Archive for category: Economy

Information and stories about economy.

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Inflation in Venezuela

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

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5 Facts About Venezuela’s Failing Economy

Venezuela's Failing Economy
People know Venezuela as one of the most diverse environments in the world because of its natural features, landscape and wide range of wildlife. Venezuela has massive oil reserves and ranks in the top list among countries such as Saudia Arabia, Canada and Iran, making it the most urban country in Latin America. However, in only approximately six years, the country has seen a drastic economic decline. Venezuela’s failing economy has placed the country in headlines across the world. This article will highlight a few casualties resulting from Venezuela’s financial crisis, as well as evaluating its causes.

The Impacts of Venezuela’s Economic Crisis

The extended effects of Venezuela’s economic crisis are hitting those who choose to remain in the country the hardest. Venezuela’s failing economy has led to a severe shortage and rationing of resources, including food, water and electricity. Despite the country being oil-rich, many Venezuelan’s are questioning why they are struggling. “It’s so unfair; we are such a rich country. It’s not fair that this is happening,” Jakeline Moncada told the Washington Post.

Many turn to natural water reserves despite safety concerns as these reserves often come from sewage drains leading to the spread of preventable diseases. Meanwhile, frequent power outages have caused water sanitation facilities to cease proper function. Physicians have noticed an increase in illness that commonly results from contaminated water and food, such as amoebiasis.

Estimates determine that more than 60,000 Venezuelans who started treatment for HIV now lack access to antiretroviral medications as a result of Venezuela’s failing economy. Many Venezuelan’s that could afford medical services before, now experience challenges attempting to access medical and health services. As a result, those dependent on medications must make costly trips to neighboring countries or hope to find donated medicines from organizations outside of the government.

As Venezuela’s economy has drastically decreased, a survey that the country’s top universities conducted estimated that more than two-thirds of the population lives below the poverty line. As the country experiences hyperinflation of 1.7 million percent, many families cannot afford to feed themselves more than one meal a day. Various organizations have ceased publishing the statistics of the country after specific data showed significant negative changes. For example, The Health Ministry stopped reporting data in 2017 after reports indicated a high rise in infant mortality rates. After the inflation rates suddenly rose, Venezuela’s central Bank discontinued publishing its figures in 2016. In this instance, Venezuelan organizations stopped sharing information once the statistics showed unfavorable characteristics.

Accessibility

Venezuela’s failing economy has led to difficulty accessing resources like medicare, and as a result, nearly 10 percent of the Venezuelan population is emigrating to other countries. Although Venezuelans are having a few problems getting out of the country, there has been a more significant challenge getting resources in. The military has restricted many resources from passing through its borders or at least the areas where they have the right to. The Pemón community, which borders along Brazil, has spoken in support of permitting assistance through its territory. This region, known as La Gran Sabana, also contains the only paved crossing between the two countries.

When Nicolás Maduro became president in 2015, many nations did not consider him the country’s leader but rather Juan Guaidó, the Venezuelan opposition leader. As a result, Maduro severed the remaining diplomatic relations between Venezuela and the U.S. as well as ceasing the accessibility of aid into Venezuela. Maduro has resisted outside assistance, describing the efforts as the United States desiring to meddle in Latin American affairs. However, many believe that the sudden decline results from mismanagement of funds and corruption.

Venezuela has several countries willing to provide support as it endures this period of financial difficulty. It will only receive this aid if its government allows, though, as it regulates the resources that pass through its border. Once nations can establish a common interest and agree on how to address the issue, Venezuela’s reconciliation can begin.

– Kimberly Debnam
Photo: Flickr

 

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The Fall of Venezuela’s Oil-Based Economy

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

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The Oil Discovery in Guyana and Plans for the Future

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 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
Photo: Flickr

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Top 10 Facts About Living Conditions in San Marino

Living Conditions in San Marino
In the northeastern part of the Italian Peninsula lies San Marino, one of the world’s tiny micro states surrounded entirely by the country of Italy. Its modern form has shaped since 1463 and the country has maintained its autonomy until today. In fact, it is the world’s oldest republic. Here are the top 10 facts about living conditions in San Marino.

