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The sorry state of the world economy

The sorry state of the world economy

By Kaushik Basu, former Chief Economist of the World Bank and former Chief Economic Adviser to the government of India, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

New York – January is traditionally a time for assessing the developments of the previous year, in order to anticipate what the new one has in store. Unfortunately, even though we may be at a turning point for the better politically, the data that have emerged in the last month do not paint a promising picture of the global economy’s short-term prospects.

The tone was set early in the month by the World Bank’s Global Economic Prospects, along with the accompanying articles. The report paints a picture as bleak as its subtitle – “Darkening Skies” – and cuts the growth forecast for the advanced economies in 2020 to 1.6% (down from 2.2% in 2018).

Moreover, last week, the European Central Bank sounded the alarm over the eurozone economy. Between the prospect of a disorderly Brexit and rising protectionism, exemplified by the trade war between the United States and China, Europe is subject to increasing uncertainty.

Making matters worse, Germany is facing a growth slowdown. According to its own official data, the economy contracted by 0.2% in the third quarter of 2018, while the Purchasing Managers Index for manufacturing sank to 49.9 – a four-year low. Given Germany’s role as the backbone of the eurozone economy, its economic struggles are likely to cascade beyond its borders.

This is particularly problematic, because, after more than a decade of fighting crisis and recession, the advanced economies have depleted their ammunition for countering a slowdown. With the ECB’s benchmark interest rate at zero, there is little room for a cut. The Bank of England has not risked raising interest rates since August. Even the US Federal Reserve signaled that it was slowing down the pace of its rate hikes. A new crisis would thus leave the advanced economies fumbling for fresh monetary instruments.

The future is somewhat brighter for the emerging world, though dark clouds loom there, too. As the World Bank report emphasizes, emerging economies are increasingly strained by government debt, which has risen by 20 percentage points of GDP, on average, since 2013, with payments owed largely to private creditors demanding high interest rates.

Africa is on a promising trajectory. As the African Economic Outlook 2019 notes, the continent has had a challenging few years, with growth falling from close to 5% annually in 2010-2014 to only about 2% in 2016. Yet, last year, growth climbed back to 3.5% in 2018, and next year, it could surpass 4%, propelled by some of the world’s fastest-growing economies, such as Ethiopia and Rwanda, which are posting annual growth rates well above 7%. Nonetheless, with major players like Nigeria and South Africa punching well below their weight, Africa is not yet in a position to pick up the slack left by the ailing advanced economies.

The situation is more promising in Asia. China has played a major role over the last 30 years, but currently it is clearly in an adjustment phase, as it shifts to a higher-wage lower-growth economy. In 2018, Bangladesh, India, and Indonesia grew by an impressive 7.9%, 7.3%, and 5.2%, respectively, and the World Bank estimates that, in 2020, growth will exceed 7% in South Asia and 6% in East Asia.
But, again, there are serious challenges ahead. In India, an employment crisis is looming, rooted in the country’s focus on the big players and its failure to convert economic growth into good jobs, particularly for its educated youth.

Given this, the budget that will be presented to India’s parliament on February 1 – just months before the general election, expected to be held between April and May, – will require extremely skilled policy design that creates programs to boost demand and employment, without running up the deficit. I believe monetary policy also has a significant role at this juncture. With inflation under control, the Reserve Bank of India could help stimulate the economy with a small cut in interest rates.

In Indonesia, President Joko Widodo – commonly known as Jokowi – is facing mounting criticism for failing to achieve the 7% growth target he set when he took office in 2014. In fact, Jokowi’s target was always overly ambitious for Indonesia, an economy with a per capita income of over $10,000 (adjusted for purchasing power parity).

Still, the government has important tasks to carry out. For one, the central bank’s response to the depreciation of the rupiah – six interest-rate hikes in the last three quarters – may have been excessive, even though the currency reached a 20-year low against the US dollar last year. Moreover, there needs to be better coordination of policies across local governments, which have been competitively raising the minimum wage, undermining Indonesia’s ability to take over low-cost manufacturing from China.

Yet Jokowi – who will seek another five-year term in the April election – remains a source of hope. Illustrating his commitment to inclusivity, he is among the few political leaders in the developing world who have spoken up in favor of LGBTQ+ rights. If he is able to leverage his valuable personal qualities – which include a commitment to secularism and modesty that is becoming increasingly rare among political leaders – to push for needed structural reforms, Indonesia can achieve 6% annual GDP growth, making it a powerful driver of regional and global economic performance.

Even if some emerging economies manage to secure strong growth, however, the world economy will remain encumbered by the combination of economic interconnectedness and political balkanization. At a time when the world urgently needs to improve the coordination of monetary, fiscal, and trade policies, it has, instead, been rolling back what little coordination previously existed. This is a direct result of worsening leadership in major economies, especially the US under President Donald Trump.

It is impressive what US institutions – from the Fed and the judiciary to state governments, the media, and academia – have been attempting during these trying times. One also hopes voters globally will recognize the folly of nationalism and xenophobia in a deeply interconnected world.

If none of this happens, my advice is simple: adopt the brace position.


Copyright: Project Syndicate, 2019.
www.project-syndicate.org


 

About The Author

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A Guest Contributor is any of a number of experts who contribute articles and columns under their own respective names. They are regarded as authorities in their disciplines, and their work is usually published with limited editing only. They may also contribute to other publications. - Ed.

Following reverse listing, public can now acquire shareholding in Paratus Namibia

Promotion

20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.