for SMEs, 63 in Digital Marketing for SMEs, 43 for Introduction to Data Analysis for SMEs, 35 in Full Stack Development, 34 in Multimedia for SMEs and 34 for Introduction to Digitalization. As a result, many small business owners have had a stronger foundation of knowledge in a quickly changing business environment.

Looking Ahead

While the COVID-19 pandemic presented many challenges, it also presented opportunities for the Lao PDR to participate in the digital age and develop a digital economy. With its government recognizing the necessity for a digital economy and platforms such as SMART UP allowing citizens to become more digitally literate, Laos will elevate itself and create more opportunities for economic growth.

– Jerrett Phinney
Photo: Flickr

,

How Bitcoin in Honduras is Aiding its Economy

Bitcoin in Honduras
Honduras has one of Central America’s most robust and fastest-growing economies. Still, there is no doubt that the nation has had its fair share of economic strife. In April 2022, a heavily tourist-populated region nicknamed “Honduras Prospera” legalized the use of Bitcoin and other forms of cryptocurrency. Honduras Prospera will serve as a trial for Bitcoin usage in Honduras, with expectations for future growth.

Economic Struggles in Honduras

Honduras’ economy has certainly had its struggles. Hopefully, by introducing Bitcoin in Honduras, the country’s economic struggles will diminish. In the pre-COVID-19 pandemic age, in 2018, at least 16.5% of Hondurans lived on less than $1.90 a day. Since 2019, two significant hurricanes and natural disasters have impacted the nation and exacerbated the number of people in poverty due to the pandemic and its effects. In 2021, the poverty rate reached 73% with the extreme poverty rate reaching 53%. That marks the highest poverty and extreme poverty rates in Honduras since 2005.

One of the primary reasons Honduras’ economy has struggled is its dependence on agriculture and trade with the United States. If either of these sectors struggles, the entire economy struggles. Honduras’ agriculture accounted for slightly less than 30% of the country’s workforce in 2019 and is responsible for at least 12% of Honduras’ Gross Domestic Product (GDP).

Honduras’s trade with the United States accounts for about 41% of all Honduran trade annually. At the end of 2020, the bilateral trade earnings were more than $9 billion with a surplus that unfortunately only favored the U.S. Despite the immense difficulties the country has experienced since 2019, Honduras’s economic projections have been optimistic, with expected annual economic growth of 4.5%. The acceptance of Bitcoin and cryptocurrencies in Honduras will allow that figure to increase by the end of the next fiscal year.

Benefits of Accepting Cryptocurrency for Honduras

Introducing Bitcoin in Honduras has many benefits for the Prospera region before the rest of Honduras follows suit. The usage of Bitcoin in Honduras aims to entice foreign investors and make tourist spending easier to facilitate. It is a move following the introduction of Bitcoin in El Salvador, one of Honduras’s neighboring countries. Bitcoin in Honduras and El Salvador, while likely to face technical challenges in the early stages, intend to bring new business opportunities across borders and in international markets.

Cryptocurrency and Bitcoin have significant potential for economic security and allow for lower transaction fees. The decreased costs will encourage foreign investors and encourage locals to make use of Bitcoin as well. The lowered fees will prove beneficial to those living in poverty as they work to avoid extra costs and fees. One of the greatest challenges to implementing Bitcoin and cryptocurrencies anywhere is the technological barriers many places face. These include setting up a digital wallet. However, as Honduras Prospera is a tourist destination and is prepared for technological changes, it is a perfect location for a test run of cryptocurrency use.

Having Bitcoin in Honduras will open the door for new employment opportunities and can diversify the financial foundation of Honduras’s economy. The diversification of Honduras’ economy will allow for future safety should its agricultural foundation falter or trade with the U.S. become too difficult.

Honduras’s Economic Future

People do not widely accept the idea of Bitcoin in Honduras, as the first rollout of Bitcoin and cryptocurrencies are only taking place in one region of the country. Hondurans are skeptical of the economic advantages of Bitcoin after seeing the difficulties El Salvador has faced in its first weeks of using the cryptocurrencies.

One of the best ways to bring about economic growth in Honduras is to increase economic competition in all regions of the country, especially in the rural areas. The rural areas of Honduras are the most likely to experience poverty. Plus, with the benefits of Bitcoin in Honduras, including the lower transaction costs, Bitcoin should be able to easily spread to the country’s corners. Bitcoin also allows for merchant protection. Given Honduras’ heavy reliance on trade and the international economies and markets, the success in the piloting of Bitcoin will create even more support for introducing Bitcoin to the area.