Top 10 Facts About Living Conditions in San Marino

  1. Population: As of 2019, there are 33,683 people living in San Marino. It has the fifth smallest population on Earth. Roughly 15 percent of the population are migrants and 53 percent are individuals within the working ages of 18 to 65. The nation’s official language is Italian. The poverty rate of the country is very low, so the country does not officially measure it.
  2. Education: Education is compulsory until the age of 14 and attendance is free. Almost the entire population has completed secondary school as the country has a 91 percent completion rate. Over 10 percent of government spending goes towards education. Citizens of San Marino mostly pursue college degrees in surrounding Italy or abroad.
  3. Economy:  Economic output relies heavily on finance and manufacturing. The banking sector accounts for more than half of the country’s GDP at roughly 60 percent. Corporate taxes are low in comparison to the EU and the standard of living is high.
  4. Health Care: Life expectancy in San Marino is 83.4 years old. Health care is not free, but a universal system exists parallel to a private system.  The Azienda Sanitaria Locale insurance fund provides the government system. There are six physicians for every 1,000 inhabitants as of 2014. Child mortality is extremely low with only one death in 2018.
  5. Government System: San Marino has nine municipalities and the country is a parliamentary, representative, democratic republic. The legislation is within two chambers and there are two captain regents as heads of state. The country directs foreign policy mostly towards aligning with the EU. Therefore foreign aid policy is similar to that in the European Union.
  6. Social Security: There is social insurance for the elderly and the disabled. Furthermore, there are survivorship benefits for the unemployed and the widowed even though the unemployment rate has reduced in the past years.
  7. Communications: As access to information can make a big difference in human development, an important aspect of the top 10 facts about living conditions in San Marino is the country’s access to this right. Its living standards reflect this. More than half of the population are active internet users and broadband is widely available. There are 38,000 cellphone subscriptions active today which is more than the entire population.
  8. Labor Conditions: The law forbids workplace discrimination for any reason. The state guarantees contracts and the minimum wage is 9.74 euros per hour. In general, labor conditions are safe with an eight-hour working day in guaranteed humane conditions. Meanwhile, as of 2018, the unemployment rate was only eight percent.
  9. NGOs in San Marino: There are no specific NGO projects in San Marino, but a number of NGOs do exist from time to time specially aiding in education and training as well as health. For instance, the British organization, Hope is Kindled, was present in 2006 with a project to advance health through medical and technological research.
  10. The Serene Republic: As a small enclave, San Marino does not have large natural reserves within its territory. Nonetheless, it shares the geography of surrounding Italy which is slightly mountainous and mild. It imports most of its resources and food. To be able to keep its stable political and social system while being dependant on other countries, it must be in good terms with its neighbors and the international community.

These top 10 facts about living conditions in San Marino demonstrate why this small nation has been able to maintain such serenity for more than six centuries. As a result, it has been able to ensure its citizen’s freedom and security in all aspects.

– Diego Vallejo Riofrio
Photo: Flickr

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Reducing Poverty Through Farming in Africa

Reducing Poverty
Africa has a long and complicated history. From the Portuguese exploration of the continent in 1460 to the Atlantic slave trade and modern-day ethnic conflicts in Sudan, it is, unfortunately, no surprise that the continent has long-standing issues with poverty. Ethiopia and Ghana are changing this trend. New, innovative farming techniques such as flexible growing practices and government-sponsored programs are reducing poverty, and famine rates have been declining in these countries. Worldwide organizations such as Africa Renewal are hoping that the agricultural reforms taking place in Ghana and Ethiopia can spread throughout the rest of Africa to reduce poverty.

While the mining industry is important for African countries such as South Africa, agriculture is by far the most important economic sector for a majority of African countries. Not only does agriculture provide jobs for residents, but it also acts as the main food source for over 1.2 billion Africans.

Farming in Ethiopia

Ethiopia has relied on ox-driven plows for centuries. Ethiopian farmers are primarily field farmers, which means they grow their crops on typical farmland rather than other alternatives such as in water-soaked rice patties. Ethiopia has dealt with severe famine over the past several decades, and farmers have helped alleviate famine by being flexible. Over the past century, Ethiopian farmers have shifted their main food source from enset to tef-based crops. Another change Ethiopian farmers are adopting is more flexible growing practices, which means rather than growing one crop at a time, farmers are beginning to grow as many as 10 different crops at once. Flexible growing practices add diversity to the food supply and help fight against weeds and pests, leading to increased food supplies, ultimately reducing poverty.

