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Nigeria’s Debt is Sustainable, But Dangers Loom on the Horizon

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The World Bank recently ranked Nigeria fifth on the list of 10 countries to which it has the highest debt exposure. Nigeria owes the International Development Association – one of the two lending arms of the World Bank – US$11.7 billion. READ MORE


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What is the State of the Indonesian Economy in 2024

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Imagine a nation with a rich past, abundant resources, and an unwavering drive to rise on the global stage—that’s Indonesia in 2024. As the largest economy in Southeast Asia, Indonesia is on a transformative journey, aiming to diversify its industries and redefine its future. From a legacy rooted in colonial trade to a modern economy embracing digital innovation, Indonesia’s story is one of resilience and reinvention. This year, Indonesia is focusing on balancing its traditional strengths in natural resources and manufacturing with booming sectors like digital technology and green energy.

In this article, we’ll take you through Indonesia’s economic evolution—from its early days under colonial rule to the rapid transformations post-independence. You’ll gain insight into the industries that drive today’s economy and discover the ambitious projects designed to position Indonesia as a powerhouse in the global market. Whether you’re a curious reader, investor, or simply looking to understand the heartbeat of Southeast Asia’s largest economy, this exploration of Indonesia’s growth will uncover both the challenges and promising paths ahead.

A Historical Overview of Indonesia’s Economy

Indonesia’s economic history dates back to the Dutch colonial period, during which the region served primarily as a source of raw materials for the colonial powers. The Dutch East India Company monopolized resources, exporting spices, tea, coffee, and later, oil, primarily for the benefit of the Dutch economy. Infrastructure developed in the colonial era largely supported this export-driven structure, with limited investments to foster local industry or diversify economic activities.

During World War II, the Japanese occupation further strained Indonesia’s economy, redirecting resources to support Japan’s war efforts. When Indonesia declared independence in 1945, it inherited an economy still structured around extraction and raw materials, with minimal industrial capacity. The path forward was challenging, as early leaders sought to gain control over resources and establish a foundation for economic autonomy.

Post-Independence Economic Transformation

The 1950s and 60s saw attempts to nationalize industries under Sukarno’s leadership, with a focus on self-sufficiency. However, these guided policies faced setbacks, including inflation, political unrest, and limited international trade relationships, which stunted growth.

Under Suharto’s New Order regime, Indonesia adopted an open economy, welcoming foreign investment and establishing policies to diversify its economic base. Benefiting from high global oil prices, Indonesia’s oil and gas sectors boomed, while manufacturing and textile industries gained ground, becoming significant contributors to GDP. This era saw rapid industrial growth, laying the foundation for the modern Indonesian economy.

The Asian Financial Crisis of 1997 brought severe economic hardship to Indonesia, resulting in reforms to stabilize its financial sector and reduce governmental control over businesses. With support from the International Monetary Fund (IMF), Indonesia stabilized its currency and restored investor confidence, setting the stage for a more resilient economic structure.

Indonesia’s Economic Landscape in 2024

Today, Indonesia has transformed into a diverse and vibrant economy with a well-established mix of natural resources, manufacturing, and a growing digital sector.

Indonesia’s 2024 GDP is primarily driven by sectors including agriculture, manufacturing, services, mining, and construction. Natural resources such as oil, gas, and coal remain central to the economy, while the manufacturing sector, especially in textiles, automotive, and electronics, contributes significantly to exports and employment.

