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Malaysian Economy Showing Signs of Recovery, Projected to Grow by 6.7 Percent in 2021
Published
4 years agoon
By
EditorBy Newsroom
Malaysia’s economy is expected to grow by 6.7 percent in 2021 following a projected contraction of 5.8 percent in 2020 caused by the COVID-19 pandemic, according to the latest edition of the World Bank Malaysia Economic Monitor: Sowing the Seeds launched today. The successful containment of the third wave and effective roll out and distribution of vaccine could lead to a faster-than-expected recovery in consumer demand, greater investor confidence, and consequently a more robust recovery in domestic economic activity in 2021
Signs of recovery are showing with Malaysia posting a smaller contraction of 2.7 percent in Q3 2020 compared to a 17.1 percent in Q2 2020. Fiscal measures like cash transfers and wage subsidies have boosted household spending with private consumption contracting 2.1 percent in Q3 2020 compared to 18.5 percent in Q2 2020. However, the recent surge in COVID-19 cases and renewed movement controls could slow recovery down due to uncertainties surrounding the deployment of an effective vaccine and the robustness of a rebound in global growth that will influence growth prospects. Containing the pandemic and protecting the most vulnerable remain the topmost near-term priorities.
The report expects Malaysia to return to its pre-pandemic trend at a modest pace over the medium term. As health risks diminish and the economy continues to recover, focus will need to gradually shift from these near-term policies to facilitating necessary economic adjustments to enable new growth in the post-pandemic environment.
“Seizing new growth opportunities and overcoming potentially long-lasting challenges brought on by the COVID-19 crisis will necessitate bold structural reforms in the medium term,” said Datuk Seri Mustapa Mohamed, Minister in the Prime Minister’s Department in charge of the Economy. “Malaysia needs to take advantage of its recovery from this crisis to emerge as a more durable and inclusive economy in a structurally different post-pandemic future. This edition of the World Bank Malaysia Economic Monitor presents a timely analysis that will help us navigate in planning for a good recovery.”
“The COVID-19 crisis has emphasized the importance of taking a dynamic view of policy in addressing the ongoing crisis, with a clear set of strategies for different phases of recovery, to manage difficult trade-offs between providing relief today and supporting recovery and growth tomorrow” said Ndiame Diop, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand.
The COVID-19 crisis has also drawn attention to the food system and the continued relevance of food security as well as the need for food policy to focus on a wider range of risks and opportunities. The report’s special focus on the agriculture sector highlights the need for Malaysia to modernize and diversify its agrofood sector and better integrating it with its more dynamic “farm-to-fork” food economy. This will help advance other national priorities, including that of shared prosperity.
The 12th Malaysia Plan provides a crucial opportunity to lay out the agricultural sector’s potential and the role of government in facilitating its transformation. In both their aims and approaches, policies deployed should aim to improve food security, enhance agricultural livelihoods, modernize and inject dynamism into the agrofood economy, and ensure its resilience, competitiveness and sustainable growth.
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Green Finance for the SDGs: The Potential of Islamic Finance
Published
1 year agoon
August 16, 2023By
EditorBy Dr.Dalal Aassouli
The financial industry can play a critical role in building a stable and prosperous economy when it is managed with accountability. This requires redirecting investments into economic activities that deliver a good balance between economic, environmental and social objectives in order to promote human well-being and mitigate global challenges such as climate change, biodiversity loss, or inequalities. Many analysts are now taking a closer look at a ‘green economy’, which promotes economic growth while also achieving sustainability objectives.
The 2030 Sustainable Development Goals (SDG) agenda and the Paris Agreement on Climate Change were two major turning points in advancing global action to promote the transition to a green economy and tackle climate change. Their implementation has contributed to the growth of environmental awareness and embedding sustainability in the financial industry, suggesting a paradigm shift in the way financial intermediation is conducted and monetary transactions are structured. In turn, new investment products and financial instruments labelled as green, climate-related or sustainable and responsible were developed. Among them are green bonds and green and Sustainable and Responsible Investment (SRI) sukuk.