Honduras’ estimated economic growth has stalled at about 4% since 2020. Honduras is still struggling to rebuild its infrastructure and economy since the COVID-19 pandemic and natural disasters hit, making any efforts to fix the problems invaluable. With the benefits of Bitcoin in Honduras, many already are finding popular Bitcoins for use, and with the need for any economic recovery, expanding Bitcoin’s availability for use will likely receive significant support. There are many websites already helping Hondurans find the best Bitcoin or cryptocurrency to use and the first Bitcoin ATM opened in August 2021. The expansion of Bitcoin will lead to economic growth in Honduras. It might allow Honduras’s economy to exceed expectations for its annual economic growth, thus amplifying the impacts of cryptocurrencies.

– Clara Mulvihill
Photo: Flickr

,

Central Bank Digital Currencies in Emerging Economies

Central Bank Digital Currencies
Financial exclusion remains a challenge in many low-income countries. This is especially true in rural areas, which do not have easy access to banks. Even in areas with bank branches, community members may find themselves excluded because many low-income countries have a small financial sector with few financial institutions. The lack of financial accessibility results in high interest rates and expensive charges for ATM use and other transactions. Central Bank Digital Currencies (CBDCs) are a dynamic tool in providing solutions to improve financial inclusion.

What are Central Bank Digital Currencies?

Central Bank Digital Currencies is digital fiat currency (or national currency, such as the peso or naira) that the central bank regulates. Currently, only nine countries have launched CBDCs. The Bahamas was the first country to do so, in October 2020. However, 16 countries are developing them and 40 countries are researching the possibility of instituting them. The potential of central bank digital currencies in emerging economies is particularly strong.

Why Central Bank Digital Currencies in Emerging Economies?

Central banks across the world are considering launching CBDCs for various reasons. For one, the rising influence of digital currency has created the conditions in which central banks could lose control of currency regulation, as well as increasing preference for digital payments over cash. However, there are several unique reasons why central bank digital currencies in emerging economies are especially relevant because of the ways they can expand financial inclusion.

  • Cross-border payments can be faster, more affordable and more secure. Traditional cross-border payments are expensive and inefficient. According to The Economic Times, “The global average cost for sending remittances (0f $200) in Q1 of 2021 stood at 6.38%. There are often time lags for cross-border fund transfers, during which counterparties are exposed to credit and settlement risk.” CBDCs could help expedite cross-border payments and eliminate some of the associated costs. Because many households in emerging economies depend on remittances as a substantial source of income, CBDCs could make making and receiving them much easier on low-income individuals.
  • Central Bank Digital Currencies in emerging economies could serve the unbanked population. The digitization of currency has ensured the safe and easy accessibility of accounts and payment services. The rise of digital currencies has also seen a decrease in the number of unbanked people.

Looking Ahead

Financial inclusion is vital to social inclusion and combats poverty and income inequality by offering financial opportunities for low-income people and those involuntarily excluded from the financial market. The World Bank’s goal of ending extreme poverty by 2030 includes the key component of reducing income inequality. CBDC initiatives provide a dynamic tool in addressing income equality.

More countries are updating their financial framework and promoting digital financial literacy. For example, Aadhaar, India is developing a digital ID system that will encourage undocumented people to join the financial sector. This could ultimately provide secure transactions for those typically excluded from the financial market. Strengthening innovative financial frameworks such as CBDCs encourage a more equitable and inclusive global regulatory system.

– Jennifer Hendricks
Photo: Flickr

,

How Economic Support Programs Aid Families

Economic Support Programs Aid Families
The International Committee of the Red Cross (IRC) “defines economic security as the ability of individuals, households or communities to cover their essential needs sustainably and with dignity.” Basic needs include “food, basic shelter, clothing and hygiene” and economic support programs aid families by providing low-income households with essential financial support to meet these needs and more.

For the Jefas Program

A municipality in Mexico City, Miguel Hidalgo, is providing financial support through the For the Jefas program to “2,000 women who are mothers and the only breadwinner in their home.” Announced in February 2022, the program’s overall aim is to “cover and complement family spending” in order for families to meet their basic needs. The funding involves three disbursements of 5,000 pesos each.

In addition to this economic assistance, the program offers women skills training courses to improve employability, and thus, increase their chances of securing skilled employment. A report from the Center on Budget and Policy Priorities found that economic security programs have the potential to lift people out of poverty, especially in the case of marginalized groups and children.