  1. Natural Resources: Indonesia continues to be a major global producer of oil, gas, coal, and minerals. These resources form the backbone of its exports, though the government is actively seeking to diversify to reduce dependency on volatile commodity prices.
  2. Manufacturing: Indonesia’s manufacturing sector includes textiles, automotive, and electronics. This industry has been instrumental in driving employment and regional development, with both domestic and international markets fueling demand.
  3. Agriculture: The agricultural sector remains a significant part of Indonesia’s GDP, with commodities like palm oil, rubber, and coffee. Palm oil, in particular, is a key export, although it faces international scrutiny for its environmental impact.
  4. Services and Digital Economy: With high internet penetration and a young demographic, Indonesia’s digital economy is growing rapidly. E-commerce, fintech, and digital services are expanding, attracting investments, and generating new jobs, with the sector expected to continue its upward trajectory.
  5. Tourism: Efforts to expand tourism include promoting cultural tourism, eco-tourism, and Muslim-friendly travel. This sector provides vital foreign exchange and employment opportunities, though challenges such as infrastructure and environmental sustainability remain.
Major Economic Challenges
  1. Infrastructure Deficit
    Indonesia’s infrastructure has improved in recent years, with projects like the Trans-Sumatra Highway and regional connectivity initiatives. However, rural and remote areas still lack sufficient infrastructure, hindering inclusive growth.
  2. Income Inequality and Poverty
    While Indonesia’s economy has grown, wealth distribution remains uneven, with notable disparities between rural and urban areas. Addressing poverty and supporting micro-entrepreneurs are crucial steps to achieve equitable economic growth.
  3. Environmental Concerns
    Deforestation and pollution from industries such as palm oil production challenge Indonesia’s sustainability goals. Balancing economic growth with environmental protection is a central priority, as global scrutiny intensifies around environmental practices.
  4. Dependency on Natural Resources
    Heavy reliance on commodity exports makes Indonesia vulnerable to global price fluctuations. Government initiatives to diversify and reduce this dependency are ongoing but require strategic focus and innovation.
Future Projects and Strategic Goals

Indonesia’s Vision 2045, an ambitious development agenda, aims to position the nation as a high-income country by its centennial anniversary. The agenda emphasizes industrialization, digital economy growth, and human capital development, targeting a well-rounded, sustainable growth model.

One of the most talked-about projects is the relocation of Indonesia’s capital from Jakarta to Nusantara in Kalimantan. This move aims to alleviate congestion in Jakarta and promote regional development by distributing economic activities more evenly. The new capital is envisioned to be an environmentally friendly, smart city, fostering sustainable growth.

Indonesia has committed to shifting toward renewable energy, with projects in solar, wind, and geothermal power. The goal is to reduce dependency on coal and achieve a greener energy mix by 2060, positioning Indonesia as a leader in renewable energy in Southeast Asia.

The government recognizes the potential of the digital economy and is actively supporting the expansion of fintech, digital services, and creative industries. This sector is expected to be a major contributor to economic growth, fueled by high demand for innovation, particularly among Indonesia’s young population.

In 2024, Indonesia stands as a growing economic power in Southeast Asia, reflecting a blend of historical influences, industrial growth, and forward-looking strategies. While traditional sectors like natural resources and agriculture continue to play vital roles, Indonesia’s efforts to diversify into digital and renewable sectors signify its adaptability and ambition. The state of the Indonesian economy in 2024 is both promising and challenging, with projects like Nusantara, the Vision 2045 agenda, and renewable energy transitions highlighting its readiness for a sustainable, inclusive, and prosperous future.


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Lifting the Bottom Billion: Will It Work This Time?

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Imagine being part of a billion people stuck in a cycle of extreme poverty—unable to break free due to war, corruption, lack of education, and isolation from global markets. These individuals make up what economist Paul Collier famously termed the “Bottom Billion.” Despite countless international efforts to address their struggles, many remain trapped in some of the most challenging conditions on earth, particularly in sub-Saharan Africa. With new strategies and technologies emerging, the big question is: Will it work this time? In this article, we’ll dive into the latest global initiatives and the hurdles still standing in the way of lifting the Bottom Billion out of poverty once and for all.

Understanding the Bottom Billion Crisis

For decades, poverty reduction efforts have centered on providing aid, improving infrastructure, and addressing public health issues. However, the situation for the Bottom Billion is complex and often resistant to traditional development strategies. According to Collier, these individuals are caught in one or more of four traps: conflict, natural resource dependence, landlocked countries with bad neighbors, and poor governance. These traps create cyclical poverty that is difficult to escape.