Challenges and Opportunities in Implementing the SDGs
The United Nations Development Programme (UNDP) estimates a $2.5 trillion annual gap for achieving the SDGs while the implementation of renewable energy solutions requires an additional net investment of $1.4 trillion, or about $100 billion per year on average between 2016 (when the SDGs were adopted) and 2030 according to the International Renewable Energy Agency (IRENA).
On the other hand, a recent report by the Global Commission on the Economy and Climate highlights that the transition to a low-carbon, sustainable approach to growth could lead to an economic boost of $26 trillion up to 2030 and help create more than 65 million new jobs.
This rising awareness has promoted the development of new asset classes that could be classified under the umbrella of sustainable finance. Activities labelled under this category take into account environmental and social considerations. Other related or sub-categories include climate finance, ethical finance, responsible finance and green finance.
What is Green Finance?
The Organization for Economic Co-operation and Development (OECD) defines green finance as being finance for ‘achieving economic growth while reducing pollution and greenhouse gas emissions, minimizing waste and improving efficiency in the use of natural resources’.
For the past decade, the global green finance market has witnessed a rapid growth, with the development of financial instruments such as green labeled and unlabeled bonds; green loans; green investment funds; green insurance; and recently green sukuk. Although the first green bonds were issued in 2008, the market has significantly developed to mobilize financing for the 17 SDGs with more innovative structures, taxonomies and governing frameworks.
The Infrastructure Development Finance Company (IDFC) estimates green finance at $134 billion. According to Thomson Reuters, in 2019, a total of $185.4 billion in green bonds were issued, which are debt market instruments where the proceeds are allocated to green eligible projects that target climate mitigation and adaptation activities as well as other environmental issues involving energy, water, transport, water, waste, or construction.
Islamic Finance
Considered as an ethical, inclusive and socially responsible finance because it connects the financial sector with the real economy and promotes risk sharing, partnership-style financing and social responsibility, Islamic finance has emerged as an effective tool for financing development worldwide. This explains its increasing significance as an alternative mechanism in infrastructure financing. In an Islamic financial system, transactions must be asset-linked, which increases the financial sector’s stability, and be based on a set of Islamic legal contracts that promote profit and loss sharing. In addition, the principles of social justice, solidarity and mutuality are promoted and investments in sectors that are considered unethical are prohibited.
Islamic finance has the potential to bridge the finance gap required to achieve the SDG agenda and the transition to a green economy. This justifies its identification by participants of the third International Conference on Financing for Development in Addis Ababa in July 2015 as a promising alternative to traditional sources of funding and the recommendation for its utilization to realize the SDGs.
The Islamic financial industry comprises four key segments: Islamic banking, Islamic funds, takaful(Islamic insurance) and the sukuk market. While the four segments can contribute to financing the SDGs, the sukuk segment attracted greater attention recently with the development of green and SRI sukuk. Sukukalso enable the targeting of a wider, global investor base comprising both conventional and Islamic investors.
Sukuk
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) defines sukuk as certificates of equal value representing undivided shares in ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity.
The sukuk market is one of the fastest growing segments in the Islamic financial industry with about 24.2% of the total global Islamic financial assets and new issuances amounting to $93 billionin 2018 according to the Islamic Financial Services Board (IFSB).
Often qualified as Islamic bonds, sukuk represents an innovative instrument for financing green projects. Their asset-backing requirement facilitates their link to the real economy and therefore widens the scope of environmental sectors that can be financed. In addition, sukuk can be structured in various ways using single or hybrid Islamic contracts such as agency, partnership and leasing contracts. This flexibility facilitates financial innovation in addressing specific financing needs.
Green sukuk can contribute to achieving nine of the SDGs. These are Good Health and Wellbeing (SDG3), Quality Education (SDG4), Clean Water and Infrastructure (SDG6), Affordable and Clean Energy (SDG7), Decent Work and Economic Growth (SDG8), Industry, Innovation and Infrastructure (SDG9), Sustainable Cities and Communities (SDG11), Responsible Consumption and Production (SDG12) and Climate Action (SDG13).