Economic Support Programs Alleviate Poverty

Government programs such as For the Jefas present a successful approach in reducing poverty and providing families with the opportunity to escape generational poverty. Economic support programs aid families by bolstering the income of low-income families, especially those headed by single women, ultimately allowing families to afford basic needs and keep children out of poverty. According to the Center of Budget and Policy Priorities, economic security programs have long-term benefits as more resources improve children’s school performance and increase their earning potential as they enter the job force.

3 Benefits of Economic Support Programs

  1. Improves mental health outcomes: Poverty-related stress has negative long-term impacts on children’s development and physical health. Economic support programs aid families by reducing or eliminating financial stressors, allowing families to not just survive but thrive.
  2. Increases nutrition while decreasing illness: Poor nutrition links to chronic metabolism-related illnesses such as diabetes and high blood pressure. Access to nutritionally rich foods has long-term benefits for children as they are less likely to develop chronic illnesses in adulthood. Economic support programs aid families by providing the financial resources necessary to purchase and access nutritional food.
  3. Boosts children’s school achievement and future economic success: Economists find that additional income leads to an increase in children’s reading and math test scores. Academic success tends to follow children into adulthood where they have a greater opportunity for higher-earning and employment rates.

Income Support Stabilizes Household Budgets

Poverty reduction policy solutions such as economic support programs are more vital than ever as COVID-19 disproportionately impacts low-income households. Programs such as For the Jefas provide the most important element of a stable household budget, sufficient income. The program also provides training and education for mothers, which ultimately allows families to achieve self-sufficiency. Single-family households receiving income support also see an increase in labor force participation from single mothers with children.

Economic support programs aid families by ensuring that low-income households have the necessary income for basic expenses and increase learning and job opportunities for children.

– Jennifer Hendricks
Photo: Flickr

, ,

The Effects of the Economic Collapse in Lebanon

Economic Collapse in Lebanon
Poverty continues to loom over Lebanon’s most vulnerable communities, leaving them to battle with deteriorating living standards and several health hazards. Lebanese people’s quality of life sank to an unprecedented low due to many reasons. One of the most prominent reasons for the economic collapse in Lebanon is the Lebanese government’s immense amount of debts that add up to the “equivalent [of] 150% of national output.”

Lebanon’s Economic Landscape

Some financial experts describe the Lebanese government’s economic system “as a nationally regulated Ponzi scheme where new money is borrowed to pay existing creditors.” Adding to the nation’s troubles, the corrupt elite in Lebanon exploited the country’s foreign aid and income post-civil war and continue to do so to this day. The indebted government struggled to make ends meet, which led to the devaluation of the national Lebanese currency. While the economic collapse affected all citizens residing on Lebanese land, the already dire standard of life of the Lebanese lower-class became worse in several ways.

5 Ways the Economic Collapse in Lebanon Impacts Disadvantaged People

  1. Unlivable Wages: The official Lebanese currency, the Lebanese pound, “lost more than 90% of its value.” This extreme devaluation plunged the Lebanese further into poverty. The minimum wage in Lebanon’s value decreased from the equivalent of $450 monthly to what is now worth around $30 per month. As a consequence, “a family’s budget just for food is around five times the minimum wage,” says the Crisis Observatory at the American University of Beirut.
  2. Medicine Shortage: Due to the scarcity of foreign currency in the country, Lebanese pharmaceutical companies struggle with importing or manufacturing life-saving medicine. To counter this shortage, in July 2021, the Lebanese government lifted subsidies on most life-saving medicine. While this development affects the entire Lebanese population, those with limited or no income experience the greatest impact as medicine now becomes a luxury most cannot afford.
  3. Life-Threatening Power Outages: As the Lebanese economy continues to suffer, the government struggles to import fuel and maintain power generators. As a result, low-income neighborhoods across the country barely receive one hour of electricity per day. This circumstance proved to be extremely destructive as companies, bakeries, schools, grocery stores and even hospitals scaled back operations or completely closed down. Such closures made access to life-saving medical operations, as well as food, extremely challenging.
  4. Unemployment as a Result of Scarce Fuel: Due to the economic crisis, private and public sectors are incapable of importing essential fuel and gasoline. To combat the extreme gasoline shortage in the country, the Lebanese government raised gasoline prices by 66% in August 2021. As a result, many low-income independent contractors, such as taxi drivers and bus drivers, could not afford to work anymore. Due to the recent unemployment of low-income families’ primary breadwinners, the Lebanese working class plunges deeper into poverty.
  5. Deteriorating Diets: Lebanon’s most vulnerable people continue to miss one important component at their dinner tables: meat. As the country’s currency continues to devalue, the prices of meat soar. Toward the end of 2020, “fresh and frozen cattle meat prices” in Lebanon increased by 110%, according to a World Bank assessment. Moreover, the prices of chicken witnessed a 68.4% increase over the last few months. With no other affordable protein sources readily available, malnutrition threatens Lebanon’s impoverished and hungry people. Furthermore, UNICEF reports that “three in 10 families” assessed in April 2021 “had at least one child” missing meals.