Recent data shows that while global poverty rates have decreased—thanks to economic growth in places like China and India—the situation for the Bottom Billion remains unchanged in many regions. Sub-Saharan Africa, for instance, continues to struggle with high poverty rates, despite decades of international aid. The challenge is not just about money; it’s about addressing the root causes that keep these populations poor.

Current Global Efforts: What’s Being Done?

Several initiatives have been put in place to address the unique challenges faced by the Bottom Billion. These include:

1. Sustainable Development Goals (SDGs)

The United Nations’ Sustainable Development Goals (SDGs) aim to end poverty in all its forms by 2030. Goal 1 specifically targets the eradication of extreme poverty, focusing on providing social safety nets, access to basic services, and job creation. While the SDGs offer a comprehensive approach, progress has been uneven, particularly in conflict-affected regions where governance and infrastructure are weak.

2. International Aid and Debt Relief

Foreign aid and debt relief programs have been crucial in offering immediate assistance to impoverished nations. In 2020, the International Monetary Fund (IMF) and World Bank launched initiatives to alleviate debt for the world’s poorest countries, especially in the wake of the COVID-19 pandemic. The IMF’s Debt Service Suspension Initiative (DSSI) has temporarily freed up resources that these countries can use for critical healthcare and social services. But critics argue that aid, while necessary, often doesn’t address the systemic issues—like governance and corruption—that perpetuate poverty.

3. Microfinance and Social Entrepreneurship

Microfinance has been a popular tool for lifting people out of poverty. By providing small loans to individuals, particularly women, microfinance initiatives aim to stimulate local businesses and empower communities. Organizations like Grameen Bank and Kiva have made significant strides, but scaling these efforts to reach the Bottom Billion remains a challenge. Social entrepreneurship—businesses that focus on generating social impact rather than profit—has also emerged as a promising solution, but its effectiveness is still debated.

The Role of Technology in Poverty Alleviation

One of the most promising developments in the fight against poverty is the role of technology. In recent years, digital tools have shown the potential to bridge gaps in education, healthcare, and financial services.

1. Mobile Banking and Digital Inclusion

Mobile banking, particularly in countries like Kenya with platforms like M-Pesa, has revolutionized financial access for the poor. These platforms allow users to transfer money, save, and even access loans without needing a traditional bank account. For the Bottom Billion, many of whom live in rural or underserved areas, mobile banking provides a lifeline for economic participation. However, challenges around digital literacy and infrastructure still need to be addressed.

2. Online Education and E-Learning Platforms

Education is another area where technology can make a transformative impact. The rise of e-learning platforms offers the opportunity to bring quality education to even the most remote regions. Projects like Khan Academy and Coursera have made strides in offering free educational content to people worldwide, but scaling this in regions where internet access is scarce or expensive remains a hurdle.

3. Telemedicine and Healthcare Access

Telemedicine has the potential to bridge gaps in healthcare, particularly in areas where access to hospitals or doctors is limited. With the help of mobile technology, remote consultations and diagnostics are becoming more common in developing countries. In the context of the COVID-19 pandemic, telemedicine has become a critical tool, allowing healthcare workers to reach vulnerable populations. However, expanding this service to the Bottom Billion will require investment in both digital infrastructure and healthcare systems.

One of the biggest barriers to lifting the Bottom Billion out of poverty is poor governance. Corruption, weak institutions, and lack of transparency make it difficult for aid and development programs to reach those who need them most. Transparency International’s Corruption Perceptions Index consistently shows that the most impoverished countries are also among the most corrupt.

In countries with poor governance, even well-meaning efforts can fail. Aid money often doesn’t reach its intended recipients, infrastructure projects stall, and political instability exacerbates existing problems. Addressing governance issues is critical to making any poverty alleviation program successful.