We first saw the impact of sukuk in 2017 when the world’s first green sukukwas issued by Malaysian-based Tadau Energy to finance a solar power project in Malaysia. Since then, the market has developed significantly with the amount of green sukuk issuance reaching$5.38 billion at the end of 2019, representing 58 issues by nine issuers, mainly led by corporates in Malaysia and the GCC.
The green sukuk market development was also supported by the implementation of enabling frameworks such as the Malaysian Securities Commission’s SRI Sukuk Framework and the recent Indonesia green bond and green sukuk framework.
Towards Green and Blended Finance
The OECD defines blended finance as the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries. This requires reconsidering other sources of financing while leveraging the limited public and development finance funds.
A good example to consider is Islamic social finance. The Islamic social finance sector broadly comprises traditional Islamic institutions such as zakat (almsgiving) and waqf (endowments), as well as Islamic microfinance. These segments usually target the bottom of the pyramid populations, who lack access to basic safety nets such as education, appropriate health systems, food and other basic needs.
Zakat and waqf are at the heart of the Islamic economic system as they promote the principles of social justice, solidarity, brotherhood and mutuality whereas microfinance enables small businesses that usually cannot access traditional financing modes, to access financing for small projects that generate income and therefore reduces their reliance on charity.
Zakat and awqaf institutions have played a significant role in the cultural, socio-economic and religious life of Muslims for centuries. Today, many scholars are calling for the revival of these institutions to address contemporary development challenges including environmental issues. Zakat and waqf could be used in green blended finance transactions to address several SDGs and develop inclusive green solutions for smallholder farmers, rural access to clean energy and cooking solutions, water treatment and sanitation solutions, etc.
In conclusion, the widespread transition to a green economy will ultimately require a sustained focus on continuing the growth of the global green finance market and further development of these key financial instruments as promising alternatives to traditional sources of funding.
Dr. Dalal is Assistant professor of Islamic finance at Hamad Bin Khalifa University (HBKU).
IN CASE YOU MISSED IT
South Korea’s Finance of ‘Green’ Palm oil Drives Destruction in Indonesia
Published
4 years agoon
January 13, 2021By
EditorIn 2019, South Korea imported 745,000 metric tonnes of palm oil, up from 194,000 metric tonnes in 2005. It is one of the fastest-growing markets for the commodity in the world, driven by government policies to boost palm oil as a lucrative green industry and to secure food and energy supplies from overseas.
Most of this palm oil comes from Indonesia and Malaysia and until recently was used in processed food, such as instant noodles. But under the country’s “Green New Deal” introduced earlier this year, palm oil is being promoted as a source of renewable energy, as biofuel for transport and power generation.
But palm oil’s green credentials are hotly debated. While the US and Europe are taking steps to restrict use because of links to widespread deforestation and high carbon emissions, South Korean public institutions have given millions of dollars in subsidies to companies developing plantations in Indonesia in the name of “green” development.
Environmental activists and lawyers in South Korea have become increasingly vocal about the industry’s links with human rights violations and deforestation in Indonesia, and are demanding the government stop financing destructive practices.
Demand soars
South Korea relies on overseas imports for 97% of its energy and 75% of its food resources. After the 2008 global food crisis, the government set out to secure both edible and industrial palm oil, launching an “Overseas Agro-resources Development” programme in 2009. That public loan scheme covered 70% of the business costs of private South Korean companies to produce and distribute wheat, soybean, corn and crude palm oil.
Palm oil is designated a strategic commodity under South Korean law. The Overseas Agriculture & Forest Resources Development and Cooperation Act, and the Overseas Resources Development Business Act are used as legal grounds to subsidise Korean palm oil companies overseas. The Korea Forest Service and various finance institutions classify oil palm development as “bioenergy afforestation” projects. This is a perverse use of the word afforestation, which generally means planting trees for environmental and climate benefits, not clearing tropical forest for monoculture plantations.
“I find these acts very imperialistic. The government is helping companies to take resources from other countries because we are resource-poor,” said Chung Shin-young, a lawyer with Advocates for Public Interest Law (APIL), who has been investigating South Korea’s palm oil industry and leading the campaign to stop public finance of the industry.