Beit El Baraka

As the factors mentioned above overlap, nongovernmental organizations (NGOs) launched several initiatives and efforts to aid Lebanon’s most vulnerable communities. One of the most prominent NGOs currently operating on a large scale within Lebanon is Beit El Bakara. The NGO is dedicated to helping Lebanon’s vulnerable families by covering medical expenses, paying bills and tuitions and providing meals and essential services. Since its launch, Beit El Baraka’s team helped more than 128 families pay their electricity bills, paid 93 families’ rental costs, covered the cost of treatment for 1,681 patients in need and refurbished 3,011 homes across 62 Lebanese areas.

The economic collapse in Lebanon is becoming increasingly dire. Without help, Lebanon and its people could face a catastrophic fate as more than half of the population sinks below the poverty line. Therefore, aiding the Lebanese population should be a top priority of the international community.

– Nohad Awada
Photo: Wikipedia Commons

,

The Role of Remittances to Venezuela

Remittances to Venezuela
The International Monetary Fund (IMF) defines remittances as “money transfers from citizens working abroad” as a contribution to the household income of their families in their home countries. The IMF sees remittances as a “lifeline for development,” especially in impoverished countries such as Venezuela. In Venezuela, the influx of remittances is growing rapidly and represents a large source of foreign income for Venezuelans. While remittances typically take the form of cash transfers, crypto remittances to Venezuela are playing a larger role in facilitating international transactions and becoming a vital source of income for Venezuelans, especially during the COVID-19 pandemic while the country faces hyperinflation and U.S. economic sanctions.

The Role of Remittances in Global Poverty Reduction

Remittances directly bolster the income of households that receive these payments and provide essential resources for the impoverished. The value of remittances lies in the fact that governance issues often linked to “official aid” do not impact remittances. Instead, remittances are able to circumvent “red tape” because the money goes directly into the pockets of the impoverished. According to the World Bank, “a 10% increase in per capita official remittances may lead to a 3.5% decline in the share of [impoverished] people,” further showing that remittances play a key role in poverty reduction. Harnessing technology and non-traditional approaches for remittances allow Venezuelans the opportunity to send and access this funding in a faster and more efficient way.

The Resiliency of Remittances

Experts expected remittances to decrease due to job insecurity abroad as a result of the pandemic. However, the flow of remittances remained resilient. According to the World Bank, remittances to developing countries only dropped 1.6% in 2020. Digitization of payments allows for a steady flow of remittances to countries like Venezuela —  according to a report by Global System for Mobile Communications, “international remittances processed via mobile money increased by 65% in 2020.” In 2018, United Nations member states adopted the Global Compact on Safe, Orderly and Regular Migration, which recognizes the importance of remittances in the development of poverty-stricken countries such as Venezuela.

Cryptocurrency in the Context of Hyperinflation

As the bolivar continues to depreciate in Venezuela, cryptocurrency functions in a way that circumvents hyperinflation. Cryptocurrency is a decentralized form of currency, where its value does not stem from fiat currency or natural resources, but instead, derives from user demand. In 2021, the Venezuelan government introduced the 1-million-bolivar bill, which is equivalent to about $0.52, in an attempt to remedy the impacts of hyperinflation and economic sanctions. Venezuela has experienced hyperinflation due to falling oil prices, resulting in the government printing vast quantities of currency as a potential solution, but this only further devalued the bolivar. Increasingly, residents are turning to digital forms of payments. For example, street vendors in the Venezuelan capital of Caracas are accepting digital coins as a form of payment.