Ethiopia’s government launched the Growth & Transformation Plan II in 2015 that aims to significantly increase economic growth by investing heavily in sustainable and broad-based agricultural practices and manufacturing sectors. The end result of this initiative is for the world stage to recognize Ethiopia on the world stage as a lower middle-income country by 2025. While no one will know the full results of this initiative until 2025, the preliminary data shows that the program has been helping with Ethiopia’s GDP increasing from $64.46 billion in 2015 to $84.36 billion in 2018.

These new farming practices, along with government investment into agricultural practices, increased Ethiopia’s GDP by nearly 10.3 percent over the past decade, which is one of the fastest growth rates in Africa. The new agricultural practices that are stimulating the economy are a significant reason why Ethiopia’s poverty rate has also fallen from nearly 40 percent in 2004 to approximately 27 percent in 2016.

Farming in Ghana

Like Ethiopia, Ghana also has a history of poverty, with 24.2 percent of all residents facing poverty as of 2013. Ghana’s approach to reducing poverty is unique because the country is using economic growth. While Ethiopia is also focusing on economic growth, Ghana is not utilizing new farming practices in order to achieve economic growth. Rather, Ghana is using increased GDP to revitalize its agricultural sector.

Ghana’s unemployment rate is 6.71 percent as of 2018. With many residents unemployed, the agricultural sector provides job opportunities. Approximately 40 percent of Ghana’s available agricultural land is still available for use, which means there are many opportunities for agricultural expansion. Today estimates determine that the agricultural sector employs 33.86 percent of all Ghanian workers, meaning agriculture is the country’s main source of income for a third of its residents. Alarmingly, though, agriculture makes up only 19.7 percent of Ghana’s GDP as of 2017, which is the lowest total since 1983, when agriculture made up approximately 60 percent of the total GDP.

World Vision, a non-governmental organization, has worked in Ghana since 1979. Currently, World Vision implements 29 area programs. One such project is the Purdue Improved Cowpea Storage Project that provides instruction to farmers on how to store cowpea without chemicals. Storing cowpea without chemicals helps reduce post-harvest losses and maintain cowpea’s nutritional value.

With vast amounts of land still available and with the GDP increasing by 6.7 percent in the first quarter of 2019, the unemployment rate will decline significantly as more residents head to the fields and plant crops. Agriculture’s share of the GDP will also rise, reducing the downward trend since 1983, and ultimately, put more money into resident’s pockets.

Reducing Poverty

Ethiopia and Ghana have made gains in their plans to reduce poverty among their citizens. Poverty in Ethiopia has fallen from 71.1 percent in 1995 to 27.3 percent in 2015, and Ghana’s poverty rate has fallen from 52.6 percent in 1991 to 21.4 percent in 2012. While these countries are making improvements, there is still a lot of work remaining before all of Africa’s citizens are free from poverty.

– Kyle Arendas
Photo: Flickr

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How Wealth Inequality and Poverty Connect

Wealth Inequality and Poverty
Wealth inequality is an issue that plagues many developing nations, causing a widening distance between the wealthy and the poor in those nations. When a country distributes income among its people in an unequal manner, even a country with a growing economy can advance slower. Impoverished people are often unable to improve their situation due to the number of barriers they face, and some people may even be more prone to falling below the poverty line when a country’s economy advances without them. Here are examples of how severe wealth inequality contributes to poverty and how these issues can be corrected.

The Challenges of Inequality

The country the United Nations Development Program (UNDP) lists as having the highest wealth inequality is South Africa, according to its GINI index of 63 percent (a measure of inequality, with zero percent representing perfect equality and 100 percent being maximum inequality). Though South Africa has a high GDP compared to the world average, it still has a large number of people below the poverty line. In 2014, 18.9 percent of the population was living on less than $1.90 per day. In many cases, the poorest workers in South Africa are living on wages of $50 per month. Many of these issues are due to the country’s history of apartheid, which entrenched economic differences between different groups of people. Though South Africa removed that system 25 years ago, its legacy still impacts the country today.