So, will it work this time? The answer lies in a multifaceted approach that goes beyond just financial aid. Here are a few key elements that must be addressed for any hope of success:

  1. Improving Governance: Without addressing corruption and weak institutions, any efforts will be undermined. Initiatives that promote transparency, accountability, and democratic governance will be crucial.
  2. Inclusive Economic Growth: Economic development must reach the most marginalized groups, particularly women, rural communities, and those living in conflict zones. Programs that focus on building local economies and creating jobs will be vital.
  3. Leveraging Technology: Digital tools offer immense potential, but they must be accessible to all. Expanding internet access and digital literacy will be key in enabling the Bottom Billion to participate in the global economy.
  4. Local Solutions for Local Problems: Global strategies must be adapted to local contexts. What works in Southeast Asia may not work in sub-Saharan Africa. Engaging local communities in the decision-making process is essential for sustainable progress.

Lifting the Bottom Billion is one of the most daunting challenges of our time. While the task is immense, it is not impossible. By focusing on good governance, inclusive growth, and technological innovation, the global community has a chance to make meaningful progress in reducing extreme poverty. Will it work this time? Only if we approach the problem with a comprehensive, targeted, and sustainable strategy. The stakes are high, but the rewards—improving the lives of a billion people—are worth every effort.


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Easing Africa’s Debt Burdens: a Fresh Approach, Based on an Old Idea

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In his address to the 79th session of the UN general assembly this week, South African president Cyril Ramaphosa described debt as “a millstone around the neck of developing countries”. Three legal and economic scholars set out the African debt problem and what must happen if African countries are to get out of what Ramaphosa described as “a quicksand of debt”.

The statistics are stark: 54 governments, of which 25 are African, are spending at least 10% of their revenues on servicing their debts; 48 countries, home to 3.3 billion people, are spending more on debt service than on health or education. Among them, 23 African countries are spending more on debt service than on health or education. While the international community stands by, these countries are servicing their debts and defaulting on their development goals. The Group of 20’s current approach for dealing with the debts of low income countries is the Common Framework.

It requires the debtor to first discuss its problems with the International Monetary Fund (IMF) and obtain its assessment of how much debt relief it needs. Then it must negotiate with its official creditors – international organisations, governments and government agencies – over how much debt relief they will provide. Only then can the debtor reach an agreement – on comparable terms to the official creditors – with its commercial creditors. Unfortunately, this process has been sub-optimal.

One reason is that it works too slowly to meet the urgent needs of distressed borrowers. As a result, it condemns debtor countries to financial limbo. The resulting uncertainty is not in anyone’s interest. For example, Zambia has been working through the G20’s cumbersome process for more than three and a half years and has not yet finalised agreements with all its creditors.  The need for a new approach is overwhelmingly evident. Although the current crisis has not yet become the “systemic” threat it was in the 1980s when multiple countries defaulted on their debt, it is a “silent” sovereign debt crisis.

We propose a two-part approach that would improve the situation of sovereign debtors and their creditors. This proposal is based on the lessons we have learned from our work on the legal and economic aspects of developing country debt, particularly African debt.

First, we suggest that official creditors and the IMF create a strategic buyer of “last resort” that can purchase the bonds of debt distressed countries and refinance them on better terms.

Second, we recommend that all parties involved in sovereign debt restructurings adopt a set of principles that they can use to guide the debtor and its creditors in reaching an optimal agreement and monitoring its implementation.

The current approach fails to deal effectively and fairly with both the concerns of the creditors and all the debtor’s legal obligations and responsibilities. Our proposed solution would offer debtors debt relief that does not undermine their ability to meet their other legal obligations and responsibilities, while also accommodating private creditors’ preference for cash payments.

Our proposal is not risk-free. And buybacks are not appropriate for all debtors. Nevertheless it offers a principled and feasible approach to dealing with a silent debt crisis that threatens to undermine international efforts to address global challenges such as climate, poverty and inequality.

It uses the IMF’s existing resources to meet both the bondholders’ preferences for immediate cash and the developing countries’ need to reduce their debt burdens in a transparent and principled way. It also helps the international community avoid a widespread default on debt and development.

Bondholders are a major problem

Foreign bondholders, who are the major creditors of many developing countries, have proven to be particularly challenging in providing substantive debt relief in a timely manner. In theory, they should be more flexible than official creditors.