5 Benefits of Crypto Remittances to Venezuela

  1. Stability: Cryptocurrency remains steady compared to fiat currency, especially during times of inflation.
  2. Lower Fees: Commission fees for crypto remittances are lower in comparison to international transfer fees from companies like Western Union.
  3. Money and Time-Saving Costs: Research shows that crypto remittances “produce a 1% saving of income” because of the reduction of travel and wait time when sending remittances.
  4. Safety: Because Venezuela stands as “one of the most insecure [nations] in Latin America,” residents face the risk of theft when traveling with cash. Digital currency offers a degree of security and protection for people as their funds are stored on their devices.
  5. Continuing the Flow of Remittances: As the Maduro regime takes steps to further regulate remittances while rejecting foreign humanitarian aid, decentralized currencies could allow residents to continue receiving essential monetary flows.

Remittances to Venezuela’s Unbanked Population

According to the Global Findex Database, in 2017, close to 73% of Venezuelans had bank accounts and digital forms of receiving money are increasing each year as inflation devalues fiat currency and hyperinflation threatens the affordability of basic needs. More than 50% of transactions in the country use the U.S. dollar, and in 2020, experts projected that annual remittances would climb to $4 billion. The viability and sustainability of digital remittances, specifically cryptocurrency forms, are becoming more popular.

GiveCrypto Uses Cryptocurrency to Provide Aid to Venezuelans

As Venezuela continues to experience a financial crisis, cryptocurrency, such as Bitcoin, offers a degree of stability as an inflation-proof asset. Many nonprofits implement cryptocurrency in their strategies to bring aid to Venezuelans. In 2019, U.S.-based charity, GiveCrypto, “provided temporary assistance to hundreds of vulnerable families in Venezuela through weekly crypto deposits worth around $7,” which is equivalent “to the monthly minimum wage” in the country. This aid helped families purchase food and other essential goods.

In addition to aid, the organization provides resources that educate people about crypto apps to ensure that people have complete control of their digital currency. Efrain Pineda, the program manager, says, “We want to show that people who are not techies or investors can also benefit from this technology. Anyone can use crypto to protect themselves from inflation and make their daily life easier.”

Cryptocurrency Offers Hope for Venezuelans

With little end in sight for hyperinflation, Bitcoin is gaining traction as an alternative as traditional payment methods become regulated and overloaded. Venezuela ranks fourth globally for Bitcoin trade, and as more people flee Venezuela, digital forms of remittances continue to be an invaluable source of income for residents who remain.

– Jennifer Hendricks
Photo: Flickr

,

Alleviating Poverty in Lebanon

Poverty in Lebanon
According to the United Nations, Lebanon is facing a significant economic crisis, with nearly three-quarters of the country living below the poverty line as of September 2021. This staggering poverty rate warrants assistance from the international community.

Lebanon’s Poverty in Numbers

In a 2019 report, the U.N. found that “between 2019 and 2020,” poverty in Lebanon rose “from 28% to 55%.” When looking at multi-dimensional poverty, the situation is even more severe. According to the World Bank, multi-dimensional poverty ratings look to “understand poverty beyond monetary deprivations,” by including six key indications: “education, health, public utilities, housing, assets and property as well as employment and income.” Lebanon’s multidimensional poverty rate almost “doubled from 42% in 2019 to 82% in 2021.” Furthermore, about a third of the Lebanese population has no access to adequate health care, a fact that is especially concerning in the wake of the COVID-19 pandemic. According to the U.N., close to 25% of the country could not meet their nutritional food needs by the close of 2020.

Additionally, by August 2021, Lebanon reached a record high unemployment rate of more than 35% — a sudden surge from the single-digit average throughout the past decade. With this crisis, the value of the Lebanese lira has also decreased by almost 80% against the U.S. dollar as a result of extreme inflation and economic deterioration.

Lebanon’s Deteriorating Economy

Investigations show Lebanon’s economic crisis could date back to the early 2010s, although the primary detriments of the surge appear at the beginning of 2019. Although there is no evidence that COVID-19 was a direct cause of this crisis, its effects certainly did not aid the economy when exports slowed immensely, thus stalling the country’s primary export industries. Additionally, World Bank experts predict that Lebanon’s economy may decline by 10.5% by the close of 2021.

Lebanon’s corrupt banking sector shares the blame for the country’s economic crisis. It lent the Lebanese government close to 75% of its deposits in early 2019. The result of this was “extreme bankruptcy.” Additionally, the political turmoil in Lebanon played a contributing role to instability — the nation had no official leader between 2014 and 2016. Experts believe the economic crash was inevitable with no proper leadership. According to an article by the Middle East Institute, Lebanon’s economy could see a decline “from $60 billion in 2018 to $15 billion” by the end of 2021.