Brazil is another country where wealth inequality contributes to poverty in a significant capacity. Despite others earmarking the country as one quickly moving towards becoming a developed nation, 10 percent of the population still lives in extreme poverty. Though the country’s economic growth is significant, 61 percent of that growth from 2001 to 2015 has gone directly to the richest 10 percent of the country. This means that the majority of Brazil’s population has only seen 39 percent of all of its economic progress.

This inequality contributes significantly to the problem of poverty and prevents the poorest of the country from improving. Progress in Brazil on this issue with regards to specific groups of people is slow. By current projections, women in Brazil will not close the wage gap until 2047. As for black Brazilians, estimates determine that they will not earn as much as white Brazilians until 2089 by the current rate.

What Can Countries Do?

One should note that while wealth inequality contributes to poverty, the exact causes behind wealth inequality can vary greatly and come about as a result of many different social, political and economic factors. South Africa’s inequality as a result of historical institutions may be an issue more difficult to tackle. According to experts, however, a good start would be to offer more opportunities to those who those institutions have systematically excluded.

In Brazil, access to education remains seriously dependent on one’s family income. As a result, the majority of Brazilian adults have no secondary education. Expanding access to more education opportunities may be key to alleviating income inequality and poverty in Brazil.

Inequality is a serious issue in countries like South Africa and Brazil, and the issues that connect with it contribute to poverty’s continued existence and expansion. According to a study published by members of the U.N., there is a strong link between income inequality and poverty. In order to reduce poverty, it follows that countries must also correct inequality. With more legislation and NGOs assisting individuals severely disadvantaged by income inequality, ending poverty seems a lot more accomplishable.

– Jade Follette
Photo: Flickr

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How Mall for Africa Boosts Economic Prosperity

Mall for Africa Boosts Prosperity
Mall for Africa boosts prosperity by allowing African consumers to purchase items from retailers located in the United States and the United Kingdom. The company’s innovation offers a secure and easy way for African citizens to purchase items online.

The Foundation of Mall for Africa

Chris Folayan, a Nigerian citizen and the founder and CEO of Mall for Africa, opened Mall for Africa in 2016. Foloyan founded this organization in Nigeria because this nation is the most affluent and high-powered country in Africa. Folayan has plans for Mall for Africa to expand in several other African nations as well, such as Ghana and Kenya.

The primary objective of Mall for Africa is for customers to purchase items from the U.S. and the U.K. and to market their own goods effectively in the absence of fraud and theft. Companies transport their products to the United States and United Kingdom infrastructures. Africa then receives the items.

In 2018, Mall for Africa began coordinating with the United States Overseas Private Investment Corporation (OPIC) in order to construct facilities in 15 of Africa’s nations. The purpose of this was to reduce shipping costs from international companies and allow for secure payment methods with provincial dollars.

Africans who make purchases online often pay high-cost fees for shipping items. To counter this, Mall for Africa opened storehouses in Portland, Oregon and London to reduce transportation costs. Furthermore, customers are able to purchase items using their own currency through new payment options.

Market Advantages

Mall for Africa boosts prosperity in Africa because of the availability of supplies and materials that generate employment opportunities, improve schooling and new forms of medical treatment. In particular, one entrepreneur purchased a sewing machine which enabled her to begin her own sewing operation. Educational institutions have benefited from Mall for Africa by having the ability to purchase necessary academic materials. These materials include items such as computers and books.

The medical field has benefited from the ability to obtain medical equipment. This gives doctors the ability to effectively pronounce medical conditions and offer treatment options.

Mall for Africa has helped create jobs for Nigerian residents. For instance, more than 60 citizens work full-time. Some expect the number of workers to increase with the implementation of new infrastructures in other African countries.

Since the company first launched, Mall for Africa has boosted prosperity in terms of profit. In fact, it has produced millions of dollars in yearly profits. An expansion of profits should happen due to the implementation of this business in other African nations. In 2019, Nigeria and Kenya are expecting to see a large increase in sales due to the development of various enterprises and the expansion of the working class earning more pay.

eBay’s Collaboration with Mall for Africa

While Africans are able to purchase products overseas as of 2017, Americans now have the ability to purchase original artifacts from Africa through the Mall for Africa application on eBay. Residents in some countries have the ability to sell their artifacts through eBay and market these products to U.S. consumers. Some of these countries include Nigeria, Kenya, Ghana, South Africa and Burundi. The commodities will be available through the Mall for Africa application on eBay, which enables entrepreneurs to expand brand awareness and increase economic prosperity in Africa.