Public and private investment in the palm oil industry has also been driven by the use of palm oil as a transport fuel since the mid 2000s. Since 2015, South Korean companies importing or exporting petroleum fuel products have had to ensure their oil products are at least 2.5% biodiesel. The proportion was later increased to 3%. As of 2017, palm oil and its by-products accounted for 88% of South Korea’s biodiesel imports.
Public money funds deforestation and human rights abuses
South Korean palm oil producers found themselves in the international spotlight in 2016 when environmental advocacy group Mighty Earth, in partnership with the Korean Federation for Environmental Movements (KFEM), exposed massive forest clearance in the palm oil concessions of Korindo and Posco International in Indonesian-administered Papua. Satellite data and drone images showed that Korindo had cleared 30,000 hectares of rainforest in the previous two years while Posco International had cleared 19,000 hectares in the previous four.
Korindo established its first oil palm plantation in Papua in 1998. Recent years have seen a marked expansion of its activities in the province, with 30,000 hectares of forest cleared between 2013 and 2016. (Image: Mighty Earth)
“The Korean model of palm oil plantation deforestation harkens back to the old, dark days of the palm oil industry when forests, wildlife and indigenous lands were obliterated for the purpose of establishing giant expanses of monoculture plantations, the profits of which mainly go to foreign owners,” said Deborah Lapidus, senior campaign director at Mighty Earth.
The problem is these two companies have been operating their palm oil business with public money from the Korea Forestry Service and the Export-Import Bank of Korea (Korea Exim Bank), said Chung.
“If you look at the detailed statement of the government loan to Posco International, you will learn that they rarely run a business on their own money. But it’s not only Posco International. LG International, Daesang, and JC Chemical before them got a loan from the Korea Forestry Service,” said Chung. Her team was one of the first local groups to investigate South Korean palm oil companies’ links to rights violations and massive deforestation in Indonesia since 2016, together with the Korean Federation of Environmental Movements (KFEM).
“The agency’s very first public loan to the palm oil industry was to an oil palm afforestation company, Daesang Holdings, in 2008. In total, 3.8 billion-won (around US$3.2 million) was financed for a bioenergy afforestation project in Indonesia,” explained Shin Gun-seop, an administrative officer at Korea Forest Service’s Overseas Resources Development Office.
Between 2010 and 2019, Korea Forest Service provided 40.1 billion won (around US$33 million) to plant oil palms in around 24,000 hectares, mostly in Indonesia, according to Shin. Daesang Holdings, LG International Corp., Kodeco, and JC Chemical were some of the recipients of these public loans.
Livelihoods destroyed
The expansion of South Korean palm oil companies has put indigenous communities’ livelihoods at risk, many of whom had been displaced from their forest land in the past.
“My concern is that the presence of Korindo and Posco International in Papua will further widen gaps and deepen injustices in Papua where big business take everything and the local community is left with empty hands. For most indigenous Papuans, forests are their supermarkets, banks, hospitals and sacred places. Massive forest conversion means they lose their livelihoods,” said Angky Samperante from the Papuan rights group Yayasan Pusaka. His team has been struggling to protect the rights of indigenous peoples and the environment of Papua against Korean palm oil companies since 2010.
A family from the Kowin Marind tribe whose land has been affected by deforestation to make way for a Korindo plantation in Papua (Image: Mighty Earth)
The Forest Stewardship Council (FSC) has been closely monitoring Korindo’s operations since complaints against its destructive practices and human rights violations were first made by Mighty Earth in 2017, but has stopped short of stripping it of its sustainability certification. Korindo Group published a statement on its website in July 2019 saying it rejected complaints that it was involved in illegal forest fires but agreed to work with FSC to improve its standards.