World Bank Assistance

Despite how dire Lebanon’s situation may appear, hope is on the horizon. In January 2021, the World Bank Group announced the approval of “a $246 million new project to provide emergency cash transfers and access to social services to approximately 786,000 [impoverished] and vulnerable Lebanese” facing the impacts of both the economic crisis and COVID-19.

This initiative, the Emergency Crisis and COVID-19 Response Social Safety Net Project (ESSN), will also help implement “social safety nets” to improve the nation’s resilience and recovery in the face of “future shocks” or crises. To help people living in extreme poverty, the ESSN project will provide cash assistance to these individuals for 12 months. Additionally, the ESSN will provide a “top-up cash transfer” to 87,000 Lebanese children aged 13-18 to cover the costs of education, including uniforms, supplies and remote learning resources.

Lebanon’s economic crisis brings suffering to countless citizens. However, the World Bank’s ESSN poverty alleviation project has the potential to provide essential relief to the most vulnerable citizens, ultimately reducing overall poverty in Lebanon.

– Andra Fofuca
Photo: Flickr

, ,

Agricultural Success in Zimbabwe

Agricultural Success in Zimbabwe
Zimbabwe, a landlocked country located in southern Africa, is experiencing improvements in the nation’s economy after “facing its worst economic crisis in a decade.” This crisis is the result of a drought as well as the impacts of the COVID-19 pandemic. Following this difficult period, however, the recent upswing in the economy is largely due to agricultural success in Zimbabwe. If this trend continues, the future looks promising for Zimbabwe and its citizens.

Agriculture in Zimbabwe

The economy in Zimbabwe, specifically in rural areas, is primarily reliant upon agriculture. The agricultural sector employs approximately 60%-70% of the population and is responsible for 40% of all export revenue. Due to this dependency, when agriculture in Zimbabwe struggles, the rest of the economy suffers as a result.

The Economy in Zimbabwe

In the past two years, Zimbabwe has endured a significant economic recession due to the COVID-19 pandemic and ongoing drought. In 2020, the GDP decreased roughly 10% and inflation increased from about 227% to a staggering 622.8%. However, more stable weather conditions now pave the way for agricultural recovery in Zimbabwe, which, in turn, is now fostering economic improvement.

Tafadzwa Gamanya, a small farmer in rural Zimbabwe, has had a productive season for his crops due to the end of the drought. “This year is much better for us here,” Gamanya tells VOA. “We had good rains. We have enough water to irrigate our crops until the next rain season.”

Confirming these favorable conditions, the Zimbabwe Meteorological Services Department reports that Zimbabwe is witnessing statistically average to above average amounts of rainfall during this crop season. The support of the government also plays an integral role —  government initiatives “ensured that farmers had adequate inputs on time for the 2020/21 cropping season.”

During December 2020 and January 2021, some parts of the region experienced “wet spells,” greatly contributing to the significant crop yield. The farmers welcome this change in comparison to the drought that previously ravaged the nation.

Minimizing Food Insecurity

Along with economic improvements, agricultural success in Zimbabwe reduces food insecurity in the nation. The country notes that the 2021 harvest is “capable of feeding” the entire population of 14.65 million people over the course of “the next year.”

The 2021 maize harvest is so large that, in May 2021, agricultural authorities placed a ban on importing the crop. This stands in stark contrast to Zimbabwe’s $298 million expenditure on maize imports during the 2019-2020 drought season. These savings are tremendously helpful to the Zimbabwean economy.

The Road to Recovery

As rains begin to stabilize and businesses are able to recover from the impacts of COVID-19, World Bank experts anticipate that Zimbabwe’s GDP may climb to 3.9% by the close of 2021. Bringing even more hope to the nation, experts predict that Zimbabwe’s GDP may rise by 5.1% in 2022 if the pandemic or other factors do not interfere with current trends.

After a difficult two-year recession, Zimbabwe’s economy is finally on the road to recovery. While businesses are beginning to rebound following the most severe impacts of COVID-19, agricultural success in Zimbabwe is further contributing to economic improvement. The nation’s GDP is growing and the number of food-insecure Zimbabweans is shrinking. While there remains room for progress, Zimbabwe’s current economic course shows that the nation is heading in the right direction.

– River Simpson
Photo: Flickr