The primary groupings of products are fashion, antiques and jewelry. Mall for Africa will likely include other groupings in the future with the addition of other African countries selling their products.

Mall for Africa’s shipping co-partner, DHL, handles the transportation of all packages. The merchant packages their items then delivers the package to the closest DHL shipping facility. In February 2017, DHL reported a substantial rise in international sales. The company predicts that by 2020 the online market will progress at a rate of 25 percent annually. That is close to double the volume of sales achieved nationally.

While this partnership is expected to expand inventory to the United States, there will also be opportunities for economic advancement for Africans who now have the option of selling their products internationally. Overall, Mall for Africa boosts prosperity for the African continent.

– Diana Dopheide
Photo: Flickr

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Why Ethical Impact Investing Is Beneficial

ethical impact investingOne of the benefits of living in a developed nation with a strong economy is investing and making money off the success of the market. Traditional investing holds profits above all else, and generally shun factors such as environmental impact and workplace equality. Ethical impact investing tries to marry consciousness investing with profit to help both investors and companies active in creating a better world reach greater success.

According to the Global Impact Investing Network (GIIN), impact investing consists of “investments made with the intention to generate positive, measurable social and environmental impact alongside a finical return.” Examples of ways that companies can qualify for impacting investing include: reducing their carbon footprint, installing green energy and creating a more diversified board of directors and executive suit. In terms of viability, the GIIN reports that impact investing portfolios “overwhelmingly meet or exceed investors expectations for both social and environmental impact and financial return.”  Ethical impact investing portfolios do not sacrifice profits for impact or the other way around, they are the best of both worlds.

Who Does Impact Investing?

Many firms including the biggest in the world operate some form of impact investing. Blackrock calls their form of impact investing, “sustainable investing” and focuses on “investing in progress and pioneering.” Blackrock runs funds which are made up of multiple companies which meet a certain criterion. For example, Blackrock’s “02 SDG [sustainable development goals] fund” is made up of companies which help to “advance the U.N.’s sustainable development goals.”

Companies in this fund include: Tesla INC, Procter and Gamble Vesta Wind Systems and New Oriental Education and Technology. Blackrock’s funds are incredibly diverse with the highest percentage weight in the 02 SDG Fund making up only 4.72 percent of the weight. Having a diverse fund helps the fund stay stable in case any of the companies or markets crash.  And the proof is in the numbers — with the Blackrock fund outperforming the market. According to Investopedia, the average return of the U.S. market on average is 8 percent while the average return of Blackrock’s 02 SDG Fund is 9.3 percent.

Goldman Sachs also works towards ethical impact investing, but through a geographical lens which seeks to relive certain communities of specific ills. For instance, Goldman Sachs reports that it “invested over $300 million in the City of New Orleans [with an] integrated, place-based approach [which] has provided more than 1,450 units of…housing [and] over 1,300 new jobs.”

Goldman Sachs post-2008 has helped to create housing and jobs for an area ravaged by natural disaster. One of the projects that Goldman Sachs operated in New Orleans was the Harmony Oaks Apartments which Goldman Sachs poured “$61.2 million in financing to support the rebuilding effort [post Katrina].” Rather than having citizens invest in a fund, Goldman has corporations and projects apply for a grant which they can then be approved or denied for.

The Bottom Line

In terms of accessibility to the average investor, Goldman Sachs falls behind Blackrock’s fund management. Blackrock also includes companies from around the globe in their sustainable investing funds, while Goldman Sachs only offers impact investing related grants in the U.S. Blackrock also runs two other sustainable investment funds with one centered on low-cost sustainability, “01 ESGU” fund and one focused on reducing carbon footprint, “03 CRBN” fund. For investors who want to see a direct correlation with their profits and their impact, investing in Blackrock sustainability funds offers an effective, profitable alternative to traditional investing strategies.

– Spencer Julian
Photo: Flickr