Developing countries have been paying bondholders a premium to compensate them for providing financing to borrowers that are perceived to be risky. As a result, bondholders have already received larger payouts than official creditors. Therefore, they should be better placed than official creditors to assist the debtor in the restructuring processes. However, despite having received  large returns from defaulted bonds, bondholders have remained obstinate in debt restructurings. Our proposal seeks to overcome this hurdle in a way that is fair to debtors, creditors and their respective stakeholders.

How it would work

First, the official creditors and the IMF should create and fund a strategic buyer “of last resort” who can purchase distressed (and expensive) debt at a discount from bondholders. The buyer, now the creditor of the country in distress, can repackage the debt and sell it to the debtor country on more manageable terms. The net result is that the bondholders receive cash for their bonds, while the debtor country benefits from substantial debt relief. In addition, the debtor and its remaining official creditors benefit from a simplified debt restructuring process.

This concept has precedent. In 1989, as part of the Highly Indebted Poor Countries Initiative, the international community’s effort to deal with the then existing debt burdens of poor countries, the World Bank Group established the Debt Reduction Facility, which helped eligible governments repurchase their external commercial debts at deep discounts. It completed 25 transactions which helped erase approximately US$10.3 billion in debt principal and over US$3.5 billion in interest arrears.

Some individual countries have also bought back their own debt. In 2009, Ecuador repurchased 93% of its defaulted debt at a deep discount. This enabled the government to reduce its debt stock by 27% and promote economic growth in subsequent years. Unfortunately, the countries currently in debt distress lack sufficient foreign reserves to pursue such a strategy. Hence, they need to find a “friendly” buyer of last resort.

The IMF is well positioned to play this role. It has the mandate to support countries during financial crises. It also has the resources to fund such a facility. It can use a mix of its own resources, including its gold reserves, and donor funding, such as a portion of the US$100 billion in Special Drawing Rights (SDR), the IMF’s own reserve currency, which rich economies committed to reallocate for development purposes. Such a facility, for example, would have enabled Kenya to refinance its debts at the SDR interest rate, currently at 3.75% per year, rather than at the 10.375% rate it paid in the financial markets.

It is noteworthy that the 47 low-income countries identified as in need of debt relief have just US$60 billion in outstanding debts owed to bondholders. Our proposed buyer of last resort would help reduce the burden of these countries to manageable levels. Second, we propose that both debtors and creditors should commit to the following set of shared principles, based on internationally accepted norms and standards for debt restructurings.

Guiding principles

1. Guiding norms: Sovereign debt restructurings should be guided by six norms: credibility, responsibility, good faith, optimality, inclusiveness and effectiveness.

Optimality means that the negotiating parties should aim to achieve an outcome that, considering the circumstances in which the parties are negotiating and their respective rights, obligations and responsibilities, offers each of them the best possible mix of economic, financial, environmental, social, human rights and governance benefits.

2. Transparency: All parties should have access to the information that they need to make informed decisions.

3. Due diligence: The sovereign debtor and its creditors should each undertake appropriate due diligence before concluding a sovereign debt restructuring process.

4. Optimal outcome assessment: The parties should publicly disclose why they expect their restructuring agreement to result in an optimal outcome.

5. Monitoring: There should be credible mechanisms for monitoring the implementation of the restructuring agreement.

6. Inter-creditor comparability: All creditors should make a comparable contribution to the restructuring of debt.

7. Fair burden sharing: The burden of the restructuring should be fairly allocated between the negotiating parties.

8. Maintaining market access: The process should be designed to facilitate future market access for the borrower at affordable rates.

The G20’s current efforts to address the silent debt crisis are failing. They are contributing to the likely failure of low income countries in Africa and the rest of the global south to offer all their residents the possibility of leading lives of dignity and opportunity.

Danny Bradlow is Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of Pretoria

Kevin P. Gallagher is Professor of Global Development Policy and Director, Global Development Policy Center, Boston University

Marina Zucker-Marques is a Senior Academic Researcher, Boston University Global Development Policy Center, Boston University

Courtesy: The Conversation


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