The Korean palm oil industry has been linked with the suffering of indigenous communities in Indonesia from the start. Korindo Group started the first “Korean” palm oil business in Merauke, Papua province, in 1995. There the Marind and Mandobo peoples had already been forced from their customary forest by the central government’s development plan in the early 1970s. PT. Tunas Sawa Erma, the palm oil company of Korindo Group, acquired a palm oil business permit in 1997 and by December 2001 had planted palms over 7,800 hectares of land. This set the scene for the next set of large-scale Korean palm oil ventures in Indonesia from 2007.
The major players
Apart from Korindo, six other big South Korean companies have become major players in the palm oil industry, financed by public money. Almost US$200 million worth of public funding has been given to these companies to develop over 65,000 hectares of palm oil plantations in Indonesia. These estimates are based on publicly available and verified data from the Korea Forest Service, Export-Import Bank of Korea and the South Korean parliament. And according to an independent investigation by APIL (Advocates for Public Interest Law), almost all of these companies have ongoing land and rights violation conflicts with local communities.
Local advocacy groups have been running a campaign to stop government loans to the palm oil companies in Indonesia since APIL and KFEM (Korean Federation for Environmental Movements) published a report based on their investigation in 2019.
“It’s our tax money going into the industry that is complicit in land grabbing, indigenous people’s rights and labour rights violations. We are pushing Korean export credit agencies to have their own human rights standards to follow when providing a public finance loan to overseas projects like the palm oil industry. It is the government offices’ constitutional responsibility to avoid any human rights violations,” said Chung.
Carbon emissions
Local scientists are also raising their concerns about the government’s growing “carbon debt” given its support for the palm oil industry.
“South Korea has been using a by-product of crude palm oil called Palm Fatty Acid Distillate (PFAD) as a main source of bioenergy. Due to its high carbon intensity and environmental cost, PFAD would not be permitted as a main source of biodiesel in countries like the US and UK,” said Shin Jung-Yull from Korea Energy Agency’s audit division.
According to Shin’s 2018 PhD dissertation, PFAD accounted for 47% of Korea’s biodiesel feedstock in 2015, and emits 5.7 times more greenhouse gases than alternative oils. The European Union plans to phase out palm oil-based transport fuels by 2030, because of the deforestation and higher emissions they cause.
Mounting pressure
Since 2015, South Korean lawmakers have also been questioning the relevant ministries over the effectiveness and sustainability of public financing in the overseas palm oil industry through parliamentary inspections and research service reports.
Under public pressure, Korea Forest Service excluded Korindo from receiving overseas public financing and seized additional loan support for oil palm afforestation projects in 2019. This was after the agency introduced new evaluation criteria requiring companies to provide evidence, such as satellite images, to prove that they are not responsible for “conversion of forest”. However, companies receiving loans before 2019 are not bound by the stricter criteria.
Membership of the Roundtable of Sustainable Palm Oil (RSPO) – the global certification organisation set up to promote ethical palm oil – is not included in public financing criteria, and neither is a commitment to No Deforestation, No Peat, No Exploitation (NDPE) policies.
Despite this, there has been huge public pressure on companies to take action. Posco International voluntarily joined RSPO membership and introduced a zero-deforestation policy for its palm oil plantation in Indonesia’s Papua province in March this year.
When asked to respond to the international outcry over their activities in Indonesia, Joyce Eun Jeong Seo of Posco International’s Sustainable Management Department told China Dialogue: “In carrying out the palm oil business in Indonesia, Posco International and its subsidiary PT Bio Inti Agrindo recognised and complied with indigenous customary laws as a top priority and strives to fulfil the level of social responsibility required by international norms as a responsible global company.”
Posco International was the first South Korean business to introduce a NDPE (no deforestation, no peat, no exploitation) policy earlier this year. But between 2012 and 2017, its subsidiary in Papua cleared 26,500 hectares of mostly primary forest to establish a plantation. (Image: Google Earth, Landsat / Copernicus)
But Korean citizens have only just started to demand more transparency about the palm oil supply chain and the problems around this ubiquitous commodity.
“We all know that our country has to rely heavily on overseas resources for our food and energy. But the government cannot blind its citizens by using ‘national interest and security’ logic to justify human rights violation, deforestation and carbon emissions,” said Kang Myung-hwa, a 34-year-old citizen from Seoul.
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